This is the fourth of a series of reports on the progress of this year's Finance Bill, as it goes through its various parliamentary stages.
This report covers sittings five and six of the standing committee on the Bill, which sat on Tuesday 22 May. As previously noted, these reports focus on the aspects of the debates most relevant to the CIOT and our members, which is primarily the technical elements of the Bill, although the reports will aim to give a flavour of the main issues debated, which will often be more political.
A note on the stages the Finance Bill goes through appears here.
Links to the various debates are available here.
The pace continues to be slower than anticipated (see previous note).
Finance Bill Standing Committee – Sitting 5 – Tue 22 May (am)
Clause 7 - small profits rate
Back to the previous glacially slow progress. Between sitting 4 and sitting 5 a small Labour reshuffle replaced Owen Smith with Catherine McKinnell as the Shadow Exchequer Secretary and she took his place on the committee. Labour have continued their practice of tabling amendments calling for broad-ranging reviews – in this case a review of the impact of the corporate tax structure on businesses of different sizes – which enable their shadow minister and backbenchers to make wide-ranging speeches beyond the scope of the individual clauses – in this case the small profits rate.
In general terms this sitting saw a debate about whether the Government was doing enough for small businesses compared to big business. Labour offered grudging support for the Government’s corporation tax cuts but said this was not enough for growth and would not help small business. Areas diverted to by Labour MPs during speeches on this clause included the Beecroft ‘fire at will’ proposals and IMF chief Christine Lagarde’s comments earlier in the day about the UK economy.
Finance Bill Standing Committee – Sitting 6 – Tue 22 May (pm)
Clause 7 (continued), clause 9 (post-cessation trade or property relief) and clause 10 (property loss relief)
A little welcome progress, with three clauses approved during the sitting and some debate on the substance of the proposals in the Bill. However with more than 200 clauses to cover in the remaining 12 sittings the pace will obviously need to be picked up further still if we are to avoid the committee having to sit through the night!
After a brief wind-up speech on clause 7 (small profits rate) the sitting divided up fairly evenly into two substantive debates on clauses 9 and 10.
While clause 9 just deals with an anti-avoidance measure on post-cessation trade or property relief, thanks to the tabling of a Labour amendment calling on the Government to review the ability of HMRC to deliver the anti-avoidance measures contained in the clause, debate ranged far more widely, covering anti-avoidance in general and also HMRC staffing and service levels. Labour’s spokeswoman, Catherine McKinnell, warned that government cuts were leaving HMRC overstretched and underperforming, calling into question their ability to deliver this and other anti-avoidance measures. She said the Government were right to crack down on abuse of post-cessation reliefs but asked if the phrasing of the legislation was ambiguous in a way that could end up catching legitimate users of the relief? The minister, David Gauke, responded that he was confident that only those entering into avoidance schemes would be caught.
Gauke also defended the effect of the spending review process on HMRC, responding to accusations of cuts. He preferred to describe the putting of savings that could be made within HMRC into areas where it could deliver a return as ‘re-investment’. £917m of re-investment should bring in £2bn extra for 2011-12 and around £7bn a year extra by 2014-15 he said, adding that there would be an increase of 2,500 in the number of people in compliance and enforcement at HMRC. Asked if HMRC was capable of dealing with avoidance/evasion and still delivering a reasonable level of customer service, Gauke said the Government recognised the need for contact centres to improve, though feedback from agent bodies in the last six months suggested some improvement in service levels already. An intervention asked if child benefit changes would mean staff would need to be redeployed to this area. Gauke recognised this would mean additional costs for HMRC and said HMRC would get additional resources to do this so it would not have a knock on effect on service levels.
Lib Dem John Pugh said that the Treasury Committee, National Audit Office and Public Accounts Committee should do more research into the execution of tax policy. This was a dull area but worthwhile, he said.
Clause 10 is a targeted anti-avoidance measure relating to property loss relief. Labour welcomed the measure and most of the debate was on wider anti-avoidance issues, in particular proposals for a general anti-avoidance or anti-abuse rule (GAAR). There was an interesting debate on this issue with a range of views and concerns expressed. From the opposition side, McKinnell began by explaining why Labour had not introduced a GAAR themselves (quoting the CIOT's John Whiting from 2004!) but that there was a renewed case for a GAAR. Indeed, by only applying to the most egregious schemes, Aaronson may not go far enough, she said. Quoting the CIOT’s recent GAAR submission, McKinnell asked how the minister planned to minimise uncertainty, and for assurances a GAAR would not give too much discretionary power to HMRC.
The concern expressed from the government benches was slightly different in tone and focused on the rule of law. Nigel Mills urged caution, to ensure that we do not wander into the trap of HMRC “becoming almost a baseball bat-wielding, threatening organisation that says, “We’re a bit short of money this month. We’re going to use this as a tool to get some more money out of you.”” He suggested a de minimis threshold for the GAAR - that the tax at stake has to be at a certain level before the rule could be invoked. Jacob Rees-Mogg gave a passionate defence of the rule of law, describing it as “one of the most precious things that this Parliament protects”. If this House is not competent enough to pass tax law that collects the amount of revenue that we wish to collect, it is a matter for us to revise the law, he said. John Pugh was supportive of a GAAR but recognised there was a trade-off between complexity and clarity/certainty in tax law.
Responding, Gauke defended the principle of a GAAR, while reminding MPs there was a consultation about to happen, and addressed concerns expressed by the committee. There is an area in which tax behaviour is so artificial, contrived and clearly contrary to the intention of Parliament that an additional tool in the armoury of HMRC is legitimate, he said. On whether a GAAR would mean government could repeal a load of legislation, he was cautious, saying he expected the GAAR to be effective but government would still need to retain existing TAARs and to amend other legislation that provides unintended tax planning opportunities that are outside the scope of the GAAR. In response to a question from McKinnell, he said it was too early to say whether a GAAR would catch the avoidance being discussed under clause 10.
The committee approved clauses 7, 9 and 10 without any objections and rejected three Labour amendments calling for reviews, voting along party lines in each case.
Decisions by the standing committee
Amendment 6 (Lab Treasury team)
Clause 7, page 4, line 28, at end add—
‘(4) The Chancellor of the Exchequer shall review the impact of the corporate tax structure on businesses of different sizes, and shall place a copy of the review in the Library of the House of Commons.’.
Vote: Ayes 10, Noes 16
Clause 7 (small profits rate) stand part
Approved without a division
Amendment 7 (Lab Treasury team)
Clause 9, page 5, line 44, at end add—
‘(9) The Chancellor of the Exchequer shall review the ability of HMRC to deliver the anti-avoidance measures contained in this section and lay a report of his review before Parliament.’.
Vote: Ayes 10, Noes 15
Clause 9 (post-cessation trade or property relief) stand part
Approved without a division
Amendment 33 (Lab Treasury team)
Clause 10, page 6, line 43, at end insert—
‘(5A) The Chancellor of the Exchequer shall review how the targeted anti-avoidance measure contained in this section will interact with the proposed General Anti-Abuse Rule in Finance Bill 2013, and lay a report of his review in the House of Commons Library.’.
Vote: Ayes 11, Noes 15
Clause 10 (property loss relief) stand part
Approved without a division
CIOT External Relations Manager
Wednesday 23 May 2012