1.  As you may be aware, the London Investment Banking Association represents the principal securities houses and investment banks operating in the United Kingdom. While our membership includes all the UK owned investment banks, most of our members are from abroad—they are in large measure the world names whose major presence here makes the UK the international financial centre that it is (a list of our members is attached).

  2.  We note that the Treasury Sub-Committee will be holding an inquiry into the work of Customs & Excise later this year, and are writing in response to the Committee's request for written submissions in relation to that inquiry.

  3.  Our members have become increasingly concerned about the administration of VAT legislation. The first major concern is that important changes in technical areas are being made with little or no prior consultation. Our experience is that such failure to consult can have consequences which were not anticipated or desired, and which may be damaging to the competitive position of London as an international financial centre. While we entirely understand Custom's concern that consultation can lead to forestalling, this needs to be balanced by the need for tax measures to be drawn up in ways which achieve their intended purpose. Our view, reinforced by the way in which certain of the 1999 Buget changes were introduced, is that this balance is not being drawn appropriately, and that this is having detrimental consequences for the City and for the international earnings which it generates.

  4.  A second major concern is that anti-avoidance measures are being drawn up in ways which make it unreasonably difficult and costly for legitimate traders to establish that perfectly innocent transactions will not be attacked under very wide drafting powers. Central to this concern is a belief that the term "avoidance" is increasingly being used to describe situations where traders believe in good faith that they are doing no more than legitimate planning to reduce their tax liabilities.

  5.  We hope that it might be possible to reach a better measure of agreement on what is meant by tax avoidance; this, combined with more effective consultation to ensure that new regulations are introduced in a manner which makes them effective, would, we believe, help to make the collection of tax in general, and of VAT in particular, more cost effective both for collectors and for traders.

  6.  We have raised these matters with the Chairman of Customs & Excise, and with the Director—VAT Policy, and are scheduled to meet with senior Customs and Excise officials in the near future to discuss the issues.

  7.  We feel that the general objectives of more effective consultation and working towards a more satisfactory practical approach to what constitutes "avoidance" go to the heart of the Sub-Committee's focus on "Customs" success in encouraging and enforcing compliance . . ." in relation to the administration of VAT. We hope that our forthcoming meeting with Customs & Excise will bring progress in this direction, and may wish to submit further evidence to the Sub-Committee in due course, or—if appropriate—to discuss our views on this matter with the Sub-Committee at the appropriate stage in their investigation.

30 September 1999