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My noble and learned friend Lord Howe has given us the opportunity to discuss three documents which are really two reports: one from the Tax Law Review Committee and the other from the Inland Revenue. The proposal contained in both those documents, and agreed to by every Member of your Lordships' House who has spoken, is to rewrite primary tax legislation to make it clearer and more user friendly, which is an important and interesting suggestion, as has been demonstrated by today's debate.
In recent years the complexity of tax legislation and the criticism of that complexity have been growing. In part, it concerns the complexity of the underlying rules. There are a number of reasons for that. The tax system has to cope with an ever more complex modern world, while continuing, as the noble Baroness, Lady Seear, pointed out, to give certainty and equitable treatment to taxpayers.
There has also been criticism of the way those complicated rules are expressed. Many argue that the style involves complicated syntax, words with special legal meanings, long sentences and archaic or ambiguous language. Much tax legislation is also very difficult because it has been drafted to cover every conceivable situation.
From his position as one-time chairman of Finance Bill Committees, my noble friend Lord Shaw suggested that the more complicated a clause, the easier it was for the Government to get it through and that that may not have been entirely a good thing when it came to the proper scrutiny of legislation.
Against that background, a key event was the setting up in late 1994 of the Tax Law Review Committee, whose role my noble and learned friend Lord Howe has described. A number of your Lordships, including the noble Baroness, Lady Seear, are involved in it.
In parallel, the then Financial Secretary to the Treasury asked the Inland Revenue to look at the options for the simplification of tax legislation. That exercise was given added impetus by Section 160 of the Finance Act 1995, which required that a report be laid before Parliament by the end of the year. In the event, the two reports were published within a few weeks of each other: the TLRC's on 23rd November and the Revenue's on 12th December.
There were many similarities in the conclusions reached by the report both as to the reasons for tax law being so complex and on the practical scope for simplifying it. My noble and learned friend Lord Howe has described the TLRC's work. I need not repeat what he has said, but I should like to say a little more about the Revenue's report. The Revenue's findings were set out in The Path to Tax Simplification and an accompanying background paper. The report was based upon extensive study and consultation.
The main conclusion is that all the primary tax legislation covering Inland Revenue taxes (almost 6,000 pages) should be rewritten to make it clearer and more user friendly. That proposal was announced by my right honourable friend the Chancellor of the Exchequer in his Budget Statement last November in another place. That announcement has been widely welcomed on all sides.
As my noble friend Lord Shaw said, this is a major project. It is also an all-or-nothing venture. It would create a nonsense to rewrite only a fraction of this legislation, leaving the rest of it untouched. To rewrite 6,000 pages of legislation will take about five years and involve some 40 highly skilled and professional staff. This is a measure of the priority which is being given to this project and of the Revenue's commitment and determination to do it and do it well. The noble Lord, Lord Taverne, welcomed that determination. My noble friend Lord Hayhoe described it as a delightful and welcome prospect. In so far as taxation is ever a delightful and welcome prospect, I am grateful to him for his remarks.
Perhaps I may say something about what the rewrite would involve. There is no single technique which, if applied across the board, would solve problems arising from the way tax law is currently structured and expressed. The Revenue is therefore examining a package of techniques which, used together, will produce simpler legislation.
The noble Baroness, Lady Seear, said that certainty was important. I am not entirely sure that the complicated way in which we have dealt with the matter over the years has brought certainty. Dare I suggest that, if it had done so, Finance Bills would not have had to revisit tax legislation in previous Finance Bills in order to make the position clearer, to close loopholes and to catch those not caught who were originally intended to be caught--
The first of these techniques we wish to look at is plain language; using simpler and clearer words and sentences to make tax legislation more accessible. The noble Lord, Lord Ashburton, put it well in saying that people should feel that they own the tax system and that
The Revenue is also looking at the overall structure of the tax code. A better structure and order, possibly accompanied by a new numbering system, could help to make the tax code easier to understand. Various signposting techniques might also be helpful such as explicit cross-referencing, clearer headings and so on. More radical suggestions, such as using flow charts, graphics and notes to the legislation, are also being assessed.
Changes could be made in the ways in which definitions are used so as to make it easier for users of tax legislation to identify them. My noble and learned friend Lord Howe drew to our attention the five-page submission he received when he suggested that the words to be defined might appear in italics. We believe that the defined terms could be printed in a different typeface. I notice that in the examples given in the report italics are used for all the words which are subsequently defined.
It will be necessary to examine carefully the legal effect of all of those techniques in order to ensure that they do not inadvertently cause uncertainty and inaccuracy. The look and style of legislation also affects the ease with which it can be used and is a matter for Parliament, not for the Revenue. However, I welcome the fact that thought is being put into that area, as do all noble Lords who have taken part in the debate. All those techniques may have a role to play in making tax legislation simpler and more user-friendly and the Revenue proposes that they should operate as a package. The Revenue is of course aware of the importance of a coherent structure to all this in order to ensure that old style and new style legislation do not co-exist in the same provisions.
The rewritten law would not of course be new law. Apart from some minor changes to simplify the tax regime, it would be the same law expressed in a clearer and more user-friendly way. Major policy reforms have always been a Budget matter and will remain so. The rewrite will not hinder reforms; indeed, by making existing law easier it will assist the policy reform process. The subject of the debate and the two reports is the reform of the way in which legislation is set out and reforming existing law. It is not about reforming certain aspects of policy underlying the tax law.
The noble and learned Lord, Lord Brightman, and the noble Lord, Lord Ashburton, drew attention to the difficulty that one has in understanding the capital gains tax legislation. The noble and learned Lord, Lord Brightman, read out explanations and the tax legislation and he made his point well because he lost me quite quickly. At the risk of bringing the noble and learned Lord, Lord Simon of Glaisdale, to his feet, perhaps I may say that I should have preferred the algebra which was attacked in a previous piece of legislation that I took through the House. Algebra might have been a good deal easier than the explanation which the noble and learned Lord read out.
The noble Lord, Lord Ashburton, referred to the distortions which can be caused to those who have to make investment decisions by application of the capital gains tax laws. Those matters are not the subject of this debate and this particular issue, although if the law were written more clearly they would be easier to understand and to deal with or would be more clearly seen as requiring reform and change. Therefore, one must separate reforming the principles, the policy behind the tax law, and reforming the way in which legislation is expressed.
The noble and learned Lord, Lord Simon, and my noble friends Lord Hayhoe and Lord Cockfield spoke of the Government being secretive as they devise the Finance Bill. The Revenue's report deals with that point. The amount of consultation on the Finance Bill has increased significantly, as my noble friend Lord Hayhoe pointed out. The Revenue's report proposes that that should be built on by making even more legislation available in draft and by developing a code of practice on consultation to ensure that everyone involved is aware of best practice. That would be a major step forward as regards new legislation but not as regards the rewrite of existing legislation.
Many noble Lords, in particular the noble Viscount, Lord Chandos, mentioned explanatory memoranda and their usefulness in considering the purpose of the legislation. The Government are already publishing notes on clauses in order to give brief explanations of individual Finance Bill clauses and schedules. The Revenue's report proposes that they should be expanded to give more information on the Government's intentions and the impact of the measures.
The noble Lord, Lord Taverne, suggested that perhaps referring to reports in Hansard of what a Minister said is not the most reliable way of backing up what the Government mean. I understand the point because a few years ago I was horrified to discover that, as a result of the Pepper v. Hart decision, remarks I made in 1985 during the Committee stage of a Bill were to be prayed in aid in court in defining what the Government meant. As that was a serious matter involving salmon poaching I was concerned that my definitions would hold water, or not hold fish, as the case may be. I am happy to say that my definitions stood up in court, but I was given pause for thought in realising that what I said perhaps off the cuff in Committee would be prayed in aid in a court some years later. I agree with the noble Lord, Lord Taverne, that it is preferable that explanatory memoranda are used in court cases rather than the words of the Minister at the Dispatch Box perhaps attempting to answer on the hoof clever and not so clever questions posed by the Opposition. Therefore, there is something to be said for explanatory memoranda and I do not believe that there is a great deal of difference between the reports of the Inland Revenue and the TLRC in that regard.
Another point was raised which overlapped policy and the reports' request for simplification of the legislation rather than the policy itself. It was made in particular by the noble and learned Lord, Lord Simon of Glaisdale, and my noble friend Lord Cockfield. It was the issue of tax avoidance. I believe that the noble and
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