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Mr. Iain Wright (Hartlepool) (Lab): I begin by declaring an interest: I am a chartered accountant and before my time in the House I was employed by one of the big four accountancy firms. I worked in the noble art of corporate governance and risk management, rather than the possibly shady dealings of tax avoidance.

I welcome the Bill enormously and sincerely hope that Conservative Members will not divide the House on it.   It continues the theme introduced by previous Governments of clamping down on tax-avoidance schemes, and it is right and proper that Governments of all political persuasions work to ensure that all businesses and employees pay the correct amount of tax   and national insurance contributions at the appropriate time.

As my right hon. Friend the Paymaster General said in her opening remarks, the Bill advances the work that was started by the Conservative Administration. The right hon. Member for Hitchin and Harpenden (Mr.   Lilley), who is not in his place, looked into the problem when he was Secretary of State for Social Security in the John Major Administration. As my hon. Friend the Member for Stoke-on-Trent, South (Mr.   Flello) mentioned, the right hon. Gentleman announced in 1995 measures designed to stop a national insurance dodge of paying employees in tradable assets. In the following year, he announced further powers to stop the latest dodge of avoiding national insurance when employees were paid in their company's own shares. The Labour Government have continued—and, indeed, accelerated—the trend, with measures such as bringing under PAYE assets readily convertible into cash in 1998, and dealing with employment-related shares in 2003.

I therefore believe that there is a political consensus on this matter, and rightly so. However, over the past 20 years the fight against avoidance has been undertaken in an environment in which the schemes, or scams, have become ever more ingenious and imaginative. The Government have been sharp in closing loopholes, but rather like a fairground game where little squirrel heads pop up at random and have to be hit with a hammer, the Government spot one scam and then another pops up somewhere else.

It is extremely lucrative for tax advisers to come up with ever-more imaginative schemes to avoid tax and national insurance, largely because the benefits—the tax and NICs saved through avoidance—far outweigh the potential risks of fines and possibly having to pay interest on the tax. Some of the inventive scams to avoid NICs are far-fetched to the point of being comical. My hon. Friend the Member for Stoke-on-Trent, South mentioned oriental carpets, and when I was researching for my speech, I discovered a City worker who had been paid a bonus of oriental carpets worth about £100,000. The carpets were held in storage and then seemed to become magical, as they never materialised and were never seen in the home.

Platinum sponges are another example. I have not done as much research on them as my hon. Friend the Member for Stoke-on-Trent, South, so I do not have a clue what they are. I do know three things, though: platinum sponges are not platinum jewellery; they are
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not sponges for washing; and, most importantly, they are in reality a scam to avoid paying rightful levels of national insurance contributions.

It seems to me that an enormous amount of energy and resources from the Government are devoted towards ensuring that a small majority of highly paid earners pay the proper amount of tax and national insurance like the rest of us. Those resources could be redeployed towards services that are of real benefit to the country, such as improving public services and tackling family poverty. That is why I welcome the moves that the Labour Government have made—further than any other Administration, in my view—in combating tax-avoidance schemes. The need for promoters of schemes to notify Her Majesty's Revenue and Customs of them is extremely welcome and long overdue. Rather than playing the squirrel game, the squirrels now have to tell the Government where and when their heads will be appearing. That may be less fun, but it is certainly a lot fairer.

Yet this Bill goes one step further. I think that its   best   feature is the power to close down and backdate avoidance arrangements, where necessary, to 2 December 2004. I strongly believe that advisers, companies and workers were given adequate notice of the Government's intentions in the 2004 pre-Budget report. Reviews in the press this week seem to suggest   that the Government's objective will be achieved. Mike   Warburton, senior tax partner at Grant Thornton, was quoted this week in Accountancy Age as saying that the Bill

Quite right.

I want to end on the central theme of why I welcome the Bill most of all. Much as I love technical accountancy jargon, the Bill is not purely about rectifying technical inconsistencies and loopholes in the tax regime. First and foremost, it is all about fairness—fairness for all those who pay income tax and national insurance contributions. Why should a privileged few—mostly in the City of London—be allowed to cheat the vast majority of hard-working taxpayers and users of public services by not paying the rightful amount? It borders on the immoral. Why should hard-working families in Hartlepool, who pay tax and national insurance contributions through the PAYE system and have no control over the manner in which they are paid, subsidise the avoidance efforts of a wealthy elite?

I hold weekly surgeries and I have to confess that no constituent has ever expressed concern that we are restricting the use of platinum sponges as a means of rewarding employment. That is what this Bill is about—fairness for all taxpayers, not favouritism for a few.

This is not a Bill that takes the food out of the mouths of hard-working families who are struggling to make ends meet. I have no doubt that the people whom the Bill will affect most are hard working, but they are, after all, paid handsomely for what they do and their remuneration is getting better. Only this week in the Financial Times, in an article entitled "Bank staff do best as City pay increases", I was informed that, before the payment of winter bonuses, directors, senior analysts, corporate financiers and fund managers have seen their basic pay rise by 9.2 per cent. since this time last year, to
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an average basic salary of £76,950—and bonuses are expected to be larger than last year, too, after a buoyant summer with lots of mergers and acquisitions. The media also reported this week that as many as 3,000 bankers and brokers will earn about £1 million each in bonuses alone after the best City performance for years.

Those figures are hardly typical of a financial sector on the bones of its backside. I do not begrudge those bonuses at all, although I should like some of the City pension fund managers who might receive them to have a word with my constituents in the Expomet and Roxby companies who face missing out on the final salary schemes that they have paid into for years. It is only right that the very small number of taxpayers involved should pay the correct amount of tax and national insurance.

I hope that I have made it clear that I strongly believe that the Bill is all about fairness. I fully support its objective, and urge the House to give it a Second Reading.

1.30 pm

Mr. Andrew Pelling (Croydon, Central) (Con): The hon. Member for Hartlepool (Mr. Wright) said that he did not begrudge the fantastic bonuses earned by people in the City of London, but he seemed unhappy at the City's success in promoting income for the UK. I find it hard to understand what he meant.

It is fair to say that for a long time there has been a great deal of invention when it comes to payment. The practice started in the late 1980s and early 1990s with the   use for payment purposes of gold bars or red wine. That was an extreme attempt to abuse the tax system, and the Paymaster General has said that the Bill is designed to deter such behaviour. It may be inevitable that such deterrence must be continually reinforced when a tax system is complicated and encourages the former colleagues of the hon. Member for Hartlepool to indulge in yet more invention.

I listened carefully to the hon. Member for Stoke-on-Trent, South (Mr. Flello), who said that he had colleagues who could find a way around any proposal within two hours of its announcement in a Budget speech. Although I approve of the Bill's proposals to bring NICs into line with the income tax avoidance regime, it is a pity that the House should have to devote so much effort to simplifying the tax system.

The complication of the tax system has been compounded by the imposition of many regulations since 1997, which has served to fuel the further growth of the tax avoidance industry. The implementation of a general anti-avoidance rule in a one-sided, broad-brush attempt to simplify matters for the Treasury is unreasonable, given that it maintains a web of bureaucracy for business.

I also listened carefully to the hon. Member for Twickenham (Dr. Cable), who asked whether the aim should be to have a correct level of taxation—as the hon. Member for Hartlepool maintained—or a fair one.
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I,   too, shall quote Edmund Troup of Simmons and Simmons, who said:

The balanced way to reduce tax avoidance is to simplify the system and cut down the number of limits and exemptions. As has been noted, the shadow Chancellor's tax reform commission is a step in the right direction. A flat taxation system would be likely to promote the payment of more tax, rather than less, and would certainly discourage avoidance.

The Paymaster General has said:

That is reasonable, but any assessment of what constitutes a fair share must be subjective when it is made in the context of a tax structure as complicated as ours. Simplifying the system would remove the motivation for tax avoidance. As my hon. Friend the Member for Cities of London and Westminster (Mr.   Field) said, it is important that we promote the role of wealth creators rather than wealth protectors.

The question of retrospection is the most important element of the Bill. It is something that the UK has always steered away from instinctively. Yet, for all the Paymaster General's reassurances, not only does the Bill allow for retrospective action, it also moves the decision away from primary legislation to regulation. In opposition, the Paymaster General said of value-added tax:

Yet a decade later—

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