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Lord Bassam of Brighton: The point that the noble Baroness, Lady Miller, has missed is that in one instance an individual employer is capable of defrauding more; that is why the penalty is greater. That is the point—it has to be a disincentive. That is why the penalties are fixed at the relevant level for each offence.
Lord Wedderburn of Charlton: I do not understand the position of the noble Lord, Lord Bassam, on this matter. In each case there is fraud. One involves a paternity case and the other involves an adoption case. Is my noble friend advancing the argument that as a general principle of criminal law the extent of the fraud must govern the maximum penalty that is available to a court? Is that the principle? If so, I suppose that there is a distinction, but to make it 10 times larger in the case of a fraud on each side of the table seems rather large.
Lord Bassam of Brighton: That involves a civil penalty. That point needs to be understood. It is to do with the amount that can be defrauded. That is why we need an active disincentive to be built into the legislation.
Lord McCarthy: The real argument is not about the £3,000 but about the £300. I see the point that is being made—there is a difference between £300 and £3,000, but I do not see how £300 will deter anybody.
Baroness Miller of Hendon: I thank the noble Lords, Lord Wedderburn and Lord McCarthy, for coming gently to my aid. They have perhaps not quite adopted the direction that I pointed out, but they are certainly somewhere along that line. I think that the differential between the two sums is too great. I understand what the noble Lord, Lord Wedderburn, said about the amount that one could defraud. Perhaps that is supposed to be reflected in this regard, but the matter needs to be looked at again. I hope that the Minister will reconsider the differentials. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 45 to 47 not moved.]
Schedule 1 [Penalties: procedure and appeals]:
Baroness Miller of Hendon moved Amendment No. 48:
- Page 61, line 21, after "insufficient" insert ", or is or has become excessive"
The noble Baroness said: Paragraph 1(5) of the schedule provides for the board or its authorised officer to increase the penalty when it is considered that it has "become insufficient". The power to increase a penalty after a case is over and judgment has been given is not one that is open to the civil and criminal courts. The phrase is that the judge had become functious officio, which sounds pretty awful but means only that the judge's part in the process has become defunct. It is only in exceptional cases that in a criminal case the prosecution can ask for a sentence afterwards to be increased. The judicial parts of the Bill do not readily render themselves open to appeal or review. I suppose that that is the reason why the Government have decided to give the tribunal the chance to have a second bite of the cherry.
However, the scales of justice are supposed to be held on an equipoise, as Members of the Committee would see if they looked at the statue of Justice in the Prince's Chamber, if only someone had not removed them altogether because the weights were always being stolen!
I suppose that it is theoretically possible that a tribunal might come to the conclusion that it had been a bit too hard on an employer and that it should reduce the penalty. I say that more in hope than in expectation. If the tribunal wants for whatever reason to reduce the penalty, it should have the power to do so in exactly the same way as the Bill gives it power to increase the penalty. That therefore is the aim of Amendment No. 48 and of consequential Amendment No. 49.
I have to confess that on re-reading Amendment No. 48, which was drafted for me by one of my advisers, I would have preferred to have used the phrase, "has been found to be excessive" because that would have been better phraseology. However, assuming that the Minister agrees to this very modest amendment as stands on the Marshalled List, we could deal with its wording at a later stage.
Amendment No. 50 calls for the total deletion of subsection 5(5). Section 5, as the marginal note tells us, deals with penalty proceedings before a court. Subsection (1) makes it clear that it applies to cases:
- "Where in the opinion of the Board the liability of any person for a penalty . . . arises by reason of the fraud of that or of any other person".
- "If . . . the court does not find that fraud is proved but considers that the person concerned is . . . liable to a penalty, the court may determine a penalty notwithstanding that, but for the opinion of the Board as to fraud, the penalty would not have been a matter for the court".
It is reported that a Scottish judge once told a defendant—I regret that I am unable to speak with the sort of accent that would make this story so much better—"Maybe you did it and maybe you didn't, but we think you would be none the worse for a hanging, so we will have you hanged!" This clause strikes me as being well up to the standard of the kangaroo court in Alice in Wonderland—sentence first, verdict afterwards.
I seriously doubt whether a law that enabled the court, which had just acquitted a defendant of the charge against him, to inflict a penalty on him none the less because the prosecution thought he must have done something to deserve it would stand up for as long as one minute before the European Court of Human Rights.
I am absolutely convinced that this provision is at variance with the certificate of the noble Lord, Lord Sainsbury of Turville, that the provisions of the Bill are compatible with the European Convention on Human Rights. I beg to move.
Lord Bassam of Brighton: I shall try to plead mitigation having heard the noble Baroness's case. The amendments are to Schedule 1 of the Bill, which sets out the mechanics dealing with the penalties described in Clauses 11 and 12. The schedule applies to procedures that are in common with the procedures that are already used by the Inland Revenue when dealing with penalties for tax, national insurance contributions and tax credits. There is nothing new in the schedule—that is the way in which that happens now in relation to most other areas of the Inland Revenue's business and services.
As the noble Baroness noted, paragraph 1(5) of the schedule allows an Inland Revenue officer to increase a penalty. It states that the officer can look again at a penalty that he has determined if he discovers new information that leads him to believe that the offence leading to the penalty was more serious than was originally supposed and that the penalty should therefore be increased. For example, the amount of statutory adoption pay that is fraudulently obtained may be found to be greater than was previously calculated.
However, the noble Baroness quite reasonably concludes that that should work both ways. If something comes to light that shows that the original offence was less serious, the penalty should decrease. For example, the amount of statutory adoption pay that is fraudulently obtained may be found to be less than was previously calculated.
I am happy to reassure the noble Baroness that the arrangement works both ways—that is already provided for in the Bill. I direct her to paragraph 6 of
the schedule on page 63 at line 22. That paragraph contains a general power for the board to mitigate any penalty. The board can decrease the penalty if it feels that the circumstances warrant a lower amount. There is no such general power for it to increase the amount of a penalty. That is why the specific provisions in paragraph 1(5) are included.It is also important to note that the general power to mitigate does not rely on the discovery of new information—the amendments of the noble Baroness would do so. The provision for increasing the penalty is much more tightly drawn than the provision to reduce it. Not only does any increase rely on new information but the increased amount will also carry a further right of appeal, because it is a new determination by the officer. That is quite a significant fact to take into account. In any case, the original penalty notice will have carried a right of appeal, too.
Turning to the noble Baroness's amendment at page 63, lines 17 to 21, as I started to say inadvertently earlier, this is a standard piece of drafting in tax penalty legislation, although I admit it is not the easiest for the lay person to understand. It might help if I explain what the subsection does. It permits the High Court to determine a penalty for negligence if it finds that fraud is not proved but considers that the defendant is still liable to a penalty for negligence. This prevents the need for penalty proceedings to be started again—so, if you like, it cuts through bureaucracy.
I said earlier that provisions in the schedule were based on tried and tested procedures common to other areas of the Inland Revenue's business and services—tax, national insurance contributions and tax credits. There are good reasons for making sure that we replicate them as far as possible for these new statutory payments. They have been thoroughly examined and tested by a whole phalanx of tax experts who monitor what the Inland Revenue service does and they are familiar to the employers, who deal daily with the Revenue in a wide variety of contexts. I understand that this is not a simple matter and I have tried to explain to the noble Baroness's satisfaction why the amendments are unnecessary, since the safeguard she seeks is already provided for in the legislation. In those terms, I would invite the noble Baroness to withdraw the amendment.
5.45 p.m.
Baroness Miller of Hendon: I am comforted by what the Minister has said in directing us to paragraph 6 of the schedule, which points out that they can decrease as well as increase. I am content with that.
With regard to Amendment No. 50, the Minister said it is quite complicated and that not everybody understands it, and I have to say that I still do not. I read very carefully what the Minister said. I did not realise that in respect of the negligence in this case, where no fraud at all has been found because the idea of the penalty is against fraud, the court can say that there is no fraud, but that it will fine the person for being negligent. I did not realise there was the possibility that that could happen.
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