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25 Jun 2007 : Column 60

John Healey: If the right hon. Gentleman will bear with me, I will come on to the sort of problems that would be caused by the flawed way in which the provisions in new clauses 2 and 7 are framed.

There are many precedents, going back many years, for Acts of Parliament and resolutions that take effect from dates before the date on which they are debated and voted on by the House. Subsections (7) and (8) of new clause 2 set out conditions under which retrospective tax law would be compatible with subsection (1). Subsections (2) and (3) of new clause 7 set out the same conditions under which retrospective tax law could be introduced in accordance with subsection (1). The first condition is that some event—most likely a court judgment—has changed the interpretation of the law contrary to “the reasonable expectations” of “tax practitioners”. That phrase is defined in new clause 2(8) and new clause 7(3). A moment’s thought would encourage one to conclude that it would be extremely difficult to determine what the reasonable expectations of such a diverse body as tax practitioners would be.

The second condition in both new clauses is that a scheme has been disclosed to Her Majesty’s Revenue and Customs. I think that this is the point that the right hon. Member for Wokingham was making. However, although the term “tax avoidance scheme” appears in the titles of the legislation referred to in the new clauses, it is not defined anywhere in UK legislation. The descriptions used in primary legislation—principally in part 7 of the Finance Act 2004—and in regulations are targeted at avoidance, but they do not define it. In effect, they are proxies for new and innovative schemes, as these often carry the highest risk of avoidance. But not every scheme that is notifiable is avoidance and, equally, since the descriptions must strike a balance between countering avoidance and imposing unnecessary or burdensome responsibilities on business, they will not capture every avoidance scheme.

New clause 2(6) and new clause 7(7) would further give the provisions effect in situations where the tax change may affect a pricing decision that has already been made by a company, even when the measure applied only to tax points that occurred after the measure had been passed by the House. It cannot be the case—although it appears to be from the way in which the provisions are framed—that hon. Members seriously propose that the House should be alerted in any case in which a change to tax rates has an impact on a commercial decision or arrangement that has already been entered into. Again, a moment’s thought would lead one to suggest that that might apply to virtually any tax change. In general, any tax change has the potential to have an impact on such decisions.

It is difficult to envisage why the provisions are necessary. The Chancellor must certify that any retrospective measure is human rights-compatible. Parliament has the ability to consider all the factors raised in the new clauses when debating such a measure. The drafting of the new clauses is fundamentally flawed. The measures would have far wider consequences than even the hon. Member for Christchurch might intend. Following the reassurances that I have given, I hope
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that neither of the new clauses will be pressed to a Division. If they are, I shall have to ask my hon. Friends to resist them.

5.45 pm

Mr. Paul Goodman: The debate has demonstrated the widespread concern throughout the House about creeping retrospection, as was evident from the comments made by my right hon. Friend the Member for Wokingham (Mr. Redwood) and my hon. Friend the Member for Braintree (Mr. Newmark). The hon. Member for Falmouth and Camborne (Julia Goldsworthy) reminded the House of a point that I omitted to make: the issue of retrospection was very live when we considered trusts during our proceedings on last year’s Finance Bill. The hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) also made that point. The hon. Member for Dundee, East (Stewart Hosie) was sympathetic to new clause 2. To borrow a phrase from my hon. Friend the Member for Christchurch (Mr. Chope), we are seeing a large pincer movement on the Government.

I pay tribute to my hon. Friend the Member for Christchurch, who strongly opposes the rise in air passenger duty. He is also concerned about retrospection and I am grateful to him for pressing the issue in such a way.

My hon. Friend was right about the pincer movement on the Government because the hon. Member for Bishop Auckland (Helen Goodman) said shortly after I finished my speech that she opposed new clause 2, but that her opposition would be justified retrospectively. That set the tone for the debate. She has been joined on the Labour Benches by the hon. Member for Wolverhampton, South-West (Rob Marris). He is in the Chamber retrospectively, given that he was here in spirit right from the start of the debate.

The Financial Secretary, like the hon. Member for Bishop Auckland, produced a scant argument. He says that the considerations already apply and that new clause 2 is badly drafted, but subsection (1)(b) of the new clause would allow him to introduce any measure and simply claim that it would be justified, despite being retrospective, for the reasons that he wished to set out to the House. However, he did not address that point at all.

Having heard the Financial Secretary’s argument, if new clause 2 were agreed to, I would be happy to accept amendments (a) and (c) to it, which were tabled by my hon. Friend the Member for Christchurch. I would look sympathetically on new clause 7, which he also tabled. We will press new clause 2 to a Division.

Question put, That the clause be read a Second time:—

The House divided: Ayes 209, Noes 281.
Division No. 149]
[5.48 pm


Afriyie, Adam
Alexander, Danny
Amess, Mr. David
Ancram, rh Mr. Michael
Arbuthnot, rh Mr. James
Atkinson, Mr. Peter
Bacon, Mr. Richard
Baker, Norman
Barker, Gregory
Baron, Mr. John
Beith, rh Mr. Alan
Bellingham, Mr. Henry

Benyon, Mr. Richard
Bercow, John
Beresford, Sir Paul
Blunt, Mr. Crispin
Bone, Mr. Peter
Bottomley, Peter
Brazier, Mr. Julian
Brokenshire, James
Brooke, Annette
Browne, Mr. Jeremy
Browning, Angela
Burrowes, Mr. David
Burstow, Mr. Paul
Burt, Alistair
Burt, Lorely
Butterfill, Sir John
Cable, Dr. Vincent
Campbell, rh Sir Menzies
Carmichael, Mr. Alistair
Carswell, Mr. Douglas
Cash, Mr. William
Chope, Mr. Christopher
Clark, Greg
Clegg, Mr. Nick
Clifton-Brown, Mr. Geoffrey
Conway, Derek
Cormack, Sir Patrick
Crabb, Mr. Stephen
Curry, rh Mr. David
Davey, Mr. Edward
Davies, David T.C. (Monmouth)
Davies, Philip
Davies, Mr. Quentin
Davis, rh David (Haltemprice and Howden)
Dorries, Mrs. Nadine
Duddridge, James
Duncan Smith, rh Mr. Iain
Dunne, Mr. Philip
Ellwood, Mr. Tobias
Evennett, Mr. David
Fallon, Mr. Michael
Featherstone, Lynne
Field, Mr. Mark
Foster, Mr. Don
Fox, Dr. Liam
Francois, Mr. Mark
Fraser, Mr. Christopher
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Gidley, Sandra
Gillan, Mrs. Cheryl
Goldsworthy, Julia
Goodman, Mr. Paul
Goodwill, Mr. Robert
Gove, Michael
Grayling, Chris
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Hague, rh Mr. William
Hammond, Mr. Philip
Hammond, Stephen
Hands, Mr. Greg
Harper, Mr. Mark
Harris, Dr. Evan
Harvey, Nick
Hayes, Mr. John
Heald, Mr. Oliver
Heath, Mr. David
Heathcoat-Amory, rh Mr. David
Hemming, John
Hendry, Charles
Herbert, Nick
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Holloway, Mr. Adam
Horam, Mr. John
Hosie, Stewart
Howard, rh Mr. Michael
Howarth, Mr. Gerald
Hughes, Simon
Huhne, Chris
Hunt, Mr. Jeremy
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Johnson, Mr. Boris
Jones, Mr. David
Kawczynski, Daniel
Kennedy, rh Mr. Charles
Key, Robert
Kirkbride, Miss Julie
Kramer, Susan
Laing, Mrs. Eleanor
Lamb, Norman
Lancaster, Mr. Mark
Lansley, Mr. Andrew
Laws, Mr. David
Leech, Mr. John
Leigh, Mr. Edward
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Liddell-Grainger, Mr. Ian
Llwyd, Mr. Elfyn
Loughton, Tim
Mackay, rh Mr. Andrew
Main, Anne
Maples, Mr. John
Mates, rh Mr. Michael
May, rh Mrs. Theresa
McCrea, Dr. William
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Miller, Mrs. Maria
Milton, Anne
Moore, Mr. Michael
Moss, Mr. Malcolm
Mulholland, Greg
Murrison, Dr. Andrew
Neill, Robert
Newmark, Mr. Brooks
O'Brien, Mr. Stephen
Öpik, Lembit
Paice, Mr. James
Paterson, Mr. Owen
Pelling, Mr. Andrew
Penning, Mike
Penrose, John
Pickles, Mr. Eric
Price, Adam
Prisk, Mr. Mark
Pritchard, Mark
Pugh, Dr. John
Randall, Mr. John
Redwood, rh Mr. John
Reid, Mr. Alan
Robathan, Mr. Andrew

Robertson, Hugh
Robertson, Mr. Laurence
Rogerson, Dan
Rosindell, Andrew
Rowen, Paul
Ruffley, Mr. David
Russell, Bob
Sanders, Mr. Adrian
Scott, Mr. Lee
Selous, Andrew
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, Mr. Keith
Smith, Sir Robert
Soames, Mr. Nicholas
Spelman, Mrs. Caroline
Spink, Bob
Spring, Mr. Richard
Stanley, rh Sir John
Steen, Mr. Anthony
Streeter, Mr. Gary
Stunell, Andrew
Swinson, Jo
Swire, Mr. Hugo
Syms, Mr. Robert
Tapsell, Sir Peter
Taylor, Mr. Ian
Taylor, Matthew
Taylor, Dr. Richard
Teather, Sarah
Thurso, John
Tredinnick, David
Tyrie, Mr. Andrew
Vara, Mr. Shailesh
Viggers, Peter
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Waterson, Mr. Nigel
Watkinson, Angela
Webb, Steve
Whittingdale, Mr. John
Widdecombe, rh Miss Ann
Wiggin, Bill
Willetts, Mr. David
Williams, Mark
Williams, Mr. Roger
Williams, Stephen
Willis, Mr. Phil
Willott, Jenny
Wilson, Mr. Rob
Winterton, Ann
Winterton, Sir Nicholas
Wright, Jeremy
Young, rh Sir George
Younger-Ross, Richard
Tellers for the Ayes:

Mr. Simon Burns and
Michael Fabricant

Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, rh Mr. Douglas
Allen, Mr. Graham
Anderson, Mr. David
Anderson, Janet
Armstrong, rh Hilary
Atkins, Charlotte
Austin, Mr. Ian
Baird, Vera
Balls, Ed
Banks, Gordon
Barlow, Ms Celia
Barron, rh Mr. Kevin
Bayley, Hugh
Begg, Miss Anne
Bell, Sir Stuart
Benn, rh Hilary
Benton, Mr. Joe
Blackman-Woods, Dr. Roberta
Blears, rh Hazel
Blizzard, Mr. Bob
Blunkett, rh Mr. David
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brennan, Kevin
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Browne, rh Des
Bryant, Chris
Buck, Ms Karen
Burden, Richard
Burnham, Andy
Butler, Ms Dawn
Byrne, Mr. Liam
Cairns, David
Campbell, Mr. Alan
Campbell, Mr. Ronnie
Caton, Mr. Martin
Cawsey, Mr. Ian
Challen, Colin
Chapman, Ben
Chaytor, Mr. David
Clapham, Mr. Michael
Clark, Ms Katy
Clark, Paul
Clarke, rh Mr. Charles
Clarke, rh Mr. Tom
Clwyd, rh Ann
Coaker, Mr. Vernon
Coffey, Ann
Cohen, Harry
Connarty, Michael
Cook, Frank
Cooper, Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Creagh, Mary
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Curtis-Thomas, Mrs. Claire
Darling, rh Mr. Alistair
David, Mr. Wayne
Davidson, Mr. Ian
Dean, Mrs. Janet
Denham, rh Mr. John
Devine, Mr. Jim
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Donohoe, Mr. Brian H.
Doran, Mr. Frank

Dowd, Jim
Dunwoody, Mrs. Gwyneth
Eagle, Angela
Efford, Clive
Ellman, Mrs. Louise
Engel, Natascha
Ennis, Jeff
Farrelly, Paul
Field, rh Mr. Frank
Fitzpatrick, Jim
Flint, Caroline
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Gapes, Mike
Gardiner, Barry
George, rh Mr. Bruce
Gerrard, Mr. Neil
Gibson, Dr. Ian
Gilroy, Linda
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Grogan, Mr. John
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hanson, rh Mr. David
Harman, rh Ms Harriet
Harris, Mr. Tom
Havard, Mr. Dai
Healey, John
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Heppell, Mr. John
Hesford, Stephen
Hewitt, rh Ms Patricia
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hoey, Kate
Hood, Mr. Jim
Hope, Phil
Hopkins, Kelvin
Howarth, rh Mr. George
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Irranca-Davies, Huw
Jackson, Glenda
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, rh Alan
Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Jones, Mr. Martyn
Joyce, Mr. Eric
Kaufman, rh Sir Gerald
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Khan, Mr. Sadiq
Kidney, Mr. David
Kilfoyle, Mr. Peter
Knight, Jim
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, Mr. David
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
Mackinlay, Andrew
Mactaggart, Fiona
Mahmood, Mr. Khalid
Malik, Mr. Shahid
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Marshall-Andrews, Mr. Robert
McAvoy, rh Mr. Thomas
McCabe, Steve
McCarthy, Kerry
McCarthy-Fry, Sarah
McCartney, rh Mr. Ian
McDonagh, Siobhain
McDonnell, John
McFadden, Mr. Pat
McFall, rh John
McGovern, Mr. Jim
McGuire, Mrs. Anne
McKechin, Ann
McKenna, Rosemary
McNulty, Mr. Tony
Meacher, rh Mr. Michael
Merron, Gillian
Michael, rh Alun
Milburn, rh Mr. Alan
Miliband, rh David
Miliband, Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffat, Anne
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Morgan, Julie
Morley, rh Mr. Elliot
Mountford, Kali
Mudie, Mr. George
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, Mr. Jim
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
O'Brien, Mr. Mike
Olner, Mr. Bill
Owen, Albert
Palmer, Dr. Nick
Pearson, Ian
Plaskitt, Mr. James
Pope, Mr. Greg
Pound, Stephen
Prentice, Bridget
Prosser, Gwyn
Purchase, Mr. Ken
Rammell, Bill
Raynsford, rh Mr. Nick
Reed, Mr. Andy

Reed, Mr. Jamie
Reid, rh John
Robertson, John
Robinson, Mr. Geoffrey
Rooney, Mr. Terry
Ruane, Chris
Ruddock, Joan
Russell, Christine
Ryan, Joan
Salter, Martin
Shaw, Jonathan
Sheerman, Mr. Barry
Sheridan, Jim
Simon, Mr. Siôn
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andy
Smith, rh Mr. Andrew
Smith, Ms Angela C. (Sheffield, Hillsborough)
Smith, Angela E. (Basildon)
Smith, rh Jacqui
Smith, John
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Strang, rh Dr. Gavin
Straw, rh Mr. Jack
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr. Gerry
Tami, Mark
Taylor, Ms Dari
Taylor, David
Thomas, Mr. Gareth
Thornberry, Emily
Timms, rh Mr. Stephen
Tipping, Paddy
Todd, Mr. Mark
Touhig, rh Mr. Don
Turner, Dr. Desmond
Turner, Mr. Neil
Twigg, Derek
Vaz, rh Keith
Walley, Joan
Waltho, Lynda
Ward, Claire
Wareing, Mr. Robert N.
Watts, Mr. Dave
Whitehead, Dr. Alan
Williams, rh Mr. Alan
Winnick, Mr. David
Winterton, rh Ms Rosie
Woodward, Mr. Shaun
Woolas, Mr. Phil
Wright, David
Wright, Mr. Iain
Wright, Dr. Tony
Wyatt, Derek
Tellers for the Noes:

Liz Blackman and
Mr. Frank Roy
Question accordingly negatived.
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New Clause 4

Duty on HMRC to expedite VAT registration and repayment applications

‘(1) It shall be the duty of HMRC to determine applications for—

(a) registration for VAT, and

(b) repayment of VAT by HMRC

within a maximum period of days from the receipt by them of the relevant application.

(2) The Treasury must by Order specify the maximum period mentioned in subsection (1), having first consulted HMRC and persons representing small businesses.

(3) If an application of a kind mentioned in subsection (1) has not been determined by HMRC before the expiry of the maximum period specified by the Treasury in accordance with subsection (2), the applicant may apply to the Special Commissioners for a declaration that the application is deemed to have been approved by HMRC.

(4) The Special Commissioners must grant an application for a declaration under subsection (3) unless they are satisfied that HMRC has reasonable grounds for having failed to determine an application in accordance with subsections (1) and (2).

(5) Grounds shall be treated as reasonable under subsection (4) only if they relate to circumstances beyond HMRC’s control.’.— [Mr. Gauke.]

Brought up, and read the First time.

Mr. Gauke: I beg to move, That the clause be read a Second time.

25 Jun 2007 : Column 66

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss Government amendment No. 2.

Mr. Gauke: Before I deal with new clause 4, let me say a few words about Government amendment No. 2 and return to the comments made by the Financial Secretary earlier. As he said, on my debut on the Front Bench in Committee, he generously agreed to amend the Bill to require an affirmative resolution where the joint and several liability requirements are to be extended, as in clause 97. He has been as good as his word, and I welcome the amendment.

New clause 4 would require that the Treasury, in consultation with Her Majesty’s Revenue and Customs, specify a maximum period for HMRC to determine an application for VAT registration or VAT repayment. If it were not determined within the period specified, the applicant could apply to the special commissioners for a declaration of approval to be granted, unless the commissioners determined that HMRC had reasonable grounds for failing to determine the application. The reason for tabling the new clause is the widespread and growing concern that VAT applications, whether for registrations or repayments, are taking substantially longer than previously, and substantially longer than the target times specified by HMRC.

I should say at the outset that I recognise that part of the reason for the delays is action that is being taken to try to tackle missing trader intra-Community—MITC—fraud, which has a substantial cost. We recognise and support the Government’s view that action needs to be taken. We also accept that, in fighting MTIC fraud, there is a role for ensuring that only legitimate companies become registered for VAT and only companies with clean hands receive VAT repayments. I have received some representations stating that the VAT registration process should have been tightened at an earlier stage in order to address the issue.

It is not our intention to disrupt attempts by the Government to tackle MTIC fraud. Indeed, new clause 4 is so drafted that if HMRC had good reason for delaying a registration or repayment it would be able to do so, and of course tackling fraud is a good reason. However, I hope that the new clause will give us a chance to explore whether the problems with registration and repayment are entirely due to MTIC fraud, and whether the balance is right between tackling fraud and ensuring that legitimate businesses are not harmed and that their activities are facilitated. I also hope to explore the question of whether there is any prospect of an improvement in performance by HMRC in this area. I will listen carefully to what the Financial Secretary says when he responds, and if he persuades me that the new clause would harm efforts to tackle MITC fraud, I will not press it. None the less, we wait to hear those arguments.

Essentially, there are two closely related problems: VAT registrations and VAT repayments. This is not a new issue. I raised the question of VAT registrations last summer in the Standing Committee on last year’s Finance Bill. I subsequently raised it with senior HMRC officials when I was a member of the Treasury Committee and they gave evidence on HMRC’s performance to the Treasury Sub-Committee. It is
25 Jun 2007 : Column 67
worth looking at the evidence that they provided. Paul Gray, the chairman, stated that VAT registrations was

His colleague, Mike Eland, added:

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