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This is the last stage of an extensive consultation process over two years, involving previous 12-week consultations, dozens of meetings with interested parties and workshops. Knowing that time would be tight in March, HMRC raised key issues in meetings with stakeholders and sought suggestions for improvements. Changes to the draft law were identified and action was taken before the consultation period closed. All written responses were considered in detail and several changes were made in the final few days, as parliamentary draftsmen were about to be commissioned. A full response document was published on 27 March.
Since 2005, the review has issued 13 consultations and has had meetings with representative bodies and interested parties, as well as exposing draft legislation. That is to be commended as a form of consultation on the Government’s intentions. HMRC has worked with representatives of business, the professions and low-income groups on guidance and codes of practice. For this year’s penalties changes, HMRC has made a particular effort to reach out to more specialist representatives for the particular taxes involved—for example, the oil, alcohol and insurance industries.
I wish to put on the record my thanks to all those who have given their time to participate in the development of the measures in the Bill, with particular thanks to those who attended meetings with HMRC throughout, which meant that issues could be considered and addressed at an early stage—
Jane Kennedy: I am about to come on to—
Mike Penning: Where are the missing Members?
Jane Kennedy: I did not mean Members of Parliament: I meant stakeholders and interested parties. I have some interesting quotations from some organisations—
Mike Penning: I apologise to the Minister, but I thought that she was talking about the missing Labour Members. One would think that they would be on the Back Benches to support her during the passage of the Bill.
Jane Kennedy: The hon. Gentleman is at liberty to make that point, but I am sorry that I gave way to him.
Mr. Newmark: I do not wish to rub salt into the Financial Secretary’s wounds, but it is strange that some 300 Labour Members are floating somewhere around the House, but not a single one is on the Back Benches—
The Temporary Chairman: Order. That is not a relevant intervention. The hon. Gentleman has made his point and I hope that the Financial Secretary will not take time to reply to it.
Jane Kennedy: I regret giving way and I am grateful for your guidance, Sir Nicholas.
Clause 117 is about creating a single penalty regime for incorrect tax returns to apply across taxes and duties administered by HMRC. It does that by extending the scope of schedule 24 of the Finance Act 2007 and
replacing the current separate and different regimes. The new penalties will be related to the amount of tax understated, the behaviour—as the hon. Member for South-East Cornwall (Mr. Breed) described—giving rise to the understatement and the extent of disclosure by the taxpayer. Much more of the penalty framework will be set out in primary legislation than in the past and, together with appeal rights, which I would have thought would be singled out for approval, to an independent tribunal against all penalties, that will ensure greater consistency.
These provisions will repeal the large number of different penalty regimes that are specific to particular taxes and can be confusing for the taxpayer. Amendment No. 1A seeks to postpone applying the new penalties for the additional taxes for 12 months and until the new regime’s effectiveness for the main taxes has been evaluated. Such a delay would be a huge missed opportunity to simplify, modernise and align penalties across HMRC, to enable clear deterrent messages to be sent and to move to a more effective and fair response to taxpayer errors.
Before the new penalties were even put forward for consideration in last year’s Finance Bill, HMRC undertook a review of settled cases, to assess the likely impact and effectiveness of the new penalties, and this, combined with international comparisons and the support of analysts and academic research, all helped in developing the overall structure. These penalties are a good example of evidence-based policy making.
In practice, holding introduction back by 12 months would actually mean three to four years’ delay, because meaningful evaluation could not be started until sufficient cases had been worked and completed. As with all proposals in the review of powers, deterrents and safeguards, the penalties reforms have been the subject of extensive consultation since 2006. The Institute of Chartered Accountants in England and Wales wrote:
“We think it would be sensible to have a single system of penalties for incorrect returns across the tax system”.
The Chartered Institute of Taxation concurred:
“We are pleased to note the proposals by HMRC to extend the Finance Act 2007 approach for the main taxes to other taxes, which is in line with our comments in earlier consultations.”
The Association of British Insurers, which is not always in favour of Government proposals, wrote:
“The benefits of aligning penalties for incorrect returns across taxes outweigh any difficulties.”
The Society of Trust and Estate Practitioners said in relation to inheritance tax:
“The principle of alignment of penalty regimes is logically sound and appropriate to the taxes that affect trusts, estates and their administration. It is appreciated that alignment of penalties will simplify the structure.”
I could continue with other such positive quotes, but I detect a degree of twitchiness in the Committee about the length of time that I am taking. However, this is an important debate and I wish to respond seriously to the measured points that have been made on occasion by Opposition Members.
Amendment No. 2A calls for the Treasury order commencing the penalties for the additional taxes to be made under the affirmative procedure. That would be contrary to the normal practice for commencement
orders in tax matters, which are usually made under the negative procedure. I can recall that between 1992 and 1997 I made similar points to those made by the hon. Member for South-West Hertfordshire and his colleagues. In those days, a popular way for the Opposition to extend the length of a debate was to make a routine and well worked complaint about the conduct of the Government. We learned the lesson of where the previous Government had got it right in terms of administering legislation, and we implemented that lesson.
Mr. Gauke: Is the right hon. Lady saying that she was wrong when she raised those points in opposition?
Jane Kennedy: I am saying that I learned a lesson. When I came into government, I was able to appreciate that the previous Government had done some things that were right. We therefore adopted those measures.
I see no sensible reason why an exception should be made in this matter. The order will simply set out the dates from which the new penalties will apply for the additional taxes and is expected to be very similar to the commencement order made in March this year for the 2007 penalties. We expect the order to state that the new penalties will apply to all the additional taxes at the same time. That will be for return periods starting on or after 1 April 2009. That is 12 months after the commencement of the 2007 penalties.
Moving swiftly on, amendments Nos. 3A and 4A would remove from clause 117 provisions to make incidental, consequential or transitional changes by Treasury order in connection with the new penalties for error. The use of those words has been picked up on by Opposition Members, but they are necessary phrases that form part of the legislative process. The fact that we have a Parliament indicates that legislation has to be revisited from time to time in the light of new circumstances in which it applies. The amendments would make the Treasury’s order-making power completely ineffective, presumably in an attempt to prevent the new penalties for errors from ever coming into effect for the additional taxes set out in schedule 40. They seem to contradict amendment No. 1A, which merely seeks to delay the start. It could be that that is a probing approach, and I am sure that we will return to the subject in Committee.
All the substantive changes to primary legislation are included in schedule 40, which is due to be debated at a later time. In order to have a smooth transition from the numerous old penalty regimes that are being repealed to the single new behaviour-based penalty regime for errors, a number of minor consequential and transitional changes to the law are required. I believe that they are minor, consequential and transitional changes. However, as I said at the beginning, I do not take an ideological or partisan position on these measures. I am listening to the representations made by the hon. Member for South-West Hertfordshire and by his hon. Friends, and those made by the hon. Member for South-East Cornwall.
If amendments Nos. 3A and 4A were accepted, that would leave the legislation unclear and untidy. Surely that cannot be right. I hope that the hon. Member for South-West Hertfordshire will withdraw his amendments. If he chooses not to do so, I am afraid that we must resist them.
Mr. Gauke: As ever, the Financial Secretary presents her case in a reasonable tone, but I will disappoint her as I have not been convinced by her arguments about protecting Parliament’s position in scrutinising legislation in this area or about the concerns that the consultation has been insufficient and the measures have been rushed through. She quoted the Institute of Chartered Accountants. If I may, I shall quote its remarks in its briefing for the Committee of the whole House. It said:
“The FA 2007 penalty provisions are far-reaching and we think it is right that these recently introduced provisions should be given time to bed down before consideration is given to extending them further.”
I intend to press amendments Nos. 1A and 3A to a vote. If it emerges that the Labour Back Benchers who attended the debate were so persuaded by my arguments that we are successful, I might look to press the other amendments to a vote. If that does not happen—that is a distinct possibility, given that there were no Labour Back Benchers present—I shall press only those two amendments.
Question put, That the amendment be made:—
The Committee divided: Ayes 168, Noes 297.
AYES
Afriyie, Adam
Ainsworth, Mr. Peter
Alexander, Danny
Ancram, rh Mr. Michael
Arbuthnot, rh Mr. James
Atkinson, Mr. Peter
Baldry, Tony
Barker, Gregory
Baron, Mr. John
Barrett, John
Bellingham, Mr. Henry
Beresford, Sir Paul
Binley, Mr. Brian
Blunt, Mr. Crispin
Bone, Mr. Peter
Boswell, Mr. Tim
Bottomley, Peter
Brady, Mr. Graham
Breed, Mr. Colin
Brooke, Annette
Browne, Mr. Jeremy
Burns, Mr. Simon
Burt, Alistair
Cable, Dr. Vincent
Campbell, Mr. Gregory
Carswell, Mr. Douglas
Cash, Mr. William
Chope, Mr. Christopher
Clappison, Mr. James
Clifton-Brown, Mr. Geoffrey
Crabb, Mr. Stephen
Curry, rh Mr. David
Davey, Mr. Edward
Davies, David T.C. (Monmouth)
Davies, Philip
Djanogly, Mr. Jonathan
Dodds, Mr. Nigel
Donaldson, rh Mr. Jeffrey M.
Dorrell, rh Mr. Stephen
Duncan Smith, rh Mr. Iain
Evans, Mr. Nigel
Evennett, Mr. David
Fabricant, Michael
Fallon, Mr. Michael
Featherstone, Lynne
Field, Mr. Mark
Francois, Mr. Mark
Fraser, Christopher
Gale, Mr. Roger
Garnier, Mr. Edward
Gauke, Mr. David
Gibb, Mr. Nick
Gidley, Sandra
Goodwill, Mr. Robert
Gray, Mr. James
Green, Damian
Greening, Justine
Grieve, Mr. Dominic
Gummer, rh Mr. John
Hague, rh Mr. William
Hammond, Mr. Philip
Hammond, Stephen
Hancock, Mr. Mike
Hands, Mr. Greg
Harper, Mr. Mark
Hayes, Mr. John
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
Holmes, Paul
Horam, Mr. John
Horwood, Martin
Hosie, Stewart
Howarth, David
Howarth, Mr. Gerald
Jack, rh Mr. Michael
Jackson, Mr. Stewart
Jenkin, Mr. Bernard
Kennedy, rh Mr. Charles
Key, Robert
Kirkbride, Miss Julie
Knight, rh Mr. Greg
Laing, Mrs. Eleanor
Lansley, Mr. Andrew
Letwin, rh Mr. Oliver
Lewis, Dr. Julian
Lidington, Mr. David
Lilley, rh Mr. Peter
Llwyd, Mr. Elfyn
Luff, Peter
Mackay, rh Mr. Andrew
Maclean, rh David
Main, Anne
Malins, Mr. Humfrey
Maples, Mr. John
Maude, rh Mr. Francis
McCrea, Dr. William
McIntosh, Miss Anne
McLoughlin, rh Mr. Patrick
Mercer, Patrick
Mitchell, Mr. Andrew
Moore, Mr. Michael
Mulholland, Greg
Mundell, David
Murrison, Dr. Andrew
Newmark, Mr. Brooks
Paice, Mr. James
Paterson, Mr. Owen
Penning, Mike
Penrose, John
Pickles, Mr. Eric
Price, Adam
Pritchard, Mark
Randall, Mr. John
Redwood, rh Mr. John
Reid, Mr. Alan
Rennie, Willie
Robathan, Mr. Andrew
Robertson, Angus
Robertson, Hugh
Robertson, Mr. Laurence
Robinson, rh Mr. Peter
Rosindell, Andrew
Russell, Bob
Sanders, Mr. Adrian
Shepherd, Mr. Richard
Simmonds, Mark
Simpson, David
Simpson, Mr. Keith
Smith, Sir Robert
Spicer, Sir Michael
Spink, Bob
Stanley, rh Sir John
Streeter, Mr. Gary
Stuart, Mr. Graham
Swayne, Mr. Desmond
Swinson, Jo
Syms, Mr. Robert
Taylor, Mr. Ian
Taylor, Matthew
Thurso, John
Tredinnick, David
Turner, Mr. Andrew
Tyrie, Mr. Andrew
Viggers, Peter
Villiers, Mrs. Theresa
Walker, Mr. Charles
Wallace, Mr. Ben
Walter, Mr. Robert
Watkinson, Angela
Weir, Mr. Mike
Whittingdale, Mr. John
Widdecombe, rh Miss Ann
Wiggin, Bill
Williams, Hywel
Williams, Stephen
Wilshire, Mr. David
Wilson, Sammy
Winterton, Ann
Wishart, Pete
Young, rh Sir George
Younger-Ross, Richard
Tellers for the Ayes:
James Duddridge and
Jeremy Wright
NOES
Abbott, Ms Diane
Ainger, Nick
Ainsworth, rh Mr. Bob
Allen, Mr. Graham
Anderson, Mr. David
Anderson, Janet
Atkins, Charlotte
Austin, Mr. Ian
Bailey, Mr. Adrian
Baird, Vera
Balls, rh Ed
Banks, Gordon
Barlow, Ms Celia
Barron, rh Mr. Kevin
Battle, rh John
Bayley, Hugh
Beckett, rh Margaret
Begg, Miss Anne
Benn, rh Hilary
Benton, Mr. Joe
Berry, Roger
Betts, Mr. Clive
Blackman, Liz
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
Burgon, Colin
Burnham, rh Andy
Byers, rh Mr. Stephen
Byrne, Mr. Liam
Caborn, rh Mr. Richard
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
Clarke, rh Mr. Charles
Clarke, rh Mr. Tom
Clelland, Mr. David
Clwyd, rh Ann
Coaker, Mr. Vernon
Coffey, Ann
Cohen, Harry
Connarty, Michael
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
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
Fisher, Mark
Fitzpatrick, Jim
Flint, rh Caroline
Flynn, Paul
Follett, Barbara
Foster, Mr. Michael (Worcester)
Foster, Michael Jabez (Hastings and Rye)
Francis, Dr. Hywel
Gapes, Mike
George, rh Mr. Bruce
Gibson, Dr. Ian
Gilroy, Linda
Godsiff, Mr. Roger
Goggins, Paul
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
Henderson, Mr. Doug
Hendrick, Mr. Mark
Hepburn, Mr. Stephen
Heppell, Mr. John
Hesford, Stephen
Heyes, David
Hill, rh Keith
Hillier, Meg
Hodge, rh Margaret
Hodgson, Mrs. Sharon
Hood, Mr. Jim
Hoon, rh Mr. Geoffrey
Hope, Phil
Hopkins, Kelvin
Howarth, rh Mr. George
Howells, Dr. Kim
Hoyle, Mr. Lindsay
Hughes, rh Beverley
Humble, Mrs. Joan
Hutton, rh Mr. John
Iddon, Dr. Brian
Irranca-Davies, Huw
James, Mrs. Siân C.
Jenkins, Mr. Brian
Johnson, rh Alan
Jones, Helen
Jones, Mr. Kevan
Jones, Mr. Martyn
Joyce, Mr. Eric
Keeble, Ms Sally
Keeley, Barbara
Keen, Alan
Keen, Ann
Kelly, rh Ruth
Kemp, Mr. Fraser
Kennedy, rh Jane
Kidney, Mr. David
Kilfoyle, Mr. Peter
Kumar, Dr. Ashok
Ladyman, Dr. Stephen
Lammy, 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
Martlew, Mr. Eric
McAvoy, rh Mr. Thomas
McCabe, Steve
McCarthy, Kerry
McCarthy-Fry, Sarah
McDonagh, Siobhain
McDonnell, Dr. Alasdair
McDonnell, John
McFadden, Mr. Pat
McFall, rh John
McGovern, Mr. Jim
McGrady, Mr. Eddie
McGuire, Mrs. Anne
McKechin, Ann
McKenna, Rosemary
McNulty, rh Mr. Tony
Meale, Mr. Alan
Merron, Gillian
Michael, rh Alun
Milburn, rh Mr. Alan
Miliband, rh David
Miliband, rh Edward
Miller, Andrew
Mitchell, Mr. Austin
Moffat, Anne
Moffatt, Laura
Mole, Chris
Moon, Mrs. Madeleine
Moran, Margaret
Morden, Jessica
Morgan, Julie
Morley, rh Mr. Elliot
Mountford, Kali
Mudie, Mr. George
Mullin, Mr. Chris
Murphy, Mr. Denis
Murphy, Mr. Jim
Murphy, rh Mr. Paul
Naysmith, Dr. Doug
Norris, Dan
O'Brien, Mr. Mike
O'Hara, Mr. Edward
Olner, Mr. Bill
Osborne, Sandra
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, rh John
Riordan, Mrs. Linda
Robertson, John
Robinson, Mr. Geoffrey
Rooney, Mr. Terry
Roy, Mr. Frank
Ruane, Chris
Ruddock, Joan
Russell, Christine
Ryan, rh Joan
Sarwar, Mr. Mohammad
Seabeck, Alison
Sharma, Mr. Virendra
Sheerman, Mr. Barry
Sheridan, Jim
Simon, Mr. Siôn
Simpson, Alan
Singh, Mr. Marsha
Skinner, Mr. Dennis
Slaughter, Mr. Andy
Smith, rh Mr. Andrew
Smith, Geraldine
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
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
Vaz, rh Keith
Vis, Dr. Rudi
Waltho, Lynda
Watson, Mr. Tom
Watts, Mr. Dave
Whitehead, Dr. Alan
Wicks, Malcolm
Williams, rh Mr. Alan
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
Tellers for the Noes:
Ms Diana R. Johnson and
Mr. Sadiq Khan
Question accordingly negatived.
Amendment proposed: No. 3A, page 73, line 13, leave out subsections (4) to (6).— [Mr. Gauke.]
Question put, That the amendment be made:—
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