National Insurance Contributions Bill

I have washed this morning, but not with platinum. The Paymaster General left us in no doubt that the Bill was designed to stop evasion of national insurance contributions by introducing powers that enable the Treasury to make regulations to prohibit the use of avoidance schemes with retrospective effect from 2 December 2004. When the Economic Secretary winds up the debate, I am sure that he will make the valid point that such an intention was set out by the Paymaster General on 2 December 2004 and that the Bill merely brings the national insurance regime into line with what the Government enacted in the Finance Bill this year, so I understand the right hon. Lady’s comment that she regards the legislation as non-controversial. There are four aspects of the measure that we need to consider, however. Much has already been made of the retrospective nature of the Bill, but we should also consider possible use of the powers beyond that for which they were intended; the whole issue of avoidance, evasion and tax-planning; the introduction of an anti-avoidance rule, to which the Liberal Democrat spokesman referred; and the potential cost to business. I want briefly to examine those issues. I had the privilege to speak on Second Reading of the Finance Bill and served on its Committee, where luckily the hon. Member for Wolverhampton, South-West (Rob Marris) helped us through the explanatory notes. I congratulate the Paymaster General and the Economic Secretary on this Bill, which is to be applauded for its brevity, clarity and its helpful explanatory notes—quite a contrast to the Finance Bill. The hon. Member for Hartlepool seemed to question the position of Conservative Members. My hon. Friend the Member for Cities of London and Westminster (Mr. Field) has made it clear, not only today but in previous dates in the House, that we do not support anyone who does not want to comply with their tax obligations. That is our position and it extends to national insurance contributions as well. The Bill, as I understand it, contains three measures: the power to make regulations to create a retrospective liability for national insurance contributions; to allow the disclosure of national insurance contribution avoidance schemes and arrangements; and the voiding of those arrangements and elections. Much has been made of retrospection by my hon. Friends. Any legislation that introduces retrospective powers must be regarded with caution. Understandably, taxpayers are instinctively nervous, for with the prospect of retrospection they also face the prospect of uncertainty and unfairness. Furthermore, and more important, it creates uncertainty for business and especially for business investment. Certainty is a key component in the environment for business investment and one criterion on which business undoubtedly bases its decisions is the existing tax and national insurance burden it is likely to face, or the likely burden when a decision is made. If the Government constantly introduce legislation with retrospective effect, it will undoubtedly create uncertainty for business and will affect business investment. An inevitable consequence of the Bill will be some undermining of business investment. The power to create regulations for retrospective liability is enacted in clauses 1 to 4 and although those clauses confer that power on the Treasury, the Bill also supposedly constrains the power to the extent that such regulations can be made only to reflect in national insurance regulations previous retrospective changes to the income tax Acts, only where the Treasury considers it expedient for national insurance contribution regulations to have that retrospective effect, and only back to 2 December. However, in all those cases the Treasury is acting as its own constraint, so we need reassurance from the Treasury about the scope of the powers, the exact nature of the constraints and the way in which they will be used. The explanatory notes state that the powers will be used only in anti-avoidance measures. That is not helpful, reassuring or terribly explanatory. The Government will want to reassure the House that those powers will be proportionate to the mischief that they aim to tackle, and that they are sufficient only to catch tax avoidance schemes. They should not be so wide that they are disproportionate, and taxpayers’ legitimate expectations to be taxed in accordance with the law when the transaction is carried out should not be abused. Clauses 1 to 4 will be used to bring national insurance contributions regulations in line with regulations imposed by schedule 2 of the Finance Act 2005, especially in relation to employee securities for taxation purposes. If I understand clause 1 correctly, the powers will be used to ensure that, where possible, NIC and income tax PAYE legislation are changed in parallel. If that is the Treasury’s intention, it would be useful to know that the process will be managed. It is desirable that NIC and income tax disclosure rules be made in parallel. Clauses 1 to 7 suggest that that is the intention behind the Bill, but I should be grateful if the Economic Secretary answered some practical concerns. If the rules are included in regulations as secondary powers, as the Bill suggests, when will the draft regulations be available? Will the Economic Secretary confirm that they will be subject to proper scrutiny and that the disclosure rules for national insurance and income tax will be similar? The Government’s attitude to tax planning, as opposed to tax avoidance, has been subject to a great deal of criticism, and the issue was raised several times in the Finance Bill Committee. It bears repetition that planning tax liabilities is entirely lawful, but in the Bill the Government appear to maintain their stance that any tax planning is avoidance. Taxpayers have the right to organise their affairs in accordance with the law—that is tax planning. If the Government deem that law inappropriate, that is not the taxpayer’s fault. Tax planning should not be confused with tax avoidance. The Government are pursuing something that began in the Paymaster General’s statement on 2 December 2004 and, indeed, the Finance Act 2005. The Bill is widely drawn and tax authorities are given wide discretionary powers, so the Government are effectively introducing the general anti-avoidance rule that they first sought to introduce in 1997. In 1997, the Chancellor asked the Inland Revenue to investigate the impact of a general anti-avoidance rule, but, following objections, the Government pursued the disclosure regime route. However, if disclosure legislation is too widely drawn its powers extend beyond those of anti-avoidance or appropriate disclosure regimes, as wide-ranging and arbitrary powers are introduced for tax authorities that go well beyond the mischief that they are intended to address. In a statement on the pre-Budget report in December 2004, the Paymaster General stated:"““The disclosure rules in the Finance Act 2004 have revealed that avoidance is still rife.””" She went on to say that"““experience has taught us that we are not always able to anticipate the ingenuity and inventiveness of the avoidance industry. Nor should we have to.””" She concluded that"““the time has come to close down this activity permanently.””" The Select Committee on Treasury has no doubt that the Government moved from a disclosure regime to a regime of general anti-avoidance rules. Its Chairman, the right hon. Member for West Dunbartonshire (Mr. McFall), stated:"““What is new is the declaration that future schemes, not yet devised or which have not yet come to the Inland Revenue’s attention, may be stopped as from 2 December 2004. This amounts to a general anti-avoidance rule””." The Government must address certain issues if they wish to move from a disclosure regime to a regime for the taxation of rewards and national insurance. If a general anti-avoidance regime is deemed necessary because avoidance is supposedly rife the Government may fall into the trap of creating more tax legislation of increasing complexity and thus an increasing number of opportunities for the clever gentlemen described by the hon. Members for Stoke-on-Trent, South (Mr. Flello) and for Hartlepool to devise tax avoidance and evasion schemes. It is therefore disappointing that the legislation has been introduced, because it highlights the need for a simpler tax system with fewer reliefs, exemptions and discontinuities to thwart most tax avoidance