§ Mr. Richard Wainwright
I beg to move amendment No. 62, in schedule 3, page 19, line 20, at end insert—' 4. For Paragraph 17 of the said Schedule there shall be substituted:
- " 17(1) A claim for Schedule 10 relief may be made at any time before 1st January 1980 notwithstanding that the time limits imposed by paragraphs 1 (3) and 6 (3) of that Schedule have expired.
- 17(2) There shall be made such assessments, reductions of assessments or, on a claim in that behalf, repayments of tax as may in any case be required in order to give effect to the preceding provisions of this paragraph ".'.
The Temporary Chairman
With this we may take amendment No. 63, in page 19, line 20, at end add—'(4) In paragraph 17 of Schedule 5 to the Finance Act 1976 for " 1977 " there shall be substituted " 1980 ".'.
§ Mr. Wainwright
The amendment is entirely innocent of any party politics or electioneering quality. The Committee should be aware that it concerns a great many small businesses that are not even incorporated, and trade as sole traders and not as companies.
The principle at stake, which I am sure commands the consent of all quarters in the Committee, is that fairness should not be sacrificed for administrative convenience. Allied to that is the practical consideration that if taxes are to be collected effectively it is important that no large body of taxpayers should be left with a genuine sense of grievance against the taxing statutes and the Inland Revenue. The Revenue is at the mercy of taxpayers nowadays. If they feel a strong sense of grievance they have ways and means of ensuring that taxes are not fully paid.
We are dealing with a manifestly improvised corporation tax relief that was enacted in the hectic inflation of 1974–75, so that the majority of businesses could continue to finance their stocks and work in progress. It was of such an improvised nature that it was generally believed in all quarters, certainly in the accountancy profession, to be of a temporary nature while something much better could be sorted out. It showed every sign of being temporary and improvised. However, nothing better has ever been produced. The relief, shoddy though it was 205 in construction, has acquired a degree of permanence in the Finance Bill. The first two years of relief are being written off. No attempt is to be made to claw back those two years of relief in any circumstances.
This is a key point. Only last year was there any indication from the Government that this highly improvised device would acquire a degree of permanence. By the time that the Government abandoned the temporary nature and appearance of the relief, the time limit for claiming it for the first two years had run out. Permanent relief will be given for all time to those who claimed. However, a considerable number of taxpayers, who had perfectly good and respectable reasons and acted on professional advice, found themselves left out of a permanent relief that they never expected to be permanent.
The relief was always highly temporary and improvised. It always depended upon the amount of stock or work in progress on one day of the year. I put the matter crudely but graphically. It could happen within a trade in imperishable objects with a relatively stable value, which are not too expensive to move about, that different businesses, with different year ends, pass large quantities of stock from one to the other, inflating their stock figures, for only one day in the year.
The extraordinary and shoddy nature of the relief gave the business community the impression, very understandably, that such a shoddy device must be temporary and could not possibly become a long-term, permanent feature of a taxation system of which we are rightly proud. As a practising accountant at the time I never believed that such a shoddy device—under which one day's transactions were sufficient for large sums of relief to be obtained—would become permanent. The shoddy nature of the relief was never remedied. The relief has become permanent in respect of the first two years.
We are now left with a substantial number of aggrieved business people—both companies and unincorporated traders—who, for perfectly good reasons, were advised not to claim the relief at the time. Often people who had low profits in those years paid corporation tax at a low rate and therefore failed to claim 206 at the time. As the relief looked as though it would be temporary they were scared that the tax would eventually be clawed back from them in the future at a much higher rate. Therefore practising accountants throughout the country advised their clients that they would be unwise to claim at that moment.
The character of the matter changed unexpectedly last year. Some people, understandably, feel that they have been left stranded. Other people's relief will become permanent, but they will be left out.
The usual Treasury Bench defence cannot be adduced in this case. Usually the Treasury Ministers tell us that we are dealing with a very finely wrought statute of expert craftsmanship and that it ill behoves amateur draftsmen to start messing about with it. That defence is not available to the Government in this case because, as I have said before, the whole of this relief was of a highly improvised nature and could never be claimed by the Treasury Bench to be a delicate, carefully worked out matter which must not be messed about.
As a statute it is a very unfortunate blot upon tax legislation in this country, but the House has voted that it should become permanent in respect of some years, and the amendment is designed to make sure that a substantial number of thoroughly honest and respectable trades-people are not left out through a very understandable failure to claim relief at the time.
§ Mr. Lawson
The hon. Member for Colne Valley (Mr. Wainwright) made several very fair points in moving the amendment. He said that the provision was intended originally as a temporary scheme but that it had lasted because nothing better had yet been introduced. I agree with that analysis, and I trust that before too long it will be possible to introduce something better. The hon. Member said that no party point was made. Whether that is a good or bad thing I am not sure, but it is certainly true. He also said that there were practising accountants throughout the country who had advised their clients not to take advantage of this relief. There may have been such—indeed, there were—but there were many more accountants who advised 207 many more clients that they should take advantage of this relief, and those were the accountants who gave the right advice.
The hon. Member suggested that the amendment would be rejected by the Government and by the Treasury on the grounds of administrative inconvenience. I admit that there would be considerable administrative inconvenience, but that is not the ground on which I base my rejection. The ground is that this is a very nicely balanced argument, and there is £150 million at stake. We have heard one side of the argument from the hon. Gentleman, who put his case very fairly and I shall give the other side in a moment. The Committee has to decide, in the light of this nicely balanced argument, whether it would be right to lose £150 million of revenue—a substantial sum. The accountancy bodies have also made the case as raised by the hon. Member.
The arguments against the amendment—there are many of them—boil down to this: the previous Chancellor of the Exchequer stated on several occasions, well before the time had run out for claiming the first two years' allowance under the stock relief scheme, for 1973–74 and 1974–75—that is what the amendment is about—that those could have been claimed right up to the end of 1976 and, in the case of income tax, up to 5 April 1977. He assured the House and the business community that there was no question of any withdrawal of past relief and that there would be no question of any clawback, and so on.
The hon. Member is seeking to tell the Committee that those business men who did not believe the previous Chancellor of the Exchequer should be recompensed for judgments that they made on the basis of disbelieving him. I have some grudging sympathy with that. It was extremely difficult to believe anything that the previous Chancellor of the Exchequer said. Nevertheless, I do not think that that is a firm basis for yielding £150 million of revenue. The administrative aspects, as the hon. Member for Colne Valley implicitly admitted, are horrific. The cost in extra administration in dealing with the 50,000 claims that there are likely to be, evaluating each and every one of them and making the adjustments that would 208 have to be made to get the right amount of rebate, would be very difficult But I do not rest my case on that alone.
It is not as simple as is made out by the amendment, because it would be impossible to confine the reopening of claims to the first two years. The third and fourth years of the scheme are now out of date for companies, and for unincorporated businesses, which many small businesses are. Indeed, for some companies it may be too late to claim for 1977–78. Therefore, if we were to yield on the first two years, in all fairness we would have to yield to the claims made in respect of later years which are not out of time, as it were. This would considerably complicate the matter and further add to the cost.
With some regret, because I acknowledge that there is a case to be made and that the hon. Gentleman made it very fairly, I ask the Committee to reject this amendment.
§ Mr. Richard Wainwright
I shall be very brief at this hour but I must say a word to counteract the Financial Secretary's glib judgment that, although most accountants gave the right advice, some gave the wrong advice. This is an unfair aspersion on the profession. As I tried to make clear in my previous remarks, many accountants were faced with clients who, during the years in question, had had such low profits that even if they had failed to take the relief they would be paying only a modest rate of corporation tax, or perhaps none at all.
Having regard to the fact that at that time opinion generally was that such a gimcrack relief could not possibly be allowed to last, the accountants said " If you claim this relief now it may be clawed back in a year or two at a much higher rate of tax ", which I think was a reasonable assumption having regard to the nature of the previous Administration. I think that it is important to note that I am not coming to the defence of unwise accountants or people who gave bad advice.
I regret that the Financial Secretary has taken this rigid position. I think that the Inland Revenue will have cause to regret the lasting sense of unfairness that will remain with many business men, some of whom badly need the working capital that this relief would have given 209 them at a time when inflation is rapidly increasing.
It is clear that the Financial Secretary has the big battalions on his side, and at this time of night I do not propose to take any steps to divide the Committee.
§ Amendment negatived.
§ Schedule 3 agreed to.