RELIEF FROM TAX FOR DAMAGE CAUSED BY CUSTOMS AND EXCISE OFFICERS (Hansard, 13 July 1976)

§ Sir Geoffrey Howe
I beg to move, That the clause be read a Second time.

§ Mr. Deputy Speaker (Mr. Oscar Murton)
With the new clause we are to take the following: Amendment (a) to the new clause, at end, add 'and for the purposes of this section an inspection by representatives of the Inland Revenue under Schedule 6 to this Act shall be deemed to be an inspection by representatives of the Customs and Excise'. 565 Amendment No. 82, in Schedule 6, page 127, line 10, at end insert— '(3) All items taken by the said officer of the Board shall be copied and returned within 7 days. (4) The said officer of the Board shall be responsible for ensuring that the premises entered by force are left in a safe and secure condition against further entry or theft. (5) The said officer of the Board shall be fully liable to make good any loss or damage whatsoever to the premises or their contents as a direct result of his activities'.

§ Sir G. Howe
The House will want to spend a great deal of time on this issue, but it is one which is important and right to bring to the attention of the House, even at this hour of night. It contains proposals dealing with the mounting alarm, expressed outside the House as well as inside it, at the way in which enforcement officers and inspectors are exercising their powers in relation to value added tax.
If hon. Members will look at the form of the clause, they will see that it is confined to one very small matter, namely, that any expenditure incurred by a taxpayer as a result of his property being damaged by an inspection by VAT inspectors should be deductible against his tax liability. It is a limited point but the only one we could get in order in terms of the Bill. It foreshadows a much wider subject to which the House will want to return when we consider Schedule 6 and the very wide powers being given by the Government to the enforcement officers and the snoopers for income tax purposes, quite beyond value added tax.
On this point I invite the House to conclude that it is the plainest possible justice that any taxpayer whose premises or property is damaged by inspectors of that kind ought certainly to be entitled to compensation from the State by setting it against his tax liability.
The purpose of bringing the matter before the House at this stage of our proceedings is to demonstrate and underline the fact that the House is well aware of the growing concern at the way in which VAT enforcement officers are exercising their powers. Hon. Members will certainly have seen the case reported in the newspapers only a week or two ago of the retired Romanian engineer, a taxpayer in his 80s, whose house was inspected by VAT inspectors during the 566 small hours of the morning and who was himself gravely distressed and alarmed by the entire procedure, to the extent that he is said to have been driven to suicide as a result. Plainly one cannot pronounce upon all the facts of that particular case, but it is only one of a number of examples now being reported in the Press, and in correspondence to Members of this House, showing that there is mounting anxiety at the way in which these powers are being exercised.
Nobody doubts that the existence of inspection and enforcement powers of this broad nature is necessary in connection with value added tax, and nobody is seeking to go back from that, but the fact that the powers are necessary is no reason for concluding that they should not be closely scrutinised and closely controlled. We suggest that they should be more closely scrutinised and more closely controlled than they have been recently.
The House will have seen that many organisations were protesting yesterday, including the National Federation of Self-employed, which have been compiling a dossier of misuse and abuse of powers of entry and search by Customs and Excise officers. The Association of Self-Employed Persons and the National Association of Self-Employed Action Groups have expressed themselves as increasingly concerned.
The House discussed the general question when it was considering the powers that the Government proposed to give to Inland Revenue officers under Schedule 6. I said: We made plain in 1972 that we would be ready to review the form of operation of the VAT powers if there were any sign of abuse of them. The time for review has come. Certainly, the VAT powers should be reexamined. Many people feel that they should be withdrawn altogether. I do not go that far, but I have no doubt they do need to be closely examined and accompanied by stronger safeguards."—[Official Report, 17th May 1976; Vol. 911, c. 984.] The proposal contained in the clause is the only safeguard which we can get in order in the context of the Bill. It is a minimum and certainly desirable safeguard, and I invite the House to vote in favour of it.
I renew without qualification the pledge I gave on 17th May to see that the exercise of these powers is scrutinised 567 and to see what safeguards need to be written into the law in the light of the past four years.

§ Mr. Robert Sheldon
The right hon. and learned Member for Surrey, East (Sir G. Howe) said quite openly that the new clause was only a peg on which to hang his anxiety about certain aspects of the way in which the VAT powers were being exercised. Those powers arose from the 1972 Act for which responsibility was claimed, and triumphantly acclaimed at that time, by several right hon. Gentlemen sitting on the Opposition Benches. The powers were a direct consequence of the introduction of VAT, and what has happened has been a result of that.
The right hon. and learned Gentleman is right to bring certain cases to my attention, but it is wrong to comment on matters which are at present subject to invesigation. I call for cases to be brought to my attention where I have doubt as to the nature of the operation or where the Press has drawn a matter to my notice. I have had reports on a number of cases, but it would be wrong for me to comment on them.
It is right for me to say something about my responsibility for the VAT operation in so far as it affects the powers of search of private accommodation. These are the most sensitive powers of the VAT processes, and it is right that they should be exercised with great care and a fair amount of close ministerial responsibility. My information is that in 139 out of 143 searches of private accommodation, a VAT criminal offence was found to have been committed. That is not sufficient, because we need to know the scale of the offence.
All that I have been able to do since I became Financial Secretary with responsibility for these matters is, on a sample basis, to send for reports on a number of cases in which there were certain disquieting features or features which I thought needed further investigation. I have been happy to do that, because these are matters which need close, persistent and continual scrutiny, which I am sure I or my successors will wish to maintain.

§ Mr. Peter Rees
As the Customs and Excise and the Inland Revenue are armed 568 with powers quite as extensive as those of the police, does not the Minister think that there might be a case for a complaints tribunal, so that complaints against the Inland Revenue could be investigated by an impartial tribunal independent of the Minister concerned?

§ Mr. Sheldon
I never close my mind completely to any changes. I was one who felt that the 1972 Act, on which so many members of the Conservative Government prided themselves, was far from perfect. I said so at the time and I say so now. However, my task is not to complain about the instrument that I inherited but to try to make it work with the least disadvantage to the citizenry of this country.

§ Sir Geoffrey Howe
If the Minister is concerned with trying to make it work to the least disadvantage to the citizen, I hope he will address himself to the precise proposal contained in the new clause. I see no possible case against giving the taxpayer indemnity against damage to his property along the lines contained in the clause. I hope that the Minister will accept the clause. Surely it meets his own objectives.

§ Mr. Sheldon
I am happy to deal with that point. Perhaps I took the right hon. and learned Gentleman too literally when he said that he wanted to raise other matters. It is a pity that when he was Solicitor-General, with responsibility for these matters, he did not see fit to introduce such a proposal in legislation. However, I understand his point.
Under Section 35(5) of the Finance Act 1972 there is responsibility upon the Customs and Excise to undertake to return documents in the form in which they were received. Subsection (5) states: Where any documents removed under the powers conferred by this section are lost or damaged the Commissioners shall be liable to compensate their owner". Samples are covered by Section 36(3), which states: Where a sample is taken under this section from the goods in any person's possession and is not returned to him within a reasonable time and in good condition, the Commissioners shall pay him by way of compensation". Those aspects are covered, but there is the problem of compensation in respect 569 of other forms of property. In any case where the Customs and Excise has committed damage and has found subsequently no offence to have been committed, the present practice is that it is prepared to consider making compensation. That is the existing practice. I think that should be welcomed by the House.

§ Sir Geoffrey Howe
Why will the hon. Gentleman not accept the wisdom of embodying the practice as set out in the clause? He says that he is anxious to make the system work as the House would like to see it work. As he cannot point to any objection to the proposal contained in the clause, why cannot he accept what we suggest?

§ Mr. Sheldon
In general in these matters, far from submitting such cases to the precision of legislation—

§ Mr. Lawson
Oh.

§ Mr. Sheldon
The hon. Member for Blaby (Mr. Lawson) says "Oh", but lie was not here when we went through the Bill in 1972 and pointed out so many of the disadvantages that it has been my lot to try to remedy to the best of my ability. However, this is not one of those cases where a claim for compensation could arise for the cost of repairs. If a lock is broken, for example, in normal cases the position is clear. The VAT officials will enter premises, and if they are denied access to a strong box, for example, they will undertake to force the box. There may be some damage consequent upon that. That is the sort of situation that we are concerned about, and in such a situation the Customs and Excise has been prepared to make compensation available. That is the way in which such matters have been handled, and I hope that that is the way in which we shall proceed.

§ Mr. F. A. Burden (Gillingham)
If the clause were written into the Bill, would it not make Customs and Excise officials more careful about breaking into boxes and safes? Would it not mean that they would exercise more care and greater responsibility?

§ Mr. Sheldon
I would not say that that follows. It may be that extra 570 obstruction would be caused to the officials.
The case which has been made is inadequate. I feel strongly about the kind of campaign that has been exercised by certain sections of the Press. If we wait until these matters come before the courts, we shall see them in a rather more balanced light than that portrayed in some of the hysterical outbursts that we have heard.

§ Mr. Geoffrey Finsberg (Hampstead)
The Minister is being much less courteous than usual and is reading from a poor brief. He indicated that in cases where damage has been caused the person found innocent might receive compensation. Speaking as someone who used to sit on the Bench, I thought that it was the duty of the Bench to levy a fine. It was not the duty of the person who had been fined to suffer extra cost because of the forceful methods adopted by the police or Customs and Excise officials. The Minister will not have the sympathy of the House if he gives his answers in that way.
The hon. Gentleman mentioned 139 cases. Is he in a position to tell us now, or at a later date, how many cases of damage have occurred to people's property? Surely he should have obtained the figures by now.

§ Mr. Sheldon
The only help that I can give the House is to explain the figures. Since VAT came into being there have been 143 searches of private accommodation. In 139 of those cases a criminal offence was found to have been committed.

§ Mr. David Mitchell
Amendment No. 82 has been selected for discussion with the new clause. It is an important amendment concerning the powers of tax inspectors, and I am not sure why it has been chosen for discussion with the clause. It concerns safeguards for a person whose house has been broken into by a tax inspector and it makes three provisions. First, the inspector should copy the information that he obtains and return it after seven days, secondly, that he should secure the property so that no one else can subsequently get in, and thirdly, that he should make good any damage.
571 There need not be a long debate on this issue because I imagine that the Government will accept the amendment, which is simple and which has common sense and justice on its side. It highlights the danger of the Government giving such powers to tax inspectors.
The Government require certain information and allow tax inspectors to indulge in house-breaking activities to get that information. When that information—contained in books and so on—is obtained, it should be returned to the householder after photo-copies have been taken. It is moderate to suggest that it should be returned within seven days. The situation is difficult. We are concerned with the person whose premises are broken into by tax inspectors who have no great training in the art of housebreaking. I do not know what training is to be given.
Perhaps the Minister can tell us how housebreaking by Inland Revenue inspectors is to be undertaken. Do they bring a jemmy to force the lock? If so, what happens if, not being very accomplished at this work, they break part of the door rather than force the lock? If they do that, they will not be able to close the premises properly when they leave. Or will the inspectors break a window? If so, there will be nothing to stop a burglar from coming along afterwards and gaining access to the premises. These are the practical implications of giving these powers to inspectors of taxes.
One of my hon. Friends pointed out to me earlier this evening that during the war it was usual for people who had to undertake special duties to be trained by those resident during His Majesty's pleasure at a certain place on Dartmoor. I am not suggesting that tax inspectors require such training, but I am suggesting that the Government should provide safeguards that will ensure that premises which have been broken into are properly locked up afterwards and that they should accept liability for any damage caused to the citizen as a result of their activities.

§ Mr. John Loveridge (Upminster)
I support my hon. Friend the Member for Basingstoke (Mr. Mitchell). His amendment speaks first of the need to copy and 572 return any documents that have been seized. Most of us will have seen advertisements in the Press by fire protection agencies saying that a large percentage of firms that have their documents burned go bankrupt and never operate again. That proves the importance of having these documents returned.
Secondly, the amendment seeks to ensure that the premises are protected against further entry. They should not be left open to burglars. Thirdly, we ask that any damage done should ge made good. This amendment is even more important in the light of the Chancellor's Amendment No. 83, which provides only that a list shall be given, if asked for by the frightened people whose premises are entered and whose documents are seized. The amendment allows people reasonable access to their own papers only if they can demonstrate that the papers are required for the continued conduct of their business. How can they demonstrate such a thing? What considerations are to be required?
In answering a Question on 10th May the Financial Secretary gave an account of how seven Customs inspectors and two policemen had entered a bungalow but had discovered no evidence of any crime. Are we to find that the same will be true of the activities of the Revenue officials? The powers exist and can be used, not only agaist the persons in question but against their spouses and their children. Documents can b.; seized from children. There is no definition of the age of the sons and daughters. Will the inspectors be given training in seizing documents from children? The reference in the Schedule is to any records whatsoever. That leaves the matter wide open in the inspector's hands, to do what he likes.
The section that is to be replaced is Section 20 of the Taxes Management Act 1970, the provisions of which were first introduced in a war-time measure, introduced in 1942. But even the 1970 Act gives greater powers than exist under Section 20, in its own Section 51, which allows the inspection of all books and other documents, and allows copies to be taken. There was a small penalty for damage, but not penalty enough. This new measure requires much greater protection for those whose premises are 573 searched, and I therefore hope that the Government will accept the clause.

§ Mr. Burden
I listened very carefully both to my right hon. and learned Friend and to the Minister. I was as surprised at the Minister's speech as I was at the previous speech he made, which resulted in the defeat of the Government. But what was most surprising was that the Minister stated that although, if samples were taken they would be returned in good condition or there would be compensation, and that the whole would hold good for documents, if there were damage to property the Inland Revenue or Customs authorities would consider, and only consider, compensation for that which had been destroyed or damaged.
It was also made clear that even if that damage had been done to the property of an individual subsequently found to be completely innocent of any crime the Inland Revenue or Customs authorities would only consider compensation. Surely, if people are found to be completely guiltless and there has been damage to their property there can be no question about restoring that damage or paying compensation; compensation must be mandatory.

§ Sir Geoffrey Howe
No doubt we shall have a later opportunity to vote on the amendment about which my hon. Friend the Member for Basingstoke (Mr. Mitchell) spoke. The Minister gave no good reason for not accepting the new clause. There is no point in prolonging the debate. If the Minister now wishes to indicate that he will accept the clause we need not vote, but if he does not, I invite my hon. Friends to join me in the Lobby in support of the clause.

§ Mr. David Mitchell
The Minister has not yet indicated his acceptance of Amendment No. 82—[Interruption.] He might have the courtesy to tell the House that he is not going to accept it.

§ Mr. Lawson
(seated and covered): On a point of order, Mr. Deputy Speaker. I understand that Amendment (a) has been grouped with this new clause. Is it in order to have a vote on the clause before 574 having a vote on the amendment that has been selected with it?

§ Mr. Deputy Speaker (Mr. Bryant Godman Irvine)
Whichever way round we look at it, the Second Reading would come first. As I understand it, Amendment (a) has not been selected for a Division.