Finance Bill

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Mr. Timms: I am saying that my right hon. Friend the Chancellor will make assessments of the right rates of tax in each Budget. The hon. Gentleman no doubt envisages my right hon. Friend making that assessment again in 2017, and he is probably right about that. The Chancellor will make the assessment at the time.
I want to respond to a couple of points made by other hon. Members in the debate before I conclude. The hon. Member for Henley was concerned that the VAT impacts were not accounted for, but they are, in the normal way. The economic forecast reflects the 50p rate—the rate was input into the Treasury model; the economic forecast was the output of that and VAT receipts were then computed in the normal way.
The hon. Member for Cities of London and Westminster made the point, which others have made, about how diversion into capital gains could be more attractive. Differentials between tax on capital and income are not new in the UK tax system. In the 1970s we had a substantial gap and it has been a familiar feature of the UK tax system, which is why the statute book contains a significant amount of anti-avoidance legislation. Indeed, clause 49 has further provisions, so that can be dealt with as well.
Mr. Stuart: Will the Minister give way?
Mr. Timms: No, I shall now conclude. By way of summary, the Government have thought carefully about how the further money required for the consolidation should be raised. It is right that those who are in the best position to do so should be asked to make a contribution, which is what clause 6 achieves.
Mr. Gauke: On a point of order, Sir Nicholas.
The Chairman: I shall take it, but I cannot think what the point of order is. I shall listen and judge accordingly.
Mr. Gauke: It is the convention that income tax rates are set on an annual basis for the year ahead. Despite the Minister being pressed, we have had no justification for the necessity of the clause or what its legislative effect is. Sir Nicholas, can you advise me whether the clause would therefore appear to be fairly harmless and to have no impact, and could therefore be enacted next year? Is it appropriate that such a clause is included in the Bill, when it does not appear to have any legislative effect?
The Chairman: The answer to the final part of the question, in my opinion, is yes. It appears to me, and I have taken a little advice, that the clause deals with setting a framework for a higher rate of tax. The level of that tax can be set in a future Budget. I hope that that deals with the hon. Gentleman’s point of order. I understand his point and clearly there is some confusion. The clause, in my estimation and on the advice that I have taken, is the setting of a top rate of tax, without specifying that top rate of tax, which could come in future legislation.
Question put and agreed to.
Clause 6 ordered to stand part of the Bill.

Schedule 2

Income tax rates
Question proposed, That the schedule be the Second schedule to the Bill.
The Chairman: I am permitting a debate on the schedule, although the broad idea and the content were discussed in the last debate and on the Floor of the House. However, the hon. Member for Hammersmith and Fulham wishes to deal with some technicalities and this is the right opportunity.
10.15 am
Mr. Hands: Some important technical issues arise from the way in which schedule 2 amends the Income Tax Act 2007. They stem from the decision to add the definition of the higher rate limit or the new additional rate of tax to section 10 of the Act, rather than to section 20. Section 20 defines the starting rate and basic rate limits, which are not defined under section 10. I think that the Government are amending the wrong section of the 2007 Act.
For example, paragraph 9 of schedule 2 alters the definition of the “basic rate limit” under schedule 4 to the 2007 Act so that it now refers to section 10, even though the limit remains specified under section 20, not section 10. Paragraph 4 of the schedule tries to amend subsection (6) of section 10 of the 2007 Act when—to judge from a copy of the 2007 Act that I printed from the website of the Office of Public Sector Information—there is no subsection (6) of section 10. I should be grateful for clarification from the Government. In my copy of the Act, the section ends at subsection (5) not subsection (6), so I am confused about precisely what is being amended.
Paragraph 6 of schedule 2 adds the higher rate limit to the scope of section 414, but leaves the parenthesis referring to section 20 alone rather than including section 10, where it seems to be more appropriate. In other words, if schedule 2, which will amend the 2007 Act, is to have validity, it should refer to both sections 20 and 10. Those are important points, and it is necessary to have this slightly separate debate so that such matters do not get lost in the overall political discussion about the 50p tax rate. For the sake of tidiness, the Minister might want to consider specifying all the limits under one section because, at the moment, it seems that the parliamentary draftsman had a little change of heart and left a few loose ends in the important provision that amends the 2007 Act.
Mr. Timms: The hon. Gentleman has raised an interesting and thoughtful point. I reassure him that the drafting is technically right. Section 20 of the 2007 Act was repealed by the Finance Act 2008, which was passed after the 2007 legislation to which he referred.
Mr. Hands: I was hoping that the Minister would answer my question about subsection (6). It does not appear to be in the Act, yet it is being amended by the schedule. How can that take place?
Mr. Timms: As I said, I reassure the hon. Gentleman that the drafting is technically right. I would be happy to drop him a line on that specific point and, indeed, copy my response to each member of the Committee.
Mr. Hands: On a point of order, Sir Nicholas. Excuse my lack of familiarity with the situation—I do not come from a legal background—but surely we cannot just accept an undertaking that the drafting is correct when we are referring to a subsection that does not exist. Perhaps we could adjourn so that the Government can come back with a correct explanation of the whereabouts of the relevant subsection (6) in the 2007 Act that the schedule is supposed to be amending.
Mr. Timms: I will attempt to help the hon. Gentleman a little further. I am at a slight disadvantage because I do not have the same piece of paper in front of me that he has in front of him. I think that he was describing the 2007 legislation that he had copied off the internet. The whole of section 20 of that Act was repealed by the Finance Act 2008.
Mr. Hands: The Minister says that section 20 was repealed, but the relevant subsection (6) is part of section 10, not section 20. Is the right hon. Gentleman saying that section 10 has been repealed? If it really has been repealed, whatever happened to subsection (6) of the section that was repealed?
Mr. Timms: I have difficulty as the hon. Gentleman is referring to the 2007 Act, which does not reflect the amendments made under last year’s Finance Act. If he had in front of him a version of the legislation, together with all of the amendments made under last year’s Finance Act, he would see that the drafting was indeed technically correct.
Mr. Hands: I hope that the Minister is right, but I took the copy of the Act from the OPSI website. Perhaps as a result of this discussion he might ensure that that website is updated immediately, if he is right about the amendments to the Income Tax Act 2007 resulting from last year’s Finance Act. Obviously a number of us are looking at something that is out of date.
Mr. Bone: I sit on the Joint Committee on Statutory Instruments. Only yesterday we reviewed regulations relating in part to this Bill. There were potential errors that needed correction, so the Minister should be careful when saying that all the drafting is correct on this.
Mr. Hands: I thank my hon. Friend for that intervention. We are now awaiting an answer from the Minister and also an undertaking that the OPSI website will be updated with due speed.
The Chairman: Order. I do not know whether the Minister wishes to reply, but I have just had whispered in my ear, “It’s a website thing.” May I suggest that the Minister seeks to clarify that and perhaps then we can move on?
Mr. Timms: If the hon. Gentleman looks at last year’s Finance Act on the same website and takes account of the changes that made to the draft that he has in front of him, he will get the answer to his questions.
The Chairman: I repeat that there appears to be some clarification on a website. No doubt what has occurred here will be noted and, if the Opposition are not satisfied, there will be later stages of this Bill when the matter can be raised again.
Question put and agreed to.
Schedule 2 accordingly agreed to.
The Chairman: Clause 9, which is on value added tax—the title is “Extension of reduced standard rate and anti-avoidance provision”—was agreed to in the Committee of the whole House on Tuesday 12 May, as reported in columns 743 to 774 of Hansard. We will not be having a rerun of the stand part debate in this Committee. Schedule 3 contains detailed provision on a supplementary charge on supplies spanning the date of the VAT change and minor amendments about orders changing the standard rate of VAT.

Schedule 3

VAT: supplementary charge and orders changing rate
Mr. Gauke: I beg to move amendment 5, in schedule 3, page 75, line 7, at end insert—
‘(10) Paragraphs 2(3) and (4) shall not apply where the supplier can demonstrate that the terms of its contract does not permit additional VAT to be charged (i.e. if the contract provides otherwise for the purposes of paragraph 21(2) of this Schedule) and that at the time the contract was entered into the supplier had no intention or knowledge that it would become connected with the person to whom the supply is made.’.
The Chairman: With this it will be convenient to discuss the following: amendment 6, in schedule 3, page 77, line 8, after ‘persons)’, insert ‘save for section 839(5)(b)’.
Amendment 7, in schedule 3, page 77, line 19, at end insert—
‘(c) may only apply to supplies made after the date of such order or where supplies have been contracted to be made prior to such order and the contract allows for additional consideration to be paid’.
Mr. Gauke: It is a pleasure to be called by you, Sir Nicholas, to serve under your chairmanship, and to move our debate on from the perils of the interweb thingy.
As you said, Sir Nicholas, clause 9, which relates to the temporary VAT reduction, was debated in the Committee of the whole House. We discussed when we should return to a rate of 17.5 per cent. I have no intention, as you have already guided us, Sir Nicholas, to run over the discussions that we had about the effectiveness or otherwise of the reduction, nor about whether 1 January is the appropriate date to return to 17.5 per cent, as we had a full and interesting discussion about that subject on the Floor of the House.
Schedule 3 contains a number of detailed provisions required by the structure created and the Government’s policy of reducing VAT and then returning it to a higher level over time. I look forward to debating the details this afternoon, Sir Nicholas.
10.25 am
The Chairman adjourned the Committee without Question put (Standing Order No. 88).
Adjourned till this day at One o’clock.
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