Blackwell, L. Mr Kenneth Clarke, in the Chair
Brightman, L. Mr Parmjit Dhanda
Cohen of Pimlico, B. Mr Michael Jack
Howe of Aberavon, L. Mr Chris Pond

Dawn Primarolo


MR PETER MICHAEL CBE, Project Director, MR PETER KNOWLES, Head of Drafting Team, MRS CHERYL SCOTT, Head of Lead Rewrite Team, MRS JENNY MANSON, Rewrite Team Member, and MRS MARGARET LEATES, Member of Drafting Team, examined.


  1. The Committee will now turn to the amendments. Firstly, can I say how grateful we all are to the people who have been working during the adjournment to produce this very helpful memorandum for us dividing up the amendments in various ways. I am not sure that every Member of the Committee has had the chance to work through all of the explanations that we have. I do not know who is going to present them, the Paymaster or Mr Michael. The first group of amendments are described as "Technical Amendments". The ones I have got through so far are largely where people have picked up a failure to make proper cross-references or a failure to repeat usually references in the appropriate Parts of the Bill. Would that be right?
  2. (Mr Michael) Yes, Chairman. Perhaps, first of all, I should give just a little bit of background about how these amendments have come to light. Obviously the intention had been to avoid any amendments at all to the Bill but in the event this has not been possible, largely because of the large span of the Bill. However, as a result of the improvements made to the project processes following capital allowances we have been able to identify these defects in the Bill whilst the Bill is before the Joint Committee. In the case of the Capital Allowances Bill there were some errors there in the Bill but they were not spotted until after that Bill had completed all of its parliamentary stages. That meant that amendments had to be made in the subsequent Finance Act, in Schedule 21 of the Finance Act 2001. As you say, Chairman, we have put the amendments as you suggested and, more specifically, the need for these amendments has been identified by partly the Project, particularly the drafting team, who continue to look at the Bill after it has been introduced in Parliament, some of our specialist colleagues in the Revenue who work on so-called Schedule E and also, in one or two cases, some of the representative bodies.

    Chairman: Does any Member of the Committee have any comments to make on amendments 1 to 32 which appear to fall under the section of "Technical Amendments"?

    Lord Brightman

  3. A brief comment on amendment number three. Clause 66 subsection (4) in amendment three gives special meaning to "employment" and "earnings". Am I right in thinking that these special meanings are not included in your admirable index on page 349 because they only apply to the clauses in which they appear?
  4. (Mrs Scott) I think we would need to look both of those references up, if you do not mind.


  5. We will allow you a few minutes to reflect on that.
  6. (Mr Knowles) Yes, my Lord, that is precisely the reason.

    Lord Brightman

  7. It is the reason?
  8. (Mr Knowles) Yes, it is.

    Lord Brightman: I thought it must be. Thank you very much.

    Lord Blackwell: Just one point on amendment three, clause 66, page 36, line 37, "after (3) insert..." I may be reading this too quickly but are you absolutely sure that goes after (3) as opposed to after sub-point (2)?

    Chairman: I did not follow that myself. Again, it is a question about whether a non-executive director is an employee of a company.

    Lord Blackwell

  9. I am just checking that the references here that say insert after (3) are correct or whether, as I think would make more sense, it should be insert after (2)?
  10. (Mr Michael) If you just bear with us a minute.


  11. Yes, of course.
  12. (Mr Knowles) We have looked at this point, thank you. I think we are satisfied that at least on the approach that we have been adopting, which is to in effect insert a new paragraph (a) into subsection (4), the amendment does work so that one would read "(4) In subsection (3) - (a) the reference to an employment includes employment as a director of a company, and (b) 'earnings' means earnings as defined in Chapter 1 of this Part."

    Lord Blackwell: Thank you.

    Chairman: If there are no other points, I do not have to put the amendments individually. Can I put the amendments collectively and can I take it that the Committee are in favour of all those amendments, amendments 1, 2, 25, 3, 7, 5, 9, 10, 16, 17, 22, 23, 24, 30, 31, 32?

    Mr Jack

  13. Sorry, Chairman. On 10 I have a question to invite a little more commentary because anything that starts off "The current wording of the Bill has given rise to considerable confusion..." invites me to ask for a little more commentary about the resolution of that confusion. Could you just explain and take me through this, please?
  14. (Mrs Scott) There is one particular representative body which had some difficulty in understanding the current rules for foreign emoluments that are taxed on remitted expenses and the way in which the deductions dovetail into them and also had difficulty in looking at the parallel provisions in the Bill. In the light of the fact that that person had difficulty, who is representing a number of people within his particular institution, we thought that there may be wider spread confusion than just on his part and that it was worth making this amendment to make it absolutely clear that section 354 does not apply in the case of earnings which are chargeable both on a receipts and a remittance basis from the same employment where the reason why there is that mix in bases is because of the operation of the foreign emoluments provisions which we have written in clauses 21 and 22. We also propose, in addition to this amendment, to expand the Explanatory Notes to make the position crystal clear in the Explanatory Notes as well.

  15. Does this mysterious third party accept and understand what you have now written into the Bill? In doing this, do you think that they will be satisfied in the light of the concerns that they originally raised?
  16. (Mrs Scott) It is as clear as we can make it now. I have not had an opportunity to have further discussion with the person who raised the point. He only wrote to us last Tuesday.

  17. A latecomer. So he is lucky to have caught the bus?
  18. (Mrs Scott) Yes. It is better that we can make things plainer at this stage and remove that scope for confusion than if he had written to us next week and the scope for confusion would remain.

    Chairman: The amendment appears clear: if you accept section 22 you are accepting chargeable overseas earnings and, therefore, this curious provision does not apply if the source of one of the two taxable incomes is overseas earnings. I have not met the mysterious third party so I do not know.

    Mr Jack: It sounds to me as if an element of light has been shone where darkness prevailed for the interlocutor on this occasion. As it is beyond me to question further on it I will accept that the clarification by the amendment is correct.


  19. I put the amendments. Do I take it that the Committee is content with those amendments? (Approved) The amendments are made. The next parcel is "Amendments needed to rewrite law accurately". This is a further attempt at drafting and improving the language, I assume. I have not read these myself and I do not know if anybody else has. Who would like to introduce these, amendment 4 onwards?
  20. (Mrs Scott) The group of amendments generally are not focused just on improving language, they are aimed at correcting actual errors that we have made and if these errors were not corrected then they would lead to a different result under the Bill compared with the result that you have in the current ICTA provisions. We are not just trying to make things more accessible and easier to understand, we are actually trying to make sure here that we rewrite law accurately.

  21. You are trying to make sure you accurately express the existing law and do not unintentionally make changes to it?
  22. (Mrs Scott) That is right.

  23. The first one is connected with the valuation of living accommodation and the second one is one that applies to certain seafarers who work abroad, which we have touched on at least informally in previous discussions. The second, if we did not pass this amendment, would give a completely unexpected windfall to various people who work abroad which neither Government nor Parliament, as far as we are aware, have ever intended that they should have. Would the first one have a similar effect?
  24. (Mrs Scott) The first one is a very abstruse and technical point. It would only arise in the cases where living accommodation has to be valued for the purposes of charge to tax, or other land has to be valued for the purposes of charge to tax. A good deal of provided living accommodation is exempt anyway. In valuing living accommodation and other land, the normal method is for the valuer to look at a similar property and see what kind of rent that property could command if it was on the open market. In the existing provisions in ICTA there is a cross-reference to section 23 of the General Rate Act 1967. It is not particularly helpful since the General Rate Act was repealed in 1988. We decided that in order to give effect to the content of section 23 of the General Rate Act 1967 we should reproduce its general effect in this Bill as if it had not been repealed and that is why we got into these very abstruse provisions which were originally designed to assist rating officers and rating valuers in arriving at the rateable value of a standard hereditament. The effect of borrowing those General Rate Act provisions is that when there is a comparative rent of another property that is very similar, another flat in the same block or whatever, and it is customary for additional services to be provided in addition to just the basic rent, there needs to be some safeguard against the payment for the provision of those other services being used to bump up the landlord's profit when really it is disguised rent. We got it wrong in clauses 110 and 207 because we treated all of the payments for additional services where they are separate payments for additional services in the same manner and when we re-examined the General Rate Act of 1967 we came to the conclusion on careful analysis that there was a distinction of treatment for payments in respect of repairs, insurance and maintenance of other property belonging to or occupied by the landlord. In that scenario there is not allowed to be any deduction at all. Where there is a payment for services, such as the provision of a lift or the provision of a concierge, the only amount that has to be added back to the rent is any profit element that the landlord makes on it, so the cost of the concierge can be deducted from the comparative rent, but there is a different treatment for the repairs, insurance and maintenance. We are very sorry but we missed that and this will put it right.

    (Mr Michael) Perhaps I should also say, Chairman, if my recollection is correct, that this particular defect in the Bill was actually pointed out to us by a representative body. It was picked up outside.

    Chairman: I am grateful to you for going over that so clearly. Any other comments on these amendments, which are amendments 4, 6, 8, 11, 12, 13, 14, 15, 18, 19, 20 and 21?

    Mr Pond: Can I just ask on 4, are we happy about the actual meaning of that? I am not sure that the meaning is absolutely right, whether the wording works leaving out from the first "to" on line 19 to the end of line 20 and inserting "be increased under subsection (3A)..." etc. I cannot make it fit but perhaps I am misreading it. We are taking out virtually all of lines 19 and 20 and inserting "be increased under subsection (3A)" and then the rest of (3A). I cannot quite make the wording fit.


  25. Two lines remain, lines 19 and 20.
  26. (Mr Knowles) I think, Chairman, the first "to" would stay in the Bill, so if one begins with the pull-out it would read "...the rent to be established under subsection (1) in respect of the accommodation is to be increased under subsection (3A)".

    Mr Pond

  27. So the "to" remains?
  28. (Mr Knowles) Yes.


  29. The words "is to" remain in line 19 on page 53?
  30. (Mr Knowles) Yes, indeed.

  31. If there are no other points I invite the Committee to approve amendments 4 to 21 - I will not read them all out again - on pages five to eight of the memorandum provided. Let us just deal with 4 and 6. There is a separate heading for 8, 11, 12, 13, 14 and 15, which are the seafarers' ones, which I accidentally included. Are they approved by the Committee? (Approved) "Tax treatment of carer's allowance", which are 18, 19, 20 and 21. That seems to be a straightforward mistake of putting carer's allowance into non-taxable benefits instead of taxable benefits, which would be a reversal of policy. Does everyone approve? (Approved) Then "Consequential amendments to other legislation as a result of rewriting CSOPs and SAYE". Does any Member of the Committee have any comment on those? They are purely technical.
  32. (Mrs Manson) This is to cover the situation in which the option holder dies before he or she can exercise the option. What we have tried to do here is to make sure that we have covered what the source legislation provides for, so that if the option holder dies and let us say a personal representative or somebody or other who receives the option then exercises it, the Capital Gains Tax consequences are exactly the same as if the option holder had exercised it. We disapply what is known as the market valuation at the date of exercise and instead look at the actual costs involved. This is complicated by the fact that there are also death provisions for capital gain. We are satisfied that we are now reproducing the legislation as it was, having made the mistake originally in thinking that "he" and "him" - that is how the source legislation describes the person - could not cover the personal representative but because of the cross-reference in the legislation to the treatment of the situation when somebody dies we realise that this "he" and "him" covers the situation after death as well. We were too restricted in our interpretation.

  33. Thank you very much. Does the Committee approve amendments 26 and 27? (Approved) Amendment 28 "Amendments to preserve transitional provisions". This transitional period began when the current version of Case III was introduced in the 1989 Finance Act. This looks to be purely technical. Is the Committee content? (Approved) We have one on a separate sheet. This is an additional suggested amendment for consideration, amendment 32, which is to leave out a subsection of Schedule 6 on page 479.
  34. (Mrs Scott) If I may, Chairman, this is covered on page four of the notes on amendments which you have before you. We discovered that we needed to preserve the definition of "overseas territory" which is mentioned in section 615(7) and which is relied upon by clause 412(2) in this Bill. In the set of amendments that were circulated we only included amendment number 31. What we forgot, and apologies, was that wherever we make an amendment we make it once substantively in Schedule 6 and then also insert it in the Repeals Schedule in Schedule 8 and the two ought to be paired, or twinned, because they do not do anything different from one another, they are just one substantive repeal and then one entry in the list of repeals.

    Chairman: Thank you very much. I failed to notice that this amendment was the same as on page four of this afternoon's schedule. It is only on a separate sheet because it was not on this morning's list. I have already put it to the Committee and the Committee have approved it. Thank you very much, those are all the amendments. In a moment we will adjourn and go into a deliberative session but before we do so I think, Lord Brightman, you have a point that you would like to raise?

    Lord Brightman

  35. I would like to invite attention to the admirable index of defined expressions which will be found on pages 344 to 358, I think it is. There are something like 270 specially defined expressions and I find the very great use of a Schedule of this sort is one can tell instantly whether a particular word or expression has a dictionary meaning or a special statutory meaning, you do not have to grope around the Act to try to find an interpretation. You can also tell immediately where that definition is to be found. There was a similar index in the Capital Allowances Act. What I would like to discuss is whether it might be easier for the general user of the Act if that Schedule came at the end of the Bill instead of about halfway through Volume II where it is not quite so easily turned up. An index normally comes at the end of the text. I find to have it in the middle of Volume II is a little difficult. I have had to put a tag on it so that I can get hold of it. I know perfectly well why it is in the middle as Schedule 1 of the Act because it is, in fact, introduced by clause 2 of the Bill. I am wondering whether in a future Bill of this type it might be easier perhaps for the general user if the index came right at the end and the equivalent of clause 2 was perhaps the last section of the Bill. Could you comment on that?
  36. (Mr Knowles) I think that is a very interesting idea. Certainly we would want to think about it.

  37. Yes.
  38. (Mr Knowles) We thought clause 2 ought to be up front so that people could see immediately that all the expressions that they might want to discover the meaning of and how they were defined generally were housed in a Schedule. The order of Schedules follows the order of clauses. In fact, we did not promote clause 2, which had the consequence that the index was then in Schedule 1. I would certainly like to think about that for a future occasion.

  39. I personally would find it very much easier and you could turn it up so much more quickly if it were at the end. Its prominence at the end might perhaps be given more prominence because you could put the introduction in clause 2. If you could consider it and perhaps let us know in due course what you think about it.
  40. (Mr Knowles) Yes, I would be very happy to do that.

    Lord Brightman: Thank you very much.

    Lord Howe of Aberavon: Could I make a mischievous comment on that. I was rather struck by the value of leaving section 2 where it was in Schedule 1. You could of course leave clause 2 where it is and say Schedule 1, appearing unusually at the end of the Bill, contains the definitions. In other words, you would have the best of both worlds. If you were going to think innovatively might you not do that?

    Chairman: You could say for the convenience of users it is placed at the end of the printed volume and then you get the best of both worlds. Your earlier reference to it was a reference which could be explained like that.

    Lord Howe of Aberavon: And you could call it the Brightman Amendment!


  41. I think Lord Howe is asking that you consider something like that for some future legislation rather than this, unless we do some hasty re-drafting and amendment now, I imagine you would like some time to consider it before you allow us to roll over and trundle it through, would you?
  42. (Mr Knowles) Yes indeed.

    Chairman: You would. The question is there is nothing to stop us doing it now if no-one has any substantive objection to it. How do you feel, Lord Brightman, Lord Howe?

    Lord Howe of Aberavon: I think I would be content, unusually, to abide by the judgment of Parliamentary Counsel!

    Chairman: I think you were only hoping to draw it to their attention for future legislation.

    Lord Brightman: Oh yes, I am not suggesting they do it for this one.

    Chairman: You are not suggesting that.

    Lord Brightman: It would involve altering the numbering of about 500 sections.

    Chairman: Yes.

    Baroness Cohen of Pimlico: That is against it.

    Chairman: It is probably wise not to do it on the spur of members' enthusiasm and to ask you to reflect on it in future.

    Mr Jack: When the Bill is printed as an Act, is there any way in which you could draw the reader's attention to the current layout so that if they were concerned they could find it straightaway, so you do not have to end up redrafting the Bill but make it clear to someone who picks up the Act that that is where it is?

    Lord Howe of Aberavon: You could insert "see page 30".

    Mr Jack

  43. Something like that, yes.
  44. (Mr Knowles) Perhaps I could consider that.

    Chairman: Lord Howe has a general point which I would like to ask him to make in conclusion of our public proceedings and if no one else has any point to make.

    Lord Howe of Aberavon: With the consent of the Committee, I would like to take the opportunity of extending our thanks to all those who have produced this monstrous miracle and point out the extent to which they have actually striven especially to meet some of the difficulties we had the last time with the Capital Allowances Bill because it was certainly embarrassing for the Law Society to truncate it down at that time finally to have to produce it in Schedule 21 of the Finance Act 2001, and that has been achieved not least as a result of the work that we have just been doing because of the extended consultation process which you have already commented on, Chairman, which filled in very constructively the time between the appearance of the first draft of the Bill and the present one that is before us. We had two sets of Consultative Steering Committee meetings in that equivalent period and we had reports back to us on the consultation then taking place. A lot of material has been published on the Internet for consultation on the trot, as it were, and then we published, as Mr Michael pointed out, a response document to the comments on the draft Bill and then published a revised version of the draft Bill on the Internet as well. There have been a number of meetings and exchanges and, as you rightly said, there has been more consultation on this than probably any other episode in the field of human endeavour. The other point worth noting is that in the course of doing this work on primary legislation, on PAYE legislation, it was drawn to our attention that most of it was contained in secondary legislation and that the PAYE regulations had been born in war time conditions and had been treated ever since then on that basis and had not been regarded as models of drafting. The project undertook the business of rewriting all the PAYE regulations in response to representations from the employer organisations. That task is still going on and it means that the team have had to be doing two drafts at the same time, one for primary and the other one for secondary. So I think we do owe a very great vote of thanks to all of them because the sheer scale of the project is daunting. A steering committee sounds like a magnificent organisation in command of this huge vessel, and I have to say that our interventions are mere touches on something that could not be called the tiller but we dare to make our points known from time to time. A great deal of what happens comes from the consultative committee but out there in the sticks there are lots of people reading all this material, rereading it, rereading it, working on it, so it is a formidable achievement and we are very grateful to you.

    Chairman: I would certainly endorse that and I think the Committee would generally agree that this whole process is evolving very satisfactorily and it is proceeding probably much better than we ever had reason to be totally confident of it when it started. It has taken longer than anybody thought because the original timetable set was wildly and ridiculously optimistic and it is producing some very concrete results and we are very grateful to everybody who has put their effort into it. We had this schedule this morning Tax Law Rewrite and that comes from the Law Society. My understanding is that this is the Law Society's submission to an earlier draft, it is not the beginning of a fresh set of submissions from the Law Society on the draft before the Bill now, so we really at the moment do feel that we have built on the work done on the first Bill and this Bill is at an even more developed stage than that. As you touched on, you have covered some of the most difficult areas of tax law in this country and everybody is to be congratulated, as Lord Howe has already done.

    Dawn Primarolo: Chairman, I would like to add my thanks to the officials. We have really pushed them hard today in the speed with which we expect them to do intellectual somersaults through some of the most controversial and difficult areas of the Tax Code and, as Lord Howe and you have said, this is an absolutely brilliant piece of work but also in terms of how everybody has responded to the wishes of the Committee today, both in the quality of the memorandum that was provided to us and in the contributions today in answering our questions, I think it would be remiss not to mention that we have been greatly assisted by their work and I think it is an absolutely first-class piece of work.

    Lord Howe: For the avoidance of doubt, as is sometimes said, this vote of thanks comprehensively extends to the Office of the Parliamentary Counsel as well.

    Dawn Primarolo: As always.

    Mr Jack: Could I just make one observation because associating myself with everything that has been said, having in some small way lived with this project since its inception, one of the things that I think is going to be fascinating is how parliamentarians make use of the fact that by the time the next Finance Bill comes round they will have two pieces of modern, complete tax legislation all drawing the various strands in this case of Earnings and Pensions, and in the previous case the Capital Allowances Bill, together in one volume. One of the problems in dealing with our Finance Bills up to now is, as one of the annexes to the paper showed, the difficulty of pulling together lots of tax law which is scattered here, there and everywhere. Normally the Finance Bill is a patchwork operation and you can never see what the effect is upon the whole thing. Perhaps the danger for ministers now is that parliamentarians at least in two parts of the Tax Code will be able to see what the effect on the rest is of the particular amendments that may be to come as a result of this exercise. I think it will genuinely aid the quality of our legislative process if it is properly used.


  45. On this rare note of Treasury ministers and ex-Treasury ministers on a cross-party basis heaping superlatives on the work of the officials in the Inland Revenue, now we will turn to our private deliberative session in order to conclude our work.

(Mr Michael) Thank you very much, Chairman, and thank you very much for those very kind comments of the Committee, which I know will be hugely appreciated by my colleagues who have worked very hard on this.