Clause 38.—(INTEREST ON UNPAID TAX.) (Hansard, 12 June 1967)

§ Mrs. Margaret Thatcher (Finchley)
I beg to move Amendment No. 156, in page 40, line 41, to leave out subsection (2).
The Clause increases the rate of interest on unpaid tax from 3 per cent. to 4 per cent., and the Amendment seeks to delete the provision which gives the Treasury power to vary the rate. This is not the kind of rate of interest which it would be wise to fluctuate frequently because it would make for very complicated calculations and people would not know where they were. Moreover, this would be the kind of variation that could wait for the Finance Bill if any variation was called for.
Although the subsection takes power to increase or decrease the rate of interest it is a reasonable guess that the Chancellor would be more likely to use it to increase it rather than decrease it. Bearing that in mind and that 4 per cent. is a net rate, that is, that it is paid out of net taxed income, I see little need to give the Treasury these powers. At any rate, I think that most of us would be prepared to forgo the forlorn hope that the Chancellor might decrease interest in return for the certainty that he could not increase it without further legislative powers in another Finance Bill.

§ Mr. MacDermot
I agree with the hon. Lady the Member for Finchley (Mrs. Thatcher) that this is not a rate of interest which one would expect would be subject to frequent variation. It therefore calls for some explanation why the Government propose that this should be done or why the Treasury should have power to do this by Order subject to negative Resolution procedure rather than leave it to be done in Finance Bills.
The simple answer is that in cases where it is proper to vary the rate there 262 are obvious advantages in being able to do it at fairly short notice in the light of circumstances without waiting for a Finance Bill. I think that the experience of the last 20 years is perhaps something of an object lesson in this respect. The rate of interest on arrears of tax has remained unchanged over the whole of the 20 years since it was first introduced in 1947 although during that period Bank Rate has varied from the extremes of 2 per cent. in 1947–52 to 7 per cent. in 1957, 1961 and 1964 and between July, 1966, and July, 1967.
Certainly, if it is sensible, as I think it is agreed it is, to be able to vary this rate so that it continues to have the deterrent effect that it is intended to have, then one would think that there ought to have been some variations in those 20 years. It is perhaps not a rash assumption that it is the fact that this can be done only by a provision in the Finance Bill that was a substantial factor contributing to this inflexibility. Twenty Chancellors all moved not to add a Clause to the Finance Bill which could be left over to another year. Perhaps one day in the distant future the hon. Lady will have an experience which will make her understand this point better.
These are the reasons for it. There are precedents for it. There are many other rates of interest which can be varied, or a number of others, by Treasury Order. I think that the most immediately relevant one was a power in the Land Commission Act for varying the rate of interest on arrears of betterment levy, and that was done by the same procedure. There are, of course, some rates of interest in the tax field which can be varied by Treasury Order without the need for a Statutory Instrument. An example is the rate of interest on tax reserve certificates and the rate for Public Works Loans Board loans, both of which can be varied by notice published in the London Gazette. However, full Parliamentary control is retained by the fact that there is the negative Resolution procedure so that the consent of the House of Commons would still be required, which it would be with a Finance Bill.

§ Mrs. Thatcher
In view of the Financial Secretary's explanation, I beg to ask leave to withdraw the Amendment.

§ Mr. MacDermot
I beg to move Amendment No. 153, in page 41, line 12, after 'purposes', to insert '(a)'.
Sir Eric I think that it would be convenient to discuss, at the same time, the next Amendment. No. 154.

The Chairman
Yes, if that is the wish of the Committee.

§ Mr. MacDermot
These Amendments provide that interest on arears of tax is to be treated as if it were tax for the purposes of Section 35(2,g,i) of the Crown Proceedings Act and the rules of court made thereunder for England and Wales or Northern Ireland.
At the time when the original drafting was done it was thought that no express provision of this kind was required, but it now appears on further advice that it is better to have an express provison. It is obviously sensible that if we give power for these arrears to be collected in the county court there should be the same provision precluding set-offs and counter-claims in the county court rules as there is in the High Court rules.