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Finance Bill

My Lords, I say that in total defiance of my noble friend Lady Wilcox. Nor need one ingratiate oneself with one’s constituents, since one does not have any. It is that which liberates us from the tribalism which permeates so much that happens in the other place. Last year, in the Finance Bill debate, I seem to recollect that I made a rather sharply controversial speech which was actually about the Budget and the Finance Bill. I am   unsurprised by the enthusiasm of the noble Lord, Lord Barnett, in taking this opportunity to let us know his views on the Budget. I am going to resist that temptation, however, and revert to my more familiar subject in such debates: the procedure with which we consider this legislation, rather than the substance. Before I do so, I declare my probably already notorious interests. First, I have been chairman of the tax law rewrite steering committee for a long time. Secondly, I am an honorary fellow, which I scarcely deserve, of the Chartered Institute of Taxation, as Chancellors, as the noble Lord, Lord Barnet, pointed out, are not necessarily very expert in taxation. Finally, I hold the presidency of the tax law review committee of the Institute for Fiscal Studies. My first point is derived directly from the IFS and its review committee. It concerns a matter in which the IFS has taken an interest for some years: the reform of the tax appeal process. Indeed, the IFS produced a report on the subject as long ago as November 1996. Like many other organisations, it expected the Queen’s Speech to contain a reference to a Bill carrying out those reforms which, it was originally hoped, would be through by 2007. No such Bill was mentioned in the Queen’s Speech, however, and I am sure the House would like the Minister to tell us what the prospects are for such a Bill. There are certain factors which make it quite important. I give two by way of example. First, no appointments of general commissioners have been made for some time. That means that some divisions are in difficulty, which will grow as time goes by. Secondly, it is rather odd to have seen a merger of the two revenue departments, with a continued separation of the two appeal structures. It is the type of tax that determines whether the taxpayer can elect a lay or professional tribunal. It is the type of tax that determines whether the department is obliged to make a written statement of case. That also determines whether the successful taxpayer can recover his costs. Everyone agrees that that state of affairs should not continue. The IFS has put forward a suggestion, which the Government may already be considering, that if there cannot be a separate Bill on tribunals, the machinery of a Finance Bill procedure could be used, which could be introduced at a separate stage. I make that point, technical though it may be, because it is not unimportant. Turning to the tax law rewrite system, and speaking on behalf of all those involved, I am grateful for the support it has received from Ministers in the Treasury, from the Chancellor and from the Paymaster General. I am grateful for the fact that Ministers have continued to assure us that the project has their support and strong endorsement. It is a reassuring conclusion after the merger of the two departments that no change is suggested. I ought to pay tribute, too, to the many outside organisations in the tax community which do so much work on our draft Bills and whose representations help us enormously in formulating them. We are extremely grateful to them. Our output has not been insignificant. Apart from completely rewriting the PAYE regulations, we have now produced three separate Acts: the Capital Allowances Act, the Income Tax (Earnings and Pensions) Act and the Income Tax (Trading and Other Income) Act. Those are known within the system by names that are reminiscent of Japanese motor car manufacturers: ITEPA and ITTOIA. We are proud of those Acts, which have generated something like 1,600 pages of legislation and 2,400 sections. One of our anxieties is that the Chancellor is struggling to keep well ahead of us in the generation of not rewritten work. A question, which I have addressed before, is that many people say, ““We warmly welcome what you are doing, but if you spend so much time rewriting the law, why not take more opportunities to reshape and simplify the substance at the same time?””. Many of us asked that question when we started out a long time ago, and everyone agrees that the two operations need to be kept distinct from each other. However, we are not wholly detached from the process of clarification and simplification. We are obliged and entitled to remove doubts and confusion, to clarify existing provisions and to correct errors. In   ITTOIA—to use that affectionate description—161 minor changes were proposed, 159 of which were endorsed by the Joint Committee, which stated:"““The Bill is a welcome clarification of the existing law relating to income tax in this important area, which will be of value to Parliament, the judiciary, professionals and business people and other users of legislation””." It went on to state that,"““the only changes that the Bill makes to existing law are of such minor significance that they need not be referred to the attention of Parliament””." We are sticking within our remit in that respect. The restriction to ““minor significance”” leads to consideration of the next major question: what is the case for substantial fundamental simplification? My noble friend Lady Noakes referred to that point in her own speech. There has been an encouraging response to the process of amalgamation from HMRC, which states:"““The priorities of the new department, HM Revenue and Customs, are to improve customers’ experience of dealing with the department, to increase levels of compliance, and to increase our internal cost effectiveness. Substantive simplification of tax law contributes to all of these. Any suggestions for changes which bear on these priorities will be particularly welcome and like all suggestions for policy change will be pursued with the relevant tax specialists elsewhere in HMRC””." That is a significant move, at least in the right direction. In the light of that, we are proceeding with our next round of work. Our fourth Bill will be the last one to complete the simplification of income tax. Our fifth Bill will be on corporation tax and will bring our total output to about 3,000 pages. The fact that we can now look forward along that path means that, if we rewrite the legislation, it may or may not be possible to take into account current studies of the structure of corporation tax. It means that we can give some advance indication that the next one after corporation tax may well be capital gains tax. So, again, simplification of the policy can be undertaken in that respect while we are looking at it on the horizon. Like the noble Lord, Lord Barnett, and others, I do not get the impression that the Chancellor of the Exchequer is very alert to that consideration of simplicity. I do not subscribe entirely to the view of the noble Lord, Lord Barnett, that Chancellors of all kinds are indifferent to it, but I agree that ex-Chancellors are probably keener to talk about it than Chancellors—I have been doing that for some time now. A huge diversity of pressure is building up for something to be done about simplification: two Hardman lectures, one by Adam Broke in 1999 and one by me the following year, which were both reported in the British Tax Review; the IFS report, under the chairmanship of Sir Alan Budd, produced in   2003, which suggested procedures that could enable us to improve performance in that respect; the Chartered Institute of Taxation’s proposal for a tax practice committee; and the Conservative Party’s proposal, both before and after the general election, for the establishment of a tax law commission. I do not seek to choose between those, but it is high time that we made progress in that direction. This House has emphasised that already. We had a debate on the topic on 23   January 2002, in which a number of noble Lords here today took part. They all made exactly the same point. Two propositions seem to follow from all that. There is a growing, well justified case for serious consideration by Her Majesty’s Government—the Treasury, in particular—of the specific response, as a matter of urgency, to this call for special structures to consider problems of tax simplification. It now cries out at least for extensive consultation. The second point worth making, which the noble Lord, Lord Barnett, and my noble friend Lady Noakes made, is that this House can play a significant part in this field. In doing that, we do not wish in any way to challenge or subvert the supremacy of the other place on questions of fiscal or tax policy, but we think that we can take better advantage of the huge pool of specialised individual knowledge and talent in this House. I was surprised to find that there are still five former Chancellors of the Exchequer in the House. The noble Lord, Lord Barber, does not often join us nowadays, but four of us are still around. There are no fewer than 10 former Chief Secretaries of the Treasury, not to mention Permanent Secretaries to the Treasury—I see   one with us today. Two of the 10 former Chief Secretaries went on to become Chancellor. There are 15 other ex-Treasury Ministers lurking around the place, quite apart from those on the other side who have been training in tax systems from the opposite end of the telescope. We have proven by our performance that this House poses no risk to the other place—specifically by the work of the Tax Law Rewrite Bills Joint Committee; and of our own Economic Affairs Committee, under the experienced chairmanship of my noble friend Lord   Wakeham, which he has introduced and explained today. I congratulate him and his colleagues on their work. Despite the severity with which the noble Lord, Lord Rosser, attacked the ““tax avoidance industry””, all my inquiries suggest that the tax community is extremely grateful for the value of the exchanges taking place and of the evidence given to the Economic Affairs Committee. I have found no evidence whatever, on the other side, to suggest that the Revenue authorities take a different view. As the noble Lord, Lord Barnett, pointed out, this House’s consideration is of an entirely different quality from that in the other place. So once again I join hands with him in hoping very much that the Minister who is to reply will convey to his right honourable friend the Chancellor our strong feeling that he will hearken to the increasingly clamant case being presented—not just by this House but by almost everyone concerned with tax policy—for serious attention to be given to the various propositions for more stability and simplicity in relation to our tax system.