Examination of Witnesses (Questions 160-166)
Mr Michael Snyder, Mr Alex Henderson and Mr Ian Menzies-Conacher
7 MAY 2008
Q160 Lord Wakeham: We understand
some of the things you are saying and the message I am getting
from you is that you think HMRC have a view as to what should
happen, as a result of which ministers do not get as clear a picture
of the difficulties as they should.
Mr Snyder: Being careful in my language, with
the changes at the Treasury with Gordon Brown moving to Number
10 and a number of other people who historically had been in the
Treasury, there was quite a strength of people. That changed and
I think this happened at just the wrong moment when there perhaps
were not those with such experience there who could resist the
worst excesses of HMRC.
Q161 Lord Barnett: I should declare
an interest as a retired former accountant and a Treasury minister.
Is it not really the case on most of these occasions that junior
Treasury ministers do not have a clue in any government and it
is more that HMRC or the Revenue should understand it and should
be able to explain what you are saying to Treasury ministers?
Would that not be the case?
Mr Snyder: I think it should be the case if
they are being balanced, but I do not think at the moment that
they are.
Mr Henderson: I suspect one of the problems
is that HMRC do not actually understand some of the practical
implications of the measures they are putting forward. I think
this process has shown that. We referred to offshore mortgages.
That is a classic case where there was an unforeseen consequence
of the changes that were being introduced and there are still
unforeseen consequences in the draft legislation we have now.
Q162 Lord Barnett: A lot of people
of course simply do not know the difference between evasion and
avoidance very often, and that would probably include junior Treasury
ministers, would it not?
Mr Snyder: It certainly did not include the
previous junior Treasury minister.
Mr Menzies-Conacher: In process terms, this
certainly was not a good consultation process but there have been
lots of very good consultation processes as well. You have to
learn the lessons from the good as well as the bad. One of those
is that there is clearly an issue with getting across. A lot of
the consultations—I spend a lot of time on this—are
precisely to try to get across business issues, concerns and practicalities.
I have no criticism of Revenue or Treasury people who do not understand
those because why should they? It is my business; it is not theirs.
It is my job to explain it and hopefully explain it properly so
that it gets understood and gets addressed correctly. Where I
see this process working best is where some of these discussions
can take place, not behind closed doors, but in an informal, preparatory
way so that some of these issues can be aired up front and perhaps
some of the "non-starters" can be killed before they
go anywhere. Once that has been done, we can move on to the next
phase of public consultation and so on, with a slightly more finalised
product. There are other criticisms of it that people would be
aware of the current consultations on taxation of foreign profits.
The process on that has been an extremely good one and I would
commend that. It may not necessarily at the moment be producing
the right answer but that is a slightly different question: is
the process right? I think the process is quite a good one.
Q163 Lord Barnett: I was just thinking
of the serious business consequences you spoke about. I do not
know what evidence you have of that, whether increasing the 2,000
to 30,000 would be a means of helping or whether you think a change
in the seven year rule might be an easier way forward.
Mr Snyder: I think it is unlikely that the government
is going to move on the seven year rule. I certainly hope that
they will reconsider and get an increase in the threshold under
which it applies, but perhaps Alex could tell you the one, for
me, really startling issue. I think that might help in terms of
inward investment into this country.
Mr Henderson: What Michael is referring to is
a detailed issue. As well as the 30,000 and the personal allowances
which we have talked about a lot, there is a tightening of the
rules around remittances into the UK. Those were substantially
tightened and caused a lot of concern when the measures were first
announced. They were relaxed but for example they were only relaxed
in the case of trusts. Now, if a non-domiciled individual does
not have a trust they are penalised and they are strongly incentivised
not to invest in the UK or to remit money into the UK. It remains
an unresolved issue.
Mr Snyder: In particular, this applies inadvertently
to companies. If a company wants to invest—
Mr Henderson: Exactly. If a company in which
you are invested itself invests in the UK, that can be treated
as a remittance. It remains in the legislation.
Q164 Lord MacGregor of Pulham Market:
That was one of the points I wanted to raise with you. Presumably,
it applies even to bringing in money to buy a home?
Mr Henderson: Yes, it would.
Q165 Lord MacGregor of Pulham Market:
There are a number of others in your note which we do not have
time to go into but which are obviously serious and unresolved.
The question I wanted to ask in terms of consultation or lack
of it is: can you in your experience ever recall another major
tax change where there are so many serious, unresolved issues
at this late stage of the Finance Bill?
Mr Henderson: This has had some unique features.
Q166 Chairman: We are running out
of time. If there are any things that you wanted to say on the
other two topics, capital gains tax and encouraging enterprise,
speak now or for ever hold thy peace.
Mr Snyder: From the City's point of view, I
do not think they are desperately relevant to the City. With my
business hat on, having been on the Small Business Investment
Task Force, I can see that the EIS scheme and the Venture Capital
Trust will have a really good effect at the middle level. They
do not ever affect the bottom level because no one wants to put
their money in, however much tax relief they get. You need to
be addressing that at a business level. That will help. In terms
of the changes in the CGT and entrepreneurs' relief and the way
that gain happens, I will just say it neutrally. Perhaps it was
not the most helpful in encouraging people to be serial entrepreneurs.
The process of taking retirement relief away, then introducing
the 10%, then taking away the 10% and then having to introduce
the £1 million limit was not a particularly helpful way of
giving a message out again from government and the Revenue saying,
"We really wish to encourage this area." Having said
that, the difference between 18% and 10%, the 10% with all sorts
of loops and hoops to jump through, is a marginal decision because
you could easily fall foul of the business taper relief conditions.
I think it is a judgment call. The way it was done was not particularly
helpful. I do not know if enough was said about reducing the rate
of other capital gains tax from 40 to 18. There was a balance
in there somewhere and I would like to see them perhaps have a
revolving limit of the entrepreneurs' relief. In other words,
every five years you might reinstate it to a zero clock.
Mr Menzies-Conacher: I have just one personal
observation on CGT. I do find it very strange, the message that
is being sent, that this is in effect to encourage short-termism.
It is meant to encourage long-termism, but abolishing indexation
and creating a whole class of losers to pay for the changes does
not seem a particularly equitable way of going about it.
Chairman: Thank you very much indeed for your
time, for your written submissions and indeed for answering our
questions so fully and interestingly. If there is anything that
you would like to add, by all means send us another note.
(The Committee suspended from 4.26pm
to 4.39pm for a division in the House)
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