The
Chairman: If hon. Members range a little wider than
discussing the specific amendments, and doing so will avoid the
necessity of a stand part debate, I am quite happy for them to do so,
because as the hon. Member for South-West Hertfordshire said, we get
down to the nitty-gritty of the matter in schedule
36.
Mr.
Gauke: I am grateful for your guidance, Sir Nicholas. I
shall take this opportunity to address some of the larger themes that I
think we all agree apply to schedule 36. I have no intention of
contributing to a stand part debate, because discussing the matter now
will allow me to address my
concerns. I
should like to draw two broad considerations to the Committee’s
attention: the first is on the process and the second is on the
practical application of the legislation that we will be debating. On
process, the hon. Member for Taunton has already mentioned the
consultation process. We touched upon it in the Committee of the whole
House. I do not intend to dwell on that point, other than to reiterate
that the consultation came to an end about a week before the Budget and
the announcement. To be fair to the Government, in the earlier stages
of the consultation, the perception among professional bodies was that
sufficient time was allowed. It was an adequate consultation process,
but it got rather hurried at the end. There are probably good reasons
for that. I suspect that there was a delay in the commencement of the
consultation because of other pressure on HMRC around the end of last
year.
What appears
to be happening—we saw this in last year’s Finance Bill
and I think we will see it in a future Finance Bill—is a sort of
drip-drip effect of provisions relating to HMRC powers. That raises two
concerns. First, the nature of the provisions that we shall debate
today are rather different from most of the provisions that we have
debated so far on this Bill. This is a money Bill. It is about the
Government raising revenue. The provisions in part 7 are more in the
nature of balancing the liberties and rights of individual taxpayers
and advisers and efficacy for a Government Department to perform its
functions. That is different from what a money Bill normally addresses.
There is a point as to whether it is entirely right that we do this
within a Finance Bill.
The Minister
may well make the point that it has always been this way, including
under Conservative Governments. That would be true, but this is a more
fundamental and comprehensive reform of HMRC powers than we have seen
for many years. We are seeing it bit by bit. The significance of it
being a money Bill is that the other place does not get an opportunity
to review and scrutinise it. That is not to say that the proceedings in
this Committee Room are inadequate, but it is to some extent less
scrutinised than most Bills are, because only one Chamber has an
opportunity to look at it. Some of these provisions would fit more
easily in a tax administration Bill than a Finance
Bill. I
am well aware that there are always pressures on Government Departments
and that Ministers fight for parliamentary time, but there is a
legitimate concern that is widely held among the professional
community. Related to that is a concern about quite where we are going.
We are getting substantial bodies of provisions every year. We have
seen it this year and we will see it again in future years. There is a
slight sense of uncertainty among professional advisers about where we
will end up. Is there a strategic vision of where HMRC’s powers
will be in four or five years’ time, so that we can know where
we are going and assess whether that is the right direction?
If I float
this idea, it is not a commitment. One way of addressing both of those
points is to work through the process and at some point when it is
completed to see
whether there is an argument for trying to consolidate all the
provisions in various Finance Acts that have changed HMRC’s
powers in one Bill, which is then looked at again. It will not be a
money Bill and will be taken through both Houses and there will be an
opportunity to review it in the other place. I float that idea without
stating it as party policy or as an objective. I am conscious that this
is likely to be relevant in about four years’ time, so it is a
matter that both parties will have to look at closely. It is worth
considering. My
second point concerned the practical application. We will go through in
detail the various provisions and the issues that were touched on by
the hon. Member for Taunton, but the perception—if I can put
this in the broadest terms—is that there may be a need for some
sort of harmonisation of powers, given the merger of Customs and Excise
and Inland Revenue. There is a case for the provisions as a whole, but
harmonisation has tended towards where a particular part of HMRC has
the widest powers. I am sure that in the course of our debates the
Financial Secretary will highlight exceptions, but that undoubtedly is
the perception. In the consultation process, HMRC said that that was
not its objective, but the impression that is widely held out there is
that it
is. 2.30
pm A
further practical point is that the process is being referred to as
powers, deterrents and safeguards. In the Bill, we have plenty about
powers and deterrents, but precious little about safeguards. The
Government say that guidance will be published and there will be a
taxpayers charter, but those safeguards will not be statutory. Guidance
can be changed; it is not set in stone. There is not the same
parliamentary scrutiny, and that relates to one of the points made
about the Liberal Democrat amendments on parliamentary approval for the
transitional arrangements. Therefore, there are concerns. However, in
this debate, we have an opportunity for some kind of
reassurance. I
suspect that, out of the whole of Bill, the proceedings of this
afternoon’s sitting may prove to be those that are read most
closely by the professional bodies, the accountancy profession more
widely and taxpayers. This afternoon will be important because there
will be the opportunity—certainly Opposition Members will be
keen to give the Financial Secretary as great an opportunity as
possible—to address my concern that, although some of the powers
in schedule 36 are widely accepted as being reasonable in some
circumstances, when dealing with fraudsters, for example, if more
widely applied—using a one-size-fits-all approach—they
could be abused, or would be inappropriate. We will be looking for the
Financial Secretary—she always adopts an emollient and
reasonable tone—to reassure those who will read the proceedings
that, in some of the specific cases, the powers in the Bill will be the
limit but not necessarily the norm.
That is an
important distinction because there is always a tendency—I spoke
to a former senior Revenue and Customs official this week—to
work to the limit of one’s powers. That is understandable; if
one has particular powers one uses them. If one does not use the powers
one has, one fears that they might be lost. Life seems easier if they
are used. If some of the powers in the Bill are what HMRC can do in
exceptional circumstances, they are entirely reasonable. If they are
what HMRC
does as a matter of course, they will cause concern. We will be looking
for clarification from the Financial Secretary—for the official
record—on precisely how the powers will be used. That would be
helpful. It
is also worth saying that, as politicians, we have to appreciate how
stressful it can be for business people to be investigated by HMRC. The
process can take a long time. I spoke to the Federation of Small of
Businesses yesterday and it estimates that the average inquiry by HMRC
is 23 months long. I think that the HMRC target is for inquiries not to
last more than 18 months. Within that average figure, there will be a
large number of cases that count as inquiries but are opened and closed
almost simultaneously, so I am sure that there are a lot of substantial
cases that are longer than 23 months. That is an unofficial
figure and if it is wrong, I am sure that the Minister will correct me,
which will be helpful for the Committee. Those inquiries are a
stressful experience and can last a very long
time. HMRC
is under pressure. Reference has been made to the lost disks incident,
which created its own pressures but is perhaps indicative of particular
pressures that HMRC was feeling. There are many reports of how low
morale is, and HMRC has had to face a lot of organisational challenges
in recent years with a merger, the Lyons report, the Gershon savings
and changes in senior management.
As a Member
of Parliament and a Treasury Front Bencher, I have had queries from
constituents and people who are dissatisfied with the treatment that
they have received from HMRC. No doubt the Minister also receives
plenty of complaints—they may well be exceptional but there is
no doubt that they are out there. We need to be alive to the concerns
that exist regarding HMRC, and handing substantial powers to that
organisation creates other concerns. As I said, this is an opportunity
for the Minister to address some of them.
Those are my
general remarks and I hope that they set some sort of context for the
debates that we are going to have. I shall refer briefly to amendments
Nos. 188 and 189, which touch on two themes. The first is a sense of
greater parliamentary approval, because, as I said earlier, the
safeguards are not in the Bill—they are not statutory
safeguards. There may be an argument more generally that Parliament
should have greater control over what those safeguards are and that,
for these purposes, can include transitional
provisions. There
is also an issue with transitional provisions. It is one of those cases
where it is easier to identify the problem than to come up with a
solution. If in April 2009 HMRC is suddenly to have more powers than it
does currently, the strong temptation for its staff involved in an
investigation will be to soft-pedal until they get to April 2009 and
then make use of the additional powers. A former senior Revenue man
made that point and said that that was what he would have done as an
investigator. It is not particularly discreditable, but it causes a
concern as delay is in itself stressful.
The problem
with transitional provisions is that, whether they are contained in
legislation or in guidance, it is very difficult to run two different
systems simultaneously. A particular case that started one day exists
under one set of rules and a case that starts a week later is run under
a different set of rules. I do not know if the Minister wants to
address the practical concerns about that and whether it is in reality
and in the view of HMRC particularly difficult to run two parallel
systems.
I am grateful
for your guidance, Sir Nicholas, enabling me to broaden the debate. I
look forward to the debate this afternoon and to what the Minister will
say to provide reassurance to the many people who will be reading the
debate
closely.
Peter
Viggers: We are here to discuss the detail of the Finance Bill, and
I assume that the usual channels, when selecting Members to sit on the
Committee, chose those who have some special knowledge or interest in
financial matters. Basically, we are here to discuss the detail of
raising tax for the Government. We have not been chosen for our special
knowledge of human rights. Indeed, next week the House will discuss the
right to detain individuals in custody for a certain period, which has
attracted a massive amount of attention. The measure enshrined in
clause 108 also needs to be given that degree of scrutiny and
consideration, because it will affect human rights widely. The
provisions of schedule 36, which the clause will implement, have a very
general application. I support the amendment moved by the hon. Member
for Taunton, which would have the effect of broadening the debate on
the issue, so that it is not taken only as part of the considerations
of a Finance Bill, here on a Thursday
afternoon. There
are a number of fundamental rights involved in clause 108 and schedule
36, and detailed concerns have been expressed by a range of bodies,
including the Chartered Institute of Taxation. There was consultation
on schedule 36 provisions, which will implement these broad powers, but
I have been advised that HMRC’s consultation period finished
only days before the Budget, which led some to consider that it did not
give adequate time for the issues to be properly considered. Indeed,
that might lead cynics to think that the consultation exercise was not
a genuine consultation in which the views of those consulted were taken
into account and that those who made the consultation procedure
available had come to a firm view in advance. The extent to which the
proposals for inspection powers and record keeping rely on secondary
legislation and HMRC interpretation through guidance is worrying,
giving rise to a lack of protection afforded to the taxpayer.
I did not
know that Customs, as it was then called, had such massive powers until
I dealt with a particular constituency case. I will give some details
about that case simply because they show how arbitrary HMRC can be, and
I ask hon. Members to consider how different this is from the normal
process of law. My constituency of Gosport had the second largest
manufacturer of lifeboats in the world, second only to a Scandinavian
company. It was a large company that employed a significant number of
people in the constituency.
As part of a
normal process, Customs was sent some plans for an export of fishing
boats to Iran. On the plans for the fishing boats there appeared the
three words, “machine gun mounting”, which led Customs to
think that they were not genuine fishing boats and that perhaps a
military purpose was involved. In quite an arbitrary manner, Customs
decided to fine the company £0.3 million, and we have our own
view on whether that should have happened. When I went into the detail
on that with the company it became clear that a fine of £0.3
million would drive it out of business. I remonstrated with Customs,
which said, “No. It is a fine of £0.3 million
and there is nothing you can do about it. There is
no
appeal” Eventually, the fine was imposed and the company went out
of business. We lost a significant employer in the constituency and the
site is now a block of flats. If HMRC is
to be given such extended powers, as indicated by schedule 36, that is
the manner in which it will be empowered to exercise them. Although I
would not necessarily go into detail on the powers in that area in this
debate, I believe that the detail of the powers needs to be widely
considered, not just in Committee, but on the Floor of the
House.
The
Financial Secretary to the Treasury (Jane Kennedy): I am
very interested in the point that the hon. Gentleman presents. Does he
accept that the case that he has cited, helpful as it is, illustrates
the powers that HMRC has at present? I hope to reassure him that,
alongside a levelling down of the powers, we are introducing safeguards
so that in many cases the taxpayers whom he describes will have avenues
of appeal. In many cases, but not all, that will help companies such as
the one that he
describes. 2.45
pm
Peter
Viggers: I am grateful to the Financial Secretary and I
find her intervention reassuring. However, I think she would agree with
me that the points of principle involved in this measure are sweeping,
wide and important. A broader opportunity should be given to hon.
Members to discuss these broad principles, not just in the Finance Bill
Committee on a Thursday afternoon, but on the Floor of the House. In my
opinion, these issues are very important. With those words, I support
the Liberal Democrat amendment moved by the hon. Member for Taunton.
This is an important point of principle and I welcome the opportunity
that he has given the Committee to consider the possibility that we
should expand the debate before these powers are
implemented.
Mr.
Field: I, too, agree with the amendment. The hon. Member
for Taunton expresses many of the concerns that we have about the lack
of consultation on what are, for some companies, potentially quite
draconian new powers. There should have been a broader consultation
process, but I appreciate what the Financial Secretary said about
elements of that consultation playing a part in advance of the Budget
announcement. They may also have played a part in the great number of
Government amendments that have been tabled to schedule
36. I
agree with my hon. Friend the Member for South-West Hertfordshire in
his broader consideration that the powers are similar to those of a
general Home Office Bill. As he rightly points out, the deficiency of a
Finance Bill debate is that there is no further scrutiny in the other
place, which a Home Office Bill would receive. I hope that the
Financial Secretary will give some considerable thought to that because
some draconian powers are being put
forward. Anecdotally,
I remember from running my own business before I entered this House
that my accountant always used to say, “For heaven’s
sake, whatever problems you might have with the tax authorities, never
mess with Customs and Excise.” Joking aside, there was good
cause for that. Traditionally, Customs and Excise has concerned itself
with smuggling and with overseas nationals and has rightly had more
draconian powers.
Notwithstanding
what the Financial Secretary said in her attempt to assuage my hon.
Friend the Member for Gosport, implicit in these measures is an element
of the levelling down of standards. We will look at this matter
bit-by-bit in the direct scrutiny of schedule 36. There must be a quite
considerable concern that elements of this measure will inevitably not
be levelling down, but will put up a range of new powers so that
elements of HMRC’s powers are akin to those of Customs and
Excise, rather than the old Inland
Revenue. With
that in mind, there is great concern for many corporations that too
many of these powers will be utilised in a somewhat draconian way. I am
concerned that implicit in this measure is an extension of fishing
expeditions by the authorities. This is particularly important for
smaller companies. Large companies tend to have legal departments and
an operation to ensure that they can fight their way through some of
the bureaucracy that comes with large-scale investigations. It is
smaller companies in particular that will be subject to the unintended
consequences if we do not entirely think through what we are trying to
achieve in schedule
36. I
also have concerns because the very first Bill Committee that I sat on
when I came to this House was for the Proceeds of Crime Act 2002, which
set up SOCA, the much maligned, perhaps unfairly, Serious
Offences—[Interruption.] I mean the Serious
Organised Crime Agency. I knew I would get it wrong. It shows how much
attention I was paying when I was on that bloody Committee. SOCA has
had a lot of bad press. There has been a sense that it has not quite
achieved what it was hoped it would in relation to Mr. Bigs
in ensuring that large sums of money would be sequestrated from
criminal activity and come back to the
state. There
is concern that if we give more powers through the Treasury rather than
the Home Office, we may give draconian powers to HMRC, which will be
utilised in lieu of the powers that it was envisaged that SOCA would be
exert in relation to criminality. I worry that by levelling standards
up in this way we are not giving sufficient protection to many
companies. No one wants to see criminality being tolerated. No one
wants to see large sums of money that should rightly go to the Treasury
being taken way. By the same token, there is a big question mark over
the nature of these fishing
expeditions. This
is the only opportunity that we will have in Parliament to scrutinise
precisely what these powers will be. The second worst scenario is to go
down the SOCA route where many years on there is a perception at least
that one has an impotent body that has not really achieved what was
expected. It would be even more undesirable to find that draconian
powers were being utilised by an arm of the state against many
companies that are doing their very best to try to ensure that we have
a successful and thriving economy.
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