Schedule 6 - Accounting practice and related matters

Finance Bill – in a Public Bill Committee am 4:30 pm ar 28 Mehefin 2005.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed [this day], That this schedule be the Sixth schedule to the Bill.

Question again proposed.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

Before the Committee adjourned at 1 o’clock, I had just concluded my remarks about how avoidance causes economic distortion. In response to the hon. Member for Braintree (Mr. Newmark), I said that the corporate anti-avoidance provisions in the Finance Bill apply specifically to contrived schemes that are designed to decrease United Kingdom tax. Stopping that type of avoidance levels the playing field between compliant and non-compliant taxpayers, which is what we want to achieve.

The hon. Gentleman asked about securitisation companies. He expressed gratitude to the Government on behalf of that important industry for introducing a framework for the new tax regime for those companies under the Finance Act 2005. That is a good example of close collaboration between the Treasury, Her Majesty’s Revenue and Customs and the bodies in the area of international accounting standards. The hon. Gentleman then urged that progress be made in sorting out the new tax system. As he will know, the Finance Act 2005 allows regulations to be made. HMRC and the Treasury are studying a particular proposal that the industry has made in respect of the points he made, and expect to be in a position to respond soon to the industry’s suggestion.

I shall come back to my hon. Friend the Member for Wolverhampton, South-West (Rob Marris).

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I meant that in the nicest possible way.

The hon. Member for Wimbledon (Stephen Hammond) referred to the Chartered Institute of Taxation. He was concerned about schedule 9 of the Finance Act 1996 and asked whether it would stop a company from receiving relief for a drop in value of part of a loan relationship, when there is a derivative such as an interest rate swap acting as a cash-flow hedge of interest rate risk elements for the loan relationship. I checked matters over lunch, and my understanding is that officials from HMRC have discussed such issues with a leading tax practitioner at the CIOT and said that, in their view, the legislation will not have the effect that is feared, and the revised guidance that is being prepared on loan relationships and derivative contracts will make that clear. I am happy to make sure that the hon. Gentleman receives a copy of that draft in case he wants to return to it at some stage. The important point that he was making is the subject of discussion and I hope that it will be clearly resolved.

Finally, my hon. Friend the Member for Wolverhampton, South-West asked me to translate into English paragraph 25 of the explanatory notes on schedule 6. I have to say that it is rather a long translation so, to save the Committee’s time, I propose to circulate that to him and all Committee members. The Committee knows that any letter circulated by a Minister during proceedings on the Finance Bill is also deposited in the Library.

Paragraph 22 converts what are essentially pieces of accountancy jargon into what I was going to call a more readily usable description, although I am not quite sure it is that—but it is long and gives a clear explanation. I hope that my hon. Friend will accept, on this occasion, that that is the most sensible way to proceed.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I am grateful for my hon. Friend’s indulgence.

I have responded to the points that hon. Members have made. International accounting standards are a complex and important area, especially as companies move to meet them. Companies will want to move at different speeds to meet those standards and it is important that the regulations, having been fully discussed in draft and consultation, provide for those changes to be made and address the important question of transition when we have a better idea of what is appropriate, how long it should be and how it should work. I hope that the Committee will endorse the schedule.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I should like to make a few brief points. I am grateful to my hon. Friends the Members for Wimbledon and for Braintree for their contributions to this debate.

We are all aware that the change to the international financial reporting standards has long been planned; it has not just come up suddenly. I confess that I am still somewhat confused as to why we are discussing the transitional arrangements as the transition is occurring. However, I talked to one or two people   during lunchtime and I am happy to say that I understand fully and concur with the Paymaster General’s view that the ball is in industry’s court. The Government are waiting for the information to return. That may give her some satisfaction, but it prompts the question why we were not able to start earlier on this process, for everybody’s benefit.

I was interested to hear what the right hon. Lady said about the speech of my hon. Friend the Member for Wimbledon, because there is clearly some difference between her understanding and that of her officials and the CIOT. As recently as Friday the CIOT believed that it would be appropriate to table an amendment dealing with loan relationships and derivatives which it believed would find favour at the Treasury, following discussions, which suggests that the CIOT’s end-view of those discussions was that an amendment was required, whereas officials ended the discussions with the view that such matters can be dealt with through guidance, rather than any further changes to the Bill.

The Paymaster General made it clear during the debate that there are some pretty big numbers involved in the transitional process. Clearly, all sides intend that there should be a smoothing, so that large amounts do not come into tax or get lost from it as a result of step changes in the accounting procedures that are followed. However, she continued and made it clear that the transitional regime has not yet been determined. Can she make it clear to the Committee whether it is the clear intention of the Government that the transitional regime be revenue neutral, so that for the period in which the changes are phased in there is, for tax purposes, neither a gain nor a loss? If that is not the intention, can she explain to the Committee how the corporation tax receipt figures in the Red Book will be calculated in future years, given that the transitional regime, which will apply to fairly large numbers, has not yet been determined? In my simple way, I would have thought that the length of the transitional regime would have an impact, as between years, on the total corporation tax receipts.

In fact, even if the sum arising from the transitional arrangements is zero overall, the phasing of receipts could be affected. The right hon. Lady mentioned a figure of £4 billion, but I am not sure whether that referred to a single bank or to the banking community. However, the numbers were significant; the phasing of them could make a big difference to the Chancellor’s cash flow—and of course, importantly, to whether he meets his golden rule on fiscal balance. Anything that the Paymaster General can say on that point will be extremely helpful.

The Paymaster General also mentioned the use of regulations and the greater ease that they would give the Treasury—and, by implication, business—so that, when necessary, it can legislate quickly in a fast-moving area, and I understand her point. However, the regulation-making powers given to the Treasury in paragraphs 9 and 10 of the schedule include the ability to delete primary legislation. That is quite a substantive power to put into a regulation-making measure. I understand the right hon. Lady’s concern   that there be a mechanism for responding quickly to changes and, in particular, for dealing quickly with any problems or unforeseen consequences that arise. However, in future we will increasingly face the problem of the Government wanting regulation-making powers in place of primary legislation for practical reasons.

If we are to get away from the standard debate in which Opposition Members lament the use of regulations because there is no proper opportunity for parliamentary scrutiny of them, and in which Ministers advocate them for reasons of practical efficacy, the answer has to be a better parliamentary process for scrutinising regulations and statutory instruments in this place. If we had a better way of scrutinising what may be important statutory instruments—if we recognised that we have long since passed the time when SIs were simply the minor consequences of primary legislation, and that in some areas they make important changes to primary legislation—we Opposition Members would have less concern about how these things work. However, I am not suggesting that there is anything that the right hon. Lady can do about that.

Photo of Edward Balls Edward Balls Llafur, Normanton

The hon. Gentleman referred to the importance of raising revenue to meet the golden rule. Does he support meeting the golden rule, or would he prefer a balanced Budget rule?

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am sure that you, Sir Nicholas, would not encourage me to stray down the path of debating the Chancellor’s rule on balancing the Budget over the cycle, as opposed to the European Central Bank’s rather tighter rule, which is not adhered to, of balancing the Budget or limiting the deficit within—

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

I am grateful for that guidance. Nonetheless, the point, which I hope that the hon. Member for Normanton (Ed Balls) takes, is that when the golden rule is examined—this is pertinent to the schedule, Sir Nicholas—it is not simply the aggregate of receipts that matters; it is the timing of those receipts. The transitional regime, moving the timing of receipts from one year to another, could be significant when the deficit is narrow and tight.

Photo of Edward Balls Edward Balls Llafur, Normanton

On a point of order, Sir Nicholas.

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

I am not sure whether a point of order can arise on that matter. If the hon. Gentleman wishes to intervene on the hon. Member for Runnymede and Weybridge (Mr. Hammond), he can, but if he insists on putting a point of order, I shall rule accordingly.

Photo of Edward Balls Edward Balls Llafur, Normanton

I have a question for you, Sir Nicholas. As a new Committee member, I do not understand why the hon. Member for Runnymede and Weybridge is allowed to refer to the importance of raising revenue to meet the golden rule, but able not to respond to a point that I put to him about his answer. It is perfectly   respectable to believe in a balanced Budget rather than a golden rule. I thought my question relevant to the hon. Gentleman’s speech.

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

It is not for me to comment on the content of any hon. Member’s speech, as long as it is in order. The Opposition spokesman sought to remind me that he was connecting matters relating to a balanced Budget to this schedule. I took his word for it.

Photo of Edward Balls Edward Balls Llafur, Normanton

Will the hon. Member for Runnymede and Weybridge give way?

Mr. Hammondindicated assent.

Photo of Edward Balls Edward Balls Llafur, Normanton

If, as was the case under the previous shadow Chancellor, there had been a balanced Budget rule, would the hon. Member for Runnymede and Weybridge, in making his earlier point, have been more supportive of the measures proposed by the Paymaster General than he is under the golden rule, which he seems more circumspect about supporting?

Photo of Nicholas Winterton Nicholas Winterton Ceidwadwyr, Macclesfield

I am sure that the hon. Member for Runnymede and Weybridge will endeavour to respond to that helpful intervention.

Photo of Philip Hammond Philip Hammond Shadow Chief Secretary to the Treasury

The hon. Member for Normanton is getting the hang of this quickly. We all have to deal with the question how to circumvent the rules of order by rephrasing things quickly. If the hon. Gentleman’s question has become whether my point about the relevance of the timing of receipts would be as significant as it is under the so-called golden rule if there were a balanced Budget rule, the answer must be that it would be more significant, because the Exchequer would be even more sensitive to movements of receipts between years.

On the hon. Gentleman’s earlier point, he has been here long enough—five or six weeks—to have seen that questions do not always get answers. If he doubts that, I urge him to attend Prime Minister’s questions tomorrow—[Hon. Members: “And Treasury questions!”]—or Treasury questions. However, I say to my hon. Friends, who may not have had the chance to look at the listing for tomorrow’s Treasury questions on the Order Paper, that I anticipate that the hon. Member for Normanton’s former boss will answer some of those questions, but only those with the word “Africa” in them.

I think that I have dealt with the issues on schedule 6 stand part. If the Paymaster General is able to respond to any of my points, I will be interested to hear her remarks. If she is not able to, then I will not be.

Photo of Dawn Primarolo Dawn Primarolo Paymaster General (HM Treasury)

I shall answer the hon. Gentleman’s questions. His first point was about why we are discussing the transition now. I believe that I touched on that point, but I shall elaborate. The issues and amounts involved in the transition began to emerge only quite late in the process. I should like to put in a caveat at this point: I am not blaming companies, but merely stating the current position.   Issues and amounts emerged quite late as companies themselves started to focus on the practicalities of the change. It was not until late 2004 that the full extent started to emerge.

The hon. Gentleman asked for an explanation about corporation tax receipts and the forecast. The simple answer to his inquiry is, no; regulations are already in place to defer the transitional payments until 2006. Therefore, they do not affect 2005-06 tax receipts. Future receipts have nothing to do with international accounting standards; the figures are not yet known, so there is nothing in the forecast on the transition. Therefore, I return to a point that I made to the hon. Gentleman in this morning’s sitting, in response to what I thought, from his hon. Friends’ contributions, was a stand part debate.

The last point the hon. Gentleman made was about repealing legislation in regulations. The regulations will replace section 84A of the Finance Act 1996, but the tax treatments will continue. I wrote to the Committee about this matter, setting out in detail what the regulations do. No one will be worse off or better off. I tried to anticipate queries by circulating information before we reached this point in our proceedings.

I commend the schedule to the Committee.

Question put and agreed to.

Schedule 6 agreed to.