Lords criticise HMRC for consultation failings

The lack of government consultation on key areas of new tax legislation has been strongly criticised by peers in a new report.

In its annual report on the Finance Bill, the House of Lords’ select committee on economic affairs says it is ‘at a loss to know why’ tax experts and business organisations were not sought to opine on ‘two significant and contentious compliance measures’: the obligations of senior accounting officers of large companies, and the ‘naming and shaming’ of tax defaulters.

‘Neither of these provisions falls within the areas where it is generally accepted that consultation is impracticable,’ said the committee. 

The lack of consultation on the clauses – numbers 92 and 93 respectively – is regarded by the Lords as a ‘failing on the part of [the Treasury] and HMRC’.

A number of private sector witnesses offered written or oral evidence to the economic affairs committee.

With regards to clause 92, the British Bankers Association said it was ‘dismayed that HM Government has again chosen to make a policy announcement of this nature in the Budget without attempting to consult industry in advance on the ramifications of its initiative’.

Mervyn Woods of the CBI told peers that ‘where possible the normative process should be to consult first and legislate after and not produce material to go to the House that is incomplete and ill considered in some way’.

And the Institute of Directors claimed it was ‘concerned that the Government's commendable commitment to consultation is not always reflected in what happens’.

HMRC’s James Harra attempted to defend the department against criticism by saying that ‘in the case of clause 92… the Government had to take very difficult and urgent decisions on fiscal consolidation, and… this is why this decision was taken at the same time as [those] measures’.

Mr Harra went on to claim that clause 93 was ‘based on definitions that are already in legislation for the past two years, in the penalties regime, which were subject to prolonged consultation over a period of three years’.

His comments failed to convince peers, who state in their report: ‘We do not find persuasive the reasons put forward by officials why it was not possible to consult on these clauses.

‘Our view is that with measures as novel and contentious as these, there should have been consultation on the principles as well as the practicalities of implementation.

‘Even by their own criteria, we see this as a failing on the part of HMT and HMRC, and we recommend that in the future there should be consultation on changes such as these.’

The Lords committee also remarks: ‘We remain of the view that consultation should be the norm and only subject to limited exceptions, such as rates, reliefs and anti-forestalling measures.

‘In fact, in their oral evidence, HMRC specifically agreed with this. We are therefore at a loss to know why there was no consultation on the clauses.’

The committee’s comments appear in the ‘wider concerns’ section of the new report, which mainly concerns itself with three topics in Finance Bill 2009: the taxation of pensions, reforms to the taxation of foreign profits, and Real Estate Investment Trusts.

Further coverage of the document will appear in a future issue of Taxation.

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