Finance (No. 2) Bill

My Lords, I congratulate the Minister on the brevity and clarity of his exposition of this brief Bill. I was not looking forward to a 20-minute exposition of Clause 10, for example, and I was pleased that he dealt with it with such expedition. I shall base what I say today on an issue on which the Minister touched, which is how we make tax policy. During my time in the House, making tax policy has been characterised by a number of unsatisfactory features. First, we have had hugely long Finance Bills, often with 500 pages of legislation, which I think have meant that, cumulatively, we now have the longest tax code of any country in the world. Secondly, these Bills have been produced with little or no consultation on huge chunks of them, with the result that they have sometimes been very poorly drafted and have had unintended consequences which have required the provisions to be repealed within short order. Lastly, we have in your Lordships’ House established a mechanism for beginning to look at aspects of the Finance Bill through the sub-committee of the Economic Affairs Select Committee, which had one advantage. It meant that there was a certain amount of deliberative consideration of the non-political parts of the Bill—not the rates but the structure—and that officials and experts were able to give evidence and a report was produced. That was the good news. The bad news was that, partly because of the timetable and partly because of the attitude of the Treasury, it was almost entirely wasted time in terms of any effectiveness in what was, for those who were on the committee and their advisers, a very intensive period of work. This system of making tax law was fairly dysfunctional in many respects. Some aspects of what the Government are now proposing are a great advantage. There is an advantage in producing, in effect, a draft Finance Bill with all bar the rate changes in it, several months before the Budget. In this case, I think it will be three and half months, which gives interested parties plenty of time to make suggestions. I hope that the spirit of accepting amendments that has been adopted with this Bill will be followed through as we move forward. One of the things that is clear in the way in which Finance Bills have been dealt with in the past—I am sure that this was the case when the noble Lords, Lord Sheldon and Lord Barnett, were dealing with them—is that, once the Bill gets before the House of Commons, the Treasury has no appetite for making the slightest amendment on the smallest comma, because in a sense that would undermine its omnipotence in the original drafting. The new procedure breaks away from that unsatisfactory way of doing things. The other welcome development, which the Minister did not mention, is the establishment of the Office of Tax Simplification. One of the paradoxes, not just in our tax law but in law generally, is that it is easy to make it more complicated but difficult to make it simpler. It is a positive development that some real experts are now spending time cudgelling their brains on how to make aspects of the tax system simpler. I think that it will be a long job before they can claim total success, but it is a move in the right direction. I have three suggestions for how the process could be improved even further. The first concerns the documentation that is produced at the time the draft Bill is published. I think it is the case in the US that the Treasury there spends more time in its Green Book than is typically the case here in our Explanatory Notes on explaining the reasoning behind the change. That has the advantage that those looking at the draft legislation can form a clear view about whether it is likely to achieve the aims that are set out for it. Sometimes the Explanatory Notes explain literally what the clause says but do not really explain with any clarity why it has been done in that way, or indeed why it has been done at all. There is an enhanced role there for explanation. Secondly, it is not clear to me that there is an enhanced system of parliamentary scrutiny, either in place or planned, to take advantage of this three-and-a-half-month window that we now have with regard to draft Finance Bills. I know that the Treasury Select Committee in another place will look at this, but that committee has a very full agenda. I wonder whether its members will feel that this should be their top priority when they are looking at so many other things and have such little technical advice to assist them—it is a tough job trawling through all this stuff. As I say, I am not absolutely sure that there is a huge appetite for this in another place. That brings me back to our own approach. There is now an enhanced opportunity for the sub-committee of the Economic Affairs Select Committee to look at the draft clauses of the new Finance Bill in the way that it has up to now; namely, by taking evidence from Ministers, from officials and from interested parties and then producing a report, but this time producing a report that gives the Government time to consider it fully before the Finance Bill proper is published. It is to be hoped that the Government will see that sub-committee of your Lordships’ House as having significant status when it looks at making changes between the draft Bill and the final version. Thirdly, it was a retrograde step when virtually all responsibility for tax policy-making was taken away from HMRC and brought into the Treasury. I declare an interest as a former policy adviser on tax to HM Customs and Excise. For much of the Finance Bill one is talking about very technical provisions. I am yet to be persuaded that the Treasury has either the expertise or, frankly, the appetite for the kind of detailed consideration of tax policy that those officials in the revenue departments of old did. They often spent their entire careers working on tax policy, which meant that they had encyclopaedic knowledge of the taxes on which they were advising Ministers. As I say, I am unconvinced that the new arrangements, which have brought that power into the Treasury, are good for either the Treasury or HMRC, which is now being forced to be an executive arm only, rather than a policy-making arm. As these are the people who must make the policy work, they should have a bigger input into it. As I said in the early part of my speech, the new timetable gives many more opportunities to ensure that tax legislation is better produced than in the past. I look forward to seeing these other developments, which should improve it even further, being adopted by the Government.