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Finance Bill

The Paymaster General has been notified of more than 700 avoidance schemes that are in use, yet nothing in the Bill shuts down any of them. While I am on the subject of the ECJ, experts are sceptical whether a number of other provisions in the Bill comply with the United Kingdom’s treaty obligations. Perhaps the Financial Secretary will, in his winding-up speech, confirm that the Government have clear legal advice that clause 32, relating to chargeable gains of temporary non-residents, the anti-avoidance provisions of clauses 43 and 44, relating to double taxation relief, and the provisions of part 4 implementing the European company statute are all compatible with our treaty obligations and cannot be struck down by the European Court of Justice. The consensus of expert opinion outside the Treasury is not confident on that point, just as the consensus of expert opinion outside the Treasury seems to believe, unlike the Treasury, that the Revenue is likely to lose the Marks and Spencer case. I want to touch briefly on clause 11, the gift aid clause, if only because it acts as a timely reminder that tax planning opportunities are open to all taxpayers, not only corporate giants and city whiz kids. The clause addresses the loophole in the gift aid scheme that has allowed many charities charging admission to museums or heritage sites to dress up those charges as gift aid donations. I readily accept that that was not the original intention of the gift aid scheme. However, the House will recognise that the proposed changes will impact on a significant number of charities, some of which are competing on a very uneven playing field against Government grant-aided museums that are able to offer free admission. What is the Government’s estimate of the net revenue effect of that measure? The concern remains that some charities may be significantly affected and even that some small museums may have to close as a result of the loss of revenue resulting from the closure of that tax loophole. Clause 12 deals with employment-related securities and provides us with an example of the risk of unintended consequences. The Government are rightly determined to close tax planning that reduces PAYE and NIC charges on salaries. There is no doubt that employment-related securities have been used to avoid tax and national insurance contributions, particularly on bonus payments. However, I hope that the Paymaster General will acknowledge that employment-related securities are also an important tool in seeking to align managers and staff in a business with the interests of the shareholders. Let us not throw the baby out with the bath water. The proposed regime gives such wide discretion to the Revenue that, although the Government have said that this widely drafted legislation will be applied only to blatant avoidance schemes, employers may shy away from issuing securities to employees where there is any risk that they could be held liable for failing to account for PAYE and national insurance contributions that the Revenue determines, at a later date, should have been paid. That would be a great pity and a potential loss of competitive advantage to Britain. Clauses 16 to 23 deal with the taxation of authorised investment funds and introduce a series of minor but burdensome changes, as well as paving the way for future changes to legislation affecting the taxation of authorised investment trusts to be done by regulation rather than by primary legislation. Will the Financial Secretary tell the House whether it is now envisaged that the proposed major reform of the taxation of authorised investment funds will be implemented by regulations? Fund management is a major UK industry and one in which we enjoy considerable competitive advantage. Changes affecting such a significant and tax-sensitive industry should be made by primary legislation, not by regulations. I hope that the Financial Secretary will reassure the House on that matter later this evening. Chapter 4, which deals with tax arbitrage, remains one of the most controversial and complex areas of the Bill. While attacking tax avoidance, this group of clauses raises significant concerns because of its wide scope and the substantial new Inland Revenue discretions that it introduces, with consequent substantial uncertainty for both UK multinationals investing abroad and inward investors. So-called hybrids, which are at the root of the tax arbitrage targeted by these provisions, are extensively used in international financing arrangements. Experts tell us that much of the interest paid on many billions of pounds of debt, funding US corporate investment in the UK—almost all of which is arranged through some kind of hybrid entity—is vulnerable to being disallowed by a notice issued by the Revenue under clause 28. It is far from clear to us that the Government have made any assessment of the longer-term effects of that measure. Multinational corporations will reorganise their affairs in response. Will the UK, seeking to act as the world’s policeman on hybrid entities, actually bring about revenue gains for the UK Exchequer in the long term through this measure, or will multinational corporations simply rearrange their affairs so that tax authorities in other jurisdictions benefit at the expense of UK investors? These provisions are not simply anti-avoidance measures: they introduce wide-ranging and arbitrary new Revenue powers to determine tax liability by the issuing of a notice, even when the Revenue believes only that avoidance ““may”” be occurring. The Government will be aware of the extent to which the draft legislation unsettled US investors in Britain. The operation of this chapter will have significant consequences for competitiveness, both through revenue raising and through the uncertainty that it will create. If it is not to damage British business, it will require a detailed review in Committee and a tightening of its scope and of the proposed enforcement procedure.