Finance Bill

I am grateful to the hon. Gentleman for his kind remarks, and to the Minister for his generous remarks earlier. Of course taxpayers have opportunities, for example, to defer payment of capital gains tax and I shall come to such instances in a moment. The hon. Gentleman suggests that 28% is a compromise, but the Chancellor suggested that it might be—or is at least close to—the rate at which revenue is maximised. The Treasury has carried out some dynamic analysis to illustrate that, and it would be welcome if it could be placed in the Library so that hon. Members can see it. We need to know more about the reasons for the choice of rate, and I hope that the Minister will be able to provide us and some of his Liberal Democrat partners with some much needed enlightenment. I wish to press the Minister on two further aspects of the proposed change—the timing of the change and, on the change to entrepreneurs relief, the reason for the increase in its generosity and the change to the way the amount relieved will be calculated. First, on the timing point, the Minister will be very familiar with the arguments against changing tax rates mid-year. Indeed, when our positions were reversed, he used to rehearse regularly the arguments against the kinds of complexities caused by changing rates mid-year. Indeed, some of his hon. Friends said earlier that they were looking forward to the Government simplifying the tax system. This is their first Bill and they have introduced a new and unprecedented complexity. What is it that persuaded the Minister that this particular complication was worth introducing? I am told that there has never been a mid-year change of rate in CGT since it was introduced in the mid-1960s. Will he acknowledge that this should not be the norm—that sudden and unannounced lurches in tax rates, in the middle of a tax year, are damaging and undermine people's confidence in the tax system? Can he assure us that the Government will do their utmost to avoid a repetition in future? The Institute of Chartered Accountants in England and Wales says that there are likely to be a number of practical problems, in particular with changes to the supplementary pages for capital gains for the self-assessment tax return and for filing online. Are the Government aware of those problems, and is the Minister able to tell us how they will be addressed? ICAEW also makes the point that the transitional provisions for the current financial year are insufficient from a technical standpoint. Is it intended to make further transitional arrangements in the third Finance Bill of this year—the one to be brought forward in the autumn? Is the Minister able to confirm that these matters will be discussed with the experts of the CGT liaison group, ensuring through a collaborative approach that the final legislation later this year covers all the issues raised by a mid-year change? At the moment, there is free HMRC software to deal with capital gains tax calculations in the tax return. The Institute of Chartered Accountants points out the importance of HMRC modifying that software, testing it fully and having it available to handle the complications created by a mid-year change in time for the beginning of the 2011-12 financial year, so can the Minister confirm that it will be? Can he also confirm that HMRC will work with commercial providers to ensure that third-party software products are also modified in time for the new financial year? If they are not, there will be some serious practical problems next year as a result of the change, as the Minister will appreciate. That raises the question: why is the change being made now? Why was it not left until the new financial year? I can see that leaving it would create a problem of forestalling, with people rushing to realise their capital gains in this financial year rather than next. However, a puzzling question is: why does the Red Book say that there will be no revenue at all in the current financial year as a result of the change? The Red Book says that making the change will generate £725 million next year and £825 million the year after, but nothing at all this year, even though it has been made less than a quarter of the way through the financial year. With capital gains tax having been increased on 23 June, there must surely be some immediate increase in revenue. Secondly—and lastly—I want to ask some questions about entrepreneurs relief. The previous Government introduced entrepreneurs relief when the rate of capital gains tax was raised to 18%. We believe it right that entrepreneurship should be well rewarded, and we support the role of entrepreneurs relief for that purpose. However, I wonder whether the Minister can explain to us the thinking behind the increase in the value of gains relievable from £2 million to £5 million. To what extent does that reduce the take of £725 million expected as a result of the overall change next year? However, the Bill does not just increase the amount of the relief; it changes the way in which it is calculated. That has raised a number of quite difficult technical issues, which I hope the Minister will comment on. When the rate of capital gains tax was 18% and the rate payable for amounts relievable under entrepreneurs relief was 10%—a difference of eight percentage points—it was important that it should be clear precisely when the higher rate was payable and when the lower rate was. However, now that the high rate is 28%, the importance of that point is made that much greater, and there will certainly be strenuous and ingenious efforts to re-classify gains as relievable under entrepreneurs relief in cases where it might not have been worth bothering in the past. It has been recognised in previous Finance Bill debates that at some point a review of the rules around entrepreneurs relief would be needed. With the increased differential between the rates, would the Minister accept that the case for a review is now more pressing? Prior to the change, someone making an entrepreneurial capital gain could defer payment of capital gains tax by investing it as a qualifying investment in an enterprise investment scheme company. Then, when they sold the EIS shares, they could still pay capital gains tax on the original gain that they invested at the 10% rate. As I understand how things will work under the schedule, that will no longer be the case. Entrepreneurs relief will not be available when deferral relief has been claimed. That will mean a significant reduction in the incentives for investment in enterprise investment scheme companies. Is that what the Government intended? It might be an accident arising from the different way of applying the relief introduced by the schedule. If so, will the Government bring forward changes in the autumn to correct it? We do not propose to divide the Committee on this schedule, but the Minister will recognise that we have identified some pressing concerns in this debate. I hope that he will be able to provide both some answers and some reassurance about the Government's intentions.