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it is arguable that these examples do not provide a precedent that captures all the aspects of the rise in APD rates.
During that debate and in a previous letter to the shadow Chief Secretary the Financial Secretary set out a series of further claimed precedentsthe 2002 Budget decisions in relation to income tax rates, and another similar change made to the taxation of North sea oil, the petroleum revenue changes made in 1978 and confirmed in 1979. He was unable to explain why all these claimed precedents were not originally given to the Select Committee. He was also unable to explain why they were being dribbled out in this gradual way, rather than being offered all at once in a coherent whole.
I suspect that the explanation is that the Treasury has been forced to scrape the bottom of the barrel for these precedents, and my suspicion is given at least some backing by the Library, which is no more impressed by the new set of precedents than it was by the old ones. Having been consulted, it repeats:
It remains the case that none of these examples provide a precedent that appears to capture all the aspects of the rise in APD rates.
The readiness to reach for retrospection in relation to APD, the failure to offer precedents to the Select Committee and then to discover them afterwards, and the insubstantial nature of the precedents, all considered together, send a dangerous signal to taxpayers, consumers, businesses and tax practitioners. If the Government are prepared to legislate retrospectively and unprecedentedly once, and in doing so, drawing a rebuke from the Select Committee, what is to prevent them from using this unprecedented APD rise as a further precedent in the future? It is in order to prevent them from doing so again that we have tabled the new clause. In the Committee of the whole House, I said:
We intend to table a new clause at a later stage which will prevent the Chancellors successor from behaving in the same way in relation to APD.[ Official Report, 1 May 2007; Vol. 459, c. 1435.]
The amendments tabled by my hon. Friend the Member for Christchurch, together with his new clause 7, seek to remove any remaining element of doubt. I shall explain to him shortly why we look sympathetically at his proposed amendments (a) and (c) to new clause 2 and at new clause 7. I shall also explain shortly why we have some reservations about his amendment (b).
Before I do so, however, let me explain the basis of new clause 2. In drawing it up, we have attempted to find a basis for legislating in relation to retrospection that will command a consensus in the House. Let me make it clear that we are not against retrospective taxation per se on all occasions. It is reasonable to tax retrospectively in order to tackle a new tax avoidance scheme that threatens a significant loss of tax revenue, for example, or to restore the law in relation to some particular aspect of taxation to what it was believed to be until a court decided otherwise.
Where it is discovered that the tax law does not have the effect that the Government and taxpayers generally thought it had, there are circumstances in which it is right to introduce legislation to restore the position retrospectively to what it was thought to be. This is done only in exceptional circumstances and where the Government consider such action is necessary to protect the interests of the general body of taxpayers.[ Official Report, 29 June 1992; Vol. 210, c. 378-79W.]
The conventions that govern the use of retrospection in relation to tax avoidance were set out in the so-called Rees rules, named after our former colleague Peter Rees, now Baron Rees of GoytreI hope that I am pronouncing that correctlyin 1978. In 2004, the Paymaster General made a statement of the Governments view that is broadly similar to what I shall name, after my right hon. Friend the Member for Charnwood, the Dorrell doctrine. At present, the Government are entitled to collect new taxes prior to receiving full legislative authority from the passage of a Finance Act under the Provisional Collection of Taxes Act 1968. The trigger, so to speak, for the retrospective APD risethe cause of this debatewas the passing of the Budget resolutions announced on Budget day.
Under new clause 2, any Minister introducing a Bill that contains retrospective taxation, such as the
Finance Bill before us, would be obliged by law to state that such retrospective taxation was, in effect, consistent with the Dorrell doctrine set out under the previous Conservative Government and echoed in the Paymaster Generals 2004 statement. If the new clause were on the statute book now, the Financial Secretary would have been compelled during the debate on 1 May to concede that the retrospective elements of the APD rise contained in this years Finance Bill were utterly inconsistent with the Dorrell doctrine and bad practice, since even the Government have not attempted to claim that the APD rise was necessary to prevent tax avoidance by passengers or airlines or to restore the law to what it was previously believed to be. I believe that the Financial Secretary would not have endured the embarrassment and difficulty of so doing, and that the new clause is a strong deterrent to bad retrospective legislation.
As I said, the amendments tabled by my hon. Friend the Member for Christchurch and his new clause 7 seek to remove all possible doubt. His amendments would bar Ministers from proceeding with retrospective tax rises that they declare inconsistent with the Dorrell doctrine. As my hon. Friend knows, we considered tabling a new clause identical to new clause 7 that would have had the same broad effect as his amendments. We decided not to do so for a single reason: the Financial Secretary should have the opportunity this afternoon, we hope in the course of accepting the new clause, to persuade the House that there are some categories of retrospective legislation that are incompatible with the Dorrell doctrine, but that it would none the less be right for the House to be able to consider in the future. My hon. Friends amendments and new clause would have the effect of barring the House from considering any such retrospective legislation in future. However, I have to say to him and to the House that I very much doubt whether such categories exist and whether the Minister can make such a case. As I have said, that is why we are sympathetic towards amendments (a) and (c) and new clause 7. If new clause 2 is passed, we will accept amendments (a) and (c), unless the Financial Secretary can persuade us otherwise. If, having accepted amendments (a) and (c), new clause 2 is none the less unsuccessful when put to a vote, I will advise my right hon. and hon. Friends to vote for new clause 7.
We have some reservations about amendment (b). New clause 2(1)(b) would permit a Minister to introduce a retrospective tax measure as good practice that would either close a significant new tax-avoidance loophole or restore the law to what it was previously believed to be. New clause 7 maintains that either/or principle. However, amendment (b) takes a different view. Taken with the other amendments, it would permit a Minister to introduce a retrospective tax measure only if it both closed a significant new tax-avoidance loophole and restored the law to what it was previously believed to be. In other words, a Minister would not be able to introduce a retrospective tax measure to close a significant new tax loophole unless they were also restoring the law to what it was previously believed to be and vice versa. According to the Library, the last Conservative Government legislated retrospectively to restore the law to what it
was previously believed to be in two casessection 62 of the Finance Act 1987 and section 116 of the Finance Act 1989. I have been advised that had amendment (b) been in force, the last Conservative Government might not have been able to act in that way.
In conclusion, it seems reasonable for the Government to retain the power to close significant new tax-avoidance schemes immediately, subject to the Rees rules, but I will listen closely to my hon. Friend the Member for Christchurch.
Helen Goodman (Bishop Auckland) (Lab): I am particularly pleased to discuss new clause 2, because I spoke in the debate about air passenger duty on 1 May. Unfortunately, I was not a member of the Committee that considered this years Finance BillI do not know whether I should call it a Public Bill Committee or a Standing Committee.
The hon. Member for Wycombe (Mr. Goodman) has made a speech that is characteristic of his virtues he displayed diligence, thoroughness, hard work, persistence and civilitybut he is absolutely wrong for all the reasons that my hon. Friend the Financial Secretary will explain shortly.
I am sympathetic to the principle behind new clause 2. It is important to have openness and honesty about retrospective taxation and, in fact, any changes in the tax system. I was reassured by the comment of the hon. Member for Wycombe (Mr. Goodman) that the objective of the new clause is not to remove at a stroke all retrospective taxes, but to state as a principle that there should be an effort to ensure that such taxes are introduced for all the right reasons.
I am sure that the hon. Member for Bishop Auckland (Helen Goodman) remembers that both this year and last year the Finance Bill included some retrospective taxes, which it was necessary to introduce without consultation because of significant abuses of the taxation system and loopholes that needed to be closed. On that basis, such measures are entirely necessary. However, there are examplesair passenger duty is not the only onewhere it is not clear whether a loophole needed to be closed or that avoidance was taking place. On air passenger duty, people who paid for their tickets before the changes were introduced found out that there was an additional charge only when they arrived to catch their flights. It would have made much more sense to examine whether the measure fulfilled the criteria before its implementation.
Retrospection might cause problems for taxpayers in two other areas, which might need to be looked at more widely, and where greater openness might be preferable. The first concerns the agricultural buildings allowance, which was dealt with in this years Finance Bill, changes to which will have an impact on investment decisions that were made anything up to 24 years previously. In theory that affects only taxation going forward, but it will have an effect on decisions that people made many years previously with regard to buildings that it is not easy to dispose of if the tax liability represents a significant problem to the businesses involved. I hope that the Minister will be
able to assure us that there is at least agreement in principle that clarity on such issues would be welcome.
The second area where there are concerns about people being caught by changes to the taxation system as a result of a lack of awareness arises from changes in last years Finance Bill to the inheritance tax treatment of trusts to which people had signed up. To this day, many people may not realise that they have been caught by some of those changes.
Mr. Christopher Chope (Christchurch) (Con): I thank my hon. Friend the Member for Wycombe (Mr. Goodman) for his open and transparent discussion of these issues with me over many weeks. When I first raised the matter in the Budget debate I found myself in a minority of Conservative Members voting against air passenger duty. However, I overheard one of my colleagues saying, Since when has it been Conservative party policy not to vote against retrospective legislation? That voice, which seemed at one stage to be unheeded, has now been heeded, and I am grateful to my hon. Friends on the Front Bench for making that clear by moving new clause 2.
My amendments to new clause 2 and my new clause 7 go a little further, but the effect is that my hon. Friend and I have launched a pincer-movement on the Government. If the Minister can come up with some categories that are not consistent with the Dorrell doctrine beyond those set out in subsection (7) (i) and (ii), he will be able to use that argument against supporting my new clause, but if he does not do so, the way will be open for the House to support new clause 7.
I put my amendments and new clause in an alternative form, and I am sorry that my hon. Friend has a little trouble with my amendment (b). I thought that if the word either was removed and we could then get rid of the word or, it would be better English. However, I take my hon. Friends point that by removing the word of as well from line three, that would have the effect of suggesting that both the relevant principles would have to be satisfied rather than just one.
The only point that I can make to counter that is to say that if at some stage in the future the Government came up with extra relevant principles of good practice, it would be possible to amend subsection (7) by adding extra relevant principles, but it would not be so easy to do that if we had the words either of, because that suggests that there can only ever be two principles. However, I do not want to go to the wall on that, and I am happy to accept what my hon. Friend says on amendments (a) and (c) and on new clause 7.
This episode has caused an enormous amount of angst among the travelling public and among well-established and successful businesses. For the sake of just over £100 million, the Government were prepared to tear up the conventions relating to retrospective taxation and to introduce a retrospective increase in air passenger duty that has caused an administrative
nightmare and that was wrong in principle. Many passengers felt aggrieved that, although they had paid their fees to the airline, when they got to the airport, or perhaps before that, they had to pay an extra tax, because the tax had been increased between their making their booking and taking their flight.
Julia Goldsworthy: Does the hon. Gentleman agree that it is particularly unfortunate that this whole problem has flared up over a green tax? The public are naturally cynical about the Chancellors motives, and they wonder whether the revenue will be used to fund cuts in taxation elsewhere or whether this is just a cynical ploy to raise more revenue for the Treasury.
Mr. Chope: The hon. Lady is absolutely right. No one is more cynical about green taxes than I am. Even if we accept the argument in favour of green taxation, I have yet to be convinced that air passenger duty is an effective green tax.
James Duddridge (Rochford and Southend, East) (Con): My hon. Friend knows that we have slightly different views on environmental taxes, but has he noted that the Financial Secretary told the Treasury Select Committee that the principal purpose of the air passenger duty was to increase revenue? This has never been about green taxation.
Mr. Chope: I accept that the Government made that admission. It was a candid admission, and my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) made the same admission when he first introduced air passenger duty. He said, Were short of money in the Exchequer. We need to find some new taxes. The Government of whom he was Chancellor of the Exchequer were famed for introducing new taxes. In the end, that resulted in the problems that our party encountered when it had to face the people in the 1997 general election. That is part of history, but my right hon. and learned Friend was certainly candid about air passenger duty being a revenue-raising tax, and I believe that the Financial Secretary has accepted as much. It has been suggested that it is not a revenue-raising tax but a tax designed to alter behaviour, but how can we alter behaviour when that behaviour has already occurred? It is nonsense to make a green tax retrospective, because the behaviour has already occurred. Unless people withdrew their decision to take a holiday with their children or to embark on a flight for some other reason, the retrospective element of the environmental tax would mean that it had no impact whatever.
The hon. Member for Bishop Auckland (Helen Goodman) made a short but pithy contribution. It was one of the most effective bids that I have ever heard for preferment in a forthcoming reshuffle. When I had a junior ministerial role, there was nothing that the Prime Minister and other Cabinet Ministers wanted more than a Minister who would accept that what they said was absolutely the bees knees and that there was no reason to argue with it. If the hon. Lady does not gain a ministerial post straight off, perhaps she will be given a position in the Whips Office. She would be well
Mr. Chope: The point of introducing the hon. Ladys argument was that I have heard the Minister speak on this subject many times in the past, and I have yet to be convinced by what he has said. The hon. Lady has obviously read the different speech that he is going to make in response to this debate.
In essence, we have caught the Minister in a pincer movement. If he accepts that principles should be attached to retrospective legislation, and that those should be enacted in statute for the protection of the public and to introduce certainty, the two categories set out in the new clause tabled by my hon. Friend the Member for Wycombe make that clear. If the Minister thinks that an extra category should be included, let him say so. The problem with new clause 2 is that it is only declaratoryit would be possible for the Minister to make a certificate that a piece of legislation would be retrospective, notwithstanding those two principles. My alternative new clause would prohibit the introduction of retrospective legislation that did not comply with those two principles.
Whichever way the Minister argues, we will get him. I am grateful to my hon. Friend the Member for Wycombethe work that we have done together augurs well for the work that we will continue to do together when we get into government.
For my hon. Friend the Member for Christchurch (Mr. Chope), the debate arose out of the extraordinary decisions on air passenger duty, on which retrospection was clear, flagrant and undesirable. The new clause, however, relates more widely to the whole gamut of the Governments tax activities. Among my constituents, especially those who are in businesses, who run their own businesses or who have some savings and investment income, there is a growing feeling that things are no longer fair and sensibly run, as they were a few years ago. I am not making a party political pointpeople felt that things were fairly administered during the first five years of this Government, as they did under the previous Government. I therefore welcome the new clause of my hon. Friend the Member for Wycombe (Mr. Goodman), and the amendments to it from my hon. Friend the Member for Christchurch, as they could go a little way to reassuring my constituents.
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