Corporation Tax Bill

David Gauke essentially welcomes the Bill which rewrites the charge to corporation tax legislation used by companies in computing their income, he thanks all involved in the Tax Law Rewrite Project.

Mr. David Gauke (South-West Hertfordshire) (Con): It is pleasure to speak on Third Reading. This is very nearly the end of the process-we have another Bill to discuss this afternoon-but it is a good opportunity for us to thank those who have been involved in it over the past 14 years. As the Minister said, it all began in 1996 when my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke), the then Chancellor of the Exchequer, set up the tax law rewrite project. He went on to Chair the Joint Committee on Tax Law Rewrite Bills. Those are two of the many contributions-both past and future-that he will have made to public life.

By the time a tax Bill reaches its Third Reading, an Opposition Front Bencher has usually devoted what feels like weeks of their life to addressing the matter. The tax law rewrite project process is unusual, in that an Opposition Front Bencher's involvement tends to be on Second Reading and Third Reading. The Minister has a slightly greater role as a member of the Committee, but I am sure that he would be the first to accept that it is not quite as demanding upon his time as a Finance Bill would normally be.

None the less, for many people this has been the most enormous project, and one should pay tribute to those who have been involved in it: the independent steering committee, which is chaired by Lord Newton and, as the Minister said, was previously chaired by Lord Howe of Aberavon, who has had a long-term interest in the making of tax law; Members of both Houses who have been part of the Joint Committee; members of the judiciary, and of the legal and accounting professions; and business and consumer groups. I particularly wish to thank my hon. Friend the Member for Chichester (Mr. Tyrie) for his service as Chair of the Joint Committee. In its report, which I read through, he acknowledged that he was new to the process, but he handled the proceedings with the skill that one would expect of him.

I also wish to thank the consultative committee, which consisted of members of the main tax and business representative bodies, and the many consultees involved in the process, both in the professional organisations and businesses, and in Her Majesty's Revenue and Customs. They responded to the project by devoting a great deal of their time to it, without any compensation as such, and they played an important role in developing this law.

Of course I also wish to thank the tax law rewrite project team for all its efforts over many years in developing this legislation. The first bit of legislation was the Capital Allowances Act 2001. It was followed by three Acts relating to income tax: the Income Tax (Earnings and Pensions) Act 2003, ITEPA; the Income Tax (Trading and Other Income) Act 2005, ITTOIA; and the more simply-named Income Tax Act 2007. In this context, one should also mention the Income Tax (Pay As You Earn) Regulations 2003. The legislation on corporation tax is: the Corporation Tax Act 2009, this Bill and the Taxation (International and Other Provisions) Bill, which we will debate subsequently.

I have set out my thanks to all those involved in the process; the level of professionalism has been very high. I now wish to raise a query that the Minister will anticipate, and it is not, in any way, meant to take away from anything done by those who have been involved in the process. Does the process go far enough? It has required a great deal of expertise, it has placed great demands upon the consultees and it has cost £37 million, which is not an insignificant sum.

It is worth citing the remarks made by John Whiting, the tax policy director of the Chartered Institute of Taxation, with whom those of us who have anything to do with tax tend to be familiar. He said:

He went on to say that

We fully endorse those remarks.

The importance of the project has not just been about the rewriting of the legislation and the provision of greater clarity in the wording-that is important; we can build upon a lot of the work that has been done, because we can use some of the structures that exist. For example, the Joint Committee involves parliamentarians making use of outside expertise to scrutinise technical legislation with perhaps more thoroughness than we normally achieve through the Finance Bill process. I have had the honour of being part of that process for the past four years, but I wonder whether, in this complicated area of tax law, a committee that can inquire more than debate and that has access to expert advice is able to provide greater scrutiny than the traditional parliamentary process.

Dr. Pugh: There is a general demand, which I think we all accept, from business to have corporation tax simplified. However, the paradox is that when one starts talking about removing a specific allowance that affects a specific business, the tune changes somewhat. Thus, it is rather difficult to conduct the process in a universally agreed way.

Mr. Gauke: The hon. Gentleman makes a perfectly good point; the losers tend to make more noise than the winners-that is inevitable. I was coming to the issue of simplification, which relates to the argument that John Whiting has been making. Two elements are worth exploring, the first of which is the possibility of a greater degree of scrutiny. The tax law rewrite project has involved scrutiny, but the project has had a very limited remit: to focus on rewriting the language. We will discuss the conclusions that have resulted from that.

The second element is the push towards simplification, and I take on board fully the remarks of the hon. Member for Southport (Dr. Pugh) about that. None the less, the view of my party is that simplification is worth pursuing. All this, whether we are discussing the clarity of language, which is what this Bill is about, or simplification, fits into the issue of the competitiveness of the tax system. I will not digress at any length into corporation tax rates, for example, but this is obviously a Bill on corporation tax and it would be remiss of me not to mention the fact that we used to have a corporation tax rate that was lower than the OECD average in 1997, whereas it is now higher. In 1997, the UK had the 11th lowest corporation tax rate in the world, and now has the 23rd lowest-

Madam Deputy Speaker (Sylvia Heal): Order. May I remind the hon. Gentleman that, as he has recognised, there are some limits to this debate? I hope that he will recognise that and confine his remarks appropriately.

Mr. Gauke: I am grateful for that guidance, Madam Deputy Speaker.

I certainly shall not pursue the issue of corporation tax rates, but clearly the intention behind the Bill is to improve the clarity of corporation tax law. That is an important element in improving-or trying to improve-the competitiveness of the UK tax system. Our argument is that we should go further and that simplification would do much to improve our competitiveness. The process that we have seen in the tax law rewrite project is a valuable guide to how we could go further. I shall not dwell on our proposal for an office of tax simplification, which would make use, as this project has, of the expertise in the tax professions, in businesses, in HMRC and in HM Treasury to ensure that we develop our tax law in an attractive way.

It is worth stressing that we live in a very competitive world. The UK, in many respects, should be well placed to benefit from a globalised world, but it needs a competitive tax system. May I briefly highlight the fact that in 1997 the UK was fourth in the World Economic Forum's global competitiveness report's ranking for having the lowest tax burden? According to a measurement that is not exactly the same but is the closest equivalent, it is now ranked 84th for the extent and effect of taxation. That is a substantial decline, not because of the tax rewrite project but despite it, of course. None the less, we need to go much further. We believe that an office of tax simplification would be a huge step forward.

Let me raise another query with which the Minister might be familiar, as he briefly touched on it in his remarks. The argument was often made that making legislation clearer in the context of income tax was very important. Income tax is relevant to nearly all of us, whereas companies tend to be advised on corporation tax. It is an area that inevitably involves some specialist expertise. Is it quite as necessary to pursue a rewrite project in that context?

Of course, the first point to make-the Minister touched on this-is that there is an interrelationship between income tax and corporation tax, and having reformed income tax, it makes sense to follow with this corporation tax Bill. The second point is that existing practitioners are often somewhat dubious about the project, because they already know where everything is. They are familiar with the existing law and the various sections and schedules, and they know their way around. There is a complication when a new Act that changes things around is introduced. Of course, one must have a degree of intergenerational fairness to tax advisers in this area, and it might well be easier for future generations to find their way around with this new legislation.

Sometimes it is recent legislation that is being amended-again, the Minister touched on this point. In particular, he highlighted the legislation on real estate investment trusts. The regime for REITs was introduced in 2006, and it is substantially rewritten in the Bill. I was struck by the remarks of John Sellers, the head drafter of HMRC's tax law rewrite project, in Committee on 11 January. He referred to the substantial recasting of REIT legislation and went on to say:

A couple of points can be made about that. First, I would be interested to know from the Minister, with his vast experience as a Treasury Minister, how often legislation is passed while policy is still being developed? Perhaps naively, I thought that the policy came first and the legislation followed, but possibly that was not the case. Perhaps that was a peculiarity of the Minister at the time, who, if I recall correctly, is now the Secretary of State for Children, Schools and Families. None the less, that is somewhat surprising. We will always face the need to improve the clarity of legislation if we do it that way round-if we do the legislation first and the policy second. That is somewhat surprising in this context because, if I recall correctly, the REIT legislation was in gestation for some time. It was not rushed. I would be grateful if the Minister could tell us why it has been necessary to recast it.

Let me return to the limitations of the tax law rewrite project. There is quite a strong argument for reconsidering the REIT legislation, not just in terms of how it is structured and drafted, but on its merits, too. In the proceedings on the Finance Bill last year I tabled amendments on the restriction on distributions, for example. At least 90 per cent. of property income must be distributed in the year in question, and currently that has to be done in cash. There was an argument about whether shares should be allowed too, given that there should be no tax consequence. I do not want to go outside the scope of the Bill, but perhaps the Minister will say something about whether the Government are considering the REIT regime, which has cross-party support, more widely. I know there have been difficult economic conditions for REITs, but there is an argument about whether the regime could go further and whether reforms will be necessary. I would be interested to hear his views.

None of these debates would be complete without my briefly mentioning the order-making powers in clauses 1178, 1179 and 1180. The Minister customarily reassures us that those order-making powers, which enable primary legislation to be changed by regulation, will be used only in exceptional circumstances. The Bill restricts them somewhat. I would be interested to know to what extent those powers have been used for previous tax law rewrite Bills. One point that was raised in Committee-it would be helpful if the Minister could address it in this debate-was whether a negative resolution is sufficient or whether the affirmative procedure should apply.

My final query-I apologise: I have two final points; I am sorry to disappoint the Government Whip-relates to whether some of the changes will involve more or less tax being paid. The Minister has said that no major changes are contained in the measures, and rightly so, because they do not involve the same level of parliamentary scrutiny. However, I should like to know whether there has been any assessment of the revenue implications of the changes in the Bill, and whether there is a rough and ready test to determine whether a change constitutes a major change-one too significant to be contained in a tax law rewrite Bill. I should also like to know how that assessment is made.

Finally, some of the amendments made in Committee, particularly those to schedule 1, relate to Northern Ireland, and I wonder why those issues were missed earlier. When the Minister responds to this point, will he say something about the process when new issues arise in Committee? Where do they come from, who identifies them and are they part of the consultation process? We would like to get a better idea of the point at which weaknesses and omissions are addressed.

Subject to those queries and questions, we welcome the Bill. The tax law rewrite project might not be perfect and might have too limited a remit, and there is more to be done to move towards simplification, but we should none the less acknowledge the enormous efforts that have been made by many people to improve the clarity of our tax law. That is an important objective. A start has been made, and we hope that a future Government will take on the project and do more to simplify our tax system, not just to clarify it.

2.2 pm

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