Joint Committee on Tax Simplification Bills Minutes of Evidence

Examination of witnesses (Questions 86 - 99)



  Chairman: Good morning. We have the draft amendment to Clause 6. Last time we had a draft amendment proposed by Lord Brightman. We now have an alternative draft amendment submitted by the team or by Dr Helen Caldwell and we have been provided by our Clerks with a note on some "defined terms" that we were discussing last time. Not every member of the Committee has read that as it has just been distributed. Perhaps we should start with Lord Brightman's suggestion

  Lord Brightman: Perhaps I may formally move my amendment which I tabled at the beginning of the week. The amendment merely adds subsection "(2A), `Accounting period' has the same meaning as in section 12 of ICTA". That amendment is entirely consistent with earlier and later clauses . First, I refer to Clause 2, page 2, line 19: "`profits' has the same meaning as in section 6 of ICTA". It is also consistent with Clause 18 on page 9, line 17: "`investment company' has the meaning given by section 130 of ICTA". The definition of "investment company" is repeated in the index of defined expressions, page 258, line 34, just as the definition of "accounting period" also appears on page 257. Then "investment company" is in Section 130 of ICTA. Similarly, "accounting period" appears in the index of defined expressions. Therefore, it seems to me that there can be no objection to my amendment on the grounds that it is inconsistent with other parts of the Bill because there have been exact parallels previously and subsequently. I suggest to the Committee that, as we have a definition in subsection (2) of "period of account", it would be convenient to the reader to have a similar type of definition of "accounting period" by reference to ICTA. The note, which accompanies the other suggested amendments, suggests that it would be out of place to put in my subsection (2A), but with the greatest respect—although it may be a matter of taste—I would have thought it would come conveniently after the definition of "period of account". My main points are that it is entirely consistent with the previous definition of "profits"—"`profits' has the same meaning as in section 6 of ICTA"—and then subsequently you have "`investment company' has the meaning given by section 130 of ICTA". Then you have the repetitions in the index of defined expressions.


  86. Thank you. The team have put in a note for us.[1] They suggest that Lord Brightman's suggestion interrupts the flow and they make an alternative suggestion. Does any member of the team wish to speak to that or to add to it? Am I right in thinking that this comes from your team?
  (Mr Munro) Yes, that is correct. I shall invite Helen to speak to this.
  (Dr Caldwell) I do not think that I can add much to what is in the little note attached to the draft amendment. Although subsection (2) says what "period of account" means, subsections (3) to (6) add to what is said in subsection (2). That is the reason why we thought that it may be preferable to approach the matter slightly differently. As the note indicates, if the amendments that we have suggested do not commend themselves to you, but you still wish to make an amendment, then an alternative would be to add the subsection at the end of the clause—page 5 at the end of line 4.

  Chairman: It seems to me that it is a matter of taste as to how it flows best. I think the substance is remarkably similar.

  Ms Kelly: When I first heard this point I thought about it in a relatively favourable light and I was sympathetic to it. However, on hearing the other arguments it strikes me that anyone reading this Bill would probably know the meaning of the term. If they had any problem with it I would have thought that they would automatically go to the glossary, but it seems that they would go to the ICTA. That is the way in which these things operate. They would go there for the definition of the term in an automatic way. That strikes me as a sensible thing to do. I wonder whether I can seek clarification from the Chair, or indeed from the Minister, about what fundamentally is a matter of taste. How would the future consideration of the Bill be affected and what would happen if it were amended? Would it then have to be debated again and would it come back to the floor of the House? How would that fit in with any future consideration of the Finance Bill? It strikes me that the most important thing for us to do is to have this Bill agreed before the Finance Bill comes in. Otherwise, as we discussed earlier, there will be an extremely complicated state of affairs.

  Chairman: I think we ought to be clear on the procedure. Without taking advice, I am not sure. I would be very surprised if we could amend the Bill without the amendment going back to the floor of the House. The number of amendments that we make to the Bill may affect how long it would take on the floor of the House. If they are taken after 10 o'clock they would be subject to the new-style votes, no doubt. Perhaps I can seek assistance from the Clerk. We are making up procedure as we go along, but I cannot believe that we shall be allowed to set a precedent where we can amend a Bill without it going back to the floor of the House. I am not sure what the Clerk has told me answers the matter. Under the Standing Order[2] when we report the Bill it will stand recommitted to a committee of the whole House unless the House otherwise orders. "If a motion that the committee of the whole House be discharged from considering a tax simplification bill is made by a Minister of the Crown immediately after the order of the day has been read for the House to resolve itself into a committee on the Bill, the motion shall not require notice and the question thereon shall be put forthwith and may be decided at any hour, though opposed; and if such question is agreed to the bill shall be ordered to be read a third time". That sounds as though the Minister can put the question and if it is carried that would cut out all further discussion.

  Dawn Primarolo: My colleagues who took part in the debate, such as Richard Ottaway, may have something to say. When it was discussed on the floor of the House there was a great deal of discussion about the right of the House of Commons to have a final say and to have continued control of the matters relating to Finance Bills and tax legislation. Therefore, I understand—this is the procedure on the floor of the House—that certainly any amendments to the draft Bill would have to go back to the floor of the House for consideration. That is amendments that changed the face of the Bill and that came from this Committee. As far as it being unamended, there would still be a debate. It is true, as I understand it, that I could recommend to the House of Commons that there needed to be no further consideration and that this Committee had discharged its duty. Naturally, I would have to take soundings as to whether there is general agreement first.

  Chairman: We are not sure how we should handle amendments. I do not think that we can suddenly decide that we will make no amendments and that we will approve it en bloc. I think we must reserve the right to make amendments. If we make amendments I would suggest that they would be expected to appear on the Order Paper when the House considers the whole matter and the House could debate them. What the Minister has just said indicates that she would not use her powers to cut off debate at that point before we had embarked on the amendments, unless, through the usual channels, it was obvious that nobody wished to debate the amendments or to have any further proceedings on the Bill. That is a matter for the usual channels and not for me or the Committee. We would anticipate that if an amendment were carried that there would be an opportunity for the House as a whole to consider the matter in a Committee of the whole House. We should not feel blocked from considering amendments because they could lead to problems of delay. It may be that no one would speak on this, but some of our colleagues have valuable views on practically everything before the House.

  Mr Pond: If we moved an amendment on this or on something else presumably we would operate like a Select Committee and we would make a recommendation to the House. We do not operate as a Standing Committee which can amend and then the amendment has to be approved. We must have a Select Committee approach.

  Chairman: I do not think it is clear. I think that this Committee's value is reduced if we can only recommend. As we have not done this before—we shall have to see what the House says—I would like to assert the right of the Committee to make amendments subject to them going back to the floor of the House and being approved. Otherwise, the value of our process is reduced. I do not think that we should just say that we are making recommendations. That would slightly destroy the point of this procedure. I would like to assert that we can make amendments. No one is arguing so far that we should cut out debate on any amendment that we make on the floor of the House. This amendment may be a matter of taste, but if we start cutting out debate on the floor of the House, there may be a future simplification Bill where drastic changes are made and we do not want to set in hand the process in which the full House never debates such a situation.

  Dawn Primarolo: Any amendment that we make becomes like a Committee report stage back to the floor of the House with the amendments before it. The House has to be notified as to what it has before it and it is asked to confirm acceptance of the amendments in the same way as we would do for a Finance Bill. There would be a report stage, a Committee Report stage first with amendments and then a Third Reading.

  Chairman: The Clerk has helpfully passed to me a document produced by the Committee on the European Parliamentary Elections Bill. That was considered by the Joint Committee on Consolidation Bills. A Consolidation Committee appears to report back to the House and then there is an annex. This one has one amendment. The Clerk's belief is that the House then either adopts the report or not, which involves accepting the amendment which appears as an annex to the report. That is satisfactory, one way or another. So the whole House has the chance of looking at the amendment and if the House wishes it can discuss it and vote on it. That strikes me as fine. It sounds as though if anyone rejected the amendment they would reject the whole report.

  Lord Howe of Aberavon: Speaking as one of those who helped in the primitive stage to design the procedure, my recollection is that the Customs & Excise Act 1952 was dealt with in that way. I have not looked it up recently. It involved the Joint Select Committee making a report to the House which was then debated by the House. I do not think that there was any detailed discussion of the particular amendments. I do not think that was excluded. I would have thought that was probably in line with the experience in relation to consolidation Bills.

  Chairman: The more up to date consolidation Bills practice strikes me as attractive. Members can see this report by the Joint Committee on Consolidation Bills in relation to the European Parliamentary Elections Bill. That was in the last session of Parliament. Meanwhile I shall see whether Members have further points on the substance of the amendments that we are talking about while those interested in the procedure can glance at that and they can see whether we should do something of that kind at the end of the morning.

  Baroness Cohen of Pimlico: I agree that this is entirely a matter of taste. With the greatest deference to Lord Brightman, I think we ought to operate on the rule that if we do not need it we should not put it in. I know that I speak as someone who thinks about tax, but everybody knows where to look up the "accounting period". If we put Lord Brightman's amendment in where he suggests it slightly clogs the flow. I would be inclined not to do anything with it at all. If Lord Brightman feels that the matter is not made sufficiently clear for the reader, I would be disposed to accept the draft amendment put forward by the team which puts it in at the end of the subsection.

  Chairman: Ms Kelly, were you speaking about both of the amendments or not?

  Ms Kelly: I completely agree with what Baroness Cohen has said about it being a matter of taste and that we should reject amendments that are not needed and debate those that are needed, if any. So I spoke about both.

  Mr Ottaway: I agree with the sentiments that I do not think that we should change something that is a matter of taste. We have been given perfectly good advice by the draftsmen that this is the best way to do it. They say that it was discussed in some detail by the Tax Law Rewrite project's Consultative Committee and the clause reflects the outcome of that decision. Either one trawls through the whole thing, and if one can find one point of taste one will find a thousand, or one accepts the advice given, unless one considers that the law has been changed.

  Chairman: Fortunately I see no signs of trawling at the moment. You are against both amendments. Lord Brightman, so far the people who have spoken are against your amendment. Two Members would accept the alternative amendment.

  Lord Goodhart: I am a little more sympathetic to Lord Brightman's amendment, although I am not sure that I would go as far as supporting it if we voted on it. I do not think that it is exactly a matter of taste. I understand the logic behind the thinking of the drafting team, which is that if you have a definition that is on the face of the Bill that appears in more than one clause, it goes into Schedule 1; if you have a definition on the face of the Bill which applies only in one clause, it does not go into Schedule 1 of the Bill; and if you have a definition by reference to another statute it goes into the schedule, but not on to the face of the Bill. While I see the logic of that, it is not the only possible solution. It is explained nowhere, and I think it would certainly be helpful to people studying this Bill if the logic was made clear. For instance, looking at Clause 577(5) which is the clause introducing Schedule 1 it says: "In Schedule 1 . . . (b) Part 2 lists where expressions used in this Act are defined or otherwise explained". That actually is misleading because it does not do that. It lists where some of the expressions used in the Bill are to be found or otherwise explained. I think there is something to be said for Lord Brightman's amendment which would apply also, I suspect, to a number of other expressions defined in other statutes where the definition or the reference to the definition would be brought on to the face of the Bill. That would also be logical although I can see the arguments against it.

  Mr Davey: Perhaps the witnesses could answer the point raised by Lord Goodhart to explain the logic of where the definitions are in the Bill. It is important to substantiate that principle.

  Chairman: Perhaps I can take any other views before we return to the witnesses or to Lord Brightman.

  Lord Howe of Aberavon: I was going to offer a cavalier view and say that in fact I do not think that the heavens would fall if either course were adopted. There is a certain amount to be said for Lord Brightman's reaction, with which I have some sympathy. However, it is rather odd for someone not familiar with the legislation to have one pair of words defined and another pair of words on the next line not defined. It does not affront my sense of logic if we make an exception in that case. I was going to suggest that my sense of ownership over the Bill would be less affronted if we did not, at this stage, have to introduce a Clause (2A) because I can see us having a long list of (2A) clauses. The same objective could be achieved with both amendments if we did the following. In subsection (1) add after "period of a company" the phrase "and (c) `accounting period' has the same meaning as in Section 12 of ICTA". Then we would make it one half sentence as paragraph (c) of Clause 6(1). I would not mind if something like that happened.

  Lord Blackwell: As Lord Howe says, this obviously is not a matter of life and death, but we are establishing the principle on which future Bills may be drafted. The principle that I would like to put forward is that these Bills should not simply be written for tax experts. Another important audience is legislators who have to read and understand them. Most of us are not tax experts. I make the simple point that while I think I know what an accounting period is, the juxtaposition of "accounting period" and "period of account" makes one wonder what the difference is. As a lay person it would help me to have somewhere where I could pick up a definition. On those grounds I support Lord Brightman.

  Dawn Primarolo: However this is done, I want to go back to the principle. The principle is whether it changes anything. Does it improve the Bill? People have talked about it being a matter of taste. This refers to an "accounting period". This is not bedtime reading; this is not a novel. People who approach this will approach it with knowledge. I think that it will be a bad precedent to set if we start amending or adding to legislation, which is already highly complex, issues that are a matter of taste, as opposed to direct meaning and understanding in the Bill. With due respect, we have heard that it would look better if this happened, but, as Lord Howe has said, the heavens will not fall in if we do not do this. Life as we know it will not come to an end on the basis that this Bill stands as drafted in these clauses from the Tax Law Rewrite project. I speak as the "culprit" of seven or eight Finance Bills. There is always pressure to change the phraseology slightly as a matter of taste. I believe that we should concentrate on substance. We have the opportunity to review this and to see how the Tax Law Rewrite project develops in other ways. Surely, we cannot move into a position where we commit the Tax Law Rewrite project already to have huge cross-references or huge lists of definitions at the end of every single project that they undertake. We do not need to say that this matter is completely closed, but in my opinion it adds nothing to the Bill that the Bill does not have already. As a Treasury Minister I do not actually want to see amendments made only on the basis of taste; they should be related to substance.

  Chairman: I believe that everyone has given their views without us having resolved anything. If it comes to a vote I do not think that I have one. With respect to the Minister, I think that this whole Bill comes down to a sense of taste. It started with my own distaste with the way in which Bills are drafted. The idea is to make it user-friendly and accessible in a helpful way. It seems that the vast majority of the Committee are in favour of putting into the substance of the Bill the clarification required, which does not change anything but it enables the layman to see what is meant by "accounting period". If I have understood the position correctly, we are talking about whether we have a subsection (2A) or do we achieve the same thing by putting it at the end of the clause so that you do not interrupt that part or do you adopt Lord Howe's approach and put it in as paragraph (c) under subsection (1)? That is wholly a matter of taste. If the majority of the Committee wish to put in a clarification, we have to decide where to put it. I do not think that we should debate that too much longer. So far my feeling is that the majority of the Committee is inclined to go with the drafting team.

  Lord Brightman: I shall be short. I deeply regret that the words "matter of taste" slipped out of my mouth. I did not mean that at all.

  Chairman: I think I used the phrase first.

  Lord Brightman: The object of the exercise is to produce something that will be helpful to the readers. The readers are not only judges, accountants and lawyers, but they will also be ordinary people. I would submit that ordinary people would find it much more useful to have this brief reference that I want to put in to the meaning of "accounting period". I believe that it would help the man in the street and I believe that it is a tiny price worth paying.

  Chairman: I think the Committee should try to decide now. It is right to point out that when the Bill is printed this amendment would appear as subsection (3), so you would not have a (2A) in the final Bill. I ask the Committee to move to a conclusion. Should we have a new subsection (1)(c), or a new (2A) which will become subsection (3), or should we have the addition suggested by the team? My understanding of the procedure is that we are right so far. We are still checking on the House of Lords' procedure. It would go as an annex to our report that goes before the House. It would not add to the length of the proceedings in the slightest. We can talk about the report and there will be one vote at the end as to whether the annex is adopted or not. It is a matter of deciding whether the balance is that we should have no amendment at all or should there be one of the amendments which we would have to choose between?

  Mr Davey: I asked for clarification from the witnesses about where one would look for the definitions if one were an ordinary person. If one had this on one's bedside table at night and was not clear on this point, is it obvious where one would go? Would one find a signal and an explanation to these types of terms? If we could hear about that from the witnesses we may avoid this discussion happening time and time again.


  87. Who would like to respond?
  (Dr Caldwell) Anyone reading the legislation will be looking at something like this[3] if they want to understand it; they will have to get to grips with the Income and Corporation Taxes Act 1988 at some point and they will have to know that there are general definitions in that Act. If they do not know that, they will go badly wrong. It would be quite an issue if the general definitions at the end of the Income and Corporation Taxes Act 1988 were repeated all the time. Matters would vary substantially and it would add to the bulk of our tax legislation.

  Mr Davey: On the basis of that I do not want to see any amendment at all.

  Chairman: As we are a Select Committee I do not want to take a vote unless we have to, but can Members of the Committee indicate if they agree that we should make no amendment whatever? (Members indicated by a show of hands) I think that is the majority of the Committee, which means that the choice is irrelevant. We can formally record that. The majority of the Committee have formally indicated that they do not think that we should make any amendment. That concludes our discussion on Part 1, the introduction to the Bill.

  Dawn Primarolo: Arising out of that, would the Committee feel that they wanted to say something to the Tax Law Rewrite team when considering further Bills about the point that Lord Brightman makes with regard to who would read this and what knowledge should be assumed? That is what this debate has been about. If that needs to be addressed, it seems to me that it needs to be addressed in all the Bills. We could say something to them about how they should proceed in future.

  Chairman: It is the whole issue of which definitions you put in the substance of the Bill.

  Lord Howe of Aberavon: May it not be better to consider that as we come to the conclusion of the Bill? We may learn more as we go along.

  Chairman: Yes, I think that is right. The Tax Law Rewrite people will have to look at what happens in this Joint Committee in any event.

  Baroness Cohen of Pimlico: We have decided on advice to take the view that the ICTA definitions embodied in the Income and Corporation Taxes Act 1988 are to be taken as read; they are to be taken as within the head of that legislation. As Dr Caldwell put it, the reader will not get far without it. You read the definitions in the ICTA alongside this.

  Lord Haskel: There is not much point in assuming that the ordinary businessman will read this Bill. In practice, ordinary business people will either read a digest produced by a trade association as to how it affects their particular type of business, or a digest from their accountants or professional advisers. The assumption that we should try to write Bills so that the man in the street will be able to understand them is a waste of time.

  Chairman: I agree with that. In an ordinary business the finance director may well sit down with his accountants and tax advisers and wish to have it explained to him. The ordinary participants in a business would expect their advisers to come back to them on the strength of this.

  Lord Brightman: Would I be a dreadful nuisance if I raised something in Clause 8? There are four references to a "pool" in that clause. In line 17, in subsection (1) it states: ""Subsection (2) applies if . . . any capital expenditure has been allocated to a pool". Again in line 21 it states: "The person to or on whom the allowance or charge has been made is not entitled to an allowance . . . in respect of (a) the expenditure allocated to the pool". The word "pool" is again mentioned in line 28. Six other clauses use the word "pool": Clauses 14, 29, 31, 32, 36 and 39. I do not have the remotest idea what a pool is and this is meaningless to me. We know from what was said earlier that we are engaged on the rewriting of the tax law in simple English. If there is no definition of a "pool" are we doing what we are supposed to be doing?


  88. Lord Brightman is embarking on one of the serious complexities of this subject. I thought that the Explanatory Notes were quite good on pools. It is one of my least favourite subjects, but it is one of those that I feel I only ever understand for a few moments after I have read an explanation of it. I have never been able to get beyond that. Would the team like to respond to that? It is true that there is no definition of "pool". How would the user cope with that?
  (Dr Caldwell) Curiously, although Lord Brightman says that he is not familiar with the expression "pooling", when I was giving my evidence to the Committee last week, I gave pooling as an example of the fact that we are trying to use words that are familiar to people. The existing capital allowances legislation hardly contains any reference to pooling. There are one or two references in clause headings, but the tax community has described what the legislation does in terms of pooling for a long time, for at least 30 years. If you look up the word "pool" in the Shorter Oxford English Dictionary you will find that the dictionary gives several meanings to the word. One of those meanings is to put resources and so on into a common stock or fund. It gives an example of that meaning which is about unit trusts. The example that it gives comes from a newspaper: when you invest in a unit trust your money is pooled with that of other investors. It seems to me that what the dictionary says is evidence and that it is not a totally unfamiliar expression to people, particularly in the financial world. By coincidence, tax legislation already uses "pooling" in the context of unit trusts. You can see that in Chapter 3 and Part 12 of ICTA and in Schedule 10 to the Finance Act 1996. "Pooling" is not defined in that context. The lack of a definition in that context does not appear to have caused problems in practice. We are not aware of it having caused problems. Would you like me to say anything further?

  89. No. It is a familiar jargon term that will be raised by every practitioner in the field. You are putting it on the face of the Bill for the first time. The Explanatory Notes deal with it at great length and there is quite a spectacular chart on page 18 showing a summary of a pool. No doubt that will be used by practitioners in future to attempt to grapple with the subject. Do members of the Committee have a view on the subject? We need the view of those who are used to dealing with capital allowances. We need to know whether they are so familiar with the use of the word "pool" that they are not looking for a definition for it. Have they found this reference to "pool" helpful or is it bewildering? Mr Broke, do you have a view on this?
  (Mr Broke) Yes, it is something that we have debated at some length. It adopts a jargon term which is entirely familiar to myself and to my colleagues in business. It seems to us to encapsulate precisely how one sets about this. Of course, I accept that someone coming to this entirely new—a lay man—could ask what a pool is and what he should do with it. Of course, there are rules that tell you what to do with it. That is inevitable with the use of a word in a particular context. We also debated the matter of the users of the legislation to a fair extent. My recollection of where we came out on capital allowances was that businessmen may use it, but, as you say, they will have their advisers around them. We felt that this was an extremely helpful use of the word, for the advisers at least, and we hoped generally.

  Lord Howe of Aberavon: I think Dr Caldwell said that the word is used already in other legislation in the ICTA.

  Chairman: But it is not defined in other legislation.

Lord Howe of Aberavon

  90. That underlines the point that it is a familiar term of art.
  (Mr Willis) Lord Brightman has identified a small gap in the Explanatory Notes. They attempt to explain "pooling" in plain terms, but it would have helped if the notes to Clause 8 had had a pointer to direct people to where they could find out what "pooling" means. I take the point that someone reading Clause 8 comes to the term before they see it explained. That does not go the whole way, but I think that it is part of the procedure. We should continue to improve the Explanatory Notes that accompany the Bill in response to the comments of the Committee and others and perhaps put it at an earlier point in the Explanatory Notes. The fact that the term "pooling" is explained later in the Bill and in the Explanatory Notes may help readers.

  91. That is a helpful comment. You were not talking about amending the Bill?
  (Mr Willis) No, amending the Explanatory Notes.

  Mr Davey: If there is no defined expression in law at the moment in relation to "pooling" I do not see how this Bill can introduce a definition. Therefore, we have to use the definition in common parlance.

  Chairman: We should be very careful in relation to introducing a definition of a word that is in common use by all practitioners, otherwise we shall cause confusion. If something works well in practice it could suddenly be made complicated by Parliament's attempt to define it in a statute. Lord Brightman, you raised the point.

  Lord Brightman: I do not want to say anything further.

  Chairman: All these are things that can be considered in the future. Even the Government in drafting the Finance Bill can bear in mind some of the points that have been made. There are those in the Inland Revenue who need the Explanatory Notes and they could be improved.

  Lord Goodhart: I have one small point. I am not proposing an amendment, but I think it may have been put slightly clearer in Clause 8 if instead of referring simply to Part 2, "any capital expenditure has been allocated to a pool", if they had said "under Chapter 5 of Part 2" which would make it a little more direct in relation to the provisions. Part 2 is a very big part. A little more guidance may be helpful, but I do not suggest an amendment.


  92. Do you wish to respond to that or do you wish to reflect on it?
  (Dr Caldwell) It may be misleading just to refer to Chapter 5 because there are rules in subsequent chapters saying that if you have a car that costs more than a certain amount you have to allocate the expenditure on that to a particular pool.

  Lord Goodhart: I would have said that that was covered by Clause 54. This is getting technical.

  Chairman: We have embarked on Chapter 2. We have covered "pooling" in Clause 8. Looking at the changes proposed, as we agreed last time we shall take those as our guide. Looking at Chapter 2 of the Bill, are there further points that members of the Committee would like to make? I refer to Part 2 as described in the breakdown prepared for us. This is actually the vast bulk of the Bill. This is certainly where the vast bulk of the changes are. Are there any further points on Part 2 which covers plant and machinery allowances? In that case, are there any points that any Member wants to raise on Part 3, dealing with industrial buildings allowances?

  Mr Ottaway: As you have passed from Part 2, do I take it that we have accepted the 31 changes?

  Chairman: Do you wish to speak to any one of them? I think the issue is, are any of these changes so substantial that they should be in primary legislation and do they go beyond that which is necessary for this exercise? Please choose one at random, Mr Ottaway.

  Mr Ottaway: I would not know what I was talking about.

  Lord Blackwell: At the last meeting we asked whether it would be possible to have an indication of the impact of the changes and we got the response that they are all small changes. Can I confirm that the intention is not to give us any more information on the individual impact?


  93. Has it been possible to add any more, Mr Willis? On some of them you did not know whether the taxpayer would be affected at all.
  (Mr Willis) That is correct. It has not been possible to produce anything in the way of quantitative figures that I can put in front of the Committee with the exception of one change. Perhaps I misunderstood the Committee's wish. We are certainly prepared to answer questions or to volunteer an explanation on any of the 10 changes that are italicised in the Bill as they may add to taxpayers' charges. On one of those we have some relatively hard information about the numbers that may potentially be affected, but there are also good reasons why we do not think that there are any in practice.

  94. Can you give us an example of that one? The Committee can only dip into this sort of thing. No one is raising any question of principle.
  (Mr Willis) Perhaps I can preface it by the fact that the arguments are often similar even when we do not have the few numbers that we have. The particular change is change 22 in the list. That is in Part 2 of the Bill. It is a change to the legislation which is part of the legislation governing the limit on the amount of a balancing charge that may be deferred on the disposal of a ship. I am conscious that that has about the average number of jargon words. I do not know whether it would help the Committee if I said that a balancing charge is an amount that is brought in like income and taxed. In the case of a shipping company it would be added to the profits in the normal way. This is a provision that says that if a shipping company sells a ship and may have to bring a balancing charge in to add to its profits, it can defer that balancing charge on the basis that in a later year it will buy a new ship and that new expenditure in broad terms will frank the balancing charge. It is known colloquially, I am sure with a certain amount of unintended bad taste, as the "roll-over" relief for ships. The reason why we do not expect this change to have any effect in practice is five-fold. As I say, it applies only to sales of ships, so it is a narrow sector issue. Secondly, the legislation is used by very few. The Inland Revenue carries out a survey periodically of this use of this legislation. The latest estimate based on that survey was for accounting periods ending in 1998 and the relief was used by 19 companies for 27 ships. I accept that that will be important for those 19 companies, but we then add to that the fact that in the future it is likely that many ships will come within tonnage tax and this legislation will not apply to them. There is also the fact that the legislation was intended to allow shipping companies to defer the balancing charge on the ship. Due to an oversight in the legislation, and on our close forensic reading of the legislation, one may also be able to defer a balancing charge that arises in part because of the disposal, for example, of some expensive cars in the same chargeable period. So far as we are aware, no one else has noted before now that that was how the legislation read. Certainly, if anyone had come along to our tax inspectors at head office and said, "Can we defer a balancing charge because we have sold this ship and we have also sold our fleet of limousines at the same time?" the reaction would have been polite and helpful, of course, but negative. Finally, in a sense the most important point is that we consulted on this change and no one came to us and said, "Please, do not do that because we shall have to pay more tax". As with so many of the changes, that does not add up to absolute proof that no one will be worse off, but one puts layer on layer of the sieve in place and one ends up with the fact that the chances of anyone being worse off as a result of this are so small that it is a minor change.

  95. The consultation process means that no one can be surprised that such a change was contemplated. That is the nearest we have to any substantial measurement of the impact of a change.
  (Mr Willis) I am afraid so. On other changes there are different arguments in terms of why we think they are minor. That is the only one where I have hard numbers to offer you.

  Chairman: The Committee has set out before it explanations as to why each of the changes is regarded as minor, but in relation to this one I am grateful to Mr Willis for illustrating the change.

Mr Ottaway

  96. Mr Willis, can you explain why it is in italics?
  (Mr Willis) It is in italics because in principle the change could lead to people paying more tax. I understand that it is the convention of the House that such a Bill indicates by italics where a change is covered by the Ways and Means resolution.

  Chairman: For the public it is printed in the normal way, but it is italicised for the purposes of this Committee and for the House. It draws our attention to it.

Mr Ottaway

  97. I thought that may be your answer, so looked at the next two changes that are not in italics. Change 23 relates to Clause 141(2) and is not in italics and nor is change 24 in relation to Clause 155(2)(b).
  (Mr Willis) That is absolutely correct. That is because no one would end up paying more tax as a result of the changes.

  98. Because of change 22 people may end up paying more tax but in your judgment it is unlikely?
  (Mr Willis) Yes.

  Chairman: They may have done, if anybody had thought about it.

  Lord Howe of Aberavon: One can summarise change 22 as being a pre-emptive strike against a loophole which has been identified only by the Inland Revenue in the course of this exercise.


  99. If the shipping companies have not spotted it no one will have done.
  (Mr Willis) I would not want anyone, shipping company or otherwise, to take the discussion here as meaning that the Inland Revenue would not consider challenging any attempt to defer a balancing charge based on the disposal of expensive cars. Quite rightly throughout this exercise we have erred on the side of caution in identifying something as a change. Faced with a practical case we may decide to pursue it through the independent appeal commissioners and the courts, even though it is identified as a change here. Perhaps I can also add that although there is here an element of closing a loophole, it also makes the legislation better because it is logical. If you are told that there is relief that allows you to defer a balancing charge on a ship you may be rather confused and surprised to be told that it is not just on a ship but also on some other things. It brings about an improvement to the legislation.

  Lord Blackwell: Having raised this point, I believe we have the assurance that we need, without going through all the detail. The drafting group are telling us that that kind of logic is tried and tested and the answer is that when it is applied there is nothing of significance.

  Chairman: That seems to be the sense of the discussion, having regard to the weight of the material given and the explanations. Part 2 contains the great substance of all these changes. The remaining Parts, as was explained to us when we started, are really in descending order of significance and likely use in practice. This Bill puts all its most important provisions towards the front and the minor ones towards the back. Perhaps I can take the rest together. Has any member of the Committee any point to raise on any other Parts of the Bill or any other changes to any other Parts of the Bill? I do not know whether we have an expert in dredging allowances. Dawn Primarolo is dying to explain tonnage tax.

  Dawn Primarolo: There is not one.

  Chairman: Our discussions have covered the approach to the Bill, the method of drafting that has been adopted and the extent of the changes that have been made and it will not add much to dip further into individual changes. Has any Member of the Committee any other points that they would like to make before we consider our report to the House?

1  See Appendix 1, p. 56. Back
2  See Annex, p. 55. Back
3  The witness indicated a Volume containing the main Acts about direct taxation. Back

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