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Clause 139

Volume 405: debated on Wednesday 14 May 2003

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Employee Securities And Options

I beg to move amendment No. 12.

Clause 139, which gives effect to new schedule 22, takes up some 80 pages of the Bill—

Order. I think it would be unfair if I did not let the Committee know my thinking. It strikes me that debate on the amendment encompasses a clause stand part debate. I ask Members who intend to speak to bear that in mind. I have not finally made up my own mind, but I think it is probably the case.

3.45 pm

I thank you for that, Mr. McWilliam. Indeed, I was going to crave your indulgence that I might discuss the amendment in a wider, "stand part" context.

As I said, the proposals in clause 139 take up some 80 pages of the Bill. It strikes me that they have been introduced in response to a court judgment that has proved a problem to the Revenue and needs to be corrected. There has, however, been no consultation on the provisions. Dare I say that it has been drafted extremely poorly? It contains a raft of potential new charges and burdens, some of which could be retrospective. To be candid, the proposals as they stand have received widespread criticism from the relevant professional bodies.

The amendment calls for new schedule 22 to be suspended pending further consultation. The schedule's drafting constitutes a complete rewriting of the Income Tax (Earnings and Pensions) Act 2003, which came into force on 6 April. Indeed, it is a complete contradiction of that legislation; as the Bill stands, we will revert to an incomprehensible drafting.

The scope and breadth of the proposals were not evident from the Budget speech and press releases—a point that is particularly true of the proposed changes to pay-as-you-earn and national insurance. A statute is being amended that had already been rewritten in plain language; however, the opposite effect is now being achieved. Formulae are used as in the rewritten legislation, but the acronyms used are not explained, save in the explanatory notes. For example, according to the explanatory notes the expression UMV"—it is used in a particular clause—means "unrestricted market value"; however, it would be a great deal more user-friendly for such expressions to be included in the body of the legislation itself.

Can my hon. Friend advise me, in so far as he can interpret the thinking of the Paymaster General, as to how schedule 22 is consistent with the right hon. Lady's support for the tax law rewrite project, given the implication that that project is intended to simplify taxation?

I thank my hon. Friend for making, in his splendid way, the point that I was making in a rather low-key fashion. This provision is a complete contradiction of any commitment to clearly drafted legislation. As I have pointed out before, eminent lawyers have described schedule 22 as

"massively complicated and almost impossible to explain, even to … sophisticated people."
The schedule, in

"its Technicolor complexity, was introduced without any … consultation".
As it stands, it is difficult even for the lawyer-experts to understand all the proposals.

The Bill expands the definition of a "readily convertible asset". In particular, shares in a company under the control of another are to be treated as readily convertible assets. That gives rise to additional PAYE and national insurance liabilities for the employer when charges arise under the new legislation. Several of the changes apply to securities issued before 16 April this year. Before the Budget, shares could have been issued to employees on the basis of legislation then in place—only for those employees and their advisers to discover that the shares are subject to provisions that they could not have been aware of when the transactions were entered into. That, combined with changes to PAYE and national insurance, means that employers are likely to face tax charges for which they have not provided. In respect of national insurance, they will not be able to recover it from employees. The changes should not apply to securities issued before 16 April, where such unforeseen liabilities could arise.

A new chapter 2 of part 7 applies to restricted securities. The provisions stop the avoidance of the income tax charge when securities are acquired by an employee subject to conditions or otherwise reduced in value. It is a tax-avoidance issue, which the Government understandably sought to address. The conditions were subsequently removed. Without the provisions, the growth in value of the securities would have been subject to capital gains tax. The schedule modernises the existing provisions and makes them more sophisticated. I welcome the fact that the powers provide for a number of elections, which will allow employees to pay income tax by reference to the value of the securities acquired at the date of acquisition on the assumption that some of the restrictions are not there.

We are particularly concerned that the new raft of proposed legislation is highly complex and has not had adequate consultation. We appreciate the Government's desire to reverse the impact of the recent court ruling and to deal with the PAYE avoidance schemes to which I referred. However, the current drafting will leave many genuine share schemes in a serious mess and will overlay an already overcomplicated regime, which could come to represent a material barrier to wider share ownership for unlisted companies.

The catch-all drafting could result in a raft of unexpected income tax charges arising at various points during the period of ownership of the shares. The new PAYE and national insurance contribution rules will mean that charges arise when shares have not been disposed of. Venture capitalists with investee companies in which restrictions on shares are included in the articles could face particularly serious problems. There is a plethora of purpose tests, valuation tests and requirements to look back for seven years, which will mean that unlisted companies and owner-managed businesses will need to navigate most carefully through extremely difficult legal waters.

We wonder whether the Revenue intends to issue any guidance on such matters as the meaning of market value—for example, when restrictions are in the articles of association of the company as opposed to when they are outside the articles. The effects of new capital gains tax, market value definition, the position regarding management buy-outs and what constitutes commercial purposes are all important issues.

Many of the changes apply with immediate effect, and we are concerned that the new measures impose charges that people did not conceive of when the relevant share schemes were set up, and will leave people having to comply with legislation with which they are unfamiliar. Very little of the principles of the tax law rewrite has been included, as I explained.

Another concern is the harshness of some of the provisions that could be mitigated by an election, which has to be made in a Revenue-approved form within 14 days of a transaction. I am led to understand that the Revenue has stated that it will not allow taxpayers to make an election before Royal Assent and will positively prevent them from doing so by declining to issue a prescribed form of election. The Revenue has stated that no provision or concession will be granted to allow elections for events that take place between 16 April and Royal Assent to be made within 14 days after Royal Assent. If that is the case, it strikes me as unethical, unfair and without precedent. It could cause real problems for clients who need to get things done before mid to late July.

I end by echoing the comments of my hon. Friend the Member for Buckingham (Mr. Bercow). So much for the Government's commitment to clarity, transparency and fairness: the provisions in schedule 22 are an absolute nightmare. We have tabled many amendments, and I hope that the Paymaster General will respond by saying that she, too, recognises the need for very considerable clarification and better drafting, and for unintended problems to be addressed.

I endorse entirely what has been said by the hon. Member for Arundel and South Downs (Mr. Flight). All the information that I have received from the professional bodies leads me to conclude that the clause and schedule are exceptionally complex, and that there has been insufficient consultation.

If City experts do not understand the clause, what hope is there for anyone else? Do the Inland Revenue and parliamentary counsel understand the clause and the schedule, and the repercussions and tax consequences that they will have?

It is empty for Ministers to trumpet tax reliefs when they are so complex that they cannot be accessed. It is worthless for them to exclaim that they are seeking to simplify the tax system, when provisions such as the clause and the schedule only make the legislation more complex.

The scope and breadth of the proposals were not evident in the Budget press release. That is especially true in respect of the consequences for PAYE and national insurance. I hope that the Paymaster General will concede that the amendment is entirely reasonable in the circumstances, and that there should be proper consultation. People need to understand the law, which should be readily accessible. It is in the interests not only of tax practitioners but of their clients and of businesses that they should be able readily to understand the law and its consequences. They must be able to access the law without undue risk or expenditure.

Does the hon. Gentleman agree that not only businesses or tax advisers need to understand the measure, but that it should be readily accessible to the people whom it affects? Is not one of the problems with the tax system that, if it is not accessible or comprehensible, people will feel that it is not fair? The Government must understand that this complication does not merely make matters difficult for the professionals—it makes them difficult for many people who are pretty ordinary as far as tax is concerned but who will be affected by the schedule.

Before the hon. Gentleman replies, I must inform the Committee that I have now made up my mind that there is no scope for a stand part debate. Whatever the conditions of the schedule, the clause itself is perfectly comprehensible. Hon. Members are going quite wide of that, but that is fine.

I am grateful to the right hon. Member for Suffolk, Coastal (Mr. Gummer) for making an excellent point. For taxation to achieve public acquiescence, it must be fair and intelligible. I draw the right hon. Gentleman's attention to the excellent memorandum, dated May 2003, issued by the revenue law committee of the Law Society, which gives pages of suggested amendments. I hope that we shall have an opportunity to probe those amendments so that we can try to make some sense of a complete mess.

4 pm

Notwithstanding the pertinent point made by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), does the hon. Gentleman not think it a pity that the Chancellor cannot be with us in Committee this afternoon, in order to explain how he squares schedule 22 with his foreword to Labour's business manifesto, entitled "Equipping Britain for the Future", published in April 1997, in which the right hon. Gentleman said—ho, ho!—

"We will not impose burdensome regulations upon business because we understand that successful businesses must keep costs down"?

I am grateful to the hon. Gentleman for that intervention; he makes an excellent point. However, I hope that the Chancellor is busy squaring the Prime Minister on his view on the euro—

I do not need much encouragement, Mr. McWilliam; that is the trouble.

We shall be going into these matters in detail in the Standing Committee. Will the Paymaster General assure us that, having heard the arguments, she will acquiesce in this amendment, which is, in the circumstances, entirely reasonable?

To date, my policy on the Bill has been to go for brevity, but I am not able to do so on this clause, not least because we are considering about 90 pages of extremely complex new measures. The provisions are problematic in many respects and we are not helped by the fact that there has been a massive lack of consultation, as my hon. Friend the Member for Arundel and South Downs (Mr. Flight) explained.

The new rules are generally thought to be a sledgehammer to crack a nut and a compliance nightmare. One specialist noted that generalist advisers, let alone their taxpayer clients, will not know when to make their elections under paragraph 431. They will not know how to operate the regime or how to comply with it on every possible occasion that a chargeable event arises. How they were to do that was, he said, beyond him. Even if they managed to comply with the regime, the shares valuation division would be inundated with applications to agree hypothetical values of securities, with and without their restrictions, in order to calculate the amount of schedule E tax charged on each chargeable event.

The new regime imposes income tax on the acquisition of securities and/or on their value at the time of defined chargeable events, where such securities are made available by reason of any person's employment. That applies irrespective of who acquires and provides the securities.

I have a few basic points to make about the regime. First, income tax charges can arise for an employee at various stages in the life cycle of a security, on what is, of course, purely a paper value. Secondly, there will not always be a corresponding corporation tax deduction for the employer company because there are many mismatches with the corporation tax regime under schedule 23. I am sure that we shall look into that point in greater detail in the Standing Committee. I understand from representatives of the venture capital industry that the measure will be extremely hard on private equity investee companies, as they are often under the control of their investing limited partnership funds and thus cannot enjoy the tax advantages of things such as EMI—executive management incentive—options, nor will they be able to receive corporation tax deductions.

Thirdly, the regime will render the employer company liable to account for the income tax under PAYE, which was originally done under a withholding system. Finally, it will require the employer to account for employer national insurance. All those cases apply even where a person other than an employer provides securities to a person other than the employee. All that makes this proposal extremely draconian.

Proposed new section 421B(3) says that anything provided by a person's employer or by a person connected with the employer will be deemed to be made available by reason of employment, unless the provider of the security is an individual—for example, another shareholder. It also says that the right or opportunity arises

"in the normal course of domestic, family or personal relationships of that person."

That wording is very strange; it appears to suggest that an opposite presumption exists where the provider of the security is not the employer or a person connected to the employer, or where the security is to be treated as not acquired by reason of employment. That is not clear, and an indication of where the Government are coming from would be helpful before we have to gather our thoughts later in Committee.

The new regime will catch gifts of securities—those securities provided at a price less than their market value; those provided with future payment obligations attached; those provided whether or not at market value or acquisition price; those that attach restrictions on transfer or retention; those that are subject to forfeiture or are convertible; those with artificially depressed or enhanced value; or those that are disposable for more than market value. It will also catch securities options acquired by reason of employment. Some options seem to be caught twice, because the definition of security includes subscription warrants, so a subscription option is both a security and a securities option. Is the regime therefore trying to draw a distinction between subscription and purchase options? That is not clear, and it is absolutely vital that we have an idea from the Minister about that before we go into the details later in Committee.

Most importantly, can the employer and employee elect under the main part of the new regime—chapter 2, which relates to the restriction of forfeitable shares—to be taxed on the initial acquisition of the securities, valued for tax purposes on a basis that ignores the restrictions on those securities? If so, the subsequent chargeable events tax charges will not arise. However, if people do not elect, income tax charges will be made at various stages in the life cycle of the security, depending on what happens to it. Why not instead say that the profits on the ultimate disposal of the security will be taxed as income under schedule E, unless people elect for upfront income tax treatment to be the cost of entry to the capital gains tax regime, instead of trying to tax the security at lots of different stages in its life cycle? Of course there is no corresponding relief for a fall in value following a chargeable event.

As my hon. Friend the Member for Arundel and South Downs said earlier, 14 days is much too short a period in which to have to elect for the reasons that he gave, which I will not repeat. Significantly for the private equity industry, which seems to be extremely concerned by these proposals, it would appear that the receipt of a carried interest in a venture capital or limited partnership would fall within the new rules. However, that needs clarification, as it is not clear whether the security interest that the employer acquires is the limited partnership interest itself, as with a unit in a collective scheme, because there is no definition of unit in the legislation, or whether the shares and securities that the partnership acquires in its investee companies count as the employee's securities, and whether, if the latter is the case, they acquire that interest qua partner or qua employee, deriving from their initial acquisition of a carried interest qua employee.

By making an election, it may be possible to opt for income tax treatment at the outset, so that capital gains treatment for the future is secured, but if the electing needs to be done every time the fund makes an investment, that will be an administrative nightmare, and it will be impossible because, with a fund of funds, carry holders in the top fund will not even know what acquisition funds the lower funds are making. It is illogical that the employer and employee can agree that the employee will bear the employer's national insurance costs in the case of securities options, but not in that of other security interests.

Those regimes, when enacted, will generally apply to securities acquired on and after 16 April 2003. Again, in the context of partnerships, it is not clear what is the date of acquisition of the security interest, as that depends on whether it is the partnership interest or the underlying shares or securities in investee companies that count. The definition of collective investment scheme is much too nebulous and unclear. The extension to the definition of readily convertible asset in paragraph 15, which in turn triggers national insurance and PAYE liabilities, is also of concern to the private equity industry, because the widened definition catches shares in a company that is under the control of another company, and limited partnership funds, investee companies, are often caught by that control test. That, of course, gives the employer company a national insurance liability. It also denies it a corporation tax deduction under the schedule 23 regime, and denies it the ability to adopt an enterprise management incentive option scheme, as I mentioned previously. That, of course, is a triple whammy to an industry sector that the Government have said previously they are keen to support, although they may not have intended it to have that effect, in which case I would be interested to hear the Paymaster General's views.

All the people to whom I have spoken about this clause have said that more time is needed for consultation to get it right and to strike the right balance between anti-avoidance measures—which, of course, the Government wish to implement—and the serious impact that those measures will have on the mid-market private sector and the private equity industry too.

This has been a short but none the less important introductory debate to clause 139 and the associated schedule, which we will consider in the Standing Committee. In responding to the amendment and explaining the clause, I will address the issues raised, notwithstanding the fact that, clearly, there will be an interesting and detailed debate when the Bill moves upstairs to a Standing Committee.

For the sake of absolute clarity, I urge the Committee to resist the amendment, and I commend clause 139, which introduces the reforms to the taxation of share-based remuneration. As the debate proceeded on clause 138, I stressed, and the Committee accepted, that the majority of employers and employees undertake their responsibilities in this area diligently. Unfortunately, however, a small though significant group persists in seeking out ways of avoiding those responsibilities. We have evidence that, in the most recent year for which data are available, at least £1.4 billion has been put through avoidance schemes using shares and securities to take advantage of the fact that the existing rules do not operate consistently and coherently in every situation.

The anti-avoidance measures relating to employee benefit trusts announced in the Chancellor's pre-Budget report address much of that, but they cannot tackle every scheme: for instance, schemes in which the tax and national insurance saving is worth more than the associated corporation tax deduction for the employer.

If the hon. Gentleman would let me make my opening remarks and respond to the questions that have already been put to me, I will be happy to take an intervention. This is a complex set of issues, on which I must concentrate as I respond to the Committee.

4.15 pm

The scale of the avoidance that uses share schemes in one form or another, which the measures in schedules 21 and 22 tackle, costs the Government—the taxpayer—in excess of £110 million a year. That is not insignificant. Although I recognise what hon. Members say about the representations that they have received from various bodies, I counter that—perhaps this demonstrates the complexity and importance of the subject—by referring them to the article, which I quoted earlier, in this week's "Tax Journal" by David Cohen of Norton Rose who is an expert in such matters. He details each substantive change that we are making and explains why they are better in some instances and clearer in others.

Obviously the Government do not want to send out the message to the majority of employees and employers who are paying their fair share of tax that we are allowing highly paid executives to avoid their tax liability with complete disdain, which would be the result of the amendment. I make no apologies—I am sure hon. Members would not expect me to—for focusing on the changes that the clause introduces to tackle avoidance and to close loopholes; nor do I apologise for the comprehensive redesign of the rules, which will produce a system that is consistent, coherent and fair. A system that meets those criteria will be less open to abuse by a minority of predominantly highly paid employees who are intent on paying less than their fair share of tax and national insurance.

The main focus of clause 139 is on tackling avoidance. As hon. Members know, that means that consultation is not appropriate. That is the practice not just of this Government but of the previous Government when trying to deal with such issues. However, in redesigning the rules we have drawn heavily on the feedback from consultation processes that have accompanied a number of discussions with the industry. We have also taken into account the industry's concerns, expressed to us over a long period of time, about the inequities in the current system and its proposals for making the rules fairer so that we design a new system that taxes to income only the value received from the employment at the time when that value becomes accessible and not the capital growth in the value of the share following acquisition, which is the current arrangement.

I assure hon. Members that those anti-avoidance provisions are targeted at non-commercial transactions that place such benefits in the hands of employees without them paying their fair share of tax and national insurance on the value. They will not adversely affect those who offer their employees genuine share schemes that provide a real stake in the businesses for which they work. However, I accept that hon. Members will want to explore that in more detail upstairs in the Standing Committee.

If we delay implementing the clause we will not only give a green light to such people to continue to exploit the loopholes in the legislation, but provide a sign-posted road map for everyone else as well. It would be an utter disaster. Hon. Members should be in no doubt that a large coach and horses would be driven along the roads identified in the attempts to change and stop the anti-avoidance, to the detriment of the Exchequer—the taxpayer—for the benefit of a few.

Our concerns are real. In the space of just last week, Inland Revenue officials received interesting telephone calls from accountants. It seems that the saying for accountants is similar to that for lawyers: the number of opinions required dictates how many different accountants one needs to speak to. One accountant admitted that the existing avoidance schemes would be stopped by the proposals. Another admitted that a new scheme under development would be similarly frustrated, and yet another admitted that if only he had known about the loopholes, he would have had a field day making sure that his clients had access to tax and national insurance relief. To demonstrate our determination not to disadvantage people operating genuine share schemes, I have listened to representations on schedule 22, and I intend to introduce amendments in Standing Committee to correct an error in proposed section 446F(2)(b) of the Income Tax (Earnings and Pensions) Act 2003 and replace "16 April 2002" with "16 April 2003". That is a simple printing error which uncorrected would have resulted in unintended retrospection. In that respect, I agree with the hon. Member for Arundel and South Downs (Mr. Flight). Unfortunately, typographical errors sometimes occur.

We wish to correct two drafting errors and ensure that appropriate relief is given when arriving at the taxable amount in relation to restricted securities, a point made by the hon. Member for Huntingdon (Mr. Djanogly). We also wish to extend the facility to allow people all the tax upfront on restricted securities awarded in the period between 16 April 2003 and an appointed date. I give hon. Members warning that I shall also table amendments to close the remaining avoidance opportunities that have been drawn to our attention. We will tighten the definition of convertible securities following representations that certain avoidance opportunities may remain if that is not done, putting beyond doubt the fact that PAYE must be operated on all charges to tax arising from the operation of these new provisions.

At a time when we are asking everyone to make a greater contribution to the UK's need for investment in the public service through national insurance contributions it is important that everyone, including businesses, should pay their fair share of tax and national insurance. As I have already said, people operating genuine share schemes have nothing to fear from the changes.

I shall now respond to points that I have not covered in my explanation of the amendments that I shall table in Committee. I believe that the question from the hon. Member for Arundel and South Downs about retrospection referred specifically to 16 April 2002, so I hope that he accepts that the correction to 2003 deals with that. Several hon. Members suggested that the provision was a sledgehammer to crack a nut, but I have demonstrated to the Committee that a large amount of money is being taken by a small number of people.

Perhaps I should explain why the provision is not a sledgehammer to crack a nut before the hon. Gentleman intervenes.

Share-based remuneration takes many forms, and is used in many different ways. That reflects commercial reality, and the tax rules try to reflect that. However, the cost of avoidance is substantial. A significant sum is involved, and we have no reason to believe that it would reduce over time. The avoidance rules are carefully targeted on those carrying out non-commercial transactions designed to manipulate the value of shares with a view to avoiding tax and national insurance. Companies across a wide spectrum of business are using those schemes—the larger ones to shelter annual cash bonuses, the smaller ones to shelter the owner-director's remuneration. The chairman of the share scheme lawyers group, writing in The Tax Journal on Monday, had no difficulty grasping and explaining succinctly in just two pages what we were attempting to do. As always, I have listened carefully to the points that Members have made in debate, and shall reflect on them, but I must remind them that we will not be deflected from dealing with anti-avoidance.

I think the Paymaster General told the Committee that about £1.4 billion was the tax lost.

The right hon. Lady said that about £110 million a year was lost. How long has that been going on, and how have the Government quantified the loss?

I am not sure that I can answer the question as to how long. The issue is when tax avoidance schemes become apparent to tax inspectors, as opposed to when they start operating. That is not always immediately clear. I shall check, and if there is a more suitable answer, I shall make sure that it is passed to the hon. Gentleman. With reference to the £110 million loss, I said that in the past year or so we have seen a growth in this area, but we have been aware of the inconsistencies for some time and we have been moving to correct them. As the hon. Gentleman well knows from his substantial experience, it is a complex area and one should not legislate in haste. We have tried not to do that.

Will the Paymaster General respond specifically to the concerns about the complexity of the provisions, so soon after the tax rewrite Bill was considered in this place? It seems extraordinary that the language used is not consistent and that, after a good initiative from the Government, we are now moving in the wrong direction.

The Bill is in the tax law rewrite style. That is why the measure has been taken out in its entirety and put back in. The total number of pages incorporating the necessary changes to deal with avoidance has increased the Bill by 10 pages—if that figure is wrong, I shall correct it in writing to the hon. Gentleman: that is, 10 pages to protect £110 million and produce fairness.

The hon. Gentleman is right: I am utterly committed to the tax law rewrite project and as a Minister I have given it a great deal of support. Its job is to rewrite existing provisions, not to take decisions about the policy or make improvements. Imperfect as that is, I considered it inappropriate to hold up the tax law rewrite project in order to get the provision in place. This area and another area of the Bill closely follow the tax law rewrite style. We can all agree that that is the way forward.

On changes to the taxation of convertible shares, the existing rules do not operate fairly to ensure that the right amount of value is taxed when the employee unlocks access to it. We have received representations about this unfairness. The new rules are fairer, taking into account the security acquired and the right to convert at a later date, and treating each of those separately to calculate the tax charged. There are examples where that is of considerable importance.

There was a question£I do not remember who from£about interaction with enterprise SMEs. We are not attacking genuine share schemes that give employees a real stake. It is the Government's policy to make sure that we do not do that. We are attacking the exploitation of rules by those who do not use the rules properly. Small companies that want to improve their productivity through employee initiatives can benefit from tax and national insurance advantages by using Inland Revenue tax-advantaged arrangements, particularly the enterprise management scheme. The hon. Member for Huntingdon raised that with regard to its interaction with other areas of the tax system, and stressed that we should ensure that there were no adverse effects that would damage provisions elsewhere in the system. I agree. We will discuss the impact of the new rules, particularly in the context of venture capital, with the British Venture Capital Association. We will be mindful across the piece to ensure that there is no inadvertent knock-on effect.

4.30 pm

The hon. Member for Huntingdon also asked whether there would be guidance. The answer is yes. We want to ensure that the current guidance is updated. In particular, we want to work with the industry to ensure that it is appropriate. It is one thing to write guidance, but another to ensure that it is acceptable and usable by the industry.

We are studying carefully the representations made by such august bodies as the Law Society. So far, none of them suggests that the fundamental concept and approach of the changes is flawed. Many proposals appear—I am sure that this is unintentional—to weaken the anti-avoidance effects and not deal with the structures involved.

I realise that I may have spoken for longer than I should, but I hope I have made it clear why the Government consider absolutely inappropriate an amendment that seeks to delay implementation. That is why I ask my hon. Friends to oppose it, as it is foolish to give, in such a spectacular way, a road map on how not to pay tax. I hope that I have dealt with many of the points that have been made, although I appreciate that I have not mentioned all of them.

In recommending the clause to the Committee, I look forward to the discussions in the Standing Committee, which I am sure will be interesting and detailed and will enable us to deal with many more issues so as to put people's minds at rest.

I thank the Paymaster General for her response. In particular, I thank her for some of the corrections that she mentioned, including those about the date and the question of representation and retrospection. I am also glad to note that the Government are now studying the submissions of the Law Society. I trust that they are also considering representations made by the Institute of Chartered Accountants and other professional bodies.

The clause, as it is currently drafted, smacks of legislation made in haste. As it stands, there is potential for a number of unintended consequences. In particular, as my hon. Friend the Member for Huntingdon (Mr. Djanogly) pointed out, the issue of private equity and venture capital is crucial. Unfortunately, development in that area is already stalling pretty seriously in this country.

I do not accept that there has been no scope for consultation on such a major issue. Indeed, the Paymaster General is effectively accepting a degree of consultation with the Law Society. The Government have been seeking to close down avoidance and that seems a clear and straightforward objective. The concern is that, because they have not consulted professionals about where they want to go and the unintended consequences that they want to avoid, we have ended up with legislation that is exceedingly complicated for lawyers, let alone those who have to obey it.

We therefore feel that our amendment is appropriate. As the Paymaster General said, there will be a full debate in Standing Committee and many of the issues will be discussed. However, we are not yet in a society that is so totalitarian that it is right suddenly to introduce such massive and complex legislation with very modest flagging up in the Budget or previously. Furthermore, the new rules are not only about anti-avoidance. We therefore intend to press the amendment to a Division.

Question put, That the amendment be made:—

The Committee divided: Ayes 172, Noes 289.

Division No. 198]

[4:34 pm


Ainsworth, Peter (E Surrey)Brady, Graham
Allan, RichardBrake, Tom (Carshalton)
Amess, DavidBrazier, Julian
Atkinson, David (Bour'mth E)Breed, Colin
Atkinson, Peter (Hexham)Brooke, Mrs Annette L.
Bacon, RichardBrowning, Mrs Angela
Baldry, TonyBurnett, John
Barker, Gregory
Baron, John (Billericay)Burns, Simon
Barrett, JohnBarstow, Paul
Beggs, Roy (E Antrim)Burt, Alistair
Bellingham, HenryButterfill, John
Bercow, JohnCable, Dr. Vincent
Beresford, Sir PaulCameron, David
Blunt, CrispinCampbell, rh Menzies (NE Fife)
Bottomley, rh Virginia (SW Surrey)Carmichael, Alistair
Cash, William

Chapman, Sir Sydney (Chipping Barnet)McLoughlin, Patrick
Malins, Humfrey
Chope, ChristopherMay, Mrs Theresa
Clappison, JamesMercer, Patrick
Clarke, rh Kenneth (Rushcliffe)Mitchell, Andrew (Sutton Coldfield)
Clifton-Brown, Geoffrey
Collins, TimMoore, Michael
Conway, DerekMoss, Malcolm
Cotter, BrianMurrison, Dr. Andrew
Cran, James (Beverley)Norman, Archie
Curry, rh DavidOaten, Mark (Winchester)
Davey, Edward (Kingston)O'Brien, Stephen (Eddisbury)
Davis, rh David (Haltemprice & Howden)Öpik, Lembit
Osborne, George (Tatton)
Djanogly, JonathanOttaway, Richard
Dodds, NigelPaice, James
Doughty, SuePaterson, Owen
Duncan, Alan (Rutland)Pickles, Eric
Duncan, Peter (Galloway)Prisk, Mark (Hertford)
Duncan Smith, rh IainPugh, Dr. john
Fabricant, MichaelRedwood, rh John
Field, Mark (Cities of London & Westminster)Reid, Alan (Argyll & Bute)
Rendel David
Flight, HowardRobathan, Andrew
Flook, AdrianRobertson, Laurence (Tewk'b'ry)
Forth, rh EricRobinson, Peter (Belfast E)
Foster, Don (Bath)Rosindell, Andrew
Gamier, EdwardRussell, Bob (Colchester)
George, Andrew (St Ives)Sanders Adrian
Gibb, Nick (Bognor Regis)Sayeed Jonathan
Gidley, SandraSelous Andrew
Gillan, Mrs CherylShephard, rh Mrs Gillian
Gray, James (N Wilts)Shepherd, Richard
Grayling, ChrisSimmonds, Mark
Green, Damian (Ashford)Simpson, Keith (M-Norfolk)
Green, Matthew (Ludlow)Smith Sir Robert (W Ab-d-ns & Kincardine)
Greenway, John
Grieve, DominicSmyth Rev Martin (Belfast S)
Gummer rh JohnSoames Nicholas
Hague, rh WilliamSpelman, Mrs Caroline
Hammond, PhilipSpicer, Sir Michael
Hancock, MikeSpink, Bob (Castle Point)
Harris, Dr.Evan (Oxford W & Abingdon)Spring, Richard
Harvey, NickSteen, Anthony
Hawkins, NickStreeter, Gary
Hayes, John (S HollandStunell, Andrew
Heald, OliverSwayne, Desmond
Heath, DavidSwire, Hugo (E Devon)
Hendry, CharlesSyms Robert
Hermon, LadyTapsell, Sir Peter
Hoban, Mark (Fareham)Taylor. Ian (Esher)
Hogg, rh DouglasTaylor' John (Solihull)
Horam, John (Orpington)Taylor, Matthew (Truro)
Howarth, Gerald (Aldershot)Taylor, Dr. Richard (Wyre F)
Hunter, AndrewTaylor, Sir Teddy
Jack, rh MichaelThurso John
Johnson, Boris (Henley)Trend Michael
Kennedy, rh Charles (Ross Skye & Inverness)Turner Andrew (Isle of Wight)
Tyler, Paul (N Cornwall)
Key, Robert (Salisbury)Tyrie' Andrew
Kirkbride, Miss JulieViggers, Peter
Lait, Mrs JacquiWaterson, Nigel
Lamb, NormanWatkinson, Angela
Lansley, AndrewWhittingdale, John
Laws, David (Yeovil)Wiggin, Bill
Leigh, EdwardWilkinson, John
Letwin, rh OliverWilletts, David
Lewis, Dr. Julian (New Forest E)Winterton, Ann (Congleton)
Liddell-Grainger, IanYeo, Tim (S Suffolk)
Lidington, DavidYoung, rh Sir George
Lilley, rh PeterYounger-Ross, Richard
Loughton, Tim
Mclntosh, Miss Anne

Tellers for the Ayes:

Mackay, rh Andrew

Mr. David Wilshire and

Maclean, rh David

Mr. Mark Francois


Abbott, Ms DianeDavies, rh Denzil (Llanelli)
Adams, Irene (Paisley N)Davies, Geraint (Croydon C)
Ainger, NickDavis, rh Terry (B'ham Hodge H)
Ainsworth, Bob (Cov'try NE)Dawson, Hilton
Alexander, DouglasDean, Mrs Janet
Allen, GrahamDenham, rh John
Anderson, Janet (Rossendale & Darwen)Dhanda, Parmjit
Dobson, rh Frank
Armstrong, rh Ms HilaryDoran, Frank
Atkins, CharlotteDowd, Jim (Lewisham W)
Austin, JohnDrew, David (Stroud)
Bailey, AdrianEagle, Angela (Wallasey)
Baird, VeraEagle, Maria (L' pool Garston)
Barnes, HarryEfford, Clive
Barron, rh KevinEnnis, Jeff (Barnsley E)
Battle, JohnEtherington, Bill
Bayley, HughEwing, Annabelle
Beard, NigelFarrelly, Paul
Beckett, rh MargaretFisher, Mark
Benn, HilaryFitzpatrick, Jim
Benton, Joe (Bootle)Flint, Caroline
Betts, CliveFlynn, Paul (Newport W)
Blackman, LizFollett, Barbara
Blizzard, BobFoster, rh Derek
Boateng, rh PaulFoster, Michael (Worcester)
Borrow, DavidFoulkes, rh George
Bradley, rh Keith (Withington)Francis, Dr. Hywel
Bradley, Peter (The Wrekin)Gardiner, Barry
Bradshaw, BenGerrard, Neil
Brennan, KevinGibson, Dr. Ian
Brown, rh Gordon (Dunfermline E)Gilroy, Linda
Griffiths, Jane (Reading E)
Brown, Russell (Dumfries)Griffiths, Nigel (Edinburgh S)
Browne, DesmondGriffiths, Win (Bridgend)
Bryant, ChrisGrogan, John
Burgon, ColinHall, Mike (Weaver Vale)
Burnham, AndyHall, Patrick (Bedford)
Byers, rh StephenHamilton, David (Midlothian)
Cairns, DavidHamilton, Fabian (Leeds NE)
Campbell, Alan (Tynemouth)Hanson, David
Campbell, Ronnie (Blyth V)Harris, Tom (Glasgow Cathcart)
Caplin, IvorHavard, Dai (Merthyr Tydfil & Rhymney)
Casale, Roger
Challen, ColinHealey, John
Chapman, Ben (Wirral S)Henderson, Doug (Newcastle N)
Chaytor, DavidHenderson, Ivan (Harwich)
Clark, Mrs Helen (Peterborough)Hendrick, Mark
Clark, Dr. Lynda (Edinburgh Pentlands)Hepburn, Stephen
Heppell, John
Clarke, rh Charles (Norwich S)Hesford, Stephen
Clarke, rh Tom (Coatbridge & Chryston)Hewitt, rh Ms Patricia
Heyes, David
Clarke, Tony (Northampton S)Hill, Keith (Streatham)
Clelland, DavidHinchliffe, David
Clwyd, Ann (Cynon V)Hodge, Margaret
Coaker, VernonHoey, Kate (Vauxhall)
Coffey, Ms AnnHood, Jimmy (Clydesdale)
Coleman, lainHoon, rh Geoffrey
Colman, TonyHope, Phil (Corby)
Cooper, YvetteHowarth, George (Knowsley N & Sefton E)
Corbyn, Jeremy
Corston, JeanHowells, Dr. Kim
Cousins, JimHughes, Beverley (Stretford & Urmston)
Cox, Tom (Tooting)
Crausby, DavidHughes, Kevin (Doncaster N)
Cruddas, JonHurst, Alan (Braintree)
Cryer, Ann (Keighley)Irranca-Davies, Huw
Cryer, John (Hornchurch)Jackson, Glenda (Hampstead & Highgate)
Cummings, John
Cunningham, Tony (Workington)Jackson, Helen (Hillsborough)
Curtis-Thomas, Mrs ClaireJamieson, David
Darling, rh AlistairJenkins, Brian
Davey, Valerie (Bristol W)Jones, Jon Owen (Cardiff C)
David, WayneJowell, rh Tessa
Davidson, IanJoyce, Eric (Falkirk W)

Kaufman, rh GeraldPrice, Adam (E Carmarthen & Dinefwr)
Keen, Alan (Feltham)
Keen, Ann (Brentford)Primarolo, rh Dawn
Kemp, FraserProsser, Gwyn
Khabra, Piara S.Purnell, James
Kidney, DavidRapson, Syd (Portsmouth N)
Kilfoyle, PeterRaynsford, rh Nick
King, Andy (Rugby)Reed, Andy (Loughborough)
King, Ms Oona (Bethnal Green & Bow)Reid, rh Dr. John (Hamilton N & Bellshill)
Knight, Jim (S Dorset)Robertson, Angus (Moray)
Ladyman, Dr. StephenRobertson, John (Glasgow Anniesland)
Lammy, David
Laxton, Bob (Derby N)Robinson, Geoffrey (Coventry NW)
Lazarowicz, Mark
Lepper, DavidRoche, Mrs Barbara
Leslie, ChristopherRoss, Ernie (Dundee W)
Levitt, Tom (High Peak)Roy, Frank (Motherwell)
Lewis, Ivan (Bury S)Ruane, Chris
Liddell, rh Mrs HelenRuddock, Joan
Linton, MartinRussell, Ms Christine (City of Chester)
Lloyd, Tony (Manchester C)
Love, AndrewRyan, Joan (Enfield N)
Lucas, Ian (Wrexham)Salmond, Alex
Luke, lain (Dundee E)Salter, Martin
Lyons, John (Strathkelvin)Sarwar, Mohammad
McAvoy, ThomasSavidge, Malcolm
McCabe, StephenSawford, Phil
McCartney, rh IanShaw, Jonathan
McDonagh, SiobhainSheridan, Jim
MacDonald, CalumShipley, Ms Debra
MacDougall, JohnSimon, Siôn (B'ham Erdington)
McFall, JohnSingh, Marsha
McGuire, Mrs AnneSmith, rh Andrew (Oxford E)
Mclsaac, ShonaSmith, rh Chris (Islington S & Finsbury)
McKechin, Ann
McKenna, RosemarySmith, John (Glamorgan)
Mactaggart, FionaSmith, Llew (Blaenau Gwent)
McWalter, TonySoley, Clive
Mahon, Mrs AliceSouthworth, Helen
Mallaber, JudySpellar, rh John
Mann, John (Bassetlaw)Squire, Rachel
Marsden, Gordon (Blackpool S)Starkey, Dr. Phyllis
Marshall, Jim (Leicester S)Stinchcombe, Paul
Marshall-Andrews, RobertSutcliffe, Gerry
Martlew, EricTami, Mark (Alyn)
Meale, Alan (Mansfield)Taylor, Dari (Stockton S)
Merron, GillianTaylor, David (NW Leics)
Michael, rh AlunThomas, Gareth (Clwyd W)
Milburn, rh AlanThomas, Gareth (Harrow W)
Miliband, DavidThomas, Simon (Ceredigion)
Miller, AndrewTipping, Paddy
Mitchell, Austin (Gt Grimsby)Todd, Mark (S Derbyshire)
Moffatt, LauraTouhig, Don (Islwyn)
Mole, ChrisTrickett, Jon
Moonie, Dr. LewisTruswell, Paul
Morley, ElliotTurner, Dr. Desmond (Brighton Kemptown)
Mullin, Chris
Murphy, Denis (Wansbeck)Turner, Neil (Wigan)
Naysmith, Dr. DougTwigg, Derek (Halton)
O'Brien, Bill (Normanton)Tynan, Bill (Hamilton S)
O'Hara, EdwardVis, Dr. Rudi
Olner, BillWard, Claire
Organ, DianaWareing, Robert N.
Owen, AlbertWatts, David
Palmer, Dr. NickWeir, Michael
Picking, AnneWhite, Brian
Pickthall, ColinWhitehead, Dr. Alan
Plaskitt, JamesWilliams, rh Alan (Swansea W)
Pollard, KerryWills, Michael
Pond, Chris (Gravesham)Winnick, David
Pound, StephenWishart, Pete
Prentice, Ms Bridget (Lewisham E)Wood, Mike (Batley)
Woodward, Shaun
Prentice, Gordon (Pendle)Woolas, Phil
Prescott, rh JohnWorthington, Tony

Wright, Anthony D. (Gt Yarmouth)Wyatt, Derek

Tellers for the Noes:

Wright, David (Telford)

Dan Norris and

Wright, Tony (Cannock)

Mr. Jim Murphy

Question accordingly negatived.

Clause 139 ordered to stand part of the Bill.