Abstract
The Finance Bill Sub-Committee (FBSC) of the Economic
Affairs Committee has met each year since 2003 (except in 2010,
because of the General Election) to examine selected aspects of
the year's Finance Bill.
New approach to tax policy making
Recent months have seen the introduction of a new
approach to tax policy making by the Coalition Government, with
the aim of bringing about a clearer, more stable and predictable
tax system with better tax legislation and more effective scrutiny
of tax changes. In line with its new approach, the Government
conducted various policy consultations starting in summer 2010
and published draft Finance Bill clauses in December. As a result,
when it was published in March 2011, much of the content of the
Finance Bill reflected earlier and fuller consultation than in
the past.
The representative bodies and tax specialists which
gave evidence to us welcomed in principle the new approach to
tax policy making which, if implemented consistently, seemed to
promise better outcomes.
A main theme of this year's report is how far, in
its first year, the Government has stuck to its own new approach,
including full consultation at each stage in the process. Our
witnesses thought that on the whole the Government had done so,
and that the outcome would be better tax legislation. Witnesses'
disappointment over some instances where the Government brought
in unheralded tax changes or launched a consultation at too late
stage in the policy making process was perhaps all the keener
as a result; although in the latter case some recognition should
be given to the fact that the new Government had only recently
taken office.
Cases in point include the peremptory Budget announcement
of an increased supplementary charge on oil and gas production
and new provisions against tax avoidance through disguised remuneration;
the latter has mushroomed to over 60 pages of new legislation.
The view of our witnesses was that consultation from the time
the measure was announced, in accordance with the new approach,
would have led to better legislation. We share these concerns:
if the Government does not abide by its own rules for tax policy
making, it risks eroding the credibility of its commitment both
to the new approach and to a stable and predictable tax system
for the UK.
Concerns were expressed by witnesses about whether
HM Treasury (HMT) and HM Revenue and Customs (HMRC) still had
the skills, resources and organisational effectiveness to deliver
fully the Government's new approach. In contrast, officials assured
us that the partnership between the two departments was working
well. There was a worrying disconnect between the respective views.
We recommend that the Government should publish the findings of
the internal review of the present arrangements and conduct a
comprehensive audit of the tax skills and experience of HMT and
HMRC staff working in the areas of developing tax changes. We
also share the concerns of witnesses about the quality and training
of frontline HMRC staff and recommend that HMRC should seek to
understand these concerns and address them urgently.
We recommend that HMT and HMRC should extend their
current initiatives aimed at consulting smaller business so as
to engage more effectively with specific types of enterprise,
and that they should develop and publish a comprehensive strategy
for consulting non-business stakeholders on tax proposals likely
to affect them. We also recommend that there should be full consultation
in developing the new Tax Impact and Information Notes prior to
their publication.
Witnesses saw scope for extending the new approach
to tax policy-making to include publication of more strategic
frameworks for given areas of taxation on the model of the reform
of corporation tax. We agree, while recognising that Governments
need flexibility to react to changing circumstances. We also share
the view of witnesses that there should be more monitoring and
post-implementation reviews of tax changes to see if they have
the effect intended.
Most of our witnesses thought the new approach should
be complemented by better Parliamentary scrutiny of tax legislation
and that the longer, consultative tax policy making process offered
scope for achieving this. It was suggested in particular that
the experience and expertise of the House of Lords could be used
better. One obvious means to do so would be for the Finance Bill
Sub-Committee of the House's Economic Affairs Committee to begin
work earlier each year, perhaps when the draft Finance Bill is
published in December, rather than wait until the formal publication
of the Bill as laid down in its remit. It will be for the House
to consider any case for changing the remit.
Other themes
As well as this year's main theme of the broad, new
approach to tax policy-making, we focussed on two areas of taxation
where far-reaching changes are planned.
Anti-avoidance with special reference to disguised
remuneration
We recognise the need to tackle avoidance and welcome
the Government's commitment to do so through the introduction
of its strategic approach to anti-avoidance. But we believe that
the Government should act as early as possible, particularly where
the avoidance is likely to mushroom as was the case for tax avoidance
through disguised remuneration. Our private sector witnesses were
hugely critical of the shape and complexity of the legislation
and our firm view is that had there been consultation from an
earlier stage this complexity could have been addressed. There
are clearly lessons to be learned here and we recommend that HMRC
should carry out a review to learn these lessons and avoid similar
pitfalls in the future.
Some of our witnesses were so concerned with the
complexity of the legislation that they were prepared to consider
whether using the Primarolo statement of 2004 might have offered
a better approach, albeit without any element of retrospection.
We agree that the status of the Primarolo statement should be
clarified and consideration be given to a revised statement to
help deter future avoidance in this general area of the tax system.
We also recommend that the Government should take effective measures
against tax evasion, including developing an anti-evasion strategy,
where more revenue is lost than through tax avoidance.
Corporation Tax Reform
We welcome the Government's publication of its strategy
for reform. We consider that the reforms should make the United
Kingdom's corporate tax regime more competitive. But we recommend
post-implementation reviews of the outcomes of this reform package,
so that any necessary adjustments can be made if, for instance,
the strategy worked to the disadvantage of small and medium-sized
businesses.
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