Examination of witnesses (Questions 100
WEDNESDAY 31 JANUARY 2001
WILLIS and MR
Baroness Cohen of Pimlico
100. Something that just caught my eye going
through this is the occasional clause which uses the word "extends
slightly". It is industrial buildings. "Extends slightly
the availability of . . . allowances for roads on industrial estates
. . ." Clause 284. The meaning of the word "extends
slightly the availability" of allowances. Tell me you are
not changing the law, do. In ordinary English the words "extends
the availability" of allowances does suggest some change
to the law. I will just try and find the wording of the clause.
It is Part 3 of the Bill, change 33. " . . . extends the
availability of industrial buildings allowances for roads in business
parks . . .". It is very commendable but it does sound like
a change in the law.
(Mr Willis) Good point. It is a change in the law
but it is covered, at the moment, by an Extra-Statutory Concession,
essentially. So it is legislation
Chairman: It is applying the law to a
long-standing practice. If there are no further points
Lord Goodhart: Could I raise one point?
I would like to ask whether the witnesses have any response to
the Law Society's briefing which has been circulated to us in
the papers which we have just received? For instance, one of the
points that was raised, perhaps the simplest one, was on Clause
12, where they say "... in referring to expenditure incurred
for the purposes of a qualifying activity `by a person about to
carry on' the activity" they are unhappy with the use of
the word "about" potentially indicating that it might,
on the face of it, mean expenditure must be incurred very shortly
before the activity is commenced, whereas they say that in practice
it is interpreted less restrictively, and that they would have
preferred an alternative form of words.
Chairman: Can I, first of all, check
that every member of the Committee has got the document we are
referring to. It was in the documents I got last night but which
some Members of the Committee have had handed to them this morning,
from the Law Society, CA8.
It falls into two parts. The bulk of it, in fact, is, I think,
the Law Society very helpfully sending us their detailed comments
on a draft Bill produced in the summer of last year when it was
out to consultation. The up-to-date bit is the first page, where
they give their up-to-date comments on the Bill that is now before
the Committee. Would you like to direct us to the particular point
in the document, Lord Goodhart?
Lord Goodhart: Yes, on the new document,
at the front, it is paragraph 3, where they say "Examples
are the points we raised in our comments of 2 October 2000 on
Clause 2.1.2 (now Clause 12)". Then, going over to page 1
of the longer document they say: "Clause 2.1.2 follows Section
83(2) of the Capital Allowances Act 1990 in referring to expenditure
incurred for the purposes of a qualifying activity `by a person
about to carry on' the activity. The use of the word `about' could
imply that the expenditure is incurred immediately before the
qualifying activity is carried on. So far as we are aware, the
Inland Revenue have not applied the legislation so restrictively
in practice." Then they suggest an alternative form of words.
101. Can we have a response from a witness?
(Mr Willis) On what was Clause 2.1.2, Chairman, I
confess my memory of all the comments we received from all the
representative bodies on the draft Bill is not perfect.
102. You have just been shown the document,
have you? I am sure the Committee would not mind if you conferred
for a moment or two, just to make sure that you have considered
it. You have just been reading it as Lord Goodhart has been reading
it. I think it is fair that you should be allowed to discuss it
for a moment before you reply.
(Mr Willis) Would you give us one minute?
(Mr Broke) Chairman, are there other copies available?
Chairman: Can we get a copy to Mr Broke
and anybody else who wants one?
Lord Howe of Aberavon: Chairman, it might
be worth pointing out, while they are deliberating, that the essence
of the comments contained in this shorter note is focusing on
what could have been more policy simplifications.
Chairman: I think we are all agreed that
most of the Law Society's notethat is, the up-to-date,
final noteis saying that this underlines the need for a
review of policy. I think this Committee has to accept that a
policy review cannot be carried out by us. It is for the Chancellor
to have a policy review and, if he feels the case is made, he
can produce some proposals for Parliament in a Finance Bill. I
am not sure that the point actually raised by Lord Goodhart is
totally a policy point, it is more a point of why was the opportunity
not taken to incorporate some of the existing law in this Bill.
103. The law is inconsistent with current practice.
It is not really a policy matter.
(Mr Munro) Chairman, I think I will invite Helen Caldwell
to answer first on this point, and then, possibly, Robin Willis
(Dr Caldwell) The existing provision we have in the
Bill does follow the existing law. If one were to make a change
of the kind suggested by the Law Society we would need to look
at a variety of other provisions which deal with the issue of
whether a person had incurred expenditure before they started
to trade, because there would be interactions to look at. From
the drafting point of view, there would be a number of complex
questions to investigate. Obviously I cannot answer as to how
those issues might be resolved in policy terms.
(Mr Willis) Chairman, my recollection of consideration
of this was partly in terms of not being absolutely clear what
we would put in place of "about". The Law Society are
really suggesting that it is simply expenditure incurred for the
purposes and that there is absolutely no time limit, no sense
of timing whatsoever. That may be what they are looking for but
it did strike us as being quite a significant step to drop the
sense of timing between the connection. I am not disputing what
the Law Society say when they say the Revenue has not applied
it so restrictively, except that I am not perhaps absolutely clear
it was not what they meant "about" so restrictively.
Perhaps I could also say, in case you are wondering why we did
not talk about this, that if I had known that the Law Society
felt that that point, in particular, was so strong, clearly we
would have discussed it with them. After seeing this I will want
to talk to them just to get a better understanding of precisely
what, in practice, is their worry.
104. What is the present practice on timing?
(Mr Willis) It is not totally defined, Chairman, is
my understanding, because it is a matter of facts and circumstances.
I would not attempt to say how a Court would approach it but the
"about" has, I think, the connotation of time.
105. Is the litmus test on this to try to ascertain
whether or not the expenditure is directly related to the activity?
If one states "before" I can see circumstances where
the timing here could be such that it would be very difficult
to prove whether it was related to an activity.
(Mr Munro) The point is that we are not proposing
any change in existing practice here. We will obviously need to
reassure people in the Law Society that that is the case.
Chairman: That is quite helpful as a
response to the point they made in their original comments on
the draft Bill.
Lord Blackwell: It does seem slightly
unsatisfactory. The conclusion is that the way the law is currently
applied is uncertain, and therefore we are not defining it because
there is uncertainty about the way it is applied. I would have
thought one of the objectives of this legislation ought to be
to try to create certainty where there is uncertainty in order
to make it simpler to understand it.
106. I take Lord Blackwell's point, Chairman,
but I did not think that was our job in this Rewrite project.
If it is uncertain in the current law it probably needs to stay
uncertain. If there is an Extra-Statutory Concession which is
defined and clear which everyone knows about, fine, bring that
into the law, but if there is an area where things are not defined
which could affect quite a lot of businesses, then it is not the
job of this project to try to sort that out.
(Mr Broke) Chairman, I cannot recall any discussion
in the Consultative Committee of the points made but, plainly,
to me, if you change an English word like "about" you
are going to change a meaning somewhere and you are going to almost
certainly change the lawI would suggest. If there is to
be a time limit then that is a matter for Parliament and that
would be a matter for the Finance Bill. We are simply following
the old words and the old words use English. "About"
is an English word.
107. Of the two points on 12, the second one
is about a policy issue and the first one is that it is more restrictive.
You said absolutely that was not the case.
(Mr Willis) I think, as I understand the Law Society's
point, they read "about" as being restrictive and would
like that restriction removed. I am not totally clear that I understand
why they feel "about" is so restrictive. So I suppose
yes is the answer to that, if that is what they are thinking.
I think what they are looking for is a change in the law to guarantee
that there is no restriction on timing of any sort. I do sympathise
with the point that we ought to be making legislation certain,
but as Mr Broke said, if we had come forward with a minor change
saying "Well `about' is rather vague, let's make it `up to
but no more than six months before you start your qualifying activity',
then that would have been a taxpayer-adverse change because that
guarantees that expenditure six months and one day earlier cannot
qualify. I think that was, perhaps, Mr Davey's point, that there
is a trade-off, as ever, between plain English and absolute certainty.
Chairman: So if the law requires greater
clarity it needs to change the law and that takes us beyond the
scope of this project.
Baroness Cohen of Pimlico: Where there
is doubt let us not bring certainty.
Chairman: Where there is doubt that requires
a change of law to resolve it, it is not for this Committee to
change. Do you agree with that conclusion, Lord Blackwell?
Lord Blackwell: I agree, from what has
been said, that that is outside the remit of the Committee. I
still think certainty is desirable at some stage.
Lord Howe of Aberavon: May I take the
opportunity of emphasising that as a general point, Chairman,
because it is a theme of this exercise time and time again, and
we have been tempted to make changes that would improve the policy.
What it does do is underline the case for successors to your jobeven
the present Chancellorto begin looking at the policy on
merit and simply for its own sake. No one could imagine it is
easy. Every nuance is difficult and every nuance implies winners
and losers, but it is the next most urgent task. What this thing
is doing is making clear some of these points. It is a huge agenda,
but that goes beyond our function.
Ms Kelly: I would be very interested
in any comments on paragraph 4 of the Law Society's notes. "We
remain unclear why it was not possible to incorporate the parts
of Schedule 12 to the Finance Act 1997 relating to capital allowances.
It would have been preferable to incorporate these provisions
in the Capital Allowances Bill so that the Bill dealt comprehensively
with capital allowances." At first sight that would seem
108. That seems a very straightforward request.
Is there a response to that?
(Mr Willis) It is a very fair question and one we
did consider. The legislation in question is anti-avoidance legislation.
It is, dare I say, complexthat is by the standards of tax
legislation. It does not just apply for the purposes of capital
allowances, it has much wider implications. So if you try to rewrite
the capital allowances aspect of it we would have been taking
some complex provisions, putting them in the Capital Allowances
Bill which would have needed a lot of the surrounding territoryif
I may put it that wayto set out to people when it applied
to tell them the capital allowances consequences and in just about
any practical case they would still have to hive off to the Income
and Corporation Taxes Act and plough through, essentially, the
same legislation there in order to find out the other consequences.
That is a very "by and large" answer. I am not saying
it would not have been possible but the judgment was that it was
not likely, really, to be helpful to people to have a set of anti-avoidance
provisions hand-crafted for capital allowances separate from the
similar provisions hand-crafted for income or profits.
109. We do not have Schedule 12 to the Finance
Act before us, but it refers back to the Income Tax and Capital
(Mr Willis) I have managed to find it. It is rather
hard to give you an estimate because this commercial publication
uses rather smaller typeface than statutes.
110. It is a lengthy schedule.
(Mr Willis) As I go through, I think it is on the
sixth page of the schedule, paragraph 11 starts dealing with capital
allowances and states: "This paragraph applies in any case
where an occasion occurs on or after 26th November 1996 on which
a major lump sum falls to be paid in the case of the lease of
the asset." Those are terms explained earlier on in the schedule.
111. Although I quite accept that if we had
the benefit of Schedule 12 we would probably find it would take
quite some time for all the Committee to get up to speed on this,
but actually sorting out this complexity and avoiding these cross-references
is what the exercise is about. It is a bit late in the day to
start trudging through this particular one; certainly the Law
Society's paper only reached me yesterday and some people this
morning. Now the Law Society has drawn all our attention to it,
perhaps you would like to consider whether, if it is in a discrete
part of the schedule it might not be possible to pull it out and
put it with the rest of the capital allowances legislation. The
Finance Bill is going to start to amend this as soon as we finish
this and you could actually address the point as a subject of
the Finance Bill.
(Mr Munro) Chairman, may I just comment briefly on
that? One of the things we would like to do, as well as taking
all those points on board, is to discuss with the Law Society
why, if this is such an important point, it has only been raised
at this very late stage. They are represented on the Consultative
Committee and they have seen all the earlier consultative material
that we have published. So we need, I think, at the very least
to confirm that this is something that the Law Society as a body
are consistently in favour of. There are certain difficult issues
arising from plucking out the relevant bits in Schedule 12 and
divorcing them from the rest.
Dawn Primarolo: So this is a new point.
It has been in since 1997 and they have just raised it?
112. It is raised as a point under Clause 8.3.5
in the comments they made on the draft Bill. They did raise it.
It is on page 5 of my copy of the Law Society's document, which
is why their up-to-date notes say they "remain unclear"
as to why you did not adopt their proposal on what was Clause
8.3.5 in the draft Bill.
(Mr Munro) Thank you, Chairman. I was not aware of
113. To be fair to the Law Society, I do not
think they have raised it at a late stage, it just says it is
a point they raised in the draft Bill and they still cannot understand
why it has not been done. I think, Mr Munro, for you to have a
meeting with the Law Society and discuss it further would be helpful,
because they obviously feelas they put itunclear
as to why their suggestion was not adopted.
(Mr Munro) I shall do that.
Ms Kelly: With respect to the team, they
have done a brilliant job. It does not really matter whether it
was raised late, or how it was raised, or whatever; the point
is a substantive one, whether it should be included in the document
and for future documents. This is the way that the Bill could
be improved, therefore should it not be put out on a wider basis
to all the members of the Consultative Committee so that it could
be incorporated, perhaps, in a later Finance Bill.
Lord Howe of Aberavon
114. I think Chairman, is it not right that
this Bill was the first of its kind, and the last period of consultation
has been more condensed than it might have been had it not been
for the imminence of this year's Finance Bill which promises to
contain substantial new chapters on intellectual property, in
particular? Clearly the course you are suggesting, that this might
be considered for amendment in a future Finance Bill, is well
worth taking on board, and clearly the whole Rewrite process team
are anxious, as always, to have the fullest possible consultation.
If this is one that seems to have slipped through without it it
may be due to the fact that in this particular case we did not
have time to produce a response document to the final round of
consultation. We normally produce a response documentand,
indeed, more than one for everybody. I think it may be that we
did not have quite enough time to do it on this, but I am subject
to correction on that.
(Mr Munro) I think that is right, Chairman. It was
a very accelerated timetable and normally our policy is to produce
a response document which summarises the points that have been
made and explains why any of them have not been taken on board.
It may well be that it is simply a lack of explanation on our
part which has caused this misunderstanding.
Lord Howe of Aberavon: I hope the closing
words of the Law Society's letter may be read in a benign fashion,
" . . . one or two concerns outstanding." If that is
the limit of their continuing anxiety, it certainly seems legitimate
but it is a modest shortcoming, I hope.
Chairman: I think the whole tenor of
their submission supports that. They "welcome the publication
of the . . . Bill . . . and hope that in future rewritten Bills
there will be a greater degree of review of the underlying policy
in order to simplify and clarify where possible." I think
the House has got to decide how far it is going to start reading
policy issues into this. I think that might be difficult. Otherwise,
I take the whole tenor of the Law Society's submission to be that
they are in favour of what has been done, but there are, as they
say, "one or two concerns outstanding", including the
draft of the schedule. I think we have reached the stage where
the Committee has got to decide the form in which it is going
to report back to the House. So far as I am aware, we do not have
a draft report before us. I am being advised that if we are going
into deliberation we should move the witnesses out. I am not familiar
with this instant desire of Select Committees to go into private
session, I do not approve of House proceedings being in private
very often, but I suppose in case our deliberations become confused
we had better deliberate in the absence of the witnesses. Lord
Howe asks if the witnesses could remain available outside.
4 See Appendix 2, p. 56. Back