Finance Bill

Public Bill Committee, 12 June 2008.

(Except clauses 3, 5, 6, 15, 21, 49, 90 and 117 and new clauses amending section 74 of the Finance Act 2003)

Nicholas Winterton (Conservative, Macclesfield)

I am delighted to be in the Chair for this sitting. I fear that you will have to put up with my presence this afternoon as well. The weather is cooler than it has been, and I am confident therefore that we shall make even speedier progress with today’s deliberations.

Schedule 38

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 296, in schedule 38, page 383, line 31, at end add—

Jane Kennedy (Labour, Liverpool, Wavertree)

Good morning, Sir Nicholas. The draft regulations that we are considering today are limited to the changes necessary to implement the measures in the Bill. There is concern in respect of the point raised by the hon. Gentleman. HMRC has said, in its published response to a constructive consultation on this area, that it will hold further discussions with interested parties over the coming months on how the current system of reporting scheme reference numbers by users might be improved and simplified. The issue addressed by the amendment is a fair representation of the concern but it deals with only one aspect of a broader range of issues that it is sensible to deal with as a package at a later date.

HMRC is considering changing the rule to reporting the scheme reference numbers when the scheme is implemented. Therefore, it has taken on board the point raised by PricewaterhouseCoopers. However, there are further issues, including transitional issues and the timetable for amending the return forms on which most SRNs are notified.

I hope that, with those reassurances, the hon. Gentleman will note that we have accepted the concerns that have been raised, but there are one or two other areas that we would like to be resolved all at the same time and in a tidier way than the amendment would allow for.

David Gauke (Conservative, South West Hertfordshire)

I appreciate the Financial Secretary’s response and her recognition that this is a legitimate issue. In light of that, and in the expectation that the matter will be addressed, I beg to ask leave to withdraw the amendment.

Clause 113

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 280, in clause 113, page 70, line 25, after ‘provision’, insert

‘under which the amendments can take effect only in relation to claims and assessments for a fiscal year starting after the date in which the order is made’.

Clause 113 implements schedule 39 and relates to the time limits for assessments and claims. We are changing the period of time in which assessments on claims must be made. There is concern that, for example, a person who believes that he has five years, 10 months to make an existing claim and decides not to do so until the end of that period because he cannot foresee whether his circumstances may change, may now find himself time-barred because the time limits are reduced to four years. That is unfair. The Institute of Chartered Accountants has raised the issue of legitimate expectations.

In light of that concern, we propose in the amendment, essentially, a transitional arrangement. The amendment will only come into effect in relation to claims and assessments for a fiscal year starting after the date on which the order is made. Therefore, the circumstances that I have outlined will not apply and transitional arrangements will address those. That is the issue behind the amendment. Again, we should be grateful if the Minister responded.

Jane Kennedy (Labour, Liverpool, Wavertree)

Schedule 39 aligns when HMRC can make assessments to bring tax into charge if too little has been paid or too much claimed. It also aligns the time limits for taxpayer claims. There has been extensive consultation, and it is worth telling the Committee that that Law Society has said:

“We applaud HMRC’s attempts to align time limits structures across IT, CT, VAT, PAYE and NICs”—

income tax, corporation tax, VAT, pay-as-you-earn and national insurance contributions. It continued:

“It is our view that this makes a great deal of sense and will make, it is hoped, compliance with tax laws somewhat easier and provide greater certainty.”

That has encouraged us that the route that we are taking is right.

The schedule sets a four-year time limit for assessments, which is a change from six years for a number of taxes—inheritance tax, corporation tax and capital gains tax—and from three years for VAT. It also sets a six-year time limit for assessments if the taxpayer has failed to take reasonable care, which is a change from 20 years for income tax, capital gains tax and corporation tax, and a 20-year time limit for assessments by HMRC in certain circumstances.

The amendment would constrain the transitional provisions that will be contained in the Treasury’s order introducing the new time limits. The transitional arrangements that we envisage are that we will lay the commencement order by 1 April 2009 to introduce the time limits for claims and assessments from 1 April 2010. The new time limits will therefore apply to claims made after that date. The arrangements will ensure that it is clear to everyone which time limits are changing and when. The main reason for not making the change suggested in the amendment is that it would introduce significant complication. It would mean that different sets of rules applied to different periods in matters as basic as a claim or an assessment.

A further reason not to accept the amendment is that it ignores the aim of aligning taxes. Giving taxpayers extensive notice of a change in time limits, as we propose, is a fair way to introduce such a change. The time limits will be confirmed in legislation a year in advance, giving taxpayers time to make claims for earlier years. HMRC will use the period in between to publish extensively the changing time limits and situations in which taxpayers may be able to make claims. If the time provided does not prove enough for taxpayers’ claims, we will consider delaying the introduction of the new time limits.

Given the strong support that I have mentioned for this package of measures to align time limits, it is right that taxpayers should see the benefits of them as soon as is reasonably possible. Our proposals meet that challenge, and I hope that the hon. Gentleman will withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

We do have some specific concerns to turn to when we debate the next group of amendments, but I am grateful to the Financial Secretary for her comments that HMRC will seek to raise awareness of the change in the time limits for assessments and so on, and that it will keep the matter under review. On that basis, I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 278, in clause 113, page 70, line 25, at end add—

‘(4) No order may be made under subsection (2) in respect of the amendment made by paragraph 12 of Schedule 39 unless—

(a) the Commissioners of Her Majesty’s Revenue and Customs have laid a report before the House of Commons —

(i) demonstrating that they can identify all individuals who have overpaid income tax in previous years, and

(ii) stating what arrangements they will make to refund them the tax they have overpaid, and

(b) the House of Commons has by resolution approved those arrangements.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 277, in schedule 39, page 385, line 21, leave out paragraph 12.

David Gauke (Conservative, South West Hertfordshire)

These amendments have been suggested to us by the Low Incomes Tax Reform Group, an organisation that we have mentioned a number of times of late in the Committee. Paragraph 12 of schedule 39 reduces the time limit for reclaiming overpaid tax from five years and ten months to four years. The LITRG makes the point that it has no objection to alignment when it is for the better operation of the tax system, but that it should not take place for its own sake, particularly if it will cause an erosion of the rights of unrepresented taxpayers.

There is a general concern about overpaid tax, so it would be helpful if the Minister were to give some details of any estimate that HMRC and the Treasury have made of the levels of overpaid tax.

To illustrate the scale of the problem of unrepresented taxpayers, in particular, not claiming back tax that they have paid, but which they do not owe, in 2004-05, the pensioner tax back project repaid 50,000 pensioners some £20 million. It is also worth mentioning the arrangements for the 10p tax rate for savings income. Some people are concerned that there will be large amounts of overpaid tax, because the savings rate will not be claimed. In those circumstances, there is considerable and understandable concern that reducing the time in which people have a right to claim from five years, 10 months, to four years might leave innocent taxpayers who have overpaid out of pocket and not in a position to reclaim. I acknowledge the Financial Secretary’s more general remarks about schedule 39, but that specific matter has raised genuine concerns.

There are two approaches to that matter, as set out in the amendments. The simplest approach is set out in amendment No. 277, which would simply delete paragraph 12 of the schedule, so that we retain the existing position. Of course, there would not be full alignment, but as the LITRG says, alignment for its own sake is perhaps not the strongest argument. Alternatively, if the Government are determined to align all these matters along four years, the LITRG has proposed that no order to change the assessment time limit be made unless HMRC can satisfy the House of Commons that it can identify all the individuals who have overpaid income tax in previous years, and state the arrangements to refund them. That might cause some administrative difficulties—we shall see—but it gives the Government the opportunity to continue their policy of alignment while addressing the concerns that I have tried to outline this morning. If the Financial Secretary is minded to accept one amendment over the other, we would be more than happy to oblige.

Jane Kennedy (Labour, Liverpool, Wavertree)

Amendment No. 277 would remove the long-standing symmetry between assessment and claim time limits, and allowing a longer time limit for claims and assessments would present a significant risk to tax revenues. For that reason, if for no other, I am not attracted to it. It would result in a one-way flow, because HMRC would forego its right to assess underpaid tax, but taxpayers would be allowed to make late claims. Under the clause and the schedule, taxpayers will still be able to make income tax claims beyond the time limit if they have a reasonable excuse for not making the claim on time and if they make the claim without unreasonable delay once that excuse has been accepted.

Amendment No. 278 would require HMRC to identify all taxpayers, as the hon. Gentleman described, who have overpaid tax, and to make arrangements to refund them. He ought to think carefully about what that would mean: it is not possible with self-assessed tax, because HMRC does not have the information necessary to identify how much tax everyone in the UK should, and does, pay, and therefore any difference between the two figures. Requiring everyone in the UK by law to send HMRC full details of their earnings would represent a significant administrative burden, not just for HMRC, but for everybody, and would be of no benefit to most people. Instead, therefore, HMRC promotes the ability to claim through communications with taxpayers, advertising and so on.

HMRC will make sure that all taxpayers are informed of the change in time limits. It will work with taxpayers’ representatives, including the low incomes tax reform group ,to identify which groups of people are likely to be able to make which kind of claims. It will use publicity on the new time limits to advise them how to make a claim, and it is planning another tax back campaign along the lines of the one in 2000 to which the hon. Gentleman alluded, to encourage individuals to claim overpaid tax. It will target pensioners in particular.

Peter Bone (Conservative, Wellingborough)

Will the Minister tell us how much overpaid tax will not be refunded to taxpayers as a result of the change?

Jane Kennedy (Labour, Liverpool, Wavertree)

I was going to come on to the two questions of detail. I do not have that sort of information with me, but I will find it, in so far as it is available, and provide it to the Committee.

I cannot say much more. I understand the motivation behind the amendments, but, if tax has been overpaid, individuals can reclaim it and HMRC is committed to ensuring that people are aware that they can do so. HMRC will work to promote and advertise such rights over the coming weeks. I hope that the hon. Member for South-West Hertfordshire will accept that reassurance that we take his concerns seriously.

David Gauke (Conservative, South West Hertfordshire)

I welcome the Financial Secretary’s remarks, but there is still serious concern about overpaid tax. We will not press the amendments, but we may return to the issue at a later stage. I beg to ask leave to withdraw the amendment.

Schedule 39

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 297, in schedule 39, page 384, line 9, at end insert

‘except that for claims relating to tax years up to and including 2007/08 the reference to “4 years” shall be “6 years”.’.

The schedule raises similar issues to clause 113. I would be grateful for the Financial Secretary’s comments on the time limit for claims for error or mistake being reduced from six years to four years, and how she seeks to justify the measure. The amendment probes further what we have already debated.

Jane Kennedy (Labour, Liverpool, Wavertree)

The amendment raises two issues that we have already touched on. First, it would leave an unbalanced situation. Until 5 April 2014, taxpayers could make claims relating to tax for six years, but HMRC could assess claims only for four years, unless the tax loss was careless or deliberate. The amendment would remove the long-standing symmetry between assessment and claim time limits. Allowing a longer time limit for claims than for assessments would involve a high risk for tax revenues. It would mean in some years forgoing underpaid tax when taxpayers could still make late claims. I have described that as a one-way flow of revenue. Secondly, the amendment would need complicated transitional rules as to what time limits applied. I hope that with that short response the hon. Gentleman will accept that we are alive to his concerns, but that the proposals in the Bill are sensible.

David Gauke (Conservative, South West Hertfordshire)

I note the Minister’s comments on it being a one-way street or one-way flow and her point about symmetry, although we are talking about a relationship between HMRC and the taxpayer that is not entirely symmetrical. Taxpayers are often hard pressed, unrepresented and in a difficult position, so I continue to believe that there is an issue in this regard and, as I have said, we might return to it at a later stage. I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 298, in schedule 39, page 384, line 30, after ‘a’, insert ‘deliberate’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 299, in schedule 39, page 384, line 33, after ‘has’, insert ‘deliberately’.

David Gauke (Conservative, South West Hertfordshire)

I should explain initially—no doubt the Financial Secretary will have noted this—that amendment No. 299 should use the word “deliberate”, rather than “deliberately”, so I should clarify that grammatical point. The amendments relate to assessments involving a loss of income tax or capital gains tax which has been brought about deliberately by the person. The provisions in paragraph 9 stipulate that that loss of income tax or capital gains tax must be

“attributable to a failure by the person to comply with an obligation”

or

“attributable to arrangements in respect of which the person has failed to comply with an obligation.”

The amendments are in part probing. They seek a better explanation of what the word “failure” means in those two contexts and of whether that covers simple carelessness or means something stronger. The attempt to insert “deliberate” is intended to tighten that definition so that the provisions in paragraph 9 will not come into effect if someone is simply careless. We would be grateful for the Minister’s views on those matters.

Jane Kennedy (Labour, Liverpool, Wavertree)

Taxpayers have a long-standing obligation to notify HMRC that they are liable to tax. If a taxpayer does not provide such notification, HMRC might not find out for some time. HMRC, therefore, needs time to investigate their affairs and quantify the tax due. Amendments Nos. 298 and 299 would make the extended time limits apply only if the failure to notify liability or use of a scheme was deliberate, but they ignore the fact that that provision is not a penalty. It requires the taxpayer to pay the tax, if they have not paid because they did not notify HMRC. HMRC owes it to those taxpayers who come forward and arrange to pay tax not to allow those who do not do so to have a significant competitive advantage.

If the amendment were made, HMRC would have to prove that a taxpayer or a company had deliberately failed to notify it of their tax liability, and it should be clear to everyone that that would be extremely difficult. Even if a taxpayer has deliberately failed to notify HMRC of business activity or the use of a disclosable scheme, evidence to prove that that is the case would have to be given by HMRC. Those difficulties would genuinely arise if the amendment were made, so I hope that the hon. Gentleman will accept that that would lead me to resist the amendment if it were pressed.

David Gauke (Conservative, South West Hertfordshire)

Again, we will not be pressing the amendment, but I think that it was an important point to raise. I am not sure that the symmetry between the taxpayer and HMRC is necessarily present in the way the Government profess—carelessness can extend the various limits available to HMRC—and I am not certain whether the taxpayer benefits from the same rights. None the less, we acknowledge the Financial Secretary’s comments and some of the practical difficulties, so I beg to ask leave to withdraw the amendment.

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 194, in schedule 39, page 385, line 37, leave out from ‘discovers’ to ‘that’ in line 38 and insert

‘within four years of that information having been provided’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 300, in schedule 39, page 385, line 38, after ‘later’, insert

‘during the period within which it is possible for an assessment to be raised to recover the tax lost’.

Jeremy Browne (Liberal Democrat, Taunton)

It seems strange to make a contribution when there is no test match starting today. However, we can look forward to the shallower pleasures of limited-overs cricket for the next few weeks.

The amendment refers to paragraph 15 on page 385, which has already been touched on, because we have discussed more minor amendments on the same point. Sub-paragraph (5) states:

“For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation.”

Sub-paragraph (6)(b) states that

“the person who provided the information, or the person on whose behalf the information was provided, discovers some time later that the information was inaccurate”.

Our concern is that a period “some time later” is a rather vague basis for the taxpayer to know their position. The amendment would change that phrase to

“within four years of that information having been provided”.

The amendment is as simple as that, and I am interested to hear the Financial Secretary’s response. I ought to say that we are not wedded to a period of four years. If she thinks that another figure is preferable, the Committee may well be persuaded. However, the principle of a specified time limit as opposed to the expression, “some time later” is of value. With your indulgence, Sir Nicholas, may I say that, although amendment No. 195 is not in this group, it relates directly to this matter? It would put the measure in place from 6 April 2009, so that there would be a period for people to adjust to the proposal. Having made that point, I will not feel the necessity to make it later.

David Gauke (Conservative, South West Hertfordshire)

I endorse the hon. Gentleman’s words: test cricket is a far superior game to Twenty20 cricket. I share his view that there is a problem with the measure. Amendment No. 300, which I tabled with my hon. Friends, reminds me of the Conservative amendment with regard to deceased persons that the Financial Secretary graciously accepted last Tuesday. We agreed in the Committee that there was no point in the time period within which information should be provided being any longer than the period in which tax could be assessed. Amendment No. 300 makes a similar point regarding the period of time in which it is possible for an assessment to be raised to recover lost tax. There is a parallel to be drawn: given that I was successful with our earlier amendment, I thought that that would be a particularly persuasive argument for the Financial Secretary, but we shall see.

Nicholas Winterton (Conservative, Macclesfield)

We will see whether that argument falls on favourable ground. [Interruption.]

Jane Kennedy (Labour, Liverpool, Wavertree)

As my hon. Friend the Member for Telford is proposing an expedition next Wednesday evening, if time will permit, to a Twenty20 game, I am not so dismissive.

David Gauke (Conservative, South West Hertfordshire)

I wish to clarify that I am not anti-Twenty20 cricket, but test cricket is none the less the greater form. I think that my diary is free for that evening.

Nicholas Winterton (Conservative, Macclesfield)

The intervention had something to do with numbers so I will allow it. [Interruption.]

Jane Kennedy (Labour, Liverpool, Wavertree)

My hon. Friend the Exchequer Secretary says that it is all my fault for accepting the amendment earlier this week. With regard to the point about the phrase, “some time later”, what was said sounds reasonable, and it is important that I respond to it thoughtfully.

The legislation makes it clear that after six years a careless inaccuracy cannot be corrected, so the taxpayer knows that he or she need not inform HMRC. The Bill replicates the definition used for penalties for incorrect returns in the Finance Act 2007: a taxpayer should take reasonable steps to tell HMRC if he or she finds an error in information given to HMRC. Both the amendments seek to restrict the time available to taxpayers to do so, which would mean that HMRC would not be told of certain errors that led to the underpayment of tax. It would also mean that the definition for a careless loss of tax would no longer be aligned with that used for penalties, which would be confusing for taxpayers. The onus would be on HMRC to demonstrate careless or deliberate behaviour, for both penalty purposes and the assessment of time limits. That definition of a careless loss of tax does not create any new obligation to notify HMRC beyond that which already exists. Instead, it clarifies the situation as a careless loss of tax. The alignment of time limits, as I said earlier, was welcomed, because overall, the changes in time limits give taxpayers certainty earlier. However, giving that certainty to those who know there are inaccuracies in their returns but choose not to tell HMRC, does not meet the objective of ensuring that taxpayers pay the right amount of tax at the right time.

The hon. Member for Taunton spoke on amendment No. 195, which would mean that the schedule applied only to claims made on or after 6 April 2009. In the Budget note accompanying the changes, we said that the new time limits would not be introduced in full until 1 April 2010 following extensive publicity, as I have described. That will ensure that taxpayers have sufficient time to make any necessary claims or preparations. As a result, the amendment is not necessary. I hope that all three amendments were tabled in a probing spirit, and that I have reassured the Committee about the concerns that have been raised.

Jeremy Browne (Liberal Democrat, Taunton)

I will spare you my views on all the different forms of cricket, Sir Nicholas, and just say that I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

It will be a short stand part debate. I have one question, which I could have addressed on amendments Nos. 298 and 299 but it was not directly related to that group. It involves returning to paragraph 9 of schedule 39, which concerns the extended time periods that may be available for HMRC assessment. Under new subsection (1B), the circumstances include those where the loss has been brought about by another person as opposed to the taxpayer—that is, a third party or an adviser. Concerns have been raised about that, given that the taxpayer may be entirely innocent and not complicit in any way. I have not proposed an amendment and I do not advocate deleting the new subsection, but could the Minister briefly inform the Committee of the thinking behind it? Does she have any concerns that taxpayers may be treated unfairly as a consequence of it?

Jane Kennedy (Labour, Liverpool, Wavertree)

I do not, but it is always helpful to give the issue some thought. The tax assessment can be made only to require a taxpayer to pay the tax that they should have paid in the first place and that other taxpayers have had to pay. That is a basic obligation, it is not a penalty. It would not be fair on other taxpayers if the tax remain unpaid. The purpose of the extended time limits is to give HMRC more time to identify and to quantify loss of tax where necessary. It has long been that case that time limits are extended where a person acting on behalf of the taxpayer is negligent. Where that happens, there is recognition that the taxpayer ought not to be penalised unfairly. The schedule reduces the time limit in those circumstances from 20 years to six years.

During the debate, I set out the purpose of the schedule, which is to align the time limits. That alignment has been warmly welcomed. Representative bodies have described harmonised time limits as reasonable, sensible and logical. I hope that the hon. Gentleman will accept that, given the approach that HMRC will develop with the new arrangements, there will be a willingness to recognise where such an event has occurred and, as I have said, to work in co-operation with taxpayers who are seeking to be compliant.

Clause 114

Schedule 40

Jane Kennedy (Labour, Liverpool, Wavertree)

It has been my practice to move Government amendments formally in the event that we might have a debate and I can hear the concerns of the Committee and respond appropriately.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 301, in schedule 40, page 393, line 17, after ‘T’, insert ‘knowingly’.

David Gauke (Conservative, South West Hertfordshire)

We are so enthusiastic about this amendment that we have even tabled one that is very similar; it refers to “knowingly”, rather than “deliberately”. A number of representations from professional bodies have suggested that this was appropriate. We are delighted that the Government are thinking along the same lines. I do not think that there is any need for me to say anything more.

Nicholas Winterton (Conservative, Macclesfield)

Does the Minister wish to speak? If she does, I am happy to call her.

Jane Kennedy (Labour, Liverpool, Wavertree)

I have only one thing to say, which is that the reference to “after ‘T’” took me back to cricket.

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 302, in schedule 40, page 394, line 16, at end insert—

‘(A2) For this purpose a person shall be deemed to have disclosed an inaccuracy if he corrects the inaccuracy in accordance with regulation 34(3) of the Value Added Tax Regulations 1995 provided that if requested to do so he subsequently gave HMRC the help and access referred to in sub-paragraph (1)’.

Again, this is a rather technical amendment. We have tabled it as a consequence of representations made by the Institute of Chartered Accountants. It relates to disclosure of VAT errors. The ICA is concerned that amendments to the Finance Act 2007 provisions in paragraph 9 essentially mean that a deregulatory provision will prove ineffective. The Government have decided to increase the VAT de minimis limit for mandatory disclosure of VAT errors under regulation 34(3) of the Value Added Tax Regulations 1995 from £2,000 to £10,000, which is a welcome deregulatory measure. The concern is that the revised penalty rules will deter most taxpayers from taking advantage of this deregulation.

The reason for that is that paragraph 9 largely negates this provision because it grants reduction in penalties for disclosure of an underassessment subject to the taxpayer meeting certain conditions. Where a person seeks to take advantage of the Government’s deregulatory relaxation, he cannot benefit from the reduction in paragraph 9, as the correction will not meet the conditions in sub-paragraph (1). This effectively means that it will be dangerous for a taxpayer to correct an error on a subsequent tax return unless he also makes a separate disclosure of the inaccuracy to HMRC, as a taxpayer has no way of knowing when he discovers an error whether HMRC might consider the error as one arising due to failure to take reasonable care.

The effect of the Government’s deregulatory intention in increasing the de minimis limit will, in the view of the ICA, impose a greater rather then lesser burden on business, as the business in question will have to make two notifications instead of one. It is unlikely that the Government intended that this deregulatory measure should deny taxpayers the benefit of paragraph 9, and the amendment would give the taxpayer that benefit provided that he meets the appropriate conditions in response to a later request for information by HMRC. As I said, this is a technical amendment. We hope that it is consistent with the Government’s intention of reducing the burden on reporting VAT errors. As the drafting stands there appears to be a concern, which we hope the amendment will enable the Government to address.

Jane Kennedy (Labour, Liverpool, Wavertree)

The hon. Gentleman is right in saying that overall, schedule 40 has been welcomed as a measure reducing administrative burdens on business. He is also right to say that there has been concern about how the error-correction procedure will interact with the new penalties for incorrect returns. In the past, so-called VAT voluntary disclosures have been guaranteed not to attract a penalty. Under the new regime, most will still escape a penalty, but this will no longer be guaranteed. Instead, whether a penalty is due will depend on whether that error was careless or deliberate and on the quality of the taxpayer’s disclosure. The change is being made because the guaranteed escape from penalty was undermining the key message that taxpayers should declare the right tax at the right time. HMRC have been working closely with VAT experts from industry and representative bodies to develop clear policy and guidance in this sensitive area.

The majority of errors identified by taxpayers for correction are neither careless nor deliberate, so penalties will not be an issue. Where a taxpayer is unsure whether they have taken reasonable care with their tax affairs, they should notify any resulting errors to HMRC separately even if they are below the de minimis limit. In this way they can make a full unprompted disclosure, reducing the penalty to nil. This is because the special arrangements for correcting smaller errors are not necessarily visible to HMRC. The onus is on HMRC to determine whether reasonable care has been taken in an individual case, and they cannot do that unless they are aware of the facts. In considering the interaction between the new penalties and the VAT error correction procedure, HMRC have tried to balance reducing administrative burdens on businesses with encouraging taxpayers to declare the right tax at the right time. It is quite proper that we have a debate as to whether that balance is right.

Peter Bone (Conservative, Wellingborough)

In reality, if a business person discovers that they have made a VAT error and correct it—as does happen—under the new rules there is no incentive to tell the Revenue. Telling the Revenue might attract penalties that one would attract anyway if the error were discovered, so the provision is actually a disincentive to declare the error voluntarily.

Jane Kennedy (Labour, Liverpool, Wavertree)

I do not think that most compliant taxpayers would see it in that way. The hon. Gentleman’s experience has been very valuable in Committee and I acknowledge that he has experience of precisely these matters. However, HMRC, in consultation with VAT experts and business, believe that the balance is right in terms of encouraging the taxpayer to be compliant, to get the tax right and therefore to report errors.

Peter Bone (Conservative, Wellingborough)

I am thinking of a situation where the taxpayer does make a correction, so the tax is then right; however, there is not the incentive to tell the Revenue because penalties might be imposed. Before, they knew that if they told the Revenue, there would not be any penalties.

Jane Kennedy (Labour, Liverpool, Wavertree)

If it was later discovered that there was an error, their not telling HMRC about an error that they have found would risk a penalty of up to 30 per cent. of the tax understated. HMRC believes that that is the incentive to the taxpayer. As I have explained, the vast majority of errors are not careless or deliberate, and the vast majority of VAT payers do pay correctly and on time, but this amendment, if enacted, would displace the balance that HMRC is confident it has achieved. VAT errors identified by the taxpayer of as much as £50,000 would become virtually exempt from penalty, regardless of the underlying behaviour, which would seriously undermine the regime’s integrity. That would be unfair to the wider taxpaying population and would seriously undermine the objective of the penalty regime to encourage people to take care with their tax. It is also important to remember that the new penalty regime will apply to all taxes and duties. That will enable clear deterrent messages to be sent and it will help to ensure a fair and consistent approach to errors. However, it means that we need to think very carefully before creating or expanding special rules for particular taxes or groups.

I hope that I have explained the purpose behind the schedule and responded to the concerns expressed when the amendment was moved.

David Gauke (Conservative, South West Hertfordshire)

Again, we are grateful for the Financial Secretary’s remarks. However, as I said earlier, there is an intention here regarding what the Government are trying to do on raising the de minimis notification requirements and the tax penalty regime, and I am not sure that that has been satisfactorily considered in this process. However, I note the Financial Secretary’s remarks and I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

With this, it will be convenient to discuss the following: Government amendment No. 242.

Amendment No. 308, in schedule 41, page 407, line 37, at end insert—

‘and in pursuing the officer, HMRC shall have regard to the proportion of the penalty that in all the circumstances is just and reasonable to allocate to the officer.’.

Government amendment No. 243.

David Gauke (Conservative, South West Hertfordshire)

This group of amendments relates to the liability of company officers. A number of concerns have been expressed with regard to the original proposals in the Bill. In broad terms, they are: that company officers may be unduly liable; that they may be seen to be an easy target for HMRC; that the proportion of the penalty levied against an individual officer, as opposed to the company, might be unnecessarily and inappropriately high; and that more than the correct amount could be obtained by penalties both to officers and to the company itself.

The thinking behind amendment No. 308 is that in pursuing an officer, HMRC should have regard to the proportion of the penalty that, in all circumstances, is just and reasonable to allocate to the officer. On the face of it, it is difficult to argue against that and I am sure that the Minister will assure us that HMRC will not be seeking to pursue an officer for more than what is just and reasonable to allocate to the officer.

The Government have also tabled amendments on this issue, which to some extent seek to address the concerns of the various bodies that scrutinise these matters closely. We look forward to hearing what the Minister has to say about the Government’s amendments, and to testing whether they satisfactorily address the real and understandable concerns that exist about how company officers may be pursued.

Jane Kennedy (Labour, Liverpool, Wavertree)

The Government amendments are largely technical and I will come to the issue that they address in a moment.

Before a penalty can be pursued from an officer of a company, who is usually a director, HMRC has to demonstrate that the inaccuracy was deliberate and was caused, at least in part, by the director. It is right that HMRC officers should take into account all the circumstances and that they should act reasonably when deciding how much of the penalty should be collected from the officer. However, it is neither necessary nor desirable to specify that in legislation, as suggested. To do so in the Bill, but not in relation to other matters where HMRC makes decisions about penalties, would be inconsistent and would perhaps call into doubt the basis on which other decisions should be made.

As we have debated many times while considering these powers, HMRC officers are required to act reasonably at all times. A number of different factors should be taken into account when deciding the penalty to be paid by the director—for example, how many directors were involved, and the extent of personal gain by each. The provision will also be helpful in combating cases where a company deliberately becomes insolvent and transfers its activity to a new company in order to evade tax liabilities. It may be a surprise to the Committee, but there are occasions when that happens.

On Government amendment No. 241, if there is a deliberate inaccuracy in a company’s return that is attributable to an officer of that company, HMRC may pursue all or part of the penalty from that officer. As a result of further scrutiny by HMRC, it has come to light that the way in which the measure is drafted means that there is a risk that HMRC will not be able to assess such a penalty from the officer, and that the officer would not be able to appeal against a penalty. It is regrettable that that was not identified or addressed sooner, but it is important that it be put right before such penalties can be charged, from 1 April 2009. That is the purpose of our amendments.

I hope that I have addressed the points that the hon. Member for South-West Hertfordshire made, and I will happily listen what he has to say.

David Gauke (Conservative, South West Hertfordshire)

Again, we are grateful for the Financial Secretary’s comments and, in the circumstances, I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

The hon. Gentleman does not need to ask for leave to withdraw the amendment because it is not the lead amendment.

David Gauke (Conservative, South West Hertfordshire)

I should say one other thing. While we were debating the measure, I perhaps should have declared an interest because I am a company director—although I hope that interest will never be relevant.

Nicholas Winterton (Conservative, Macclesfield)

We are grateful for that declaration.

Stephen Hesford (Labour, Wirral West)

On a point of order, Sir Nicholas, on the amendment paper, the amendments that we are discussing are listed as dealing with a different schedule—schedule 41 instead of schedule 40.

Nicholas Winterton (Conservative, Macclesfield)

May I respond to that point of order in a straightforward way? It is quite often the case that amendments relating to another schedule or clause can be grouped with an amendment relating to an earlier schedule. Will the amendments be put formally by the Minister when we reach schedule 41? They will. However, we will have discussed them under an earlier schedule. Does the Chairman make himself clear?

Stephen Hesford (Labour, Wirral West)

Yes, Sir Nicholas.

Nicholas Winterton (Conservative, Macclesfield)

I am grateful.

Schedule 41

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 303, in schedule 41, page 404, line 32, after ‘failure,’, insert

‘or (if later) within one month after the time when the person first becomes aware of the failure,’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 304, in schedule 41, page 406, line 11, at end insert—

Nicholas Winterton (Conservative, Macclesfield)

I call David Gauke again.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Sir Nicholas, again. [Laughter.] May I say how pleased I am to learn that Government Back Benchers are paying such close attention and I shall see what I can do about it.

Amendment Nos. 303 and 304 relate to penalties for non-deliberate failure to notify. It might be worth making a general point about the policy because in their approach to enforcement and penalties the Government will want people to come back into the system. When people have erred and particularly where they have not deliberately erred but found that through some mistake they are in breach of the tax law and regulations, the Government will rightly want to ensure that they comply in future. The system has its deterrents and its punishments but the desire rightly must be to ensure that those taxpayers comply in future and that they regularise their arrangements. With regard to both of these amendments we must bear in mind whether the Government has quite got the balance right. That is the point that we are testing.

On amendment No. 303, in the proposals for late notification penalties, the penalty chargeable to a person whose failure to notify is not deliberate will normally be 30 per cent. of the potential lost revenue but can be reduced for an unprompted disclosure. The reduction will normally be to 10 per cent. of the potential lost revenue but can be greater, even to nil per cent. if HMRC is told about the failure within 12 months. This point is made by the Low Incomes Tax Reform Group—there are many unrepresented taxpayers who simply do not know that they need to notify HMRC of something and their non-culpable failure can go undetected for many years. When eventually they find out and notify HMRC, compliance officers have hitherto been empowered to agree a nil penalty. The LITRG says, however, that that will no longer be the case under these proposals. Consequently, the purpose of amendment No. 303 is to enable a reduced or nil penalty to be charged where HMRC is first told of the failure within 12 months of it occurring or within 12 months of the taxpayer first becoming aware of it, whichever is later.

There is a precedent for that within the tax credits system where a claimant is obliged to notify HMRC of a change of circumstances within one month of the change or one month of the claimant first becoming aware of it. Under the penalties proposals in schedule 41, there is scope for a nil penalty in special circumstances where the taxpayer has a reasonable excuse for not informing HMRC. However, the view of the LITRG—an organisation that has considerable experience in the sector—is that trying to persuade HMRC that the unrepresented taxpayer has a reasonable excuse is often a hopeless task. The amendment would therefore give greater certainty to the taxpayer and preserve the status quo.

Amendment No. 304 introduces a suspension regime in the context of these non-deliberate failures to notify. A key feature of the new penalty regime as a whole is the provision of penalties for failure to notify as a result of carelessness. We suggest that such penalties could be suspended for up to two years, because if a taxpayer has merely been careless, they should be encouraged to comply with the rules in future. The schedule 24 position can be distinguished from what we are talking about because HMRC argues that suspension is about curing systemic failures, to which schedule 24 relates, and it could be argued that a failure to notify is a one-off failure rather than a systemic problem, so suspension is not appropriate. To some extent, I am anticipating the argument that the Financial Secretary might make, but we point out that if the Government’s aim is to get people to comply and to keep complying, it would fit well into the framework to have a two-year suspension of penalties for careless failure to notify, on the condition that accurate tax returns were submitted on time in that period.

Such a requirement would be as measurable as any other criterion used for suspension and would give exactly the incentive that HMRC seeks to get taxpayers to operate properly. Without it, the incentive is for taxpayers to stay outside the system in the black economy. That is the thinking behind both of our amendments. The Low Incomes Tax Reform Group and the Chartered Institute of Taxation have made sensible representations to us on the issue, and we would be grateful if the Government closely considered the proposals.

Jane Kennedy (Labour, Liverpool, Wavertree)

To prevent penalties from becoming a barrier to people coming forward when things have gone wrong, there are substantial reductions in penalties for disclosure by taxpayers. Paragraph 13(5) of schedule 41 says that if a person comes forward unprompted within 12 months of tax becoming unpaid as a result of a failure to notify, the penalty may be reduced to nil. That involves a date that is identifiable to the taxpayer, their advisers and HMRC, and it provides clarity on how long the additional reduction will apply. That is important to encourage people to come forward to HMRC early, and was amended in line with suggestions that were made during consultation. It means that someone who starts a business in one year and delays going to an accountant to sort out their tax until just before the following 31 January deadline—I can imagine that all the work of setting up in business could, on occasion, lead to that happening—would still be able to escape a penalty.

The hon. Gentleman says that he has heard representations that it is a “hopeless task”—that phrase was used—trying to persuade HMRC of a reasonable excuse. HMRC has made it clear that a person who had reasonable grounds for believing that an obligation to notify did not arise will have a reasonable excuse. That and other matters of interpretation will be published in HMRC guidance. If there are clear examples of HMRC not applying that, I will be happy to consider the examples. Let me give a few examples of what might constitute a reasonable excuse, but this is not an exclusive list: compassionate circumstances, such as serious illness, at the time when notification was required; doubt about whether an activity is taxable; and uncertainty about employment status when there is genuine doubt as to whether a person is self-employed.

A fundamental problem with the alternative proposed in amendment No. 303 is that it will be difficult to ascertain, in any verifiable way, when the taxpayer became aware of the failure. Where a taxpayer has a reasonable belief that an obligation to notify did not arise, they will not be charged a penalty. That will be so even if HMRC, or a tribunal, subsequently determines that the activity is taxable—an important safeguard for taxpayers.

An example is a case in which where there is genuine uncertainty about whether there is an obligation to provide notification. Someone may consider all the facts, take advice and conclude that their activity is not taxable. I think of my dad, who is an avid collector of small die-cast models of diesel trucks. He goes to events called swap meets, which other avid collectors of diesel trucks attend, and they swap trucks. The value of those items depends on the condition of the box as much as the model being swapped. Small amounts of money are exchanged, and we would not want to catch people engaged in that kind of hobby, which may, or may not, be a trade. That is not quite an interest to declare, but my dad came to mind when I was thinking about the details of the measure.

The concept of reasonable excuse will address that type of situation, and HMRC will publish guidance to make that clear. That mirrors the principle that is applied to incorrect returns: if a mistake is made, despite reasonable care being taken, it should not be penalised. If the amendment were accepted it might be perceived as unfair to the compliant majority who come forward to register and pay tax that is due on time. With no clear downside for those who fail to do so, compliant taxpayers may lose confidence in the fairness of the system.

Mark Field (Conservative, Cities of London and Westminster)

I listened with interest to what the Minister said, particularly the example that she gave. The Opposition are concerned that that the bar is set too high. The reality, as far as I can see, is that for anybody with any previous business experience—through incorporation, or trading as a sole trader and thus having dealings with tax officers—and for anybody who has ever taken professional advice from an accountant and so on, will almost certainly be unable to claim under these provisions. We are trying to capture, as it were, such individuals, who have made a genuine mistake, in our amendment.

Jane Kennedy (Labour, Liverpool, Wavertree)

I accept the point that the hon. Gentleman has made, and I undertake to keep that particular provision under close review to make sure that it works as intended, in the event that we resist the amendment.

Amendment No. 304 seeks to provide the facility to suspend penalties for failures to notify that are “neither deliberate nor concealed”. Conditions for suspension would be that a further failure to notify did not occur, and that a carelessly incorrect return should not be made for a period of up to two years. The suspension of penalties is an innovative aspect of the new penalties introduced for incorrect returns in the Finance Act 2007, which did a lot of good work. That is appropriate in the case of errors due to poor accounting or record-keeping systems. Conditions are set so that someone spends money to improve systems to prevent further inaccuracies, but the amendment seeks to apply similar provisions to the failure to notify penalties. However, there is an important difference, as HMRC believes that it would be unworkable. The obligation to notify a new taxable activity is a one-off, unlike submitting accurate returns, which is an ongoing requirement for most taxes.

It is hard to see what conditions could be set to help the taxpayer avoid a further penalty for failing to notify. The provision would be applicable only if they started another taxable activity requiring notification and, again, it is difficult to see how specific conditions could be set to help prevent them making an error in subsequent returns. It was suggested in the consultation that suspension of a failure to notify penalty should be made on the condition that routine tax obligations, such as filing returns and paying tax on time, are complied with for a period. That makes more sense, but there are still difficulties with that approach, not least because it could weaken and confuse the message that people must tell HMRC when they start a new taxable activity. Both amendments are unnecessary, particularly amendment No. 303. Amendment No. 304 is unworkable, so I suggest that neither amendment should be pressed further.

David Gauke (Conservative, South West Hertfordshire)

I welcome the Financial Secretary’s remarks about the concept of reasonable excuse. The term “hopeless task” was not mine, but was used by the low incomes tax reform group, which has a great deal of experience in this area. She made an interesting practical point about how HMRC would ascertain when somebody became aware, but again, I highlight the fact that the tax credit system permits that. She may have her own views about how that aspect of the tax credit system operates, but it does allow for that.

On suspension, I am not persuaded by the Financial Secretary’s comment that it is difficult to see how one could have a suspended penalty in such circumstances. One could do it on future notifications, ensuring that tax returns are filed on time and accurately. Therefore, I will withdraw amendment No. 303, but I will press amendment No. 304 to a Division. I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

I can now begin our afternoon sitting, just a few seconds late, as I can see 11 Committee members, which is the quorum for this Committee. May I congratulate members of the Committee on what I call the constructive way in which matters were dealt with this morning? I delayed the official start of the sitting because a particular hon. Member was not in his place, and he is responsible for moving the first amendment. I have no reason to doubt that the constructive way in which the Committee dealt with this morning’s business will continue this afternoon.

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 196, in schedule 41, page 406, line 13, leave out ‘decision’ and insert ‘notice’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 305, in schedule 41, page 406, line 13, leave out ‘decision of HMRC’ and insert

‘notice under sub-paragraph (1)(b) of paragraph 16’.

No. 306, in schedule 41, page 406, line 14, leave out ‘decision of HMRC’ and insert

‘notice under sub-paragraph (1)(b) of paragraph 16’.

Jeremy Browne (Liberal Democrat, Taunton)

Thank you, Sir Nicholas. I thought, this morning, that I might have to play a nightwatchman’s innings in the short period between the vote and 10.25 am. Instead, it is great to have the opportunity to open the batting after the luncheon interval, and for you to have kept one end blocked before I got to the wicket.

Amendment No. 196 is quite a simple amendment that carries on from this morning’s deliberations on schedule 41, paragraph 17 of which allows for appeal against a decision by Her Majesty’s Revenue and Customs. The amendment would mean that an appeal would not be against a decision but against a notice from HMRC that the relevant person was liable to a penalty. It therefore addresses the same point that I raised in amendment No. 181 to schedule 36—that time should start ticking when the recipient receives the notice rather than when it is issued and sent, because there might be some delay between its being sent and the recipient receiving it, and they might be disadvantaged as a consequence. The Financial Secretary was unwilling to concede that point earlier, and I suspect that she will take the same view now, but we felt that it would be helpful to table a probing amendment to give her the opportunity to consider this concern.

David Gauke (Conservative, South West Hertfordshire)

May I welcome you back to the Chair, Sir Nicholas, to perform your role as umpire—to continue the cricketing analogy? The last time I heard as tortuous a cricketing metaphor in Parliament was in Geoffrey Howe’s speech in 1990, shortly after which the Prime Minister fell, although I do not know whether we should read too much into that. [Interruption.] Yes, let us not dwell on that any longer.

We have tabled the amendments as a consequence of representations received from the Institute of Chartered Accountants, which made the point that taxpayers should have a right of appeal against any penalty notice issued under paragraph 16 of the schedule, rather than against any decision of HMRC to issue a penalty notice. The institute is supportive of the approach taken in amendment No. 196, but we have made two small amendments, so that rather than appeals against decisions of HMRC, there are notices. There should be a right for taxpayers to appeal in those circumstances.

Jane Kennedy (Labour, Liverpool, Wavertree)

The Bill states that the appeal is against a decision made by HMRC. That is consistent both with how appeal provisions are worded in last year’s Finance Act for the new penalties for incorrect returns and with the effect of other appeal provisions in tax legislation. The three amendments would change that to an appeal against notice of the penalty rather against the decision itself. I know concern has been expressed that the time limit for an appeal against a penalty decision, which is 30 days, may expire before the taxpayer has even received a notice of the penalty—that would clearly be wrong and would undermine this important safeguard—but the legislation already prevents that from happening.

Paragraph 18(2) of schedule 41 states that appeals against penalties

“shall be treated for procedural purposes in the same way as an appeal against an assessment to the tax”

For example, the time limit for an appeal against a direct tax assessment runs from the date on which the assessment is issued. The taxpayer is aware of that date because it is on the assessment notice. Therefore, I can assure the Committee that, as now, taxpayers will always have 30 days in which to appeal, beginning with the day on which HMRC issue the penalty notice. The amendments are unfair.

The hon. Member for Taunton asked why it does not start from the date of receipt of the notice. The time limits run from the date on which HMRC sends a document, because that is the date it can be certain of. There can be no certainty about the date that a document was received. If an appeal is late because of postal delays, for example, the cause of the late receipt would be taken into account in considering whether there was a reasonable excuse for the lateness. If there was a reasonable excuse, the late appeal would be accepted. We have a sensible structure for dealing with appeals and notice and penalty decisions. I hope that the hon. Gentleman will accept the explanation that I have given and not press the amendment to a vote.

Jeremy Browne (Liberal Democrat, Taunton)

The Minister replied as I had anticipated. It was not my intention to press the matter to a vote, because I merely wanted to raise the issue—I did not expect her to be accommodating. On that basis, I beg to ask leave to withdraw the amendment.

Clause 122

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 281, in clause 122, page 76, line 13, at end insert

‘except to the extent that the regulations made under that Schedule provide for a minimum period of less than five days, and paragraph 14 of that Schedule shall not apply.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 282, in clause 124, page 77, line 31, at end add—

‘(6) No such order may be made unless the Commissioners have laid before the House of Commons a report on the procedure they will adopt under section 122(2) and the House of Commons has come to a resolution to the effect that that procedure ensures adequate taxpayer safeguards.’.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Sir Nicholas. We had a little trot-through there. It is time to bring that to an end, and this will be a relatively brief innings.

Clause 122 relates to the enforcement by taking control of goods. Clause 124, to which amendment No. 282 relates, is a consequential provision and, for the benefit of the hon. Member for Wirral, West, it is entirely sensible that these two matters be addressed at the same time. The concern here is that under the existing provisions of the Taxes Management Act 1970 section 61, with regard to destraint and the taking control of goods, there are three taxpayer safeguards. First, no entry to effect destraint without a court order. Secondly, HMRC must retain the goods for at least five days to give the taxpayer a chance to find the money. Thirdly, any sale must be made by public auction, with any surplus being restored to the debtor.

The question for this Committee is, what is the new procedure? There is nothing in the Bill that gives us the answer. It is to be prescribed by regulations under schedule 12 to the Tribunals, Courts and Enforcement Act 2007. In this Bill we are agreeing to remove these taxpayers’ safeguards. What we are seeking in tabling these two amendments and having this debate is assurances from the Financial Secretary that the safeguards that have traditionally been in place will continue to be in place and that the taxpayer will not lose some of those safeguards, which are not specified in the Bill. Our question is, what safeguards will there be and what oversight will Parliament have in ensuring that they are satisfactory?

Jane Kennedy (Labour, Liverpool, Wavertree)

The clause will allow HMRC officers to use the procedure for taking control of goods outlined, as the hon. Gentleman correctly says, in schedule 12 to the Tribunals, Courts and Enforcement Act 2007 when that comes into effect. The current safeguards on destraint are not being weakened under the TCEA but rather the opposite. It makes sense for officers of HMRC to be subject to the same statutory rules as other enforcement agents rather than the present mix of statute, common law and administrative discretion.

Amendment No. 281 is in two parts. The first would disapply HMRC’s ability to take control of goods where regulations made under section 12 of the TCEA may require less than five days in which an action should take place. I think it is premature to restrain HMRC in this way before the regulations have been drawn up and consulted on, but I appreciate the reasons why and I will explain what I anticipate will happen in the coming weeks and months.

The second part of the amendment concerns the right of any enforcement agent, including officers of HMRC, to enter premises for the purposes of taking control of goods. This point was also raised in representations on the Bill, but I believe that the amendment is based on a misinterpretation of paragraph 14 of schedule 12 to the Tribunals, Courts and Enforcement Act 2007. That confers a right to be present on those premises without prior judicial authority, for example, as a defence against trespass. I can understand that the Committee might believe that HMRC currently requires a warrant before entering any premises, and that that protection is being removed. That is not so: a warrant is required by HMRC only when it seeks to enter premises by force, and that requirement will be extended to all enforcement agents under TCEA.

The amendment would prevent HMRC from bringing clause 122 into effect until it had laid before the House a report on how it would use the procedure. The 2007 Act is the responsibility of the Ministry of Justice; it is not tax legislation. The enforcement law reforms in the Act require the development of underpinning rules and regulations. The Ministry of Justice is carrying out a scoping exercise involving a series of meetings with relevant stakeholders, including HMRC, which is closely involved in those discussions.

Clause 122 cannot be brought into effect until schedule 12 to the 2007 Act is in effect. No order will be laid until the Ministry of Justice’s public consultation has run its course. The Ministry of Justice, not HMRC, will make the regulations. Guidance will be drawn up and published by HMRC in the light of the outcomes of the public consultation. Under the circumstances, the amendment would add little to the current situation. I hope that my explanation of where and when the scrutiny of the detail will take place satisfies the hon. Gentleman’s concerns, which are understandable in the circumstances.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for the Financial Secretary’s comments. She accepts that our concerns are reasonable. I will not press for a Division, but I think that it is unfortunate that we can see the powers and the deterrents, but cannot yet see the safeguards. We have touched on that theme before under part 7. I understand that there is an ongoing consultation process in the Ministry of Justice, but this is another example of the safeguards being left behind. We have to take those safeguards on trust, which is regrettable, given that this is the best opportunity for Parliament to scrutinise and review them. I am keen to put it on the record that this situation is regrettable, but I beg to ask leave to withdraw the amendment.

Clause 125

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 197, in clause 125, page 77, line 36, after ‘Commissioners’, insert ‘or the person concerned’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss the following amendments: No. 283, in clause 125, page 77, line 36, at end insert—

‘(2A) Where there is more than one debit in relation to a person, any set-off under subsection (2) shall be treated as reducing those debits in the manner and in the order which will result in the greatest reduction of the person’s indebtedness to the Commissioners.

(2B) On making any set-off under subsection (2) in relation to a person, the Commissioners shall forthwith notify the person in writing.’.

No. 284, in clause 125, page 78, line 15, at end insert

‘and a sum is payable only when it is agreed between the parties to be payable or where the person has exhausted all possible appeal routes.’.

No. 285, in clause 125, page 78, line 26, at end add—

‘(10) The Commissioners may not set a credit that is a tax credit payment against any debit.

(11) The Commissioners may not set a credit against any debit that is a tax credit overpayment without the consent of the person or persons from whom the Commissioners seek to recover the overpayment.

(12) In subsection (10) above, a “tax credit payment” is a payment of working tax credit or child tax credit under the Tax Credits Act 2002.

(13) In subsection (11) above, a “tax credit overpayment” is an amount that is liable to be repaid to the Commissioners under section 28 of the Tax Credit Act 2002.’.

Jeremy Browne (Liberal Democrat, Taunton)

As I understand it, in June 2007 the Treasury consulted on offset measures, which is the matter before us in clause 125. On 10 January 2008, a document was published entitled, “Payments, Repayments and Debt: Responses to Consultation and Proposals”, and the clause is the result of that process. It allows HMRC to offset sums that it owes to a taxpayer against amounts owed to HMRC by that taxpayer. It is logical that if HMRC owes the taxpayer money and the taxpayer owes HMRC money, there is a facility to offset those two arrangements. The clause throws up a few questions that I would like the Minister’s response to. Amendment No. 197 touches on one aspect of that. I will not speak to amendment No. 198 now, because it is in a separate group, but it touches on another aspect of it.

Under the amendment, the taxpayer would also have the right to choose to offset. At the moment, HMRC can decide that that is a desirable arrangement, but it is not open to the taxpayer to make a similar decision if it is convenient for them and it is possible to apply the rules in a way that could be of mutual advantage to both parties. While I am on my feet, may I ask the Minister to shed some light on a few related issues?

First, HMRC has stated that it would not offset tax credit and child benefit payments against a previous liability, but that is not in the Bill. Can the Minister explain why, and say whether it could be made more explicit for those who need to have that information readily understandable to them?

Secondly, why does the clause not include provisions regarding offset? The Minister may be able to shed more light on that. If there are separate debts, is it possible to consolidate and align them in such a way that the offset mechanism can be used? It may be that I have misunderstood and that that is a possible arrangement. Having more of an explanation about how the measures will work in practice would be helpful.

Finally, will HMRC be able to delay a payment due to a taxpayer if it expects tax liability to arise? One can easily envisage a situation in which there is a small amount of money owed by HMRC to the taxpayer, but, in anticipation of an offset arrangement kicking in and taking effect in the near future, HMRC could delay payment. In those circumstances, the taxpayer could suffer cash-flow problems, for example. It would help to understand whether HMRC is allowed to use the offset mechanism to anticipate a taxpayer’s future liabilities. If so, what period would that process of anticipation be allowed to cover?

Those are wider points, which perhaps I should have raised in a stand part debate. However, I have raised them now instead, so I do not need to contribute then. I have also raised them as a way of introducing the amendment, so that the Committee has the opportunity to discuss what is proposed in it.

David Gauke (Conservative, South West Hertfordshire)

In speaking to amendment No. 197 I shall also address amendments Nos. 283 to 285. The hon. Member for Taunton has set out many of the issues, both in relation to his own amendments and—although he referred to this as perhaps being appropriate for a stand part debate—in touching on some issues in the other amendments in this group, where we are looking at the rights of offset between amounts owed to and from a taxpayer and HMRC.

At the outset, we are certainly sympathetic to amendment No. 197. If it is possible for HMRC to offset, there needs to be a good reason why the taxpayer should not be able to; the challenge is for the Financial Secretary to provide that good reason or to accept the amendment. If offsetting is to occur, it is only right and fair that it is done in the best possible manner for the taxpayer. There is no particular reason why the taxpayer should be disadvantaged by how offsetting occurs, as such arrangements can sometimes be quite complicated, and how it is done can make a substantial difference to the end financial result. If HMRC is to make use of these powers, there should be an obligation on it to do so in the best possible manner, which is the purpose behind amendment No. 283.

On amendment No. 284, we are keen to ensure that a sum becomes payable only where it is “agreed between the parties”. There is a real concern that HMRC might try to use the power to offset amounts that it believes to be owed by the taxpayer. That could, for example, be where HMRC has made an error—entirely innocently, but none the less not beyond the realms of possibility—or where there is still a valid dispute. In those circumstances, given our debates on the various appeal procedures and so on, it would clearly be unacceptable for those procedures effectively to be overridden by an attempt to offset debts at that point. I understand that HMRC has indicated that any debts offset should be agreed, but we would like some assurance, ideally in legislation.

There is also the issue of tax credits that the hon. Member for Taunton touched on. Again, the Government have said throughout that tax credits could not be offset: quite an important point, yet it is not in the legislation, and we suggest that it should be. Clearly, assurances from the Government would assist on that, and we look forward to what the Financial Secretary will say. At the outset, then, we are probably most determined on amendment no. 284, but we will wait to hear what she says.

Jane Kennedy (Labour, Liverpool, Wavertree)

Before I respond on the amendment, perhaps I might make some brief comments about what clause 125 seeks to achieve. I am not sure whether the hon. Gentleman said he was hoping for a stand part debate on that, but if he is not then I may speak a little broadly at this point.

Set-off is a normal business principle. Under common law or by request, HMRC may already set off sums payable to taxpayers against amounts they owe to it. [Interruption.] Something other than cricket appears to be of interest to Members of the Committee at this moment; hard to believe, but that much seems to be the case. HMRC and its principle of set-off sit easily within some taxes but less so across others. This clause gives a specific power to HMRC to make set-off across all of the different taxes and duties that it administers, at its discretion. HMRC would set-off repayments only against established debt. An established debt is one that is correctly payable, either based on a return from the taxpayer or agreed, or as assessed, with the time for appeal having passed or the appeal having been determined. A taxpayer can request set-off to take place now, and HMRC considers each request on its merits. That will remain unchanged.

Amendment No. 197 would set in statute that taxpayers could also require the use of set-off. However, the amendment does no more than restate the existing position. Taxpayers can already request set-off, and nothing in the clause would change that. An unfettered right to require set-off, in whatever amount, risks tying up HMRC resources on small, individual debts that are uneconomical to resolve in that manner.

There is no objection in principle to the first part of amendment No. 283. The purpose of the measure is to reduce indebtedness in a sensible way. The majority of set-offs are likely to involve a single debt and a single repayment where the issue would not arise. However, HMRC could not be expected to know in every case what particular allocation of a repayment might be to the debtor’s advantage, as that might depend on information that only the debtor held. Instead, HMRC will continue to apply its long-established rules on appropriation, as it does when making set-off now. Those rules are in HMRC’s published guidance and provide a framework that aims to ensure that payments are allocated to the taxpayer’s best advantage.

As now, HMRC will consider particular circumstances where a taxpayer raises concerns and where a set-off has been made and it will continue to consider those circumstances on a case-by-case basis. That process has not been changed by the measure. In light of our debate today—I knew that the clause would raise a degree of interest—HMRC will shortly publish its policy on set-off and, in due course, the operational guidance for its staff.

The second part of amendment No. 283 would require HMRC to notify the taxpayer in writing once the set-off is made. HMRC will confirm, as now, that the taxpayer must always be told in writing that set-off has taken place.

Before I deal with amendment No. 284, may I address a couple of questions that have been raised? First, I shall deal with the question that the hon. Member for Taunton asked about the time periods. He is somewhat distracted, Sir Nicholas, so I shall explain to you and to the other Committee members. Tax repayments may be held back for a short period—usually only 14 days or so—but they could be held longer, depending on the tax concerned. The hon. Gentleman is right in saying that that could happen.

The hon. Member for South-West Hertfordshire asked what would happen if HMRC made a mistake, but it is hard to imagine instances in which HMRC might get it wrong. The same remedies would apply as now. For example, if HMRC made a mistake, it would apologise, put things right and explain what went wrong, and consider refunding reasonable costs directly caused by their mistakes or by unreasonable delays.

Amendment No. 284 would set in statute that set-off will take place only where the party concerned and HMRC agree that a sum is payable to the commissioners or where the person concerned has exhausted all appeal routes. I am not attracted by this amendment, as it would do no more than restate the existing position. Set-off will be applied only where both the repayment and debt are established. An established debt is one that is beyond challenge, whether the appeal has been settled or the time for appeal has passed. [Interruption.] It seems to be my phone, Sir Nicholas. I thought I had turned everything off. I apologise.

Nicholas Winterton (Conservative, Macclesfield)

I am sure it was not the Minister.

Jane Kennedy (Labour, Liverpool, Wavertree)

It is hard to deny without blushing.

I understand the concerns behind amendment No. 285 and why it was tabled. I am conscious that questions were raised during the consultation about the extent to which the provisions will apply to tax credits and child benefit. I acknowledge that this is a matter of concern for many who have made representations on the Bill. I want to reassure the Committee that HMRC will not seek to use an ongoing tax credit award or a child benefit award to satisfy other tax debts that may have arisen. Section 45 of the Tax Credits Act 2002 and section 187 of the Social Security Administration Act 1992 make entitlement to tax credits and child benefit an inalienable right. We have no intention whatever of moving away from that principle.

Secondly, except in very limited circumstances, which I will explain, HMRC will not set a tax repayment against a tax credit or child benefit overpayment. Where a tax credit or child benefit award has been made, and an overpayment subsequently arises, HMRC will not accept procedures for instalment plans or for recovery from an ongoing award. However, as explained there may be certain circumstances, as now, where at the request of the customer, HMRC will set off a tax repayment against a tax credit or a child benefit overpayment. We have had requests for that in the past.

As set out in the discussion paper “Tax Credits: Improving Delivery and Choice”, which I published last month, from next April, HMRC will begin a small trial to offer tax credit customers in employment the option of having their overpayment recovered by a deduction in their wages through an adjustment of their pay-as-you-earn code. This is a small pilot designed to improve choice for tax credit customers. It is a suggestion that I have heard over the last year from tax credit customers. It seemed a sensible idea to trial.

We will make no changes to the policy I have outlined without first coming back to the House. I do believe, however, that there are circumstances where a customer would like the flexibility to offset a tax repayment against a tax credit overpayment and where that is the case it ought to be possible for us to accommodate that. The discussion document includes examples of other Administrations, such as those in New Zealand and Australia, which use a similar arrangement. That is something that we should consider offering to tax credit customers in the UK. I hope that I have reassured hon. Members on the proper concerns that they have raised. I hope that they will not take up time by pressing their amendments to a vote.

Mark Field (Conservative, Cities of London and Westminster)

I will detain you, Sir Nicholas, and the rest of the Committee only very briefly. Some quite deep concerns have come out in the course of this debate. Although the Minister has to an extent assuaged some of the concerns where there is consent between the Revenue and taxpayer on some sort of set-off arrangement, most taxpayers still have a deep concern that all too often the authorities do not get this right. That applies particularly in relation to the amendment where we discussed the working tax credit system, which has become almost notorious for its unreliability.

Where there is consent between a taxpayer and the authorities it is absolutely fine, but this is not about consent. It is about imposing a system. There is deep concern on the part of the taxpayer where there is a lack of reliability or a perceived lack of reliability, as is often the case, not least where there are potential interest payments. It always seems to be a one-sided situation: late payments from the Revenue do not seem to attract interest to the taxpayer, whereas they do in the opposite direction. There is quite some concern about the notion that set-off now becomes the norm, irrespective of the consent or arrangements where there has been a complicated tax situation between the taxpayer and the Revenue. It is not for me to suggest that this might go to a Division, but these are deep concerns. For my part at least, I am not sure that the Minister has been able to assuage them.

Nicholas Winterton (Conservative, Macclesfield)

I say to the Financial Secretary that an ability to blush is a sign of an honest person.

David Gauke (Conservative, South West Hertfordshire)

Thank you very much, Sir Nicholas, and I must say that you are looking very rosy-cheeked yourself, which I think confirms your dictum.

The Financial Secretary’s remarks are helpful in assuaging our concerns about tax credits. She has been very explicit on that, although I am still not convinced that the proposal could not be put in the Bill. I also note her comments on amendment No. 283, which is of a practical nature. However, as I indicated in my opening remarks, we are particularly concerned about the matter addressed in amendment No. 284, which talks about sums being payable only when they are agreed. My hon. Friend the Member for Cities of London and Westminster eloquently set out the reasons for our concerns, and so we seek to press that amendment to a Division.

Nicholas Winterton (Conservative, Macclesfield)

The hon. Gentleman has to make a request for a Division, because amendment No. 284 is not the lead amendment. I shall give the matter some consideration, but I now intend to call the hon. Member for Taunton, who is responsible for the lead amendment.

Jeremy Browne (Liberal Democrat, Taunton)

Thank you, Sir Nicholas. Your guidance on such matters is instructive. I am happy to withdraw amendment No. 197, which will pave the way for the hon. Member for South-West Hertfordshire to move his amendment, as I understand it. I beg to ask leave to withdraw the amendment

Nicholas Winterton (Conservative, Macclesfield)

The hon. Gentleman’s remarks have persuaded me to grant a Division on amendment No. 284. First, however, I must call amendment No. 198. We will come to amendment No. 284 a little later, at which point I shall put it to a Division.

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 198, in clause 125, page 77, line 36, at end insert—

‘(2A) The person concerned may appeal to the First-tier Tribunal against a decision by the Commissioners under subsection (2) if that decision can be reasonably shown to have had a significant adverse effect on the financial stability of the person concerned.’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 286, in clause 125, page 78, line 26, at end add—

‘(14) A person may appeal to the First-tier Tribunal against any decision of the Commissioners under subsection (2).

(15) Notice of an appeal must be given—

(a) in writing, and

(b) before the end of the period of 30 days beginning with the date on which the Commissioners’ notification under subsection (2B) was issued.

(16) On an appeal under subsection (14), the First-tier Tribunal may—

(a) confirm the decision,

(b) cancel the decision,

(c) substitute for the decision another decision that the Commissioners had power to make having regard to subsection (2A).’.

Jeremy Browne (Liberal Democrat, Taunton)

Unsurprisingly, the amendments overlap to a degree and touch on some of the issues discussed in the previous group. I shall be brief and specific. Amendment No. 198 would insert a new subsection to allow a person to appeal to the first-tier tribunal against a decision by HMRC to offset. Currently the clause gives no right to the taxpayer to contest a decision by HMRC, and the Institute of Chartered Accountants, and other bodies, have expressed concern that offset could damage businesses and force insolvency if exercised in inappropriate circumstances.

Clause 126, to which I shall not speak now, but which we shall come to shortly, would prevent set-off where insolvency procedure has been applied already. Providing an appeal route for the taxpayer, in clause 125, would allow a taxpayer to raise concerns and prevent set-off causing insolvency. As a safeguard, the amendment would allow an appeal only if the

“decision can be reasonably shown to have had a significant adverse effect on the financial stability of the person concerned.”

The purpose of the amendment—this is the same point that I sought to make 10 minutes or so ago, and similar to the one made by my hon. Friend the Member for Cities of London and Westminster—is to address the balance between the power held by HMRC and that held by the individual taxpayer, who should have the opportunity, should he or she wish, to make a formal appeal if they feel that the behaviour and procedures followed by HMRC are unfairly to their disadvantage.

David Gauke (Conservative, South West Hertfordshire)

With regard to the previous group of amendments, I am grateful to the Liberal Democrats for standing aside and helping us on this point of principle.

Steve Pound (Labour, Ealing North)

They are not standing in Haltemprice and Howden.

David Gauke (Conservative, South West Hertfordshire)

The hon. Gentleman gets exactly what I am alluding to. I am grateful to him for making it more explicit.

Amendments Nos. 198 and 286 both essentially insert a right of appeal in the context of set-off. Our amendment No. 286 provides slightly more detail than No. 198 but both seek to achieve the same objective and provide the safeguards that Opposition Members think may be necessary with regard to matters of set-off.

Jane Kennedy (Labour, Liverpool, Wavertree)

Set-off will initially take place manually rather than as a bulk process, and the customer will be informed at the time that set-off is made.

I understand the concerns expressed but set-off will be made in the course of HMRC’s day-to-day dealings with taxpayers in debt, so there will be the opportunity for dialogue. It will be made only in respect of established debt where the normal appeal routes concerning the amount of debt have run their course.

It would be wrong to allow debtors a further opportunity to reopen a dialogue in the courts on how much they have to pay. An appeal process as suggested could undermine the whole benefit of set-off by unnecessarily complicating and delaying the time it takes to collect debts and to make repayments to taxpayers. It would prolong uncertainty and thereby potentially add to the taxpayer’s financial instability.

Appeals with little prospect of success could be used as delaying tactics. A successful appeal would leave a collectable debt which HMRC would then pursue perhaps even through the civil courts. The debt would still be collected but through a far more burdensome process. That is not fair to the general taxpayer and HMRC.

Clearly, there has to be some channel for discussion. As now, HMRC would consider particular circumstances, where the taxpayer raises concerns where set-off has been made. HMRC would continue to consider these on a case-by-case basis. That has not been changed by this measure.

I found this debate helpful, Sir Nicholas, in understanding the concerns around set-off and I want to keep this matter under review, but I think we have the balance right in the Bill as it stands and that the amendments are unnecessary.

David Gauke (Conservative, South West Hertfordshire)

We continue to have concerns. The amendment we have yet to vote on would address a lot of our concerns in general with regard to set-off but, given that we are to have one Division on this set-off issue, we will not request another.

Jeremy Browne (Liberal Democrat, Taunton)

I am happy to beg leave to withdraw my amendment as we are to have a Division on an aspect of the clause and that would be helpful for testing the opinion of the Committee.

Clause 126

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 287, in clause 126, page 78, line 31, leave out ‘that’ and insert ‘a’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 288, in clause 126, page 78, line 32, at end insert

‘or a post-insolvency debit against a pre-insolvency credit’.

David Gauke (Conservative, South West Hertfordshire)

Amendment No. 287 is to some extent a probing amendment. Clause 126(2) states:

“The Commissioners may not use the power under section 125 to set that post-insolvency credit against a pre-insolvency debit”

and I would be grateful for an explanation as to why the word is “that”, as opposed to “a” so that it would be “a” case of post-insolvency credit.

Amendment No. 288 is a consequence of representations received from the Institute of Chartered Accountants, which expresses its concern that by specifically excluding from set-off in this clause

“post-insolvency credits against pre-insolvency debits, the rules are implicitly, (or perhaps even explicitly) allowing the set-off of pre-insolvency credits against post-insolvency debits.”

It makes the point that

“while this may not be particularly important in many corporate insolvencies, there will be many cases (and all cases of personal insolvency) where such a set-off would be detrimental to the creditors generally”.

In its words, this would

“fly in the face of all the basic principles of insolvency.”

Therefore, I would be grateful if the Minister would explain the wording of clause 126(2).

Jane Kennedy (Labour, Liverpool, Wavertree)

Clause 126 offers a safeguard. Without it, HMRC’s discretionary right of set-off under clause 125 would take priority over set-off in insolvency, whereas it is not the intention to disturb the normal insolvency rules. It also provides that the earliest of a series of insolvency procedures brings that safeguard into operation. However, the routes into and out of insolvency are many and varied, and setting out all the circumstances that might apply would result in inordinately lengthy legislation to address seldom-met cases. The two amendments together would prevent HMRC setting-off a pre-insolvency credit against a post-insolvency debt.

The amendments are technically deficient, but I understand why they have been tabled and am grateful for the opportunity to clarify further. This is not a situation that HMRC often comes across in practice. The power in clause 125 is discretionary, not mandatory. It is hard to think of circumstances where HMRC would want to apply it in the way that the amendment envisages. HMRC does not seek to set pre-insolvency credits against post-insolvency debts under the current legislation—schedule 81 of the Value Added Tax Act 1994. If such a credit arose, HMRC would expect to pay it to the insolvent’s estate for the benefit of all creditors. HMRC will continually review its guidance to ensure that commonly met circumstances are fully addressed. The amendments would not be of benefit to the Bill.

Mark Field (Conservative, Cities of London and Westminster)

Will the Financial Secretary therefore explain the purpose of clause 126, if set-off is almost inconceivable in an insolvency situation? What is the purpose of the clause, other than to codify what is already the case, unless a new regime has come about, for example as a result of the change in insolvency law under the Enterprise Act 2002?

Jane Kennedy (Labour, Liverpool, Wavertree)

Clause 125 broadens HMRC’s set-off abilities. Clause 126 limits those abilities in particular circumstances, and makes it clear that the powers in clause 125, to set-off sums payable to a taxpayer against an amount owed to HMRC by that same taxpayer, limit those sums where there is insolvency. So, the purpose of clause 126 is to underscore the current position. HMRC applies set-off in insolvency cases according to legislation laid down elsewhere. We do not seek to disturb the principles that underpin those rules, but tax legislation is inconsistent and does not align precisely with insolvency legislation. This clause makes that alignment. I hope that that makes it clear that we have not included the clause for no good purpose. It serves a useful purpose, and will be welcomed. Clearly the guidance that will help practitioners to manage the legislation will seek to give the clarity that perhaps is not immediately obvious to the hon. Member for South-West Hertfordshire.

David Gauke (Conservative, South West Hertfordshire)

This is a highly technical area, and I have no doubt that those with greater expertise than I will look at it. [Interruption.] I have a feeling that a message is being sent that there is something wrong.

David Wright (Labour, Telford)

A message from the right hon. Member for Haltemprice and Howden (David Davis).

Brooks Newmark (Conservative, Braintree)

We have the electrodes on right now.

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend is proving to have expertise on the way that the Whips work. I think that we should move on.

I have no doubt that experts in this area will look closely at what the Financial Secretary has said, and I hope that she will listen to representations that arise as a consequence of our exchange. A legitimate issue has been raised, but I do not intend to press the amendment to a Division. I beg to ask leave to withdraw the amendment.

Nicholas Winterton (Conservative, Macclesfield)

I am sure that the Committee will continue, despite the modest noise being created by a light bulb that is about to explode.

Clause 130

Jeremy Browne (Liberal Democrat, Taunton)

I beg to move amendment No. 199, in clause 130, page 83, line 1, leave out from ‘section’ to end of line 2 and add

‘may not be made unless a draft of the regulations has been laid before, and approved by a resolution of, the House of Commons.’.

Nicholas Winterton (Conservative, Macclesfield)

The doorkeeper is trying to isolate the bulb, but I am sure that the Committee’s wish is that we continue while that goes on. I call Mr. Jeremy Browne, who is used to interruptions.

Jeremy Browne (Liberal Democrat, Taunton)

I am indeed used to interruptions, but let there be light, at least for the remainder of our proceedings.

The amendment is not hugely significant in the grand scheme of things, but it addresses precisely the type of smaller concern that often leads people to feel, when dealing with the state in many of its forms, that the powers of the authorities are unfairly weighed against those of the individual citizen. It provides for positive resolution when determining fee levels under clause 130. It would be helpful to explain to the Committee why my hon. Friends and I feel that that is an appropriate way forward. Subsection (1) allows HMRC to make regulations to charge a fee for payment by specified methods of a person’s financial obligations to HMRC. HMRC commissioners will be allowed to do that only when they “expect” that they will have to pay a fee or charge in connection with the payment they are receiving.

Therefore, in anticipation of additional transitional costs associated with the payment by the taxpayer, HMRC will be able to levy a charge to compensate itself financially for that payment, even if there is only an expectation that it will have to meet that payment in the future. Any regulations will be made under a statutory instrument and be subject to negative procedure, which the amendment seeks to address.

The explanatory notes state that credit cards are thought likely to become the first specified method of payment, but I understand that currently HMRC does not generally accept credit card payments. I have tabled the amendment because there is a specific issue to discuss. It enables greater discussion about the wide-ranging impact of the clause and specifically seeks reassurance from the Minister on how HMRC will address a number of questions.

I have three questions in particular. First, is legislation necessary for that to occur? As I understand it, HMRC can decide to use credit card payments or any other method for procuring the money owed to it by the taxpayer without Parliament having to give it those powers through legislation. Secondly, what kinds of payment does HMRC envisage extending those powers to? Under the provisions of the clause as drafted, HMRC will be able to levy charges in anticipation of those costs being incurred later in proceedings. Does that mean that charges for handling cheques or bank charges could be passed on to the taxpayer as part of the procurement of their tax liability?

Finally, when HMRC takes money from taxpayers in anticipation of future charges, does it expect to reimburse them if the charges are not as great as it anticipated or if no charges arise? It is possible that HMRC will be unduly pessimistic in assuming that charges will have to be levied.

These matters are not hugely significant in the grand scheme of things. We are almost certainly talking about rather modest sums of money, but these sorts of issues provide symbolic demonstrations of HMRC holding powers over taxpayers that they might regard as unreasonable. That is particularly true if taxpayers have to deal with long, drawn-out processes with HMRC in which they feel somewhat embattled. That is what I am trying to get at with the amendment and in debating clause 130 more widely.

Nicholas Winterton (Conservative, Macclesfield)

It is perhaps appropriate to suspend the sitting for five to 10 minutes so that the maintenance department can remove the offending bulb. I congratulate the hon. Member for Taunton on his tolerance and thank him for undertaking his speech with the background noise. The suspension will allow us to get back to normal and will also enable hon. Members to discuss the news that has broken while we have been deliberating this sensible Bill. [Interruption.] We will suspend until 2.15 pm.

Nicholas Winterton (Conservative, Macclesfield)

We will begin our deliberations again although, unfortunately, we are still plagued by this noise. The maintenance department has failed to provide the standard of attention that I would have expected. Could Members who contribute to the debate raise their voices, as I am doing now, so that we can continue to make progress? I should like to make good progress this afternoon as there is still a great deal to be discussed. I had put the question on amendment No. 199 and I was going to ask the Financial Secretary to respond to the remarks of the hon. Member for Taunton.

Jane Kennedy (Labour, Liverpool, Wavertree)

I will battle on, Sir Nicholas.

The normal protocol for tax is to use negative resolution for regulations that deal with routine administrative matters. Affirmative resolution is usually reserved for more contentious matters. The Committee has seen a draft of the regulations to be made under clause 130. They specify that the payment method will be the use of a credit card and then set the amount of the fee that HMRC will charge.

The hon. Member for Taunton asked whether other methods beside credit cards were being considered. HMRC will be able to pass on the fee for a specified payment method only when it expects to be charged a fee for the transaction. That is not the case for the normal cost of payment processing. Any payment method must be specified in regulations approved by Parliament. Draft regulations to pay a fee in connection with the amounts paid by using a credit card have been published, but there are currently no plans to pass on any charges other than credit cards.

New ways of paying continually arise and it makes sense to future-proof the legislation. [Interruption.]

Nicholas Winterton (Conservative, Macclesfield)

Order. No interruptions. Hansard needs to be able to hear the Minister.

Jane Kennedy (Labour, Liverpool, Wavertree)

Legislation supports a range of payment methods, but HMRC cannot accept payment by credit card other than in limited circumstances such as at ports and airports. Early consultation by HMRC has shown that many small businesses use credit cards to manage their short-term cash flow and taxpayers regularly ask HMRC whether they can pay by credit card. Clause 130, therefore, provides for HMRC to receive payment and then to make regulations to charge a fee for payment made by such methods.

I was asked whether the taxpayer will have to bear the cost of paying by credit card. Only those taxpayers who choose to pay in this way will bear the cost of the transaction, rather than the cost falling on all taxpayers. The hon. Gentleman asked a series of questions, one of which involved the refund of transaction fees. Where either HMRC or the payer makes a mistake, which is immediately corrected, both tax and transaction fees will be refunded through the card to the card holder. For mistakes by the taxpayer that are picked up later, or a change in taxpayer’s circumstances giving rise to a reduced liability, the fee is not refundable. This is as advised at the time of payment, so repayment will be made to the taxpayer through whatever repayment channel is appropriate as happens now. For HMRC error, where it is decided to refund the transaction fees, the refund will be paid out of HMRC’s redress budget through whatever repayment channel is appropriate.

The hon. Gentleman asked the very sensible question whether legislation is needed at all. The answer is that, because of the functions laid down in the Commissioners for Revenue and Customs Act 2005, collecting these fees is not included. They are not a tax so they are not specified by that Act. We therefore have to legislate separately for it. As I have said, HMRC accepts payment by credit card at ports and airports. This is for customs duties at points of entry and road-fuel testing units up to a transaction limit of £1,000. In light of the representations that HMRC has made, however, it is sensible to introduce this opportunity for HMRC to respond to customer demand. Having raised the level of my contribution to one of which our dear departed Friend the former Member for Crewe and Nantwich, Gwyneth Dunwoody would have been proud, I hope the hon. Gentleman will not press these amendments to a vote.

Jeremy Browne (Liberal Democrat, Taunton)

It is always flattering to be described as very sensible by the Financial Secretary. That is not the only reason, however, why I will seek your leave to withdraw my amendment because she also engaged with many of the points that have been raised and provided some reassurance for taxpayers. On that basis, I beg to ask sleave to withdraw the amendment.

Clause 132

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment No. 289, in clause 132, page 83, line 36, at end insert

‘in the absence of evidence to the contrary’.

Nicholas Winterton (Conservative, Macclesfield)

With this it will be convenient to discuss amendment No. 290, in clause 132, page 83, line 38, leave out from ‘enactment’ to end of line 39.

David Gauke (Conservative, South West Hertfordshire)

I shall also try to keep the volume up in order to deal with the background noise. I venture to suggest that this may not be the first occasion during these proceedings when the events in this Committee Room are somewhat above the heads of Members of the Committee, but I have two points to make with regard to certificates of debt. First, proposed new section 25A to the CRCA in clause 132 states:

“A certificate of an officer of Revenue and Customs that, to the best of that officer’s knowledge and belief, a relevant sum has not been paid is sufficient evidence that the sum mentioned in the certificate is unpaid.”

We see no reason why that should not be rebuttable. We therefore suggest that we add to the clause the words:

“in the absence of evidence to the contrary”.

If there is evidence to the contrary, it is common sense that such a certificate should not be sufficient evidence.

Amendment No. 290 relates to concerns about this provision that were raised by the Institute of Chartered Accountants throughout the consultation process. The proposal will

“extend HMRC’s right to proceed against goods to amounts due under a contract settlement. There is no such right under current law and HMRC has not indicated why it believes that powers which apply to tax should be extended to purely civil debts.”

We look forward to the Financial Secretary providing that justification.

The ICAEW goes on to say:

“We believe that HMRC ought to rely on contract law to enforce contracts in the same way as other parties to a contract”.

There is also a technical point that the redefinition of a contract settlement could give rise to certain arguments. An example given by the ICAEW is that

“a taxpayer sometimes includes in an offer liabilities that are out of time for assessment and we doubt that such an amount can be said to be ‘in connection with any person’s liabilities’. An offer is also sometimes made as a pragmatic way to resolve a dispute albeit that the taxpayer does not believe that any tax is due. We also doubt that such an offer is in connection with a liability. We do not think that taking goods is an appropriate remedy where there is a possibility of a dispute.”

We would be grateful for clarification from the Financial Secretary on why contract settlements should be included in the clause. Does she recognise any difficulties with the definition? Perhaps she could identify how the definition will work in the examples that I have given.

Jane Kennedy (Labour, Liverpool, Wavertree)

The clause defines a relevant sum as

“a sum payable to the Commissioners under or by virtue of an enactment”.

That includes debts arising from taxes, duties and so on imposed by statute. Contract settlements are defined in clause 133 as contractual agreements

“made in connection with any person’s liability”.

That is usually as a result of the recovery of tax during a number of years.

On amendment No. 289, HMRC has legislation that permits evidence in support of a claim for unpaid debts to be presented to the court in a way that normally avoids the meaningful, lengthy documentation. While not a necessary requirement, before HMRC takes action to recover a debt it streamlines the evidence needed by the civil courts across the taxes that HMRC collects. The amendment is unnecessary as a certificate is sufficient, rather than conclusive, evidence that the debt is unpaid. It may be challenged or it might be outweighed by other evidence brought before the court. If a taxpayer produces evidence that the facts in the certificate are incorrect, the court can use its discretion on which evidence to accept.

On amendment No. 290, contract settlements are subject to enforcement under contract law, not tax law. Contract settlements are defined as agreements

“made in connection with any person’s liability to make a payment to the Commissioners under or by virtue of an enactment.”

Simply put, they are agreements to pay tax, interest, penalties and so on. It seems sensible to apply the same HMRC recovery methods to unpaid contract settlements as to unpaid tax. The extension of certificates to all debts that HMRC currently collects, including those under a contract settlement, will help court processes run more smoothly by introducing greater consistency for HMRC officers and greater certainty for the debtor. It will also be simpler for HMRC to administer.

Having made clear the purpose of the changes, I undertake to keep under review all matters concerning the powers of HMRC. If, on testing the new provisions, concerns raised here prove to have had more substance than I gave them credit for, I will be prepared to revisit them, if necessary.

David Gauke (Conservative, South West Hertfordshire)

In light of the approach set out by the Financial Secretary, and given that we are very near the end of this part of the Bill, I shall not detain her any longer. I beg to ask leave to withdraw the amendment.

Clause 134

David Gauke (Conservative, South West Hertfordshire)

Just because we might run out of time, does not mean that we should not scrutinise this Bill. I have some brief questions about the clause. It is worth noting that clauses 134 and 135 tidy up provisions brought in two years ago under the Finance Act 2006. The provisions were controversial having been produced after very little, if any, consultation, and substantial amendments were tabled to them. I served on that Committee, as one or two others here did, and it was an educative experience. It is perhaps also worth noting the difficulties that can arise with legislation on which there has not been adequate consultation, and which provide for substantial changes. I am sure that we will bear that in mind when we discuss schedule 7 later in our proceedings.

Clause 134 addresses a person’s interest in possession in a trust where inheritance tax treats them as having the property in a trust comprised in their estate. When someone with an interest in possession dies, or if the interest comes to an end, there is an IHT charge on all the property in the trust payable by the trustees out of the trust’s assets. Section 53 of the Inheritance Tax Act 1984 provides some exceptions to that general rule, and the new rules will allow trustees who become entitled to an interest before or on 5 April 2008 to reorganise their interest in possession of a trust without a charge arising. The purpose of that was to allow the IIP to be changed to a disabled trust or to a serial interest. For example, the IIP would carry on for the same beneficiary if, at the age of 30, it was amended so that it rolled into a new trust to run to the age of 40. However, that did not seem to work properly and the HMRC’s guidance on it fluctuated.

Clause 134 rewrites the offending subsection. There is no problem with that—the accountancy profession has welcomed those changes—but are there any similar issues for which clarification is needed regarding the operation of the 2006 rules? What is being done to assess how well they are working, given their complexity? Will the Minister give sympathetic consideration to the problems as they emerge? That is all that I wish to say on clause 134, although I have a brief remark to make on clause 135.

Nicholas Winterton (Conservative, Macclesfield)

I am happy to call a stand part debate if the hon. Gentleman wishes it.

Jane Kennedy (Labour, Liverpool, Wavertree)

It would not be in the interests of good government not to listen to reasonable representations about the way in which legislation functions. The hon. Gentleman rightly says that the measure in clause 134 has arisen out of the two-year transition period that was introduced to enable trustees to reorganise existing trusts without being subject to the new rules, because the wording of the transitional provisions has left them open to different interpretations where the existing trusts are replaced with new trusts for the same beneficiaries. Clause 135, which we will discuss in a moment, ensures, as was always intended, that the new rules will not apply where a replacement of that kind is made in the transitional period. I am not aware of any other areas that we need to clarify, but I will keep the matter under review, and I am happy to receive representations if it becomes clear that such a review is necessary. The clarification has, as the hon. Gentleman said, been welcomed by tax professionals as well as by representatives of other groups.

Clause 135

David Gauke (Conservative, South West Hertfordshire)

I rise simply to ask about the extension to the transitional period, which is welcome, but the Institute of Chartered Accountants wanted a longer period. Why have the Government not conceded to that request? Why have they chosen the time period in the Bill?

Jane Kennedy (Labour, Liverpool, Wavertree)

As I said earlier, the clauses relate to the “Inheritance tax: rules for trusts etc” in schedule 20 to the Finance Act 2006. Trustees who are inclined to make changes to existing trusts will already have given a lot of thought to how they might do so. However, we accept that the uncertainty regarding the inheritance tax consequences of one particular course of action might, in some cases, have prevented trustees from reaching a firm decision. The six-month extension to the transitional period provides ample time for them to do that. That step has also been welcomed by tax professionals and representatives of other groups. I am aware of the representations that have been made and, as I said earlier, we will keep the matter under review to see whether six months is problematic. However, we think that we have got things right, on balance.

Clause 138

Justine Greening (Conservative, Putney)

I beg to move amendment No. 351, in clause 138, page 86, line 37, leave out ‘electronic’.

I will try to be heard above the din of the very annoying light bulb above us. I shall go into my amendment No. 351 in detail, but, with your agreement, Sir Nicholas, I will also cover the issues that I wanted to address in the clause stand part debate. That way we can progress faster.

As far as I can see, this clause is one of two that tackle anti-avoidance of some form in relation to vehicle excise duty. Amendment No. 351 is a probing amendment more than anything else, because I wish to understand whether the phraseology in the clause would work as intended. At the same time, I will also address a couple of other concerns that I have regarding the clause, although I fully understand why it is being brought forward.

Clause 138 is designed to stop motorists from surrendering vehicle excise duty licences early to get a rebate and then renewing the licence before the rate goes up in the following 12-month period. The motorist would apparently do that to avoid paying higher rates of vehicle excise duty later. We understand why they might want to do that and, therefore, why the Treasury want to bring forward measures to stop them. I have tabled the amendment because I have concerns about how the measure will work in practice and about some of the procedures that are in place—or are not, as the case may be—to stop that sort of practice from happening in the first place.

The main problem with clause 138 is that it makes applying for a rebate unnecessarily restrictive, because it seems to suggest that it can be done only

“by such electronic means as may be specified”.

Amendment No. 351 is a probing amendment to determine whether that approach is favoured by the Government for a particular reason or whether it is simply not clear what the Government intend by limiting communication purely to electronic means. The clause allows the Secretary of State to set certain conditions that a person applying for a rebate must comply with. One condition includes the provision of information to the Secretary of State by electronic means. Will the Minister clarify why it has to be electronic, and whether it limits applicants to using e-mail or whether applicants are allowed to post details or provide them over the phone? We all know that systems breakdown, for whatever reason, and, therefore, relying on electronic means is an unwise risk.

Ironically, another part of clause 138 has the opposite effect to what the clause intends to achieve, by providing—in my opinion—a loophole. New subsection (3)(f) allows for a rebate on a vehicle that has left the UK with a view to it remaining permanently outside the UK. I understand exactly why the clause has that proviso for somebody being able to claim a rebate, and it is fine. However, it seems very difficult for the Treasury to enforce, so will an individual have to provide proof of his or her move before being able to get the rebate, and, if so, what kind of proof?

Somebody may get the rebate for moving, and end up reapplying shortly afterwards for a licence for the same car, which could happen easily. For example, they may have thought that they were going to be able to sell their car to a relative in a different country, back in Poland, for example, and were planning to buy a new car in the UK, but, for whatever reason, that purchase did not happen. Therefore, they end up keeping the car in the UK and want to establish road tax for it again—quite properly. It would be difficult for whoever was renewing the vehicle excise duty to challenge that as an explanation for why it was being renewed early on the same vehicle. To that extent, I question whether it is possible to enforce this part of the clause, although I can see the sense of putting it there in the first place. Perhaps the Minister can clarify that.

We can readily understand why the Government think there is a risk of more people wanting to try to avoid paying vehicle excise duty and higher rates of it. One of the key measures brought forward in the Budget was a massive rise in vehicle excise duty for some people. That is demonstrated by the fact that the Government decided to put in two clauses to tackle what it saw as a growing risk of people trying to avoid paying higher road tax. Of course, I would never condone that behaviour.

Perhaps the Treasury could explain why it feels that there is suddenly a need to bring forward this and the following clause in terms of clamping down on vehicle excise duty avoidance. Is it anything to do with these large increases that we have seen?

Finally, can the Minister give the Committee an update on how big a problem this is? How many people are now avoiding paying road tax? I understand that in the past the Treasury has taken initiatives to try to tackle, with some success, people who are avoiding paying road tax. Perhaps the Minister can give an update on the Treasury’s assessment of how many drivers and cars are currently avoiding paying road tax and the loss of revenue, specifically in terms of the Red Book figure of £735 million in 2010-11 from changes to road tax put forward in the Budget. Next year those changes amount to £435 million. Is the impact of this anti-avoidance clause factored into that amount in the Red Book or is this additional revenue that the Treasury expects to gain by clamping down on anti-avoidance?

I have asked numerous questions on vehicle excise duty following the Budget that have still not been answered by the Treasury. I hope Ministers will answer questions tabled at the beginning of May in the near future. I look forward to hearing what the Minister has to say.

Kitty Ussher (Labour, Burnley)

It is a pleasure to speak under your chairmanship, Sir Nicholas.

I understand we are taking the clause stand part debate together with the amendment tabled by the hon. Member for Putney, so I will deal with all the questions that she asked. First, and perhaps most to the point, she asked why the clause was being introduced at this time. She is right in inferring that the purpose is to ensure that motorists pay the appropriate level of VED when rates are pre-announced, which provides an incentive for people to attempt to re-license before the date on which higher rates are introduced. Our intention is to make that harder in the interests of the taxpayer.

She also asked about the rate of evasion. We think it is about 1.1 per cent among vehicles sighted in traffic, according to estimates in the 2007 roadside survey. That equates to a revenue loss of about £79 million, so it is obviously an issue that is worth pursuing, and we hope that the measures before the Committee will help. I must apologise to the hon. Lady, as she has not yet received answers to her written questions: I will ensure that they are answered as speedily as possible. Regarding her amendment, I suspect that there has been a slight misunderstanding. It is not the intention nor, we think, the legal effect of the clause to make electronic communication mandatory. We are simply allowing it to be one of the forms of communication used. We are not saying that people must communicate electronically, so I hope that that reassures the hon. Lady. She also asked whether people can apply for rebates over the phone. Submissions can currently be made only on paper, but the clause allows for electronic submissions.

Justine Greening (Conservative, Putney)

I am grateful to the Economic Secretary for her explanation about communication via electronic means. However, the clause suggests that that is the only means available. It does not refer to other means. I press the hon. Lady on whether other means can be used, because, as she said, most people do not use electronic means to renew their licence.

Kitty Ussher (Labour, Burnley)

I will quadruple-check that we are absolutely sure. We have triple-checked, and are absolutely sure. For the record, there is absolutely no intention to set conditions to make the take-up of electronic services mandatory. Such take-up may occur—perhaps it is the use of the word “may” that is key—and those means should be used in parallel with existing paper-based channels.

Mark Field (Conservative, Cities of London and Westminster)

Will the Economic Secretary indicate whether an administrative charge is paid by a licence holder when applying for a rebate?

Kitty Ussher (Labour, Burnley)

I understand that that is not the case.

Peter Bone (Conservative, Wellingborough)

There is effectively a charge, because complete months are required. If a licence is surrendered halfway through a month, half a month’s rebate is lost. People would not readily do that. I am interested to see whether the Economic Secretary will go on to explain the anticipated loss of revenue, if the existing conditions were to continue.

Nicholas Winterton (Conservative, Macclesfield)

It would be helpful if the Economic Secretary could speak up a little.

Kitty Ussher (Labour, Burnley)

I shall shout over the light bulb. I am tempted to make jokes about how many MPs it takes to change a light bulb. Obviously we need more MPs than we have in Committee—and the Finance Bill Committee is a large one. I think that I answered the hon. Gentleman’s point about revenue loss by explaining what we thought the evasion rate and losses were. That is why we are tightening up the measure.

Peter Bone (Conservative, Wellingborough)

I was not talking about evasion, which is different—it is an illegal act. I thought that the Economic Secretary was talking about avoidance by surrendering early, which is legal. That is the loss that I was trying to quantify.

Kitty Ussher (Labour, Burnley)

I apologise to the hon. Gentleman, as I misunderstood him. I do not have that figure to hand, but I will provide him with it if it is available.

The hon. Member for Putney asked how it is proved that a vehicle is permanently exported. The DVLA must be notified of the export in writing, and it would need to receive that before a rebate was considered. A statement of proof is be needed. If the vehicle is re-imported, it is illegal for it not to be licensed. We believe that that covers the points that she raised. I believe that I have answered everything, so hopefully the hon. Lady will withdraw her amendment.

Mark Field (Conservative, Cities of London and Westminster)

I find the Economic Secretary’s reply, and the underlying basis of the clause, insidious. In essence, it is in the nature of taxation that individuals should be able to go about their business, and avoid paying large amounts of taxation, if they wish to do so. I accept that this is a small taxation measure, but none the less a car owner who sees that there is to be a large increase in the tax due as vehicle excise duty, should be entitled to make arrangements accordingly. In other words, if that taxpayer is only seven twelfths of the way through the mandatory year-long licence regime imposed by the Government, it should be within their rights to seek a rebate for the remainder, then take out a new 12-month licence just before the rise is put in place. That insidious situation is one reason why I asked about administration charges. It is insidious that the Government should effectively blocking this off in the name of what they regard as avoidance, or even evasion.

Peter Bone (Conservative, Wellingborough)

My hon. Friend is making a strong and powerful point, with which I entirely agree. Since the Government could bring in VED increases in immediately to avoid that situation if they wanted, all this legislation is unnecessary.

Kitty Ussher (Labour, Burnley)

rose—

Mark Field (Conservative, Cities of London and Westminster)

My hon. Friend the Member for Wellingborough was intervening on me, but I will give way to the Minister.

Kitty Ussher (Labour, Burnley)

In responding to the intervention from his hon. Friend, would the hon. Gentleman clarify whether it is Conservative party policy to introduce VED rates immediately?

Mark Field (Conservative, Cities of London and Westminster)

Naturally, we are not here to make Conservative party policy on the hoof—particularly not my hon. Friend the Member for Wellingborough or myself. We were trying to make a serious point about our concerns: it is a relatively small financial issue, but quite an important issue of principle.

Given the strict regime of a 12-month period, if people sell and buy cars mid-year, the taxpayer has the right to be entitled—I suspect that a relatively small number of car owners would, from the Government’s perspective, seek to take advantage of the measure—to a rebate on their current tax disc, then take out a new one to avoid paying a substantially higher charge under the new duty regime. I am not terribly convinced that the Government would face a massive administrative problem in that regard. A huge amount of money would not necessarily be lost to the Government, from their own perspective. This is yet another intrusion on the individual, who should be allowed to ensure that they can organise their personal and financial affairs in a way that is not necessarily to the convenience of the Government, and would not maximise Government revenue.

Peter Bone (Conservative, Wellingborough)

I endorse everything that my hon. Friend has said, and I would resist the clause on the grounds that the Government have given us no indication of the revenue implications. We are creating a lot of totally unnecessary new regulations. The existing system works perfectly well, and unless the Government intend in future years to make massive VED increases, which would cause a significant loss of revenue to the Exchequer, I can see no reason to proceed with the measure. It is an unfair restriction on taxpayers’ ability to plan how they pay their tax.

Justine Greening (Conservative, Putney)

We have had an interesting debate, and my hon. Friends have raised some well-made points about the intention behind the clause. I have no doubt that the massive rises in VED that some people face this year will make them want to renew their vehicle excise duty early to minimise the tax that they pay.

As I said in my opening comments, I am concerned that it will be quite difficult for the Government properly to enforce the measure anyway, and people will have all sorts of perfectly valid reasons that do not come under these categories for renewing tax discs early. I do not think that the Economic Secretary has set out the case particularly well for going ahead with the measure. I am happy to withdraw the amendment, but I would like to divide the Committee on clause stand part. I beg to ask leave to withdraw the amendment.

Schedule 45

Nicholas Winterton (Conservative, Macclesfield)

With this is will be convenient to discuss the following: Amendment No. 352, in schedule 45, page 416, line 34, at the end insert—

‘(c) any place which is not within the curtilage of a dwelling house and is—

(i) privately owned, and

(ii) used for the purposes of keeping a vehicle subject to private arrangement.’.

Government amendments Nos. 314 to 315.

Justine Greening (Conservative, Putney)

May I ask the Minister to quickly run through the Government amendments? I can see that they possibly just tidy up phraseology, but it would be helpful to get on the record the reason why the Government have tabled them now, and why they were not incorporated in the Bill when it was published.

Amendment No. 352 arises from my concerns about the schedule. On the face of it, it is an anti-evasion measure that will increase the authorities’ powers to remove cars that are off-road if road tax has not been paid or if a statutory off-road notification has not been provided. I am concerned about the extent of those powers and the absence of increased responsibilities in the Bill for those who will exercise them. My proposal seeks to encourage the Minister to be more prescriptive and specific regarding the powers available to the enforcers of road tax payment and to those who remove the vehicles.

As I understand it, the purpose of the schedule is to catch motorists who avoid the detection and prosecution of vehicle excise duty evasion by keeping their unlicensed vehicles off the public road. Currently, the licensing law applies only to vehicles kept on public roads, so the rationale behind that change is sensible enough. It would be interesting to know what assessment the Treasury has made of the extent of the off-road detection-avoidance problem that it seeks to resolve.

While we recognise the need for local authorities and police forces to detect vehicle excise duty evasion, amendment No. 352 would ensure that clause 139 and schedule 45 do not run the risk of producing a clampers charter whereby over-zealous enforcement officers go beyond the spirit of the schedule and what is intended and impinge on private property in an entirely unacceptable way. Schedule 45 amends the definition of an offending vehicle from one on the public road simply to “a vehicle”. The schedule excludes nil licences, statutory off-road notification vehicles and car dealerships, which seems to cover most people who might be caught by the measure inadvertently. Nevertheless, how much access does the Economic Secretary think enforcement officials will have in detecting offenders’ vehicles?

The Treasury’s chosen language suggests that vehicles within the curtilage of a dwelling or dwellings—I understand that amendments are being tabled to amend the word “dwelling”—are not subject to immobilisation, removal or disposal. That is a sensible safeguard, to prevent enforcers, clampers and people who impound vehicles from simply strolling on to motorists’ driveways and impounding their vehicles. I am concerned, however, that the powers under the schedule are quite broad. There are legitimate off-limit areas that are not covered by the Treasury definition, but which are covered by amendment No. 352, thus narrowing the powers provided by the schedule. It would be helpful to hear the Treasury’s definition of “curtilage” from the Economic Secretary. According to the definition that I looked up, it is:

“The area of land occupied by a dwelling and its yard and outbuildings, actually enclosed or considered as enclosed.”

That seems to exclude private land away from a person’s home. At the moment, the schedule seems to protect people’s right not to have the authorities come on to their private property to impound a vehicle, but it does not give rights to people who may keep their vehicle quite legitimately further away from their property. I can certainly say, as somebody who lives in London, that there are many people in cities who, for all sorts of reasons to do with space, simply cannot house their vehicle where they live, or anywhere near where they live, and may rent private land or indeed a garage that is some way from their property. Perhaps they have a second car, and there is no space at their residence to keep a vehicle that is untaxed.

People living on large council estates may end up parking their vehicle some way from the block of flats that they live in. My reading of the rest of schedule 45 suggests that the Government want to protect people with such private property from having anyone come on to the land to impound their cars. My concern with this schedule is not that I am worried that enforcers will be able to impound cars of people who evade road tax—it is quite appropriate that we take action against people who do so—but that they will nevertheless have the right to go on to private property, and they may, or may not, have a well-founded reason for doing so. The car that they are aiming to detect and impound may not be there when they arrive but, nevertheless, the schedule gives people some serious powers to enter properties and areas when it is not appropriate to do so. The schedule does not provide enough discussion or setting-out of the increased responsibilities for authorities, which they need if they are to have a rationale and a reasonable argument for entering someone’s private property. Property may therefore be encroached on for erroneous reasons: the authorities may go to find a car that they have reason to believe, or indeed did not have reason to believe, had evaded road tax, but discover it is a different vehicle.

In setting out my argument, I want to press the Minister to tell the Committee a bit more about the additional powers given to people enforcing the laws, which I fully understand. I want road tax evasion to be tackled, but it is worrying that the powers are not matched up with the due process to be undertaken before they are exercised. Those are my concerns and I hope the Minister will be able to address them.

Kitty Ussher (Labour, Burnley)

I find those questions and comments very useful and I shall start as the hon. Member for Putney requested by outlining the purpose behind the Government amendments, which are technical in nature. I will then address her amendment and the broader points she raised. Amendment No. 313 is intended to put beyond doubt the Government’s intention that the schedule should not apply to any place within the curtilage of not only a dwelling house, but also a mobile home or houseboat. That is because the word “it” would be unequivocally inclusive of all those types of dwelling place, whereas there is a risk that the existing drafting of “the dwelling” could be incorrectly taken to mean only a dwelling house. We hope that the hon. Lady will be able to support that.

Amendment No. 314 simply corrects a drafting error—it is regrettable that we have one, but a good idea to correct it. When a vehicle has been incorrectly immobilised where a SORN is in force for it, the vehicle will be released, but there is a discretionary condition under which enforcement personnel can ask an individual to attest that SORN is in effect for the vehicle. If there is a circumstance where this testimony is sought and given, there should not be a need for the individual to produce a testimony that they have already made, so the amendment removes that requirement. I hope that that is uncontroversial.

Justine Greening (Conservative, Putney)

Can the Minister tell the Committee how many vehicles have been incorrectly immobilised in the past 12 months by enforcement officials?

Kitty Ussher (Labour, Burnley)

I hope to be able to tell her shortly.

The hon. Lady is right to say that amendment No. 315 is the most substantive of our amendments. If it were not agreed to, the clause would give enforcement personnel disjointed powers. They would have the power to immobilise a vehicle, but they would not have the power to remove the vehicle if immobilisation had failed to induce a response. Without the amendment, the DVLA would be unable to deliver the policy intention as it relies on a well established two-stage process of vehicle immobilisation and, if required, subsequent removal, which is already practised on public roads. It is not a change of policy but it should have been in the original drafting.

On the hon. Lady’s amendment No. 352, the clause offers protection against vehicle excise duty enforcement in places that are intrinsically part of a private dwelling. The amendment does not further define “privately owned” and we feel that there are categories of publicly accessible places that are privately owned. If the amendment were permitted, we would not, for example, be able to enforce on housing association roads or open land, including waste land, parks, greens, retail facility car parks, municipal car parks and so on, which are all privately owned yet publicly accessible. We feel that if a car is left in a municipal car park, for example, it should be enforceable. That is why we do not feel that the hon. Lady’s amendment works. It would not help us to achieve our aim. It would also be extremely burdensome for the authorities and, therefore, ultimately for the taxpayer by requiring the ownership of the land to be checked in every eventuality when a car that does not have a tax disc is found in an odd place.

Mark Field (Conservative, Cities of London and Westminster)

This is another example of the notion that it is extremely burdensome for the authorities to make these checks in advance. Surely the Government are looking at this in entirely the wrong way. Citizens of this country have the right not to have a privately owned motor car on private land immobilised, removed or disposed of at the state’s behest without certain safeguards. The state should ensure that such a car should not be immobilised for a range of different reasons or for behaving in a particular way. Individuals should be entitled to the freedom of owning a motor car without a set of arbitrary provisions being applied by the Revenue or other instruments of the state according to a range of vague guidelines and safeguards.

Kitty Ussher (Labour, Burnley)

The hon. Gentleman is trying to make a moral point but he is rather missing the point under discussion. We are discussing the Government’s policy—I am sure that it is welcomed by Opposition members—that if a car is not used, no tax disc is needed. The process for declaring whether a car is being used depends on whether it is on or off the road. We are trying to define more precisely how that policy is enforced. The hon. Member for Putney asked some questions about our precise definition of “curtilage” and about privately owned areas on which one can park a car and consider it off-road. I am simply pointing out that there is private land that is probably construed by any sensible person as being on the road. It would not be sensible therefore to have “private land” as our definition. We are using the word “curtilage”, which I will define shortly.

It is perfectly reasonable that we should seek to enforce if a car is left on land that happens to be privately owned by, for example, a company, such as a car park. That is different from a yard outside someone’s house. That was my point.

Justine Greening (Conservative, Putney)

This is getting to the heart of the issue. None of us has an issue about dealing with road tax evasion, but the Bill says nothing about the duties on enforcers to request access to a private car park, perhaps from the owner, before going on to that car park.

The Minister may see that as burdensome, but, given that there will be other cars and other people’s property in the car park, it does not seem too much to ask for contact to be made before entry. I am sure that most bona fide car park operators would be happy to co-operate in bearing down on road tax evasion.

Kitty Ussher (Labour, Burnley)

I would be interested to know how companies such as NCP would respond to the hon. Lady’s suggestion. Such car parks are publicly accessible. Other examples of privately owned land that is publicly accessible include housing association land, waste land, parks, greens and shopping centre car parks. If the hon. Lady is suggesting that tax disc enforcement personnel should seek agreement from the company before stepping on to such land, she is not displaying her party’s usual desire to reduce regulatory burdens.

Peter Bone (Conservative, Wellingborough)

This is a serious issue. I want to mention a constituency case where someone went on holiday for about three months and parked his car off-road on private land. Unfortunately, the authorities took his car away and mashed into a metal box. He was somewhat upset when he came back. He was more concerned about the tools that were in the vehicle than the vehicle itself, but that is not the point. There must be good safeguards against such things happening.

Kitty Ussher (Labour, Burnley)

I am grateful to the hon. Gentleman for raising a case on behalf of his constituent. I do not know whether he has raised it with me in writing or with the Exchequer Secretary, but obviously we will be happy to assist if we can. However, it is not quite the point under discussion.

I was asked how many vehicles currently evade vehicle excise duty by parking off-road. The most recent figure is approximately 150,000. That is from 2005 when local authorities conducted a survey of unlicensed vehicles in local authority car parks. In addition, DVLA frequently receives notification from wheel-clamping partners informing it that unlicensed vehicles are being parked off-road. When enforcement teams spot unlicensed vehicles in public places they are currently unable to take action and the number of vehicles is not recorded.

I hope that the hon. Member for Putney will realise that this is something worth considering.

Justine Greening (Conservative, Putney)

I understand the Minister’s point about public car parks. Can she clarify what she means by public areas? We all understand the point about going into a shopping centre car park to have a wander round and check car tax discs. That certainly happens in my part of London as part of a public duty to ensure that untaxed vehicles are removed and do not take up parking spaces. Is that what she has in mind? Or does she have in mind that these powers should also extend, for example, to officers going on to private land, perhaps farm land, fields and all sorts of land that does not have public access per se, in order to detect road tax evasion? Is the concept of it being publicly accessible the key part of the schedule that gives protection to those who have private land and might not think that it is acceptable for other people simply to come on to their land without permission?

Kitty Ussher (Labour, Burnley)

We have got to the nub of the issue now. The amendment suggests the inclusion of land that is “privately owned”. I am simply pointing out that I do not think that that would be workable because it would include private land that happens to be owned by a private entity or company—car parks are a good example, and there are others. It does not follow from my rejection of the hon. Lady’s amendment that I think that law enforcement officers should be able to trespass on private land. I hope that that offers clarification. We feel that we can deal with evasion on large rural estates, for example, in other ways, and there are also exemptions for agricultural vehicles, which I will address later.

The hon. Lady asked what is meant by curtilage? The definition of curtilage is quite narrow, so I want to make a number of points about large private estates, which I hope will clarify our intention. Some of this might also end up being tested through case law, but our intention is to try to make it as clear as possible. The intention is that curtilage should apply to places that are intrinsically part of a private dwelling, and operational guidance for enforcement personnel will reflect that. The places should be intrinsically part of a private dwelling, which I think answers her point. Obviously, a garage or parking bay might be considered part of a dwelling if it is near it and was bought and sold with the dwelling. That partially answers the point about a garage that is owned and is part of the estate of a property but is not completely next door to it, even if they are separated by land or buildings not owned by the householder. I hope that that will provide some clarity for city and town dwellers. As I said, it would ultimately be for the courts.

Curtilage around flats that lie beyond the public road would be treated as follows: the approach roads will be subject to enforcement as they would if they were part of the public road network, but parking areas and spaces around a block of flats, for example, will be treated as being within curtilage and therefore beyond enforcement reach. I will be happy to consider any other specific examples.

With regard to the effect on the agricultural community and the question of whether it would be possible to wheel clamp a vehicle on farm land without permission, the measure will affect unlicensed vehicles that are parked on agricultural land. The exception to that would be the land lying within the cartilage or vicinity of a private dwelling that is not normally used within that dwelling. Of course, there is already a 1.5 km distance-based nil rate for vehicles used on the land, and that applies to any vehicle used in that way. That can include a Land Rover, a quad bike and a four-wheel drive, light utility truck, such as a Unimog—I am learning all sorts of new things, although I do not have one myself.

Justine Greening (Conservative, Putney)

I thought that it perhaps might have been a cat with only one leg, but I am assured otherwise by that clarification.

Kitty Ussher (Labour, Burnley)

I think that the hon. Lady’s comment speaks for itself.

Other agricultural and horticultural vehicles that have specific nil-rate eligibility in existing legislation include all tractors and other motorised agricultural implements such as mobile crop sprayers—I am going into detail to show that we are trying to draw this clearly. Of course, vehicle keepers in the agricultural community who use their vehicles on the land and only traverse a public road for a short distance, as is the case when their fields are on both sides of a road, are eligible to license their vehicles at a nil rate. I have probably addressed the main points, so unless the hon. Lady feels that I have missed something, perhaps I have reassured her on the points she raised.

Justine Greening (Conservative, Putney)

The Economic Secretary has provided some reassurance on some of my concerns, and I take her point about the distinction between public and private. I understand her concerns about my amendment. She has gone some way to allaying my fears by clarifying the access issues, particularly with regard to farm and agricultural property. I beg to ask leave to withdraw amendment No. 352.

Nicholas Winterton (Conservative, Macclesfield)

The hon. Lady does not need to, as it has not been moved, although we have discussed it. I accept that she will not be seeking a Division on that amendment.

Clause 140

Justine Greening (Conservative, Putney)

Clause 140 relates to rates for new lower-emission vans. It essentially accommodates the fact that it is now mandatory for lower-emission vans to be in the Euro 4 class and, therefore, will no longer get a lower VED rate. However, my understanding is that if they were registered between 1 March 2003 and 31 December 2006 and are Euro 4-compliant, they will continue to get the reduced rate of vehicle excise duty. Vans purchased after 2009 will not, hence my question. From the start of 2009, Euro 5 and Euro 6-compliant vehicles will get the reduced vehicle excise duty rate until the start of 2010. Then, Euro 5 and Euro 6 standards, like Euro 4, will themselves become mandatory.

My question is about vans that have been bought since 2007 and in 2008. Euro 4 vans bought after 13 December 2006 will not, apparently, get the reduced rate of £120. It is not clear to me why the Government have taken that approach. I understand the policy on vans bought after 2009 and onwards and the policy on low-emission vans bought before 2007, but can the Minister clarify the rate for people who bought Euro 4-compliant vans that were or will be registered between 1 January 2007 and 31 December 2008. Will they be paying the full rate of vehicle excise duty for light goods vehicles or will they be getting the reduced rate?

Kitty Ussher (Labour, Burnley)

That might have seemed mysterious to members of the Committee who did not understand the context. For their benefit I will explain briefly, and then come to the hon. Lady’s question.

The clause concerns rates for new low-emission vans. It provides for the introduction of a reduced rate of VED from 1 January 2009 for diesel vans that comply with the Euro 5 emissions standard. Although that standard is in force, it is not yet mandatory. Consumers therefore have a choice when selecting a new van, between models that have been built in conformity with the current mandatory standard Euro 4 and those built to comply with the more stringent Euro 5 emissions standard, which had been established through an EU regulation. That regulation gives member states the scope to use incentives to encourage early take-up, ahead of the standard’s mandatory introduction.

To meet the Euro 5 emissions standard, comparatively larger emission reductions are demanded from diesel vans than from petrol vans. That provides the Government with the grounds for an incentive to help deliver air quality gains—compared with earlier technology diesel vans—from reduced omissions of nitrous oxides and particulate matter. The reduced rate of VED is therefore intended to encourage early take-up of Euro 5 compliant diesel vans, ahead of Euro 5’s mandatory introduction in 2011. The reduced rate will be £120 on introduction, and will remain for the lifetime of the van.

EU law does not allow the Euro 4 incentive after 2007, and DVLA cannot bring in an incentive for Euro 5 before 2011. The standard only came into force in late 2007, so we could not give any incentive for Euro 5 before that. I hope that that answers the hon. Lady’s question.

Justine Greening (Conservative, Putney)

That gives me the details that I was interested in. However, it seems unfair that people who have in the past two years caught on to the need to take steps against climate change and have bought a Euro 4 van, will have to pay the standard rate, whereas those who had already done that will still be benefiting from their behaviour, paying the reduced rate. I understand the limits on the Government’s ability to move in that area because of European legislation, but there seems to be inequity in the treatment of people who have tried to do the right thing and buy a low-emitting van, but bought it too late to get the reduced rate.

Clause 141

Justine Greening (Conservative, Putney)

I understand that the clause has been introduced because some people now use the internet to renew their road tax. It would be interesting to hear from the Economic Secretary how many people use that channel. [Interruption.] My hon. Friend the Member for Fareham says that he uses it, so it is getting some take-up.

I recognise though, that when people go down that route it takes some time for their licences to arrive in the post, particularly perhaps in rural settings where larger areas are covered by each postal service, or in areas where the service is not as effective as in others. In my part of London we have had some problems with post not arriving on time, and we know that there are postal strikes. So I understand that the grace period takes account of the fact that people will be waiting for their licence to arrive when they have purchased it legitimately. Will the grace period apply to everyone? It simply suggests that there is a grace period, full stop. It would be helpful if the Economic Secretary clarified that.

Another brief point is on the enticing free prize draw that I noticed on the home page for people who were renewing. That explains some statistics that I received from the Government. According to Government figures, over the next three years Ministers expect the number of band A cars to go up by 11, from 395 to 406. Three of them can be won in this competition because the free prize draw is for one of three brand new Seat Ibiza Ecomotive cars, which is one of the few models that is under 100g per km in terms of emissions. We have found three of them and I will look for the other eight. Perhaps it is just the Government who are purchasing these cars and that is why the figures have gone up.

It would be helpful if the Economic Secretary could answer my questions and provide some clarification on the clause.

Kitty Ussher (Labour, Burnley)

This measure is uncontentious, as the hon. Lady implied. At present the amount of people using the electronic service declines at the end of the month as motorists must allow five working days for their new tax disc to arrive in the post. The clause allows customers an exemption from the offence of not displaying a tax disc for five working days at the start of the month. The exemption will apply only provided that an application for a new tax disc has been made before the expiry of the previous one. It is not a general grace period, but is simply intended to cover all situations in which people do not physically go to the post office to obtain their tax discs.

Mark Hoban (Conservative, Fareham)

I do not wish to interrupt in a clause that my hon. Friend the Member for Putney is leading on, but as a user of this scheme, I should say that one of the reasons why it is difficult to take it up is that one can apply for a tax disc only after the 15th day of the month. That causes a problem if one is away from home. My tax disc goes to my constituency home. That is an issue about how easy the scheme is to use. I welcome the grace period, but could the Government allow people to apply for a new tax disc before the 15th day of the month to encourage take-up and avoid the need for the grace period?

Kitty Ussher (Labour, Burnley)

I hear what the hon. Gentleman says. That is not precisely the point that we are addressing, but I will pass on his comments to the Exchequer Secretary who normally leads on these issues. I am sure that she will consider his point with sympathy.

The only remaining thing is to provide the hon. Member for Putney with the answer to her specific question about the take-up of the electronic vehicle licensing service. It is currently about 35 per cent. We want that to rise, but we are quite pleased with where it is. Our target is 60 per cent. by the end of the 2008 financial year, which is one of the reasons for introducing this measure to remove an inadvertent hurdle. We already have 1 million people per month, of whom the hon. Gentleman is one and I am another. Good luck to the hon. Lady in her prize draw.

Clause 142

Justine Greening (Conservative, Putney)

I want to ask the Economic Secretary how this scheme will work in practice. I understand that it is an attempt to cut down on bureaucracy and simplify the process of issuing a reduced pollution certificate. Will she tell the Committee briefly how the procedure will work in practice, what sort of information will have to be provided and what declarations will have to be made to the Secretary of State? In what sorts of situations will a certificate be issued following inspections? If she could outline briefly the process by which reduced pollution certificates will be issued, it would be very helpful.

Kitty Ussher (Labour, Burnley)

I will write to the hon. Lady setting out the precise process. This is intended to make things simpler. The Vehicle and Operator Services Agency currently does not insist on testing newly purchased Euro 5-compliant vehicles, as an examination of the complex systems in each case would not be practical or economic. We hope that the clause will regularise the current practice but, to put the matter beyond doubt, I will write to the hon. Lady and circulate that to members of the Committee.

Nicholas Winterton (Conservative, Macclesfield)

I hope that in writing to the hon. Lady the Minister will ensure that all members of the Committee receive a copy and perhaps a copy is put in the Library as well.

Kitty Ussherindicated assent.

Clause 143

Justine Greening (Conservative, Putney)

Again, I want to ask some brief questions of the Minister regarding the fact that coal mine methane is no longer being considered renewable under the climate change levy. I understand that the Government are saying that that is because the EU state aid exemption expires in October and the incentive has not had much effect. I want to press the Minister on why the Government feel that that has been ineffective.

A lot of the debate in this House and outside is around the effectiveness of green fiscal measures. When we have measures that the Government say have been ineffective it is useful, helpful and instructive to delve into that ineffectiveness a little more to understand why that has happened. It is important because the exemption was put in place to give financial incentives and assistance to coal mines. Over the past two years, partly owing to changes in energy prices, some old coal mines have re-opened. A good example is Hatfield colliery in South Yorkshire. It is ironic that as coal production and coal mines are being brought back into use the incentive to ensure that the methane created as part of the production process is used for energy generation is being taken away. Can the Minister briefly outline why it was felt that this fiscal measure did not work and whether the Government are considering other ways to tackle the environmental issue of methane in relation to coal production?

Kitty Ussher (Labour, Burnley)

The hon. Lady’s question gets to the point. We have been slightly mystified ourselves.

May I give a bit of context? In 2003, we applied to the European Commission for state aid approval for an exemption from the climate change levy for electricity generated from coal mine methane. The Commission ruled that the exemption constituted state aid but was approvable for five years under the Community guidelines on state aid for environmental protection. Coal mine methane is a fossil fuel but is regarded as a renewable source for the purposes of exemption in UK legislation.

The purpose of the exemption was to improve the rate of return on marginal coal mine methane extraction projects, thereby encouraging the capture and generation of electricity from the gas, mitigating emissions of methane into the atmosphere and preserving natural gas reserves.

We continue to recognise that using coal mine methane in electricity generation is beneficial to the environment. However, we have not found any evidence that the existence of the exemption has provided incentives to use the gas to produce electricity above what would have occurred without the exemption. We have worked closely with the industry to explore the case for extending the exemption but the combination of a lack of robust evidence about its need combined with changes to the European Community guidelines on state aid for environmental protection, under which we would obviously be required to apply to extend the exemption, led us to conclude that the UK would not be able to submit an application that would have persuaded the Commission to extend the relief. That is why we have concluded that that no longer depends on the levy exemption for its existence, and is rather a side point to our general efforts in this area.

Justine Greening (Conservative, Putney)

Does the Minister have any assessment of the impact on climate change levy receipts as a result of ending the exemption?

Kitty Ussher (Labour, Burnley)

I do not have such figures to hand, but my presumption is that since we could find no way in which the exemption was having a real effect on the economy, there is no marginal effect on tax receipts either.

Justine Greening (Conservative, Putney)

I am grateful to the Minister for her response. She has outlined some of the issues related to this clause, and the points that I wanted to make have been properly aired.

Clause 145

Justine Greening (Conservative, Putney)

I beg to move amendment No. 353, in clause 145, page 89, line 21, leave out from ‘substitute’ to end of line 23 and insert ‘“the withdrawal of approval of—

(i) an environmental body by the regulatory body;

(ii) the regulatory body by the Commissioners; and

(iii) an environmental body by the Commissioners on an occasion when the Commissioners have assessed that serious non-compliance has occurred on the part of an environmental body,”’.

The amendment seeks to put some clarification into the Bill that is in the explanatory notes but probably ought to be reflected in the Bill itself. It relates to the fresh HMRC commissioners powers that the clause creates. At the moment, the landfill communities fund is administered by Entrust, which can both give and remove approval for environmental bodies that are part of that fund.

Amendment No. 353, which I have tabled, seeks to ensure that what the explanatory notes set out—that HMRC will remove approval of an environmental body to participate in the landfill communities fund only when there is serious non-compliance—will, in reality, be the only time that HMRC has the use of those powers. My concern is that, at the moment, clause 145 gives HMRC commissioners and the regulatory body, Entrust, the power to remove approval of an environmental body that received contributions, whereas previously Entrust performed that function itself.

We do not really know what non-compliance and serious non-compliance constitute in relation to the landfill communities fund. Can the Minister set out some examples of where serious non-compliance has already occurred, and whether there is a serious issue about that which the Government are seeking to address through involving the HMRC? Does the Treasury have some concerns perhaps that Entrust is not in a position to handle cases of serious non-compliance? Does the Treasury nevertheless still see the process of dealing with that starting with Entrust, which would then refer possible cases to the Treasury, particularly HMRC? Does it see HMRC going through a parallel scrutiny process of those environmental bodies, in order to identify serious non-compliance for its own sake? That would seem to be an obvious duplication of effort.

To some extent, this is a probing amendment, but through it I am seeking to understand better why the Government think that this is an issue, and to make sure that the HMRC powers are proportionate for the occasions on which they will be used. As I alluded to earlier, it would be helpful to hear from the Minister how many times Entrust itself has withdrawn approval from environmental bodies, how many instances have been identified so far of serious non-compliance and what proportion that is of the total number of environmental bodies that are participating in the landfill communities fund. It would be helpful to get an idea of the breadth of the problem that the Treasury is seeking to address with the clause. Can the Minister confirm that the proposals have been brought forward with the consent of Entrust and that Entrust has been fully consulted so that it has a good understanding of how the measure will work practically on a day-to-day basis and how practically it will be in communication with the HMRC as and when occasions of serious non-compliance arise?

Kitty Ussher (Labour, Burnley)

The hon. Lady raised four points. She asked: what constitutes serious non-compliance? I will explain that shortly. What are the numbers? How many issues have there been in practice, and have we worked with Entrust in understanding how to implement these rules?

If I may take those in turn, the obligations of an approved body are set out in the landfill tax regulations. This change gives the commissioners for HM Revenue and Customs the power to revoke an approval if the body fails to comply with any of those obligations. In exercising that power, however, they will revoke the approval only if there is evidence of serious non-compliance. Entrust is responsible for identifying and investigating breaches of the regulations so the process is as follows. Where in Entrust’s view the alleged breach is serious, it will report the case to the commissioners for consideration under an agreed process. Each case will be considered by the commissioners on its merits so there are no duplicate processes in this regard. Factors that may be taken into account include the financial sums involved, any previous incidents of non-compliance, the circumstances under which the breach occurred and the potential ramifications of the breach.

Prior to the change before us, the decision on whether to revoke an environmental body’s approval for non-compliance was made by the regulatory body. Entrust used that power on only six occasions between 1996 and 2008. I hope that that answers the hon. Lady’s question about numbers.

Are we working with Entrust? Yes, of course we are. On the specific amendment, it restricts the commissioners’ power to withdraw approval of an environmental body to cases where there is serious non-compliance on the part of the environmental body concerned. It is likely in most cases, as it has been to date, that commissioners will exercise the power to withdraw the approval of an environmental body where they assess that serious non-compliance has occurred. However—this is the crucial point that I need to explain to the hon. Lady—there may be cases that fall outside any interpretation of serious non-compliance but where under the circumstances it will still be reasonable to withdraw the approval of the environmental body concerned, for example, where there is an accumulation of a number of minor incidents of non-compliance. That is why we would urge the hon. Lady to withdraw her amendment because in those cases the Opposition amendment would mean that the commissioners could not withdraw the approval of the environmental body even though there had been serial minor incidents of non-compliance that, added together, were taken as sufficiently serious to warrant action.

Justine Greening (Conservative, Putney)

I am happy to withdraw my amendment. It is helpful to be aware of the latter point about there being that climate of minor non-compliance, adding up over time to an unacceptably poor level of performance. I am pretty sure, however, when I went through the explanatory notes that that point was not included, which is why I tabled my amendment. With that helpful clarification, however, I beg to ask leave to withdraw the amendment.

Clause 146

Justine Greening (Conservative, Putney)

This clause provides powers for the Government to spend money preparing for the new form of air tax—airline pollution duty. I want to press the Government on this because it is of great importance to the airline industry and to millions of people up and down the country who use air travel to get around and to go on holiday. Will the Minister clarify whether the Government will be going ahead with an assumption of tax being based on the maximum take-off weight? May I flag up to her one of the industry’s concerns, which is that, although the Government are seeking to use this is a proxy for CO2 emissions by flight, there are factors other than maximum take-off weight that have an impact on emissions? Emissions depend not just on take-off weight, but also on the speed of flight and the design of the plane.

Mark Todd (Labour, South Derbyshire)

One of the most material issues is that this brings the dedicated freight sector of aviation into a fiscal framework. I hope that, as the Government construct the details of this review, they give careful thought to the imperative of modernising freight fleets so that they are as energy-efficient and noise-efficient as possible, since many of my constituents, as well as myself, live immediately under freight paths.

Justine Greening (Conservative, Putney)

That is an important point and brings me to another key issue, which is uncertainty and the need to have the more detailed proposals that the Government were planning to introduce. Talking to the industry is vital if we are to get a thoughtful but effective new form of air-passenger duty—airline pollution duty—that will work and see CO2 emissions reduced. Perhaps the Minister can tell me whether the Treasury is continuing to meet representatives of the industry because I have been told by some industry participants that they are having difficulty getting access to Ministers in order to outline their concerns, including the issue of freight.

Peter Bone (Conservative, Wellingborough)

I refer to my declaration in the Register of Members’ Interests. This is a very strange clause where we are giving powers to spend money on a duty that we know nothing about. It is a bizarre clause and I am really rather unhappy about supporting it.

Justine Greening (Conservative, Putney)

Perhaps I can provide some reassurance. A consultation paper was outlined by the Treasury and, following that, some initial proposals were made about a how a new form of airline pollution duty might work. Therefore, I do not have a problem with starting to provide resources so that the Government can bring forward some proper, detailed proposals and the definitive proposal. If it is going to be effective, the industry needs time to prepare. This has not been proceeded with as fast as we would have liked and we would be grateful if the Minister could provide the Committee with the latest timetable for what is going to happen and when.

My final point is on the issue of legality that has been raised in the last couple of weeks by the American embassy. Can the Minister tell the Committee about the Treasury’s feedback on that letter from the embassy, which said that, as far as it was concerned, this was possibly an illegal form of duty? I understand that it should be possible, if it is done with some care, to have a per plane charge. I sense that there is a possibility to get at these issues, but perhaps the Minister will set out the Treasury’s formal responses to concerns raised by the American embassy.

Suffice it to say that we floated this policy in our own consultation paper early last year. Obviously, we support this mutual per plane charge, because it is a much better structure for the tax and will bear down on CO2 emissions from aviation.

Kitty Ussher (Labour, Burnley)

We are in a rather odd situation, because we have to introduce paving legislation to fulfil a policy commitment, the announcement on which has not yet been fully made. However, I shall attempt to enlighten the Committee as far as I can.

On maximum take-off weight, the only thing that I can say is that it is our lead option for the aircraft measure element of the duty. We have sought an objective, uniform measure or combination of measures of an aircraft and/or an aircraft’s flight. Maximum take-off weight has been a reasonable proxy for emissions en route, but we are still analysing the consultation responses. The hon. Lady rightly said that we need to work shoulder to shoulder with industry to get the measure right. We received more than 160 consultation responses and are considering those at the moment. No decisions have yet been made.

On the timing of the eventual decision, we have said autumn 2008. That is currently our intention. We want to keep working closely with industry and have met representatives, both formally and informally on a number of occasions. We understand that it is important that there should be as much certainty as possible about the structure and rates of tax. We will endeavour to decide as soon as possible.

I am concerned that there may be a view out there that access to Ministers is not as great as some people would like. I shall pass that concern to the Exchequer Secretary.

Peter Bone (Conservative, Wellingborough)

I am surprised that autumn 2008 is the time given. The package travel industry has a fixed price that it includes in its brochures, which are already published and it is prepared for autumn 2008. Normally, there is a much greater lead time for the industry. That seems to be a rather short lead time.

Kitty Ussher (Labour, Burnley)

That is the policy announcement date that we have set.

Coming back to my general point, we want completely to understand the effects on industry as much as possible, which is why we are considering the consultation responses in detail and why we have held a number of different forums and tried other ways of ensuring that we understand the effect on the industry as much as possible. It is always tricky with tax rates, which cannot be pre-announced informally because there would immediately be a huge public relations effect. Within those constraints, Ministers are engaging as much as possible. That is why we have not already set out the design and detail of the measure. We have been consulting as much as possible.

My hon. Friend the Member for South Derbyshire, with support on his general point from the Opposition, asked specifically about the freight industry. I sympathise with his personal circumstances. It is not the Government’s intention to exclude freight or transfer passengers from the new duty, but we are taking into account the evidence provided.

Justine Greening (Conservative, Putney)

Will the Economic Secretary give way?

Kitty Ussher (Labour, Burnley)

I will, as ever, give way to the hon. Lady.

Justine Greening (Conservative, Putney)

That is very kind. I am conscious of the time. Will the announcement that will be made in the autumn cover eco-labelling, which some carriers like Flybe are already doing? I understand that when the Transport Committee looked at eco-labelling earlier in the year, it broadly welcomed it. Obviously, it will give passengers better data on the impact of noise and carbon emissions. Just like eco-labelling on fridges, it might help the public to play their part by making an informed choice to spend their consumer pounds with aircraft operators who are doing their best to bear down on the emissions caused by their operations.

Kitty Ussher (Labour, Burnley)

I agree with the hon. Lady that eco-labelling plays an important part. It has not yet been decided whether the announcement in the autumn will address the specific question of eco-labelling, so I cannot tell her right here, right now, but I do agree with her general point.

Finally, the hon. Lady mentioned the US Government’s response to our consultation. As I said, we are considering all the representations that have been made to us, but we do not think that our proposals are illegal in any way, and that is our response to the American Government. We are committed to our international legal obligations and we will not do anything that we think contravenes them.