Mr.
Francois: I thank the hon. Gentleman for his intervention.
Far be it from me to provoke a dispute between the professional
institutions, not least the Law Society, as I am always wary when
dealing with m’learned friends.
Several bodies expressed
reservations about why the Government acted as they did. The hon.
Gentleman quoted the fact that the Law Society was interested in
seeing the draft order; that did not necessarily mean that it endorsed
that way of doing it, just that the Law Society was looking forward to
seeing it and will now have a chance to do so. I look forward to the
Paymaster General’s response to that
point. Secondly, in
respect of the consultation exercise, the Government consulted a number
of interested bodies about the proposals, including, but not limited
to, the British Property Federation, the British Retail Consortium, the
Chartered Institute of Taxation, the Confederation of British Industry
and the Law Society. The explanatory notes to the Bill
state: “A
consultation document containing draft legislation, which might replace
schedule 10 in its current form, was published in December 2005. This
was very positively received by
business.” If that is the
case, can the Minister give us some idea of the types of responses that
were received? Will she say specifically whether any additional changes
were made to the draft order as a result of that consultation? In other
words, will she give us examples of what was published in December
having been amended to prove that the Government were listening to
those whom it took the trouble to
consult? Thirdly,
there is the effect of the changes on small businesses. Under the
heading “Sectors and Groups affected” the regulatory
impact assessment states that the changes will
affect “virtually all
businesses registered for VAT in their capacity of landlord, tenant or
owner-occupier.” However,
under the associated heading “Small Firms Impact Test”,
the regulatory impact assessment
states: “It has
not been possible to consult with small businesses before the public
consultation stage, but small businesses often complained about the
cost of professional advice incurred in relation to VAT land and
property transactions. We will be taking soundings from small
businesses alongside the formal
consultation.” Can the
Minister give the Committee some idea what comprised the
“soundings” of the small business community? How were
they conducted and which organisations were involved? Can she show that
some changes took place in the recently published new draft schedule as
a result, particularly in relation to how it might affect small
businesses? This is an
especially technical area of VAT law and there appears to be a
consensus on the need to rewrite schedule 10. The Opposition do not
challenge that and the Government have responded to it, initiating what
appeared to be a good consultation exercise. They then published the
draft order, which they hope will be in force in October.
To summarise, before we allow
this enabling clause to stand part of the Bill, will the Minister tell
us, first, why the Government did not use primary legislation?
Secondly, will she provide examples of the draft order being informed
by the consultation exercise and of changes having taken place since
December? Thirdly, how was the small business community consulted and
what changes have been initiated as a
result? I look forward
to hearing contributions from other members of the Committee and I will
listen to the Paymaster General’s no doubt thoughtful
reply.
Rob
Marris: I merely want to congratulate the Paymaster
General and her team on producing the
draft Treasury order in time for this debate. The Treasury is good at
that. Too often when we are considering legislation there is a lack of
draft orders but not when they are Treasury
proposals. I have one
small question for the Paymaster General. Am I right in looking at page
18 of the draft Treasury order that there is a schedule to the
schedule? Because if that is the case—namely schedule 1 to
schedule 10—that is a new one on me in
legislation. Julia
Goldsworthy (Falmouth and Camborne) (LD): I will extend
the general introduction to the VAT section of this Bill and merely say
that of course we welcome the simplification of one of the most complex
parts of the existing VAT legislation and would echo concerns that have
already been expressed.
If a consultation took place in
December 2005 and was generally positively received I do not understand
why it is not possible to get this primary legislation in the Bill.
That is all I have to say.
The
Paymaster General (Dawn Primarolo): I beg your pardon for
being slow to stand up, Mr. O’Hara. I was lulled into a false
sense of security in believing that lots of other Members would want to
speak, although I was perplexed as to why they would want to. Just to
remind the Committee, this is a rewrite of current legislation. It
always worries me—this has happened before in finance
Bills—that when legislation, particularly VAT legislation, is
rewritten in the tax law rewrite style, it has often led to a
misunderstanding, particularly from Conservative Members, that somehow
new legislation is being introduced. I remember having to explain to a
Conservative Member, who used to be a Minister and who is now in
opposition, that all that had happened was that the legislation that he
introduced had been rewritten into the tax law rewrite style and if he
was shocked about the contents of the legislation I wondered how he had
not noticed it when he introduced it in the first place.
Perhaps I
could answer the questions posed by the hon. Member for Rayleigh (Mr.
Francois) succinctly, in the spirit of the rewrite. The reason why this
is a schedule by order is that the original legislation in 1989, drawn
up under the Conservatives, and consolidated in 1994 by a Conservative
Administration, provided new legislation for it to be done this way and
a rewrite follows; otherwise it cannot be just a rewrite.
To answer my hon. Friend the
Member for Wolverhampton, South-West, no it is not a schedule to a
schedule; it is an order schedule, or a schedule to an order. I always
fear when my hon. Friend gets up because I know that he studies all the
papers assiduously and I fear that he will find something that I have
missed—he often does. But I can reassure him on that point at
least. In terms of
the responses and the changes to the two drafts, I am happy to take the
general areas but I would say to the hon. Member for Rayleigh that, of
the responses received in the consultation, The CBI welcomed the new
format and considered it an improvement on the existing legislation,
much easier to understand, and the British Property Federation welcomes
the Government’s decision to rewrite schedule 10, believing that
this is an “excellent
initiative”. The Institute of Chartered Accountants welcomes the
rewriting of complex legislation to put it into plainer English. I will
come in a moment to the differences, the points that were raised in the
consultation and how I propose to deal with those in the order, having
listened to the consultation, once I have given
way. Mr.
Newmark: As always I remain concerned when Ministers use
selective quotes. I have a comment from the British Property Federation
in response to this
consultation: “Notwithstanding
our support for the government’s decision to rewrite
legislation”— the
Paymaster General was absolutely right to point that out, but the
comment continues—
“we do believe there are a number
of improvements that might be made to the draft
legislation.” I would
encourage the Paymaster General to talk to the British Property
Federation to understand what those improvements might
be. 10
am
Dawn
Primarolo: I was just coming to those points. I am aware
of them, and they will be reflected in the draft. We have returned to
the point raised by the hon. Member for Rayleigh concerning the nature
of the consultation and how things will change. I shall just briefly go
through the small number of proposed changes. The original order was
less positively received and I hope that in responding to these points,
we have now dealt with that. Discussions are still going on, and the
order will be dealt with by the affirmative procedure, so there will be
ample time to ensure that the draft reflects people’s
concerns. I want to
give hon. Members an absolute assurance: our purpose is to rewrite the
legislation. The Department and my officials will do everything
possible in that rewrite remit to ensure that we respond to those
points. They basically fall into three broad
areas.
Dawn
Primarolo: Perhaps the hon. Gentleman would allow me to
tell him about the three broad areas that the consultation wanted us to
consider and how I am prepared to deal with it. I will be happy to give
way to him
afterwards. The first
area concerns the anti-avoidance test. The hon. Member for Rayleigh
touched on the complexities involved. I agree with what he said about
passing piece after piece of anti-avoidance legislation; we often do
not have a choice about that. The issue in question, which has been
discussed in Committee before, concerned the definition of
“wholly or mainly for eligible
purposes”. That was to
be changed to “wholly or
almost wholly for eligible purposes”.
For those who really want to study the
VAT regulations, the original intention was to ensure that the
provision reflected more closely the application of HMRC’s
understanding of the meaning of 80 per cent. or more.
I propose a change to the draft
legislation that will enable HMRC to define by tertiary
legislation—a discussion is going on with those concerned about
the rule—the 80 per cent. figure with a discretion to accept a
lower amount; the point being that those in certain circumstances
should be reassured that a lower figure could be taken.
The next major issue concerned
the condition relating to non-residential buildings intended for use as
dwellings and residential accommodation. That can be treated as outside
the option to tax. We really do not need to discuss the option to tax,
nor would we want to; it is complex. The current provisions cause
problems because the supplier of the building, who has to decide
whether to charge tax, faces uncertainty in knowing their
customer’s intention. That has always been a problem.
A great deal of clarification
was sought as to whether the proposed wording was insufficient to give
that certainty. Therefore, I have decided to introduce a certification
requirement with clear rules on timing and content of the certificates,
so that the customer will give a certificate to the seller, indicating
how he or she intends to use the building. That removes that
uncertainty for the seller. If further work needs to be done to ensure
that it works properly, there are always the guidance notes. I stress
again that we want to get it right.
Another issue that emerged in
the consultation is that when businesses opt to tax, they have to check
whether the land is exempt. However, they have to go all the way back
to 1 August 1989, which is quite a long way. I was asked whether that
was fair or reasonable. Because it is a fixed date, I cannot change it;
to do so would involve retrospection, and I am sure that Opposition
Members would have something to say about that. None the less, such a
period of look-back is difficult, so I propose limiting it to 10 years.
If the hon. Member for Rayleigh wonders where that figure comes from,
my officials advise me that it is the period of adjustment under the
capital goods scheme. It works well for that scheme, and it seems
sensible to adopt it. Those were the major points from the
consultation. In
answer to the hon. Member for Braintree(Mr. Newmark), he can
see that certification could help small businesses enormously, because
if there was any question the Department would go to the buyer, not the
seller. I promised that I would give way to the hon. Gentleman; if I
have not answered his questions, I can do so
now.
Mr.
Newmark: I am always encouraged when the Paymaster General
tries to answer my questions. Unfortunately, I have to go back a bit.
She said that the purpose was to rewrite schedule 10. As I see from the
explanatory notes, and to reiterate a point made by my hon. Friend the
Member for Rayleigh, the purpose of rewriting the schedule is to make
its language clearer and easier to use. Once again, I reflect on the
comments of the Chartered Institute of Taxation and its concern about
the impact that the changes will have on lay persons. I want an
assurance from the right hon. Lady that the changes will be in a format
that is clearer and easier to
use.
Dawn
Primarolo: I assure the hon. Gentleman that it is being
done. I am struggling with the idea that the bedtime reading of
citizens of the United Kingdom and Northern Ireland might be schedule
10 to the 1994 Act on land and property options. Who knows? I
would prefer something slightly lighter at that timeof
day. The hon.
Gentleman is in danger of over-egging the pudding. I doubt whether the
Chartered Institute of Taxation would put it that strongly. It knows
full well who will use it. The tax law rewrite was established by a
previous Government, it has proceeded under the present Government, and
it is widely welcomed as delivering precisely the point that the hon.
Gentleman now makes. He may remember that rather a lot of legislation
is affected by the
rewrite.
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