---

Income Tax Bill

My Lords, I thank the Minister for introducing the Bill, and I state for the record that I am never knowingly described as docile. We welcome the Bill, as we have welcomed the earlier products from the tax law rewrite project. Anything that makes our tax code more comprehensible has to be welcomed. The Minister explained that the project was started by my right honourable friend Kenneth Clarke when he was Chancellor of the Exchequer in 1996, and I pay tribute to my right honourable friend not only for initiating the project but for sticking with it, because he now chairs the Joint Committee of both Houses on tax law rewrite Bills. I also pay tribute to all those who have laboured to produce and to scrutinise the Bill, and I must single out for special mention my noble friend Lord Newton of Braintree, who I am glad could be with us this evening and who chairs the steering group. I am sure the Minister will have noticed that there is something not quite right about this evening’s proceedings on this rewrite Bill; that is, the absence of my noble and learned friend Lord Howe of Aberavon, who normally likes to join us on these occasions. He cannot be with us this evening, and I was grateful for the Minister’s kind remarks about him. We will miss his wisdom and experience this evening. There has been little controversy about the Bill. Concerns were expressed at the wide-ranging nature of the Treasury’s power in Clause 1029, but we accept the assurances given by the Minister in another place that the power will be used only with the involvement of the relevant committees. Concerns were also expressed at the very late addition of clauses on the accrued income provisions, but again we accept, as did the Joint Committee, that the exceptional nature of the process meant that this treatment was merited. Such little controversy about a Bill that runs to 1,035 clauses and four schedules is a tribute to the effective way in which the rewrite process is being run; but we should be under no illusions—I hope that the noble Lord, Lord Newby, will note this—about the length of our tax code. I believe it is very likely that, when the Bill becomes law, the tax code will have lengthened to the point where we might rival or possibly even overtake India for the dubious title of the country with the longest tax code. Perhaps the Minister will say whether, once the Bill is law, we will have the longest tax code. We were still 1,000 pages or so behind India before the Bill, but we might well have caught up. Of course, length is not the most important issue. The rewrite process has taught us that explaining our tax law in simple and direct terms often does not result in fewer words. My noble friend Lord Newton referred to that. The key issue is complexity. I do not know of any international league tables that explicitly calibrate complexity, but it is fair bet that if there were, our tax code would be up there vying for the top slot. Let me take the example of the accrued income scheme, the rewrite of which was added late to the Bill. When the scheme was first introduced, which I recall, the broad idea behind it was not at all difficult to understand, but the legislation was so dense that only tax specialists really understood how it worked. Over the years, the scheme was modified by successive Finance Acts and became even more complicated. I am sure that I am not alone among taxpayers in having had the greatest difficulty in knowing whether I have unwittingly fallen foul of the rules of the accrued income scheme when I complete my tax return. When I saw that the rules had been rewritten, I looked at them again. Noble Lords will find them in Part 12 of the Bill. Sixty-seven clauses are spread over 30 pages. The rules may well be written in more accessible language, but I do not believe that it is any easier to grasp their practical application. This is but one example of highly complicated rules that remain beyond the comprehension of the vast majority of taxpayers, and we should not put up with that. Conservative Chancellors have always had an ambition to create simple tax law. At Third Reading in another place on 20 February 2007, my right honourable friend Mr Kenneth Clarke, said: "““When I was Chancellor, I tried to follow a practice that I thought I had acquired from watching Lord Lawson of Blaby when he was Chancellor of the Exchequer. His principle was that taxation should be as simple as possible, with exemptions and exceptions as limited as possible … while still raising the revenue that one needed””." I am not sure that all Conservative Chancellors succeeded in their aim of simplicity—there was certainly a fair amount of difficult anti-avoidance legislation before 1997—but their hearts were, I think, in the right place. That is in stark contrast with the current Chancellor of the Exchequer who has genuinely created additional complexity through a whole range of special reliefs and incentives that are then buttressed by anti-avoidance provisions of equal or greater length to stop those reliefs or incentives being used in the way that only the Chancellor knows they should be used or applied in the first instance. My right honourable friend Mr Kenneth Clarke continued: "““I fear that the present Chancellor does not have the same instincts. He is a micro-manager, and he keeps introducing more complexity into the policies of taxation, which the rewrite project must then turn into plainer English””.—[Official Report, Commons, 20/2/07; col. 221.]" This draws out two issues. The first is the increasing complexity of our tax code. The second is that almost as soon as a bit of the tax code is rewritten, it is often replaced by something more complicated and expressed in terms which are less simple, and requiring a further rewrite in due course. Do the Government believe that they have made sufficient progress in drafting new tax legislation in the spirit and style of the rewrite project? If that is not happening, the project will become like painting the Forth Bridge. Worse still, if the project seems endless, it will not attract the people of the calibre that have been involved to date—in particular the bodies required to scrutinise the draft—if the project seems endless. The root of the problem is the Chancellor’s approach because he does not seem to embrace simplicity as an aim in tax legislation. I have asked Ministers in this House many times if the Government are committed to achieving tax simplification. The response I have had from the Minister’s predecessors is that complexity has to continue because of the constant need to do battle with those who seek to avoid tax. And we know from the announcement earlier this month as well as at the Pre-Budget Report that the upcoming Finance Bill will contain another large dose of anti-avoidance legislation. Will the Minister stick to the line that we need complexity because of tax avoidance or will the Treasury open its mind to the possibility of a new way forward? We believe that there is a different way. It requires a completely different mindset about the tax system. It would certainly require a self-denying ordinance on using tax as an instrument of economic micro-management. It may also require a different, purposive style of legislation and might also require—as the noble Lord, Lord Newby, pointed out this evening—a different approach to anti-avoidance; namely, a general anti-avoidance rule. There is no doubt that these are difficult issues but they are worthy of examination. My noble and learned friend Lord Howe has long campaigned for a sister project to the tax law rewrite project; namely, the tax structure review project. He has the backing of the Tax Law Review Committee, the Institute for Fiscal Studies, the Chartered Institute of Taxation and of the Institute of Chartered Accountants. The recent report by the Tax Reform Commission chaired by my noble friend Lord Forsyth of Drumlean recommended the creation of an office of tax simplification to sit alongside and extend the work of the tax rewrite project. I do not underestimate the difficulty of such a task. The transition from our present body of tax law to one based on principles of simplicity is an awesome task. But I believe that it is in the interests of the UK economy for us to attempt to achieve it. In their submission to my noble friend’s Tax Reform Commission the accounting firm, KPMG—in which, I remind noble Lords, I was a partner for many years—said that the increasing complexity and reducing certainty of the UK tax system was gradually making the UK a less competitive location for industry. We must not let our tax system, on top of our high tax rates and our increasingly aggressive tax administration, act as a drag on our competitiveness. I conclude by reiterating our thanks to all those involved with the rewrite project—those in Parliament, the Treasury and HMRC and those bodies which comment on the drafts. As the Minister said earlier, another rewrite Bill, this time on corporation tax, is already well advanced. I shall not say that I am looking forward to its arrival but I am certainly grateful to the rewrite team for its efforts.