Written Evidence
Letter to Stephen Timms MP, Financial
Secretary to the Treasury, dated 7 July 2009
SECTION 58 FINANCE ACT 2008
I am writing to you about a human rights issue which
has been raised with my Committee by a significant number of people,
concerning the retrospective effect of a taxation provision in
last year's Finance Bill, now s. 58 of the Finance Act 2008.
We have received evidence to the effect that, as
a result of this provision, more than 2000 people are now facing
tax demands going back up to 7 years, along with punitive interest
charged for late payment. Most of these people are freelance
workers, such as IT contractors, project managers, and oil and
gas engineers. The impact on many of these individuals and their
families appears to be severe. According to a survey of those
affected, provided to us by Mr Nigel Jagger, conducted between
1st and 5th June 2009, 57 said they could not meet the tax demand,
even if they sold all of their assets including their family home,
and a further 29 could only settle by selling or remortgaging
their family home. A number of people say they are facing personal
bankruptcy. The related financial worry is described as causing
mental health problems and marital breakdown.
We note that in a Written Answer dated 20 May 2009,
you stated that the Finance (no. 2) Act 1987 "retrospectively
restored the principle" that double taxation treaties do
not affect a UK resident's liability to UK tax on their income
or gains, and that s. 58 of the Finance Act 2008 was designed
to put beyond doubt that none of the avoidance schemes relying
on double taxation treaties in fact circumvented that principle.[16]
Asked what impact assessment HMRC had made of the effect of the
closure of the schemes by s. 58, you said that "formal impact
assessments are not published in respect of measures where the
impact is only on those who are avoiding tax and thus one was
not published for this particular measure." You estimated
that the tax at stake on these schemes was around £200 million.
The representations we have received argue that the
changes made by s. 58 of the 2008 Act are in breach of the right
to peaceful enjoyment of possessions in Article 1 Protocol 1 ECHR
because they are retrospective in effect and no adequate justification
for such retrospectivity has been provided.
These representations raise the question whether
the Government has provided a sufficient justification for closing
down this tax avoidance scheme with what amounts to retrospective
effect. The evidence of the hardship caused to a number of individuals,
taken at face value, suggests that the Government failed to carry
out the necessary assessment of the impact that such a retrospective
taxation measure would have on the individuals affected. In the
absence of a satisfactory justification for retrospection, there
is therefore at least an arguable breach of Article 1 Protocol
1. We note that some of those affected have been granted permission
to proceed with a judicial review by the High Court.
I would therefore be grateful if you could provide
my Committee with a memorandum setting out a detailed assessment
of the impact of s. 58 Finance Act 2008 on those affected, and
explaining the Government's detailed justification for the provision
having retrospective effect. Please include in your memorandum
evidence that, throughout the entire period 1987 to 2008, HMRC
has consistently made the case that the avoidance scheme in question
does not work.
I would be grateful if you could reply by 21 July
2009 and if an electronic copy of your reply, in Word, could be
emailed to jchr@parliament.uk.
Summary from Nigel Jagger of people
affected by Section 58 of the Finance Act 2008, dated 6 June 2009
Introduction
Section 58 imposes a retrospective tax on people
who used a scheme based on the UK/Isle of Man double taxation
treaty. The tax is also subject to retrospective interest. According
to HMRC, around 2000 people used the scheme between 2001 and 2008.
A survey was carried out, between 1st
June and 5th June 2009, to assess the impact this tax
would have on people who used the scheme, and 92 individuals responded.
All of these were self-employed freelance workers eg. IT contractors,
Project Managers, Oil & Gas engineers.
Financial Impact
48 people provided a detailed breakdown of their
liability to tax and interest, and these averages out at approximately:
Tax - £113,000
Interest - £27,000
Total - £140,000
Of the 92 who responded:
- 57 (62%) said they could not
meet the tax demand, even if they sold all of their assets including
their family home.
- 29 (31%) could only settle by selling or, where
possible, remortgaging their home
- 6 (7%) could cover the liability from savings/investments
or by delaying retirement
Many people indicated that, whilst bankruptcy might
be their only option, it would prevent them from continuing in
their current line of work due to solvency requirements imposed
by many organisations eg. Financial institutions, government agencies.
Human Cost
The majority of those who responded have families
with children. The fear of financial ruin has placed a terrible
strain on many relationships, and some marriages have already
broken down.
- 44 (48%) people said they were
under severe stress
- 14 (15%) reported problems sleeping
- 7 (8%) said they were suffering from depression
Selected Quotes
Below are a selection of quotes from the survey responses.
"It is such a large sum it would be very difficult
to pay back even over many years; especially with HMRC's high
interest rates…"
"For the last year, it feels as if I have been
standing in the middle of a cell with no windows, doors or other
exits. The walls have been gradually moving inwards towards me
and eventually they will crush me."
"The situation is causing great stress especially
for my wife who is pregnant. They pregnancy is already complicated
by a number of medical conditions and this additional stress is
only making the situation worse."
"This is causing great stress on our relationship
and both of us suffer from periods of stress and unhappiness as
a result. Although the biggest losers in all of this are the kids
due to the pressure on me and my wife we are often less than patient
with them and they are not having the fun time that youngsters
should be having. I am finding the prospect of all this very difficult
to handle and I am struggling to sleep at night, sometimes resorting
to alcohol to both help sleep and forget, whilst it is not out
of control I am aware that this is the slippery slope."
"I have a stressful job and having this occur
in my private life means I cannot concentrate/focus on my job,
often I am stressed as a result of both my job and because of
this which sometimes is really hard to deal with, to the point
where the worry has pushed to the point of breakdown and I have
felt I cannot take no more I just want it all to go away. The
thing that makes my situation worse is that my children who are
6 and 4 do not know what is going on and sometimes when it is
hard for me to deal with they don't see a happy dad and I take
it out on them, my relationship with my wife has also suffered
as a result of which on most occasions leads to arguments."
"This has been a black cloud hanging over my
wife and children for 6 years because HMRC taken this long to
take action. Caused untold strain on marriage and family life."
"The stress at times has been horrendous. My
wife has cried herself to sleep many times. It has put strain
on our marriage, made much worse by HMRC dragging it out for so
many years. If they had fought and won years ago, we would be
left with something, and would have had time to plan. Now we don't."
"My wife and I came close to splitting up last
year when all of this blew up. We had constant rows about money,
and this was not nice for our three children to listen to."
"Selling the house is not an option as the wife
would then want a divorce, don't even want to think about bankruptcy
- what about prison?"
"The stress of the situation topped by unfair
and unreasonable demands from HMRC has resulted in divorce proceedings
and I am having to sell my house in order to meet this obligation."
"It is no exaggeration to say this I have had
nightmares about the potential impact of this on us, and I worry
about this issue many times a day. My wife who is also currently
undergoing IVF treatment has point-blank refused to discuss this
matter because she finds it too worrying to talk about."
"Black deep depression at times. I worry for
our old age; my wife worries if I will survive to 'enjoy' it."
"It has affected me in that I can't sleep (DR
prescribed sleeping pills but they don't really help) which is
making me feel really unwell most of the time. I also have back
problems (had surgery) and the strain is really beginning to tell.
My back is the worst it has been for 8 years (since the surgery).
My wife handles it well on the surface but it is eating away at
her. She has been ill for 8 out of the last 12 months."
Government response to the Sixteenth
Report of Session 2008-09 from the Joint Committee on Human Rights,
dated 1 July 2009
Certified or Secret Inquests
Judicial oversight
1. The Secretary of State retains the power to
certify that certain information must not be made public nor disclosed
unlawfully, subject to judicial review. The Secretary of State
must now be "satisfied" that the inquest will involve
matters which should not be made public and that in his opinion,
it is "necessary" to hold the inquest without a jury
in order to prevent those matters becoming public. In our view,
this is largely a cosmetic change which is unlikely to lead to
a higher degree of scrutiny than the original test of whether
certification is necessary in the Secretary of State's "opinion".
In any event, the change is not sufficiently significant to override
the Committee's original concern that these provisions are deliberately
framed in a subjective way in order to avoid the scrutiny to which
the Secretary of State would be subject on an application for
public interest immunity (or an application for any other special
measures currently available). (Paragraph 1.8)
2. The introduction of a degree of judicial discretion
is an improvement on the earlier proposals. However, the power
of the Secretary of State to issue a certificate remains very
broad and the effect of certification will be to bind a judge
to ensure that that protected information does not come into the
public domain. This is a far cry from the PII process, where the
Secretary of State must make an application for protection, then
persuade the coroner, or the relevant judge, that it is necessary
to prevent publication in the public interest. (Paragraph 1.12)
Participation of bereaved families
3. In our view, nothing in the amendments introduced
by the Government meets our concern about how the effective participation
of bereaved families might be secured in a certified inquest.
(Paragraph 1.14)
Are these provisions necessary?
4. We are not persuaded that these proposals
are necessary or accompanied by adequate safeguards to protect
the right to life, as guaranteed by Article 2 ECHR. We recommend
that Clauses 11-12, and the equivalent provisions relating to
Northern Ireland in Clause 40 and Schedule 9, are deleted from
the Bill. (Paragraph 1.17)
Intercept evidence and inquests
The provisions on certified inquests were removed
from the Bill at Lords Committee stage on 10 June.
5. We recommend that the Government provide a
clear explanation of its view that the proposal for certification
is necessary in order to protect information gathered through
intercept and subject to the Regulation of Investigatory Powers
Act 2000, including why the operation of public interest immunity
and other options currently open to coroners are considered inadequate.
We recommend that this explanation should be supported, where
possible, by evidence. (Paragraph 1.23)
A number of solutions have previously been used in
case such as the de Menezes inquest in order to permit an inquest
to proceed in accordance with existing arrangements - and these
measures will continue to be used wherever possible. For example,
documents may be disclosed to the family's legal representatives
under legal undertakings as to their confidentiality; the gists
of evidence may be provided to families, and redacted evidence
to juries; witness anonymity (whether by way of witnesses being
identified by code letters/numbers, and/or giving evidence from
behind screens); police checks on family members, clearing them
to see/hear officers giving evidence; and specific warnings to
the media that attempts to identify publicly the police witnesses
would be regarded as contempt of court.
However, while measures such as these will continue
to be available in the reformed coroner system, they will not
provide a solution in those very rare cases where a coroner is
obliged to summon a jury and there is sensitive material which
is relevant to ascertaining the circumstances of the death but
which should not be disclosed publicly, including to the jury
(who are the finders of fact in such cases).
PII is often cited as a solution to this problem.
But PII prevents the disclosure of evidence to the finder
of fact. We need to find a solution that enables such evidence
to be disclosed to the finder of fact in order that a verdict
can properly be reached on the cause of death. If it is accepted
that there will be circumstances where sensitive evidence cannot
be disclosed to a coroner's jury it necessarily follows that,
in such cases, the jury cannot be the finder of fact as it would
be inappropriate for the jury to give a determination which is
not based on all the relevant evidence. The logical consequence
is that the jury would have to be dispensed with in such cases.
That is what the Government's proposals sought to achieve.
Using the Inquiries Act?
6. In our view, any Inquiries Act 2005 inquiry
specifically designed to circumvent an inquest, in order to meet
the Government's concerns about disclosure of sensitive information
would raise the same or similar issues as Clauses 11-12 about
the independence and effectiveness of that inquiry for the purposes
of Article 2 ECHR. (Paragraph 1.27)
An inquiry under the Inquiries Act 2005 is a legitimate
way of investigating a death in a way that is compliant with Article
2 ECHR, and is just as capable of fulfilling that function as
a coroner's inquest, a criminal trial or civil court proceedings.
We are confident that investigation of a death by
way of an inquiry will be Article 2 ECHR compliant in exactly
the same way as a certified inquest carried out under the proposed
(but now withdrawn) clauses 11 and 12 of the Coroners and Justice
Bill would have been, and will meet the requirements placed upon
such an investigation by rulings such as that in Jordan.
In particular, we consider that our proposals to
conduct such investigations by way of an inquiry would fulfil
the requirements of Jordan in the following ways:
- Relatives of the deceased will
be able to achieve closure, because they can have confidence in
the knowledge that the inquiry has had access to all the evidence,
including sensitive material such as intercept evidence, and has
reached a finding or findings accordingly.
- The public can have confidence that lessons will
be learned, again because any findings and determinations made
will have been reached on the basis of access to all the evidence.
- At the end of the inquiry, the inquiry's report
can contain recommendations outlining what actions should be taken
to prevent similar deaths in future, in the same way as can happen
after a coroner's inquest.
- The Secretary of State is under a statutory obligation
to ensure the suitability and impartiality of those conducting
the inquiry. In addition, if the person to be appointed to conduct
such an inquiry is to be a senior judge (as would almost certainly
be the case in these circumstances), the appointment is to be
made in consultation with the Lord Chief Justice, thereby further
ensuring the independence from executive control of the appointee.
- Even if persons (including bereaved families)
have to be excluded from those parts of the inquiry that are to
consider intercept or other sensitive evidence, the inquiry will
otherwise be open to the family, their legal representatives,
the general public and the press.
- If the family are excluded while such matters
are being considered, their views will be represented by the independent
counsel to the inquiry, who will be tasked with probing and questioning
that evidence on their behalf. (Such counsel already has the legal
right to hear intercept evidence under amendments made to Regulation
of Investigatory Powers Act 2000 by the Counter Terrorism Act
2008.) It is our belief that this represents suitable protection
for the interests of the next of kin for Article 2 purposes, in
that it supports the participation of the next of kin to the extent
necessary to safeguard their legitimate interests and as far as
is practicable.
- It remains our position that all other alternatives
that would enable an inquest to take place would have to be considered
and rejected before the decision would be taken to conduct the
investigation by way of inquiry, and that therefore inquiries
would only be considered in the most exceptional of cases.
Legacy cases
7. We recommend that, should these proposals
remain part of the Bill, the Government should provide a clear
explanation of its view that the Bill should not be amended to
ensure that the certification process has no retrospective effect
in respect of historical deaths in Northern Ireland. In the alternative,
the Government should give a clear undertaking on the floor of
the House that there are no protected matters arising from legacy
cases in Northern Ireland which would support certification under
Clause 40 and Schedule 9. This undertaking should clarify which
cases the Government considers legacy cases. (Paragraph 1.34)
The provisions on certified inquests were removed
from the Bill at Lords Committee stage on 10 June.
Scope of application to Northern Ireland
8. We consider that if the human rights enhancing
measures in the Bill are not to be extended to Northern Ireland,
the Minister should provide sufficiently cogent reasons. It is
not enough to say that we are all agreed that the situation must
be different in Northern Ireland. If reform of the coroners system
is to be left to the Northern Ireland Assembly, the Government
should explain whether, it its view, this is required by the devolution
settlement or is a policy decision designed to meet a decision
or request by the Northern Ireland Assembly. (Paragraph 1.36)
There have already been significant reforms to the
coroner system in Northern Ireland in recent years through administrative
means. In particular, these reforms have seen the creation of
a single Northern Ireland Coronial jurisdiction in April 2006
together with the appointment of a Senior Coroner and a presiding
High Court judge for the Northern Ireland Coroners Service.
It is the Government's view that further reform of
the coroner system in Northern Ireland should reflect the particular
circumstances of that jurisdiction including the discrete body
of coronial law there (principally the Coroners Act (Northern
Ireland) 1959), rather than simply seek to import, with necessary
modifications, the reforms designed for England and Wales.
The Coroners and Justice Bill has been used as a
vehicle to achieve one particularly pressing change to the current
law in Northern Ireland (namely the extension of a coroner's powers
in respect of witness and evidence), but otherwise it is intended
to take a comprehensive look at the 1959 Act separately. This
is currently under consideration and this stage of the work is
intended to be completed by the end of 2009. If, by the, responsibility
for justice matters, including coroners, is not fully devolved,
it would fall to Ministers in the Ministry of Justice to make
decisions on the way forward. If justice matters are devolved
by then, such decisions will fall to Ministers of the devolved
administration.
Where responsibility rests for taking forward further
reforms in this are is therefore simply one of timing. While decisions
in this area currently rest with the UK Government, responsibility
would in due course reside with the locally accountable elected
representatives in the Northern Ireland Assembly once crime and
justice matters are devolved. No request has been made by the
Assembly to the Government to defer further reform pending devolution
of justice matters.
Letter from Bill McKenzie MP,
Parliamentary Under Secretary of State for Work and Pensions,
dated 4 June 2009
WELFARE REFORM BILL
As you know, I will be taking the Welfare Reform
Bill through its Committee stage over the next few weeks. I wanted
to take this opportunity to thank you and Committee members for
your helpful report on the Bill published on 27 April. You raise
a number of interesting points, both on the measures within the
Bill and wider welfare policy, which I have no doubt will be explored
at length during Committee. I look forward to this opportunity
to clarify the Government's position. If necessary I will come
back to you in writing to deal with any outstanding issues.
The Bill drives forward the Government's commitment
to social inclusion and to making the best possible use of the
human talent available to us. We cannot afford to waste the enormous
skills and potential of our people, either in social or economic
terms; and we cannot, as has been done in the past, allow short-term
unemployment in a recession to develop into long-term benefit
dependency. That is why the Welfare Reform White Paper, "Raising
expectations and increasing support: reforming welfare for the
future" set out a single simple principle son which to operate:
that no one should be left behind. This principle requires the
continuing evolution of the welfare system to create an environment
which encourages and enables as many people as possible to return
to the labour market. It will be achieved by engaging with customers
and helping them overcome any barriers to work they may face.
This Bill will take further steps towards creating this personalised
welfare state.
In light of this, I would sum up the objectives that
the Bill seeks to achieve as:
- Personalised conditionality
- Simplifying the benefits system
- No one written off - enhancing support and control
for disabled people
- The option to devolve power to private, voluntary
and public providers.
While I do think that this Bill is the right way
to take our vision forward, I acknowledge the concerns you have
raised. I hope to be able to explore these points and others during
the forthcoming Committee stage. The report of your Committee
will be extremely useful in helping to frame and inform these
debates.
Safeguards are rightly an issue you have identified
as being key to making these measures work. I hope to be able
to use Committee to put our policy intentions - and how we envisage
them working - fully on the record. In the meantime, I attach
a copy of the information pack we have provided to Peers, which
I hope will be of some comfort. Levels of training, support and
guidance for Personal Advisers will also, I know, be discussed
in detail in Committee. It is right that they are, as these are
again crucial to the success of the policy. Once more I hope to
be able to give you the reassurances you need.
The availability of appropriate, accessible and affordable
childcare will also be key and, I know this will be covered in
detail in Committee. The principles and evidence behind the drug
dependency measures, and their operation in practice, will be
probed thanks to amendments already tabled by Baroness Meacher.
Meanwhile, the operation and effect of the child maintenance measures
will, I am sure, be debated in some detail, informed by the observations
of both your Committee and the Select Committee on the Constitution.
Finally, you raise some generic issues around the
contracting out of Government services and the definition of public
authorities. These, as you acknowledge, go beyond the measures
in this Bill. I think it is likely that some of these issues will
be touched on in Committee but they are not matters that we can
deal with in the context of this Bill.
Thank you again for your Report and its valuable
contribution to the scrutiny of this Bill. It is important that
we get these policies right, because of their effects on individuals
and families, and because of their broader economic implications.
16 HC Deb 20 May 2009 col 1400W. Back
| 
