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Finance Bill

My Lords, I welcome the noble Lord, Lord Hamilton of Epsom, on behalf of the House, and congratulate him on his interesting and thought-provoking speech. I am glad he has now been given the   opportunity to overcome the political withdrawal symptoms he referred to, from which he has been suffering since 2001. Although of different political persuasions, we have at   least one thing in common: we both contested parliamentary seats in 1974. Unfortunately, we both found that our enthusiasm for representing the respective electorates concerned was not matched by their enthusiasm to have us as their Member of Parliament. Unlike me, however, the noble Lord embarked on a long and distinguished parliamentary career in the other place four years later, in 1978—but not, I am sure, as a result of ingratiating himself to his Chief Whip, as he suggested. The noble Lord has held many positions of influence and responsibility, including Minister of State for the Armed Forces and chair of the 1922 Committee. The noble Lord’s experience and knowledge is considerable, particularly in the fields of financial and economic affairs and defence matters, as his excellent maiden speech emphasised. I am sure he will make a major contribution to the work of your Lordships’ House, as he already has done to work of the other place. We look forward to hearing from the noble Lord on many occasions in the months and years ahead. I looked at the report and the evidence of the Select Committee on Economic Affairs on the Finance Bill 2005 with no great expectations of it being a riveting read. In fact it proved a real eye-opener; I refer, in particular, to the evidence of the Treasury and Revenue and Customs witnesses. They drew attention to what I will describe as the murkier end of the tax-avoidance industry. Even some members of the committee may have been surprised at what those witnesses revealed. It is of course a natural human desire and right to seek to minimise one’s tax payments within the law. However, the murkier end of the tax-avoidance industry operates on the borders of legality, and certainly well outside the borders of morality and the spirit and intention of the law. A significant part of the Bill addresses tax avoidance. Tax avoidance and the need to close loopholes is one reason why Finance Bills are sometimes lengthy and complex. I support the Bill and express my appreciation for those at all levels who are engaged in trying to plug   tax avoidance loopholes. They are involved in a continuous and not very funny game involving billions of pounds with those who are prepared to pay for advice and information on intricate and unacceptable schemes that will avoid paying the level of tax that laws passed by Parliament intended them to pay. In so doing, if they are an organisation, they seek to claim an advantage over competitors with somewhat higher ethical standards or, if they are individuals, to leave other taxpayers paying more to make up for the lost revenue. It is the morality of the pig trough. Government have a duty to ensure that taxes collected are spent as productively as possible. The major reductions in debt interest payments and social security costs for unemployment as the number of unemployed has fallen are examples of fulfilling that duty. Government also have a responsibility to make sure that taxes due are paid and that some are not allowed to avoid their responsibilities at the expense of others, or of increased investment in public services. In the Budget last year, disclosure rules were introduced by the Government to tackle tax avoidance. Those disclosure rules have revealed the extent and breadth of tax avoidance and the Bill seeks to close a number of schemes that have now come to light. For direct tax, there have been more than 500 disclosures and more than 700 for indirect tax. Around a quarter of the disclosures for direct tax were to reduce tax and national insurance liability in relation to or through employment products. Apparently, there was one arrangement to reduce tax on more than £70 million of income by what Her   Majesty’s Revenue and Customs regarded as a misuse of gift aid arrangements. As the director-general of Her Majesty’s Revenue and Customs told the Select Committee on Economic Affairs:"““We have seen some things that we thought were shocking””." He also said that the disclosure measures had,"““brought transparency in a world which was veiled in secrecy and contracts of confidentiality which often prevented us seeing things for years””." That is why there is relatively little public reaction and anger about some of the activities of the tax avoidance industry: an industry that gnaws away at the concept of a fair tax system and lands the vast majority with bigger tax payments as a result of its activities on behalf of—usually—the wealthy few. The case that I referred to a few moments earlier involving misuse of gift aid resulted in an individual who had made the gift and got it back obtaining tax relief of just short of £40 million. The tax avoidance industry has thrived on secrecy. If the vast majority do not know what is going on, there will not be any great adverse public reaction. Our national media and their City editors have seemed lukewarm about running investigative campaigns on the issue to expose what is going on and the billions of tax revenue that is being lost. One must wonder why. On VAT alone, the tax gap—the difference between what is collected and what is due under law—is nearly 13 per cent. That represents a significant amount of revenue and, of that amount, a significant proportion is through tax avoidance activity. Avoidance of income tax and national insurance on the rewards for employment has been the source of many sophisticated schemes. Estimates suggest that about £2 billion paid in bonuses was destined to go through such schemes in 2004–05. Without the measures in the Bill, about £500 million-plus in tax and national insurance would be at risk each year. Although the Bill is intended to address some existing tax avoidance schemes, I hope that my noble friend will be able to give some reassurance that the Government will not create a new tax loophole with the coming changes in the rules for self-investment personal pensions providing tax relief at the top rate on investing in residential property. Some have claimed that hundreds of millions of pounds of tax revenue will be lost as a result. Could the Minister say whether the Government agree with that analysis and, if not, what their assessment of its impact on tax revenue is? It was Franklin D Roosevelt who said:"““Taxes, after all, are the dues that we pay for the privileges of membership in an organised society””." I hope the Government will continue to clamp down on tax avoidance schemes, in the interests of fairness and the integrity of the tax system. Tax avoidance is not, at heart, about providing a bit more money for the less well-off members of the community. It is, in reality, about providing a lot more money for those who already have plenty at the expense of the less well-off.