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Tax Inspectors (Powers Of Entry)

Volume 976: debated on Friday 21 December 1979

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1.57 pm

My hon. and learned Friend, the Minister of State, Treasury, will appreciate that this debate today is, in many ways, a logical follow-up to the last occasion on which I was fortunate enough to take part in an Adjournment debate—on 25 May this year. At that time I referred to the unhappy and, as it proved, unnecessary experiences imposed upon a constituent of mine, Mr. Bedward, of the Crooked Beams restaurant, Christchurch, at the hands of Customs and Excise inspectors in pursuit of their investigation of a VAT assessment. In reply, my hon. and learned Friend referred to the difficult task that this House had placed on tax officers in establishing the true liability when faced with an apparent under-declaration of tax. He reminded the House that in the last resort complaints can be submitted to the Ombudsman for investigation. I was glad to hear from him then his confirmation of the Government's commitment to undertake a thorough review of enforcement procedures of the customs and excise and of the Inland Revenue.

Today, six months later, I look forward to hearing from him the progress of that review and to learning when we can expect it to be completed. Since then there have occurred or come to light further such disturbing instances, notably the Rossminster case which Lord Denning referred to as
"an illegal and excessive abuse of power on the part of the Inland Revenue".
Such details were in a recent revealing report of the way in which State officials exercised their right of entry into private homes and business premises. In my view, that constitutes the hallmarks of totalitarianism and will remain the residue of Socialism in this country until such time as the law is amended and a code of conduct—which I am urging today—is practised.

The Inland Revenue searched the Rossminster premises under powers conferred upon them by section 20 which was written into the Conservative Government's Taxes Management Act 1970, as a result of section 57 of the last Socialist Government's Finance Act 1976.

In a recent article entitled "Growing Power of the Revenue", the journal Accountancy Age said that this considerable extension of the taxman's powers enabled him
"to go into premises unannounced and take virtually anything he thinks may be connected with a tax fraud (and not just papers)."
And so it has proved. In simultaneous dawn raids on the premises of the Rossminster finance group and the private homes of its personnel in July of this year, tax inspectors seized huge quantities of private documents including a child's school report, a cross country team report, and personal letters, without one word of explanation and with no receipt given. The Court of Appeal unanimously decided in August that the general warrant authorising these raids should be quashed because it did not specify the offence suspected. It ordered the Inland Revenue to return the documents which had been seized. However, as we know, last week that decision was overturned in the other place on the grounds that the requirement of the 1970 Act had been met, even though the powers conferred upon the Inland Revenue by the 1976 Act were, to quote the concern of their Lordships:
"a breath-taking inroad upon the individual's right to privacy and right of property."
Clearly, the law is confusing and confused, and needs to be rewritten. I hope that my hon. and learned Friend will today tell the House of the Government's intention to amend section 20, following consultations with interested groups, so that it shall at least reflect article 8 of the European Convention on Human Rights, which states:
"everyone has the right to respect for his private and family life, his home and his correspondence."
Rossminster had the courage of its convictions, the expertise and, presumably, the finance to take the Inland Revenue to appeal. My particular concern is for the small business man who is part of the vast majority that has had to register for the purposes of VAT. I might tell the House that my constituency has twice the national average of self-employed small business men, amounting to 14 per cent. of the total work force. They do not have the means to stand up to the "Big Brother" State in the guise of tax inspectors. They are more likely to be forced to choose the soft option of paying up to avoid the time-consuming exercise and effort of challenge and appeal, even though they believe right to be on their side. Their plight has been starkly described in the recent report published jointly by the National Federation of Self-Employed and Small Businesses and the Adam Smith Institute entitled "An inspector at the door".

That report, together with the replies to the many parliamentary questions that I have tabled on the subject, identifies 252 different rights of entry given to 201 different types of inspector. More are being discovered and revealed every week. The report refers to a number of alarming instances that have been reported in the national and local press of methods and tactics employed by VAT and Inland Revenue inspectors which one would never expect to be applied in Britain, even after five years of Socialism.

The Daily Mail reported in May 1977 that a hotel owner said:
"They interrogated me, my wife and my staff for hours and when I say 'Interrogated', I know what I am talking about as a former policeman."
A publican, whose story recently appeared in The Daily Telegraph, was also paid a visit by VAT men. He declared that they
"make the Gestapo look like amateurs".
He described the scene, and said:
"They turned out my mother's handbag. She was staying with us after a major operation, and we had to have the doctor in … They went through things that had no possible connection with VAT, like my kid sister's diary".
A Cornish business man spoke of a Gestapo-type interrogation and said:
"the only difference was that the investigator did not pull out my fingernails".
According to the Western Morning News, during that investigation he was not allowed to speak to his wife or go to the toilet by himself. Indeed, officials stood one on each side while he used the toilet.

VAT seems to be the worst offender in these instances. When several officers come together, raids can be very frightening indeed. A hairdresser, quoted in the Newcastle Evening Chronicle, said:
"These people came round like storm troopers and frightened my staff with their questions."
In 1978, the trade magazine, The Fish Trader reported that one fish fryer had committed suicide after continuous harassment by VAT officers concerning an outstanding tax bill.

Another flagrant violation of privacy highlighted by the report to which I have referred, which should, and I hope will, be of concern to the House is the deployment by the Post Office of about 600 people to listen in to about ⅓million telephone calls every year, to check the system and to make sure that illicit equipment is not being used—they say. When I attempted to table a parliamentary question asking whether private and business telephones were tapped by Customs and Excise and the Inland Revenue as part of their investigations, I was told that such questions do not receive an answer. Instead, I was referred to the report of the Birkett committee—Cmnd. 283—of 22 years ago. That is a highly unsatisfactory state of affairs.

Action needs to be taken, and I was delighted when my right hon. Friend the Prime Minister wrote to me 10 days ago to tell me that she is asking her colleagues to look into the numbers of inspectors and their powers of entry for which Ministers are responsible. In the light of the experiences that I have described, it seems to me that there exist some basic principles that need to be codified, which apply in particular to Customs and Excise and Inland Revenue inspectors with powers of entry, search, seizure and surveillance.

I suggest that these are as follows: first, all visits should be made by appointment with the business proprietor or householder, unless the inspector concerned feels that the element of surprise is a major factor in his investigation.

Secondly, inspectors must at all times be polite—I fear that this is not always the case—and show due consideration towards the business proprietor or householder being Visited.

Thirdly, visits, particularly to business premises, must be made at a reasonable time and every effort must be made to arrange visits so as not to interfere with the normal running of the business.

Fourthly, inspectors should explain clearly and precisely, and preferably in writing, to the business proprietor or householder being visited the following points: first, the Act of Parliament under which the visit is being made; secondly, the specific rights of the inspector; thirdly, the specific rights of the business proprietor or householder; and, fourthly, the purpose of the visit.

Fifthly, inspectors should always, unless it would prejudice their investigation, explain to the person being visited whether it is a routine visit or a special visit prompted by information received by the inspector.

Sixthly, inspectors should identify themselves clearly to the business proprietor or householder as soon as they arrive at the premises in question. Only in exceptional circumstances should an inspector indulge in any form of subterfuge or disguise.

Seventhly, business proprietors and householders should be informed as quickly as possible after an inspection whether arty further action is to be taken.

Eighthly, if the investigation is a lengthy one, the proprietor or householder must receive regular notification from the inspector on the status of the investigation.

Ninthly, questioning of staff on business premises should never take place in front of customers, and neither should the proprietor be questioned in front of staff or customers unless he so wishes. The proprietor should normally be present during any questioning of his staff.

Tenthly, if any documents are taken away, the proprietor or householder must be allowed reasonable access to them and they must be returned as soon as possible.

Of course, I accept the need for tax inspectors to investigate abuse and evasion. However, they can and should be held in the same respect and regard as the police by the taxpayers whom they are supposed to serve. That is not generally the case today. The adoption of such a code of practice will go a long way towards restoring that respect from which the entire economy stands to gain.

2.10 pm

My hon. Friend the Member for Bournemouth, East (Mr. Atkinson) has established a consistent and important interest in this field. He has reminded the House very properly of the last occasion when he and I had occasion to debate the principles at stake during another Adjournment debate. He raised the case of his constituent, Mr. Bedward, on 25 May, and the problems of test eating. I took very much to heart the observations that he made then.

On this occasion he has widened the scope of his speech and has raised the subject of the powers of entry of the Customs and Excise and of Inland Revenue inspectors. Those are matters of considerable importance and concern to the Government. I assure my hon. Friend and the House that this Government fully intend to carry out their manifesto commitment to review the powers of the Customs and Exise and Inland Revenue.

As my hon. Friend rightly pointed out, perhaps this is an appropriate moment for the debate, and for us to consider what form the inquiry should take, as my hon. Friend has drawn attention to the Rossminster appeal. That appeal was only an interlocutory appeal, as it were, but what the court said on that occasion will no doubt be studied both inside and outside the House, and certainly by the Government. Appropriate lessons will be drawn.

My hon. Friend and, indeed, the House, will not expect me to comment on the facts of any particular case. My hon. Friend knows the conventions that apply. However, it is appropriate—although my hon. Friend has no doubt studied the judgments very carefully—to draw the attention of the House to the words of Lord Wilberforce, in the leading judgment in the House of Lords. He gave the leading judgment in favour of the Inland Revenue. Perhaps that gives his observations added force. He said:
"The integrity and privacy of a man's home, and of his pla business, an important human right has, since the Second World War, been eroded by a number of statutes passed by Parliament in the belief, presumably, that this right of privacy ought in some cases to be overriden by the interest which the public has in preventing evasions of the law. Some of these powers of search are reflections of dirigisme and of heavy taxation, others of changes in mores. Examples of them are to be found in the Exchange Control Act 1947,"
—my hon. Friend will realise that, happily, we have moved a certain distance since 1947 in that area at least—
"the Finance Act 1972 (in relation to VAT) and in statutes about gaming or the use of drugs. A formidable number of officials now have powers to enter people's premises and to take property away, and these powers are frequently exercised, sometimes on a large scale. Many people, as well as the respondents, think that this process has gone too far; this is an issue to be debated in Parliament and in the press."
I am sure that the whole House will agree that my hon. Friend should be congratulated on taking the earliest opportunity to respond to their lordships' invitation on that point.

My hon. Friend referred to codes of practice and to the booklet produced jointly by the Adam Smith Institute and the national federation. My right hon. Friend the Prime Minister has commented that the booklet is valuable and that it should be taken very seriously. I reassure my hon. Friend and the House that I have asked for a report on all the individual cases referred to in the booklet. There are nine cases, one case being mentioned twice. Two of those cases were referred to the Ombudsman. The Customs and Excise was found, in some respects, to beat fault.

Although the other cases reflect the need for an inquiry, I am not certain that the terms in which they were described were an accurate reflection of what really happened. We take the general tenor of criticism very seriously. Any case that is referred to me by an hon. Member or by an individual is immediately given a full and thorough report. I am sure that previous Administrations took the same action.

In reply to my hon. Friend the Member for Newark (Mr. Alexander), on 6 December, my right hon. Friend the Prime Minister said that all the Departments concerned were being asked to review their statutory powers and to consider whether any further measures were needed to publicise the rights and duties of inspectors. The main thrust of my hon. Friend's speech was to present a case for a code of practice. I have taken careful note of his points and I am sure that the House, the relevant Departments, and many members of the public would find them unexceptionable. However, I do not wish to anticipate what any inquiry might throw up. It touches upon a subject that any inquiry would have to look at and make recommendations on.

I remind my hon. Friend that the Inland Revenue and the Customs and Excise already operate under codes of practice. Although this may sound a contradiction in terms, they are the provisions of law that have been enacted by the House. My hon. Friend referred to the provisions of the Finance Act 1976. Both he and my colleagues will recall that when those provisions were debated we had considerable reservations about them. I think that I am right in saying that the Rossminster case provided the first occasion when the courts were asked to pronounce on their application.

The code of practice for VAT is enshrined in the Finance Act 1972. At the end of the day it is probably better that, as far as possible, the framework within which a Department operates should be laid down in law, so that it can be tested with precision by an individual taxpayer in the courts. That would be preferable to rather nebulous canons being introduced. However, that is a matter for debate. No doubt the inquiry that we contemplate setting up will be asked to consider that.

There might be difficulty in devising a single code of practice for VAT and Inland Revenue inspectors, because there are some differences in the legal provisions governing the two Departments. Perhaps there is a case for trying to harmonise those legal provisions, but that is a detailed technical matter and I shall not express any general views today.

Will my hon. and learned Friend assure the House that the so-called Leeds experiment, where the Inland Revenue and the Customs and Excise shared information, is an exception and will not become the rule in terms of harmonisation?

I cannot give that assurance. I recognise my hon. Friend's legitimate concern, but the Leeds experiment is, as its name implies, an experiment, and we wish to draw some conclusions from it. We shall want to reach a firm conclusion in the light of the inquiry into the far wider area described by my hon. Friend.

There are differences in the approaches of Departments and in their respective legal frameworks. There are also differences in the sort of problems that they investigate. I therefore cannot give an assurance today, although I take my hon. Friend's point on the question whether a uniform code can be evolved. It is a difficult and technical field, but we shall approach it with an open mind.

I want to emphasise that any hon. Member may call on the Ombudsman to adjudicate on what he or his constituent regards as maladministration or a malpractice. To put these problems in their true perspective, I emphasise also that in the review of VAT that was presented to Parliament a year ago by the Commissioners of Customs and Excise it was pointed out that out of 400,000 visits in a year to traders' premises, only 150 complaints had been made about the behaviour of the officers. After careful examination, only 29 were found to be wholly or partially justified.

I am sure that my hon. Friend, who is fair minded, will recognise that it is easy to pick out the exceptional cases, but we must not convey to the country at large the impression that the whole system is entirely defective. It is therefore right to give these figures, which I am sure my hon. Friend, with his knowledge of these matters, will confirm.

Does my hon. and learned Friend not accept that the majority of people—I suppose that this is a British characteristic—hold back rather than complain, and that as often as not the number of complaints that have been made do not reflect the number of complaints that ought to have been made?

I do not know whether I want to offer any general observations on the British character. I take my hon. Friend's point, but, knowing the assiduity of most hon. Gentlemen and their accessibility to their constituents, I suggest that probably a fair proportion of these matters are filtered through, and rightly so. I hope that my hon. Friend will accept that they are very carefully and thoroughly investigated by the two Revenue departments concerned, and that most of them end up on a Minister's desk and have the critical eye of a Minister put upon them.

I can therefore assure my hon. Friend that I fully share his concern that the procedures and practices of the two Revenue departments and the framework of law in which they operate should not be a cause for concern to legitimate businessmen, traders or taxpayers in general. Equally, I am sure that my hon. Friend accepts that the commissioners of the two Departments have a responsibility to ensure that the proper tax is collected and that the honest majority of taxpayers are protected from the activities of the dishonest minority. It is not always easy to strike a proper balance between the economic and efficient collection of tax and the legitimate interests and privacy of the taxpayer.

My hon. Friend has made another valuable contribution today, and I can assure him that the review, to which the Government are fully committed, will take every account of the comments that he has made.