 House of Commons |
Session 2006 - 07 Publications on the internet General Committee Debates Income Tax |
Income Tax Bill |
The Committee consisted of the following Members:Emily
Commander, James Gerard, Committee
Clerks
†
attended the Committee
Second Reading CommitteeWednesday 17 January 2007[Mr. David Wilshire in the Chair]Income Tax Bill2.30
pm
The
Chairman:
Before we come to the business proper, I want to
say two or three things to the Committee. I understand that this is
only the third occasion on which the House has considered a Second
Reading in Committee, so for most of us these are slightly uncharted
waters.
So that there
is no misunderstanding, the motion before us will be a motion to
recommend to the House that the Bill be read a Second time. It is not
for us to read it a Second
time.
If any hon.
Members fall asleep, I shall put it down to the fact that they have
read the Bill from cover to cover and have, therefore, not had time to
sleep.
Finally, for
those hon. Members who have not been on a Committee when I have been in
the Chair, they need not ask to take off clothing—within
reason.
That the
Chairman do now report to the House that the Committee recommends that
the Income Tax Bill ought to be read a Second
time.
It is a pleasure
to serve under you in the Chair on this somewhat unorthodox Committee,
Mr. Wilshire, which nevertheless performs an important
function for the important piece of legislation before
us.
I am pleased to
open this Second Reading debate in Committee. The Bill rewrites the
core provisions of our current income tax legislation. It has been
produced by Her Majesty’s Revenue and Customs tax law rewrite
project, which is working to modernise our direct tax legislation so
that it is clearer and easier to
use.
This is the third
rewrite Bill to venture into the complex and extensive territory of
income tax. Once enacted, itwill complete the project’s work on
income tax. In particular, it deals with the basic provisions covering
the charge to income tax, including income tax rates, various reliefs
and the calculation of income tax liability.
Before I speak about the
specifics of the Bill, it is perhaps worth stressing the background and
putting it into context by explaining for the benefit of some Committee
Members the work of the tax law rewrite project. The relevance of that
will become apparent later, as it may help the Committee to view the
Bill with greater
confidence.
The
project was set up in 1996 by the right hon. and learned Member for
Rushcliffe (Mr. Clarke), and I am pleased to say that it has
continued to have the support of his party in opposition since then. I
welcome the constructive approach of the hon. Member for Rayleigh and
his Front-Bench colleagues to the work. It is a project to rewrite the
UK direct tax code, some
of the provisions of which were enacted a couple of centuries ago. The
principal aim is that the rewritten legislation should be accepted by
all the main users as clearer and easier to apply, and as preserving
the effect of the present law, apart from minor agreed
changes.
This is the
third income tax Bill, but the fourth Bill to emerge from the project.
The first became the Capital Allowances Act 2001, the second
becamethe Income Tax (Earnings and Pensions) Act 2003, and the
third became the Income Tax (Trading and Other Income) Act 2005. In
between, the project has also rewritten the pay-as-you-earn regulations
in direct response to requests by users and representative bodies.
Those Acts and regulations have all been warmly welcomed by the tax
professionals and other
users.
The Bill
follows the same tradition. The Institute of Chartered Accountants
commented on it in a way that can be taken as representative of wider
views of users of the legislation. It said:
“We commend the Tax Law
Rewrite team on having produced another excellent rewrite
Bill.”
Similarly, the
Chartered Institute of Taxation
said:
“Once
again, we found the draft provisions in the main clearly
drafted”.
As
you may know, Mr. Wilshire, the project has an established
and well accepted approach. It aims to restructure existing legislation
into a more logical order for its present purpose. It includes as
standard a lot of navigational aids for the reader, such as
introductory chapters setting the scene and signposts to other relevant
provisions as one works one’s way throughthe Bill. It
also includes shorter sentences, modern language, more consistent
definitions, and greater use of reader aids, such as formulae, tables
and method statements, if they help to illuminate the
provisions.
The
making of any change in the main tax policies is beyond the remit of
the rewrite project, but it is clear, and the Committee will be aware,
that its work can encompass minor changes when that will improve the
legislation. Examples include new provisions to clarify points in the
existing legislation, and changes to repeal obsolete material and
correct minor anomalies. However, major changes will always be matters
for the Finance
Bill.
Consensus and
consultation are essential hallmarks of the tax law rewrite process.
From the outset, the project team has been committed to a full process
of consultation within the UK tax community and with other interested
parties. I pay tribute to the dedication and technical expertise of
HMRC officials and lawyers who undertake the
work.
The work of the
project is overseen by, and greatly benefits from, a high-level
steering committee appointed by the Chancellor. It is chaired by Lord
Newton of Braintree, and other members are drawn from both Houses of
Parliament, the judiciary, the legal and accountancy professions,
business and consumer groups. There is also an important standing
consultative committee, the members of which are drawn from the main
representative bodies in the tax world and business.
For wider consultation, the
project publishespapers containing blocks of rewritten
legislation with commentaries on the internet, and it also makes use of
its website to publish changes to previously published work.
I stress the work and the way in
which the project is organised to underline the amount of expertise,
scrutiny and consensus behind the Bill.
It is right to pay tribute to
the users who play such an important part in ensuring that the tax law
rewrite project lives up to its original aims and that the standards of
its work match those that are needed and expected. All those involved
in the consultation process have made, and continue to make, an
invaluable contribution to the success of the project, and the
Paymaster General and I greatly value their contribution and
commitment.
It may be
helpful to say a few words about the Bill, although detailed scrutiny
will take place in the Joint Committee if this Committee agrees to
recommend to the House, and the House then agrees, that it should be
referred there.
The
charge to income tax has historically been broken down into a number of
schedules, and the project’s first two Acts abolished those
schedules for income tax purposes and replaced them with income
categories. The ITEPA was concerned with income from employment,
pensions and taxable social security benefits. The ITTOIA was concerned
with income from trading, savings and all other types of
income.
The Bill
completes the picture. First, it tackles the core provisions of income
tax. It contains the rewritten legislation for the basic provisions
covering the charge to income tax, income tax rates, the calculation of
income tax liability, and personal reliefs. It also contains the
rewritten legislation for various specific reliefs, including loss
relief, the enterprise investment scheme, venture capital trusts,
community investment tax relief, relief for interest paid, gift aid and
gifts of assets to charities. Additionally, it contains specific rules
about settlements and trustees, deduction of tax at source,
manufactured payments and repos, tax avoidance and general income tax
definitions.
I have
mentioned in general terms the extensive consultation process behind
the Bill, which is a hallmark of the project’s work. For this
legislation,29 consultation papers have been issued since
April 2004, leading to a full draft Bill, which was published early
last year for full, formal consultation. A formal response document,
which summarised comments on the draft and set out how the project took
those into account, was issued last September. There were also two
specific consultation papers on material added to the Bill to reflect
provisions made by the FinanceAct 2006 on trust modernisation
and charitable trusts.
I am also pleased to say that
after the Bill receives its Second Reading, if it does so, we intend to
table amendments for consideration by the Joint Committee to include
clauses dealing with the accrued income scheme. I have written to
Committee members on this matter. Draft clauses on this material were
consulted on and prepared for inclusion in the project’s
previous Bill, although they were not eventually included. This seems
to be the right time and opportunity to include them.
The Bill is a major milestone
in the work of the project. It completes its work on the rewrite of
income tax, improving the existing legislation and making it clearer
and easier to use. I commend the Bill to the
Committee.
The
Chairman:
Before I call Mr. Francois, I should
tell the Committee that I have indeed received a letter from the
Government setting out the amendments that they intend to table. They
say that they have sent it to all Committee members, and I imagine that
that is the case. I am aware that there has been a bit of discussion
about whether this procedure is the best way of doing things. May I
make it clear that the procedure of tabling amendments is not a matter
for this Committee? Procedurally, should hon. Members wish to debate
it, that can be done at the Committee stage. However, given that the
amendments are in the public domain, references made to them as a
matter of substance without challenging the procedural arrangements
will be in order.
2.42
pm
Mr.
Mark Francois (Rayleigh) (Con): Thank you for that handy
clarification, Mr. Wilshire. It is a pleasure to serve under
your chairmanship. I recall serving alongside you for two years in the
Opposition Whips Office during the previous Parliament. I expect no
fear or favour from the Chair as a result of that—but I thought
I would mention it in passing.
It is also a pleasure to be
discussing these matters opposite the Financial Secretary. The varied
nature of Front-Bench life means that on Monday we were debating the
Planning-gain Supplement (Preparations) Bill in the main Chamber, and
we are now debating the Income Tax Bill upstairs in this Committee. I
look forward none the less to going through these matters with
him.
I understand
that this debate is taking place under the auspices of Standing Order
No. 60 as part of the tax law rewrite project, and that proceedings
under that Standing Order are not programmed or time-limited in any
way. We could theoretically spend the entire day, and part of the
night, debating this legislation. However, Mr. Wilshire,
you, the Minister and the Government Whip will be pleased to know that
I do not propose to detain the Committee for anything like that long,
not least because this procedure is, in effect, intended to forward the
Bill to the House and then on to the Joint Committee chaired by the
esteemed former Chancellor, my right hon. and learned Friend the Member
for Rushcliffe.
The
procedure properly envisages that that Committee’s members will
undertake detailed scrutiny of the Bill on behalf of both Houses of
Parliament. In any event, when that scrutiny has been undertaken, the
Bill will then come back to the Floor of the House when all Members of
the Commons can debate it further in as much detail as they feel is
necessary.
I have
some comments on how the Bill fits into the overall tax law rewrite
project. I would also like to highlight two particular technical areas
in the hope that the Joint Committee might pay them special attention.
I have given the Financial Secretary private notice of them because of
their technical nature.
The Bill forms part of the
wider tax law rewrite project which, as the Minister has reminded us,
was initiated by the then Chancellor of the Exchequer, my right hon.
and learned Friend the Member for Rushcliffe, in his 1996 Budget. He
did that with the aim of rewriting extant UK direct tax legislation in
simpler
and clearer language. Since then, several pieces of
legislation have been produced in that process: the Capital Allowances
Act 2001, the Income Tax (Earnings and Pensions) Act 2003, the Income
Tax (Trading and Other Income) Act 2005, and some additional
regulations that the Minister referred to, which I shall not
repeat.
The last of
those Acts was debated in a comparable Second Reading Committee on 14
December 2004 by the then Economic Secretary, now the Financial
Secretary, and the then shadow Chief Secretary, now the shadow
Chancellor, my hon. Friend the Member for Tatton (Mr.
Osborne). As history therefore shows that there is a tendency for
people who debate these complicated measures to be promoted in time, I
am hopeful and delighted to be here this
afternoon.
The Bill
before us is thus the fourth in the series of tax law rewrite Bills,
and unfortunately it seems that some rewriting and clarification of our
tax code may be necessary. “Tolley’s Tax Guide”,
which is widely regarded as the accountant’s Bible, has almost
doubled in length since the right hon. Member for Kirkcaldy and
Cowdenbeath (Mr. Brown), the man who, we know, loves
complexity, became Chancellor of the Exchequer in 1997. Then
“Tolley’s” comprised two volumes with 4,555 pages,
whereas today it has stretched to four volumes with 9,841 pages. I have
all four with me here this afternoon.
“Tolley’s”
has been described as excellent bedside reading, providing one has an
extremely strong bedside table. In fact, as the Financial Times
pointed out in September 2006, the tax code has doubled in length
under the current Chancellor. In an article entitled “Guide to
tax code doubles in length under Brown”, Vanessa Houlder of the
Financial Times commented:
“The burgeoning of
Tolley’s commentary on the code reflects the growth of tax
legislation and the increasing complexity of the system, according to
LexisNexis, the publisher. It said this year’s budget alone was
responsible for adding more than 600 pages of the guide, which is now
almost 10,000 pages
long.”
Moreover,
The Economist pointed out before Christmas that the problem of
the length of our tax code, of which today’s Bill will in time
become part,is becoming worse. Citing recent research by
PricewaterhouseCoopers and the World Bank on the comparative length of
tax codes around the world,
The Economist highlighted
the fact that Britain now has virtually the longest tax code in the
developed world, coming a narrow second to India. The study that led to
the article was based on the compliance burden of a company
manufacturing flower pots inthe different countries in
question. The article, in The Economist of 11 November 2006, was
entitled “Bill and Ben and Gordon, Business Taxation”,
and it
argued:
“Of the
world’s 20 biggest economies, Britain is second only to India in
the number of pages taken up by its primary legislation ... Each
episode of the flowerpot men, a children’s television show, used
to end with the question: ‘Was it Bill or was it Ben?’
Where Britain’s rising tax burden is concerned many businessmen
know the answer: it was Gordon.”
Given that we have had a further Finance
Act sincethe PricewaterhouseCoopers study—that Act
alone contained 181 clauses and 25 schedules of additional tax
legislation—can the Minister tell the Committee whether we have
achieved what the Italians describe as “il sorpasso” and
now have the longest tax code in the entire developed world? It would
be interesting to know.
The Bill centres on rewriting
the tax code for income tax. Its main purpose, as set out in the
accompanying explanatory notes, is
“to rewrite the income tax
legislation that has not so far been rewritten so as to make it clearer
and easier to use.”
The
Bill is massive, comprising three volumes, including one that is a
table. There are 968 clauses, plus three additional volumes of
explanatory notes and another additional volume containing an index.
Despite that, the draft has already been amended again, and I shall
return to that in a moment. Having looked at the Bill, my researcher,
Mr. Christopher Howarth, said to me, “This Bill is
not exactly earth-shattering—unless you happen to drop
it.”
Given the
mass of detail in the Bill, it is important to stress that it went
through a considerable gestation period, including detailed
consultation with interested parties, before appearing before this
Committee. As the Minister intimated, it was drafted by a specially
configured project team, comprising officials from Her Majesty’s
Revenue and Customs, parliamentary counsel and public and private
sector tax professionals, overseen by a steering committee, which was
originally chaired by Lord Howe of Aberavon, the first Chancellor in
Margaret Thatcher’s famous incoming Conservative Government of
1979. His place as chairman was subsequently taken by Lord Newton of
Braintree, a former Leader of the House of Commons. Other
parliamentarians and tax experts also served on the committee,
including Baroness Cohen of Pimlico, my right hon. Friend the Member
for Fylde (Mr. Jack) and the hon. Member for Falkirk
(Mr. Joyce).
That drafting work was then
informed by a consultative committee, chaired by Mr. Mark
Nellthorp and comprising representatives of the CBI, the Institute of
Directors and the legal and accounting professions, among others. All
that was followed by a detailed consultation process, which drew
responses from more than 50 interested parties, including a number of
accounting firms and professional bodies. All those whose consultation
responses were put in the public domain are listed in the explanatory
notes.
I mention all
that to highlight the fact that the Bill was subject to extensive
consultation with the professions before reaching us, which may account
for the fact that it has produced relatively few further
representations to date. Nevertheless, before we send it on its way, I
should like to highlight two issues on which we have received
representations and to ask for comments from the Minister. I reiterate
that, in the spirit of cross-party consensus that tends to pervade this
process, I have given him private notice of my intention to raise these
issues.
The first
issue concerns the draft clauses relating to the accrued income scheme,
which essentially clarify details relating to the taxation of interest
on the sale of interest-bearing shares. As you noted, Mr.
Wilshire,
those clauses were added late to the Bill and appearas a set of
separate, additional draft clauses. There are 66 such clauses, which
takes the overall total to in excess of 1,000 clauses. The Financial
Secretary has a reputation for observing the courtesies of the House,
and as you said, Mr. Wilshire, he wrote to you on11
January to explain why the additional pages had been added late to an
already massive Bill, and sent copies of that letter to other members
of the Committee. Essentially, those clauses had been intended for a
previous rewrite Bill, but were taken out, and it was decided to
include them in this Bill. Having heard your guidance from the Chair, I
do not contend with that.
That explanation does not seem
particularly unreasonable in itself, but it has caused some concern to,
for instance, the Chartered Institute of Taxation, which, in a briefing
note for today’s sitting,
commented:
“We
note that to make extensive amendments to a Rewrite Bill at such a late
stage is unprecedented, and the reduced consultation period (over the
Christmas break) has meant that line-by-line analysis of the clauses
has not been possible on this occasion”. For reassurance,
therefore, can the Minister explain on the public record why the
additional clauses were added so late? We have an idea why, but we
should like to hear it from him. Can he also confirm that the clauses,
although late, do not represent a major alteration of the law but are a
rewrite for the purposes of clarity, in line with the spirit of the
rest of the Bill? In other words, we are looking for a reassurance that
there is nothing particularly mischievous afoot. When dealing with tax
legislation, it is important to double-check things, and I hope that
the Minister can provide the Committee with some comfort on the
matter.
The second
area of detail relates to the definition of “associated
operation” contained in what is now clause 652. The background
is that the clause replaces the definition in section 742(1) of the
Income and Corporation Taxes Act 1988, a key excerpt of which
states:
“any of the
assets transferred, or to the income arising from any such
assets.”
The notes to
this change by the tax rewrite projecton 1 November 2006 state
that that section was “ambiguous”; I am given to
understand that there have been several incidents of case law on the
placing of that comma, so there is a case for altering and clearing up
the provision.
Charles Fraser, president of
the City of Westminster and Holborn Law Society, who will be pleased to
know that his Member of Parliament, my hon. Friend the Member for
Cities of London and Westminster, is present in this Committee,
contributed to the original consultation. He has expressed his concern
that the new definition, although undoubtedly clearer than the
original, has effectively changed the law by makingthe
definition of “associated operation” far wider. He
concludes in his consultation response, which was made available on the
website of Her Majesty’s Revenue and Customs, that
“the final draft goes beyond the
scope of the Rewrite Project and trespasses on territory which, under
accepted Parliamentary procedures, should be reserved for Finance
Bills”.
Arthur
Alexander, another member of the City of Westminster and Holborn Law
Society, commented, in an e-mail to my colleague the shadow Chief
Secretary to the Treasury, that
“an
anti-avoidance provision acknowledged to be ambiguous and for which the
resolution in favour of HMRC’s preferred construction is
justified inter alia, by the words ‘in that it will prevent the
taxpayer arguing the contrary view’”.
Given that, and the fact that
the law is being altered in HMRC’s favour, will the Financial
Secretary reassure us that the new definition of “associated
operation” in clause 652 falls within the scope of the rewrite
Bill? As it is contentious, should it not more properly have been
included in a Finance Bill, perhaps the 2007 one, which will come
before the House in several months’ time, rather than in a
rewrite Bill? The representations that we have received argue that,
given the nature of the change, this proposal in some way breaches the
spirit of what is essentially meant to be a clarifying and tidying-up
measure. I hope that he appreciates that this is a technical point,
hence my wish to tip him off about it this morning. I hope that he can
give us a detailed
reply.
I wish to raise
one other issue before summarising, which has been highlighted by,
among others, Mr. John Whiting of PricewaterhouseCoopers.
The tax law rewrite project, of which the Bill is a part, is ongoing.
We understand that the Government have decided to speed up the project
to an increased pace of one major rewrite Bill a year, and that next
year the project will produce a detailed draft Bill on corporation tax.
On one level, this is a good thing—it is a good thing in
principle that tax law should be as clear and specific as possible, an
argument that has been made in Committee Rooms along this Corridor for
many years during consideration of Finance Bills.
One effect of the tax law
rewrite project is that it tends, in some ways, to provide even more
detail, and arguably to add to the length of legislation. I presume
that when the corporation tax Bill goes through, that in itself will
add to the tax code. There is a related issue of the resources needed
to deal with both a Finance Bill and a tax law rewrite Bill in the same
year, if we are to have two of these a year for some
while.
As I have said,
the Finance (No.2) Bill in 2006 had nearly 200 clauses and some 25 or
so schedules. If the accountancy profession has to comment on such
aBill and on a tax law rewrite Bill containing about 1,000
clauses at the same time, is the Minister confident that all the
outside bodies that have an interest will be able to respond properly
and in appropriate time, particularly given the tight timing involved
in a Finance Bill?
Secondly, from the
Government’s perspective, isthe Minister confident that
there will be sufficient resources, such as skilled parliamentary
draftsmen, to staff two complex financial Bills in the same year?
Parliamentary draftsmen do not exactly grow on trees, so it is fair to
ask him now whether he is confident that the Government will have
enough specialists at their disposal to staff that level of effort, let
alone whether the professionals will be able to respond to them. Will
he reassure us on that point, too?
In summary, we do not oppose
the motion to refer the Bill to the House and in turn to the Joint
Committee, which we wish the best of luck in examining it in
detail—all 1,000-odd clauses. We will have an opportunity to
follow up on any remaining issues when it returns to the Floor of the
House for its remaining stages later this year, so it is not as if this
is our last chance to comment on it.
Today,
however, I should be grateful if the Minister could answer the
questions that I have asked him. I reiterate them. First, will he
confirm that the United Kingdom has the longest tax code in the
developed world and that we have surpassed the Indians? Secondly, will
he deal with my questions on accrued interest? Thirdly, will he explain
the Government’s position on the definition of
“associated operation”, and tell us whether they accept
that it should have been included in the Finance Bill? And finally,
will he say something about the future of the tax law rewrite project
and whether he is convinced that there will be additional resources on
both sides of the divide to deal adequately with the work
load?
3.2
pm
Dr.
Vincent Cable (Twickenham) (LD): It is a pleasure for me,
too, to serve under your chairmanship, Mr. Wilshire. I also
pay tribute to those people who have treated the project as a labour of
love, devoting large chunks of their professional lives to an exercise
that most of us would not find terribly exciting, although the work is
clearly important and useful. I single out Lord Howe for his
work.
I have an
answer to the question posed by the hon. Member for Rayleigh about the
world championshipin length of legislation. We have surpassed
India. I understand that they are languishing in second place with a
mere 9,000 pages of tax law. I have a passing familiarity with the
Indian tax system for family in-law reasons, and getting to grips with
it is an act of mental torture. Someone with sadistic traits designed
the system, and the idea that we could have surpassed the Indians is
extraordinary.
My
focus is not on the top but on the bottom of the league. It would be
interesting to know why a country such as Germany, which is
economically bigger than Britain, with higher rates of tax as a share
of GDP and a notoriously legalistic approach to regulation, manages to
codify all its taxes in 1,500 pages; or why a country such as Sweden,
which shares the social democratic instincts of the UK Government, is
redistributive, has a complex wealth tax system and is assiduous in
blocking every loophole that rich people seek, manages none the less to
compress all its tax legislation into 700 pages. Even Governments with
similar objectives to ours have much simpler tax systems than ours, so
it might be useful if the Minister were to start by explaining why our
system is so lengthy and complex. After all, that is the reason why the
tax law rewrite project is so necessary.
The Minister may know from
previous exchanges that on these occasions I normally refer to the
regulatory impact assessment as a useful guide to what the Government,
or in the present case the taskforce, are doing. The assessment
produces a reassuring set of figures. The estimated cost of the tax law
rewrite project is £6 million over three years, which is a lot
of money, although the project employs highly specialised and expensive
consultants. The assessment none the less shows that there is a
potential gain of between£18 million and £70
million, depending on what assumptions one makes about the time saved
by tax advisors, who presumably then pass that on to their clients, so
there is a positive benefit-cost relationship.
I hate to introduce a note of
controversy into what is an otherwise thoroughly consensual event, but
I have some concerns. The Minister quoted the Chartered Institute of
Taxation in support of the project’s work, but I have seen a
more extended commentary by the institute that casts some worrying
doubts over what is emerging from the exercise. One paragraph in
particular provokes some questions that I hope the Minister can answer.
It
states:
“Rewriting
the legislation is only worth doing if it enables the users...to
understand the relevant point quicker or more easily. It is doubtful
whether this has been achieved. Not only does much of the old
legislation still remain in force (so one is forced to refer to two
lots of legislation rather than one) but the quality of the drafting of
both new and rewritten legislation is questionable, being long winded
and often imprecise (thus increasing the need for HMRC guidance). Often
old defined terms remain on the statute book and yet the draftsman
introduces new definitions with no case law background. By failing to
take the opportunity to simplify tax policy at the same time as
rewriting legislation the project has been a retrograde step and
increased complexity.”
I
find that a worrying and slightly bewildering conclusion. However, the
institute is an authoritative professional body, so I hope that the
Minister will be able to explain that view. Is the HMRC unable to
assimilate the good work that that the group does, or is it even on the
wrong track? I presume that there is a good explanation, so I hope that
the Minister will be able to help us with
that.
The hon. Member
for Rayleigh made several points, and I do not propose to extend the
Committee’s work by adding yet more. Lying behind his points was
an important general principle, which is that the purpose of the tax
rewrite project is not to make tax policy, but to codify and simplify.
Questions have been raised about one or two of the
provisions—the one that I identified was change 116, which
relates to the definition of residency. That is a fairly small change,
although some tax practitioners have asked whether it ventures a little
into policy, albeit on a small
scale.
With those
qualifications, I add my support to what is almost a self-evidently
desirable project—that of simplifying an excessively complex tax
system.
3.8
pm
Mr.
Mark Field (Cities of London and Westminster) (Con): This
is the first time and, I suspect, the last that I shall say that the
Chartered Institute of Taxation took the words right out of my mouth,
albeit indirectly via the hon. Member for Twickenham. The process would
seem not exactly to be pointless, but to have little long-term use if
it is not to be a codification. In other words, as my hon. Friend the
Member for Rayleigh pointed out, unless we could get rid of the yellow
tax handbook—at least in relation to income tax provision, which
the 968 clauses in the Bill deal with—the process would seem to
have relatively little point.
All of us agree that the tax
law rewrite project is worth while. Taxation in a complicated society
needs to simplified and clarified. It is easy to make narrow political
points, as Opposition Members inevitably do, about the complexity of
taxation. I would like every Chancellor of the Exchequer to see every
Budget as a way of simplifying tax and even abolishing a few taxes,
which is one of the most forthright ways of simplifying taxation as it
is. However, we live in a complicated society and there will be
inevitably complications; yet
unless the measure codifies the system in such a way
that large parts of the yellow book can be seen as redundant, it will
have relatively little point. I hope that the Minister will give
serious consideration to that issue, which both the hon. Member for
Twickenham and my hon. Friend the Member for Rayleigh raised.
My hon. Friend made a good
point about associated operations. They are something of a grey area,
which is an inevitable result of such a process. I accept the
Minister’s earlier words that there are no new provisions in the
Bill, but there is something of a grey area about whether the Bill will
apply beyond what has been in the handbook in the past. As part and
parcel of this process, I ask the Minister whether anything has been
deleted that was regarded as obsolete and therefore has helped to
simplify the income tax
code.
3.10
pm
John
Hemming (Birmingham, Yardley) (LD): I am perhaps unusual
in that in a previous form of life I was a tax computer programmer. It
was my responsibility to translate rather vague statute into computer
programmes. Obviously, computer programmes are precise; sometimes they
are precisely right and sometimes precisely wrong. The challenge for
the project, as raised by my hon. Friend the Member for Twickenham and
the Chartered Institute of Taxation, is whether we are going forward
and simplifying the process or whether we are layering more
complexityon top.
There is a Government website
called “Statute Law”, which sadly is not up to date
although it went live relatively recently. It has the statutes on it,
but the website says they are about three or four years out of date. A
sensible way forward for the Government is to use that central approach
and to accept that we have certain bases of law—tax code,
children’s law, or whatever else it may be—that should be
standardised so that we have one source of information. In the UK we
have particularly complex case law and common law, which are very
difficult animals to deal with.
We need more precision in the
process. Formulaeare gradually appearing in statutes and there
is an argument for more of that. Maybe mine is a special argument from
someone with a background as a computer programmer, but it would make a
computer programmer’s job easier if a form of mathematics was
used more commonly in statute. That is essentially what we are
discussing: working out how much people owe the Government. Sadly, it
is sometimes a lot of money, but that is part of life. We need to do
that for services and associated areas—hence my membership of my
political party. There is a challenge here for the
Government.
Mr.
Francois:
May I reassure the hon. Gentleman by informing
him that if he wants formulae, he should look at some of the
regulations that were issued following the introduction of real estate
investment trusts, which were included in the last Budget? If he did
so, he would have reached nirvana by the end of the
evening.
John
Hemming:
I participated in the scrutiny of the Bill that
became the Finance (No.2) Act 2006 and was, in part, in nirvana
throughout proceedings on that Bill.
When considering formulae and simplifying the process, there are
variables that appear and we often end up defining the same
calculations in many different places. That is the problem with
simplification and the calculations that are gone through to simplify.
We have not solved that problem entirely, but we are moving forward and
taking sensible steps. However, there is a long way to
go.
3.13
pm
John
Healey:
I am glad that the hon. Member for Rayleigh is on
the Committee. He made much the same speech as the present shadow
Chancellor, the hon. Member for Tatton, did on the last Bill. I hope
that the hon. Gentleman gets the promotion he is obviously looking for.
I welcome his recognition of the expertise in the work of the rewrite
project and I am gratefulto him for notifying me of the areas
that he was concerned
about.
On the accrued
income scheme, we have not introduced clauses at this stage of the
process before on a tax rewrite Bill. I confirm that they are a rewrite
of existing provisions and they are in line with the project and its
established practices. The Joint Committee will give the measures
particular attention when it considers the Bill and I am confident that
it will give him and the House the assurances he is looking
for.
The hon.
Gentleman asked for more background. The provisions did not come
completely out of the blue from the tax law rewrite project; they had
previously been proposed but were dropped during the later stages of
the last rewrite Bill. The draft legislation rewriting the provisions
was published for consultation as part of the early stages of that last
Bill in March 2004. They were not included in the final Bill because we
thought that there might be significant policy changes in that area,
which did not materialise. Given that this is the last income tax Bill
being handled by the tax law rewrite project, it seemed appropriate,
given that the provisions are totally within the terms of the project,
to include them in this rewrite Bill rather than deal with the matter
in the Finance Bill. As the hon. Gentleman would expect, all of that
was discussed and agreed with the project’s external steering
Committee.
The
Chairman:
Order. If the Minister has finished responding
to that point—I think that that exchange was in order—may
I make it absolutely clear to the Committee that no amendments have
been tabled yet? That is a
technicality.
John
Healey:
Thank you, Mr. Wilshire, for that
helpful clarification. Perhaps I did not make it clear that the
amendments are proposed to the Joint Committee and that they do not
form a part of the Bill, nor are they to be formally considered at this
stage.
Mr.
Francois:
I thank the Minister for giving way. I am
grateful for his assurance that the Joint Committee will pay
particularly close attention to the clauses. It was important to get
that on the record and I am pleased that he has done that. I hope that
our operating in this consensual manner has been to the benefit of the
project and will make it work better.
John
Healey:
I thank the hon. Gentleman for those comments. I
hope that we can make similar progress on his next point about the
ambiguity, in section 742(1) of the Income and Corporation Taxes Act
1988, of the meaning of an “associated operation” in
relation to the transfer of assets legislation. When we considered and
discussed that in preparation for the rewrite Bill, there was clear
agreement that the drafting is ambiguous. The proposals from the
rewrite project make the definition clear.
Those proposals have been
carefully considered by the steering committee and the consultative
committee. If the hon. Gentleman wants to pursue this matter, he can
look at the papers that were prepared for those committees, which are
published on the HMRC website. If he does, he will see that the project
took the view, which was endorsed by the committees, that the clarity
of the definition could be taxpayer-adverse in principle, but is not
likely to be so in practice. That is because the HMRC interprets the
definition, which I shall not read out, in the wider way, as did the
Inland Revenue before it. The HMRC is not aware of anyone proposing a
narrower definition to it, and its approach is supported by both
judicial comment in case law and “Whiteman on Income
Tax”—another expert in the field. I assure the hon.
Gentleman that the change is within the project’s remit and that
the committees agree on
that.
The hon.
Gentleman asked about the work programme ahead and the concerns that
some of the organisations involved have raised. Before I get into that,
let me address the general point raised by the hon. Member for
Twickenham when he questioned the value of the tax law rewrite project.
If we believed that there was no value in the project, or if that were
clearly the general view, we would not continue with it. More
importantly, if the tax experts and the users of the legislation felt
that the project was not valuable, they would cease to contribute to
it. That is the important
test.
Dr.
Cable:
I have no personal view and I am notan
expert in the matter. I was merely quoting the comments of the
Chartered Institute of Taxation, which is a weighty and highly relevant
body. I would have thought that the Minister should answer to the
institute, rather than to me personally.
John
Healey:
Indeed, the institute is an important and weighty
body, and from the start of the project in 1996 it has made a valuable
contribution to the project’s work, and continues to do so. When
it has concerns, the project team or other officials are always ready
to discuss
them.
Change 116 has
been specifically discussed by the project steering group. It was
discussed in July and the papers are on the website if the hon.
Gentleman wants to consult them in detail. The group is content that
the change is in order and in line with the project. I have the good
fortune to be a member of the Joint
Committee and if it sits at the next stage of the process I will ensure
that it considers the point that the hon. Gentleman
raised.
Finally, the
hon. Member for Cities of London and Westminster asked specifically
whether the Bill will remove obsolete legislative provisions. The
answer is yes, and the total number of provisions that it will remove
is 49.
There is work
ahead—the hon. Member for Rayleigh was correct—and it
does not come to an end with the Bill. Substantial work is already
under way on the rewrite of corporation tax. Early last year, we
published approximately 400 draft clauses for comment, and we are
carefully considering the comments that we have received. I expect that
it will be possible to rewrite corporation tax in two Bills, the first
of which should be ready in autumn 2008. I anticipate that it will then
be possible to reduce the time for the work on the second Bill, so that
we can aim for it to be ready a year later, in autumn 2009. I am aware
of the concern that some professional bodies have expressed about the
volume of consultation, so we are considering with them ways of
streamlining the process without losing any of the quality of the
consultation and deliberation. The first corporation tax Bill will
continue on its four-year schedule and there will be plenty of time to
deal with any associations that may have concerns about the nature and
volume of consultation before we reach that
point.
Mr.
Francois:
I am grateful for the Financial
Secretary’s courtesy and I thank him for his clarification of
the future work programme. I am pleased that he has taken the point on
board, and we will see how the matter plays out in
practice.
I shall be
grateful if the Financial Secretary answers my earlier question: is it
true that we now have the longest tax code in the developed world? Yes
or
no?
John
Healey:
My job as a British Minister is to concentrate on
getting to grips with British tax legislation. Unlike the hon. Members
for Rayleigh and for Twickenham, I have not had the benefit of studying
the Indian tax
code.
The
Chairman:
Now that we have reached the end of the debate,
I suppose that it is safe for me to confirm that Mr.
Francois was indeed correct—this was an open-ended debate that
could have continued for as long as the Committee wanted, to which end
the Clerk provided me with a draft sittings motion, which the Committee
will be pleased to hear is now not
needed.
Question
put and agreed
to.
Ordered,
That
the Chairman do now report to the House that the Committee recommends
that the Income Tax Bill ought to be read a Second
time.
Committee
rose at twenty-four minutes past Three
o’clock.
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