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On the content and approach of the legislation, the charge to income tax has historically been broken down into a number of schedules. The project’s first two income tax Acts—known as the ITEPA, the Income Tax (Earnings and Pensions) Act 2003, and the ITTOIA, the Income Tax (Trading and Other Income) Act 2005—abolished these schedules for income tax purposes and replaced them with income categories.

This Bill completes the picture. First, it tackles the core provisions of income tax. It contains the rewritten legislation for the basic provisions about the charge to income tax, income tax rates, the calculation of income tax liability and personal reliefs. The Bill also contains the rewritten legislation for various specific reliefs including loss relief, the enterprise investment scheme, venture capital trusts, community investment tax relief, relief for interest paid, gift aid and gifts of assets to charities. Additionally, the Bill contains specific rules about settlements and trustees, deduction of tax at source, manufactured payments and repos, the accrued income scheme, tax avoidance and general income tax definitions.

The provisions about the calculation of a person’s income tax liability are a particular feature of the Bill. The opportunity has been taken to provide a much

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fuller presentation of how the various elements to be taken into account in arriving at a person’s overall income tax liability fit together. This has been well received in consultation.

Various techniques have been used in the Bill to make legislation clearer and more accessible. First and most important is the imposition of a coherent structure, the material being presented in a logical way with linked topics grouped together. The Bill also contains plenty of navigational aids for the reader, such as introductory scene-setting chapters and signposts to other relevant provisions. Other features of the rewrite process include shorter sentences, modern language, more consistent definitions and greater use of aids to the reader, such as formulae and method statements. All this combines to make the law more accessible, easier on the eye and altogether more user-friendly.

The project continues to enjoy the support of the users of the legislation. The comments made by the representative bodies confirm that this latest Bill from the project has, indeed, been well received. The Institute of Chartered Accountants in England and Wales commented on the draft Bill, and can be taken as representative of users when it said,

The Chartered Institute of Taxation, another representative body, said,

were “clearly drafted”.

To sum up, this is an immensely worthwhile project which modernises our current direct tax legislation, making it clearer and easier to use. It would be wrong of me to conclude without paying tribute to everyone who has taken part in this work, from the time of its initiation by Kenneth Clarke in 1996. We owe a particular debt to the noble and learned Lord, Lord Howe of Aberavon, for his long service as chairman of the steering committee, and to his successor in that role, the noble Lord, Lord Newton of Braintree. It can be fairly said that this is a matter where there is no party-political controversy of any kind.

This Bill is another major milestone in the work of the project and completes its work on the rewrite of income tax. The Bill maintains the project’s excellent work and its track record of improving existing legislation as it turns its attention to its next task, that of rewriting the legislation about corporation tax. I commend the Bill to the House.

Moved, That the Bill be now read a Second time.—(Lord Davies of Oldham.)

7.44 pm

Lord Newton of Braintree: My Lords, I certainly do not want to take any great amount of your Lordships’ time, but I felt that I had to say something. As the Minister acknowledged twice, or perhaps three times, I am currently the chair of the Steering Committee for the project. If anyone is mystified and wants to say, “Why you?”, or “Why me?”, whichever is appropriate, they had better turn to others for an

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explanation. My noble and learned friend Lord Howe of Aberavon appeared to have decided that I was a good person to take it on from him. I understand that he managed to persuade the project and the Minister of that view; they ganged up on me, and I allowed my sense of inadequacy to be overwhelmed by these blandishments.

I therefore agreed to take over as chairman of the Steering Committee—with some diffidence, given that this project had been born in the mind of my right honourable friend Kenneth Clarke, as a former Chancellor of the Exchequer, and carried forward by my noble and learned friend Lord Howe of Aberavon, who had been looking after it for the whole of its 10 previous years of life. At any rate, here I am, and pleased to be associated with—to endorse the Minister’s words—a very worthwhile venture.

I want to do little more, except to join in his tributes to various people. I have mentioned some of them, particularly my noble and learned friend Lord Howe of Aberavon, whose project this became over those 10 years. Alongside them, I want to express my thanks to the project team, some of whom might just be in earshot at the moment and to my colleagues on the Steering Committee; not least the noble Baroness, Lady Cohen of Pimlico, and a number of others who devote great diligence to studying complex and lengthy papers. They make an extremely important contribution to the project. My main purpose apart from that was simply to be here to support the Minister and to urge the House to let him have his Bill. It looks as if the House is in a fairly docile frame of mind, so I am optimistic that my plea will not fall on deaf ears. However, I would like to make two related points, which I hope are not out of order.

First, this project, as the Minister indicated, has been going on a long time. It was not originally envisaged to last as long as it already has, and it has still not by any means completed its work. I say to some who have assisted with the project through consultation that I am conscious that, with the acceleration of the project, there have been mutterings about consultation overload. I want to assure them that all of us connected with the project are very aware of that, and will do everything possible to try to ensure that consultation takes place in a way that minimises rather than maximises the burdens and pressures on those whose co-operation we require.

Secondly, because of some of the pressures on the Steering Committee and therefore the whole project, there is a tendency—not among the professional bodies, but in one or two quarters—to confuse simplifying the writing of complicated legislation with simplifying the legislation. One grumble that we pick up is, “You may have made the thing clearer, but it is still extremely complicated. Why doesn’t somebody simplify it?”. The Minister will understand if we say that this remark is directed at the Government and not the project, because our specific terms of reference are to simplify the writing of the legislation, however complicated, but not to simplify the legislation.



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The Minister and his colleagues ought to be aware that considerable anxiety remains outside that, despite the relative applause for the simplified drafting, somebody ought to be doing more about simplifying the legislation itself. Now, while I expect no great declaration from the Minister tonight, I hope that he might carry that little message from those of us who are at the coal face in this matter to his colleagues in the Treasury. Meanwhile, apart from thanking everyone, exuding good will and urging the House to accept the Bill, I have nothing else to say.

7.50 pm

Lord Newby: My Lords, I hope that I can be sympathetic without being too docile. I congratulate the noble Lord, Lord Newton of Braintree, and his team on the tremendous amount of work that they have done on the Bill. It is a huge intellectual and administrative effort, and they certainly deserve all our thanks and congratulations. One of the interesting opportunities which the Bill gives people like me who do not normally look at tax legislation except the Finance Bill, is simply to flick through it. Some of it at least is extremely clear and comprehensible to the layman who in the past has found such legislation almost totally impenetrable, although I must say that I had difficulty with the clarity of the manufactured payments part of the Bill. No doubt it was there, but my mind was not up to the complexity.

That brings me to my main point—the point on which the noble Lord, Lord Newton of Braintree, concluded. Given that we have Finance Bills of 400 or 500 pages every year, what we have here is not a complete job but a sort of Forth Bridge job in that no sooner has the team got through the raft of taxes than there is a huge accretion of new taxes. I had very much hoped that that message would get across.

One of the things that very much frustrates me in my work in the Liberal Democrat tax working group is that everyone to whom one talks about taxation, whether in politics, in the City or in business, says that the tax system needs to be simplified. My plea to them is, “Well, tell me how you want it to be simplified”. Very often they have no answer to that. However, one principle of simplification could save a considerable amount of the existing tax code—the adoption of a general anti-avoidance rule. We have raised this issue before in your Lordships’ House and I do not intend to expand on it at any great length. However, if HMRC and the Chancellor could be persuaded to adopt such a policy, I am informed that it could probably enable us to reduce the tax code by more than 1,000 pages. That would be a major simplification, against which many other suggestions for simplification would look relatively small. I urge the Minister to have a gentle word with his colleagues in the Treasury and suggest to it that it should at the very least re-examine that principle. It did so earlier in the life of this Labour Government, but did not proceed with it.

One of the joys of all the documentation accompanying the Bill is two volumes called “Table of Origins” and “Table of Destinations”, which sound a little like a railway timetable. The table of destinations

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is, in a sense, a sad document, because it lists all the things that are being repealed. It would be helpful, if only to demonstrate what a valuable project this is, if all the repeals could be added up and the Minister and the Treasury could say, “As a result of this work, we have reduced the tax code by X pages”. The noble Baroness, Lady Noakes, shakes her head; perhaps the effect has been to increase that tax code by X pages. If, however, the effect has been to reduce it by X pages, that would help people to realise the value of the project, and no doubt cheer them up in a minor way. That would be very helpful. With that minor caveat, I support the legislation.

7.54 pm

Baroness Noakes: My Lords, I thank the Minister for introducing the Bill, and I state for the record that I am never knowingly described as docile. We welcome the Bill, as we have welcomed the earlier products from the tax law rewrite project. Anything that makes our tax code more comprehensible has to be welcomed. The Minister explained that the project was started by my right honourable friend Kenneth Clarke when he was Chancellor of the Exchequer in 1996, and I pay tribute to my right honourable friend not only for initiating the project but for sticking with it, because he now chairs the Joint Committee of both Houses on tax law rewrite Bills. I also pay tribute to all those who have laboured to produce and to scrutinise the Bill, and I must single out for special mention my noble friend Lord Newton of Braintree, who I am glad could be with us this evening and who chairs the steering group. I am sure the Minister will have noticed that there is something not quite right about this evening’s proceedings on this rewrite Bill; that is, the absence of my noble and learned friend Lord Howe of Aberavon, who normally likes to join us on these occasions. He cannot be with us this evening, and I was grateful for the Minister’s kind remarks about him. We will miss his wisdom and experience this evening.

There has been little controversy about the Bill. Concerns were expressed at the wide-ranging nature of the Treasury’s power in Clause 1029, but we accept the assurances given by the Minister in another place that the power will be used only with the involvement of the relevant committees. Concerns were also expressed at the very late addition of clauses on the accrued income provisions, but again we accept, as did the Joint Committee, that the exceptional nature of the process meant that this treatment was merited. Such little controversy about a Bill that runs to 1,035 clauses and four schedules is a tribute to the effective way in which the rewrite process is being run; but we should be under no illusions—I hope that the noble Lord, Lord Newby, will note this—about the length of our tax code. I believe it is very likely that, when the Bill becomes law, the tax code will have lengthened to the point where we might rival or possibly even overtake India for the dubious title of the country with the longest tax code. Perhaps the Minister will say whether, once the Bill is law, we will have the longest tax code. We were still 1,000 pages or so behind India before the Bill, but we might well have caught up.



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Of course, length is not the most important issue. The rewrite process has taught us that explaining our tax law in simple and direct terms often does not result in fewer words. My noble friend Lord Newton referred to that. The key issue is complexity. I do not know of any international league tables that explicitly calibrate complexity, but it is a fair bet that if there were, our tax code would be up there vying for the top slot. Let me take the example of the accrued income scheme, the rewrite of which was added late to the Bill. When the scheme was first introduced, which I recall, the broad idea behind it was not at all difficult to understand, but the legislation was so dense that only tax specialists really understood how it worked. Over the years, the scheme was modified by successive Finance Acts and became even more complicated. I am sure that I am not alone among taxpayers in having had the greatest difficulty in knowing whether I have unwittingly fallen foul of the rules of the accrued income scheme when I complete my tax return.

When I saw that the rules had been rewritten, I looked at them again. Noble Lords will find them in Part 12 of the Bill. Sixty-seven clauses are spread over 30 pages. The rules may well be written in more accessible language, but I do not believe that it is any easier to grasp their practical application. This is but one example of highly complicated rules that remain beyond the comprehension of the vast majority of taxpayers, and we should not put up with that.

Conservative Chancellors have always had an ambition to create simple tax law. At Third Reading in another place on 20 February 2007, my right honourable friend Mr Kenneth Clarke, said:

I am not sure that all Conservative Chancellors succeeded in their aim of simplicity—there was certainly a fair amount of difficult anti-avoidance legislation before 1997—but their hearts were, I think, in the right place. That is in stark contrast with the current Chancellor of the Exchequer, who has genuinely created additional complexity through a whole range of special reliefs and incentives that are then buttressed by anti-avoidance provisions of equal or greater length to stop those reliefs or incentives being used in the way that only the Chancellor knows they should be used or applied in the first instance. My right honourable friend Mr Kenneth Clarke continued:

This draws out two issues. The first is the increasing complexity of our tax code. The second is that almost as soon as a bit of the tax code is rewritten, it is often replaced by something more

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complicated and expressed in terms which are less simple, and requiring a further rewrite in due course.

Do the Government believe that they have made sufficient progress in drafting new tax legislation in the spirit and style of the rewrite project? If that is not happening, the project will become like painting the Forth Bridge. Worse still, if the project seems endless, it will not attract the people of the calibre that have been involved to date, in particular the bodies required to scrutinise the draft.

The root of the problem is the Chancellor’s approach because he does not seem to embrace simplicity as an aim in tax legislation. I have asked Ministers in this House many times if the Government are committed to achieving tax simplification. The response I have had from the Minister’s predecessors is that complexity has to continue because of the constant need to do battle with those who seek to avoid tax. And we know from the announcement earlier this month as well as at the Pre-Budget Report that the upcoming Finance Bill will contain another large dose of anti-avoidance legislation. Will the Minister stick to the line that we need complexity because of tax avoidance or will the Treasury open its mind to the possibility of a new way forward?

We believe that there is a different way. It requires a completely different mindset about the tax system. It would certainly require a self-denying ordinance on using tax as an instrument of economic micro-management. It may also require a different, purposive style of legislation and might also require—as the noble Lord, Lord Newby, pointed out this evening—a different approach to anti-avoidance; namely, a general anti-avoidance rule. There is no doubt that these are difficult issues but they are worthy of examination.

My noble and learned friend Lord Howe has long campaigned for a sister project to the tax law rewrite project; namely, the tax structure review project. He has the backing of the Tax Law Review Committee, the Institute for Fiscal Studies, the Chartered Institute of Taxation and of the Institute of Chartered Accountants. The recent report by the Tax Reform Commission chaired by my noble friend Lord Forsyth of Drumlean recommended the creation of an office of tax simplification to sit alongside and extend the work of the tax law rewrite project.

I do not underestimate the difficulty of such a task. The transition from our present body of tax law to one based on principles of simplicity is an awesome task. But I believe that it is in the interests of the UK economy for us to attempt to achieve it. In their submission to my noble friend’s Tax Reform Commission, the accounting firm KPMG—in which, I remind noble Lords, I was a partner for many years—said that the increasing complexity and reducing certainty of the UK tax system was gradually making the UK a less competitive location for industry. We must not let our tax system, on top of our high tax rates and our increasingly aggressive tax administration, act as a drag on our competitiveness.



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I conclude by reiterating our thanks to all those involved with the rewrite project—those in Parliament, the Treasury and HMRC and those bodies which comment on the drafts. As the Minister said earlier, another rewrite Bill, this time on corporation tax, is already well advanced. I shall not say that I am looking forward to its arrival but I am certainly grateful to the rewrite team for its efforts.

8.04 pm

Lord Davies of Oldham: My Lords, I am grateful to the noble Lords who have spoken in this debate. However, I chide the noble Lord, Lord Newton, on two areas in his short contribution. First, he is too modest by half. The reason why he is chairing the committee is, as we all know, his astute mind and his excellent chairmanship. We are pleased that he has taken up this position and we wish him well in it. Despite the misgivings of the noble Baroness, Lady Noakes, about the future of this work, I wish him well in it and I hope that he stays the course. His other misjudgment was to use the word “docile”. Just because only the noble Baroness, Lady Noakes, and the noble Lord, Lord Newby, are here for the Opposition does not mean docility—far from it. A critical and constructive approach to legislation is what we always receive from those two noble Lords. The noble Lord, Lord Newton, will recognise this evening that, if there was a note of docility when he was speaking, that is because he engages the House in those terms. But, as I cheerfully expected, that would not last much beyond the duration of his immediate contribution—nor did it.

I hear what the noble Lord, Lord Newton, says about all the appeals added up and the length of the Bill. There are 49 separate provisions contained within this piece of legislation. It is a significant piece of work to codify in those terms, which is why we are pleased with the progress that is being made. I recognise what the noble Lord, Lord Newby, indicates—that there are still parts of the legislation that are difficult to master. Modern life is quite complicated and aspects of the tax system will always test those of us who do not have particular qualifications in certain areas.

The noble Baroness, Lady Noakes, enjoys the great advantage of being highly qualified, although that does not stop her from suggesting that we should rewrite a great deal of our legislation and adopt new strategies for the future. I am not sure that the Chancellor has given me the opportunity this evening to prejudge his Budget and to codify that within a limited and simple framework to solve all her problems, but I will faithfully relate back to him the desiderata that she has identified. Of course I agree with her that we should strive for tax simplification, which is why this project receives all-party support and produces legislation that enjoys the support of us all.

However, some concepts of tax legislation are quite difficult. Even the Opposition, when they were in government, wanted to deal with certain aspects of tax avoidance and to identify tax loopholes, which often leads to complexity. There is no doubt that this

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is a natural corollary to some of that work. The greatest sin would be to leave the loophole, which would mean that someone was not meeting their full obligations to the nation as the law intended.


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