The
Committee consisted of the following
Members:
Breed,
Mr. Colin
(South-East Cornwall)
(LD)
Cable,
Dr. Vincent
(Twickenham)
(LD)
Clwyd,
Ann
(Cynon Valley)
(Lab)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Field,
Mr. Mark
(Cities of London and Westminster)
(Con)
Gauke,
Mr. David
(South-West Hertfordshire)
(Con)
Gerrard,
Mr. Neil
(Walthamstow)
(Lab)
Greenway,
Mr. John
(Ryedale)
(Con)
Jackson,
Glenda
(Hampstead and Highgate)
(Lab)
McDonagh,
Siobhain
(Mitcham and Morden)
(Lab)
Mudie,
Mr. George
(Leeds, East)
(Lab)
Pound,
Stephen
(Ealing, North)
(Lab)
Timms,
Mr. Stephen
(Financial Secretary to the
Treasury)Turner,
Mr. Neil
(Wigan)
(Lab)
Tyrie,
Mr. Andrew
(Chichester)
(Con)
Wright,
David
(Telford) (Lab)
Glen
McKee, Committee Clerk
attended the Committee
First
Delegated Legislation
Committee
Monday
18 January
2010
[Hywel
Williams in the
Chair]
Draft
Enactment of Extra-Statutory Concessions (No. 2) Order
2009
4.30
pm
The
Financial Secretary to the Treasury (Mr. Stephen
Timms): I beg to
move,
That
the Committee has considered the draft Enactment of Extra-Statutory
Concessions (No. 2) Order
2009.
I
bid you a warm welcome to the Chair, Mr. Williams. The order
is a further step in the review by Her Majestys Revenue and
Customs of extra-statutory concessions. Perhaps I may remind the
Committee about our work on those concessions and the reasons for
it.
Extra-statutory
concessions give taxpayers a reduction in their tax liability that they
would not be entitled to under the strict letter of the law, and have
been a feature of our tax system for a long time. Most concessions deal
with, on the whole, minor or transitory anomalies. To be lawful they
need to be within the scope of HMRCs administrative discretion.
The decision of the courts in the Wilkinson case on which the House of
Lords gave a verdict in 2005 clarified the scope of HMRCs
discretion, and established that it was narrower than had previously
been thought. As a result, HMRC began a review of all the published
concessions.
The
majority are within the scope of HMRCs discretion, so they can
continue to operate as they always have, but HMRC has identified a
number of concessions that are potentially beyond the scope of its
discretion, and which therefore need to be put on a statutory basis if
their tax treatment is to continue. Rather than legislate piecemeal we
introduced, in 2008, a power to legislate by Treasury order on the
existing concessions that need to be put on a statutory basis. The
order before the Committee today retains the effect of seven
long-standing and often-used
concessions.
The
draft provisions were the subject of a full public consultation, which
concluded on 7 October. That consultation sought views about whether
the draft provisions successfully maintained the purpose and effect of
the concessions. The major tax bodies were consulted, as were
representative bodies from the individual sectors that were affected.
The consultation included a further two extra-statutory concessions,
beyond those that are before the Committee today. Existing powers will
be used to legislate on those. There is also another concession, which
will be dealt with in a future draft affirmative
order.
I
am pleased to say that the response to the consultation was positive.
Contributors were, on the whole, satisfied that the provisions as
drafted maintained the effect of the concessions in question. The
consultation has assisted HMRC to ensure that the provisions accurately
maintain the effect of the original concessions. As a result of the
comments on one of the concessionsextra-statutory
concession B47, which deals with the wear and tear on furniture in
furnished rented accommodationHMRC wants to take more time to
revisit the provisions and ensure that the effect will be accurately
maintained.
The
order before the Committee will preserve the benefits of several
familiar concessions that are of benefit to a minority of taxpayers but
which nevertheless incorporate important and valuable safeguards to
ensure that the tax system operates fairly and consistently. For
example, article 9 of the order relates to extra-statutory concession
D50 on treatment of compensation, which prevents tax on chargeable
gains arising in cases where people receive compensation for wrongful
seizure of assets by foreign Governments, such as assets taken during
the Nazi era.
As I
mentioned before, the provisions have been subject to full consultation
and scrutiny, and I thank everyone who responded and took part in the
consultation. It gives me great confidence in commending the order to
the Committee.
4.34
pm
Mr.
David Gauke (South-West Hertfordshire) (Con): It is a
pleasure to serve under your chairmanship, again, Mr.
Williams. As the Minister said in his explanation, this relates to the
court decision on the Wilkinson case, which has required the Treasury
and HMRC to review the various extra-statutory concessions that have
been in operation for some time. The matter is not controversial, and I
note that when the first of these orders was debated last year,
proceedings took 14 minutes. We shall see whether we beat that record
today, but I do not anticipate us being here for much longer than that.
However, we shall see.
As the
Minister has previously stated, it is necessary to look carefully at
existing extra-statutory concessions to see which no longer need to
continue, which fall within HMRCs existing discretion, and
which need to be legislated for under section 160 of the Finance Act
2008. I would be grateful if the Minister could tell us what progress
has been made, and whether there is an early indication as to the total
number of extra-statutory concessions that will need to be addressed
under the section 160 procedure, which obviously applies to this order
and that of last year. What is the likely time scale in respect of
future orders? Is a timetable in place?
The Minister
highlighted the concession relating to wear and tear of furniture in
furnished accommodation, and the Government wish to take a little more
time to ensure that that concession is addressed appropriately. Will he
indicate when we might expect to see that in an order? I would also be
grateful if the Minister could outline what happens during the interim
period. Is it the case that the extra-statutory concession would not
apply for a period, or would it continue until the matter has been
addressed one way or another?
On the
specific measures in the order, I note that there is provision for a
concession regarding the accommodation outgoings of ministers of
religion. There is also a concession relating to contemplative
religious communitiesI do not know whether the Government are
in such as state that they are relying on the power of prayer in
future, and this is an attempt to encourage that. I am sure that that
is not the case, but I would be interested to know the cost of the
concessions in the
order. Of course, this is an ongoing cost and this measure does not
change the law as it has operated in the past, but it would be helpful
if the Minister would indicate the cost of each of the various
concessions in the order.
Finally, may
I touch on one concession that is not contained in the order, but which
has attracted considerable attentionthe concession of equitable
liability? As the Minister will know, there has been a long-standing
concession of equitable liability, which means not pursuing tax in
cases where doing so would be unconscionable. That is particularly
relevant in cases where HMRC might accept time-barred information after
a deadline has passed. Following the Wilkinson case, it was originally
proposed that the concession of equitable liability should be dropped,
and that proposal was published with the Budget in April last year.
However, there was strong opposition to the proposal from tax
professionalsfor example, from the Chartered Institute of
Taxationand in November a statement was made that the
concession would not be dropped but put on a statutory basis. Will the
Minister outline the reasons for that change of position? Why was it
originally proposed that equitable liability should be dropped as a
concession, and what caused the Government to change their mind? When
can we expect to see statutory provision being made to preserve
equitable liability?
Subject to
those comments and questions, the order is not controversial. I look
forward to hearing the Ministers response. We do not propose to
object to the order.
4.41
pm
Mr.
Colin Breed (South-East Cornwall) (LD): I agree that the
order is not controversial. Many of the concessions have been around
for a little while, and the order clarifies matters. I note that there
were only 10 written responses, which seems a rather small number
bearing in mind the huge consultation exercise, but that demonstrates
how uncontroversial the order is and I have no problems in supporting
it.
Attention has
been drawn to other concessions that ought to be considered. I note
that many concessions may have been on the books for some time, which
perhaps should be considered. It is a good thing that we have
extra-statutory concessions, because in a civilised society there are
always certain aspects of employment or company law that need to be
considered separately. If we are to codify everything, which seems to
be where we are going, it could be a long list. However, I accept what
is proposed in the order.
4.42
pm
Mr.
Timms: I am grateful to the hon. Members for South-West
Hertfordshire and for South-East Cornwall for supporting what we
propose. I agree with the hon. Member for South-East Cornwall about the
intrinsic virtue of the ability to introduce extra-statutory
provisions. We would happily have continued doing so were it not for
the court judgment, which made it clear that we do not have in
legislation the broad ability to introduce
such provisions as was previously thought. Nevertheless, a large body of
concessions will continue to operate without change following that
decision.
Let me have a
go at answering the questions that I have been asked. It is a
complicated exercise, as there are about 500 extra-statutory
concessions. It will take some time, and I cannot give the hon. Member
for South-West Hertfordshire the definitive timetable that he asked of
me.
We do not
want to make announcements on concessions until we are completely clear
about themin particular, because we might cause unfounded and
unnecessary concern about the potential withdrawal of concessions if
another way is found to maintain the effect of the concession. Indeed,
the example of the equitable liability concession is a good example of
that. We thought that it was no longer usefulthat it was
redundant. We therefore proposed its withdrawal. However, the response
to the consultation made it clear that that was not the case, and that
we were mistaken. We took the opportunity to clarify the position in
December in the pre-Budget report, in which we said that we would leave
the concession in place and legislate at the earliest available
opportunity. I am still receiving a number of letters about the
concession from people saying that it is useful and expressing concern
about its removal. I hope that my replies will put their minds at rest.
However, it underlines some of the risks with the exercise.
There has
been good progress in the review. This is the second tranche of
legislation before the Committee, and a third is already out for
consultation. I see that we have already broken the record for the
length of our deliberations on one of these measures. As I said, the
third one is being consulted on at the moment. Progress is being made
on withdrawals, with announcements made at the Budget and the
pre-Budget report. HMRC has had extensive discussions with the
profession and other interest groupsfor example, on the
equitable liability
concession.
I
was asked what happens in the meantime. The answer is that the effect
of the concession remains in place until it is either legislated on or
withdrawn, so there is no hiatus in-between. On the question of the
value of all these concessions, I think that if we withdrew them all
instead of legislating on them in the way we are, the total additional
revenue that resulted would be rather less than £15 million. I
do not have a concession-by-concession figure, but in total it would be
a bit less than £15
million.
Again,
I am grateful for the support that has been expressed. Let me finally
make the point that we announced at the pre-Budget reportI have
mentioned this in passing alreadya further consultation to
expose draft legislation intended to maintain the purpose and effects
of a further, third tranche of seven extra-statutory concessions that
need to be legislated on. That consultation is due to end on 3 March,
and a further order of this kind will be introduced
subsequently.
Question
put and agreed
to.
4.47
pm
Committee
rose.