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Mr. Chope: Is my hon. Friend concerned that the regulatory impact assessment states that it has not been possible to establish with any certainty whether the cost to businesses will reduce as a result of this enormous Bill?

Mr. Ottaway: I will come to that point, although there is a difference between simplification and simplification of the law. My hon. Friend is referring to simplification

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of the law rather than simplification and clarity of the language, which is all that the tax law rewrite project attempts to achieve.

I should like to go back a few years to look at the origins of the tax rewrite project. It is with great pride that I say that it was very much a baby of the previous Conservative Government. The report on tax simplification was introduced in 1996 by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), then Chancellor of the Exchequer. However, in my opinion, the unsung hero of the entire project is Mr. Tim Smith, Member for Beaconsfield until 1997. Although my noble Friend Lord Howe of Aberavon was making noises about the need for tax simplification in his maiden speech in 1964, Tim Smith kick-started the project.

Dawn Primarolo: I am happy to join the hon. Gentleman in his tribute to Mr. Tim Smith, who joined the Opposition in Committee to defeat the then Government.

Mr. Ottaway: The Paymaster General has second-guessed my next remark, which is that, during proceedings on the Finance Act 1995, Tim Smith proposed a new clause requiring the Inland Revenue to prepare a report on tax simplification and lay it before Parliament.

Mr. Lilley: Does my hon. Friend anticipate any similar independence of mind being shown by the members of the Committee appointed to serve on the examination of the Capital Allowances Bill?

Mr. Ottaway: It was made crystal clear earlier today that all members of the Select Committee will be free to express their views as they wish.

Let me return to the role of Tim Smith in this important project. He had been irritated by a 1994 Finance Bill that was 463 pages long and a 1995 one that was 380 pages long--I am not sure how he would feel about the length of legislation today. He tabled the motion, it was carried and the pressure was on. As a result of his initiative, in December 1995, the Revenue published a report on tax simplification which set the whole process in motion.

It is important to pay tribute to Tim Smith today. Most of us will recall the trauma of his withdrawal from politics during the 1997 election campaign. Despite intense media intrusion, he accomplished that with dignity having recognised the difficult position in which he was putting his party. I am sure that all his friends and those who respect his work in the House, particularly on tax law reform, will be pleased to hear that he and his family are rebuilding their lives in the west country. I am sure that everyone will join me in wishing them well.

Prior to the publication of the report, in his November 1995 Budget speech, my right hon. and learned Friend the Member for Rushcliffe said

The report was published in 1996. It concluded that

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At the time, it was envisaged that the rewrite would take about five years. It would use a variety of techniques, all of which have been incorporated in the Bill. First, there would be a new, more logical structure; secondly, there would be shorter sentences and better use of definitions; thirdly, modern language would be used, as long as it was possible to do so without changing the law or making its effects less certain; fourthly, there would be better signposts and similar rules would be grouped together to make the rules easier to find; and, fifthly, a new format and layout would be used to make the legislation easier to read. All of those features are embodied in the Bill.

Having arrived at this point, it is important to recognise the role played by Geoffrey Howe, now Lord Howe of Aberavon, who between 1979 and 1990 served first as Chancellor of the Exchequer, then as Foreign Secretary and then as Leader of the House. He initially became president of the tax law review committee set up by the Institute for Fiscal Studies in autumn 1994. Its purpose was independently and objectively to ask fundamental questions about whether the tax system was working as intended. The committee concluded that it was not. Fortunately, as the committee published its final report, the Treasury reached a similar conclusion about the need for reform and Lord Howe was appointed chairman of the rewrite committee. In both capacities, his contribution has been immense.

In the Hardman memorial lecture, when defending himself against the charge of having done nothing about the need for reform when he was Chancellor of the Exchequer, Lord Howe gave a reply that graphically illustrated why busy Ministers find it hard to address such issues when they have so many other pressing matters on their mind. He quite candidly said:

Lord Howe's second defence was to point to the huge forces, powerful institutions and time-hallowed processes, the weight of which is all stacked against reform of any kind. He quoted Douglas Hurd's memorable words:

The role that Geoffrey Howe has played in the reversal of the momentum of inertia has been of great significance, and I am sure that the whole House pays tribute to him today.

That illustrates the need for a separate body, detached from Government, such as we now have, that can carry out that important, independent process. One has to turn to Adam Broke's 1999 Hardman lecture to fully understand the challenge that faces the tax law rewrite project in reversing the general perception that the tax system is too complex. He said that there are four components that make up the complexity of tax law: diversity, volume, drafting and language.

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First, diversity. There are about a dozen principal taxes. The main direct taxes include income tax, corporation tax, capital gains tax and inheritance tax. The indirect taxes include value added tax, excise duties and a number of smaller taxes. Then there is stamp duty and payroll taxes in the form of national insurance contributions. The first problem is that it is now impossible for any one individual to advise across the range of taxes, which is far too broad.

Turning to volume, there is a perpetual incoming tide of tax law. We have a Finance Act every year because of the historical oddity that income tax is an annual tax that needs to be re-enacted every year. The result is a complete industry or what my hon. Friend the Member for Chichester (Mr. Tyrie) once described as "an unstoppable juggernaut". Many people feel that that aspect needs to be reviewed.

On drafting, not for one second do I seek to criticise parliamentary counsel, who do a fantastic job in difficult situations. I have never met one, but I am sure that one of them has a slogan over his desk saying, "Overworked and underpaid". At very short notice, they are asked to draft amendments, clauses and new clauses of intense complexity. Those provisions are complex yet, as Adam Broke pointed out, one of the most successful pieces of legislation is the Partnership Act 1890, which, as a lawyer, I frequently had to consult. Its statement of short, clear principles have long stood the test of time and effectiveness.

Adam Broke's final point concerned language. To convey a point, in the past, draftsmen have often used language of a higher plane or language that is not in common use. However, it is fair to point out that, as far back as 1853, Gladstone complained in the House:

Although it has taken 150 years, we are about to prove Mr. Gladstone wrong. For all those reasons, which cover the points made by Adam Broke, it is perfectly clear that complexity is a problem and that it matters.

Of course, we should not ignore the question of compliance costs. As I said at the outset, such is the complexity of tax legislation, it is estimated that compliance costs amount to 1.5 per cent. of gross domestic product--which is £12 billion a year, with more than 25,000 people employed full-time in the private sector tax industry alone. For that reason, this has to be a project worth undertaking for the gain to the British economy.

Looking back, taxation in the 18th century was simply to pay for the armed forces. Taxes were simple. Land taxes, poll taxes and excise duties formed the bulk of tax gathering, but, irresistibly, social engineering--using the tax system to affect behaviour--was not far away. For those of us who complain that the Chancellor cannot stop tinkering with the tax system for social purposes, it is worth noting that in 1796, Pitt, then Chancellor of the Exchequer, increased excise duty on spirits, arguing:

Duty free would not have lasted long in his day.

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From then on, the situation declined with the relentless growth of the Government's instinct to tax and spend. The instinct to simplify is an old one. Lord Callaghan argued that the reform of corporation tax in his 1965 Budget would so simplify the system that it would put accountants out of business. That was not the first time that he was wrong.

That comment fires a salutary warning shot to us all: we should not get too excited about the whole project, the history of which was dealt with at length by the Paymaster General. Therefore, I shall not detain the House on that aspect save to make two further points. First, as I said to my hon. Friend the Member for Christchurch (Mr. Chope), simplification has two meanings. The Bill seeks to address one--rewriting the law in a way that makes it easier to understand. The second is to simplify the policy of taxation.

To give but a small example, many think that the capital gains tax system--while seeking to provide a fairer base and, particularly, to assist those in the business sector--has resulted in a complex set of laws. The task of the next Conservative Government will be to simplify those laws. Although that may be a legitimate political objective, it is different from the task that we have set out to achieve through the Bill. Were we to add to the tax simplification procedures that we shall test for the first time today and in the coming weeks and were we to superimpose all the political debate on the changes to tax law, I strongly suspect that the tax law rewrite project would founder. Although I look forward to challenging the Government in the forthcoming Budget debate, the Bill should not be the vehicle for the inevitable exchanges of views that will take place.

My second point is on the direction of the rewrite project. The Finance Act 2000 is 613 pages long--nearly twice as long as the rewrite project's first production after four years' work. As Geoffrey Howe pointed out in his Hardman lecture:

There is no doubt that resources will have to be increased if the initial enthusiasm of the rewrite project is to be sustained. Compared with the high compliance costs in the tax industry, to which I referred earlier, the modest investment by the Government must be worth it and I urge them to reconsider the point. It is essential that those involved remain independent of the Government and, as far as possible, remain able to focus exclusively on the project without being removed to assist in Budgets and other Treasury matters. Unless all Finance Bills are drafted within the rewrite principles, we shall always take one step forward and two backwards.

On preliminary analysis, the Bill's 340 pages--which, rather amusingly, are supported by explanatory notes of 380 pages--no doubt represent a clearer document and are easier to understand. We add our congratulations to all those involved in the drafting. However, sight has not been lost of the dictum of Jean-Baptiste Collhert, the French Finance Minister, who remarked:

Although it is hard to evaluate whether the cost of claiming capital allowances will reduce as a result of rewriting the legislation, there is no doubt that it should

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be easier to establish the true position. However, there will still be many feathers flying and much hissing, as I suspect that there will be in the coming election.

I hope that in the drafting of legislation the tax law rewrite team will have learned from its experiences and will be able to draw on them for the future benefit of all those involved. The Opposition congratulate the team on its efforts and will give the Bill a fair wind.

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