Examination of witnesses (Questions 86
WEDNESDAY 31 JANUARY 2001
WILLIS and MR
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 respectalthough it may be a matter of
tasteI 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
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 clausepage
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
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
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 understandthis is the procedure on the floor of the Housethat
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
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
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 beforewe shall have
to see what the House saysI 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
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
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
87. Who would like to respond?
(Dr Caldwell) Anyone reading the legislation will
be looking at something like this
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
(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 newa lay mancould
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
Chairman: But it is not defined in other
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
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
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
96. Mr Willis, can you explain why it is in
(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.
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
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