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Dawn Primarolo: I shall respond to the points made by the hon. Gentleman. He spoke about uncertainty and retrospection, the question of redeemable shares for commercial purposes and of restricted securities. It is interesting when listening to such debates to find out what Members are really talking about. With respect, the hon. Gentleman was talking about his fears, but they have nothing to do with the schedule and its clearly articulated intended results.
At the heart of the debate is the question whether taxpayers are fully knowledgeable about the schemes that they enter into and aware of what their purpose is. I shall deal first with the question of uncertainty and the purpose test. To those who say that the purpose test introduced uncertainty, I must tell them that the reverse is the case. I do not know how we can make it clearer, whether in statements to Parliament, during the Committee stage of a Finance Bill or in legislation, that those who enter into such contrived schemes know exactly what they are doing. They intend to avoid income tax and national insurance on employment rewards.
The hon. Gentleman brings other issues into the debate—about how businesses function and about rewarding employees—but they are not relevant, and it is important to strip the argument back to the pertinent facts. Those who comply with their tax obligations will expect to pay the proper amount of income tax and national insurance on their employment rewards. On that subject, people can find certainty by reading the statement that I made at the pre-Budget report and considering it in the context in which it was made—which is that successive Governments over a considerable time have had to legislate in order to deal with the avoidance of income tax and national insurance on remuneration. At every point, when one scheme closes another opens. In the intervening period, the honest taxpayer who has discharged his obligations loses because such revenue is not collected.
I have made it clear that the Government are determined to ensure that all employers and employees will pay the proper amount of tax and national insurance on the rewards of employment. I have said
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that it is only right that everyone who should pay tax and national insurance does so, and that they should pay their fair share when it is due. The Exchequer is entitled to certainty on behalf of the taxpayer—certainty that taxpayers will pay their fair share—and, similarly, taxpayers who contribute their fair share have a right to expect others to do so. That is the central point of the schedule.
On the question of retrospection, it is the practice of the Government, as it was of the previous Government—it is standard practice—to make anti-avoidance legislation effective from the day it is announced. The hon. Gentleman is wrong: the Government are not imposing a tax charge that could not have been anticipated by those affected. As I said in the statement that I made alongside the pre-Budget report on 2 December 2004, our objective is permanently to close those intricate arrangements that are designed to avoid income tax and national insurance on the rewards from employment. Those who make future attempts to frustrate this intention despite those warnings will now be well aware that legislation will be introduced to combat such avoidance.
The hon. Gentleman asked about income tax and national insurance liability with regard to redeemable shares for commercial purposes and when the change in the treatment of restricted securities will apply. Liability to income tax and national insurance will not arise unexpectedly even if a redeemable security has been acquired before 2 December 2004. If further value is passed to the employee on or after that date—for example, when a restriction is lifted—I see no reason why tax and national insurance would be unexpected, given the statement and the specific technical and draft clauses made available at that date.
It is difficult when theoretical examples are given. My officials have not been able to find a case in which redeemable shares were used for a commercial reason and in which tax liability would have been wrong or unexpected if a later event passed value to an employee. On the other hand, my officials have evidence that redeemable shares were being used for avoidance schemes in which the initial value was artificially depressed and a later increase in value was claimed outside the legislation. I am sure that no Committee member would want to let what is, in reality, employment remuneration arising on or after 2 December 2004 escape taxation, and we do not intend to do that.
The many difficulties that the hon. Gentleman raised and suggested that others had raised with him about redeemable securities seem more academic than real. My officials have requested the production of examples of commercial damage, but none has yet been forthcoming. The department has clearly informed them on that.
Taken together, the group of amendments would considerably weaken the anti-avoidance provisions. The hon. Gentleman has got the message that I am determined that schedule 2 and the arrangements should be in place. The amendments appear to stem,
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as the hon. Gentleman said, from concerns that employees who acquired securities before 2 December 2004 as part of an avoidance scheme will not have provided for the tax and national insurance that the provisions now impose. I have covered that point.
Amendment No. 4 reflects that misplaced concern by excluding redeemable shares and securities, used in avoidance schemes, acquired before 2 December 2004. As I have just demonstrated to the hon. Gentleman with examples and background, there is no real concern to be raised on the issue. If avoiders choose to carry out the arrangements that he suggests, I think it proportionate and fair that there should be a liability to income tax and national insurance. Those affected by the change will know exactly where they stand, because of the technical note as well as the statement.
Schemes disclosed to officials were manipulating the rules that govern certain disposals of securities. By removing the anti-avoidance purpose tests to be applied to the disposals, amendment No. 5 opens the door to avoiders again. New section 431B ensures that securities used for avoidance cannot benefit from a reduced or deferred charge by imposing a full tax and national insurance charge when the employee acquires securities. By removing new section 431B, amendment No. 6 would allow the avoider to profit unfairly from the avoidance.
Amendment No. 7 appears intended to limit a charge on acquisition when there is avoidance by introducing an advance clearance procedure to be operated by HMRC. I see no reason for the amendment. It is fundamentally flawed because amendment No. 6 would have removed the upfront charge to which amendment No. 7 would relate, and because it would allow either party to a transaction to seek and obtain clearance without the knowledge or consent of the other.
My pre-Budget report statement made it clear where the line is drawn. Employers and employees using share remuneration schemes should expect to pay income tax and national insurance on the full value of the employment reward at the time it passes to the employee. Those who do so have nothing to fear from these changes and should have no need for a clearance procedure. What the hon. Gentleman is asking for is a clearance procedure, regrettably, for those who are trying to get round the legislation. I say as gently as I can that I am not about to concede that point.
I that the hon. Gentleman will want to reflect on my comments. He can return to the issue at a later stage, but at this stage it might be wise for him to withdraw his amendments. If he chooses not to do so, however, I ask my hon. Friends to vote against them.
The Chairman: I do not know whether you are going to respond to those blandishments, Mr. Field.
Mr. Field: I naturally respond to blandishments from both sides of the Committee, Sir Nicholas. I am glad that I am being treated gently. Perhaps I will be treated more roughly later on—here is hoping.
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We do not support anyone who does not wish to comply with their tax obligations. It is felt that the clearance scheme would be made redundant if we all knew that there was an entirely level playing field. Clearly, companies will employ securities experts for to discover exactly where the edge of the law is, and whether their scheme is within or outside it.
The nature of this debate—and perhaps I have been as guilty as the Paymaster General—has almost been of two parallel lines, one of which suggests that Conservative Members are in favour of every investment bank ensuring that it can minimise tax for its employees. That is not the case. We have to recognise that these issues are not black and white. There are shades of grey, which we must debate as far as we can.
I am sure that the Paymaster General did not intend to suggest that employee benefits advisers try to buck the system and ensure that less tax is paid. Inevitably, there will be structuring of transactions, particularly transactions with an international element. Tax-efficient vehicles will inevitably be created for such transactions.
We are still concerned about the lack of certainty, and I fear that the Paymaster General has not satisfied us about retrospection. The mere announcement of a policy will not be enough. We have tried powerfully to make the case that certain categories of employees might lose out because of backdating. I accept that every announcement and every Budget will lead to more pressure being brought to bear to try to find schemes that avoid tax and are structured in such a way that income is seen to be subject to capital gains rather than employment taxes.
We are now four hours or so into the consideration of the Bill. The time has probably come when we should put some of these matters of principle to the vote. I therefore ask that we do so in relation to amendments Nos. 4, 5, 6 and 7.
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