Corporation Tax Bill

Second Reading

20:20:00

Moved By

Lord Davies of OldhamMy Lords, the Bill rewrites a range of corporation tax provisions, including provisions on the computation of profits, small profits relief, losses, group relief and distributions. It also rewrites some provisions that are more specialised, for example provisions related to UK real estate investment trusts and other provisions related to avoidance. Its main aim is to make the legislation clearer, better structured and easier to use than the source legislation, which is often dense and difficult to follow.

The Bill has been produced by Her Majesty’s Revenue and Customs Tax Law Rewrite Project. It is the second of two Bills that rewrite corporation tax. Last year, the project completed the first part of the task of rewriting corporation tax when the Corporation Tax Act 2009 was enacted. The Bill will complete the work and mean that substantially the whole of the legislation relating to corporation tax will have been rewritten. This work follows the success of the project’s previous Acts which rewrote the capital allowances and income tax legislation.

I should explain to the House that the Bill has been certified as a money Bill. It was introduced in Parliament in another place in mid-November last year. Under the special procedures applying to tax law rewrite Bills, the substantive debate on Second Reading was held in Committee. The Bill then passed to a Joint Committee of the two Houses where it was considered on 11 January. The Joint Committee included among its members the noble Lords, Lord Blackwell, Lord Goodhart and Lord Newton, and the noble Baroness, Lady Goudie. I am grateful to them for their efforts in scrutinising the Bill. I am also grateful to Mr Andrew Tyrie, the honourable Member for Chichester, who chaired the Committee. The Bill then passed back to the House of Commons to be debated on Third Reading and has now come to this House for its remaining stages, which the rules say can be taken in one day.

It is beyond the remit of the project to make any significant changes in tax policy, and so the project takes great care to preserve the effect of the legislation. It can, however, make very minor agreed changes, for example to remove ambiguity, repeal obsolete material or correct minor anomalies. To ensure that any changes made are within the remit of the project, they are considered during an extensive, detailed and thorough consultation process involving the project’s consultative committee whose members are drawn from the main tax professional and business representative bodies. The work is overseen by an independent steering committee, chaired by the noble Lord, Lord Newton of Braintree, which includes Members from both Houses, the judiciary, business and consumer groups, and the accountancy and legal professions.

The extensive consultation process that I mentioned involved the publication for public comment of papers containing almost all the clauses in the Bill. The Bill was published in draft form for another round of consultation. An updated version was later published, taking account of the consultation responses and the changes made by the Finance Act 2009. In addition, groups of private-sector specialists met with the project to consider the detail of some of the more complex provisions so that the views of those who are the main users of the legislation were taken fully into account.

Throughout the process, proposed minor changes in the law were specifically drawn to the attention of the consultees and no minor changes in the law were included in the Bill without the considered approval of both the project’s committees. The Joint Committee of both Houses heard oral evidence from members of the Tax Law Rewrite Project team. It considered and accepted all the Government’s amendments to the Bill, all of which it agreed were of a minor, technical nature. The Joint Committee concluded that the Bill is a welcome clarification of the existing law and, as a result, it will be easier to use and more accessible to Parliament, the judiciary, informed professionals, business people, and other users of the legislation. It was satisfied that the changes to the law in the Bill are of minor significance. The success of the project in improving the accessibility of tax legislation to users has been borne out by independent market research, which has shown that, in the main, users of rewritten tax legislation have warmly welcomed it. It was seen to be of particular help to those newly entering the profession. Consultees have also been positive about the project’s work.

It would be wrong of me to conclude without paying tribute to everyone who has taken part in this work. Many consultees have given their time and used their considerable expertise to consider the detail of the rewritten clauses. As with all rewrite Bills, tax professionals who provide expert comment already understand the legislation and, therefore, have the least to gain from the rewritten provisions. Their selfless contribution to the consultation process for the benefit of the wider range of tax professionals who use the legislation is, therefore, particularly welcome. We owe a particular debt to the noble Lord, Lord Newton of Braintree, for his service as chairman of the steering committee, and to the members of both the project’s committees for their expert input and guidance.

To sum up, this is an extremely worthwhile project with a track record that shows that it makes our direct tax legislation more modern, clearer and easier to use. The Bill maintains the high standards achieved in the project’s previous Acts and will make taxation legislation more acceptable to Parliament, the tax professions, business and the judiciary. I beg to move.

20:27:00

Baroness NoakesMy Lords, I thank the Minister for introducing this Bill. He will be relieved to know that I shall not repeat the speech that I made last week, but I shall summarise the points that I made about the rewrite process.

First, we owe a debt of gratitude to the steering group, the consultative committee and the Joint Committee on Tax Law Rewrite Bills for the whole of the Tax Law Rewrite Project. We owe a particular debt of gratitude, as the Minister has already said, to my noble friend Lord Newton of Braintree, but also to my noble and learned friend Lord Howe of Aberavon before him and, in respect of the more recent detailed work through the Joint Committee, to my right honourable friend Mr Kenneth Clarke and my honourable friend Mr Andrew Tyrie. Secondly, we are content with the Bill and the assurances given in another place as to the use of the Henry VIII powers in Clauses 1178 to 1180. And thirdly, while we have supported the tax law rewrite process and support this Bill, it has done nothing to make our tax system simpler and we regard that as a major bit of business which needs to be tackled by a new Government.

I shall not repeat the arguments for a simpler tax system today. The Minister has heard my speeches on this more than once in the past. Simplification is, however, on the agenda of pretty well all business organisations and, as I pointed out last week, we have policies to achieve simplification through an office of tax simplification. Last week the Government failed to give a good response on tax simplification and I know from our debates in the past that the Minister has been unmoved by the strength of our arguments, so I hold no hope of a change of heart on that today. Instead, I would like to address my few remarks to tax competitiveness. This Corporation Tax Bill as a rewrite Bill does no harm but I suspect that it will not do anything positive to improve our tax competitiveness. Ministers have recently become rather fond of quoting the World Bank’s 2010 Paying Taxes report. We heard the report’s findings on the time taken to comply with taxes and the number of taxes quoted at quite extraordinary length by the Minister last week when we debated the international provisions rewrite Bill.

There are some problems with the World Bank’s analysis, which I referred to last week. First, it is based on hypothetical case studies prepared by PricewaterhouseCoopers of one business with particular characteristics. It does not pretend to be representative of whole business sectors in each country. Secondly, it measures the number of taxes paid and the time taken in compliance. It does not get to the heart of how burdensome a tax system is and does not include an explicit assessment of simplicity.

This should be contrasted with the World Economic Forum’s more extensive competitiveness study. The 2009-10 report shows the UK as being 84th for extent and effect of taxation. The nearest comparison in the 1997 survey was for tax burden, where we scored fourth. Something has clearly gone wrong in our tax system in the past 13 years, and most of us know the source of that.

The Government have been quite keen on comparing the UK to the rest of the G7. The figures quoted by the Minister in last week’s debate did just that. However, business groups, led by the CBI, have been clear that if we simply measure our tax competitiveness against the G7, we are asking the wrong question and are therefore in danger of getting the wrong answer. When businesses look at locating and relocating, it is not to the G7 that we should look for comparison; it is to the developing countries and their tax systems.

A competitive tax system is at the heart of a competitive economy. We remain disappointed that the Government are content with the occasional favourable comparison or statistic and have not faced up to the changes that our economy needs to create a competitive tax system. But, that said, we support the Bill.

20:32:00

Lord NewbyMy Lords, if there was an award to be given for Members of your Lordships’ House who have sat through every debate on tax rewrites since their inception, I would win it. However, I would not deserve it; the only people who deserve anything from this process are those who have worked very hard on it over the years. We are deeply indebted to them, although we are not as deeply indebted as the people who will now use the legislation in their day-to-day business. It is a tremendous piece of work and those who have done it are to be congratulated on it. I do not intend to open a debate on tax competitiveness on the basis of this Bill, although I say to the noble Baroness that, if she thinks that the tax competitiveness of the UK will be substantially improved by the Conservative Party’s proposals, she is living in a dream world. However, at this time of night, that is not the kind of dream world that I wish to contemplate. Therefore, I wish the Bill godspeed.

20:33:00

Lord Davies of OldhamMy Lords, I am grateful to both noble Lords for their constructive contributions. The noble Lord, Lord Newby, is worthy of the prize. I know that he has done a great deal more than I have with regard to the rewrite Bills and what I have done seems quite enough. Indeed, having two Bills in the space of seven days is quite enough for all of us who are interested in these matters.

I apologise for being unable to introduce, apart from the Corporation Tax Bill itself, any new subject matter to assist my articulation of the case for it, not least because this is a rewrite and all the credit goes to those who have done the hard work and prepared the Bill in such a way that we get the benefits from the clarification and from the succinct nature of the legislation without there being anything controversial to disturb us. That, after all, is their remit, which they have fulfilled so very well. We pay tribute to the noble Lord, Lord Newby—I was pleased that he was in his place last week—for his work as chair of the committee. I am with the noble Baroness today in saying how much we appreciate his work and that of others.

The noble Baroness was kind enough to offer a self-denying ordinance on politics, saying that she would not go through a demolition of the Government’s position last week. One of the reasons why I was rather anticipating that she would not go through a demolition of the Government’s position on this last week was that the Government’s position holds up very strongly to any examination. I am therefore not entirely surprised that she showed a degree of forbearance in that area.

Forbearance was of course not extended to other areas with regard to this issue. I cannot imagine when a Conservative Chancellor is ever likely to have such an opportunity—certainly not the present shadow Chancellor, I would have thought. Let us, however, take the noble Lord, Lord Newby, into his dream world for a moment, or into the dream world of the noble Baroness, Lady Noakes, and imagine that there is a Conservative Chancellor. Can noble Lords imagine him introducing the Bill and saying, “Of course, the House will appreciate that our taxation system bears favourable comparison not with G7 countries or even with G20 countries but with some emerging economies”? Can anyone seriously say that that is how the comparative model works? I do not know what these emerging economies might be; a Conservative Administration are so far away that it might be the Turks and Caicos, the Cayman Islands or somewhere like that. Certainly, however, that would not bear any great reality in relation to what we should be comparing our taxation system to—namely, our major sophisticated, advanced competitors. That is the evidence that I gave last week, which the noble Baroness disagreed with, and I am having the greatest difficulty in stretching myself to accepting her contention this week.

This is not, however, a moment for political controversy. Let us rejoice in the work of others who have done so very well and let us forgo our normal exchanges in appreciation of that work. We are joined in a constructive enterprise that we all recognise is of value to our fellow citizens. Accordingly, I hope that, with the support of the noble Lords opposite, this Bill may now be read a second time.

Bill read a second time. Committee negatived. Standing Order 47 having been dispensed with, the Bill was read a third time and passed.

20:37:00

Sitting suspended.