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Session 2009 - 10
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Delegated Legislation Committee Debates



The Committee consisted of the following Members:

Chairman: Hywel Williams
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 Majesty’s 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 HMRC’s 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 HMRC’s 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 HMRC’s 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 concessions—extra-statutory concession B47, which deals with the wear and tear on furniture in furnished rented accommodation—HMRC 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 HMRC’s 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 communities—I 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 attention—the 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 professionals—for example, from the Chartered Institute of Taxation—and 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 Minister’s 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 them—in 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 useful—that 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 groups—for 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 report—I have mentioned this in passing already—a 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.
 
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