Clause 28 (Hansard, 16 July 1990)

§ Madam Deputy Speaker
With this it will be convenient to take Government amendments Nos. 19, 21 and 22.

§ Mr. Nicholas Brown
These amendments were promised in Committee, when the parliamentary Labour party pointed out that the TESSA legislation as previously drafted probably meant that banks and building societies could not deduct the interest they paid on TESSAs, because such interest had to be disregarded for all purposes of the income tax. We thought that that meant both as regards taxing it in the recipient's hands and allowing it as a deduction for the payers. The amendments alter that so that interest will be disregarded as income for the purposes of the Taxes Act 1988, which will allow it to be deducted for tax purposes by the payers.
Amendment No. 19 alters the old save-as-you-earn legislation. Although there is an interesting and esoteric point to make in that respect, I will not make it because the hour is late.

§ Sir William Clark
I am in a slight dilemma because the amendments concern savings. I really want to speak to schedule 5, in respect of Government amendment No. 29, but perhaps it will be for the convenience of the House if I make my points now.
The Government have encouraged savings, and one of the worrying aspects of schedule 5 is the implications that the Inland Revenue will have the power to make random tests of bank and building society accounts. I hope that my hon. Friend the Minister will not quote MIRAS regulations at me, because they relate only to such interest in terms of loans, including relevant contractual deeds, and so on, and to persons holding such contracts or having the means of making such payments.
As to the receipt of interest from banks or building societies, now that the composite rate is being abolished and there are separate assessments for a husband and wife, I cannot comprehend why it is necessary for the Inland Revenue to have the power to undertake random tests of bank or building society accounts. If the Revenue has a suspicion that someone is not—

§ Mr. George Howarth (Knowsley, North)
On a point of order, Madam Deputy Speaker. Would it not be appropriate for the right hon. Gentleman to declare one of his many and extensive interests?

§ Madam Deputy Speaker
I am sure that if the right hon. Gentleman has an interest to declare, he will declare it.

§ Sir William Clark
I do not understand the hon. Gentleman's point of order, because I have nothing to do with banks. I am a vice-president of the Building Societies Association, which is a non-commercial body, as are members of the hon. Gentleman's own party. My remarks refer to the right of the Inland Revenue to examine a person's account at random.
If the Revenue suspects that an individual is not making a proper return of his or her income, it has the right to obtain through the commissioners of income tax authority to examine any account. It is rather churlish of the hon. Member for Knowsley, North (Mr. Howarth) to accuse me of not disclosing an interest when the position that I hold is purely honorary. If the hon. Gentleman received such an honour, I would congratulate him.
I ask my hon. Friend the Minister to give a categorical assurance that if the Revenue wants to examine a bank or building society account, it must have justification for so doing—but not at random. Why should the Revenue investigate a joint bank account, for example, if there is no suspicion that the husband and wife concerned are guilty of tax evasion?
I hope that my hon. Friend can assure me that under section 482 random sampling will not take place and that the Revenue's powers will remain as they are, which means that it can only investigate where there is just cause and a reasonable chance that tax is being evaded. If we are not given that assurance, we are on a slippery slope, as the Inland Revenue acquire more and more powers. We would then have a big-brother state, which I want to avoid.

§ Mr. Ryder
My right hon. Friend the Member for Croydon, South (Sir W. Clark) has sought my assurance that we shall not undertake fishing expeditions. There is no question of such expeditions taking place. The Revenue gave banking representatives that categorical assurance when they met on 3 July. I am more than happy to repeat and emphasise that undertaking.

§ Sir William Clark
I wonder whether my hon. Friend can confirm that that means that random sampling is out?

§ Mr. Ryder
My hon. Friend referred to section 482(11)(aa) which ensures that the regulations may make provision for the inspection of books, documents and other records The terms of that provision are almost precisely the same as those that appear in the MIRAS legislation to which my hon. Friend also referred.
I understand that, in the consultations that have been taking place with the banking industry, it has emphasised that no responsibility can be placed on bank staff other than for the most minimal compliance. That means that the whole burden of compliance falls on the Revenue. It is therefore essential for audit purposes that Revenue officials have access to records and documents and are supplied with information that will enable them to identify account holders who receive interest without any tax deduction.
804 I assure my hon. Friend that there is no question of fishing expeditions. The Revenue gave banking representatives that categorical assurance when they met on 3 July, and I repeat it.

§ Mr. Nicholas Brown
The amendment is not contentious. It ensures that building society accounts qualify as TESSAs provided that the rest of the criteria in section 326A are satisfied.
The amendment is evidence of sloppy drafting. Had the legal flaw not been spotted in time, most building society TESSAs would not, strictly speaking, have qualified as such. The Government were therefore right to correct that flaw.