Mr.
Gauke: My hon. Friend makes a powerful point. I make no
judgment as to whether a more principled approach is necessarily right.
What is clear is that we need to look at the whole issue of tax
complexity, not just the
drafting. The
tax law rewrite process has a very valuable structure. There is a team
dedicated to addressing the issue, which consists of HMRC officials and
some secondees, and a steering group made up of Members of
both Houses and tax professionals—accountants, lawyers and
academics—who are able to bring their expertise to the process.
Finally, we have scrutiny by a Joint Committee made up of Members of
the House and the other place, bringing together a great deal of
expertise.
I would argue
that we need to extend the structure, which is the substance of the
excellent report “Making Taxes Simpler” that was produced
by Lord Howe of Aberavon in July 2008. We need to create an office of
tax simplification, modelled on the tax law rewrite process that looks
at those fundamental issues raised by my hon. Friend the Member for
North-East Hertfordshire, which was perhaps the intention behind the
amendment to the Finance Act 1995. We need to look at the structure,
not just the drafting, so that we can address the major issues that are
of concern to British businesses, ensure that we have adequate
pre-legislative scrutiny and gather real momentum towards addressing
tax complexity.
In a
globalised world in the 21st century, it is a major concern that the UK
is at a competitive disadvantage because its tax law is over-complex.
The UK may well have the best written and most clear tax law in the
world—I am not making that case, but if that is the intention of
the tax law rewrite process, we welcome it—but it remains hugely
complex in substance, and we need to use the great expertise that is
out there to try to address that concern. I believe that the tax law
rewrite model, expanded and developed on the lines advocated by Lord
Howe, would be of enormous benefit to the UK tax system.
The Bill makes
a valuable contribution and we welcome it. I have some concerns as to
whether this process is always the best use of resources, and I urge
the Government to look at changing the procedure so that we go further
and tackle the substance of tax complexity. The Bill may be the longest
the House has ever considered, but I suspect that it will prove to be
one of the least
controversial. 9.28
am Mr.
Jeremy Browne (Taunton) (LD): Thank you, Mr.
Key, for allowing me to contribute to our deliberations. I join
previous contributors in paying tribute to the group that undertook
this Herculean task: the chairman, Lord Newton of Braintree;
parliamentarians from both Houses; and experts from outside. I welcome
the contribution of those people and the willingness of the
Government—and others—to embrace it.
The hon.
Member for South-West Hertfordshire said that this was the longest Bill
that Parliament has ever considered, but he has not yet seen my private
Member’s Bill, which I have to submit by Tuesday of next week. I
am 13th on the list and have all kinds of options up my sleeve and,
although I have yet to reach 1,330 clauses, I still have the whole
weekend to work on that.
The Minister
said that the objective was clarity rather than brevity. It would have
been pretty audacious of him to claim that he had achieved brevity,
or—as some might feel—even clarity. I accept that it may
be easier to navigate one’s way around this document than
previous ones. None the less, it is an extraordinarily complex set of
proposals in a hugely long Bill. Although my party and I welcome the
process of simplification—I think that that is the view held by
hon. Members across the House—we are not quite at the point
where the legislation is as simple as I think most of us would feel
comfortable with. However, I take the point made by the hon. Member for
South-West Hertfordshire when he asked who benefited from such
simplification. One assumes that very few constituents will try to read
the Bill in its entirety, and there is no particular need for it to be
simplified in such a way that the average person can read it. Indeed,
that would create considerable difficulties. Nevertheless, we need to
have legislation that, wherever possible, can be read and digested by
people who are equipped to understand it without its being almost
impossibly complex.
Even after
such a process has been undertaken, it is worth listing the contents of
the Bill. There are 1,330 clauses divided into 21 parts. Four schedules
are divided into 25 parts. The contents list is 63 pages long. At least
33 Acts of Parliament and 16 statutory instruments are affected by the
legislation. The table of origins, which details the origin of all the
provisions, is 174 pages long, and the table of destinations, which
details whether a provision has been rewritten or appealed, is 196
pages long. There is much to be said for trying to have legislation
that does not go into that degree of detail. I am not talking simply
about the drafting of the Bill—this point was also made by the
hon. Gentleman—but about tax complexity itself, and why we need
to have a legislative framework for corporation tax that goes into such
immense detail. The Bill may be drafted as concisely as possible to
ensure that the laws are not open to abuse. Nevertheless, it reflects
on the complexity of Government that that degree of detail is
required.
During the
intervention of the hon. Member for North-East Hertfordshire, I thought
it a sad reflection of human nature that these very clever people to
whom he referred are paid very large sums of money to come up with ever
more imaginative ways in which to avoid tax, and, in so much as we can
in the public sector, we pay people of similar cleverness and expertise
to come up with ways of preventing them from doing so. The overall
contribution to the happiness of mankind and the well-being and good
fortune of the United Kingdom is probably fairly limited. Nevertheless,
perhaps it is an inevitable
process. Mr.
Mark Field (Cities of London and Westminster) (Con): While
I agree with some of those sentiments, surely the alternative is much
worse. As we have seen in one or two Finance Acts of recent years, when
a draconian system is in place, the Government have to put in place
retrospective legislation to unravel schemes that have been devised in
order simply to tax, and tax for its own sake. Although I appreciate
that such a measure does not add much to general happiness, it is an
important safeguard of many of the freedoms that we have as individuals
to ensure that we do not have draconian action from Government on the
taxation
front.
Mr.
Browne: I completely take the hon. Gentleman’s
point that it may be an unhappy situation, but it may be the least
unhappy situation, and the Government cannot arbitrarily bring in
laws—especially retrospectively—to penalise people. I
observe only that this is the 250th anniversary of the birth of Charles
Darwin. He is one of the people who have made great contributions to
the understanding of human nature and who have contributed to
Britain’s pre-eminent place in the world. It is a sad fact that
some of our finest graduates and greatest minds leave university and
find it most profitable to immerse themselves in the detail of tax laws
of this type. I have had a note put in front of me about how long ago
Charles Darwin was
born.
Mr.
Gauke: Forgive me—it is the 150th anniversary of
the publication of “On the Origin of Species” that we are
celebrating this week.
Mr.
Browne: I am pretty certain that Charles Darwin wrote
“On the Origin of Species” when he was 50 years old, and
what is causing confusion is that we are celebrating the anniversary of
both his birth and the publication of “On the Origin of
Species” this year. I cannot quite remember how long ago either
of them was, but that is not directly relevant to our considerations
this morning—apart perhaps from the fact that we have evolved in
such a way that we might be able to understand, at some point in the
distant future, the nature of the Government’s tax
proposals.
Sadly, it is
inevitable that there should be a degree of complexity to prevent
abuse. Wherever possible, however, the Government need to consider
reducing that complexity, not just because the drafting will be more
efficient, but because the laws will be inherently simpler. I cannot
sum it up much better than with the following observation by the CBI
tax taskforce on the Government’s
record: “It
is ironic that what has
followed”— since
Gordon Brown’s first Budget after the 1997 general
election—
“has been a
decade characterised by unprecedented legislative change in the UK
corporate tax system, much of it characterised by a high degree of
complexity and inadequate
consultation.” I
do not make the criticism in this case that the consultation has been
inadequate. It has been praised by all the contributors to this debate,
and it is to be welcomed that it has been a feature of this exercise.
Nevertheless, it is a trait of the previous Chancellor of the Exchequer
and current Prime Minister to introduce complexity and micro-detail,
which often confuses even those whom he hopes will benefit from his
measures.
Mr.
Heald: Does the hon. Gentleman accept that we are
approaching a major Darwin landmark, because he was in fact born on 12
February
1809?
Mr.
Browne: I will do my best not to upset you, Mr.
Key, but I have temptation put in my way. If Darwin did write
“On the Origin of Species” on his 50th birthday, that
means that it is 150 years since its publication and 200 years since
the birth of Darwin. I thank the hon. Gentleman for that helpful
contribution, which has slightly knocked me off my stride.
In
conclusion, we welcome the process of simplification. The Bill is still
fiendishly complex and we welcome the fact that this exercise is
ongoing, and that outsiders with expertise have been embraced and
invited to contribute. We thank the Government for that process but,
especially in the current economic circumstances, when the temptation
is to announce new initiatives and incentives daily, they must also be
mindful of the complexity that is built into the system, which is due
not only to inadequate drafting but to the inherent complexity of the
measures that they are putting forward. That complexity is not
beneficial to anyone apart from those tasked, for a healthy hourly fee,
with unravelling that complexity. That is not good for the legislative
process, because it makes it hard for parliamentarians to digest what
we are being invited to endorse, and it is not good for the companies
and individuals who have to try to understand these laws in order to
comply with them.
9.39
am
Mr.
Field: I am almost tempted to speak for the Creationist
party, given the number of references to Darwin. My hon. Friend the
Member for North-East Hertfordshire has reminded us—via Google,
I suspect—of Charles Darwin’s date of birth. He has also
reminded me of my wife’s birthday, which is 12 February, so I
had better start doing some hard work to sort out her
birthday.
Given the
genesis of this legislation, I am sure that the Minister will be glad
to know that Conservative Members are happy for it to go through at
least this part of the process, and on to further consideration. As he
rightly said, it was the last Conservative Government that initiated
this process, which shows how long it can take. Here we are, 12 years
on, still at a relatively preliminary stage of the entire
process. I
want briefly to touch on a couple of minor matters. My hon. Friend the
Member for South-West Hertfordshire, the Front-Bench spokesman, and I
are both former lawyers. Indeed, we followed a well-trodden path: we
read law at the same college at Oxford and we ended up training at the
same firm, although—needless to say, given his sprightly,
youthful appearance—I was there some years before he was. One of
the problems, which I suspect applies not just among trainee and junior
lawyers but also in the accountancy profession, is that the first
instinct in respect of any new problem is to say,
“Where’s the precedent?” and to try to find, in
drafting terms, whether there is one. In many ways, as the Minister has
mentioned, many elements of corporation tax go back to income tax
precedents. Much of the verbiage that has come up over the 45 years,
almost, since corporation tax came into existence effectively is
putting layer upon layer on to old
legislation. One
of the most important elements of this process—hopefully, it
will be repeated in respect of other taxes—is that we should
look at things again from first principles. It is important that,
rather than just relying on a precedent and adding, changing and
deleting a few words, we try to think things through from first
principles and consider what we are trying to achieve here. I fear that
that element of legal training—and, I suspect, of training in
other professions—is deficient. We need to use such a Bill as a
way forward to ensure that we look at things in a slightly more
straightforward, simplistic way. One might joke and say that various
elements will not necessarily appeal to all tax experts and that, if
the matter were being discussed in many other fields, some of the
complexities that my hon. Friend the Member for North-East
Hertfordshire and the hon. Member for Taunton mentioned earlier may
begin to unravel. However, it is important that we try to think things
through from that first
principle. I
will make two observations to which I should like the Minister to
respond. He mentioned in his initial comments that clarity should be at
the forefront. Surely, the aim should be not just clarity but relative
brevity, at least, to try to pare down the extent of our tax
legislation. I
also want to mention something that may be debated during further
stages of the Bill. Will the Minister confirm that the deliberations
that took place on the original legislation will hold sway in the event
of disputes about the changes made as part and parcel of this rewriting
process? For example, if a provision of a Bill some 25 years old were
entirely rewritten or deleted because it was felt to be superfluous,
would there be an opportunity, in respect of any dispute that took
place before a commissioner, to look back at the legislation of 25
years ago, rather than simply relying on the rewritten legislation that
would be in place? I suspect that without such a safeguard along those
lines, the door would be open to all sorts of potential disputes. It
would also be rather sad to undermine the simplifying nature and aims
of this proposed
legislation. Thank
you for allowing me to make this brief contribution, Mr.
Key. I hope that the Bill goes rapidly through its succeeding
stages. 9.43
am John
Howell (Henley) (Con): I started my professional working
career by qualifying as a fully trained inspector of taxes. I served
for three and a half years as an inspector of taxes in central London.
This close to my by-election, such elements of my CV are still,
perhaps, far too fresh in people’s minds, but even I was
slightly
surprised when a constituent walked into a surgery and asked me to
complete his capital gains tax calculation for his return. I hope that,
being a member of this Bill Committee, a flood of corporation tax
returns will not come my
way. With
my previous experience in mind, I welcome the clear structure that has
been provided by this proposed legislation, which offers a logical
approach. It is good to have corporation tax dealt with in one place,
but I echo the comments that have already been made about the case for
simplification and brevity. I remember that when I began my training,
one could fit the entire Income and Corporation Tax Act 1988 into a box
that could neatly take about five of one’s best paperback
novels. In fact, the boxes were often considered to be more in the way
of collector’s items than that Act, because they were ideal for
taking novels and maps away on holiday, and inspectors fought keenly to
collect them. However, it is necessary to have that simplification and
brevity. The World Bank pointed out that in 2007 the UK tax code had
doubled in size in 10
years. There
are a couple of points that I want to make about the substance of the
measure. One is a question of law. There are two elements to tax law:
one is clearly the legislation, but the other is case law. The
legislation should always be in plain English—although it is
worth reflecting on the fact that, often, the plainer the language the
greater the scope for divergence of opinion, and, therefore, for legal
action. Any inspector who has been through the training course would
say that most of the time is spent not on dealing with the legislation,
but on dealing with the vast volume of case law.
I am aware
that in schedule 2, part 3 there is a provision that seeks to maintain
continuity where language has changed in terms of underlying case law.
I would like the Minister to confirm the extent to which that applies
to the whole provision, because that is one of the least well drafted
and most opaque bits of the legislation. I would also like a sense of
continuity of case law where wording has been
changed. As
has been pointed out, the Bill has been welcomed by professionals. On
looking through the list of respondents, I was somewhat disappointed
that so few were industry specialists—although I know that the
CBI was involved. That would lend credence to the questioning that has
already taken place about where the benefit of such a project now lies.
I would also have liked—perhaps the Minister can reassure me on
this—the interests and input of big and small accounting firms
to have been reflected in the Bill. The interests, scope and training
differ between the different sizes of firms that are providing
expertise.
One of the
original aims of the simplification project was to improve the internal
cost-effectiveness of HMRC. Has any further work been done on that, and
what will be the improvement in cost-effectiveness as a result of the
provision? In my experience, it is not the complexity of the wording of
the legislation that determines the cost-effectiveness—and in
particular the time that new entrants will need to spend getting to
grips with it—but the sheer volume. That links to a point that
many of us have
made. Most
of the industry’s detailed comments were, paradoxically, either
on clause 2 and the need to be clear about how the whole taxing basis
should be defined, or on the more complex area of loans and
derivatives. I
think that those have now been fully resolved. In conclusion, I offer my
congratulations to HMRC, particularly for the way in which it dealt
with the consultation process and responded to the comments
made. 9.48
am
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