Rob
Marris: I am grateful to the hon. Gentleman for providing
a short history of UK tractors.
I draw the Minister’s
attention to proposed new subsection (3)(b), where it refers
to: “vehicles used for
purposes relating to agriculture, horticulture or
forestry”. Will
he consider whether that list should be extended to vehicles used for
conservation purposes? I realise that making such an extension might be
tricky, but this is an enabling power that will be given to the
Secretary of State. Vehicles that are used for conservation would not
be used for purposes relating to agriculture, horticulture or forestry.
For example, a vehicle that goes around to pick up great crested
newts—an endangered species that seems to appear on every
building site in the west midlands—would not come within the
three categories that are currently listed, but I think that sort of
vehicle should have the exemption. This issue needs to be
looked at, and the Secretary of State should have the power to include
such vehicles in any regulations made under the amended section 5 of
the 1994
Act. Ed
Balls: For a moment, I thought that I had been remiss by
not welcoming the hon. Member for Birmingham, Yardley to the Committee,
but I am told that he has been here before, so there is no need for me
to welcome him now. In case I missed his earlier appearance, I
apologise.
Agricultural vehicles benefit
from exemptions from payment of vehicle excise duty which came into
effect from April 2001. The clause gives the Secretary of State for
Transport the power to redefine agricultural vehicles within the 1994
Act, for the purposes of maintaining the exemption in good
order.
The current
definition of an agricultural vehicle within the 1994 Act was
established when the distinction between vehicles built for purposes
relating to agriculture and vehicles with wider utility was starker, as
Opposition Members have pointed out. The agricultural machine taxation
class currently covers tractors, light agricultural vehicles and
agricultural engines. Examples of the type of light agricultural
vehicle treated as eligible for exemption are all train vehicles or
quad bikes, and an example of the type of agricultural engine eligible
for exemption is a crop sprayer.
As has become clear in our
discussions, some vehicles are capable of being used on the land
although they are not built primarily or solely for that purpose. That
leaves the current definitions open to challenge. I am sure that the
Financial Secretary would have liked to be here to carry on the
discussions that he promised when we debated clause 11. Sadly, he
cannot, and I have the pleasure of leading the debate.
On the Thursday sitting before
the recess, when we did not sit in the afternoon, I took the
opportunity to travel to Bridgend to meet business leaders and members
of the farming community, and this very issue was raised. That
preparatory discussion certainly informed my thinking as I prepared for
the debate.
To answer the
third question asked by the hon. Member for Wycombe, the clause
provides for an order-making power that will be subject to the
affirmative resolution procedure. The intention is to use the power to
achieve firmer definitions and legislative concurrence between the
vehicle excise duty exemption and eligibility under the Hydrocarbon Oil
Duties Act 1979 for agricultural vehicles to use duty rebate diesel.
That will ensure greater clarity, as those who are entitled to license
their vehicles as exempt within the agricultural machine taxation class
will also be eligible to use red diesel. The definition of an
agricultural vehicle under the 1979 Act for the purposes of eligibility
to use duty rebate diesel was updated last year by statutory instrument
No. 93. The Driver
and Vehicle Licensing Agency is currently discussing the updates of
definitions with the industry, and it is actively preparing an order
that will, in due course, utilise the power granted by this clause to
achieve that legislative concurrence. The agency is also working with
HMRC and the industry to issue a memorandum of understanding on which
vehicles are eligible for VED exemption and to use duty rebated diesel.
It is anticipated that by next spring the Secretary of State for
Transport will be in a position to put a
draft order before Parliament utilising the flexibility conferred by
this clause, to answer the hon. Gentleman’s first
question. On
how the exemptions will apply and whether we intend to introduce any
new agricultural vehicle taxation classes or exemptions, there is no
intention at this time to introduce a new agricultural vehicle
exemption. The work on improving the current agricultural vehicle
definitions within the existing exemption is ongoing. Depending on the
outcome, there may be scope for the creation of new definitions in line
with advances such as technological innovation.
The hon. Gentleman and the hon.
Member for Ludlow asked about off-road vehicles and 4x4s. The
Government recognise that four-wheel drive vehicles are used by other
businesses, such as professional dry stone wallers and veterinarians,
in support of the farming sector, as well as by farmers themselves.
There is no intention to introduce an exemption for those who use their
four-wheel drive vehicles on the public road. It remains the case that
the tax system is designed so that where a vehicle is an essential
component of the business activity, businesses can deduct from their
turnover all the costs incurred for the sole purpose of generating
business profits. Applicable motoring expenses are therefore allowable
for deduction against turnover in such circumstances. However, the DVLA
is discussing with the industry how the powers conferred by this clause
can be used to update the exemption.
A separate
exemption already exists for vehicles, including four-wheel drives,
that are used mainly on the land. That exemption applies where vehicles
are used between different parts of the land in agriculture,
horticulture and forestry. It is available where a vehicle is used on
the public road only to pass between different areas of land occupied
by the same person for a distance of no more than 1.5 km. Provided that
that condition is met, vehicles including four-wheel drives that are
not otherwise eligible for exemption under the agricultural machine
taxation class may be eligible for exemption. The DVLA is consulting
industry representatives about updating the definition and to ensure
that the proposals reflectlast year’s administrative
changes on hydrocarbon oil
duty.
Mr.
Dunne: The suggestion that a 1.5 km limit should apply to
the eligibility that the Economic Secretary described seems somewhat
perverse. Many contractors, particularly in agriculture, may have to
travel many miles, even tens of miles, on public roads to get from one
piece of ground to another. I earnestly urge him to discuss that with
the industry and to reconsider the
limit.
Ed
Balls: The point that I was making was that the 1.5 km
limit is available in existing definitions. We are discussing with the
industry how to ensure that the clause provides flexibility for
vehicles, including 4x4s, that are genuinely used for agricultural
purposes rather than on-road driving. The purpose of the consultation
is precisely to ensure that we do not allow tax relief for normal
public, on-road driving, but that we provide the flexibility that the
farming community
needs. The hon. Member
for Ludlow asked whether any of the current taxation classes will be
repealed. That is not
our intention. The clause’s purpose is to ensure that legislation
remains current and relevant, and that only vehicles that are
legitimately entitled to the exemption are licensed in the agricultural
categories. There are no plans to remove any of the existing
exemptions. Our intention is only to improve and update, and to include
revised definitions for agricultural vehicles in accordance with new
technological
developments. The hon.
Gentleman also asked whether the changes will put existing users
outside the exemption. Clearly, we are trying to reduce the ambiguity
in the definitions to enable the agricultural industry to continue to
benefit from legitimate exemptions while discouraging unfair
competition. The definitions will be carefully framed and will be
discussed with stakeholders and businesses to avoid imposing an
unnecessary compliance burden. We do not intend to penalise those who
already qualify legitimately to license their vehicles in the
agricultural machinery taxation
class. I am sure that
the matters that my hon. Friend the Member for Wolverhampton,
South-West raised will be firmly in the mind of my hon. Friend the
Financial Secretary and other Ministers as they take forward our wider
agenda to promote conservation and a reduction in climate change. I
will ensure that the Financial Secretary is fully aware of the question
that he asked. It goes wider than the clause, but it is important. If I
can update him on any issues, I shall ensure that they are included in
an addendum to the previous
letter. Question
put and agreed
to. Clause 105
ordered to stand part of the
Bill.
Clause
106Limitation
period in old actions for mistake of law relating to direct
tax Question
proposed, That the clause stand part of the
Bill. Mrs.
Theresa Villiers (Chipping Barnet) (Con): I welcome you
back to the Chair, Mr.
Gale. I
have considerable sympathy with what the Government are seeking to do
in the clause. I have made it clear on a number of
occasions—sometimes in this very room—that I am concerned
about the impact of the European Court of Justice’s judgments on
our tax system and the revenues collected by the Exchequer. I am not
asserting that there is necessarily any causal connection between the
clause and recent decisions by the court, but there seems to be little
doubt that the damage done to tax revenues as a result of ECJ decisions
will be reduced if the clause is
adopted. I
appreciate that a great deal of money is at stake, and I am happy to
support effective and reasonable measures to protect that revenue.
However, I am worried that the clause may simply land the Government
back in the ECJ. Furthermore, it is important for the Committee to take
a few minutes to consider the concerns about the retroactive removal of
a right to reclaim taxes paid because they were not lawfully due. The
Minister who is dealing with the matter will be well aware that various
professional bodies believe that the clause is inconsistent with
European law, and in particular that it would contravene the principle
of effectiveness. That principle
provides that member states are not permitted to render rights conferred
by community law that are impossible or excessively difficult to
exercise. The concerns
of organisations such as the Chartered Institute of Taxation, the Law
Society and the Institute of Chartered Accountants in England and
Wales revolve around the ECJ judgment in Marks and Spencer
v. Customs and Excise in 2002. The ECJ considered whether the
curtailment of limitation periods could be compatible with the
principle of effectiveness. It decided that such curtailments could be
compatible with Community law as long as certain conditions were
complied with. The first condition is set out in paragraph 36
of the judgment, which states that the relevant change to limitation
periods “must not be
intended specifically to limit the consequences of a judgment of the
Court to the effect that national legislation concerning a specific tax
is incompatible with Community
law.” 1.30
pm There is
certainly a perceived link—I stress that it is perceived rather
than definitely established—between clause 106 and the judgment
in the Metallgesellschaft-Hoechst case and the follow-up litigation in
Deutsche Morgan Grenfell v. Inland Revenue, although the direct
claimants in that case will not, of course, be affected by the clause.
Will the Minister give the firm assurance that the provision in
Community law to which I referred does not cause a problem in relation
to clause 106? It would be useful if he outlined the reasons for his
view on that. In particular, to what extent do the Government’s
references to the large sums at stake encompass taxes paid under a
mistaken law that do not relate to the Hoechst case or other ECJ
jurisprudence? If, for example, the clause had a range of situations
rather than just the Hoechst case in mind, it might assist in
satisfying the condition to which I referred, and in answering the
concerns arising from that point of European law.
The second condition set out in
the Marks and Spencer case is
that “the new limitation
period is
reasonable”. The
Government should be able to deploy some attractive arguments on that
point, given that the six-year limitation period in the clause is in
widespread use in our law. The explanatory notes on the Bill refer to
the clause achieving symmetry with the period during which the Revenue
can collect back taxes, which could be used to strengthen the argument
that the period is “reasonable”. However, it is worth
noting that in cases of negligent conduct, HMRC can go back 20
years to collect back taxes, which detracts from the strength of the
symmetry argument.
The Government hopefully might
find themselves on reasonably firm ground on the reasonableness
condition, but there might be a problem with the third requirement laid
down by the ECJ in the Marks and Spencer case. Paragraph 38 of the
judgment required that legislation containing revised limitation
periods must
include “transitional
arrangements allowing an adequate period after the enactment of the
legislation for lodging the claims for repayment which persons were
entitled to submit under the original legislation. Such transitional
arrangements are necessary where
the immediate application to those claims of a limitation period shorter
than that which was previously in force would have the effect of
retroactively depriving some individuals of their right to repayment,
or of allowing them too short a period for asserting that
right.” The Committee
will see that there are no transitional arrangements in the clause, so
it would seem that that aspect of the Marks and Spencer case poses a
problem. The concern becomes more marked when one takes into account
the way in which the Marks and Spencer case was interpreted and applied
in subsequent cases such as Grundig Italiana v. Ministry of
Finance. In that case, the ECJ concluded that
“the transitional period must be
sufficient to allow taxpayers who initially thought that the old period
for bringing proceedings was available to them a reasonable period of
time to assert their right of recovery in the event that, under the new
rules, they would already be out of
time.” It would
be useful if the Chief Secretary to the Treasury gave the Committee a
clear assurance that clause 106 does not fall foul of the principle
that a transitional period is required as is set out in the Marks and
Spencer judgment. Is he able to distinguish the Marks and Spencer and
Grundig Italiana cases and to explain why they do not apply in relation
to clause 106? Alternatively, will he provide a justification that
would override the application of the principle set out in those cases?
Is there any scope for arguing that exceptional circumstances, within
the meaning of Stichting “Goed Wonen” v.
Staatssecretaris, apply in this case to justify the withdrawal of an
entitlement to
repayment? It would
also be useful if the Chief Secretary allayed the concerns raised by
representative organisations about the principle of legitimate
expectations as a part of Community law. In paragraph 46 of the Marks
and Spencer judgment, the ECJ held, in the context of a breach of the
sixth VAT directive, that the principle of legitimate expectations
could apply “so as to
preclude a national legislative amendment which retroactively deprives
a taxable person of the right enjoyed prior to that amendment to obtain
repayment of
taxes”. It is
useful to refer to the opinion provided to the Law Society by
Mr. Philip Baker, QC, who is convinced that the principle of
legitimate expectation applies to clause 106. He raised a particular
concern about section 320 of the Finance Act 2004, which restricts
claims for the repayment of taxes on the basis of mistake of law but
explicitly excludes litigation that commenced before 8 September 2003.
He argues: “Any
person having commenced an action before that date might reasonably
have expected that they could continue their action until final
judgment without further legislative intervention. Litigants will have
continued to pursue claims (commenced prior to 8th September
2003) on the basis of that expectation and will have incurred costs in
so doing. In a sense, the Finance Act 2004 legislation would have
enhanced the legitimate expectations of those who had commenced their
actions before 8th September
2003” that they would be
able to continue them.
Will the
Minister assure the Committee that he does not believe that clause 106
infringes the principle of legitimate expectations, and give us his
reasons for holding that view? Will he address in particular the point
about the sums that have been expended on litigation by affected
parties, and the point that has been made by some representative bodies
about the number of affected taxpayers who might have chosen to
join the Deutsche Morgan Grenfell litigation had they been aware that
the law might be changed retroactively? I hope that he will reassure
the Committee regarding the points and questions that I have
raised. John
Hemming (Birmingham, Yardley) (LD): It is a pleasure to
serve under your chairmanship, Mr. Gale, and to entertain
the Economic Secretary, who obviously did not notice me on the previous
occasions that I attended, because I have not spoken all that
much. The clause is
rather weird. Without going into all the details of the constitutional
legislation that it may infringe, such as the European Communities Act
1972 and the Human Rights Act 1998, as well as the traditional issues
of judicial review and the grounds on which challenges can be brought,
there is one particular weirdness in it that I want to highlight.
Suppose that someone has sued the Government, because they made a
mistake, and won the case. The idea of passing legislation that
reverses the judgment and provides that that person has to pay back the
money and all the costs on both sides, with interest, which is
basically what subsection (4) says, is quite odd. It is a
strange idea that when someone has won a legal case, the whole thing
can then be reversed through statute.
There is a substantial argument
for drawing a line after six years and moving on, in terms of dealing
with tax—there has to be some sort of symmetry—but the
idea of reversing judgments through statutes, without any consideration
of costs, has to be a strange one. Someone has won a case and got their
costs, and now we are saying, “You’ve lost the case and
you’ve got to pay the money back, with interest,”
although the rate is not specified. We are saying, “Obviously,
if you’ve lost the case, you have to pay the costs.” That
is absurd. Of course, we are not going to divide on this, but the
Government should respond regarding the idea of reversing
judgments.
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