National Assembly for Wales

Thank you. Just a comment in regard to the letter with regard to the finance Ministers' quadrilateral meeting that took place on 12 January. She placed, in the third paragraph around the item on COVID funding, the importance of certainty to spend on effective planning and a number of other points. So, it was really just to ascertain, possibly in a follow-up letter to the Minister, Chair, whether she had any responses back to the points that were made, because we've raised them, but what was the actual response during that meeting would be my question there. Thank you.

Okay. Could we pick that up in some future correspondence and ask those questions? Thank you. If everybody's content, we'll do that. Brilliant. Thank you very much. Okey-dokey. So, we'll note the rest of the papers, if everybody's content. That's good.

So, we move on to item 3. We've got our witnesses with us this morning.

I'm John Cullinane. I'm public policy director of the Chartered Institute of Taxation.

Welcome, John. And, Lakshmi.

I'm Lakshmi Narain. I chair the Welsh technical committee on behalf of the Chartered Institute of Taxation.

Lovely. Welcome, this morning. Thank you, both, for giving of your time. We've got quite a few questions, as you'd imagine, so we're going to crack on with some of those. I'll start. We're trying to understand the rationale of setting tax law through primary legislation, whether changes to the Welsh tax Acts should be made via primary legislation, the case for the finance Bill and process transparency. You mentioned in your evidence that your starting point is that tax law should be set out in primary legislation, with secondary legislation only to be used for administrative matters. Can you explain the rationale behind that? I don't know which one of you would like to go first. Lakshmi, you're on my screen, so do you want to start and then we'll bring John in afterwards?

Well, if we could start with John rather than myself—

Okay, fine. We'll start with John, no problem.

I'm happy to contribute.

That's fine. We'll start with John. Thanks.

Thank you. I guess the main reasons are that primary legislation is, generally speaking, subject to more scrutiny and debate. That would be the first reason. And I suppose the other reason would be that it's possible to end up not just in a binary way accepting or rejecting a proposal, but it's possible to amend it. I mean, even if it was a relatively simple provision like increasing a rate from x to y, it leaves open the possibility of increasing it to some other number. So, a combination of flexibility as to the outcome and scrutiny, I think, are the main reasons.

Okay, thank you. If you've nothing to add, obviously, to either point, then we would move on, but Lakshmi, did you have anything to add?

Yes. Just to reiterate the point that John's made, it seems to me that a key element of ensuring that the legislation is effective is to ensure that you've got appropriate scrutiny, and primary legislation has an in-built process under which as many stakeholders and those affected are able to contribute, whereas other mechanisms tend to be much more focused on the essence in terms of time.

Okay. Thank you very much. So, the second question I've got: in your view, would primary legislation mechanisms, such as a dedicated fast-track or expedited Bill process, be a better way of making urgent changes to Welsh tax Acts than a proposal in this Bill and, if so, what are your reasons for this?

I mean, we're not experts in constitutional procedure, so I wouldn't want to rule anything out. But the alternatives you mention, it seems to me, would mean that primary legislation would go through quicker, and the cost of that would be less scrutiny. So, at the end of the day, you still have the same trade-off. Sometimes governments need to do things quickly, hopefully for good reasons, and that cuts down the scrutiny, and there just is a trade-off there. So, I don't think we would be that fussed about, if you like, being able to say, 'Well, we could still call it primary legislation,' if, actually, the reasons for preferring primary legislation weren't there. If the process is expedited, there is probably going to be less scrutiny. That would be our instinctive reaction to that.

And from a practical point of view, the shorter the time period available the less likely it is that those who may be affected by any significant changes are going to be able to contribute to the process.

Okay. You felt that the volume of legislative change currently required for devolved taxation is insufficient to justify an annual finance Bill process in Wales, but this option should be kept under review. Can you suggest at what point you would conclude that the case for a finance Bill has been made?

I'm not sure it's easy to specify an exact number, but our understanding is at the moment that the Welsh Treasury don't envisage asking for approval for substantive legislative change, even as often as once a year. So, on that basis, I think we're comfortable it's below the level that it will be sensible to say, 'Oh well, there ought to be an annual finance Bill'. I mean, arguably, even if there was going to be as few as one a year, why shouldn't that be scrutinised in the way that a Bill is? Certainly, if you're getting even two or three a year, I think it would then be sensible to allow the time for a proper process of scrutiny. Of course, at Westminster, I think this year's Finance Bill, which is generally viewed as a short one, is over 100 clauses. But, then, to be quite honest, there isn't an awful lot or a satisfactory level of scrutiny of finance Bills at Westminster in recent times. So, I think a much lower number would be a reasonable threshold.

Okay.

I agree entirely with what John said there. I mean, my starting point would be that, if you were absolutely certain that there was going to be at least one change required each year, then that would be an argument in favour of having a finance Bill process in place. But if you're not sure at all, then it seems to me that the key point is how quickly can you respond to changing circumstances. And the process being suggested seems like a reasonable compromise, whereas, of course, introducing an expedited Act process does seem to be a part way step towards saying, 'Well, we think you should have primary legislation, but we're going to actually cut corners,' and I'm not sure that's a satisfactory position to take.

Okay, thank you. And my final question: can you explain why a legislative sunset clause or mandatory pre-authorisation should be considered, and how these could be used to ensure that a proposed legislative process for amending the Welsh tax Acts is appropriate?

Well, I suppose it would be an option to grant these new powers, but only for a limited period, subject to a possible renewal. And then at the time of renewal, you, as the legislators, would have the opportunity to see how things have worked out before you granted that renewal. I think this is something we quite often call for—a sunset clause—with things that are responses to currently perceived needs, just so that you don't get things remaining on the statute book ad infinitum, adding more complexity without the need ever having been reviewed.

I would say, though, that more important than whether there is or isn't a sunset clause is that these things are kept under review. I think it's always good to look back and see whether things worked out as intended, and maybe alter things for the future based on experience, because I think, at the moment, we're all crystal-ball gazing a little bit as to how the powers will be exercised.

So, with sunset clauses, then, are they generally principles of tax law, or is it just specific for this type of Bill? Or is it something that—?

It's something we've argued for in a range of circumstances and, occasionally, the Government—more likely the Westminster Government—have done it, but not very often, I have to say. And there is a big tendency for the quantity of tax legislation just to grow and grow and grow because things are never reviewed after the event.

Okay. Thank you.

I think the only observation I was going to make was that you have had such provisions in European law—so, for example, with the VAT directive—but they were never adhered to. So, you had provisions that said, 'This legislation doesn't apply after a certain date'. But because no-one was able to get round to revisiting it, the provisions were still there on the book and people just worked around them. So, it seems to me that it's much more important to ensure that you do have a process that you're prepared to actually follow through with—either a mandatory review, or as a part of, as we've highlighted here, a specific provision in the legislation that says, 'This terminates at a particular point.'

Okay, thank you very much. That concludes my questions. I'm going to pass over to Rhianon Passmore now, please.

Diolch, Chair. Thank you. That leads me on to the next line of questions, which we've already slightly touched upon. In regard to the comments around the Bill being used to address potentially unknown future events, could you give examples or potential scenarios where the use of these powers could be deemed controversial?

I'm not sure that the stated aims are controversial. I think you could envisage it becoming controversial. So, for example, I think most people would support the idea that the Government could act quickly to combat organised avoidance, and in that situation there's a clear urgency and a need for the Government to act, so maybe an inclination to accept very easily what is proposed. Sometimes, though, it could be the case that the changes that are proposed to combat the avoidance might actually penalise, in some way, innocent taxpayers, and then the fact that there was an expedited process for getting these things through could be an unfair penalty.

It has happened. There's endless anti-avoidance legislation at Westminster all the time. It has not happened every time, but one, I think, quite good practice that's happened is sometimes Ministers have announced, 'As of midnight tonight, such-and-such a thing is going to be prevented, and we're going to backdate the legislation to today, so this abuse will not be possible any more', but then consult about the exact wording of the counteraction. So, there are ways of mitigating that sort of controversy, and I think it's very reasonable that the Government wouldn't consult before acting against avoidance, because it's just giving people engaged in that activity advance notice, as it were. But I think you can still consult after the event as to the exact wording and the exact form your counteraction takes, which is making the best, as it were, and having acted quickly and having, in that type of instance, retrospective legislation.

Thank you. I think it was Lakshmi that mentioned the need, obviously, for a process of review, if not within the wording of the legislation. So, do you feel—you've touched upon this—that secondary legislation—both of you, you can give a brief answer—would be an appropriate mechanism to make such significant changes to tax legislation?

I think, in the circumstances, particularly in the circumstances of a devolved administration with the way the devolved settlement works, it is reasonable, yes.

I agree.

Okay. Thank you. You also noted in your evidence that there is quite wide discretion in relation to the term 'tax avoidance'. Do you think that the scope of this purpose within the four purposes should be narrower, more defined? I'm asking you to be clear with us: how would you define tax avoidance for the purpose of this Bill?

We had a stab at defining it in our own code of ethics, the things we prevent members from promoting. The key phrases were about achieving results contrary to the intention of Parliament, and that would include the devolved Parliaments, or to promote structures that were highly contrived or highly artificial and sought to exploit shortcomings in the legislation. So, that was our stab. I must admit that was for the particular purpose of a disciplinary code for our members.

The definitions of tax avoidance in UK legislation have tended to be very wide; anything that might bring about a lower tax result than something else could potentially be tax avoidance. I think it's very difficult to come up with a definition that exactly separates the wheat from the chaff, that guarantees that it's only really proper abuse that it's targeting and there's no way innocent individuals could be caught in the crossfire. I think you just have to accept that's a risk and try and mitigate it with the way the Government reacts, because any tighter definitions are untried in a statutory context.

I was just going to say that I think it's really important to appreciate that any mechanical definition is almost certainly going to fail. What it seems to me you have to have is a set of principles, and inevitably it's not going to be an easy thing to prepare. What we, the Chartered Institute of Taxation, and other professional bodies have agreed on the professional conduct in relation to taxation is a whole series of standards that says, 'Here are the key approaches that need to be taken', and it seems to me that that's the right way of dealing with avoidance/anti-avoidance.

Can I just briefly follow that up, Lakshmi? Do you think the purposes should be narrower? In your view, could further constraints be built into the Bill, or do you feel that that would be self-defeating, bearing in mind what you both just said?

It seems to me that the starting point would be that the four purposes that are set out in the proposed legislation are highlighting the key areas that it's understood that the Welsh Government might need to respond quickly to. Given that we've highlighted, or those provisions have highlighted, the four key issues, it seems to me that trying to narrow it any further would be counterproductive.

In relation to the purposes surrounding the courts and tribunals, and the change in interpretation by Her Majesty's Revenue and Customs, you suggest that this would be more appropriate to be followed through with primary legislation. Can you briefly articulate why you feel that to be the case?

Personally—and sorry, John, if I can just start with this—I think the key point that we would want is assurance that there is adequate scrutiny of the detailed counteraction that might be envisaged. So, as long as there's a process in which all relevant parties are able to input, then it seems to me that you achieve the objective that you're looking for. John, I don't know if there's any—.

There's a kind of provision like this going through at Westminster at the moment on the Finance Bill in relation to the higher child benefit charge. You know, if one of a couple earns more than £50,000 a year, then there's a special tax charge to claw back the child benefit they've got. There are a lot of things about it that a lot of people don't realise, including, in many cases, that they're obliged to initiate paying this charge, usually, despite the fact that Government pays the child benefit and operates PAYE so it knows how much they earn. The Government doesn't initiate the assessment; they're meant to identify it for themselves and do a tax return. If they don't, what the revenue were trying to do was launch what they call discovery assessments, which is meant to be what you do when you discover people have got a source of income that they haven't been reporting. The cases were overturned by the courts—or so far in the lower courts they've been overturned—on the basis that it's not actually a normal income tax charge, it's just clawing back something the Government is already aware of.

The Government lost that case, and it's reaction has been to introduce retrospective legislation in the current Finance Bill to say, 'Well, these discovery assessments are just fine'. It's quite a controversial area, so I don't want to oversimplify it, but I don't think it would be appropriate for something like that, which is actually taking away somebody's rights to defend themselves in court, to be done by secondary legislation. I think there is a little bit of a totalitarian feel in reacting to something going through the courts and saying, 'Well, we're just going to set that aside' before the court process has even finished. So, although we thought about it, and thought those sorts of things do sometimes bring about unexpected changes, which do threaten Government revenues, we didn't feel on balance it would be appropriate to add something like that.

Okay. Thank you.

Sorry, if I can just revisit for a moment a point I think you were raising, Rhianon, about whether or not one of the purposes should be possible change of interpretation, envisaged, let's say, in relation to a predecessor tax, i.e. from HMRC et cetera. It seems to me that, initially, that would seem to be a reasonable reason for making urgent changes to our legislation here in Wales. But on further reflection, I think we came to the view that, given that there is continual, almost daily engagement between stakeholders and the Welsh Revenue Authority and HMRC, of course, we would all be aware at an early stage of potential problems arising. Given that that is the case, it seems to me that, rather than having changes introduced by secondary legislation, that would give us adequate warning that perhaps changes need to be made and process introduced and put into place using primary legislation. So, it seems to me that we shouldn't go any further than the four purposes, and in particular the one you're referring to—a change as a result of a decision of the courts.

Without over-egging the pudding, because I think you've made your position quite clear, I will ask the question: do you think any of the purposes could be considered too vague? You may feel you've answered that. What improvements could be made to them? And do you think that there's any other additional purpose that could be incorporated within the Bill?

Certainly, from our reflections over the weeks that we've had available for this—and of course discussions have been ongoing for quite a period—we can't see anything further that we would wish to introduce. But then I think it's always helpful to have an opportunity to be able to throw out particular situations and say, 'Well, would this be covered, and would that be covered?' I think, ultimately, it comes back to the importance of engagement with stakeholders, because it's only once you've got draft legislation in place that people can then say, 'But how would it apply in the following situation?' et cetera.

Thank you. 

Thank you very much. We'll move on to Mike.

Diolch, Gadeirydd. I was going to ask further questions on the purposes, but I think we've exhausted them. I want to make two comments, neither of which falls under the Welsh Government. Surely the answer to the problem of claiming money back that has been paid out in child benefit would be to ask everybody earning over £50,000 a year to complete a tax return, and therefore they would have to declare it. Wouldn't that simplify matters? And the second point: why do people need to do anything clever to reduce their tax return when all they've got to do is be paid via dividends, which is very difficult for people in the public sector but very easy in the private sector? If you're paid by dividends, it would reduce the tax demand substantially. 

On the tax returns, the policy of HMRC is generally to minimise the number of people required to do tax returns and to rely on PAYE as much as they possibly can, which is, I suspect, mainly because of the administrative cost to themselves of processing them all, but there is also a concern for the compliance burden of the taxpayer. So, rightly or wrongly, that's been the policy up to now. Obviously, in the United States, everybody has to do a tax return. It's just, I guess, a different attitude.

I think, on the dividends, it is a much broader point than this, but I think you have a very good point there that, if the tax system enables people to be paid in one way rather than another with a lesser burden, then it's not very surprising if people take that up. So, I think looking at the relative burdens of different ways in which people are paid is definitely something that we think should have been approached—you know, a wide-ranging consultation, 'What are we going to do about this?' Because, obviously, it has all sorts of issues associated with it, including that it does threaten the public revenues if there are just standard ways of paying yourself with different tax consequences. I accept your point. 

I think it's quite interesting, although not particularly relevant to this. Just as a general observation, of course, as we're moving towards more of a digital world, and certainly in the context of tax, there are a number of moves in the area of what's referred to as 'making tax digital'; more and more information is actually being automatically provided to HMRC. And, of course, inevitably, at some stage there will be a possibility that people won't be required to supply tax returns or provide returns because all the information will have been accessed directly by HMRC from the original sources. But, ultimately—I can see John smiling at this—of course, as with a lot of systems, the data just really isn't sufficiently robust and accurate to be able to rely on it. 

Okay. Thank you very much for that. Moving on, what are your views on the Bill enabling Welsh Ministers to make changes retrospectively, and do you see any particular risks arising from the use of these powers retrospectively?

Generally speaking, there's a widespread downer, for want of a better word, on retrospective legislation. I think there's a general feeling that the citizen should be able to decide what they're going to do knowing what the law is at any one time and the state shouldn't come along afterwards and say, 'Well, we've changed the ground rules and, by the way, we changed it from three weeks ago', or a year ago, or whenever. The trouble is, when you try to apply this doctrine in a pure form, it does lead to difficulties. One example of retrospection at Westminster a few years ago was—[correction: a few years ago concerned derivatives, a multibillion market]. You know, there was an avoidance scheme and the way the whole—[correction: the whole market thought the tax worked was overturned in court]. In the first round of the courts, the people promoting the avoidance scheme were actually successful, and it kind of overturned the whole way in which the legislation had been interpreted, and the whole way in which a particular market had operated on. And you can easily see that sort of thing happening with something like land transaction tax, where you've got loads and loads of transactions all over the country, and somebody comes up with a surprising result prompted by an avoidance scheme, and it would potentially overturn things in ways that some people might benefit from, some people might lose from, and some people—[correction: from, but] on balance, the public coffers losing out. And I don't think in that type of instance, to say, 'Well, we'll put the law back, where, hand on heart, the whole market had operated on the understanding that it was [correction: that it was legally right]' is that unreasonable. And I think the key to that is what legitimate expectations the taxpayer had. The state shouldn't really change the ground rules against people's legitimate expectations, but, if a whole market had been operating one way and it was only held that another way was right because it was pushing some avoidance scheme, I do think it is reasonable for the state to be able to counteract that retrospectively. It's never an area that makes people feel very comfortable, but I think it is a fact of life that you just can't be too purist about it.  

And the whole area, if I may just add, gets more complicated, of course, because when people implement—. When particular arrangements are implemented, you don't have any certainty unless the appropriate time periods have passed, or the matter has been examined and a view has been formally announced on it. Now, of course, what we have is a system under which, even once a particular arrangement is being looked at and then gets litigated, you'll go through the process of going through tribunals, going through the Court of Appeal, going through to the Supreme Court, and at each stage, of course, the view might change, and has, in various circumstances, changed. Now, in the meanwhile, of course, you've got a lot of people implementing arrangements, and the issue for the tax authority, of course, is what is the legitimate expectation, given that this is actually a moving feast, rather than something that is determined at a very simple initial point of determination.  

I was going to say the point I—. I'll start off by saying, Lakshmi, it's nice to see you again. I was going to start by saying that that's the advantage of council tax, isn't it, in that it's very difficult to avoid? I think that taxes like that have a certain advantage. We're not talking about the general taxation system, which I could go on for hours about, and the Chair wouldn't be very unhappy. [Laughter.] What I was going to say is that the explanatory memorandum noted that Welsh Government would engage informally with key stakeholders on a case-by-case basis before and during the drafting of regulations to amend Welsh tax Acts. Do you think that's appropriate, and, more importantly, do you think that what comes out of that could be published? 

I think it's understandable. I think the ideal for a consultation would be to invite views from whoever, but, in the nature of the sort of circumstances we're talking about here, there's a need for haste and also, possibly, a sensitivity about trusting the people you're talking to not to, I suppose, tip people off to changes that are imminently coming. So, I think it's a reasonable thing to do in the circumstances. I absolutely think that the outcome of that should be published later, because if—. I suppose, to be honest, we have a bit of a conflict of interest here. If we were invited to be part of this process—and let's say, for the sake of argument, others hadn't, for whatever reason—we would think it perfectly reasonable that it should become a matter of public record what we'd input into that so that other people could see it, and at least, if they didn't like the outcome, they could try and make sure things happened better next time. We would think, if we were involved, we absolutely should be accountable for what we input into that process. 

Thank you, Mike, and thank you for those. I'll come over to Peter now. 

Thank you and good morning, both. I've got just three or four questions to put to you around procedures. I just wondered what your views would be on the use of draft and made affirmative procedures to approve regulations that amend the Welsh tax Acts and how effective are these in allowing stakeholders and the Senedd to conduct proper scrutiny? I know scrutiny was something you were quite concerned about at the start. So, over to you on that one.

Well, I guess—. I guess there's the usual kind of trade-off between trying to be purist about this and trying to be realistic. I think the purist view would be that we'd prefer things to be in draft until they were actually properly democratically approved, but we'd have to acknowledge that there might be reasons why that might not be possible. If, for example, the Welsh Government is reacting to a change at Westminster that means that, unless the Welsh Government makes a certain decision about the tax changes the block grant is affected—. It depends a bit how much money you're talking about, but you wouldn't really expect the Welsh Government to lose out on large sums of money just because it couldn't react for 20 days or whatever the period was.

So, there isn't really a complete satisfactory answer to your question. Sometimes the urgency is such that you need the legislation to come in straight away, and then of course it is perfectly reasonable, to balance that, that there's then more time for public opinion to reflect, and bodies to lobby you as the legislators to say, 'Well, there's an unforeseen problem here or whatever', so that the thing comes up for ratification, as it were, after a slightly more extended period than the 20 days you're allowing in the other case. So, I think it's reasonable there should be the alternatives, and a lot goes down to how the Welsh Ministers use the powers and how they justify using them, or using one rather than another, in given circumstances.

Yes. Yes.

I agree entirely with what John says. The concern I had, when looking at these things initially, was to say would 20 days, in the case of the draft affirmative, whether 20 days would provide stakeholders with sufficient time to be able to express their views in order to ensure that the Senedd has got the appropriate supporting evidence for any decision that it wishes to make. In the case of a made affirmative, it does seem to me that 60 days is adequate, and I can't envisage many instances in which those likely to be impacted wouldn't be able to express their views.

Thank you for that. That's really helpful. Welsh Government originally proposed a lock, or the use of a lock, prior to making regulations following a provisional affirmative procedure. This would require, obviously, the Senedd to vote to unlock that procedure. In your view, should this approach be incorporated in the Bill?

I think it would possibly—. It could defeat the object of enabling the Welsh Government to react quickly, because it's an odd thing to come to, isn't it, to say, 'Well, will you please unlock this and then we can—?' People would want to—[correction: and then we can sort it out for you?']. People might reasonably then want to know what the Government's going to do with the power when it's unlocked in the specific case. So, it would tend to increase the amount of time that the Welsh Government had [correction: took] to react to the avoidance scheme or the change at Westminster that impacted the block grant and so on. So, I'm not sure it would be realistic, I suppose.

Yes. Yes, okay.

I don't have any further comment to make in respect of that point.

Yes, sorry for labouring these points, because what you've said does make a lot of sense. I absolutely see that. Your evidence noted it would be helpful to explore in what circumstances Ministers envisage they may consider invoking the made affirmative procedure. Do you feel there has been a lack of detail in the information published relating to the proposed use of that procedure?

It's easy to be critical. I suppose Welsh Ministers know the things that have happened in the past where they might have fancied having these powers as it were, but they don't know, probably, to any specific degree, what's going to happen that they're going to have these powers in the future. So, it is quite difficult to talk about things purely theoretically.

So, I think the key thing is that, from the first time they use them, they should set out very clearly what the bad things are that would happen if they didn't act quickly and why they've chosen the particular route they've chosen and what their fears would have been about taking the other route on that occasion. I think that's the only thing one can reasonably say. 

Yes, I'd agree with John. 

Yes. Fair enough. My last question, but I think I know the answer to this, because I think you've shared it several times throughout this session, is: how important are post-legislative reviews to ensure measures are achieving their objectives, and how could reviews be implemented? I think we've touched on that theme throughout, that way to hold to account if you like, to make sure that things are doing what is said on the side of the tin. But, please, if you have anything further to add, help yourselves. 

I mean—. Sorry, John, if I can just say—. It's only [correction: that] one of the things in my many years of practice in tax that notes [correction: that I have noted is] that there have been so many provisions that have just sat there on the statute book, and everything around it seems to change—business practices, commercial responses to it, interpretation, but there didn't seem to be very much of an appetite to want to actually look at the legislation again and say, 'Does it need to be revised in order to meet the objectives that were originally set for it?' And it just seems to me that having a process under which there is, at the very least, a review, even if we don't have a sunset clause, is absolutely essential to good policy making. 

Yes. That's really helpful, thanks. That 'essential' word I think is really powerful. Thank you. 

Just one thing, I suppose. It's a 'yes' or 'no' answer, I suppose. Is this legislation necessary?

I think it is, yes. I totally understand why the Welsh Government would want this legislation. 

I agree. 

Yes. Excellent. Thank you very much. I think that brings us to the conclusion unless anybody has any further burning questions. But, thank you so much for your time this morning. It's been great to talk to you, and thank you for giving the evidence that you have and being very forthcoming with your opinions, and, hopefully, we'll see you again at some future meeting. But thank you very much. 

Thank you. 

We'll go into a private session now in 10 seconds. 

Hello. I'm Frank Haskew. I'm the head of the tax faculty at the Institute of Chartered Accountants in England and Wales.

Croeso cynnes—a warm welcome. And on my screen then, Glenn.

Hello. Glenn Collins. I am head of technical, policy and strategic engagement at ACCA—the Association of Chartered Certified Accountants.

Lovely. And then Richard.

Bore da. I'm Richard Lloyd-Bithell. I'm senior policy and technical manager at the Chartered Institute of Public Finance and Accountancy.

Thank you very much for giving your time this morning to come here to this virtual session, and it's great to see you here. So, we'll crack on with some questions, and I'll start. We're trying to understand the rationale for setting tax law through primary legislation and whether changes to the Welsh tax Acts should be made via primary legislation. We're also looking at the case for the Finance Bill, and potential scenarios where use of the powers could be controversial. In the first instance, what are your views on the rationale for the Bill and the intention to allow the Welsh Ministers to amend the Welsh tax Acts by regulation? I don't know who would like to start. Richard's on my screen, so we'll pick on Richard. [Laughter.]

Thank you very much, Chair. Obviously, thank you very much for inviting us to give views. In principle, in terms of the policy purpose behind the Bill, and given the changes that are made to stamp duty land tax and a regime around that, we feel it is important that there are tools for Welsh Government to ensure that they can make those changes in response. And looking at the overall purpose and, in principle, the aspects as set out within the Bill, we agree with those in principle. I suppose part of the core of our response was, as you say, in terms of the primary legislation and the secondary legislation issue, so, as you say in the Bill, delegate to the Executive Welsh Government the power to change its tax legislation. And it is, as you say, a common delegation we've seen utilised by Welsh Government, using the powers granted to them by the UK Acts of Parliament enabling Acts—obviously, in recent years, taking action and response to some of the changes through the COVID-19 pandemic, and other external factors, used for the Executive. I suppose one of the principles, which I'm sure my colleagues will come in on and add to as well, probably around the core of this, is that, as a principle, tax changes and change to the tax rate should really be in primary legislation, and particularly where the legislation relates to the exercise of tax powers, except in quite exceptional circumstance. So, I thought I'd open just with some of the high-level parts of that.

Thank you, Richard. Frank, would you like to comment?

Yes. Good morning. I think Richard has set out thoughts that are pretty similar to our own in relation to this. We do have a problem, obviously, in relation to the Welsh taxes and the application of them, and particularly I think in relation to the land transaction tax. Because the fact is we are pretty beholden to a lot of the changes at the UK level in relation to SDLT, and I think that does give us a problem in terms of operation of the tax. So, I think, at a very fundamental level, we do need powers to react quickly to those changes. I mean, obviously, one would like to think that the UK Government is discussing potential changes to these—that the Welsh Government knows about them—before they actually happen. But, obviously, with things like the changes, as we've seen with COVID, and changes to rates, that may not necessarily, I guess, always be the case. So, we're supportive of the overall principle of this in terms of the Welsh Government needs to have powers to react quickly. And it's a developing story, isn't it? I mean, we had the original enabling Acts in 2016, and we need to be flexible and we need to respond to developments since then. So, I think we're all supportive of the underlying principle, but I think we are exposing here a problem with tax generally, and our view has always been that tax should be statutory based and it should be imposed, ideally, by primary legislation. And, of course, here we're looking at, effectively, extensive regulatory powers, which can be applied, but only in certain defined circumstances. So, I think that we're in a position that we would prefer, as a principle, not to adopt that approach, and we would prefer a primary legislation approach. And I think that would take us straight to the fact that we don't have what I might call an annual finance Bill procedure that we have at the UK level, and I think that does then, as we know,  make it quite problematic in trying to do changes, if you like, at fairly short notice. My understanding is that they have similar problems in Scotland as well.

So, we're coming up to six years, if you like, into some of this primary legislation for Wales, and we're starting to see, if you like, some of the potential difficulties and how we address those. So, supportive of the principle, but still not convinced, really, that we shouldn't at least investigate or examine the need for an annual—however short it might be, or an expedited process—finance Bill procedure.

Glenn, did you have anything to add to that?

Yes. I mean, as an organisation, we have a strong preference for primary legislation, purely because of that integrity within the system. And, actually, from that, you achieve things that we think are important to the tax system, and that's simplicity, certainty and stability going through. It is also very important, when we're looking at primary legislation, that that also has an effect, going forward, on the—how can I say it?—transparency through to the external audiences, particularly when we're looking at building faith and building a future tax system that the public engage with and the public are actually involved with. Primary, for us, does serve that purpose, and hence ACCA are big fans of primary legislation.

So, do you think that the Bill highlights the need for a legislative budget process, to enable Welsh tax Acts to be made through primary legislation?

It would be very odd if we didn't say that that was one of the conclusions we would draw from that—that there needs to be some form of regular Bill going through. And that is, really, to build for the future as well, as we see more powers coming across. So, I think it's a good mechanism to actually look at and put in place for future developments, as well, going forward.

I see Frank nodding his head there. Is that the view of the three of you? Frank, you mentioned it in your previous answer, so I think you're probably saying the same sort of thing.

I think we are, and as Glenn highlighted—a very important point there—we may see further devolved taxes over time. So, we need a robust and futureproof system that will work for possibly future devolved taxes, and we do think that is the right way forward

Yes. And Richard, I think, is nodding as well. But I'll give you chance to say so yourself.

I'd absolutely agree with what Glenn and Frank have outlined. I haven't really got anything further to add. I'm supportive of that legislative budget process for those reasons, of course.

Do you feel that secondary legislation would be an appropriate mechanism for making significant tax changes like this? Or is primary—?

I'd say it should be primary. I understand that there are the four defined circumstances within the Bill, although adopting this approach is not one we would advocate. I think the three of us are on the same page on that, but we do appreciate that there has got be a quick reaction and a quick mechanism for some of these changes, but first preference would always be primary for those changes.

So, what are the strengths and weaknesses of this approach, compared to others? Maybe that's to the three of you, if there's anybody who wants to come in on that.

I think the strength, obviously, of this approach is that it, potentially, does allow the Welsh Government to be flexible and make changes at very short notice. So, it has a lot of in-built flexibility in it, which, in terms of—. I think there's obviously a question about whether the four defined circumstances are the appropriate circumstances. Certainly, three of them, I would say, are. I'm not entirely convinced by the international obligations, given the current taxes, but I can see that, in the future, that could possibly change if we have other devolved taxes. So, I think that we are in a position here that we have some defined circumstances that, potentially, are a risk, aren't they, to the Welsh tax base, in terms of avoidance, changes by the UK Government to SDLT, and, potentially, court cases as well, which can strike the fundamental operation of taxes. So, I think those are very reasonable three conditions, and it is entirely reasonable for the Welsh Government to have powers to be able to react quickly to them. What we have here—certainly the strength of it—does give the Welsh Government the ability to act quickly and react very quickly to changes.

Okay, thank you very much. So, given that the powers in the Bill would be used to address unknown future events, can you foresee any potential scenarios where the use of these powers could be considered controversial? If you wanted to just continue there, Frank, and then we'll go to the others, if they can think of anything.

I think tax avoidance is—I'm sure we'll come on to that later as well—potentially an area that could be controversial. I think probably more likely would be court cases where a decision could go, potentially, against the Welsh Revenue Authority but that wasn't necessarily the accepted, if you like, interpretation that taxpayers had. So, acting, if you like, to change it back to the Welsh revenue's interpretation could be controversial. I'm not saying it necessarily would be in all circumstances, but it could be, depending on the fact pattern and the actual decision. So, it's like all these things—they're unknown unknowns, potentially, I think. We don't actually know what could come down the track here, but the fact is that some of the trigger conditions could be quite controversial.

Have either of the other two got any thoughts on that? Richard, maybe.

No, I think I agree with what Frank's commented on. Like we say, it's very difficult to foresee where things could be considered controversial. That's quite, I suppose, a subjective angle on it, but I haven't really got anything else to add to what Frank said.

Glenn, can you think of any aspects?

I think there is then, by a nature of having a regulatory approach, a degree of uncertainty that exists there, and while I can see, like Frank can, court cases or other areas, I think it's in terms of that transparency through to taxpayers, who may say, 'Actually, those powers exist, and something that a future Government doesn't like they can overturn or even overturn retrospectively.' I think that that is one of those areas where it needs to be looked at very strongly, because otherwise that undermines some faith in the tax system, and, actually, that importance of getting—you know, that the public know that there is a good and transparent tax system that exists within Wales. And I think, for me, that overarching element of something sitting there—. Either it sits there and is used, or, actually, you have to question then is it more appropriate to take something through a primary route, or—. We'll probably come on to that, what retrospective legislation, actually, sits within, but actually through that primary route, rather than have some potential powers that may or may not be used.

So, would a sunset clause be a better way, or a lock to unlock it in the first place?

It won't come as any surprise to you at all that, along with primary legislation, we are also big fans of sunset clauses. Actually, sunset clauses improve that transparency through to taxpayers, such that you also look and you say, 'Is something working in the way it should actually work?', you have a chance to undertake impact assessments and justify whether something is needed or needs to be extended. So, a very big fan of those sunset clauses in actually improving—. The underlying theme we've talked about, of improving that taxpayer outreach and the transparency within the system, I think comes with those sunset clauses. So, big fans of those.

And what about the locking out that we were talking about—the locking mechanism that they were talking about, I think, when they were starting out with this journey, but that hasn't made its way into the later stages? Is that something that is beneficial or not?

I don't—. I haven't looked at that particular area. I don't—. I haven't looked in depth at it, so I wouldn't comment on that. All I can say is, on the sunset clauses, a big fan of those.

You're a big fan, yes. Frank, would you echo the sunset clause and maybe do you have a comment on the locking/unlocking mechanism that was proposed but didn't get carried through?

Yes. Thank you. I certainly would concur with Glenn in terms of sunset clauses. Obviously, the UK tax legislation has tended not to use them. We have, in the past, said that they are potentially a good idea, and I think it also goes back to one of our tenets, which is that the tax system does require regular review, and sunset clauses fit in with that. But the fact is the UK tax system certainly is now so complicated that I think that in itself would be a difficult, if you like, bar to apply.

In terms of the lock, I think, potentially—. We're looking here at wide powers of, if you like, the administration to make changes to the democratically passed primary legislation, and that is a high bar that needs to be met to apply this, and I think it is important that there are sufficient safeguards, for all the reasons that Glenn has mentioned, so I think that some sort of lock mechanism, if you like, would be at least—. It is very important that we have sufficient democratic scrutiny of this and that the Welsh Government, effectively, has the power to review and to, if necessary, amend, if you like, what the administration is proposing.

Okay, thank you very much. I don't know if Richard has got anything to add, otherwise I'll move on to Mike. But if you've got some comments—. 

Only to support Frank's particular point about ensuring that there's proper and effective scrutiny, and, if the lock could provide that, it would have been an essential safeguard to those areas. But, other than that, nothing to add apart from support for what Frank and Glenn have said. 

Okay, thank you very much. I'll go over to Mike. Thank you. 

Diolch, Gadeirydd. Really, can you think of, or do you know of, any occasion in the devolved context in recent years where the availability of the powers proposed in the Bill would have been useful to Welsh Ministers?

I don't know who wants to go first, or if anybody can think of one. 

So, I think, in terms of the powers that we have currently, or are being proposed here—. Examples, I think, would obviously be—. Well, we've got, obviously, the changes in stamp duty land tax rates that were made by the UK Government in relation to, particularly, the COVID pandemic, but of course the Welsh Acts already allow for rates to be changed as it is, so I'm not necessarily sure that that would be—. On the face of it, you'd think it would be a trigger condition for this, but I think—. The UK Government is forever making potential changes, for instance to SDLT. At the moment, there's a consultation out on multiple dwellings and mixed use, which is due in later this month. So, I think the fact is that they're always making changes to SDLT, and it's possible that the Welsh Government might want to respond to any changes that, for instance, came out of that consultation. Again, I'm sure we'll come on to this, but we are seeing significant attempts, I think, in relation to the abuse, quite often, of some of these reliefs. So, I think those are certainly obvious examples of where the Welsh Government might want to use these powers. 

Either of the others?

I would concur with Frank on that. I think it is more looking into the future, which is why I think this is particularly good and useful for the committee to look at, with the changing landscape, as Frank has just explained. So, I do feel that the responses, or the—. Looking at and considering this also enables both a look at the legislative changes that may come through both from the UK and, actually, internationally, and that is important when Wales is looking at its own international outreach as well. I can't think of instances in the past, but you could definitely foresee perhaps some of those future events, where you have an international trade agreement or where you have changes to the UK tax system, where it would be good to be able to differentiate and actually encourage both inward investment, but actually also protect the tax revenues going forward for Wales. 

Thank you. Some people have said that the purposes are too vague. Do you think they're too vague, and what improvements should be made, or would or could be made, to them?

I think Frank has talked a little bit about this already, so shall we come to you first, Frank?

Thank you. I think it's—. Yes, it's a good point, isn't it, and I can well understand that. As we've said, we've got four trigger conditions here, and, on the face of it, they are quite—. Well, they are quite short, aren't they? For instance, on protecting tax avoidance, I saw, obviously, the evidence that the Chartered Institute of Taxation had submitted, and, on the one hand, you probably want it very wide, if you like, as wide as possible, on tax avoidance, but, on the other hand, as we know, defining it can be quite difficult. So, although we haven't put it in our evidence, you could consider, for instance, in relation to that one that you might want to tie it back to the general anti-avoidance rule that's been written back into the 2016 Act so that, effectively, the trigger was arrangements that effectively would fall foul of the general anti-abuse rule. So, that would be one example where you've got some very wide powers here and you might narrow it down to make it more specific, and also tie it back to the primary legislation. So, that potentially would be a worthwhile change. 

Either of the others. Richard, or—.

I agree with Frank. I would probably say, just picking up particularly on the tax avoidance point, you do want a broad power and, given the range of the issue and, particularly on the aspects you might want to target, or whether it's the enablers of tax avoidance, as we look at aspects of that, I think it's important for it to be quite broad, but also it could be improved with some definitions of specific aspects of tax avoidance that might want to be addressed through these mechanisms and changes. But, other than that, nothing further to add. 

Okay. I don't know if Glenn has got anything to add.

Yes, I agree. Again, I would agree with the tax avoidance. I would also add in—. I thought that clause 1(1)(d) was very broad, and that's

'responding to a decision of a court or tribunal that affects, or may affect, the operation of any of the Welsh Tax Acts or regulations made under any of those Acts.'

I thought that's a—. That is quite a broad statement, and, when you consider the implications of that, you can see how that could carry on both in Wales, across the UK—even internationally, you could start to make some of those connections though. So, I thought that that is an exceptionally broad clause, where it is almost a catch-all for anything that happens within this particular area. 

A more specific question to the Association of Chartered Certified Accountants: in your written evidence, you say things like 

'the retrospective legislative approach is the solution of last resort'.

Can you explain why you think this, and should the ability to legislate retrospectively be further limited in the Bill, or is it about right?

I think it won't come as any surprise to you, with perhaps some of the earlier comments, that we are fans of primary legislation and we think that that supports certainty in our tax system, both for Government and taxpayers. We feel retrospective legislation diminishes this, and actually there's an importance to having and utilising appropriate anti-avoidance and abuse measures and making sure that they are appropriate. And that actually goes across to the collectors of tax as well as being HMRC. We can see that there is perhaps some necessity to target abusers of those systems, and some of that actually does exist at the moment. So, we do think that that actually works. 

On the retrospective front, I think for us it's important to draw out two elements of that, and that is that there are two different types, for us, of retrospective legislation. There is one that is quite commonly used, and that is that an announcement is made and a Bill is put forward but the announcement is made that this change will take effect from this particular date—so, the date of the announcement and going forward—which we can actually understand and follow, but that is a—. That's a form of retrospective legislation, but actually you're giving people that adequate notice and you're providing certainty within the tax system. The other one, where we're perhaps less convinced, is where retrospective legislation goes back into the past and actually looks at a previous action or a previous measure. And that we're probably less keen on. Some of that really does come back to one of those fundamental principles, and that is the integrity of the tax system and the importance of that transparency to all, because we're creating something, we're putting something in place that will be used in the future. And for us, actually, we know, sitting around this table, the intended use of some of the, perhaps, retrospective measures or a regulation approach, but to safeguard the future we would also want that applying in the future.

So, for us, it comes back to the primary legislation and actually being upfront and clear on that, because that creates that mechanism going forward in the future, when others who are not as close as everyone around this table to what's being discussed will actually be looking at that future implementation. So, we're very much a fan of that futureproofing as well, hence the comments around retrospective legislation.

Thank you. On a similar point, to the Institute of Chartered Accountants in England and Wales, the question is: section 2 of the Bill enables the Welsh Ministers to make regulations to impose or extend a liability to a penalty. Can you elaborate on why you believe penalty provisions should only be imposed by primary legislation, and what safeguards could be implemented to protect taxpayers if this regulation-making power is enacted?

Yes. So, I think the penalty provisions are quite problematic in terms of—. If you look at this as a hierarchy, the ability to make retrospective changes, I think on the one hand you've got the ability to make relieving provisions—so, a decision effectively helping taxpayers—and then you've got potentially imposing, if you like, a tax liability that may not have existed, but I think penalties are a much higher bar than that. The 2016 Act has—. A significant proportion of the Bill is taken up with the application of penalties, so we already have a huge amount of legislation setting out the circumstances in which penalties will apply. So, I think penalties are a very high bar in terms of a tax system. You need to have proper justification for it and you need to be able to always justify why a penalty would be imposed. And I think that's even more important in terms of the ability to effectively apply one by way of regulation.

So, I think our guiding principle here is that penalties have a major impact on taxpayers and are not something that should be imposed by way of regulatory powers. This really is something that needs to be in primary legislation. And it's also important that taxpayers have proper rights of appeal. So, there should always be a proper right of appeal against any penalty. Potentially, if we can impose a regulation by penalty, well, where's the right of appeal? It just seems wrong in principle that that should be in there, really. I don't know whether Glenn and Richard might like to say a few words on it.

I would agree, Frank, that definitely that penalty area is—. It's very important to have that right of appeal for taxpayers and that comes back, I think, to one of those principles—the point you were drawing up—of tax legislation. You also have to have safeguards built in there for taxpayers and that right of appeal, so we would say that that is a very important mechanism for the ongoing faith that people have within the tax system, and that's how you get good, transparent, workable tax systems that are modern, and not perhaps as complex as we see in other areas that Frank may have already mentioned.

Thank you. I'll come on to Peter, then. Thank you, Peter. 

Good—. Oh, it is still morning. Good morning. Following on from—. You've already touched on several points, so forgive me if we push into these a little deeper, but, as you're aware, because we've already discussed retrospective effects, the Welsh Government published a statement of its policy about retrospective effect. I just wondered: do you feel their statement is sufficiently clear as to when and how Welsh Ministers would use that power, and do you have any concerns about that approach? And do you think that the Senedd should have a statutory role in approving the statement and any future changes made? I think I know what your answers are going to be. [Laughter.]

Who would like to go first? Frank?

Yes, I'm happy to do that. May I say firstly that I think the statement is very welcome? Certainly, in terms of what it's trying to do, I think it's a step in the right direction. As we said in our evidence, I think the Welsh Government approach here is sort of following what are known as the 'Rees Rules', which were first established in the UK Parliament in 1978 and which were trying to set out clear terms under which legislation could be—. Whether you call it 'retrospective' or 'retroactive', it probably doesn't necessarily matter here too much. But, I think there is though a fundamental point, which is that we do not think that retrospective legislation should go back beyond the date on which, at least, effectively, a clear warning is given as to what you were either trying to stop or change. I think the fact is that the statement would allow it to go back beyond that period and we would advocate that it should have a clear statement that that will not happen. So, I think it's good as far as it goes, but, in our view, it doesn't go far enough.

I'll bring Richard in and then Glenn, if there is anything to add.

No, I'd definitely agree, especially with Frank's last observation there. It needs to be absolutely clear, the statement, that it doesn't go further beyond that for the retrospective application, both practically and, as you say, about the integrity of the tax system. On the aspects that Glenn and Frank have already pulled out, I think it's very important just to emphasise that that is clear in the statement. 

I know we've heard a bit from Glenn about this previously; I don't know if you had anything else to add.

In terms of one part of your question, I think, most definitely, Senedd approval, and I think, as Frank has said, the retrospective element is something that needs clarification. All I can do and all I can also say is that I appreciate the difficulty there is in pulling a statement like this together, but it does leave you with a number of questions around there. There are terms in there around case-by-case basis, depending on particular circumstances, and then the examples of situations where it might be used now. I appreciate the fact that a statement, to be workable, needs to be this length, but it does then create: where would you go to find out actually what some of those areas also mean? Because I think people would interpret that in a number of different ways. But I do think, if we're looking at one additional, one change, the retrospective area would be one on which we'd definitely concur and agree with the comments made by both Frank and Richard.

Thanks for that. I thought your input earlier, Glenn, was really helpful about those two sorts of dynamics of retrospectiveness. That was helpful.

I'm conscious of your views on primary legislation, and your preference for that alongside this, but I just want to probe a little bit about what your views are on the use of draft and made affirmative procedures to approve regulations that would amend the Welsh tax Acts, and how effective these are in enabling stakeholders and the Senedd to conduct proper scrutiny.

If we go to Glenn first on this.

I think you'd be surprised if I didn't come back with the view that we would prefer, wherever possible, for areas to go through primary. We do see that as a necessity, a requirement for a finance Bill and actually a good alignment across with other jurisdictions as well. If we look at perhaps the announcements that can come through from the UK Finance Bill, we think, actually, some good alignment around that would be welcome. We can definitely see that pressure needs to be put on the UK tax authorities around some better alignment, better transparency on some of those announcements, so all parts of the UK can react with finance Bills that are aligned. So, it's not going to come as any surprise to you about that primary element.

Either of the other two witnesses with a view, a contrary view? I don't think you have—not from the smiles on your faces, anyway. But do either of you have anything to add to that?

I would entirely endorse what Glenn said. I think, ultimately, tax-raising powers are the preserve of the Welsh Government and the Senedd. So, I think that you are potentially giving wide-ranging powers to the Executive to change tax, change the tax system, the Welsh tax system. And I think you need to consider very carefully whether those are the sorts of powers you want to effectively delegate, and, if so, on what terms. But I think, as Glenn has said—well, we've all said—ultimately, you need to retain the responsibility to be able to review and to amend and to approve tax-raising powers.

I'd agree with Glenn and Frank. I think, in principle, that the scrutiny needs to be kept with, and the tax-raising powers need to be kept with, the legislature. Unfortunately, I can't come in with a contrary view, I'm afraid.

Thanks for that. I've got one last question, and it's for you, Frank, really. You referred in your evidence to section 4 of the Bill and the proposal for Welsh Ministers, by reason of urgency, to make regulations without a draft of the instrument being laid and approved by the Senedd. In your view, should the use of the made affirmative procedure be restricted by other criteria other than simply whenever the Welsh Ministers decide there is a need to act quickly?

I think the thing is, as we've already said along here, the trigger conditions are fairly broad—okay, they're covering discrete aspects, but they are quite broad. And the power here, as you say—I'm just looking at it—is 'by reason', 'opinion', 'by reason of urgency', 'necessary'. What is the scrutiny and oversight that makes the Welsh Ministers, effectively, come to that view? It's a very wide-ranging sort of power, so I think that our view is that there does need to be, effectively, as I say, oversight of that sort of decision. It should be in exceptional circumstances where we're getting into that territory. And personally, 'urgency', you might say you could use that to help taxpayers—so, some sort of relieving provision if something occurred that, potentially, might impose tax liabilities that wouldn't exist otherwise—but I think to use those sorts of powers to impose taxes, as we've seen, or, potentially, penalties, it needs a properly justified case, and it should be used exceptionally sparingly—so, really exceptional circumstances. Maybe there should, at least, be some sort of clear statement as to what those circumstances might be, to at least provide some guidance on where it is going to be used. Also, going back to Glenn's point on sunset clauses, should we, at least, either have it for only a certain period of time or a review of it after a certain period of time, or even as part of an annual cycle of how it's being used, if at all? So, I think there needs to be, as I say, a proper review and oversight, and review of whether it has been used, and the circumstances as to how it was used, and whether ultimately it's still appropriate to have it there, I think. 

Thanks for that. We get what you're saying; we heard that loud and clear.  

I think Rhianon has a comment on this, and then we'll go into Rhianon's questions as well. I'll pass over to Rhianon. 

Thank you, Chair. It's just really to explore this perspective around the Welsh proposed penalty. I take your points that you've made that you've got this objection with regard to this facility for Wales ministerially, if it's not within primary legislation. I just wanted to understand a bit more about the reasoning behind that. I know you wanted the clarity, and we've heard you constantly and correctly talk about the review process and the scrutiny process, but if there were that taxpayer right of appeal within this, would there still be an objection to this? Because this is the marketplace that we are in now, and penalties do play a part in that framework. I'm just curious to dig a bit deeper. 

I go back to what I said at the beginning, I think, that you have to have a high bar for penalties in the tax system. I suppose that's our opening position. But I think I would say that you need a compelling case, certainly. Looking at the provisions here in the Bill, it's not at all clear. Regulations may impose or extend a liability to a penalty—that's all it says. What does that mean? How would it apply? And how would that interact with the fact that we've already got—. I haven't got the 2016 Act in front of me, but I think it's got 60 or 70 clauses or provisions in relation to penalties and the application of penalties. So, what is this here going to do that's different to what we've already got in our primary legislation? It's not at all clear.  

We need further clarity then. 

Yes. We've had extensive debate on those penalty clauses. There's transparency, there's certainty with them. This, on the face of it, doesn't give us any of that. 

Okay. Thank you. I'll move on, then. The evidence submitted during the inquiry noted that there is a wide discretion in the Bill in relation to the meaning of 'tax avoidance'. We've had some comment on this previously. Do you agree with that? If so, how would you define 'tax avoidance' for the purposes of this Bill? Would you be prepared, today, right now, to define 'tax avoidance' for us? I'll re-ask that question.

We have boiled the ocean, I think it's fair to say, sometimes, on the definition of 'tax avoidance', and I'm not sure it's necessarily that helpful. There is an elephant test to this; you tend to know it when you see it. Some of the examples that we've seen, for instance, in relation to SDLT recently in multiple dwellings relief, I think, are the classic cases that are clearly tax avoidance. I think from a Welsh Government perspective of wanting to protect the tax base, it's not unreasonable to have as wide a definition of 'tax avoidance' as you can. So, you might say, looking at these provisions here in the Bill, that it's sufficiently wide to effectively catch what most people would say was tax avoidance. I think you might want to just stick with what you've got here on the basis that it is pretty wide. I think the trouble is that the more you try and define what it is, the more people are going to try and take advantage of it. The clearer that line, the easier it will be—. People will be effectively trying to plan around it. I know that goes against the principle of certainty for taxpayers. But this is an area where—

I do think there's a slight anomaly, though, with regard to your last comment about penalties, but you've already addressed that. Thank you, Frank. Do you want to continue before I go on to my next question? I interrupted you, sorry.

I think that tax avoidance is a particularly difficult area. I don't think there'll be much value in defining it necessarily too much further, but if you were interested, if you like, in that approach, then as I said earlier on, tying it back to the provisions that are already in the primary legislation, in relation to the application of the general anti-avoidance rule, might make sense and would at least be a coherent approach to it that ties it back to the primary legislation. That, as I say, would be one possibility. But I don't think you would want to tie yourself down too much by trying to define 'tax avoidance'.

Thank you, Frank. I don't know if there's any contrary view. I don't think so. Your evidence noted that the Welsh Government should consider whether it has the necessary powers to tackle egregious tax avoidance schemes. Do you have any practical suggestions as to how this can be achieved? You are the experts.

Again, it's a very difficult area. The fact is that, at the UK level, HMRC, I think, has been struggling to actually—. There seems to be a hard core of promoters of tax avoidance schemes in particular who are pretty impervious to any sort of legislative hammer you try and hit them with. I alluded to it earlier, but, for instance, at the moment, we're seeing in SDLT what I might loosely call 'ambulance chasing' of people who've just bought houses that potentially might have been—. An example is that I know somebody who's bought a house that has a room above the garage, and they have been bombarded with letters from people saying, 'You should be able to claim multiple dwellings relief and we'll do an SDLT reclaim for you'. So, this is going on, certainly at the UK level. I don't think I've got any intelligence about how it's applying in terms of the Welsh land transaction tax. But the fact is that there's a lot of almost like a tax on the integrity of the tax system going on, and I think it is hugely important that you've got the right tools to be able to address them. As I say, I don't know whether the Welsh Revenue Authority has got much intelligence on this and the extent of the problem—whether it's the same in Wales as what they're experiencing at the UK level.

At UK level, there are obviously the promoters of tax avoidance schemes rules, which have been in since 2014, but they are quite bureaucratic as well, and I'm still not sure really when they've actually been applied by HMRC. And I think we're seeing similar things with things like the dishonest tax agent rules as well, which have been on the statute book for a similar amount of time. But, again, I'm not sure whether many cases have actually been taken. So, I think there are precedents out there at the UK level in terms of trying to tackle promoters, but it just seems that these particular people seem almost impervious to anything you throw at them.

I don't know if Richard and Glenn have any brief comments on that particular point.

I'll just add in that at CIPFA we're a supporter of the all-party parliamentary group on anti-corruption and responsible tax. There have been a number of round-tables that have been, and briefing papers that have been published, on this particular topic in relation to enablers and, specifically, aggressive enablers of tax avoidance, and how to address these issues. I won't go into any detail on those, but I just wanted to make reference to those elements. If there are any outside conversations that we can do to—

I was going to say, Richard, it may be of use—I don’t know what others think—if you could send us any of those suggestions, rather than talk too much to that now.

Yes, I'll send those over to the committee clerk.

Thank you. Glenn, have you got a comment, or should I go on to my last question?

My comment would be that a good disclosure of what the Government finds is unacceptable is really beneficial, because actually that is not only beneficial to many of the households and businesses in Wales and those that undertake business in Wales, but actually also across to our agents who operate, because quite often they are also a front line in the fight against tax avoidance. They like and they want things that they can point to and go, 'Actually, look, this is wrong' should a client or should an individual actually come to them. So, very much utilise all of that front line and actually be transparent in displaying some of those schemes. I know that can be onerous at times, but actually, the more transparency that you come across there, the better. As I'm sure we would all agree, we all actually go out and we disclose things like the spotlights from HMRC and actually some of those anti-avoidance schemes that are out there. That is really an important battle call that we would all look to engage with you further on, and actually help support that integrity of the tax system.

So, you want clearer definition rather than more ambiguity.

Absolutely.

Thank you, Glenn. What would you consider to be the best approach—I don't know if Glenn wants to take this first—to reviewing the operation and effect of this effectively groundbreaking legislation, if passed by the Senedd? What would optimise its effectivity?

Sorry, in terms of—?

Of the whole legislative proposals that are in front of us. What would be the approach to reviewing the operation and effect of this legislation? I mean, we've had a number of suggestions earlier in terms of a working review, an annual process. I don't know if there's anything you want to add to that.

We would come back to, obviously, the comments we've made around primary legislation and actually, also, sunset clauses as being highly important, and assessing the effectiveness of that legislation going through—that those mechanisms actually brought in just improve and strengthen the tax system, and actually also, as was highlighted much earlier, stop it becoming overly complex and added to, rather than actually taking away unnecessary measures.

Thank you. And is there any disagreement from Richard or Frank? No. There you go, Chair.

Thank you very much, Rhianon. Just a question I asked the previous witnesses—probably a 'yes' or 'no' answer. Is this legislation necessary?

I would say, certainly in terms of the ability to react to changes at the UK level, and possibly tax avoidance, particularly given some of the changes that we're seeing, or some of the particular difficulties in the UK SDLT, for those triggers, it's important that the Welsh Government has the necessary powers to make changes, if need be, at fairly short notice. So, a guarded 'yes', I guess, but whether this is the best way of doing it, I think, is a very different question.

Okay. Fair enough. Either of the other two, would you—?

I'd agree with that; in principle, yes. I'm still not quite convinced about the approach. There are existing provisions in certain areas that we've outlined, so I won't go into detail, but it's in the written evidence, but, on balance, probably, 'yes', but maybe a review on the approach.

Are you going to break ranks, Glenn, or not? [Laughter.]

I'm going to go—. I'm just about weighing in on 'yes', but I commend you with your question on 'yes' or 'no', otherwise you would have got several 'in part' or 'maybe' on that. But on balance, just about 'yes'.

Okay, thank you ever so much for your candour there and thank you for your evidence this morning, and we'll pop into a short technical break now.

I'll go next. Bore da. My name is Sam Cairns and I'm the chief operating officer at the WRA.

Lovely. And Dave.

Bore da. Good morning. I'm Dave Matthews. I'm the head of tax strategy and policy at the WRA.

So, I want to understand the WRA's relationship with the Welsh Government and how tax policy changes are communicated and whether the WRA can respond to significant tax changes immediately. Can you describe your relationship with the Welsh Government and the structures in place to enable you to engage on tax policy? I don't know which one of you would be best to take that, so I'll leave it up to you.

Do you want me to start, perhaps, and then there may be aspects of this that Dave in particular can pick up on? So, I suppose, to start with, the WRA, as a non-ministerial department of the Welsh Government, has a very close working relationship with other parts of Welsh Government, as you might expect. Obviously, we do that respecting the fact that we need to be able to take operational decisions about individuals independently and also with respect to the data that we hold on taxpayers. So, those two things are sacrosanct, obviously, but our working relationship with the Welsh Treasury is very close, as you'd expect. We, in fact, over the last 12 months, have just been working on how we can make even more improvements to that and how we work together. So, we have what I would describe as a partnership working arrangement. We meet regularly, we work on a whole range of things together and it's a very fluid and open relationship and it happens at all levels. So, I'm in regular contact with people in the Welsh Treasury, as are Sam and Dave and others across the organisation and, indeed, in Welsh Government in general.

On the specifics of how that works with changes—or considered changes, even—to tax policy, then that's something that we work on hand in glove. I'll perhaps pass on to Dave to talk a little bit about how that works in terms of the policy relationship. But I would, I suppose, say that, really, the most important thing is that, from our perspective, we are engaged in conversations with the Welsh Treasury around tax policy at a very early stage in their thinking, because it seems to me that that's the crux of the matter, really, and that is definitely the way it works between us. Anyway, maybe Dave has something else that he can perhaps add to that.

Dave.

Thank you, Dyfed. I've been fortunate enough to be leading the policy team since the beginning, since actually before the WRA even went live. It seems a while ago in some ways but a twinkling of an eye in another. And actually, one of the things we've been very keen to do right from the off is really establish a co-design approach to tax policy, so really understanding what it means for the impact of tax policy and tax policy changes. That could be on the way that it works in practice for ourselves, for customers, and to try to bake that in, really, to the tax policy development right from the off. So, it's a cultural thing as much as it is in terms of structures, and we've spent a lot of time with our colleagues in Welsh Treasury in particular in developing that relationship. And so, as Dyfed says, now we're at the point where as soon as there's any inkling of a tax policy change that might be necessary, or legislative change even, potentially, we're in regular discussions about that. And, of course, it's a two-way discussion as well. There might be instances where we can foresee that there might be some areas of tax policy that in the longer term we might have to think about changing, likewise some may come from the Welsh Treasury side and, obviously, from Ministers too. So, it's a very balanced relationship, I'd say, now, and I think that puts us in a good position, as and where decisions are taken, to make a change. You know, they're understood in the round and we're able to implement them effectively. 

Okay, thank you very much. Obviously, in July 2020, the Welsh Government announced immediate changes to the land transaction tax rates and thresholds in response to the UK Government's changes to stamp duty land tax during the COVID-19 pandemic. What actions did you need to take to adapt your operations in order to implement those changes?

That's a good example. I'll pass on to Sam on that one, I think.

Yes, thanks. I'll pick that up. So, to ensure that the changes were implemented effectively, we brought together our various professions at pace. The things that we needed to focus on were ensuring that our tax management system and the LTT calculator that our customers used to calculate their tax were updated. We also updated our guidance, which sets out the different rates and how they can be applied to different types of transactions. We also developed a communication campaign that enabled us to share the updates with our various users and to raise awareness through the various communication channels that we have in place. So, we have a list of registered users, so we're able to e-mail those directly; we also have notification boards built into our tax system; and we are also able to use social media channels as well as using our internet pages. And then, finally, we made sure that our bilingual help desk was briefed and aware and understood the changes so that it could provide additional support to those taxpayers who needed additional help and wanted to contact us to discuss how the new changes to the rules would apply.

A few points on that, I think, in terms of how those changes went. It's fair to say that the investment decision in how the WRA was set up really did help in that first set of changes. So, the design of our tax management system, which is a bespoke tax management system, incorporated the functionality for such changes to be made in the future, so it was effectively futureproofed. And we'd run some kind of contingency planning in the past to see how we would actually manage such changes. So, we were well prepared as an organisation to do this quickly. I think it also helped that, over the last few years, we've been building up our internal digital capability, so it meant that we were able to minimise the cost of actually implementing these changes. I think the cost, in terms of external cost, was just over £1,000, which was to change a few things in the back end, which I think we were particularly pleased with in terms of both the pace but also the cost of these changes, and ultimately, how they landed with our customers.

So, end to end, how long did it take—from you being aware of it to actually going live?

I think the changes we were able to get done within a day or so in terms of testing, and I think the comms took about two days, and I think there were some lessons learnt from that, which we were able to then implement in terms of the changes that were made in December, introducing the higher rates changes, and then the subsequent changes to the rates when they reverted back I think in the following July, I believe.

And what sort of engagement did you have with the Welsh Government around the lead-in time into it? Did you only have that date to make it happen, or were you having conversations slightly before that? Did the changes catch—

I'll bring Dave in on that one, because I think he was very much leading the wider engagement.

Yes, thank you, Sam. I think that goes back to the point I was making before about looking at prospective changes and early discussions and early engagement. Obviously, it wasn't an overnight surprise to us all that there was likely to be a change in this kind of space around that time. Obviously, there had been UK changes and announcements at that point; there'd been discussions with our Welsh Treasury colleagues here about what the implications could be for Wales, and it got us already thinking about if we needed to do something in this kind of space, any kind of changes, what could we do and what would the time frames be. Indeed, actually, the announcement itself was made on 14 July and the changes were implemented on the twenty-seventh, so we kind of had certainly sufficient preparation time to make sure that the system services and the communications were in place ready for that.

Okay, thank you very much. I've got Peter coming in next, but I don't know if we're able to get Peter on camera. I think something's just happened, so—. I would want to see Peter, so I don't know—

Yes, I'm worth looking at. [Laughter.]

You're not saying 'wide view' for Peter? Now, come on, that's not very nice, is it? [Laughter.] Peter, over to you. We've got you on camera. Sorry.

You can hear me. Right, okay, thank you. Good morning, all. These are just a couple of questions from me. As we know, the power to modify Bill is seeking to make immediate changes to tax policy, to enable it to respond to unpredictable events. I just wanted to know how you—. Do you feel that you would be able to implement any changes that might be required instantly?

Yes, I'll pick this one up. So, it will really depend on the nature of those changes and the circumstances around that change. Obviously, we don't know what those changes will be, but I think some of the amendments that we would expect to be covered by this Bill could have little or no impact on our systems or processes and may actually only apply to a small number of taxpayers. So, obviously, in those cases, I don't see any problem. And, indeed, if there are no changes, then it's really just about communicating and supporting taxpayers, which we're very much geared and set up to do, and it's part of our service delivery model.

In some cases, the amendments may actually prove beneficial to us in terms of the marginal cost savings. So, for example, if the changes that arise from this Bill are, for example, to close down an avoidance scheme, that in itself might then reduce the amount of resources and time that we would need to put in place to actually chase and challenge those types of avoidance schemes. So, I think there are those other benefits here.

There is the potential, I guess, within this Bill, for more complex changes to be introduced, which could affect a large number of taxpayers, and that could be more challenging for us, depending on the nature of the timings and the type of change that we're looking at. But I would be reasonably confident in our experience that we've built up today, and the expertise that we have within the organisation, to come up with a solution or some solutions that would enable this to be implemented quickly.

What we might need to look at is, for example, short-term, temporary changes to our systems, potentially some workarounds that we could put in place to support taxpayers more immediately. And then, in line with our objectives, we would look at the longer term solutions that would potentially make that easier, more efficient and fairer to administer. And that may be something that we would do with our internal expertise, depending on when the changes are; it's something we're continually investing in in terms of our digital capability, our data and expertise. But we also have delivery partners that we have very effective relationships with that we may need to call upon who will be able to support us with that. So, in terms of your question, I would say that we are reasonably confident, but it obviously does depend on the nature of the change.

Okay, thanks for that. So, you seem pretty well prepared, and you shared where there might be, indeed, some savings in resources of having to act quickly. Can you foresee any issues that might burden you with additional costs or you might struggle to absorb in your existing budget? What discussions have you been having with Welsh Government about the possible impact of implementing tax policy changes on your budget, and what might be the outcome, if you can share that? And that's all from me then.

So, I'll pick up to start with, perhaps, and see if Dave or Sam could add something more. I suppose, in general, the point is that the way we are funded, and the way the relationship works with the Welsh Government, with the Welsh Treasury, is to make sure that we have the ability to be flexible and respond to things, as we were able to do over the last couple of years. So, that's kind of baked in. Obviously, it depends exactly what the change is and what it would require, but I think, from where I'm sitting, the thing that really, really matters is having that very open relationship with Welsh Government and with the Welsh Treasury, so that we're saying—. They know what it costs us to do certain things, and we could explain in a way that's transparent and say, 'If you want us to do this, it's going to cost that to do it.' It's a very rational, sensible, open relationship that we have. So, from where I'm sitting, that's something that we could, on a case-by-case basis, live with. We are set up in order to be flexible and responsive and to be able to do some of these things in-house, as you've already heard. And I think the point really, also, about these powers that Sam was alluding to is that it kind of goes both ways: yes, there could be a cost of implementing something quickly, but, actually, not being able to implement something quickly will also, quite possibly, have a cost that's possibly much higher than doing something about it.

Yes. Thanks. That's all from me, Chair.

Thank you very much. We'll go on to Rhianon.

Chair, in regard to the general anti-avoidance rule, how effective do you think that is in allowing you to counteract tax advantages in relation to devolved taxes? And how often has the rule been applied?

Shall I pick that one up, Dyfed? Thank you. So, we've been operating for almost four years now, and during that time I'd say that tax avoidance has not been a significant problem across the two taxes, I'm pleased to say. The legislation appears to be robust at present—so, across the two devolved taxes, in terms of landfill disposals tax and LTT. So, I think alongside the presence of the GAAR and the changes that were made from the predecessor taxes that anticipated some of the potential risks, I think those have been effective in mitigating the risk to date.

Nonetheless, we do take the risk of tax avoidance very seriously in the WRA. We've got various processes that we've put in place from the outset, and those are things that we continue to develop. What those processes enable us to do is to undertake careful analysis using our data expertise—we've got expertise in tax, policy and legal—to identify, investigate and address potential tax avoidance.

We believe the GAAR is an effective deterrent at present. As I say, avoidance isn't a risk that we currently see within the two devolved taxes. That's not to say that circumstances in the future won't change. Things may arise that require us to take action. But the GAAR is an important tool to have as and when required. But in practice, powers such as the GAAR, they'll be required in very few cases, I think it's important to note, because there are often other more appropriate ways of ensuring compliance and addressing any suspected cases.

I'm not going to ask you about penalties—it's not within my questioning brief—but the tool is in the tool case, as you've just referred to. So, you don't feel that it would benefit from revision—if it's not broken, why fix it? Or is that putting words into your mouth?

So, I think at the moment, we don't foresee any reasons to change it at this stage, but I think it is conceivable that any adverse court decisions in the future that affect GAAR itself could give rise to a potential need to make legislative changes at pace, so that the GAAR does remain an effective tool, and I think that's something that is obviously considered as part of this Bill.

Okay, thank you, and I don't know if there's any other comment before I move on to my next question—just chip in.

The Welsh Government noted that the powers proposed in the Welsh tax Acts Bill may be used to protect against tax avoidance in relation to the land transaction tax and land disposals tax. Have you encountered any particular situations where the use of such powers would have been beneficial to the WRA or Welsh taxpayers?

So, this scenario has not yet arisen. As we noted earlier and in some of the evidence that we provided, the legislation is relatively new. It's obviously been operating for under four years and there were changes made to the legislation from the predecessor legislation that did anticipate some potential risks and known issues at the time. So, I think that's helped to mitigate the risks that might have been present.

I think, to date, where changes have been made to the legislation—for example, there were some improvements in terms of site restoration for LDT—the normal legislative vehicles were used as that was seen as the most appropriate route in those circumstances, but that was to facilitate an outcome for taxpayers rather than trying to address an avoidance risk. So, obviously, that was appropriate in those cases.

But, as I mentioned, circumstances can change over time—the environment that we operate in, the way transactions are structured can change, and also customers' behaviours may change—and as I said earlier, that's why we have set up the way that we're organised to identify and investigate potential risks swiftly. And, obviously, if those do occur, that's then part of the policy partnership in terms of our ability to engage with Welsh Government, if and when those risks do arise.

Can I ask if Dyfed or David have any comment on those questions that I've posed and Sam has responded to? Or whether he's covered everything?

I think—. Sorry, David, just to jump in. No, not on the specific point, but I think, just in general—we couldn't talk about individual cases anyway—on the idea that with new legislation, the likelihood of wanting to make lots and lots and lots of changes is less than you'd expect to happen over time. The advent of having powers to be able to respond quickly to something, whilst, yes, it might have some costs associated with it, actually is something that we are, broadly, very much in favour of, because it allows us to be able to tackle things that—. Who knows? Things can change, right? I have, in my own personal experience in a past life, again I'm not talking about specific examples, but I have been in situations where, if only we'd have had the ability to respond quickly to things, because not being able to do so actually had significant cost implications. So, broadly speaking, I think this is something that is beneficial and helpful to us.

Yes, I completely agree with that. The only thing I'd probably just add, I guess, is that when the taxes themselves were originally designed, they benefited, at that point, from learning a lot of lessons from the predecessor taxes—areas where they had been susceptible to tax avoidance and the like. So, actually, there was a lot of conscious design at that point to get the taxes to be as robust as possible. So, I think the fact we haven't seen the taxes riddled with avoidance to date is testament to that good design at that point.

Obviously, as Dyfed and Sam have already said though, the context can change. It is constantly evolving and there will be people out there who will be trying to challenge the tax Acts in a way that we've not yet foreseen, at some point in the future. So, having the ability then to use this power to change the legislation at speed, if it's needed, is just another very helpful tool in the toolbox.

Excellent. I'll bring Mike in.

Diolch, Cadeirydd, and I just think that I probably know the answer to this question, but I think we need it for the record. Have there been any aspects of existing legislation that have been problematic when carrying out the administration of devolved taxes?

Dave, do you want to come in?

Yes, I'm happy to pick that one up. I think there, what I'd say is that, to date, our relationships, as I've mentioned earlier on, are very much built on a constant dialogue; understanding of what the tax environment looks like; and where we've needed to make changes to legislation, we have. There were a couple of examples early on where we made changes to landfill disposals tax around site restoration issues and quarry relief. So, where there were examples where we needed to make changes, we have done that, and that's been very much a partnership approach. And that and the kind of relationship we have now is built on that understanding of the broader context—not just the Welsh context, but obviously looking at neighbouring contexts at UK level and in Scotland as well—to make sure we're abreast of what is happening, things that could come down the track for us, as we really make sure that can have a holistic overview of all the issues that might affect us. So, what I would say at the moment is that I don't think this is the best forum to speculate over what future changes there might be. What I would say to reassure the committee is that if there were any, at any point, we are very well joined up with Welsh Treasury colleagues, and we'd certainly be ensuring that the practical implications of any changes are well thought through from the beginning.  

If I can paraphrase your answer: 'Not yet, but possibly in the future.'

The other question I'd like to raise is: the aim of the Welsh tax Bill is to enable Welsh Ministers to make changes if a court or tribunal does something that would have serious affects on Welsh taxation. When the Welsh Government makes that decision, whatever it is, how quickly can you enact it? How quickly are your systems able to change in order to enact that?  

I think the honest answer to that one is, 'it depends'. Sorry, that's not really helpful. It kind of depends on what the nature of the change is, really. I think, maybe the example that we gave earlier, which Sam talked about, the fact that we could make changes to rates and bands in 24 hours, in two days, so we can do some things pretty quickly, and because we have the ability to do stuff in-house rather than working exclusively with outsourced suppliers, then that really does help our ability to be nimble, and I guess that some of that would depend on the extent to which we had anticipated and prepared for the kind of change that we want to make before the thing happens, if you like, and you'd hope that that would be the case, and especially because we have very regular ongoing conversations with the Treasury about what's going on.

So, I couldn't give you an exact time frame, because it depends what the nature of the change is, but I'd be pretty confident that we could act quickly.

I think that is the key, isn't it? I always believe that operational management is the most important part of any organisation. We talk about strategic and we talk about tactical, but the operational managers are the ones who matter. I think that if it can be operationally done—and most changes will be changes of tax bands, changes of rates, adding bands, subtracting bands, and you're talking about doing those within 24 hours. 

Yes. Yes, so that's—. The sort of thing that we were able to do last time, it's a matter of a couple of days between for the things that we needed to do. But it just depends on what the nature of the change is. 

Fundamental changes would be different, but the actual simple changes are done quickly.

Yes, exactly. I think, for me, and my experience of both these taxes and in previous roles is that, if you're having that ongoing conversation with the people that are doing the policy and the legislation—so, in this case it's the Welsh Treasury—you're much better placed to understand whether the policy change is going to have a big impact operationally or not. That's kind of obvious, I know, but sometimes what appears to be a relatively small policy change can have a big operational impact, and what can be quite a profound policy change might not have a very big impact. What's really, really important in terms of managing that as effectively as you can is that there is that open conversation that is not just close and respectful of each other, but is curious about understanding how this works, so that you really have a really good, joined-up understanding, and I think that is where we're at, so—. Yes. So, as much as can be done to manage that I think is in place.

Thank you very much.

Just a quick follow-on from that: have you ever had to respond to any tribunals and make any changes?

Not hitherto. As you might expect, it's relatively early days for us as a tax authority. Yes. So, 'no' is the simple answer to that.

And a question I've asked other witnesses, and you've answered it already, that you're broadly in favour of—well, you're very in favour of—this legislation coming into force. Would the positive outcome of this legislation, or more the way that we legislate and do tax, devolved taxes, here in Wales, be—? A positive would be that we never use this legislation, because we've already covered off the things that we might need to use in the legislation when it comes through. So, we might—. So, actually, for this to work, we'd never use it. 

Yes, I can see that—. I'll bring Dave in, but I suppose my initial response to that is, 'Yes, sure, in an ideal world', but I'm not sure that it's ever possible to predict how the future unfolds, and something unexpected will inevitably come along, and we'll have to do something about it and respond to it, so—. Yes. So, I'm just not sure it's possible ever to—

But a nice panacea to be; would that we'd never use it. 

Dave.

Yes, I think all I'd add there is that the nature of this power, really, is to give us some additional tools to deal with external changes that impact on us. So, in our ideal world, thinking about the kind of policy changes you might make here in future, we'd hope they'd all be planned through, and we'd understand them long in advance and would have given ourselves the time to work that through. But, actually, we don't operate in a vacuum in any respect, obviously. If you think about the four scenarios in which we might need to use this power, we don't have control over any of those, and actually then just the ability to respond to those, if we need to, at pace, that's very helpful. So, I think the likelihood of whether we'll use it depends so much on those unknowns, those external factors, it's hard to predict, actually, how often it will be used in future. 

Good. I see that Rhianon's got her hand up. I don't know if she wants to come in now.

Thank you, Chair. Just very briefly on that theme of tools in the toolkit, other witnesses were quite clear that they believe primary legislation is important in terms of a ministerial ability to furnish penalties. Do you think that Wales should be in a position via secondary legislation? Have you a position on that or not? 

Oh, hang on. Dyfed, sorry, is on mute. There we are; he's fine now. Sorry. 

My apologies. I think, unless others correct me—. I think we probably don't have an opinion on that, really, in terms of what should and shouldn't be available in Wales. It's not something that we venture into. We will do our best to do a very good job of what we are given to do.  

Okay. Thank you very much.