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I should also mention the unfortunate divergence between the appeal processes for direct and indirect taxes. I dealt with the Commissioners for Revenue and Customs Bill when it was before your Lordships’ House, when we were constantly promised the sunny uplands of bringing VAT and income or corporation taxes together so that the taxpayer had a one-stop shop. We did not believe it then and this order is another example of a lack of underlying will to conform the administration of the two streams of tax when it does not suit HMRC. A VAT appeal is made to the tribunal but, in the case of income or corporation tax, an appeal is merely notified to the tribunal, because the term “appeal” has been clung on to by the direct tax side of HMRC’s business as the first formal stage of a dispute.
I fear, as do the professional bodies, that some of the benefit of the review by Sir Andrew Leggatt, in terms of clearly separating HMRC from the tribunal in the appeal process, has been lost. I am aware that HMRC consulted on this, but as far I can see it ignored the consultation responses, which is not untypical of it. Why have the Government allowed HMRC to get away with seriously undermining the perception of the tribunal’s independence, to use the words of the Institute of Chartered Accountants in England and Wales?
The order also messes about with tax credit appeals. At present they follow the social security route rather than the tax route. That was conceded by the Government during the passage of the Tax Credits Bill in 2002, because the various voluntary groups were concerned about the competence of the general or special commissioners who had no background in social support payments. The order transfers appeals from the social entitlement chamber to the tax chamber.
The Minister will be aware of the many problems that HMRC has had with tax credits. In the past five years the Government have written off more than £7 billion of payments that were made largely due to errors, and the error rate is still over 10 per cent, although higher figures have existed. That means that there are a lot of exchanges with taxpayers in connection with errors. The system is held together only by the huge sticking plaster of a £25,000 income disregard. The voluntary groups have been united in their
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Against that background, what can the Minister say to reassure noble Lords that the tax chamber is the appropriate vehicle for handling appeals? Does the experience of the past five years lend support to the case for hearing appeals within that chamber? How are the tribunal members going to have the relevant experience and training, given the very different nature of tax credits from direct and indirect taxes, which will be the mainstay of the work of the tax tribunal?
Lastly, the professional bodies have concerns about the order being put in place ahead of the tribunal rules, which have been developed in draft for both the first-tier tribunal and the upper tribunal. The Chartered Institute of Taxation has made several detailed submissions on the draft rules and there is concern about the content of the rules and the timing of their finalisation, given the rapidly approaching deadline of 1 April for implementing the new system. Will the Minister update the House on the status of those rules?
Baroness Garden of Frognal: My Lords, we on these Benches welcome the implementation of the helpful provisions of the Tribunals, Courts and Enforcement Act 2007. The statutory instrument before us today is an especially important one and a valuable step forward towards the streamlining of tribunal applications in this country. The transfer of the functions of four disparate tax tribunals into one overall homogenised tribunals system is arguably a long overdue measure and it is all the more welcome for that.
Three sets of interests will be served today, once this House opts to take a positive decision on the Motion before us. First, the promotion of co-operation and clarification of procedures within and between government departments is to be welcomed. The co-operation shown between HMRC and MoJ officials at many levels so far is to be commended and further to be encouraged. Secondly, the overall tribunal system will benefit. Thirdly, the public will finally be able to benefit from this harmonisation process and administrative procedures alignment. One set of rules for all tax regimes is indeed progress, although it is worth pointing out that the initial recommendations came from the Leggatt report as far back as 2001. The public have waited a long time for this reform.
The practicalities arising cannot be known until these provisions are put into effect and their impact on the public assessed. Once the system becomes operational, benefits and drawbacks will no doubt become clearer. However, I seek clarification from the Minister on some points. We are told that the new system is expected to be less expensive than the old—I stress the word “expected”. Arguably, we should be striving not towards savings but towards securing an effective system that will fill the public with confidence, will be easy for the public to access and use and, above all, will be clear and simple to apply and to follow.
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In introducing the Tribunals, Courts and Enforcement Bill, the Government were motivated by their desire to facilitate access by the public at large to a single forum to resolve disputes. The public have been referred to as “customers”, “clients” and “stakeholders” throughout this Government’s lifespan. Let us assume that the system is designed to serve the people of this country who seek to challenge government decisions that affect them and that the costs of their so doing will remain reasonable. The impact assessment claims savings, but the one-off set-up costs are “expected” be £1.25 million, with the annual costs thereafter to be £2.75 million. A breakdown of these figures would be very useful.
The abolition of some 400 locations at which general commissioners heard cases and the introduction of 130 service venues across the UK will by the Government’s own admission enhance rather than diminish costs. We are told that it is anticipated that local halls may be hired and that videoconferencing may be introduced, as the noble Baroness, Lady Noakes, indicated. All of this will cost money.
However, what level of costs will the public have to incur to avail themselves of the proposed procedures? Without doubt, representatives of small businesses will need to travel further and thus incur direct and indirect expenditure, which will in turn affect their livelihood. We are also told by the impact assessment:
“There will be some training and familiarisation costs for businesses and individuals”.
Such costs cannot be ignored. They are the hidden costs, which will in the long run determine how beneficial the proposed reforms are likely to prove to the public at large.
Although the proposals give more freedom to appellants by giving them unfettered access to the tribunal and greater control over their affairs, they also place a greater onus on the appellants’ shoulders. Appellants must make their appeal to the tribunal by completing a notice of appeal, so as to include “grounds of appeal”. How practical or cumbersome that proves to be in practice remains to be seen. We do not know how much help appellants might receive from government agencies by way of advice or useful information. There is of course no legal aid available and, these days, small businesses are certainly counting the pennies.
While we welcome the promise of guidelines, we have not seen even a draft and cannot assess the user-friendliness of such proposals. New mechanisms for transmitting appeals such as filing documents online may prove helpful, but, at the moment, without the detail, the promise of help that the guidelines may contain appears no more than cosmetic.
Similarly, it is not entirely clear how paper track applications will work in practice. Who will determine the working provisions and what standards will be set so as to encourage the public to make use of such a procedure? How far is it expected that such applications will alleviate the need for appeals? What is their likely overall cost? I understand the principles involved, but we should have more detail of the practical application of the proposals.
There are similar questions to be raised with regard to the new review procedure. Is it intended to be simply an internal review, carried out by another civil
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As for accountability, we are told that implementation of the provisions of the order will be closely monitored. From which angle will that be—the public’s ability to cope with the system, cost-effectiveness or the satisfactory solution of disputes? What happens to the results of such monitoring? Will there be a report to Parliament, or will there be some internal document or report, simply to be shelved or buried?
It is obvious that there is a lot of detailed work still to be done. We thank the Minister and look forward to hearing more from him in future months and years.
7.45 pm
Lord Newton of Braintree: My Lords, declaring yet again my interest as current chair of the Administrative Justice and Tribunals Council and the chair of the former Council on Tribunals, I rise to intervene—I hope quite briefly—to express my support for the order in front of your Lordships' House. I am glad to note in passing that there appears to be less obvious sign of difficulty and controversy than on the previous occasion when the Minister and I were discussing tribunal reform matters in this Chamber not so very long ago.
The old Council on Tribunals had deep reservations about the system of the general commissioners. In 1987-88, long before my time, it published a report which was sternly critical of the system, particularly on grounds concerned with the organisation, administration and training of the commissioners and the extent to which they were identified in taxpayers’ minds with the Revenue.
That was of course a long while ago. I acknowledge that great strides have been made since then in improving the work and, not least, the training of the general commissioners. However, the council that I chair supported the general thrust of various reports of the Institute for Fiscal Studies in the late 1990s which advocated a unified tax tribunal system dealing with both indirect and direct taxes, reports which—crucially, as my noble friend has observed—were then followed a few years later, in 2001, by the Leggatt report, Tribunals for Users. That report advocated reform on similar lines as part of proposals for wider tribunals reform.
I should make it clear that the council and to a significant extent I as its chair have been substantially involved in subsequent years. We were involved in what was then the Lord Chancellor’s Department’s tax appeal reform project, which was subsumed in March 2003 in the work to take forward that wider post-Leggatt plan for reform which has been discussed in your Lordships' House on a number of occasions. We have had continuing involvement. I as chair have sat with observer status on both the modernisation project board and the associated stakeholder group in the intervening period.
I should also say to the noble Baroness and others on the Liberal Democrat Front Bench, and to my noble friend who referred to the procedural rules
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I make no secret of the fact that although one can find points of imperfection in the proposals, as there are in most proposals from most Governments in my experience, I and the council see clear benefits to users of a single tribunal structure with expert membership which is much more clearly independent of HMRC than in the current set-up, dealing with appeals in respect of direct and indirect tax. We also see—I shall listen with interest to the answers to some of the questions that have been raised—clear benefit to users of a single system of optional statutory review of decisions by HMRC along the lines proposed.
Overall, the proposal is a worthwhile ingredient in the whole package of tribunal modernisation and reform which is now very well advanced. There are obviously concerns. Concerns have been expressed about the disappearance of so many lay or non-legal members, though we are pleased to see at least some part for non-legal members in the new set-up. As my noble friend and the noble Baroness from the Liberal Democrat Front Bench observed, there is some concern also about venues in the light of these changes. The council that I chair will want to monitor the effects of that in the interests of the public. One matter has not been adverted to. With the declining workload of the general commissioners following the introduction of self-assessment, there must be real questions about whether the present system would have been sustainable in the long term anyway with or without so many venues; and certainly the existing system would not have required so many commissioners.
There are points like that which we all need to keep an eye on. I shall listen with interest, too, to the Minister’s comments on the points raised by my noble friend from the Front Bench about the working of the arrangements with regard to tax credits. Broadly, these proposals should have the House’s support.
This has been a particularly complex part of the whole process of tribunal reform. It is appropriate to pay tribute to some of those who have been involved: first, the officials who started off at the Lord Chancellor’s Department, which became the Department for Constitutional Affairs and is now the Ministry of Justice, who have slogged away under all those hats on these proposals. Some of them may even be able to hear what I am saying at this moment. I think that they have done it very well. HMRC’s officials have also played a very constructive role. One thing that has been a pleasure has been the good working relationship that has developed between HMRC officials and MoJ officials, often starting with somewhat different perspectives.
Tribute should be paid to Sir Stephen Oliver, who has led for the senior judiciary at the present tax tribunals, and not least to the National Association of General Commissioners, currently chaired by Henry Russell, and the clerks. They have been in the position of turkeys looking at Christmas, and although it cannot be said that they have voted with enthusiasm for
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Finally, echoing something that my noble friend said, it would not be right for this order to pass without expressing the thanks of all of us in public service for the work of those many men and women who have given voluntary public service as general commissioners over many years. They are rightly proud of the contribution that they have made, even as the world moves on to a system which, overall, will be better than the one that we are leaving behind.
Lord Bach: My Lords, I am grateful to all noble Lords who have spoken, including those on the Front Bench, and for their general support for the order. I hope to answer some of their questions in a moment or two. I am particularly grateful to the noble Lord, Lord Newton of Braintree, who brings with him huge experience and wisdom in this field. His support for this order is very important to the Government because of his constant work in this field. He has put better than I can the real arguments for this important change.
Some very good questions have been asked, and I shall do my best to deal with some of them. First, the noble Baroness, Lady Noakes, expressed her personal view that she was sorry to see the end of the general commissioners. Lots of people will echo what she said, because, for a very long time, they have done an extremely valuable job of work. It should not be forgotten that they were not paid for doing that work; it was voluntary work. Their good work was recognised by Sir Andrew Leggatt himself in his report. I am happy to be able to say that a number of general commissioners have applied to sit as members of the new tribunal and have gone through the independent judicial appointment commission selection process. It is our hope that a number will be appointed and will bring their undoubted experience of dealing with tax matters to the new system. There is a consensus in the House and outside that a modern, unified tax appeal system for this century, with administrative support from a modern tribunal service, is a better system than that which we have enjoyed so far.
The noble Baroness, Lady Garden, made the point about the number of venues. Undoubtedly, there will be fewer venues—I think 400 is the potential at present. However, there will still be around 130 venues around the country, and I shall make sure that noble Lords have copies of the list that I have in front of me of where those venues are hoped to be. Being that many, they cover a very large number of places. We hope that very few people will have extra difficulty in getting to a venue, particularly as video conferencing becomes something that can be used more easily.
The noble Baroness, Lady Noakes, made a point about the impact of departure from various venues and asked whether there were any plans to review that to ensure the needs of small businesses were met. That point was very much echoed by the noble Baroness, Lady Garden. The answer is yes—the system will be reviewed for its impact after one year of operation. That is indicated in passing in the Explanatory Memorandum.
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As for the reviews themselves, I was asked how the system was due to work and about its advantages. First, the advantages are that it is much better if parties and claimants on the HMRC can come to agreement by discussion. If that is not possible, there is the review system, which will be not external but internal and will be carried out by someone different from the person who made the initial decision. The internal review is an attempt to keep matters out of the tribunal, if possible, because it is always better if things can be done in that way. But the essential point to remember is that it is always open to the claimant to go to tribunal if they are not satisfied. They do not have to agree to the review, which is optional; the consultation argued strongly in favour of an optional rather than compulsory review. The claimant can always go to the tribunal if they are not satisfied by the review decision.
As for how the review will work, if a taxpayer accepts the offer of the review, the case will be passed to a review officer not party to the original decision. The taxpayer will be expected to say why they disagreed with the decision and will have the opportunity to provide some additional information or argument to the reviewer. At the conclusion, the taxpayer will be notified of the review officer’s conclusion and reasoning and whether the original decision should be upheld, withdrawn or varied in some way. The notification will also explain, as it should, how the taxpayer can take their case to tribunal if they disagree.
Importantly, HMRC is developing the central quality assurance process to assure consistency of quality across all HMRC business. In addition, HMRC aims to publish relevant statistics, so that everyone can see how the review is working. Clearly, we will have to see how that functions in practice, but the principle behind it is supported pretty widely, not least of course by the—
Baroness Noakes: My Lords, I apologise for intervening, but I should like to clarify what I was saying. I was not talking about the principle; we recognise that it is a sensible mechanism. However, there is a great lack of specificity in what the taxpayer can expect from a review. The Minister read out what is already available in the Explanatory Memorandum, but responses from the professional bodies focus much more on the purpose of the review, precisely what the procedures are that the taxpayer can expect at any point in time, and other matters.
The order allows HMRC—I paraphrase—“to make it up as they go along” and gives very little information that taxpayers can hang on to about the order. For example, what is the nature of a reviewer? Is a reviewer genuinely independent of the decision-maker? Is it a different person who did not make the decision? Many things worry the professional bodies which, with respect, the Minister has not dealt with.
8 pm
Lord Bach: The noble Baroness makes a fair point. I cannot go into the details of how the review will work. I make no bones about it: it is an internal review. The crucial part is that it is done by an officer who has had nothing to do with the original decision. No doubt, that person will check, having talked, if necessary, to the taxpayer again to see whether the decision made
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One of the significant differences between the old system and this one is that the listing of appeals is now in the hands of the tribunal and not HMRC or its predecessors, as before. The noble Baroness will know better than I do that the control HMRC and its predecessors had over the listing of appeals was a matter of some concern.
The noble Baroness said that the exceptionally wide variety of decisions that Her Majesty’s Revenue and Customs makes, from the automatically produced penalty notice at one end of the spectrum to the most complex of decisions, means that a more specific legal definition of the extent and nature of the review is not practical. The key point is that reviews should be proportionate to the circumstances—we do not consider that it is practical, to use that word again, that this be set out in legislation. We shall set out in guidance the detail of how HMRC intends to conduct reviews. Draft guidance will be published for comment. When that guidance is published, no doubt the noble Baroness will want to check and return on whether it gives enough information about how the review will occur.
External review would usurp the role of the tribunal and introduce a further layer of appeal, which we do not want. Quality assured internal review by someone not involved provides the right balance of a second look without unnecessary bureaucracy. I emphasise that in the consultation that was supported by a majority of respondents.
The question was asked in another place: why not call direct tax appeals objections or something else until they are sent to the tribunal? As was said there, there are legitimate differing views about terminology. The suggestion that direct tax appeals might be described as objections was carefully considered during the consultation. There was, indeed, a mixed response. Some said that changing the statutory language would create some unnecessary confusion, so it was decided not to do so.
On the question of this not aligning between various types of taxes, the differences reflect fundamental differences between the taxes. The order introduces the new review procedure on a consistent basis with existing tax structures. Respondents to the consultation recognised that the proposed system needed to cater for such differences.
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