Building Societies: Taxation (Hansard, 30 April 1991)

§ The Minister of State, Department of Trade and Industry (Lord Hesketh)
My Lords, Clause 50 of the Finance Bill remedies a technical defect—highlighted by this House in its judicial capacity—in legislation enacted by Parliament in 1985 and 1986. The legislation was intended to secure that building societies accounted for tax on payments of net interest to their investors in the transitional period between the end of their accounting periods in 1985–86 and 5th April 1986. Clause 50 ensures, as Parliament intended, that payments of net interest in the transitional period do not escape tax entirely. There is no double taxation.

§ Lord Monson
My Lords, I thank the noble Lord for his reply, though it is somewhat unconvincing. My Question said nothing in regard to double taxation; in essence it concerned retrospective legislation. Does not the Minister acknowledge that this is a further, but worse, example of retrospective legislation following 612 the retrospective withdrawal of accumulated indexation relief on gilt-edged unit trusts in the 1990 Budget? Does he agree also that when the Labour Party was in office the Conservative Opposition never ceased to criticise it for retrospective legislation? However, since the Conservatives came to power 12 years ago, time and again they have behaved just as badly in the matter of retrospection.

§ Lord Hesketh
My Lords, with the greatest trepidation I must point out to the noble Lord, Lord Monson, that six words from the end of his Question it says, "were double taxed illegally". Your Lordships' House found against the Woolwich on its main contention that the transitional provisions were unlawful because they imposed double taxation. However, it ruled that the provisions were invalid because there was no power to charge tax in the 1985–86 rates as the transitional provisions purported to do so.

§ Lord Renton
My Lords, is my noble friend aware that it is a well-established principle that retrospective legislation is justifiable when it is in favour of Her Majesty' s subjects, but not justifiable when it is against their interests?

§ Lord Hesketh
My Lords, my noble friend raises a perplexing point. I am not sure whether that which had been removed from the investors of the Woolwich and placed in receipt of the Treasury is to the greater benefit of the taxpayer.

§ Lord Thomson of Monifieth
My Lords, is the Minister aware that the matter was tested by the Woolwich at three different levels of the judiciary and was finally upheld by the learned Law Lords in this House? This is the second example of the Government seeking retrospective legislation to deal with the matter. Is that not outrageous?

§ Lord Hesketh
My Lords, what was accepted in the High Court was not what was accepted in your Lordships' House. As I pointed out earlier, in your Lordships' House the contention that transitional provisions should be considered unlawful because they imposed double taxation was rejected.

§ Lord Skelmersdale
My Lords, will my noble friend turn his attention to subsection. (4) of Clause 50 of this year' s Finance Bill? Is that not monstrously unfair in that it treats investors in one building society, which took the Inland Revenue to judicial review and won £76 million worth of tax back for its investors, much more favourably than investors in companies which did not? Since the building society movement is a competitive industry, are not the Government skewing that competition?

§ Lord Hesketh
My Lords, as my noble friend is aware, the provisions introduced in 1986 brought building societies into line with the provisions with regard to quarterly payments that existed for the clearing banks.

§ Lord Stoddart of Swindon
My Lords, arising from the supplementary question asked by the noble Lord, Lord Renton, is it still the Government' s view that, as 613 regards taxpayers, the more money which is left in their rockets and the less that the Treasury gets, the better it is from the country' s point of view? That is the view that the Conservative Party and the previous Prime Minister have shouted from the house tops over many years. Have the Government now changed their policy?

§ Lord Hesketh
My Lords, I pointed out earlier that investors' money was not involved as tax on that had already been taken on behalf of the Treasury by the building societies.

§ Lord Williams of Elvel
My Lords, does the noble Lord agree that the point is that the revenue regulations of 1986 were invalid and were declared so by your Lordships' Judicial Committee? The Government are now seeking to legalise them not just retrospectively but retroactively. Is the Minister saying:hat that is a proper procedure for government when dealing with about £250 million?

§ Lord Hesketh
My Lords, the noble Lord, Lord Williams, confirms what I said earlier. He quite rightly referred to the regulations rather than the provision and the spirit desired by Parliament, as I also pointed out in my original Answer.

§ The Earl of Shrewsbury
My Lords, is my noble friend aware that I represent the interests of consumers on a building society board? Does he agree that the building society movement is based entirely on the principle of mutuality and that by penalising the building societies in this way the Government will also be penalising their members?

§ Lord Hesketh
My Lords, as I pointed out earlier, we have no desire for any form of double taxation. We had to ensure that a certain amount of taxation was paid according to the requirements of the 1986 Act.

The Earl of Selkirk
My Lords, is my noble friend prepared to meet someone to discuss this matter? On the whole the building societies are not bad at accounts. They are quite convinced that they are paying double taxation. They would like to express that view to a responsible official.

§ Lord Hesketh
My Lords, your Lordships' House rejected that proposition.

§ Lord Williams of Elvel
My Lords, perhaps I may press the noble Lord a little further. He said that I was right and I am sure that the noble Lord is right in his assertion. We are supposedly dealing with regulations that were made in 1986 by the Inland Revenue under the Taxes Act, which turned out to be invalid. They were declared by the House of Lords to be so. Is it not correct that it is those regulations that the Finance Bill is seeking to validate retrospectively and retroactively? Is that the way to go about good government?

§ Lord Hesketh
My Lords, there is a great difference between changing regulation and changing principle.