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Finance Bill

We reach Third Reading with some of our concerns unresolved, although it would be untrue to say that no progress has been made. Certainly, the Bill is a big improvement on the one published in March. I would like to say that that is due to parliamentary scrutiny and debate, but, perhaps inevitably in the case of the complex matters that form Finance Bills, and this one in particular, which deals with anti-avoidance, the reality is that it is due to the enhanced scrutiny and discussion outside this place, between business and the Revenue. That is purely a happy side effect of the extra time made available by the general election. Several of the original Bill’s provisions have been shown to be unworkable or too wide reaching and have been substantially amended. Unfortunately, even with the enforced break in an election year, the Revenue still appears obsessed with the need to introduce anti-avoidance legislation without notice, and hence without prior discussion. All the evidence points to the fact that pre-legislative consultation leads to better legislation, and the Bill as it now stands and the disclosure rules in the Finance Act 2004 are the most obvious and recent examples. We have seen no evidence of loss of tax through prior notice. The Revenue now has the disclosure rules in the 2004 Act, so it is pretty clear what is likely to be targeted. It has the press notice system, whereby it effectively gives taxpayers notice that a scheme will be closed down before the details are published. It has the tools to enable proper pre-legislative consultation of anti-avoidance measures, which it has engaged in this year to an extent. In a genuinely constructive spirit, I suggest that the Paymaster General might consider an exercise to analyse whether engaging in that way resulted in a significant loss of tax. I think the Revenue would accept that it resulted in a number of improvements to the legislation and perhaps the avoidance of embarrassing unintended consequences later. In addition, we received reassurances from Ministers during the course of the Bill’s progress on the intended effect of the measures and commitments to keep various things under review, although I regret to say that we failed to persuade them to amend the legislation, with one small exception, to ensure that the reassurances on scope appear in the Bill. The reassurances that we received—we are grateful for them—include the active monitoring of the effect on compliant taxpayers of the VAT warehousing scheme; the development of a workable relieving measure to cover the insurance tax rules that levy a charge when a subsidiary transfers its insurance business to its parent; the operation of the insurance tax rules as they apply to subsidiaries of life assurance companies; commitments to consultation on e-conveyancing, ensuring that new stamp duty land tax rules do not apply so that there is a multiple clawback; reviewing the scope for abolishing the Treasury consent rules; monitoring operating problems that arise on e-conveyancing, e-filing and land transaction returns; and the Government’s welcome pledge to amend the draft guidelines on the gift aid scheme. I reiterate that we accept the need to monitor and react to tax avoidance schemes. We have two overriding concerns. First, the Bill’s provisions may apply more widely than Ministers say is the case. The Government have not narrowed the scope of those provisions and have responded to criticism by adopting the maxim, ““Draft widely; apply narrowly.”” We are constantly reassured by Ministers that the examples that we have suggested are within the scope of the provisions will not, in fact, be subject to the regime in question. That is particularly true of the arbitrage provisions, which are an especially complex part of the Bill. The legislation’s application to individual cases in that area will be left to Revenue officials via the issue of a notice, effectively making them the arbiters of scope. Secondly, even if those measures are applied narrowly, as Ministers have suggested is their intention, their refusal to change the legislation to give it a narrow focus creates a climate of business uncertainty, which undermines confidence and impacts on investment decisions, especially by overseas investors in the UK. Two aspects of a tax regime determine its relative attractiveness to business: the effective level of business taxes, and the certainty and transparency of the system. Britain’s effective business taxation level is increasing at a time when many competitors are consciously moving in the opposite direction. The Bill reduces the level of certainty, transparency and accountability in the system, which represents a serious threat to investment in UK jobs and prosperity. While we acknowledge the need to address tax avoidance, the Opposition fear that the balance in the Bill is not right, and that long-term benefit has been sacrificed for a short-term tax haul. Corporate tax planning is a complex area, but the Paymaster General likes to paint it as a black and white issue. It is not that simple—the boundary between acceptable tax planning and unacceptable tax avoidance is not fixed. The Opposition want tax laws that enable business, and thus underpin continued economic growth in the UK, which is why we have sought to introduce changes to the Bill, all of which the Government have blocked. Those changes included a binding statutory clearance system to remove the uncertainty that the Government have introduced with the tax arbitrage regime; the early introduction of real estate investment trusts; amendments to the stamp duty land tax rules to avoid impediments to commercial intra-group re-organisation; and changes to schedule 7 to protect compliant taxpayers from the downside risk of being caught by the wide-ranging changes; and proposals to set in train a far-reaching review of tax law to simplify and clarify it. The Government rejected all those proposals. We remain concerned that the Bill’s scope is too wide and its operation too uncertain to be conducive to a favourable investment climate for international business. We are grateful for the reassurances that we have received during the passage of the Bill, although we are naturally disappointed that they have not been incorporated in it. We await with interest the plethora of regulations that will emerge from clauses 6, 13, 17, 45, 47, 48, 50, 66 and 67, and from schedules 6, 7 and 9. As the Paymaster General would expect, we shall monitor carefully with people outside the House the practical implementation of the Government’s assurances and the Bill’s impact on the United Kingdom’s business and investment climate. We owe nothing less to the people of this country, who depend on a competitive investment climate for the jobs and prosperity that underpin their future and, indeed, for the stream of revenues to the Exchequer that will ensure that our public services can be maintained to the standard that we expect and demand in the 21st century. Only through economic growth can we achieve that, and only through continued investment in the United Kingdom can we deliver that economic growth.