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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.
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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.
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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.
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.
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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.
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