Finance Bill — House of Lords, 2017-11-15
Topic: Macroeconomics
Howard Leigh (Conservative, Centre-right): My Lords, this year I served on the Finance Bill Sub-Committee of the Select Committee on Economic Affairs. I congratulate the noble Lords, Lord Turnbull and Lord Hollick, and my colleagues on the committee on, and thank the special advisers who helped us so ably for, the report’s publication. I draw your Lordships’ attention to my interest in the register, not least as a member of the Institute of Chartered Accountants in England and Wales and, by something of a fluke, as a member of the Chartered Institute of Taxation. It is something of a fluke because, somehow or other, I passed the exams in 1985, to the great surprise of my teachers and colleagues at the time. Taxation post-1985 has been a bit of a mystery to me, but I have some expertise of it pre-1985. None the less, it is particularly gratifying to debate the report at Second Reading of the Finance Bill. I served on the sub-committee when we investigated taxation on LLPs, and was very disheartened to find that none of the many recommendations we made were adopted by the previous Chancellor. I am extremely encouraged that the current Chancellor has taken a completely different approach, and is clearly listening to submissions and reports, such as the one made by your Lordships’ committee. However, it was disappointing that the Statement of 13 July thanked many members of the public, and others, for contributions, but did not recognise our report. I think we can take it that they were listening As considerable time and effort goes into these reports and, equally important, members of the public give their valuable time making written and oral representations, I was pleased to learn that so much of the report is being implemented in the Finance Bill and subsequent announcements. We heard from a number of witnesses worried about the impact on their businesses and from professional advisers who pointed out that their clients were simply not prepared to tackle digitalisation. As the noble Lord, Lord Turnbull, said, it was eye-opening to learn how many taxpayers and members of the public were either digitally excluded or referred to as "assisted digital", who would need some sort of help to interact digitally with the Government. This ranged from about 30% of micro-businesses to 45% of the adult population Our report welcomed the Chancellor’s announcement of a delay, but made the point that it did not go far enough to allow proper testing in pilot areas, as had been planned. Overall, it must be right to encourage all businesses to go digital, but it is not clear to me that this will close the tax gap as contended, although I of course recognise that the tax gap under this Government is the lowest ever. However, the behavioural assumptions made imply that errors, when corrected, will always be in the Exchequer’s favour. I am not sure this is the case. The Chartered Institute of Taxation surveyed its members; 41% thought that the changes would have little impact on the level of their clients’ errors, and nearly 40% considered that they would increase errors, which could of course lead to a loss of Treasury revenue The Association of Accounting Technicians, another institute very much at the front end of helping business, was concerned that time-consuming and costly quarterly reporting requirements would result in businesses turning to the black economy. I was persuaded that the impact of quarterly reporting could substantially increase the error rate. HM Treasury and HMRC seem confident that their estimates will hold up, but I am not convinced that the pilot studies have been as extensive or as deep as they could be I can see that where businesses use spreadsheets rather than software, particularly where they have partial exemptions, converting the output figures into the VAT return will be a challenge. There is still time to be flexible as the regulations are not scheduled to be laid before Parliament before spring 2018, so one can only hope that HMRC is listening and talking to those affected. I can tell noble Lords that quarterly accounting is causing great concern in the business community. To make corporate tax quarterly returns effective will need considerable work, not least in assessing accruals, identifying provisions and computating capital allowances. Is this really a constructive use of entrepreneurs’ time Once again, I add my voice to those who plead for tax simplification. I do not have it but there are 640-odd pages.