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Finance Bill

I draw the House’s attention my entry in the Register of Members’ Interests. I congratulate the Paymaster General on her presentation of the Bill. This is the first time since Labour came to power that a Finance Bill has not been presented by the Chief Secretary. He is presumably in Luxembourg trying to save the rebate, something of rather more significance to the Exchequer than the measures that we are discussing. As the Paymaster General acknowledged, the Bill consists largely of anti-avoidance clauses that were excluded from the truncated pre-election Finance Bill on grounds of complexity and the need for more detailed scrutiny. Since then, the Government have made a number of minor changes, which we welcome as far as they go and which vindicate our decision not to allow such complex legislation to go through on the nod. On key issues, however, major concerns remain. Let me say at the outset that Conservative Members recognise the need for the Government continually to address tax avoidance and the racier forms of tax planning in order to protect the Exchequer, although it would probably help if the Treasury started with a bit of housekeeping at home and tried to avoid giving away £2 billion of overpaid tax credits. Many of the tax avoidance opportunities themselves arise from the increasing complexity of tax legislation. Since 1997, the volume of tax statute in force has almost doubled, creating a bonanza for lawyers and tax accountants. This is a practical issue. Tax planning is a fact of life for international business, as is tax competition between Governments. Governments everywhere face the same challenge: to reduce the loss of revenue from tax avoidance and tax planning, while ensuring that they do not weaken their international competitiveness. The right balance must be maintained between those competing objectives. We understand the Chancellor’s predicament. He faces a fiscal black hole, with independent commentators—including the Institute for Fiscal Studies, the International Monetary Fund, the Organisation for Economic Co-operation and Development and the Item Club—all predicting that tax receipts will need to rise sharply if the golden rule is to be observed. He is in any case already projecting a hefty additional contribution from United Kingdom corporations. The Budget projections show corporation tax takes soaring from £34 billion this year to £43 billion next year—a 28 per cent. projected increase in the corporation tax burden, on the back of a growth forecast of 3 per cent. for the economy, at a time when our competitors are increasingly lowering their corporation tax rates. We have two overarching concerns. The first is practical—we fear that the Treasury’s collective judgment may have faltered under the pressure to find additional sources of revenue and the temptation to address all the avoidance schemes disclosed under the Finance Act 2004. Complex legislation is being proposed to produce additional revenues in the short term. Consultation has been limited, and the Treasury’s response to some of the concerns raised has been, to say the least, rather high handed. Assurances that wide powers will be used only narrowly in practice are no substitute for tightly drafted legislation. There remains a real possibility of inflicting damage on some of the UK’s most dynamic business sectors in the medium term, and thus of damaging the UK economy’s international competitiveness in the long term. A successful anti-avoidance measure must increase the tax take while neither adversely affecting transactions not primarily designed for tax-avoidance purposes nor imposing on business a burden of compliance disproportionate to the additional revenue generated. Not all the measures in the Bill will pass those tests, and in Committee we will offer suggestions for achieving its anti-avoidance objectives without the collateral damage that the current drafting risks. Our second overarching concern is the direction in which the Government are taking the tax code. Certainty and transparency are the hallmarks of a fair, effective and competitive tax system. A taxpayer is entitled to know with certainty—be it an individual or a multinational corporation—what he may or may not do in planning his tax affairs. He is entitled to expect that his treatment be laid down in statute, not determined by administrative fiat; he is entitled to expect that another taxpayer in similar circumstances will receive treatment similar to his; and he is entitled to be protected from retrospective or retroactive legislation. There can be no doubt that this Bill carries us further down the path away from that ideal in several key respects: by giving powers that ought to be exercised by Parliament to officials, so that Revenue guidance will determine how much of the complex corporate anti-avoidance legislation works in practice, and by the use of retroaction not just back to the date of a press release—it is bad enough, but perhaps fitting, that a Government who govern by spin have determined to legislate by press release—but back even further, fundamentally altering the future commercial outcome of arrangements entered into perfectly legally, and sometimes, as in the case of the venture capital industry, with the active endorsement of the Treasury. In so doing, the Bill introduces an arbitrariness that undermines the fairness and predictability that are essential elements of an effective tax system.