Finance Bill

My Lords, I do not agree with many issues raised by the noble Lord, but he was right to say that the House of Commons spend their time on the Finance Bill dealing mainly with political issues. We have a much wider arrangement in this House so we can look at the whole matter of economic affairs and Finance Bill problems to a much wider degree. I thank the noble Lord, Lord Wakeham, for chairing the Select Committee so very well. He produced a great deal of agreement throughout our debates. The House of Lords very effectively scrutinises the Finance Bill. We look at the whole range of financial measures and the ones that are introduced. The membership of the committee is extremely good and includes a couple of former Chancellors of the Exchequer, a number of former Ministers and an ex-governor of the Bank of England. So we look at the Bill with a great deal of financial background, rather different from that which operates in the House of Commons. In the past 10 years we have seen unrivalled growth. Nobody ever expected that growth to continue for so long and now nobody even questions that it will continue. That is one of the great achievements of this Government. My noble friend Lord Barnett said that the move to simplification would be limited. I agree with him that we cannot produce the provisions in just a few pages; it always has to have the complications of legislation, but we should agree to move in that direction. He also mentioned scrutiny of the Finance Bill. The House of Lords scrutinises the Finance Bill more effectively than does the House of Commons. We have bipartisanship in a number of areas, which obviously is of great value in examining these matters. First, I refer to the simplification issues. We have made many changes to create fairness and a greater degree of compliance. The problem is that these changes can lead to complications. As soon as you try to have simplification and to consider fairness you find that they are frequently opposite. The better balance has to be found, which is also very difficult. I refer to the evidence given in answer to question 42 by Mr McCafferty, an economist at the Institute of Directors. He said: "““It is clear that the abolition of the agricultural buildings allowance and the industrial buildings allowance does offer some element of greater simplicity but in terms of the other allowance changes, the changes to plant and machinery, the simple change to the relative calculations rather than simplifying the nature of the allowances and introducing a new category, that of plant integral to a building, if anything they add a further modest complication or complexity to the system””." That is undoubtedly true and is one problem. In our report, we mention that at paragraph 21, where we state that it is understood that the present tax system is highly complex and that simplicity is essential if the United Kingdom is to be made more attractive to international businesses that can move in our direction. In paragraph 22, we state: "““We recommend that a more determined and consistent attempt at simplification be made. What we see in this Finance Bill is a very modest step and more could be done. This will necessarily take more than one year and will require a combination of administrative and legislative measures. There clearly may be a tension here with the desire for fairness: it will also be necessary not to open up scope for avoidance. But it should be possible to find a balance here if the work is well researched and subject to wide consultation””." I agree entirely with that. We had a long discussion on those matters and came to general agreement on that. I turn to mandatory on-line filing, which is the main thing that I want to deal with. I understand why there is a recommendation for on-line filing. Obviously, if all taxpayers had the ability to undertake on-line filing, compulsion would be acceptable. The problem is that despite the efforts made by Her Majesty's Revenue and Customs, insufficient understanding has been given to the problems of those who are unable to meet the requirements. We refer to that in paragraph 265, where we state: "““The witnesses were unhappy however at any suggestion that electronic filing be made compulsory. They thought that there would be some people who would remain IT illiterate or who for whatever reason would be unable to use the service and there would be costs involved. They were also concerned at the possibility of systems breaking down, of which there was some experience””." We must understand that a number of people in this country are not as IT-literate as many of us. We go back to our rooms, switch on our computers and do all sorts of things, but many people cannot do that. To make it essential that they do that will lead to problems. As one witness said at paragraph 266, "““We are right behind the drive but it has to be business led. It … makes life easier for businesses and taxpayers and it reduces costs. But I do not think we are in that position at the moment ... We are a long way from having robust, reliable electronic systems … I am afraid we disagree. What we should be concentrating on is getting these systems right and then the natural move for businesses and taxpayers will be to use them. You may then have 90% and you will have to decide what to do with the ten per cent but we are not at that position at the moment””." Theresa Middleton of HMRC said: "““we believe [compulsion] is essential to maximise the benefits for business””." The problem is the timing. At present, there is a number of not very computer-literate people engaged in businesses. She believes that some employers should not be required to file on-line until 2010. In answer to question 342, Mr Hartnett said: "““We are actually looking at what other countries are doing in relation to contingency. Generally the answer is to provide more time. The USA have just had to do it, but also a number of countries—and we will be part of this route as well—are looking at how we can build much more resilience into our systems than perhaps we have had in the past. There is a great pooling of work going on in the tax community around the world””." Our report states: "““We remain concerned that the implications of making online filing mandatory for Corporation Tax and Value Added Tax have ""not been fully thought through. We understand why HMRC has taken the line which it has and certainly it has taken many steps to encourage on-line filing: it should continue to do so by every means. But the range of issues raised by our private sector witnesses need further consideration. There should be further concentration on ensuring the robustness and reliability of the systems and on making the change more attractive for those who are IT illiterate. We do not think that the efficiency savings to HMRC justify compulsion ... we recommend that the present proposals for requiring online filing by smaller businesses be dropped: better marketing by HMRC of the benefits of e-filing would be a better approach. There may come a time when e-filing could be made compulsory, but we think it premature at present,””." We all know a number of people in that position who are just not able to do that kind of thing. To make it compulsory is likely to lead to some serious problems.