Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009

My Lords, I thank the Minister for introducing the order, which we will not be opposing, although I have some questions in connection with it. I should say, though it is not strictly relevant to this order, that I mourn the passing of the general commissioners, having been brought up on them as a part of the tax system. I wonder whether the impact of their departure on small businesses and their small practitioner advisers has been properly estimated and taken account of. In particular, the network of tribunals will have only 130 venues, compared with the general commissioners’ 400 sites. The new venues may well have better facilities, but there is sometimes no substitute for proximity. I have myself occasionally taken part in videoconferencing, which I am told is one of the proposed solutions to the smaller number of venues. I believe that the technology still has some way to go before it seems like a natural communication process. Doubtless we will see in due course whether or not the paper review process and video cameras are an adequate substitute for widespread and local general commissioners, who, for all their faults, were locally based. Are there any plans to review the layer of the tribunal system that has taken over the general commissioners’ functions in order to ensure that the needs of small businesses and individuals are not steamrollered in the name of modernisation? Of course the tax system exists fundamentally for tax and legal specialists on both sides of the fence, and the new tax tribunals will doubtless be configured around their needs. A core part of the new arrangements for tax appeals is for HMRC to review its decisions when taxpayers are in disagreement, as the Minister has explained. That seems sensible; indeed, given that significant costs are imposed on the taxpayer when there is a disagreement—for example, in legal and professional fees—it seems only fair that HMRC should review its position before the tribunal system is involved. There is a big problem with the review process, however, which derives from its lack of definition. In particular, proposed new Section 49E in paragraph 30 of Schedule 1 to the order says that, "““the nature and extent of the review are to be such as appear appropriate to HMRC in the circumstances””." That does not create the certain environment in which taxpayers should be entitled to operate. The Minister will doubtless be aware of the shopping list of things that the Institute of Chartered Accountants in England and Wales and the Low Incomes Tax Reform Group have said ought to be in this order. It includes a lot of procedure so that the taxpayer will know where he is in the whole process and what information he should have. They believe that it should contain a definition of the required distance between the reviewing officer and the decision-making officer and that a statutory purpose for the review should be set out. These bodies are concerned about a lack of safeguards for the taxpayer or, to use my words rather than their more measured ones, about HMRC paying lip service to the concept of a review while little changes in practice. The order is not amendable but the points, in our view, are valid. How will the appeal process work and what are taxpayers entitled to expect from it in its various stages? More importantly, what is the purpose of the review? Is it just to confirm that HMRC is up for a fight, or is it to give an independent internal review of the case so that HMRC will proceed only in cases of clear and correctly determined disagreement? Have the Government closed their minds to using the existing powers in Section 124 of the Finance Act 2008 that would allow them, by order, to specify matters that are to be considered in the context of reviews? I should also mention the unfortunate divergence between the appeal processes for direct and indirect taxes. I dealt with the Commissioners for Revenue and Customs Bill when it was before your Lordships’ House, when we were constantly promised the sunny uplands of bringing VAT and income or corporation taxes together so that the taxpayer had a one-stop shop. We did not believe it then and this order is another example of a lack of underlying will to conform the administration of the two streams of tax when it does not suit HMRC. A VAT appeal is made to the tribunal but, in the case of income or corporation tax, an appeal is merely notified to the tribunal, because the term ““appeal”” has been clung on to by the direct tax side of HMRC’s business as the first formal stage of a dispute. I fear, as do the professional bodies, that some of the benefit of the review by Sir Andrew Leggatt, in terms of clearly separating HMRC from the tribunal in the appeal process, has been lost. I am aware that HMRC consulted on this, but as far I can see it ignored the consultation responses, which is not untypical of it. Why have the Government allowed HMRC to get away with seriously undermining the perception of the tribunal’s independence, to use the words of the Institute of Chartered Accountants in England and Wales? The order also messes about with tax credit appeals. At present they follow the social security route rather than the tax route. That was conceded by the Government during the passage of the Tax Credits Bill in 2002, because the various voluntary groups were concerned about the competence of the general or special commissioners who had no background in social support payments. The order transfers appeals from the social entitlement chamber to the tax chamber. The Minister will be aware of the many problems that HMRC has had with tax credits. In the past five years the Government have written off more than £7 billion of payments that were made largely due to errors, and the error rate is still over 10 per cent, although higher figures have existed. That means that there are a lot of exchanges with taxpayers in connection with errors. The system is held together only by the huge sticking plaster of a £25,000 income disregard. The voluntary groups have been united in their condemnation of the heavy-handed nature of HMRC’s handling of tax credits, particularly when dealing with the consequences of overpayments. There is no escaping the fact that the payments are for social support and are not in any intrinsic sense a part of the system of taxation. Against that background, what can the Minister say to reassure noble Lords that the tax chamber is the appropriate vehicle for handling appeals? Does the experience of the past five years lend support to the case for hearing appeals within that chamber? How are the tribunal members going to have the relevant experience and training, given the very different nature of tax credits from direct and indirect taxes, which will be the mainstay of the work of the tax tribunal? Lastly, the professional bodies have concerns about the order being put in place ahead of the tribunal rules, which have been developed in draft for both the first-tier tribunal and the upper tribunal. The Chartered Institute of Taxation has made several detailed submissions on the draft rules and there is concern about the content of the rules and the timing of their finalisation, given the rapidly approaching deadline of 1 April for implementing the new system. Will the Minister update the House on the status of those rules?