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The point that I was about to make is that the changes are welcome, but the concern is that the price changes will not have any impact on the behaviour of some people living in rural areas, because there are no public transport alternatives for them. That holds true for the vehicle excise duty rises, as well as for increases in fuel duty. We made proposals last year to try to flag up that issue, and considered a discount for the first vehicle registered by a household in isolated rural areas. I draw the Minister’s attention to other options that the Treasury might consider that have been used in other areas where the issue has been recognised, and where people have sought to ameliorate it so that people for whom price will not make a difference do not suffer disproportionately.
There is an EU derogation, which I understand is used in France, that assists isolated rural areas, and I understand that in Australia there are reliefs, as regards rural fuel stations, for drivers who are registered in an isolated rural area. That deals with the issue that my hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Danny Alexander) raised last year; he said that in remote areas such as the highlands, fuel prices are much higher, just because of transport costs. There are alternatives elsewhere in the world that I hope the Minister will consider.
The environmental proposals in the Budget get one cheer, rather than three, not least because, to turn to the issue of stamp duty land tax for zero-carbon homes, which has already been raised, there are many other things that could be done to help to try to improve the efficiency of the many thousands of houses that will be built in forthcoming years. That issue was raised in debate on the Local Planning Authorities (Energy and Energy Efficiency) Bill, a private Member’s Bill introduced by a Labour Back Bencher, the hon. Member for Gower (Mr. Caton). The Bill sought to give more flexibility to local authorities to allow them to set higher environmental standards for new properties, but it was talked out by the Government, so there is an issue about the amount of cross-departmental co-operation that takes place to allow improvement to important environmental measures.
Obviously, one of the key environmental measures in this year’s Budget and this year’s Finance Bill are the changes to air passenger duty. The changes were introduced without the House having the opportunity to debate or vote on them. We should combine that with the fact that many thousands of passengers had bought their tickets before the changes were introduced on 1 February; there are a lot of disgruntled people out there who see that kind of tax change as a means of raising money. It has done nothing but make people more cynical about any other tax proposals that the Government make to reduce emissions.
I note that the Treasury Committee’s report on the pre-Budget report, in which the changes were announced, said:
“As a general rule, we consider that, where increases in rates of duties or taxes are proposed in the Pre-Budget Report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget.”
The Treasury Committee went on to say:
“We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in Air Passenger Duty, for which the Treasury has not cited any relevant precedents.”
I invite the Minister to cite any relevant precedents on the Floor of the House today, and to explain why the time scale that was used was adopted. That is important, because we are talking about credibility, public confidence about whether such measures are being taken for the right reasons, and ensuring an opportunity for debate.
One of the other frustrations about the increases in air passenger duty is that they bear no relation to how busy the flight is, to the aeroplane’s emissions or to its fuel-efficiency. We must therefore question what impact they can have on changing behaviour.
As an alternative, the Conservatives have suggested giving everybody an allowance for one long-distance flight a year, and possibly a limited number of short-haul flights, but that would create another database of everyone’s movements and be impossible to monitor. Nevertheless, there are alternatives that the Government could and should investigate. Although they can be set out in more detail in Committee, it would be interesting to know at this stage whether the Government have considered applying to aviation principles similar to those that apply to vehicle excise duty, taking account of different sizes of planes, their differing emissions and their destinations. Such an approach would be useful in preparing for permit trading for aviation emissions—assuming that the Government are committed to that principle in the long term—because it would have to relate to how full flights are, the efficiency of aeroplanes, and the distances they are travelling.
Rob Marris: The system that the hon. Lady proposes sounds awfully complicated. Referring to her earlier remarks, would she, in true Liberal Democrat style, further complicate it by having a lower aircraft movement excise duty for aeroplanes flying into rural areas such as Truro or the Outer Hebrides?
Julia Goldsworthy: I was not going to raise that, but there is an issue about the accessibility of rural areas. Of course, there has to be that balance. Given that vehicle excise duty takes account of the emissions of different vehicles, why is it more complicated to extend that principle to aviation? That is a common-sense approach. If we are serious about tackling emissions in one of the areas where they are growing fastest, we must think about taking painful decisions.
The general theme of this year’s Finance Bill is that there is not much of a strategic approach. The primary motivation for the issues we have discussed so far has been to grab headlines, which leads to unintended consequences. There is more than meets the eye to the so-called simplification measures. Once again, we are seeing an incremental build-up on previous legislation, changing it slightly and then changing it slightly again, often with little consultation with industry—or if there is consultation, actively ignoring the comments that come back from it. The Government can be seen to be building up trouble for themselves on a whole series of issues. Thankfully for my biceps, this year’s Finance Bill is considerably shorter than last year’s and I have
fewer volumes to try to carry around with me. Perhaps that is a recognition that last year’s Bill went too far. However, there are still plenty of clauses that build on previous legislation—although I accept that that may be necessary in some cases.
To echo the hon. Member for Newcastle upon Tyne, North, what is the Finance Bill actually for? Should it deal with our tax and spending policy in strategically changing the balance of taxation, or is it an annual opportunity to include any tinkering by the Treasury and representations that might have been made to it? Unfortunately, it is sometimes the latter, and provisions are included whereby if the Treasury had taken a step or two back, and a more strategic approach, there would not be these endless changes. A classic example has been that of anti-avoidance legislation, which in this Bill comprises 10 clauses and four schedules.
Rob Marris: The hon. Lady gets my brass neck of the day award. Three minutes ago, she suggested a very complicated vehicle excise duty scheme with exemptions for registered users in rural areas. She moved on, barely pausing for breath, to suggest a very complicated parallel aircraft vehicle excise duty, but possibly with exceptions for rural flights to the Isles of Scilly and so on. Now she has moved on to claim that the Government are responsible for all kinds of complicated tax measures that she decries the complications thereof. I congratulate her.
Julia Goldsworthy: I assume that the hon. Gentleman believes that the current banding of vehicle excise duty is too complicated and that he would like it to be simplified, regardless of its negative environmental impact. If he takes that as understood, I do not understand why it cannot be read across.
Rob Marris: Will the hon. Lady give way?
Julia Goldsworthy: I want to try to make some progress, if the hon. Gentleman does not mind.
The anti-avoidance provisions in last year’s and this year’s Finance Bill constitute a cat-and-mouse game whereby the Government try to close a loophole and another one opens that requires subsequent revisions in other Finance Bills. No sooner does one loophole close than another opens and the process starts again. It is endless. That adds weight to the argument that we should get rid of swathes of legislation and provide for a general anti-avoidance rule. Such a rule has already been successfully rolled out in Australia.
When I consulted some professional bodies before the Second Reading debate, they said that they opposed a general anti-avoidance rule. I was interested in the reasons for their objection and I asked them to explain why they would be unhappy about such a rule. They said that they had no confidence that a general anti-avoidance rule would not be introduced on top of all the current anti-avoidance legislation. If the Government made a clear commitment to get rid of swathes of legislation and introduce a system that has been effective elsewhere, it would remove a few pages from “Tolley’s Tax Guide” and help restore confidence.
Clause 25, which deals with managed service companies, is a case in point. It attempts to deal with a genuine problem. The Government believe that many people avoid paying the right amount of income tax and national insurance by providing their services through a managed service company and being paid through dividends rather than a salary. As a result of the changes for which the Bill provides, managed service companies will, among other things, have to operate PAYE, deducting income tax and national insurance contributions on all payments, regardless of whether the individual receives a salary or dividend.
We accept that abuse is occurring and needs to be tackled, but I should like to flag up some of the implications of clause 25. First, do the changes deal with the underlying problem of why people choose to operate through managed service companies? There is no balance between the taxation systems for the employed and the self-employed. Instead of directly dealing with that, the Government are basically saying that anyone who operates through a managed service company will continue to bear the risk of being self-employed but enjoy none of the benefits. That problem has not been resolved.
The other problem is that even flagging up issues and stating an intention to legislate has again encouraged behavioural changes with which HMRC will struggle. In response to consultation, the Institute of Chartered Accountants said that it had seen correspondence from managed service companies to their customers that already offers an alternative service. It involves setting up each individual in a personal service company, of which the individual is the sole shareholder or director. Customers are then asked to self-certify whether they are within the rules of IR35. Many of those individuals cannot realistically know that.
The Institute of Chartered Accountants continues:
“We have had confirmation from Companies House that there were 56,218 new companies registered in February 2007, while a more usual monthly figure would be approximately 28,000.”
The figure has therefore nearly doubled. The institute goes on:
“In one week alone, there were 20,000 new companies registered. Our initial conclusion is that the proposed new rules may not work and may cause more problems than they solve.”
That will ultimately cause more problems for HMRC, which is cutting front-line staff at a point when there could be a massive explosion in the number of individuals who register themselves as personal service companies and therefore need closer attention from local HMRC officers. How will HMRC manage the additional burden of ensuring that all the PSCs are compliant? We are seeing more legislation with unintended consequences, which could ultimately occupy all HMRC resources.
Equally frustrating is the way in which the consultation was undertaken. In many cases, as confirmed by my experience of last year’s Finance Bill, proposals are rushed through in order to fit in with the annual Finance Bill timetable without due consideration being given to professional opinions and concerns. The classic example last year was the inheritance tax treatment of trusts, which was launched on an unsuspecting industry and public without any consultation and then went through several iterations in Committee with significant changes being made to
both the clauses and the schedules. Although we do not have anything on that scale this year, there are signs of a similar approach.
I have already talked about air passenger duty and how it was introduced. My point also applies to clauses intended to expand the powers of HMRC in clauses 81 to 86. Even though there was a consultation process in January, in which concerns were raised about taking on arrest powers, the Treasury response was to concede that there was a need for guidance, but to state:
“This will be published as soon as possible and before any changes come into force.”
My understanding is that the guidance has not yet been published. Will we see it before next week when these issues are debated on the Floor of the House? It would certainly help to inform our debate. If it is not going to be available, I find it very worrying. I hope that the Minister will be able to confirm that the guidance will be available before next week.
Concerns have also been raised about clarity and about how widely drafted the provisions are. Once again, the issue has been dismissed and we are told that the clarification will come through guidance. It is a cavalier approach. Ultimately, any legal action taken in future will be based on the law as it stands, not on the guidance, which can be subject to change without consultation or even without any reference to Parliament. Those concerns are depressingly familiar, as we have seen them in relation to previous Finance Bills. Key questions about process are raised. Surely the position could be improved by better pre-legislative consultation and scrutiny, so that we could have an open and public debate with professional bodies about the strategic approach of our tax system.
It might also help if we had a full Finance Bill only once every two years, perhaps with a beefed-up Budget resolution in between. In that way, we could get back to the strategic perspective of what the tax system is supposed to achieve. It would then no longer be a vehicle just for tinkering on a minute level.
The Paymaster General (Dawn Primarolo): On that point, the idea that there should be a Finance Bill every two years is not a new proposition. Will the hon. Lady explain how she would deal with the catastrophic loss—or potentially catastrophic loss—of revenue on account of avoidance if the House presided over a two-year Budget?
Julia Goldsworthy: Not every single clause in the Bill deals with those issues, which could be dealt with through a beefed-up Budget resolution process— [Interruption.]
Dawn Primarolo: The point I was making to the hon. Lady was that there is a difference between policy and technical amendment. She previously complained about anti-avoidance policy being too long, so will she explain how that matter could be dealt with just through Budget resolutions without discussion by the House?
Julia Goldsworthy:
Let me offer an alternative that the right hon. Lady might find more palatable. If Treasury Ministers are not prepared to adopt such a radical approach, I suggest that the Finance Bill be
included in an approach to legislation for which there is already a precedent. I sat on the Committee considering the Statistics and Registration Service Bill earlier this year. It was one of the first Bills in respect of which we had the option of taking evidence in public before the Committee stage. I understand that the enabling primary legislation specifically excluded the Finance Bill, but in my opinion the Finance Bill would be one of the best possible candidates for inclusion in the process. There are some very technical issues, but the experts dealing with them end up being mediated through hon. Members on both sides of the House. If we had the opportunity for proper pre-legislative scrutiny and for expert bodies to be able to provide evidence on the record, I believe that it would significantly facilitate the process. I hope that the Paymaster General will give serious consideration to that.
Rob Marris: Will the hon. Lady give way?
Julia Goldsworthy: I am just about to conclude my speech, so if the hon. Gentleman does not mind, I will not.
The key test for the Finance Bill is to ask to what extent it makes the tax system simpler, fairer or greener. In none of those areas do we sense an appetite for consistent strategic action through the Bill. On a superficial level, some things are simpler, in that the Bill removes income tax bands, aligns income tax with national insurance and cuts corporation tax, but there is also plenty of complication, despite opportunities for simplification such as those relating to the general anti-avoidance rule. Even when the Bill gains in simplicity, it loses out in fairness. Individuals on low earnings will now be hit with a tax increase, small businesses will feel the impact of some of the proposed changes, and nothing has been done to address the wealth inequalities that have grown under the Labour Government.
In green terms, we have seen welcome but limited changes to vehicle excise duty, and arbitrary and very limited changes to air passenger duty. I suppose that the Bill is slightly green around the edges, but there is no clear indication that it will have a significant impact on behaviour, or that those revenues will be spent on cutting taxes elsewhere to make the system fairer. Again, that leaves the public feeling cynical. It is because the Bill is inadequate in all those important areas, and because of the technical concerns that we have raised earlier, that we are so desperately disappointed with this year’s Finance Bill.
5.41 pm
Rob Marris (Wolverhampton, South-West) (Lab): I should like to clarify one or two points raised by the hon. Member for Falmouth and Camborne (Julia Goldsworthy). She asked me earlier about vehicle excise duty, and made a completely unwarranted assumption, which shows how short her memory is. It was I who tabled an amendment to last year’s Finance Bill proposing a £2,000 level of vehicle excise duty on the most polluting vehicles, for new vehicles. So why she should assume from my straightforward question in an intervention today that I was against banding is completely beyond me.
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