HC Deb 20 April 1994 vol 241 cc911-6
Mr. Nigel Forman (Carshalton and Wallington)

I beg to move amendment No. 1, in page 115, line 48, at end insert—

'(10) Before the Treasury appoints a day under subsection (9) above:—

  1. (a) the Treasury and the Board of Inland Revenue will consult such organisations as appear to them to be representative of interests substantially affected by sections 737A to 737C; and
  2. (b) the consultation required by (a) above shall take into account the matters specified in subsection (11) below.
(11) The matters specified for the purposes of subsection (10) above are:—

  1. (a) the amount of taxation that would not be recoverable were no day to be appointed under subsection (9) above; and
  2. (b) the burden (including compliance) for taxpayers and other affected by sections 737A to 737C.'.
The amendment stands in my name and in that of my hon. Friend the Member for Fulham (Mr. Carrington), and I believe that my hon. Friend hopes to catch your eye later in this short debate, Mr. Deputy Speaker.

I begin by declaring my interests, which appear on the Register of Members' Interests, and which are relevant to the subject. I also record my thanks to the British Merchant Banking and Security Houses Association, one of the organisations that has been most prominent in drawing the subject to the attention not only of the Standing Committee but of Ministers—I believe quite effectively.

By inserting the proposed words at the end of what is now clause 122, my hon. Friend and I hope to achieve several simple but worthwhile purposes. First, we hope to bring about or encourage—indeed, to require—the fullest possible consultation of practitioners by the Treasury and the relevant officials in the Inland Revenue. Our second aim, which is just as important, is to ensure that the consultation takes place before the new rules are implemented. In other words, to be truly effective from the practitioners' point of view, consultation must take place before the event.

Thirdly, we hope that there will be sufficient time sensibly to address all the practical problems of implementation. The Financial Secretary to the Treasury will know from his experience of tax matters that the area is potentially extremely complicated, so sufficient time is necessary to obtain a sensible tax regime. Fourthly, we want the consultation process to take full account of the potential compliance burdens. If those burdens were too great, adverse consequences for this country could follow.

I hope that the Financial Secretary will be able to confirm that the Government have no intention of discouraging normal commercial repo transactions from being undertaken in the United Kingdom, and that his objective will be to establish a workable regime that strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on the market. If my hon. Friend can achieve that balance, many of the objectives to which I have subscribed my name will have been achieved.

Of course clause 122 is necessary to protect the Exchequer, and to ensure a reasonable flow of revenue for this country from the sale and repurchase of securities conducted within this tax jurisdiction. That is understood. But equally, Ministers for their part should understand that, if the tax or the regulatory arrangements under the clause were allowed to become too complicated or burdensome, firms could switch that highly mobile form of business to other financial centres. Then the expected revenue and other wealth-generating benefits of those growing activities could be lost to this country.

I have often said in earlier debates on the Bill that we now live in a world of global capital flows, mobile financial services and increasing competition between national tax authorities. In that context, the consultation that the amendment recommends is all the more important. We must take full account of the new global realities if we are to do what is best for Britain, as well as for the financial services industry located here. I welcome the letter sent to me on 12 April by the Economic Secretary to the Treasury, which said: The Government wishes to ensure that adequate consultation takes place before the new rules are implemented, and indeed it is for that reason that they are to come into force from a future appointed day. The legislation is necessary to protect the Exchequer and implementation cannot be delayed indefinitely but I confirm that a reasonable time will be allowed for practical problems to be addressed and that the consultative process will take account of the compliance burden involved. That was a good statement from the Economic Secretary, and I hope that my hon. Friend the Financial Secretary will be able to go at least as far as that today, if not further.

In conclusion, naturally I hope that my hon. Friend will be able to accept my modest but necessary amendment. If, for some reason, he cannot do that, I hope that he will at any rate make it crystal clear to me and to the House, on the record, that he and the Chancellor share its spirit and intentions and that they will insist that Inland Revenue officials, in their consultations with the practitioners, act in that light.

Mr. Matthew Carrington (Fulham)

I support my hon. Friend the Member for Carshalton and Wallington (Mr. Forman), because the derivatives industry and trading in derivatives are of increasing importance to the City of London as a financial centre. It would be disastrous if anything happened that gave rise to a decrease in confidence in that industry and which resulted in that market moving away from London to somewhere in Europe or elsewhere in the world.

The purpose of the amendment is to get a public statement from the Government that they do not intend to penalise that industry, but to achieve an equitable taxation regime, which both the industry and the Government need, which would allow the industry to develop and to prosper in London while producing the revenues which, quite legitimately, the Government require.

We look for confidence-building rather than for action. We look for the reassurance that nothing will be imposed on the industry until all the foreseen problems are resolved, with the understanding, of course, that the problems have to be resolved within a reasonable period. The clause imposes a time limit of its own accord. I urge my hon. Friend the Financial Secretary to make a statement that will reassure the industry.

Mr. Darling

The trouble with the amendment is that it could equally well be tabled to every other clause in the Bill. All taxpayers could say that they too should be consulted before the Government change the tax regime. However, I very much understand and appreciate the point made by the hon. Members for Carshalton and Wallington (Mr. Forman) and for Fulham (Mr. Carrington) with regard to this industry. Most of us are well aware of the importance of the industry to London, and therefore to the United Kingdom.

Equally, all of us are becoming aware of tax competition, not just in the European Union, but throughout the world. Many people inside and outside the House will have to wake up to the fact that there will be tax competition, and every Government must pay regard to that. Having said that, I believe that there are times when the industry relies rather too much on the excuse that, if it is taxed, business will go elsewhere. The Exchequer must be fair to taxpayers in general, as well as being mindful of the effect on the industry.

The central point is that, in some ways, the amendment is a fitting conclusion to the Report stage. Many Committee members, especially those who follow proceedings outside the House, felt that the taxes management provisions of this year's Finance Bill might have been dealt with separately from other provisions that were more politically contentious. When this part of the Bill was being discussed, we were told that it was being taken first under the guillotine because there had already been widespread consultation. That point was open to discussion, to put it no higher than that.

It would be useful for the Financial Secretary to tell us whether the Government intend to adopt the practice of introducing a taxes management Bill in addition to the Finance Bill, so that some of the technical matters, which are not as controversial as others, can be debated in greater depth. There were occasions in Committee when we did not do justice to many of the provisions because we did not have the time. If taxes management is mixed up with politically contentious issues, we tend to concentrate on the latter. As a matter of good Government practice, greater attention should be given to the administration of the tax regime.

I have no objection to the Government consulting; I should be interested to hear what the Government have to say on that. My difficulty with the amendment, which I do not suppose for one minute will be pressed to a Division, is that it would be wrong for the Government to agree to consult in respect of one provision in the Bill and not to make the same concession everywhere else. Having said that, I understand why the hon. Members for Carshalton and Wallington and for Fulham made their point. Indeed, the hon. Member for Carshalton and Wallington very fairly said that there was concern in the industry.

It would not be right for the House not to acknowledge the fact that millions of people would like to be consulted, not least the millions of people who were led to believe in April 1992 that, if they elected a Conservative Government, there would be reductions in tax. No one consulted them about the Government's policy to tax them again and again, with the result that we have the largest tax hike in peacetime history, without a word of consultation, let alone a word of apology from the Government.

5.15 pm
Mr. Dorrell

The last point made by the hon. Member for Edinburgh, Central (Mr. Darling) may be more fully addressed on Third Reading. On his narrower point about a proposed taxes management Bill, I tell him that the Government's view has not changed. We have said several times that we do not believe that a separate taxes management Bill is a sensible way for the House to go and that the Government's approach of ensuring that there is the maximum possible consultation, especially on issues that are not the stuff of intense party political interest or, indeed, of wider political interest, but are more narrowly technical in terms of their application to the tax system, is more sensible.

The Government have sought to consult widely on those issues before introducing proposals in the House. The contents of this year's Bill included several proposals that were the subject of extensive prior consultation. All the proposals on self-assessment were the subject of extensive consultation before the Bill was presented, and the proposals in chapter II on interest rate and currency contracts were consulted on widely, as were a number of other proposals. That is a better way to deliver detailed, in-depth discussion on the operation of legislation than introducing a specific Bill and expecting that our Standing Committee procedures can be refined to produce line-by-line consideration of such technical matters. I am bound to say that those who believe that our procedures could be thus refined suspend belief.

I now turn to the point of the amendment. It will come as no surprise to the House that I do not propose that we accept it. However, I am happy to accept the basic argument advanced by my hon. Friend the Member for Carshalton and Wallington: that we should ensure that we consult the industry to maximise the opportunity for agreement before the clause is brought into effect. I fully accept that further consultation is appropriate to establish precisely how the procedures should operate in relation to the repurchase of securities. It is for that reason that the legislation comes into effect from an appointed day rather than immediately after Royal Assent. The intention is to allow reasonable time to enable any potential compliance problem to be identified and addressed before the rules are extended to cover repos.

The consultation process has already begun, and I can assure the House that the objective is to establish a workable regime which does not impose on taxpayers a compliance burden that is more onerous than is absolutely necessary to protect the United Kingdom Exchequer. It is accepted on both sides that the Exchequer interest is an important interest. The intention of the clause is to safeguard that interest. We intend for that reason to ensure that the clause is implemented. There is no question of the clause not being implemented or of implementation being delayed indefinitely. The purpose of the clause is to protect the Exchequer from the real risk of tax being lost from repos being used to switch tax credits from persons who cannot use them to persons who can.

In discussing the procedural issues with market representatives, the Inland Revenue will attempt to arrive —this is the point about which my hon. Friend the Member for Carshalton and Wallington was concerned—at an agreed solution, if that is possible, which strikes an appropriate balance between the need to protect the Exchequer and the need to minimise the extent to which compliance requirements have to be imposed on markets.

I can give my hon. Friends the Members for Carshalton and Wallington and for Fulham the clear assurance that the Government have no intention of discouraging the legitimate repo market. It is a form of derivative which has a clear function to perform in financial markets, and I have no difficulty whatever with that. The use of repos to avoid tax in the way I have described is, however, not legitimate and it is that point that we wish to address. That focus was the reason for introducing the clause in the first place and the reason why the clause will ultimately be implemented. However, we shall try to do it by agreement.

Mr. Forman

May I briefly impose on the House a few more words? There are two points on which I want to touch in relation to the comments by the hon. M for Edinburgh, Central (Mr. Darling). First, he suggested at one stage that the industry may be making an empty threat to move elsewhere. I am sure that he does not really believe that. In fact, many of the firms that are most concerned with those activities and which are growing most successfully are already multinational and already have offices established in other financial centres to which they can switch the business with a few phone calls. It would be as quick and as easy as that, so the matter is of real concern to the industry.

Secondly, the argument that all branches of society that are affected by tax could argue that they should have more time to consult with the Government does not hold as much water as the hon. Gentleman thinks. We are discussing an especially complicated area of tax and regulations, as I am sure that he appreciates. We are all pretty low on the learning curve with regard to derivatives and it is an area which is so arcane in the eyes of legislators and tax authorities that the need for consultation is underlined rather than diminished. That is all I shall say to the hon. Gentleman, and in a friendly spirit.

In his welcome remarks, my hon. Friend the Financial Secretary gave assurances for which I am grateful. I know that the industry will be grateful to have those assurances on the record. In the light of that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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