[column 275] First extract

FINANCE BILL

(Except Clauses 5, 14, 16, 17, 33 and 49) STANDING COMMITTEE A Wednesday 29th January 1975 [PART I] [Sir Stephen McAdden in the Chair]

4.0 p.m.

The Chairman

If the Committee will allow me I should like to make a short statement about the termination of business last night, and to tender an apology to the Committee, particularly the Chief Secretary, for what occurred.

I must explain that the time at which the Committee concludes its deliberations is a matter for the Committee itself and is nothing whatever to do with the Chairman, whose sole responsibility in the matter is to put the Question, either “That further consideration of the Bill be now adjourned” , or “That the debate be now adjourned” , according to the state of the business. But it so happened last night that, so far as the Chair was aware, it was proposed to terminate the consideration of business on reaching Clause 15, without discussing that clause.

When we reached that stage, in all good faith, and believing it to be the wish of the Committee, I put the Question, “That further consideration of the Bill be now adjourned” . Unfortunately, when the Question was put there were no dissenting voices and as a result the motion was carried, and the Committee adjourned and was denied the opportunity of sitting for a couple of hours longer and thereby completing its consideration of Clause 15.

I regret having deprived hon. Members of this privilege, and I want to assure the Committee that it is its responsibility to decide at which hour the Committee rises. It is not the Chairman's responsibility, and I apologise for any inconvenience to which I put hon. Members.

The Chief Secretary to the Treasury (Mr. Joel Barnett)

May I say Sir Stephen, that I am sure that I speak for all members of the Committee when I say that we are very grateful to you for your kind and generous remarks? I [column 276]appreciate that you would not have wished to prevent us from having the privilege of sitting through the night. Nevertheless, I am sure that I speak for everyone in thanking you for your statement.

The Financial Secretary to the Treasury (Dr. John Gilbert)

May I, Sir Stephen, make a short personal statement to the Committee arising out of yesterday evening's discussions?

During last night's discussion on Clause 11 I answered one of the questions asked by the right hon. Lady the Member for Finchley (Mrs. Thatcher) by indicating that the Government would “top up” any indexed SAYE scheme run by the building societies. I believe that it would be for the convenience of the Committee if I cleared up this point now.

As I made plain later in the debate, the position is that the building societies have decided not to participate in the scheme because of the open-ended nature of the commitment—that is to say, the potential cost. As I said, we should, of course, be prepared to consider sympathetically and on its merits any later application by the building societies to join the scheme. If the societies did then participate, any costs, including the indexation element, would fall on the societies themselves, exactly as bonuses do under the existing SAYE scheme, since the societies, and not the Government, enjoy full use of the savings generated under the scheme. The societies would then, of course, retain the tax reliefs offered under the Government scheme.

I regret having inadvertently misled the Committee.

Mrs. Margaret Thatcher

I am most grateful to the John GilbertFinancial Secretary. I thought that was the position, having had some inkling from my previous “shadow” post. But, naturally, not wishing to hold up the Committee's progress, I did not cross-examine further.

It would be most helpful if we could be given an idea of whether there are to be any further statements today. I make this point very seriously, because on the clauses which I know the Joel BarnettChief Secretary wants to reach, we come to the subject of quick succession relief which, as I understood from the debate in the House of Commons, the [column 277]Denis HealeyChancellor is considering. It would help us if we knew whether we were to have a statement about that.

Mr. Joel Barnett

I can tell the right hon. Lady that there is no question of any further statements today. Naturally, we shall have something to say in reply to amendments about quick succession relief and many other amendments, some of which we shall view rather differently from others. But there is no question of a statement.

Clause 15

Sales, etc. at undervalue or over value

Mr. Tony Newton

I beg to move Amendment No. 584, in page 10, line 15, leave out subsections (3) and (4).

The Chairman

With this we are to take Amendment No. 406, in page 10, line 33, after “party” insert:

“and any of the said bodies was also a party to a transaction with respect to which the Board might give a direction under the said section 485” .

Mr. Newton

The clause is concerned, as described in the Inland Revenue notes on the Bill, to amend the income and corporation tax rules about transfer pricing in Section 485 of the Taxes Act, It is concerned with certain anti-avoidance provisions and with increasing the extent, scale and scope of the Revenue's power to avoid artificial pricing transactions to avoid tax.

We view the series of amendments following this amendment as involving, not just practical details of the powers involved, but a number of important questions of principle, involving the balance that we strike between enforcing the law on taxation and maintaining a free society and people's rights to be protected from undue intrusion and arbitrary power by the Executive or any part of it.

I do not want to overstate the case, but there are important issues in the amendment and the others which follow and I certainly should not want to understate the importance which the Opposition attach to some of the points we are about to discuss. [column 278]

The intention of Amendment No. 584 is to leave out subsections (3) and (4). That may sound drastic and, although I should not wish to describe it solely as a probing amendment, it is our intention to ask for further explanation and elaboration of the powers the Government propose, to enable us to look at the justification for what they propose in the Bill. Subsections (3) and (4) relate to the powers of the Revenue to require information to enforce the provisions of Section 485 of the Taxes Act 1970.

We accept the general need for these arrangements and, having done that, one must necessarily accept the need for arrangements to allow for some policing of them and for some power for the Revenue to ensure that the rules are observed.

We believe, on looking at the subsections and from representations we have received, that the powers included in these two subsections are far too widely drawn. We should like to see them much more stringently limited. One of a number of key phrases in these two subsections comes right at the beginning where it talks about “any body corporate” , in other words any company. A company may be asked for information, along the lines described, which “appears to the Board” —It is not even “is thought by the board to be reasonably necessary” or any more elaborate phrase than that, but simply “appears to the Board” , which could mean very little indeed.

We come then to the gateways under which this information may be required. Under paragraph (a) we find that the information is

“to be, or to be connected with, a transaction”

of the kind in question—that is, an artificial pricing transaction under Section 485. However, under paragraphs (b) and (c) we come to far more widely drawn gateways where the information has to appear to the board to be relevant—it is very much a case of how long is a piece of string—

“to be relevant for determining whether … a direction”

under Section 485 could or should be given and

“to be relevant for determining for the purposes of that section” —

the price which would have been the [column 279]proper price in the Revenue's view.

Those are wide powers. When we come on to subsection (4), which gives further definition to the concept of a related transaction we find that the body corporate, which may be required to give this information, is defined as

“a body corporate to whom the notice is given” .

I shall not elaborate on the other details.

On first reading of the subsection it appeared to me that it was intended to restrict the Revenue's powers. I speak subject to correction, because I do not pretend to be a legal expert in matters of this kind. In practice it seems to me that this phrase renders the whole provision entirely circular. The act of the Revenue in giving a notice to the company renders the transaction a related transaction. The total effect of the two subsections taken together is in effect that the Revenue can, with very little justification, ask almost any company for almost any information. I think that that is far too wide. At the very least, it is clear that it can ask any company which it thinks to be involved with a Section 485 transaction for information about almost anything that that company does, whether or not the particular activity is related to the transaction in question.

Even if my second, more limited interpretation is right—and I do not believe that it is; I believe that the wider interpretation is the correct one—that is not good enough either. I think that many hon. Members on this side of the Committee will feel that these are far too sweeping powers to be put through in this way in this Bill.

The Chief Secretary, who I assume is to reply, may say that the powers are indeed very wide but that, unless they are as wide as that, the Revenue might not be able to do this, that or the other, and that of course it will not be its intention to exercise the powers in a sweeping and arbitrary way as I suggested that it might be able to. Very well; I certainly would not want to accuse the Inland Revenue of wanting to behave in an arbitrary way or to say that it would use the powers in an arbitrary way. But we are debating what will be the law of the land. It is not good enough simply to be told that it is not [column 280]the intention to use the powers being given in the way in which they could be used. We should be passing legislation which restricts the powers to what we believe to be right. I believe the effect of the two subsections taken together, and indeed taken with other provisions which we shall be coming to in a few minutes or in a few hours—at any rate, later in our debates' on the clause—is such that it is not good enough for the Bill to be left in its present state.

We have sought to meet this in part by Amendment No. 406 in the name of my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson). Amendment No. 406 seeks to limit the demand for information under these subsections to cases in which the corporate body of which the information is being demanded is thought to be

“a party to a transaction with respect to which the Board might give a direction under … section 485” .

I am sorry that this is somewhat complicated. It seeks to limit the demands for information to bodies directly connected with transactions covered by the main legislation. That is a significant limitation compared with what is in the Bill and we believe that it is fully justified.

Whether or not that amendment is technically correct or one which the Government would wish to accept as it stands—and we should certainly not quarrel with them if they were to bring forward some other acceptable way of limiting these powers—we believe strongly that the whole scope of these subsections needs more explanation—and, we believe, limitation—than it has had so far. We therefore look for a constructive response from the Chief Secretary on this.

Mr. Cecil Parkinson

I have listened with great interest to the debates on the Bill so far. I must say straight away that I had some sympathy with the Chief Secretary's remarks about blatant tax avoidance devices which the Treasury and the Revenue had reason to wish to stop and to waste no time in doing so. However, having read Clause 15 and got over the shock of discovering the enormous powers that are being given to the Revenue, I began to wonder just how a clause of this kind found its way into the Bill. [column 281]

I think we have to look to a statement by the Paymaster-General in the debate on the Budget on 13th November—he was explaining how general transfer pricing legislation in Section 485 would be tightened up—when he explained that North Sea oil and companies operating in the North Sea were very much in the Government's mind in strengthening Section 485. One's immediate reaction was—to paraphrase the Duke of Wellington— “I do not know what it is doing to the oil companies but, my God, it is terrifying the rest of the community.”

The Government are granting to the Revenue the most tremendous sweeping powers. It seems as though the Revenue has had a competition among the inspectors of taxes, inviting them to nominate all the weapons they would like to have in the ideal anti-avoidance kit and has tried to fit them all into Clause 15.

I agree with my hon. Friend the Member for Braintree (Mr. Newton) that subsections (3) and (4)—and, for that matter, the later subsections, which I am afraid we shall be debating at some length, because for provisions as sweeping as this short debates are virtually impossible—are fundamentally unacceptable to any fair-minded person.

4.15 p.m.

The Board of Inland Revenue, without any ability to appeal on the part of the taxpayer, has powers to act as judge and jury, to serve notices on any company that appears to the Board merely to be vaguely relevant or in any way relevant to any transaction which may be connected with Section 485. The Board is given the most sweeping powers in paragraphs (b) and (c) which, in my view, are capable of great abuse. It has only to appear to an inspector that a transaction might in some way be connected with, or might be relevant to, or might even help him to fix a price, and on that basis he has power to do all sorts of things—to serve notice, to demand information, to disrupt and interfere in the affairs of a company.

Like the rest of us, inspectors are not infallible. The fact that an inspector merely feels that something might be relevant or might help in determining a price does not seem to be a good reason [column 282]for putting on the statute book a power against which, as it stands at present, there is no appeal, which could cause enormous problems for a company which is totally innocent of any connection and is not even remotely connected with receiving a direction under the provisions of Section 485 but which might have available in its books information which might be vaguely helpful to the inspector.

Amendment No. 406, which is in my name, seeks to limit this power. It says that if the party is a party which might be subject to a direction under Section 485, then perhaps this is fair; but the powers given under paragraphs (b) and (c) are far too wide and vague and are capable of abuse. Therefore, in my amendment, which is different in its workings but which has entirely the same motives as the amendment moved by my hon. Friend, we are saying that, at the very least, it should appear to the Revenue that the parties from whom it seeks information on the transactions which appear to be related ought, at the end of the day, to be capable of receiving a direction under Section 485.

The other two subsections are far too wide. One can well imagine that any inspector of taxes would be very pleased to have these very swingeing powers at his disposal, but the Chief Secretary knows that it is not the taxpayer on the whole who has power of resistance. It is the Revenue which has the power of pursuit. The right hon. Gentleman knows that far too often the balance in our tax laws is very firmly weighted in favour of the Revenue, which has the resources and the facilities to pursue a case through to the bitter end, whereas the taxpayer might be short be resources or short of the facilities or the personnel to fight the case and might be tempted, in many cases, when he feels he has a marginal case, to surrender.

It is not as if the Revenue is powerless and defenceless and incapable of pursuing the case under the existing system. I urge my hon. Friends to support my hon. Friend who moved this amendment in resisting the spirit of subsections (3) and (4). They are far too wide. They give an inspector of taxes, without appeal, far too much power. A nosey, under-worked, inspector who just fancies doing a bit of fishing and seeing what he pulls out of the ocean has every [column 283]power under these subsections to do so. We do not think the Revenue should have that power. We believe that the party the Revenue has in mind should at least be capable of receiving a direction under Section 485. We believe that these two amendments should be accepted by the Chief Secretary.

Mr. Denzil Davies

I rise on the principle that the Devil must not be allowed to have all the best tunes. I apologise to my hon. Friends and will try not to be too long, as we wish to make progress.

I am surprised that the Opposition, and especially the right hon. Lady the Member for Finchley (Mrs. Thatcher), should have put their names to this amendment. I disagree with what has been said by the hon. Members for Braintree (Mr. Newton) and for Hertfordshire, South (Mr. Parkinson). On one technical point, power is not given to the inspector. Power is given to the Board of Inland Revenue. The hon. Gentleman seems to think that there is no difference. There is a difference. No doubt my right hon. Friend the Chief Secretary with his great experience will be able to elucidate this point.

It seems to me that this power enables the Revenue to investigate areas, especially involving companies which might be called multi-national. I do not hold the view that multi-national companies are the ultimate incarnation of evil, but there are certain areas, or spheres, where the operations of multi-national companies have given rise to disquiet. If it was not for these powers, Section 485 in itself in theory might possibly be used against multi-national companies, but in practice the Revenue has not got the power to make the kind of investigations which it would have to have in order to give Section 485 some teeth in relation to these companies. Some of us pressed this point from the Opposition benches when we were in opposition on previous Committees. I congratulate my right hon. Friend on bringing forward this amendment.

I illustrate the problems by referring to a report of the Monopolies Commission which might appear on the surface not to have anything to do with this amendment. It is in fact germane to it. About two years ago the Monopolies Commission investigated the case of Roche Products—Hoffmann-la-Roche—in relation to the sale of librium and valium. The commission's report states quite clearly what [column 284]multi-national companies can do in order possibly to reduce their profits in a relatively high tax country like the United Kingdom and transfer that profit to a relatively low tax country—in the case of Hoffman-la-Roche, Switzerland.

Paragraph 136 of this Monopoly Commission's report makes it clear that the parent company in Switzerland was able to charge the subsidiary company in the United Kingdom 400 per cent. more for the cost of raw materials than those raw materials cost on the open market, so the British subsidiary was paying 400 per cent. more, if the figures in the Monopolies Commission's report are correct, and I have no reason to doubt them. If those figures are correct, a British subsidiary of a foreign company—a company located in virtually a tax haven—was able to reduce its profit in the United Kingdom and increase its profit in Switzerland through the mechanism of transfer pricing.

Mr. Parkinson

The hon. Gentleman ought to bear in mind that we accept that a company, where a direction under Section 485 might be the end result, should be capable of receiving a notice. Perhaps he would care to tie in what he is saying with paragraph (c), under which any company operating in the same field, which has no connection with transfers at a different value from the commercial value, could be called upon to start producing evidence.

Funnily enough, the hon. Gentleman and myself are not in great disagreement. We are simply saying that, at the end of the day, that paragraph is objectionable and so is paragraph (b); paragraph (b) is perhaps slightly less objectionable than paragraph (c). He has said nothing so far that would make our objections to paragraph (c) invalid.

Mr. Davies

If it has nothing to do with Section 485, I do not see that the Revenue would be very concerned with it. The difficulty that the Revenue has in such cases—the Monopolies Commission's Report bears this out—is that of acquiring this information. The powers under the monopolies legislation are wider than the powers which the Inland Revenue is seeking.

Mr. Newton

I think there is very little between us. As my hon. Friend has said, we are not arguing about the need for some powers of this kind under Section 485 and about the problem the hon. [column 285]Gentleman is talking about. But he has admitted the main thrust of my case—and, I take it, of my hon. Friend's as well—which is that the actual powers written into the Bill go far beyond what could be justified for what he is arguing.

Mr. Davies

I do not believe that they do, but I will leave it to the Chief Secretary to develop the argument. I believe that the powers are necessary, as multinational companies especially are able to move raw materials across national frontiers with considerable ease. It seems that these provisions are vital for that purpose.

I can understand that the powers could be applied to United Kingdom companies, but in most cases I would have thought that these powers were aimed at companies that operate outside the United Kingdom. I have no doubt that the Revenue, through limitation of staff and the difficulty of making investigations, will not find it easy, even with these powers, to get the information.

Nevertheless, I should not have thought that the powers were oppressive and I should have hoped that the Opposition could have supported them, as there is an abuse that must be remedied. Perhaps the Hoffmann-La-Roche case is an extreme example of where companies can operate transfer pricing and I should have thought that all the powers that we can give the Inland Revenue to protect the British taxpayer would be welcomed by hon. Members opposite.

Mr. Nicholas Ridley

It was an interesting discussion about Hoffmann-La-Roche, but I wonder if the thought has occurred to the hon. Gentleman that there is a slight risk that Hoffmann might cease its activities and its employment in this country if it is denied the opportunities it seeks to market its products, however much the hon. Gentleman might disapprove of those activities.

Mr. Davies

I accept that there might be a danger, but surely the hon. Gentleman is not saying that, because there might be that slight danger, certain companies should be allowed to reduce their profits in this country for the purposes of corporation tax and deliberately avoid paying tax in this country merely because there could be some danger that they might go overseas?

[column 286]

Mr. Ridley

I could develop the argument. I will deal with the hon. Gentleman's point. Does he believe that the first and obvious lesson to draw from the little tale he has told us us that it is wiser to seek to be on the whole a low-tax country rather than a high-tax country, because one would inevitably run this risk?

I find it depressing that we are threatening these international and foreign companies in this way in order to try and extract our due share of high tax. We are consequently running the risks of reduction of investment and employment in this country. Transfer pricing is, of course, an international activity, and one which has stood us in great stead where we have done it overseas, but the more that one becomes a relatively high-tax country the more we will find that these powers have to be used and the more we will, by their use, discourage people from making investments and employing people in this country.

I want to ask the Chief Secretary what threats have appeared since the clause was published to would-be investments, foreign investment and employment in this country. If it were widely known, I imagine that it would be a great discouragement.

4.30 p.m.

I do not know why we condemn transfer pricing so strongly. There was a time when we all knew that it was going on and everyone thought that it was in our interests to allow it to go on. I can only believe that as we have moved to a higher and higher tax régime the small minds of the Treasury and the Government have become more concerned with tax evasion than with our employment and industrial situation. This marker has to be put down that, unless we abide by international trade practices to some extent and allow a certain flexibility of movement to the companies which provide so much of our employment, profit and activity, we run the risk of killing the geese that lay the golden eggs.

Why, for instance, is it all right for the Government to fix prices in the electricity industry at anything but the true value and to make enormous transfers by buying expensive crude oil and selling cheap electricity, but it is not all right for a company in the private sector to do so? The question should be asked—I do not expect an answer, because that sort of question never gets an answer, especially from this Government—why are rigged transfer prices in the private sector so wicked when [column 287]the Government do nothing else in the public sector all the time, whether it be in relation to insurance contribution, price of electricity, coal, postal charges, telephone, steel? The whole lot are rigged, and there is cross-subsidisation of an immense sort. I am prepared to accept the latter if they are prepared to accept the former. There is a large inconsistency here.

I support my hon. Friends, and I shall not take up the Committee's time in going over the arguments that they have put forward for restricting these powers. But I want to draw attention to the incursion into the affairs of foreigners in this Bill, not only in this clause but in the capital transfer tax later. People who are rash enough to do any business here, although they are not British citizens, are more and more in danger of being caught by the British tax net. It is not only the tax net; it is prying into their affairs. If a large foreign company has a small subsidiary in this country, no matter how small, this clause enables the Government to require from it all sorts of information about the main company's policy and prices in its country of origin.

4.32 p.m.

Sitting suspended for a Division in the House.

On resuming——

4.45 p.m.

Mr. Peter Hordern

I want to comment on what the hon. Member for Llanelli (Mr. Davies) said. He mentioned the limitation of staff in the Revenue to deal with problems such as these. I recognise that there are problems and potential problems and the Revenue ought to have sufficient power to be able at least to examine the records of companies to see whether any misallocation or misappropriation has taken place.

But the Opposition's concern is whether these powers do not already exist under Section 485 of the Taxes Act and whether the extension to the powers proposed in the Bill are warranted. It is my opinion that this is another example of overkill. It arises from the very point made by the hon. Gentleman because the Revenue does not have sufficient staff to be able to determine, with any degree of accuracy, whether it has the ability and powers to examine company accounts properly.

[column 288]

Mr. Denzil Davies

The hon. Member has misunderstood what I said. What I was saying was that even with these powers the Revenue could still be restricted and could not cover all the cases it wanted to cover, because of staff limitation. But I should have thought that with these powers it could pinpoint certain areas and companies where it felt abuses were greater than in others. That is the point I was trying to make.

Mr. Hordern

Yes, I understand perfectly what the hon. Gentleman was saying but the point about it is that the Government are seeking to take extremely extensive powers going far beyond what would be required to establish whether any company has taken extraordinary steps to under- or over-value its trade. This comes out in paragraph (c) which states:

“to be relevant for determining for the purposes of that section what price any property sold would have fetched had the sale been one between independent persons dealing at arm's length.”

There is no reason, as far as I can see, why the Revenue should not approach a company, which may be a competitor of the company whose books it really wishes to examine, in order to establish what is its pricing policy. There is no limit to the information that might be required or, at any rate, there is no limit to the number of companies that might be asked to furnish information.

My recollection is somewhat different from that of the hon. Gentleman about the attitude of his party when in opposition and asking for information of this sort. I should like to quote what the hon. Gentleman who is now the Minister of State to the Treasury said about the pressures on the Revenue and the amount of bureaucracy that small firms and others were experiencing. He quoted a striking passage from the Bolton Committee:

“We are driven crazy by all this bureaucracy. You may need the information.” —

he is talking about the Revenue—

“… We physically cannot give it. These forms will take the equivalent of one full day's work to complete and right now, we wish we could create one full day for ourselves to do the work we have.

Industry is dying under the weight of paper.” [Official Report, Standing Committee E, 12th June 1972; c. 736.]

Mr. Joel Barnett

Just to help me, could the hon. Gentleman tell me to which tax my hon. Friend referred?

[column 289]

Mr. Hordern

The hon. Member was referring to VAT. We shall come to other aspects of VAT, particularly the enforcement provisions, later. That is the point again. This is yet another demand on industry and business—more bureaucracy on grounds that seem extremely slender—to gain wide powers for examining company's books and accounts and, also, seemingly at short notice. That matter is dealt with in another amendment.

Finally, I understand what the Government are seeking to do about getting information about practices that they believe to be harmful to the revenue—with good reason—but they need to be careful about the powers they seek to enforce those provisions. As they know, there are many international companies of overseas origin operating in this country which will not like the idea that their books may be thrown open at short notice on the demand of the Revenue. That is a consideration, particularly in relation to development in the North Sea.

I have this morning returned from Washington, where I had a number of interesting talks with oil companies. I must tell the right hon. Gentleman the Chief Secretary that American oil companies that operate in the North Sea are plagued with difficulties and are becoming more and more reluctant to proceed. It is just this extra bureaucratic pressure that will cause them great difficulty, and that must be taken into account in framing legislation. We must not regard legislation as something which can be produced for the Revenue's benefit. We must look at the practical effects, too.

I am very concerned about what the practical effects may be. I hope that we shall be able to find a means of achieving what the Government wish to do about obtaining sufficient information, but I am not satisfied that power to obtain that information does not already exist under Section 485. I believe that the powers that the Government are now seeking are altogether too wide.

Mr. Joel Barnett

Let me say at the outset to the hon. Members for Braintree (Mr. Newton) and Hertfordshire, South (Mr. Parkinson) that I entirely take the point of what they have said and appreciate the way in which they moved and spoke to their amendments about the need to protect the individual from bureaucracy. I want to meet that point head on, but [column 290]let me first deal with a variety of issues.

As has been said, we are here dealing not with individuals but with corporate bodies. Although important—I do not minimise that—it is very different from dealing with individuals, as was the case under VAT, dealt with by the hon. Member for Horsham and Crawley (Mr. Hordern).

Unlike the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) the hon. Members for Braintree and Hertfordshire, South recognise the need for Section 485 itself. I do not know how many Opposition Members agree with the hon. Member for Cirencester and Tewkesbury, but for the purposes of my argument I shall assume that the right hon. Lady agrees that we should have Section 485.

A great deal has been made about the sweeping powers that are being taken under this clause. The problem that we must face is that Section 485 is on the statute book to deal with the difficult problem of artificial transfer pricing. It is an extremely difficult problem. I must tell the hon. Member for Horsham and Crawley that if the Inland Revenue had a vast increase in staff, it still would be unable to deal with this problem without the powers that we are proposing in Clause 15.

My hon. Friend the Member for Llanelli (Mr. Davies) made the point that it was not a question of staff: it is the impossibility of the Inland Revenue knowing when artificial pricing applies. My hon. Friend the Member for Llanelli answered a number of comments when he said that we were here frequently dealing with multi-national companies. I entirely go along with him.

I am not for a moment suggesting that all multi-national companies are evil or that the boards of those companies are composed of evil men: nothing of the sort. We are concerned here, as in Section 485, with protecting the revenue, which must be our function.

What I want to put to the Committee is that Section 485 as it stands does not protect the revenue and I want to try to explain why—this was the point made by my hon. Friend the Member for Llanelli. Under Section 485 unamended the Revenue is not entirely but considerably defenceless against artificial transfer pricing.

Section 485 deals with transfer prices, but the application of the section has [column 291]been for a considerable time severely handicapped precisely because of the absence of these powers. Therefore, we find ourselves in a situation where the Revenue is not able to find out, under Section 485, what it needs to know. That concerns not only the oil companies but possibly many others, although this provision is to deal with the oil situation also.

I come now to a comment made by a number of hon. Gentlemen in respect of the powers in subsection (3)(c)—indeed, it concerns subsection (3) altogether—namely that these powers are Draconian. Subsection (4) defines the related subsections to which subsection (3) applies as transactions to which the company to whom the notice is given, or an associated company, was a party; and for this purpose companies are associated if one is controlled by the other, or both are controlled by the same person or persons.

Subsection (3) is, therefore, confined to transactions in which the company required to provide the information, or an associated company was involved. We are talking about a company in the United Kingdom with associated companies, not necessarily abroad, between whom there is artificial transfer pricing. It is not a matter of the Revenue suspecting that something may happen. The Revenue simply has no way of knowing without looking at a variety of invoices relating to this area.

It is not a minor matter that the powers are not given to the inspector of taxes, but are given to the Board of Inland Revenue. Anybody who has had experience in this sphere will appreciate this. I am sure the hon. Member for Hertfordshire, South, who is nodding, will be aware that it is a different matter to give powers to the Board of Inland Revenue as opposed to allowing every inspector of taxes to just do as he likes.

Mr. Newton

I am sure that both my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) and I would accept the point about the inspectors and the Board.

However, my main concern—and this is a point that I emphasised in my opening remarks—is that I have no doubt that what the Chief Secretary is saying is what he intends and what he says the Revenue will do. But it does not seem to me to be [column 292]what the two subsections say. I think that they are circular.

Once a notice has been given to a company, that, in itself, makes it a related transaction. That is my interpretation of the effect of subsection (4) which says:

“For the purposes of a notice under subsection (3) above a transaction is a related transaction if … it is one to which the body corporate to whom the notice is given … was a party …”

So far as I can see, that means that the mere act of the Board of Inland Revenue giving the company a notice about any transaction makes it a related transaction. I may be wrong in my legal reading of this subsection, but that is what it appears to mean.

Mr. Barnett

The hon. Member's reading of this subsection could be right. In certain circumstances, that is possible. I am not disputing what the hon. Gentleman says. But what the hon. Gentleman is seeking to do, and what I am sure the right hon. Lady would seek to do, is to stop artificial transfer pricing.

Mr. Nigel Lawson

We are not now concerned with the Chief Secretary's or the Government's intentions. They may be pure, as pure as can be. We are concerned with the Bill as drafted. It is no defence, if the Bill is wrongly drafted, to claim that the intentions of the Government are pure.

5.0 p.m.

Mr. Barnett

I am sorry, but I have to say to hon. Gentleman that the subsections and the rest of the clause are not wrongly drafted. Without these powers it would often not be possible for the Inland Revenue to know whether there was artificial transfer pricing. A third party involved could have information.

As the hon. Gentleman will be aware, in this problem of multi-national and related companies the invoices between the various companies can be very complex; and the Revenue's hypotheses can be difficult to prove. My hon. Friend gave us an example of the difficulties involved. Therefore, the Revenue needs powers for this purpose.

I gather that the hon. Member for Cirencester and Tewkesbury would not want to stop artificial transfer pricing, because he thinks that to do so would be harmful. But I hope most hon. Ladies and hon. Gentlemen would want to see Section 458—which to the best of my knowledge has not been opposed by the Opposition—[column 293]working, and working effectively. That is the intention of the clause.

The hon. Member for Cirencester and Tewkesbury asked me whether the clause had given rise to any threat of companies leaving the country and thereby creating unemployment. I hasten to say that I entirely agree with my hon. Friend the Member for Llanelli. If there were a threat of unemployment because we were seeking to stop a 400 per cent. increases in prices through artificial transfer pricing, one would still have to go ahead and try to cut out that kind of artificial transfer pricing, as we have and as any Government would have sought to do.

Mr. Ridley

indicated dissent.

Mr. Barnett

I am sorry to see the hon. Member shake his head. I should have thought it would not be in the country's interest to see that kind of pricing or those profits going abroad untaxed. That is my view, the view of my hon. Friend the Member for Llanelli and I hope that it is the view of the right hon. Lady.

Mr. Ridley

Why do the Government allow a 400 per cent. increase in the price of oil and not seek in any way to tax it, but allow all the profit to go abroad?

Mr. Barnett

The hon. Member has hit precisely on the point. The method of taxing oil has meant that many of the largest oil companies operating here have not paid very much tax. That is what we are seeking to stop with the Finance Bill and with the Oil Taxation Bill.

Mr. Ridley

The right hon. Member must not get this wrong. He is suggesting that the Committee should seek to stop la Roche making 400 per cent. profit, not increasing its prices, on the import of raw materials for making Valium. He thought that was wicked. But he has connived gaily at the Arabs increasing the price of oil by 400 per cent. Why does he have double standards? Why does he not try to tax the Arabs?

Mr. Barnett

The hon. Gentleman is on a very odd point now. Is he seriously suggesting that we have connived with the Arabs to increase their oil prices? That is stretching it a little.

We should now revert to Clause 15 as I see you already nodding at me, Sir Stephen. As I said at the outset, I take the points of [column 294]the arguments of both hon. Gentlemen. I should not normally want this kind of power, although I must say to the hon. Member for Horsham and Crawley—I know he has strong views on the point and he referred to what was said by my hon. Friend the present Minister of State at the Treasury—that the Opposition strongly supported all those very much more sweeping powers.

Mr. Newton

Except me.

Mr. Barnett

I have excepted the hon. Gentleman; the hon. Gentleman is virtuous, I accept. But the Opposition generally have accepted much wider powers affecting larger numbers of individuals, not corporate bodies.

We have a serious problem as a Committee and as hon. Members. We have to try to protect the interests of a minority even if in certain circumstances it does things that we may not altogether like because it uses methods of artificial transfer pricing that we may not like. But I submit to the Committee that we have a much greater and wider responsibility to the general body of taxpayers to see that this artificial transfer pricing is stopped and the method of stopping it under Section 485 made possible; at the moment it is made largely impossible, because the Revenue finds great difficulty in ascertaining where there is artificial transfer pricing.

That is why we seek these powers, not because of any joy in seeking sweeping powers for the Board of Inland Revenue. That does not give us any pleasure. It is a matter of making effective a section of the Act with which most of us agree. That is what it is for. Therefore, I cannot accept the amendment.

Mrs. Thatcher

I am not rising to end the debate, because I do not think that the Joel BarnettChief Secretary has addressed himself to the construction of the amendment. He has used the simple argument that the end justifies the means, no matter how devastating the means.

When one of my hon. Tony NewtonFriends picked him up on the construction, he admitted straight away “You may be right” . He is saying that if Section 485 does not work, we can take any powers to walk into any company we choose even though that company is not associated in any way with the company we want to get at. [column 295]

Without doing a construction summons on it, it looks to me as though subsection (4) has two distinct limbs. One refers to companies that may be associated with the one the Minister wants to get at. The other refers to companies that are in no way associated with that company—the sort of company the Inland Revenue wants to go in and investigate in order to get some idea of what a commercial price would be. There are two distinct limbs to the subsection. The Minister seemed to me to know that and to try to slide off it.

A number of us would take a much more favourable view of the clause it if applied only to companies associated with the company to which the direction was to be given. Perhaps the Chief Secretary would now address himself to that.

Mr. Parkinson

Under paragraph (c) it is possible for the person approached because he has been a party to transactions that might enable the Revenue to fix the price of the disputed transaction to be an arch commercial rival of the concern involved. One might find oneself in the position of saying to a company “You tell us what price your leading rival ought to be charging for its product” . Under paragraph (c) one is bringing into account companies whose relationship with the company concerned might be that of being arch opponents and rivals, and inviting such companies to produce evidence that might be used to decide whether the rival company is charging a fair price.

I have not heard any arguments from the Chief Secretary—indeed, his hon. Friend the Member for Llanelli (Mr. Davies), in a very interesting intervention, backed up my hon. Friend and myself—in favour of paragraph (c). We are saying that this provision is far too wide. We can see that there is scope for abuse—for example, the company with the Liechstenstein company to which it invoices its goods and from which those goods move out into the market at a higher price. That practice is objectionable, is of no benefit to the British taxpayer, and should be stopped.

We believe that paragraph (c), in particular, offers far too wide a power and brings into the Revenue's net people whose motives might be anything but to provide the Revenue with information that might help it to make a fair judgement. It is far too wide. Perhaps the hon. Gentleman will now say that he does not think paragraph (c) is too wide.

[column 296]

Mr. Denzil Davies

I do not accept that paragraph (c) is too wide. Indeed, I can see that it is necessary to have paragraph (c). In some cases it might be difficult to find out the market price, and in other cases it should be quite easy. In some cases, in certain specialised products, I should have thought it very difficult to find out the market price when possibly two or three companies make, manufacture or deal in that product. I do not go along with the hon. Gentleman in the view that paragraph (c) is not necessary.

Mr. Parkinson

I am sorry that the hon. Gentleman is not as reasonable as he appeared at first. We all have great hopes of him, but he has just disappointed a number of his admirers on this side of the Committee.

Mr. Davies

I am sorry for hon. Members opposite.

Mr. Parkinson

I hope that the hon. Gentleman will not burst into tears about it.

Regardless of the unreasonable attitude of the hon. Gentleman, Opposition Members of the Committee feel that paragraph (c) is far too wide. Of course, these are all the powers that any ambitious young inspector would like to have in his complete tax avoidance kit. But there is a duty on the Minister to protect the public from the Revenue. As I said in my opening remarks, if the balance is tilted at the moment, certainly it is not tilted against the Revenue. We believe that this provision is unreasonable and far too sweeping and wide.

Mr. Newton

I must be honest and say that I am staggered by what has been said in the last three-quarters of an hour or so. When I studied the matter for some time before the debate and came to the conclusions that I set out in my speech, I thought I must be wrong. I was fully expecting the Chief Secretary to say that the hon. Member for Braintree had got it all wrong, and that, not being a lawyer, he had not understood.

In fact, the Chief Secretary has confirmed the conclusion that I had reached, namely, that as it stands, legally, no matter what the intention may be or what the Revenue may do in actually exercising the power, under these two subsections as drafted the Board of Inland Revenue could ask any single company in this country for any [column 297]information remotely concerned with the determination of prices of any kind. It could be stretched to that extent.

Frankly, I do not believe that that can be the necessary power to enforce Section 485. I go further, perhaps coming closer in one respect to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). I said at the beginning of my speech that issues of principle were involved, and we are coming to them. At one point in his speech the Chief Secretary said that protecting the revenue must be our function. If I am paraphrasing, I am paraphrasing very little indeed.

In some circumstances it can be one of our functions, but it cannot be our only function. In this Committee—and, indeed, in this House—we have a wider function to protect the balance between rights and duties and laws and obligations—all the things that affect people, whether individuals or corporate bodies. As my right hon. Friend the Member for Finchley (Mrs. Thatcher) said, the Chief Secretary is coming precious close to arguing that in order to enforce this law, which we all agree is in some sense theoretically desirable, he will go to any lengths and grant any powers to the Board of Inland Revenue.

I cannot accept that. What is more, if hon. Members opposite were confronted with a similar argument in respect of any police powers, they would reject it out of hand. If it were said “We all accept that this part of the criminal law is right and we all want to enforce it; in order to enforce it, and as it is very difficult for the police at the moment, we shall let the police do anything they like—stop anybody in the street any time of the day or night and search them” , there would be an outcry.

I do not want to press the analogy too far. I see that the Chief Secretary thinks I am already doing so, but I do not think I am, because that, in effect, is what the Chief Secretary is arguing. He is saying, “Here we have a desirable law. It is difficult to enforce at present, so we shall introduce the most sweeping, arbitrary powers in the hope of being able to enforce it” . At that point, I part company with the right hon. Gentleman and begin to wonder whether a law demanding that price from us is worth enforcing at all.[column 298]

5.15 p.m.

Mr. Hordern

Another point in this connection is that the registered offices of many companies are in the offices of accountants or solicitors. Subsection (4) includes the words,

“… a body of persons associated with that body, was a party …”

Consequently, the Revenue would have powers which, so far as I know, it has never had, that is, to go on 30 days' notice into a solicitor's office or an accountant's office and look there at papers which till now have been absolutely sacrosanct from this sort of behaviour. These are very wide powers indeed.

Mr. Joel Barnett

The right hon. Lady and her hon. Friends are very much under a misapprehension about this. We are not talking about going up to any person in the street and asking whether he has paid VAT on his ice cream. We are talking about whether, and how, we can deal with a form of tax avoidance which is very complex. Precisely what is an arm's length price is very difficult to ascertain.

The hon. Member for Braintree (Mr. Newton) has agreed with me that he wants to find out the arm's length price to ensure that the goods or property are properly taxed. There is no dispute between us about that. So let us be clear that when the hon. Gentleman seeks to—I shall not say “exaggerate” for I have too much respect for him—but to illustrate his point, he is taking his example a little too far.

I thought I heard the right hon. Lady say that, if it was not for the powers here to go to a third party, she could accept the clause, perhaps with amendments. That, broadly, was, what she said. Let me come immediately to the point which we are discussing. We have to find out what is the arm's length price in very complex transactions, so we are taking powers to go to unconnected companies——

Mrs. Thatcher

No.

Mr. Barnett

The right hon. Lady must not get too excited about it. There are other matters to get excited about, so let us deal with this. We are to have powers to go to unconnected companies for information. We shall go to those companies and issue a written request for written information. That is what we have in mind to do under the clause. [column 299]

I cannot believe that the power required to ensure that we obtain the proper tax on a proper arm's length price is wrong. If the right hon. Lady were in this position and did not want the power under Clause 15(3)(c), or if, after further consideration, she decided to have it, how would she think that a taxpayer would suffer by the Revenue ensuring that this form of tax avoidance through artificial transfer prices was properly tackled? How do we hurt individual taxpayers? In what way are we hurting them? We are seeking to ensure that they are properly taxed on an arm's length price. That is all. I cannot see how we are going too far in the pursuit of what seems to me a perfectly reasonable objective, that is readily accepted by the right hon. Lady, in Section 485. If we are to have Section 485 on the statute book, it must be effective. It would be quite wrong to leave a law there which could not be made effective. That is all we are seeking to do.

I cannot see how any taxpayer will be hurt by this measure, and I therefore hope that, on consideration, the right hon. Lady will feel able to accept the clause without the Opposition amendment.

Mr. Lawson

What concerns us mainly in this debate is the Government's obsession with tax avoidance, a subject on which the Chief Secretary is the acknowledged expert. It is obsession with tax avoidance that occurs throughout the Bill, and in consequence, we see their determination to get arbitrary, excessive and unprecedented powers for the Inland Revenue against the private citizen and the private company.

Mr. Denzil Davies

The hon. Gentleman has referred to tax avoidance, as have other hon. Members. There is a distinction between avoidance and evasion. I suggest that deliberately to manipulate transfer prices so as to reduce taxable profits is very close to tax evasion, which is a criminal offence.

Mr. Lawson

As the Chief Secretary will be able to explain to the hon. Gentleman, he is completely wrong. If it were evasion, the criminal law would take its course and we should have no need for Clause 15. Because it is avoidance, not evasion, the Chief Secretary—I see he is nodding—has introduced this clause.

Mr. Joel Barnett

No, I was nodding about something else.

[column 300]

Mr. Lawson

The right hon. Gentleman certainly nodded when he drafted this clause.

I wish to go into the powers to be given to the Board of Inland Revenue, and to take up the Chief Secretary's remarks about the transfer pricing question in general. The right hon. Gentleman, asked how anybody could possibly be adversely affected if artificial transfer pricing were stopped. Obviously, he was implying that any artificial transfer pricing is a blatant tax avoidance device and nothing more.

I take my example from the oil industry, the industry which the Chief Secretary specifically mentioned. Of course, there are a lot of multi-nationals in the oil industry. The artificial transfer pricing which goes on in that industry is not done for tax avoidance. Whatever powers are given to the Board of Inland Revenue, it is difficult to find out what a true transfer price would be in many cases, because, as the oil refineries are owned by the major oil producers, what is the right price at which the oil producer sells to the refinery? How it is to be determined I do not know. This is one of the things worrying me.

I may be wrong—I hope I am—but I do not see any provision for appeal by the company concerned against this invasion by the Board of Inland Revenue. At the very least, when these unprecedented powers are given, there should be a full process of appeal against their invocation.

In the case of the oil industry, the reason that the major internationals decided to make the profit in the oil exploration and discovery production end, not at the marketing end, at the petrol pump, was not tax avoidance but because the amount of capital needed in oil exploration, discovery and production is vast, far greater than in the setting up of petrol pumps. They could limit the amount of competition in oil production and exploration. It is limited to a smaller number of companies than it would be if all the profits were made at the petrol pump, where any Tom, Dick or Harry could set up petrol pumps and make profits.

That was not tax avoidance but the application of commercial criteria. The Chief Secretary asks who is disadvantaged. If British multinationals are prevented from doing this, they are at a considerable disadvantage in competition with companies largely owned in other countries not subject to our legislation. [column 301]That is why the EEC rules on tax harmonisation play an important part in achieving free competition. This is an attempt by the multinational companies to achieve a measure of tax harmonisation. It will not be tax avoidance that is stopped. What is being stopped is the ability of large British corporations to compete on equal terms.

Mr. Douglas Hoyle

Is it not true, though, that some British multinationals have moved outside the country to remote islands precisely for tax avoidance?

Mr. Lawson

That is a very good point. As a result of the Chief Secretary's legislation they will all move out to remote islands. If the Chief Secretary is solely concerned to protect the revenue——

Mr. Joel Barnett

This type of legislation exists in the United States, Germany and France, so the companies in those countries would have similar problems.

Mr. Lawson

With respect, we should like to know whether the legislation is precisely the same—whether the powers and the tax demanded are precisely the same. I very much doubt that they are. In a sense, they cannot be because the levels of corporation tax in other countries are different. I was therefore making a valid point.

Let me answer the hon. Member for Nelson and Colne (Mr. Hoyle). If the Chief Secretary is concerned only to protect the revenue—I agree with my hon. Friend the Member for Braintree (Mr. Newton) that it is appalling if the protection of the revenue in this narrow sense is the sole concern of Her Majesty's Treasury—in the long run, which may arrive sooner than one thinks, the protection of the revenue will not be served by this device. More and more companies will be encouraged to get out of the United Kingdom tax net altogether. That will not protect the revenue.

Mr. Ridley

I have to tell my hon. Friends that I must express agreement with the Chief Secretary. I believe these powers to be necessary to enforce the policing of Section 485. When I spoke earlier, I did not say that they were not. The difficult decision before the Committee is whether it wants Section 485 and these powers, or to do without these obnoxious powers and at the same time [column 302]do without Section 485. My hon. Friend the Member for Blaby (Mr. Lawson) is right. The mischief is in Section 485 and these powers are merely the consequence.

I shall give one simple example to illustrate the gravity and importance of the debate. Let us suppose that the Shah of Persia sells us crude oil. We have to pay the price he charges. But if he were to set up a subsidiary company in Heywood and Royton and had two men working a valve at the end of a pipe from Iran, out of which crude oil would flow, he would become liable to these powers. He would be making transfers of enormous disequilibrium, because he would be selling oil in Heywood at 11 dollars a barrel which cost him half a dollar to get out of the ground. The Revenue would be very interested in that operation under Section 485.

Mr. Joel Barnett

So would I.

Mr. Ridley

The conclusion—it is not a laughing matter—is that it does not pay anybody to set up a subsidiary in this country if one intends to do things like this. Going back to Hoffmann-la-Roche—exactly the same case—we can buy Valium and Librium made in Switzerland at whatever exorbitant price the Swiss choose to sell it to us across the Channel and we cannot do a thing about it. But if it sets up a subsidiary in this country all these powers apply. What does the company do? It closes down the subsidiary in this country and says, “All right, buy it from us; we shall make it ourselves” .

Of course, I was right that this affects employment, investment and the whole structure of world-wide industry. That is why I said earlier that the concept of taxing transfer prices is wrong, not the powers in the Bill.

5.30 p.m.

Mr. Joel Barnett

I think that the hon. Gentleman and perhaps others have not quite taken the point. If this is not done under Section 485 it is not just a matter of whether we lose employment. In many cases it will disadvantage many British companies which do not involve themselves in artificial transfer pricing. That point must be taken on board. Indeed, I am sure that that is precisely why the right hon. Lady and her hon. Friends are in favour of Section 485.

[column 303]

Mr. Ridley

I shall try not to take time, but this is an important matter of principle. I find it hard to see how it disadvantages any company to drop an onerous tax provision. The effect of dropping Section 485 would be to free British companies to make just those transfer arrangements which are most to their advantage, which, I believe, would benefit the British economy. In the days of Elizabeth I, it was just that sort of activity which earned us our fortune then, just as we are losing it now.

Mr. David Howell

I shall return a little later to the point which the Chief Secretary made when he last intervened, but enough has been said by my right hon. and hon. Friends to show that whatever the virtues or vices of Section 485 there are considerable dangers in monkeying around with it. Whatever the objectives may be—I shall come to those in a moment, because there seems to be some confusion about them—once started on such a path one is apt to get into considerable difficulty.

My right hon. Friend the Member for Finchley (Mrs. Thatcher) put her finger precisely on the point when she said that what characterised the Chief Secretary's approach in defending subsections (3) and (4), let alone in defending subsection (5), which, no doubt, we shall come to on a later amendment, was that the end justifies the means. The Chief Secretary himself had words for this earlier when he said that he would not be in favour of such sweeping powers in normal circumstances.

In coming to conclusions on these amendments, therefore, let alone on later ones, the Committee must address itself to what these abnormal circumstances are—what is the end in the right hon. Gentleman's mind in monkeying about with Section 485. Until we have addressed ourselves to that and understood what is in the Chief Secretary's mind, what the end in view is, what the abnormal circumstances are that allow him to give support rather uncharacteristically, I should have thought, for this substantial extension of the powers of the Board of the Inland Revenue, we shall have difficulty in even beginning to make an assessment of whether the powers, and their possible extension, in subsections (3), (4) and (5) are justified.

As soon as we ask what the end is, we [column 304]come to a curious ambiguity, because a great deal of what the Chief Secretary has said is on the lines that it ought to be generally agreed not only that Section 485 is a good thing—though we heard some doubting voices on that basic proposition in Committee this afternoon——

Mr. Joel Barnett

What is the hon. Gentleman's view about Section 485?

Mr. Howell

I was literally in the middle of a sentence—that not only is Section 485 a good thing but that its efficiency needed to be increased, as a general proposition. But that is not the genesis or origin of the Government's proposition in relation to Section 485. The origin is a statement by the Paymaster-General, made in the debate on 13th November on the Budget resolutions, and in the context of oil companies.

We shall have to discuss this in much greater detail, because the Paymaster-General made absolutely clear that the question of increasing the effectiveness of Section 485 was entirely in the context of corporation tax amendments concerned with the profits of oil companies and their trade outside the North Sea. He also had some other amendments to propose concerned directly with North Sea profits.

The Paymaster-General said that both kinds of amendments would be brought forward in relation to North Sea oil, which situation is unique in the sense that we are exploring and discovering new aspects all the time, technological, fiscal, commercial, and so on. The Paymaster-General went on to say:

“The Finance Bill” —

which we are now discussing—

“will amend the general transfer pricing legislation in Section 485 of the Income and Corporation Taxes Act 1970 so as to increase its effectiveness. Experience has shown that it is not difficult for a group to construct arrangements under which …” —[OFFICIAL REPORT, 13th November, 1974; Vol. 881, c. 541.]

and so on. Those were the reasons why amendments were needed in the Finance Bill.

The Paymaster-General explained that in the Oil Taxation Bill, which is being discussed in another Committee, further amendments would be brought forward relating to the way in which valuations should be made of arrangements and operations where, given the proposed [column 305]powers, the Board would be able to move in and identify that what appeared to be an arm's-length transaction had not been, so that a new valuation should be put upon the oil or the product that had changed hands.

As the Chief Secretary knows, my right hon. and hon. Friends in that other Committee have a number of pertinent questions to put about how that valuation should be reached. They have argued that the Government's proposals were capricious and arbitrary, and would lead to an incompetent valuation, and they urged that the Government should stick to the standard procedures under Section 485 for valuation.

In a sense, that is another story, but it relates directly back to why we are being asked to extend the powers to find out information and to control. It seems that we have lost sight of the original objective, which has to do with the ring fence around the North Sea. The objective has to do also with securing for the Revenue a proper share of the profits flowing from the North Sea and preventing the practice which used—I emphasise the word “used” , as some hon. Members, and perhaps even the Chief Secretary, have not had opportunity to keep up to date on the position in the Middle East—which used to prevail of artificial losses being generated upstream in the Middle East by the producing companies and the tax liability being minimised in the United Kingdom through the distribution companies.

I say “used” because, as emerged in the debates on the Oil Taxation Bill, those considerable losses which used to be artificially generated are now tending to disappear from the scene. This is happening because, due to the changes in OPEC policy and the policies of the Arab Governments, increasing slices of oil revenues have been taken through various devices, charges, royalties and direct taxation. It is, therefore, right now that a company such as Shell gets only about 22 cents on a barrel of oil, which, as it says, is about half of what is necessary to give the basic revenue to generate sufficient investment in the North Sea, let alone in any oil wells in the Middle East.

On the need to take these powers to reinforce the powers proposed in the Oil Taxation Bill so as to allow the Board [column 306]of Inland Revenue to acquire all kinds of information from third parties and, as we shall see in a later section, from overseas subsidiaries, a great deal of the argument is rapidly becoming out of date. It no longer gives the facts on which these considerable and serious proposals for strengthening the already wide powers in Section 485 are proposed.

The Chief Secretary must take all these aspects into mind and explain why we should at this time grant to the Board of Inland Revenue powers which, as my hon. Friend the Member for Braintree (Mr. Newton) rightly said, appear to exceed or could exceed the powers given to the police to obtain information. This would apply, particularly, if the books were privileged from discovery in a court of law. It may be that under these powers the Revenue would have greater powers than the court of law, and be able to override that privilege. That is very serious.

The Chief Secretary argues that it is all justified and that the end justifies the means, and that our case can be swept aside because there is a general need—unspecified and totally unargued and debated, and, indeed, unmentioned on the Floor of the House—to strengthen Section 485. But all we have to go on is the statement by the Paymaster-General that in a specific instance, namely, the ring fence round the North Sea, there is a need to increase the effectiveness of Section 485.

To argue that, and in addition to be ignorant of the fact—an ignorance which the Paymaster-General may have shared at the time—that these artificial losses were no longer being generated on anything like the previous scale, is to place before the Committee a basis for judgment which is totally inadequate.

The Paymaster-General and the Minister of State at the Treasury, the hon. Member for Ashton-under-Lyne (Mr. Sheldon), as the Chief Secretary and the Committee know, are now in full retreat on those proposals, not only in relation to the petroleum revenue tax and the changes in corporation tax outlined here but also on those which require the Chief Secretary to put forward these powers which we are seeking to amend. They are in full retreat because they realise some of the truth in the point that I have been making, namely, that [column 307]the artificial losses are no longer being generated on such an enormous scale.

They are in full retreat also because they now realise that the whole business of extracting oil from the North Sea is less of a riskless operation than some of their armchair advisers had indicated. They are beginning to have second thoughts on the whole discipline of the régime for North Sea oil taxation, in the knowledge, as one of my hon. Friends said, that if they get it wrong and apply too many restraints and restrictions, and put too many powers into the hands of the Board of Inland Revenue to demand too much information, they will frighten away not only the small companies—they are being frightened away now, as many public statements confirm—but some of the bigger companies as well, thus succeeding through the powers for which the Chief Secretary has asked and through the powers in the Oil Taxation Bill—for which this is the instrument, as it were—in damaging desperately our already rather rocky North Sea oil programme.

It is essential that the Chief Secretary put before this Committee the real reason why he seeks these powers. We can then judge whether we think it right for the Board of Inland Revenue to be allowed such an extension of its activities. It is not fair of the Chief Secretary to plonk before us the proposition that he has suddenly discovered that Section 485 needs to be more effective. The reason why it needs to be made more effective, or the reason put forward by his right hon. Friend, has to do with North Sea oil. It raises all sorts of issues as to whether that is the way to go about taxing North Sea oil. The reason should be examined on its merits. We should not be asked to consider the extension of these powers to cover all kinds of companies and operations, when the Government's main aim is to deal with oil companies.

If there is a wider case, if we are now bent on a hunt for the multinationals, regarding them as the game, as it were, for this kind of extension of powers, let that be said clearly. It has not been said so far. All that the Government have said is that these powers are needed for the purposes of changing the remaining corporation tax in order to create the North Sea as a special and separate trading area. [column 308]

We have had a shoddy deal this afternoon. The Chief Secretary has presented his case on the basis of evidence, except for an assertion out of thin air that Section 485 needs strengthening. We had some assertions on the Floor of the House, but they were not as wide as that. They dealt with the specific situation of the oil companies. If that is the reason for the change put forward now, let us address ourselves to that. It is a specialised, not a general issue.

5.45 p.m.

Mr. Parkinson

May I ask the Chief Secretary whether there are cases known to him or his Department where the Inland Revenue has been frustrated in its objective of making directions under Section 485 because of lack of information? We know that inspectors of taxes have few limitations on the questions they may ask and expect answers to. They may make assessments which companies have to dispute. If inspectors of taxes do not get the information they want, they can seek a precept. As my hon. Friend has just said, all we have is the Chief Secretary's assertion that this is necessary. Could he give us any examples or evidence that the Revenue has been frustrated and hampered so far?

Mr. Joel Barnett

I am always happy to try to oblige the hon. Gentleman. The question he has put deals directly with the point raised by the hon. Member for Guildford (Mr. Howell). Are there new special circumstances requiring these powers? From its experience in trying to make Section 485 as effective as it was always intended to be, the Inland Revenue has found that it has been inadequate to enable it to obtain details of transactions.

We are not talking only about prices; we are talking about the transactions behind them. It is a complicated and difficult area. Let me talk about oil companies, as some hon. Gentlemen have. The large liabilities of oil companies under the transfer pricing practice were discussed at length in 1973 in the Public Accounts Committee, an all-party Committee. That Committee produced a unanimous report in which it recommended action to be taken in these areas. When the hon. Gentleman asks me whether there has been anything said or done about this, my answer is “yes” , not only [column 309]by the Government but by an all-party Select Committee, looking at the matter—I assume and must accept—objectively.

Mr. Parkinson

I have no copy of the Public Accounts Committee's report. Was it because the Revenue was hampered by not being able to get at information, or was it because of the law at the time? I should not have thought there was any great secret about what the oil companies were doing, that they had losses or were not paying taxes here.

Mr. Barnett

I assure the hon. Gentleman that there is considerable difficulty. Where there is artificial transfer pricing—I am sure he will be aware only too well—taxpayers do not come to the Inland Revenue to say, “I have been using an artificial transfer price. Please will you tax me on it?” The Revenue certainly had power to ask questions. But under Section 485 there were no powers to insist on answers. I should have thought the hon. Gentleman would want us to have these powers, and that is what we are seeking under the Clause. There were no powers to insist that the particular taxpayer should give an answer.

Mrs. Thatcher

That is a very weak answer. Most taxpayers would give a reply because they would be frightened to death of getting on the wrong side of the inspector.

Mr. Barnett

With respect to the right hon. Lady, we are not talking about most taxpayers. We are talking about the largest multinational companies. In my experience, the advisers to those companies are not frightened of a tax inspector.

Mr. Lawson

Will the right hon. Gentleman care to correct his statement of a moment ago that all he is seeking to do in the clause is to procure answers to questions which the Revenue already had the power to ask? Is it not the case that the clause goes far beyond that and enables him to ask for information going far beyond what the Inland Revenue was able to ask before the clause was drafted?

Mr. Barnett

Of course it is true that we are asking for much greater powers than existed under Section 485. I have [column 310]not disputed that, for otherwise there would not be all this argument. Let me assure the right hon. Lady and the hon. Gentleman that in some cases we are not going as far as many of the countries about which they have spoken.

Let me give some examples. In the United States it is standard and accepted practice for the Internal Revenue Service to carry out on-site audits of taxpayers' returns of income.

“For the purpose of ascertaining the collection of any return, determining the liability of any person for any internal revenue tax, the secretary or his delegate is authorised to examine any books, papers, records or other data which may be relevant or material to such inquiry.”

That is in Section 7601 of the American Internal Revenue Code. [Interruption.] I am sure that what I am about to say will answer the right hon. Lady's and the hon. Gentleman's question. To save them from apoplexy, I shall continue.

“The time and place of examination pursuant to the provisions of Section 7602 shall be such time and place as may be fixed by the Secretary or his delegate and as are reasonable in the circumstances.”

Mr. Parkinson

I am sorry to disappoint the Chief Secretary, but that was not the point I was trying to make. Would he not accept that in the United States—and he was talking about personal taxation—self-assessment is the basis on which the tax system works? Of course the Internal Revenue Service has to have the right to audit accounts prepared by the taxpayer and submitted by himself. It is not at all comparable.

Mr. Barnett

But these are powers applied to corporations as here.

Mrs. Thatcher

Those are powers that apply to tax that those corporations are liable to pay. It has nothing to do with what the right hon. Gentleman is asking.

Mr. Barnett

It looks as though we may be misunderstanding each other. I shall try to explain again. Section 485 is on the statute book to try to ensure that those corporations that are reducing their tax liability in this country through artificial transfer prices are caught and are charged on an arm's length price. We are seeking to ensure—as, I am sure, the right hon. Lady wants to ensure—that those companies pay the proper United Kingdom tax on an arm's length price.

[column 311]

Mrs. Thatcher

But the Government are seeking to take powers in relation to companies that have nothing to do with those companies.

Mr. Barnett

Certainly, because without that information in many instances it would not be possible to ascertain what is an arm's length price.

I emphasise again that we are dealing with very complex areas of multinational companies where it will not always be possible to ascertain what is an arm's length price without looking in other areas. In those other areas all we are taking powers for is to seek information.

Mr. William Hamling

Are we to understand that the Conservative members of the Public Accounts Committee in 1973 supported the propositions that the Chief Secretary has presented to the Committee?

Mr. Barnett

That was the purport of what they suggested. I am not accusing the right hon. Lady or hon. Gentlemen opposite of seeking to make Section 485 ineffective. I am sure that is not the intention of their amendments. If that is not their objective, I hope that they will accept from me, for the reasons I have given, that unless we have this provision, we shall not be able to make Section 485 effective.

The hon. Member for Blaby (Mr. Lawson) referred to the new North Sea oil situation. Let me assure him that the United States oil companies and many others have not been at all backward—neither they nor hon. Gentlemen opposite who have spoken in another Committee in favour of amendments that those oil companies seek—about suggesting amendments to us. But I hasten to assure the Committee that they have not complained about this clause, I hasten to add again that that should not prevent the right hon. Lady and the hon. Gentleman from pressing me to delete it. But, for the reasons I have given, I hope that they will realise that, if they want to make Section 485 effective, if they were in office they would need Clause 15.

Mr. Hordern

Does not the Chief Secretary appreciate that the Report of the Public Accounts Committee for 1973 referred then to practices related to exploration in the North Sea and the ability of oil companies to offset that cost against [column 312]profits elsewhere? Does he not now appreciate that with the posted price system in the Middle East having been changed so completely, those circumstances no longer apply? If it is the case, as it may well be, that oil companies now show indifference to Section 485, does it not occur to him that it is because it simply cannot apply to them as much as it did in 1973?

Mr. Barnett

I take the hon. Gentleman's point. If that were so, there would be no need for the hon. Gentleman to be concerned with the point in question with regard to oil. [Interruption.] No. The oil companies would not be doing any artificial transfer pricing, so there would be no need to worry about the oil companies.

Mr. Hordern

The right hon. Gentleman has misunderstood. There is even more need to be concerned if the Government are seeking powers to make inquiries about quite unrelated companies when no offence is taking place anyway.

Mr. Barnett

If there is no offence, what does the hon. Gentleman think the Inland Revenue intends to do? It will not charge them to tax because they have done nothing wrong.

Mr. David Howell

rose——

Mr. Barnett

If the hon. Gentleman is about to tell me that he is in favour of Section 485, which he perhaps overlooked telling me before, I will give way to him in a moment.

I hasten to say that Clause 15 is designed to make Section 485 effective not only in relation to oil companies. There are other multinational companies—my hon. Friend gave one example—which are practising artificial transfer pricing. That is why we seek this power.

Finally, I say this to the Committee and especially to the hon. Member for Braintree (Mr. Newton). If I said that I sought to protect the revenue and the general body of taxpayers and that that was my only function, I apologise to the Committee. But I should be astonished if I did. We have to take a balance on this question. We have to have a balance between protecting the revenue and the general body of taxpayers and not going too far with our powers.

All I am saying here is that with these powers we are making a section of tax law [column 313]effective, because without them it would not be effective. That is why we seek the powers.

Mr. Lawson

I shall be brief, as I know that my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) is also seeking to catch your eye, Sir Stephen.

I am sure that the Chief Secretary would not wish to mislead the Committee in any way, so perhaps I could ask him to go a little further into the subject of the comparative systems that different countries in the industrialised world use in tackling this problem. I should like to ask a series of questions.

First, was he saying that the American Internal Revenue Service has precisely the same powers to require documents in respect of any company—not just a multinational company, but any company at all—as are proposed in the clause? Secondly, would he not accept that the United States, being a confederation, or whatever it is, has two systems of taxation, the federal system and the state system, and that the state system is very important? For that reason, whatever the federal internal revenue powers are, they affect only a part of the taxation and not the whole. Therefore, that at the very most could only have been half the truth.

Finally, will he say what are the comparable powers in France and Germany, and indeed in Holland, as Holland is very important in the oil industry?

6.0 p.m.

Mr. Peter Rees

I hesitate to intervene at this late stage, but there are one or two points I should like to make. I am always diffident about catching your eye, Sir Stephen, in a debate of this complexity when, alas, due to my attendance at the Select Committee on Wealth Tax, I have not heard all the arguments. However, I have been privileged to get the drift.

It seems to me—and I say this with all candour and humility to the Chief Secretary—that he is, as so often, going for fiscal overkill. I have a very short point to put to him.

It has been held by the highest courts in the realm for quite some time now that the Revenue may assess a trader who disposes of his stock-in-trade at an artificially low price as though he had disposed of that stock at its true market value. [column 314]

Knowing the Chief Secretary's keen interest in these matters, I remind him of the decision in Sharkey v. Wernher. I may perhaps alert the gentleman in the box who is scribbling a brisk note about this. [Hon. Members: “The lady in the box” .] The lady in the box. I beg her pardon, Sir Stephen. It was grossly discourteous of me. I am a bit myopic. It is the same in the Committee: I sometimes miss obvious points.

I also remind the Chief Secretary, and the feminine hand that guides him in this matter, that in a recent decision in the House of Lords in the case of Higgs v. Ransome, in which I played a small undistinguished part, some support and confirmation was given to the view that I am advancing.

In the light of those decisions, perhaps the Chief Secretary will enlighten the Committee on this matter. If he is diffident about doing so, perhaps he might enlist the support of either the Attorney-General or the Solicitor-General, because this is a matter of genuine importance. We can all indulge in light badinage to ease the travail in which we find ourselves in these late-night sittings.

But in all seriousness, I sometimes get the impression that the Chief Secretary is going too far. If he has the powers already freely conceded by the courts, why must he have this clause? Why does he have to arm himself with a battery of powers going way beyond even the powers with which my hon. Friend the Member for Worthing (Mr. Higgins)—I hesitate to dredge up this unattractive memory—equipped the Customs and Excise in 1972 for VAT?

I speak with candour and hon. Gentlemen opposite can make such use of it as they choose. I consider that on that occasion the Conservative Administration equipped the Customs and Excise with excessive powers. But having said that, I think that the powers that the Inland Revenue is now seeking go way beyond anything in Section 37—I speak from memory—in the Finance Act 1972. I wonder why the Revenue has this power to go in with hatchets, break down doors at any hour of the day or night, and take away documents relating to any trade carried on by a taxpayer.

That is to equip people in the executive with powers they do not need. If they sat back and asked themselves whether they would be prepared to use these powers. [column 315]of course they would not seek them. We know that they are reasonable people, and they know that the Questions that we should be bound to ask in the House would put them to shame for evermore. Without fear of contradiction from the Government side, I think we should carry some amending legislation which would cut down the powers to something quite innocuous.

The real point I am putting to the Chief Secretary is this. Does he not feel, on mature consideration, that the trend of authority in the courts that has decided cases on this kind of subject permits the Revenue to exact a due measure of tax when a taxpayer switches stock—whether to some related company, or to someone with whom he has no visible connection? Indeed, the authorities go even further than this clause.

I know that this is a point of some complexity. Without wishing to sound arrogant, I think that he may say “This is a point best dealt with by lawyers rather than by accountants” . If that were so, we should admire his candour and humility, and say to him “Seek the aid of the Solicitor-General and the Attorney-General so that we can have an authoritative view on this very important point” .

I know that, at the end of the day, the Committee will not wish to enact this clause if it feels that the Inland Revenue is already equipped, by decisions in the highest court in the land—just along the corridor in the Appeal Committee of the House of Lords—with powers which go further in relation to the exaction of tax, though I do not mean so far in the acquisition of information. With due humility, Sir Stephen, I put that point to the Chief Secretary and look forward to his reply.

Mr. Newton

I am tempted to regard the return of my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) as a form of unfair competition. I should like to make one or two final points.

While I, and most of us on this side, would accept that what the Chief Secretary has been saying about the need to enforce Section 485 is an argument for what is the Bill, we do not agree that it is, as the Chief Secretary appears to believe, a sufficient justification for the powers in the clause. He has referred to the need to balance different considerations. In my view, he has got the balance wrong and has overbalanced on the side of enforcing this law regardless of the cost in terms of the rule of law.

I do not accept the rigorous distinction which appears to be held by the Government between what matters if it applies to an individual and what matters if it applies to a corporate body. What matters to me is whether we grant to executive administrative bodies powers which are sweeping and arbitrary, and that is what we shall do if we agree to this clause as it stands.

Now, two short points in conclusion. First, has the Chief Secretary any idea what kind of revenue loss he is, or may be, talking about? I imagine he will tell the Committee that he does not have a clue, but it would be helpful even if he were able to make a wild guess at the number of noughts on the end of the figure. Most seriously, why cannot he accept an amendment—not the one I moved, which would simply sweep away the whole of subsections (3) and (4), although I think there is a case for that, but I shall not press it now—along the lines of Amendment No. 406 in the name of my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson)? We are quarrelling with the extension far beyond those companies whose activities are themselves suspect, which is what my hon. Friend's amendment seeks to remove.

At one point in his own argument, the Chief Secretary implied, in reply to my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley), that one of his aims in all this was to protect—for the sake of argument—honest United Kingdom companies, or honest companies, from dishonest companies. He referred to British companies which might be disadvantaged by the operation of artificial transfer pricing by others.

If that is the situation, I cannot believe that companies which see themselves disadvantaged by the practices which the Chief Secretary is against will not readily and freely, of their own volition, supply the Revenue with the kind of information it needs to determine a normal market price. It would be beyond belief that they should refuse to co-operate with the Revenue, without these Draconian powers, to provide information which would enhance and preserve their competitive position.

If the Chief Secretary meant the argument he adopted, it seems to undermine his case that he must have powers in subsection (3)(c), which are the points most at [column 317]issue, in order to obtain information required to determine a normal market price. I should like to have specifically justified to me why he does not expect to get that kind of information voluntarily from companies operating in this country without the compulsory powers which he proposes in subsections (3) and (4).

Mr. Joel Barnett

I must try again. I am rather disappointed. I felt sure that at least I had convinced the hon. Member for Hertfordshire, South (Mr. Parkinson).

The hon. Member for Blaby (Mr. Lawson) said that I should not want to mislead the Committee. Of course, he is quite right. I should not wish in any way to mislead the Committee when talking about the tax laws in the United States. He asked whether they had powers to call on the premises of any company. The answer is that they have powers to call on the premises of every company in the United States.

The hon. Member for Blaby then asked what were the comparable powers in France, Holland and Germany.

Mr. Lawson

With respect, the right hon. Gentleman answered only half of my question about America. I made the more important point that he was talking merely about the federal tax authorities, and these powers are not possessed by the State tax authorities. That is an important point with regard to the United States.

Mr. Barnett

The hon. Gentleman is stretching the issue now. I do not take any of the hon. Gentleman's points as being of lesser importance than any other, and I gave him the answer in respect of federal law. Even if he does not agree with the rest of my argument, I should have thought that he would accept that those powers are at least comparable, if not more rigorous, at federal level.

Next, the hon. Gentleman asked me about the comparable powers in France, Holland and Germany. It shows how excellent are my advisers that this information is so readily available. I am advised that the position in Holland is the same as that which we are seeking in the Bill. In France and Germany the position is not precisely the same but is very similar, and many countries have powers equally vigorous as those we seek in the clause.

Before I come to the argument put by the hon. Member for Braintree (Mr. [column 318]Newton), I shall deal with the point raised by the hon. and learned Member for Dover and Deal (Mr. Rees). May I say at once that, though I may accuse the hon. and learned Gentleman of many things, the charge of humility would never occur to me in a million years. He cited a number of cases, in some of which I have no doubt he played a very distinguished part, and probably often not a minor part. Indeed, it is not easy to imagine a case with the hon. and learned Gentleman playing a minor part. He referred to one case at least which is not directly relevant to this clause. But one is in such tricky waters in talking about cases, particularly cases in which the hon. and learned Member has been involved, that I prefer to stick to the clause we are debating, and I hope he does not mind.

The hon. and learned Gentleman accused me of overkill. As he was not in the Committee for the previous two hours during which we have been debating the amendment, I can tell him—I imagine he may not be too surprised, and I do not blame him for not being here—that almost all, if not all, his hon. Friends have accused me of having precisely that objective. I hasten to assure him we have also discussed the question of VAT and the VAT powers. I should be in danger of repetitious argument if I repeated our discussions, so I hope that the hon. and learned Gentleman will be content with reading the debate tomorrow. I assure him that I have dealt with it, I think, to the satisfaction of the majority of members of the Committee.

Mr. Peter Rees

Leaving aside any personal comments the Chief Secretary may have made, which are of the utmost indifference to me, will he explain to what degree or in what field this clause extends the Revenue's powers over what the courts have held it to have in the two cases which I have drawn to his attention?

It is all very well for the right hon. Gentleman to say that he will confine his attention to the clause. The point is that if it can be demonstrated, as I think it can, from those cases, or at least from the first one I mentioned, that the Revenue is enabled to exact a due measure of tax in the situation to be covered by the clause, what is the point of the clause?

Mr. Barnett

The hon. and learned Gentleman said earlier that he would not wish to be accused in any way of arrogance, and I certainly would not wish [column 319]to accuse him of that—he knows I hold him in very high regard. But I have dealt precisely with these points on about six different occasions and have explained why I want the clause. It really is a bit much for the hon. and learned Gentleman to come here, after we have been debating the clause for two hours, and ask me to repeat the case purely for his benefit. With respect, that is asking too much.

I now come to the question put by the hon. Member for Braintree (Mr. Newton). He asked what the Revenue loss would be. As he rightly recognised, the reason we seek the powers is that we do not know what companies are doing in the range of artificial transfer pricing. He asked me how many noughts there would be, and I am advised it would be at least seven.

6.15 p.m.

Next, the hon. Gentleman asked why I could not accept Amendment No. 406 in the name of the hon. Member for Hertfordshire, South (Mr. Parkinson). He knows my respect for his hon. Friend, and if I could accept his amendment it would give me the greatest possible pleasure. But I cannot accept his amendment because he is seeking to narrow the powers that we are requiring under Clause 15.

Then I was accused of implying that the companies that we were seeking to catch under this clause were in some way dishonest. I am sure that the hon. Gentleman recognises that I have never said that either on this or on any other occasion.

Mr. Newton

Forgive me—that was just a shorthand word of my own. I was not accusing the Chief Secretary of anything. It was a silly piece of verbal shorthand, and I withdraw it. My point, which I hope he will answer, is that if some companies are being disadvantaged by transfer pricing by others, one would expect them to co-operate with the Revenue in establishing what their prices are. Why, therefore, do we need these powers?

[column 320]

Mr. Joel Barnett

I am sure the hon. Gentleman will be aware that the company being disadvantaged would very likely not be able to provide us with the information about artificial transfer prices. When the Revenue asked such questions previously, it found it difficult and extremely protracted before it got anywhere at all, and I am sure that it will be very much easier when they have these powers. Therefore, despite all the misgivings of hon. Members, I hope that they will feel able to accept the clause and not press the amendment.

Mr. David Howell

The right hon. Gentleman may think that he has stated six times over the reasons why he needs these powers, but I must tell him that we have not once had a clear exposition. Indeed, at one stage the right hon. Gentleman himself asked the Committee what the Inland Revenue would do with these powers.

As a result of our long debate, all we have elucidated is that the Chief Secretary is not very clear, over and above the oil companies, why suddenly, for general reasons, Section 485 needs to be beefed up. If he wants the answer to the question he put to the Committee about what the Inland Revenue will do with these powers, I can tell him. The Revenue will try to create a tax liability on the upstream profits of Middle East oil companies, profits which are already being taxed to the hilt by Arab Governments.

That is the fate of oil companies in the present situation, with different countries, including this one, seeking to tax and tax again the profits which are already being taxed in other countries. That is an issue to be raised in another debate. But that is what will happen if these powers are taken. We do not think that the case for them has been made out. I advise my hon. Friends strongly to press the amendment to the vote.

Question put, That the amendment be made:-

The Committee divided: Ayes 13, Noes 17.

Division No. 6.]

AYES

Cope , Mr. John

Fairgrieve , Mr. Russell

Hordern, Sir John

Hordern , Mr. Peter

Howell , Mr. David

Lamont , Mr. Norman

Lawson , Mr. Nigel

MacGregor , Mr. John

Newton , Mr. Tony

Page , Mr. R. Graham

Rees , Mr. Peter

Ridley , Mr. Nicholas

Wiggin , Mr. Jerry [column 321-322]

NOES

Barnett , Mr. Joel

Boothroyd , Miss Betty

Callaghan , Mr. Jim

Davies , Mr. Denzil

Dunnett , Mr. Jack

Gilbert , Dr. John

Graham , Mr. Ted

Hamling , Mr. William

Harper , Mr. Joseph

Hoyle , Mr. Douglas

Hughes , Mr. Mark

Pardoe , Mr. John

Sedgemore , Mr. Brian

Shaw , Mr. Arnold

Tomlinson , Mr. John

Ward , Mr. Michael

White , Mr. Frank R. [column 339] Second extract

[Mr. Richard Crawshaw in the Chair]

8.40 p.m.

On resuming—

Mr. Newton

I beg to move Amendment No. 197, in page 11, line 11, leave out subsection (6).

The Chairman

With this we are to take the following amendments:

No. 410, in page 11, line 20, leave out “trade” and insert:

“transaction presumptively within section 485” .

No. 303, in page 11, line 20, leave out “he considers it necessary for” and insert:

“are specified in the authority granted to” .

No. 647, in page 11, line 20, leave out “considers it necessary for him” and insert

“may reasonably require” .

No. 648, in page 11, line 18, leave out “any” and insert “the” .

No. 649, in page 11, line 18, after “persons” , insert:

“to which the transaction relates” .

Mr. Newton

Having unsuccessfully, I fear, argued to remove subsections (3) and (4), and then, with a slightly more helpful approach from the Chief Secretary, having failed to remove subsection (5), in Amendment No. 197 we now seek to remove subsection (6) of Clause 15. I should warn the Chief Secretary in advance that we feel particularly strongly about this amendment, in view of the nature of the provisions in the subsection, primarily because even more perhaps than the subsections we have previously discussed since four o'clock this afternoon, this seems to us to give to the Board of Inland Revenue and its inspectors powers that not only go beyond what we believe to be necessary for [column 340]the aims the Government have in mind, but in some respects go well beyond what would be permitted, so far as I can judge, even to the police or a court of law in enforcing any other aspect of the law.

We simply cannot believe, certainly on the basis of what the Chief Secretary has been able to tell us on our earlier amendments, that powers on this scale can conceivably be justified to meet the aims that the Chief Secretary and the Government have in mind. As the amendment seeks simply to delete the subsection, I take it that the words of the subsection will not appear in the OFFICIAL REPORT. It is perhaps worth drawing attention to exactly what it says.

Once an inspector has the authorisation of the Board of Inland Revenue—and it is an authorisation that relates only to any case where it appears to the Board that it is necessary to obtain entry, or whatever it may be, to the premises—the inspector

“may, at any reasonable time, on production if so required of his authority, enter any premises used in connection with any trade carried on by that body of persons and inspect there any books, accounts or other documents or records whatsoever relating to that trade which he considers it necessary for him to inspect for that purpose, and may require any such books, accounts or other documents or records to be produced to him there for inspection.”

In effect, once the Board of Inland Revenue has said to the inspector that it thinks it is right for him to go to the premises and examine the accounts of the company, once the inspector has that authority, he may march into the company's offices and demand to see absolutely anything that he feels he wants to see about anything and in connection with any matter, whether or not it is directly related to the matters at issue in connection with Section 485.

Unless the Chief Secretary has something to say about this subsection going well beyond what he has been able to tell us on the earlier subsections, my hon. Friends and I will find it very difficult to allow it to go through unamended.

These powers go well beyond those introduced in connection with the value added tax in the Finance Act 1972, powers most strenuously opposed not only by my hon. Friend the Member for Horsham and Crawley (Mr. Hordern), but by hon. Members in the present Government, some of whom were not present at that time, but certainly on their behalf and, of course, in a Committee that included the Chief [column 341]Secretary. These proposals on VAT were quite strenuously opposed, but they were mild by comparison with what is now proposed. Section 37 of the Finance Act 1972 deals with entry and search of premises and persons, which is roughly the kind of power that we are dealing with in this clause.

8.45 p.m.

I shall not weary the Committee by reading details of the provision in question, but I point out that Section 37(3) of the Finance Act 1972 starts by saying that if a justice of the peace is satisfied on information on oath that there is reasonable ground for suspecting that an offence is being committed and so on, there may be powers for entry and search of the kind—not exactly the same—that we are discussing. Yet in those proposals—whether or not one thinks they were right: I am not seeking to argue that at present—it was necessary to go through virtually the same procedures as the police would require to obtain a search warrant.

In subsection (6) we are asked to agree to the proposal that where it appears to the Board of the Inland Revenue that a body of persons may be a party to a transaction of the kind in question, the inspector may go in with huge powers to do more or less whatever he likes once through the doors of the building. I remind the Chief Secretary that a far—I hesitate to say wiser—weightier voice than mine spoke out against these measures in no uncertain terms in the debates in the Standing Committee on that 1972 Finance Act, I quote:

“As I felt on Clause 35, which we discussed earlier, in order to give Customs and Excise powers which they no doubt require to reduce evasion of the tax, powers have been given which could be used, in other circumstances, in ways which we would all abhor.”

Again I quote:

“As in the earlier Clause” —

that is another clause of that Bill—

“we find ourselves faced with a Government proposal to give Customs and Excise these totally unlimited powers when the occasions on which they would require to use them in pursuit of the operation of the tax should be limited. It seems to be a serious defect in drafting that the powers have been given so wide a scope and range.” —[Official Report, Standing Committee E; 12th June 1972; c. 804.]

and so on. I could read virtually the whole of this speech including the remarks about [column 342]the unprecedented effect on access to documents normally regarded as privileged between solicitors and their clients. That, as the Chief Secretary will remember, if not all hon. Members of the Committee do, was the present Chancellor of the Exchequer opposing the proposals that the then Conservative Government brought forward in relation to VAT.

I do not intend to turn this into a piece of mere party political knock-about, arguing whether the Conservatives were right to introduce those VAT proposals, and whether the present Government are right to introduce these proposals on Section 485. If the present Chancellor of the Exchequer believed that in 1972, he has no business lending his name to a Bill containing Clause 15(6).

Mr. Brian Sedgemore

He has changed his mind.

Mr. Newton

He may have changed his mind. He is entitled to change his mind, but not to claim credit for it.

If he has changed his mind, what we want from the Chief Secretary, who was sitting beside him on that Committee in 1972, is a convincing explanation. Many of us who were not present on that occasion might have had reservations about it then, as indeed did my hon. Friend the Member for Horsham and Crawley (Mr. Hordern). Before we are prepared to enact subsection (6) we require something far more than the Chief Secretary has shown any signs of being able to say about our previous amendments.

I have no doubt that my hon. Friends—and, I hope, hon. Gentlemen opposite—will wish to express their views about the scale and scope of these powers. In many cases they go beyond what would be allowed through the courts, let alone operations without the backing and power of the courts. They go beyond anything that either side of the Committee would conceivably grant the police in terms of comparable powers on the say-so simply of a senior police officer, which is analogous to what we are being asked to grant.

I have no doubt that all my hon. Friends will be reluctant to vote for these proposals and will wish to hear some convincing explanation of why we should pass them.

Mr. Jerry Wiggin

I should like to support every word spoken by my hon. Friend the Member for Braintree (Mr. Newton). However one examines this [column 343]clause, and however much sympathy one has for the justification advanced by the Chief Secretary, and I am bound to say that I was far from convinced by his earlier arguments, I am not happy about the Draconian powers that he proposes for the Inland Revenue in this subsection.

It would appear that the clause is designed to deal with multi-national companies dealing in sums with seven noughts on the end—to quote the Chief Secretary—who are trying to arrange their international affairs in such a way as to avoid paying due tax. By some secret raid in the middle of a quiet summer's morning, no doubt the Revenue will unearth from the books of a company, documents or records that will be the vital evidence needed to incriminate the company in an international fraud.

I cannot seriously believe that any company sufficiently clever and astute to organise such a fraud—if such a company exists, and I am far from convinced that there is one—would not be able to hide within its records the items that this specially licensed inspector will come armed to find.

This subsection would cause a grave interference with the rights of individual companies. We often lose sight of the fact that companies are not all ogres and that the legal rights of companies are not so different from the legal rights of individuals. I am constantly being told in the House about the necessity to preserve the rights of the individual against invasion of his privacy and about ordinary human rights in this country, where we manage without a written constitution. So far I think we have done very well in protecting those rights.

On the whole, we generally apply the same reasonableness to the rights of companies. It seems unlikely that a specially licensed spy will run through the computer records, presumably, or the multitude of files kept by these enormous companies, and find something that the law is not empowered by previous legislation to produce.

The Government are making a great mistake. They are introducing an extension of a principle—my hon. Friend has rightly criticised that principle—which is not only wrong but ridiculous. It would not hurt the Government's case or make it harder for the Board of Inland Revenue if the right hon. Gentleman were to accept [column 344]the amendment, and it would further the interests of freedom and civil liberties and a lot of things which hon. Gentlemen opposite are very fond of putting to us frequently over all sorts of insignificant matters if he would see fit on this occasion to make a concession.

If I seriously thought that fraud would be committed because of a lack of this subsection, if I seriously thought that the country would be deprived of taxation due to it, I should take a different view. Having listened with some care to the right hon. Gentleman's earlier arguments, it would seem that that is not to be so and that the legal powers exist. Therefore, I beseech him, in the interests of fair justice and common sense, to withdraw the subsection, as suggested in the amendment so ably moved by my hon. Friend.

Mr. Jack Dunnett

I am not happy about this subsection. My right hon. Friend knows that, because I have written to him and spoken to him about it. I shall not follow the arguments pursued by hon. Gentlemen opposite, but there are already adequate powers. I believe that the commissioners can precept for specific documents if they are not produced upon request. I believe that, for specific entry, a warrant can be obtained from the magistrates. In those circumstances, I think that the powers are sufficient and I would not wish for this further intrusion to take place.

My right hon. Friend knows that I firmly supported his views when he resisted attempts to delete subsections (3), (4) and (5), because I share his view that those subsections are absolutely essential if Section 485 of the Taxes Act is to have any effect. But I differ from him on this amendment. I do not think that this subsection is essential. Of course, it will make it a lot easier for the Inland Revenue. One could extend that view and make it even easier if one were to suggest even further legislation. So I urge my right hon. Friend to think about this amendment.

I ask my right hon. Friend to deal with another point which has been puzzling me. The other three subsections to which I referred all deal with corporate bodies. On one occasion when there was an error in drafting and a corporate body was not referred to my right hon. Friend moved, and carried, Amendment No. 464 to bring it in line. So, throughout subsections [column 345](3), (4) and (5) corporate bodies are referred to.

However, subsection (6) talks about a “body or persons” , and we know as a result of the earlier discussions that this includes a partnership. It means that the ambit of this subsection has been greatly widened because the inspector who will be authorised legally by the board cannot visit the bodies corporate in question. He has to visit a “body of persons” . I can only assume that the body of persons are the appropriate auditors or other advisers. If I am wrong, I shall be glad to be corrected, but in no part of this subsection is body corporate mentioned. It specifically refers to “body of persons” . I shall be grateful for an explanation of that, and I hope that my right hon. Friend will be kind enough to say that he will reconsider it, for the reasons that I have mentioned.

9.0 p.m.

Mr. Parkinson

I agree with much of what the hon. Member for Nottingham, East (Mr. Dunnett) has said—in particular, with his remark that it would be very easy to think of all sorts of ways to make life easier for the Inland Revenue. But that is not necessarily the principal purpose of the Committee.

I repeat to the Chief Secretary some of the arguments which, I am afraid, we have rehearsed before on previous clauses but which are none the less valid. If this type of legislation were to be enacted in almost any other field bodies such as the National Council for Civil Liberties would be up in arms and hon. Gentlemen on the Government benches would be in the forefront supporting them and making their case. The Board will have no more than a hunch that there might be a transaction. If it has that hunch, it does not have to justify it to anyone. The Board can authorise an inspector to go to any premises where any trade is carried out—no specific trade, but any trade of which that particular body is suspicious—and that inspector can demand to see the books, accounts and other documents.

Amendment No. 410, although it is not elegantly worded, has as its objective a limitation of this power to transactions where there might be a presumption that a direction under Section 485 might be appropriate. One just cannot go to any trade carried on by the person involved. [column 346]It must be the trade where there is a presumption or a possibility of a direction.

Opposition Members feel strongly, especially as there is no appeal procedure built into the clause, that it is not good enough to give sweeping statutory powers to the Board of Inland Revenue against which there is no appeal and which are so widely drawn giving the authorised inspector carte blanche to go where he will down the highways and byeways of what might be a large group of companies carrying on a wide variety of businesses.

The Chief Secretary has been very dogged in resisting all our appeals to date; but I urge him to give this subsection special examination. I do not think many of his arguments are valid as a defence of the subsection. I earnestly hope that he will give the Committee an assurance that he will consider it to see whether there is not some way by which selection can be trimmed down and made capable of doing the specific job that it has in mind, but not giving the Revenue such enormous powers in the process.

Mr. MacGregor

I, too, am deeply worried about this subsection. I have followed carefully all the arguments in the debate. Whereas I can see that there is an argument on the Chief Secretary's side, which I did not agree with on the earlier clauses, I believe that on this clause the arguments are very heavily weighted in favour of its deletion.

I am worried about it, because it introduces a dangerous innovation. Here I follow the remarks of the hon. Member for Nottingham, East (Mr. Dunnett), not only in connection with the interpretation of “body of persons” but, going beyond his argument, the fact that the same type of clause could appear in future Finance Bills in relation to other taxes.

I am worried, too, because I think it is an unwarranted intrusion into a company's affairs. I agree with the arguments advanced by my hon. Friend the Member for Braintree (Mr. Newton). He made an excellent case for the amendment, but I take the point that, whereas it may not apply to the other amendments, we are giving the Revenue powers greater than those of the police, who have to obtain a warrant to enter premises to search. There seems to be no similar condition on the clause. In fact, it is rather like going to one's chief inspector and asking him simply to be able to go to make a search if one were in the [column 347]police. Here it is simply up to the Board. I am very worried about that aspect for a start, in that we are giving much greater power than we have ever given to the Revenue and more than we give to anyone else. I believe it would be difficult for the Chief Secretary to refute that point.

I am worried also by two aspects of the clause. The first is the use of the word “appears” . There seems to be no condition upon this, and so it seems that the Board, in view of the word “appears” , has, as drafted in the Bill, unlimited powers to make up its own mind as to whether entry into a premises is justified. There does not appear to be any enforceable need within the clause to prevent the Revenue from using its powers without any conditions being applied.

The second aspect about which I am worried is the phrase in line 20, relating to the inspector who enters the premises, in that he can ask to inspect any books, accounts or other documents or records whatsoever

“which he considers it necessary for him to inspect for that purpose …”

So the inspector is left with entire discretion once he enters the premises, to ask for any documents which, in his view, are relevant. This is bound to set up a real worry in the minds of many companies, that this power will enable the inspector to look at documents was beyond the documents for which the original purpose for the entry was intended.

I should like to draw the attention of the Chief Secretary to Amendment No. 303 in my name, to delete “he considers it necessary for” and insert:

“are specified in the authority granted to” .

It may be a defective amendment, but its purpose is to confine the opening up of documents, once the inspector enters the premises, to those which are relevant to his original purpose. I object to the whole clause, but, even if the Chief Secretary feels that he must have the clause, it does not seem that that change would prevent the Inland Revenue from obtaining the information which is sought, but it would prevent misuse. The misuse of these powers could be very serious.

The Chief Secretary referred earlier to American precedents. I do not believe that in this case he could say that in the [column 348]United States, for example, powers as widely drawn as this apply to their own legislative provisions.

Another aspect which worries me greatly—this is the point to which my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) referred in relation to Amendment No. 410—is that the powers seem to be unlimited in relation to the companies to which they can apply. The arguments were so well rehearsed today. I know the companies for which originally the clause was intended, but these powers would enable the inspector to enter into the premises and inspect the records of companies where these transactions were not taking place. Here, too, I am greatly worried about the unlimited powers now given to the Revenue and I should be relieved if the Chief Secretary could convince me that I am wrong on this point.

There are one or two other questions I should like to ask in respect of the powers. For example, should not the Board simply be able to go to the commissioners for some sort of special notice where they think it necessary to inspect books or records? There is no check on the board's powers. Secondly, what about the possible conflict, in the case of overseas subsidiaries, with the law of the country in which they operate, where these powers are exercised outside the United Kingdom? This is something that has already concerned a number of companies and it would be a service if the Chief Secretary could clear up this matter during the debate.

Thirdly, I should like to return to a point to which I know we will return later; namely, the right of appeal. This is not provided in the clause and, therefore, does not apply to the subsection we are now discussing.

It is very dangerous to have no right of appeal for companies with regard to entry into premises, as the subsection would allow. What kind of protection will be given to companies? For example, a court order can always be obtained in order to effect this sort of entry. Under this subsection, there is no protection whatever for any company. Those are the questions I should like the Chief Secretary to clear up.

Finally, many of us are greatly worried about the amount of time taken up by local authorities on central legislation. It would be straying too far to go into that, Mr. Crawshaw, but [column 349]certainly companies are being put to great trouble and expense as a result of legislation which we are passing almost daily in the House of Commons. This would very much apply in this case. It would involve what I might almost describe in most cases as utterly non-productive time, particularly on the part of the accounting and financial staff, of many companies if these powers were at all widely used. This would be particularly difficult and damaging to their general situation in the case of small companies, which have a comparatively limited accounting and financial staff.

No doubt the Chief Secretary will say that the Inland Revenue will operate these powers reasonably, and I have no doubt that in most cases it will. But we are not here, as a Committee or as a Parliament, to legislate on trust. We have to lay down precise powers. In my view, the powers are drawn far too widely here.

I finish by making the point that if we do not protest against these very widely drawn powers, without rights of appeal or control, we may be setting a precedent for similar powers to be requested in future tax legislation. So I regard this as a most important debate, and it is important that in relation to this paragraph we should make our protest and try to get the situation right.

Mr. Hordern

The Chief Secretary will recognise that this debate has its antecedents. He will remember that in June 1972 we had a number of debates on enforcement clauses in relation to VAT. It was the provision at that time that search and entry could be allowed on application being made to a justice of the peace.

One or two of my hon. Friends and myself—at that time we sat on the Government side—felt that this was insufficient protection. We felt that this was an entirely new power that Customs and Excise was seeking in relation to VAT. Customs and Excise has for long held the right of search and entry to see, for example, whether stocks of materials really exist. I believe that it has held those rights since 1823. Similar arrangements have been made with regard to purchase tax, although when purchase tax was introduced in 1940 [column 350]Sir John Simon, who was the Chancellor at the time, said:

“The truth is that we have to face quite boldly the necessity of transforming our home economy for the purpose of helping to win the war, and this cannot be done without drastic and definite action” —[Official Report, 23rd April 1940; Vol. 360, c. 77.]

Those were the grounds upon which Sir John Simon sought to justify the search and entry provisions with regard to purchase tax at that time.

My hon. Friends and I felt in 1972 that in relation to VAT there was far more of an analogy with the Inland Revenue than with Customs and Excise and that the powers being sought by the Treasury at that time were quite inimical to anything the Inland Revenue had previously sought. Now, as my hon. Friends have clearly shown, the Inland Revenue is seeking powers of search and entry which it has never possessed before and which would allow it to enter offices of private firms and partnerships and to carry out any examination of papers that it cared to make.

In 1972 there was a great deal of opposition to these measures. There was a good deal of correspondence in The Times. The present Chancellor held the most positive views about these proposals. The Committee should recall the difference that then existed. We were talking then about the need for an inspector to go, not to a justice of the peace, but to the VAT tribunal to get the powers that he requires. In this case it is not even suggested that the powers should be sought from a justice of the peace but simply from the Board of the Inland Revenue.

I should like to recall to the Committee and to the Chief Secretary the present Chancellor's words on that occasion. He said:

“What is most extraordinary about the subsection, about the Government's decision to violate all the traditions of British justice, and to inflict a serious infringement of liberty of the subject on all our fellow-citizens is: what is it being done for? Why have the Government chosen to overthrow centuries of British tradition in this way?” —

He said later:

“… they now propose to violate the fundamental principles of justice. I hope that the Minister will admit as generously as he was compelled to admit on Monday that this subsection is a monstrosity.” —[Official Report, Standing Committee E; 14th June 1972, c. 840.]

Those were the provisions which the [column 351]Chief Secretary and his colleagues at that time, and one of my hon. Friends and I were not prepared to support.

Mr. Joel Barnett

Abstained.

9.15 p.m.

Mr. Hordern

I will look it up. The right hon. Gentleman may be right. I certainly did not support the Government at that time. However, those were the propositions to the contrary which the right hon. Gentleman was prepared to support at that time. I think the Committee should hear now from him why he has changed his mind.

Mr. Lawson

I would like, briefly, to support what has been said by my hon. Friends the Member for Horsham and Crawley (Mr. Hordern) and the hon. Member for Norfolk, South. There has been quite a long debate so far on this clause, a debate lasting for five and a quarter hours. It is an important clause, but not in any fiscal sense. This has not been a fiscal debate. What we have been discussing is: what is the proper limit to the extension of the arbitrary and discretionary policing powers of the Inland Revenue? This is what the debate has been about. It is not a fiscal matter, but it is a matter of the first importance.

I accept that it is difficult to know where precisely to draw the line. As each of these amendments has gone by, it has been clear that if we pass them we are giving the Revenue still further powers of this nature. Each extension is that much more serious than the previous one, and we should think and pause for one moment before acceding to it. We should be grateful for small mercies. Subsection (6) says that the Board can enter premises “at any reasonable time” . That at least, presumably, is to prevent the knock on the door at four o'clock in the morning. Short of that, however, these are powers, as my hon. Friend the Member for Braintree (Mr. Newton) said, far beyond those which we give to the police.

Therefore, if we do not draw the line here it will be the House of Commons which says that no line is to be drawn at all, that the Revenue can in the prosecution of its duties do anything, and that Parliament is not going to delineate its power in any way [column 352]whatsoever. We must say that there is line and that that line must be drawn here.

Mr. Peter Rees

The general case against this subsection has been very eloquently deployed by my hon. Friends. I hope that the Chief Secretary has been impressed by what they have said. Because I am not as eloquent as they, I will not attempt to go over that same ground. However, I suggest to the Chief Secretary—and I am doing this, I hope, in a helpful and non-partisan spirit—that there are at least two possible things that he could do to disarm the legitimate criticism that has been advanced from the Conservative side of the Committee. I hope that he is listening.

First, the right hon. Gentleman might consider the possibility of some form of appeal. He attempted to disarm criticism of subsection (5) by suggesting that we would be coming on to such an Amendment. At the time, as I understood him to say, it was a Government amendment. However, now that I look more closely I see no Government amendment on that point. At any rate, if he is preparing to look kindly on some amendment from this side of the Committee, so be it.

But then he has one important point that he might adopt, as it were, to find some sort of bridge between the two sides of the Committee if, indeed, Government Members are disposed to take issue with the case advanced by the Opposition. If that is so, it can only be because hon. Gentlemen opposite have not listened to the argument. I should be delighted to hear a reasoned defence of this subsection from some Government supporter other than the Chief Secretary.

It is very noticeable in our debates that contributions are confined—except for the Chief Secretary and the Financial Secretary—to this side of the Committee. I invite hon. Gentlemen opposite who, no doubt, have views on the Bill, to deploy them and not to be muzzled by their own Whips. I do not mind whether it be four or ten o'clock tomorrow morning, or midnight; the country will draw its own conclusions from the fact that serious consideration and criticism of the Bill has come from only this side of the Committee. Frivolous interjections from the Government side from a seated position will not [column 353]convince the country that this is a good and well thought-out Bill.

I was endeavouring to make some points in a helpful and, I hope, constructive spirit. My first is that the Chief Secretary should consider seriously the possibility of some kind of appeal. The second is smaller but none the less important. If the Chief Secretary would be so kind as to look at the subsection—although he no doubt knows it word for word—he will find that it enables anyone authorised by the Board.

“to enter any premises used in connection with any trade carried on” .

by the person— “any” trade, not “the” trade to which the transaction to which the Board objects relates.

It occurs to me—and I hope that this will find favour with the Chief Secretary—that if he were to say that it shall be limited to premises used in connection with “the” trade to which the transaction in question relates, at least the clause, if not entirely acceptable, would have some bounds to its scope. As it is, a person—not at dead of night, we have been reassured, but on the Board's authority—can enter any premises connected with any trade carried on by a party to a transaction. The Revenue does not have to establish that the person is a party to a transaction. It can act if it “appears to the Board” . It can look at or demand or

“inspect there any books, accounts or other documents or records whatsoever relating to that trade.”

If the Chief Secretary is serious in attempting to disarm Opposition criticism, I hope that he will look seriously at that suggestion, and the suggestion that he was disposed to take up in connection with subsection (5), which was that there should be some general right of appeal.

Mr. Hordern

I draw the Chief Secretary's attention to one matter to keep the record straight. Mr. Peter Trew, then my hon. Friend the Member for Dartford, and I voted with the then Opposition on the clause to which I was referring.

Mr. Joel Barnett

I was thinking of the amendment. The hon. Gentleman and his hon. Friend were opposed to the powers relating to VAT. He was absolutely right in general in the view that he took with his hon. Friend, but [column 354]that does not go for the reply he received from the then Financial Secretary, as I recall.

Hon. Gentlemen say that they feel strongly about this matter and the problems it raises. I feel strongly about ensuring that artificial transfer prices should be dealt with, as was always intended under Section 485. Let that be clear from the outset.

Many observations have been made, but mainly they revolve round the chief issue—whether these powers should be available. The VAT provisions have been constantly mentioned in a wholly non-political sense. I am sure that the remarks were intended in a wholly non-political sense, and I hope that hon. Gentlemen and the right hon. Lady will regard my subsequent remarks equally—in an wholly non-political sense.

The then Conservative Government not only carried out certain measures in 1972 relating to VAT, but did not seek to alter them in 1973 or later. I want to take up immediately the comparison of what have been called the wide powers in this subsection with the powers that all but two Conservative Members were prepared to accept for VAT. It has been said that the VAT powers are very different, that what we are seeking to do goes much wider.

Let me assure hon. Gentlemen that this simply is not true. I hasten to assure the hon. Member for Braintree (Mr. Newton) and the hon. Member for Norfolk, South (Mr. MacGregor) that I know that they were not here at the time. I am sure that any number of other hon. Gentlemen would seek to remove all these powers from the VAT authorities, Customs and Excise, and I look forward with interest to hearing their right hon. Friend support their amendments.

It has been said that these powers go much wider because at least under the VAT regulations a justice of the peace is required. What was not said was that under Section 37(3) all that was required of the justice of the peace was that it should be shown to his satisfaction that there were reasonable grounds for suspecting that an offence had been committed.

However, it goes much further than that. We have had a great deal of debate about which companies we are seeking to interfere with to prove that there [column 355]has been artificial pricing and it has been said that sometimes we shall be seeking to obtain information from any other companies. I must tell hon. Members that in Section 36(1) powers were taken by the then Conservative Government to obtain not just from any company, but from any person in this country all the information required and to do so, under section 37(3),

“if necessary by force” .

That is the proposal that hon. Gentlemen opposite supported. I am concerned about only a narrow band of companies, not persons, and all hon. Members, except two, accept that there is a need to prevent this abuse.

All we are seeking under Clause 15 is to ensure that we genuinely prevent it. Hon. Members tell me that I am going much wider than that. What other powers are there under the VAT arrangement that they support—with one or two exceptions. They are the powers to enter, by force if necessary, to seize and to remove any documents and to search any person.

Mr Newton

The Chief Secretary has been somewhat misleading. In Section 36(1) there is no reference to force. I quoted Section 37(3) which starts by saying,

“If a justice of the peace is satisfied” .

There seems to be an enormous difference in principle and in terms of British legal tradition between these proposals and saying that one has to go to a justice of the peace and convince him that one has reasonable grounds for doing such things, which the police can do, too. I certainly could not and would not object in principle to the Inland Revenue, or the Customs and Excise, having those powers in certain circumstances, once they had convinced a justice of the peace.

There is a vast difference between that and what is in Clause 15(6) where all that has to happen is for it to appeal to the Board of Inland Revenue. How can I guarantee what will “appear” to the Board of Inland Revenue? I understand what it means to convince a justice of the peace that I have reasonable grounds for acting. But that is not the same as appearing to the Board of Inland Revenue. [column 356]

9.30 p.m.

Mr. Joel Barnett

I am sorry if the hon. Gentleman misunderstood what I said. I did not say that in Section 36(1) there was any reference to force. I said that in Section 37(3) there were. Section 36(1) says “any person” , not the company about which we were trying to do something in relation to Section 485. I direct the hon. Gentleman's attention to Section 37(2) by which entry may be made without warrant.

Now that I have shown hon. Gentlemen what kind of legislation they have supported in the past——

Mr. Peter Rees

Will not the Chief Secretary confirm or deny—I do not want him to deceive the Committee, and I am sure he would not want to do that—that the VAT powers to which he has drawn attention, of which I have candidly said in our early debates I do not approve, were in relation to quasi-criminal matters, while these powers are taken into purely fiscal matters?

Mr. Barnett

The hon. and learned Gentleman is certainly more learned in the law than I, but an offence against VAT could be fairly minor. Somebody could have received goods which he did not know had not been subject to VAT. Whether that is any more a criminal offence than some other actions—I hasten to add that I am not saying that they are being done—that we are seeking to catch under Section 485 is a subject that I should not like to argue about, because the hon. and learned Gentleman is more knowledgeable than I am.

In certain circumstances in either case there can be the possibility of a criminal offence. I cannot say any more than that. There can also be the possibility of a minor offence under the VAT provisions and there would still be powers to force an entry to search the person and the building very much wider powers than we are suggesting and going very much wider, covering every person in the land.

Mr. Hordern

Surely all these powers can be sought only after agreement with a justice of the peace; they could not be taken on one's own authority.

Mr. Barnett

The hon. Gentleman cannot have been listening.

Section 37(2) says: [column 357]

“Where an authorised person has reasonable cause to believe that any premises are used in connection with the supply of goods under taxable supplies and that goods to be so supplied are on those premises, he may at any reasonable time enter and inspect those premises and inspect any goods found on them.”

I am sure that nobody is suggesting under that subsection that a person concerned was necessarily committing a criminal offence.

Mr. Newton

The Chief Secretary will forgive me for intervening just once more. I have had a chance to look more fully at the subsections he has been quoting. It is striking that there is a clear distinction that is relevant to our argument.

The provisions that the right hon. Gentleman is quoting, which are subject to the lower safeguards, relate only to entering premises to collect samples of goods or to inspect goods. The greater safeguard of the justice of the peace comes in—this is significant—as soon as there is any question of searching people and premises, inspecting documents, taking documents, going into the whole running of the business. It is that kind of proposal that we are debating, not simply going and looking at the structure of the building or the kind of goods on the premises, which is what comes under the other subsections in the 1972 Act.

The analogy which I hope the Chief Secretary will accept is between subsection (6) of the clause under discussion and Section 37(3) of the 1972 Act. That analogy is clear. In the 1972 Act there was the safeguard of having to go to a justice of the peace, and—

“If a justice of the peace is satisfied on information on oath that there is reasonable ground for suspecting that an offence in connection with the tax is being, has been or is about to be committed …” .

I compare that wording with subsection (6) of the Bill,

“Where it appears to the Board” .

the Board may authorise the inspector to do all the things that required a justice of the peace a few years ago.

Mr. Joel Barnett

I assure the hon. Gentleman that I had taken the point right at the beginning. I am not trying to be difficult, but I assure him that in subsection (6) we are not taking powers of search and entry, if necessary, by force.

[column 358]

Mrs. Thatcher

The Government are taking powers of entry.

Mr. Barnett

We are not taking powers to search, if necessary, by force. Certainly, if we were taking powers “if necessary, by force” , we should be obliged to require a justice of the peace. We are not taking such powers. I am sorry there is a misunderstanding. I know that the hon. Gentleman is a reasonable fellow, and he would want us to have powers that he considered necessary to implement Section 485.

Let me say immediately to the hon. Member for Weston-super-Mare (Mr. Wiggin) that subsection (6) does not deal with fraud. I never for one moment suggested that it would. I suggested that there could be, and very often is, a very substantial reduction of tax that would otherwise be payable in the United Kingdom—something which I hope he will accept as a loyal supporter of his Government and party who wants to see Section 485 operative. His party does not object to Section 485. All that we are seeking here is to make that section effective.

On the question of third party powers, we are not taking these powers other than for Section 485 purposes.

I take the point of the hon. and learned Member for Dover and Deal (Mr. Rees) as to whether one should have the word “the” or “any” . I am sure that he must not have noticed this. I always hesitate to say that to the hon. and learned Gentleman, because he is always aware of these problems. There are two Amendments, Nos. 648 and 649, in the names of the right hon. Member for Finchley (Mrs. Thatcher), and the hon. Members for Guildford (Mr. Howell), for Wycombe (Sir J. Hall) and for Blaby (Mr. Lawson), asking me to do precisely what he asked.

I am happy to say that I shall look at those amendments, which might be acceptable. I should like to consider the matter before Report. They may well have a reasonable point. I cannot say now whether we can accept the amendments, because I have been on and off my feet for six hours and have not had a chance to see in what context they will fit. But I promise hon. Members that I shall look at the matter with a view to meeting the point they have in mind.

Finally, may I reply to my hon. Friend [column 359]the Member for Nottingham, East (Mr. Dunnett)—the one with the better football team, I suppose. He talked about the civil liberties point, as did other hon. Members. I hope I showed that the powers we are seeking are nothing like as wide as many other powers sometimes similar, sometimes more rigorous, that are available to other Government Departments in the United Kingdom, powers available to the Customs, the Treasury, the Department of Health and Social Services, other national revenue departments under PAYE—power to enter any premises to look at books and so on. That has been done for years and no one has objected.

All we are seeking here are powers, nothing like as wide as hon. Members have suggested, to make effective a clause that stops artificial transfer prices. I cannot believe that my hon. Friend would want to remove these powers.

It has never been my function, throughout the whole of my professional life, to ease the burden of the Inland Revenue. It has been the reverse. But in this instance, when we are discussing ways of ensuring that the revenue is protected for the benefit of taxpayers in general, in a fairly narrow field, often dealing with multinational companies—again, I hasten to add, not fraudulent, but paying less tax than perhaps they should—I do not think it unreasonable to ask for these powers.

Mr. Dunnett

Would my right hon. Friend deal with the point I raised concerning the different definitions of the party involved, “body corporate” in subsections (3), (4) and (5) and “body of persons” in subsection (6)? Perhaps, at the same time, he will enlighten me on another point. Sections 36 and 37 of the 1972 Act, which gave the even more detailed powers, relate to inspection to check on goods upon which VAT may not have been paid. In the course of an order being obtained, any persons who may not have paid VAT might remove the goods. But this is a somewhat different case, is it not?

As my right hon. Friend has said on many occasions, we are dealing with large multinationals. I am not sure whether he is suggesting that they will remove all their invoices, books, and so on, immediately upon a summons being [column 360]taken out. Could he enlighten me on that?

Mr. Joel Barnett

I hasten to assure my hon. Friend that I am not suggesting that they will deliberately seek to evade the tax. One can only say that, without Clause 15 and the powers contained in subsection (6), there have often been prolonged question and answer sessions in correspondence, until eventually there almost certainly have been cases where tax has been lost. I am sure that hon. Members would not want that to happen.

As for the extent of the powers, as I have said, we are not going anywhere near as far. Under the 1972 Act, the powers related to persons, any person in the land. Here we are talking about a narrow range of companies. Neither are we taking third party powers in subsection (6). We are going only to a party to a transaction. I hope that that answers my hon. Friend's question.

Sir John Hall

Will the Chief Secretary tell the Committee what would happen in the event of an inspector, having authority from the Board to enter premises for the purpose of inspecting various books and records, being denied entry? If the company concerned said that although it was prepared to give the necessary information, it was not prepared to allow the inspector entry, what penalties would be imposed?

I have looked at Section 96 of the Taxes Management Act 1970 and cannot see that this point is covered. It certainly covers a refusal of information, which is a different matter from refusing access to the premises. What would happen if the company defied the operation of this part of Clause 15?

Mr. Barnett

The straight answer to that is a £50 fine, plus, for a second offence, £10 a day. If it is fraud, it would be an entirely different matter.

Mr. Lawson

I shall not follow up the last point, although some of my hon. Friends might wish to do so. I do not think that anybody who has listened to the debate or read the Bill can doubt that we are discussing a major extension of the powers of the Inland Revenue.

It seems curious that the right hon. Gentleman seeks to rest his case on the [column 361]powers that the Revenue or the Customs and Excise has under the VAT legislation. There are many important differences between these two sets of powers. The hon. Members for Nottingham, East (Mr. Dunnett) has mentioned one. I never voted for those VAT powers.

The curious thing is that the right hon. Gentleman is resting his stand on that when he is proudly telling us that he himself voted against those powers being given. Has he changed his mind? If he has not, it is a curious argument on which to base his case for the powers that he now demands for the Revenue.

9.45 p.m.

I put this suggestion to the right hon. Gentleman in the most reasonable manner I can. He has said that his sole desire—I understand—is to make Section 485 effective. He says that at present it is impossible for him to know how much of artificial transfer pricing is going on, and he needs extra powers to discover that.

In subsections (1) to (5) he is taking a lot of extra powers for the Inland Revenue for that very purpose. Would it not be reasonable, then, for him to take these powers, see whether they are sufficient, see whether he can get the information he requires, whether he needs anything more, and then, in a year's time, if he finds that the powers are insufficient, come back to us and say, “The powers in subsections (1) to (5) are insufficient. I really do need the power in subsection (6) as well” ?

He would then have a stronger case and he would have some evidence. At the moment he is saying that he must have the powers in subsection (6) even though he has had no time to see whether the powers in subsections (1) to (5) are sufficient. That would be a reasonable approach for him to adopt. I hope that, on mature consideration, he will take that course.

9.48 p.m.

Sitting suspended for Divisions in the House.

10.16 p.m.

On resuming——

Mr. MacGregor

On a point of order, [column 362]Mr. Crawshaw. Is it in order for me to speak while the Chief Secretary is not here? My contribution is related to two questions I wanted to ask him.

The Chairman

That is not a point of order. The hon. Member is entitled to carry on speaking.

Mr. MacGregor

If the Chief Secretary were here——

Mr. Mark Hughes

As a result of the recent votes on the Floor of the House, an important statement of the Treasury's position is, I believe, now being made by the Chancellor, which would clearly have massive implications for public expenditure and so on. I trust that the hon. Gentleman will understand, therefore, why my right hon. Friend the Chief Secretary is a moment or two late in arriving.

Mr. MacGregor

I am most grateful to the hon. Gentleman for that intervention, which I understood better than his intervention last night. I know that the Chief Secretary would forgive me for making another short intervention on this amendment because I did not speak in the long debates on amendments earlier today, and I feel particularly strongly about this one.

The Chief Secretary rested his case mainly on the precedents established in the 1972 Act in relation to VAT, and, as my hon. Friend the Member for Blaby (Mr. Lawson) pointed out, many of my hon. Friends were not even in the House at that time. Indeed, I suspect that the vast majority of this side of the Committee were not present during those debates and did not vote. I am not, therefore, fully familiar with all the arguments, but I must remind the Chief Secretary that two wrongs do not make a right. It was his argument in reply to the amendment which worried me about setting precedents in this subsection.

I can hear a future Chief Secretary, if not our present one, saying in a future debate, when the powers of the Revenue are extended in this way, that, the precedent was established in the 1974–75 Finance Bill.

In order to make sure that the Chief Secretary replies—which I do not think he did before, though I wrote with great care to him—to two other matters [column 363]which greatly worry us, I shall simply pose questions.

First, why is it necessary to have these powers on top of the other powers in the earlier subsections, which appear adequately to meet the point he has in mind? Second, why is such discretion being given to the Board and the inspector named in the subsection in relation to these powers? Why such discretion? The Chief Secretary said that the powers were nothing like as wide as many of us feared, but he did not justify that statement. Will he please come back to the point about the discretions in the words “appears” in relation to the Board, and “considers it necessary” in relation to the inspector? Could he, too, deal with the point that I raised on Amendment No. 303?

Sir John Hall

I must press the Chief Secretary a little further about the answer he gave me when I raised the question on penalties under this clause. It would be unfortunate if students of our affairs and those who read HANSARD were to be misled by anything that, he said. We should have it clear. Subsection (8) refers to Section 98 of the Taxes Management Act, 1970, which lays down penalties for refusing or failing to give information required.

The relevant penalty provision is to be found in Section 98(1)(a)—

“where a person has been required, by a notice served … to deliver any return or other document, to furnish any particulars, to produce any document or to make anything available for inspection, and he fails to comply with the notice” ——

he shall be liable to certain penalties.

That demands that people who have been served with the requisite notice shall make documents available for inspection. But there is no penalty there for refusing to allow an inspector to enter one's premises and go through records and personally take away documents, accounts, correspondence or whatever he is asking for.

In those circumstances, if a company refused entry, it would be justified in so doing in so far as it would not be subject to any penalty under this clause. That should be made clear so that we know where we stand if anybody, for whatever reason may seem good to him, decides to refuse to allow access to his premises by any inspector.

Mr. Joel Barnett

The hon. Member [column 364]for Blaby (Mr. Lawson) put some questions to me and he is not now here, but they have been covered by other speakers in the debate, which is not too surprising considering the time that we have been covering this matter. The hon. Gentleman asked for my views on the VAT powers. What might be even more important, perhaps, is the right hon. Lady's view on the powers under VAT, and I assume that we will be hearing from her.

Speaking for myself—it is not my direct responsibility, but I am always happy to have a look at any powers—the only point I was seeking to make was that, while hon. Members opposite seek to prove that the powers we want under this subsection go enormously wide, in fact the powers that their Government put on to the statute book went very much wider, in my view.

Hon. Members have asked why not take the first five subsections and leave subsection (6)—why these powers? The hon. Member for Norfolk, South (Mr. MacGregor) asked me to deal with his Amendment No. 303. I am sorry to have to tell him that that amendment would make a nonsense of the power to inspect business books and so on on the business premises. I am sure he would not deliberately want to do that. We seek these powers for the reasons that we have given for the last six hours or so. I doubt that I could convince the hon. Gentleman if I repeated them for the umpteenth time. I am sorry, because I know that the hon. Gentleman is very reasonable and I regret that I have not been able to convince him. But the powers are needed, and the discretion needs to be given not to the inspector but to the Board, for all the reasons that I have given on numerous occasions.

In answer to the hon. Member for Wycombe (Sir J. Hall), I have to say that when I referred to the penalties, those penalties—I may have misled him, and I am sorry if I did—are chargeable under the Taxes Management Act 1970, Section 98, as he recognised. In fact, there would be another £100, I am happy to say I have found for him, under the Inland Revenue Regulation Act for obstructing the Revenue.

Sir John Hall

As the Chief Secretary was so busy considering the answers to the points raised by my hon. Friend, I do not think he quite heard what I [column 365]said. I was quoting directly from Section 98, to which he now refers. There is nothing there which would lay a penalty upon any company which denied entry to an inspector. Penalties for refusing to give information, penalties for refusing to provide the requisite documents, yes, but not for refusing entry to an inspector.

Mr. Barnett

Subsection (7) provides for a penalty under Section 98(2) of the Taxes Management Act, which does not require a breach of a notice.

Sir John Hall

The hon. Gentleman is quoting from where?

Mr. Barnett

I shall repeat it. Subsection (7) provides for a penalty under Section 98(2) of the Taxes Management Act.

Sir John Hall

Subsection (7) of what?

Mrs. Thatcher

Of this clause, Clause 15.

Mr. Barnett

I know it. With respect to the right hon. Lady, I have been discussing it for six hours. I know she has other things on her mind and she has been elsewhere, but I have been discussing it for a long time. I want the right hon. Lady to be absolutely certain. It is subsection (7) of this clause and it provides for a penalty under Section 98(2) of the Taxes Management Act.

Sir John Hall

I can see nothing in subsection (7). It refers to appeal to the General Commissioners, or, in Northern Ireland, to a county court. Does the Chief Secretary mean subsection (8)?

Mr. Barnett

I am sorry. I meant that.

Sir John Hall

In that case we are referring to the Section from which I have been quoting, Section 98 of the Taxes Management Act 1970. We are quite in agreement on that. I merely say that Section 98 of the Taxes Management Act 1970 makes no such provision for a penalty in the case of an inspector denied entrance. It merely provides penalties for refusing information.

Mr. Barnett

Perhaps the hon. Gentleman will read it again—after me:

“In section 98 of the Taxes Management [column 366]Act 1970 (penalty for failure to furnish information) there shall be added in the first column of the Table the words ‘section 15(3) and (5) of the Finance Act 1975 and in the second column of the Table the words ‘section 15(6) of the Finance Act 1975’”

That would catch it. I shall not say I am happy, but that happens to be the fact. It would be caught under that subsection.

Mrs. Thatcher

That subsection refers only to a penalty for failure to furnish information, not to entry. That was my Sir John Hallhon. Friend's point.

Mr. Barnett

That is the effect of discussing these subsections together. The hon. Gentleman is talking about other subsections, not just about subsection (6). We are dealing with subsection (6), and this relates to Clause 15(6), so anything caught under subsection (6) would be caught under the Taxes Management Act.

Sir John Hall

I am sorry to pursue this matter, but the insertion of Clause 15(6) into Section 98(2) of the Taxes Management Act 1970 merely puts it under the table providing for penalties. It does not alter the wording of the provision as it stands, which does not provide for penalties in the case to which we have been referring.

Mr. Barnett

It relates to penalties relating to anything after subsection (6).

Mrs. Thatcher

Subsection (6) gives powers of entry. The penalty clause provides a penalty for failure to furnish information. It gives no powers to impose a penalty if entry is refused to the inspector.

As I understand it, my hon. Friend is asking that if information is wanted, as distinct from entry, why not use the very section to which the Joel BarnettChief Secretary has referred? I understand now that the Chief Secretary does not want the right of entry; he wants only information. In that case, he does not need subsection (6) to get a penalty.

Mr. Barnett

The right hon. Lady is wrong. To obtain the information needed, one would have to obtain entry. Under subsection (6), power is given to enter premises. Under subsection (8) one adds Clause 15(6) to Section 98 of the Taxes Management Act. [column 367]

10.30 p.m.

Sir John Hall

I wonder whether it might be made clear if the Chief Secretary were to refer this matter to the Law Officers and get an authoritative ruling on the point, in which case we could come back to it on Report, if necessary.

Mr. Barnett

I can see that it is perfectly clear to my hon. Friends, but if it is obscure to the hon. Gentleman, I am happy to look at it again. I shall look at these subsections regularly.

Mrs. Thatcher

What the Chief Secretary is saying is that by adding a Clause the scope of the powers may be enlarged under a section. I do not believe that that can be done. It seems to me that the scope of the underlying section cannot be enlarged by adding a subsection to the table.

We should have progressed more quickly had the Chief Secretary been more forthcoming about these powers and had been prepared to give a good deal more. He is asking for more far-reaching powers in these circumstances than have ever been granted before. He has spent a long time quoting precedents that apply in totally different circumstances. He quoted one from Section 37 of the Finance Act 1972:

“If a justice of the peace is satisfied … that there is a reasonable ground for suspecting that an offence … has been committed”

That has a criminal nature from the start. This is not a criminal matter. It is totally a civil matter and into the civil law the Chief Secretary is importing penalties suitable only for the criminal law.

Throughout the clause he has been tossing up sections either from our law or from someone else's which can easily be distinguished from the present set of circumstances. My hon. Friends had no difficulty in distinguishing them, because they have had the provisions before them. But still the Chief Secretary returns to the argument that, no matter how far-reaching the powers, no matter how much—to use the Denis HealeyChancellor's words which I believe were quoted—they violate the fundamental principle of justice, he is prepared somehow to endure that violation for these civil ends.

He has not countered the criticism that if he needs information, he does not need entry. He can request the [column 368]information and then invoke a section that gives a penalty for failure to provide the information. Why does not he use those powers first, without taking far-reaching powers for entry to the premises, inspection of any books, accounts, documents or records, and then requiring anything to be produced to him there for inspection?

I do not believe that he fully understands the sections or the subsections that he has quoted, and I do not believe that he needs these powers.

Mr. Joel Barnett

May I say to the right hon. Lady, with the greatest possible respect, that I have sat here and stood here for six and a half hours on three amendments to one clause, which is a very important clause. Her suggestion that I have not been forthcoming when she and her hon. Friends have taken this length of time, when we have this amount to get through in this Bill—we have not yet reached the capital transfer tax—is frankly totally unacceptable.

Section 98(2) of the Taxes Management Act refers to a failure to furnish documents. Clause 15(6) refers to requiring the production of documents. However, let me hasten to assure the right hon. Lady, as I did the hon. Gentleman, that I am happy to look at either. I am happy to look at this provision again if there is any doubt about the requirement that we are seeking to obtain and the penalty available under it.

I am always happy to look at this matter because I have no wish to impose undue penalties. But as I have sought to explain for a long time—obviously without success—to the right hon. Lady and everybody else, the powers that we seek are essential, for the reasons I have given, and I cannot see what more I can add.

Mr. Peter Rees

I hesitate to intervene in any dialogue between the Chief Secretary and my right hon. Friend the Member for Finchley (Mrs. Thatcher). My right hon. Friend is well able to take care of herself in these situations—better able than most of us.

However, I am bound to say that there has been a tinge of arrogance in the Chief Secretary's interventions of late. I can only put it down to the fact that he is getting a little frayed. I am entirely unimpressed by his statement [column 369]that we have got a lot to get through. Of course we have got a lot to get through. But whose fault is that? To ask us to digest rapidly, twice in one financial year, complicated measures is putting an undue burden on the House.

It has long been an accepted constitutional convention that there should be only one Finance Bill in any one year. No sooner shall we have finished with this one than, if we are to believe the Press, we shall be engaged on the second Finance Bill in this calendar year.

The Chairman

Order. I doubt that we shall get through this one if we proceed like this.

Mr. Rees

Mr. Crawshaw, I accept your rebuke. I was provoked into making these points only by the statement of the Chief Secretary. I am delighted to hear that I have the smiles of the Chair. That always encourages me.

However, I have looked again at these subsections. As always, of course, the Chief Secretary has mastered his brief. He has gone into it with an engagingly slapdash approach, trusting to luck and the fact that we shall be a little somnambulant after dinner, and a little enthused by what has gone on in the Chamber, and trusting that we shall not look as closely as we should at these monstrous provisions.

The Chief Secretary knows, but he has not bothered to tell the Committee and I believe that he should have done, that the Inland Revenue in any Revenue case may go to the General Commissioners and ask for a power of precept compelling the taxpayer to disclose relevant documents. Why in that situation does he have to ask for more extended powers? The power of precept, as he should know—and I invite him, Mr. Crawshaw, should he catch your eye again, to tell us a little more about the Revenue's power of precept—goes in my opinion, and I believe in the opinion of most hon. Gentlemen on both sides of the Committee, far enough.

There is possibly a slight defect in the provision about penalties, and I throw this point to him because he may wish to reconsider it for the protection of the Revenue. We have been [column 370]concerned with the application of the penalty provisions of Section 19 of the Taxes Management Act to this subsection. As I understand it—and I believe that this was the point that my right hon. Friend was making—all the penalties relate to a refusal to deliver information. Indeed, the side note, although it is not part of the Act, talks about “special returns etc.” . The real point of subsection (6) is not so much the documents that the outraged representative of the Board may be able to extract from the company concerned, but the fact that he has power to enter the premises.

This is the point that I should like to put to the Chief Secretary, and it may well be that he would like the support of his hon. and learned Friend the Solicitor-General.

What happens if a multinational company—I use this highly emotive phrase, because I know that it will immediately stimulate a flow of oratory from the Government side—slams its door in the face of the representative of the board? Although the inspector is armed with every credential that the Chief Secretary and his minions can equip him with, none the less this multinational company slams the door and says “We will have none of it. Take what proceedings you may.”

It may be that the Chief Secretary and his friends can recover a penalty not exceeding £50 because the multinational company has not disclosed the documents. But what about the slamming of the door? That will be much more hurtful to the Inland Revenue. That is the point, I believe, on which the Chief Secretary should focus. I do not believe that we should expose the accredited representatives of the Executive to this kind of slight. If they are to go forward on these dangerous ventures, they should have the whole panoply of the law behind them.

In that spirit, I invite the Chief Secretary to have a further look at the subsection.

Question put, That the amendment be made:—

The Committee divided: Ayes 16, Noes 17. [column 371-372]

Division No. 7.]

AYES

Cope , Mr. John

Fairgrieve , Mr. Russell

Hall , Sir John

Hordern , Mr. Peter

Howell , Mr. David

Lamont , Mr. Norman

Lawson , Mr. Nigel

MacGregor , Mr. John

Newton , Mr. Tony

Page , Mr. R. Graham

Pardoe , Mr. John

Rees , Mr. Peter

Ross , Mr. Wm.

Ridley , Mr. Nicholas

Thatcher, Mrs. Margaret

Wiggin , Mr. Jerry

NOES

Barnett , Mr. Joel

Boothroyd , Mrs. Betty

Callaghan , Mr. Jim

Davies , Mr. Denzil

Dunnett , Mr. Jack

Gilbert , Dr. John

Graham , Mr. Ted

Hamling , Mr. William

Harper , Mr. Joseph

Hayman , Mrs. Helene

Hoyle , Mr. Douglas

Hughes , Mr. Mark

Sedgemore , Mr. Brian

Shaw , Mr. Arnold

Tomlinson , Mr. John

Ward , Mr. Michael

White , Mr. Frank R

Question accordingly negatived.

[column 386] Third extract

Mr. Newton

I beg to move Amendment No. 588, in page 11, line 23, at end insert:

“(6A) The authority referred to in subsection (6) above shall be granted by the Special Commissioners on being satisfied by the Board that the body or bodies of persons might be a party to a transaction with respect to which a direction under the said section 485 might be given. The said body or bodies of persons shall be entitled to be present at the meeting of the Special Commissioners at which authority is sought by the Board or represented at that meeting” .

The Chairman

With this we are to take the following amendments: No. 589, in page 11, line 23, at end insert:

“(6B) The authority referred to in subsection (6) above shall state the name of the inspector to whom it is issued and the name of the body or bodies of persons carrying on the trade” .

No. 590, in page 11, line 35, at end insert:

“(8A) Subsection (6) above shall only apply where it is shown by the inspector to the satisfaction of the Special Commissioners that the body of persons mentioned therein has shown a lack of co-operation in supplying the information required by the inspector” .

No. 691, in page 11, line 23, at end insert:

“Provided that where the Board gives a notice under subsection 5 or an authorisation under subsection 6 the party concerned shall be informed of these and within 30 days of the issue shall be entitled to lodge with the Board a statutory declaration that section 485 does not apply to the transactions under consideration by the Board” .

[column 387]

No. 692, in page 11, line 30, at end insert:

“( ) If, when a statutory declaration has been sent to the Board under subsection 7 above they see reason to take further action in the matter—

(a) the Board shall send to the tribunal a certificate to that effect together with the statutory declaration, and may also send therewith a counter-statement with reference to the matter;

(b) the tribunal shall take into consideration the declaration and the certificate, and counter-statement, if any, and shall determine whether there is or is not a prima facie case for proceeding in the matter, and if they determine that there is no such case this section shall not apply to the person in question in respect of the transaction or transactions:

Provided that such a determination shall not affect the operation of this section in respect of transactions which include that transaction or some or all of those transactions and also include another transaction or other transactions” .

No. 693, in page 11, line 35, at end insert:

“( ) For the purpose of this subsection the tribunal shall consist of—

(a) the chairman, being either the chairman of the Board of Referees appointed under section 26(7) of the Capital Allowances Act 1968 or a person appointed by the Lord Chancellor, for a specified period or in relation to a specified case, to act as chairman of the tribunal in the absence of the chairman of the Board of Referees on account of illness or for any other reason, and

(b) two or more persons appointed by the Lord Chancellor as having special knowledge of and experience in financial or commercial matters” .

Mr. Newton

I am not entirely overwhelmed by the Chief Secretary's generosity, but I find myself in some moderate confusion, in moving the amendment, in endeavouring to sort out the various pieces of paper I have around and with me.

The main amendment is No. 588, which is to make a further addition at the end of line 23, as did the previous amendment. Whereas the previous amendment referred, of course, to the question of privilege documents, this one comes on to the wider issue which has been referred to in earlier debates. It was, in particular, raised by my hon. and learned Friend the Member for Dover and Deal (Mr. Rees) in a much earlier stage of our deliberations, on the question of an appeal against the use of some of the authority, [column 388]which is contained in the subsections of the clause we debated earlier.

In particular, Amendment No. 588 refers to the question of appeal against the powers—as we think, important and excessive powers—contained in subsection (6). These are powers for an inspector, on the authority of the board, to enter and to inspect documents and the like in any premises specified in the clause.

The amendment suggests that this authority

“shall be granted by the Special Commissioners on being satisfied by the Board that the body or bodies of persons might be a party to a transaction with respect to which a direction under the said section 485 might be given. The said body or bodies of persons shall be entitled to be present at the meeting of the Special Commissioners at which authority is sought by the Board or represented at that meeting” .

It will be apparent to the Committee, and certainly to the Chief Secretary that this is, in effect, an amendment which would introduce some safeguard of the kind contained in the VAT provisions, which, again, have been referred to many times. In that case a justice of the peace would be required to give his consent before the authorised person could simply march in.

We suggest that the authority to exercise these wide-ranging powers shall be given only if the Special Commissioners can be satisfied that the body of persons against whom the powers are to be exercised is connected with a transaction. This could be covered by Section 485 of the main Act.

The Chief Secretary may or may not be able to come some way to meet us on this. We think that this is a very reasonable safeguard against the exercising of such powers. It is, as I have suggested, analagous to the use of the authority of a justice of the peace under other legislation. But in this case it gives the Revenue the chance to set out its case, as it were, for being allowed to inspect the documents in question, and gives those against whom the powers are sought the chance to present their side of the case. There would then be some independent arbitral procedure before these—as we say—excessive powers are exercised. That seems a very reasonable proposition, and I shall welcome the Chief Secretary's observations.

Mr. Joel Barnett

Amendment No. 588 seeks to have the Special Commissioners [column 389]look at these questions, rather than the Board of Inland Revenue. We touched on this at about a quarter past four. The reason I gave then is exactly the same as I now have in front of me here. It would involve debating the issue when the Revenue would not have the facts. That is the point I made all those hours ago, and the same point applies exactly here.

I hope that the hon. Gentleman will accept that from me, even if he will not accept the other arguments I have attempted to deploy during the last seven hours. The Inland Revenue would be put in the position of arguing before Special Commissioners whether it should have powers to seek information for the purposes of Section 485, and it would need to deploy evidence before the Special Commissioners which it could not conceivably have because those are precisely the powers—to obtain that information—which we are seeking here. It would put the Inland Revenue in an impossible situation.

I hope that hon. Members will see why, unfortunately, I do not feel able to accept Amendment No. 588, but let me say at once that I can be a little more forthcoming on Amendment No. 589.

I can accept the argument that the authority under subsection 15(6) should state the name of the inspector to whom it is issued. It would in practice. Such authorities are issued with care, and it would be an unnecessary encumbrance on the department to have to issue separate authorities with the name of the company to be inspected. Nevertheless, I certainly should be prepared to accept the intent of Amendment No. 589 and to put a Government amendment down on Report. But on Amendment No. 588 I regret that I cannot help.

11.30 p.m.

Mr. Peter Rees

It seems that from all our wearisome hours of debate today the Chief Secretary has brought forth a mouse of a concession. I did not expect a rat from him, but, equally, I did not expect a mouse. It is a tremendous concession that he is graciously to allow the authority issued to state the name of the inspector. That will certainly make the public's pulse beat faster—a great blow for civil liberty. And the name of the body of persons carrying on the trade to whom the authority is directed—that, [column 390]too, is to be stated, as though otherwise there should be some authority giving an unnamed inspector extraordinary power to roam around the country, battering down doors and clawing out documents. What a great blow for liberty. This is a day which we in this Committee shall really remember.

Let me take the debate back to the main issue, the one deployed by my hon. Friend the Member for Braintree (Mr. Newton). As I listened to the dulcet words of the Chief Secretary, round about half-past four or whatever time it was, I thought that he was about to make a worthwhile concession on some kind of right of appeal. But, alas, we were deceived—whether wittingly or unwittingly I leave the Committee to judge. But the Chief Secretary has at this point of the evening conceded his whole case with engaging candour. What he seeks to enable the Inland Revenue to do under subsection (6) is to engage in a fishing expedition. [An hon. Member: “Not to the Cayman Isles” .] Well, possibly to the Cayman Islands. The hon. Gentleman is a little hasty. I know that it is tedious sitting behind members of one's own Government. I, too, have had to sit in this room on that side, and very wearisome it has been. I have not always found myself in sympathy with what has been said from the Front Benches, but I know the power of Government Whips and the patronage they have to hand out, and I have no doubt that the hon. Gentleman's worries will be stilled on this occasion. But he may find that the balance of power will shift and he will be liberated, and then I shall look forward to some flaming speeches from him.

But tonight I am concerned with fishing expeditions, whether in the United Kingdom or the Cayman Islands. As I have said, it may be that, physically, this now named inspector with his great authority would not have to go to Grand Cayman, but he will possibly be able to invade the offices of a Cayman multinational company in London. The arm of the Revenue, by subsection (6), will be able to reach even to the Cayman Islands.

Should the Inland Revenue, without sufficient basis, without real justification for its suspicions, be enabled, without some protection for the taxpayer from an independent tribunal, to conduct this far-ranging fishing expedition? The Chief Secretary has said, “But the Revenue will [column 391]be compelled to debate the issue when it does not know the facts” . This is precisely our cause of complaint.

The Revenue may well embark on a fishing expedition without having the material even for a prima facie case. If the Chief Secretary had bothered to look a little more deeply into precedents, he should know that the Revenue should be compelled to do to justify its fishing by at least having the material for a prima facie case, so that if a taxpayer were to say that the documents were not relevant, they did not touch on any trade with which he was concerned, and they did not come under any transaction which might fall within Section 485 or Clause 15, the Inland Revenue could say to the Special Commissioners, “But we have a prima facie case. You could not expect us to prove our case to the hilt, but here we have these facts, these facts and these, which at least suggest that this is an area which it would be legitimate for us to explore” .

As I have said, the Chief Secretary has thrown aside all that and said that his minions must be permitted to conduct an unrestrained fishing expedition. The only limit on their powers must be that the name of the inspector must be stated, and the name of the company. If he feels that those members of the public outside this sultry upper room who study our debates—I regret that not enough do—will be impressed by his great blow for civil liberties, I must tell him that he will be mistaken.

Mr. Parkinson

I have a group of amendments down on the Paper Nos. 691 to 693, which set up a rather more elaborate appeal procedure. I should not want to justify that particular procedure, but the idea behind it is exactly the same as that embodied in Amendment No. 588, except that it extended the right of appeal to subsection (5) as well as subsection to (6). One of the disappointments to me of today's series of debates has been the Chief Secretary's attitude of wanting to catch people unawares, that it is vital for the Revenue to be able to pounce if it has the inclination to do so.

After reading my hon. Friend's amendment and having listened previously to the Chief Secretary, I felt that I could almost predict his answer. He does not want an appeal. The revenue [column 392]should not be under any obligation to prove it has a prima facie case because the essence of it is that people are untrustworthy and dishonest, and we must be able to catch them out and we do not have to justify our reasons to anyone for feeling the way we do.

A good deal has been said on the Floor of the House about rough justice. The Chief Secretary used the argument that this is rough justice, but there it is. We do not think that powers such as those embodied in Clause 15 should be given to anyone unless there is a prima facie case and grounds for the Revenue to be suspicious. It is quite wrong for such wide powers to be taken and for the taxpayer to have no right of appeal.

I shall not press my Amendments Nos. 691 to 693, but I hope that my hon. Friend will force Amendment No. 588 to a Division.

Mr. Joel Barnett

The hon. and learned Member for Dover and Deal (Mr. Rees) complains that I did not go again over the ground that I went over at 4 o'clock, 4.30, 5 o'clock, 6 o'clock and thereafter. Then he says that he is sorry he is boring my hon. Friends. I try not to vie with him in that which he so enjoys. I prefer to rest on a case which I think perfectly reasonable.

The hon. Member for Hertfordshire, South (Mr. Parkinson), whom I consider a very reasonable man, said that he was very disappointed by my replies. I am extremely disappointed that he has not taken the point that, if we had not taken action under Clause 15, Section 485 would be largely ineffective. Indeed, I suggest that if Clause 15 were not enacted, many people round the world would look on in astonishment that we retain such weak legislation to deal with problems which hon. Members, and particularly the hon. Member for Hertfordshire, South, wish to deal with, and it is left on the statute book in such a form that we are unable to make it truly effective.

Mr. Rees

I am very much obliged to the Chief Secretary, even at this late hour, for his considerable courtesy, but can he say for how long Section 485, or its precursor, has been on the statute book?

Mr. Barnett

In a moment I shall tell the hon. and learned Member.

Mr. Rees

Over 20 years.

[column 393]

Mr. Barnett

Why did the hon. and learned Gentleman ask me the question if he knew the answer?

Mr. Rees

Other hon. Members might not have accepted it from me.

Mr. Barnett

The hon. and learned Gentleman has too little trust and faith in the members of the Committee. Certainly those on his own side would have believed him, and I would have believed him.

During all these years it has been very difficult to make Section 485 effective. That is generally recognised. I am not accusing all the companies of fraud, but those companies themselves would be astonished if they could have sat in this room tonight since four o'clock to hear the stout defence by Opposition Members of keeping on the statute book a section known to be ineffective.

The hon and learned Gentleman said that we might not have believed him if he had said that Section 485 had been on the statute book for 20 years. I am told, to be precise, that it is 23 years, but we shall not quibble over an odd year or two.

I am disappointed that hon. Gentlemen opposite have been unable to accept the excellent points made by my hon. Friend the Member for Llanelli (Mr. Davies) and the points I have made throughout these hours. Nevertheless, I hope that they will understand why I do not feel able to accept the amendment.

Mrs. Thatcher

I assure the Joel BarnettChief Secretary that we are much more disappointed with his replies than he is with our representations. He seems to come back to the same general argument that he must have whatsoever powers he needs, no matter how far-reaching, no matter how far in excess of the powers of the police, no matter how far in excess of the powers of the court: he must have all powers that the police and the courts do not have to catch a taxpayer. He is prepared to strip the taxpayer of every single right and every single defence. I think that most taxpayers would be astonished that a democratic Government in this country should wish to do that.

This is an extremely modest amendment. If one goes to a justice of the peace under Section 37 of the 1972 [column 394]Finance Act to get authority, one has to show him that there is reasonable ground for suspecting that an offence has been committed. In fact, one has to do exactly what the Chief Secretary objects to doing here.

Here one has to show under the amendment that the body or body of persons might be a party to a transaction. It is no more onerous than what the authorities have to prove to a justice of the peace before they are allowed to go in. That section refers to a criminal offence; this refers to a civil matter.

I cannot stress too strongly to the Chief Secretary that we are absolutely astounded that he did not concede the amendment. It only goes to show that under his regime the taxpayer has no rights whatsoever. We must proceed to vote.

11.45 p.m.

Mr. Newton

Having moved the amendment, I should like to endorse what my right hon. Friend the Member for Finchley (Mrs. Thatcher) said. It would probably be unfair of us, even if the Chair would allow it, to inflict upon the Chief Secretary and others a “Clause stand part” debate after this series of amendments, though I should like to record that I hope that, having heard the explanation, we shall vote against the clause.

I have taken time to look at the clause and I have listened throughout the afternoon to the Chief Secretary. I should like to echo the disappointment expressed by my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) and my right hon. Friend the Member for Finchley.

There has clearly been some sense on the Government Benches that—indeed the word has been used, though not openly across the Floor of the Committee—we have been merely filibustering. I should like to emphasise that I have not and I do not think that my hon. Friends have filibustered. We regard this, more and more as the afternoon has gone on, as an important issue about the way in which a society such as ours is run.

We do not accept the distinction the Government appear to be making about what matters if something applies to an individual and about what matters if [column 395]something applies to a company. We can all appreciate that there are some differences, but in the end it is the rule of law as it applies to bodies, whether individual or corporate, within our society that matters, and that is what we have been trying to defend in these debates and discussions this afternoon.

Most of all, we object to the totality of the Chief Secretary's measures. He could well have satisfied us at various points, or at least made us much happier, by amendments which, as my right hon. Friend has said, we regard as modest, such as this last one about an appeal.

But at the end of it all, after we have voted on the amendment, we are left with a clause that gives the Revenue enormous powers to demand almost any information from almost any company that it chooses to name, that allows inspectors unprecedented powers to gain entry to premises to inspect any documents they care to look at in support of those powers and that contains virtually no protection for those who may be affected by the exercise of those powers. Frankly, I must say something that is the only thing I have left to say to the Chief Secretary and it is that although I respect him for the moderation with which he has tried to treat our arguments, I am deeply disappointed. I suspect that we have done rather a bad day for Parliament with what we have passed this afternoon.

Mr. Russell Fairgrieve

I do not think that I can be accused of filibustering, having not entered the debate so far, but as we are about to leave the clause 1 should like to say a few words of a rather general, non-technical nature in the form of a layman's remarks.

We have been discussing the clause for eight hours. What has worried me throughout is the thinking behind it. We have talked for hours about companies and companies evading taxation. The tax they evade might be used to buy more capital equipment or for some other purpose, not just to pay dividends and so on.

But let us consider what we are not talking about. We are not talking about politicians. We are not talking about civil servants. We are not talking about school teachers. We are not talking about lawyers and accountants. We are talking about the part of our society that gives us our standard of living. We are talking about productive manufacturing and exporting companies. Those companies are the reason that the rest of us can have a standard of living.

Sometimes in the debate I have felt that I was reading “Alice in Wonderland” . We seem to have everything completely round the wrong way. It is not the companies that should be harassed: I should like to see a little more of the harassment directed at the Inland Revenue.

Question put, That the amendment be made:—

The Committee divided: Ayes 16, Noes 17.

Division No. 8.]

AYES

Cope, Mr. John

Fairgrieve, Mr. Russell

Hall, Sir John

Hordern, Mr. Peter

Lamont, Mr. Norman

Lawson, Mr. Nigel

MacGregor, Mr. John

Newton, Mr. Tony

Page, Mr. R. Graham

Pardoe, Mr. John

Parkinson, Mr. Cecil

Rees, Mr. Peter

Ross, Mr. Wm.

Ridley, Mr. Nicholas

Thatcher, Mrs. Margaret

Wiggin, Mr. Jerry

NOES

Barnett, Mr. Joel

Boothroyd, Mrs. Betty

Callaghan, Mr. Jim

Davies, Mr. Denzil

Dunnett, Mr. Jack

Gilbert, Dr. John

Graham, Mr. Ted

Hamling, Mr. William

Harper, Mr. Joseph

Hayman, Mrs. Helene

Hoyle, Mr. Douglas

Hughes, Mr. Mark

Sedgemore, Mr. Brian

Shaw, Mr. Arnold

Tomlinson, Mr. John

Ward, Mr. Michael

White, Mr. Frank R.

Question accordingly negatived.

Mr. Ridley

On a point of order, Mr. Crawshaw, can you tell me whether the name Ridley comes after Ross in alphabetical order?

The Chairman

I can tell the hon. Gentleman that it does not do so in alphabetical order, but apparently it does on the list.

[column 421] Fourth extract

[Mr. Richard Crawshaw in the Chair]

The Chairman

We come now to Clause 18.

1.15 a.m.

Mr. John Pardoe

We have now completed Parts I and II. We are about to being the most important third part, the brand new capital transfer tax. This therefore seems to me, and I should have thought to all sane hon. and right hon. Gentlemen, an appropriate moment, coming as it does at a quarter past one in the morning, to move, That further consideration of the Bill be now adjourned.

Mr. Joel Barnett

I can understand the hon. Member for Cornwall, North (Mr. Pardoe) wishing to go to bed at this hour. That is a not unreasonable desire. I should have liked it myself.

But, as the hon. Gentleman knows, we have made very little progress today. I understand that we have spent nine, 10 or it may be eight hours on an important clause, and we have a long way to go. I hope that we shall make considerably more progress before we retire—that is, if we manage to get to bed at all tonight.

I am sure that all hon. Members want to see us make progress. I therefore hope that we may continue for some time until we have made more progress than we have managed to make so far today.

Mr. Ridley

I am surprised by the Chief Secretary's speech. I think that he is getting a little part worn and deserves some relief. It is not that any of my hon. Friends feel tired, although they have been here all day. I have seen the beds out in the corridor where Government Members have found it convenient to rest, and the only person who has not had a chance to lie on a bed is presumably the Chief Secretary himself.

To meet the points made by my hon. Friends, I suggest that we need a fresh Minister, one in good shape and good [column 422]order. I should hate to tire out the Minister, particularly as later today we shall be embarking on another sitting. This seems to me an appropriate moment to retire.

However, I should like to touch upon a more fundamental consideration. I have been listening to the Chief Secretary, who has talked a great deal about how soon we shall be on to the next Finance Bill. An autumn and a spring Finance Bill is the present state of play, and I suppose that with the present Government, who are tax-crazy, we shall have a winter and a summer one as well. That makes four Finance Bills a year. We shall therefore have to find a jolly good way of living with them.

I suggest that it would be an excellent thing if we sat every day at four o'clock to talk about taxes, but probably about one o'clock would be a good time, generally speaking, to knock off, starting now and going on until the same time next year. My hon. Friends like talking about taxes. They know all about them. They know about Section 2(3)(e) and the Taxes Act 1970, and para 4(3)(ii). Even the hon. Member for Luton, West (Mr. Sedgemore) has taken part in the debate. He is warming to our subject. If that is the case, I suggest that we need a routine for the Committee sittings.

We have completed 17 clauses and three schedules and the Committee has sat for only three days. I know that there were three days downstairs. But this Committee has sat for only three days. The progress is simply magnificent. In fact, it has been too good. I do not think that we are discharging our responsibilities properly unless we give the Bill more careful and minute consideration.

As the Committee is aware, we have now reached the capital transfer tax. This tax has been described by the Chancellor as the most fundamental alteration of British society since the destruction of the monasteries by Henry VIII. It seems an odd time to start upon a destruction of society at 1.20 in the morning.

Mr. Joel Barnett

The hon. Gentleman is a reasonable sort of fellow. As I can see, he desperately wants to get to bed, and I do not wish to keep him from it. But if he would rather that we met, say, five days a week including mornings, instead of carrying on now, in order to get the Bill in the time that we need, I should be happy to consider that.

[column 423]

Mr. Ridley

I should not be on my feet making a long speech if I wanted to go to bed, Mr. Crawshaw. The fact is that I do not want to go to bed, otherwise I should not be here making a speech saying why we should go to bed. The Chief Secretary is getting very befuddled as the night progresses, and he does not even understand that.

However, there is a point that he made that shocked me deeply. Did not I hear the Chief Secretary say that he is allotted a certain amount of time for this Bill? Did not he say that if we wanted to sit for five days a week, including mornings, that would suit him? Is he suggesting that there is some limitation upon the time that the Committee should take in the consideration of the Bill? Is he suggesting that we are not to go through every line, comma, paragraph and sub-paragraph with the care they deserve? Is he suggesting that my hon. Friends are not prepared to sit in this Committee room night after night, week after week, month after month, right through the spring, the summer and the autumn Finance Bills in order to ensure that we get this tax right?

I assure the right hon. Gentleman that we are not having any limitation upon the amount of careful study and scrutiny that we give to the Bill. If he has any specific number of hours, or sittings, or days, or weeks in mind, I would suggest that he stop it altogether, because there are a large number of issues to be raised.

There are some 830 amendments. Quite a lot have gone down today for later stages. I should have thought that, all things considered, the Committee would be better to come fresh to the Bill later today, starting on this new tax then, in order to give the Chief Secretary a rest and allow Members on the Government benches, who have scarcely been here during the past two or three hours, a little rest so that they will attend all bright and bushy tailed later in the day ready to learn about the iniquities that they are prepared to enact.

Sir John Hall

My hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) has presented a strong case for reporting progress. He presented it with all that serious eloquence that is the hallmark of his contributions to the Committee.

I should like to add just one small observation. It is well known that we are approaching that hour of night when [column 424]human vitality is at its lowest. It is quite clear to me from the reports that I have had of the beds that are outside this Committee room many hon. Members opposite are feeling the strain considerably. As my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) said, doing nothing.

We are now approaching the most important part of the Bill, the most important part of any Finance Bill for a long time. People outside the House who take a keen interest in our proceedings and who are vitally concerned by what we decide here will think that we are absolutely stark raving mad to be considering amendments of this seriousness at this time in the morning if we want to do the job properly.

It is not just a question of getting amendments out of the way by sheer physical drudgery, regardless of the merits of the argument or regardless of whether we can bring fresh minds and an unbiased view to them. If that is all the Chief Secretary wants, I can understand his wishing to press on. But I do not think that that is what he wants to do. I think what he would like to see is the Bill amended so that a lot of the anomalies, injustices and hardships imposed by it in its present form are removed.

We cannot give that concentration if we are considering the Bill at a time when, with the best will in the world, the Chief Secretary himself must be practically worn out with the attention he has been given, unless he is a man of superhuman strength. He has been here since four o'clock. I have noticed a tendency for him to wander a little when he has been replying. Some of the arguments that he has deployed have not in any way met the case presented by my hon. Friends.

Had he been his usual bright self, on top of his form, he would have gone much further than he has to meet our arguments. I beg him to give further consideration to this suggestion and to accept the proposal advanced by the hon. Member for Cornwall, North (Mr. Pardoe).

Mr. Sedgemore

Apart from the Chief Secretary and my hon. Friends, I am sure that the right hon. Lady the Member for Finchley (Mrs. Thatcher) is desperately anxious that we should continue this debate into the early hours of the [column 425]morning. I was present on Second Reading when the right hon. Lady warned us—I believe her, and I am sure that other people, perhaps with more experience than myself, believe her, too—that she was an exceptionally good night-time worker. We should certainly like to continue this debate to see an example of her special night-time proclivities.

Mr. Lawson

I should like to support the proposal made by the hon. Member for Cornwall, North (Mr. Pardoe) that we should adjourn. This seems the most logical time. We are between two parts of the Bill—Parts II and III.

Part III has tremendous importance. Not only do the Opposition know that it has tremendous importance, but the Chancellor of the Exchequer said it was the most important tax change since the war. I am not sure which war he was referring to, but he gave it that degree of importance—that cliché which is trotted out many time, but this time I think that it was meant and that it was true.

The importance of this tax has been underlined by my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley). We also have to bear in mind that there are a number of complicated amendments that will take much longer to discuss thoroughly at this time of night than when hon. Members are completely fresh. I do not think that we are likely to make progress faster by continuing at this stage with Clause 18 and the amendments to it than we should if we were to start afresh.

It is true that we have taken a long time today. We had made rapid progress, as my hon. Friend the Member for Cirencester and Tewkesbury mentioned, on earlier days, but today progress has been quite slow. It has been slow—I hate to have to say this—because of the totally obstructive behaviour of the Chief Secretary.

We have moved the most reasonable amendments one after the other. At any time he had the opportunity to cut the debate short by conceding a small point here, a small point there, by refusing to give the Inland Revenue the Gestapo powers that he seems to think it needs. He could have got us on to capital transfer tax hours and hours ago, if he had so wished. But because of his stone walling, his dead bat, his obdurate and [column 426]obstructionist method of dealing with our very reasonable, moderately moved amendments, we have found ourselves now for that reason asked to begin this most important tax innovation at half-past one in the morning. This is absolutely ludicrous, because the attention that we rightly gave to Clause 15 is nothing compared with the attention that we shall feel obliged to give to Clause 18.

I do not think that anybody here can have the slightest doubt that Clause 18 is 100 times more important than Clause 15. Therefore, every amendment will take 100 times as long and, indeed, 200 times as long at this hour of the night. I think from the point of view of speeding the Government's business through we should do very well indeed to halt progress now and begin again at four o'clock tomorrow afternoon.

1.30 a.m.

There is another point, because, quite apart from our duties as legislators, the Opposition anyhow have a concern for hon. Members opposite. We have been reading in the newspapers of petitions by Labour Members' wives who are upset at their husbands not being with them at night. I was astonished when reading this report. I must say that I cannot see what they are complaining about, but, if we are to believe reports in the Press, it is the truth that the wives of hon. Members opposite are unhappy about missing their husbands. They would like them to be at home.

The purpose of the motion of the hon. Member for Cornwall, North (Mr. Pardoe) is to help the Labour wives in the aim set out so eloquently in the petition by, I think it was, the wife of the hon. Member for Chester-le-Street (Mr. Radice), and I hope that she, at any rate will bear in mind the gesture that the Opposition are making when she reads about it in Hansard.

Mr. Graham Page

If we continue this debate, I wonder whether we can have a guarantee from Government Members that they will keep the quorum. For the last hour or so of the previous debate there were 100 per cent. more on this side of the Committee than on the other. It is the Government's responsibility to keep a quorum here.

Mr. Alf Bates

May I first say to the Committee, in reply to the point made [column 427]by the hon. Member for Blaby, that I have no interest to declare. I am not married. I have no wish to go any further into my matrimonial affairs. Were I to do so, the Committee would be considerably detained.

The hon. Member for Cirencester and Tewkesbury (Mr. Ridley) appears to be in some difficulty. He suggested to the Committee that we adjourn, despite the fact that he suggests that we ought to continue to sit all day for every day for month after month until we have got the matter right. I am certainly prepared to do that.

However, if hon. Members opposite are so keen to adjourn to their beds, may I ask my right hon. Friend the Chief Secretary whether it is possible to introduce some form of guillotine on the Bill. It may be unusual, but, since there has been a clear degree of filibustering from the other side, I am quite prepared to——

Mr. Newton

rose——

Mr. Bates

I am quite sure that the hon. Gentleman is perfectly capable of making a point later without intervening in my very brief contribution.

I do not particularly want a guillotine. I am quite happy to continue to sit here, as I have done through this and the previous Finance Bill, for considerable periods listening to the most interesting contributions. The cherubic and very healthy look of my right. hon. Friend the Chief Secretary inclines me to the view that we ought to continue to sit this evening.

May I reply to the comment by the hon. Member for Wycombe (Sir J. Hall)? Of course our constituents will think we are mad to continue to discuss matters of importance at this hour. We are mad, as a House of Commons, to continue through many hours of the night to discuss important matters, such as those relating to security and the Irish Republican Army, and to sit until eight o'clock in the morning. However, my constituents have heard of the Irish Republican Army, but very few of them know anything about “Increase in stock values: supplementary provisions” , the title of Schedule 3. Most of them would consider the Irish question much more important, and many would not understand what we were talking about at this hour. We do, and that is why we are sitting here. [column 428]

I trust that we shall continue to discuss this most important matter and reach capital transfer tax. The Government may have to introduce amendments to capital transfer tax, so I hope that we discuss it in detail.

The Opposition made it clear that they wished to increase the degree of Government spending by considerable sums. The Committee has to consider the implications of that. I trust that my right hon. Friend the Chief Secretary will seriously consider the need to increase the rate of capital transfer tax to cover the deplorable change that the Opposition have caused in our legislation this evening. We shall certainly resist the Opposition amendments to this Bill.

Mr. Pardoe

When I rose some while ago to introduce this modest proposal, I noticed that there were then three Government Members present. The Government benches have now filled up for the duration of this debate, but we know perfectly well that if we continue debating, those benches will empty immediately you, Mr. Crawshaw, announce any decision. That proves that we are as a Committee incapable of carrying out the functions of the legislature, because the Government party will not be here to participate.

The Chief Secretary made the point that all Ministers make at this time of night in Committee, namely, that they have to get their legislation. The trouble is that they all want too much legislation. This is not the way to fulfil the functions of the legislature. This is trial by exhaustion. All it means is that the Government think that if they go on through the night, they can ensure that they will get their business through more quickly because the Opposition—and, of course, their own Members—will let matters slip by while they loll on their seats and on their beds.

No other legislature in the world behaves like this. The only reason we have to do so is that we act in so bipartisan [sic] a manner that we are incapable of investigating the legislation properly on an informal basis. There is no reason for it. Our procedures for examining new legislation are so antiquated and out of date that they are becoming a farce.

I believe that we should operate like the American Senate and Congress. We should debate it five days a week, and we should start at a civilised hour in the [column 429]morning. I agree with the hon. Member for Wycombe. Our constituents will think us mad if we go on. The Chief Secretary has an important job to do at 11 o'clock this morning. He should be fresh to do it, and he will not be. It is madness to think that Ministers can conduct government in that way.

Mrs. Thatcher

I support the suggestion of the hon. Member for Cornwall, North (Mr. Pardoe) that we adjourn. Hon. Members on the Government side may not have noticed, but it has been night time for five-and-a-half hours now. They may not have noticed, too, that we are using up a lot of light and energy. Energy conservation should be the concern of Members of Parliament as well as of the public.

I was somewhat disappointed with the hon. Member for Luton, West (Mr. Sedgemore). I had been about to suggest that he be appointed the shop-steward of a back-benchers' committee so that we did not have to work with sweated labour. But, clearly, the hon. Gentleman does not approve of taking that on.

The reality is that this is too important a Bill to start considering its main provisions at almost two o'clock in the morning. There are far too many important provisions for us to attempt to get through them in such a short time now. We are about to discuss a tax that has never been fully debated in the House of Commons after its introduction in a White Paper. Totally inadequate consultations were held, and the chances are that we shall get a very half-baked tax on the statute book that will cause many anomalies and fundamental damage to large parts of the tax system.

It is wrong to start on Clause 18 now. Progress will be extremely slow. There will be many Divisions. But if we are to start on it—I suspect that, whatever we say, we shall do so—may I repeat the question put by my right hon. Friend the Member for Crosby (Mr. Page). Will the Government side keep a quorum? There have been times when they have had present less than one-third of the quorum necessary to keep the Committee in being.

Mr. Joel Barnett

On the latter point, the right hon. Lady need not worry. I am sure that we shall be able to have a quorum here. On the importance of the tax I agree with her. It is probably one of [column 430]the most important taxes we have debated in the House for a long time.

It is said that we should be stark raving mad to debate the tax at this hour. I should put it another way. Everyone agrees that this is a most important tax. We are stark raving mad to have taken from four o'clock in the afternoon until nearly a quarter to two in the morning on, presumably, clauses much less important. The clauses were important, but they were less important that the capital transfer tax.

What the right hon. Lady said is serious. We had a similar threat from the hon. Member for Blaby (Mr. Lawson), who said that Clause 18 was much more important than the amendments we have discussed today. But the hon. Gentleman did not appear to carry his hon Friends with him. The hon. Gentleman said that it would take 100 times as long for each amendment, and 200 times as long if we stayed up to do it now. I should like to know from the right hon. Lady, when she says that it would take longer now, whether that is what she means. I thought that it was our intention in the Committee—I certainly thought that it was the right hon. Lady's intention—to see that we did look at the capital transfer tax in detail, and properly.

I am perfectly happy to stay here and do that. But if the right hon. Lady and her hon. Friends are suggesting that it will take 100 times as long for each amendment as we have done until now, so be it. If that is the threat being made, it will have to be met. If that is what the right hon. Lady is saying, and she is agreeing with her hon. Friend, I have noted it.

Mr. Lawson

Since the Chief Secretary has somewhat uncharacteristically lost his cool, which, I must say, is a sign to those of us who know him well that he is feeling tired, that is a further sign that we should adjourn. Since he has lost his cool over my remark about taking 100 times as long and so on, let me explain that I cannot possibly predict precisely how long amendment will take. I was merely giving an indication of the length of time it might take if the Chief Secretary intends to be as obstructive on Clause 18 as he was on Clause 15.

I hope that it will not take 100 times as long. It will take a long time, but I hope that it will not be a factor of 100. But [column 431]that will depend on the Chief Secretary and the attitude that he adopts. He has been a Member of the House of Commons longer than I. He has been here long enough to know that nobody can predict exactly how long an amendment will take to debate. Therefore, I hope that he will stop that absurd line of argument.

1.45 a.m.

Sir John Hall

I think the Chief Secretary will agree—he is a reasonable man, except when, late at night, as my hon. Friend the Member for Blaby (Mr. Lawson) says, he begins to lose his cool—that the interpretation he placed upon my hon. Friend's remarks made was a little misplaced. I thought that what my hon. Friend was suggesting was that, as we know from experience, as the night goes on one gets tired and people tend to talk much longer. It is the natural result of a tired mind that one begins to wander, sentences get longer, one does not finish them properly, and at four or five o'clock in the morning people speak twice as long as they would if their minds were more alert.

That always happens. It is why debates slow down. I ask the Chief Secretary—he is a reasonable man, and I hope that I am reasonable in this approach to him—to think about the matter again. I know that he is trying to get the business through. I know that he is concerned that he has a programme to meet, and he feels that if he does not keep us up all night he may not reach it. I do not think that that will happen. We shall get on much faster if we start with a fresh mind tomorrow.

Mr. Hordern

I am very disappointed with the Chief Secretary's reply. It is most unlike him. I have had great pleasure in serving with him on successive Finance Bills over a number of years, and I have always known the right hon. Gentleman ready to be off as soon as midnight has struck. Nobody is keener than he on leaving consideration of the Finance Bill at midnight—rather like Cinderella in a different form.

Now we seem to have a change—no longer Cinderella. We have one of the ugly sisters instead. This is all the more apparent as his arguments become weaker as the night draws on. He has to draw on [column 432]support from the hon. Member for Luton, West (Mr. Sedgemore) and the hon. Member for Llanelli (Mr. Davies), and so it goes on.

The Chief Secretary said that one of the reasons why we have been held up today was the length of our consideration of Clause 15. If my recollection serves me right, we had two whole days discussing the enforcement provisions of VAT, which were far less onerous than the ones in Clause 15. We have spent the very minimum of time discusing Clause 15. Some far-reaching principles have been brought into our legislation as a result. I think that a great deal of comment will occur, and much of it adverse.

I hope that the Chief Secretary will think again. It is plain that he is not at his best at this time of night. This has been well known for many years. With great respect to the right hon. Gentleman, he is not getting any younger. It is regrettable also that we should expect servants of the House to stay late into the night just so that we can follow some arbitrary idea of the Chief Secretary and his side, so as to be able to say that they started Clause 18 today. It would be much better if we started afresh tomorrow, giving it proper consideration. I am certain that we could make much better progress if we were to do so.

Mr. Wiggin

I have listened with interest to the Chief Secretary's comments on the length of the debate on Clause 15. Yet with his Government majority he could have closed that debate if he thought it irrelevant. If there is any suggestion that debate is repetitive, or that any form of filibuster is being used, that must be a reflection on the Chair.

In earlier exchanges from a sedentary position, the hon. Member for Bebington and Ellesmere Port (Mr. Bates) raised a serious issue. I distinctly heard him and some of his hon. Friends suggest that the Government might use a guillotine on the Bill. If that is the case and we are to conduct the rest of this Committee stage under the threat of a guillotine, the Chief Secretary should say so. We could go to the country tomorrow and make clear the sort of thing the Government are trying to get up to. If they are proposing to introduce the capital transfer tax in all its complexity under the threat of a guillotine, that would be disgraceful, unprecedented and monstrous. [column 433-434]

I hope that the Chief Secretary will see fit wholly to deny what his hon. Friend said and to make it quite clear that we can discuss this matter in the daytime when we are rested and refreshed, properly, so that this complex matter can be gone into as it should be.

Mr. William Ross

For the first time in two days I rise to say a few words, principally because I have spent two very instructive and even more entertaining days than I ever thought I would find in the House of Commons.

I rise especially because of one or two remarks of the hon. Member for Bebington and Ellesmere Port (Mr. Bates), when he referred to certain fellow countrymen of mine, the IRA. This may not lie quite in the scope of this Committee, but he seemed to infer that money mattered more than human life.

Mr. Bates

No, the other way around.

Mr. Ross

I am very sorry that I took the opposite meaning and I withdraw my remarks, if the hon. Member will permit me to do so. Would the Committee remember that we in Ulster are rather tetchy about such matters. Also, as I am the only representative from that sad province here, I trust that hon. Members will give me their indulgence and bear it in mind.

It is rather late but over many years I have often been up all night on various matters not unconnected at times with the IRA and no longer ago, in fact, than last Sunday evening. I am perfectly ready to go on, but I heard mutual acquaintances say that they were quite ready to go to bed.

Question put, That further consideration of the Bill be now adjourned:—

The Committee divided: Ayes 17, Noes 17.

Division No. 9.]

AYES

Cope, Mr. John

Fairgrieve, Mr. Russell

Hall, Sir John

Hordern, Mr. Peter

Howell, Mr. David

Lamont, Mr. Norman

Lawson, Mr. Nigel

MacGregor, Mr. John

Newton, Mr. Tony

Page, Mr. R. Graham

Pardoe, Mr. John

Parkinson, Mr. Cecil

Rees, Mr. Peter

Ross, Mr. William

Ridley, Mr. Nicholas

Thatcher, Mrs. Margaret

Wiggin, Mr. Jerry

NOES

Barnett, Mr. Joel

Bates, Mr. Alf

Boothroyd, Miss Betty

Callaghan, Mr. Jim

Davies, Mr. Denzil

Dunnett, Mr. Jack

Gilbert, Dr. John

Graham, Mr. Ted

Harper, Mr. Joseph

Hayman, Mrs. Helene

Hoyle, Mr. Douglas

Hughes, Mr. Mark

Sedgemore, Mr. Brian

Shaw, Mr. Arnold

Tomlinson, Mr. John

Ward, Mr. Michael

White, Mr. Frank R.

The Chairman

In accordance with custom, I cast my vote with the noes.

Question accordingly negatived.

Mr. Ridley

As we have now decided to soldier on—I for one am very glad—would you indicate to the Committee, Mr. Crawshaw, your intentions in relation to breaks? You will remember that on many Committee sittings that have run through the night it is the Chairman's intention to give the Committee an hour and a quarter for dinner, an hour to breakfast, another hour for lunch. We are concerned about the Chief Secretary. We should like to ensure that he is properly refuelled and victualled to enable him to carry on the debate. If you could tell us when you convenience of the Government Front might be breaking, it would be for the Bench, who could look forward to a respite.

The Chairman

I cannot see any prospects for the immediate future. I shall notify the Committee if an adjournment is required.