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Mr. Redwood: That just shows the muddle that the Liberal Democrats are in. On the one hand they say that they want to join the Government and the official Opposition in trying to expedite people getting this tax relief for the purpose of enfranchisement, and in his next breath the hon. Gentleman says that it might not be a good idea to let them have that freedom because they might make a mess of it. Once again, we see that the Liberal Democrats do not actually believe in
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freedom at all. They do not believe that people are intelligent or able to make their own decisions; they believe that they have to micromanage decisions from Parliament. It would be even better if the Liberal Democrats got out of their muddle by agreeing with the Government and the Opposition. People should have the right to enfranchise their lease and buy the freehold, and they should be able to do so free of tax. We could then say to all those seeking to interpret the will of the House that the whole House was united, not just the two major parties.

I would like to make one new point during this brief debate. While Ministers are trying to get the right legal advice and put the right form of words into the necessary provisions so that the will of the House five years ago and now can be properly enforced, they could have a word with the Revenue, which is becoming far too aggressive. Given that it is the House’s intention that such transactions should be exempt, the Revenue should not be pursuing and hounding people by taking up cases at considerable expense, with much legal advice, against the clear wish of the House of Commons that such transactions should be exempt. That would give a little more time for those who wish to get on with their lives and buy their share of the freehold, while the Government’s lawyers get their act together and introduce the necessary wording.

It beggars belief that it has taken more than five years to carry out something relatively straightforward such as giving the leaseholders of Britain the opportunity to buy a modest share of their freehold for a modest sum without being taxed as if they were multi-millionaires carrying out a big transaction. I hope that Ministers will soon find a way to do so.

Angela Eagle: I hope that I can cast some light on what is a complex problem, as I have discovered recently. I have to thank the hon. Member for South-West Hertfordshire (Mr. Gauke) for bringing it to my attention and causing me to look back at what has been going on during the past five years.

As far as I can tell, the issue is not defective legislation but the difficulty in putting into effect provisions that allow right-to-enfranchise legislation to be commenced. I hope that I will be able to explain at least in passing—I do not feel qualified to go into great detail as the matter is being dealt with by the Department for Communities and Local Government—at least some of the issues. I thank the hon. Gentleman for bringing the matter to the attention of the Committee; he has done the right thing.

We have considered the proposed new clause to amend section 74 of the Finance Act 2003, which deals with stamp duty land tax treatment of collective enfranchisement. The hon. Gentleman was right to set out the background, including the fact that section 4A of the Leasehold Reform, Housing and Urban Development Act 1993, which was introduced by the Commonhold and Leasehold Reform Act 2002, defined and made provision for what was known as a right-to-enfranchise company. The provisions sought to resolve a problem whereby qualifying leaseholders were being deliberately excluded from purchasing a share of the freehold by other leaseholders. Under the right-to-enfranchise provisions, leaseholders proposing an application for collective enfranchisement must first form a company, which then makes an application
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and becomes the new owner of the freehold. Under the RTE company provisions, all leaseholders—and this is the point, I think—must be invited to take part in the application to prevent the exclusion of qualifying leaseholders.

Section 74 of the Finance Act 2003 was designed to ensure that when an RTE company purchased a freehold, the rate of stamp duty land tax was set by the value of the aggregate consideration divided by the number of flats in respect of which the right of collective enfranchisement had been exercised. As hon. Members have said, that would bring the rate of stamp duty land tax broadly into line with the rate that would have been charged had each share of the freehold been purchased separately.

As Opposition Members have pointed out, section 74 of the 2003 Act has not yet taken effect because section 4A of the 1993 Act, on which it depends, has still to be commenced. A number of practical difficulties have emerged that require further work and consideration. The issues involved are not directly relevant to the Finance Bill, and I can outline them, and their effect on what is proposed by the new clause, only briefly. The main difficulty in implementing the provisions in section 4A of the 1993 Act has been how to resolve disputes that may arise concerning the fair apportionment of costs of acquiring the freehold and the expenses of the RTE process among participating members. Failure to resolve that practical difficulty could allow members of the RTE company to offer unfair terms to particular leaseholders in order to exclude them from participating.

6.45 pm

It had originally been envisaged that RTE company members could agree on how such costs would be apportioned and that normal company law mechanisms would be available to enforce those agreements and determine any disputes arising. However, legal advice received indicated that there were a number of problems with that approach. First, company law mechanisms could not be used to determine the terms upon which tenants were able to participate in an enfranchisement action. Those had to be settled outside of the mechanisms and such terms should be clear to tenants at the outset of the process when they decided to become members of the company that would purchase the freehold on their behalf. That matter is currently being worked on.

Moreover, human rights issues arise because the right to enfranchise is a civil right, which means that in the event of a dispute about such rights, the person concerned would have a right to go to court if there were no mechanism under the legislation for resolving such disputes. It is a matter of attempting to work out in detail how such mechanisms can be put in place, but not by using existing company law, unfortunately; it seems that it will not be available for such use. I understand that it is work on those issues that has caused the problem. RTE commencement lies at the end of a long process, which has involved 12 consultation papers on the 2002 Act, and 18 sets of associated regulations to bring most of the rest of it into effect in phases. I suspect, although I do not know for certain, that the most difficult bit has been left until last because it is causing such difficulties. I am told that it is being worked on with commitment, and it is hoped that the matter will be resolved.

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The Government believe that it would be wrong to amend section 74 of the Finance Act 2003 to break the link with the RTE company at this stage. Further investigation has been done to explore whether the RTE provisions can be made to work. If they can, that would be preferable to a different kind of fix, for the reasons hinted at by the hon. Member for South-East Cornwall (Mr. Breed).

The Government will do further work on consideration of the best way to resolve these complex issues, including whether a clause in next year’s Finance Bill is necessary. The Government have received only a handful of representations on the matter, and the Treasury and HMRC have received none on section 74 of the 2003 Act. I thank the hon. Member for South-West Hertfordshire for bringing it to my attention, however. I am now more aware of the matter than I would have been. Given that I have explained some of the difficulties and said that we may be willing to consider a change to next year’s Finance Bill—once we have seen how the Department for Communities and Local Government has wrestled with the problems—I hope that he will not press the motion to a vote.

Mr. Gauke: I thank the Exchequer Secretary for her thanks to me and for an informative answer, which set out the problem. I am not sure whether that was previously on the record, so it is helpful for the Committee to have a better understanding of the problem. I did not realise that the Human Rights Act 1998 was part of the reason for our inability to tackle the matter previously.

I also acknowledge that the subject has largely been a matter for the Department for Communities and Local Government. However, given that, if Departments do not work, the Treasury tends to step in and sort out the matter—that is my understanding of the way in which things work—it is right to debate the subject during consideration of the Finance Bill.

The Exchequer Secretary states that we are considering not defective legislation but practical problems. However, if legislation cannot come into force after five years, it fulfils the definition of defective. I note that the Exchequer Secretary does not rule out the possibility of breaking the link between RTE companies, a right to collective enfranchisement and section 74 of the Finance Act 2003. I am therefore not convinced that there is a difficulty with pursuing that route. The matter could have been tackled in the past five years, but that has not happened. I see no reason for waiting a sixth year and I would like to press the new clause to a Division.

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

The Committee divided: Ayes 130, Noes 321.
Division No. 159]
[6.50 pm


Afriyie, Adam
Ainsworth, Mr. Peter
Ancram, rh Mr. Michael
Arbuthnot, rh Mr. James
Atkinson, Mr. Peter
Baldry, Tony
Baron, Mr. John
Bellingham, Mr. Henry
Benyon, Mr. Richard
Beresford, Sir Paul
Binley, Mr. Brian
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Bottomley, Peter
Brady, Mr. Graham

Brazier, Mr. Julian
Burns, Mr. Simon
Burt, Alistair
Campbell, Mr. Gregory
Carswell, Mr. Douglas
Cash, Mr. William
Chope, Mr. Christopher
Clappison, Mr. James
Clark, Greg
Crabb, Mr. Stephen
Curry, rh Mr. David
Davies, David T.C. (Monmouth)
Davies, Philip
Davis, rh David (Haltemprice and Howden)
Dodds, Mr. Nigel
Dorrell, rh Mr. Stephen
Dorries, Mrs. Nadine
Duncan Smith, rh Mr. Iain
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Fallon, Mr. Michael
Field, Mr. Mark
Francois, Mr. Mark
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Gray, Mr. James
Greening, Justine
Gummer, rh Mr. John
Hague, rh Mr. William
Hammond, Mr. Philip
Hammond, Stephen
Hands, Mr. Greg
Harper, Mr. Mark
Hayes, Mr. John
Heathcoat-Amory, rh Mr. David
Hendry, Charles
Hoban, Mr. Mark
Hogg, rh Mr. Douglas
Hollobone, Mr. Philip
Holloway, Mr. Adam
Horam, Mr. John
Howarth, Mr. Gerald
Hurd, Mr. Nick
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Kawczynski, Daniel
Key, Robert
Kirkbride, Miss Julie
Knight, rh Mr. Greg
Laing, Mrs. Eleanor
Lancaster, Mr. Mark
Lansley, Mr. Andrew
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Lilley, rh Mr. Peter
Llwyd, Mr. Elfyn
Luff, Peter
Mackay, rh Mr. Andrew
Maclean, rh David
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Moss, Mr. Malcolm
Murrison, Dr. Andrew
Newmark, Mr. Brooks
Paice, Mr. James
Penning, Mike
Penrose, John
Pickles, Mr. Eric
Price, Adam
Prisk, Mr. Mark
Pritchard, Mark
Redwood, rh Mr. John
Robathan, Mr. Andrew
Robertson, Hugh
Robertson, Mr. Laurence
Robinson, rh Mr. Peter
Rosindell, Andrew
Scott, Mr. Lee
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, Mr. Keith
Spicer, Sir Michael
Spink, Bob
Stanley, rh Sir John
Steen, Mr. Anthony
Streeter, Mr. Gary
Stuart, Mr. Graham
Swayne, Mr. Desmond
Syms, Mr. Robert
Taylor, Mr. Ian
Tredinnick, David
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Viggers, Peter
Walker, Mr. Charles
Wallace, Mr. Ben
Walter, Mr. Robert
Watkinson, Angela
Whittingdale, Mr. John
Widdecombe, rh Miss Ann
Wiggin, Bill
Wilshire, Mr. David
Wilson, Sammy
Winterton, Ann
Wright, Jeremy
Young, rh Sir George
Tellers for the Ayes:

Mr. John Randall and
James Duddridge

Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Alexander, Danny
Alexander, rh Mr. Douglas
Allen, Mr. Graham
Anderson, Mr. David
Anderson, Janet
Atkins, Charlotte
Bailey, Mr. Adrian
Baird, Vera
Baker, Norman
Balls, rh Ed
Banks, Gordon
Barlow, Ms Celia
Barrett, John

Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Beckett, rh Margaret
Begg, Miss Anne
Beith, rh Mr. Alan
Bell, Sir Stuart
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blears, rh Hazel
Blizzard, Mr. Bob
Borrow, Mr. David S.
Bradshaw, Mr. Ben
Brake, Tom
Brennan, Kevin
Brooke, Annette
Brown, Lyn
Brown, rh Mr. Nicholas
Brown, Mr. Russell
Browne, rh Des
Browne, Mr. Jeremy
Bruce, rh Malcolm
Buck, Ms Karen
Burgon, Colin
Burnham, rh Andy
Byers, rh Mr. Stephen
Byrne, Mr. Liam
Caborn, rh Mr. Richard
Campbell, Mr. Alan
Campbell, rh Sir Menzies
Campbell, Mr. Ronnie
Caton, Mr. Martin
Cawsey, Mr. Ian
Challen, Colin
Chapman, Ben
Chaytor, Mr. David
Clapham, Mr. Michael
Clark, Ms Katy
Clarke, rh Mr. Tom
Clelland, Mr. David
Clwyd, rh Ann
Coffey, Ann
Cohen, Harry
Cooper, Rosie
Cooper, rh Yvette
Corbyn, Jeremy
Cousins, Jim
Crausby, Mr. David
Cruddas, Jon
Cryer, Mrs. Ann
Cummings, John
Cunningham, Mr. Jim
Cunningham, Tony
Curtis-Thomas, Mrs. Claire
Davey, Mr. Edward
David, Mr. Wayne
Davidson, Mr. Ian
Davies, Mr. Dai
Davies, Mr. Quentin
Dean, Mrs. Janet
Denham, rh Mr. John
Devine, Mr. Jim
Dhanda, Mr. Parmjit
Dismore, Mr. Andrew
Dobbin, Jim
Dobson, rh Frank
Donohoe, Mr. Brian H.
Doran, Mr. Frank
Dowd, Jim
Drew, Mr. David
Durkan, Mark
Eagle, Angela
Eagle, Maria
Efford, Clive
Ellman, Mrs. Louise
Ennis, Jeff
Etherington, Bill
Farrelly, Paul
Featherstone, Lynne
Field, rh Mr. Frank
Fisher, Mark
Fitzpatrick, Jim
Flint, rh Caroline
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gapes, Mike
George, rh Mr. Bruce
Gibson, Dr. Ian
Gidley, Sandra
Gilroy, Linda
Godsiff, Mr. Roger
Goggins, Paul
Goldsworthy, Julia
Goodman, Helen
Griffith, Nia
Griffiths, Nigel
Gwynne, Andrew
Hall, Mr. Mike
Hall, Patrick
Hamilton, Mr. David
Hamilton, Mr. Fabian
Hancock, Mr. Mike
Hanson, rh Mr. David
Harris, Mr. Tom
Havard, Mr. Dai
Healey, John
Heath, Mr. David
Hemming, John
Henderson, Mr. Doug
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
Hodgson, Mrs. Sharon
Holmes, Paul
Hood, Mr. Jim
Hoon, rh Mr. Geoffrey
Hope, Phil
Hopkins, Kelvin
Horwood, Martin
Howarth, David
Howarth, rh Mr. George
Howells, Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Huhne, Chris
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Irranca-Davies, Huw
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, rh Alan

Johnson, Ms Diana R.
Jones, Helen
Jones, Mr. Kevan
Jones, Mr. Martyn
Jowell, rh Tessa
Joyce, Mr. Eric
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Mr. Charles
Kennedy, rh Jane
Khan, Mr. Sadiq
Kidney, Mr. David
Kilfoyle, Mr. Peter
Knight, Jim
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, Mr. David
Laws, Mr. David
Laxton, Mr. Bob
Lazarowicz, Mark
Lepper, David
Levitt, Tom
Lewis, Mr. Ivan
Linton, Martin
Lloyd, Tony
Love, Mr. Andrew
Lucas, Ian
MacShane, rh Mr. Denis
Mactaggart, Fiona
Malik, Mr. Shahid
Mallaber, Judy
Mann, John
Marris, Rob
Marsden, Mr. Gordon
Martlew, Mr. Eric
McAvoy, rh Mr. Thomas
McCabe, Steve
McCarthy, Kerry
McCarthy-Fry, Sarah
McDonnell, Dr. Alasdair
McDonnell, John
McFadden, Mr. Pat
McFall, rh John
McGovern, Mr. Jim
McKechin, Ann
McNulty, rh Mr. Tony
Meacher, rh Mr. Michael
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Milburn, rh Mr. Alan
Miliband, rh Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Moore, Mr. Michael
Moran, Margaret
Morden, Jessica
Morgan, Julie
Mountford, Kali
Mulholland, Greg
Mullin, Mr. Chris
Munn, Meg
Murphy, Mr. Denis
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
Norris, Dan
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Owen, Albert
Palmer, Dr. Nick
Pearson, Ian
Plaskitt, Mr. James
Pope, Mr. Greg
Pound, Stephen
Prentice, Bridget
Prentice, Mr. Gordon
Prescott, rh Mr. John
Primarolo, rh Dawn
Prosser, Gwyn
Purchase, Mr. Ken
Purnell, rh James
Rammell, Bill
Raynsford, rh Mr. Nick
Reed, Mr. Andy
Reed, Mr. Jamie
Reid, Mr. Alan
Reid, rh John
Rennie, Willie
Riordan, Mrs. Linda
Robertson, John
Robinson, Mr. Geoffrey
Rogerson, Dan
Rooney, Mr. Terry
Roy, Mr. Frank
Ruane, Chris
Ruddock, Joan
Russell, Bob
Russell, Christine
Ryan, rh Joan
Sanders, Mr. Adrian
Sarwar, Mr. Mohammad
Seabeck, Alison
Sharma, Mr. Virendra
Shaw, Jonathan
Sheerman, Mr. Barry
Simon, Mr. Siôn
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andy
Smith, rh Mr. Andrew
Smith, Angela E. (Basildon)
Smith, Geraldine
Smith, Sir Robert
Snelgrove, Anne
Soulsby, Sir Peter
Southworth, Helen
Spellar, rh Mr. John
Starkey, Dr. Phyllis
Stewart, Ian
Stoate, Dr. Howard
Strang, rh Dr. Gavin
Stringer, Graham
Stuart, Ms Gisela
Sutcliffe, Mr. Gerry
Swinson, Jo
Taylor, Ms Dari
Taylor, David
Thomas, Mr. Gareth
Timms, rh Mr. Stephen
Todd, Mr. Mark
Touhig, rh Mr. Don
Trickett, Jon
Truswell, Mr. Paul
Turner, Dr. Desmond
Turner, Mr. Neil
Vis, Dr. Rudi

Waltho, Lynda
Watson, Mr. Tom
Watts, Mr. Dave
Webb, Steve
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Mr. Alan
Williams, Mr. Roger
Willis, Mr. Phil
Wills, Mr. Michael
Wilson, Phil
Winnick, Mr. David
Winterton, rh Ms Rosie
Woodward, rh Mr. Shaun
Wright, Mr. Anthony
Wright, David
Wright, Mr. Iain
Wyatt, Derek
Younger-Ross, Richard
Tellers for the Noes:

Siobhain McDonagh and
Liz Blackman
Question accordingly negatived.
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Clause 117

Penalties for errors

Mr. Gauke: I beg to move amendment No. 1A, page 73, line 12, at end insert—

‘(3A) An order under subsection (2) may not be made until—

(a) the provisions of Schedule 24 to FA 2007 which are amended by Schedule 40 have been in force for not less than 12 months, and

(b) the Treasury has laid before the House of Commons a report setting out its assessment of the effectiveness of those provisions.’.

The Second Deputy Chairman of Ways and Means (Sir Michael Lord): With this it will be convenient to discuss the following amendments: No. 2A, line 23, at end insert—

‘(7A) A statutory instrument containing an order under subsection (2) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.’.

No. 3A, line 13, leave out subsections (4) to (6).

No. 4A, line 24, leave out subsection (8).

Mr. Gauke: It is a pleasure to speak on the issue of penalties. As with so much in this year’s Finance Bill, we have to go back to last year’s Bill to gain a full understanding, although I suspect that we shall not see quite the same drama that we saw in last night’s debate about income tax.

Schedule 24 of the Finance Act 2007 introduced a single new penalty regime for incorrect returns in respect of income tax, self-assessment, pay-as-you-earn, corporation tax, capital gains tax and VAT, which involved a common structure of stepped penalties depending on taxpayer behaviour. The provisions of schedule 24 of the 2007 Act were broadly well received. Those who can recall last year’s debate will remember the concern about the expression “HMRC think”, which was contained in the first draft of that Bill, but which was thankfully amended by the Government following representations from all parts of the House. However, there was little dispute about the common structure of stepped penalties.

Schedule 24 of the 2007 Act addressed only the main taxes, as they were described, and did not try to cover all taxes. Its provisions are only now coming into force, so that they will come into effect only for returns or documents due to be sent to HMRC on or after 1 April 2009. HMRC says that the new penalty regime is already having an effect. However, given the stage that we are at, it seems far too early to jump to any conclusions about the effectiveness of schedule 24 of the 2007 Act.

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