The British Parliament remains venerated as an institution, albeit that it may be being undermined by both the Blair Government and the EU; but perhaps many do not appreciate that its fundamental roles are, firstly as a legislature, and secondly, to call Government’s to account via the processes of Parliamentary Questions and Select Committees. Few, also, appreciate the parliamentary legislative process. My own major involvement over the last five years has been with the Financial Services & Markets Bill/Act and with annual Finance Bills/Acts.
Every year the Chancellor of the Exchequer presents his Budget speech. To implement tax changes, these then have to go through the legislative process – the Finance Bill. Some parts of the Budget typically do not need further legislation, where there is already legal provision for Governments to change certain rates of duty; and some measures may be implemented by separate legislation. Spending, moreover, is in the executive control of Government and mostly does not require specific legislation.
In essence, what Finance Bills are about is changing tax law. Unfortunately, they have become ever more complicated and lengthy over the last five years – this year’s Finance Bill ran to 550 pages; and notwithstanding the special Committee chaired by Geoffrey Howe to achieve simpler drafting, increasingly the wording of Finance Bills/Acts is gobbledygook to the layman.
Finance Bills, as with all other Bills, go through a series of parliamentary stages. First Reading is essentially a formality. Second Reading comprises a general debate on the Floor of the House of Commons. The Bill then goes into Committee Stage which lasts, typically, for a Finance Bill, for four or five weeks and with 12-15 hours of debate per week. The first hearings of the Committee Stage of a Finance Bill are held on the Floor of the House of Commons and all MPs can participate. Thereafter, a special Committee is appointed with MP representatives nominated by the Party Whips, in proportion to each of the three Parties’ Westminster representation. The Whips normally appoint MPs who have some knowledge of/interest in tax law. Reflecting its parliamentary majority, the Government of the day ultimately has control of the Finance Bill Committee, but because much of the detail of the legislation which the Finance Bill Committee considers is not particularly Party political, there is opportunity to change and modify the Government’s original draft and address practical problems to which proposed change give rise, in the course of the Committee Stage.
Finance Bills are organised under logical sections, dealing with different taxation territories, but during the Committee Stage, details of the Bill are debated as far as possible by subject territory, rather than strict order of sequence. The Bill is drafted by the parliamentary draftsmen and Treasury lawyers, with outside legal specialists’ help.
It is the job of Opposition to go through the Bill with a fine toothcomb, and to raise and challenge legislative proposals which may be problematic in practise, may have undesired and indeed unintended side effects, may not achieve their objective which may be damaging to particular industries or may simply be misdrafted. It is, therefore, at Committee Stage that the various interest groups affected by the proposed legislation having the opportunity to raise their concerns with members of the Finance Bill Committee, but particularly with the Opposition, who then present the arguments in debate to the Committee. In leading the Opposition to a Finance Bill, the approach I, and most others, have taken is to carve up responsibility by territory amongst the Opposition Frontbench Spokesmen who are on the Committee, and then to procure the assistance of tax lawyers and other specialists in the relevant areas to work with us in understanding and assessing the effects of the legislation, identify the problems and then assisting in the drafting of the amendments which we table, for debate in the Committee. Indeed it is important to note that the role of an effective Opposition with such technical legislation depends greatly on tax lawyers giving freely of their time and advice in appraising and analysing the proposed legislation.
The Committee Stage of a Finance Bill is also where the various finance industry “trade bodies” have the opportunity to raise their concerns and propose amendments addressing these.
As the details of the Bill go through the Committee Stage, sometimes Government will accept Opposition amendments, particularly where the Treasury lawyers and civil servants advise these are justified and technically correct. More typically, however, the amendments will raise the problems and issues to be solved and Governments will prefer to come back with their own amendments to the original draft in order, to resolve the problems.
It is an exhaustive process going through the details of such voluminous and complex, tax legislation. In the main, however, there is practical good will and dialogue between Government and Opposition in Committee, but to be effective, there needs to be a degree of respect by both sides for each other and a professional job to be done by both sides.
When the Committee Stage is completed, the Bill then returns to the Floor of the House of Commons for what is called Report Stage. This provides the opportunity for further amendments to be proposed and debated, addressing issues which have not been resolved in the Committee Stage or resolving additional problems and issues that have presented themselves. Typically, Government will table a large number of amendments at Report Stage to address issues raised by the Opposition, where for various reasons, Treasury civil servants were not happy with the wording of the amendments tabled by the Opposition.
The Final Stage in the House of Commons is the Third Reading, which constitutes a return to general debate about the objectives and shortcomings of the main aspects of the Bill.
With other than Finance Bills, legislation then goes through parallel stages in the House of Lords, where further amendments from both Government and Opposition may be taken, before coming back to the House of Commons for final approval. Since the 1911 Parliament Act, however, the House of Lords lost the power to amend Finance Bills.
The eventual legislation enacted can be significantly different from the original legislative proposals. In the case of the Financial Services & Markets Act (which also included the new constitutional procedure of a joint Committee of both the Commons and Lords to consider the initial legislative proposals), this particular piece of legislation took over a year passing through its parliamentary stages. The original draft was significantly changed by the time the Bill was enacted. Typically, Finance Bills will be changed less, but where the original proposals are flawed, have unfair or unintended side effects on particular interests, or have failed to address issues where there is a consensus that change is needed, the Committee Stage of the legislation affords the opportunity to put these matters right. What, of course, it cannot do is to change the general thrust and principle of the Government of the day’s intentions – for example, to increase taxation in particular areas, to block up particular tax avoidance schemes, or to change the incidence of taxation.
For the Financial Services industry, however, where there is broad Party political consensus that it is in the national interest to have a successful and effective industry, the Committee Stage of a Finance Bill does provide the opportunity both to amend proposals and correct mistakes and unintended and unforeseen problems resulting from legislative proposals, and to effect constructive changes. Moreover, constructive issues raised in one year’s Finance Bill, which the Government of the day may not be willing to accept immediately, as there is insufficient time, are frequently then taken up in the next year’s Finance Bill. The broad thrust of economic, spending and taxation policy is laid down in the Budget Speech, but the details of tax and financial services industry legislation, embodied in Finance Bills, remain, thankfully, open to argument, discussion and industry input, largely through the role of the Opposition of the day, during the prolonged and detailed process of the Bill Committee.