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MPs question use of retrospective legislation and impact of corporation tax cut

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MPs have recommend that the government restrict its use of retrospective legislation to ‘wholly exceptional circumstances, which should be narrow and clearly-defined’.

The Treasury should set out those circumstances as soon as possible for consultation, along with an explanation of how ‘gradual further extension of retrospection can be prevented’, the Commons Treasury Committee said in its report on the recent Budget, published today.

‘Any future retrospective tax measure must be justified against the agreed criteria: such justification must include clear explanatory statements to Parliament by the responsible Minister and should invite views from relevant professional bodies.’

The committee also concluded that:

  • The cost and benefits of reducing the additional tax rate to 45p were ‘highly uncertain’ and could be ‘significantly more or less than the cost included in the Budget’.
  • HM Treasury should ask HMRC to assess the impact of the cap on income tax reliefs on business investment and charities.
  • While the reduction in the headline rate of corporation tax was intended to send a positive signal about the UK as a place to do business, and was ‘forecast somewhat to encourage investment’, other measures such as the reduction in the capital allowance rate ‘may mean that the immediate benefit of the corporation tax cut is only felt by a subset of businesses in the UK’. The committee recommended that the government monitor and report on the impact of the reduction in corporation tax on businesses of all sizes.

Finance Bill debates

The committee said the timing of debates on the current Finance Bill was ‘highly unsatisfactory’. A two day gap between the second reading and the committee of the whole house stage allowed very little time for amendments to be prepared and tabled.

‘The scheduling appears to be the result of a lack of parliamentary time to pass the Bill before the summer adjournment.’ The Bill received its second reading on 16 April and the committee of the whole house is set to debate the Bill today and tomorrow.