Finance Bill

Lord Joffe Excerpts

Wednesday 16th July 2014 Lords Chamber

[Lord Joffe (Lab)]

My Lords, it was a privilege to be a member of the Finance Bill sub-committee, which was so impeccably chaired by the noble Lord, Lord MacGregor, and which, as he has already said, was so superbly organised by the clerk to the committee and his staff and advisers. I will limit my comments to that report and the committee’s proceedings.

On the basis of the evidence received, I agreed and supported all the sub-committee’s recommendations. However, I was concerned about the very narrow base from which that evidence was drawn. There are some 420,000 partnerships of one form or another in the UK, 90% of which have three or fewer partners. Despite that, the evidence that the sub-committee heard was overwhelmingly from associations, organisations and professional advisers who represent large partnerships, which probably make up less than 1% of all partnerships. Professional advisers inevitably had potential conflicts of interest in that some of their members would benefit from a rejection of the proposed changes in the law.

The sub-committee recognised that narrow base in its recommendations in clause 291 of the report, in which HMRC and HMT were urged to urgently develop and publish comprehensive strategies for consulting smaller businesses, non-business stakeholders and other groups. It also drew attention to the same recommendation made by its predecessor committee in 2011, which does not appear to have been acted upon.

Clearly, it will take some time for HMRC and HMT to devise these innovative ways of reaching out to small businesses, or to non-business stakeholders and individual taxpayers. In the mean time, some balanced and objective evidence could be achieved by the sub-committee in future hearings by inviting a significant number of informed witnesses, from organisations to individuals, who are seriously concerned about tax avoidance from a society perspective and who would have no conflict of interest.

Additionally, it would probably be more effective if the committees of this House and those of the other place had budgets made available to them so that they could commission evidence from a wider variety of opinion on important issues such as tax policy. That would make a major contribution to accurately reflecting the views of society on controversial issues, unlike the present position, where we largely only hear from those with command of considerable financial resources, not from the rest of society.

Clearly, the problem for the Chancellor of the Exchequer—who has had considerable success in closing some of the loopholes in the law—is how to close all the gaps. This would require a complete revision of the law on taxation which currently provides endless loopholes that enable talented accountants and lawyers to devise lawful systems for companies and individuals to avoid paying the tax which these laws intend to levy. Unfortunately, the underresourced Inland Revenue is unable to confront on equal terms the talented and highly paid lawyers and accountants who devise these systems.

Pending a complete revision of the law, I draw attention to the budget suggestion made this year by the Association of Revenue and Customs, part of the First Division Association trade union representing senior staff at HMRC. Its suggestion was that if just £312 million a year were spent on additional senior staff in the department, then an extra £8 billion of tax revenue might be raised. If this is even half right, the question has to be why these funds are not being made available at this time, when tax revenue is insufficient to meet the needs of society as a whole.

The Government has rejected a key recommendation of the committee in relation to salaried members. I suspect that this will not make much difference to the amount of tax revenue that will be raised as a result of the changes in the law, as the professional advisers who so passionately oppose the changes in the law will now turn their talents to lawfully devising means to circumvent the provisions, and, with some knowledge of tax avoidance, I think they will probably succeed.

A final suggestion, which I fear may not be within the remit of the committee, is whether the army of highly paid tax lawyers and accountants—some of whom told the committee that the law was the problem—could not devote at least part of their time to developing proposals for policies for changes in the law to prevent avoidance of tax. They would thereby be using their talents and experience to benefit society as a whole, rather than mainly big business and the wealthy.