National Insurance Contributions Bill

moved Amendment No. 4:"Page 2, line 14, leave out ““2nd December 2004”” and insert—" ““(a)   2nd December 2004, or (b)   the date on which a Minister of the Crown has notified Parliament that such regulations are required, whichever is the later”” The noble Baroness said: I shall speak also to the other amendments in this group. These amendments deal with the extent of retrospection that the Bill should be allowed to create. The Minister made plain at Second Reading, as the Paymaster General did in another place, that the Government regard the retrospection contained in the Bill as necessary to deal with the scale of avoidance encountered. In tabling this and other amendments today, I am not signalling that we are against retrospection in principle, but we think that it should have boundaries. Back in 1978, when retrospection was even more controversial, the then Labour government introduced provisions in that year’s Finance Bill that went back, in one case, to the date of the announcement of the intention to legislate and, in another case, to nine months before that date. My noble friend Lord Rees argued in Committee in the other place that there should be a clear warning to Parliament of the intention to legislate and that the subsequent Finance Bill should legislate back only as far as that warning. Lord Rees, who was supported by my noble friend Lord Howe of Aberavon, set out four conditions, of which the most important for the purposes of this debate is that the warning must be precise in form. I should concede that my noble friends failed to restrict the 1978 Finance Bill in accordance with the principles of retrospection that they set out; that is the lot of oppositions. However, both my noble friends went on to become distinguished Treasury Ministers, and, in the case of my noble friend Lord Howe, Chancellor of the Exchequer. I do not believe that they transgressed the lines that they set out in 1978. This may well be the first instance since then. As we know, under several clauses, the Bill allows the Treasury to make regulations to have effect from 2 December 2004. That was the date of the PBR announcement by the Paymaster General. There had been various previous attempts to avoid national insurance using artificial forms of remuneration. Those were stopped as soon as the Inland Revenue, as it then was, found out about them. At the time of the PBR announcement, the Inland Revenue was aware of schemes that used shares and securities, which were subsequently neutralised so far as income tax was concerned by the second Finance Act last year, and will be neutralised by regulations under the Bill, of which we have already seen a draft. The Government argued, however, that the 2 December announcement was sufficient to allow them to counter all future avoidance schemes that come to light, and that the regulations can go back to 2 December 2004 regardless of when the Government announced that they intended to take action. The amendments in this group are intended to restrict retrospection to the date when an announcement is made. I do not expect a meeting of minds with the Minister on this subject but I wish to put some questions to clarify the issues. First, are there any other schemes—other than those that have already been, or that will be, closed off by the draft regulations which we have already seen—that the Government intend to deal with? My honourable friends in another place sought that information when the Bill was considered in Committee. The Paymaster General seemed unable to give any further examples. If there were any, they would help us to understand the nature of the threat—if one exists—from further avoidance activity. The Government have had the disclosure provisions operating for some time for tax purposes. Do any other schemes cause concern? Secondly, will the Government clarify their approach to retrospection and, in particular, whether they accept the principles set out by Lord Rees in 1978? Put simply, is the 2004 PBR Statement regarded as notification to Parliament to endorse retrospection, or do the Government believe that they can introduce a different form of retrospection? At Second Reading, the Minister said at col. 27 of Hansard for 9 January that the PBR Statement was ““precise enough””. Was he accepting the Rees rules and arguing that the Government complied with them, or do the Government argue that they are not bound by the Rees statement of principles? Thirdly, I can safely say that, back in 1978, Lord Rees did not have the impact of the European Convention on Human Rights uppermost in his mind. At Second Reading, the Minister said that,"““the clear advice to the Government is that the Bill is compliant and proportionate””.—[Official Report, 9/1/06; col. 27.]" However, the Bill only enables regulations—it does not require the Government to make regulations—so issues of compliance will not arise in relation to the Bill, but may well do so in relation to the subsequent regulations. What advice do the Government have on that? Do they believe that they can issue regulations retrospective to 2 December 2004 at any future point for the purposes of neutralising any national insurance advantage without running into any form of challenge under human rights legislation? The Minister will be aware that there are ways of remunerating employees that are accompanied by national insurance advantages. That is still in the area of some share options and schemes, contributions to pension schemes by employers, life assurance contributions and similar things. I do not believe that the Government regard those as abusive, but who is to say whether a future government—not, of course, a Conservative one—might take a different view? What is there to prevent the Government changing their mind in, say three years’ time about today’s ordinary planning of remuneration practice, in order to take advantage of the rules that exist, not being seen as abusive? The issue arises of whether retrospective regulations could be made at a later stage to neutralise what today are seen as entirely ordinary arrangements. We do not have to regard that as fanciful. The Government have flip-flopped on the issue of small family companies. They started by creating a clear corporate tax advantage for businesses that incorporated; indeed, they encouraged companies to incorporate. However, after several detours, we end up with the latest PBR basically alleging tax abuse from the incentives originally created by the Government. We can see radical changes in the Government’s view of how reliefs can be used in a relatively short period, and employee taxation is not far from such an example. The Government ought to provide a clear framework of law so that taxpayers can conduct their affairs. The Minister may well have seen last week that a major FTSE player is considering relocating its domicile out of the UK, in part because of the climate of fiscal attack that has developed. I am sure that he will also be aware that other multinationals are currently choosing to headquarter their European operations not in the UK, but in, for example, the Netherlands and Ireland. That is partly an issue of tax rates, but also because the UK is seen as an increasingly hostile environment due to a combination of the Treasury and HMRC. That is why we want to challenge the principle of unlimited retrospection—not the principle of retrospection where clear notice is given to Parliament to take effect from a certain date, but being able to go back and rewrite history. I beg to move.