Finance Bill

John Healey Excerpts

Tuesday 2nd July 2013 Commons Chamber

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

I beg to move, That the clause be read a Second time.

New clause 7 makes changes to the procedure for the granting of interim payments in common law court claims relating to taxation matters. Its effect will be to limit the circumstances in which interim payments may be granted in the rare tax cases originating in a common law claim as opposed to appeal through the tax tribunal. The new clause will bring the treatment of tax cases under the two routes into closer alignment. It will simplify the process and lessen administrative burdens for the Revenue and for claimants.

I should like to set out some of the background to this change. It corrects a difference in treatment with respect to the granting of interim remedies on tax disputes that arise depending on whether the claim is appealed to the tax tribunal or originates before the High Court, or the Court of Session if in Scotland. Generally speaking, appeals against a decision by Her Majesty’s Revenue and Customs on a tax matter are appealed to the tax tribunal. This system is provided for in statutory tax legislation and is the standard route of appeal for a taxpayer who disagrees with a decision by HMRC.

There is no procedure for the granting of interim payments under this system. Instead, tax is paid or repaid as appropriate when a decision is made on the case. This is a sensible arrangement. The interim award procedure was not designed to be a remedy in a tax dispute. Its common application is to victims who have suffered serious injury to their health but the long-term prognosis leaves it unclear how much they should receive. An interim payment allows them to have enough money to make adaptation to their homes and to pay for care. Clearly, the complex adjudication of a tax dispute is a very different circumstance unsuited to the application of anticipatory payments in advance of final judgment. It is therefore right that the normal practice in tax disputes is not to grant an interim payment.

However, difficulty arises where a tax claim originates in common law. In such circumstances, it would currently fall outside the scope of the tribunal system and would therefore be appealed instead to the High Court. Here claimants may obtain interim payment before the matter is finally settled. Such payments may then need to be returned to the Revenue as the direction of jurisprudence changes at different stages of litigation. This back-and-forth process is administratively burdensome on both parties and adds to the cost of the litigation. Furthermore, it exposes the Revenue to a risk of non-recovery in the event that the taxpayer becomes insolvent after obtaining an interim payment that it is later required to hand back.

Let me set out a little more detail on the new clause. The measure will operate by limiting the power of a court to grant an interim payment to a claimant whose application for such payment is founded, at least in part, on a point of law which has yet to be finally determined. The court will, however, still be able to grant an interim payment to whatever extent is necessary to fund the ongoing litigation, as well as in some other defined circumstances where there is a strong case for granting such award. The measure relates only to those rare tax cases that fall outside the scope of the tribunal system. It is a procedural matter, not a change in tax policy.

[John Healey (Wentworth and Dearne) (Lab)]

The Minister said that such cases are rare. How many are there each year, and how quickly will they be dealt with under the system proposed in new clause 7 as compared with now?

[Mr Gauke]

How quickly a particular case will be dealt with depends on the length of time it takes to be resolved. The right hon. Gentleman will know from his considerable experience as a Treasury Minister that some of these cases can take a number of years. It is worth pointing out that, by and large, large corporates tend to be involved in this type of litigation. The length of time it will take for a case to be resolved is ultimately unaffected by these changes. Their only significance is that there will not be interim payments in these rare cases.

The right hon. Gentleman asked how many cases there are per year. I cannot give him the number straight away, but it is very low. In the vast majority of cases, disputes are taken through the tax tribunal. As I say, this is about making common law cases consistent with tax tribunal cases. It is difficult to give the precise number of cases per year, but we are talking about low numbers.

[Mr Gauke]

We have introduced it at this point because recent jurisprudence has crystallised our view in this regard. As I say, we want consistency between common law cases and tax tribunal cases. A degree of volatility has been created in terms of tax revenues that none of us should welcome. In short, the answer to the hon. Lady’s question is that the reason is recent jurisprudence.

Let me give the right hon. Gentleman a little more detail in response to his question about rare cases. HMRC is aware of fewer than 10 strands of litigation where tax issues are being handled through the High Court. That is not to say that they would necessarily all involve interim payments, but I hope that that gives some sense of the scale of the issue. As I say, it is a procedural matter.

[John Healey]

It is helpful of the Minister to give the House an indication of the scale in terms of the number of cases. Can he also indicate the scale in terms of the amount of tax at stake in such cases?

[Mr Gauke]

The first point to make is that this does not ultimately change the amount of tax at stake, because a litigant will either win or not win. If a litigant who ultimately wins has not had access to an interim payment as a consequence of this measure, that does not change what they will ultimately receive. Some of these cases involve large sums of money, sometimes many millions of pounds. In some cases, interim payments have been very significant. However, I stress that this does not ultimately change how much money will end up in the pocket of the litigant. It is a question of timing and ensuring that we have some consistency.

Turning to why we are doing this now, it follows recent jurisprudence of the Court relating to the application of the interim awards procedure. This jurisprudence has crystallised our view that the interim payment procedure is not suitable for complex tax disputes. There is also an element of risk management in this. HMRC is routinely involved in litigation where the tax at stake may be for very high sums of money. The granting of payments on an interim basis before a final decision has been reached contributes to the volatility of tax revenues. By limiting the application of the interim payment procedure in common law court claims relating to taxation matters, and bringing the system into better alignment with what is standard practice in the tax tribunal, the new clause will cut down on complex work associated with calculating claims on a contingent basis before matters relating to liability and quantum have been resolved by the judiciary.

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[Mr Raynsford]

My hon. Friend makes a very good point. The NAO made an absolutely damning comment—I am astonished that the Government have not looked at this one sentence and said that they clearly need to reconsider the scheme. It is, quite simply:

“We found no association between individual local authorities’ planning application approval rates and their numbers of homes qualifying for the Bonus.”

There we have it: the NAO can find no correlation between the granting of planning consent and the awarding of the bonus, yet that is what it is supposed to do—it is supposed to incentivise councils to improve their performance in granting planning consent. No wonder the Government are embarrassed.

Rather than doing what they ought to by carrying out a thorough and quick review of the scheme and winding it up if it is proved to be as ineffective as the NAO indicates, the Government have done another extraordinary thing and announced in the spending review last week that they will take £400 million of new homes bonus money and transfer it to local enterprise partnerships. It is not their own money—only £250 million is Government money, and the other £150 million would otherwise have been paid to local government. It will now go to the LEPs. Whatever happened to localism? I thought the Government’s mantra when they came into office was that they would allow more decisions to be taken locally. This decision muddies the waters and it will be even more confusing to work out where the money goes.

As my hon. Friend the Member for Hyndburn (Graham Jones) pointed out, there is already gross inequality between different parts of the country, many of which are contributing to the new homes bonus and getting nothing out of it while others, which have done nothing to improve their housing performance because they already have a high demand for housing and because it is already been built in those areas, benefit from the scheme. It is a most extraordinary scheme and it will be made even more opaque and confusing. Clearly, such a scheme has no prospect of achieving the incentive effect it was supposed to achieve.

[John Healey]

My right hon. Friend has put his finger on it. There is not an economic rationale for the policy, but a political one. Essentially, it is a stealth redistribution from poor areas to wealthier ones with a more active, buoyant and successful housing market.

[Mr Raynsford]

My right hon. Friend, as always, is very acute and he realises that this is a political move. The change is being introduced with no analysis and no evidence base—it is a political move that will have significant redistributional consequences in favour of some areas at the expense of others, paying no regard whatever to the principles of localism that the Government used to proclaim.

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[John Healey]

May I tempt my right hon. Friend to reflect on one other aspect of the subject he just touched on? If his figures are right—I am sure they are—by 2017-18 this will cost £7.5 billion in total. That cannot be described as a top-slice from local government as it represents almost a third of the total local government expenditure in England. The proposal will fundamentally destabilise the whole system of local government funding within five to six years.

[Mr Raynsford]

My right hon. Friend makes a valid point, and it is a further argument for the serious and thorough evidence-based review of the subject that the Government ought to be undertaking. It is shameful that they are continuing to tinker with this failed scheme at a time when there is such an urgent need for the limited funds that are available to be used to best effect to stimulate investment in housing and to have the beneficial economic effects that my hon. Friends and I have been talking about.

The amendment specifically calls for a review of the operation of REITs and their interaction with the housing market. That is important because the scale of investment necessary to secure the level of house building and home improvement we need will require a combination of public and private investment. We must therefore have measures that encourage more private investment in both private and social rented housing. Institutional investment in private renting has been a bit of a holy grail for many years for people who saw it as a way of ensuring an improved private rented sector driven by responsible investors who would be keen to see high standards of investment and management.