Clause 9 - GAAR to apply to national insurance contributions

Part of National Insurance Contributions Bill – in a Public Bill Committee am 2:45 pm ar 21 Tachwedd 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Photo of David Gauke David Gauke The Exchequer Secretary 2:45, 21 Tachwedd 2013

We have moved into an area of great contention and I will try to deal with the hon. Lady’s points.

I return to the intervention of my hon. Friend the Member for Skipton and Ripon, who asked why a GAAR was not introduced by the previous Government. I am tempted to respond to the question of why the new GAAR is not raising more money by pointing out that it is raising a darn sight more than the old GAAR, because there was not an old GAAR. The GAAR is a new innovation in our tax system, and the previous Government did not introduce one.

To be fair—Committee members know that I always try to be fair to the Opposition—Labour did look at this proposal, but it concluded that a general anti-avoidance rule would to be too difficult, both administratively for HMRC, and for businesses, because it would create too much uncertainty. It was thought that the only way to address that uncertainty would be through some kind of clearance regime so that businesses and individuals would be able to take proposed arrangements to HMRC, which would determine whether they fell within the general anti-avoidance rule. The conclusion was that the proposal simply would not be workable, which was why the previous Government did not go forward with it.

There will always be a tension between creating uncertainty and administrative burdens on the one hand and, on the other hand, trying to deal with avoidance behaviour. However, the Aaronson review’s group of  tax experts from the legal profession and academia, who had commercial experience, came up with a solution to try to deal with the worst of avoidance behaviour, while not creating wider uncertainties or greater problems for business or HMRC. That is why we are where we are with the general anti-abuse rule that tries—quite successfully—to square the circle.

What has been devised is quite ingenious, and it works because of the advisory panel. I want to caution the hon. Member for Birmingham, Ladywood about her remarks about the panel, which provides clarification and guidance, and effectively prevents the need for burdensome clearance procedures. If we are to have an advisory panel that assesses whether behaviour is egregious, abusive, or outside the normal scope of tax planning, it clearly makes sense that it has a broad spread of expertise covering tax and commercial knowledge. That is exactly what the advisory panel provides, so we should be cautious about criticising the fact that there are people who know about tax on a tax advisory panel, which is perfectly sensible.

I have set out the reasons why the GAAR is what it is and why the measure is targeted at the abusive end of things. I think that that is a pragmatic response, so I urge the Opposition to support the GAAR, which I think is a great step forward.

I take the hon. Lady’s point about penalties under the GAAR. This is a complex area, because if there are penalties under the general anti-abuse rule, should there not be penalties under targeted anti-avoidance rules and so on? I do not think there can be a glib answer, and any changes are likely to be quite fundamental to how our tax system works. It is important that the GAAR can be bedded in and that there is a period in which taxpayers and advisors can get to grips with it. We have not ruled out future action to strengthen the deterrent impact of the rule by attaching penalties, if necessary. We will keep that matter under review. I do not want to digress greatly today, but there are complexities in terms of what that reform would involve and its collateral impact on our tax system.

I fully acknowledge that the previous Government introduced disclosure of tax avoidance schemes. The hon. Lady rightly said that this Government have built on and extended that, and increased penalties and so on. None the less—I will not be drawn too far into this wider debate, Mr Streeter—if one looks across the piece, I can comfortably and confidently state that no previous Government have done as much as we have done on tax avoidance, and we will continue to do so. The GAAR plays a useful part in what we are doing, although that is not all of it.