'The property of any person in England and Wales shall not be distrained, or attached or otherwise forcibly taken by the Commissioners of Inland Revenue or the Commissioners of Customs & Excise or any person acting under their instruction or authority in settlement of a liability arising under the taxes for which they are responsible except under the supervision of a court.'.—[Mr. Mike O'Brien.]
§ Brought up, and read the First time.
§ Mr. Deputy Speaker
With this, it will be convenient to discuss Government amendments Nos. 8 to 10.
§ Mr. O'Brien
The new clause speaks for itself. The important words are:under the supervision of a court.We all want the Inland Revenue and Customs and Excise to have sufficient power to recover sums due, but we also want to ensure that it is done properly.
Through the new clause, the Labour party would require a court to supervise any action taken by the Inland Revenue or Customs and Excise to seize people's property in settlement of a tax debt. Labour's proposals will give taxpayers in England and Wales a similar protection of judicial supervision of distraint of property by the tax authorities to that enjoyed by taxpayers in Scotland.
183 The Government originally proposed to give the tax authorities wide powers to distrain taxpayers' property which could be exercised without any independent supervision and by any person authorised by the Board of Inland Revenue or the commissioners for Customs and Excise. The Government appeared willing to accept that very junior officers in either tax authority could take people's property to settle a tax debt.
Distraint and the other options open to Customs and Excise are extremely serious powers, involving infringements of the liberty of an individual citizen, such as entering a house or taking money from an account. Although it is right for those powers to exist to recover moneys properly due, such serious powers should be treated seriously by all those who seek to make laws for our citizens. We are not satisfied that the Bill properly reflects that seriousness.
In Committee, we said that we supported the Government's attempts to rationalise the law on distraint for the settlement of a tax debt, but argued that taxpayers in England and Wales should enjoy the same right to judicial supervision as those in Scotland. The Government conceded then that there should be some judicial supervision, and the new clause is designed to give statutory effect to that concession. In England and Wales there is effectively no court supervision such as is provided by the sheriff in Scotland. We hope that Customs and Excise will never act lightly, but we need to be sure that there are sufficient safeguards in place to protect the liberty of the citizen.
Customs and Excise deals with an extremely large number of cases, many of which directly affect the ways in which businesses can be run and individuals can earn their living. The 1992–93 figures from the House of Commons Library show that 11 per cent. of bankruptcy petitions and 36 per cent. of company wind-ups were by Customs and Excise. It would take a courageous Minister to say that never in the course of 43,000 cases has a mistake been made. The mere fact that we are dealing with human beings who process the information means that errors might innocently have occurred. That is why it is always right to have a safeguard in place to ensure that rights are not infringed, and the courts are the mechanism by which we have traditionally sought to do that.
The Exchequer Secretary will no doubt say that in Scotland, when the sheriff signs the order for poinding or arrestment of earnings or funds, he does so merely to ensure that the formalities are complied with. Why should that supervision be necessary in Scotland but not in England and Wales? Why did the clause relating to the new attachment power in England and Wales, which was based on the Scottish example, lack the safeguards that apply to arrestment in Scotland?
I accept that the sheriff's involvement is ex parte, in that the person against whom the order is made does not appear before the sheriff and put a case, but the sheriff is there to supervise and to ensure that there is no abuse in terms of the paperwork. It is possible to raise questions about the appropriateness of the paperwork and the way in which the case has been conducted—not to make a detailed inquiry, but to ensure that there is adequate 184 protection. In Scotland, the British citizen is protected and orders are supervised. If that protection is necessary in Scotland, as the Government clearly accept, it is equally necessary in England and Wales.
I accept that 99.9 per cent. of the orders may result in no inquiry by a supervising court, but on each and every occasion Customs and Excise and the Inland Revenue would be put on their guard to ensure that they had done everything right before going before the court. In a tiny percentage of cases the court might question whether the paperwork is right and the procedures have been correctly complied with. The point of a supervisor is to make officials think long and hard before exercising their considerable powers.
To do the Exchequer Secretary credit—I would always do so where possible—he said in Committee:The issue remains—should there be any judicial intervention in the English and Welsh system? I have agreed that there should be and that it should be introduced by regulation.He also said:I accept that this is a legitimate cause for concern, which we shall look to address when we introduce the regulations. I emphasise that, if those regulations are not passed by Parliament, the clause does not become effective. We shall address the issue in consultation with the organisations that have contacted us in the past few days."—[Official Report, Standing Committee B, 13 February 1997; c. 58, 53.]I am grateful to the Exchequer Secretary: in the fairly lengthy and complex debate in Committee about the differences between the Scottish and the English and Welsh court procedures, he accepted that important principles were at stake and said that the Government would try to deal with them through regulations.
The problem is that court supervision should be dealt with by statute, because regulations tend to be too easily changed. Historically, statute has been used to protect our citizens and ensure that their rights are not infringed. Statutes are always rigorously scrutinised in the House, whereas regulations, as any hon. Member who has served on one of the relevant Standing Committees will know, tend to go through on the nod or with limited scrutiny, although I accept that on occasion the process is more thorough.
Why is it right to protect the Scots in a statute but not those resident in England and Wales? Why do the Scots have a statute that allows supervision of an order by the sheriff, but citizens of England and Wales do not?
It is also curious that the Government's new order gives Customs and Excise an extra string to its bow to go beyond the traditional civil procedure of a garnishee order. The new power may be justified; I do not object to it. However, as someone who has had to deal with such orders in court proceedings, I know that they are closely scrutinised by those who issue them and that there is considerable procedure and discussion before they are issued, because they can be onerous.
Customs and Excise is being given an attachment power, which it no doubt requires. Will the Exchequer Secretary ensure that where powers are given to Customs and Excise and to the Inland Revenue there is supervision? Supervision should be properly set out in statute. It is not satisfactory to deal with it by mere regulation. I ask the Government to think again and accept new clause 4, which is based on the law in Scotland. It is a sensible, reasonable protection for citizens that most 185 hon. Members would accept. In principle, at least, the Exchequer Secretary seems to accept it. He seeks to introduce much the same provision by regulation, but he does not have to wait for a regulation: if it is necessary, as he accepted in Committee that it is, let us do it now.
§ Mr. Tim Smith
New clause 4 is far too widely drawn in two respects. In Committee, concern was expressed about clause 54, which deals only with attachment of debts by Customs and Excise. New clause 4 deals not only with attachment of debts, but with matters that are covered by clauses 51 and 52—that is, enforcement by distress and enforcement by diligence. Moreover, it deals not only with Customs and Excise but with the Inland Revenue. The Inland Revenue is not given new powers by clause 54, which refers only to the commissioners, which I understand to mean the commissioners of Customs and Excise.
I greatly welcome the way in which my hon. Friend the Exchequer Secretary has dealt with the matter. It was difficult to get the right balance. We must give Customs and Excise the powers that it needs to enforce the law but, equally, we must ensure that the taxpayer is properly protected. My hon. Friend listened carefully to the arguments advanced and I believe that he has not been able to satisfy himself since that all the concerns that were expressed have been properly dealt with. For that reason, he has tabled amendment No. 10 which deletes clause 54. For the time being, I believe that that is the right solution.
§ The Exchequer Secretary to the Treasury (Mr. Phillip Oppenheim)
I thank my hon. Friend the Member for Beaconsfield (Mr. Smith) for his comments, which adequately sum up the situation. We have decided to drop the attachment provisions. He also summed up what is wrong with new clause 4.
New clause 4 relates to clause 54 as well as to clause 51. That may be where Opposition confusion stems from. Clause 54 made provision for attachment of debts. As my right hon. Friend the Member for Beaconsfield said—I am sorry, I mean my hon. Friend. I am getting ahead of myself. Government amendment No. 10 withdraws clause 54. As I mentioned in Committee, we had a long public consultation exercise last summer, during which no objections were raised to the proposed attachment provisions. We also had a VAT Budget open day at the end of January. Again, the interested parties raised no objections. Objections were raised only fairly late in the day in February. I listened carefully to those objections and decided that they had some validity.
In Committee, I undertook to consult further, to introduce safeguards if it was possible and to ensure that there was a review procedure for attachment. Since then, Customs and Excise has met the British Bankers Association and other interested parties. Although several of their concerns have been answered, there were other issues that could not be satisfactorily resolved in the remaining short time scale. That is why I have decided to defer introduction of the attachment provisions to allow customs to continue its discussions and consult further. That is where we are with clause 54. If the House accepts our amendment, clause 54 will not happen.
186 6.15 pm
The problem with new clause 4 is that it applies not only to clause 54 but, rather oddly, to the relatively innocuous clause 51. It extends an extra layer of judicial review to distraint or distress procedures. Clause 51 merely extends to customs dues the existing distress provisions which currently apply to all indirect taxes except customs dues: it does not change the 150-year-old laws in any other way. I accept that the Opposition are acting in the right spirit of trying to get things right, but I hope that I can convince them that in this instance they are not right, for the following reasons.
First, new clause 4 involves a significant administrative burden. If passed, it would be damaging for the recovery of outstanding unpaid taxes and lead to increased revenue loss. I will give an example. Current month-end arrears of VAT and direct taxes—let us not forget that this applies to Inland Revenue direct taxes as well as to Customs and Excise indirect taxes—amount to some £5.8 billion. New clause 4 requires both Customs and Excise and the Inland Revenue to seek prior judicial supervision: a court order would have to be obtained to begin action to recover unpaid debt. It thus seeks to overturn more than 150 years of a tried, tested and effective method of recovering taxes. In my time as Exchequer Secretary, I have not, to the best of my knowledge, received any complaints about the existing system. For 150 years, Customs and Excise and the Inland Revenue have used those debt recovery powers without significant problems. They have those powers because they are involuntary creditors: unlike private individuals and commercial interests, they cannot vet and choose their customers and stop supplies or credit at will.
Any delay in debt recovery will have a marked effect on the flow of funds into the Exchequer. For example, a delay of only seven days in the recovery of tax and VAT arrears would cost £100 million. Court judgment and execution would delay recovery by at least 28 days, resulting in a loss of some £450 million to the Exchequer. I invite the hon. Member for North Warwickshire (Mr. O'Brien), given that he has accepted our tax and spending plans, to say how that hole would be made up.
There is a fundamental misconception that there is no judicial supervision of the procedure. If taxpayers wish to dispute demands for unpaid or undeclared tax liabilities, they have a right to appeal. With regard to Customs and Excise, it can take the dispute to an independent VAT and duties tribunal, and if necessary, it can appeal to a higher court. In such a dispute, all recovery action is suspended in respect of any amount. It is policy that debts are sent for recovery under the distress or distraint procedures only if they are already established and overdue.
To put into context how onerous new clause 4 would be, Customs and Excise and the Inland Revenue have 375,000 distress cases per year. They are all authorised at a responsible level and all subject to having been to a VAT tribunal or the relevant judicial body if they are disputed. If, after those disputes have been settled, or the taxpayer has had the opportunity to settle the dispute at a VAT tribunal or other judicial body, collection also required prior and continuing court supervision, the volume of cases would flood the courts. It would pretty well double the number of cases before the courts and place a prohibitive administrative burden on Revenue Departments and the Lord Chancellor's Department.
187 In a sense, the new clause would put the Inland Revenue and Customs and Excise at a disadvantage compared with ordinary private or commercial interests trying to collect debts. Customs and Excise may already have gone to a customs tribunal, a VAT tribunal or another judicial body, and would then have to go to court for a second time whereas a private individual or a commercial interest would have to go to a court only once. If they won the case, the court would then supervise the debt collection. The measure would thus be onerous and expensive, and it would increase the cost for each tax defaulter by about £40 per warrant.
The hon. Member for North Warwickshire said that there is supervision in Scotland, although he acknowledged that things are different in Scotland. Indeed they are. We tried to establish in Committee the fact that the sheriff court does not allow for any appeal or appearance by a defaulter. In Committee, the shadow Chief Secretary made a brief appearance and suggested that in Scotland a defaulter might be able to introduce a caveat. As I said after he left the Committee, before the debate had ended, that is not the case when a defaulter comes up against a Government Department such as Customs and Excise or the Inland Revenue. Thus it is not true to say that there is judicial supervision allowing for an appeal in Scotland. What the hon. Gentleman proposes today goes way beyond what happens in the sheriff court, which in any case is very different.
There is another problem with the new clause. I understand that it applies only to England and Wales and not to Northern Ireland. There may be a reason for that, but if the clause is to be consistent it should also apply to Northern Ireland.
The new clause would be very expensive. It would also change distress procedures that have been carried out for 150 years without any great problems. It has nothing to do with attachment, which relates only to clause 54 and which we have already agreed to defer. The new clause would give tax defaulters far greater protection in the rest of the United Kingdom than in Scotland, and would thus increase the imbalance between England, Wales, possibly Northern Ireland, and Scotland. I cannot understand why the Opposition would want that.
For those and other reasons, I strongly urge the House, in the interests of all taxpayers, to resist the new clause.
§ Mr. Mike O'Brien
Amid some not very good points the Minister also made some good ones, but before dealing with them I want to answer the hon. Member for Beaconsfield (Mr. Smith). I happen to have with me the text of the Official Report of our Committee proceedings when the Exchequer Secretary was replying to the hon. Gentleman, who had been discussing the differences between clauses 51 and 52. The Minister seemed then to accept that there was a legitimate case for concern, and went on to deal with the business of regulations. The problem in Committee was that we were discussing clauses 54, 51 and 52 all at once—they got jumbled up in one debate.
Our concern, as outlined by the shadow Chief Secretary, was to establish the fact that, whereas rules in Scotland protect citizens there, they do not apply in the same way in England and Wales—or in Northern Ireland.
188 We were not dealing with the new powers in clause 54 specifically: we were worried in general about the difference between Scotland on the one hand and England and Wales on the other.
§ Mr. Oppenheim
I can probably help the hon. Gentleman. The situation is certainly rather confusing, and clauses 51, 52, 53 and 54 are related to one another. The Scottish question arose not primarily because of concern about the standard distress provisions in clauses 51 and 52, but because of how those provisions related to clause 54 in terms of attachment and arrestment—Customs and Inland Revenue being able to go into people's accounts. That power already exists in Scotland, and it was alleged that taxpayers there enjoyed better protection because of the intervention of the sheriff court. That extra power of arrestment in Scotland does not exist in England—hence the confusion. There are certainly links, but because we have dropped clause 54 and its powers of attachment and arrestment for the United Kingdom, the situation does not now arise.
Apart from anything else, the new clause will cause problems because it will introduce a further judicial tier for ordinary distress or distraint cases. That extra provision would be massively expensive and time consuming—although for some reason it would not apply in Northern Ireland—and it would create a major imbalance between Scotland and the rest of the United Kingdom because it would give tax defaulters much more protection in the latter than in the former.
§ Mr. O'Brien
The fact remains that in Scotland there is supervision by a sheriff. Just because a power has lasted for 150 years, that does not mean that it is adequate. So why have Governments left matters so as to allow no supervision of distraint by courts in England and Wales but to allow sheriff courts in Scotland to exercise some supervision?
The Minister says that we are introducing a number of terrible measures and creating an extra layer of judicial supervision. It is, however, a very limited layer. No one suggests that the powers of judicial supervision should go much further than those exercised in Scotland where, as the Exchequer Secretary told us in Committee, there is merely a limited power to check that all procedures have been properly complied with and that documents have been properly prepared. That is what we suggest should happen here: we want the same sort of supervision to apply in the same sort of way in England, Wales and Northern Ireland. I do not accept that this will involve any more delay than is experienced in Scotland, where there appears to be little or no delay. If there were delays, I assume that the Government would have ended them by now.
The Government accept the Scottish situation, so I cannot for the life of me see why there should be less protection for citizens in England and Wales. I have listened to the Minister's points, some of which—certainly those in relation to Northern Ireland—were valid. I can also see that the word "supervision" denotes a certain looseness in the drafting which might be tightened up at a later stage. Therefore, if the Minister has nothing to add at this point, I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.