Finance Bill

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Mr. Hendrick: I speak as a computer scientist and someone who has studied the subject at length. Some codes can be broken, but others would require such tremendous computing power that no machine on earth would be able to break them.

12.15 pm

Chris Grayling: I simply do not accept the hon. Gentleman's assurances that no machine on earth is able to do something, given the technological changes in the past 20 years and the fact that we are looking eight years into the future when technology may have changed enormously. Furthermore, the concept that a small business will use high-quality encryption technology to protect itself when e-filing is equally improbable.

Mr. Tom Harris (Glasgow, Cathcart): Notwithstanding my reservations about some aspects of the Bill, which we will discuss in the next set of amendments, does not the hon. Gentleman accept the Government's reassurances that an intermediary would resolve all the security issues for any firm that has such misgivings? I totally accept that some firms do not want to hook up to outside agencies and may see that as a breach of security but, surely, that is the purpose of an intermediary. There would be no lapse of security for any firm that wanted to employ an outside accountant, for example.

Chris Grayling: No, I do not accept that, because companies would be required to work in a different way. They would be required to create links that they may for very good strategic reasons not want to create, whether through an intermediary or not. Companies would not necessarily want to use an external agency to handle their payroll if they have an internal department capable of doing that.

All the points that hon. Members made may have some foundation in truth, but I cannot accept the compulsion element as right or necessary. The Government can encourage and incentivise, but they should not require, and I hope that they will change their mind even at this stage.

Dr. John Pugh (Southport): In supporting the amendment, I accept that the Carter report recommended precisely this measure and a mixture of incentives and compulsions. As I understand the legislation, the Government have taken power to compel and coupled that with a few pathetic incentives, such as £250 for a small business, which will not buy much of a computer these days.

There are objections to the measure. I understand some of them, but others I understand rather imperfectly. There appears to be root-and-branch religious objection—there have been moments in my life when I thought that the computer was the

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instrument of the devil—but the objections have not been properly explained. On moral objections that have been put forward, some people have suggested that staff should not be given access to the internet or that firms may wish to work in an environment that does not include internet access. In most businesses, that is not really a difficulty, because there are always ways of getting around or getting control of IT apparatus, but there is a problem for the individual who has just one employer.

The fundamental issue appears to be that we allow a multiplicity of payment methods—one can pay by cash, cheque or credit transfer—but for some reason the Government seem to be ruling out multiplicity of ways of form filling. One has to ask oneself who that is good for. Is it good for business or the Exchequer? I think that the Government believe it is good for both. They have a puritanical belief that the more business gets into computers, the more efficient it will be. They see a necessary connection between IT and efficiency. That connection sometimes exists, but as anyone who uses IT will find, it is not always there.

What the Government are demanding goes a little further than demanding that people fill in a form with a black pen. It has consequences for data recording, equipment procurement and security. There are any number of agencies that, according to the Government's own legislation, will have access to anything sent via an internet service provider. The Government are being permissive—from a Home Office angle—in opening up access to records on the part of Government bodies. I think that when people send in their tax records they have a right to know that those records have gone to the tax body, which is where they are retained and not snooped on by anyone else. Hackers are also a problem, which has already been alluded to.

I want to make a further, slightly geeky, technical point, which has not been addressed. The legislation appears to allow the Secretary of State to specify the format by which people may communicate. So it is not simply that one has to communicate via the internet, but one has to do so in a format that is acceptable to the Department. That gives the Government unfettered power to specify a format. They can require or favour particular software, browsers or platforms, whether that is PC, Unix or Mac. I do not want to enter the debate about Microsoft and anti-trust legislation, but we already know that the Government attitude to IT has made it impossible for people to access Government services who do not use proprietary software, which happens in most cases to be Windows-based software. There should be some kind of guarantee in the legislation that no matter what format of IT a firm is using, it should have access to the Inland Revenue, and should not have to buy the necessary software or platform.

Mr. Bercow: In reflecting on the clause, what assessment has the hon. Gentleman made of line 25, subsection (3), in which the Government elliptically inform us that they propose

    ''provision for the application of conclusive or other presumptions''?

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Dr. Pugh: The hon. Gentleman has picked up on my anxiety. We know that the Government are keen to collude with the IT lobby. We do not want the Government colluding with Bill Gates and the Microsoft lobby in every case. That not only flies in the face of what I call decent commercial principles, but flies in the face of the Government's principles, which they adopted in the Enterprise Bill. That Bill is strongly anti-monopolistic and in favour of there not being one IT culture across the board. The House of Commons has sold out entirely to Windows and Internet Explorer. I would like an assurance from the Paymaster General that whatever the Inland Revenue develops, and whatever road it goes down, at the end of the day, regardless of the IT equipment that is used—

Dawn Primarolo: May I inform the hon. Gentleman that the Inland Revenue already offers an online service for PAYE, which is all that we are talking about today? The provisions in the Bill will ensure that when the intermediary uses another software package it is compatible and capable of being used in the interaction with the Inland Revenue. That follows exactly the point that he has been making for the last few minutes and has been the case for some time.

Dr. Pugh: I am not responding to what the practice of the Inland Revenue currently is; I am responding to what the legislation says. The Inland Revenue has the right to specify. It may behave itself in a totally appropriate way now, but it might not in future, which is precisely the point.

Mr. Jack: Having had something to do with the establishment of electronic communication between the Revenue, the citizen and business, I have some sympathy with the Government of the day wanting to employ systems that have now established themselves, as the Paymaster General's intervention on the hon. Member for Southport suggested. One could fill up the entire time for the rest of today asking important and searching questions about the security, operation, software and computer issues related to the electronic transmission of data, all of which would be entirely proper. My view, however, is that there is an established protocol there and that the systems work as well as any other bulk transmission system for data.

The Paymaster General has already said that much of the system is already in place and that many big businesses are already benefiting tremendously from the electronic transmission of tax return data under the current regime. No doubt many accountants are doing that on behalf of big businesses and many small and medium-sized enterprises are beginning to experience the joys of electronic returns. However, what saddens and worries me is that the Government have not chosen the route of further persuasion but are being absolutist in the way in which they are going about the matter.

The explanatory notes on the clause reassure us that this is a matter for the employer. However, the clause itself does not say that. It talks about the delivery of information for ''specified persons''. By definition, specified persons are not specified. The part of the clause that my hon. Friend the Member for

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Buckingham seeks to amend gives powers to the Commissioners of Inland Revenue to make regulations. For clarification, can the Paymaster General tell us whether that means that the commissioners—I have forgotten how precisely they make their regulations—can make the regulations without their being returned to this House, or can make them with the benefit of the law as specified in this clause?

Dawn Primarolo: I can answer that question now. The right hon. Gentleman might remember, from when he was Financial Secretary, that all PAYE regulations are dealt with under the negative procedure in that way. It worked like that under the previous Government. The reason is that discussions with the payroll providers about best methods and the need for constant improvement mean that the service can often be improved. Sometimes that requires some changes to regulations. That is precisely what has happened in the past and there will be no change in future when the matter is under the commissioners.

Mr. Jack: I am genuinely grateful to the Paymaster General for refreshing my memory, but that gives me cause for concern. If the regulations are made under the negative procedure, the chances of this House revisiting the territory are very limited. That is why imposing the measures by compulsion, as opposed to agreement and discussion, is very worrying. In another capacity, serving on the Environment, Food and Rural Affairs Committee, I have been involved in a study of the way in which the European Union decided to introduce a regulation dealing with the disposal of fridges. The lack of consideration, ahead of the agreement's coming into force, of how that should be done was remarkable and has left us with the practical implications of fridge mountains.

I am not saying for a moment that these systems are not in place and that we will not have some robust method of transmitting information to the Revenue. But according to the Government's explanatory notes, there is clearly a lot of work to be done

    ''to persuade many small employers to remove away from paper.''

Paradoxically, the notes go on to say:

    ''The report recommended a mixture of compulsion and incentives'',

but the Government seem to be backing compulsion over incentive. I think that they are being premature in producing the proposal now, when there is obviously much more work that could be done by negotiation, education and discussion.

The benefits are clearly there and companies should be able to work out for themselves that if, as in the majority of cases, they keep information electronically, being able to summate that in the form of a return and send it would be to their advantage. As other hon. Members have said, it will not always be the case that particularly an embryonic business, perhaps in the first six months of its existence as it copes with all the complexities of establishing a business, even by the year 2010, will be fully capable of working out what it has to do with year one's tax returns on behalf of its employees. For example, it might have set up a paper system. It might be a collection of individuals who

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formed themselves into a company. Even in the year 2010, they might not have got around to doing it, yet the clause offers absolutely no flexibility in such a situation.

I agree with the hon. Member for Preston that by 2010 a new cohort of entirely computer-literate people will be involved in business in the United Kingdom. They may well be able to cope but, even then, there may be people who retire at the age of 60 and look for a second employment without some of those skills. The inflexibility of the compulsion worries me.

Another aspect that worries me is the wording ''specified persons'' in the clause that my hon. Friend the Member for Buckingham seeks to amend. We do not know to what extent specified persons will go beyond the indication in the explanatory notes that they will be restricted to those in the world of commerce. Specified persons could be anyone with an obligation to submit information to the Inland Revenue. It is dangerous to agree now, without let or hindrance, to a clause that empowers the commissioners to make regulations in which they can list, if they so wish, anyone that they want.

12.30 pm

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