Tax System
2 February 2002 11am
Mr. Mark Hoban (Fareham): I am delighted to be able to raise an issue that
causes many people a great deal of concern. By way of introduction, I should admit that I
am a chartered accountant. Many people may think that, as a result, the tax system is an
open book to me, but it is not and therein lies the nub of the problem. The tax system has
become sufficiently complicated that even people who are informed in financial matters
find it difficult to understand.
There are several problems with a complex tax system. It
allows the advisers—lawyers and accountants—the opportunity to examine the
system of tax reliefs, breaks and allowances to minimise the tax bill for their clients,
while those who cannot afford advisers feel a growing sense of suspicion and
dissatisfaction as they cannot understand the linkage between the taxes announced by the
Chancellor in the Budget and their tax bill. Another aspect of the raft of breaks,
exemptions, credits and tapers, is that one man's tax break is another man's tax increase.
Someone must pay for the tax breaks and the basic rate must increase to take that into
account.
A complex tax system is inherently unstable for
businesses, and I will give some examples later. The rate of change and the complexity of
the tax system mean that it is hard for businesses to plan ahead and set up transactions
in the knowledge that their tax treatment will remain unchanged for several years. The
complexity of the tax system is also inherently unstable for the Treasury, because the
linkages between taxes and the tax take become more complicated and it becomes harder to
understand the effect of a downturn on tax revenues. A complex tax system is against the
interests of both the taxpayers and the tax collectors, which is why I have raised this
subject this morning and why I support simplification.
There are many examples of the complexity of the tax
system. Capital gains tax was simplified in April 1998, but many issues arose from that
alleged simplification. One example that has been put to me concerns the purchase of two
parcels of shares, one before 5 April 1998 and one after. The treatment of the second
parcel is relatively simple, especially when compared with that of the shares purchased
before April 1998. If I wanted to sell the first parcel, I would have to work out the
indexation of the base cost from the date of purchase to 5 April 1998 and I would be taxed
on that. I would then have to assess the gain between 5 April 1998 and the date of sale
and apply taper relief to that.
Unfortunately, the definition of some assets that are
subject to capital gains tax has been changed in recent years. Some shares have been
treated as non-business assets and then as business assets, and one must apportion the
gain during that time. Those straightforward examples demonstrate why the capital gains
tax calculations on relatively simple transactions, such as the sale of small packets of
shares, are now beyond the ability of most taxpayers.
Complex taxes also have an impact on behaviour. In the
Chancellor's first Budget in 1997, he moved away from a stamp duty regime of 1 per cent.
on all transactions to a graduated tax: 1 per cent. up to
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£250,000, 1.5 per cent. between £250,000 and £500,000, and 2 per cent. thereafter.
In the 2000 Budget, the rate remained unchanged at 1 per cent. on transactions between
£60,000 and £250,000, but increased to 3 per cent. on transactions between £250,000 and
£500,000 and 4 per cent. on those of more than £500,000.
In the 2001 Budget, the Chancellor recognised the impact
on property transactions in deprived areas by waiving the stamp duty on them. That fell
foul of European Commission regulations, so he had to reduce the limit to £150,000. There
are now four different rates of tax on transactions in deprived areas: 0 per cent., 1 per
cent., 3 per cent. and 4 per cent. We are starting to see price points arising at those
thresholds in the property market. The cost of moving between one band and another is
significant. If one buys a property at £249,999, one pays stamp duty of only £2,500. If
the price increases to just over £250,000, one pays £7,500. It is therefore not
surprising that when one talks to estate agents about buying a property, there is much
nudging and winking about how much the owners are prepared to sell the curtains for to
ensure that the transaction falls below £250,000 and that stamp duty of only 1 per cent.
is paid. Although we are considering stamp duty on residential property, we should not
forget that that duty is applicable to commercial transactions, whether on the purchase of
property or of goodwill. Such high stamp duties impose an additional transaction cost on
businesses, but cash costs are not relieved in tax calculations until the asset is sold.
Another interesting aspect of stamp duty is how it has
increased the Government's exposure to significant downturns in the value of houses or the
volume of transactions in the property market. In 1997, the Government raised £900
million from stamp duty on property sales. In the most recent year for which figures are
available, that figure was £3.4 billion. Under their revenue-raising powers, the
Government have introduced more instability into their calculation of predicted tax
revenues.
We could go on for hours and I have received suggestions
of many examples of complex taxes. The Financial Secretary said yesterday that between 1
January 2000 and 1 January 2002 the Inland Revenue employed more than 2,000 additional
full-time-equivalent staff. Under this Government, the number of basic rates of tax has
increased from 15 to 38. The number of pages in "Tolley's"—the bible
for tax practitioners—has increased by 30 per cent. from 2,559 in 1997 to a whopping
3,414 last year, even after the size of the typeface was reduced to accommodate all the
legislation. In its response to the Finance Bill in 2000, the Institute of Chartered
Accountants said:
John Whiting—vice-president of the Chartered
Institute of Taxation—said in response to the 600 pages of that Finance Bill:
A book by Peter Warburton and the noble Lord Saatchi,
entitled "Poor People! Stop Paying Tax!" demonstrated another example of the
complexity of the tax system. They proposed that the Government in effect collected 53 per
cent. of tax revenues but then gave
5 Feb 2002 : Column 206WH
back 14 per cent. of gross domestic product by way of the more than 250 complex
allowances, reliefs, credits and tapers that form part of the tax system in this country.
The volume of regulation affects not only tax advisers but also businesses. In July 2001,
the Association of Chartered Certified Accountants carried out a survey of its members.
Ninety-six per cent. of respondents thought that they spent more time on pay-as-you-earn
and tax compliance than in April 1997. Ninety-eight per cent. of respondents cited PAYE as
a reason, 92 per cent. quoted IR 35, 78 per cent. cited the working families tax credit
and 61 per cent. referred to the burden of collecting student loans, which has been passed
on from the Student Loans Company.
The cost of payroll compliance falls disproportionately
on small businesses. A business with between one and five employees faces payroll costs of
£288 per employee, whereas the cost is only £5 per head for a large business employing,
say, more than 5,000 employees. If one looks at the impact of stamp duty on business and
at the payroll burdens, it seems the complexity and cost are discouraging job
creation—the reverse of the Chancellor's intention. The Government are guilty of
increasing the complexity of the tax system to unparalleled heights. Simple transactions
are impossible. It is impossible for taxpayers to calculate the tax effects without
consulting a tax adviser.
The complexity of the tax system is being exploited by
advisers. For example, with inheritance tax, at the moment someone who gives their house
to their child has to vacate it if they are not to pay tax on that transaction. However,
if they have good tax advisers, they can construct a scheme whereby they give the property
to their children but occupy it on licence, thus circumventing the constraints of the
inheritance tax regime. That benefit is available only to those who can afford to pay
expensive tax advisers.
The Government are committed to introducing a community
investment tax credit, which would bring a credit of 25 per cent. of the value of the
investment against income tax. I can imagine advisers up and down the country looking at
ways to exploit that new relief. To try to ensure that advisers cannot take advantage of
the tax credit, the Inland Revenue will draft complicated schemes to prohibit abuse. As a
side effect, the scheme will be difficult to administer for those setting up the community
finance development institutions, and it will be difficult to ensure that the schemes in
which they invest comply with the rules.
The battle between tax advisers and the Inland Revenue is
like a long rally in a tennis match, where both players bounce the ball backwards and
forwards—the ball being tax policy—and the confused spectators, the taxpayers,
try to understand what is happening and when the rally will conclude. The erosion of the
tax base is also a consequence of that raft of breaks and regulations forcing up the basic
rate. A simpler tax system will provide less incentive to advisers to find ways round the
legislation, because there will be less incentive for them to save tax as the basic rate
will be that much lower, reducing compliance costs both for taxpayers and for those in the
Revenue who try to chase down these complex schemes.
In a debate on the Budget resolution on 7 March 2001, my
hon. Friend the Member for Mid-Bedfordshire (Mr. Sayeed) set out the impact of
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introducing a flat rate of 10 p for all incomes and abolishing personal allowances. He
found that that would increase the revenue from income tax by £9.6 billion a year. We can
therefore have a basic rate that is much lower if we lose the allowances and it will act
as a disincentive to tax advisers to find ways around the legislation. In an answer to me
yesterday, the Paymaster General demonstrated that if the taper relief on capital gains
tax were abolished, the 10 per cent. rate would come down to 7.4 per cent., the 20 per
cent. rate to 14.8 per cent. and the 40 per cent. rate to 29.6 per cent. There are
opportunities to reduce the rate of tax by looking at some of the reliefs and allowances
in the system.
Tax rates distort people's behaviour. I referred earlier
to the community finance tax credit. An investor faced with two schemes with a similar
pre-tax rate of return will obviously be swayed by the tax incentives put in front of him
by the Chancellor when considering the post-tax return. Where one tries to direct
behaviour, taxpayers may take sub-optimal investment decisions, which would not always be
in the interests of the economy as a whole. One hears many more examples these days of
tradesmen who wish their customers to buy materials themselves. That is done for the
convenience of not the customer but the tradesman, who, by not having to invoice the
customer for the materials and having a low turnover, can escape registration for value
added tax. The complexity of the tax system and some of the incentives that are introduced
into it distort behaviour.
The fourth consequence of a complex tax system is that
the Chancellor can use it as a shield when raising taxes. The headline rates of income tax
have not increased, yet the Chancellor has in successive Budgets abolished the married
person's allowance and mortgage tax relief. The rates of national insurance for employees
have not increased, but for three years from 1999 the upper earnings limit on national
insurance contributions for employees increased by more than the rate of inflation.
The biggest example of a stealth tax and the disconnect
between the tax and its impact on individuals was the abolition of tax credits on
dividends paid to pension funds—a cost to pension funds of £5 billion per annum.
Most lay people did not understand that that was a stealth tax increase. They are starting
to pay the consequences of that change in tax treatment, as the cost of contributing to
their pension funds increases or their benefits on retirement diminish. I wonder whether
the decline in defined benefit schemes, which used to be a mainstay of pension provision
in this country, resulted from the change in the tax treatment of dividends going into
pension funds.
The complex tax system brings inherent instability for
businesses. The frequent changes in the capital gains tax regime since its simplification
in 1998 have caused a great deal of uncertainty among business men. They wonder whether to
undertake transactions when their tax treatment is so uncertain and unclear. When the
Chancellor proposed the reform of double tax relief, only the outcry from FTSE 100
companies forced him to change those policies. Sadly, where there has been no consultation
with business or the tax profession, the
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constant series of fine-tuning exercises has led to an unstable regime for businesses.
The final consequence is that we may lose the direct understanding of the impact on the
economy of a downturn and the consequent impact on tax revenues. I spoke earlier about the
gearing up of the tax take on property transactions; that is a clear example of a change
in the property market leading to a significant change in the Government's tax revenues.
What are the remedies to the problem? In a debate in
another place on a similar issue a couple of weeks ago, much emphasis was placed on the
tax law rewrite project presided over by Lord Howe; the fruit of its labours can be seen
in the Capital Allowances Act 2001. It takes existing legislation and codifies it so that
tax practitioners can understand it. However, simply rewriting and revising tax
legislation to make it more comprehensible is not enough to simplify the tax system. We
need to ensure that the Government take policy decisions that will lead to a much simpler
system.
My first proposal is for more widespread consultation on
tax matters. All Chancellors like to pull rabbits out of hats on Budget day—that has
been a tradition of Budgets since time immemorial. However, that desire may stand in the
way of producing a stable and comprehensible tax system. Springing significant changes on
business without consultation denies businesses the opportunity to influence legislation,
with the resulting constant fine-tuning that we have seen on such matters as CGT. I
suspect and hope that the tax system that emerges from the consultation on research and
development that the Chancellor has announced will be much better and more stable than the
regime for CGT. Consultation will promote far greater stability in the tax system.
My second proposal is to move to simpler Budgets. This
Chancellor, perhaps more than any other, is a great believer in announcing a little on the
day, which means that everyone comes away feeling that they have got something. However,
when one looks at such initiatives more closely, they are of little real consequence to
anyone. The example that sticks in my mind—it is so dreadful that the Minister might
say that it is apocryphal—is the six free breakfasts a year for employees who cycle
into work. Indeed, employers can claim tax relief for those breakfasts. That sounds so
far-fetched that it is hardly credible, but it is one of the small initiatives announced
by the Chancellor. We have said how much the volume of tax legislation has increased in
recent years. Legislation for each of the small initiatives adds to that burden and
prohibits proper parliamentary scrutiny of the Finance Bill. Better scrutiny will lead to
reduced compliance costs and increased simplicity in the tax system; that simplicity will
restore the clarity of the link between the state of the economy and the level of
taxation.
My third proposed remedy is greater transparency in the
tax system. I have already cited the benefits of sweeping away some of the 250 allowances,
reliefs and tapers, which would bring about a much simpler and more transparent tax system
that laymen could understand. It would help people link Budget announcements to their tax
liability, which would be good for the integrity of the tax system and for taxpayers.
However, it will put pressure on the Chancellor because a more transparent system will
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make it far harder for him to raise taxes by stealth. If people understand clearly the
levers that make the tax system work, it is much harder to effect changes that are obvious
only to tax advisers and specialists and hidden from laymen.
In conclusion, the tax system is complex and the
Chancellor has contributed hugely to its complexity. A simpler system would reduce the
dead weight of compliance costs on taxpayers and collectors and would have a much more
neutral effect on people's behaviour. Above all, a simpler system would enable taxpayers
to hold the Government to account on their tax decisions in the Budget.
11.24 am
Lynne Jones (Birmingham, Selly Oak): I
congratulate the hon. Member for Fareham (Mr. Hoban) on raising this important issue and I
agree with his conclusion. A simplified system would also remove much of the fraud in the
tax and benefits system at a stroke.
When I heard about the debate, I searched through my
files to locate a copy of the Saatchi and Warburton document that the hon. Gentleman
mentioned, but I did not anticipate having the opportunity to speak. Indeed, I dashed to
Westminster Hall this morning because I thought that there would be far more interest in
the debate among other hon. Members than there is. The level of interest is surprising. I
thought that, as hon. Members had to complete their tax returns only recently, the issue
would have been weighing on their minds more, but apparently not.
We owe thanks to Saatchi and Warburton for pointing out
the complexity of the tax and benefits system. As I recall, it has provoked me to table at
least one parliamentary question, a copy of which I also managed to find. The answer to
that question was that, in the year 2000-01, 69 per cent. of employees earning less than a
third of male median earnings paid tax. Sadly, that percentage had increased from 56 per
cent. in 1997-98. It is ridiculous that people on such low earnings pay tax and are
probably at the same time forced to claim means-tested benefits.
The document entitled "Poor People! Stop Paying
Tax!" points out that the tax system collects a staggering 63 per cent. of GDP, and
the citizen must then claim back 14 per cent. of GDP by navigating more than 250
allowances, reliefs, exemptions, credits, tapers, indexations, disregards and so on. In
the process, we employ 80,000 civil servants to collect the taxes and 60,000 to pay the
benefits, at huge administrative cost.
I agree with many of the proposals suggested by people
who might be considered my political opponents, which is important, because some consensus
on the tax and benefits system is desperately needed. In opposition, parties are fond of
highlighting the existence and availability of stealth taxes, but in government, they
enthusiastically use them. Perhaps instead those in opposition and those in government
should think ahead to how we might behave when our roles are reversed and try to achieve a
consensus.
Yesterday, we had a debate about pensions. Bills on tax
credits and pensions credits are currently passing through Parliament. Both types of
credit increase the complexity of the tax and benefits system, which is deeply worrying,
because the extension of means-testing
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and complexity creates disincentives to work and save and incentives to commit fraud.
Surely it is not beyond the wit of man for us to agree on at least some broad principles.
I am glad that Lord Howe is involved in the tax rewrite
project, but I agree with the hon. Member for Fareham that that is not sufficient. The
system needs a radical overhaul, and I endorse the proposals made in the "Poor
People! Stop Paying Tax!" document. A very large hike in the personal allowance is
desperately needed, so that people can earn far more before they start paying tax. A
£10,000 tax threshold is being advocated, which would be a radical change.
I have not done the sums, but the general principle of a
large rise in the threshold, coupled with a simplification of the different income tax
rates, is sound and reform is long overdue. Unfortunately, the Government have introduced
greater complexity into tax bands. The 10 per cent. and 20 per cent. tax rates were merely
a gimmick; it would have been better to put those resources into raising thresholds. We
need to consolidate the various tax rates. We should have one basic rate, perhaps around
20 or 25 per cent., an upper rate that is higher than the present 40 per cent., and
something in the middle, which would claw back the benefits from middle income
earners—the bonanza that they would otherwise receive from large increases in
personal allowances.
The interplay of national insurance contributions is also
relevant. The Chartered Institute of Taxation and other organisations believe that the
kink in the system—whereby between £29,900 and £34,000 the marginal tax rate for
each extra pound drops from 32 per cent. to 22 per cent.—could be reconciled by
raising the upper earnings limit for national insurance in line with the threshold for the
higher tax rate. From my political perspective, that would also mean an increase in the
tax take from higher earnings. That is unlikely to achieve political consensus, but
agreement across the political spectrum could be achieved on the general principles if
only the Government were willing to sacrifice some of their sacred cows.
To achieve a more simplified system, we need to restore
universal benefits and reduce means-testing. I commend the Chancellor for increasing child
benefit, but wish that he had not introduced the additional complexity of the children's
tax credit, which effectively takes us back to the position when child benefit was
introduced. At that time, family allowances and personal tax allowances meant that higher
taxpayers gained more than others for bringing up their children. I acknowledge that the
new children's tax credit system is more redistributive, but it is complex. A simpler
system might continue with universal child benefit and ensure that it adequately reflected
the additional cost of bringing up children. The better-off, including MPs like myself who
receive child benefit, would have the additional income recouped through a progressive tax
system.
I make no apology for wholeheartedly supporting
progressive taxation and for being against increasing taxes for poor people, who should be
less reliant on means-tested benefits. Such benefits will always be with us, but should be
for the exceptional cases rather than for average groups of people.
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When child benefit was first introduced, it effectively
rolled up a tax allowance into a universal benefit—a process for which there is more
scope in future for other tax allowances. If a large increase in the personal allowance is
the first step, the next step is a flat-rate benefit, otherwise known as a citizen's
income. Again, the idea initially came from the right. It may have been proposed earlier,
but to my knowledge the first suggestion was from Christopher Monckton, a researcher in
Downing street in the late 1980s or early 1990s, when the Tories were in control. The idea
may have a longer history than that.
Such a policy would draw people from both ends of the
spectrum. It would maximise personal freedom and incentives to save. Every time that it is
raised, people say that its time has not yet come. I disagree; in Ireland, for example,
there are interesting debates on the subject. However, it may be a second step. As a first
step, I plead with the Government to consider the direction that they have chosen and the
complexity and amount of means-testing. In the future, 65 per cent. of pensioners will be
subject to some kind of means-testing, and I doubt that that will be conducive to the
Government's aim of increasing private savings. Surely, we can broadly unite around such
principles. If there were the will, such changes could be introduced.
11.36 am
Mr. Michael Jack (Fylde): I congratulate my hon.
Friend the Member for Fareham (Mr. Hoban) on securing the debate and on beginning what
should be a much more widespread discussion. As the hon. Member for Birmingham, Selly Oak
(Lynne Jones) said, it is restricted to a few aficionados at present.
As a former Treasury Minister, I share something in
common with the Paymaster General. We have had to deal with the real complexities of the
tax system in the form of the Finance Bill. If my hon. Friend the Member for Fareham
thinks that everything that every Minister wants emerges in the Finance Bill, I can tell
him that an enormous discard process restrains the well-meaning officials from the Inland
Revenue who beaver away with a sometimes zealot-like commitment to ensure that money is
raised in accordance with what they believe are the wishes of the Government of the day.
Ministers must occasionally restrain their enthusiasm, however, and many non-starters in
the budget process end up in the wastepaper bin.
My hon. Friend and the hon. Member for Birmingham, Selly
Oak gave several cameo observations to illustrate where complexity abounds in the present
tax system. If we are to discuss simplification, we must first define what we mean by a
simplified tax system. The world is a complex place. If the Government of the day are to
secure revenue through the major areas of tax—personal, business and international
taxation—to pay the national bills, complex systems will be involved.
We must determine whether we wish to start removing bits
of the tax architecture. My hon. Friend the Member for Fareham referred to problems with
capital gains tax, for example. I agree with his comments about the Chancellor's fiddly
approach to tax.
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However, we must consider the justification for and implications of removing parts of
the tax structure. For example, the Conservative Government removed the tax provision on
performance-related pay because we felt that it had had its day, it was being abused and,
if the truth be told, such a change was a good way of raising revenue. There were good
reasons for doing it, and the tax system was simplified by the removal of that
legislation.
If we are to have an honest debate, we must start by
asking what should stay and what should go, if that is our definition of a simplified tax
system. If we do that, we must have a wider debate, which we have not had in this country.
We have not discussed tax, as we are all frightened of it. The political parties shy away
from discussing it. The Government try to shield themselves from the debate by saying that
they will not raise the basic and higher rates of tax. A great shield is held up against
anyone who says that Labour is a tax-raising party. The Government, like every other
Government, have been forced into raising revenue, however, and many things go on behind
the scenes that we define as stealth taxes.
At the end of the day, we are avoiding the debate about
what it is legitimate to tax. Our tax system has grown out of building on history; it is
not an accident of history. Before the present range of income taxes, many capital taxes
were invented: stamp duty, inheritance tax and so on. The world has moved on, but we have
not discussed whether it is sensible to tax people's inheritance or to use stamp duty. The
current Chancellor has found that stamp duty is a nice littler earner and the dog that
does not bite. By putting in a little complexity here and a tweak there, we get a few more
billions out of the tax system. Politically, I see the attractiveness of that.
A second way to simplify the tax system is to be honest
enough in the 21st century to stop and ask what we are taxing. Are these the right ways
for the Government to derive their revenue? We should go back one stage further and debate
how much tax it is sensible for a modern economy to contribute as a percentage of gross
domestic product. We seldom start the debate about tax from the size of the cake and then
ask how we raise it. Instead, Governments have built on the substructure of the tax system
that they have inherited from the previous Government. Usually, we add to it, but
occasionally we take pieces away. If we are going to talk about simplification, we need to
have a fundamental discussion about the purpose and architecture of the tax system.
Otherwise, we will end up fiddling.
The Finance Bill is a fiddler's charter. Along the
conveyor belt of Budget starters come individual measures, which are perfectly justified
and formed in their own way, to tell the Minister of the day what needs to be done. The
Paymaster General will have experienced that in her early days, as I did. The Minister,
however, never saw the big picture—what he or she was bolting in or taking out of the
tax system—or the added complexity until the tax law rewrite exercise brought forth
its first product, the Capital Allowances Act 2001. We suddenly had the book on capital
allowances, which was remarkably clear, and we could read it for the first time from
beginning to end. The story unfolded. The previous system grew like Topsy. No one could
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understand it, or see where a review of schedule A might be sensible to take into
account modern property transactions. Now, we can.
The rewrite exercise opened an important window on the
operation of the tax system. I am glad that the process was begun when I was Financial
Secretary and I pay tribute to the present Paymaster General for taking on the exercise. I
just wish that she would increase the resources that are available to it, especially with
regard to the drafting of the parliamentary counsel, so that the process can be speeded
up. As my hon. Friend the Member for Fareham pointed out, the exercise is starting to
tease out where improvements could be made. Excellent officials in the Inland Revenue have
identified some of them.
The exercise could be a way of refining current law,
rather than changing it, especially with regard to schedule E and earned income, but it
needs to go further. The Government should not be frightened of having the debate to which
I referred.
My hon. Friend pointed out the need for greater
consultation—an ocean of consultation takes place on the mechanics of the tax system.
All sorts of representative bodies spend half their lives whizzing in and out of Somerset
house talking to Revenue officials. The problem is that we have not had that discussion
about the tax system. If the Paymaster General was feeling brave, why did she not set up a
group of interested parties to examine simplification? I would have volunteered my
services to help in that task, for what they are worth.
I have met with many representative bodies, including the
Institute of Chartered Accountants in England and Wales, the chambers of commerce, the
Confederation of British Industry and the Chartered Institute of Taxation. I have told
them all that if they want to talk about simplified tax, they should produce some. So far,
they have not produced one piece. They have returned to the need for better written tax
law—tax law that is more easily understandable and has fewer bells, knobs and
whistles on it. If a cleaning up of the tax system is what we mean, that is fine and we
should agree with that as a definition.
My hon. Friend the Member for Fareham mentioned one or
two examples where the Chancellor has indulged in additional complexity. My position on
tapers in the capital gains tax regime is well known. I thought that the taper system was
wrong because it made an artificial distinction between long and short-term capital
movements. We lack any form of economic appraisal to determine who is right about that.
Will the new proposals do what the Chancellor of the day says that they will do?
When Ministers receive tax proposals, they get a
generalised statement of their likely impact, but we do not. One classic example, which I
raised during the Finance Bill proceedings last year, concerns the reduction in VAT on
children's car seats. The Red Book included a series of vaguely connected sentences in
justification of the tax. It gave the impression that reducing the VAT on car seats would
cut the numbers of children who are tragically killed on our roads by inducing people to
buy better seats that provide better protection for children. However, a helpful official
at the Department for Transport, Local Government and the
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Regions told me that 50 per cent. of children killed on the roads are pedestrians.
Would it have been better to deploy the £5 million that the measure cost on improved
publicity and raising safety awareness for children on the footpaths of our nation? Have
we had any justification for the measure? Has it worked and has the change been passed on
in lower prices?
The Paymaster General (Dawn Primarolo) : The right
hon. Gentleman knows about that matter as it was dealt with in the Standing Committee. The
Government simultaneously increased the grant funding to the Department for Transport,
Local Government and the Regions to deal with pedestrian accidents. He can check the
record, but I am sure that he will remember that the figures were given to him at the
time.
Mr. Jack : The hon. Lady shows sensitivity about
the matter in rising to intervene. I will not rerun those debates, but the question was a
good way of illustrating that we do not know whether adding yet another element to the tax
system was effective. It is the same with capital gains tax. We have no economic analysis
to tell us in capital terms whether tapered tax has had a better impact on industry than
the previous system of CGT or having no taper at all. My hon. Friend the Member for
Fareham mentioned stamp duty and we do not know its impact on property transactions. We do
not know whether a cliff edge or a tapered version of stamp duty is the way forward. There
are an awful lot of don't knows.
The complexity of our tax system is partly due to
avoidance. The hon. Member for Birmingham, Selly Oak touched on that and painted a picture
of a pure world in which people would read the words of tax legislation and follow them
exactly. I am sure that the Paymaster General will know of many examples of when clever
people have read the words. I remember some gentlemen from Close Brothers getting terribly
upset when I told them that they could not have a £55,000 personal equity plan. They had
read the PEP legislation, thought "What a whizzo idea", bought £6,000 worth of
PEPs, parachuted into them the income from £49,000 of an interest-earning asset and set
the return so that no capital gains could be levied. It was a wonderful return and a
fantastic way of investing, but it blew a hole a mile wide in what the PEP legislation was
all about and had to be stopped.
The banks and insurance companies then came up with a
whizzo wheeze on life assurance policies, which put at risk £750 million of tax revenue.
The famous Glaxo case on transfer pricing—a dimension of international
taxation—put at risk a further £600 million of tax revenue. So, any decent Financial
Secretary or Paymaster General who is seeking to safeguard the public purse will always
have to block up such holes in the tax system.
During the lifetime of the present Government, the need
for general avoidance legislation—an all-encompassing super sentence that would stop
it all—has been debated but they have rightly drawn back from that. Avoidance is an
intellectual battle between clever people who examine tax law and try to interpret it in
certain ways. That is the problem. Tax is not scientific; it is a best endeavour to raise
money. The ways in which people get round tax legislation illustrate why tax law is
5 Feb 2002 : Column 215WH
so complicated. If a truce could be declared on avoidance, a vast array of tax laws
could be scrapped. That would help enormously, but is unlikely to happen.
Mr. Edward Davey (Kingston and Surbiton): Will the
right hon. Gentleman say a little more about why he is against general anti-avoidance
provisions? The Ramsey test case helped considerably, but subsequent cases blew it apart
and we ended up in the position that the right hon. Gentleman described. Could not the
Government by statute return us at least to a Ramsey-type position and perhaps even
better?
Mr. Jack : I said that tax is a set of words open
to interpretation and the same would apply to general anti-avoidance provisions. Perhaps
someone could provide a set of words to do the job effectively, but I have yet to see it
and I remain to be convinced. I was illustrating how a vast amount of tax complexity is
due to plugging avoidance holes.
The Chancellor has a tendency to fiddle with many little
micro-measures. Research and development tax credits are a classic example. We have no
idea what the effect will be. Until we can achieve some economic appraisal of these
measures, the tax system will be an open door to fiddling, adding on small measures and
providing a sense of well-being to whatever group has achieved something from the Budget.
Greater complexity arises for questionable effects.
The hon. Member for Birmingham, Selly Oak referred to
playing tunes with the tax system. When I was in the Treasury, I recall one of its
officials saying, "Ministers, you can achieve the Conservative promise of a basic tax
rate of 20 per cent."—no 10 per cent. from us, I hasten to add—"even
though we are short of revenue". I thought that it was fantastic and wondered where
they kept the Harry Potter magic wand. It meant moving allowances, changing national
insurance measures, reforming rates here and there. I realised that it was possible to
have umpteen variations on the theme and that the machine would continue to turn out
money. What was the objective? That was the key point.
The hon. Lady also mentioned flat tax and advocated
simple tax systems, with simple rates and allowances—great! Starting with a clean
sheet, such a system might develop. I refer hon. Members back about seven years to
parliamentary questions put by the then Member for Carshalton and Wallington, Nigel
Forman, who wrote a good pamphlet on this subject. The answers showed the winners and
losers under the arrangements that were current then.
The hon. Member for Birmingham, Selly Oak obviously has a
keen knowledge of social security, but making changes means dealing with the winners and
losers, which is difficult unless starting out with a brand new system. The Chancellor has
gone too far. The hon. Lady was right that the 10p rate was unnecessary window dressing.
On the other hand, the PAYE autopilot, which works
extraordinarily well, shields two thirds of taxpayers from much of the system's
complexity. Those who have to fill in the self-assessment tax form wander into such
5 Feb 2002 : Column 216WH
complexity and, as my hon. Friend the Member for Fareham said, greater transparency
should be considered.
Lynne Jones : I accept the problem of winners and
losers, but that should not stop us from moving towards the system that I advocate. I
agree that it will be a slow process, but we could have a consensus that that is what we
should aim for and work towards it.
Mr. Jack : I draw my remarks to a conclusion by
saying that I agree with the hon. Lady. However, tax is one of the great politically
sensitive matters. It is almost like death—no one wants to talk about it. The
Government of the day want to be able to say that they are not raising too much tax or
that they are doing wonderful things with the bits of their handiwork that they admire,
but they will not talk about the legitimacy of what they should tax and how they should do
it.
If there were a public debate on the matter, we might
find new ways to raise revenue that the public would think legitimate. If that could be
done, some of the superstructure could be dismantled. For example, in France there is VAT
on food and people return from visits there saying how cheap the cigarettes and the booze
are. The French have a nice little source of revenue and food seems to be cheap too. We
cannot talk about that, however, because both our major parties say, "We will not put
VAT on fresh food, children's clothes, books and periodicals." That may be right, but
we have not discussed it because it is a no-go area.
To deal with simplification, we must first define
"simplify", consider the history of the tax system and its legitimacy and have a
proper, public debate about the matter. If we were not frightened to talk about tax we
might find a way to simplify a complex system in a complex world.
11.56 am
Mr. Edward Davey (Kingston and Surbiton): I
congratulate the hon. Member for Fareham (Mr. Hoban) on securing the debate and the right
hon. Member for Fylde (Mr. Jack) and the hon. Member for Birmingham, Selly Oak (Lynne
Jones) on their excellent contributions to it.
I recommend to hon. Members the report of the debate
sponsored by the noble Lord Howe in the other place on 23 January. I welcome the fact that
both Houses are debating what the right hon. Member for Fylde was right to call a key
issue. Liberal Democrats believe that a simpler tax system would be of huge micro-economic
significance to the personal and corporate sectors. I shall deal later with the costs of
complexity, which have been discussed and which are much larger than has been
acknowledged.
I declare an interest of sorts. The tax law review
committee of the Institute for Fiscal Studies, of which I am a member, established a
working party chaired by Sir Alan Budd on the institutional need for tax simplification.
The committee will publish a report in due course. I hope that the Minister and her
colleagues will respond positively to the ideas advanced by the group, which includes
members of all parties and many external experts.
5 Feb 2002 : Column 217WH
The right hon. Member for Fylde talked about starting
with a definition of a simpler tax system, which he seemed to define only in terms of the
language. I want a wider definition. To build a simpler tax system, we must consider
long-term tax policies, the reform of existing taxes, which have been discussed today, and
the process of implementing those policies. We must bear in mind that some of the
complexity arises from the way in which taxes are administered, not from the taxes
themselves. We need to look at the bureaucracies and how they organise themselves. Often,
their organisation leads to unnecessary complexity, such as the separation of Customs and
Excise and the Inland Revenue, about which the Minister has trenchant views.
Political parties need to assess their tax measures in
the light of simplification. We need to widen the long-term debate and to deal with some
of the sacred cows that have wandered into the polity of Britain. It is a shame that in
the beginning of the 21st century we cannot discuss measures that we debated vigorously in
the 1970s and 1980s. It is a retrograde step. It is a symptom of spin politics that we
should de-spin for the sake of the taxpayer.
I want to talk more about the processes. In his Hardman
memorial lecture Lord Howe emphasised simplicity and stability. He talked about the need
to reduce the volume and pace of change, which is important. We should look at ourselves
in the House as we are responsible for that in many ways. An examination of the processes
involves both looking at ways to stop the situation getting any worse and reviewing what
has already happened.
Lord Howe and others have suggested that we should get
rid of the annual Finance Bill. I agree. The right hon. Member for Fylde talked about the
need to protect the revenue yield to the Treasury. That is right. Nevertheless, we have an
annual Finance Bill only because income tax and corporation tax are not permanent taxes on
the statute book. If we reformed the Provisional Collection of Taxes Act 1968 and made
income tax permanent, we could think about tax policy in a longer term way. We could have
a comprehensive tax review to go alongside the comprehensive spending review. We could
look at tax policy over a period of three or four years rather than have this annual
change, which is a dynamic in itself for more legislation and increased instability in the
system.
Let us consider changing the Finance Bill regime. I am
attracted by the idea of separating the Finance Bill into two parts—whatever remains
of it after the reform of the 1968 Act. A change in excise duties requires a Budget
resolution and a quick Finance Bill to put it in place. Perhaps every year, or preferably
every two or three years, we could have a technical taxes Act to deal with some of the
detailed changes in a more protracted way with greater consultation. Let us reform the
Finance Bill system so that we do not make it any worse, and let us also look at the past
and at some of the ideas floating around the various institutes and professions.
Let us look at building on the wonderful tax law rewrite
project. I pay tribute to the hon. Member for Fareham and to the Paymaster General for
their work and support for that project. It produces a whole set of reform proposals,
which it cannot deal with because its remit is tightly drawn only to rewrite the existing
law. What will happen to all those ideas? Although Lord
5 Feb 2002 : Column 218WH
Howe and many other people could probably claim paternity for the idea, I suggest that
we need a tax commission similar to the Law Commission or, preferably, a Select Committee
in the House of Lords, charged with looking at the existing tax system and proposing
sensible reforms to the Government. It would be up to the Government of the day to decide
whether to adopt them. It would be a body with the political clout and expertise to ensure
that the legacy of complication was reduced.
On the costs of complexities, some people question
whether that is a problem, although business men or tax consultants readily admit that it
is. What is the real cost? The figures are not readily accessible. We have had various
estimates over the years, primarily from Professor Sandford and his team at Bath
university. I saw a figure suggesting that compliance costs—I believe that his
definition of compliance costs in this case is both private and public sector
costs—equated to 1.5 per cent. of GDP, so we are talking about £15 billion to comply
with and administer the tax system.
Professor Sandford's latest work is entitled "Why
Tax Systems Differ" and was published by Fiscal Publications in 2000. It has a
chapter on administration and compliance costs, which goes into some academic detail about
how one goes about working out those costs. The major conclusions are that we are only
beginning to develop the methodology of working them out; that it is difficult to make
international comparisons, for a number of reasons; that high public sector administration
costs might not be a bad thing if they reduce private sector compliance costs; and, that
compliance costs are higher than previously thought and we must start to take them
seriously, which is the key point. Professor Sandford talks about much greater interest in
the issue and many more studies being commissioned, and I give the Government credit for
commissioning some of them.
I hope that the Paymaster General will elaborate more
today than she and her officials have done in recent months in answers to my parliamentary
questions. For example, I asked the Chancellor of the Exchequer whether he had received a
final copy of the study by Professor Anne Hansford into the compliance costs to business
of the UK tax system and when he would publish the study. The Paymaster General replied:
"Studies into compliance costs for Corporation Tax and VAT were
commissioned as the first stage of a four year research programme into the compliance
costs to businesses of the UK tax system."—[Official Report, 27 November
2001; Vol. 375, c. 870W.]
In other words, we did not receive a clear answer, which
is not unusual.
The Government have commissioned a four-year research
programme, but I hope that they will not wait until the end of that period before sharing
some of the lessons with us. We want to help, which is an important reason for them to do
so. The Paymaster General is looking at me over her glasses because she cannot believe
that Opposition Members want to help the Government, but this is a shared project. It is
not a project of the Government of the day; it is a project through which we as
parliamentarians can improve the system.
5 Feb 2002 : Column 219WH
I urge the hon. Lady to say more about the studies that
have been commissioned, to share her thoughts on how the Government are looking into the
issue and the research that they are doing and, as the right hon. Member for Fylde said,
to involve us, because that is terribly important. To tempt her into doing so, I shall end
by praising the Government on one or two matters. There is no doubt that consultation on
tax measures has improved under this Government. The pre-Budget report is a big step
forward and, as the right hon. Gentleman said, they have been supporting the tax law
rewrite project.
In answer to another debate in which the right hon.
Gentleman and I talked about tax simplification, the Paymaster General said:
Clearly, she is minded to support us and I hope that she
will move from sympathy to activism by setting up the institutions, processes and policy
review that will enable us, over five or 10 years, to tackle this major problem.
12.8 pm
Mr. Howard Flight (Arundel and South Downs): I add
my congratulations to my hon. Friend the Member for Fareham (Mr. Hoban) on securing the
debate, in which extremely valuable contributions have been made. I hope that this debate
and the recent debate in the House of Lords will be the start of a much more open and
focused public debate.
I should perhaps declare an interest, having established
a Centre for Policy Studies committee under the chairmanship of Lord Young to consider the
areas in which there may be scope for simplication and to make proposals. It is
interesting that competing bodies are doing the same.
Unfortunately, the Government have made the tax system
more complicated than it needs to be, particularly in proliferating personal tax rates, as
is evidenced by the speedy increase in the length of "Tolley's" tax guide. I
shall not name names, but I spoke to a Treasury Minister just this week who commented that
they regretted having to employ an accountant to do their tax return because they did not
have time to deal with the complicated forms. As more people are dragged into complexity,
the risk of lack of compliance will increase, as will extreme annoyance.
I pay tribute to the Revenue staff. They do an amazing
job in dealing with our tax system. For eight years in the 1980s I sat on a Treasury tax
consultative committee. In those days, representatives of different parts of the country's
economic life were sounded out in confidence about potential tax changes and their impact.
It is a pity that the committee was eventually wound down in, I believe, the early 1990s.
It is important that Paymasters General remain in post
for a reasonable period of time to gain intellectual mastery of the brief. I congratulate
the Paymaster General on that, because I have observed in the past—not in the case of
my right hon. Friend the Member for Fylde (Mr. Jack)—that if Tax Ministers move too
frequently, the situation tends to worsen.
5 Feb 2002 : Column 220WH
Let me discuss some principles. My right hon. Friend
raised the big question of legitimacy, but other obvious principles should be considered.
One is as old as tax itself: the cost-efficiency of taxation. We should consider not just
the costs to the Revenue of collecting taxes but the costs to businesses and people of
paying taxes. Some areas of tax are extremely efficient and, manifestly, some are less
efficient. That is one criteria.
I believe passionately in the principle of not distorting
economic activity. There is a growing tendency for taxation to do that. It is crucial not
to damage the gross national product and not to drive economic business activity abroad or
allow it to go elsewhere when it might come to the UK. I remember fighting the cause of
the investment management industry when I sat as its representative on the Treasury
consultative committee. I pointed out that Dublin and Luxembourg were getting huge amounts
of fund management business that London should have, that the business would be more
honestly and better carried out in London, and that the central issue was whether tax
should be stopped on interest paid by money and bond funds. For whatever reasons, the
Revenue did not agree, and we lost huge amounts of income and employment because about
£500 billion of business was done elsewhere.
I am cautious about using the tax system to encourage
certain types of behaviour rather than simply to raise revenue efficiently. The most
fashionable aspect of that at present is environmental taxation. One can see the logic,
but I suspect that the results are often contrary to the intentions. It may drive some
businesses to areas where there are less stringent environmental checks, and it can lead
to nonsensical outcomes. For example, it is not surprising that many people ended up with
wrong codes under the new car taxation arrangements. The requirement for employers who
provide cars to report the carbon dioxide engine emission details to the Inland Revenue is
strange. No doubt manufacturers of cars will eventually provide it, but it is not
information that someone responsible for PAYE can easily find.
Mr. Edward Davey : Does the hon. Gentleman think
that the Inland Revenue should instigate a completely new coding exercise or—as seems
to be the intention—require individual taxpayers or advisers to contact the Inland
Revenue?
Mr. Flight : In practice, it seems that a coding
exercise may be necessary. As things are developing at present, there is the danger of a
considerable shambles.
We all say that it is wonderful to take measures that are
good for the environment, but I believe that they can lead to taxation that is
economically damaging or misconceived. We should be wary of using the tax system for
objectives other than solely raising tax. The taxation of cigarettes is complete
madness—[Laughter.] Yes, I declare an interest. The revenues are far lower
than they should be and it encourages smuggling on a wide scale. At least theoretically,
the taxation of tobacco and alcohol should be on the supply and demand curve for
maximising tax revenues. It is misconceived to think that people's behaviour can be
changed purely by imposing taxation that is designed entirely for other areas.
I echo the points that were made about not changing the
system of taxation more often than is necessary. The Government constantly revisit and
tinker with elements
5 Feb 2002 : Column 221WH
that are of interest to them and leave unchanged areas that are not of interest, but
where there may be scope for change.
It is crucial to keep the tax system for individuals
sufficiently simple for them to understand. In a recent debate in the Committee that
considered the Tax Credits Bill, I was shocked to hear the Financial Secretary say that we
could have a system like a television set that was so complicated that no one would
understand it, but that all people had to do was turn the switches on. Whether people are
paying tax or receiving negative income tax, if they do not broadly understand the rules
we invite chaos, if not semi-fraud. Clearly, complexity does create fraud.
There is a relationship between the number of Inland
Revenue or tax officer staff and the amounts of tax paid and of taxpayers. Although the
United States has a reasonably complicated tax system, the ratio of people working in the
Internal Revenue Service to tax paid and taxpayers is much lower than it is here. The
Paymaster General seems to be shaking her head. Perhaps we will have a chance to return to
that.
Layer on layer of taxation is a problem that is most
evident in relation to pensions taxation and company taxation. As my right hon. Friend the
Member for Fylde said, the solution may be to take bits of the architecture out.
Anti-avoidance measures are unavoidable. The principle of
having only general anti-avoidance provisions was tested in Canada, where it created the
problem that commercial transactions had to be pre-cleared, which occupied large numbers
of inland revenue staff and considerably delayed the process of commerce. The clear
distinction between evasion and avoidance is essential to the honesty of our society. It
is understandable that people will want to pay as little tax within the law as they can,
but they must know whether or not they are crossing the boundaries of the law. A degree of
rough justice between fairness and efficiency is required. In recent years we have bent
over backwards to honour fairness where it is both tax-inefficient and not necessarily
appreciated by citizens at large. My hon. Friend the Member for Fareham described what was
wrong with tax complexity and the problems that it could cause to government and business.
The Saatchi and Warburton proposals appeal to me greatly
in principle, for the same reasons that the hon. Member for Birmingham, Selly Oak (Lynne
Jones) outlined. One of tasks of the committee in which I am involved is to consider the
viability of those proposals. The overlap between the number of people who pay tax and the
number who receive benefits is about 40 per cent. It is not as easy as simply raising the
tax threshold and doing away with many benefits because one is dealing with overlapping
but not concentric groups of people.
Lynne Jones : The proposed citizen's income would
deal with that because people who receive income support would be paid.
Mr. Flight : I thank the hon. Lady and look
forward to co-opting her on to the committee.
5 Feb 2002 : Column 222WH
The corporate area is not of great interest to citizens
at large, but there is still scope for masses of simplification, and I commend the
Institute of Directors' 11 quick wins, with which I shall not deal at length.
Dawn Primarolo : There are only 10 minutes of the
Adjournment debate left. I know that the hon. Gentleman has many interesting things to
say, but if I am to answer hon. Members' points, I implore him to be brief.
Mr. Flight : The last thing that I want to do is
to deny the Paymaster General sufficient time to respond.
There is scope to deal with corporate taxation. On
personal taxation, the major principle is that although it is okay to introduce complexity
for those at the top end of the scale, if that creeps down to the majority, and especially
to those at the bottom end of the scale, it becomes unworkable. That is where we are
going, and it is largely unnecessary.
12.21 pm
The Paymaster General (Dawn Primarolo) : First, I
congratulate the hon. Member for Fareham (Mr. Hoban) on securing the debate. The
convention is for short replies from Ministers in Westminster Hall debates and I hope that
all hon. Members who took part will excuse the fact that I shall be unable to answer every
question.
I shall assist the hon. Gentleman with some information
that he quoted from parliamentary answers. If he returns to the question that he asked
about capital gains, he will notice that the paragraph that gave him the answers of 7.4
per cent., 14.8 per cent. and 29.6 per cent. is preceded by a statement that those figures
were calculated by "ignoring behavioural changes". The right hon. Member for
Fylde (Mr. Jack), who experienced the tax law rewrite and is a former Financial Secretary
to the Treasury, touched on that matter when he referred to simplification.
The hon. Member for Fareham quoted figures on the
increase in Inland Revenue staff. Unfortunately, he did not mention that 8,400 staff were
transferred directly from social security work in the Contributions Agency and that 3,700
were transferred in with tax credits. The increase in the number of staff in the Inland
Revenue was around 245 in the period he discussed, which, given the vast increase in
taxpayers due to the Government's economic reforms and success in getting people back to
work, is not a large increase when compared with the increase in workload.
Mr. Hoban : I was careful in picking my numbers
from the parliamentary answers because the disconnect clearly took place during the first
part of the Administration as new functions were brought into the Inland Revenue. I was
well aware of that issue, but time prevented me from pursuing the matter further with the
Minister's colleagues.
Dawn Primarolo : I am happy to ensure that the
hon. Gentleman gets that information on the record in a parliamentary answer if he would
like it.
5 Feb 2002 : Column 223WH
The point of the debate has been to suggest that the
United Kingdom is suffering, but I remind hon. Members that the UK has more direct foreign
investment than a large number of other countries and that we are now fourth in the
worldwide league table. Both the Organisation for Economic Co-operation and Development
and the International Monetary Fund have pointed out that the United Kingdom is one of the
most conducive environments in which to do business and continues to attract half of all
new headquarters of multinationals. The UK and its economy are in a very buoyant position.
Simplification involves a number of propositions. We
would all agree that simplification is correct and that we should try to achieve it, but
it must be balanced with certainty, fairness and what we intend the tax system to do. As
the right hon. Member for Fylde pointed out, to start from the proposition that whatever
we do in the tax system no one will try to circumvent it and do something else, is simply
to fail to face up to what is really happening. There must be intervention on the basis of
fairness. I intend the tax system to be used as it is supposed to be and for relief to be
given as it is meant to be. I will come back to anti-avoidance.
Another question involved in simplification is whether
Members of Parliament believe that there is any role for the tax system to intervene on
market failure. The hon. Member for Arundel and South Downs (Mr. Flight) says not, but
that is not business's view, nor the view of many of his Front-Bench colleagues. It seems
to me that people want complexity when they believe that it suits them. The capital
allowances legislation is an example of that. People do not want complexity if it means
that their taxes are higher.
What the Government must do, and have been doing, is to
examine how to balance simplicity, fairness and equity and look at what it is acceptable
for the tax system to do and not do. The Government have clearly laid out our objectives
for the tax system. They are to
5 Feb 2002 : Column 224WH
ensure economic stability, raise productivity, increase employment opportunities and
tackle child poverty in a fair tax system. Within our complex world and our complex
economy, we try to take those principles forward.
Of course, fairness to one person can be uncertainty to
another. The hon. Member for Fareham mentioned tax planners. I find it breathtaking if he
is seriously suggesting that there will be a truce and that tax planners will say that
they will never try to put bits of legislation together that were never intended to go
together to minimise relief. Of course that is not the case. There is always that
intellectual challenge, as the right hon. Member for Fylde pointed out.
The next question is how to defend ourselves against that
possibility. How do we have simply written and easily understandable legislation? I
wholeheartedly support the tax law rewrite project, and the capital allowances
legislation, in particular, is fantastic. We have tried to get to such a truce and asked
if we could have general anti-avoidance legislation, but business said, "No, that is
no good". Can we have smaller, or mini, general anti-avoidance legislation? The
problem with the anti-abuse legislation is that it is so large. Again, business says,
"No." The hon. Member for Fareham says that we should consult more. We consult,
and business says, "No."
I do not mind having the debate that right hon. and hon.
Members have suggested this morning. It is important, however, not to enter that debate
with rose-tinted glasses, believing that the tax system is neutral and that people do not
try to manipulate it. The purpose of the tax system is to raise money fairly to invest in
public services. I am happy to have had this short debate and I do not mind having it
again and again because the more people who understand what goes on in the tax
system—how people try to manipulate it and where the winners and losers are—the
more they will understand that the process of simplification, fairness and certainty in
investment is a difficult balance, which the Government are striking.
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