National Insurance Contributions Bill

Lord Razzall Excerpts

Thursday 23rd January 2014 Grand Committee

I do not wish the clause, which introduces the GAAR into the Bill, to be agreed as legislation is meant to be effective and the GAAR’s record is far from effective in this context. How does the Minister intend to ensure that it is effective in this instance?

[Lord Razzall (LD)]

My Lords, when I looked at the amendments that the noble Lord had put down and saw this one, I had a wonderful fantasy that what we were seeing here was Labour adopting the stance of being in favour of tax abuse through the use of NICs. I was already beginning to draft the leaflet that would pin this new policy on the Labour Party. Sadly, having listened to what the noble Lord said, I realised that that was not what he was saying at all.

No doubt the Minister will respond to attacks on the GAAR. I listened very carefully to the speech of the noble Lord, Lord Davies, but did not hear any explanation of why, if the GAAR exists and includes provisions in relation to tax abuse generally, NICs should not be included in it. I understand that the noble Lord does not like the GAAR and does not think that it is effective—but, given that we have it, I am not sure why we should not include national insurance in it.

[Lord Newby]

My Lords, I am grateful to the noble Lord for introducing this debate, because it has given me the opportunity to make a suggestion to him about what we might replace the term GAAR with. I wonder whether he would be happy if instead of calling it GAAR, we called it GREAT, as in Great Britain: the general rule to eliminate the avoidance of tax. If we had done that, we might have satisfied the noble Lord, and summed up our emotion when we think of the new provision.

The noble Lord’s basic argument is that we are not doing enough. As a veteran of debates on GAAR over the past decade, I recollect that noble Lords in the previous Government—perhaps even the noble Lord, Lord Davies—explained to me why the GAAR was totally impossible, completely unworkable and the Government would not countenance it. Indeed, they did not; they did not do anything in this area. The fact that the noble Lord finds this inadequate is slightly sad, given their failure to act in this area.

The noble Lord raised a number of points of failure, as it were, but one of them was in respect of the agreement with Switzerland. The agreement with Switzerland has not brought in as much as was expected, but the Exchequer has received almost £800 million via that agreement. That is £800 million that we would not have had, £800 million that the previous Government showed no inclination to pursue. That is only one of a large number of measures that we have taken to ensure that people and companies who are avoiding or evading tax do not get away with it. In terms of personal taxation, the Lichtenstein disclosure facility has yielded a lot more than was ever envisaged and, along with the Swiss agreement, is part of driving down the ability of those with large resources to avoid tax.

The new automatic information sharing agreements, which have followed the FATCA legislation in the United States, are revolutionising the ability of HMRC to gain information about the tax affairs and bank holdings of British nationals, whether those are held in the Channel Islands or some Caribbean tax havens. Along with the Swiss and Lichtenstein démarche, that will make a big difference to our ability to get the money to which the Government are entitled. On companies, as the noble Lord knows, the work being done in the OECD, particularly on base-erosion and profit-shifting, is aimed to deal with the particularly egregious examples of large multinationals paying very little tax indeed.

As for domestic action, GAAR is only one plank in our overall strategy. HMRC published Levelling the Tax Playing Field alongside Budget 2013 to provide an update on the strategy and to set out the full range of measures being taken in this area. Some people have argued that because GAAR is tightly focused, it will not hit many of the targets and almost gives a green light to other forms of tax avoidance, but if you look at the whole raft of measures that we have taken in Budgets and Finance Bills—most recently, some announcements in the Autumn Statement—it becomes apparent that we have taken measures to protect several billion pounds of Exchequer revenue which might otherwise not have been agreed.

We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introducing the new annual tax on enveloped dwellings, and continue to close loopholes as quickly as possible after they emerge. In the summer, we publish a consultation entitled Raising the Stakes on tax avoidance, seeking views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes.

HMRC does an excellent job defeating tax avoidance schemes in court and making sure that people know that many of the schemes simply do not work, but we know that there is much more to do. That is why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases have been lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is only one step, and we continue to take further action and devote more resources to the fight against tax avoidance in all its forms.

With those reassurances, I hope that the noble Lord will feel that he does not need to press the point.

--- Later in debate ---

I have no doubt that the Minister and his department have been much exercised about this, because the committee drew this to the attention of the House. It would be remiss of me if I did not give him the chance to respond to what is an analytical piece of work on its part, which I cannot hope to match. I know that the Minister has been busy in this respect and I apologise if I have not been able to assimilate all the responses. I am sure that I have given him a clear enough steer for him to indicate why the Government are either secure about the framing of the Bill, or if not, will take steps to effect an amendment that we would otherwise be obliged to do.

[Lord Razzall]

My Lords, the noble Lord has proposed that Clauses 13 and 14 should not stand part of the Bill. The clauses relate to tax avoidance and the abuse of limited liability partnerships. The Minister will be aware that there is concern among professional organisations, particularly the Law Society—not in relation to the Bill itself, but about what will happen in relation to the regulations that will be brought forward. Noble Lords will have received a briefing from the Law Society, because limited liability partnerships were introduced some time ago for professional partnerships, not primarily for tax purposes but to limit the liability of what were previously general partnerships to actions for negligence. That was the major driver for the creation of limited liability partnerships. Most significant law firms and firms of accountants now operate as limited liability partnerships, so there is clearly concern among them that the definitions of employees and partners should be clear.

I received representations from the Law Society this morning, but the basic thesis is that the consultation exercise to determine how a limited liability partner should be properly treated as a partner, or how they should be treated as an employee, was based on the wrong assumptions. The consultation went out on certain assumptions and the proposals on the implementation of the regulations, which I have not seen, change that basis. Therefore, the consultation itself is ineffective.

I appreciate that this does not go to Clauses 13 and 14 of the Bill, because they simply provide for the regulations to be brought in. However, between now and Third Reading the Government ought to respond, saying either that the Law Society in its representations is wrong, and why, or alternatively explain how they propose to deal with what I suspect the Law Society is asking for, which is further consultation before the regulations are brought in. I do not know which of the two is correct and I have not had time to form my own opinion on that. This is an important issue because the limited liability partnerships are important structural mechanisms for professional partnerships. We clearly need to get this right before we change the law in this respect.

[Lord Newby]

My Lords, I am grateful to both noble Lords for their contributions to the debate. I apologise to the noble Lord, Lord Davies, for the fact that he has only just received the letter. As he pointed out and knows very well, it has been a somewhat unusual week in terms of my ordered conduct of business and the letter was sitting on my desk for rather longer than it should have been. It is only fair to point out that this is no failure on the part of officials to respond in a timely manner; it is my failure. I am sorry that the noble Lord has only just got the letter.

Two points have been raised. The second was raised by the noble Lord, Lord Razzall, with regard to consultation. He asked whether the legislation had gone beyond the proposals set out in the consultation document. The Government believe that it does not go further than originally proposed or go beyond the original policy intention. In fact, as a result of the consideration of the consultation responses, the Government dropped the first of the original two conditions which were broadly in line with the employment status tests, which would have meant that even senior partners in major professional firms might have been reclassified as employees. The second condition, which contains ownership or economic interest or risk tests, has been slightly broadened because of this change, but it is still a narrower measure than if both conditions had been implemented as originally proposed. The Government also made clear in Budget 2013 and in the consultation document that the proposals will apply to higher-paid staff in the professional services sector and the lower paid if they are LLP members who receive a largely fixed reward and carry little economic risk or interest.

As regards the status of the secondary legislation and the issue of retrospectivity, the noble Lord referred to two sets of secondary legislation. The first, in Clause 13, had already been published in draft and the second, in Clause 14, was, I believe, enclosed with the letter to the noble Lord and has been put in the Library.

This legislation introduces half of a series of provisions that relate to income tax and national insurance. Slightly unusually, we are legislating for the national insurance part first because we happen to have this Bill before us. The relevant identical provisions relating to income tax will be in the Finance Bill, which will be introduced later in the year and will become the Finance Act 2014. The intention is that the provisions in respect of income tax and national insurance will not apply retrospectively but will apply from April 2014. That is made absolutely clear and set out in the secondary legislation.

I am told that the use of the earlier date in the primary legislation follows precedent in respect of other pieces of legislation and does not mean that the Government will introduce this measure going back a decade or, indeed, going back at all. There are technical arguments for putting that earlier date in the legislation, but the secondary legislation, as I said, makes it absolutely clear that the provisions will come into force from this coming April. Therefore, there is no question of an undue degree of retrospection. I hope that the letter which I sent to the noble Baroness, Lady Thomas of Winchester, set that out clearly and, I hope, satisfies the committee and the noble Lord.