STATEMENT OF LIABILITY TO INCOME TAX (Hansard, 3 July 2002)

HC Deb 03 July 2002 vol 388 cc324-31 324

§ '. After section 59B of the Taxes Management Act 1970 insert— "59BA Statement of liability to income tax

§ (1) This section applies to any person (the taxpayer) who is liable to pay income tax.

§ (2) The Board shall provide to each taxpayer, following the agreement of his assessment to income tax, a statement showing for the year of assessment—

(a) the taxpayer's total liability to income tax ('income tax liability') for that year;
(b) the contribution of income tax expressed as a percentage of the total annual tax take for the United Kingdom for the same year of assessment ('the income tax percentage');
(c) the proportion expressed as a percentage of the total annual tax take for the United Kingdom for the same year of assessment that was allocated to each of the Departments of State listed in subsection (2) below ('the departmental percentage'); and
(d) the amount in pounds sterling of the taxpayer's income tax liability that is represented for each of the Departments of State listed in subsection (2) below calculated as follows—

§ Income tax liability x the income tax percentage x the department percentage.

§ (2) A department percentage shall be provided for each of the following—

(a) the Department of Health;
(b) the Department for Transport;
(c) the Department for Education and Skills;
(d) the Home Office;
(e) the Department for Work and Pensions;
(f) the Department of Trade and Industry;
(g) the Department for the Environment, Food and Rural Affairs; and
(h) the Department for Culture, Media and Sport.".'.—[Mr. Bercow.]

§ Brought up, and read the First time.

§ Mr. Bercow
I beg to move, That the clause be read a Second time.

§ Mr. Speaker
With this it will be convenient to discuss new clause 18—Timing of announcement of all income tax allowances—
'In section 257C(3) of the Taxes Act 1988, at the end—
"The order shall be made by 31st December following the preceding September referred to in subsection (1).".'.

§ Mr. Bercow
I have a sense that the patience of the House might soon be exhausted if hon. Members are inclined to dilate excessively on the remaining new clauses for our consideration. I am conscious of the patience threshold of Members, as you will testify, Mr. Speaker, and I shall therefore keep my remarks 325 genuinely brief. Labour Members should savour that consciousness while it lasts, as it may not be reproduced very soon.

§ Dawn Primarolo
May I say how much engagement suits the hon. Gentleman? His new-found brevity is no doubt a product of his haste to spend his time—as we would all like to do occasionally—with loved ones and family.

§ Mr. Bercow
As the Paymaster General can easily discern, I am thirsting for the company of my beloved, who said to me, although she is a keen supporter of mine, "Why, dear, do you always think it necessary to avoid using one word when a hundred would do?" She might not admit it, but that is what she said.
The subject matter in question is the statement of liability to income tax. The thrust of the new clause, which is tabled in the names of the shadow Chancellor, my right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard), other of my hon. Friends and I, is to make explicit what people pay, the effect of their contributions, and how resources are divided between the areas of Government responsibility. Specifically, people pay their taxes and, in return, they want decent health care, a quality transport system, adequate education, the best possible protection against crime, a guarantee of financial security and proper but minimum interference in the affairs of industry and commerce. If they live in rural areas, they are concerned about the rural environment. In addition, the Department for Culture, Media and Sport is mentioned in subsection (2)(h) of the new clause. It has responsibilities and money goes to it. Therefore, we need to know what we receive in return.
The thrust of the new clause is an attempt to move towards more open government, requiring transparency about where Government money is spent and an easy-to-follow format for the lay person. It is not, however, a move towards hypothecation of tax. The Government publish all the information in other formats, but the new clause would merely make it easier for individuals to understand Government spending.
As hon. Members can testify from their experience, a number of councils provide similar information on the council tax bills sent to each household. Conservative Members do not understand why the Government cannot operate on a similar principle in relation to the payment proceeds and purposes of income tax. It should not be costly to follow the spirit and content of the new clause, because the same calculations could apply to each taxpayer. A uniform system could operate, and it would not create a great administrative burden. It should be relatively straightforward to make computer-produced statements, about which we know the Government are very keen.
The new clause takes the form of a probing amendment. It does not make an explicit commitment on the part of the Opposition, but it would require the Revenue to produce a statement of an individual's income tax liability and the proportion of that liability that would be spent in each Department. It is a straightforward and eminently reasonable proposal.
326 I feel almost 100 per cent. confident that the Paymaster General, if she is in one of her more eminently reasonable moods, will eschew the opportunity of a long reply and make it clear that no Labour Member has any intention of objecting to the new clause. With the hoped for—although not guaranteed—support of the Liberal Democrats, I trust that we can be unanimous on the subject and dance round the mulberry bush together in support of new clause 6.

§ Mr. Edward Davey
The reputation of the hon. Member for Buckingham (Mr. Bercow) for speaking without hesitation, repetition or deviation once drove me to suggest that he was a suitable candidate for "Just a Minute". That point may not apply today, because he has been brief and witty.
I assure him that the Liberal Democrats support the new clause. We have advocated such a proposal, under what we describe as our citizens' tax contract, since 1993. Therefore, it would be odd if we did not support the new clause. However, I have one or two concerns about its detail. Perhaps I did not hear the hon. Gentleman clearly, but he did not appear to explain why the Ministry of Defence was not covered by subsection (2).

§ Rob Morris
And the Foreign Office.

§ Mr. Davey
The Foreign Office, and one or two other relevant agencies. I do not want to provoke the hon. Member for Buckingham, because I want to move on.

§ Mr. Bercow
rose—

§ Mr. Davey
The hon. Gentleman has been provoked.

§ Mr. Bercow
I am easily provoked, as you will be aware, Mr. Speaker. I was being selective and illustrative about the new clause rather than pedantic and exhaustive. As a person of generous spirit, I always thought that the hon. Gentleman preferred the former combination to the latter. I hope that he will not now disabuse me.

§ Mr. Davey
Although it is tempting to indulge in a little banter with the hon. Gentleman, I am sure that hon. Members would prefer me to discuss new clause 18.
The new clause is similar to a new clause that I tabled to the Finance Bill 2000. I will not rehearse the speech that I gave then, but hon. Members who are interested can read it at columns 268–69 of Hansard for 18 July 2000. It is also on our website.
The new clauses have the same purpose: to avoid unnecessary bureaucracy, expense and anxiety among vulnerable people. Let me explain. Relatively recently the Government changed the way in which they send out pay-as-you-earn notices of coding. I raised that in 2000 because of the Government's practice of announcing personal allowances for the following year for most employees in the pre-Budget report, but their failure to announce the allowances for pensioners. That caused confusion among pensioners who received a notice of coding in the spring and another one after the Budget. They wondered what was going on because the coding had changed following the Budget, and between April and May they effectively gave a tax-free loan to the Government because their tax position had been based on non-indexed allowances.
327 We argued that the Government should amend the Taxes Act 1988. They did not accept that, but changed the practice by administrative decision, which was welcome. They were clearly moved by the strength of the argument, especially the case put forward by the Low Incomes Tax Reform Group, and this is my first opportunity to salute them for that. However, in making the change and announcing the age-related allowances in the pre-Budget report, the Government did not announce the allowances for the following year for blind people. Although pensioners escaped the double tax code notification and related problems, blind people did not. So the Government need to go a little further.
The problem also suggests that, rather than making the change by administrative decision, it might be better to put it beyond doubt by including it in law. That would allow us to avoid the problems that arise for blind or elderly people if someone in a Department is forgetful and they receive two coding notices. That situation is confusing and people end up giving an interest-free loan to the Government. It is a small but important point because some of our vulnerable citizens experience unnecessary anxiety. I hope that if the Government do not accept the new clause, they will make that administrative decision now and table an amendment to that effect to next year's Finance Bill.

§ Dawn Primarolo
New clauses 6 and 18 are aimed at giving greater information and clarity to the taxpayer. I regret that I cannot accept either new clause, but I will outline some of the problems that arise and the issues that need to be settled.
New clause 6 attempts to provide every taxpayer with a statement to show how their income tax liability is allocated in spending terms. Telling taxpayers how their taxes are spent is something that the Government take seriously. We are doing that in a number of ways, but always want to improve on such practices. I want to explain why new clause 6 does not provide the best method. I listened very carefully to the points made by the hon. Member for Buckingham (Mr. Bercow), and I shall continue to reflect on them, but I shall briefly put to him the major difficulties with the new clause.

§ 10 pm

§ First, the new clause runs counter to the principle underlying the Consolidated Fund because it asks us to track £1 of tax from a taxpayer into the Consolidated Fund and then back out to a particular Department. I accept the principle being put forward by the hon. Gentleman about giving indications of how taxpayers' money is spent, and we do our best to do that, but this route would be bureaucratic and difficult.

§ In addition, the apportionment calculation in the new clause simply will not work. I appreciate the point that is being made, but by multiplying an individual's income tax liability by the percentage of the total UK tax take that the income represents, the apportionment proposed in subsection (2)(d) can never add up to 100 per cent. of the individual's income tax liability. Other hon. Members pointed out that the list of Departments is not exhaustive and perhaps that is where the 100 per cent. is made up. However, that runs counter to the point that the hon. Member for Buckingham was trying to make about people understanding where their money goes.

328

§ There is a second problem with the new clause. Many of those who are not in self-assessment, such as employees taxed under PAYE, currently have no reason to provide the Inland Revenue with details of investment income taxed at source, unless they are liable to be taxed at the higher rate or are due a repayment. To provide such taxpayers with a statement of their total liability to income tax, the Inland Revenue would be required to obtain details of the total tax paid by each individual, and that would effectively bring millions of taxpayers into self-assessment, not for the purposes of collecting tax, but merely to provide them with a statement of their share of income tax liability, notionally apportioned. I do not think that the hon. Gentleman wanted to achieve that.

§ To be fair to the hon. Gentleman, what he is asking in his new clause is that the total tax paid by an individual over a tax year should be calculated, but that information, which would have to be accurate, is not held in one source. The new clause would require a statement to be issued annually to every one of the 26 million income tax payers, showing their total tax liability for the year, including PAYE. That would be a huge task, and it is a costly way of trying to achieve the hon. Gentleman's aim.

§ In speaking to the new clause, the hon. Gentleman was good enough to say that it was a probing amendment, and that he wanted to push the Government and, presumably, to hear me say that we will continue to look for ways to improve our method of accounting to the taxpayer for the spending of tax moneys. Although the hon. Gentleman will want to return to the matter, I hope that he accepts that the intention is shared across the House but this particular method is not the best way of fulfilling it. I should be grateful if he would allow me to consider the matter for a little longer.

§ Mr. Bercow
The right hon. Lady's tones are mellifluous and her forensic parliamentary skill was on display for all to see, but I suggest that the speech that she has just delivered represents the triumph, the ultimate victory, of the Treasury anorak. If ever there were a case of a Minister being guided by those whom we cannot name, but whom we can see if we look fairly carefully, to such an extent as to offer the House an extraordinarily over-zealous interpretation of what a rather humble hon. Member had in mind, this was such a case. The Minister knows that I am a very straightforward sort of bloke. I do not go in for the high-powered stuff—

§ Madam Deputy Speaker (Sylvia Heal)
Order. That is rather long for an intervention.

§ Mr. Bercow
With the greatest respect, Madam Deputy Speaker, I was not under the impression that I was making an intervention. I thought that the Minister had finished her speech.

§ Dawn Primarolo
indicated dissent.

§ Mr. Bercow
I beg your pardon, Madam Deputy Speaker, and I beg the Minister's pardon. In that case, let me simply say that the Minister is guilty of over-literal interpretation. What my hon. Friends, the taxpayer and I want to know is how money is divided between different areas of responsibility. I rest my case.

§ Dawn Primarolo
I hope that I did not unintentionally contribute to the hon. Gentleman's misunderstanding. I was giving way to him before responding to new clause 18.
329 Perhaps it is a mistake for a Minister to do this, but I was trying to give a considered response detailing why a particular mechanism would not work. I sometimes feel that I cannot win: if I brush an amendment aside without explanation, I have not dealt with it properly, and if I make an honest attempt to explain the real difficulties, I am accused of being an anorak. Oh well, never mind.
Around the time of the pre-Budget report and the Budget, the Government provide summary leaflets that provide a breakdown of the total revenue raised and the expenditure divided by Government Departments, as well as a breakdown of the sources of tax income. I thought—perhaps mistakenly—that that information was available to every taxpayer. It is certainly on the internet. I assumed that new clause 6 was designed to tease out whether that provision could be refined to an individual basis, so I was trying to explain some of the hurdles to the hon. Gentleman. I understand his impatience. I am sure that I would feel the same way if I were in opposition and he were the Minister making this speech.
New clause 18, to which the hon. Member for Kingston and Surbiton (Mr. Davey) spoke, deals with the timing of the announcements on income tax allowances. I regard it as a reasonable proposal, but for the reasons that I shall outline, I am not prepared to adopt it as an amendment to the Bill.
Indexation orders specify the level of allowances that should apply if they were to increase in line with inflation, but Parliament may determine otherwise. The orders do not set the level of the allowance or the rate bands. In effect, they provide formal confirmation of what the amount would be if indexation were to apply, which means that they are made even if statutory indexation is to be overridden—as it was during discussions on the Budget. For example, in clause 29 we set the level of the personal allowances for those aged 65 to 74 at £6,610 for 2003–04, which on current forecasts is £390 over indexation. We debated in Committee why it was necessary to do that. In any event, we published the indexed allowances in the pre-Budget report, in table 2 of the tax ready reckoner. The actual figures have not been pre-announced, but the information is available on the Treasury website. As part of our obligation under legislation, we also covered most of the allowances in the Treasury order that was made on the day of the pre-Budget report's publication. In the past two years, we have announced the level of pensioner allowances in the pre-Budget report. For 2003–04, we have already set the policy on the pensioner allowance and we should be able to confirm the figures once we know the value of the retail price index.
However, the crux of the matter—I will be perfectly straightforward with the hon. Member for Kingston and Surbiton in putting the Government's view—is that it is wrong to commit Governments for ever to announcing all allowances in the pre-Budget report. Chancellors must retain flexibility in the timing of decisions, so that they can mesh with the timetable of other policies or take account of the overall fiscal position on the basis of the latest available economic data. Current legislation ensures that indexation orders can be made at any time up to the start of the next year, once the retail prices index is known. In our view, it is better to make the order giving the theoretical indexation figure when the announcement 330 is made on the actual level of allowances. That allows people to compare the two, which follows on from the principle to which the hon. Member for Buckingham referred in relation to information.
The Government have developed a policy of pre-announcement, in the context of the Chancellor taking the decision, of other strategies in the Budget or pre-Budget report. However, although we follow that practice at this time, we do not wish to formalise it as a permanent arrangement. I point out to the hon. Member for Kingston and Surbiton—this point lay behind many of his comments, and especially his reference to the Low Incomes Tax Reform Group—that the Government continue to take a very active interest in listening not only to him and other hon. Members, but to lobby groups, about how we can make contact with the tax system less frequent, especially for the vulnerable sections of our community, and how such contact can be made far less arduous than people sometimes find it when it does occur. I hope that he will accept that, although the Government may act on the principle at this time, we are not prepared to concede its formalisation into the Budget.

§ Mr. Edward Davey
rose—

§ Dawn Primarolo
That was my last point, but I am happy to give way before I sit down.

§ Mr. Davey
I am grateful to the Paymaster General for showing her usual generosity.
The Paymaster General's words are very welcome and I understand her argument, but will she reassure me on the point that I made about blind people's allowances? The Government have moved by administrative decision to the pre-announcement of personal income tax allowances and age-related allowances, but will she give me some reassurance that she and her Department intend to do the same thing for the blind people's allowance?

§ Dawn Primarolo
I hope that the hon. Gentleman will forgive me if I assure him only that I will go away and consider the position of the allowances to which he refers. I do not think that I can give him the commitment that he seeks, and it would be unfair of me to do so without having properly considered the matter, but I will certainly take it away and consider it very carefully.

§ Mr. Bercow
I apologise profusely once again to you, Madam Deputy Speaker, and to the Paymaster General, because I genuinely misheard her in thinking that she had finished her speech.
The hon. Member for Kingston and Surbiton (Mr. Davey) can certainly fight his corner, and that he has eloquently done. Of course, I am saddened and mildly surprised that the Paymaster General did not respond to my exhortations. I had hoped that my hon. Friends and I would persuade her of the merits of new clause 6, and I am a sadder man for having been unable to do so. Nevertheless, I am genuinely encouraged by the Minister's willingness to consider the issues and by her comments about the Government's commitment to tax transparency and therefore, presumably, to the intelligibility principle.
331 10.15 pm
Perhaps I can conclude by asking the very busy, very senior, very distinguished, very important, very influential Minister, who has many commitments and a very full diary, whether, in one of her lighter and lazier moments, she would do me the signal honour in my parliamentary career of studying my Taxation (Right to Know) Bill, which I introduced as a ten-minute Bill on 6 June 2000. In that Bill, and in my speech commending it, I suggested several ways in which we could make the tax system more transparent to the people who have to foot the bills. In line with the principles of new clause 6, I particularly ask the Minister to consider the combined impact of direct and indirect taxes on people in various income deciles. The Minister is now extremely experienced in the Treasury, and she will be aware—although it may not suit her book to cite the fact—that for 15 successive years between 1981 and 1996, Conservative Governments published their assessments of the impact of direct and indirect taxes on the various income deciles.

§ The Minister, despite her professed and genuine loyalty to her boss, the Chancellor of the Exchequer, will know that he has been excoriated on several occasions by the Select Committee on the Treasury for his lack of transparency. I hope that she will not find it too painful if, in support of the principles of new clause 6, I remind her that in March 2000 her right hon. Friend was chastised by the Committee for his consistent failure to publish such an assessment. If the eloquently and sincerely expressed commitment to glasnost in matters of taxation that we have received from the Government tonight is to be taken at face value, it can only be a short time before the Chancellor admits that he was wrong, prays in aid the advice of his Paymaster General, and publishes the statement that is long awaited and much overdue.

§ I beg to ask leave to withdraw the motion.

§ Motion and clause, by leave, withdrawn.