Mr. Flight: Many people change jobs during the course of a year. If someone moves to a new job where, for better or worse, fuel is provided part of the way through the year, this measure, if I understand it, will mean that they will end up receiving a year's charge. Is that correct?
Mr. Boateng: That would be a serious disincentive and a serious distortion if it were the case, but it is not. I know that that will provide some reassurance to the hon. Gentleman. What we do not want is to enable people to opt in and out of free fuel within a tax year only to benefit from a reduced charge. We think it right that where provision recommences, a proportionate reduction ceases to have effect and the full year's charge applies.
The question might be asked, why not have proportionate charges, regardless of the number of times someone decides to receive free fuel and subsequently opt out? We do not think that that would be a proper response to the issue. We want to discourage the sort of binge fuelling that I do not think anyone in the Committee would approve of. Cases of new jobs will not, however, be affected, because each employment is regarded as separate for tax purposes. People are unlikely to manipulate their jobs in order to get free fuel because that does not make sense. The hon. Gentleman can be assured that people will not be affected if they change their jobs in the way in which he has described.
With that assurance, I hope that the hon. Gentleman will not push his probing amendment to a vote, because its consequences would not be desirable for him or anyone else in Committee.
Mr. Flight: The issue is not big enough to put to a vote, but the Financial Secretary may be aware that the Law Society is not confident that the wording is clear and is concerned about possible interpretations in the areas about which we have talked. There could
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still be minor issues of injustice, but I understand his objective and therefore beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 34 ordered to stand part of the Bill.
Clause 35 ordered to stand part of the Bill.
Minor amendments to Schedule E charge
Question proposed, That the clause stand part of the Bill.
Mr. Jack: I just rise to welcome in general terms the Government's decision to use clause 37 to advance the process of the tax law rewrite, which is a sensible and welcome development and one that I strongly support. I have one or two points to make later in the schedule, but I shall not make them at this stage. Suffice it to say that the clause is understandably modest and entirely compliant with the terms of the tax law rewrite.
As the Paymaster General knows, the tax law rewrite has accumulated a further list of changes to tax law, and in particular to scheduling, that cannot be tabled in this clause because they are not compliant with the terms of the tax law rewrite. I should be grateful for some assurance that the Government will not lose sight of the wider improvements that the exercise is generating, and at some point in the future will see fit at least to comment on the proposals that have been accumulating in the various minutes of the tax law rewrite exercise to allow us the benefit of their opinion. My final observation is that although the exercise is extraordinarily welcome, before the Bill is out we might wish to take a further look at the whole question of complexity in the tax system.
Mr. Davey: I wish merely to support what the right hon. Member for Fylde has just said. I wonder whether the Paymaster General has thought about reserving a part of the preparations for every Finance Bill for the tax law rewrite project to put forward proposals that would assist in that process. Perhaps she is effectively doing that, but I wonder whether that is included in the standard process that the Inland Revenue adopts to prepare for Finance Bills. If it is not, I wonder whether she will suggest that her officials go through that standard process.
The Chairman: Order. I do not want to prevent the Paymaster General from responding if she wishes to do so, but that was irrelevant to schedule 6.
Dawn Primarolo: I shall respond briefly on the tax law rewrite. I am due to meet with representatives of the tax law rewrite just after the Bill ends, but the point was well made. The tax law rewrite project allows its representatives to rewrite tax law and not to change policy. As we saw on capital allowances, however, sometimes rewriting can throw up some issues. I am certainly prepared to take away the point that both hon. Members have made. As the body of work on the tax law rewrite builds up, we are interacting with the
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project better to facilitate its progress in that area. The partnership is growing and will be reinforced. I shall look at the points that both hon. Members have made and consider how we can take them forwards.
Minor amendments to Schedule E charge
Mr. Flight: I beg to move amendment No. 15, in page 141, line 2, at end insert
'1A At the end of that section insert
''(10) Where tax is chargeable on any gain under this section by reason of the exercise of any right then that tax shall be payable as if that gain had been made in the year of assessment in which the person concerned disposes of the shares acquired on the exercise of that right, and sections 202A to 207 inclusive shall be applied accordingly.''.'.
As Committee Members may be aware, during the last Parliament three pieces of legislation concerned adding employer and employee national insurance contribution charges to unapproved share option schemes. When it was realised that the cash flow cost to younger, new economy businesses could be disastrous, because those companies could transfer the employer liability to the employee, we were left with unapproved share option schemes where the employee paid approximately 49 per cent. tax charge, which had to be paid on exercise.
Within the gambit of share option centred arrangements, there is the old approved scheme that is still subject to capital gains tax, which has been frozen now for more than 10 years, or there is the new enterprise management incentive share option scheme, which is extremely attractive if businesses can meet the fairly demanding qualifications, and have the time to spend money on a lawyer to implement it. The schemes overwhelmingly used are unapproved share option schemes because of the restrictions on the two above.
One of the aspects of the Chancellor's presentation and policy of which we approve has been his focus on entrepreneurship in the United States economy and his understanding of why better growth has been achieved, and what is needed to do that. Many measures have been introduced in that area. However, as the venture capital industry continues to complain, one area that is unsatisfactory is that of share option schemes. Such schemes are particularly intended to enable medium-sized businesses to recruit top-quality people who would otherwise work for bigger businesses at higher direct pay on a basis of less pay today and the hope of reward from share options in the future.
The changes to national insurance contributions have put the bill up further to about 53 per cent. net. That is extremely uncompetitive when compared with, for example, the overall US tax arrangements for approved share option schemes. The various bodies in the venture capital industry have put it to me that, at the very least, it might make sense to change the time at which the tax liability is paid to when the shares are sold rather than on exercise. As things stand, people
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cannot achieve the objective of becoming a shareholder in the business. They have to sell the shares of unapproved options on exercise in order to pay the 53 per cent. tax. The net tax effect on the Revenue would be neutral, and many people may decide that they still need to sell because they would not want to run the risk that the value of the shares might fall if their tax liability was set by the value at the time of exercise. Amendment No. 115 would give the individual the option either to behave as he is forced to nowsell and pay immediatelyor to own the shares and pay the 53 per cent. tax when he sells them.
Dawn Primarolo: We had a very short debate on the clause before considering the schedule. The amendment would change that schedule. I want to explain why we are proposing the changes. The provision is put forward in conjunction with the next tax law rewrite Bill, which is in schedule E. The focus of the amendment is that the rewrite considerations of schedule E to date have thrown up the need to make changes, which are covered in schedule 6. Those changes are to address anomalies or fill small gaps in schedule E legislation that would normally be outside the scope of the fix that the rewrite Bills can undertake but that, none the less, will greatly assist the rewrite. They cover such matters as share options, credit tokens, benefits in connection with the termination of employment, taxation of benefits where income is received free of tax and priority of changes between sections 148 and 595. The amendments about that matter are simply for tidying up.
The hon. Gentleman seeks something entirely different in his amendment. It concerns not tidying up, but a new principle which would relieve the obligation of tax on the receipt of, in this case, shares.
Mr. Flight: On the exercise.
Dawn Primarolo: No, it is not on the exercise. Perhaps I should explain what the amendment would do, why it is not possible and why it is perhaps not quite what the hon. Gentleman is speaking to.
At the moment, if an employee obtains any asset as a direct result of their employment, it is taxable on its value at the time that it is received. For example, if a valuable oil painting is given to an employee as a reward for services, liability arises on the value of the painting at the time. The award of shares is no different where it is basically being paid as a salarya paymentto an employee.