HC Deb 25 July 1972 vol 841 cc1781-90

3.37 a.m.

Sir Anthony Meyer (Flint, West)

The facts in this case are simple and not in dispute. My constituent, Mr. John Hope Beech, of Prestatyn called at his local tax office on 27th March, 1968, and asked it to check a computation which he had made which showed an overall loss of some £7 for capital gains purposes for 1967–68 as a result of disposal of certain Whitbreads securities.

The young lady official of the tax office who dealt with the inquiry asked him to wait while she went into a back office: she returned after a few minutes, having apparently consulted a more senior colleague, to say that Mr. Beech's computation was correct, and that he had incurred a chargeable loss of £7.

When however Mr. Beech submitted his tax return for 1967–68 the tax office

grieves me not to accept what has been said by the Solicitor-General in so beguiling and in an almost seductive way.

Question put, That the Bill be now read a Second time: —

The House divided: Ayes 10, Noes 7.

discovered that the computation was in fact incorrect, and that Mr. Beech, so far from having incurred a chargeable loss of £7 had incurred, by this transaction, a short-term gain of £151, on which he was liable to tax.

Mr. Beech contends that but for the wrong advice given to him at the tax office he could and would have carried out other transactions so as to eliminate his chargeable capital gains. He claims that in these circumstances the Inland Revenue should be prepared to forgo the £49 worth of tax which it is claiming in respect of this transaction.

The matter has been dragging on since September, 1968. Mr. Beech's health is delicate, and it is Mrs. Beech who has been handling the matter with an admirable blend of persistence and lucidity.

In May, 1971, at the request of Mrs. Beech I passed the case to the Parliamentary Commissioner for Administration. To my surprise the Commissioner's finding was firm and unequivocal. He said: Mr. Beech's complaint against the Inland Revenue is justified, and he can reasonably be presumed to have suffered injustice by understandably not taking steps to reduce his tax liability as a result of the mistake by the Department. In my view an appropriate remedy for this would be the waiver of that part oj" his 1967–68 tax for which Mr. Beech found himself liable as a direct result".

But the Inland Revenue has maintained its refusal to waive the tax thus due. As my hon. Friend the Minister of State knows, I have raised this matter both with the Chief Secretary and with the Chancellor of the Exchequer, asking them to give directions to the Inland Revenue to accept the recommendation of the Parliamentary Commissioner and waive the tax. It is because they refused to intervene that I am raising the matter here tonight at this late hour.

I need not go into the rights and wrongs of the case itself. The Parliamentary Commissioner has done that very fully. Nor am I seeking to maintain that what has happened has produced hardship for the Beeches, though it has certainly occasioned them severe worry which has contributed to aggravating Mr. Beech's state of health. Mr. and Mrs. Beech are people who attach importance to principles. He is a retired civil servant of distinction, having been chief establishment officer of the Nigerian Federal Ministry of Finance, and he and Mrs. Beech are more concerned now to establish a principle than to resist the demands of the Revenue for some £49 of tax.

I am naturally anxious also to uphold the issue of principle. It does seem to me that the considered and impartial finding of the Parliamentary Commissioner as to the rights and wrongs of a case should override the protestations of a Government Department which is trying to cover up a slip. That is what the Inland Revenue is trying to do in this case, whereas the Parliamentary Commissioner has no axe to grind.

But I am also concerned, as I have pointed out in a letter to my right hon. Friend the Chancellor, with the importance of maintaining public confidence in the rôle of the Parliamentary Commissioner for Administration. There are those who argued, and still argue, that it was a mistake ever to have created the office, that it diminished confidence in Parliament. I disagree with this view. But what is incontrovertible is that, the office having been created, its existence will do more harm than good unless it can be shown to be a powerful and effective defender of the rights of the citizen in any dispute which he may have with a Government Department.

So far Government Departments have been quick to comply with the recommendations of the Parliamentary Com- mission for Administration, even at some inconvenience to themselves. As far as I can discover, from reading the proceedings when the Act went through, there was no discussion of the possibility that a Government Department might decline to carry out the recommendations of the Parliamentary Commissioner for Administration. It was tacitly assumed throughout the discussion that the recommendations would, quasi-automatically, be carried out. In discussions with my colleagues this evening, one after another has expressed utter astonishment that a government department could simply ignore the findings of the Commissioner.

It happens that the majority of the very few cases in which Government Departments have not yet accepted the Parliamentary Commissioner's recommendation have concerned the Inland Revenue more than other departments. There is nothing odd, nothing discreditable, about this: the Inland Revenue's activities touch the average citizen more directly and more painfully than those of any other Department, and by their nature are likely to give rise to more complaints. Nor do I want to criticise the zeal with which the Inland Revenue notoriously defends the general revenue against the claims, however well justified, of individuals. If it were not for this zeal British tax rates would have to be substantially higher than they are. Because of this zeal it is perhaps asking rather a lot of the Inland Revenue to relinquish its claim in this case on the mere recommendation of the Parliamentary Commissioner for Administration.

The Inland Revenue is not concerned with the public respect for our democratic institutions, but Ministers, including Treasury Ministers are, and should be so concerned. My hon. Friend the Minister of State will have no difficulty tonight in showing that Mr. Beech has suffered no hardship. I do not dispute it. He will have no difficulty in showing that Mr. Beech, even if he had been given the right answer by the tax office when he consulted that office, might very well not, in the event, have succeeded in reducing his liability to capital gains tax. I do not dispute that. He would have no difficulty in saying that if tax offices are to be held liable for the advice they give they will not be able to be so helpful in giving advice in future. That may well be so, and, if so, it is a pity. But what he will not be able to show is that for the Inland Revenue to continue to refuse to accept the recommendation of the Parliamentary Commissioner is consistent with the important part which that official must now play in maintaining public confidence in parliamentary democracy.

My right hon. Friend the Chancellor of the Exchequer and his colleagues at the Treasury have already established an enviable reputation for being among the tiny handful of Ministers in this century who have succeeded in imposing their will on their Department. They have managed to bring about tax reforms which their predecessors would have given their left hands to bring in and which their predecessors were told by officials were impossible of achievement. It is because these Treasury Ministers have shown that they are able to override the perfectly valid objections put forward by civil servants that I am hoping that in this case they will recognise the serious danger to public confidence in our democratic institutions which will ensure if the recommendations of the Parliamentary Commissioner are to be swept aside.

I do not expect my hon. Friend tonight to be able to give me satisfaction, but I hope that he will undertake to go away and reconsider this very carefully in the light of what I have said, that he will see this for what it is—a political and a moral issue in which the rights and wrongs of the advice given by the Inland Revenue are no longer relevant. What is relevant is whether public confidence in the ability of the Parliamentary Commissioner to defend the individual against the encroachments of bureaucracy is to be maintained.

3.47 a.m.

The Minister of State, Treasury (Mr. John Nott)

In raising this matter on the Adjournment, my hon. Friend the Member for Flint, West (Sir A. Meyer) is exercising one of the most important rights we have as Members, the right to bring before Parliament the grievances of constituents who feel that they have been unfairly treated by the executive. Clearly, Mr. Beech has a sense of grievance, and my hon. Friend has pursued the matter on his behalf with great tenacity.

As my hon. Friend explained, this is a case in which the Parliamentary Commissioner for Administration proposed that a tax liability should be waived. The Inland Revenue did not feel able to agree and was supported in its decision by my right hon. Friend the Chancellor of the Exchequer. Now, as is entirely right and proper, by hon. Friend has brought out the next weapon in his armoury and laid the matter before the House.

I should first like to assure my hon. Friend that the Revenue refused to accept the recommendation of the Parliamentary Commissioner only after the most careful consideration of his constituent's case, and, as he knows from his correspondence with the Chief Secretary and the Chancellor, the refusal was upheld by them only after each of them had personally reconsidered all aspects of the case.

It is not disputed that when Mr. Beech called at the tax office on 27th March, 1968, he asked it to check his own computation, which his broker had agreed, showing a small long-term capital loss of £7 on a sale of some shares. The officer at the counter wrongly confirmed his figures, but when his return was examined after the end of the tax year it was realised that he had in fact made a short-term gain of £151.

The Revenue notified Mr. Beech of this in June, 1968, and in due course he was charged to short-term gains tax of about £60. Mr. Beech complained that if the tax office had told him this when he called just before the end of the tax year, he would have sold other securities before 6th April so as to establish an offsetting short-term loss and eliminate his liability. The Parliamentary Commissioner found that his complaint was justified and that an appropriate remedy would be the waiver of the tax of £60. I think that it is important for me also to include these facts in my reply in order to show that there is no dispute about them.

I fully appreciate the disappointment of a taxpayer in Mr. Beech's position who finds that he has to pay more tax than he had been led to believe, and the Inland Revenue has made it clear that it greatly regrets that incorrect information was given. It is of course doubly disappointing when the Parliamentary Commissioner's proposed remedy is rejected. This remedy raises, however, the important issue whether, in such circumstances, the Revenue should be bound to assess the taxpayer in accordance with the view expressed over the counter by one of its officials instead of as required by the law that Parliament has enacted.

Mr. Beech visited the tax office after and not before he made the sale which made him liable to the short-term gains tax. He claims that he could have escaped this liability by another transaction if he had been given the correct information. This immediately takes one into the realms of speculation not so much about whether he would have made the right tax calculations in making his choice but about whether the securities which he might have decided to sell in order to establish a loss were ones that subsequently rose in price—so that he could have been better off overall by not selling them in 1967–68. It would also be necessary to consider the possible changes in the tax computations for the year in which he did subsequently sell the securities that he might have sold in 1967–68.

The Parliamentary Commission's proposal may seem at first sight to be a straightforward way of remedying Mr. Beech's grievance, but in fact the one certain thing about it is that it would not put him overall in the same tax position as if he had in that year sold some other security which in fact he retained for later disposal.

I think it is of the utmost importance to make clear what the primary duty of the Revenue to the taxpayer is. It is to assess his liability after the end of the year in accordance with the statutory rules so that the correct tax can be collected, or repaid where appropriate. While tax offices try within reason to give informal general guidance about the tax system or a particular part of it to a taxpayer who asks for it, I must emphasise that they are not responsible for advising anyone on how to minimise his tax liability. In particular, they cannot accept responsibility for assisting anyone to arrange his investment transactions during the course of a year so as to achieve the most favourable position by the end of it.

It follows that where a taxpayer asks them—as Mr. Beech did—in the course of a tax year to check his computation for a particular transaction, he should not be expecting them to tell him how this will affect his overall liability because they will not have all the necessary details until after the end of the year. He is, in effect, asking them to confirm his view of what he will have to include on his return for the year as a whole as regards that transaction, and they are giving an informal opinion in advance of what they would do in the normal course after they had received his return.

If, however, the taxpayer is concerned with arriving at the most favourable overall position by the end of the year, taking account of all his transactions, then only he and his advisers can take responsibility for this. If the willingness of tax offices to give information or advice were to be treated as transferring part of this responsibility to them, this would raise such questions as whether it ought to be given at all—the point made by my hon. Friend—at what level it should be given, and at what cost in terms of time, staffing and the keeping of records in case of dispute. Acceptance of the Parliamentary Commissioner's remedy in this case would have unfortunate implications for the future as regards this aspect of a tax office's service to the public.

There is another fundamental objection. Parliament has specifically provided that even where an assessment has been made, both the taxpayer and the Revenue have the right to reopen it to correct an erroror a mistake, within a six-year time limit. It would be utterly illogical and wholly inconsistent with this provision if an answer given informally over the counter were to be treated as irrevocably binding, whereas a formal notice of assessment could be reopened at any time in the six-year period.

I know that my hon. Friend feels strongly that there are wider issues involved than tax assessments, and that the citizen may view the office of the Parliamentary Commissioner with cynicism if his recommendations can be rejected by Government Departments with the result that in any conflict between the individual and the State he will feel beaten from the start. I do not think there can be any doubt, however, that it was never intended, when the Parliamentary Commissioner for Administration Bill was debated, that in the last analysis the judgment of the Parliamentary Commissioner should be substituted for that of the Ministers responsible. This implies that there may be occasional—I emphasise occasional—cases where they do not feel able to accept the remedy he proposes.

In the debate which took place on 5th February, 1963, on the famous Sachsenhausen case, the right hon. Member for Coventry, East (Mr. Cross-man), then Lord President of the Council and Leader of the House of Commons, summing up the debate, referring to this particular Report, said: The Report is a magnificent example of something that has shaken things up, made people think twice, reversed what many hon. Members thought was an injustice, and persuaded the Foreign Secretary to change his mind. Those are good and healthy things to do, but it is also good and healthy for the Government to say that they will not always agree to change their minds—".—[Official Report, 5th February, 1968; Vol. 758, c. 170.] I am afraid that the case we are discussing tonight is one of those.

As I have said, the refusal to accept the remedy in the case of Mr. Beech was confirmed only after the most careful and exhaustive study of all the aspects by both the Board of Inland Revenue and by my right hon. and hon. Friends. I assure my hon. Friend that both the Chancellor and the present Chief Secretary considered this question completely independently and came to the same conclusion. When I came fresh to this matter as a new Minister, I looked at it entirely afresh and agreed with the conclusions reached by both my right hon. and hon. Friends.

It would certainly be wrong to get the impression that little importance is attached by any of us to the Parliamentary Commissioner's findings. His Results Reports and the reports from the Select Committee clearly show the considerable impact of his investigations on both the Government and the Revenue. The House will recall, for example, that the White Paper (Cmnd. 4729) of last July arose out of the First Report from the Select Committee for 1970–71 in which it recommended that the Revenue should consider providing a financial remedy for taxpayers who have been undercharged as a result of error by the Revenue, without sole regard to the degree of hardship caused. The subsequent White Paper announced a considerable relaxation in the rules for waiving the additional tax, but I am afraid that Mr. Beech does not fall within this relexation.

We came to the conclusion, therefore, taking all the factors into account, that it would not be right to waive the liability he had incurred, but I assure my hon. Friend that the decision not to implement the remedy suggested by the Parliamentary Commissioner was not taken lightly.

Sir A. Meyer

May I briefly say to my hon. Friend—

Mr. Deputy Speaker

Order. Is this just a question? There can be no second speech.

Sir A. Meyer

I just wanted to inform my hon. Friend that I shall continue to pursue this matter.

Question put and agreed to.

Adjourned accordingly at two minutes to Four o'clock a.m