Oral evidence: Budget 2014, HC 1189Tuesday 8 April 2014

Oral evidence, 8 April 2014.

Witnesses

Frank Haskew, Head of Tax Faculty, Institute of Chartered Accountants in England and Wales, Patrick Stevens, Tax Policy Director, Chartered Institute of Taxation, and Andrew Courts, Member, ACCA Global Tax Forum, gave evidence.

Chair

I will begin by asking you, Mr Stevens, about the Committee’s report on the principles of tax policy, where we set out six principles that we felt should guide tax reform by Governments of whatever hue—simplicity, certainty and clarity were among them. How do you think the Government are doing?

Patrick Stevens

First, if I can just say, Chair, we in my organisation look on those as being some very good aims to have. They are what we use on a fairly regular basis to ask ourselves those sorts of questions.

Chair

Are they becoming established or embedded in the way that you look at Government tax reforms each year?

Patrick Stevens

Yes, some more than others, because everybody comes at it from a slightly different place, but I am just saying that it is a very good starting six when looking at these things. In answer to your question, my personal view is that some things have improved and some things have got worse. I actually think that they moderately cancel each other out. What has improved, I think, is the method of making law, by which I mean there is now a much longer and more detailed consultation process for detailed tax law. It generally lasts for in excess of a year, where you have a succession of consultations. Not every piece of law does that, of course, because some things are just announced and put straight in a Finance Bill.

Chair

It has not meant that the vested interests have had time to coalesce?

Patrick Stevens

It would be fairer to say that the people who have actually got to use the law in practice have more of an opportunity of saying to Government and HMRC, “This is the result that you will get. Is this what you are intending? If you are trying to do that, why not try doing so-and-so?” I think the general consensus, not just from our profession but from HMRC and the Government generally, is that you end up with materially better law. Everything is relative, but it is better than it would otherwise be.

Chair

Where are things getting worse?

Patrick Stevens

Two main areas: we are seeing a little more retrospection than we have done in the past—

Chair

We are going to come on to that in a minute.

Patrick Stevens

Okay. My second area would be that there is, I am sure—definitely—far more taxed by legislation, untaxed by guidance. In other words, various bits of law are very wide in their effect, and when we say, “Well, that could affect all of these situations,” there is a whole lot of guidance from HMRC in order to show in what way the law will be used in practice. Generally, the place that gets you to—the guidance—is perfectly sensible in my view, but it does leave in place the law that is on the statute book, and guidance by its nature can be changed by the tax authority that writes it in the first place. That, I think, is where we are moving from a longer-term certainty in some areas.

Chair

Do you want to add anything, Mr Haskew?

Frank Haskew

I think Patrick has pretty much covered all the points. We obviously speak on a regular basis and Patrick has certainly covered the points. To emphasise, we have a better consultation process I think, but looking at the Treasury Committee’s principles, we do see that we still have very long, hugely lengthy, complicated Finance Acts and, as Patrick said, there is a lot of uncertainty in some of those provisions. We see very widely targeted provisions, which as Patrick mentioned, that had to be cut down by HMRC guidance. We are seeing that at the moment in relation to the salary of partners of limited liability partnerships. Although we have lengthier guidance and consultation process, what we are seeing coming out at the end is pretty much what we have been seeing in previous years and under previous Governments.

Chair

So no improvement.

Frank Haskew

As Patrick said, on the one hand we have some improvements, on the other we still have very long, complicated, uncertain Finance Acts.

Chair

So we are not getting tax reform then are we, net?

Frank Haskew

I was actually in front of this Committee a few years ago with John Whiting when it was stated that the Government had taken out about 100 pages of tax legislation, with the Office of Tax Simplification work, but in fact they had added a 400-page Finance Act at the same time, so the net result was plus 300. Since then we have had the longest Finance Act in history last year, and we had an almost 600-page Bill put in front of us a week ago. If you look at the reality of the size of the Finance Acts, the answer would be that we have not achieved simplification.

Chair

What do you think about what this means for small businesses, Mr Courts?

Andrew Courts

Small businesses’ reaction is that a lot of the legislation that is happening does not affect them. Some of the anti-avoidance legislation would not affect them because they either cannot afford or do not have the funds to follow big schemes.

Chair

You wanted to say something about retrospection, Mr Stevens, and I cut you short.

Patrick Stevens

I will make an opening point and then ask Mr Haskew to talk about it more widely, because he has been thinking through some of the detailed points. Whereas 10 years ago it was very, very unusual for a piece of legislation to be made deliberately retrospective—we remember one in the 1980s and there was the Primarolo statement at the beginning of the 2000s—and it was groundbreaking, now it is a bit more accepted. I am not suggesting that it is a regular event or anything of that sort.

Chair

Accepted by whom? By the industry? Do you accept it?

Patrick Stevens

Accept is probably the wrong word, I apologise. We are less startled than previously when it arises.

Frank Haskew

It might be helpful if I just run the Committee through some of the history of retrospective legislation, to set the scene for where we are today. This started in earnest back in the 1970s, when we obviously had things such as Rossminster and tax avoidance became very much centre stage. In 1978, there was some retrospective legislation and we then had what was called the Rees doctrine or the Rees rule after Lord Rees. I think that was something that most of us accepted at the time was a reasonable basis: you had to have a clear statement in Parliament about what you were trying to stop; a draft rule had to be produced at the time and subsequently included in the next Finance Act. But I have to say that was aimed at the Chancellor in effect standing up and announcing legislation with effect from that day, rather than necessarily going even further back. The Rees doctrine, I think, was generally accepted as the right way to introduce legislation effective certainly from the date the Chancellor stood up.

Chair

Which is not retrospection.

Frank Haskew

Well, it was the first element, I think, of where subsequently the rules have gone in terms of—

Chair

Nor, arguably, was Rossminster, which was a question of interpretation. Maybe I should not have said that, because it might take us into a—

Frank Haskew

I was going to say—

Chair

The point that I am making is that these look generically very different from what we are getting now, which is the Chancellor standing up and saying, “We’re going to implement something with retrospective effect.”

Frank Haskew

Could I just set the scene again? In the ’80s, we had things such as the Padmore case, and we saw in 1987 some legislation introduced to block that decision that did go back to 1970. We have had on the statute books for 25 years or so some legislation that went back 17 years, so we have had precedents. In 2004, as Patrick said, Dawn Primarolo made a clear statement in Parliament that the Government were determined to stop employment and NIC tax avoidance schemes. That was another statement that we had then. In 2008, the issue obviously really came to the fore with things such as the Huitson case, and then we had section 58 of the Finance Act 2008, which again was retrospective legislation. The Court of Appeal—

Chair

That seems to many reasonably minded people—perhaps I am trying to put myself in that category—to be the starting point for a very different type of retrospection from anything that had preceded it.

Frank Haskew

I think it had been some of the earlier statements—well, I think Padmore was very much in that mould if I’m honest. I do not think it was that different from the situation that came in in 2008. So we have had precedents.

Chair

It dates back to 2004 then, yes.

Frank Haskew

This has been the culmination of quite a number of changes over the years.

Jesse Norman

I would like to turn, if I may, to the question of HMRC’s powers to remove cash from people’s accounts. You have all expressed concerns about this. The Chancellor told us it was simply a modernisation of existing powers. Could one of you explain why it is such an animating point for you?

Patrick Stevens

First of all, it is very difficult to talk in any detail on the question, because we have not yet got details of what powers there are going to be and what safeguards there are. A very broad statement was made at the time of the Budget, and we are all waiting for the detail to be published. I just wanted to say that first of all. The concern that we certainly have is that, however many safeguards there are on the ability simply to take money from somebody’s bank account, it does rely on the authority having worked out how much money should correctly be taken from it in the first place. I am absolutely convinced that HMRC will do all it can and will put in place proper internal safeguards in that respect, but on the basis that we will have legislation that is then surrounded by guidance and internal procedures, it may mean that over a period of time, more vulnerable people particularly—people who are not wealthy, high earners—may become subject to this and that is the area we are most concerned about.

Jesse Norman

You have identified two issues. One is inaccuracy and the other is what you might call potentially being regressive. It has been a principle of natural law from Roman times to the current Mayor of London that, as he said this morning, nemo iudex in sua causa—no one should be judge in his own case. Is that a further concern for you?

Patrick Stevens

It is quite difficult to answer that until we see what the detailed rules will be on what appeals and judgments will be necessary. The real point is whether there will be a necessity to go to an external court—someone outside HMRC. That for me is the big question. If the whole thing takes place within the tax administration it leaves more cause for anxiety than otherwise.

Jesse Norman

That is interesting. Mr Haskew, your written evidence suggests that there have been numerous cases of HMRC chasing debts that are not due. How widespread a problem is that?

Frank Haskew

I think it is quite a widespread problem, and perhaps I could give you two examples. One of our members recently had a letter from HMRC threatening distraint on his assets because he had not paid a tax liability, and the letter he got said his tax liability was nought. HMRC was chasing someone and threatening distraint on a tax that was ostensibly due of nothing. That in a way was a typical example of the sort of things that can happen. We are constantly getting examples. Another last week was an employer who was being threatened with a collector coming round to collect assets to cover the debt. The debt had been paid in full in January, and this was the end of March.

Jesse Norman

There are two things we need to distinguish. One is when an enforcement process is launched against someone who owes nothing. The other is when HMRC has failed to calculate the correct tax, even by its own lights, yet they could take money from your account. I am looking for more evidence on the latter type of case. You have made your point well on the first.

Frank Haskew

In relation to the latter case, it is a difficult area when people persistently do not pay. One can understand in policy terms why HMRC is looking for increased powers, but a member told me only last week that a fundamental tenet of English law and our democratic society is that, unless I have agreed, there must be judicial oversight or a judge must approve taking money out of my bank account. That is a fundamental tenet of the UK’s democratic world in which we would like to live.

Jesse Norman

You are coming back to the Mayor’s Roman law point, and rightly so. What additional safeguards should be put in place to prevent this kind of thing happening? Should everything be judged by court order, or is that too strong a test, given what we are seeing in other countries?

Frank Haskew

As Patrick said, all we have at the moment is a couple of lines in the Red Book. We are waiting for consultation. Obviously, that consultation will be quite lengthy and detailed, but there will have to be some proper safeguards. At the end of the day, we cannot have HMRC acting as judge and jury. There must be an element of oversight, and I think our preference is some sort of judicial oversight, possibly by way of a tribunal.

Chair

Do you think HMRC needs all the powers it has at present, or is there a case for a full review of its powers? That is a general question to any of you.

Frank Haskew

We have effectively already had that since the merger of HMRC and the Inland Revenue back in 2005. They instituted a review of powers which went on for four years, I think. Indeed, the current proposal to take money out of people’s bank accounts was originally one of the strands of that review of powers work back in 2008 or 2009, but at that time the idea was rejected. We had the idea at least five years ago, and it was rejected at the time.

Jesse Norman

Does anyone else want to comment on whether there should be a full review of powers?

Patrick Stevens

Can I divide the concept of powers into two areas? One of them is what right they have to demand this, make you do that or take money out of your bank account. The other one is their effective right to make law themselves, by what I was describing earlier as wide-ranging legislation narrowed by guidance. What that does is give the Revenue power to make their own guidance and therefore their own law.

Jesse Norman

It is a process of allocating discretion to the Revenue which they then use to make what is effectively new law.

Patrick Stevens

That is right. I am simply saying that there are two types of power one is talking about. We used to be much more exercised by the first one, which you have been homing in on. In the main, the results of all the reviews that have taken place over the past nine years or so are that they have not done that badly. We wait to see where we will get to with taking money from bank accounts, because that is an extension of it. It is the other area that I am more exercised about.

Jesse Norman

Right, but just to pick up the point, Mr Haskew, when that review of powers was done at the time of the merger, am I right in saying that there was no reflection given to the issue of shadow law making raised by Mr Stevens? If there were to be a review of powers, one might want to focus specifically on the shadow law-making function that he has described.

Frank Haskew

That has always been a concern of ours. In that review, the concern was consistently raised that effectively, that was what we were going to see all the time. But it is also important to remember that when that merger happened, Customs and Excise had quite different powers. They were much more about collecting duty, bootlegging and piracy—

Jesse Norman

Kicking the door down.

Frank Haskew

Yes. Whereas the Inland Revenue were not in that position, so there was always a danger that in the new organisation, HMRC would be very much based on the old powers of Customs and Excise.

Jesse Norman

This is the final question that I want to raise. Excuse me, Chair; it is a rich and interesting topic. Are we actually seeing a cultural change with HMRC whereby the old Excise types are having more of their way, as it were, within the overall organisation?

Patrick Stevens

Personally, I think it would be unfair to go as far as that.

Jesse Norman

It is not necessarily unfair; it is just a description.

Patrick Stevens

I am trying to answer by saying that, no, I do not believe that that is so. I think there has been a merging of the cultures, and probably we have ended up with powers which are somewhere between the two.

Jesse Norman

That is very helpful. Thank you.

Chair

When you said some while ago that it was your final question, I was reminded of the guy who said that he was coming to the end of his speech just as he was warming up.

Jesse Norman

Well, Chair, if witnesses say things of the interest that our witnesses have been saying—

Chair

If they are of deep interest to us all, we need to follow them up. Absolutely. I know that is what David Ruffley is going to do.

Mr Ruffley

Mr Stevens, does the new requirement for money to be put up front in the case of disputes amount to retrospection, in your view? Is it a form of retrospection?

Patrick Stevens

Oh, yes. I think many people would agree that it is retrospection. They all relate to transactions that took place in earlier years, because we are talking about various cases that are clogging up the courts, if I can put it in those terms. Also, at the time when they entered into the transactions, the law did not say anything about them putting money up front, to use the common parlance. It also brings in, I think most people would agree, a right for HMRC to take that money without effective right of appeal for taxpayers, so it falls into both those areas of things that we do not like.

Mr Ruffley

So there are at least two constitutional objections, if one wanted to be pompous about it. Do you think it is proportionate, this means of HMRC proceeding on demanding advance payments?

Patrick Stevens

My view, and the view of my body, is that the right to demand money up front falls into two distinct legal categories. One of them is the follower cases, the other is the DOTAS cases. I am perfectly happy to talk about them, but if we just remember that. We took the view that in follower cases, the two objections that we are talking about were overruled by the mess that we have got into with these mass-marketed tax avoidance schemes and what that has done to our tax system. So while we found the two points that you are making very unpleasant, we were willing to live with it. We further suggested that that piece of law should be repealed after, say, three years because we could overcome our objections for a period of time while they were mopping up what I would describe as the mess that we have got ourselves into. In respect of the DOTAS ones, we felt that that was going too far, because it was using a piece of disclosure law that was never intended for those purposes. We could not see that that was sufficient for it to be justifiable. I am trying to answer your proportionate question.

Mr Ruffley

Sure. Are there other jurisdictions and tax authorities elsewhere in the world that use this method?

Patrick Stevens

There are an awful lot of different jurisdictions doing different things.

Mr Ruffley

But where do you think HMRC and Her Majesty’s Government got the idea from? Was it a surprise to you when they introduced it?

Patrick Stevens

We are about the only country that I am aware of that has got this huge number of tax avoidance cases—many of which probably do not work but which people have not paid tax on—and there are 65,000 cases to get through the courts somehow. So to a large extent, they had to invent it themselves. Did it all come as a complete surprise? Probably not, because it is the sort of thing that we talk about in my profession.

Mr Ruffley

Okay. In terms of the revenue that is projected in the Red Book to be raised over the next five years, it is £4 billion through anti-avoidance measures. Do you think that this is a realistic number, having regard to what earlier generations of tax avoidance measures have yielded? Does £4 billion feel right?

Patrick Stevens

I have not seen any calculation getting to that, to state the fairly obvious. I actually have much less of a problem with that as a number. In other words, I find it credible, compared to some of the other estimates I have seen over the years on what the results of anti-avoidance legislation will be.

Chair

I apologise for this bell. I actually proposed that we have it turned off for 11.30 and 11.33; I was told that it would cost £140,000 to turn it off in these three rooms alone.

Mr Ruffley

It is obviously a PFI contract. We need to raise more tax. Please continue, Mr Stevens. There is an assumption when getting to this £4 billion figure that the win rate will be equivalent to HMRC winning 80% of disputed avoidance cases. Again, is that intuitively a reasonable assumption?

Patrick Stevens

Over the past 18 months to two years that is about the right percentage of what they have won. I think it would be fair to say that the courts are doing their best to produce the 80%.

Mr Ruffley

With the accelerated payments policy, I see this was a four-week consultation, from 24 January to 24 February this year. Is that long enough for the industry to make their representations and think through the consequences of this Government appraisal?

Frank Haskew

The generally accepted period of consultation is 12 weeks. But there is this problem with anti-avoidance measures: the time gets telescoped. That is exactly what we are seeing here. It is quite a controversial measure. Just picking up and amplifying the points Patrick raised earlier, we will see it extended to the general anti-avoidance rule as well, so it is existing schemes, DOTA schemes and it is also GAAR schemes. Given that GAAR came in only last year and we are still finding our feet with it, that is quite a significant extension of the GAAR itself and potentially introduces quite a lot of uncertainty as to how these new rules on accelerated payments will be introduced. When you add all that up, it is quite a substantial consultation in terms of whether these provisions are appropriate for all of those different types of avoidance. Four weeks is not a long time.

Mr Ruffley

Just going back to Mr Stevens for my final question: in your evidence to the Committee you said that the anti-avoidance measures that are in the Budget will weaken the disclosure of tax avoidance schemes, the DOTAS provisions. Could you just say how the weakening of DOTAS will work?

Patrick Stevens

DOTAS has been going since 2004 and has generally been working really quite well; I believe everyone would agree, including HMRC. People have been disclosing things that they properly should, other than possibly a few boutique organisations who are not a good idea anyway. Generally people have been erring on the safe side and saying, “I am not sure this falls into the DOTAS regime, but I’ll disclose it. No problem. We are not trying to keep anything secret, so we might as well do so and be on the safe side.” The Revenue have used it, perfectly properly, to choose which bits they wanted and introduced anti-avoidance legislation at a subsequent Finance Bill, and so it has worked. The fact that it will now be used as an indicator of when you have to pay tax changes the whole concept of what it is about. People who enter tax avoidance schemes—not that I think there will nearly as many in the future as there may have been in the past—will look at DOTAS not only to see whether it should be disclosed but also to see how it will affect their cash flow, if I may put it in those terms. It will change the nature of what has been a fairly successful piece of legislation.

Mr Ruffley

What do HMRC say when you make that point?

Patrick Stevens

Certainly on a face-to-face basis they wholly accepted the point that I have just made.

Chair

We have heard a number of interesting points in the last few minutes, one of which is the question of powers. We need to think about powers from a number of angles. Would it be too burdensome to ask you to set out your views in a little more detail on that, Mr Stevens, and possibly Mr Haskew as well, when you have had more time to think about it and send us written evidence?

Patrick Stevens

Subsequently, yes.

Andrea Leadsom

I think, Mr Stevens, you suggested that 65,000 current avoidance cases is uniquely high. Is that what you were suggesting?

Patrick Stevens

Unless my colleague is going to argue with me, I am not aware of any other country that has this concept of something that is claimed to be within the law—there are various ways of not paying tax, if you see what I mean—but an avoidance case is something that claims to be within the law and you don’t pay tax on it on the basis that, because our law happens to be that, you can self-assess and claim that that is so. Then, in order to overturn it, each case needs to go through the courts.

Andrea Leadsom

Why is it uniquely high? Is it poor legislation in the past or the lack of a general anti-avoidance rule?

Chair

Is it providing opportunities or complexity?

Andrea Leadsom

Yes, is it complexity?

Patrick Stevens

I will throw in one, if I may: the nature of English law, not British law, if you see what I mean. Because we are absolutely based on the words of the legislation—that is the way that our judicial system has built up over hundreds of years—that gives, I would say, a unique ability for people to get through precise wording even though for most people it would be clear that that was not what the law intended in the first place. When, a year or two ago, they were trying to write the GAAR, for most people on the street that would seem simple: you write a law that says it is what we intend it to be, rather than what it says, but you cannot do that, because that goes against the whole way in which English law works. I am simply saying that our legal system has given us this strange animal called the tax avoidance scheme and therefore we need to invent our own way of dealing with it.

Chair

Have you got anything to add on this, Mr Courts? I noticed that you were looking up to intervene a moment ago but were not called.

Andrew Courts

It was just in relation to one of Mr Ruffley’s comments on the length of time for consultation. It is not just the length of time, but also the timing of that consultation. The consultation was given in January, which is the busiest time for practitioners and also corporate reporting. The ACCA had more comments on that—even though it was a very busy time for members—than any other consultation, so it did raise quite a few eyebrows—

Mr Ruffley

I am sure that it was entirely coincidental.

Andrea Leadsom

I will leave that there. That is a very interesting, fundamental point and perhaps something that we can come back to. We could talk for hours about the solution if we have a unique problem with encouraging anti-avoidance schemes, which is something that has been very much in our politics. The public’s resentment, and quite rightly so, of people trying to avoid paying fair taxes has become a huge political as well as a regulatory matter. It would be interesting to know if there was anything further that you wanted to reflect on. Completely changing the subject, the question I want to ask you, Mr Courts, is about the annual investment allowance. It will now double to £500,000 until December 2015 and the Government have said that that will particularly benefit small and medium-sized firms. Do you think that that is right?

Andrew Courts

The annual investment allowance is great for small business; it has benefited many of my clients and small businesses. I have seen that increasing it to £500,000 benefits one of my clients in particular: they are a very small bus operator who, because of legislation, now have to look at renewing their whole bus fleet. They are now able to make tax breaks on the fact of renewing their fleet, which is very helpful. Effectively, they can probably get a new bus.

Andrea Leadsom

Do you have other examples of who would benefit from this allowance? The jump from £250,000 to £500,000 is quite big and at quite a high level.

Andrew Courts

Yes. Not too many small and micro businesses, unless they are capital-intensive, will benefit from the hike from £250,000 to £500,000. The £250,000 was adequate for most small businesses. I just had a particular client who, under a particular set of legislation, can benefit.

Andrea Leadsom

Mr Stevens, the annual investment allowance has been changed five times in the past seven years. Do you think that that potentially discourages business investment?

Patrick Stevens

I certainly think that the constant change and moving around leads to uncertainty. And I know we all say it, but it genuinely does discourage business from doing things. It is not simply that the caps are there and change from year to year. I actually sat in a technical lecture on the transitional provisions as you go from year to year and, over five years where it has all been changing, almost any date gives you different levels because of the transition. It was the most complicated set of calculations I had seen for quite some time. It mainly affects small and medium-sized businesses and smaller practitioners—it just did not seem to be a terribly sensible way of carrying on.

Andrea Leadsom

So the actual calculation becomes more complicated the more frequently you change the number.

Patrick Stevens

It does.

Andrew Courts

If I can answer, because it is very much in my field. Clients will see the headline on the news and then have to ask how it relates to them. Before we can give them a straight answer, we have to sit down and work out their year- end, what they are going to spend, and follow it all the way through. So when it went from £50,000 to £25,000 to £250,000, in one year they could have three different rates of allowance and they are not going to get just one figure. The rate of allowance that they would get would also depend on when they purchased the item. That meant that there was quite a lot of uncertainty during that period.

Andrea Leadsom

And presumably there were also incentives to move purchasing around, if possible.

Andrew Courts

For the change from £50,000 to £25,000 to £250,000, there was not really much chance of that because the legislation said £25,000 and then we had quite a surprise announcement that it was increasing to £250,000. There was therefore not really the chance for people to delay to that point in time at which it came in.

Andrea Leadsom

Presumably, though, I can image that making business planning very difficult.

Andrew Courts

It does, yes.

Andrea Leadsom

Do you think, first, that it should be widened—qualifying investments are currently in plant and machinery only—and secondly, that perhaps a lower investment allowance that was more consistent over a longer period of time would be a better solution?

Andrew Courts

To have a fixed figure over a long period of time would be very welcome, because we could all plan to that. However, the fiscal stimulus required by the Government—I would assume—to increase it has definitely helped. It has definitely helped some of my clients at the moment because they have been prepared to invest now, whereas they might have put off the investment for a while.

Andrea Leadsom

So on balance, you thank that the fact that it was increased has had the desired effect in terms of people on the ground being incentivised to buy capital and equipment.

Andrew Courts

Absolutely yes, definitely. But when it decreased to £25,000, people were put off investing.

Andrea Leadsom

Of course. Do you think that the definition of what is allowable should be expended?

Andrew Courts

That would be useful.

Andrea Leadsom

What would you include?

Andrew Courts

You have got plant and machinery, but we have recently lost all the industrial buildings allowances. If something could be brought in around some of those things, that would help, because property is one of the most expensive things a business will invest in and there is currently very little investment incentive on industrial plant allowances.

Andrea Leadsom

Can I ask whether you have a specific view on farm and agricultural buildings? Is sufficient investment allowance provided for agriculture in the UK?

Andrew Courts

I think that has all gone with the industrial buildings allowance now.

Frank Haskew

Agricultural buildings allowances went when industrial buildings allowances went, so there are not any specific reliefs in that sector anymore.

Andrea Leadsom

I only asked because of a constituency matter. The National Farmers Union has been saying that a whole generation of farmers are unable to invest in buildings, whether for dairy farming, grain stores or whatever, because they get no allowances. Would it be right that there is no move towards supporting that? All witnesses: indicated assent.

Mr Ruffley

I had exactly the same representation from the Bury St Edmunds branch of the NFU on that very point last Friday. They were talking about the Budget and why the regime did not favour them.

Chair

If anybody else would like to chip in with the odd constituency concern, please do so—it is fine.

Andrea Leadsom

Thank you, Chair. If I may continue—

Chair

You may.

Andrea Leadsom

That was a slight aside, as you know. Mr Stevens and Mr Haskew, is there anything further that you want to add about either the level and continuity, and the importance thereof, of the investment allowance, or whether it is appropriately wide?

Frank Haskew

I think that the policy actually goes to the heart of the difficulty in formulating tax policy. Going back to your six principles, there is this tension between supporting growth and competitiveness, which is one of your principles, and also certainty and stability. I am afraid tax policy is always trying to balance these different policy objectives, and we are seeing it at the moment, I think, in the annual investment allowance; so it is difficult when you are looking to foster growth and trying to reconcile those. I think we would say that it would be better to at least have some stability because, as we have said already—and indeed it is one of the key messages we always get from businesses—they want certainty more than anything else, so they know where they stand and they know where to invest. Going back to your examples with your farmers, if the certainty is you do not actually have any investment allowances, potentially that is quite dangerous as well, so it is a difficult balancing act.

Patrick Stevens

I agree with my colleagues and I have nothing useful to add.

Andrea Leadsom

Okay, thank you.

Chair

Perhaps I could just read out the Committee’s conclusions from the Budget two years ago, on retrospection: “We recommend that the Government restrict its use of retrospective legislation to wholly exceptional circumstances, which should be narrow and clearly-defined. The Treasury should set these out as soon as possible for consultation, along with an explanation of how gradual further extension of retrospection can be prevented. Any future retrospective tax measure must be justified against the agreed criteria: such justification must include clear explanatory statements to Parliament by the responsible Minister and should invite views from relevant professional bodies.” Do you feel that the spirit of that recommendation has been abided by, Mr Stevens?

Patrick Stevens

Well, for a start, I would wholly endorse the words that you have just said. I think we all agreed with it then, and I would certainly agree with it now. I did point out earlier that I felt that the “follower cases” legislation fell into the “wholly exceptional” category, just to pick up on the words you were saying, but many of the other words that you have just read out describing how and why, and putting it into context, I am not sure we have wholly achieved.

Chair

That is pretty cagey language, if I may say so: “not sure we have wholly achieved”—but we have got it.

Frank Haskew

“Wholly exceptional”: I think that what the Treasury Committee set out two years ago were very clear principles, which go, really, back to the Rees statement in terms of the ethos of what it was trying to achieve. In a way, I think, two years ago you restated what ought to have been a position which we have had since the ’70s. Therefore I think we wholly welcomed it at the time. In terms of where we are today, I think I would struggle to say that the Government is abiding by those Treasury Committee recommendations.

Chair

Is there anything you want to add, Mr Courts?

Andrew Courts

No. I like the result that was read out just now. I think that is a good thing. “Wholly exceptional” I think is where it should be—if there is something that is really exceptional. So that is it.

Chair

As for the GAAR, that is something the Committee also expressed views on and we might return to on another day. Thank you very much for coming to give evidence to us this morning. It is still this morning. I promised a number of people that we would finish this morning rather than this afternoon and that has been achieved. Thank you very much indeed. [Member’s name (Chair)]: [Question text] [Witness name:] [Answer text] [Witness name:] [Answer text] Q1 [Member’s name]: [Question text] [Witness name:] [Answer text] Oral evidence: Budget 2014, HC 1189 2