Finance Bill

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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?
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.
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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.
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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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