Skip to main content

Corporation Tax Bill

Volume 709: debated on Wednesday 25 March 2009

Second Reading

Moved By

My Lords, this Bill rewrites certain basic provisions such as the charge to corporation tax and provisions used by companies in computing their income. The main aim is to make the legislation clearer, better structured and easier to use than the source legislation, which is often dense and difficult to follow. The Bill has been produced by Her Majesty’s Revenue and Customs Tax Law Rewrite Project. It is the first of two Bills that will rewrite corporation tax. The second will be introduced later this year, along with another which will rewrite international and other provisions, some of which apply for the purposes of both income tax and corporation tax. The work follows the success of the project’s previous Acts which rewrote the capital allowances and income tax legislation.

I should explain that the Bill has been certified as a money Bill. It was introduced into Parliament in another place at the beginning of last December. Under the special procedures applying to tax law rewrite Bills, the substantive debate on Second Reading was held in Committee. The Bill then passed to a Joint Committee of the two Houses, where it was considered on 27 January. The Joint Committee included among its members the noble Lord, Lord Goodhart, and my noble friend Lady Goudie. I am grateful to them for their efforts in scrutinising the Bill, and to Sir Peter Viggers MP who chaired the Committee. The Bill then passed back to the House of Commons for its Third Reading and is now before us for its remaining stages, which the rules say can be taken in one day.

It is beyond the remit of the project to make any significant changes in tax policy, so it takes great care to preserve the effects of the legislation. It can, however, make very minor agreed changes; for example, to remove ambiguity, repeal obsolete material or correct minor, unintended anomalies. To ensure that any changes made are within the remit of the project, they are considered during an extensive, detailed and thorough consultation process involving the project’s consultative committee, whose members are drawn from the main tax professional and business representative bodies. The work is overseen by an independent steering committee, chaired by the noble Lord, Lord Newton of Braintree, whom I am pleased to see in his place and who will contribute to our proceedings a little later. It includes Members from both Houses, the judiciary, business and consumer groups and the accountancy and legal professions.

The extensive consultation process that I mentioned involved publication for public comment of papers containing almost all the clauses in the Bill, and the Bill was also published in draft form for another round of consultation. In addition, groups of private sector specialists met the project to consider the detail of some of the more complex provisions so that the views of those who are the main users of the legislation were taken fully into account. Throughout the process, proposed minor changes in the law were specifically drawn to the attention of consultees; no minor changes in the law were included in this Bill without the considered approval of both the project’s committees.

The Joint Committee of both Houses heard oral evidence from members of the Tax Law Rewrite Project team. It considered and accepted all the government amendments to the Bill, all of which it agreed were of a minor, technical nature. The Joint Committee concluded that the Bill is a welcome clarification of the existing law and, as a result, it will be easier to use and more accessible to Parliament, the judiciary, informed professionals, business people and other users of the legislation. It was satisfied that the changes of the law in the Bill are of very minor significance.

The success of the project in improving the accessibility of the legislation to users has been borne out by independent market research, which showed that in the main, users of rewritten legislation warmly welcomed it. It was seen to be of particular help to those newly entering the profession. Consultees have also been positive about the project’s work.

It would be wrong of me to conclude without paying tribute to everyone who has taken part in this important work. There are many consultees who have given their time and have used their considerable expertise to consider the detail of the rewritten clauses. As with all rewrite Bills, tax professionals who provide expert comment already understand the legislation and, therefore, have the least to gain from the rewritten provisions. Their selfless contribution to the consultation process for the benefit of the wider range of tax professionals who use the legislation is therefore particularly welcome.

We owe a particular debt to the noble Lord, Lord Newton, for his service as chairman of the steering committee and to the members of both the project’s committees for their expert input and guidance. This is an extremely worthwhile project with a track record that shows that it makes our direct tax legislation more modern, clearer and easier to use. The Bill maintains the high standards achieved in the project’s previous Acts and will make the legislation more accessible to Parliament, the tax professions, business and the judiciary. I commend it to the House.

My Lords, I am grateful to the Minister for introducing this debate, and apologise that I was not in my place for his initial remarks. Nevertheless, I am very privileged to be allowed to speak in this debate.

It is interesting that, although at 821 pages this Bill is the longest ever to appear before the House, the list of speakers at this Second Reading and remaining stages debate is one of the shortest. Indeed, until I somewhat rashly decided to add my name last night, no Back-Bench speaker at all had expressed an interest in participating in this debate. That is rather a pity, because the structure as well as the applicable rate of corporation tax are of great importance in ensuring that our competitive position as a preferred location for foreign companies to set up businesses or establish their European headquarters is protected and enhanced. Unfortunately, the competitive advantage that the United Kingdom formerly enjoyed in terms of comparative corporation tax rates has significantly eroded under the present Government, which made it all the more important that the rewrite of corporation tax legislation should have enhanced our competitive position in its structure and simplicity. This it has singularly failed to do.

It was originally envisaged that the Tax Law Rewrite Project introduced by the Conservative Government in 1996 would make legislation clearer and more user-friendly by adopting consistent terminology, shorter sentences and better use of definitions. However, the areas of overlap between income tax and corporation tax are relatively limited. The rewriting of the overlapping parts, in order to achieve consistency, was justified; but was it worth while rewriting the parts that do not overlap if that rewrite failed to achieve clarity, simplicity and, therefore, international competitiveness? Does the Minister not agree that the Government have missed a trick in failing to use this opportunity to make the UK corporation tax system simpler and more internationally competitive?

It is generally believed that UK tax law is uncompetitive and overly complex. This hits smaller firms hardest, as they are the least able to afford the enormous cost of obtaining enough external advice. World Bank data show that countries with clearer tax laws collect 6 per cent to 10 per cent more tax revenues than those whose tax laws are complicated and difficult to understand. Is the Minister confident that the expensive resources that the Government committed to this rewrite project, which has achieved so little, were justified? Did the Government consider the alternatives, such as leaving the legislation alone and providing better guidance instead? Unless rewrites achieve benefits in brevity and simplicity, they place a great unwelcome burden on the accounting profession, in that experts who knew the tax law well have to start again and relearn the law.

The absolute rate of corporation tax is more important than the structure, but this Government’s extreme profligacy over a decade has ensured that they are in no position, even partially, to restore our competitive position in terms of the rate of corporation tax. It is a pity that, with this 821-page blockbuster Bill, they have also failed to do anything material to improve our position in terms of structure, complexity, clarity or length of our corporation tax law. I look forward to hearing the Minister’s reply.

My Lords, I trust that my noble friend will forgive me if, as chairman of the steering committee, I do not follow him too far down the path. While I shall look forward to the Minister’s no doubt carefully phrased reply to the remarks that have just been made, as a former Minister myself—although not a Treasury Minister—I accept that there is a big difference between clarifying the existing law and simplification, which inevitably involves policy decisions and political consequences in terms of gainers and losers that, frankly, no Government would wish to put into commission to the sort of accelerated procedure that applies to these Bills. Nevertheless, it is fair to acknowledge also—and I am sure that the Minister will—that there is quite a demand among practitioners for the sort of simplification for which my noble friend has called, even though it is not the business of the committee that I chair or of the tax law rewrite project to deliver it.

I shall speak only briefly, not least because, although chair of the steering committee, I was indisposed at the time of the Joint Committee meeting and unable to attend it. I thank the Government, through the Minister, for bringing forward the Bill. I also thank my colleagues on both the steering committee and the consultative committee for their labours, to which the Minister rightly paid tribute, taking into account the volume of paper that they had to wade through. The weight of the documents—even the weight of the Explanatory Memorandum—is such that I have not strained myself by bringing them into the Chamber. I also congratulate the band of dedicated officials led by Dr Steve Batterby, and the parliamentary draftsmen, whose diligence needs no demonstration beyond the size of the papers that we are discussing. Even the Explanatory Memorandum must be among the longest ever seen.

I hope that the House will support what I believe—notwithstanding the reservations expressed by my noble friend Lord Trenchard—has been a very worthwhile and certainly substantial effort.

My Lords, as the Minister said, this is the third product of the tax law rewrite project, and the heaviest to date. I start by congratulating, and possibly commiserating with, those officials who had to labour so long on such a huge piece of work. I hope that they feel that their efforts have been adequately rewarded, and that the accountancy profession will thank them, sotto voce at least, for a formidable piece of intellectual work.

Of course we support the project and the Bill. The problem is that this exercise does not deal with the principal problem facing British tax law, which is that it is far too complicated, to such a point that even when it is written in clear language, it is extremely difficult for anyone except the most erudite practitioner to have the faintest idea how it applies in many cases. As the Minister is aware, there is a growing sense that we need to do something more fundamental than simply improve the drafting and clarity of this very complicated system.

There are a number of proposals to do just that. Only today, the ACCA has produced a report entitled Is there a way out of the tax labyrinth? My first response was to say, “Given previous history, almost certainly not”. However, the report raises issues, and makes a number of suggestions about how we might simplify tax law, ensuring, importantly, that as we build on the body of the law, we do not unnecessarily complicate it.

The proposal from the ACCA is only one of many. Some elements seem very sensible. Others, such as the suggestion that we should abolish the annual Finance Bill, are ones that very few people in your Lordships’ House or another place would think show the way forward. However, the report is a useful contribution to the debate. Another significant contribution is the report undertaken by the noble and learned Lord, Lord Howe of Aberavon, which made proposals for simplifying the law, and looked at how we might make sure that, as we bring forward new law, we avoid some of the mistakes of the past.

There is quite a ferment in this narrow area among people who are worried about the law and are thinking hard about how to improve the system. Of course, there is one area where ferment appears not to have had any impact, and that is in the Government. They have shown absolutely no interest in simplifying the law. When the current Prime Minister was Chancellor, he had a schoolboyishly macho desire to ensure that every Finance Bill was longer than its predecessor. If that was his aim, he was extremely successful, because with every passing year, the Finance Bill got longer, to such an extent that he is personally responsible for adding several thousand pages to the body of tax legislation. That, as a principle and a process, is madness. Much of the law is virtually incomprehensible. It is not accessible to those who are unable to pay expensive accountants to unravel it for them. I would welcome any hope that the Minister can give us that the Government might at least take seriously some of the ideas about procedures and simplification processes, and possibly even come forward with proposals of their own.

My Lords, it is a pleasure to take part in yet another milestone in the work of the tax law rewrite project. The Bill before us, as my noble friend Lord Trenchard said, is the longest ever considered in Parliament. I thought I could claim that record with the Company Law Bill a couple of years ago, but that has now been surpassed. It is perhaps disappointing that on such an historic occasion there are so few noble Lords here to record the event.

We support the Bill, as we have supported previous tax law rewrite Bills. The process that has led to this Bill seems exemplary. It features true cross-party working and builds on work of technical excellence. There has been little external complaint or comment on the Bill.

As the Minister explained, these Bills do not set out to change tax law, though inevitably there are minor changes that are set out with complete clarity in the documentation supporting the Bill.

It is now customary for these Bills to take a wide power to rewrite the law, as a consequence of things not going right, and this Bill is no exception. However, we are content with the power taken, and pleased that the Government have again committed to not using the power to alter legislation before consulting the tax law rewrite committees. That is entirely satisfactory.

I will place on record the appreciation of these Benches for those who have striven mightily in the tax law rewrite project. The project was kicked off by my right honourable friend Kenneth Clarke when he was Chancellor. He now chairs the Joint Committee of both Houses on the tax law rewrite Bills. The steering committee, now admirably chaired by my noble friend Lord Newton of Braintree, who I am delighted is in his place this evening, was originally chaired by my noble and learned friend, Lord Howe of Aberavon. The Minister may note that Ministers with or without Treasury experience who find themselves on these Benches may well have a home waiting for them in the tax law rewrite process.

The real work is of course done by HMRC's tax law rewrite project, overseen by the steering group and assisted by a consultative committee made up of practitioners. The quality and quantity of work involved is amazing, and we admire hugely the work that has gone in to producing this very complex Bill.

The Bill, for all its virtues, does not assist in the reduction of the tax code. Last year we passed India in having the longest tax code, and the net effect of the Bill, even after the repeal of a large amount of existing legislation, will not help us to lose that dubious accolade.

The Minister in another place said that the Bill would reduce costs for taxpayers by £25 million a year. I have no idea on what that figure is based, but I do not believe it. I do not think that the rewrite project needs flimsy calculations of cost savings to justify it. Its main virtue lies in showing how tax legislation can be drafted in simpler and more accessible language, and it sets a standard for all kinds of future legislation. The Minister referred to the fact that it has been welcomed by practitioners, and I am sure that it is helpful. Equally, however, I am not sure that it answers enough of the questions about our tax law-making process. Simplification simply does not go far enough. As the noble Lord, Lord Newby, has already mentioned, my noble and learned friend Lord Howe of Aberavon produced a report last year on making taxes simpler. If my party gets an opportunity, we intend to implement his proposals for an office of tax simplification, which would really pursue the issues that have been spoken about this evening.

My noble and learned friend’s proposals also included Finance Bill clauses being published at the time of the PBR, so that there was a long time for proper scrutiny. He also recommended, rightly, that the skills of your Lordships' House in scrutiny, which are sadly not currently allowed to be used in the Finance Bill, would be brought into that process. The convention that has kept our House away from detailed involvement with tax legislation has been to the detriment of the public and keeping us away from the detailed drafting of the Finance Bill is not necessary for the preservation of Commons privilege—we have no intention whatever of challenging that.

The involvement of my noble and learned friend Lord Howe of Aberavon with the movement for simpler taxes goes back a long way. Researching for this evening’s debate, I found reference to a pamphlet published by the Bow Group in 1969 written by my noble and learned friend together with my noble friend Lord Lamont over 40 years ago. Many of their themes in that pamphlet about the need for radical simplification were echoed in the report of the Tax Reform Commission which my noble friend Lord Forsyth produced two years ago.

The need for tax simplification has got much greater over the past 10 years because we have had a decade of hugely complex tax legislation. As the noble Lord, Lord Newby, said, the Government have been complacent about the way in which they have over-complicated the tax system and been complacent about its effects. Businesses need many things from the tax system that they have not been given in the past decade. They need long-term stability, certainty and simplicity. The endless tinkering, about-turns and short-termism that has driven the development of tax policy over the past 10 years has, frankly, driven businesses crazy.

The CBI recently published a tax task force report, setting out how uncompetitive our tax system has become. The Government like to quote a 2007 study that said that the UK topped the G7 league for ease of paying tax—if there is such a thing—and for the time taken in compliance. However, as the CBI reminded us, as long as the Government are satisfied with benchmarking the UK against the G7, we will fail to be truly competitive in a global sense.

The highly respected annual global competitiveness report issued by the World Economic Forum shows that we have been slipping down the overall competitiveness league tables. We used to be near the top and now we are not even in the top 10. On tax, we are in the bottom half of the 134 countries surveyed for the extent and effect of tax. Two of the biggest issues which cause problems for those doing business in our country are the tax regime and tax rates. Put simply, we need to reverse that trend and simplification is one route.

I am sure that there will be no simplification from this Government and I regret that. However, perhaps it will not be too long before another Government will have an opportunity to make real change to our tax code. In the mean time, we welcome the Bill.

My Lords, I am grateful to all noble Lords who have spoken in this debate. I shall resist the invitation of the noble Baroness to brush up my rewrite skills on the basis that I might be able to perform that function in due course. “In due course” is so far away that I can scarcely envisage it. Therefore, I will stick to the more prosaic matters of presenting the government policy from the Dispatch Box.

I had presumed that there would be one or two obvious criticisms of the process we have gone through with the Bill. Not a Bill comes before Parliament without being subject to critical scrutiny, but I had not quite expected the principled ferocity of the trenchant attack of the noble Viscount, Lord Trenchard. I can only say to him that I accept that there is always an argument for greater simplification, a point amplified by the noble Baroness, Lady Noakes, who has done so on numerous occasions. However, I cited institutions that have played their part in the consultations on this measure, and the actual process of and clarification involved in the rewrite won widespread support and has been commended for its success. The noble Viscount must give us some credit for the fact that those who must use this legislation benefit from the rewrite, which helps, if not to bring about the level of simplification that he would wish, nevertheless to bring real benefits.

A full impact assessment was published on the benefits and costs of the project’s work. The noble Lord will recognise just how difficult it is to produce quantitative evaluations of effectiveness, but users have been positive about all previous rewrite Acts. We have had positive responses to this legislation indicating that the benefits outweigh the costs, which are about £6 million. We estimate that the monetary benefits of tax-law rewrites for this Bill, although difficult to quantify, are about £25 million. I am of course open to challenge on those statistics, but the noble Lord will give the Government credit for seeking to evaluate benefits and costs, which come down on the plus side.

On simplification, the last Finance Bill was concerned with clarification; a fair number of the clauses set out to do precisely that. Of course, clarification and making something simpler often involve, as the noble Lord, Lord Newton, indicated, a policy choice. The moment one has a policy choice, one is into a different form of legislation—the consideration of the Finance Bill and the length of time that the other place has to devote to that—whereas this Bill can only come before the House as it has, and could only proceed through Parliament as it has, including through the other House. Essentially, there is no intent to change the law with it, merely to simplify it and make it more user-friendly.

I accept what the noble Lord, Lord Newton, said. The noble Baroness backed him to a degree by saying, “Well, what is this comparison with these other countries? We will never get improvements in our taxation when we compare ourselves with the G7”. Compare ourselves with the G7? In terms of the ease of paying taxes and responses to the taxation system, we are at the top of the league. I know that the noble Baroness does not need reminding, but if she disparages the G7, I remind her that that league places Britain as better than Canada, better than Germany, better than the United States, better than France, better than Japan and better than Italy. If the noble Baroness says, “Well, of course, that merely shows that we are uncompetitive”, then we are in a strange global economy.

If the noble Baroness is indicating that some of the new tigers of the financial world have a different position on taxation, that is a debate for another occasion. The Government can establish that in this area, against the criteria we are discussing, we bear favourable comparison with the great economies of the world. Therefore, I do not accept being chided by the noble Baroness on that point. However, I accept the points she made on the necessity of striving continually to make taxation simpler and easier to understand. Of course, we all recognise that the Bill has a minor role in that respect, but one which was created in 1996—I pay tribute to her party for that—before the present Administration entered office. As she rightly said, the chairs of the committee are members of her party, and I pay due regard to that. We are building on those proposals and the Bill is the outcome.

As the noble Lord, Lord Newton, indicated in his brief contribution, the Bill is a product of very substantial expert work. The very act of simplifying and seeking to make the legislation more intelligible without raising policy issues is itself a very deft art and we should pay due regard to the skill with which the objectives have been fulfilled by those involved in the rewrite exercise, and to the techniques which they have been obliged to use.

We could not debate finance without an element of controversy entering the discussion, nor could I ever stand at this Dispatch Box opposite the noble Baroness without knowing that she will make one or two pertinent points to which I have to respond. The noble Lord, Lord Newby, was more generous. I understand exactly what he says—if we can translate legislation so that we are able to increase the understanding of ordinary citizens and the owners of small businesses to enable them to look after their affairs a great deal better, we shall make progress. However, business life is complex. We have a complex economy with complex demands and when the public articulate a demand for a change in taxation and politicians seek to respond to that, it often results in a variation of existing measures. It results in qualification and often in extra complexity because in a very real sense people’s lives are becoming more specialised, as are processes and economic operations, and taxation is bound to follow. Oh for the days of William Pitt and the 2p rate of income tax. There are pretty good reasons why we cannot go back 200 years although the noble Lord, Lord Newton, would have found his task a good deal easier if the brief had permitted a return to those halcyon days.

I emphasise that we have support for this rewrite measure. The Institute of Chartered Accountants in England and Wales supports the way in which the measure has been drawn up. It has reservations about particular points but not sufficient to have occasioned great anxiety in the other place or here this evening. The Bill is a product of considerable work. I pay tribute to the work of all those who contributed to the measure. I particularly thank the noble Lord, Lord Newton, for the work that he does with regard to the committee.

Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.

Sitting suspended.