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Finance Bill

The hon. Gentleman makes an entirely legitimate point. I shall address specific aspects of the tax law rewrite project later because it has not achieved quite as much as we might have hoped. Someone needs to stand back and realise that when UK legislation on direct tax is bursting out of some four volumes of statute, something must be inherently wrong with the approach on writing and reforming tax legislation. It is worth noting several facts, such as the sheer number of personal tax returns that are filed incorrectly or late. A National Audit Office report last year said that such returns accounted for some 29 per cent. of all PAYE codings. The last consolidation Act on tax goes back 17 years to 1988. Government Members make a meagre contribution to Committee debates on Finance Bills, which makes it difficult to suggest that there has been full consultation on such matters. Since 1997, the Government have introduced major new taxation policies on intangibles, share schemes and other employee-owned securities—they have done that several times—stamp duty land tax, the climate change levy, tonnage tax, IR35, transfer pricing, windfall taxes, derivatives, VAT grouping, international financial reporting standards, double tax relief, general insurance and substantial shareholdings. They have changed the date of payment of tax and introduced new policies on the taxation of pensions and enterprise investment schemes. Therefore, complexity is key to our concern and we hope that a tax law commission would rectify that. Secondly, the constant change has led to a lack of certainty. It is hard for business to plan when the UK insists on a near constant rewriting of its tax law. We should also note that the UK is in almost isolation from other highly developed economies in not have a binding advanced clearance regime. That was discussed in detail in Committee and I do not wish to reopen the debate, but it is a concern. Without necessarily opening the door for contrived tax avoidance schemes, the element of certainty that comes with an advanced clearance scheme should be reimposed in tax legislation. That would enable the tax treatment of, for example, an innovative new banking product to be pre-determined, not just to give customers certainty, but to ensure that customers—whether they are smaller individuals or large institutions—have confidence. It would enable us to ensure that the two major financial centres in the UK—the City of London and Edinburgh—do not lose business in what is an increasingly globalised financial world. I also hope that the scheme would enable groups to confirm the tax treatment for transaction planning and the treatment of debt borrowing, for example. Despite having a mountain of tax legislation, there is no procedure to get pre-transaction rulings. That often means that UK businesses and customers are encumbered with a tax risk in their balance sheet and in their operations that their overseas competitors do not have. Thirdly, there is the relative ease of unintended tax planning opportunities, which Ministers might simply regard as the creation of contrived tax avoidance schemes. A simpler system makes it harder to avoid tax. The Government’s insistence—some of this is a carry-through from tax law passed by the last Conservative Administration, notably the financial instruments and loan relationship legislation—on writing complex prescriptive legislation has meant that they have been an effective creator of tax loopholes. Let us take the stamp duty land tax. Schedule 10 deals with legislation that was introduced as recently as 2003. Much of the Finance Act 2002 of only three years was dedicated to removing tax planning that followed on from the problem of too many specific rules in loan relationship and derivative legislation. I accept that much of that is highly complex, but by the same token that complexity has to a large extent opened the door to more tax planning opportunities. Intangibles legislation has been changed twice since 2002, following the clampdown on avoidance. Insurance company rules written as recently as 2003 were changed in 2004—as Ministers will know, because I mentioned it in Committee only last week—to deal with avoidance-related matters. Fourthly, there is the lack of transparency. Transparency is of key importance in any taxation system. A complex system inevitably becomes an opaque system for anyone other than those who are experts in the field. How can taxpayers predict and financially plan how much tax they pay when much of it is hidden and the system is in a constant state of flux? While the basic corporation tax rate is 30 per cent., our corporation tax yield is comparatively high. As a result, the Institute for Fiscal Studies feels the need to publish journal articles entitled ““Why has UK corporation tax raised so much revenue?”” As Ministers will be aware, this year alone we are expecting a substantial increase of 28 per cent. in corporation tax additional receipts. Much of that relates to a widened tax base, accelerating the time when the tax gets paid, which acts almost as a windfall tax in the year of change, and also to the long time over which UK companies get tax deductions for capital expenditure on plant and machinery as well as intangibles. There is also considerable confusion, which is increased by schedule 2, about what is a securities issue by way of salary taxable at up to 40 per cent. We had long debates about employment securities matters in Committee. We have to ask, what are the securities owned by an employee in its employer by way of investment that will be taxable at as little as 10 per cent.? The Government have rightly been proud of some of their changes to encourage entrepreneurism, such as the idea that capital gains tax can be as little as 10 per cent. once various considerations are taken into account. I applaud them for those sensible changes. However, they give with one hand and take with the other. Many changes have not worked as well. There is a tendency to define a large amount of capital gains as income so that it qualifies for higher tax rates. We lack a mechanism for taking stock of our tax code—for testing rigorously whether it is ready and fit for purpose. There is no attempt to modernise or to get rid of the unnecessary, thereby showing that some parts could be dealt with more simply and might even be more effective. Although I accept that the Government took on board some of our concerns and those of the insurance industry, we rarely have sunset clauses to lay down either an expiry date for a new rule or at least a time when the usefulness, or otherwise, of the rule would have to be reviewed. Regulatory impact assessments can be supplied with clauses, but when are they reviewed to see if their estimates hold true? That is partly down to the Opposition’s scrutiny—I accept some blame—but we all have busy lives and the world and the tax bandwagon move on. We need to determine whether any new law represents value for administrative money. One of the ideas is that a tax law commission would alert itself to many of those concerns. As the hon. Member for Normanton (Ed Balls) said, there is the tax law rewrite project. It is doing some good work, but it is purely a rewriting of the law rather than an assessment at the outset of whether a particular type of legislation will best achieve an intended result. It does not attempt to change the rules in any way. If odd points that seem otiose are found, or pointers suggest that things could be improved, they are logged, but they must be dealt with through the general Finance Bill process. The Law Commission has as its aim, in simple terms, the review and modernisation of the general law of the UK. It does not believe that its writ runs to tax law. We should at least ascertain what benefits would accrue by having such a body to deal with tax law, and that is the underlying aim of the new clause. It would not impose a tax law commission, suggest ways in which such a body should be set up and run, or set out in detail its remit. All that would be premature. The aim is to review whether such a body would be advantageous. If the report established by the new clause suggested that it would be, Parliament would commission the next steps, which would presumably include how it might be staffed and controlled and its constitutional position. We have a template of the Law Commission, and I assume that the new body would be of a similar nature. It is worth noting that the tax law review committee published a report in March 2003, with the exciting title of ““Making Tax Law””. The working party, under the chairmanship of Sir Alan Budd, examined the parliamentary process for the enactment of tax legislation.