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Dawn Primarolo: Conservative Members quote the Rees rules but I am not sure that they understand exactly how they are implemented. I remind them that HMRC issued a detailed technical note on the day of the pre-Budget report that made it clear that contrived and complex avoidance schemes were being closed down. Draft legislation was issued shortly afterward and comments on the technical detail were invited. The reference in the regulatory impact assessment to which the hon. Member for Christchurch (Mr. Chope) drew attention relates to the disclosure rules, not to the retrospective aspect.
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Given that we are dealing with inconsistencies, I should point out that one minute Conservative Members claim that nobody understood the meaning of the statement of 2 December 2004, yet the next they pray in aid accountants' and accountancy firms' explanations—given in December 2004—of their understanding of the statement's meaning. Let me give Conservative Members three helpful quotations from the people at PricewaterhouseCoopers, as provided by John Whiting. The first states:

So the people at PricewaterhouseCoopers know what we are dealing with. They continue by saying that they

and for

on the Floor of the House and in Committee. The third quote is probably the most important:

So the idea that people do not understand the very precise way in which the Government are approaching this issue—

Mr. Michael Fallon (Sevenoaks) (Con): Will the Paymaster General give way?

Dawn Primarolo: No, I will not, if the hon. Gentleman does not mind. He has not been here for all of this very long debate, and in the few remaining moments I want to reply to the amendments of the right hon. Member for Bromley and Chislehurst (Mr. Forth).

So the idea that people could not comprehend this measure or that they did not have sufficient details from the Government is a misunderstanding on the part of Conservative Members. The confusion, moreover, is perpetuated in the amendments, which seek to do lots of different things and contradict—[Interruption.] Yes, I suppose that it is a case of betting both ends against the middle.

Amendment No. 5 would have the effect that regulations made under the provisions in the Bill could apply only to tax measures made after the Bill had been passed. Clearly, that would undermine the deterrent effect of the statement of 2 December 2004, and put at risk national insurance yield of £95 million in 2004–05. I disagree with the hon. Member for Christchurch, as I do not think that that is an insubstantial sum. It could also put at risk all the 2005–06 yield of £240 million, as the end-of-year bonus season could escape liability for national insurance.

Amendment No. 5 would also produce an anomalous result between tax and national insurance. The Opposition spoke about human rights challenges, but the amendment would mean that people using an avoidance scheme that gets caught by any of the tax provisions having effect from 2 December 2004 would have to pay back their income tax liabilities, but not their national insurance liabilities.
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Amendments Nos. 6 and 20 would increase uncertainty. Ironically, or perhaps deliberately, they would contradict amendments Nos. 5 and 16. They would remove proposed new section 4B(5), which specifies that regulations cannot have effect before 2 December 2004. The amendment would therefore extend the scope of retrospection, and mean that there would be no limit on how far back Ministers or regulations could go. I am sure that Opposition Members would not want that.

Amendment No. 16, like amendment No. 5, would undermine the deterrent effect of the 2 December 2004 statement. As I described earlier, it would put at risk substantial amounts of revenue, as bonuses paid through the contrived schemes could escape the national insurance liability if the operative date for the regulations were 11 October 2005. That would produce another anomalous result: tax would be collected through a scheme whose purpose was considered to be avoidance, but the national insurance liability under the same scheme would not be collected. Frankly, that would be an unreasonable—to put it politely—use of legislation.

Amendment No. 19 would restrict the scope of regulations that may be made for modifying any provision of any enactment for the purposes specified in proposed new section 4C(2). That would mean that the regulations could not amend primary legislation, so that where such legislation deals with matters in 4C(2)—such as contributions, contributory benefits and pension scheme matters—it could not be amended, even where not to amend it would be to the detriment of employees. The current arrangement is to allow such amendments where that is fair to employees and ensures that they receive their entitlement as a result of a change of national insurance liability.

Amendment No. 9 is unnecessary, and frankly unwise. It would omit proposed new section 4C(5)(g), which enables regulations to be laid that will redetermine matters to the benefit of contributors. Without that provision, it is possible that increased entitlements that arise from retrospective legislation will be denied by virtue of a previous determination. That is, when people are deemed to be required to pay national insurance, that will affect their entitlement to contributory benefits. The amendment would prevent increased benefit entitlement being assigned to those individuals.

I shall deal briefly with amendment No. 18, which addresses the Bill's impact on the provision of statutory payments, such as maternity, paternity, adoption and sick pay. Retrospective regulations made under the powers in the Bill could have an effect on entitlement to those statutory payments. Eligibility for statutory payments is based in part on the employee's average weekly earnings assessed over a specified calculation period. As a result of an avoidance scheme an employee may therefore receive less than they may have been entitled to if they had paid the correct amount instead of the lower amount. The amendment would prevent the employee from receiving that additional payment.

I think that the right hon. Member for East Yorkshire (Mr. Knight) thought that the Bill prevented the restoration of those statutory payments, whereas it is the amendment that does the damage. The Bill provides for that to happen. Therefore I urge hon. Members to
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reject amendments Nos. 5, 6, 16, 19, 20 and 9. They undermine the deterrent effect of the 2 December 2004 statement, increase uncertainty for employers, are detrimental to employees and will put at risk a substantial amount of national insurance money that is due to the national insurance fund. If the amendment is put to the vote, I urge my hon. Friends to vote against it.

4.45 pm

Mr. Forth: At least we have got the Minister to come to the House and give explanations, for which we are grateful. That surely is one of the objectives of this part of our proceedings and I look forward to many more such prolonged examinations of Bills at this crucial Report stage.

Mainly because I want to give my right hon. Friend the Member for East Yorkshire (Mr. Knight) an opportunity to move the next group of amendments, I reluctantly beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7

Disclosure of Contributions Avoidance Arrangments

Mr. Greg Knight: I beg to move amendment No. 21, in page 14, line 22,leave out

'main benefit, or one of the main benefits'

and insert 'only benefit'.

Mr. Deputy Speaker (Sir Michael Lord): With this it will be convenient to discuss the following amendments:

No. 22, in page 14 , leave out lines 42 to 47.

No. 23, in page 14, line 44, after 'information' insert

'(whether or not obtained from a person entitled to practise as a barrister, solicitor or advocate within England and Wales, Scotland or Northern Ireland)'.

Mr. Knight: I will speak to amendments Nos. 21 and 23, but leave my hon. Friend the Member for Christchurch (Mr. Chope) to address his amendment No. 22.

Amendment No. 21 seeks to narrow the scope of what amounts to a notifiable contribution arrangement from the near catch-all definition on page 14 of the Bill to a more modest, but reasonable definition, so that only where the clear and main aim is avoidance would the arrangement be a notifiable contribution arrangement. I look forward to the Paymaster General telling us why the wide definition in the Bill should be employed rather than my more reasonable, narrower definition.

I should declare an interest as a qualified solicitor and, until recently, a practising one. Although I am no longer practising, I remain on the roll of solicitors. Amendment No. 23 deals with the confidentiality rule and seeks to clarify its scope by making it clear that confidential advice does not need to be obtained from a UK qualified barrister or solicitor or, in Scotland, an advocate because it is important to make the provision wider than it is in the Bill.
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There are in essence two parallel issues. One is the duty of confidentiality that covers almost all professional practitioners and the other is professional privilege, which must be argued before a court of law. All solicitors who hold a practising certificate and operate in England and Wales are required to abide by the Law Society's guide to the professional conduct of solicitors 1999. Rule 16 of that guide deals with a solicitor's general duty of confidentiality to his client. Rule 16.01 states:

There is a distinction between the duty to keep a client's affairs confidential and the concept of law, which is referred to in the Bill, known as legal professional privilege. The duty in conduct extends to all matters communicated to a solicitor by the client or on behalf of the client, with some very narrow exceptions. Legal professional privilege, however, protects communications between a client and a solicitor from being disclosed even in a court of law. Certain communications are not protected by legal professional privilege, but non-privilege communications remain subject to the solicitor's duty to keep his client's affairs confidential.

The disclosure of a client's confidences that is unauthorised by the client or by law usually leads to disciplinary proceedings against the solicitor and could leave that solicitor or barrister—it is usually a solicitor because there is no contractual basis between a client and a barrister—liable, in certain circumstances, to civil court proceedings that arise from the misuse of confidential information. So the duty of confidentiality applies to information about a client's affairs irrespective of the source of the information, and it continues despite the end of the retainer or, indeed, the client's death, when that right passes to the deceased's personal representatives.

Solicitors must be very careful. Even when a solicitor sends a postcard to acknowledge the receipt of a communication, care must be taken to ensure that no confidential information appears on it. The Law Society rightly regards the duty of confidentiality as fundamental to the relationship of the solicitor and the client. It exists both as an obligation in law, having regard to the nature of the contract, and as a matter of professional conduct. All the information discovered by a solicitor in the course of his retainer is confidential. Whether the information is also subject to privilege is a separate legal issue, about which I shall go into detail in a moment.

The circumstances in which confidentiality can be overridden are rare indeed. A solicitor who volunteers confidential information must be prepared to show    powerful justification for breaching such confidentiality. Although it is clear that the solicitor owes that duty to the client, there are certain exceptional circumstances that override the duty. For example, a solicitor can reveal confidential information to the extent that he believes that it is necessary to prevent his client or a third party from committing a criminal act that the solicitor has reasonable grounds to believe is likely to result in serious bodily harm.

The Law Society's rule 16.02 sets out the circumstances in which the duty of confidentiality can be overridden. I shall not go into all of them, but the duty
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does not apply, for example, to information acquired by a solicitor, when the solicitor himself is being used by the client to facilitate the commission of a crime or fraud, because pursuing a crime or fraud is not within the scope of a professional retainer. If the solicitor becomes suspicious about a client's activities, he can normally assess the situation in the light of what the client has to say about it and the solicitor's own professional judgment and behave accordingly. Of course, in certain circumstances, the client himself may give express consent to the passing on of confidential information. In those circumstances, of course, the rule does not apply.

Occasionally, a solicitor is asked by the police or a third party such as the Inland Revenue—so this is relevant to the Bill—to give information or to show documents that the solicitor has obtained when acting for a client. Unless the client is prepared to waive confidentiality or the solicitor has evidence that a crime is taking place, the Law Society advises lawyers to insist on receiving a summons, usually a witness summons, or a subpoena, so that when those circumstances arise the lawyer can claim privilege before the court and ask the court to decide the issue.

The Inland Revenue asks solicitors to disclose documents and information on numerous occasions. In such circumstances, it is pretty clear that solicitors are protected. However, the Bill does not make it clear what will happen if a client employs someone who is a solicitor in France, Spain, or any of our EU partner countries, rather than a solicitor who is qualified under English law. The Law Society's international unit is clear about the matter because it has published guidance that states that overseas lawyers who operate in England and Wales, or who have offices and provide legal services in England and Wales, are expected to observe the same standards as UK-based solicitors. The rules of conduct cover such an eventuality, but I am not sure whether the Bill does. Could the Inland Revenue argue that, because a person under investigation had employed an overseas lawyer, that lawyer should not have the right to claim privilege on behalf of his client? I hope that the Minister agrees that privilege and the right to claim it should remain in such circumstances.

Accountants are under a professional duty in a similar way to solicitors. They have been issued with guidance informing them that they should not disclose information to third parties.

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