Finance Bill

Public Bill Committee, 23 June 2009.

(Except Clauses 7, 8, 9, 11, 14, 16, 20 and 92) - Clause 91

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 75, in clause 91, page 45, line 2, leave out ‘aspire’ and insert

‘use all reasonable endeavours to achieve’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: amendment 76, in clause 91, page 45, line 3, at end insert

‘and set out the rights and responsibilities of taxpayers and other persons with whom HMRC deals’.

Amendment 77, in clause 91, page 45, line 5, leave out ‘regularly’.

Amendment 78, in clause 91, page 45, line 5, after ‘review’, insert

‘at least once every year’.

Amendment 79, in clause 91, page 45, line 5, after ‘review’, insert

‘at least once every 3 years’.

Amendment 80, in clause 91, page 45, line 5, leave out ‘and’ and insert—

‘(b) consult with stakeholders in carrying out the review, and’.

David Gauke (Conservative, South West Hertfordshire)

Welcome to the Chair, Mr. Atkinson. May I also welcome the Exchequer Secretary to her new position in the Treasury team and to the Finance Bill Committee? I am sure that we all applaud the fact that she is to respond to the debate on the next few clauses. She has experience of previous Finance Bills, having been a Parliamentary Private Secretary, which I am sure will stand her in good stead. She must be as delighted as she is surprised to find herself on this year’s Finance Bill Committee.

Clause 91 relates to the HMRC charter. I will make various comments about the charter’s purpose during the stand part debate, but it might be helpful to touch upon its purpose in relation to amendments 75 and 76. Is the charter’s purpose to set out HMRC’s responsibilities and its mission statement; or to set out the rights and responsibilities of taxpayers; or a bit of both?

I am grateful to the Exchequer Secretary and perhaps her ministerial colleagues for the new draft of the charter, which was published last week, before the hon. Lady had fully settled into her new role. The draft sets out the rights and responsibilities of taxpayers or customers—I am never sure about the term “customers” in relation to HMRC, but I know what the Government are getting at. The clause inserts into the Commissioners for Revenue and Customs Act 2005 new section 16A, subsection (2) of which states:

“The Charter must include standards of behaviour and values to which Her Majesty’s Revenue and Customs will aspire when dealing with people in the exercise of their functions.”

The draft charter’s content on the rights of taxpayers may be regarded as similar to that statement, but the obligations, which the charter also outlines, are not reflected in the subsection. The subsection does not refer in any way to the obligations of taxpayers; its focus is entirely on what HMRC will do. We will have an opportunity during the clause stand part debate to argue about whether that is right or wrong, but we think it would be a better description of both the draft HMRC charter that was published last week and the February draft if the subsection provided for the charter to

“set out the rights and responsibilities of taxpayers and other persons with whom HMRC deals”

as proposed in amendment 76.

Clause 91 gives the charter statutory recognition—I hope to talk at greater length about that and the reasoning behind the clause in a moment—but if the clause is to accurately reflect the charter’s nature, amendment 76 would be helpful in clarifying that purpose. New section 16A(2), as drafted, does not fully or adequately explain what the charter is about. We can debate what we think the charter should be about. There is a strong argument that what is in subsection (2) should be an accurate description of what the charter is about, or we could argue that that is deficient. I submit that subsection (2) is inadequate as a description and would be better if amendment 76 were accepted.

Amendment 75 toughens up the wording of subsection (2), which refers to

“standards of behaviour and values to which Her Majesty’s Revenue and Customs will aspire with people in the exercise of their functions.”.

We suggest that that could be improved and strengthened by removing the word “aspire” and, instead, say that HMRC will

“use all reasonable endeavours to achieve”

those standards. The intention is to strengthen the requirements of HMRC to comply with the charter. If we have a charter to which people merely have to aspire, as opposed to actually and properly seen as a key objective that HMRC will go to great lengths to achieve, one may question whether the charter will have as much effect as it should have. Consequently, amendment 75 deletes the word “aspire” and inserts the words

“use all reasonable endeavours to achieve”.

Amendments 77 to 80 deal with review. New section 16A(3) states that

“The Commissioners must...regularly review the Charter, and...publish revisions, or revised versions, of it when they consider it appropriate to do so.”

The term “regularly review” is vague. How frequently is regularly? Perhaps the Minister can give some guidance to the Committee on that point. We suggest two alternative approaches—they obviously contradict each other. In amendment 77 we propose the removal of the word “regularly”. In amendment 78, we suggest that the review should be annual, tying in more neatly with new subsection (4), which refers to the Commissioners making

“a report reviewing the extent to which Her Majesty’s Revenue and Customs have demonstrated the standards of behaviour and values included in the Charter.”

Given the obligation to make a report annually, we suggest that a review of the charter be performed at the same time—again, annually. I do not think that the Government intend that that be done annually and that the review of the charter itself should be tied up with the review of compliance with the charter, which is why we tabled amendment 79, which proposes that the review be undertaken every three years. That would regularise and formalise a proper review and deal with the vagueness, which has been a concern. The Minister may well provide some comfort through her comments to the Committee, but I think it is right to raise the issue of vagueness in the present wording.

The other concern relating to the review process is that there is nothing in the Bill that states that there will be consultation with stakeholders. Clearly, in producing in the draft charter, the Government have consulted stakeholders. We will turn to the charter in more detail in the stand part debate, I hope, but there has been extensive consultation and the original draft of the charter responds to the remarks made by the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales. If HMRC is to review the charter regularly, it would be sensible to consult stakeholders. I am sure the Exchequer Secretary will be able to reassure the Committee that any reviews will be undertaken with proper consultation, but it would be helpful if that were in the Bill and I see no reason why it should not be. We tabled amendment 80 to address that point.

Clause 91 is important, raising a range of issues which I would like to turn to in the stand part debate. We tabled amendments 75 to 80 in an attempt to be constructive, to provide greater clarity and to allow the Exchequer Secretary to expand on some of the more technical points, before we turn to a wider debate.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I am pleased to serve under your chairmanship, Mr. Atkinson, and to join the Bill Committee, although it was a bit of a surprise, as the hon. Member for South-West Hertfordshire said. I thank him for his kind words.

We will come later to the stand part debate on clause 91, but I have a couple of introductory remarks. The clause introduces and maintains the charter in statute for the first time, ensuring that the charter cannot lapse. It also ensures that HMRC will be specifically accountable to both Parliament and the public for its performance against the charter. Commissioners must report annually on how well HMRC is doing in meeting the standards in the charter. That will be included in HMRC’s departmental report, opening it to scrutiny by both the Public Accounts Committee and the Treasury Committee. That imposes on the commissioners and all officers of Revenue and Customs the strongest obligation to comply with the charter’s requirements and aspirations. I assure the Committee that the charter will have a high profile at HMRC and be at the heart of everything it does.

John Howell (Conservative, Henley)

Will the hon. Lady give way?

Sarah McCarthy-Fry (Labour, Portsmouth North)

Can I just finish the point, as it leads me to amendment 75, which would change the wording of the provision to describe the standards in the charter? Instead of standards to which HMRC will “aspire”, they would become standards HMRC will

“use all reasonable endeavours to achieve”.

If there is a standard in the charter to which HMRC must aspire, it goes without saying that HMRC must use all reasonable endeavours to achieve it. In my view, the accountability mechanisms I have just described meet that obligation.

John Howell (Conservative, Henley)

Given the general nature of the behaviours described in the charter, will the hon. Lady say a little more about how she is going to measure them? It seems impossible to measure some of them. There are no firm numbers and no comparisons one can make. How will she approach the measurement, against which we will tell whether HMRC has met its obligations under the charter?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I shall speak about that later when I respond to amendment 80, because we intend to set up an advisory panel.

We do not think it necessary to change the wording as proposed in amendment 75 because we think the obligation is already there. Amendment 76 would require the charter to

“set out the rights and responsibilities of taxpayers”.

That is too sweeping. It is intended that the charter will set out those rights that do not lend themselves to being enshrined in statute, such as the rights to be treated with respect and to be presumed to be honest. However, the charter cannot be expected to set out all the rights that already exist in law, such as the right to appeal in certain circumstances. On the responsibilities of taxpayers, the charter is not the right place to say that a tax return must be completed correctly and by a given date. Although it may include, for example, a general statement that a taxpayer is expected to be honest, it is not appropriate for the clause to suggest that HMRC can dictate values to which the public must adhere.

The hon. Member for South-West Hertfordshire expressed the hope that I would give some comfort and clarity in relation to amendments 77 to 79. Taken together, they propose omitting “regularly” and inserting one of two alternatives. “Regularly” clearly implies that HMRC must review the content of the charter reasonably often, which does not mean once every five years. As I have said, the charter will be at the heart of HMRC’s relationship with taxpayers and other persons it deals with. It is a pivotal document. I assure the Committee that the terms of the charter will be kept under review and the annual reporting obligation makes it inevitable that such reviews will take place at least once a year. It is not necessary to put that in the Bill.

Amendment 80 deals with consultation with stakeholders in carrying out the reviews. We agree with the sentiment behind it—of course we want HMRC to consult with stakeholders—but the amendment is too vague and might blur responsibilities. For example, who are stakeholders? Is every member of the public a stakeholder? How many of those stakeholders should we consult? However, as I said, HMRC’s responsibility to consult is something that both we and HMRC take very seriously. Consequently, we will be setting up an advisory panel to monitor the charter. A majority of its members will be representatives of external stakeholders and it will operate in a similar way to the powers implementation forum, which is already regarded as a success. An additional reference to stakeholders is not required in the legislation.

On the point made by the hon. Member for Henley, we are already working to review what performance data should be published. That involves looking at what customers have told the Department is the information they care most about and reviewing what it would be most helpful to publish. In the light of those remarks, I invite the hon. Member for South-West Hertfordshire to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I thank the Exchequer Secretary for her response. I shall briefly go through the various amendments and respond to her comments.

On amendment 75, I am grateful for the hon. Lady’s comment that where HMRC aspires to do something, it will also use all reasonable endeavours to achieve it. If I understand her correctly, that is helpful, and if we have her assurance that HMRC will use all reasonable endeavours to achieve the standards of behaviour and values set out in the charter, that is also helpful.

I am less persuaded by the hon. Lady’s comment that amendment 76 is too sweeping. In it, we propose that the charter should set out the rights and responsibilities of taxpayers, but we do not intend that to be exhaustive. I am sure that, in her short time in the post, the Exchequer Secretary has read through the draft charter. I think that if amendment 76 was accepted, the clause would reflect the charter much more accurately than it does now. At risk of straying into areas that will form part of the stand part debate, I believe that the charter should emphasise the rights and responsibilities of taxpayers, rather than being a mission statement for HMRC. I am not entirely persuaded by her remarks, although I am not inclined to press the amendment to a Division.

I am grateful to the hon. Lady for her remarks on amendments 77 to 79 about regular reviews. I am not sure if the definition of “regularly” as “reasonably often” provides as much clarity as it might have done, although I note her comments that it does not mean every five years. I assume by that remark that she means that it will happen more frequently than every five years. There is some clarity there.

I am particularly grateful to the hon. Lady for her remarks on amendment 80 about consulting with stakeholders. I am not sure that the wording we propose is so vague as to cause enormous difficulties to HMRC in complying with the obligation. The meaning of “consult with stakeholders” is pretty clear. However, the confirmation of the advisory panel is a helpful remark for which the Committee will be grateful.

I know that it is not necessary to withdraw any but the lead amendment, Mr. Atkinson. With a certain amount of reluctance as far as amendment 76 is concerned, I beg leave to withdraw amendment 75.

David Gauke (Conservative, South West Hertfordshire)

We have already been debating amendments to the clause, but the central question this morning is the purpose of the HMRC charter. It might be helpful to describe the context.

A fairly regular feature of recent Finance Bills has been that a substantial part of each Bill relates to HMRC powers. Those powers have been part of the programme entitled, “Powers, Deterrents and Safeguards”. I have made the point to the Minister’s predecessors, at various stages of more than one Finance Bill, that we tend to hear much more about the powers and deterrents than about the safeguards. Over the years, Treasury Ministers have answered by pointing to the existence of the HMRC charter. That charter has evolved over the past few years and we welcome the statutory recognition given in clause 91—we certainly will not oppose the clause standing part of the Bill. However, we have to consider whether the charter as it has been drafted is sufficiently focused on providing safeguards to taxpayers or customers, or whether it is lacking in that regard.

We must also consider the concerns expressed, in recent years in particular, about the performance of HMRC. There are two types of concern. First, there are concerns about the failure of HMRC to raise as much tax as it might have done. Those centre on underpayment of tax and HMRC’s failure to enforce measures sufficiently in the right areas, with the result that it has not got the yield that it might have done. Secondly, concerns are frequently expressed to all constituency MPs about failures in the performance of HMRC—that the customer service it provides has been unsatisfactory.

I suspect that the area that most MPs have experience of dealing with is tax credits, but I do not wish have a lengthy discussion about the tax credit system, and I am sure that you would not wish me to do so, Mr. Atkinson. However, we have all heard from constituents who are concerned about HMRC’s treatment of them, about its inability to get information across, about information going missing, and about the difficulties of getting to speak to anyone at HMRC. Lengthy delays in VAT registration and payments were also common a couple of years ago. There may be good reasons—there was concern about M-Tech fraud—but there have also been failures within HMRC, as highlighted by the National Audit Office. Experienced staff members have not been available because they have been moved around, and as a consequence the performance of HMRC has not been all that it might be. There is currently a problem, as I am sure the Minister is aware, of more general delays in tax repayments from HMRC. It would be helpful if the she said something about that.

The past few years have clearly been challenging for HMRC, with the Lyons report, the Gershon savings, the merger between the Inland Revenue and Customs and Excise and frequent changes in senior management. It is publicly acknowledged that HMRC has had a morale problem in recent years. That was highlighted at the time of the loss of the disk containing the data of all child benefit claimants. Satisfaction with the performance of HMRC has been very low. I assume that the charter is an attempt to address these concerns, as well as the one I highlighted a moment ago: the balance between the powers of HMRC and the safeguards that taxpayers should have in this very important area. That is an issue we have discussed many times before.

I say in parenthesis that I wonder whether issues of tax administration, to do with the balance between the rights of the state and of individuals, belong in Finance Bills, which only this House has the opportunity to review, unlike a normal Bill. Those issues are different from the raising of revenue, where this House has rightly been protective of its monopoly powers. Would some of those provisions benefit from scrutiny by the other place? How we balance that is at the heart of a liberal democracy, which makes it somewhat surprising that the Liberal Democrats are not present this morning. [Interruption.] I notice that my surprise is not shared by all members of the Committee.

The charter is important as a way of trying to provide some safeguards. It has to be seen in the wider context of debates on previous Finance Bills. That leads me to some of the concerns expressed about the content of the draft charter. I thank Ministers for producing a draft charter last week, as it is helpful for the Committee to have it in front of us. Such is the timing, however, that I do not think that the professional bodies that scrutinise such documents closely and provide support for members of the Committee have had an opportunity to review the contents. I suspect that, although they welcome some aspects of it, they still have further questions. My role today is to ask those questions.

The first point that must be raised is that there is still a lack of clarity about whether the charter is intended to be a mission statement for HMRC or whether it is intended to set out the rights and responsibilities of taxpayers. The expectation, by and large, was that the charter was to be for taxpayers, to set out what rights they have and what obligations they owe. Indeed, one could question the title of clause 91, which is “HMRC Charter”. Should the title be “Taxpayers’ Charter” or “HMRC Customer Charter”? Does the existing title get to the heart of the matter?

A criticism raised by the Chartered Institute of Taxation, for example, of the February draft of the charter was that it rather confused the matter. I would like to quote the first paragraph of that draft, which was highlighted by the CIOT. It says that the purpose of the charter is:

“to make sure that the money is available to fund the UK’s public services. We also help families and individuals with targeted financial support. We aim to make the tax and benefit system feel simple to use.”

As the CIOT said:

“This belongs in a mission statement, not a charter.”

There are some amendments to the new charter. However, as far as the first paragraph is concerned, the new charter, which we have in front of us, states:

“We collect taxes and duties so that there is money to fund the UK’s public services. We help families and individuals with targeted financial support. We also help international trade run smoothly and protect the UK economy.”

Again, that is of the nature of a mission statement. The new charter goes on to make comments that are more focused on the taxpayer. However, the confusion identified by the professional bodies in response to the February consultation still remains.

I shall also be grateful if the Minister can explain one of the changes to the wording in that first paragraph of the new draft. It says:

“We also help international trade run smoothly and protect the UK economy.”

There is no one more committed than I am to the cause of international trade running “smoothly”; I am a free trader, without any equivocation. However, I was somewhat surprised that that objective was seen as a particular focus of HMRC. If HMRC can do what it can to help international trade, I have no objection to that. Nevertheless, I was somewhat surprised to see those words in the first paragraph.

I was also curious about the wording:

“and protect the UK economy.”

I would be grateful for the Minister’s view, but my personal theory is that there was a first draft that stated, “We must protect the UK economy”, which I suspect was about protecting UK tax revenues. Then, someone looked at that draft and said, “That looks somewhat protectionist”, and therefore some wording about helping “international trade” was inserted, to prevent there being any protectionist element. I am not quite sure how we got to this particular wording, but it sits rather uneasily in the first paragraph about the purpose of HMRC.

We then have a summary of the rights section and there has also been a change there from the February draft. The February draft contained the wording:

“Pursue relentlessly those that break or bend the rules.”

The professional bodies made two points about that wording. First, they said that it did not sit comfortably in a list of the rights of taxpayers. Secondly, it did not fit comfortably with the intention of the new penalties regime to work constructively with taxpayers to ensure that they would comply with the rules, and it did not make a distinction between those who made innocent mistakes and those who were cheating the Revenue. In that sense, it would be inappropriate to pursue relentlessly those who break or bend the rules.

The new draft addresses a concern raised by the Low Incomes Tax Reform Group that people on low income, who are unable to receive professional advice and who may make an inadvertent mistake, would be affected. The February draft appeared to state that such people would be pursued relentlessly, which was perhaps not the tone that HMRC wanted to strike. We welcome the new draft’s wording:

“Tackle people who try to cheat the system”.

I reiterate that a key obligation and responsibility of HMRC is to tackle people who try to cheat the system, so we have no query about point 8 of the charter as an HMRC obligation. However, whether that fits easily into a list of “Your Rights”, is another matter.

I suspect that the Minister will argue that those who pay their taxes in accordance with the rules and do not cheat the system will not want other people to be able to cheat the system. However, the document does not read easily on that point, so I would be grateful for her remarks on it.

Graham Stuart (Conservative, Beverley and Holderness)

Does my hon. Friend agree that it would be better to have three sections entitled, “Your Rights”, “Your Obligations” and “HMRC Commitment”? That would be a better and more logical way of explaining whether HMRC would get the money by pursuing relentlessly or by tackling wrongdoing.

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend makes a good point. It might be better to structure the document so that one section focuses on rights, another on obligations and another on HMRC’s wider commitment. The counter-argument is that that takes us back to the confusion between the mission statement and the rights and responsibilities of taxpayers. I understand that the charter seeks to address both, but that would be done more cleanly if the Government and HMRC followed my hon. Friend’s suggestion.

Let me say something about the document’s structure. The February document essentially contained a summary, and that was it; it basically listed rights and obligations, and did not particularly expand on them. The structure adopted by other charters, such as those of the OECD and Australia, provided greater detail in addition to a summary of rights, which is the route that HMRC has now taken. It is a good structure, and it is helpful for taxpayers that there are greater explanations on headline matters. For example, under Your rights, the charter says:

“You can expect us to:

1. Respect you.”

Then, within the body of the charter, there are helpful details on what respecting the taxpayer or customer means, such as treating the customer with courtesy and consideration, listening to concerns, and so on. However, I wish to highlight some of the suggestions made in response to the February document that are not covered by the new draft charter, and I would like the Minister to respond to them.

First, there is nothing in the charter about taxpayers’ freedom of information rights. Those rights exist—the Freedom of Information Act 2000 exists, as all Members of the House are well aware—and should be in the charter. There is nothing specific here about rights of appeal. It is not appropriate to put detailed rights of appeal in the charter. They are complicated matters that vary in each circumstance, but some indication on rights of appeal would be helpful. There is nothing specific in the charter about remedies or compensation available to a taxpayer, or anyone, in the event of failures on the part of HMRC. Should there be anything in the charter on that point?

I return to the issue, which we debated last week, of retrospective taxation. Last week, I raised the issue in the context of clause 67 in the hope of obtaining from the Financial Secretary some indications of the Government’s general approach to retrospective taxation. I do not think that I was entirely successful. However, some indication of what a taxpayer can expect from the Government on retrospective legislation—something perhaps setting out the general principle that HMRC will not act retrospectively, other than in some fairly clearly defined circumstances—would be helpful.

The Chartered Institute of Taxation raised one point that is partially addressed. That is, if the charter states that it is right for a taxpayer to pay only the tax that is due, which seems perfectly reasonable as nobody should be expected to pay more than they are lawfully due, then there is wording in the charter that distinguishes between those legitimately trying to pay the lowest amount of tax and those evading tax. I do not think that anyone would necessarily disagree with an explicit acknowledgement that people should not be required to pay more than they are due. Indeed, I think that the Chancellor has commented that people are entitled to minimise their tax liability, if they do so in a lawful way.

Peter Bone (Conservative, Wellingborough)

Has it not always been a duty of HMRC to help taxpayers pay the minimum amount of tax that they are due? I am surprised that this is something new, because I understood that it was almost a duty of HMRC.

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend is correct: this is not new. What we have is a charter that is new. The charter should set out what the taxpayer can expect. In our earlier debate, the Exchequer Secretary raised the point that it might be difficult to be comprehensive and create an exhaustive document setting out every right and remedy available to a taxpayer. However, there is an opportunity to assert what is, as my hon. Friend says, a fundamental aspect of our taxation system.

What is not included in the new charter is a blunt statement that taxpayers can expect to receive a professional service from HMRC. That is not at any point explicitly stated. The charter refers to various commitments—we will do what we can to keep the costs down, we will help to support you to get the payments and claims right—which partly addresses the point made by my hon. Friend the Member for Wellingborough, but there is nothing particularly explicit.

I have, of course, picked out various points that could have been addressed but have not been. I do not want to obscure the fact that we believe that an HMRC charter setting out the rights and responsibilities of taxpayers is right. It is an important safeguard, as Ministers have said, but we still have one or two concerns about the drafting, about whether the document lacks focus on what the taxpayer can expect and on their rights and about the danger that this is a missed opportunity. It needs to be looked at in the context of a period that has seen HMRC accrue significant new powers. The safeguards are right, so we raise those concerns, but welcome clause 91 none the less. It is an important aspect of the Bill.

John Howell (Conservative, Henley)

When I first looked at the draft charter that goes with the clause, I had a sense of dĂ(c)jĂ vu; it struck me as very retro. It took me back to the 1980s and 1990s and those companies that had mission statements emblazoned across their doors. It was axiomatic that the only companies that needed mission statements emblazoned in such a way were those that had difficulty believing in them and translating the words into change in the first place. It is a shame that this charter has that feel because I agree with the comments made by the Chartered Institute of Taxation—there is real value in having a simple, accessible statement of basic rights, particularly as the relationship between HMRC and the taxpayer is becoming ever more complex each year. We have also commented on that.

The charter does the minimum. It is not easy to hold HMRC to account and the charter is subjective in what it currently sets out. It will not, for example, be difficult to sue against the charter if you wish. It ought to have been backed up with hard targets. My hon. Friend the Member for South-West Hertfordshire commented on professional service. Part of that professional service is about having targets that can be seen, measured and used to hold the organisation to account. The charter comes over as neither one thing nor another: part mission statement, as has been said, and part an attempt to get some substance into the relationship between the taxpayer and HMRC.

There is confusion in the charter over who the audience is. Without wishing to make the document significantly longer, there is logic in specifying some of the differences between the different sorts of customers or clients—however you wish to describe them—that HMRC deals with. It would be useful in the charter.

Reading and comparing the proposed draft charter with the OECD model charter, which, from the structure and the wording, HMRC must have based it on, I was struck that paying tax that is legally due is firmly in the OECD charter. So, too, are some very specific recommendations, such as, “We will finalise assessments in X days, we will deliver refunds in X days, we will reply to queries in X days, and, even, we will send the minutes of investigations in X days to those who have been investigated.” The OECD charter also deals with the right of appeal in a more robust way than the one-line reference in section 1 of the draft, which just mentions the awareness of rights, including the right to appeal.

Linking to other legislation is important. My hon. Friend the Member for South-West Hertfordshire mentioned that in connection with the Freedom of Information Act 2000, but it also applies to the Equality Bill—the Committee on which is going on in another room down the corridor. I am sure that there are elements of the Equality Bill that will need to be taken into account.

What will the board report against? We come back to the question about needing specific details. Even with the information that is there, it is very difficult to see what the HMRC board will say about how the sorts of objective in the charter will be achieved and measured. That is because the charter is far too wishy-washy. It could have set out standards and played an important role in providing safeguards for the taxpayer. Of course, the weakness in the charter compares very unfavourably to the enormously greater powers that HMRC is seeking in subsequent clauses.

My final point is one of great surprise, Mr. Atkinson. I notice that the letter to you and Mr. Hood from the Treasury team regarding this clause, states that the redraft is a better version than there original. If that is the case, I would hate to have seen the original.

Mark Field (Conservative, Cities of London and Westminster)

I rise to speak very briefly, following the contributions of my hon. Friends the Members for South-West Hertfordshire and for Henley. As the latter rightly said toward the end of his comments, there is a stark contrast between the mushy generalisations of the charter and some of the very specific, quite draconian and unique new powers in the next few clauses. There is a fundamental risk that such a document written in such general terms will look like a very mushy mission statement. It needs specifics. As my hon. Friend rightly said, the OECD’s proposals talk about commitments that can be expected by the customers, as it were, of the HMRC in relation to time deadlines.

Peter Bone (Conservative, Wellingborough)

My hon. Friend goes to the nub of the issue. When I was in practice, one of the problems was that one would get a demand from the Revenue to reply within two weeks, or else, but the Revenue’s reply would then take up to six months to arrive, which left the taxpayer in limbo. It all seems to be one way, and I do not see the charter addressing that problem at all.

Mark Field (Conservative, Cities of London and Westminster)

Similar problems may be found in a range of central Government Departments, but my hon. Friend is absolutely right. There is a sense of imbalance in the relationship, which is not terribly helpful.

The charter is written in such general terms that it justifies HMRC’s existence in areas where many would doubt its competencies. As my hon. Friend the Member for South-West Hertfordshire rightly pointed out, the very notion that HMRC exists to look at international trade and to protect the economy is utter nonsense, and if that provision gives the various bodies who should have those responsibilities an alibi, it makes it all the worse.

I was a business man before I entered Parliament and have had dealings for many years with HMRC and the two predecessor bodies. I had perfectly good relations with the VAT-related bodies and Customs and Excise. There was a very strict rule that, if one was running one’s own business, in no circumstances should one mess with Customs and Excise. In almost 20 years as a business man, I ensured that I kept to the letter of that rule. Fundamentally, my concern with any sort of charter, and certainly a charter couched in such terms, is that it undermines what I consider to be a very important principle, which is that businesses and individuals should be able to get on with their lives without undue hindrance from the state. We do not want businesses or individuals to neglect to pay their taxes, and they have certain obligations in that regard. However, setting those out in a strict rule of a charter must be the wrong approach. Let businesses and individuals have as much freedom as possible. I fear that the charter is a step in the wrong direction.

Brian Jenkins (Labour, Tamworth)

As usual, it is a pleasure to serve under your chairmanship and to be guided by your wisdom, Mr. Atkinson.

I welcome the charter. It is a good move. One of the difficulties that we have always had—I think that we have now cracked it—relates to the rights and responsibilities of taxpayers. Once the charter is passed, I will await the day when taxpayers line up to give an assurance that they will always speak the truth, never lie, never take cash and never join dodgy tax avoidance schemes, but I will not hold my breath while waiting. I am more concerned about the mechanics of how the provision will be implemented.

The commissioners must report at least once a year, but to whom? The Chamber of the House of Commons? Do not expect me to go through their report line by line and hold them to account; I have neither the time nor the resources to do so, and neither do most of our Committees. The only Committee with such resources is the Public Accounts Committee, which can call upon the National Audit Office’s 800 members of staff, who have the time and resources to go through such a report.

The commissioners’ report is not the only one in which I am interested. I am most interested in the Public Accounts Committee’s report, to which the Government have to reply. I am also interested in what follows that. When the commissioners return within the next year, as well as having an undertaking to utter, yet again, the warm words, “We accept that our behaviour was not up to standard”—I am more interested in behaviour than values, because behaviour will lead to the targets that the commissioners aspire to achieve—will they also have a duty to report to the Public Accounts Committee the percentage of their promises that have actually been achieved?.

The Chamber debates Public Accounts Committee reports at least once a year. Will that Committee have a duty every year to ensure that it reports not only on the commissioners’ report, but on the commissioners’ assessment of how many standards of behaviour they have achieved or failed to achieve, as well as why they failed to achieve them? Putting the simple mechanics in place is as much as a Government can do; we cannot change individuals’ behaviour and we should not legislate to try to do so. I would therefore like an assurance from the Minister that the mechanics are right for the situation, and that we have got a firm grip on the matter.

Sarah McCarthy-Fry (Labour, Portsmouth North)

We have had an interesting debate with contributions from several hon. Members. On the last point made, the commissioners must report annually on how well HMRC is doing in meeting the charter’s standards and, as I have said, that report will be included in HMRC’s departmental report, which opens the matter up to scrutiny by both the Public Accounts Committee and the Treasury Committee. That gives a degree of comfort that the commissioners’ report will not only be a piece if paper, but will also be scrutinised.

On formal service standards, since April 2008, HMRC has been reflected in the three departmental strategic objectives, all of which are supported by high-level targets, and HMRC success against those targets is included in the departmental report. HMRC plans to start publishing information on its performance against those objectives in the autumn. The information will focus on what customers tell us is most important to them, how easy it is for them to access the services support that they need and the quality of that support, including whether they were handled courteously, whether information was treated confidentially and whether they were given the right answer.

I will not relate the history of the charter, because members of the Committee probably already know it, but the first consultation document was warmly welcomed as making a positive contribution to the relationship between HMRC and those with whom it deals. The hon. Member for South-West Hertfordshire has said that he does not agree with the concept of the charter.

Mr. Gaukeindicated dissent.

Sarah McCarthy-Fry (Labour, Portsmouth North)

No? I am sorry: he agrees with the concept of the charter, but his hon. Friend the Member for Cities of London and Westminster disagrees with it, which is a shame, because I think that most people agree with the concept. Most respondents argued that a legal foundation would be the best way to ensure that the charter would be an effective and enduring document. That is why the clause giving the charter explicit legislative backing is included in the Bill.

David Gauke (Conservative, South West Hertfordshire)

For the charter to be effective it needs to impose or encourage a culture within HMRC to comply with it. Will the Minister—either immediately or subsequently in her remarks—outline to the Committee what steps will be taken to disseminate the contents of the finalised charter among HMRC staff? I appreciate that we do not have the final version here, although we anticipate that what we have is very close to it.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I may come back in detail on that. It is important that the charter does not just sit here because we have agreed to it, but that it goes to HMRC staff not just in Whitehall but across the country, because those are the people with whom the majority of taxpayers interact. Most people interact with HMRC not in Whitehall, but in its local branches. The hon. Gentleman said the draft is not set in stone, and I will come back to that point.

The hon. Gentleman and the hon. Member for Cities of London and Westminster asked why the overarching statement at the beginning of the charter mentions international trade. HMRC has responsibility for European Union obligations on international trade duties. The charter addresses all of HMRC’s stakeholders, so the overarching statement has been written to reflect the customs policy as well as the tax-collecting duties of the Department’s role. The Committee has seen a draft of the charter and I want to assure Members that work continues on the final version and the remarks we have heard today will feed into it.

The point was raised that there was nothing in the charter about being professional, but point 4 says,

“Whenever you deal with us we will take responsibility for our actions and behave in a professional way. We will: act with integrity”.

We will continue to work with stakeholders on the specific text of the charter and to take comments on board, as we have done so far. We aim to have a complete charter published in the autumn. The second consultation, which closed in May and led to the revised draft, took a wide range of views on board. The CIOT congratulated us on listening to its suggestions and taking them into account.

On the point made by the hon. Member for South-West Hertfordshire about accounting bodies, we shared information on a confidential basis with the ICAEW. In its briefing last week it said:

“We support the current version of the charter which we believe is a well balanced document which sets out the rights and obligations of the taxpayer.”

The clause is straightforward and self-explanatory. The detail is in the charter, which is still being refined and revised.

Schedule 46

Peter Atkinson (Conservative, Hexham)

I remind the Committee that schedule 46 is introduced by clause 92, which was extensively debated by the Committee of the whole House on 13 May, so the principle of imposing duties on senior accounting officers has been dealt with. We are dealing with schedule 46, which sets out the mechanics of that, so we do not want a rerun of the original debate.

Mark Field (Conservative, Cities of London and Westminster)

On a point of order, Mr. Atkinson. The matter was debated on the floor of the House but, given the number of Government amendments, surely there should be some leeway and opportunity for us to look at this in general as well as at the provisions the Government have put in place, because the clause is now somewhat different from the one debated only six weeks ago?

Peter Atkinson (Conservative, Hexham)

With respect, I do not wish to change my view. We have discussed the broader principles. If there is a problem as the debate on the schedule unfolds, we shall deal with it as it arises. If the hon. Gentleman gets too far back into the original debate, I will stop him. It is as simple as that.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I beg to move amendment 269, in schedule 46, page 338, line 34, leave out ‘large’ and insert ‘qualifying’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: Government amendments 270 to 273, 276, 280 to 282, 287 to 290 and 296 to 298.

Amendment 65, in schedule 46, page 343, line 20, leave out ‘or officer’.

Government amendments 300 to 304.

Sarah McCarthy-Fry (Labour, Portsmouth North)

The schedule makes senior accounting officers of large UK companies and groups of companies personally responsible for ensuring and certifying that adequate controls are in place to calculate tax and duty liabilities. Clause 92, under which schedule 46 sits, helps to protect tax revenues by ensuring that, in the present difficult economic environment, tax compliance does not become a cost that is overlooked by the largest UK companies. The clause will underpin the existing good practices of the majority by ensuring that tax remains a priority at boardroom level, and tackling poor tax compliance among a small minority of companies that do not have robust systems and processes in place.

HMRC is keen to continue to develop open and transparent relationships with large businesses. The schedule builds on that and on work that is already under way to help business to improve tax governance. That will allow HMRC to continue its risk-based approach, focusing resources on the most important issues, while reducing burdensome checks and interventions when they are not required.

At the time of the Budget, we made it clear that, because of the need to act now to underpin tax revenues from such an important sector, we would discuss the operation of the measure with interested parties. HMRC has held wide-ranging discussions, and we have listened to what has been said. The Government amendments take account of those discussions and are designed to smooth the operation of the measure in practice.

Those discussions began immediately after the Budget, so that when clause 92, which introduces schedule 46, was debated by the Committee of the whole House, my right hon. Friend the Financial Secretary was able to announce the intention to table amendments to make three changes during the Public Bill Committee stage. Those changes are first, to refine the population of companies within the scope of the provision to give the best possible fit with its aims; secondly, to remove the requirement for the senior accounting officer to notify the company auditors of any respects in which the tax accounting arrangements of the company are not appropriate; and, thirdly, to revise the certification requirement to allow notification of the appropriateness or otherwise of the company’s tax accounting arrangements using a single form of certificate rather than one of two forms.

Discussions with interested parties have continued, and three further changes are proposed which, like those announced in the Committee of the whole House, are designed to smooth the operation of the measure, yet fully retain its effectiveness. They are: to focus the measure only on major taxes and duties; to ensure that the wording of the draft legislation is clear about what constitutes appropriate tax accounting arrangements; and to refine the definition of senior accounting officer to allow more flexibility for those groups of companies organised on less conventional lines. We will discuss each of these changes in more detail. However, all have been welcomed by the parties involved in our discussions and each will help to smooth the efficient operation of the measure. None undermines or dilutes the essential aim of underpinning the tax compliance of the very largest companies.

I remind the Committee that my right hon. Friend the Financial Secretary wrote to Committee members last week enclosing a draft of the guidance on the measure. The Government are grateful for the ongoing input of representatives from business and the tax profession in developing the guidance.

I draw the Committee’s attention to a particular point mentioned in the guidance, which is about how the measure will operate following Royal Assent. A senior accounting officer who begins a review of the appropriateness of the tax accounting arrangements during the first financial year covered by the measure will be treated as having taken reasonable steps to comply with the main duty introduced by the legislation for that first period. It follows that, in those circumstances, the senior accounting officer would not be penalised for any failure in the main duty in respect of that first year.

Before speaking to the amendments, I remind the Committee of the situation that the schedule seeks to address. The majority of large companies already ensure that appropriate tax accounting arrangements are in place in their companies or groups. For those companies, we want to ensure that the burden of the new requirement will be minimised. It is not intended to introduce a costly and complex bureaucracy for companies when it is not required. However, a small minority of large companies do not have robust systems and processes in place. We want identified individuals—the senior accounting officers—in those companies to take responsibility. We need to be clear whose responsibility it is to put that right.

Amendments 269 to 273, 276, 280 to 282, 287, 289 to 291, 296 to 297 and 300 to 304 relate to the definition of the companies that fall within the scope of the measure. Schedule 46 already provides for the population of companies within the scope of the measure to be restricted by Treasury regulations. However, in the Committee of the whole House my right hon. Friend the Financial Secretary made it clear that, following discussions with representatives of business, we were mindful to restrict the population of companies that fall within the scope of the measure, so that it was broadly limited to those largest companies and groups to whom HMRC has assigned a customer relationship manager.

Mark Hoban (Conservative, Fareham)

Can the Exchequer Secretary explain to the Committee why the decision was taken to exclude partnerships from the remit of the measure?

Sarah McCarthy-Fry (Labour, Portsmouth North)

Not off the top of my head. If I cannot get an explanation for the hon. Gentleman by the end of my remarks, I will write to him and explain why that decision was made.

Mark Hoban (Conservative, Fareham)

May I give the hon. Lady’s officials notice of my next question? Does the measure include mutuals? The Exchequer Secretary will be aware that there is a large number of, say, financial mutuals, building societies and mutual insurers out there who, I suspect, would fall within the definitions of size that the Government will insert in the schedule through their amendments. I would like to know if those companies are included in the scope of the measure or if they are outside its scope.

Sarah McCarthy-Fry (Labour, Portsmouth North)

Again, I hope to get back to the hon. Gentleman on that point.

As I was saying, the scope of the measure is broadly limited to the largest companies and groups that have a CRM. The legislation could technically be drafted to define the population as those companies with a CRM. However, it is not appropriate to use defining criteria that rely on HMRC’s administrative practices. Instead, we have identified objective criteria by reference to company turnover and asset value, which will very closely equate to the assignment of a CRM. That means that the measure will encompass the top 2,000 groups of companies.

For both singleton companies and groups of companies alike, those criteria are turnover of more than £200 million and/or a balance sheet total of more than £2 billion. It is a test that brings banks within the scope of the measure, as otherwise they would fall outside its scope. The amendments will also ensure that the measure will apply only in relation to UK companies and their senior accounting companies, and not to foreign companies.

Mark Hoban (Conservative, Fareham)

Given the restricted number of companies that will meet the criteria, can the Exchequer Secretary say to what extent the cost-benefit analysis set out in the regulatory impact assessment should be revised?

Sarah McCarthy-Fry (Labour, Portsmouth North)

Once again, I will get back to the hon. Gentleman on that.

Amendment 303 deals with the definition of “group of companies” for the purposes of the legislation. The Government received some representations in informal consultation that the legislation as drafted may have included companies and other entities that we did not want to catch. We have given the matter further consideration and we have introduced a definition that is drawn from existing tax legislation, which will be more familiar to companies and easier for them to work with. The new definition of “group” is set out in the amendment.

Amendments 288 to 298 and amendment 65 concern the definition of “senior accounting officer” for the purposes of the schedule. Who can be and who should be a senior accounting officer has been discussed extensively with interested parties and we are introducing amendments that give more flexibility, so that the legislation is better fitted to some of the situations that can occur in practice. However, the legislation still requires the senior accounting officer to be a person who has overall responsibility for the company’s financial accounting arrangements.

In particular, amendment 298 makes it possible for a director or officer of any group company to fulfil the requirements of the legislation on behalf of another company in that group, or on behalf of the whole group, if the company or companies concerned consider that that person has the appropriate responsibility.

Mark Hoban (Conservative, Fareham)

I note the flexibility that amendment 298 will give. The guidance suggests that the senior accounting officer could be based outside the UK. If they are, will they still be liable for the penalty regime that schedule 46 will introduce?

Sarah McCarthy-Fry (Labour, Portsmouth North)

It is my understanding that if the company is based in the UK, it is liable for the penalty regime. The exclusion was for foreign companies based outside the UK. My understanding is that a UK-based company that chooses to have a senior accounting officer based outside the UK will still be liable. I will check that to ensure that I understand correctly.

Amendment 65 would go against the trend of the representations from business by narrowing the field of possible candidates to carry out the functions of senior accounting officer. Businesses consistently ask for flexibility and the Government are happy to provide it, as long as the person appointed to be senior accounting officer is appropriately qualified to carry out the role. I therefore ask the Committee to reject that amendment.

I look forward to the debate on this group of amendments. When I sum up, I hope to respond to the points hon. Gentleman raised in his interventions.

Mark Hoban (Conservative, Fareham)

It is a pleasure to serve under your chairmanship this morning, Mr. Atkinson.

I welcome my neighbour, the hon. Member for Portsmouth, North, to her new role. As I said last week, we have got used to seeing press releases from the Department for Children, Schools and Families with the Minister’s name attached rebadged as reports in the Portsmouth Evening News. I am looking forward to seeing Treasury press releases on foreign exchange reserves and new appointments to the Monetary Policy Committee being rebadged in that way. It will be interesting to see what coverage such matters get in that august journal.

Mark Field (Conservative, Cities of London and Westminster)

Given the longevity of the Minister’s predecessor, a week or a month may be a long time. Indeed, a day is a long time in the hot seat of Exchequer Secretary.

Mark Hoban (Conservative, Fareham)

In the week that the hon. Lady was a Minister in the Department for Communities and Local Government, I did not spot a DCLG press release being rebadged for the occasion.

Sarah McCarthy-Fry (Labour, Portsmouth North)

Oh, it was.

Mark Hoban (Conservative, Fareham)

The hon. Lady clearly got the press machine working. Perhaps she is so keen to get those press releases in the local paper because they might affect her longevity in the post.

I am mindful of your strictures, Mr. Atkinson, that there was a long stand part debate on clause 92 in Committee of the whole House. The amendments flow from that debate. There was wide concern across professional and business bodies about the scope of schedule 46 and the need to restrict it. The amendments reflect those concerns and it is good that the Government listened to them. It would have been better still had the Government consulted on the matter first, rather than put the schedule in the Bill and then table the amendments. The amendments will change the schedule significantly and they reflect the concerns that were raised.

HMRC desires to improve its relationship with large businesses. A conclusion of the Varney report of 2006 on that matter was that there should be clarity through effective consultation and dialogue. If HMRC and the Treasury had embraced that conclusion, they would not have had to table so many amendments to restrict the nature of large groups.

I will deal first with amendment 65. The Minister referred to the representation that HMRC received from business organisations that were supportive of the concept that it should be directors or officers of companies that were senior accounting officers. I argue in amendment 65 that a senior accounting officer should be a director of a company. The Government did not acknowledge in their review the representation from the hon. Member for Coventry, North-West (Mr. Robinson), who was Paymaster General and who played a pivotal role in determining how tax law developed at the start of the Government’s first term in office. In the debate had on the floor of the House, it became clear that the hon. Gentleman’s approach to tax law was, “Bung it in the Finance Bill and amend it in Committee.”—a practice to which the Government seem to have returned with schedule 46. He said that it should be a director who took responsibility:

“The point of the person being on the board, as opposed to being an officer, is that being on the board carries certain specific personal liabilities. The chief financial officer or the person with tax responsibilities might in many cases be taken off the board precisely so that they avoid that sort of responsibility, which a directorship carries with it.”—[Official Report, 13 May 2009; Vol. 492, c. 885.]

The Financial Secretary did say that he would look at that important point. Why did the Government ignore it?

There is an issue for directors in that they have particular responsibility for the stewardship of a business. We have seen that a lot over the past weeks and months. There are obligations that go with being a board director and one would expect the senior accounting officer of a company of the relevant size and status to be a director. It would be very odd for such a company not to have a finance director. A senior accounting officer always being a board member tightens up the measure and focuses responsibilities on the board. It is important, and the Minister may say that professional bodies have argued for flexibility but sometimes Parliament needs to take a view. I am pleased that the hon. Member for Coventry, North-West and I seem to share a common view on the matter.

Peter Bone (Conservative, Wellingborough)

Am I to understand from my hon. Friend’s well argued comments that it would be possible to have a senior accounting officer who was not a board member and was junior to the people sitting on the board, but who took all the flack while the board member escaped? Are the Government giving an opt-out to board members?

Mark Hoban (Conservative, Fareham)

My hon. Friend hits the nail on the head. That is what is happening. The flexibility means that the responsibility for certifying the appropriateness of the tax accounting arrangements could pass from a board member to somebody more junior in the company—rather than the finance director, it might be the financial controller or a financial accountant, tax director or tax manager. There are others to whom the duty could be allocated who are not main board directors. I think that we ought to focus responsibility on the board rather than on more junior staff. The people at the top of the organisation, who have to certify that the accounts are true and fair, are the people taking responsibility for the tax information as well as other financial information. The Government should think about that point carefully because it is important, as I said, to focus responsibility on the boards.

The Government amendments would restrict the number of companies that fall within the measure. When we debated the matter earlier, the Financial Secretary acknowledged that that was something that should happen. I am pleased that the definition is in the Bill and not in regulation and that it is based not on some administrative term within HMRC, but on objective criteria. We all know that HMRC terms change from time to time. A company that is subject to customer relationship management today may not be in 10 years’ time, or a wider range of companies may be caught, so it is important that there are objective criteria. I am interested to know how many companies are involved. When we debated the matter in Committee of the whole House, the criteria used in the Bill were drawn up with reference to the Companies Act 2006. A large company would have to satisfy two of the following three criteria: a turnover of more than £22.8 million, a balance-sheet total of more than £11.4 million and more than 250 employees.

At the time, the regulatory impact assessment suggested that 3 per cent. of all large incorporated companies would fall within the 60,000 companies defined in the 2006 Act. However, in putting together the RIA, the Government suggested that many companies were parts of groups and so whittled down the number of companies needing to appoint a senior accounting officer to between 1,600 and 2,000. Will the Minister give us another estimate of the number of companies that fall within the new category? The qualifying criteria are now, according to amendment 296, a company with a turnover exceeding £200 million or a balance-sheet total exceeding £2 billion. It would be helpful if the Minister told us how many companies fall within those criteria. I also wonder whether it is feasible for the Treasury to tell us the names of the companies that fall within the criteria. Having identified the criteria, it must be relatively straightforward to understand which companies are affected.

Although the size criteria help, it is not clear how big a difference they will make compared with the statements that were made justifying the RIA when the measures were first published. That is why I asked the question about the cost-benefit analysis. Was it based on the type of companies that are now caught, or was it based on the wider pool of companies that was envisaged at the time of the regional definition? As I said to the Minister in my intervention, there are other carve-outs from the scope of this measure. It excludes partnerships. On one level, I can understand that because it deals with the circumstances in which a company is owned by a private equity company. For example, the partnership exclusion means that the limited partners at the top will not have to report on the accounting provisions of the companies it owns. As a result, only portfolio companies that meet the criteria will have to appoint a senior accounting officer. However, that excludes some large businesses that are partnerships—for instance, John Lewis Partnership would not be covered—and if there was a partnership within a group, the partnership itself would be carved out.

I am not sure what the consequence would be in practice. It is in the guidance notes, but it seems to me that if the accounting arrangements for one part of the business were not entirely certain, the company might try to hive it off into a partnership.

Peter Bone (Conservative, Wellingborough)

My hon. Friend makes an important point. Am I right in thinking that most of the large accounting firms are partnerships? If so, they would not need to appoint a senior accounting officer, which seems rather bizarre.

Mark Hoban (Conservative, Fareham)

That is correct. The exclusion for limited liability partnerships is set out in the guidance notes: they are not companies as defined by the Companies Act. My former employer, PricewaterhouseCoopers, would be excluded, as would my hon. Friend the Member for Henley, who was a partner. My hon. Friend the Member for South-West Hertfordshire has worked for a firm of solicitors—another partnership. If it met the criteria, it too would be excluded. A wide range of significant businesses will be excluded as a result of the carve-out for partnerships.

There are sensible reasons why partnerships should be carved out—for example, the provision would impose upon the limited partner in a private equity firm an obligation that probably could not be carried out. However, the provision goes some distance beyond that by excluding retail or professional partnerships. It would help if the Minister were to clarify why these businesses should not be included, and why they are carved out. Does she believe that they are inherently low risk? If so, why are other low-risk businesses not carved out?

We need some explanation for the inconsistencies on which businesses are carved out. I go back to my earlier point that part of the problem is that the Government did not think the matter through. The provision was included in the Bill at a late stage, perhaps on a whim. I do not know what whim it was meant to satisfy; perhaps someone felt good trying to tackle some of the tax measures that companies take, without thinking through the process or of what the outcome would be. We need some explanation of why partnerships and mutuals are excluded.

The Minister also sought to deal with the question of foreign companies. Branches of foreign companies are excluded from the provision. I know that Deutsche bank in the UK is established as a branch and that many European financial services businesses are based here under a branch structure. The Economic Secretary and I have discussed before the question of passporting, which enables companies incorporated in other European economic area member states to operate through a branch structure in the UK.

The Minister spoke of ensuring that the balance sheet totalled more than £2 billion, to ensure that the banks were picked up. I suspect that the balance sheet of the UK branch of Deutsche bank would meet the criteria. I suspect that it is quite a big taxpayer, if only through the tax paid on staff salaries, bonuses and so on, the VAT paid on purchases and the stamp duties paid on share transactions, but it has been excluded. The Government need to state more clearly the nature of the exclusions. A group with its headquarters in the UK has to sign off tax returns and give the declaration required under schedule 46, but I am not sure how it would be able satisfy itself about the operation of overseas subsidiaries. We shall come to later to how the materiality exemption in the later amendments could help those companies, but it is clear from the guidance notes that the materiality level to which the Government refer is not the materiality that is used in sets of statutory accounts; it is a different, unspecified level of materiality.

What expectations do the Government have of people in UK-headquartered groups being able to sign off the way in which tax is dealt with in their overseas subsidiaries? A company in the UK that is part of an international group may fall within the regime and be required to understand the tax accounting elsewhere in the group. The senior accounting officer would have to attest to the sufficiency of not only the UK company’s accounting arrangements, but those of the worldwide group, and he may have little practical or technical knowledge of that.

Some significant concerns arise from the tighter definition in the group of amendments. To put the matter beyond doubt, I am not arguing that the measure should be extended to cover branches, partnership or mutuals. I am trying to understand why they are excluded, because that will give some insight into the Government’s thinking on the purposes of the measures. We debated the matter in Committee of the whole House and there are more issues to be teased out in this Committee. Depending on the Minister’s response, we may return to it on Report.

John Howell (Conservative, Henley)

The guidance notes on the schedule are extremely revealing. They state that there was previously no requirement on anyone within a qualifying company to ensure that the underlying tax accounting arrangements were fit for purpose. They go on to say that this measure addresses the accountability gap. There is a huge gap between the logic of those two statements, so it would be good to have clarification on that.

There could be a situation in which a number of different people were responsible for this in a company. The fact that more than one person was involved would not equate to a gap. A gap is an absence of something, and we are yet to hear that there is the real gap to which the guidance notes refer.

The Minister referred to the risk-based approach of HMRC on this matter. I have a point that follows on from the remarks made by my hon. Friend the Member for Fareham about understanding where the detail of the schedule came from. I get the feeling that it emerged out of HMRC’s risk framework document. I have put together risk framework documents in the public sector, so I know that one must identify all possible risks that might occur. It would be extremely useful to know where this risk occurs in the HMRC risk framework and what weighting it was given before a conclusion was reached. Our concern comes from the guidance note in paragraph 58.

Peter Bone (Conservative, Wellingborough)

I am struggling with the concept of a huge gap in all these large companies that is ruining their tax affairs. How can the auditors in those companies sign off a certificate to say that the statement of affairs shows a true and fair view? Is this a sledgehammer cracking a nut when there was no nut to crack in the first place?

John Howell (Conservative, Henley)

My hon. Friend makes an extremely good point. He has amplified my point that we are yet to be convinced that there is a gap at all. If there was a gap, we would have expected to have heard about it from the auditors of major companies. It is inconceivable that companies of the size we are discussing would allow such a gap to continue.

Paragraph 58 of the guidance notes deals with interaction with other countries’ requirements. It mentions two countries: the US and Japan. It ends by saying that a company that is compliant with the Japanese requirements may derive some comfort that the Japanese procedures go some way towards satisfying the reasonable steps required by the schedule. I cannot imagine that anyone in that situation would get any reasonable comfort from such a statement. It would be extremely helpful to understand what the Exchequer Secretary sees as the principal differences between what is set out in schedule 46 and what is set out in the Japanese and US arrangements.

My final point relates to the interaction of the schedule and the charter that we have just been examining. It seems to me that the schedule conflicts with the charter, particularly on point 2, which is called “Treat you as honest”. It says:

“We know that most people want to get things right. Unless we have a good reason not to, we will”,

and it goes on to list a number of things, one of which is:

“presume you are telling us the truth”.

The schedule goes completely against that. We have had no good reasons advanced as to why a different treatment to point 2 of the charter should apply. The schedule is clearly not treating the companies as being “honest”. We have already seen the first of the holes that have been driven through the charter.

The second element of the charter that the schedule goes against is point 9, which says that HMRC will do

“all we can to keep the cost of dealing with us as low as possible”.

I heard the Minister say that the process will not raise too many costs on the part of companies. I simply do not believe that that will be the case. There will be additional costs, but no justification for them has been given.

Mark Hoban (Conservative, Fareham)

My hon. Friend’s point about costs is right. One of the issues here is that companies that are already compliant, or those that are assessed as being low risk by HMRC—there is a risk-assessment process that HMRC has undertaken for these large companies—will end up incurring unnecessary additional costs.

John Howell (Conservative, Henley)

My hon. Friend is right. These costs will be additional costs that a company will incur, on top of what it is already paying, simply to meet the reporting requirements.

Point 2 in the charter goes against point 3 of the taxpayers’ duties, which is about takings reasonable care when they compute their tax returns. That shows that there is no trust in the company that is going through the process of putting these details together.

For those reasons, there are huge gaps in our understanding, which I hope that the Minister will fill. These are real gaps, unlike the accountability gap, in that there is absolutely nothing to provide me with any comfort.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I thank hon. Members for their contribution to our discussion of these amendments. I will try to address all the points that have been made.

The overarching point is that the majority of large companies already have appropriate tax accounting arrangements in place. I do not accept that this measure will put an additional burden on them.

Peter Bone (Conservative, Wellingborough)

Will the Exchequer Secretary be more specific when she says “the majority”? How many companies does she think do not have adequate tax accounting provisions?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I cannot give the hon. Gentleman numbers, but I can say that there have been large companies whose tax computations are calculated incorrectly each year, due to known problems in the accounting system. One group of companies had system problems every year. They could not identify the source of the problem or satisfy HMRC that the tax computation was correct. The measure is intended to encompass the small minority of large companies that do not have those systems in place. For those companies, it is difficult for either the company or HMRC to know whether the right amount of tax is being paid.

Mark Hoban (Conservative, Fareham)

The example that the Exchequer Secretary cited was exactly the same example that the Financial Secretary gave to the Committee of the whole House. I asked him then if he could say how much tax had been lost in these circumstances and he could not give me an answer. Will the Exchequer Secretary give me an answer to that question now?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I do not have that information to hand but, if it is available, I will be happy to write to the hon. Gentleman.

Mark Hoban (Conservative, Fareham)

We will see whether that information is available. Part of the problem is that the examples given—they often involve “a number” of companies—do not provide robust justification. Perhaps the Minister will look at it another way. A risk-assessment process goes on now for large companies. What proportion of those companies are deemed to be high risk?

Sarah McCarthy-Fry (Labour, Portsmouth North)

Again, I do not have that information to hand but I will pass it on to the hon. Gentleman. I imagine it will be a percentage not a number.

I want to get to the specific questions asked. Amendment 65, which the hon. Gentleman spoke about, relates to whether a director of a company with board responsibility should always be the senior accounting officer. The board has overall responsibility for meeting tax obligations. We think it is right to give businesses and boards the responsibility and flexibility to decide who is responsible for ensuring that the systems and processes are correct so that the board delivers its obligations. HMRC customer relationship managers will work with businesses to ensure that an appropriate senior accounting officer is identified and has the appropriate responsibility to fulfil this role. With the flexibility we are giving business, working with the customer relationship manager, we can ensure we meet our requirement for an appropriately qualified person to carry out the role.

Peter Bone (Conservative, Wellingborough)

I forgot to welcome the Minister to her new post and apologise for not doing so earlier. Does she think there is a danger that a financial director could pass the buck down to the financial controller, who would probably have day-to-day organisational responsibility? It will be the poor financial controller who hits the dirt, rather than the financial director who sits on the board with all the perks and extra bonuses, and who really should be taking the flak because he has ultimate responsibility?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I disagree with the hon. Gentleman. Given that the board has overall responsibility for meeting tax obligations—we are talking about systems and processes—it is for the board to decide what it wishes. The request for such flexibility came from business. By working with the customer relationship manager we can manage to balance both sides so that HMRC is satisfied and we also meet the flexibility that business has asked for.

Mark Hoban (Conservative, Fareham)

The Minister said that the customer relationship manager would discuss with the business whether it had identified an appropriate person to be the senior accounting officer. That seems sensible. Does it mean, in effect, that HMRC will have a veto over whom the business decides to appoint as a senior accounting officer?

Sarah McCarthy-Fry (Labour, Portsmouth North)

It is not my understanding that he or she will have a veto but I will clarify that point.

I was asked why we had tabled so many Government amendments in Committee. This is part of a compliance package that was announced in the Budget. We would all agree that it is right that all companies pay the appropriate level of tax. We said at the Budget that we would work with stakeholders to manage the implementation. The number of Government amendments reflects the fact that we listened to stakeholders in the consultation and I do not apologise for that.

The hon. Member for Fareham raised a point about partnerships but answered his own question. He asked whether partnerships were included and then he said they were not. Partnerships and other unincorporated bodies are excluded. The biggest risks are posed by corporates, so the measure is focused on corporates, on a risk-based analysis.

Mark Hoban (Conservative, Fareham)

I knew that partnerships were excluded. It is clear that they are and the Financial Secretary said so at the time. The question was about why they were excluded. The Minister seems to return to the concept of risk. Partnerships are seen to be low risk—I am not sure about the basis for deciding that—but all companies, depending on the size criteria, and whether they are high or low risk, will have to take part in this regime. Why should low-risk companies be part of the regime, when low-risk partnerships are outside it?

Sarah McCarthy-Fry (Labour, Portsmouth North)

As a whole, corporates pose the greatest risk. We are seeking to minimise the burden on businesses, so we are focusing on corporates, which is why the measure does not cover partnerships and unincorporated large businesses.

The hon. Gentleman asked what would happen if the senior accounting officer of a UK-based company was based outside the UK. I can confirm that the information provided was correct. I was also asked to name the companies that would be caught by the provision, but for reasons of taxpayer confidentiality, I cannot disclose the names of particular taxpayers. However, as a result of the amendments, about 2,000 large UK companies will be encompassed.

The hon. Gentleman also asked about the impact assessment, which was based on the original analysis. Following the Budget, our discussions showed that the draft legislation was likely to encompass more companies than originally envisaged, which is why the commitment was made to narrow the scope. We want to ensure that the measure focuses on the area of greatest risk to the Exchequer and that we do not impose administrative burdens on those who pose less risk. I also say to the hon. Member for Wellingborough that compliance with the provisions will not cause additional difficulties to companies with robust systems in place.

Mark Hoban (Conservative, Fareham)

When I have asked how many companies were assessed as being high risk and how much tax had been lost, Ministers have responded and given examples. However, I raised a further question that the Minister has not addressed explicitly: why are branches and mutuals excluded from the provisions, given that some operate in the same business areas as companies, including in the financial services sector? Should there not be a level playing field for both?

Sarah McCarthy-Fry (Labour, Portsmouth North)

We need to strike the right balance and to apply the provision to a particular group, which is why we have restricted the measure to the largest 2,000 companies. They pose the greatest potential for Exchequer loss. We do not have a specific number for high-risk companies, which the hon. Gentleman asked about, but about 40 per cent. of companies are classified as low risk by HMRC.

Mark Hoban (Conservative, Fareham)

Does that mean that 60 per cent. of companies are considered high risk?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I can do the maths as well as the hon. Gentleman. If 40 per cent. are classified as low risk, it would seem to imply that 60 per cent. are classified as high risk.

I return to my earlier point about why some bodies are excluded and others are not. We have taken a risk-based approach to decide where we think that the greatest cost to the taxpayer lies. That is the reason behind the provision.

Mark Hoban (Conservative, Fareham)

If the Minister believes that this is a risk-based approach, why have a blanket inclusion for companies and a blanket exclusion for unincorporated businesses?

Sarah McCarthy-Fry (Labour, Portsmouth North)

We are dancing on the head of a pin.

Mark Hoban (Conservative, Fareham)

We have not got to that point yet.

Sarah McCarthy-Fry (Labour, Portsmouth North)

We do not want to include partnerships or public bodies, or to bring too many people into the scope of the provision. We are focusing only on very large corporate companies. The highest risk is in the corporate sector, although I appreciate what the hon. Gentleman is saying: sometimes bodies operate in the same areas.

David Gauke (Conservative, South West Hertfordshire)

If the Government found that partnerships were becoming high risk, would the Minister amend the legislation to bring partnerships into the regime, or is there a technical problem that would make that difficult?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I am not aware of a technical difficulty in bringing partnerships into the regime. The hon. Gentleman knows as well as I do that we always keep our legislation under review, which is why we have a Finance Bill each year. We always seek to manage the balance between ensuring that we have the right tax revenues and ensuring that we are not putting too great a burden on business. I can only repeat that it is right to focus on the area in which there is the greatest potential for risk, which is why we have concentrated on companies.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I beg to move amendment 219, in schedule 46, page 339, line 8, leave out paragraph 2.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: Government amendments 277 and 283 to 286.

Amendment 224, in schedule 46, page 341, line 28, at end insert—

‘(3) For the purposes of this Schedule a reasonable excuse for failure to comply includes any circumstance where the failure is attributable to any matter outside the person’s control or any matter of which a person could not reasonably be expected to be aware.’.

Government amendments 291 and 292

Amendment 225, in schedule 46, page 341, line 41, at end insert—

‘(3) No penalty may be assessed under paragraphs 5 to 7 of this Schedule if the matter in question has given rise to any civil or criminal penalty under any other legislation or enactment whatsoever.’.

Government amendments 293 and 299

Sarah McCarthy-Fry (Labour, Portsmouth North)

Amendment 219 was originally tabled by Opposition Members and removes paragraph 2 of the schedule, thus removing the requirement for a company’s senior accounting officer to notify the company’s auditors, as well as HMRC, of the respects in which the company’s tax accounting arrangements are not appropriate. The Financial Secretary announced our intention to remove that requirement during the Committee of the whole House debate on clause 92. However, the removal of paragraph 2 requires consequential amendments throughout the schedule to remove references, which is achieved by Government amendments 283 to 286, 293 and 299.

Amendments 224 and 225 are Opposition amendments and propose additional rules to lift penalties in certain circumstances. Neither amendment should be accepted. Amendment 224 is covered by the reasonable excuse provision and by the formal guidance on the measure, while amendment 225 is not entirely clear. I hope that Opposition Members will be able to offer clarification when they speak to amendment 225, but if its intention is to prevent a penalty from being levied in an instance where another penalty has already been charged—for an incorrect return, for instance, or for late filing—we cannot accept it. The penalties under the schedule and the other tax penalties are completely separate, and the purpose of the senior accounting officer rules would be thwarted if there were a get-out for those who have failed to comply with tax legislation elsewhere.

Government amendment 277 is a minor consequential amendment resulting from the proposal to change the certification rules, allowing companies to submit only one form of certificate. I think that the Committee will agree that the text deleted by the amendment is redundant given the move to a single form of certificate.

Government amendment 291 is a small, consequential amendment consistent with Government amendments 276 and 281, clarifying which company is relevant for determining whether a penalty is due on the senior accounting officer. Government amendment 292 removes a potential risk of double jeopardy by making sure that where one company, or a senior accounting officer in a group of companies, has already been subject to a penalty for a particular financial year, no other senior accounting officer or company can be assessed as liable for the same period. I hope that the Committee agrees that that is a useful safeguard limiting the application of penalties.

Mark Hoban (Conservative, Fareham)

I welcome the Government’s acceptance of amendment 219, which I originally tabled. When we looked at schedule 46, it was hard to see why there was a need to notify the auditors. It seems that the relationship involved is actually that between the taxpayer and HMRC, so such a notification seemed a fairly redundant step. As my hon. Friend the Member for Wellingborough identified in the previous group of amendments, the accountants or auditors of a company would already know if the tax systems were not up to producing figures that could be included in the accounts and that would give a true and fair view of a company’s profit and loss account for the year and the balance sheet at the year end, so it seemed to be a redundant step. The Government seem to be rather tardy in tabling amendments to that. I thought that I might beat them to the punch and keep them to their promise. I am pleased that I did so on this occasion and will do so with the next group of amendments.

Amendment 224 seeks to deal with the issue of what is a reasonable excuse, with respect to failure to apply. When we debated that in the House—I will return to a specific example in the final group of amendments—the Government were extremely hard line in their approach and were not accepting materiality. I felt that it was important to place on record that there may be circumstances where we cannot expect a senior accounting officer to know what was happening on the ground and to take responsibility for that. One of the examples I quoted demonstrates part of the problem. The VAT change was implemented in December and, in a number of places, the reduction in VAT was calculated manually rather than through updating a system. Why was it the case that the senior accounting officer would know, or be able to vouch for, the accuracy of someone doing manual calculations for that VAT reduction? Therefore, I wanted to make sure that there was some definition of what was reasonable. My amendments would add the following words:

“any circumstances where the failure is attributable to any matter outside the person’s control or any matter of which a person could not reasonably be expected to be aware.”.

I have heard the Minister’s explanation about why she thinks that the amendment is unnecessary and I am inclined to accept her argument.

The daft, sorry, draft guidance—a Freudian slip, perhaps—deals with this issue of what is reasonable. The guidance is quite widely drafted and we need to make sure that, in order to protect senior accounting officers, there is some degree of certainty in the Bill. Guidance notes are helpful, but they change, whereas the law can be changed only with the approval of the House. That is why we have sought, where possible, to make sure that where there are protections, they should be in the Bill and not tucked away in guidance notes that will not receive the full scrutiny that is offered by primary or secondary legislation. While I accept that there is coverage in the guidance notes and I will not be pressing the amendment to a vote, we need to be very careful that, where we are giving some form of protection, it has a bit more standing than simply a note in a draft document.

The aim of amendment 225, identified by the Minister, is to ensure that where somebody is penalised for late filing of a return, they are not doubly penalised in their capacity as a senior accounting officer. There is a risk of multiple fines for the same offence. I am not sure whether to push this much further with the Minister. It is important that there are penalties in place, but the fact that someone could be fined for the same thing twice would not strike people as particularly fair. We would need to be careful about the circumstances in which such penalties are levied. I accept the point about personal responsibility—there is a gap opening up between the personal responsibility of an accounting officer and the corporate responsibility of a business—but we need to be make sure that we do not lose sight of the fairness issue in the drive to tighten up responsibility for accounting.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I shall respond briefly to amendment 225, about which the hon. Gentleman spoke. It is important to note that the measure is different because we are talking about the underlying systems and processes. We should have that distinction. All of these companies will have a customer relationship manager. That relationship is important to make sure that such matters are properly discussed with business. I still ask the hon. Gentleman to withdraw the amendment.

Peter Atkinson (Conservative, Hexham)

There is no need to do that. We just need to deal with the amendment itself.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I beg to move amendment 220, in schedule 46, page 339, line 19, leave out ‘Type A or Type B’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following:

Government amendment 274

Amendment 221, in schedule 46, page 339, line 21, leave out subsection (2).

Amendment 222, in schedule 46, page 339, line 24, leave out ‘Type B’.

Government amendments 275, 278 and 279.

Sarah McCarthy-Fry (Labour, Portsmouth North)

The first group of amendments is concerned with the certification requirement set out in the schedule, including the requirement in the original draft for senior accounting officers to notify the company’s auditors, where needed, of the respects in which the company’s tax accounting arrangements are not appropriate.

On the question of certification, Opposition amendments 220, 221 and 222 all deal with the arrangements for certifying to the commissioners of HMRC that appropriate tax accounting arrangements are in place, or otherwise reporting the respects in which those arrangements are not appropriate. The broad effect of the amendments is to enable certification to be achieved by a single dual-purpose certificate. The intention to accommodate was raised by my right hon. Friend the Financial Secretary during the Committee of the whole House, and parliamentary counsel was instructed accordingly. Opposition amendment—sorry, Government amendment 220 is identical to that drafted by counsel. The associated amendments 275, 278 and 279 have the same practical effect as Opposition amendments 221 and 222. So I ask the Committee to accept amendments 275, 278 and 279, which would make amendments 221 and 222 unnecessary.

Mark Hoban (Conservative, Fareham)

I am delighted that the Government have added their name to my amendment 220. It is right for the Government to do so. That is yet another example of the failure of the Government to think through carefully what they were trying to achieve for business. Instead, they created a situation in which there were two certificates—perhaps the measure was inspired by those old telephone kiosks where one had to press A or B when making a call.

John Robertson (Labour, Glasgow North West)

A long time ago.

Mark Hoban (Conservative, Fareham)

It was indeed a long time ago—in the dim and distant recess of my memory. It seemed entirely pointless to have two different certificates: one to say that someone had complied and one to say someone did not comply. I could not—I do not think anyone else could—understand just quite why the Government thought that was a good idea in the first place. That is why we made the point in the Committee of the whole House, and why we were pleased when the Treasury conceded that point.

We are grateful that the Government have taken up the issue. Once again, it shows the merits of getting a consultation right. The Minister says, “We have listened and therefore we have changed the Bill,” but it would have been better to have listened first, thought about the legislation and got it right first time. That would have avoided the damage to the relationship between HMRC, the Treasury and business as a result of putting provisions in the Bill when no one had really thought about their practical implications.

Peter Bone (Conservative, Wellingborough)

Given that the Prime Minister has talked about greater openness and transparency and said that he is going to listen to people and consult more, it is disappointing that the Government have turned this into a Government amendment rather than accepted it as an Opposition amendment. It would have shown us the new spirit that the Prime Minister wants to generate. I am so disappointed that the Treasury team has not taken up the Prime Minister’s advice.

Mark Hoban (Conservative, Fareham)

I beg to move amendment 268, in schedule 46, page 343, line 2, leave out paragraph 16 and insert—

‘15A The Treasury may by regulations define “appropriate tax accounting arrangements”.’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following:

Government amendment 294

Amendment 226, in schedule 46, page 343, line 4, after ‘calculated’, insert ‘reasonably’.

Government amendment 295

Amendment 227, in schedule 46, page 343, line 8, at end insert—

‘(4) Accounting arrangements are to be regarded as enabling the liability to taxes and duties of the company to be calculated reasonably accurately if the accuracy with which those liabilities can be calculated is within the normal bounds of materiality as that principle is defined for accounting purposes.’.

Mark Hoban (Conservative, Fareham)

This is the final group of amendments relating to schedule 46. Its substance stems from the debate on materiality that we had in the Committee of the whole House. It seems that the Government have moved beyond the position that they enunciated then. The issue is important because where one strikes the line on what is material in a tax computation or a tax return determines the exposure to penalties of the senior accounting officer. What was seen to be missing from the legislation as drafted was any concept of materiality. We pushed the Financial Secretary on the matter in the debate in the Committee of the whole House. I thought, at that point, that the Financial Secretary was loath to move. When I raised the point of materiality, he said that

“companies already have an obligation to deliver correct and complete returns. The measure ensures that the minority of senior accounting officers who do not oversee systems that generate correct and complete computations take responsibility for addressing that. That is the level of the bar that we envisage applying.”—[Official Report, 13 May 2009; Vol. 492, c. 886.]

I had no doubt that that meant 100 per cent. accuracy. I pushed the Minister again and he came up with the same example that the Exchequer Secretary used earlier about this apparently large company that had systemic errors, which we have only just got to the bottom of.

So, there is an important issue of principle here. What we must bear in mind is the obligation to keep proper accounting records that directors are already subject to under the Companies Act 2006. Section 386 of the 2006 Act imposes a duty to keep adequate accounting records

“to disclose with reasonable accuracy, at any time, the financial position of the company at that time”.

That obviously includes the tax liabilities to which the company has been subject. There are penalties that relate to a failure to comply with that duty. So, a mechanism is already in place to ensure compliance.

The Bill, as drafted in paragraph 16 of the schedule refers to “appropriate tax accounting arrangements”. Amendment 268 seeks to provide a definition of tax accounting arrangements through secondary legislation, so that the senior accounting officer will know exactly what are “appropriate tax accounting arrangements”.

One option would be to omit the current vague definition and divert to regulation, which would give time for proper consultation; instead, it has been rammed into the Finance Bill, with the Department hoping that everything works out for the best. Including a regulation-making power would give the Treasury time to think carefully and consult business properly; it would allow due process. Alternative methods are suggested in amendment 226, which would inset the word “reasonably” in paragraph 16(2)—that would go some way to introducing the concept of materiality—and amendment 227, which would add a new sub-paragraph.

The Government have listened to the argument and understood the strength of the representations made by the Committee of the whole House and others about materiality. The draft guidance now starts to approach that question, which I welcome. A commonly accepted definition of materiality relates to what is in the accounting standards. However, the final sentence of paragraph 61 of the draft guidance says of the standards that

“They should not be interpreted as imposing any higher standards than are already required when preparing returns but neither does the phrase ‘in all material respects’ import the concept of accountancy or audit materiality into the legislation.”

Given that tax return completions have to be signed off as being accurate, why have another test on the certificate to say that the systems are accurate? It would lead to needless duplication—unless one is introducing a new definition of materiality.

The senior accounting officer might breathe a sigh of relief on hearing that “material respects” had been introduced, but paragraph 62 of the guidance does not give anything more concrete. It states:

“The reference to ‘material respects’ along with the use of the words ‘appropriate’ and ‘reasonable’ within the legislation does however make it clear that the focus is on the significance of the transaction, system or tax and the relative size of these items in terms of the business.”

No guidance has been given on relative size. The guidance goes on to say that

“HMRC are not interested in small or insignificant errors and this fits with our policy of focusing on significant risks.”

Again, no guidance is given on what is meant by “small or insignificant”.

The question is what further clarity the Government are seeking to give through this change. They have disregarded the conventional accounting and auditing definition of materiality, and they have introduced some clarification in paragraph 62 of the draft guidance; but it seems that materiality rests somewhere between the accounting and auditing definitions. It should be a little more significant than the language now used to sign off tax returns and computations.

I return to the example given by the Financial Secretary. I raised the issue of systemic calculations, wondering whether it would be a problem if each computation or transaction was a penny out. The guidance now reflects that, so I can see that there has been at least some outcome from my raising the issue. However, there is the question of what happens with systemic errors, and how big they must be to be noted and disclosed to Inland Revenue.

This is a major U-turn by the Treasury, which has now accepted that maturity has a role to play in the sign-off by the senior accounting officer. It has been a bit more specific than the current guidance about what that actually means in practice for businesses.

Government amendment 295 relates to an issue that has been raised by several bodies that are concerned about the kind of taxes that might be brought within the scope of the measure. No taxes were excluded from the original clause, so the fact that the Government have been specific about which taxes should be the focus of the accounting certificate is welcome. To be fair to the Government, on page 5 of the guidance they have also excluded certain taxes, duties and liabilities explicitly, including things such as the child trust fund, life assurance premium relief, the unclaimed asset scheme and the European savings directive, and any requirements that come from them.

I welcome the greater clarity that amendment 295 gives, but I think that the Government need to go a little further in providing some clarity on amendment 294 so that there is a much clearer understanding in the minds of senior accounting officers as to what “material respects” actually means.

Sarah McCarthy-Fry (Labour, Portsmouth North)

This group of amendments is concerned with the definition of “appropriate tax accounting arrangements” and introduces new wording to make it absolutely clear that the measure does not require a higher standard than that already required to sign off tax returns as correct and complete. It also makes it clear that HMRC’s focus will be on significant weaknesses and not on small or insignificant amounts.

The hon. Member for Fareham spoke at length about Government amendment 294, which changes the definition of “appropriate tax accounting arrangements” and adds the words “in all material respects”. The wording is careful because the intention is not to introduce the concept of audit or accountancy materiality, as it is not a tax concept. We have to separate them, as the hon. Gentleman said. I make it clear that the legislation should not be interpreted as imposing any higher standards than those already required when preparing returns, and that HMRC’s focus will be on the significance of a transaction, system or tax. It will not be interested in small or insignificant errors. It is important to put that on the record.

The hon. Member for Fareham asked if we could be more specific in guidance as to what the measure will mean in practice. He will be aware that this is draft guidance. We have been working with interested parties to develop the solution that is reflected in Government amendment 294, and we will continue to consult on the draft guidance.

Mark Hoban (Conservative, Fareham)

I am trying to think what is left as a consequence of all the amendments. The Minister is saying that the standard is no different from the one that already applies in signing off returns and computations. That almost begs the question, why do we need the certificate if all that is happening is that the senior accounting officer will reconfirm what people signed off when they submitted returns to HMRC?

Sarah McCarthy-Fry (Labour, Portsmouth North)

I come back to the point that I made about using the definition of accountancy and audit materiality. That has never applied for tax. What happens in practice is that accounts are prepared according to materiality, but that is unpicked when the tax finance people prepare their computations and returns. The amendment makes it absolutely clear that the legislation does not raise the tax bar in respect of what is required to sign off returns. That is an important protection for senior accounting officers.

The hon. Gentleman spoke about significance. We can provide more examples of significance within the guidance; as I said, it is part of the ongoing consultation. I welcomed the hon. Gentleman’s support for draft guidance on appropriate tax accounting arrangements and, again, that will be subject to further consultation.

Moving to amendment 295, the thrust of the schedule is to help maintain fiscal sustainability by making the senior accounting officers of the very largest companies and groups responsible for ensuring that they have appropriate tax accounting arrangements in place and, as currently drafted, the measure applies to all liabilities regardless of relative importance. However, in some instances the associated administrative burden, while not significant in relative terms, might be disproportionate in relation to the size of those liabilities, which are relatively small, therefore amendment 295 restricts the measure’s scope to specify mainstream taxes and duty.

Mark Hoban (Conservative, Fareham)

At the end of what has been a lengthy debate on four groups of amendments, I am left wondering what is left. The Minister has now said that the standard of accuracy applied to the certificates is no different to the standard already applied to tax returns and computations. We are effectively asking a senior accounting officer to confirm that what has been submitted and said was and is still materially accurate.

Sarah McCarthy-Fry (Labour, Portsmouth North)

The difference is that this is about the process and the systems behind the taxes paid, and not about the amount of tax itself.

Mark Hoban (Conservative, Fareham)

That is part of the issue. A senior accounting officer could sign off the computation as being materially accurate only if they were content and only if their systems were accurate. We know that HMRC has access to the systems of large companies and that it does a risk assessment. As a senior accounting officer, I could not sign off a tax return if I knew that the underlying systems were not robust or able to produce correct and accurate financial information.

I am at a loss to think of what is left. I almost feel that the four amendment groups have made schedule 46 a hollowed out husk. Expense will be imposed on companies, depending on their size, but not other types of business combination. The amount of additional comfort that senior accounting officers are given is minimal. Given the nature of the relationship between HMRC and large companies, which are already risk- assessed, the Government will not get more value out of this measure. HMRC already has access to systems as part of the Varney review.

We will end up with a compliance burden on companies without, as far as I can see, additional value to HMRC. Companies may be grateful that the Minister has listened to them, but I am not convinced where the measures’ value rests. I am grateful that the Government have listened to the concerns about materiality, because that certainly was not the message from the Financial Secretary in the debate in the Committee of the whole House, and that is a sign of movement. However, moving so far on so many issues has left me questioning what the Government have got out of schedule 46 and clause 92. As they have addressed the issue in amendment 264 with amendment 294, I beg to ask leave to withdraw the amendment.

Clause 93

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 81, in clause 93, page 45, line 27, leave out ‘£25,000’ and insert ‘the greater of—

(i) £25,000 or

(ii) a percentage of the person’s income as determined by an order made by the Treasury.’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: amendment 82, in clause 93, page 45, line 30, after ‘deliberate’, insert ‘and concealed’.

Amendment 83, in clause 93, page 45, leave out lines 32 to 40.

Amendment 84, in clause 93, page 46, line 14, at end insert—

‘(5A) No information may be published without the consent of the Chief Executive of Her Majesty’s Revenue and Customs.’.

Amendment 85, in clause 93, page 46, line 18, at end insert ‘and

(c) inform the person of his right of appeal under subsection (11A) below’.

Government amendment 305

Amendment 86, in clause 93, page 46, line 36, at end insert—

‘(11A) No information may be published until the person has had the opportunity to appeal to the First Tier Tribunal for an in-camera hearing against the decision to publish details of that person.

(11B) The Treasury may by order made by statutory instrument make provision for and in connection with appeals to the First Tier Tribunal under subsection (11A).’.

David Gauke (Conservative, South West Hertfordshire)

I welcome you to the Chair, Mr. Atkinson. From the outset, I make it clear that we do not necessarily object to the use of the naming and shaming provisions in clause 93. However, we have a number of specific concerns, some of which we have addressed in this group of amendments.

Clause 93 sets out a new regime for publishing details of deliberate tax defaulters. This is, as we will debate at slightly greater length, an arrangement that was not consulted on before the Budget and, with the publication of the Finance Bill, a number of specific concerns have been raised about the regime. I will briefly set out the concerns that we attempt to remedy in the amendments, the first of which is that the application of the naming and shaming regime applies where there has been potential lost revenue, in relation to the relevant penalty, of more than £25,000. That can be an amount that applies to a number of different taxes and may have accrued over a number of different tax years. The particular concern of a number of outside bodies is that the £25,000 limit is a blunt instrument. Clearly, £25,000 in lost revenue would be quite considerable for most individuals or small companies. However, for a very wealthy individual or a large company or partnership, £25,000 is not particularly considerable and there is a danger that this naming and shaming regime may apply to relatively small amounts.

Consequently, amendment 81 seeks to make the £25,000 test a bit more sophisticated, if I can put it that way, in the sense of still having a de minimis requirement of £25,000, but for an entity or for a person with a large income there shall also be a test of a percentage of that income. That would prevent the concern, raised by a number of outside bodies, that persons may be caught for what is, in their overall tax liability, a small amount of money.

We are keen to hear the Minister’s assessment of why the £25,000 figure was chosen and whether it is possible to have a differential rate so that we can assess the scale of the mischief, or the scale of the tax default, by the person concerned.

Amendments 82 and 83 look at the issue of a relevant tax penalty and what sort of activity should fall within that. It is an attempt to tighten this definition set out in clause 93(2). We are not wedded to any particular wording in this area, but we would like to explore the thinking here. There is a reasonable argument to be made that a new penalties regime has just come into effect, that this naming and shaming regime is being bolted on to it and that, at least in the initial months and years of this regime, it should be focused upon the very clearest cases of tax default, where we are looking at deliberate inaccuracy and concealment, rather than being broader. A criticism could be made of this regime that it is not focused as much as it might be, but I would put this in the context of a new regime—why not start it off in a fairly narrow circumstance with a view to broadening it out?

Mark Todd (Labour, South Derbyshire)

rose—

David Gauke (Conservative, South West Hertfordshire)

I give way to the hon. Member, who is looking quizzical.

Mark Todd (Labour, South Derbyshire)

I may have misunderstood the hon. Gentleman, but the thrust of his amendments appears to be to protect the privacy of those with very substantial net worth who may have significant tax liabilities on which they deliberately default. Am I right in thinking that that is the thrust of what he is attempting to do here?

David Gauke (Conservative, South West Hertfordshire)

I think that the concern that he is raising is with amendment 81, rather than 82. The concern behind amendment 81 is a relatively small error on the part of a large taxpayer. I suspect that the hon. Gentleman is going to make the point about deliberate inaccuracy, and, do not get me wrong, these are not people whom we are desperate to protect. None the less, this is a new regime coming in which is in addition to the existing penalties regime. If we are going to have something in addition to it, it is right to test the scope of it. In particular, the concern raised by outside bodies is that this new regime may be a bit broader than it should be in its initial stage. There is an argument for extending it as we see how it works. For most of us, a sum of £25,000 is a very considerable one, but not so in the context of a larger business. The point has been made by, I think, the Chartered Institute of Taxation, that a relatively small failure to account for tax on a transaction between a company and a director may involve additional PAYE, National Insurance contributions, VAT and tax under the beneficial interest rules and that these quickly accrue to a sum greater than £25,000.

Mark Todd (Labour, South Derbyshire)

Surely the test is deliberateness, is it not? One would agree that honest errors are dealt with in a different way. Quite how one establishes deliberateness, other than by a paper trail showing that someone conspired to achieve this, is another matter, but that is the critical test.

David Gauke (Conservative, South West Hertfordshire)

Of the various levels of misbehaviour, the highest test is deliberate inaccuracy and concealment, and we are suggesting focusing on that because that is the clearest case of what, not to put too fine a point on it, most of us would consider to be of a fraudulent nature. Why not focus on the most egregious cases? Outside bodies argue that the measure is broader than it might be, so let us explore that.

The other amendments, which are less controversial, focus on the issue of publication and the circumstances in which publication should be made. Amendment 84 proposes that consent should be given by the chief executive of HMRC before information is signed off with regard to a tax defaulter. Again, this is partly a probing amendment. I hope that the Minister will be in a position to reassure the Committee that publication will occur only after a senior executive from HMRC has signed off these matters. Naming and shaming should not be a decision that is taken lightly.

Amendments 85 and 86 relate to the issue of a right of appeal. It is worth making the point that naming and shaming in this way is very much a penal action. It is likely to have a very significant effect on the reputation of the person being named and shamed. In the stand part debate, I hope that we will be able to examine in a little more detail the potential human rights angle to this and concerns about a breach of privacy. Clearly, in defending their case against an action brought on the basis of the Human Rights Act 1998, it will be helpful to the Government to have a satisfactory appeal mechanism. Clause 93, as currently drafted, does not seem to address that particular concern. It may well be that the Minister can give the Committee some reassurance on that particular point. The need for an appeal mechanism is addressed by amendments 85 and 86.

I have various broader points that I do not intend to go into at this stage, but we would be grateful for the Minister’s response on a number of points that seek to ensure that clause 93 works as effectively as possible.

Sarah McCarthy-Fry (Labour, Portsmouth North)

Welcome back to the Chair, Mr. Atkinson. Clause 93, as set out by the hon. Member for South-West Hertfordshire, provides for HMRC to publish details of deliberate tax defaulters. The clause has been introduced to send a clear signal that evading tax is wrong, to deter people from doing it, to reassure those who pay the right tax and to encourage those who do not do so to come forward and make good. Amendments 81 to 86 and Government amendment 305 all seek to ensure that clause 93 is closely targeted and that strong safeguards are in place. I should like to reassure the Committee that the Government support both those aims.

The clause relates to a deliberate intention to give HMRC inaccurate documents or not to meet obligations so as to gain a tax advantage. Careless errors or failures, whether or not penalised, will not trigger publication whatever their size, nor will taking a reasonably arguable view of the tax situation, even if it is not upheld. There will be exemption from publication for those who make a full disclosure of their defaults, either unprompted or prompted by HMRC. That means that everyone will have the chance to escape publication by coming forward and making good.

Mark Field (Conservative, Cities of London and Westminster)

Although I am reassured that there has to be some deliberate intent, is there not a concern that powerful people with deep pockets and concern about their reputation and libel laws will be able to muscle their way in to ensure that their position is protected. Notwithstanding any Human Rights Act opportunities, it will be the less powerful who fall foul of the measure. The overwhelming concern is that individuals who realise the potential for reputational damage and the risk of going to court—the cost and everything else—will have an opportunity to ensure that officials are persuaded not to put them on a list, whereas the less powerful will be voiceless in that regard.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I do not agree with that premise. We will probably come on to that matter when we debate clause stand part. The clause will strengthen our ability to bring people who deliberately withhold information and default to account.

Peter Bone (Conservative, Wellingborough)

Minister, is the problem not that there are normally two points of view to an argument? If the Revenue says, “This is a deliberate error,” the client will say, “No, actually it wasn’t a deliberate error.” The Revenue will then go back to them and say, “If you make a full confession now, we won’t publish, but if you don’t, we will name and shame you.” My advice to the client would be to say, “Even if you haven’t done wrong, accept a confession because your name won’t be published.” Is that not very unfair on the taxpayer?

Peter Atkinson (Conservative, Hexham)

Order. Before I call the Minister to reply, I should say that this is moving into clause stand part territory. I would be grateful if the Minister answered the hon. Gentleman’s question later.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I take your advice, Mr. Atkinson, and will answer that question when we come to the clause stand part debate.

Both amendments 81 and 82 deal with the criteria for publishing the names of deliberate tax defaulters. The Bill states that the deliberate understatement must be at least £25,000. Amendment 81 would change that to the greater of £25,000 or a certain percentage of the person’s income, but it does not specify what the percentage could be. Two things are wrong with the amendment: it is wrong in principle and in practice. The Bill states that at least £25,000 of tax must have been understated. That is the amount of tax uncovered in an investigation, which may include more than one tax, more than one period and more than one type of deliberate default. A number of factors were taken into account in arriving at £25,000: international comparisons, sentencing guidelines for non-tax financial frauds and the need to send a clear message that tax evasion is wrong.

I think that most people agree that evading tax to that extent is a serious matter, whatever the level of income. There is no justification for taxpayers on higher incomes to be subject to different limits. To impose such limits would be wrong in principle and unfair. Taxpayers on higher incomes and large companies who evade tax should face the same consequences as others and, like any other taxpayer, they may avoid publication by making a full disclosure to HMRC, even when challenged. I also think that the amendment is technically flawed. The £25,000 limit relates to the tax lost. That might be a reference to income understated, as suggested by the amendment, but it could just as easily relate to understated capital gains, VAT or excise duty on goods misused. I urge the hon. Gentleman to withdraw his amendment on that basis.

Amendment 82 would narrow the scope of the scheme, so that it applies only to those whose defaults are both deliberate and concealed. However, clause 93 already ensures that publication is restricted to where a person knowingly and intentionally gives HMRC an inaccurate return or deliberately does not tell HMRC of a new taxable activity to gain an unfair tax advantage. Concealment, such as submitting false evidence to HMRC, is aggravating conduct and attracts a higher penalty. All deliberate understatements, whether involving concealment or not, are fraudulent. It is important to send a clear signal that all tax evasion is wrong, and consequently the £25,000 limit is a better restriction than using the deliberate and concealed category of the penalties.

Amendment 83 would reduce the scope of the scheme so that it covered only inaccurate documents—returns, claims and accounts. It would exclude other forms of tax evasion such as deliberately supplying false information, causing a tax return to be inaccurate or, for example, knowingly supplying red diesel, which is subject to a lower rate of duty, to commercial haulage firms rather than for agricultural use as permitted. Each of the other categories specified in the Bill creates an illegal, unfair advantage for the perpetrator. Some categories, such as the misuse of red diesel, represent a significant attack on the tax system. It is estimated that £350 million is lost to the Exchequer each year from the illicit market in petrol and diesel. It is important that HMRC has the full range of tools at its disposal to combat such attacks. Those responding to HMRC consultations have consistently called for HMRC to come down hard on those seeking an unfair advantage. For that reason I cannot support amendment 83.

Amendments 84, 85 and 86 concern safeguards within the scheme. Amendment 84 would require the chief executive of HMRC to authorise publication of all details. Amendments 85 and 86 seek to create a separate appeal right against a decision by HMRC to publish details and to create a requirement to inform the person of their right to appeal. I want to emphasise and put it on the record that the Government agree that there should be robust safeguards. These are already built into the scheme and the penalty regimes on which it is founded. Government amendment 305 further strengthens the safeguards. There is a right of appeal to an independent tribunal against all the tax and penalty decisions that determine whether a name will be published. The criteria for publication are tight and are laid out in primary legislation. Everyone will have an opportunity to escape being named by making a full disclosure, even after challenge by HMRC. Taxpayers will be informed prior to publication and may make representations to HMRC that naming would not be appropriate. Names will be removed after 12 months. Both HMRC and I recognise the importance of getting this right. A senior HMRC officer and a central team separate from the investigators will be responsible for pre-publication checks to ensure that the details published are accurate. I do not think it necessary or practical to include such authorisation in the Bill.

We have concluded that a separate appeal right against publication is not appropriate for a number of reasons. There is an appeal right to the independent tribunal against all of the decisions that underpin publishing details: the amount of tax and penalty, the behaviour category—whether the default was deliberate—and the quality of the taxpayer’s disclosure. Government amendment 305 further strengthens taxpayer safeguards by ensuring that all considerations about disclosure, including its timing, will be taken into account when arriving at the penalty level and will be appealable. All of these appeal avenues must be exhausted or expired before details may be published. This leaves the only element of discretion within the publication scheme itself at the start of 93(1) which provides that

“The Commissioners may publish information”.

To ensure consistency and fairness, the presumption will be to publish where the criteria are met, unless there are exceptional circumstances after consideration of the taxpayer’s representations. Examples might include prejudice to an ongoing criminal investigation or risk of physical harm.

The appropriate route for a taxpayer to challenge such administrative decisions is directly with HMRC or by judicial review. Although amendments 85 and 86, as I have already said, would create a separate right of appeal, it is difficult to see what the grounds for such an appeal might be. An appeal against publication would also be a one-way bet, with the taxpayer having nothing to lose by appealing. We are concerned that tribunal resources would be unduly tied up with spurious appeals and the impact of this important deterrent effect would be undermined.

By contrast, Government amendment 305 reflects a small but significant change in policy in the taxpayer’s favour. It will reduce the extent of HMRC’s discretion and provide greater clarity to taxpayers as to how they can avoid their details being published, namely by making a full disclosure, whether prompted or unprompted, which would qualify for the full reduction under the penalty legislation. That means that all consideration as to whether a taxpayer’s disclosure is sufficiently complete and timely to warrant exemption from publication will now be subject to appeal to an independent tribunal. That will be under the penalty appeal provisions. This strengthens taxpayers’ safeguards and addresses concerns underlying amendments 84 to 86. The amendment will also bring greater clarity for taxpayers about what they must do to escape publication. First and foremost, the message is not to evade tax in the first place but, if they have done so, taxpayers should come forward to HMRC swiftly and make good in full. One of the lessons learned from the Irish experience is the importance of having clarity and certainty in this area. The amendment should help to achieve that. The safeguards we already have in the Bill together with Government amendment 305 are robust and sufficient. I hope that I have managed to satisfy the concerns of the hon. Member for South-West Hertfordshire and would ask him to withdraw his amendments.

David Gauke (Conservative, South West Hertfordshire)

I thank the Minister for her response. She has dealt adequately with amendments 81, 82 and 83, and I accept her arguments. I may not have taken it in, but I am not sure whether she made a specific commitment on the signing off by senior staff.

Sarah McCarthy-Fry (Labour, Portsmouth North)

A senior official.

David Gauke (Conservative, South West Hertfordshire)

I apologise to the Minister for not picking that up.

I am grateful to the Minister for acknowledging that all the amendments that we tabled attempted to make the provisions closely targeted or to ensure that they would work. I am grateful to the Government for amendment 305, which is an attempt to address the concern over the appeal process. I am not sure that I was persuaded by her argument about a taxpayer having the ability to appeal to HMRC or to seek judicial review. That is a very high test. However, I note her comments on the various opportunities that a taxpayer would have in the appeal process. I am not sure that the questions over that process are entirely resolved. However, I will not press the amendment to a Division. I beg to ask leave to withdraw the amendment.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss new clause 4—Publication of taxpayer ‘gold list’—

‘(1) The Commissioners may publish a list of taxpayers who, in the opinion of the Commissioners, have performed their tax paying and reporting obligations in an exemplary manner.

(2) The details of a taxpayer identified under subsection (1) shall be as agreed between the Commissioners and the taxpayer.

(3) In making an assessment of the inclusion of a taxpayer for publication under subsection (1), the Commissioners shall take into account the size and complexity of the taxpayers’ affairs.

(4) The Commissioners shall not refuse to list a taxpayer under subsection (1) on the grounds that—

(a) the taxpayer has taken reasonable measures to minimise his tax liability, or

(b) the taxpayer, acting in good faith, is in dispute with HM Revenue and Customs.

(5) The Commissioners must publish guidance as to the criteria that shall be used in assessing whether a taxpayer should be identified under subsection (1).

(6) The Commissioners must consult with stakeholders before publishing any guidance under subsection (5).’.

David Gauke (Conservative, South West Hertfordshire)

Let me reiterate that we share the Government’s objective in clause 93 of having an additional sanction to take against those who deliberately do not pay the appropriate amount of tax. We welcome the use of social pressures in that context. It may be that the Government are waking up to the nudge agenda that is so popular among the Opposition. We also recognise that countries such as the Republic of Ireland have made use of this kind of regime. The objectives are worthy, but we have some practical concerns, many of which the Minister has allayed with the amendments that we have discussed.

I shall begin by asking where the naming and shaming measure came from. There was no indication prior to the Budget that the Government intended to do anything like this. When it has been considered in the past, the Government have been unenthusiastic about it. On 22 May 2002, the then Paymaster General, the right hon. Member for Bristol, South (Dawn Primarolo), stated in evidence to the Treasury Select Committee:

“I have to say that I am not at all attracted to it because of naming and shaming incorrectly or the consequences and the balance with taxpayer confidentiality.”

It would be helpful to know why the Government changed their mind. Why was there no consultation before this proposal was announced in a Budget notice?

This debate is similar to the one we had this morning on the new signing off requirements for senior accounting officers, because this measure appears to have emerged from nowhere. Has it been sitting on the back burner for years before being suddenly plucked out? Was it introduced because of changing economic circumstances and the crisis in the public finances? What caused the Government to bring it forward this year, when they previously had no interest in it?

I also raise the point about timing in the context of the new penalties provisions that have just been brought in. Given that we spent a great deal of time last year and the year before debating penalties, why was this measure not dealt with then? If it is something that the Government have come to relatively recently, was there any thought of holding it back, at least until we see how the new penalties regime works? It seems that the Government are somewhat open to the criticism of making policy on an ad hoc basis.

I seek some clarity from the Government. Presumably they have looked closely at the extent to which the naming and shaming provisions will actually be used. In implementing the new penalties regime, I believe that they looked at several dead cases to see how the new regime would have applied to them. Have they looked at those cases also in the context of clause 93 and the naming and shaming provisions? Do the Government have a view as to how many cases the provision will apply to in the course of a typical year? What scale of offence are we talking about?

The next area of concern relates to privacy implications, and I say this in the context of the Human Rights Act. I know that the Government are reluctant to reveal any legal advice that they have received, but the Chartered Institute of Taxation brief on the clause states:

“We understand that HMRC have taken advice and consider that the right to privacy in such cases will not apply on account of the exception for economic wellbeing of the country given the current economic climate.”

It would be helpful to the Committee if the Minister could say as much as possible about the legal advice on this matter. What concerns do the Government have that there is not a privacy issue, or at least not one that cannot be overcome, and is that on the basis of the economic circumstances?

Peter Bone (Conservative, Wellingborough)

My hon. Friend raises an important issue. It would appear that the measure has been introduced only because we are in the depths of this terrible, Government-caused recession. Does that mean that it would disappear after a few years, or do the Government believe that we will be in recession for so long that it will not be a temporary measure?

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend makes a good point.

Peter Atkinson (Conservative, Hexham)

Order. Whatever the merit of the point, it seems to be wide of the clause.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Mr. Atkinson. I accept that the Government-made recession is wide of the clause, but there is a legitimate question. If the human rights angle on privacy is overcome only because of the exception for the economic well-being of the UK, which is acute, given the crisis in the public finances, if that is right—this is based on what I received from CIOT—and if that is how the legal concern of privacy will be dealt with, what will happen if and when we are not in a public finances crisis?

My hon. Friend the Member for Wellingborough raises an interesting point about whether the legal analysis allowing the clause to exist will hold together only as long as we are in a crisis. He makes a good point, and there is all the more reason for the Minister to provide a little more guidance to the Committee about the basis on which the Government are confident that they will not run into any legal difficulties with the clause. If it is the case that the clause will work only for a few years and then the privacy issue becomes more acute, the Committee is entitled to know that.

In relation to privacy, outside bodies have raised concern with regard to the information that is provided about the tax defaulter, in particular the address. That sounds similar to a debate that we have had more generally in this House about the publication of addresses. Some people have raised concern that revealing that information may cause particular difficulties to, say, family members and so on. So I would be grateful to the Minister if she could give some guidance about how HMRC will use its discretion—it has discretion in this area—in the publication of addresses.

My hon. Friend the Member for Wellingborough touched on another interesting point a moment or so ago about the behavioural effect that the clause will have on individuals, in particular whether they are more likely to settle a case or fight on. I can see that matters could go in one of two directions. On the one hand, the clause could be a sanction that may encourage someone who has a dispute with HMRC to settle, for fear of being named and shamed. That was the concern that was raised by my hon. Friend. There is a particular concern in the context of technical disputes in which a party is acting in good faith and HMRC says, “You must settle”. I do not think that that is too great a concern, because we are talking about deliberate failure to pay. However, I am very keen to ensure that the clause is not used to put pressure on a taxpayer who has a legitimate and honest disagreement with HMRC. I do not think that that is a major concern, but perhaps the Minister could say a word or two on that issue.

Mr. Toddrose—

David Gauke (Conservative, South West Hertfordshire)

I give way to the hon. Member for South Derbyshire. I have already acknowledged the point about deliberate non-payment.

Mark Todd (Labour, South Derbyshire)

The hon. Gentleman has indeed acknowledged that point, and he has been gracious in giving way. Surely the point here is not just that the failure to pay must be a deliberate act. In addition, as the Minister acknowledged, if the taxpayer had an honest dispute and an arguable case, they would also not fall within the scope of the clause.

David Gauke (Conservative, South West Hertfordshire)

That is exactly the point that I am making; I want to ensure that honest disputes do not fall within the scope of the clause. So I do not think that the hon. Gentleman and I have any disagreement on that subject.

Robert Syms (Conservative, Poole)

I think that it would help the Committee if the Minister could give some indication of how many names are likely to be published. Are we talking about 10, 20, 50, 100 or 1,000 names? Also, as people who have been named might well end up in our surgeries, is there any kind of procedure to determine, for example, how many people in Poole will be named and shamed? I would just like to have some indication of what HMRC thinks the numbers will be.

David Gauke (Conservative, South West Hertfordshire)

My hon. Friend is absolutely right; indeed, I touched on that point a moment or so ago. Can the Minister break down her estimate on a constituency basis? I am sure that the good people of Poole will not be affected by the clause. However, my hon. Friend makes a very reasonable point.

The other point that I was going to make in the context of appeals goes in the opposite direction, as it were. Some taxpayers may be reluctant to settle when they might otherwise do so because they are afraid of being named and shamed, and if they bring finality to a dispute they will be more vulnerable to being named and shamed and might be more inclined to fight on. Presumably HMRC has considered whether that is likely. That concern has been raised by some outside bodies, and it will be helpful if the Minister lets us know whether she has any thoughts on the matter.

I also want to touch on an issue that the Minister raised during our previous debate on disclosure and protecting taxpayers. Have the Government considered providing a definition of unprompted disclosure in the Bill? That might provide additional clarity.

We have raised various issues in an attempt to probe the Government’s thinking, but we recognise the benefits that may be gained from using social pressure to change behaviour. We tabled new clause 4 to start a debate on how to take that approach further. Clause 93 is the stick, but the new clause could provide the carrot. We are suggesting a published list of taxpayers who have performed their taxpaying and reporting obligations in an exemplary way. That list could be published with details to be agreed between HMRC and the taxpayer. The requirements would depend on the size and complexity of the taxpayer’s affairs, and inclusion on the list would not be prevented because of an honest and technical dispute. We would seek to provide some certainty about how that would work by requiring HMRC to publish guidance and to consult with outside bodies.

Will the Minister let us know whether the Treasury and HMRC are considering something similar? A gold list of companies that co-operate with HMRC, pay when they should do, are open when they should be, and provide information when they should do would be a useful and positive addition to HMRC’s armoury. It is likely that large plcs and accounting practices would be keen to demonstrate to the outside world that they have exemplary tax processes and co-operate with HMRC. It would be a badge of honour to be on such a list, and that would encourage a culture of tax compliance. If the Government are not already doing so, we urge them to consider such proposals.

Peter Bone (Conservative, Wellingborough)

I just want to go over a case from a few years ago, when I was advising a client—it was at the time of Customs and Excise, and before the combined service was created—who had taken advice on the treatment of their turnover, which was partly overseas. They had followed that advice to the letter, but some years later, a different VAT inspector said that they were wrong and that they had been deceiving Customs and Excise, which proposed not only recovery of the VAT, but penalties. The new procedure benefited my client, who became entitled to a repayment overall. In their case, it was acceptable to say, “We’ve done it wrong, we’ll accept penalties and, when we recalculate it, we’ll actually get a refund of VAT.” They were lucky. However, the managing director was livid because he had followed the advice of the original VAT inspector and was absolutely certain that he had done nothing deliberately wrong.

I always advise my clients to accept any liabilities and penalties, because the cost to the business of fighting them is far more than any penalty imposed. If someone overcomes that hurdle and says that they want to fight a case, the Revenue will name and shame, whereas if someone agrees that they have done something wrong, the only thing they end up with is a penalty.

I can see the Government’s reasoning, but, in practice, I believe that more people will accept that they have done something wrong when they have not, and that they will not test the case, because being named and shamed will do enormous damage to their business. I understand what the Government are trying to do, but there are some practical difficulties.

Sarah McCarthy-Fry (Labour, Portsmouth North)

It has been an interesting debate. On the stand part debate, we regard the clause as necessary and proportionate in relation to the response to serious non-compliance. The clause is carefully targeted and contains robust safeguards. It also sends a clear signal that evading tax is wrong, and will be a deterrent for people who are doing that.

The penalty regimes on which the publication is based were the subject of extensive public consultation, and respondents consistently supported HMRC taking a harder approach towards those who have deliberately flouted the rules. HMRC has already met with interested external representative groups about the publication scheme and will continue to do so up until 1 April 2010 to sort out the practicalities for implementation, including draft guidance. I emphasise that that will be introduced only for any penalties after April 2010.

David Gauke (Conservative, South West Hertfordshire)

I am grateful for what the Minister is saying, but does she not accept that, ideally, the consultation should be done and the guidance should be issued before, and not after, we legislate?

Sarah McCarthy-Fry (Labour, Portsmouth North)

We are talking about a point of principle. A lot of the consultation that we have done has shown that people want HMRC to take a harder approach, and the provision is part of that.

David Gauke (Conservative, South West Hertfordshire)

I am sorry to interrupt the Minister before she has a chance to get going. I accept that the provision is part of a harder approach, but it is a different type of sanction from those previously implemented. I do not disagree that tough penalties are necessary; that is not our concern. This is a new type of penalty and we think that it is justifiable to use it, but, ideally, surely she agrees that, as far as this type of penalty is concerned, one should consult first, rather than produce something out of the blue and then begin the consultation process.

Sarah McCarthy-Fry (Labour, Portsmouth North)

If we as a Government, the Committee and the House agree on a way forward on the issue that will help, and the consultation is ongoing as legislation makes its way through the House, I think that that satisfies our twin aims. We are trying to bring in a harder line while also ensuring that we bring stakeholders with us in the way that it is implemented.

The hon. Member for South-West Hertfordshire asked why, in 2005, the Paymaster General declared her opposition to naming and shaming, but there have been wider changes since 2005 and there is a worldwide move towards more robust regulation and responses to financial misconduct. Our recent reforms of the tax penalty regimes mean that it is now possible to create a scheme in law that is carefully targeted at the most serious offenders, which was one of the Paymaster General’s caveats at the time. As regards the Human Rights Act, I assure the Committee that HMRC has carefully considered all the issues in developing the publications scheme, and believes that it is, as set out in law, necessary and proportionate.

The hon. Gentleman took an extrapolation too far; it is a justifiable interference in the right to privacy to protect the economic well-being of the country and prevent crime, but that refers to the economic well-being of the country at any time. Tax evasion in general is a threat to the economic well-being of the country. We have carefully designed the scheme so that any interference with the right to privacy is kept to an absolute minimum, while still achieving its aims, which is why the law requires published details to be removed after 12 months.

David Gauke (Conservative, South West Hertfordshire)

The Minister is providing helpful clarity. The briefing that we received from CIOT was that the question of privacy did not apply due to the need to protect the economic well-being of the country, but in addition, it said:

“given the current economic climate.”

Can she assure the Committee that there was nothing in the legal advice that focused on the current economic difficulties and the state of the public finances and that this is a general requirement to address tax evasion.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I can certainly confirm to the hon. Gentleman that it is about the general economic picture and is not specific to current economic difficulties. Currently the names of those convicted for deliberate tax defaults are published, but those of people subject to a civil penalty for such defaults remain confidential. We are bringing the publication of the details of those subject to civil penalties for deliberate defaults into line with those convicted in a criminal court.

The hon. Member for Poole asked how many names were likely to be published. The measure is prospective and applies to penalties after 1 April 2010, so it is difficult to say. We expect the number published to be low initially, but it could be up to hundreds each year if people do not change their behaviour as a result of the measure. At this stage I cannot begin to think what the figures per constituency would be.

Robert Syms (Conservative, Poole)

When we talk about published, what do we mean? Do we mean put on the web? How do you remove a name from the web after 12 months? Are we talking about the London Gazette or will there be a press notice every quarter? Can we have a little more information about that please?

Sarah McCarthy-Fry (Labour, Portsmouth North)

We can put such details in the guidance and consult further on them. It will be published in a way that meets the requirements of the legislation, so the names will be removed after 12 months. I take on board the hon. Gentleman’s point.

Brian Binley (Conservative, Northampton South)

As Members of the House we have been subjected to a degree of innuendo that has been translated into an untruth by people out in the big wide world. What is to stop somebody taking the list for a given 12 months and using it for four or five years thereafter to create a situation of fear or of considerable embarrassment for people, when that should not happen? Are there any remedies that a person who has been on the list, but is then taken off might take to prevent that happening?

Sarah McCarthy-Fry (Labour, Portsmouth North)

HMRC will put processes in place to ensure that names and details are removed. We anticipate publishing details on the website quarterly with a press notice. We will remove them from any official publications and from archived press notices. We are not responsible for whether details remain in the public domain in media outside our control, such as newspapers. That also applies to those who have evaded tax deliberately and are subject to the criminal rather than the civil procedure.

Mark Field (Conservative, Cities of London and Westminster)

This is a pretty unsatisfactory state of affairs, as my hon. Friend the Member for Northampton, South points out. It is not simply a matter of having something on a particular website, because information gets transported to blogs and other websites. Other than through an extremely extensive and costly mechanism, it will not be possible to cleanse the entire web of references. Even with not particularly well-known people, a quick Google search will immediately bring up a range of blogs containing such details.

To return to my earlier point, more often than not, wealthy individuals will be able to bring libel cases against newspapers. If such a case is victorious, they will ensure that there is an ongoing cleansing of the web along those lines. For the less well-off, there will be no such safeguards.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I return to the point that we are not responsible for other media. The same applies to those people who have deliberately defrauded and are subject to criminal penalties. That is the same if cases are reported in the media. I think that we have the balance right in pushing this forward. We have the safeguard that the proposal covers only deliberate actions, which we have debated at length. Taxpayers will also have the opportunity not to have their name published if they make a full disclosure. I have explained umpteen safeguards as we have gone through this clause.

Mark Todd (Labour, South Derbyshire)

I am puzzled by the turn of this debate because a large amount of activity through our minor courts ends up in the public domain and is then manipulated and used freely by other people for years to come. Minor county court judgments against people can become widely available. I am not sure why the thrust of this argument applies to this particular circumstance.

Sarah McCarthy-Fry (Labour, Portsmouth North)

I think that we are spending a little too long on this point, given that most people agreed at the beginning that it was a good measure that would help in the fight against fraud and in changing people’s behaviour through deterrence.

David Gauke (Conservative, South West Hertfordshire)

Perhaps I can attempt to answer the point raised by the hon. Member for South Derbyshire. He is right that once something has been published, it is in the public domain. That brings into question the value of subsection (9), which states:

“No information may be published (or continue to be published) after the end of the period of one year beginning with the day on which it is first published.”

Although the information will be taken off the HMRC website, it will be in the public domain. I do not think that that is an enormous deal, but it brings into question whether subsection (9) is a worthwhile safeguard.

Sarah McCarthy-Fry (Labour, Portsmouth North)

It is important because HMRC will take the information off that list. If there is subsequent referral to, that list was for that period of time.

There was a question about refraining from publication when there are security issues. As well as exemptions for those who make full and timely disclosure, HMRC will not publish names in exceptional circumstances in which doing so would not be appropriate. Taxpayers will have an opportunity to make representations.

I got a bit confused over the two conflicting arguments. One was that people would fight on, but not settle. The other was that people would not settle, but fight on. I think that we have sufficient safeguards in the clause to enable taxpayers to go through the appeal procedure, which means that whether their tax disclosure is sufficiently complete and timely to warrant exemption from publication will be subject to appeal to an independent tribunal. That strengthens the taxpayer’s safeguards.

New clause 4 would allow HMRC to publish a list of taxpayers whose record in paying tax and reporting their liability HMRC considers exemplary. I welcome the motives behind the clause and the implicit recognition that publication can affect taxpayer behaviour, whether it be publication of those who are exemplary or those who have deliberately defaulted. In many ways, new clause 4 is a mirror image of new clause 3. I share the view that an exemplary payment and reporting record is something to be encouraged.

Clause 93 reassures taxpayers that there is a level playing field. Under later clauses, we will examine how the Government propose to reform the penalties for late filing and late payment to change the behaviour of those who fall short of this high standard. We will also look at how the Government aim to make it easier for businesses and individuals to pay on time using managed payment plans. HMRC is continually reviewing its relationship with taxpayers, both large and small, to identify what motivates them to file accurately and pay on time, and what changes could be made to improve voluntary compliance.

There are some practical issues in the clause itself, which means that I must resist it today. HMRC consulted on the idea of a tax clearance certificate scheme in June 2007 and in November 2008. Such a scheme is similar to the aim of the new clause: an assurance that the taxpayer is in good standing with HMRC, because of the filing and payment record. I have to say that support for the proposal was lukewarm, with many unsure how the certificate would be used and seeing it as an additional level of bureaucracy. For example, the LITRG in their response said:

“What will such a certificate be needed for? There is little point in introducing a system which lacks purpose, as this simply creates a burden of cost, administration and complexity”.

In addition, we think there would be significant resource implications from the proposal and it might help if I gave the Committee a flavour of these. HMRC receives around 23 million returns each year across all the taxes. It collects around £450 billion, of which around two thirds is paid on time. Based on those figures, HMRC would be faced with a significant burden in potentially publishing the names of the many million taxpayers whose record appears exemplary. Such a lengthy list would be of little benefit to taxpayers if their details were buried away and might not influence the behaviour of others. Employees with simpler affairs, whose tax is all dealt with through PAYE, should, by rights, also be on the list and that would render it meaningless. Furthermore, what would “exemplary” mean in practice? A taxpayer might file their return on time and pay the liability shown on that return, but what if the figures on that return were simply understated? HMRC focuses its resources on high risk cases in order to deter non-compliance. However, it cannot know the risks in all cases and cannot check every return to find out more. Doing so would not only require much greater resources, but would also inconvenience many compliant taxpayers.

Publishing the names of people whom HMRC describes as exemplary, but who are known to others to be otherwise, could have a detrimental impact on voluntary compliance. The clause includes several areas where HMRC would have to exercise discretion: “may publish”, “in their opinion” and “acting in good faith”. As hon. Members know, safeguards have always been a key feature of our work to modernise tax administration. I should have thought that we would need to see some statutory safeguards here. For those reasons, I would resist new clause 4 and ask hon. Members not to press it. However, I repeat that we are sympathetic to the sentiment behind it and we will continue to look at the best way to encourage taxpayers to file and pay on time, and we will keep this suggestion in mind.

David Gauke (Conservative, South West Hertfordshire)

I thank the Minister for her remarks on clause 93 as a whole. I am not sure that she answered the concern about whether more taxpayers will fight on rather than settle. In my remarks, I stated that it could affect behaviour in two different directions. I welcome her comments that the intention of new clause 4 is correct, however, I am not sure that all her objections were particularly strong. There is a case for targeting it towards larger entities, so it would have a beneficial effect in the corporate area rather than on every individual taxpayer. I note her comments that the Government focus on the high-risk areas and do not necessarily dig in to ensure that the information provided is necessarily correct, but of course it is a further sanction available to the Government—loss of gold list status would be something that a large company would be very reluctant to lose.

I acknowledge the point that there is more that can be done on safeguards in primary legislation. I hope that this clause will encourage HMRC to look further on this and to allow a debate to begin on this particular point. As I said, the measure would add value, particularly in dealing with larger companies. When we reach the relevant point, I do not intend to press new clause 4 to a Division—although I think it would be a valuable addition to our armoury. I am pleased that the Minister appears to be suggesting that HMRC and the Treasury will continue to look at the matter.

Clause 94

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 87, in clause 94, page 47, line 11, leave out subsections (2) to (5).

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: amendment 88, in clause 94, page 47, line 19, at end insert—

‘(3A) An order under this section may not—

(a) remove or weaken a safeguard available to a taxpayer, or

(b) increase a penalty or HMRC power.’.

Amendment 61, in clause 94, page 47, line 22, leave out ‘annulment in pursuance of a’ and insert ‘an affirmative’.

Amendment 62, in clause 95, page 48, line 2, leave out subsections (5) to (8).

Amendment 63, in clause 95, page 48, line 4, at end insert—

‘(5A) An order under this section may not—

(a) remove or weaken a safeguard available to a taxpayer, or

(b) increase a penalty or HMRC power.’.

Amendment 64, in clause 95, page 48, line 11, leave out ‘annulment in pursuance of a’ and insert ‘an affirmative’.

Hon. Members may note that amendments 62 to 64 relate to clause 95. However, because they are identical amendments, it seems more convenient to debate them all together.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Mr. Atkinson, for drawing the Committee’s attention to the grouping. That is helpful because essentially the same points are being made. Clause 94 relates to various amendments of the information and inspection powers brought in under schedule 47. Clause 95 relates to the extension of information and inspection powers to further taxes. I am sure that we will discuss briefly the contents of schedule 47 in a moment, but the concern raised by this group of amendments is that both clauses 94 and 95 are Henry VIII clauses that enable primary legislation to be amended by secondary legislation. Such measures are increasingly being used. Those of us who had the pleasure of serving on the Committee that considered the Banking Bill will remember the lengthy debates on that subject. This is perhaps not of a similar scale, but the concern remains the same.

Let us remember the context in which we are debating the Bill: again, it is a matter of balancing the powers of the state with the rights of the individual. That is an issue with which any liberal democracy has to wrestle. Again, I note that the Liberal Democrats are not present while we deal with that issue. When the new regime was brought in under the Finance Act 2008 in the context of information and inspection powers, the matter was debated in some length and in detail. The measure was set out in primary legislation, and rightly so.

In schedules 47 and 48, there are a number of amendments to what we debated in primary legislation. I suspect that we will not be detained for a great length of time in debating these matters, but, none the less, the measure was published in primary legislation and there was an opportunity for outside bodies to examine and comment on it. There is an opportunity for the Committee to give its view on the provisions, but clause 94(2) states that

“The Treasury may by order make any incidental, supplemental, consequential, transitional or transitory provision or saving which appears appropriate in consequence of, or otherwise in connection with, Schedule 36 to FA 2008 or Schedule 47.”

So those matters that we debated carefully last year can now be changed by secondary legislation. The issues that relate to the important balance between the powers of the state and the rights of the individual can now be changed by secondary legislation, and clauses 94 and 95 enable the Government to do so.

We are concerned about that. We do not see why those matters could not be dealt with by future clauses and schedules contained in future Finance Bills, and we therefore suggest a number of amendments. First, I want to look at clause 94, although the same amendments essentially apply to clause 95. Amendment 87 would delete subsections (2) to (5) of clause 94, which deal with this matter altogether. So schedule 47 will remain part of the Bill, but the power given to the Treasury to amend primary legislation by secondary legislation would be struck out.

If the Government can make a strong case against amendment 87, amendment 88 is more difficult for them to oppose. It would provide a safeguard in the Bill that

“An order under this section may not—

(a) remove or weaken a safeguard available to a taxpayer, or

(b) increase a penalty or HMRC power.”

I believe that that is the Government’s intention in this area, or at least as far as these orders are concerned. Perhaps some sort of reassurance to the Committee would be helpful. None the less, amendment 88 would at least provide some safeguard from misuse of clause 94.

Amendment 61 states that any statutory instrument in this area should be subject to an affirmative resolution as opposed to the negative procedure, which it is envisaged will apply. Essentially the same amendment applies to clause 95. Amendments 62 to 64 relate to the extension of information and inspection powers to further taxes.

It is incumbent upon the Minister to explain why it is necessary to have clause 94. What do the Government have in mind? Why can the matter not be dealt with in primary legislation? What scrutiny will exist as far as these provisions are concerned? I can see that there is an argument for administrative convenience. However, given that we are talking about quite important powers that HMRC may have and that potentially there will be a loss of some safeguards for the individual, we are reluctant to allow clauses 94 and 95 to remain unamended. We look forward to hearing the Minister’s comments.

Ian Pearson (Labour, Dudley South)

I was deeply disappointed not to be able to contribute to this morning’s proceedings, Mr. Atkinson, so it is a great pleasure that I can serve under your wise suzerainty this afternoon. As you rightly point out, the group of amendments relates to clauses 94 and 95, which introduce schedules 47 and 48 respectively.

As the hon. Member for South-West Hertfordshire indicated, the group of amendments also relate to the powers introduced in schedule 36 to the Finance Act 2008. As he also rightly pointed out, those powers are part of a package of measures to align and modernise the various powers, deterrents and safeguards inherited by HMRC from the former Inland Revenue and Her Majesty’s Customs and Excise. We had a significant debate last year on these matters.

The powers in schedule 36 allow HMRC to check if the right tax has been paid or claimed in respect of VAT, income tax, capital gains tax and corporation tax. They came into force on 1 April.

It is right to say that last year’s debate focused on the need for proper safeguards. I believe that that debate was invaluable as it directed HMRC to the key issues that needed to be addressed in the guidance to staff. In turn, that has helped to ensure that the powers can be used appropriately and proportionately. I can report to the Committee that that guidance, along with associated training information, has now been published, following consultation with key stakeholders.

What we are trying to do as a Government is to ensure that there is a balanced approach to the way in which HMRC uses these powers. That approach has been warmly welcomed and I want to put on record my appreciation and that of the Chancellor and the Financial Secretary to those who have helped HMRC to develop it.

Both clauses contain a provision to make Treasury orders and consequentially to amend other legislation as a result of the powers in schedule 36. The intention is to repeal existing information and inspection powers when schedule 36 can be used instead, and to make other consequential amendments to avoid leaving overlapping powers in place. The hon. Gentleman said that these are Henry VIII powers, and I think he was referring to our debates on clause 75 of what was then the Banking Bill. Clearly, we are discussing something of a different order here.

Mark Field (Conservative, Cities of London and Westminster)

The Economic Secretary referred to repealing. Does he mean simply repealing, or is there a suggestion that something in the clause could enact, by secondary legislation or otherwise, new offences under which taxpayers, whether errant or otherwise, could find themselves falling foul of the law?

Ian Pearson (Labour, Dudley South)

I will cover those points as I discuss the amendments.

Amendment 87 would omit from the clause the whole of subsections 2 to 5, which contain the provisions to make incidental, consequential or transitional changes by Treasury order. That would mean leaving the legislation unclear and prevent a significant number of repeals. We do not believe that that would be right. The orders proposed under clauses 94 and 95 will enable the repeal of more than 30 pages of legislation containing powers that are no longer required. We believe that it is a good thing to repeal them.

Amendment 88 would insert provisions to ensure that an order under clause 94 would not remove or weaken safeguards or increase a penalty or HMRC power. I appreciate that it is a probing amendment, and I assure the Committee that the Treasury order provisions merely allow the repeal of legislation that is made redundant by the powers in the provisions, and consequentially to amend legislation as a result of those repeals or to take account of powers in schedule 36 to the Finance Act 2008, as amended by schedule 47 to the Bill. They will also ensure transitional arrangements for those repeals. Given the nature and scale of the changes, the broader power of amendment is needed to facilitate accurate consequential amendments to untangle a lot of old and complex tax legislation. I assure the Committee that orders will not be used to alter safeguards or the powers. Drafts of the proposed orders under clauses 94 and 95 are before the Committee and show that to be the case.

Amendment 61 would call for the provision to make orders under the affirmative procedure consequently to amend existing legislation and to repeal information powers that are no longer needed. The Opposition often raise that as a debating point. To make orders under the affirmative procedure would be contrary to normal practice for orders covering tax matters, which are usually made under the negative procedure. The consequential, transitional and incidental changes to be made under Treasury order, even to primary legislation, do not involve changes in policy and are simply tidying up, but they are essential to ensure that the law is clear. We believe that the negative procedure is appropriate because of the narrow scope and effect of the consequential changes that will be required, so there seems to be no sensible reason to make an exception to normal practice.

Amendments 62 to 64 would amend clause 95 in the same way as amendments 87, 88 and 61 would amend clause 96. The same reasons for resisting those amendments apply, and I invite hon. Members to resist them if they are pressed to a vote. It is important that, in clauses 94 and 95 and the associated schedules, we have an effective way of employing our tax legislation in this area. We have listened, and learned from the operation of schedule 36. We believe that we have the legislation right and that the proposed amendments are unnecessary.

David Gauke (Conservative, South West Hertfordshire)

I thank the Minister for his response. I note his comments that wanting to use the affirmative procedure is a point that Oppositions frequently make and that Governments equally frequently reject. I dare say that we may have that debate again at some point—perhaps with the parties taking different views.

The assurances the Minister has given the Committee have been clear. If there was an attempt to use the provisions contained in clauses 94 and 95 in anything other than the manner in which the power was used to appeal existing provisions to provide transitional rules and very minor consequential rules, the Minister would be in great difficulty, because his wording is very clear. I wonder why the provisions could not be more narrowly defined. Clause 94(2) is still pretty broad, and the protection contained in the Bill is fairly minor. None the less, every time such a clause is presented to a Public Bill Committee, it is valuable to highlight such matters and Ministers should be forced to give the kind of assurance that we have heard today. On the strength of that, I beg the Committee’s leave to withdraw the amendment.

Schedule 47

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 66, in schedule 47, page 345, line 35, leave out sub-paragraph (5).

I have only a very brief point to make. Concern was raised with us that new paragraph 21(9) in schedule 36 to the Finance Act 2008, inserted by schedule 47 to the Bill, is somewhat vague and adds nothing to the law. It states:

“In this paragraph, references to the person who made the return are only to that person in the capacity in which the return was made.”

Will the Minister explain what the wording is designed to do?

Ian Pearson (Labour, Dudley South)

The amendment would remove paragraph 9(5) of schedule 47, which inserts a new sub-paragraph in paragraph 21 of schedule 36 to the 2008 Act. Paragraph 21 provided specific rules on how the information powers could be used in cases in which a self-assessment return had been submitted. The new sub-paragraph clarifies that the specific rules apply only in relation to checking the person’s tax position in the capacity in which the tax return was made.

The provision is needed as there are people who are responsible for making returns in more than just their own personal capacity—an example is a trustee who has filed a trust return, but has not filed their own personal return. As a result of the new sub-paragraph that the amendment seeks to remove, the legislation would not prevent HMRC from issuing a taxpayer information notice in relation to the individual’s personal tax position. It would be wrong to leave the legislation so that the way in which one return could be treated was affected by the filing of another, unrelated, return. Without that provision, the legislation in schedule 36 would not work as originally intended and would remain unclear. The provision is concise, clear and helpful and should not be omitted.

It might help the hon. Member for South-West Hertfordshire and those who follow these proceedings closely if I explain that we are concerned only about cases where someone is required to make more than one tax return in different capacities. For example, the situation of an agent who submits tax returns for several clients would not be affected by the provision. I hope that is helpful, given the probing nature of the hon. Gentleman’s amendment, in explaining why we need the power.

David Gauke (Conservative, South West Hertfordshire)

I am grateful to the Minister for that response and beg to ask leave to withdraw amendment 66.

Ian Pearson (Labour, Dudley South)

I beg to move amendment 306, in schedule 47, page 348, line 11, leave out from ‘person’ to ‘the’ in line 13 and insert ‘if—

(a) it appears to an officer of Revenue and Customs that a counteraction provision may apply to the person by reason of one or more transactions, and

(b) ’.

The amendment is purely technical and corrects a drafting error in paragraph 12 of schedule 47. I could speak to it in more detail if hon. Members have questions but, in the light of its technical nature, I do not feel compelled to do so.

Schedule 48

David Gauke (Conservative, South West Hertfordshire)

The schedule deals with the extension of information and inspection powers to further taxes. My question relates to paragraph 5, which deals with the powers to inspect property for valuation. That is clearly a sensitive area, in that under those powers HMRC officers may enter private premises, accompanied by

“any person who...is needed to assist with the valuation”.

The safeguards are that an inspection can only be carried out with the agreement of the occupier, who has been given notice of the inspection in writing; or with the consent of the tax tribunal, when the occupier must still be given seven days’ notice in writing. I ask the Minister whether those safeguards are sufficiently robust, given that the power enables HMRC to enter a person’s private residence.

In particular, I put to the Minister concerns raised with us that there should be a specific right for the recipient of the notice to be heard by a tribunal, if he or she wishes to object to access to the private premises. I also ask whether there should be a specific right of appeal in this area. It is a sensitive matter, as is always the case when the authorities are allowed access to private premises. I would be grateful if the Minister let the Committee know what representations he has received and whether any consideration has been given to additional safeguards.

Ian Pearson (Labour, Dudley South)

The hon. Gentleman is right to say that the schedule contains a power to enter property for valuation purposes, which rationalises and aligns several existing powers. Schedule 36 of the Finance Act 2008 gives a power to enter and inspect business premises. However, it can be necessary in specific circumstances to value private premises or the assets on those premises. For example, the valuation of all types of property is an essential form of check for inheritance tax. The aligned valuation power contains significant extra safeguards that go beyond the current legislation. The legislation will now specify that valuation inspections can be carried out only with the agreement of the relevant person or the tribunal. The ability to visit unannounced has been removed. I am happy to clarify that.

During the consultation, the majority of proposals in the schedule were welcomed. Some respondents were concerned, however, that the involved third party power could be applied more widely; for example, to the beneficiaries of someone who had died. I can give reassurance that that is not the case. Specifying in primary legislation precisely where the power can be used means that if HMRC did wish to extend its scope, proposals would need to come before Parliament. I am happy to respond on that point.

Many respondents to the consultation noted the difference between inheritance tax and mainstream taxes. We accepted that and have removed the proposal for a record-keeping requirement for inheritance tax, which I know has been a bone of contention. That means that records created or kept solely for inheritance tax purposes will not be capable of being inspected. That has allowed us to respond to concerns that inspection visits might have been made to the vulnerable or bereaved at short notice. The schedule provides rights of appeal against information requests and flexibility for any part of the outstanding lifetime estate to be dealt with alongside the inheritance tax issues using the same legislation.

In general, the safeguards are much stronger. Powers already exist to ensure that there are safeguards to protect the taxpayer from misuse of the valuation power. All valuation visits to which the occupier does not agree will have to be authorised by the independent tribunal, which will ensure that the power is used only when it is necessary and proportionate to do so. I do not believe that a further appeal process is needed as we already have an independent tribunal that will have authorised the visit in the first place. I believe that we have gone a long way towards addressing all the concerns of respondents to the consultation.

Schedule 49

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 67, in schedule 49, page 358, line 50, at end insert—

‘(ba) Revenue and Customs has used all reasonable efforts to ascertain contact details of the debtor’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss the following: amendment 68, in schedule 49, page 359, line 24, at end insert

‘such period being not less than 30 days from the date of the notice.’.

Amendment 69, in schedule 49, page 359, line 27, after ‘it’, insert

‘does not have the information or that it’.

Amendment 70, in schedule 49, page 360, line 22, at end insert—

David Gauke (Conservative, South West Hertfordshire)

The schedule relates to HMRC’s powers to obtain contact details for debtors. I shall run through the amendments standing in my name and those of my hon. Friends.

Amendment 67 deals with the requirements relating to when a Revenue and Customs officer may reasonably request contact details for a debtor from a third party for the purpose of collecting a sum. It would simply require that Revenue and Customs must first use all reasonable efforts to ascertain the contact details of the debtor. In other words, it should check the information that it currently has. It is unreasonable for HMRC as a matter of course, as the first port of call, to go to a third party to ask for information which it may have. The amendment would simply require it to check its information first.

Amendment 68 relates to the requirements to comply with notices. Paragraph 3 of the schedule currently states:

“If a notice is given to the third party under this Schedule, the third party must provide the details—

(a) within such period, and

(b) at such time, by such means and in such form (if any),

as is reasonably specified or described in the notice.”

We simply want a little clarity on the duration of that period by proposing a minimum period of 30 days from the date of the notice. It would be helpful if the Minister outlined what the Government have in mind for the duration of that period, but 30 days is not an unreasonable amount of time to respond to the notices.

Amendment 69 probes the grounds for a right to appeal. At the moment, such a right exists if it would be

“unduly onerous to comply with the notice or requirement.”

The amendment suggests that an additional ground should be stated explicitly—that the third party does not have the information. One could argue that if one does not have the information, compliance would be “unduly onerous”, in which case the amendment is unnecessary. The amendment might, however, provide a degree of clarity for third parties that receive such notices.

Amendment 70 would provide some protection for a third party that provides information to Revenue and Customs as a consequence of the powers contained in the schedule and that runs into difficulties with data protection legislation. The Minister may well be able to provide some reassurance that the amendment is unnecessary. We would welcome some reassurance that any third party acting in accordance with the provisions of the schedule would not face any data protection difficulties.

We have one other concern in relation to the schedule that I would like to put to the Minister. I should be grateful for your guidance, Mr. Atkinson, on whether I should mention it now or during the stand part debate. It is a brief point, and it might be to the convenience of the Committee if I address it now.

Peter Atkinson (Conservative, Hexham)

I believe that others wish to speak, so it would be more convenient to save your point for the stand part debate.

David Gauke (Conservative, South West Hertfordshire)

Thank you, Mr. Atkinson.

Ian Pearson (Labour, Dudley South)

I hope to be able to provide the assurances and clarification that the hon. Gentleman seeks. Amendment 67 would require HMRC to make all reasonable efforts to trace a debtor before using the formal power. I assure the Committee that HMRC will use that power only as a last resort in the most difficult cases, where it considers that all relevant checks have been made. For its own reasons of cost-efficiency and making progress, HMRC will make reasonable efforts from within its own resources, including the use of commercial products and informal requests, before concluding that there is no way forward other than to issue a formal notice. That is set out in HMRC’s guidance, which has been published in draft form and supplied to the Committee. I therefore do not consider it is necessary to legislate on that matter.

Amendment 68 would put in statute a period of 30 days for the third party to comply. Again, for clarification, we recognise that that is a reasonable point to make, but I believe that it can be safely left to guidance. HMRC has published draft guidance stating that it will usually allow not less than 30 days for a reply. Although in most cases, 30 days would be long enough to provide simple information, such as an address that differs from that on a notice, in exceptional cases a longer or shorter period might be appropriate. HMRC wants the information, not the penalties, and will be open to representations to extend the period if particular requests cause difficulty. Leaving the time period in guidance is in line with schedule 36 to the Finance Act 2006, which operates in a similar way.

The probing amendment, 69, would allow the third party to appeal on the grounds that it does not have the information sought by HMRC. There is no need to appeal. Confirmation by the third party that it holds no contact details that differ from those provided by HMRC is enough to satisfy the notice. Again, that is set out in the draft guidance published by HMRC.

Brian Binley (Conservative, Northampton South)

I am concerned about vulnerable people who could be approached by the Inland Revenue for information. Will the Bill give leeway to the Department, for example in a situation in which an 80-year-old mother is the third party? Will there be some compassion over the whole business of application? What guidelines will be given to achieve that?

Ian Pearson (Labour, Dudley South)

We have published extensive guidance through HMRC. HMRC tries to act compassionately in cases such as the hon. Gentleman describes. It is unlikely that an 80-year-old woman will have information that HMRC cannot secure through other means, but if she did, every effort would be made to secure that information in an appropriate way. We want the information, not the penalties. We want to work with people and believe that the system will be voluntary. The third parties that have such information are not likely to be 80-year-old women, but banks, other financial institutions, tax agents, landlords, letting agents and other professionals. There might be an octogenarian letting agent, but such circumstances will be rare.

I understand that third parties will want assurance that in providing the contact details, they will not be liable for the disclosure under data protection law. I do not consider that amendment 70 is necessary to achieve that. The clause will create the lawful means by which third parties can provide information to HMRC. The Data Protection Act 1998 states that when disclosing personal data, it must be lawful and fair to do so. This provision will provide that lawfulness.

HMRC considered statutory protection for the third party carefully in development and concluded that no further protection was needed. That view is supported by the Information Commissioner’s office, whose website includes published guidance on dealing with requests under tax legislation. It states that

“if you are required to disclose personal information under HMRC legislation, it will not breach the Act”,

meaning the 1998 Act. There is no comparable provision in other HMRC information powers and that has not caused problems to date. Many organisations already provide such information voluntarily when asked to do so. I am sure that they will continue to do so.

I recognise that the amendments are probing and hope that my assurances and clarifications will enable the hon. Member for South-West Hertfordshire to not press them.

David Gauke (Conservative, South West Hertfordshire)

The Minister is right that the amendments are probing. I am grateful for his responses and I beg to ask leave to withdraw the amendment.

Alison Seabeck (Labour, Plymouth, Devonport)

It is a pleasure to speak for the first time under your chairmanship, Mr. Atkinson.

I have a brief query for the Minister to do with how the schedule relates to the Child Support Agency. It touches on the point made by the hon. Member for Northampton, South. The guidance suggests that Departments, friends, neighbours and relatives do not fall within the power, but where does the CSA come in all this? It is moving to a position where private contractors will do a lot of its work and debt collection, but it clearly holds an awful of information that would be of use to HMRC. I would welcome my hon. Friend the Minister’s advice on where the CSA sits and whether HMRC can use the information the CSA holds and its expertise to pursue debt.

David Gauke (Conservative, South West Hertfordshire)

It is a pleasure to follow the hon. Member for Plymouth, Devonport. May I make a not entirely dissimilar point? Paragraph 1(3) states:

“This Schedule does not apply if—

(a) the third party is a charity and obtained the details in the course of providing services free of charge, or

(b) the third party is not a charity but obtained the details in the course of providing services on behalf of a charity that are free of charge to the recipient of the service.”

As the hon. Lady rightly points out, there are similar provisions in relation to local authorities.

I should be grateful to hear what the situation is for those who are part of a non-charity not-for-profit organisation that provides assistance to people. One can envisage that certain organisations that might fall within that definition could well find themselves not receiving the protection contained in paragraphs 1(3) and 1(2). Has any consideration been given to broadening out the measure, for example, to volunteers who work for a local authority or non-charity not-for-profit organisation? In addition, has any consideration been given to extending that carve-out along similar lines to those suggested by the hon. Lady? Will the carve-out be too narrowly defined for some of the circumstances that could apply?

Ian Pearson (Labour, Dudley South)

I thank my hon. Friend the Member for Plymouth, Devonport for her comments. In general, HMRC can obtain information from other Departments under the appropriate information gateways. The terms of those obviously vary, but HMRC will make use of such gateways before considering using this power. That could apply to the Child Support Agency, but I do not think that it necessarily applies under this specific clause. However, the Child Support Agency should be able to provide information to HMRC if it is needed for HMRC to perform its duties.

The hon. Member for South-West Hertfordshire raised the issue of whether charities should be excluded. Charities are excluded where they obtained the contact details in the course of giving free advice to the debtor. The exclusion also protects those who staff helplines on behalf of the charity, even if they are carrying on business elsewhere. The power will not be widely available and will be used only by specialist staff in the most worthwhile cases. HMRC will use the power only if there is or has been a business relationship between the debtor and the third party. I hope that clarifies the point for the hon. Gentleman. He also raised a point specifically about local government employees, and I think that might well depend on whether there is a business relationship.

David Gauke (Conservative, South West Hertfordshire)

I am concerned about the matter more in the context of not-for-profit organisations that might not be a charity, rather than in relation to charities. They do not appear to benefit from the protection contained in paragraph 1(3) and, indeed, I am not sure whether volunteers working for a local authority benefit from the protection contained in paragraph 1(2). Will the Minister say something specifically about that?

Ian Pearson (Labour, Dudley South)

My understanding of the policy intention is that there should be a business relationship between the debtor and the third party. That is unlikely to be the case for not-for-profit advice given on the types of case that the hon. Gentleman is talking about. I give an assurance that HMRC will treat voluntary bodies that acquire addresses in the course of providing free advice to the debtor alike, whether they are a charity or otherwise. I hope that provides the reassurances that he seeks.

Brian Binley (Conservative, Northampton South)

May I press the Minister a little further?

Ian Pearson (Labour, Dudley South)

No; I have sat down.

Brian Binley (Conservative, Northampton South)

What a pity.

Peter Atkinson (Conservative, Hexham)

If the hon. Gentleman wants to speak in the debate, he can.

Brian Binley (Conservative, Northampton South)

No thank you, Mr. Atkinson.

Schedule 52

David Gauke (Conservative, South West Hertfordshire)

I beg to move amendment 71, in schedule 52, page 377, line 23, leave out ‘, or ought reasonably to have known,’.

Let me say first that this schedule addresses the recovery of overpaid tax. Amendment 71 deals with those circumstances where the commissioners are not liable to give effect to a claim if particular circumstances apply; there is a list of those circumstances in the Bill. Specifically, amendment 71 relates to cases where the claimant

“could have sought relief by taking such steps within a period that has now expired, and knew, or ought reasonably to have known, before the end of that period that such relief was available.”

The particular words that we have concern with are:

“or ought reasonably to have known”.

Essentially, this is an objective test that may exclude from claims those taxpayers who should have realised that they had an opportunity to act but did not do so. Consequently, the people most likely to be affected by this particular provision are the less sophisticated and unadvised. They may well be caught by this restriction and would therefore not be able to recover overpaid tax. I would be grateful if the Minister explained why that is justifiable. For the sake of completeness, the “ought reasonably have known” test applies in one other place in this schedule—in paragraph 2(6). I will turn to that in a brief stand part debate, but I would be grateful if the Minister explained the purpose of the objective test in these circumstances.

Sarah McCarthy-Fry (Labour, Portsmouth North)

The provisions are intended to provide a final opportunity for taxpayers to reclaim overpaid tax. They modernise a system originally enacted in 1923, which has increasingly been criticised by the courts as anachronistic and inconsistent with a rights-based culture. The provisions simplify the recovery of overpaid income tax, capital gains tax and corporation tax by providing taxpayers with a single route of claim. Claims will be possible only if no other statutory steps can be taken to reclaim an overpayment. External commentators have recognised that that is an area of law that would benefit from clarification. The proposed changes have been exposed informally to external stakeholders, who responded positively to them.

Amendment 71 would widen the scope for taxpayers to make claims still further by relaxing the restrictions relating to matters that the claimant could have appealed. However, taxpayers are already entitled to make a late appeal if they have a reasonable excuse for not having appealed within the normal time limit. The tribunal also has discretion to permit a late appeal when it is fair and reasonable to do so, and HMRC has discretion to allow late claims, elections and notices when appropriate, and to give full effect to the consequences of the claim. The amendment would enable taxpayers to reopen a matter that could have been dealt with on appeal, when they do not have a reasonable excuse for failing to appeal in time and when the tribunal does not consider it fair and reasonable to allow a late appeal. The amendment goes too far and would compromise the effectiveness of the appeal process as a means of determining disputes, so I ask the hon. Gentleman to withdraw it.

David Gauke (Conservative, South West Hertfordshire)

I note the Exchequer Secretary’s comments on the appeal process when a taxpayer has a reasonable excuse. That provides some comfort, but there is concern with such a test—we have seen it elsewhere—that it may leave the unadvised, least sophisticated taxpayer in a difficult position. I am sure that the Government and HMRC are aware of that, and that it is a legitimate concern to raise. I accept the point about the practical difficulties if the exclusion were widened too much, and I beg to ask leave to withdraw the amendment.

David Gauke (Conservative, South West Hertfordshire)

I want to highlight two other areas where the commissioners are not liable to give effect to claims. One is paragraph 2(6) of new schedule 1AB to the Taxes Management Act 1970, which is another occasion when the “ought reasonably to have known” test applies. The other is paragraph 2(7), which requires a little clarity, and refers to case F, which

“is where the amount in question was paid or is liable to be paid—

(a) in consequence of proceedings enforcing the payment of that amount brought against the claimant by”

HMRC, or

(b) in accordance with an agreement between the claimant and”

HMRC

“settling such proceedings.”

I think that seeks to prevent claims from being made when HMRC has begun proceedings to recover tax debts—for example, when tax was due under self-assessment. We have been advised that that is likely to have quite a wide effect, and that quite a large number of taxpayers will be excluded as a consequence of the provision. I should be grateful to hear from the Minister whether that interpretation is correct, and whether this is quite a significant carve-out.

Sarah McCarthy-Fry (Labour, Portsmouth North)

As I said, the schedule changes the error or mistake rules for repayment of overpaid income tax, capital gains tax and corporation tax. Error or mistake relief is intended to provide a final opportunity for taxpayers to reclaim overpaid tax. The changes modernise the system and simplify the recovery of overpaid income tax, capital gains tax and corporation tax. The provisions widen the relief, and the requirement that the tax must have been paid on the assessment as a result of a mistake on a return is removed. Claims will not be possible unless there are no other statutory steps that can be taken to reclaim an overpayment. Taxpayers’ safeguards are improved, and aligned more closely with the indirect tax error correction provisions, which cuts burdens for taxpayers and HMRC.

After a transitional period to enable claims to be made under the previous regime, the changes will apply to claims made on or after 1 April 2010 and repayment claims will be subject to the ordinary four-year time limit. As I said earlier, the proposed changes have been exposed informally to external stakeholders, who responded positively.

The hon. Member for South-West Hertfordshire asked a specific question that I do not have the answer to, but I am more than happy to write to him.

Clause 100

David Gauke (Conservative, South West Hertfordshire)

I have a question about subsection (9), which states:

“For the purposes of this section any reference to the payment of an amount to HMRC includes a reference to its being set off against an amount payable by HMRC (and, accordingly, the reference to the date on which an amount is paid includes a reference to the date from which the set-off takes effect).”

How will interest be assessed when setting off? If the amount is to be treated as paid when the offset takes effect, it appears that if HMRC delays making the set-off, the taxpayer may incur an additional interest charge because of the differential in the interest rates that apply. When the taxpayer owes money, a higher interest rate applies than when HMRC owes money to the taxpayer. Consequently, if there is a delay in the date of setting off, it is to the financial advantage of HMRC and, correspondingly, to the financial disadvantage of the taxpayer. The concern has been put to us that subsection (9) gives HMRC more flexibility than it should have in determining the date on which the set-off takes effect. I should be grateful for the Minister’s assurance that the clause will not be used to leave taxpayers out of pocket.

Sarah McCarthy-Fry (Labour, Portsmouth North)

In the Finance Act 2008, the Government introduced legislation covering the set-off of sums that HMRC must repay against debts it is owed. Setting off reduces the administrative cost to both parties by cutting down the number of unnecessary transactions. A creditor’s right to set off mutual debts is founded in common law and enshrined for HMRC taxes in section 130 of the Finance Act 2008. Under common law, such liabilities are not discharged until payment is made, whether by circulation of actual cash or cheques, or by an appropriate adjustment in the creditor’s books. Clause 100 sets out clearly that both late payment and repayment interest runs until the amount is repaid and the date of payment is the date on which any set-off takes effect. I assure the hon. Member for South-West Hertfordshire that HMRC always seeks to make repayments promptly.

Clause 102

David Gauke (Conservative, South West Hertfordshire)

I rise not merely to note that we have managed to make it into triple figures, but to ask the Minister a question that relates to the issue of differential rates that I raised under clause 100. As I understand it, those who owe money to HMRC pay a higher rate of interest than HMRC pays taxpayers to whom it owes money. Does the Minister have any figures on the benefit to the Exchequer of those differential rates? What is the policy on interest rates here? In a period in which interest rates are low, has any consideration been given to setting a minimum interest rate for taxpayers owed sums of money, and where does the Exchequer Secretary see the policy on interest rates going forward?

Sarah McCarthy-Fry (Labour, Portsmouth North)

The clause is a further part of the package of provisions that will create a new harmonised interest rate regime. It creates the vires for secondary legislation to be made that will set the rates of interest to be charged and paid under the new regime. Regulations will provide for a harmonised interest rate that is aligned across the taxes and offers both transparency and consistency in approach. Government estimates of the potential difference between what is currently charged and paid and future amounts under the new regimes show a negligible difference in the years scored until 2012-13. The aim is not to raise revenue but to offer a regime that is based on recompense, fairness and simplicity.

The regulations will also provide for rates that will apply to interest charged on late-paid taxes and paid on overpayments. The rates themselves will track all changes in the Bank of England base rate, with one rate charged on late-paid taxes and a further rate paid on overpayments. Rate changes will apply 13 days after any rate changes announced by the Monetary Policy Committee, to allow for systems to be updated with the new rate. The two rates will apply to all taxes with the exception of those companies paying under the quarterly instalment payments arrangements, which will continue to have their own rates. Basing the harmonised interest rates on the Bank of England base rate was warmly welcomed by respondents to the consultation process as it offered a transparent basis for setting the rate that could be clearly understood by taxpayers. Regulations will also provide for the setting of a repayment interest floor of 0.5 per cent. That is intended to ensure that even when the Bank of England base rate reaches zero, the rate of repayment interest paid by HMRC will never reach zero.

The Government also intend to make regulations under existing powers that mirror the new harmonised rates, following Royal Assent, in order to align existing rates until full harmonisation of the regimes begins. The clause forms an important part of the provisions needed to introduce a new harmonised interest regime that will bring benefits to taxpayers, their advisers and HMRC. The clause itself will provide for rates that are set in a transparent way, are clearly based on recompense and are fair and simple to understand.

Clause 104

Sarah McCarthy-Fry (Labour, Portsmouth North)

I beg to move amendment 307, in clause 104, page 52, line 17, at end insert—

‘( ) In the following provisions, for the words from “the same rate” to the end substitute “the rate applicable under section 178 of the Finance Act 1989”—

(a) section 48(1) of FA 1975 (interest on repayment of estate duty), and

(b) section 235(1) of IHTA 1984 (interest on overpaid inheritance tax).

( ) In section 178(2) of FA 1989 (setting of rates of interest)—

(a) after paragraph (g) insert—

“(ga) section 48(1) of the Finance Act 1975,”, and

(b) in paragraph (k), after “sections 233” insert “, 235(1)”.’.

This amendment and the clause to which it relates make changes to the existing interest regime, setting the scene for the long-term introduction of interest harmonisation. Subsections (1) to (3) bring the due dates for the withdrawal of any income tax relief under the enterprise investment scheme in line with the due date for income tax. The removal of that difference will provide greater consistency and certainty for taxpayers.

Amendment 307 introduces two new subsections to this clause after subsection (3). The amendment is required to ensure that interest is charged and paid on estate duty and inheritance tax at the same rates as interest for other taxes. We announced at Budget 2009 our intention to align interest rates where interest is currently charged and paid, with a differential between the rate charged and paid, after the Bill receives Royal Assent.

However, the existing legislation provides that repayment interest for inheritance taxes should be paid at the same rate as interest charged on late payments. The amendment removes that anomaly and will ensure that rates charged and paid can be harmonised across taxes. Those responding to the consultation on the new interest harmonisation proposals were in favour of harmonising rates across taxes and the majority also recognised the need to have a differential between the rate charged and paid.

These changes reflect the same principles used for interest harmonisation and as such provide recompense, fairness and simplicity. I urge the Committee to accept the amendment.

Clause 105

David Gauke (Conservative, South West Hertfordshire)

I rise to speak to clause 105 but it could be clause 106 because my question relates to their interaction. A penalty is chargeable for both failure to make a return, under clause 105, and failure to pay tax, under clause 106. Concern has been put to us that there is an issue of double charging in a failure to make a return and failure to pay tax due on the same return. This point was considered during consultation, with HMRC concluding that two distinct penalties are required in order to encourage both payment and filing on time. It appears, however, that there is scope for taxpayers to be charged penalties of more than 100 per cent. of the tax due, in the event that a return is not filed within 12 months and payment is delayed by the same period.

The concern is that this will impact most significantly on the unrepresented taxpayer who is not aware of his obligations. I know that HMRC has indicated in consultation that work is ongoing to ensure education and support for those taxpayers but there are no safeguards in the Bill. I would be grateful if the Economic Secretary reassured the Committee about how these two separate penalties—for late filing and late payment—will interact. I also ask him, with regard to clauses 105 and 106, to say a word or two about implementation of the regime. I understand that HMRC has indicated in consultation that the regime will be introduced by statutory instrument on a staged basis, with the first area to be addressed being late returns and late payment of PAYE through the year. The intention is that it will be applied to the worst offenders first, on a risk-assessment basis. There is no provision in the legislation to enable such an approach to be taken. Clearly, HMRC has not laid out its approach in primary legislation, but perhaps the Minister might say a word or two about how the provisions made under clauses 105 and 106 are to be implemented.

Ian Pearson (Labour, Dudley South)

The clause introduces schedule 55, which provides for penalties for late filing of tax returns. I appreciate the point raised by the hon. Member for South-West Hertfordshire and the fact that he might have raised it under clause 105 or 106, or perhaps at other opportunities. It enables the Treasury to make an order to bring into force the whole schedule or parts of the schedule for specified circumstances. It also allows the Treasury to make incidental, supplemental, consequential, transitional, transitory or saving provisions by order, as appropriate, to give proper effect to the schedule. The hon. Gentleman asked about the interaction of penalties in the Bill. Any tax-geared penalty is reduced by any other tax-geared penalty charged by reference to the same amount of tax.

Safeguards outlined in the legislation include a right of appeal to an internal review and an independent tribunal against all penalties; a common legislative formulation of reasonable excuse, aligned across taxes, which is similar to that devised for penalties in the Finance Act 2008; provision in law for reduction of penalties in special circumstances not otherwise covered; and improved accessibility to appeals by specifically ensuring that penalties do not need to be paid in advance of any hearing.

The hon. Gentleman also raised the question about implementation and why it is not in the Bill. As he is aware, these are major changes which we believe are most appropriately introduced sequentially. He referred to the fact that we will take a risk-based approach. Implementation does need to consider HMRC’s capacity and resource issues. Also, introducing change too quickly for taxpayers and their advisers could be problematic. We want to make progress, and the hon. Gentleman will be aware of the broader package of reforms that are being introduced. We think that we are getting the balance right in this area. If he has any further points that he wants to make on the schedule or on clause 106, I will happily address them.

Schedule 55

Ian Pearson (Labour, Dudley South)

I beg to move amendment 308, in schedule 55, page 400, line 30, after ‘P’, insert ‘first’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss Government amendments 309 to 311.

Ian Pearson (Labour, Dudley South)

Amendments 308 to 311 relate to paragraph 13 of schedule 55, which provides for fixed sum penalties incurred by persons who fail to make a first construction industry scheme return by the due date to be capped at £3,000. The purpose of the cap is to prevent disproportionate results from an accumulation of fixed sum penalties if someone is late joining the CIS, which has monthly return filing obligations. The cap is a response to concerns expressed about the current CIS penalty regime, and the four amendments are designed to ensure that the taxpayer protection works as intended. It is more generous than what was in the Bill as originally published, and I believe that it has been welcomed by the industry.

Amendment 308 makes it clearer that the provision applies only during periods starting from when a person should have made the first return under the CIS, so a person who has been making returns in the scheme for several months and then stops making returns, even for a prolonged period, would not be subject to the cap.

Paragraph 13 of the schedule caps only the fixed sum penalties but does not restrict tax-geared penalties, even if they are the minimum value of £300, where no payment is due. Therefore, for those who have very small or nil liabilities, but who still need to make a CIS return, the protection of the cap was not as generous as intended by the Government. Amendments 309 and 310 disapply the minimum value of £300 for the tax-geared penalties where the cap applies.

Amendment 311 defines more clearly the circumstances in which the cap applies. It does so by refining the definition of “earlier return” to be those with a filing date earlier than when a first return is made, rather than when it is due to be filed. It corrects a technical deficiency in the drafting.

I believe that the amendments have been welcomed by industry and therefore ask the Committee to accept them.

Schedule 56

Ian Pearson (Labour, Dudley South)

I beg to move amendment 312, in schedule 56, page 406, line 38, column 3, leave out from ‘Amount’ to end of line 41 and insert

‘charged in an assessment under paragraph 11(1) of Schedule 2 to OTA 1975’.

Peter Atkinson (Conservative, Hexham)

With this it will be convenient to discuss Government amendments 313 to 320.

Ian Pearson (Labour, Dudley South)

The amendments correct a technical deficiency in schedule 56 that could lead to participators in the petroleum revenue tax regime being liable to penalties for late payment from the wrong date. The amendments align the date that a participator will become liable to a penalty with the other taxes in the table in schedule 56.

Our intention is that for all annual and occasional taxes, including PRT, the penalty date for principal amounts of tax will be 30 days after the due date for payment. If extra tax comes into charge after the due date, the taxpayer should become liable to a penalty only if they fail to pay within 30 days of the due date for the additional tax. The only exception to that is if the taxpayer has failed to submit a return where the penalty date should be the original due date for the tax. That is to ensure that taxpayers do not gain an advantage by avoiding their filing obligations.

The amendments ensure that the new penalties will operate as intended, and I hope that the Committee will accept them.

Clause 107

Ian Pearson (Labour, Dudley South)

I do not want to pass clause 107 without commenting briefly on what it will do. The clause will ensure that penalties and surcharges for late payment of tax will not be charged to those who anticipate temporary payment difficulties and contact HMRC before the penalty or surcharge becomes due. They will be able to agree a time to pay their tax.

I am enormously proud that as a Government we have provided real help to companies in financial difficulties. Since 24 November 2008, when the HMRC business payment support package was introduced, we have agreed time to pay for more than 130,000 businesses, helping them to defer more than £2.6 billion worth of tax. The clause will help HMRC to support businesses with temporary payment difficulties. I wanted to note it because it is an important clause.

Clause 109

David Gauke (Conservative, South West Hertfordshire)

The clause and schedule 58 relate to the recovery of debts using PAYE payments. The provision enables HMRC to collect small debts of no more than £2,000 across all the taxes it administers from taxpayers through the PAYE system. The provision specifically excludes HMRC from using the PAYE system to collect debts in respect of tax credits or any debts due from an employer during the current tax year. Regulations can be made through secondary legislation to effect the proposal.

It is intended that the provision will be used by HMRC as a last resort in the event that a debt cannot be paid in full or through a time to pay arrangement. I would be grateful if the Minister confirmed that the provision is a last resort—there is no specific safeguard in the legislation or in PAYE regulations to say that that is the case. Currently, small sums relating to self-assessment liabilities from previous years are collected through the PAYE system on a regular basis.

Given that £2,000 is a large sum for many taxpayers, it would be appropriate to have some form of statutory safeguard in the regulations, such as a referral to a more senior officer, to ensure that the mechanism is utilised only as a last resort. I would be grateful if the Minister provided assurances that regulations will reflect that, or at least that the provisions of the clause and schedule 58 will not be used as a routine method of collecting small debts.

Ian Pearson (Labour, Dudley South)

The clause introduces schedule 58, which allows HMRC to collect certain debts owed to it through the pay-as-you-earn system. HMRC faces a particular problem with small debts, which represent a large percentage of what it is owed by volume, but only a small percentage by value. That makes its traditional methods of enforcement—going to court to obtain judgment or seizing goods to sell at auction—increasingly less cost-effective. Those traditional methods can cause the debtor stress and extra expense. The clause allows HMRC to use the PAYE system it administers to collect small debts over time. Doing so reassures compliant taxpayers by ensuring that tax debt is pursued, while offering debtors an easy way to spread their payments.

The hon. Member for South-West Hertfordshire asked whether such matters can be appealed on grounds of hardship. The PAYE coding rules are designed to prevent hardship being caused through excessive deductions, either on a single pay day or through the year as a whole. If a taxpayer feels that a coding change will cause hardship, they should object by contacting HMRC immediately. HMRC also offers help to older people, those with disabilities, people on low incomes and those from diverse backgrounds, in a variety of ways as part of its day-to-day work. It recognises the need for clear and strong communications with those groups, and talks regularly to voluntary groups, including TaxAid and the Low Incomes Tax Reform Group, about problems faced by particular groups of debtors, such as the financially vulnerable. I understand that some hon. Members’ representations come from that source.

Moving on to statutory safeguards and limits on how much can be coded out, the amount that can be coded out will remain subject to the normal limits, which prevent excessive deductions. The limits are £2,000 a year or 50 per cent. of gross taxable income. The £2,000 is in the clause and the 50 per cent. is in the existing PAYE regulations. That gives important safeguards.

As the hon. Member for South-West Hertfordshire is aware, my right hon. Friend the Financial Secretary has written to the Committee about the order-making powers, which I hope provides clarification.

Brian Jenkins (Labour, Tamworth)

Just for clarification, when the Minister says 50 per cent., does he mean 50 per cent. of income or 50 per cent. of income less national insurance contributions? What is the tax take? How much income do such people have left?

Ian Pearson (Labour, Dudley South)

My understanding of the safeguards is that the limits are £2,000 a year or 50 per cent. of gross taxable income. As I explained, the £2,000 figure is in the clause and the 50 per cent. figure is in the current PAYE regulations. I do not believe that the regulations have caused problems for those who comment on such tax matters.

I hope that I have been able to address the points that the hon. Member for South-West Hertfordshire raised.

Clause 110

David Gauke (Conservative, South West Hertfordshire)

A moment ago the Minister referred to representations received from the Low Incomes Tax Reform Group during the passage of the Bill. I rise to raise points from that group on managed payment plans.

Clause 110 is welcome, but I have a few questions about its details. The clause gives HMRC the ability to set out further requirements for managed payment plans in regulations. However, it appears that much of the detail will be set out in non-statutory guidance, a draft of which has been published and is on the HMRC website.

In the original consultation document, HMRC proposed to limit MPPs to payment by direct debit and to online filers. Following representations from the Low Incomes Tax Reform Group, HMRC offered the following points of reassurance in its consultation response, both of which are vital for low income taxpayers to take advantage of MPPs. First, HMRC said that it was:

“exploring other methods of payment for MPPs (ie not limiting them to direct debit) and have agreed to accept standing orders.”

Secondly, HMRC said:

“Paper tax return filers will be allowed to set up MPPs.”

The draft guidance appears to cover both these points. It confirms that HMRC will accept both standing orders and direct debit, but suggests that direct debit is preferred, one of the requirements being to:

“Make payment by Direct Debit or Standing Order. HMRC will need some assurance that payments will be made at a precise time and be posted to the correct record, and this is best achieved through Direct Debit.”

Can the Minister give some indication of what information will be sought from those people who use standing orders? The LITRG’s concern is that such people will be pressured into agreeing to a direct debit. It would be helpful if the Minister outlined what HMRC’s policy will be in those circumstances.

Another concern that the LITRG has mentioned to us is that paper filers will also fare worse than those filing online. Again, the LITRG quotes from the draft guidance, which says:

“Those who cannot file online, or do not wish to do so, will still be able to set up a payment plan by filing a paper return but will have to calculate their self-assessment themselves.”

As paper filers tend to be older people, some of whom may be lacking the technological sophistication to file online, or those on low incomes who cannot readily afford access to the internet, there is a concern that that guidance may be somewhat unfair. The regulations or perhaps even the guidance itself, should require HMRC to provide those people with help in making their calculations, on request. I would be grateful if the Minister responded on that point.

There is also the question of penalties in the event of failure to maintain a payment plan. In the event of a taxpayer failing to keep up agreed payments, subsections (6) and (7) of clause 110 allow HMRC to give notice to the taxpayer that he is relieved from penalties that would otherwise arise. However, that safeguard appears to operate at HMRC’s discretion, so that it would be reliant on the guidance and individual officers applying that guidance in practice. The LITRG argues that there should be a statutory right of appeal if HMRC refuses to give such a notice. If there is no such right, the taxpayer would have no recourse against HMRC if it exercised its discretion wrongfully, except by way of judicial review, which is no real remedy, as the Minister will know, because it is well beyond the means of the majority of individual taxpayers and certainly beyond the means of most of the taxpayers that we are talking about. Again, I would be grateful for the Minister’s comments.

Finally the LITRG has highlighted to us that Budget note 88 tells us that MPPs will not be introduced before April 2011, because changes are needed to HMRC’s systems. I seek some reassurance from the Minister that HMRC’s systems will be able to cope, given the increased pressures on its finances. Also, has any consideration been given to trialling the new scheme prior to widespread and national implementation in 2011?

The rest of the debate is in Hansard.