Y Pwyllgor Cyllid

Finance Committee


Aelodau'r Pwyllgor a oedd yn bresennol

Committee Members in Attendance

Mike Hedges MS
Peredur Owen Griffiths MS Cadeirydd y Pwyllgor
Committee Chair
Peter Fox MS
Rhianon Passmore MS

Y rhai eraill a oedd yn bresennol

Others in Attendance

Andrew Hewitt Pennaeth Deddfwriaeth Treth, Trysorlys Cymru, Llywodraeth Cymru
Head of Tax Legislation, Welsh Treasury, Welsh Government
Anna Adams Dirprwy Gyfarwyddwr, Yr Is-adran Strategaeth Trethi a Chysylltiadau Rhynglywodraethol, Trysorlys Cymru, Llywodraeth Cymru
Deputy Director, Tax Strategy and Intergovernmental Relations Division, Welsh Treasury, Welsh Government
Lynsey Edwards Gwasanaethau Cyfreithiol, Llywodraeth Cymru
Legal Services, Welsh Government
Rebecca Evans MS Y Gweinidog Cyllid a Llywodraeth Leol
Minister for Finance and Local Government

Swyddogion y Senedd a oedd yn bresennol

Senedd Officials in Attendance

Ben Harris Cynghorydd Cyfreithiol
Legal Adviser
Georgina Owen Ail Glerc
Second Clerk
Mike Lewis Dirprwy Glerc
Deputy Clerk
Owain Roberts Clerc

Cofnodir y trafodion yn yr iaith y llefarwyd hwy ynddi yn y pwyllgor. Yn ogystal, cynhwysir trawsgrifiad o’r cyfieithu ar y pryd. Lle mae cyfranwyr wedi darparu cywiriadau i’w tystiolaeth, nodir y rheini yn y trawsgrifiad.

The proceedings are reported in the language in which they were spoken in the committee. In addition, a transcription of the simultaneous interpretation is included. Where contributors have supplied corrections to their evidence, these are noted in the transcript.

Cyfarfu’r pwyllgor yn y Senedd a thrwy gynhadledd fideo.

Dechreuodd y cyfarfod am 09:30.

The committee met in the Senedd and by video-conference.

The meeting began at 09:30.

1. Cyflwyniad, ymddiheuriadau, dirprwyon a datgan buddiannau
1. Introductions, apologies, substitutions and declarations of interest

Bore da iawn ichi a chroeso cynnes i'r cyfarfod y bore yma. Dwi'n meddwl mai dyma'r cyfarfod cyntaf lle mae'r tystion a ni wedi bod yn yr un ystafell ar yr un pryd, sydd yn hyfryd i weld. Croeso cynnes ichi yma. O ran y cyfarfod yma, mae'n cael ei ddarlledu'n fyw ar Senedd.tv a bydd Cofnod y Trafodion yn cael ei gyhoeddi yn ôl yr arfer. Ar wahân i'r addasiadau gweithdrefnol sydd yn ymwneud â chynnal trafodion o bell, mae'r holl ofynion eraill o ran Rheolau Sefydlog ar gyfer y pwyllgor yn aros yn eu lle. Dydyn ni ddim wedi cael unrhyw ymddiheuriadau. Dwi jest yn tsiecio bod yna ddim unrhyw fuddiannau i'w datgan. Nac oes.

Good morning, and a very warm welcome to this meeting this morning. This is the first meeting where we've had witnesses in the same room at the same time as us, which is lovely. So, a very warm welcome to you here today. In terms of this meeting, it will be broadcast live on Senedd.tv, and the Record of Proceedings will be published as usual. Apart from the procedural adaptations relating to conducting proceedings remotely, all other Standing Order requirements remain in place. We haven't received any apologies. I'm just checking that there are no declarations of interest to make. No.

2. Papurau i'w nodi
2. Papers to note

Mi wnawn ni symud ymlaen i eitem 2. Eitem 2 yw papurau i'w nodi.

We will move on to item 2. Item 2 is papers to note.

I think we'll note the papers, if that's okay with Members. Excellent.

3. Bil Deddfau Trethi Cymru etc. (Pŵer i Addasu): Sesiwn dystiolaeth 6
3. Welsh Tax Acts etc. (Power to Modify) Bill: Evidence session 6

We'll move on to item 3. We're here with the Minister and her advisers and officials. Thank you very much for coming, it's great to see you, and, as I said earlier, to see you in person. I wonder if you would introduce yourselves for the record, please.

Shall I start? Rebecca Evans, Minister for Finance and Local Government.

Andrew Hewitt, head of tax legislation in the Welsh Treasury.

I'm Anna Adams, I'm deputy director in the Welsh Treasury of tax strategy and inter-governmental relations.

Lynsey Edwards, I work in legal services.

Lovely. Gwych. Diolch yn fawr. Thank you very much. We're here to scrutinise the tax Bill and to go through some questions that have been raised from the evidence sessions that we've had with yourselves and with others around this.

I'd like to understand, to start off with, the constitutional issues relating to amending laws by primary and secondary legislation and the role of the legislature. It has been noted that the Bill raises some fundamental constitutional questions in proposing to give Welsh Ministers far-reaching powers to change primary tax legislation in Wales by regulations with reduced Senedd scrutiny. How would you respond to that view?

In ordinary circumstances of law making, I would agree with the views that you've heard in that regard. In circumstances where law is made as a result of considered policy development and it's not required urgently or in response to external events, then, obviously, it's right that the Senedd should determine who is taxed and do so in accordance with the principles set out in the Government of Wales Act 2006. Of course, that was the procedure that was followed in terms of bringing in our Welsh taxes in the first place.

However, the power within this Bill isn't intended to cover those kinds of ordinary circumstances. The aim of the Bill is to provide timely protection for Welsh taxpayers and, of course, the Welsh Government's budget by allowing Welsh Ministers to make amendments to Senedd legislation for specific purposes and in very specific circumstances, all the while, of course, making sure that there is Senedd scrutiny involved and at the heart of it. It's important to remember that any new tax law made by Welsh Ministers through the proposed Act would require the approval of the Senedd. So, Welsh Ministers might take an action in response to a necessary or urgent situation, but, ultimately, it will be the Senedd that has the sanction over those regulations.

Paul Silk mentioned that the Bill is an example of the Executive taking over functions that properly belong to the legislature, and Professor Emyr Lewis told us that the Bill contravenes the principle that the source of important decisions with regard to taxation is the legislature and not the Government. Do you accept that analysis?

I think that we have built real safeguards into this Bill, and, ultimately, it will be the Senedd that has the overall say on whether or not the regulations remain in place. We've built in safeguards then for the taxpayers, should the Senedd decide not to approve the regulations. So, we've sought to strike a balance. There is already precedent here, in the sense that the Senedd has already given approval to legislation that allows Welsh Ministers to decide who is taxed and how much they are taxed, by allowing regulations to be made to determine the levels of the rates and bands of land transaction tax. And there are also similar situations in place for landfill disposals tax. So, the Senedd has already agreed to that kind of approach, and we've used it recently. So, I would just suggest that what we're proposing is appropriate for these unexpected external events. In the normal course of things, of course, we would take a different approach.


Do you think that the Bill strikes that balance well in the way it is at the moment?

Yes, I do. We've moved a long way, actually, from our original proposals, which were to give Welsh Ministers quite wide-ranging powers. We undertook a consultation, and I know officials have engaged in depth with tax experts and organisations representing practitioners. We've moved quite far away from those wide-ranging powers now to a four-purpose test, which does constrain things to a great extent. And, of course, the Senedd will have the final and ultimate say.

The committee heard evidence suggesting that amendments to tax legislation should be made by primary legislation. What consideration have you given to a fast-track Bill process, and why do you feel that using secondary legislation to change tax law is more appropriate?

We did give consideration to what would be the most appropriate vehicle to achieve the policy objectives underpinning the Bill. I would argue that the powers afforded by the Bill provide equal or greater opportunities for scrutiny. For draft affirmative regulations, the debate can't take place until the committee has reported or the statutory instrument has been laid for 20 days, whichever is earlier. Standing Orders do, however, allow for a longer period than 20 days, so there is some flexibility in that mechanism so that we could consider on a case-by-case basis what's appropriate for scrutiny, reflecting on the complexity of the regulations and, of course, on the impact on taxpayers. The made affirmative procedure will be only used in cases of urgency, and here it's proposed that there should be a maximum scrutiny period of 60 days. So, I think that we've sought to build in appropriate mechanisms there for scrutiny.

You told us that an alternative emergency Bill approach for changing the Welsh tax Acts wouldn't have the same level of scrutiny as you proposed in the Bill, but couldn't a Bill approach attract whatever scrutiny period is required, depending on the policy proposal, and have the benefit of the Senedd being able to amend the proposed drafting? 

An emergency Bill can be passed as quickly as in one day within the Senedd, so that I don't think allows for the same level of scrutiny. Perhaps I will ask Andrew or one of the team to reflect on the different approach taken in terms of the stamp duty land tax holiday during the pandemic. That involved primary legislation across the border.

I think it's also worth adding that, obviously, with our Bills, we have a determination period for the Llywydd beforehand and an intimation period afterwards for the UK Secretary of State for Wales to challenge the Act if they choose to. That, without agreement necessarily in terms of agreeing a shorter period, can add up to eight weeks to the period for a Bill before you even get to the scrutiny issues and the debate on the Bill and the line-by-line analysis of the legislation. So, there are increased time constraints, I think, in relation to emergency Bills and expedited Bills in Wales.

As the Minister asked, in terms of the SDLT changes that were made, which is badged as the SDLT holiday, that came in in July 2020 to increase the starting threshold for SDLT from £125,000 to £500,000. The change was announced at the summer statement that the Chancellor made on 8 July, the Bill was introduced on 13 July, and by 17 July it had been passed. So, there were three days of scrutiny that occurred, and then the Royal Assent was received on 24 July. So, it was a very rapid process, and I think that the Minister is keen that the longer scrutiny period is available to the Senedd to have the opportunity to firstly invite the Minister in, which happened in that particular case, to give evidence to this committee, and also, potentially, to invite other evidence from other people.


Isn't there a fundamental difference between suspending a tax and increasing it or taking action that would alter it? Very few people, if any, are going to complain that their tax has been reduced or removed. Quite a lot of people would want to complain and have a view on it being increased. Aren't they two entirely separate things? That would have gone through on a one-day vote in the Senedd unanimously anyway. Increasing it or making changes to it retrospectively may not. So I think that, really, in terms of suspending it, you can suspend it at any time and no-one's going to complain, 'I'm not paying tax'. 

I agree that dropping taxes is a very popular event, but I would question something akin to what the UK Government would have received—the vote in a day that you suggest—because obviously that provided tax reductions for those buying second homes and holiday lets as well, which I think the Welsh Government and the Minister were keen not to achieve. So, in terms of a replication of the UK change that would have been approved in a day, it's not necessarily true, I would argue. 

I didn't say 'replication', did I? I just said that a Bill that reduced the tax on some or all people would not cause any great discussion or opposition. That was the point I was trying to make. There's a big difference between what you did in reducing it and what you could do in increasing it. They're not exactly the same. 

I think there's sometimes debate in terms of who you reduce taxes for and what kind of policy outcomes you're seeking to achieve as a result of that. Different decisions, I think, will attract different attention and interest from stakeholders, and from taxpayers as well. 

Minister, you drew our attention in a previous session to the UK Government's use of resolutions under the Provisional Collection of Taxes Act 1968 as an example of making changes to law quickly, but that involves a resolution of the House of Commons as opposed to the UK Government Ministers changing the law by regulations. Why didn't the Welsh Government pursue that approach in developing this Bill?

This is partly because of the system that we have here. It is correct that the UK Government has the ability to make changes to existing taxes with immediate effect through the PCTA, and this enables proposals for tax changes and tax continuation, such as the annual reimposition of income tax, to have an immediate provisional legal effect through a series of resolutions. However, draft primary legislation must also be published, and that's usually in a finance Bill following the passing of the resolution within a short period for those changes to be scrutinised, and, if approved, to have permanent effect. But we don't have an equivalent mechanism here in Wales. I would just make the point as well that, even if we did have a finance Bill in Wales, the changes that we're talking about within this piece of legislation would still be desirable to have a separate piece of legislation to achieve. That's well recognised. I know there are different arguments in respect of a finance Bill. We had a debate at length on this in the Legislation, Justice and Constitution Committee earlier this week. However, I think most people recognise that, even if we did have a finance Bill process, the powers within this Bill to respond rapidly to external events would still be desirable. 

Thank you. Witnesses did feel that the Senedd lock that was originally proposed in the consultation document would improve scrutiny and serve as a safeguard against abuse of the powers proposed by the Bill. Do you think that this is a valid observation? 

I think this goes back to what I was saying about the original proposal that we consulted on, which gave a broad power that was intended to be used where Welsh Ministers considered it expedient in the public interest, which is quite broad, although it does mirror the wording set out in the Finance Act, which provides HM Treasury with a general power to make regulations to vary SDLT legislation other than to rates and thresholds. The original policy was to set out three separate powers that, as I say, were very wide in scope, and allow Welsh Ministers to amend any element of the Welsh tax Acts for whatever reason they saw fit. We listened very carefully during that consultation. If that was still our proposal, we would be interested, potentially, in exploring the Senedd lock, as we did in the consultation document itself. But since we've moved away from that wide approach to the four purposes test, I feel that now a Senedd lock isn't a proportionate approach. And we have to remember as well that the Senedd lock just unlocks the power to make regulations, it doesn't actually—. It isn't a vote on those regulations themselves. So, I think removing it has been in response to the change of the approach that we've taken, listening to the consultation responses. But then I think a number of consultees have also recognised now that, given the change of approach on the four purposes test, a lock wouldn't be necessarily needed. I think Sir Paul Silk has recognised that in his evidence to the Legislation, Justice and Constitution Committee last week. [Interruption.] Oh, Finance Committee. You will have heard it for yourselves. [Laughter.]


Only on the lock side of things. Can you see why a lot of Senedd Members will feel that the lock, whilst you may not feel it's perhaps necessary any more, it gives that opportunity, that debate option, that level of scrutiny, that challenge, that reassurance that the right decisions are going to be made with the regulations, with the powers, and that lock would give that reassurance to the legislature that they have been listened to and they can understand things? And that seems to be a strong anxiety, not just from perhaps some Members but certainly from a lot of our witnesses, that that reduced amount of scrutiny is a big issue that we as a legislature shouldn't give away lightly.

I would argue that the lock doesn't impact on scrutiny, in the sense that the lock would only decide whether or not to allow Ministers to bring forward these regulations, it wouldn't involve the scrutiny of the regulations themselves. And we've put scrutiny at the heart of this Bill, so regulations would have either the 20 or more days or the 60 days, or up to 60 days, for scrutiny, which is a significant period, I would suggest, for committees to consider the proposals and then also to take evidence from external witnesses. 

Wouldn't a debate ensue, though, when that lock is voted on or discussed? I know the nature of the Senedd doesn't allow it just to go like that, it requires questions to be answered, and reassurance can be gained just through that opportunity. 

I think there would be some procedural restrictions in terms of the Senedd lock as well. So, it would only be possible to introduce new legislation at certain times of the year, unless it was proposed that we recalled the Senedd during recess to address the question of whether or not a lock should be—[Interruption.]—released. That's the word I'm looking for. Thank you. So, that wasn't really the kind of reactive process that we had envisaged in terms of responding to these external events. So, we wouldn't want to wait arguably until summer recess was over to vote on unlocking the lock and then to start the process with the regulations. 

Professor Emyr Lewis told us that the Senedd lock could work in the context of the Bill and would ensure the primacy of the Senedd. I think it's something that Peter was talking about. As the legislature, it would mean the Senedd deciding when the powers could or could not be used. So, that reflection is, I think, more about keeping the Senedd's primacy in legislation, rather than Ministers. And I think that's the concern that some witnesses were having and some Members were having as to that due process and to make sure that regulations are being used and Bills are being used in a measured way. I don't think any of our witnesses suggested that this power wouldn't be a benefit, but it's how it's used and to what extent it's used, and having enough questions asked of that. The Senedd lock would be that first instance where we'd know that it's coming, that we're able to ask questions and to question the Minister, or yourself, to ask why you are using it so that we get an early heads up on how that works. So, I think that was the crux of it.


I completely understand those concerns, but I would argue that the Senedd does have primacy because the Senedd will either agree or overturn any regulations. And we have to remember that in giving the Senedd a heads up, we're also giving taxpayers a heads up, so there's a potential for forestalling or for individuals to arrange their transactions in a way to avoid—

—changes that might come in in future as well. So, it's a question as to what extent we would like to show our hand in terms of changes to the law as well.

Okay. Thank you for that. I'm just going to move on to one more question, and then I'll bring Rhianon in. We're wanting to understand a little bit around what we were just touching upon there with the general anti-avoidance rules and that element. The Institute of Chartered Accountants in England and Wales questioned the appropriateness of the proposed power in the Bill being used in connection with international obligations, given the current devolved taxes it would apply to. Does the Minister consider that the case for the power being used for this purpose has been fully made?

Yes. So, the Bill permits Welsh Ministers to amend Welsh tax Acts so they're not imposed where to do so would be incompatible with international law, and this approach in relation to Welsh tax Acts is justified, because Welsh devolved taxes do form part of a small number of taxes that actually operate in that UK environment. I might ask officials to reflect on some of the potential consequences for Wales in this particular area.

There is an example in the stamp duty land tax where previously—and in land transaction tax, in fact—as part of the membership of the EU, the UK Government and our Government were required to provide the same treatment to EU charities as existed for UK charities. So, I would argue that that's an example of where an international obligation of the UK's membership of the EU resulted in a tax obligation upon us to provide the same sorts of treatment for EU charities. Now, obviously, that obligation no longer exists because we're no longer a member of the EU, but, clearly, as the UK Government negotiates new treaties with different countries around the world, such a thing may reappear in relation to charities or in relation to other elements that surprisingly impact upon what seem like two little taxes that relate just to land in Wales, but there can be international obligations that arise. 

And I think we're operating in new waters now, in the sense of having left the European Union, and the UK Government entering into negotiations with other countries for trade purposes. So, there might be inward investment consequences for us by not choosing to comply with international taxation obligations, in the sense that Wales could be less attractive than England if we were not to respond quickly in this particular area as well. So, I think that there are a number of things that come with a new trading environment that might impact on this. 

Diolch, Chair. Thank you very much. I was interested to hear, Minister, your comments in regard to the new trading environment and also in terms of EU exit. A number of our witnesses, though, as the Chair has already stated, have mentioned that the powers regarding anti-avoidance were too wide-ranging, and the Bill should be more narrowly defined in terms of the types of changes that may be made under the anti-avoidance purpose. So, do you accept—and, obviously, I heard what you just said—that there may be a need to look again at which parts of the Welsh tax Acts should be excluded from the scope of these powers? 

So, I'll ask Andrew to come in on the anti-avoidance, but I would just clarify which parts are currently excluded from the Bill, the first being the changes to the establishment, membership and operation of the Welsh Revenue Authority, as set out in Part 2 of the Tax Collection and Management (Wales) Act 2016. I wouldn't envisage that there would be an external event that would lead to changes and amendments in the functions of the WRA. We'd expect that, if it were to take place, to be part of more routine policy changes. So, that is one of the exclusions. And then the second relates to the setting of rates and bands for the current devolved taxes. I think the system that we have at the moment is working well, so I would propose that that would be an exclusion as well. And, again, this is an area where we're interested in committee's views as to whether there are other areas that you believe should be excluded.


So, there'd be no—. You wouldn't use any of these powers to change anything to do with the WRA.

Not in terms of the establishment, membership and operation of the WRA. We've set that aside because we think that that would be more appropriately done through the normal policy kind of approach.

The provision that the Member refers to is in relation to protecting against tax avoidance, and that definition was chosen deliberately because it mirrors the functions of the WRA, and I think it's quite important there's a connection there. The other definitions, particularly within the TCMA, include the general anti-avoidance rule, where the definition there relates to tax avoidance arrangements and 'artificial', and includes lots of protections, I guess, for the taxpayers to try to identify exactly what that particular provision is targeted at. It appears to have been successful so far. It's not been tested as far as—. I think the WRA gave evidence on that. So, that's one definition. The other primary definition that's often referred to, I think, is what we've referred to as the targeted anti-avoidance rule, so the TAAR, which relates to reliefs in LTT. And, again, that is addressing a very particular and known issue that existed previously in SDLT and that's why the additional protection was created in LTT by the Senedd and the Government Ministers.

The desire for a very precise definition of anti-avoidance I think is always very attractive, but is often very difficult to actually come down on one. I think the evidence given to you by Frank Haskew from ICAEW talked about boiling the ocean and trying to find that—that the industry has boiled the ocean to try to find the definition of anti-avoidance. I think it's very difficult to say. He even said, which, again, is a common tax—. The conclusion is it's an elephant test: you know it when you see it. And, unfortunately, that's where we have to be with this particular power, because we don't know what we'll encounter in the future, and therefore the wider definition, I think, is desirable in this particular circumstance, because it's about being able—the Government, subject to approval subsequently by the Senedd—to respond very quickly to often quite aggressive attacks or surprising attacks on the tax system that can happen.

Okay. We did go into this in some length in terms of the terminology. I think in terms of the general anti-avoidance rule, I'm not quite clear whether you say that's working well at the moment. But in regard to that and the fact that the term 'tax avoidance' in the Bill is obviously linked to the GAAR, did you consider this when developing the Bill, bearing in mind your comments that you seem to think that's working well?

The definition in the current Bill is not the same as the GAAR. That's the point and I think some of the anxiety that some of your previous witnesses have had. In terms of whether the GAAR is working well, the GAAR serves, I think, two functions. It firstly acts as a deterrent to taxpayers entering into avoidance arrangements, but also it subsequently gives the WRA the tools to attack—or to challenge, I should say, the avoidance activity of the taxpayers using the GAAR. So, it acts in two ways, a deterrent because it puts people off possibly constructing avoidance schemes, and then subsequently gives the WRA the tools it needs in order to be able to effectively challenge those. But I think we're looking at something slightly different here, something that is possibly wider than the very precise definition of avoidance and the types of things that would need to be triggered for the GAAR to be used. 


So, I'll just be a bit more concise, then. Do you feel that the general anti-avoidance rule is working well at the moment?

Unfortunately, I don't work for the WRA, so I don't know. But our feedback from the WRA, and the evidence given to you, is that it is working well. I think it's fair to compare, and, as always, we're relatively new on our journey of devolved taxes, but looking back at the UK GAAR, which came in in 2013, there have been very few tax cases that have gone through the courts in relation to the GAAR, so it would appear that the UK GAAR, and, I would argue, our GAAR as well, is working well as a deterrent. Whether it's working well in terms of individual cases where a challenge is being made, I don't know, because I'm not that close to the casework, by definition, because I work for the Welsh Government rather than the WRA. 

Sorry, Rhianon, I think Mike would like to come in on that point, just for a second. 

When the GAAR came in—you weren't Minister, so you can't be held responsible; your predecessor was—we were told in this committee, probably by some, if not all, of the same officials, that this was a means of avoiding anybody engaging in tax avoidance. This was a general rule rather than a specific rule. In fact, it's actually called the 'general' rather than 'specific' anti-avoidance rule. Why do you feel you need to do something else when that was brought in by your predecessor, advised by some, if not all, of the same officials, that this was the answer, when, quite frankly, you now don't think it is?

I think it's about addressing different things to some extent. The GAAR is triggered in two cases. It acts as a deterrent. That, I think, is possibly deniable, but I would consider it to be undeniable that it acts as a deterrent, and that is a good thing for it to do. But it then has to have a tax case for actually the tools in the GAAR to be used, to use it to challenge a taxpayer. The taxpayer needs to have entered into the avoidance activity. So, until the taxpayer's entered into the avoidance activity, the GAAR, to some extent, is sat there as a tool to be used after the avoidance. I think, here, what we're looking at is the Minister being able to use the power in order to stop people entering into the avoidance activity in the first place if the deterrent isn't working. 

Now, in the UK, looking back—again, unfortunately, we're only four years in, and we're looking back at what's happened previously in the UK Government—they frequently make changes to legislation to stop taxpayers being able to enter into avoidance schemes, because unscrupulous promoters say, 'Oh, this works, this works, this works; if you do this, and if you give us £10,000, you can do this, this and this and you won't have to pay any tax.' The Minister, through these regulations, will be able to make a change, make a clarification. Even if the WRA considers that the legislation works, it stops the promoters being able to sell the schemes, and that's partly why the anti-avoidance in particular is a particularly important part of the Bill. 

Finally from me, what has happened in the last four years that has taken us from thinking the GAAR was the answer to everything to the need for this legislation?

The GAAR is a tool once people enter into tax avoidance to provide the Government or the WRA with the ability to challenge and to raise assessments to take things through the tribunal. This is trying to stop taxpayers entering into it. Because what's happening, particularly with old stamp duty land tax cases, is that people charge into the avoidance schemes. If the Government doesn't make the change, they can continue to promote them and promote them, so more and more people enter the avoidance schemes even if, ultimately, they find that they've got to pay the tax, they've got to pay interest on it, and they still have to pay the fees, to the taxpayer [correction: to the promoter]. So, what's happening is that people are paying effectively 150 per cent of the tax because of the actions of the promoters. 

I thought I was specific, but I obviously wasn't. What has happened in the four years since we brought in the GAAR that means that we need this?

Well, I think the point that Andrew's making is the GAAR is for once the activity has taken place, but we're seeking to prevent that activity taking place in the first place. So, they're trying to address two slightly different things. 


Sorry, I crave your indulgence, Chair, but what has happened in the last four years that means this is now important and four years ago it wasn't?

Well, there's nothing particularly that's happened. As I say, we're trying to address two different things. So, we're not trying to—. Our experience with the GAAR is relatively new anyway.

So, it should have been brought in at the same time?

We could have introduced this Act in that period, but we've grown a lot in the last few years in respect of our experience of Welsh taxes, which has led us to this point, to want to have the additional tools, so that we're able to respond to external events quickly, in the way that UK Governments are able to. So, we're very new, or relatively new now, on our journey of Welsh taxes, and so I think we've learned a lot over the last few years about the tools that we might need to respond to events that we can't be certain of or predict at this point.

Thank you. I'll come back to Rhianon to ask some more questions. Thank you.

Thank you very much. So, to summarise, then, you're saying that this will give us a flexibility and an agility on a par with the UK Government, and that, in a sense, the GAAR acts in the same sort of way as an anti-social behaviour order—it's the end process, and it's a deterrent from the start. I'm hoping that that is correct, and you'll correct me if I'm wrong. So, just to finish on this particular area, can you clarify, then, why the Bill would allow Welsh Ministers to legislate, if it was felt appropriate? And again, we're talking about definitions of what you feel is appropriate.

This is important because I think that the Bill does give sufficient restraint on the use of power whilst also allowing some flexibility. So, the Bill does say that Welsh Ministers must consider the regulations are necessary or appropriate before they can be approved. I think 'necessary' does set a high bar, in the sense I know that the courts have determined that something is necessary—not if it's useful, reasonable or desirable, but only if there is a pressing need for it. So, I think 'necessary' is a high bar. But there will be other circumstances where something may be 'appropriate'. So, we may want to remove some people who have been unintentionally caught up in paying a tax, and although it's not necessary that we remove them, it would be appropriate for us to remove them. So, that's an example of how we might use 'appropriate'. So I think 'necessary' or 'appropriate' offer two useful tools there.

Thank you. You'll have to ignore my dogs. You've told the committee previously—and we've spoken to Professor Emyr Lewis recently, who provided an example on this—about how the powers would be used in theory. He also specified an individual example of where the Welsh Revenue Authority could potentially lose a court case against taxpayers, and the Welsh Government could then potentially make regulations with the new proposed powers to reverse that decision—obviously, that would be an interesting scenario—without necessarily having to consult, but simply because it had lost. So, do you accept that the powers could be used in that way—not just by this administration; I think, importantly, by a future Government—even though it may not be the direct policy intention?

I'll ask Lynsey to come in on this point. But I would just start off by saying that it's not uncommon for the law to be changed in response to the decision of a court. Although Ministers would be able to make regulations in response to a court decision, obviously, it wouldn't be able to reverse the court's decision. I think what Professor Lewis is saying is that, theoretically, regulations could be made that subsequently changed the law, so as to negate the court's decision. I'll just ask Lynsey to come in on this particular point as well.

So, Professor Lewis, the example that he used is a theoretical one. And whilst, theoretically, he's correct, in reality there are safeguards within the Bill that would prevent this from happening. So, clause 1 talks about the four purpose tests, so any legislation that we brought forward would have to satisfy one of those tests. In addition to that, the Welsh Ministers would also need to consider, as we've just spoken about, whether the use of the power was necessary or whether it was appropriate. There would also, again as we've already discussed, be detailed scrutiny by the Senedd. There's also provision within the Bill at clause 3 that requires the Welsh Ministers to bring forward a statement of policy in relation to their use of retrospective legislation. So, again, that's another safeguard, and clause 2(1)(c) also prevents the Welsh Ministers from making regulations that will allow retrospective penalties.

So, aside from the safeguards that are built into the Bill itself, there's also the fact that the legislation would be required to comply with ECHR principles—the European Convention on Human Rights. So, the Welsh Ministers wouldn't be able to just bring forward any legislation; it would have to comply with those obligations. Also, in relation to regulations, something that is not available in relation to primary legislation, it's possible to challenge the validity of secondary legislation by judicial review. So, that, again, is another safeguard that's outside the Bill but is something that is open to those who would be seeking to challenge it. 


Sorry, Rhianon—am I able to ask just a quick supplementary there? We talked earlier, and in your answer there, around 'appropriate or necessary' or 'necessary or appropriate'. Would it be strengthened by going 'necessary and appropriate'? 

I don't think it would, because 'necessary' is the high bar. So, the Welsh Ministers would have to get over that hurdle in any event. 

Sorry, I see what you mean. 

—'necessary or appropriate', so you could ignore the 'necessary' and go to the 'appropriate', if you thought it was 'appropriate'. 

Yes, sorry.  

So, if the Minister thought—not you in particular—something would be 'appropriate', and I might not think it 'appropriate' but 'necessary', because it's proven under that definition of the higher bar as 'necessary', would that be a better—?

I think, if you were going to have it as a test where it's 'necessary and appropriate' there wouldn't actually be a point in having the 'appropriate' test. I think that's what I was trying to say, sorry. So, the 'necessary' is the highest bar, and, if you get over that bar, then if you had a test that was 'necessary and appropriate' you wouldn't actually need the 'appropriate'. And, I think, the point that we're trying to make with this is that we consider the wording, as it is drafted now, to give us a wider flexibility in terms of the test that we need to pass. 

So, the appropriateness element, and I think you touched on it in your answer around people potentially being adversely affected, or other groups, could potentially be used in the other way as well. So, it could be used badly as well as for good, if you like. So, is that 'appropriate' part—? Do we need that 'appropriate' part in there?

I think it was to capture those people, such as the example I set out, where a group of taxpayers are caught up in being required to pay a tax and it's outside of what we intended in the first place, so it's an unintended consequence. So, it would be appropriate for us and unintended, in the sense that the Senedd also wouldn't have wanted these people to be caught up in paying the tax. So, to remove them would be appropriate to meet our original policy intent. It wouldn't be necessary and they could carry on paying the tax, but it would be appropriate for us to take action to remove them. 

Okay, thank you. Sorry, Rhianon, for cutting across there. 

No, that's a really interesting conversation, actually. With regard to the evidence, which suggested that the purpose to respond to decisions of the courts or tribunal is too broad, given it would apply to any provision in the Welsh tax Acts, apart from those that we talked about at the beginning in terms of set-up and governance et cetera, what would be your response to that in terms of the witness evidence that we've received?


I think the provision is deliberately broad to capture all eventualities, because we can't predict at this point the future scenarios where the provision might be used, but perhaps I'll ask Lynsey to reflect on this some more as well.

Yes, so, I think I would just reiterate, really, what the Minister has said, that the wide drafting of this provision is intentional. We cannot predict what future scenarios will come down the line that we might need to use this power for. And that's essentially why it's been drafted in the way that it has. We don't want to try to restrict the scope of the Bill too narrowly.

Thank you. That's clear, in terms of your response to that question. It was suggested that the case to amend legislation to protect against tax avoidance and to respond to decisions of the court or tribunals has not been made, in a similar vein, so is there anything further that you want to elaborate on as to why you feel it's necessary to obtain powers to legislate in these areas? Is there anything further that you wanted to add to that?

I would contend that the case is made. There are court cases that happen continuously, be they related to—not so much so far, but related to—the Welsh taxes; there's often a delay in cases reaching the state of coming before the tribunals for appeals. So, it's again, acting to respond to future changes, and, at the same time, not only are there potential cases that will be coming forward in relation to our own devolved taxes, but cases in relation to the predecessor taxes—so, SDLT or landfill tax—can also impact on how our tax works, because a lot of our legislation is the same as their legislation, so, arguably, the court decision would apply to ours as well. 

And even wider than that, though, there are other tax cases that have happened. There was one recently in relation to tax returns. Now, we don't need to respond to that, but, potentially, we might have needed to respond to that. That relates to different UK taxes, but they may have had an impact on our taxes. And then also, again, looking primarily at the land transaction tax, there's also the possibility that changes in land law could have an impact on our taxes. So, a court case in relation to land law could have an impact on our taxes and how our legislation works that we would need to respond to. So, there is a constant need to keep an eye on what's going on out there, as it were, to be able to make sure that our legislation remains fit for purpose, protects taxpayers' rights and also protects the Government's right to receive the moneys that it intends to—and the Senedd intended the Government to be able to—use to meet its obligations to fund public services.

Thank you; you've been very clear on that. The Welsh Revenue Authority told us, though, that avoidance isn't a risk that it currently sees within these two devolved taxes and that the existing anti-avoidance provision in the Tax Collection and Management (Wales) Act 2016 is, in effect, a deterrent, as we stated previously. It further noted—the WRA—that a scenario in which these proposed powers would have been beneficial to the WRA or Welsh taxpayers has not yet arisen. Do you agree with that? Does the Minister agree with that? And I note what's just been stated, but what is your reaction to that?

I would just say that we take tax avoidance very seriously and there is the possibility of circumstances changing in the future and things might arise that might require us to respond quickly. And this Bill would offer us the opportunity to do that. So, whilst the WRA hasn't identified anything up to this point, as I say, we are still quite early on in our journey of Welsh taxes, and, as Andrew's just suggested, things are moving all of the time and there might be circumstances that we would want to respond to rapidly in the way that the UK Government is also able to.


Thank you, Minister. And finally, the Institute of Chartered Accountants in England and Wales told us that its guiding principle is that penalties have a major impact on the taxpayer and are not something that should be imposed by way of regulatory powers. How do you respond to that, and why does the Welsh Government need this power?

Well, I think there are already some really strong safeguards in place in the Bill. You see that the Bill already provides that penalties can't be imposed with retrospective effect, and then we have section 5 in the Bill, which seeks to protect taxpayers. So, if taxpayers had been required to pay and the regulations were subsequently overturned, obviously we'd have situations in place where they would be reimbursed for that. So, we've put in place some quite strong safeguards, I think, for taxpayers, within the legislation.

Have you quantified any of that? Have you thought through any of the financial impacts you mention there about—? Have you scenarioed it out? Have you worked out, if something did happen, what the clawback mechanism would be and how much it would actually cost?

Again, I think evidence was provided previously to the committee. I think we followed up with a letter to yourselves in which it was set out, looking at, I think, some of the examples of the costs of the changes that were made in December 2020, which were made—rates and bands—by provisional affirmative, and there I think the WRA fed back to us and then we fed to the Minister and the Minister wrote to yourselves saying that the costs would have been able to be absorbed within their normal budget, working on a basis that maybe there would have been 1,000 people requiring a repayment.

Not the changes, as such, but, if there was a case where you'd made a mistake or a tax had been changed and then you had to roll it back, have you given any thought to how much that would affect—? Because the taxpayer wouldn't be penalised. They'd get their money back. But if somebody hadn't paid, because they weren't required to, there wouldn't be a clawback element. So, have you scenarioed that sort of element?

I think this would depend in large part on the decision that was taken in the first place in respect of the tax, but the important point is that, if the Senedd then decided not to approve the regulations, the taxpayer is fully protected as a result. But to what extent that taxpayer would be protected would depend on the decision that was made in the regulations, so it's hard to quantify, really, because it could be a large change, or it could be a small change; it would just depend on the circumstances at the time. But when we got to that point of laying those regulations, we would obviously have much more detail, then, to share with the committee.

I'm assuming that, as part of the scrutiny process then, the consequences would be part of what we would be looking at before we approved those regulations, and that would be something that this committee would be involved with.

Yes, certainly. When we lay regulations and when regulations in relation to this are either laid or made, quite a detailed explanatory memorandum is often laid at the same time, or is laid at the same time. The Minister makes the explanatory memorandum, and, in that, that often sets out what the choices were, but also sets out what the consequences of the regulations will be, and that would include, potentially, an estimate of the number of taxpayers that would be affected, and the tax that would be at stake, and you could then work out what it is per taxpayer, I guess. But it can only ever be an estimate at that stage, because the action is being taken to respond to the external event. We'd anticipate how many taxpayers would be affected and the tax consequence, because, obviously, that—. Especially that would be the case where it relates to the consolidated fund purpose, but obviously that would also feature in other explanatory memorandums for the other purpose tests—who's affected, how much they're affected by—because obviously that's important as part of your scrutiny of the regulations that the Ministers would bring forward.


Thank you, and I wanted to turn to these retrospective changes, because this is an area that many of our witnesses so far have raised quite a lot of concerns about or certainly some anxiety around, because it's seen that it's a cardinal principle of law that the law should be certain in its effect. Do you agree that these powers could provide uncertainty to stakeholders?

Well, I've been clear so far that I would usually expect retrospection to be limited to cases where the impact would be to confer benefit on Welsh taxpayers. So, for example, if we wanted Welsh taxpayers to benefit from a reduction to their tax liability from the same date that a similar change was introduced in England, I think that that would be a welcome retrospective decision by taxpayers, and I would consider it to be reasonable, then, in the taxpayers' interest, for the legislation to come into force with retrospective effect, and I think, as well as being reasonable, it would be desirable as well for taxpayers.

In the case of avoidance activity, we might want to be able to announce that a scheme was going to be shut down by future regulations, but effective from the date of the announcement of that intention, and, again, I think that that would be an appropriate thing to do. So, I think although it is an unusual approach, I think that within the field of tax, particularly, it is appropriate. I think that it has been recognised elsewhere that tax is special and tax is different and can be treated as such, and I think that there are ways in which we can confer benefits on taxpayers quickly but also protect Welsh Government revenues as a result.

And again, we've built in important safeguards within the legislation. One thing that I know has come up in scrutiny and I want to give some further thought to is whether it's appropriate to restrict the ability to legislate retrospectively back only as far as the date of an announcement in relation to a decision, so that's something that I'm exploring further, and obviously keen to hear the committee's views on that.

No, that's welcome. I think the concerns were to safeguard the public, who may have made a decision in good faith at one time, but to find themselves outside the law in another one at another period soon after was a concern about retrospective decision making.

However, I'll just move on. Sir Paul Silk was with us only last week and told us that there are no examples in Westminster of retrospective secondary legislation, so this Bill would be a first for the Senedd and, he said,

'but not a first that I think the Senedd should be particularly proud of.'

How would you respond to that?

I think Sir Paul is referring particularly to secondary tax legislation that is retrospective. Beyond that, I think that there are numerous examples of retrospective secondary legislation in Westminster, and I don't know if officials just want to give one or two of those examples.

So, there are actually lots of examples of retrospective secondary legislation in Westminster. I've written down a couple of examples that I can share with you. So, section 10(2) of the Human Rights Act 1998 allows a Minister of the Crown to amend primary legislation by using secondary legislation to ensure that that primary legislation is compatible with a convention right—so, the European convention on human rights—in situations where a court has determined that the primary legislation is incompatible.

So, this power has been used many, many times in Westminster. An example recently: the Asylum and Immigration (Treatment of Claimants, etc) Act 2004 (Remedial) Order. So, that amended—. So, that was an Order that was made in 2011, and it amended an Act that was brought in in 2004, retrospectively, obviously, and was brought into force as a result of a court decision that recognised that immigrants who were married and weren't married should have equal status. There's also legislation that's been made in Wales as a result of section 34(3) of the Fire and Rescue Services Act 2004. This, again, allows legislation to made retrospectively and not just backdated to the date of the announcement. Regulations have been made using that power in England, Scotland and Wales. As the Minister said, we think that Sir Paul is referring to secondary tax legislation.


Let's discuss it in those terms, then. I accept what you've just said around secondary legislation, but from a tax perspective, is it one we should welcome or we should be proud of?

I think that we're creating a tool that is potentially necessary, and I think that if you were a taxpayer who was having, retrospectively, a benefit conferred on you, you would absolutely welcome that. [Interruption.]

It's the one that comes with the phone.

It was about conferring a benefit on taxpayers and wanting to do so at the earliest point, rather than having to wait for the whole process to end. I think taxpayers would welcome having that benefit at the earliest possible opportunity. Likewise, we would want to shut down avoidance schemes at the earliest possible opportunity, which is partly why the four purpose tests are so narrow and they do limit very much the decisions that Ministers can take.

Sorry, Peter. The inverse of that is that somebody could find themselves inadvertently with a huge tax bill for something that they were completely—. They were thinking that they were working within the law, the law changes retrospectively and all of a sudden you might have 10 years' worth of back taxes to pay. Or is that covered in the legislation?

I think it's covered partly by the fact that the legislation has to comply with good law principles in the first place, so there's an inevitable restriction there. Maybe Lynsey can help more on this, but tax, under the European convention on human rights, is given a wide appreciation in terms of how it relates in terms of retrospective legislation.

There have been lots of court cases in the UK as well in relation to retrospective legislation that's been introduced by the UK Government that has been found to be compliant with the European human rights Act [correction: with the Human Rights Act 1998]—that the taxpayers were given adequate notice or should have known that there was likely to be changes brought in, and that that retrospective legislation is fine. It's happened in stamp duty land tax in particular, and we can provide the specific related court decisions that were made around those. But there is an acceptance that, in tax, the Governments of Europe are given a wide appreciation as to the application of tax legislation retrospectively. So, there is a principle that is being followed here, albeit through secondary legislation rather than primary legislation.

But we're a relatively new Government, with a new constitutional position, and I think we need, possibly, to adapt the tools that are available to us for the future to make it work for us now. Obviously, with more taxes et cetera, we might end up having different legislative vehicles that we'd be using, but at the moment, the Government considers this to be the right approach.

Thank you. Some of the evidence recommended that the Bill should include provisions requiring Ministers to give advance notice to stakeholders of their intention to make amendments to the Welsh tax Acts. What consideration did you give to this when drafting the Bill?


We're really fortunate in the sense that we've got an excellent range of stakeholders with whom we engage very frequently on tax matters and take their opinions, information and advice. That's been really helpful in the development of the proposals in front of us today, but also generally through our tax journey. We're very fortunate in that respect.

We would have to consider how we would engage informally, I think, and in confidence, with key stakeholders before and during the drafting of regulations to explore whether what we're proposing will meet its intent, particularly when regulations are to respond to changes made by predecessor taxes by the UK Government. Obviously, there's lots of expertise that we can draw on there. I think, depending, though, on the nature of the change proposed, the primary consideration would be the confidential nature of those discussions, because obviously, we'd want to avoid forestalling and so on, so we'd have to consider carefully, on the basis of what kind of regulations we were bringing forward, who we would consult with and when. Obviously, we have this ongoing discussion and we'd have to think about the appropriate bodies and individuals to engage with at that point.

Also, just to repeat that the Senedd scrutiny, which is built into the Bill, is really important. Whilst we will take opportunities to engage, obviously, this committee might want to take formal evidence as well on our proposals. I think that it's really positive that there will be opportunity for that kind of engagement.

Thank you. It was also noted that the use of the power to legislate retrospectively in the case of decisions made by the courts and tribunals could interfere with the rule-of-law principles and risk legal challenge. What's your assessment of that assumption? 

I think elements of this have been discussed already. There is a wealth of case law that gives governments quite a wide margin of appreciation in terms of tax cases. I think the most obvious challenge in terms of tax would be to article 1, protocol 1 of the European convention, which is the right to enjoyment of possessions. In these types of cases, taxpayers have argued that the money that they would've paid in tax is a possession. But overall, in the majority of cases, the courts have given a wide appreciation, because article 1, protocol 1 is a qualified right rather than an absolute right. So, if there is a public interest in the government pursuing a particular policy, then the courts have accepted that. I think the courts have always considered the balance, really, between the rights of the taxpayer and the public policy that the government is trying to pursue.

I think also they've considered whether the policy that the government is intending to bring in is devoid of reasonable foundation, and I think that they've said that just because it's retrospective, that doesn't mean that it's devoid of reasonable foundation—again, you need to look at the balance between what the government's trying to achieve and the individual rights of the taxpayer. I think Andrew has already said this, but we'd be happy to provide details of those cases for you if it would help.

Thank you. Just a couple more questions from me. We've also heard reservations about whether the urgent affirmative procedure could ever be justified where the regulations are to have retrospective effect, and that such regulations should always be by way of a draft affirmative procedure. Do you feel that this is valid, given the contentious nature of retrospective changes?

Generally, I wouldn't consider that any of the narrow four purpose tests should be excluded from the made affirmative procedure, and that's because those four purpose tests have been specifically designed to capture scenarios where we might need to respond at pace. I think that pace is one of the key considerations here. I might ask officials to respond a little bit more on what the implications might be if we didn't have that. Who wants to go for that? Andrew.


I'll go. I think one of the things to remember is that retrospective can be a matter of days, or it could be a matter of a number of months or even years, and I think there are different arguments that possibly exist for different circumstances. For example, if there were to be retrospective legislation introduced in response to a UK Government change that Ministers wanted to either replicate or adapt in a different manner for Wales, to provide the same benefits to taxpayers with potential reductions in their liabilities—. If the Government made an announcement, say, five days after the UK Government that it was going to introduce these changes, it would seem odd, then, to have a draft affirmative that would require all the taxpayers, until that set of regulations was passed—just to use the draft affirmative, when, really, we're only looking to throw back for a very short period of time.

Also, there are other practical implications, because, obviously, until the draft affirmative regulations are passed by the Senedd, they're not law. So, taxpayers would be required to send in their tax returns based on the law as it is, not the law as it will be, and therefore they may find themselves needing to then send in amended returns in order to match the new retrospective changes, which, effectively, would be potentially doubling up their admin costs in doing it. So, it's a very valid point, but I think there are potential downsides, not only in terms of confusion or not bringing in the changes as quickly as would be desirable, but also, then, potentially loading up taxpayers with additional administrative obligations, and, obviously, the WRA as well.

Thank you for that. Just a last one from me, Chair. Evidence submitted during the inquiry suggested it would be beneficial if the Senedd had a statutory role in approving and amending the statement on retrospection. What are your views on this?

I see the statement as a policy statement on how Welsh Government Ministers would use the power to make retrospective regulations. I think that it's intended, really, to give security to the public and the Senedd that the power to make regulations with retrospective effect won't be abused, and also to ensure that we are open about the basis upon which we would use those powers. So, I think the statement is really important. I know we've provided a draft copy of that alongside the documentation with the legislation, so I'm really keen to hear the views of this committee, and other Senedd committees as well, on the content of that statement, to explore whether or not we should make revisions to that. It is a draft at the moment. What I would say is that the appropriate and important point for the Senedd to have its say is at that point of voting on the regulations in respect of approving them or rejecting them. I think that that is the powerful moment for the Senedd to exercise its authority on it.

Going back to an answer you gave to Peter Fox earlier—and you said you were thinking about it—the position of bringing in retrospective before a warning or a statement in the Senedd, or some means by which people can know you're thinking about it or you're going to do it. You said you're thinking about it. What is the argument against only having a retrospective from the point at which you or your successor—? One of the things we have to always do with legislation—. It's not about you, because in 20 years' time, you probably won't be in that position, and in 50 years' time, you almost certainly won't be in that position. And, in 100 years' time, you definitely won't be in that position, but there will be somebody acting in terms of finance, in terms of the Senedd, and whatever we pass now really will carry on to them. So, what is the argument you've got against saying that, if it's retrospective, it's only retrospective for the moment that we give a warning—preferably in the Chamber, but we know that that isn't always possible; we can be in recess, or things can be happening—publicly by just making a statement or announcement? What's the argument against that?

It wasn't something that we'd proposed initially, and it's something that has come through consultation. I'm very attracted to it, but I do think we need to think it through fully, which we haven't done yet. But I do see a very strong argument for it and it's something that we are giving consideration to. I can see Andrew wanting to come in on this point.


Only if you're happy, Minister. I agree; in most cases, that's exactly what's happened. The SDLT case that we'll provide to you, which was retrospective, involved a constant to-ing and fro-ing between avoiders or promoters and the UK Government, where, each budget cycle, the UK Government made changes and the schemes would be adapted ever so slightly and then rolled out again. In the next budget, the UK Government would make another change, and this would carry on. Eventually, I think it was 2012 that the Chancellor said, 'These are these changes, if you do it again, it's going to be retrospective back to today's date.' I think that that's a good example and that provides the backstop that you're looking for there.

But I think we need to be clear that there are two announcements, possibly. There's the announcement of the legislation that's being brought in that may come after that, but there's also this sort of announcement that's a kind of warning announcement. Either, I think, should be valid for, or the Ministers would want to be valid for, the backstop date.

But there are other examples. There's been a recent example in the Finance Act 2019, where, for income tax and corporation tax, there were what were deemed to be voluntary returns where taxpayers—. Normally, if you make your own income tax returns, you know that you get the notice from HMRC to file by 31 January the following year. Now, in those cases, some people were sending in voluntary tax returns. Often, those were linked to avoidance activities, because one of the desires is for taxpayers to seek to protect themselves against discovery, so if you voluntarily send in a return—. And there was a court case that found that such returns weren't actually valid and that would have impacts both for those taxpayers who had already sent in their returns and believed themselves to have obtained the protection of having made that kind of disclosure to the tax authority, but also it would have an impact, potentially, on inquiries that HMRC had conducted into those returns. Would those all have suddenly become invalid? This was a court case that had decided that such voluntary returns weren't valid returns, and so the UK Government introduced legislation to give voluntary returns a statutory basis back to the date of the introduction of the self-assessment regimes for income tax and corporation tax. Now that, obviously, didn't have a statement back to 5 April 1996—there wasn't a statement made then—but that's the sort of thing where I think we need to be careful that we don't preclude the Government being able to take action there.

I agree with you, but that's complying with the law, either international or the law as interpreted by a court. I don't think any of us have any problem with doing that. What I have a problem with, and I'm sure others do, is that some time in the future, there is a decision made by a subsequent finance Minister who decides that something that people have done quite happily for the previous five years is now something that is not allowed and goes back.

You mentioned corporation tax: corporation tax is effectively a voluntary contribution payment by multinational companies. They pay as much or as little as they want, and some of them with a couple of billion pounds of turnover pay corporation tax of £10 million, £20 million, and they do it legally. Examples are Amazon and Google, the two that people normally throw out, but there are plenty of others. Westminster have got nowhere near dealing with corporation tax. Whether they want to or not is another matter. I think that if the law says it, or if you've made a statement, that's one thing, but a Minister, whoever they are, deciding at some stage that they want to go retrospectively back, I think, is something that does cause concern, certainly to me and possibly to others.

There are protections for the taxpayers in relation to retrospective legislation, and those would still be available to them, and that's things like this SDLT case where the trigger point, going back to the date of the announcement, is important. As the Minister has said, that's something that we're looking at and exploring at the moment.

Thank you. If you look now to, again, some questions that Peter asked, and I'm sort of following on, so apologies for that. I hope not to go through anything the same. We've heard that the made affirmative procedure is historically very unusual. We talked about that earlier, and you talked about lots of examples of the sorts of things being done in the past in different areas. When has made affirmative been used in tax legislation?


It has already been used in tax legislation in Wales. So, section 24(5) of the Land Transaction Tax and Anti-avoidance of Devolved Taxes (Wales) Act 2017 provides Welsh Ministers with the power to make regulations via made affirmative procedure to change rates and bands, and there are similar provisions in the Landfill Disposals Tax (Wales) Act 2017. So, they are already in place in Wales.

Are they in place in England, Scotland and Northern Ireland or other parts of Europe?

They're certainly in place in Scotland in relation to setting rates and bands again, and in the UK there's section 109 of the Finance Act 2003, which is where the SDLT legislation is found, that provides UK Ministers with the ability to make made affirmative regulations in any aspect of SDLT legislation, with the exception of setting rates and bands.

We've heard evidence submitted to the committee supporting the use of a sunset clause in relation to taxation. Did you consider it? And if you did, why do you reject it?

We would reject it on the basis of just the practicalities of it. So, if a sunset clause of five years was placed on the Bill, that after any points—. So, regulations that had been made under that would then fall away. I'll ask Lynsey, perhaps, to reflect on what the implications might be of that.

So, a sunset clause, essentially, is where a provision is in force for a certain amount of time, and then it's no longer in force. So, the issue that we would have with that is, if we had primary legislation in place within this Bill, which had a sunset clause, any regulations that we made underneath that would fall away once the enabling power fell away.

I think in the UK it's a different scenario because sunset clauses that are made under the Finance Acts are, essentially, absorbed or mopped up, for want of a better phrase, by an annual finance Bill. So, there's always a vehicle that will ensure that those provisions remain in force, whereas we don't have similar provision.

Yet. It's inevitable we will have a finance Bill at some stage, I think. At what stage, under what Government, we don't know. But as we get more taxes devolved, as we get more powers devolved, it has a level of inevitability that we'll have one. I don't want anybody to comment on that—I think it's just a statement of what a friend of mine would describe as the blindingly obvious.

The question I would ask, though, is: can't you have a continuity Act? Can't you say, 'A sunset clause says, on 16 February 2027, this would end and, on 15 February 2027, we'll have an Act passed that gives continuity to the Bill'? So, the sunset clause ends it, but you could perhaps have a continuity Act.

Could I ask what would be the purpose of that?

The purpose of that would be—it's straightforward, really, I thought—that it would end on this date and that would mean that people would have to think about it, and they'd want to think if they want to continue with it or not, rather than it continuing for eternity, so that you then move and think, 'Yes, this is working, we'd like to move it forward for another five years.' So, you sort of have a check-up on the Act, rather than it continuing to go for ever.

I think part of the difficulty with a proposal like that, especially if it's as tightly defined as 15 February—the day before the sunset clause is due to pass—would be that it creates considerable uncertainty for taxpayers. If we look at, say, our land transaction tax, people would sit around and wait and see whether the Senedd has renewed it, because if those regulations fall away, those changes fall away, then wouldn't it be handy to wait until—? And that's always one of the difficulties with the land transaction tax in particular: it's influencing people's decisions about whether they're going to to enter into transactions or not, and that's one of the reasons why rates and bands for LTT often come in immediately, to stop that sort of planning.

So, I can see the attraction of it, but I think also it creates possibly unnecessary uncertainty. And also the difficulty is that if it relates to the Act itself rather than, perhaps, to individual regulations under the Act, if the Act isn't renewed, then all of the regulations that are made would fall away. So, you'd need to relegislate for the ones that you wanted to keep, arguably, or for all of them if you wanted the Act to fall but all of the changes that happened previously to remain in force. Then, if it did relate to individual regulations made under the Act, then obviously you'd have more uncertainty created, arguably, and also the unwinding of individual regulations might actually be much, much more complicated.


I'll keep on this, because I think it is a point I'm interested in, if no-one else is, and that is that, obviously, the Minister, whoever they were, 12 months before the sunset clause or up to five years, would say, 'It's our intention to continue with this and continue all the regulations under it', so, all of a sudden, you've got a statement on that. All that has to happen then, surely, is that you have to take a small piece of legislation through that says something like, 'The Act and all regulations under the Act will continue from whenever the sunset clause ends.'

It's not something that has ever been done in Welsh Government, as far as I'm aware. 

I think it would be possible, but is it desirable, and what would the real purpose be?

Well, 'Is it desirable?' is a matter of opinion and I'm sure you'll get, this afternoon, 60 different opinions on whether it's desirable or not. What's the benefit of it? It means that you have some form of review. If you're not going to do that, how are you going to review it? Because I think one of the criticisms of taxation and other legislation is that it rarely gets reviewed. It goes through, it's passed, it's implemented, some amendments come later down the line, but very little review ever takes place. It's almost ticked off by Ministers and civil servants, 'We've done that', and the opportunity to actually get people—. If you're not going to do that, can you review it? I think that my view, and I might be a minority of one, is that things need to be looked at all the time and need to be reviewed, not every year, but every five years or so, to say, 'Is this working? Is this doing what we expected it to do? Do we need to change it?' Now, if a sunset clause is something you don't want—and I think Wales is different because we're a very new legislature, so I wouldn't expect there to be many of them—how else are you going to review it? I don't mean you, Minister, because in 10 years' time or 20 years' time, somebody else will probably be—

All right, in 100 years' time, somebody definitely will be, and it's unusual for people to hold the same ministerial office for 20 years or so, isn't it, at any level? So, I just think that we've got to remember we're not doing this with you, we're doing it for the future. So, at what stage should it be reviewed, then, or do we just say, 'We've passed it now, let's get on with it'?

No, I agree that we should be reviewing legislation. I think, with this piece of legislation, a review after the legislation has been used a number of times, or different parts of the legislation or those four purpose tests have been used at different times, I think that would be a useful time to review it. Obviously, a future finance committee, of which you may or may not be a member, would be a perfect place to do that.

If you want to go to 10 years' time, I probably won't be a member of the finance committee and I think there may well be an entirely different committee. I'm the only one who was here 10 years ago, so the likelihood is that the membership will change, because that happens all the time, doesn't it? Committee membership changes, ministerial roles change, so you have all these things happening, and what we've got to do is something that is for the future, for whoever happens to be sat in here.

On that same theme, as a new Member of this Parliament, how do we change bad law? If it proves to be bad law, how do we as the legislature change it? Is there any way in for us? This gets to the fundamental crux of this: as a legislature, how do we influence it, because once it's there, it's there? That's why the rigour of challenge on scrutiny is so important. 


So, committees can, at any point, decide to undertake a review of legislation or a part of legislation in order to try and make a case to the Government for change, and we would always engage with that kind of work.

And—. Sorry, I was only going to add that, in terms of primary legislation, you would need further primary legislation to—. If, for example, you decided in how ever many years' time that this Act didn't work at all and you wanted to completely change it, then you would need to introduce further primary legislation—

—to revoke it and then replace it.

And we have had committee legislation in the last Senedd as well, so—.

Sorry, Mike, if I may, going back to what the Minister was saying there around when to review—and it may be coming across what Mike was about to say—would it be possible, or would you think it appropriate, to put into this legislation a clause that says that this will be reviewed after all four have been used or some stipulation of, 'Actually, that would trigger that review', rather than some time in the future when we deem it necessary or deem it appropriate? So, are we able to put in there that, after it—? Because this legislation, in theory, might never be used, and might never need to be reviewed because it's never been used, so it would just sit there and do nothing. If we do have to use it, does that also automatically trigger a review of it to check that it did what it was meant to do? So, I'm just wondering if, in your consideration, would that be something that you'd build into this so that—? Because this might sit on the statute book now for 20 years and never be used, but at that point it might be used and things might well have moved on, and building that mechanism into it might give us a bit of comfort then to check, 'Okay, it's been used, it's been checked and it worked', or 'It's been used, it didn't work as it was meant to, can we change it?'

Shall we see what committee determines in terms of a recommendation in that respect, and we'll give some further thought to how the legislation could be reviewed? My initial thought with what you described is that the legislation might be used several times in respect of one of the four purposes, but you could be waiting a long time for one of the other four purposes, or to get the full set, if you like. So, it might be—. We'll find the right way to think up something. 

Whatever mechanism works so that it would give it enough chance to be used properly so that we've got something to test, but also to look at—. It might not be the four purposes, and then we'd think, 'Well, actually, do we need the four purposes or do we just need three purposes because it's only those three that we've used?' So, it might be something for you to reflect on and committee to reflect on. 

My first comment, I wasn't writing you off, Rebecca—Minister—but all you have to look at is, historically, finance Ministers last between about three or four years before they move on. 

Before they move on, normally to higher office, if that makes you feel better. 

No, you're fine now. But this idea that there will be different ones, I think is—

No, but I just want to make that point. The really key thing is, if it doesn't work at all, yes, you'll deal with it. There won't be any problem at all; you'll come back with further legislation. If it works perfectly, everybody would say, 'Well done, you've got it absolutely right.' The likelihood, or near certainty, is that it'll work quite well with a few bits not working quite as well as you thought when you brought it in. And that's the bit that I've been trying to tease out: how do we address that and how do we get, effectively, the ministerial office to address that, or do we need to have investigations as a committee? Should the current Chair suggest that, in five years' time, after this legislation is passed, the new committee, of which he or I may or may not be members, and Peter may not be a member and Rhianon may not be a member, can actually then look at it and say, 'This was passed. Is it working?' I think that it's that idea, and we've got a role as well; I think it's up to us to accept some responsibility. And so, perhaps when it's passed—I'm just thinking aloud here, which is always a dangerous thing to do, but—should we as a committee, and would you like us as a committee, in five years' time, in the next Senedd, whoever is in the committee here to be recommended to actually go and look at this piece of tax legislation? 


Yes, that might be something that this committee would put in its—I can't remember the name now—end-of-term reports that committees do, recommending future work for other committees. 

I think that because that would mean us fulfilling our role, and the most important bit of that, of course, is that it would concentrate the mind of whoever is appointed as finance Minister when we know that that is something that is going to be looked at. Thank you.

Okay. Thank you very much. I've just got a couple of questions left. You told us previously that there's no uncertainty or subjectivity as to how the proposed power may be used, because the four purposes are set out in the Bill. Do you still hold the view in connection to the tax avoidance and responding to decisions of the courts and tribunals purpose—is that still one that's fit for purpose?

Yes, I do, and just because the concept of tax avoidance isn't defined within the legislation, it doesn't mean that there's uncertainty in that respect, and I think that the provision is deliberately wide for the reasons that we've discussed. So, I don't think that this is an area of concern for me particularly. 

Fine. Thank you very much for that. And just a last one from me, really. I know you gave evidence I think yesterday to the Legislative, Justice and Constitution Committee, and you've been with us and you've heard some of the questioning and some of the discussion. Out of that, what are the key points that you're going to be reflecting on? I think we've touched on one there on review, and, obviously, you'll reflect on what our recommendations might be, but what are the key takeaways for yourself that have made you think, 'Actually, I need to have another look at that before taking this forward'?

For me, the review point is really important. I think hearing your views on the draft statement will be really important, and this point about retrospectivity back to the point of announcement. I'll give some more thought in terms of what that announcement might look like, and what the pros and cons are as well. I don't know if officials have taken anything in particular as well that they wanted to mention. 

Only that it's been very interesting.

Yes, it's been fascinating to listen to the answers and to go through it with colleagues, and I know Peter's been through it with two committees. 

I have to say, it's far nicer doing it in person like this, isn't it? It feels a lot better.

Wel, diolch yn fawr iawn i chi i gyd am ddod bore yma, ac am ateb ein cwestiynau ni yn glir ac yn eglur. Dwi'n falch ein bod ni wedi gallu gwneud hyn mewn person, fel roedd Peter yn ei ddweud yn fanna. 

Thank you all very much for being here this morning, and for responding to our questions so clearly. We're very pleased to have been able to do this in person, as Peter was saying.   

4. Cynnig o dan Reol Sefydlog 17.42(ix) i benderfynu gwahardd y cyhoedd o weddill y cyfarfod
4. Motion under Standing Order 17.42 (ix) to resolve to exclude the public from the remainder of this meeting


bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yn unol â Rheol Sefydlog 17.42(ix).


that the committee resolves to exclude the public from the remainder of the meeting in accordance with Standing Order 17.42(ix).

Cynigiwyd y cynnig.

Motion moved.

Felly, yn unol â Rheol Sefydlog 17.42, dwi'n cynnig bod y pwyllgor yn penderfynu gwahardd y cyhoedd o weddill y cyfarfod yma. Ydy pawb yn fodlon? Diolch yn fawr. 

So, in accordance with Standing Order 17.42, I propose that the committee resolves to exclude the public from the remainder of the meeting. Is everyone agreed? Thank you very much.

Derbyniwyd y cynnig.

Daeth rhan gyhoeddus y cyfarfod i ben am 11:08.

Motion agreed.

The public part of the meeting ended at 11:08.