Finance Bill (Second sitting)

Alison Thewliss Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Rosindell, not least as a parliamentary neighbour.

As the Financial Secretary has outlined, this is the first of a number of clauses related to one of the most politically contentious issues—certainly across the House—in the Bill. By way of introduction, it would be helpful if I set out the Labour party’s position on the loan charge overall and on how we intend to approach the clauses and amendments this afternoon.

It will come as no surprise to any Member of this House that the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society, that it is important that all of us—individuals, organisations and businesses—pay our fair share of tax, and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do, whether that is keeping our country and our borders safe or providing the public services on which all of us rely.

Turning to the loan charge specifically, we have not opposed the Government’s changes, as we recognise their general approach to clamping down on tax avoidance schemes in this way. What I want to do with this clause and those we will discuss later this afternoon is to give an airing to many of the detailed and contentious issues that have been raised by Members of all parties right across the House.

The all-party loan charge group has more than 200 members, drawn from parties right across the Chamber. When we come to the later stages of the Bill on Floor of the House, Members will no doubt want to put forward amendments and push the Government to go further in some respects. It is therefore important in our proceedings here in Committee that we delve as deeply as possible into these issues, so that all Members can understand the Government’s thinking and the way in which policy evolved and then consider whether it would be appropriate to bring forward further changes and what those changes might be.

Let me turn now to clause 14. As we have heard from the Financial Secretary, these changes are made in response to Sir Amyas Morse’s independent review into the design and implementation of the loan charge. It was commissioned by the Government, but it is fair to say on behalf of Members across the House not only that the Government appreciate the work Sir Amyas Morse did—it is a thorough piece of work—but that we thank him too. He has done a great service to Parliament and to the wider public debate.

The Financial Secretary mentioned that the Government have accepted all but one of the recommendations from the review and, at some point this afternoon, he should elaborate further on the particular recommendation that the Government have chosen not to accept and implement and explain why.

Here, of course, we are looking specifically at the amendment to the date from which disguised remuneration loans are taxed under the loan charge from 6 April 1999 to 9 December 2010. The 2019 loan charge justified looking back to 1999 by saying that the Government and HMRC had always said that the schemes did not work, but Sir Amyas found that this was not the case before the 2011 legislation. Approximately 40% of the pre-2011 tax years in scope of the loan charge did not even have an investigation into them opened up by HMRC. Even if HMRC had made its position clearer, taxpayers are entitled to rely on the law as interpreted by the courts, and, clearly, legal proceedings have had a bearing on the Government’s considerations.

We will return to HMRC across the afternoon, but this is probably an appropriate time to say two things in relation to it. First, I place on record my thanks and the thanks of the official Opposition to all the staff and leadership at HMRC for the difficult work that they are doing overall at the moment on all our behalves, in the extraordinary circumstances we are all living through. Secondly, let us not forget that HMRC also has a slightly technical and complicated piece of work going on in the background, by which I mean the implementation of Brexit. In normal times, the demands placed on the Revenue are significant, but these are extraordinary times with unique challenges. I want to make that really clear up front, not least because I am about to criticise HMRC.

I must say, having served on the Treasury Committee in the previous Parliament and in the 2015 Parliament, that my discussions with HMRC in relation to the loan charge did not fill me with a great deal of confidence about the way in which it approached this issue over a great many years.

On the controversy generated around the issue of retrospection, where charges are being applied retrospectively, and why that is a really difficult principle and challenge for Members to accept, we in this House, whichever party we represent, do not like the idea of retrospective legislation. We do not like the idea that decisions—certainly levies or charges—apply retrospectively.

HMRC would have given the Government a much easier ride if it had done its job more thoroughly in terms of looking closely at individuals’ tax affairs over many years. One of the things that shocked me most, both as a constituency MP looking at my loan charge casework and as a member of the Treasury Committee, was that those individuals were filing their tax returns over many years. HMRC has said for a great many years that it has considered disguised remuneration schemes such as those covered by the loan charge, and specifically those covered by the loan charge, to be unlawful and contrived schemes, yet, in so many cases, no enforcement action was taken. People were happily sending in their tax return at the end of the tax year, not hearing anything further and assuming that that was good news: “If HMRC has looked at it and considered the tax return, then it must be fine.” Clearly, that is not the case.

I really hope that Ministers have properly dragged officials over the coals—not literally, of course, but metaphorically. In terms of the political controversy, the pain of a lot of victims—in a lot of cases there are victims of the loan charge, as well as people who sought to ruthlessly exploit it, not least the promoters, and there are a lot of people in our constituency casework who I would consider to be victims of the loan charge—would not have taken place if the tax inspectors had done their job more thoroughly and picked up on this activity earlier.

Constituents at my advice surgeries on Friday afternoons, many of whom have been in serious financial distress, have told a story familiar to Members across the House: “My circumstances were unusual. I am not a tax expert, but I took professional tax advice and made arrangements thinking that they were within the law.” The point is that, had HMRC picked up on some of these issues earlier, some of those constituents would have corrected their tax affairs much earlier, they would not have been in this position, and this debate on clause 14—on when the loan charge should take effect—would have been rather more redundant. None the less, we are in the position this afternoon where the date has been settled on as a result of the work not just of the courts, but of Sir Amyas himself in the report. We therefore support these clauses.

I would like the Minister, when he replies on this clause, to touch on a few issues. First, I would like him to say something about the discrepancy between the action being taken on taxpayers and on enablers of tax avoidance. That has been another significant controversy. It is not just the case that people have been scouring the internet in search of ways to minimise their tax liabilities. A number of promoters have been engaged in the promotion of aggressive tax avoidance schemes and have put their clients in an invidious position. I am sure I speak for people across the House in saying that we need tougher action against those promoters, who do a real disservice to the wider profession of financial service advisers. I do not believe, despite the reassurances we have been given by Ministers during successive rounds of parliamentary debate on this issue, or by HMRC in hearings of the Treasury Committee, that the action matches the rhetoric.

I would like the Minister to say more about what action is being taken against the promoters of these schemes.

As the Minister will be aware, the all-party parliamentary group is dissatisfied with the date set out in the Bill. Its report on Sir Amyas’s report picked up on some of the expert views that Sir Amyas drew on in setting out his conclusions. As set out on page 28 of the APPG’s “Report on the Morse Review into the Loan Charge” of March 2020, a number of experts were consulted during the review and asked the simple question of whether they agreed or disagreed with the statement that

“schemes entered into on or after 9th December 2010 would clearly generate an income tax consequence.”

Of the 14 or so experts listed on page 30 of the APPG report, a number did not comment, but—as the Minister and his officials will see when they review this, if they have not already done so—a number of those tax advisers disagreed with the statement.

The APPG cites that point in support of its view that the retrospective application of the loan charge is still going back too far. Given we are likely to return to this issue at later stages of the Bill, it would be helpful for all Members of the House—those who are APPG members and those who are not, but who may at some point be asked to express their view in a Division of the House—if the Minister responded to the point about how the date was arrived at, and whether there was a clear and consistent view or whether some of the arguments about retrospection are either highly relevant or redundant.

As the Minister explained in his introductory remarks, clause 14 enacts a recommendation of Sir Amyas’s report that rights a wrong. The Opposition will certainly not oppose the Government doing the right thing after a thorough review of the evidence and the judgments of the courts.

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Mr Rosindell. I agree with much of what has been said by the hon. Member for Ilford North. The SNP believe, fundamentally, that people should pay the tax that they owe, but it is clear from the evidence put to the all-party parliamentary group and in various reports that HMRC’s implementation has not involved appropriate communication with affected individuals. We believe that a review is in order to ensure that nobody is made homeless or bankrupt as a result of the loan charge.

I would also ask what consideration the Government have given to people’s ability to pay due to coronavirus, which may change people’s circumstances and their ability to repay. What consideration has HMRC given to those circumstances and how they might affect somebody’s ability to pay? It certainly will be beneficial to HMRC to get the money at some point, but if there is a strict time limit, within which people just cannot pay because they do not have the money and need to put food on the table, that needs to be taken into consideration.

It is something of a scandal that tax professionals advised clients to use these loopholes. There needs to be a further review into the advice given by those professionals and some comeback on the promoters of the schemes, who have clearly encouraged people to take them up. Individuals may have gone into them with their eyes open or their eyes closed, but the promoters of the schemes almost certainly knew what they were doing, what they were advising and what their intention was. We should go after those people aggressively, to ensure that they are not only held accountable for what they have done in the past, but prevented and disincentivised from coming up with similar loophole schemes in future. The very nature of our complex tax system means that the people out there who can benefit from those loopholes will always seek to find them. If we can send a clear message that that is unacceptable and there are consequences for doing so, that is worth considering.

My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) tabled early-day motion 296 welcoming the publication of Sir Amyas Morse’s loan charge review, the UK Government’s amendments to the relevant legislation through the Finance Bill such that loans made before 2010 will no longer be subject to the loan charge, and delaying the self-assessment deadline until 30 September 2020. The initial analysis suggests that more than 30,000 individuals will benefit from these and related measures, but we still believe that a pause in the policy is necessary before continuing to provide a report, assuring Members that HMRC is working constructively with those seeking a reasonable repayment plan—one that recoups the unpaid tax while avoiding the unacceptable risks of bankruptcy and homelessness. If HMRC is not in a position to deliver that, an independent arbitration mechanism should be used to achieve it.

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[Alison Thewliss]

I thank the Minister for his remarks. He recognises the importance of the schemes, but I think it is also important to recognise whether the effect of the policy is sound. We need to review and keep under review how this is actually working, and we need to understand the impact of the scheme.

This is why we have asked for a review to consider the effects of the provisions on business investment, employment, productivity and company solvency. We want to look at parts of the United Kingdom—Scotland, Wales, England and Northern Ireland—to see if there is any differential impact as well. It may be the case that some aspects impact on different sectors in different areas more so than others. I know that colleagues in the north-east of Scotland may want to highlight the impact on the oil and gas industry, whose employees have been in touch as part of their constituency business.

It is important to understand what the impact has been, and I think we are guilty, and the Government are certainly guilty—all Governments are guilty—of bringing things forward in the Finance Bill and making proposals, then not really following up and not really understanding the impact. That is often how we arrive at difficult situations such as the ones we are seeing today. I would certainly encourage the Government to consider this again. It is important that what they do is correct, and if it is not correct, it is important to understand that as it rolls out. On the refund scheme, I just want to ask how exactly it will work, when people can expect to obtain any refunds and, indeed, if there is any timescale in place for that.

[Wes Streeting]

I will come on to address new clause 7, proposed by the hon. Member for Glasgow Central, shortly because that opens up a broader range of issues worthy of review, such as the scrutiny of HMRC’s implementation of all this.

Clauses 19 and 20 legislate for the proposed disguised remuneration repayment scheme 2020—in broad terms—only. The clauses provide HMRC with considerable discretion as to how to operate the scheme. For example, while there is a right to a review of a repayment decision refusing repayment, that is only by way of representations to HMRC within two months of the decision. There is no independent review of the process. Given what I saw on the Treasury Committee of HMRC’s conduct on the loan charge, that is a serious oversight and mistake. People should have recourse to an independent process, and I am concerned that that is not the case as proposed.

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[Jesse Norman]

I thank the hon. Gentleman for his thorough and wide-ranging remarks. He is right that it is a kind of principle of tax policy in a way, or the typical reaction of an individual, and one wishes that the general instinct shared by 98% or 99% of the tax-paying population that he articulated well —namely, that if it looks too good to be true, it almost certainly is too good to be true—was shared by the whole of the population. However, for different reasons, that is not the case. The hon. Gentleman is right to articulate the principle that if it looks too good to be true, it is, and I thank him for doing so. I also thank him and his colleagues for the nuanced interrogation they have given this policy, but not diverging from us on its core thrust.

I want to make it clear that I am not remotely downplaying, undervaluing or minimising the personal feelings of people, or the impact or hardship that they have experienced as a result of this situation. Clearly, there have been cases that have been felt across the House and raised by different MPs, and Revenue and Customs understands that as well. It has made it very clear that it will not force people to sell their main home; that it will not, except in the most unusual circumstances, put people into bankruptcy; and that it will exercise, by adhering to a series of principles, a judicious approach to people’s settlement processes. That includes a principle that no more than half of someone’s disposable income should go to settle a tax dispute, so that families have not only their non-disposable income but at least half of their disposable income to support themselves.

Those principles also include, as I have indicated, a set of basic time periods to make a settlement—of five years in the case of someone earning under £50,000 a year, and of seven years in the case of someone earning under £30,000 a year—and that is part of the practice of Revenue and Customs, and a well-embedded principle.

Furthermore, if people have concerns that they are being badly handled in this process—this also relates to the point that the hon. Gentleman made about an independent review—they can appeal to tax commissioners for, as it were, an investigation and review. Of course, they also have the ability to go to their MP, and Members are very effective in raising tax-related issues on behalf of their constituents.

[Alison Thewliss]

On the point about MPs intervening on constituents’ issues, I would challenge the question around disposable income. A constituent of mine had been asked to pay money back, and the definition that HMRC gave of his disposable income was incredibly tight compared with the definition of it that he had, which included his finding difficulty in giving his children money for school meals. That seemed to be treated as part of his disposable income. His children have to eat; that is not disposable income as such. I ask the Minister to be very careful about how that is described and how HMRC acts on those kinds of things, because it takes a very strict line on disposable income.

[Jesse Norman]

Of course, the approach taken needs to have foundational principles aligned to it, and those can be questioned in specific contexts and by the mechanisms that I have described.

The distributional impact of the way the loan charge disguised remuneration population breaks down has been put into the public domain and analysed by HM Revenue and Customs. For example, a relatively small number of people work in caring professions, contrary to the impression that colleagues may have been given. That is the context in which the final recommendation by Sir Amyas Morse, which is that these debts should be written off after 10 years, has been rejected by the Government. It is a recognition of Sir Amyas’s expertise and independence that 19 of his recommendations were accepted, and the Government have given a full account of the reason why they have rejected the 20th.

In line with Sir Amyas’s recommendations on voluntary restitution, HMRC will refund voluntary restitution already paid for years now out of scope of the loan charge, but will not refund settlements for the underlying tax liability where HMRC had protected its position. That is so that the treatment remains in line with the existing legal framework for HMRC to recover tax. Sir Amyas also recommended that for disguised remuneration loans taken out on or after 9 December 2010, HMRC should only refund voluntary restitution where the scheme user had reasonably disclosed their scheme use. We have discussed that already at some length.

Regarding some of the impact of the different pressures that may be on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers in reaching their original settlement or claiming refunds, but it may meet professional costs where they have been incurred as a direct result of a mistake or an unreasonable delay in its own dealings with a taxpayer’s affairs. That was not the position when HMRC was applying legislation in place at the time.

Refunding fees to those who have used avoidance schemes would send the thoroughly troubling message that taxpayers who had not used those schemes might not do as well as those who had, which is not one that this House should be particularly encouraging. Of course, if a taxpayer feels they have grounds for making a complaint, the usual mechanisms are available for them to do so.

In his recommendation 14, Sir Amyas called for the Government to report to Parliament on all aspects of their implementation of the loan charge changes,

“before the end of 2020”.

We will do that. I am grateful to the hon. Lady for laying out her concerns in that regard in this debate, and I will ensure that the officials understand and reflect on them when they start to frame this report.

As per Sir Amyas’s recommendations, the report will draw on input from the HMRC customer experience committee. It is very important to realise that the committee includes not only the non-executive directors of Revenue and Customs, but highly experienced independent people in positions of authority and expertise who are specifically customer experience experts in the private sector. The effect of the committee is to support but also challenge the HMRC executive on customer experience-related issues, and to help the Department deliver on its strategic objectives. In other words, part of its point is to ensure that HMRC treats taxpayers with a proper degree of courtesy and service levels, but in no sense becomes oppressive to them.

Let me pick up another important point, which I meant to mention earlier but have not yet: the very strong approach that HMRC is taking on promoters and enablers of tax avoidance. Certainly since I have been Financial Secretary to the Treasury, we have significantly enhanced the already substantial work being done in that area. That includes work that builds collaboration across Government, including with bodies such as the Advertising Standards Authority or the Insolvency Service. It involves proactive communications to help taxpayers to steer clear of avoidance.

HMRC has launched a consultation on ways to combat the promotion and enabling of tax avoidance; colleagues from different parties are welcome to make contributions to that if they wish. The areas it is looking at include tackling promoters and their supply chains, looking at the economics of tax avoidance, disrupting business models and improving compliance and enforcement in other ways. I would like the Committee to understand that HMRC is in no sense minimising the importance of going after promoters and enablers where it can—subject to law, and with new powers if it should be so decided after the process of consultation.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

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[Alison Thewliss]

What about the new clause?

[The Chair]

That comes later, at the end. We do not vote on that now.

Ordered, That further consideration be now adjourned. —(David Rutley.)