House of Commons, Committee Office 14 Tothill Street, London SW1H 9NB

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Randall Copeland
5 years ago
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Treasury Committee House of Commons, Committee Office 14 Tothill Street, London SW1H 9NB Tel 020 7219 5769 Fax 020 7219 2069 Email treascom@parliament.

1 Treasury Committee House of Commons, Committee Office 14 Tothill Street, London SW1H 9NB Tel Fax John Cullinane Esq Chartered Institute of Taxation lst Floor Artillery House Artillery Row London SW1P 1RT 12 December 2016 Lc7oL, Improving Tax Policy Making This letter sets out some personal ideas on ways to strengthen scrutiny of the Finance Bill. It has been seen and checked by senior clerks. It benefits from the meeting I attended at lfg on 11 October, and ideas passed back to me from the subsequent roundtable that took place on 14 November, attended by Treasury Committee staff, officials from CIOT, and lfg, and Commons Clerks from the Committee Office and the Public Bill Office. The Chancellor's announcement in the Autumn Statement of changes to the Budget timetable, which HM Treasury says will improve both external and Parliamentary scrutiny of proposed tax measures, adds weight to the argument for a review of tax policy making, and I look forward to reading the report that you are producing with lfg and IFS. Oral evidence to the Finance Bill Committee from tax experts The Finance Bill Committee should take oral evidence from relevant tax experts before commencing line-by-line scrutiny. Procedurally, this is already possible. It is the default position for all other government bills introduced in the Commons.

2 Government would need to allow for oral evidence sessions in the programme motion. The relaxation of the Provisional Collection of Taxes Act (PCTA) deadline in the 2011 Finance Act now provides more flexibility in the parliamentary calendar for this. Whereas Royal Assent to the Finance Bill was required by 5 August, providing for a period ofroughly five months after a March Budget, Parliament now has until seven months after Budget Day (subject to any other business management imperatives that may require early Royal Assent). Most government bills starting in the Commons have between two and four sessions of oral evidence. The complexity and importance of the Finance Bill suggests at least six sessions, perhaps many more. I would be inclined to recommend ten. The Finance Bill Committee to have access to an expert parliamentary draftsman and improvements to support from House staff Given the complexity of the issues involved and the benefits which accrue from continuity of briefing and analysis, the Finance Bill Committee would benefit from additional staff support. This could be provided in a manner which enabled Parliament to scrutinise tax measures at each stage of the policy development cycle (initial Budget announcement, consultation on the principles, draft Finance Bill clauses, final Budget decision, Finance Bill), from year to year. Discussions about many tax policy measures are partisan. This will make the collection of oral evidence challenging. Scrutiny should focus on whether the measure is likely to achieve its stated objectives and whether it adheres to good tax policy making. The principles established, and unanimously agreed, by the Treasury Select Committee could also offer a useful basis for such an analysis. 1 1 In its Eighth Report of Session , Principles oftax Policy, (HC 753) (published 15 March 2011), the Treasury Committee established the principles that tax policy should: 1) be fair; 2) support growth and encourage competition; 2

3 Members would benefit from access to high quality technical support to make effective contributions. They would also be better placed to table more technically sound amendments than is currently often achieved. A well-rehearsed technique of Ministers is to persuade the Committee to reject amendments, not on the grounds that their spirit is necessarily unacceptable, but that the amendments are technically flawed and would not have the effects intended. Improvements to the quality of the drafting would make such a defence less tenable. Clerks in the Public Bill Office are skilled generalists and are of great benefit to the quality of Parliamentary scrutiny. They can be relied upon to draft amendments capable of allowing some debate to take place. They cannot necessarily be expected to draft technically accurate amendments, part~cularly in the tax field. It is for consideration whether the House Servicez would benefit from the recruitment of a professional parliamentary draftsman to assist, not just with the Finance Bill, but also with other highly technical measures, and perhaps with the drafting of Private Members' bills. The whole House could gain. This might not be cheap. Over time a cadre of clerks could also be built up who have acquired greater expertise in economic, financial, tax and statistical issues than is currently the case. This is a matter for MPs to address and I will give thought to how it might be accomplished and will discuss it with members of the House of Commons Commission. 3) provide certainty without regular recourse to the courts - which in turn requires legal clarity, simplicity and targeting (so that taxpayers are clear whether or not they are liable for particular types of charges to tax); 4) provide stability, with minimal change unless there is a justifiable economic or social basis; 5) be practicable, meaning that a person's tax liability should be easy to calculate and straightforward and cheap to collect; and 6) be coherent, with new provisions complementing the existing system rather than conflicting with it. 2 House Services is used to describe the approx. 2,500 members of staff employed to provide professional and impartial support to the House and its committees. 3

4 r1 >ne of the above would, of course, at a stroke necessarily make amendments more palatable to the Government. Moreover, without the detailed technical analysis available to HMRC, even very carefully drafted amendments may still be technically deficient. The Treasury Select Committee has shown that it is possible to use a wide range of specialists, many on secondment, to enhance its capability, and without incurring substantially greater cost. It is for consideration whether the Treasury Committee should also engage in more research in this area, for which a line already exists in the Committee Office budget. Possible approach for future scrutiny: Parliament now scrutinises Budget measures in some detail ahead of the Finance Bill process. The 2010 reforms were far reaching. The Annex to this document sets out the various points at which this would occur, assuming that the policy making process that was instituted in 2010 is replicated in the new Budget timetable from next Autumn, announced by the Chancellor in the Autumn Statement. The Treasury's Tax Consultation Framework - implemented in provides for significant tax proposals to be subject to two consultations (first on the policy; later on the draft legislation) between their announcement in one year's Budget and their legislation in the following year's Finance Act. There are exceptions. These include, as the Government pointed out in 2011, "straightforward rates allowances and threshold changes". Some of these can be among the most significant and contentious. Nonetheless, my general impression - supported by written evidence that the Treasury Committee has 4

n: ceived as part of its inquiry into tax policy and the tax base - is that the majority of Budget measures, including the most important, are subject to consultation as intended.

5 n: ceived as part of its inquiry into tax policy and the tax base - is that the majority of Budget measures, including the most important, are subject to consultation as intended. Further analysis from CIOT or IFG to substantiate, or challenge, the level of the Treasury's compliance with its own principles could be valuable. The changes in 2010 were a considerable advance. With that in mind, I have not proposed any change to the current early scrutiny arrangements, which have been strengthened in recent years after calls by the Treasury Committee and others. The proposals are designed to strengthen scrutiny of clauses published on "Legislation Day" and scrutiny of the Finance Bill itself. Reinstatement of HM Treasury's Tax Consultation Tracker The Tax Consultation Tracker was introduced as part of the new approach to tax policy making in It was a great step forward. It drew attention to all the consultations on a particular area of tax. But unfortunately its benefits have been greatly diluted because, in changing its format, HMT has limited its functionality. There is merit to returning to the old Tax Tracker. It recorded tax measures in one place. And it gave the lifecycle of each tax measure, including: links to relevant documents, the stages of the consultation and/or legislative process that it has gone through and who is responsible. If it were also to include a note of the proposed legislative vehicle(s) for a given measure, and the Budget in which it was announced, it would provide a single repository of all the tax measures that have been announced, stating their current status and the next steps. 5

Post-legislative scrutiny The House of Commons does not do enough in the way of post-legislative scrutiny of tax measures, not least because of the exclusion of Finance Acts from the Constitution

6 Post-legislative scrutiny The House of Commons does not do enough in the way of post-legislative scrutiny of tax measures, not least because of the exclusion of Finance Acts from the Constitution Committee's 2004 recommendation that most Acts should normally be subject to review within three years of their commencement, or six years of their enactment. With or without formal memoranda from the Government, post-legislative scrutiny by Parliament could contribute to improvements in the design of the tax system. The possibility of post legislative scrutiny should act as a deterrent to some of the less well thought out measures seen by successive governments. There might be a role for the House of Lords here; unlike pre-legislative scrutiny, where the financial primacy of the Commons should and largely does preclude Lords scrutiny, the Commons might be more relaxed about the Lords developing a role in post-legislative scrutiny. The Treasury Committee has yet to give the development of more robust post-legislative scrutiny of tax measures the thought it deserves. This area is certainly worth consideration for further work, by the Committee and others. I am copying this letter to Jill Rutter (Institute for Government), Paul Johnson (Institute for Fiscal Studies) and John Benger (Clerk Assistant, House of Commons). I will be placing this letter in the public domain. n l r. ~ RT HON ANDREW TYRIE MP CHAIRMAN OF THE TREASURY COMMITTEE 6

'1:lrnetable for scrutiny of the Budget: Starting from Autumn Budget 2017, and taking into account the Chancellor's new Budget timetable, the lifecycle of a typical Budget measure could be: Initial

7 '1:lrnetable for scrutiny of the Budget: Starting from Autumn Budget 2017, and taking into account the Chancellor's new Budget timetable, the lifecycle of a typical Budget measure could be: Initial announcement of the policy in the November 2017 Budget. At this point, the Treasury Committee would assess the measure against its principles for tax policy. It would draw on reports that it had commissioned from CIOT, ICAEW and ACCA to do this, together with the independently commissioned analysis mentioned above. Consultation on the policy in the first few months of There would be no formal Parliamentary scrutiny at this stage, but the Treasury Committee might write to Treasury Ministers, or take oral evidence, where concerns over a consultation are drawn to its attention. 3 Publication of draft Finance Bill clauses in the summer of 2018 on "Legislation Day". Apart from the House of Lords Economic Affairs Committee4, which reports on the draft Finance Bill before the Budget and publication of the Finance Bill itself, there would be no formal Parliamentary scrutiny at this stage (as the Finance Bill Committee has not yet been appointed). However, the Treasury Committee could continue to commission reports from CIOT, ICAEW and ACCA, and use externally commissioned research to assess the impact of all the measures published on Legislation Day. The Committee could report in October, taking oral evidence during the September sitting if required. 3 Making Tax Digital is a recent example of such Treasury Committee scrutiny at the consultation stage ofa Finance Bill measure. 4 That Committee's output is not particularly visible, but were it to become so, it might raise concerns about possible infringement on the Commons' financial privilege. 8

8 Intention to legislate confirmed in the November 2018 Budget. At this point, the Treasury Committee might reassess the measure against its principles for tax policy, if there had been wholesale changes between the initial announcement in 2017 and the current proposal. The Finance Bill would be presented to Parliament in December No scrutiny until Second Reading, after which the Finance Bill Committee would be appointed. Finance Bill Committee Stage (could start as early as December 2018 until March 2019, but could run longer as the PCTA resolution would expire in June 2019). The Finance Bill Committee would consider the Bill clause-by-clause, and looks at proposed amendments, drawing on advice and written submissions and briefing provided by, among others, interested parties. A small proportion of clauses and amendments would be very likely to continue to be examined in Committee of the Whole House, held in the Chamber. This would be likely to occur in December 2018 or January It currently lasts two sitting days. As noted above, oral evidence would be taken in Committee and relevant Treasury Select Committee. reports could be used to inform questions. Finance Bill Committee would progress as usual, but with the considered strengthened support suggested above. It is for consideration whether the Finance Bill Committee could be set up earlier, which would enable oral evidence to be taken concurrently with Committee of the Whole House, giving more time for thorough consideration and engaging Members earlier. 9

9 Scrutiny of Tax measures: A possible framework Nov 2017 Spring 2018 Summer 2018 November 2018 Dec March 2019(?) Stage of process Budget Day Period of Consultation "Legislation Day" Draft FB Clauses published Budget The Budget might include an update on the Spring consultations Finance Bill Scrutiny, including Committee stage Parliamentary scrutiny 5 days of debate on Floor of House Treasury Committee would scrutinise forecasts and broad measures announced Treasury Committee would publish its report on the Budget Finance Bill Sub Committee of the House of Lords Economic Affairs Committee might scrutinise the draft clauses Treasury Committee could publish a report in the autumn if it received substantial evidence about the clauses. 5 days of debate on Floor of House Treasury Committee would scrutinise forecasts and broad measures announced Other actions Treasury Committee would commission comments from representative bodies Bodies would engage directly with the Government about consultation areas Treasury Committee would receive representations on particularly controversial issues Treasury Committee could commission comments from representative bodies Treasury Committee would commission comments from representative bodies The scrutiny focus here is primarily on "new" measures in the November 2018 Budget, but it could include measures from the November 2017 Budget which are reconfirmed in November 2018, for legislation in the forthcoming Bill Parliamentary draftsman amendments Evidence gathering phase at Finance Bill Committee

TAXREP 12/15 (ICAEW REPRESENTATION 29/15)

TAXREP 12/15 (ICAEW REPRESENTATION 29/15) FINANCE BILL 2015 DRAFT CLAUSES DIVERTED PROFITS TAX ICAEW welcomes the opportunity to comment on the draft clauses on Diverted Profits Tax published for consultation