Mr. Philip Dunne (Ludlow) (Con): I share the concerns about the Bill expressed by my hon. Friends the Members for Croydon, Central (Mr. Pelling) and for Cities of London and Westminster (Mr. Field), especially about the Bill's retrospective nature.
I understand the desire expressed by the Chancellor, the Paymaster General and other Opposition Members to minimise the scope for remuneration contrivances to escape the tax and national insurance net. Indeed, I have considerable sympathy with the objective of dealing with the imaginative but essentially contrived schemes about which we have heard. I confess that the use of platinum sponge is a new one on me, too.
However, my concerns go beyond the specific provisions of the Bill. This country has rightly earned great respect in the international business community for the probity of our laws and customs. Indeed, even the HMRC has commanded respect-if little love-for the certainty, if not always the clarity, of its decisions. As we have heard, companies, individuals and their advisers have long enjoyed the ability to base their commercial decisions on a principle of certainty in respect of the tax laws at the time those decisions were made. The law has always been open to interpretation, which has enabled the entire tax advice industry to flourish, but commercial decisions could be made according to the law prevailing at the time.
Unfortunately, the Bill reinforces a very unwelcome principle that has been introduced into our tax law-the ability to change the rules as the Government choose. The Institute of Chartered Accountants has expressed concern about that, as the hon. Member for Twickenham (Dr. Cable) noted. In its briefing paper, the ICA said:
"Retrospective legislation is not a satisfactory solution: not only does it make for uncertainty for employers but there is a real probability that it is ultra vires European Law".
My views on Europe may not be well known in this House, but they are to my constituents and it is extremely rare for me to find comfort in pronouncements from Europe. However, as we have heard from the Liberal Democrat spokesman, there is some case law that needs to be explored in Committee, not least because the Institute of Chartered Accountants states:
"We do not think that anyone reading the Paymaster General's 2 December 2004 statement could have expected the content of this Bill."
Labour Members have focused much of their enthusiasm for the Bill on the impact it may have on fat cats in the City, and reference has been made to the large sums that many people earn there. The issue is not confined to the City of London, however. In my constituency, there is an individual who sells millions of pounds-worth of perfume to the far east, on which he earns substantial commission. That gentleman could take his business anywhere in the world, and I should like to focus on that point.
The Prime Minister appears to have woken up only relatively recently to the challenges of globalisation, but the economy has been at the forefront of global trade for centuries. Since 1979, as economic liberalisation has been successively introduced, mostly under the previous Conservative Government, increased inward investment to the UK has provided a major boost to economic growth and productivity. The scale of that investment is well illustrated. The Paymaster General has unfortunately left the Chamber so we cannot confirm whether her regular morning reading includes The Daily Telegraph (26 October 2005), but I shall quote a brief extract to illustrate my point:
"Overseas investors own more than a third of the 100 blue chip companies listed on the London Stock Exchange, 10 of those aren't even British, 250 of the 1,066 top flight directors are foreigners and some of our most important industries-such as energy and banking-are largely controlled by European and US companies."
We can thus see that a significant proportion of senior executives in leading companies across industrial sectors, as well as many of those sustaining the City of London's global position in financial services, are foreign nationals, often working for foreign firms. I speak with some authority as a few years ago, before I came to this place, I worked for a foreign-owned bank.
The relevance of those points to the debate is twofold. First, from an individual point of view, a large number of highly skilled and highly rewarded individuals currently choose to work in the UK in roles that they could also undertake overseas. It is not beyond their wit to try to weight their remuneration away from the higher tax jurisdiction. With modern technology and working practices, especially in the service sector, there is a real risk that by introducing retrospection to our tax system for individuals, doubt will be cast over our personal taxation system, which will encourage income to be earned overseas and, perversely, may reduce rather than increase the return to HMRC.
Secondly, from a corporate perspective, the more worrying implication is the doubt that retrospective tax legislation introduces in the fairness of the tax system operating in this country. In a global market, companies can choose where to operate. Businesses are highly flexible and many can move their operations to jurisdictions where they perceive commercial advantage. We are increasingly used to the advantages of China and India, about which we hear so much from the Chancellor, in relation to labour-intensive activities, but the capital-intensive sector, where many of these proposals are directed, is highly mobile. A good example is reinsurance, a completely mobile activity, much of which has moved to Bermuda over the last 10 years. Such sectors often remunerate their employees very well.
My concern is that when HMRC is both judge and jury and tax legislation is introduced with retrospective effect, it could seriously erode confidence in the fairness of our tax system. The Government need to take great care. I am not sure whether the Economic Secretary is aware that the last time retrospective tax measures were introduced was under the last Labour Chancellor, Chancellor Healey, and look what happened to him. The serious point is that if companies lose confidence in the tax system, those that are not in this country will think carefully before they choose whether to come to the UK or locate elsewhere. Those already in this country, especially if the breach in the dyke were to be widened with further retrospective proposals, might eventually consider moving away. That would damage the economy, damage confidence in our tax system and damage the Government's tax revenues.
1.44 pm
and later in the debate...
Mr. Dunne: We have just heard for the second time from Ministers a list of the previous mischievous attempts to get around the tax and national insurance regime. However, that fails to deal with the issue of retrospection, which my hon. Friends and I were arguing about. We are talking about retrospective action from the point when the Bill becomes an Act, compared with the point when an announcement is made in the House. That is the period where there is difficulty.
Mr. Lewis: My right hon. Friend the Paymaster General made a clear statement in December 2004. It seems to me that these measures should take effect from the moment when that statement was made on the basis that anybody who behaves in a particular way is aware of the consequences. The statement was absolutely clear. I believe that it is right, therefore, that the measures should take effect from the making of the statement.
