Finance Bill

We have been proceeding so far on the amiable basis of consensus. I hope that we can go further and hear shortly that the Financial Secretary accepts the new clause. It aims to forestall and prevent creeping retrospection from polluting the Government’s finance legislation. I intend to speak to it, as well as to the amendments tabled by my hon. Friend the Member for Christchurch (Mr. Chope) and others, and to his new clause 7. New clause 2 arises directly from the debate in the Committee of the whole House about air passenger duty in relation to clause 12. I do not intend to repeat the debate that we had on 1 May, but as the new clause deals with retrospection and as retrospection was present in clause 12, I must necessarily set the context that gives rise to the amendment. The definitive statement on retrospection in relation to clause 12 was made by the Treasury Committee as follows:"““The first element of retrospection is that airlines will be liable to pay the tax for departures on or after 1 February 2007 regardless of whether tickets were purchased before the new rules were announced. The second element of retrospection is that the liability to pay air passenger duty at the new higher rates will effectively be incurred before the House of Commons has authorised the increase; such authorisation will take place only after the Budget.””" It is worth noting that two separate though related ideas of retrospection are described by the Select Committee in that context. It concluded:"““As a general rule we consider that, where increases in rates of duties or taxes are proposed in the pre-Budget report, those increases should not come into force until after the House of Commons has had an opportunity to come to a formal decision on the proposed increase following the Budget. We draw the attention of the House of Commons to the unusual timing of the implementation of the increases in air passenger duty, for which the Treasury has not cited any relevant precedents.””" The Financial Secretary subsequently offered two precedents—the supplementary charge on North sea oil announced in the 2005 pre-Budget report, which was introduced with effect for accounting periods from 1 January 2006, and the increase in fuel duty announced in the 2006 pre-Budget report and implemented from midnight. However, the House of Commons Library said that"““it is arguable that these examples do not provide a precedent that captures all the aspects of the rise in APD rates””." In the debate on 1 May, I set out why that is so. During that debate and in a previous letter to the shadow Chief Secretary the Financial Secretary set out a series of further claimed precedents—the 2002 Budget decisions in relation to income tax rates, and another similar change made to the taxation of North sea oil, the petroleum revenue changes made in 1978 and confirmed in 1979. He was unable to explain why all these claimed precedents were not originally given to the Select Committee. He was also unable to explain why they were being dribbled out in this gradual way, rather than being offered all at once in a coherent whole. I suspect that the explanation is that the Treasury has been forced to scrape the bottom of the barrel for these precedents, and my suspicion is given at least some backing by the Library, which is no more impressed by the new set of precedents than it was by the old ones. Having been consulted, it repeats:"““It remains the case that none of these examples provide a precedent that appears to capture all the aspects of the rise in APD rates””." The readiness to reach for retrospection in relation to APD, the failure to offer precedents to the Select Committee and then to discover them afterwards, and the insubstantial nature of the precedents, all considered together, send a dangerous signal to taxpayers, consumers, businesses and tax practitioners. If the Government are prepared to legislate retrospectively and unprecedentedly once, and in doing so, drawing a rebuke from the Select Committee, what is to prevent them from using this unprecedented APD rise as a further precedent in the future? It is in order to prevent them from doing so again that we have tabled the new clause. In the Committee of the whole House, I said:"““We intend to table a new clause at a later stage which will prevent the Chancellor’s successor from behaving in the same way in relation to APD””.—[Official Report, 1 May 2007; Vol. 459, c. 1435.]" I believe that the new clause would indeed prevent the next Chancellor from behaving in the same way again. The amendments tabled by my hon. Friend the Member for Christchurch, together with his new clause 7, seek to remove any remaining element of doubt. I shall explain to him shortly why we look sympathetically at his proposed amendments (a) and (c) to new clause 2 and at new clause 7. I shall also explain shortly why we have some reservations about his amendment (b). Before I do so, however, let me explain the basis of new clause 2. In drawing it up, we have attempted to find a basis for legislating in relation to retrospection that will command a consensus in the House. Let me make it clear that we are not against retrospective taxation per se on all occasions. It is reasonable to tax retrospectively in order to tackle a new tax avoidance scheme that threatens a significant loss of tax revenue, for example, or to restore the law in relation to some particular aspect of taxation to what it was believed to be until a court decided otherwise. That view was set out by my right hon. Friend the Member for Charnwood (Mr. Dorrell) as a Minister in the last Conservative Government. He said:"““Where it is discovered that the tax law does not have the effect that the Government and taxpayers generally thought it had, there are circumstances in which it is right to introduce legislation to restore the position retrospectively to what it was thought to be. This is done only in exceptional circumstances and where the Government consider such action is necessary to protect the interests of the general body of taxpayers.””—[Official Report, 29 June 1992; Vol. 210, c. 378-79W.]" The conventions that govern the use of retrospection in relation to tax avoidance were set out in the so-called Rees rules, named after our former colleague Peter Rees, now Baron Rees of Goytre—I hope that I am pronouncing that correctly—in 1978. In 2004, the Paymaster General made a statement of the Government’s view that is broadly similar to what I shall name, after my right hon. Friend the Member for Charnwood, the Dorrell doctrine. At present, the Government are entitled to collect new taxes prior to receiving full legislative authority from the passage of a Finance Act under the Provisional Collection of Taxes Act 1968. The trigger, so to speak, for the retrospective APD rise—the cause of this debate—was the passing of the Budget resolutions announced on Budget day. Under new clause 2, any Minister introducing a Bill that contains retrospective taxation, such as the Finance Bill before us, would be obliged by law to state that such retrospective taxation was, in effect, consistent with the Dorrell doctrine set out under the previous Conservative Government and echoed in the Paymaster General’s 2004 statement. If the new clause were on the statute book now, the Financial Secretary would have been compelled during the debate on 1 May to concede that the retrospective elements of the APD rise contained in this year’s Finance Bill were utterly inconsistent with the Dorrell doctrine and bad practice, since even the Government have not attempted to claim that the APD rise was necessary to prevent tax avoidance by passengers or airlines or to restore the law to what it was previously believed to be. I believe that the Financial Secretary would not have endured the embarrassment and difficulty of so doing, and that the new clause is a strong deterrent to bad retrospective legislation. As I said, the amendments tabled by my hon. Friend the Member for Christchurch and his new clause 7 seek to remove all possible doubt. His amendments would bar Ministers from proceeding with retrospective tax rises that they declare inconsistent with the Dorrell doctrine. As my hon. Friend knows, we considered tabling a new clause identical to new clause 7 that would have had the same broad effect as his amendments. We decided not to do so for a single reason: the Financial Secretary should have the opportunity this afternoon, we hope in the course of accepting the new clause, to persuade the House that there are some categories of retrospective legislation that are incompatible with the Dorrell doctrine, but that it would none the less be right for the House to be able to consider in the future. My hon. Friend’s amendments and new clause would have the effect of barring the House from considering any such retrospective legislation in future. However, I have to say to him and to the House that I very much doubt whether such categories exist and whether the Minister can make such a case. As I have said, that is why we are sympathetic towards amendments (a) and (c) and new clause 7. If new clause 2 is passed, we will accept amendments (a) and (c), unless the Financial Secretary can persuade us otherwise. If, having accepted amendments (a) and (c), new clause 2 is none the less unsuccessful when put to a vote, I will advise my right hon. and hon. Friends to vote for new clause 7. We have some reservations about amendment (b). New clause 2(1)(b) would permit a Minister to introduce a retrospective tax measure as good practice that would either close a significant new tax-avoidance loophole or restore the law to what it was previously believed to be. New clause 7 maintains that either/or principle. However, amendment (b) takes a different view. Taken with the other amendments, it would permit a Minister to introduce a retrospective tax measure only if it both closed a significant new tax-avoidance loophole and restored the law to what it was previously believed to be. In other words, a Minister would not be able to introduce a retrospective tax measure to close a significant new tax loophole unless they were also restoring the law to what it was previously believed to be and vice versa. According to the Library, the last Conservative Government legislated retrospectively to restore the law to what it was previously believed to be in two cases—section 62 of the Finance Act 1987 and section 116 of the Finance Act 1989. I have been advised that had amendment (b) been in force, the last Conservative Government might not have been able to act in that way. In conclusion, it seems reasonable for the Government to retain the power to close significant new tax-avoidance schemes immediately, subject to the Rees rules, but I will listen closely to my hon. Friend the Member for Christchurch.