HC Deb 07 April 1964 vol 692 cc926-43
Mr. Talbot

I beg to move, in page 21, line 26, to leave out "or in accordance with their instructions".

The mischief which the Amendment is designed to avert is the passing of files between the inspector of taxes and the Estate Duty Office. I understand that there is a general blanket authority for Income Tax files which are secret to be passed to the Estate Duty Office, the officers of which do not take a specific oath of secrecy. They are, of course bound, as are all Government Departments, by the Official Secrets Act, but it might well be thought that in relation to this subject matter, which is perhaps not comparable to the disappearance of plans for a destroyer or the appearance of Olga Petrovski, no serious notice would be taken.

This matter came to my notice professionally in a case in which I have now ceased to take a professional interest because it is concluded. It appears that the Estate Duty Office sent a query which bore the words It is noted from the deceased's Income Tax file that the business was… and so on and It is further noticed from the tax file that Defence Bonds and some Investment Trust Units were purchased… from a certain source. I have always suspected that information passed, but I never knew until I received that official document that files were actually taken from one office to another and that the person who had written these words had the Income Tax file in front of him at the time of writing. The one point which has been made in this debate, quite rightly, is that the tax-paying system of the country works on the basis of good will and co-operation.

If we are to have said, and said widely, what at present is only stated among accountants and solicitors, that the secrecy of the Income Tax office is merely an illusion, and that there is, at least as a post mortem, a complete system of cross-filing on a man's affairs by the departments of the Inland Revenue, we shall very soon find the community take its own remedies against that situation. It is only playing with words to say, "We shall not disclose the contents of an Income Tax file to the Board of Trade because that is another Government Department", but that it is perfectly all right to transfer knowledge—a whole file of knowledge—from the Income Tax office, which is under the obligation of secrecy, to the Estate Duty Office, which is not.

It is time that the Government began to consider a self-denying ordinance in this matter and that Income Tax files really ought to be secret and kept only in and used only in that Department, because if that is not to be so we shall destroy that confidence in tax paying. Are the Government going to confess to the country that a vast system of espionage into a man's affairs already exists? Do we want a Government who are omnipotent already to be also omniscient and omnipresent?

Do we want the whole line-up of modern taxation to rest not on income, or even taxes on capital, but on a situation wherein upon everything a man has he has to pay duty to the State? That is only one stage removed from saying that everything a man has belongs to the State and he is to be allowed to keep only a little in accordance with the State's wishes. This is fundamental to the confidence of the tax-paying community, whether it be alive or dead, in the Government. Are we reaching the situation even now where files exist in the Estate Duty Office on people who are already living, files fed with information which comes from the Income Tax offices—or newspaper cuttings, such as an hon. Member referred to the other day, about a man's occupation?

I really think the time has come for the Government to deny themselves some of the power which they seem to take. I follow very acutely the fact that the hon. Gentleman the Member for Sowerby (Mr. Houghton) is so very much in line with Government policy. He, perhaps, is looking on himself as the Government at only a very short remove. I feel that under his control the situation would be like that described in the Bible where King Rehoboam said, My father chastised you with whips, but I will chastise you with scorpions. The form of this Bill is designed to create a nest of scorpions which can be used against the tax-paying community.

I hope that my hon. Friend the Financial Secretary will feel that there is something in this point. Is he going to insist on giving the Board of Inland Revenue dispensing power, power to dispense with the oath of secrecy of the inspectors of taxes for any reason and for any purpose? Suppose an inspector of taxes wrote to say, "I am having a very bad time with So-and-So and cannot get any remedy. Can I write and tell the local paper?" And suppose that the commissioners wrote back and said, "Yes". That would be a possible use of this dispensing power, a power which we did not allow to King James II.

So I hope that this House will decide that this dispensing power be not granted by omitting the words "or in accordance with their instructions". There are sufficient reasonable exceptions under the oath to deal with any situation arising out of litigation or for communication from an inspector of taxes to his superiors of anything which he ought to communicate. It is not right to have this secret power through this system of passing files, and it is not right to leave in the hands of the commissioners power to render the oath of secrecy completely nugatory.

It being Ten o'clock, the debate stood adjourned.

Ordered, That the Proceedings on Government Business may be entered upon and proceeded with at this day's Sitting at any hour, though opposed.—[Mr. Hughes-Young.]

Question again proposed, That the words proposed to be left out stand part of the Bill.

Mr. Green

I have no difficulty in sympathising with my hon. Friend the Member for Brierley Hill (Mr. Talbot) in his anxiety to make as sure as he can make and as the House can make that there is no arbitrary power deliberately put into the hands of those members of society who are our bureaucrats. Of course we do not want arbitrary powers put into their hands. But I think that my hon. Friend's argument is erected on a misconception.

This is not a case of comparing the Treasury with the Board of Trade, for example. The Board of Inland Revenue is itself directly responsible for both the Estate Duty Office and for the administration of the Income Tax. There is, therefore, no question of two different people seeking to acquire each other's knowledge or secrets clandestinely. They are, in fact, the same body of responsible people being responsible for the same item—the gathering of taxes. The analogy which my hon. Friend drew between the Treasury and the Board of Trade does not stand examination.

I hope that my hon. Friend will look at his Amendment in that light and decide that it is not constructed on a premise which is viable. I put that to him as a matter of principle first. The second argument—I suppose I could have put it to my hon. Friend first, but I believe it would not have taken account of what I understand to be his genuine interest, that unlawful powers should not be secretly acquired—is that if the words to which he takes exception were deleted, the inspector of taxes would still be authorised to disclose information to the Board of Inland Revenue and the practice of exchanging information between branches of the Department would continue to be lawful on the same arguments as apply under the existing law, which is the premise that I originally erected—that these are officers serving one Department, and that to prevent them from serving that Department wholly, which is perhaps the intention, would be to make that Department that much weaker, once again to the detriment of the majority of taxpayers. Of this I have no doubt.

I ask my hon. Friend to think again about this. I hope he will not press his Amendment. First, I assure him that even if I accepted it, it would make no practical difference for the reasons I have just given. I am sure that he is much 100 practical a man to seek to press an impractical Amendment. Secondly, it really is true that these inspectors and all servants of the Board of Inland Revenue serve one and the same Department. These are not watertight compartments within the Inland Revenue. If they were, one or other of them would be responsible to different members of the Government from those to which they are responsible. As it is, their responsibility is joined. They are responsible to the Treasury. They are not separate Departments.

On these grounds, I do not see how one would be justified in having what I might call an oath within an oath and in preventing one member of a Department serving a single head from telling that head what he knew.

Mr. Eric Fletcher (Islington, East)

I do not agree with the extravagant sentiments expressed by the hon. Member for Brierley Hill (Mr. Talbot), but I am very disturbed by the Financial Secretary's speech. I have always thought that it was open to a tax inspector to communicate any information about a taxpayer's income tax return to the Estate Duty Office. That may be a good or a bad thing. Opinions may differ. I gather that the hon. Member for Brierley Hill thinks it a bad thing. I consider it good and necessary.

It is clear that the position should be made plain. I had always understood that there is no kind of secrecy between the Income Tax departments of the Board of Inland Revenue and the Estate Duty Office. Indeed, for the purposes of the Exchequer, it is necessary to have complete interchanges between these two branches. It had not occurred to me until I heard the Financial Secretary's speech that anyone doubted that this was the case. It is a good thing that the hon. Gentleman should have expressly affirmed that it is the case. I thought that everyone already knew.

That, however, does not dispose of the matter, because, if it is the case, then it seems to me that these words to which the hon. Member for Brierley Hill objects are quite unnecessary in the oath. The Minister has not disposed of the technical reasons put forward by the hon. Gentleman because he himself says that, if he accepted the Amendment, it would make no practical difference to the present position. I do not think that it would.

Even with the omission of these words, I understand that it would still be open to the Income Tax departments to make any communication it wished to the Estate Duty Office. I think that it should be able to do so. What baffles me, therefore, is why these words are necessary at all. They are obviously not necessary for the purpose of communication between the Income Tax departments and the Estate Duty Office. For what are they required?

These words must have been inserted for some other purpose. What is that purpose? I understand the importance of secrecy of taxpayers' affairs within the Treasury and the whole ambit of the Inland Revenue. If these words are necessary, what is the reason? I have heard no reason from the Financial Secretary to explain why they are necessary. Unless there is a more satisfactory explanation, the insertion of these words in the oath would enable the Board of Inland Revenue to give instructions to an inspector or collector to disclose information about a taxpayer's affairs either to the Board itself or to the Minister of Agriculture, for instance, or anyone else. I am far from satisfied with the Financial Secretary's explanation.

Mr. Green

To use a rather hackneyed phrase, we are trying to modernise the declaration. We are attempting to give explicit cover, which seems a sensible thing to do in this modern age. My hon. Friend the Member for Brierley Hill (Mr. Talbot), concerned about this matter, perhaps did not see at first sight what the hon. Member for Islington, East (Mr. Fletcher), with his considerable practice and experience, takes as being self-evident—that inspectors should have this requirement within the operation of the Inland Revenue as a whole and not within separate branches. It seemed therefore to make some sense in the modern age to make explicit in the declaration what he was able to do and what he should do. I agree that if the words were not there, that would not affect the practice, but—and this is a matter of judgment—it seemed more sensible to make explicit what the prac- tice was, if only because one hon. Member had raised a doubt.

Mr. Fletcher

I must differ from the hon. Gentleman because I agree with what he said originally—that the words are not necessary. His mere statement as to what the practice is is very valuable, so that it is on the record and everyone can know it. The danger in putting in the oath words which are unnecessary is that the Government are probably sanctioning something which they never intended, namely, the possibility of an inspector disclosing information about a taxpayer's affairs not merely within the ambit of the duties of the Inland Revenue, but outside it.

Mr. Green

I appreciate that and I am glad that the hon. Member has raised that issue. However, I do not think that his fear is justified, because it is only within the ambit of the Inland Revenue that this explicit declaration applies. In this case inspectors, but also all other people who may make the declaration concerned with Inland Revenue matters, are bound within the operations of the Inland Revenue, and the Inland Revenue itself is bound not to give instructions which force people who make the declaration to break the spirit of the oath.

In general I agree that one should never use words which are unnecessary, because in doing so one may open doors to something about which one is not too sure, and I appreciate that all these declarations both in intent and content are within the ambit of the Inland Revenue. All we were seeking to do was making explicit what was permissible within the context of the Inland Revenue. The Inland Revenue itself must still be bound by its own confidentiality between itself and the taxpayer—for what I think is the commonsense reason that if it is not and is not seen to be so bound in confidence between the taxpayer and itself, the Inland Revenue, using the term corporately, would find that the operation of our tax laws would not in practice be possible. The Inland Revenue knows this and no head of the Inland Revenue would instruct an inspector to tell the Minister of Agriculture, or whoever it might be, because to do so would break his own instrument of administration which in practice and effect is the goodwill of the vast majority of taxpayers. That goodwill cannot be maintained unless the Inland Revenue as a corporate body maintains confidentiality between itself and the taxpayer, individually or collectively.

10.15 p.m.

I can see grounds of criticism for putting in these words. They were put in to try to make explicit what had been criticised as not being explicit. There it is. I stick by my knowledge—though that is perhaps the wrong word to use—that the Inland Revenue as a corporate body must not, and certainly will not, seek to break the bonds of confidentiality between the Inland Revenue as a corporate body and those individual taxpayers with whom it has to deal.

Mr. Talbot

Does not my hon. Friend agree that according to the language of the Clause it would be open to the Board of Inland Revenue to give a direction to an inspector of taxes to make a communication to a person not in the Inland Revenue? Is not that the point which the hon. Member for Islington, East (Mr. Fletcher) is seeking to make? These words are, therefore, unnecessary.

Mr. Green

I have accepted that. We were trying to meet the demand for something explicit. Indeed, we were trying to answer the question why it was not made explicit. Having tried to meet the need to make this explicit, I am simply saying that it cannot be in the interests of the Inland Revenue as a corporate body, if that is how it is to be regarded, to destroy its own instrument, which I think is the suspicion now being cast.

If by any chance, which I do not think is at all likely, the Inland Revenue used these words to establish some kind of tyranny, some kind of round-the-corner action, some kind of action not sanctioned by the House—and really what is being said tonight is a powerful sanction for it not to do so anyway—I have no doubt that in view of this debate its powers would be promptly trimmed by the House. It is because I know that it is not within the practice, not within the interests, and not within the desire of the Department of Inland Revenue to do any such thing as break its own prime need for confidentiality, that I am confident about these words.

Mr. Houghton

I think that the House is making very heavy weather of this, and I shall try to brighten the proceedings as well as enlighten the House. This trouble comes from trying to translate lengthy rigmarole which is already in the Act into a brief, comprehensive and businesslike formula.

The House should also realise that this oath which the hon. Member for Brierley Hill (Mr. Talbot) proposes to amend is all-embracing on all information received by Inland Revenue officers in the course of their work. At present, there is no such all-embracing oath of secrecy made by any Inland Revenue officer. He is covered by the Official Secrets Act, but he does not make a specific oath, except under Schedule D. This new oath is designed to cover everything—to strengthen the omissions and the weaknesses of the oath of secrecy given by Inland Revenue officers in the past. To that extent it is an improvement. It is a tightening up of confidentiality in respect of Income Tax affairs.

I am surprised that the Financial Secretary did not give other examples of the difficulties which would arise if these words were not there. Is there any sanction here for one inspector to pass a file to another inspector in another district, unless, in accordance with instructions given by the Board of Inland Revenue, he must do so? Yet how can the Inland Revenue machine operate if files cannot be passed between one tax district and another except via the Board of Inland Revenue?

The hon. Member for Brierley Hill has raised a more sensitive point—the disclosure of information to the Estate Duty Office. He probably says to himself, "Within the empire of Income Tax the Inland Revenue can exchange what it likes; it can fling files about all over the country and none shall say it nay. But when it comes to sending information to the, Estate Duty Office we must draw the line." In his mind the hon. Gentleman cannot distinguish between the Estate Duty Office and the Board of Trade.

But that is where the line is drawn. The Customs and Excise authorities— which is another branch of the Inland Revenue—the Ministry of Pensions and National Insurance and everybody else who would like to get their hands on Income Tax files from time to time to assist them in the better discharge of their duties are on the other side of the line.

But if we suspect that the Board of Inland Revenue may be in breach of its own oath—and it is appointed by letters patent for the care and management of these taxes; it has more than a statutory duty to perform; it has a responsibility given to few bodies—if the House is to be nervous about the way in which it will use its powers under its own oath it is perhaps a good thing that responsibility should be fixed upon it and not upon any individual officer who might feel that he has a right to disclose information without being in breach of his own oath.

The responsibility rests upon the Commissioners of Inland Revenue. If they give instructions to their officers to disclose information they will take responsibility for the issue of those instructions. That is where the responsibility and the blame—if any—should lie, and it is desirable that the oath should make that clear.

The House should also be absolutely clear about the whole paraphernalia and purpose of P.A.Y.E. P.A.Y.E. is Schedule E, which is not covered by any oath of secrecy given by an officer of the Inland Revenue. Under these provisions he will have to make an oath in the terms proposed in Part III of Schedule 1, and this will place a more specific obligation upon him than is now placed upon him, perhaps, by the Official Secrets Act.

But in the operation of P.A.Y.E. it is impossible to get along without disclosing something to somebody. After all, what are code numbers but a disclosure of information? I know that the code is so hidden from the employer that although he knows what the total of allowances is he does not know how it is made up. But in the operation of P.A.Y.E. an employer may fill up an Income Tax form stating the earnings, to date, of an employee who is moving to another employer. There is then a disclosure of information by one employer of wages paid by him. That information is provided as part of the machinery of P.A.Y.E.

We must realise that this elaborate mechanism contains features which were quite foreign to the Income Tax of the past.

Mr. Ellis Smith (Stoke-on-Trent, South)

Will my hon. Friend say whether there would be any change in the administration of P.A.Y.E. when these words are inserted and the Bill becomes an Act?

Mr. Houghton

These words will cover all the processes and procedures of P.A.Y.E., and such disclosures as the Inland Revenue believe it necessary to make will be made on its instructions. As a matter of fact, it will not make any difference to the present practice. It is formalising what is being done at the present time.

The question of the Estate Duty Office is the old one of whether the left hand should know what the right hand is doing. Under their letters patent the Commissioners of Inland Revenue are responsible for the care and management of all the duties within the Department and they have regarded themselves—I think properly so—free to use all the information received in the course of discharging their duties for the discharge of their duties. Surely there cannot be any barriers raised within the Department against information properly passing for different purposes. After all, the special commissioners of Income Tax look after Surtax and they cannot do their job unless information is supplied to them by local district inspectors.

At one time taxpayers who might have been liable for Surtax were required to make a separate return to the special commissioners. It was not made to the local office at all. All that a Surtax payer had to disclose locally was untaxed interest and other sources of income which it was necessary to tax locally. He was under no obligation to disclose taxed income, whether dividends, or ground rent or other matters subject to tax at source. The House abandoned this duplication of returns, and long since has made it possible for a return of income made to a local inspector to satisfy the requirements of the Act with regard to Surtax. That means that the district inspector shall be free to disclose information to the special commissioners to enable them to make an estimate for Surtax purposes so that this information passes freely within the Department; and so it is done in connection with Estate Duty.

People who have nothing to hide have nothing to fear, and we ought to remember that when straining ourselves, in conditions of over-anxiety, to protect someone against information being made available which would probably reveal some failure on the part of a taxpayer or his executors. To that extent it is a safeguard against tax evasion. Finally, may I say that I am very upset to be classified as a scorpion. If I were ever moved to chastise the hon. Member for Brierley Hill, which I am not at the moment, I should not chastise him with scorpions. I should use a far more convention al means.

Amendment negatived.

10.30 p.m.

Mr. Green

I beg to move, That the Bill be now read the Third time.

I think we all agreed that this was a necessary Bill when it was first introduced. I should like to record my gratitude to both sides of the House and to all hon. Members who have taken a personal interest in the Bill for the help they have given to its passage. It has been amended in the course of its passage and, I think, improved by Amendments. I gratefully acknowledge the help I have had on that.

There is a particular point to which I should like to make reference. It is to Clause 5 (5), which provides for notices of assessment to be served on the person assessed. Sub-committee C of the Estimates Committee, which I have a personal reason for remembering, put a somewhat different view from that which is the maintained view of the Government, namely, that formal notices relating to taxation should continue to be sent to the taxpayer himself and not to his agent. There is a good reason why the taxpayer should himself have to be notified of what his tax liabilities are. There is a thoroughly good reason; namely, that there should not be any sort of difficulty or that the taxpayer should be able to say that he personally was not formally told. This is a good reason why fundamentally it should remain the position that the Inland Revenue should tell the taxpayer himself and not someone else, what are his liabilities for tax.

We wish to meet the convenience of agents in the matter of notices of assessment, particularly where the point is of special importance, so the Inland Revenue propose to make certain new administrative arrangements. Beginning with the 1965–66 tax year, the Revenue will be prepared to send copies of all Schedule D and Profits Tax notices of assessment to the taxpayer's agent in cases where the taxpayer's main source of income is a trade or profession. Written authority of the taxpayer will be required in the first instance, but, once given, the authority will be effective for future years until withdrawn.

I thought the House would wish to be informed of these proposed arrangements because considerable representations, as the hon. Member for Sowerby will know very well, have been made for a substantial number of years by professional bodies that we should make some move in this direction. We have been unwilling to make it until we saw the ways and means of preserving the central principle that it is on the taxpayer personally that tax assessments are served. This I think we have preserved. I hope that in this age of increasing complexity we have met the main needs of agents who act for the taxpayer by making it possible, provided that the taxpayer authorises it, for the agent to receive a copy of the notice of assessment in the cases I have mentioned. I have tried to think this matter through as we have been proceeding with the Bill and Third Reading seemed an appropriate point to give notice of this administrative change.

I come back to the point I made originally. I believe this Bill is a necessary Bill. I think it is a good Bill. I think it will very much help in the present day and age the administration of the inland revenue. I repeat my very real thanks to all who have assisted, not only the passage of the Bill, but in improving it in Committee.

10.35 p.m.

Mr. Houghton

We come to this stage of a Bill which was started 44 years ago. It was 44 years ago this month that a strong Government capitulated in the face of prejudiced Opposition from various quarters and withdrew the Revenue Bill before even it had been given a Second Reading. No greater humiliation was ever borne by any Government than by the Government of 1920 when they withdrew the Revenue Bill. I am glad that the Financial Secretary is able to see this long trail of taxation reform brought to a successful conclusion. It is by no means the end of reform. It is an interim Bill which does a great many useful things.

What the Financial Secretary said about the new arrangements for sending notices of assessment to a taxpayer's professional adviser on written authority given by him will be for the convenience both of the taxpayer and of his professional advisers. Undoubtedly for a long time the professional advisers of many taxpayers have been put at a disadvantage because notices of assessment have gone direct to the taxpayer who has promptly put them in a drawer and forgotten all about them, believing, "My accountant looks after all this". But the accountant has not had the notice of assessment and he is probably out of-time in giving notice of appeal, and valuable time is also lost in preparing the taxpayer's affairs if there is need for further action. This provision will be mutually convenient; it will be properly done under the Bill and it will be a good thing.

I must be very restrained in my few brief observations on Third Reading because in some quarters I have been accused of bestowing generous, and indeed lavish, praise upon the Government for the introduction of the Bill. I read in The Times Review of Industry, which must not be confused with the Aims of Industry, that the political correspondent said, When it was first debated in the House of Commons, Mr. Douglas Houghton —I will not refer to the description of me as Labour's taxation expert— spoke of it in such lavish terms that the Conservative Party managers really ought to consider using his speech as part of the Tory Party General Election manifesto". The Government must be in desperate straits if they intend to quote me in their General Election manifesto. The Liberals intend to quote me in theirs. They are constantly referring to some favourable comments which I made on the Liberal tax booklet. But the Conservative Party is surely not in the same parlous state as the Liberal Party. What is one to do when one has waited 44 years for a Bill—all in living memory, all in my memory? One either has to be begrudging about it and to ask, "Why did not they do it years and years ago?"; or one has to receive it as if it were just another wet day over Easter; or one has to become lyrical about it, because it is a miracle—and that is what I did on Second Reading, and I must not do it again.

I must interpolate this additional difficulty: there were considerable touches of irony in my Second Reading speech. Irony is a difficult and gentle art even in the House of Commons, and when it is reported in HANSARD it does not look a bit funny. People take it seriously.

I believe that the Bill is a landmark in tax administration. It is long, long overdue. A great deal that was in the Revenue Bill of 1920 has been integrated in what I would describe as reform by stealth—that is, just pushing in a new Clause in the Finance Bill and achieving one little bit after another little bit. But there was such a big accumulation of reform needed that a separate Bill was required to complete the job. I am sure that the House is doing a good job tonight. The Bill should have an easy passage in another place and will then go on the Statute Book. I am willing to receive any pressing invitations from the Board of Inland Revenue to dine with them and to celebrate this most auspicious occasion.

10.40 p.m.

Mr. Rafton Pounder (Belfast, South)

I will not detain hon. Members for long. During the debate on Second Reading, and again in Committee upstairs, I put forward my views on this Bill clearly to my hon. Friend the Financial Secretary, and especially my anxieties about Clauses 14 and 15. I do not propose to repeat those views because there can be no doubt that this is essentially a piece of spring cleaning legislation, although for Northern Ireland it may involve some slightly more fundamental consequences.

I would like, first, to express my thanks to the Financial Secretary for sparing time to see me recently when we discussed in greater detail some of the points in the Bill which were worrying me. Although I regret the provision contained in Clause 14 whereby the rehearing provisions so near and dear to Northern Ireland's accountants and taxpayers are going out of the window, so to speak, I appreciate the additional strain which would be placed on the Northern Ireland judicial machinery if the High Court step, in addition to the court of appeal, had been permitted as two separate avenues for the appellant taxpayer. I appreciate the limitation that has been placed in this connection, although I will not develop this matter now.

I hope that if the Bill proves injurious to the rights of the taxpayer in Northern Ireland the limitations on the judicial machinery will not prove insuperable in rectifying the situation. I recall the assurance my hon. Friend gave in Standing Committee about the need to gain experience of the new appeal machinery and its effect on Northern Ireland. I trust that if that experience shows that hardship is being encountered it will be possible for amending legislation to be introduced and for the status quo to be restored.

I am aware of the arguments about the dilatory taxpayer, and one can have no sympathy for such a person. Any steps which are taken to prevent his tactics and antics are welcome. I hope that the Bill will not confirm some of my fears; that by reducing the steps of appeal hardship will thus be caused. I hope that, after reasonable experience of the Bill, amending legislation will be introduced with the support of my hon. Friend if such a step is found to be necessary.

Question put and agreed to.

Bill accordingly read the Third time and passed.