Ed Davey’s speech in the Loan Charge debate: We will not stop until this is put right

Before the roof of the Commons chamber started leaking this week (something you couldn’t make up), Ed Davey managed to make his speech in the backbench business debate calling on the Government to stop pursuing people for the Loan Charge, a retrospective income tax enforcement of a  scheme that was legal at the time.

Here’s his speech in full including interventions.

I apologise to the right hon. Member for Haltemprice and Howden (Mr Davis) for being the chair of an all-party group that has produced such a reasonable report. We did it because we wanted to be constructive and to bring this House together. I want to draw attention to two points: first, the fact that this issue has brought the House together, and I will talk a little bit about that because it is in the power of this House to stop the Executive on this matter; and secondly, the nature of the retrospection, which is the issue that has caused me, as well as my constituents with such cases, to be so passionate about this issue.

First, on cross-party unity, I pay tribute to the hon. Member for Aberdeen South (Ross Thomson), a vice-chair, who opened the debate, and the hon. Member for Brentford and Isleworth (Ruth Cadbury) and all the other members of the all-party group, which represents six parties in this House. I thank all Members who spoke on Report of the Finance (No. 3) Bill, when we passed the amendment—quite unusually—because we had cross-party support from every side and political persuasion both between and within parties.

There is a reason why we got that support. It is because our constituents have come to us and we have seen the damage this is doing to their lives—real lives—but also because key principles of democracy are at stake: parliamentary sovereignty, if we can forget the Brexit debate for a minute, with respect to holding the Executive properly to account for the way they tax our constituents, and the rule of law. Those issues have brought this House together, and today we need to continue with that message and make it clear to the Minister and the Government that we are not going away until this is put right.

Stephen Lloyd

When my right hon. Friend opened, he spoke about cross-party support. As he knows, since I started early-day motion 1239, whenever it was—nine or 10 months ago—the cross-party support has been astonishing: 148 MPs from all parties, including many Conservative Members, have now supported it because they really do have concerns about the retrospectiveness and the fairness. Does my right hon. Friend agree that Parliament is really coming together and saying, “There is a real problem and a real challenge here. Treasury, please look at it”?

Ed Davey

I strongly agree with my hon. Friend and I thank him for the work he did in leading that EDM. The cross-party nature and depth of support should make the Minister think today. People have been looking at the way this House operates more closely than they usually do. They need to know that when this House comes together, the Government listen. It is our constitutional job to make the Government listen. When there is that level of support and they do not listen, that is an outrage to this House.

Jim Cunningham

I agree with the right hon. Gentleman: it is about time that the Government listened. Regardless of the issue, retrospective legislation can be a dangerous thing. In some instances it might be justifiable, but by and large and in principle, it is a very dangerous thing. The other point that has emerged from this debate is that those who encouraged people in their employment to get involved in such schemes should be the ones to pay up, not the victim. Does he not agree?

Ed Davey

I agree with the hon. Gentleman. Let me take his point on retrospection into the substance of my speech.

Everybody has paid tribute to the Minister and I join in that, but I urge him to look at the retrospection issue. The all-party group has spoken to tax professionals and has read a lot of material. There is a debate about whether aspects of this are retrospective or not, and about where the retrospection lies. One group has been hit by the loan charge where the retrospective nature has been proven beyond doubt: taxpayers who have had their tax returned to the Treasury with DOTAS added—sometimes even without DOTAS added—and who have come clean on everything they have been doing. HMRC has accepted that and has not opened an inquiry. Their cases have been closed and time has passed. Under section 9 of the Taxes Management Act 1970, we have been giving taxpayers in that situation total protection from HMRC coming back to them. That has been true for decades. Indeed, we have signed international conventions to say that that is the way individuals should be treated. Yet here we are, going back on that. To be clear to the Minister, all the tax professionals we talked to believe that for closed cases, that was a transgression. Indeed, I asked them if they could find any example on the statute book ever of a Government passing a law to override taxpayer protections and they could not.

When the Government responded to that clause with a review, their argument against all the advice was that the charge was not retrospective because it was a charge on the loan as of now—the outstanding loan. That is interesting, because they had never before proven that loanable income. That was the whole point of this whole debacle. Moreover, the loans were taken out in the past. We might not call it retrospective and we might call it retroactive, but frankly it is the same thing for the ordinary person. The reply to the amendment to the Finance (No. 3) Bill was therefore simply not good; it was wrong. This is a breach in the rule of law, particularly for those people with closed tax years. At the very, very least, the Government should not apply the loan charge to those people; that is the recommendation of the all-party group.

We then come to people with open tax years. Sometimes there has been an inquiry years before—15 or 20 years ago. For many taxpayers, it was not really clear what that was. There was a little form. They were not told what their rights were or what they should do in response. They just sat there, and some of them did not even know there was an open inquiry. Those open inquiries have lasted for years, with, as the hon. Member for Scunthorpe (Nic Dakin) said, HMRC doing nothing. Surely that is HMRC incompetence, not mistakes by taxpayers. They are now paying because HMRC could not administer the tax system over that period, and tried and failed to get the law right. I am sorry, but HMRC cannot penalise our constituents with tax bills of tens of thousands of pounds because it could not do its job properly. That is not acceptable.

Rushanara Ali

As the right hon. Gentleman rightly points out, HMRC has been looking at disguised remuneration since the late ’90s and opened hundreds of thousands of cases. Mary Aiston, at the Treasury Committee, said that
“at that time our strategy meant that we weren’t telling taxpayers enough about what we were doing on their case—so they would have had an open inquiry or assessment…We recognise that at the time our strategy meant we weren’t communicating regularly enough to keep them in the picture.”

Does the right hon. Gentleman agree that if that was done people could have dealt with those cases and paid up immediately, and not had tens of thousands—or, in cases in my constituency, hundreds of thousands—of pounds to pay back?

Ed Davey

The hon. Lady is precisely right. That is what I think has offended people. Technically for people with open tax years it is not retrospection, but in practice—and, frankly, morally—it is. One thing that I will pursue after this experience is the use of open tax inquiries by HMRC. It goes against the whole spirit of the 1970 Act and of the way the rule of law should operate. I believe that in all parts of the House we stand to defend the rule of law. When we see an abuse of it we should get angry, we should get passionate and we should pledge to do something about it. I hope we will.

How should the Government respond? I think they should call a halt and delay. That would send a clear message to people who are suffering mentally and socially with their families and their homes. Announcing that today from the Dispatch Box would give them some relief. We have been telling them that their tax bills are not due until 31 January 2020. Nevertheless, according to the guidelines, if they do not talk to HMRC by this Friday they could suffer severe penalties. A delay would therefore help.

A judge-led inquiry is the only way we will bring people back together. Such an inquiry could look at all aspects. However—to speak to the right hon. Member for Haltemprice and Howden—I do not want to leave it there. The policy should change now for people with closed tax years. There should be no debate about that. That is retrospection and an abuse of the rule of law. For those with open tax years, as the all-party group’s report says, a number of measures should be taken to reduce the pain and to ensure that they can get their tax affairs in order. This House is against abuse of the tax system. That is wrong and it should be stopped. But this House is also in favour of parliamentary sovereignty—the Government listening, upholding the rule of law and upholding long-standing taxpayer protections.

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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