Finance Bill

I hope that my response will give the reassurances that the hon. Members for Falmouth and Camborne (Julia Goldsworthy) and for Rayleigh (Mr. Francois) are looking for. The new powers in clause 81 and those that follow it are very important, and I hope that what I say will expedite the business on those further clauses. The Bill is designed to improve HMRC’s ability to respond to serious criminal attacks on the UK’s tax and tax credit systems. HMRC’s criminal investigation powers will be based on the modern standard already set by Parliament for other agencies facing similar threats—that is, the Police and Criminal Evidence Act 1984. That Act is well understood by courts, lawyers and law enforcement agencies. It has been in force for more than 20 years, and the former Lord Chief Justice, Lord Wolff, has said that it is central to the working of the criminal justice system. He said that it reflects Parliament’s intention as to what should be the balance between the necessary protection of the rights of the individual citizen and the right of the public as a whole that those who commit crimes should be convicted and then punished. That is precisely what the 1984 Act’s incorporation for HMRC is designed to do. As the hon. Member for Rayleigh said, it follows the merger of Inland Revenue and Customs and Revenue in 2005, which is when my right hon. Friend the Paymaster General launched the major review of powers. That review involved wide consultation about the powers and deterrents available to HMRC, and about the safeguards available to taxpayers. Two elements of this year’s Finance Bill cover criminal investigations and civil penalties that emerge from that review of powers. The proposals are based on extensive consultation that included discussion with the review’s consultative committee of independent experts. In addition, there were three public consultation exercises, and meetings with representative bodies and legal experts from across the UK. There was a time when the tax authority was a less obvious target for organised criminal attacks, but the threat of organised financial crime is now considerable and serious in both the public and private sectors. The MTIC fraud mentioned by the hon. Member for Rayleigh, and the organised criminal attack on the tax credit system that included the theft of thousands of identities from unsuspecting employees, are just two examples of what can happen. Staff at HMRC are uncovering serious criminal activity across a range of the agency’s duties, and the globalisation of trade and financial services is enabling criminals to scale up the amounts involved in complex business frauds. As a result, HMRC must have modern and effective powers to respond to the changing nature of the criminal threat. However, many of the powers inherited from the Inland Revenue and from Customs and Excise are no longer suited to that purpose. Furthermore, misalignment between the powers leads to confusion; for example, under existing legislation, an HMRC team investigating a case of fraud that covered direct and indirect tax would need two separate warrants to search premises, two separate teams to undertake the search and, if arrests were made, the suspect might have to be arrested twice—once by an HMRC officer for the indirect tax fraud and once by the police. Clearly, that is nonsense and undermines the advantages of the alignment and modernisation that Parliament approved in the merger to create a single UK tax authority. The majority of responses to our consultation recognised the importance of consistent powers for all tax fraud investigated by HMRC and supported adoption of the relevant parts of PACE as a sensible way to achieve that. The Law Society of England and Wales supported the adoption of PACE on the principle that"““the powers should so far as possible be consistent with powers available to other agencies dealing with criminal offences.””" The hon. Member for Falmouth and Camborne expressed concern about mission creep. Not all the PACE powers will be applicable to HMRC; indeed, the provisions we are debating would give HMRC access to only about one third of PACE. Powers not appropriate to the tax authority are not included; for example, PACE stop and search provisions and the powers to take fingerprints and to charge and bail suspects would not be available to HMRC. However, bringing HMRC criminal investigations into PACE would ensure that all the safeguards enshrined in that legislation are directly applied to those investigations. PACE codes of practice would apply to HMRC; they set out important safeguards, including that the powers of entry, search and seizure must be fully justified before use and that officers must consider less intrusive means before applying for search warrants. Some people have argued that the exercise represents a levelling up of old Customs powers to the Revenue. That is not the case. In some instances, the provisions would introduce higher thresholds and stronger safeguards; they also mean a narrowing rather than an extension of the number of HMRC officers who can exercise the powers. The power of arrest would be restricted to authorised officers with the necessary training, who needed to perform an arrest in the course of their duties. That will mean removing the power of arrest from about 18,000 ex-Customs officers who at present have the power but no operational need to use it. Some Members expressed concern that criminal and civil matters would get mixed up. I assure them that the law makes it clear that the powers we are considering can be used only where it is reasonable to suspect that a crime has been committed and only for the purposes of a criminal investigation into that crime. None of the powers can be used for civil matters. No HMRC officer is responsible for both civil and criminal inquiries. The only guidance not yet published by HMRC is on the detail of the training courses officers must complete before they are authorised to use the powers. As promised, the guidance will be published before any powers come into effect. Subsections (2B) and (2C) of amendment No. 2 seem to be intended to ensure that PACE powers are used only by HMRC officers who are properly trained and authorised. However, that objective is already ensured by the clause. Under subsection (8) and the draft regulations applying PACE to HMRC, which were published on 2 April, PACE powers and functions are available only to HMRC officers authorised by the commissioners. Under administrative law, the commissioners may delegate functions only to properly trained and supervised officers, and only officers who need to use those powers to carry out their duties will be authorised. The procedures for ensuring that the rules for authorising officers are applied correctly are subject to independent inspection by Her Majesty’s inspectorate of constabulary. It is correct that none of the powers will be made available to officers of HMRC who carry out more routine duties such as checking tax returns. By restricting the powers to those officers within HMRC who have a direct business need, the number of officers with the power of arrest will be reduced from a current total of about 24,500 to 6,500—a reduction of less than a third and more than a quarter. Those 6,500 include 2,000 criminal investigators and about 4,500 officers working to protect the UK’s borders, as mentioned by the hon. Member for Somerton and Frome (Mr. Heath). Those officers need the powers to carry out their duties. That brings us to subsections (2D) and (2E), which are designed to limit the number of HMRC officers able to use PACE powers to 500—a figure that could be varied by order. Frankly, that is a ridiculous proposal and a random number. HMRC currently has 1,500 officers trying to tackle MTIC fraud, about 500 of whom have access to criminal investigation powers. The amendment would mean that the 200 criminal investigation officers tackling tax credit frauds, another 160 officers working on complex business fraud, 500 combating smuggling and about 230 tackling criminal finance and money laundering would simply be prevented from exercising their duties. That would certainly apply without the constraint of the constant legal amendments required to do so. What is important for the Committee to note is that the powers are available only to trained officers who need them to carry out their duties, who work in the relevant sections of HMRC and whose work is properly supervised and inspected. As to the amendment’s proposals covering the provision of information, the hon. Member for Rayleigh may be aware that PACE provisions already require statistics to be kept and published. HMRC will in future continue to meet the relevant standards set by PACE as applied to all law enforcement agencies and then exceed them by continuing to publish a much wider range of statistics than it does currently. Amendment No. 18, and the requirement to prepare codes of practice relating to the exercise of powers, is also unnecessary. PACE codes of practice have been approved by Parliament and are available to the public. Clause 81, as drafted, applies those codes directly to HMRC’s criminal investigations. Finally, on amendment No. 20, the hon. Member for Somerton and Frome was again correct that it would restrict the exercise of PACE powers of arrest to officers currently and exclusively serving in the criminal investigation directorate. Although they require the power of arrest, it is also needed at the frontiers. It is obvious that officers at the frontier need to be able to arrest smugglers, where appropriate, as they are detected entering or leaving the UK. Officers carrying out that work are based in HMRC’s detection directorate rather than its criminal investigation directorate. On that basis, I hope that the hon. Members for Rayleigh and for Falmouth and Camborne feel that they have had their reassurances and that the hon. Gentleman will not press any of his amendments. If he does, I shall have to ask my hon. Friends to resist them.