Finance (No. 2) Bill
Tuesday 16th November 2021
(3 years ago)
Commons ChamberRead Full debate Finance Act 2022 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
17:02 - The House divided: - Ayes: 238 / Noes: 310 - Question accordingly negatived.
17:16 - The House divided: - Ayes: 314 / Noes: 233 - Question accordingly agreed to.
Madam Deputy Speaker (Dame Rosie Winterton)
I inform the House that the Speaker has selected the amendment in the name of the Leader of the Opposition.
The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move, That the Bill be now read a Second time.
On Sunday, MPs across the House remembered all those who died in conflict. It is now 76 years on from the time we started to rebuild our country from the devastation of world war two. The bombs that rained down during that war caused enormous loss of life. They tore our cities apart. In London, air raids wrecked or razed to the ground some 116,000 buildings, and in Liverpool and Bristol tens of thousands of buildings were damaged or destroyed.
While the war left a mark on the nation that lasts to this day, those dark years were followed by a period of reconstruction and renewal. In 1951, the iconic Royal Festival Hall opened in London as the centrepiece and legacy of the Festival of Britain. In the 1960s, Liverpool built its extraordinary Metropolitan Cathedral, while the iconic Severn bridge was constructed near Bristol.
Today, we are living in very different times, and we have thankfully not experienced such devastation here again, but we share some parallels with our wartime predecessors. As we emerge from the pandemic, our cities’ buildings may remain intact, but jobs, families and livelihoods have been at risk, and some have been damaged by the worst economic shock in 300 years. It is right, therefore, that we too now rebuild and turn our attention to creating a better future for this country and its people. Last month, the Chancellor started that work. His Budget set out our plans for the stronger economy that will allow Britain to succeed: an economy of stronger growth, stronger employment and stronger public finances, with higher wages, high skills and rising productivity. This Finance Bill will achieve that.
Before I turn to the Bill’s main measures, I will talk about its context. Our economic situation has improved since the last Finance Bill. We have moved away from emergency support to focusing on our recovery, which is now well under way. In fact, the economy is expected to bounce back to its pre-covid levels by the turn of the year—earlier than was expected in March—while our economic plan to safeguard jobs, livelihoods and businesses has worked. As a result, we can now invest in better public services, in jobs and skills, and in levelling up the country so that we open opportunity to everyone everywhere.
However, we should not forget that debt is still at its highest level as a percentage of GDP since the early 1960s and is set to pass £1.3 trillion. While this level of borrowing is still affordable, it leaves us vulnerable if another crisis hits, so we must continue to create a stronger economy that can withstand financial shocks. That is why the Chancellor announced a new charter for budget responsibility, with two fiscal rules that will keep us on the right track.
I want to focus on three aspects of the Budget in this Finance Bill: support for people, support for businesses and growth, and some underlying aspects of fairness. This is a Government who put people first, and this Bill’s measures complement the wider action we took in the Budget to support individuals and working families right around the country. We have reduced the universal credit taper rate and increased the national living wage so that work really does pay. We have continued our fuel duty freeze, helping to lower the cost of everyday life. We have announced that public sector workers will receive fair and affordable pay rises across the whole spending review period.
This Bill will improve people’s lives by backing the businesses that generate jobs and growth. In March, we extended the temporary £1 million level of annual investment allowance on plant and machinery assets. The allowance was due to revert to its previous level of £200,000, but as the Chancellor said:
“Now is not the time to remove tax breaks on investment”.—[Official Report, 27 October 2021; Vol. 702, c. 283.]
This Bill extends the £1 million level until the end of March 2023, encouraging firms to invest more and invest earlier.
While the changes to business rates that we announced in the Budget will encourage more firms to grow and invest, the Bill will also help the UK’s financial services industry became even more successful. In the March Budget, we said we would increase the corporation tax rate to 25% from 2023, for which we have now legislated. However, to make sure that our banks stay internationally competitive while still paying their fair share of tax, this Bill sets the bank surcharge rate at 3%. In addition, we are increasing the bank surcharge annual allowance from £25 million to £100 million, a move that will help smaller, challenger banks.
The Bill also supports another important industry—shipping. It does this by making our tonnage tax regime simpler and more competitive, and by rewarding companies that adopt the UK red ensign.
Finally, we should not forget that our cultural industries also contribute to our economic success. This Bill therefore extends the tax relief on museum and gallery exhibitions for another two years until the end of March 2024, and it doubles the tax relief for theatres, orchestras, museums and galleries until April 2023, to revert to the normal rate only in April 2024. This tax relief for culture is worth a quarter of a billion pounds.
Tax is of course central to our economic health and to funding the public services that make people’s lives better, but the way we collect tax must be fair and simple too, and the measures in this Bill will help us to achieve that. As Members will be aware, we are tackling the social care crisis with a new UK-wide 1.25% levy on national insurance contributions. This Bill will increase the tax rate on dividends by the same amount, so that those receiving this income will also contribute in line with employees and the self-employed.
Clive Efford (Eltham) (Lab)
Can the Minister tell the House just exactly how much of that national insurance increase is going to go to social care?
Lucy Frazer
The hon. Member will know that this has been set out. First, the money will go to the NHS, and then afterwards it will be going to social care. It is absolutely essential that we do that. £12 billion will be collected and will be going through to our social care services, as well as to the NHS.
Lucy Frazer
I will just carry on to my next point, which is that there will be an increase in the social care budget in the spending review period.
A fairer tax system also means tackling those who avoid paying their share. A new economic crime levy will help to fund measures that will prevent criminals from laundering money in the UK. It will apply to about 4,000 businesses and bring in £100 million. The Bill also contains tougher measures to prevent promoters from marketing tax avoidance schemes. In addition, it includes sanctions to tackle tobacco duty evasion, which costs the Exchequer an estimated £2.3 billion a year. The Bill also clamps down on electronic sales suppression, a form of tax evasion in which a business deliberately manipulates its electronic sales records to reduce its recorded turnover and corresponding tax liabilities.
Peter Grant (Glenrothes) (SNP)
I am pleased to hear about the Government’s commitment to taking on those who make money by promoting tax avoidance schemes. One such scheme that has been on the go for a long time is the loan charge. Can the Minister give us an update on progress towards bringing to account not the thousands of small-time self-employed people who have been caught, but the big players in that scandal? How many people have actually been surcharged or prosecuted for promoting loan charge schemes?
Lucy Frazer
I am grateful to the hon. Member for that question because I appreciate, since being in this role, that the loan charge is an issue that has affected many people across the country and that many MPs feel very strongly about. I have spent quite a considerable amount of time already talking about this issue not to only the chief executive officer of Her Majesty’s Revenue and Customs, but to officials. I have also had the opportunity to meet HMRC officials who are dealing with the vulnerable people who may be subject to the loan charge and to ask questions about how they are treating them.
The hon. Member makes a really good point, because the real perpetrators in relation to the loan charge are those who offer these schemes and getting people on low pay into them. An issue I have raised directly with HMRC is how we can further prosecute and bring these people to justice. Unfortunately, I understand that many of them are located offshore, but we will be doing everything we can to ensure that those who are responsible for promoting this are brought to justice.
This Bill deals with those who try to get out of paying tax, but it also creates a simpler and easier system. Its measures make capital gains tax easier to navigate, doubling the window for reporting and for paying CGT on residential property from 30 days to 60 days. This will give people longer to work out what they owe and make it less likely that they will make a mistake. For businesses, we are creating a simpler tax system through reforms to basis periods, leading to a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years.
There is no doubt that the pandemic has cast a long shadow over this country and our finances, but just as our wartime predecessors rebuilt from the blitz, now is the time to open a new chapter in our national story—one of economic growth and renewal, and with it, transformed lives.
Rushanara Ali (Bethnal Green and Bow) (Lab)
The Minister mentioned fairness a few times, and also the challenges facing the country. Why have her Government decided to give banks a reduction in the surcharge taxes they pay, which will cost the taxpayer £1 billion a year, when increasing numbers of our constituents are going hungry because of the failure to support them in the challenges they have faced over the last 18 months?
Lucy Frazer
I am grateful for the opportunity to answer that question, because the hon. Lady talked about a reduction in the amount banks are paying but that is not accurate: the banks will actually be paying a higher rate than previously. The hon. Lady might have noted that I referenced in my speech the fact that corporation tax was going up to 25%, and banks will be paying a higher rate than everybody else, who will be paying 25%; the banks will now be paying 28%, not the 27% they are currently paying. We are also ensuring that we have a competitive operating environment for these banks, because the banking sector not only contributes to the economy but employs 1 million people.[Official Report, 19 November 2021, Vol. 703, c. 5MC.]
The hon. Lady also said people were going hungry, but it is important to recognise what this Finance Bill and Budget do for those on the lowest pay. I have talked about the universal credit taper rate, bringing in an additional £1,000 for those in work who will benefit from it. We have also increased the national living wage, which will benefit people by an average of £1,000. There are a number of other measures, too, that benefit people who are not in work.
Rushanara Ali
But the reality is that there has been a UC cut, and the taper rate reduction, which is welcome, will help only a third of the 6 million affected. What about the 4 million others? This is not a fair Budget and it is wrong for this Government to treat the British people in this way given what they have faced in the pandemic over the last 18 months.
Lucy Frazer
The UC taper sends out a message that it is important to get into work and that work pays. We on the Government side of the House believe that the way to help people is to get them into work and into good jobs so they can support themselves, and we have a number of schemes to help those on UC to get into work. It is also important that when they are in work, they are paid well for it.
The hon. Lady also asked about those who are not in work, and I remind her of all the measures we have put in place for them, because not everybody can work. Before the Budget the Chancellor announced half a billion pounds for the most vulnerable—millions of vulnerable people will benefit from that. There are also more than 2 million people benefiting from the warm home discount and all the people who benefit from the council tax rebates we help them with. So it is right that we support the most vulnerable, but the UC credit taper is about making work pay.
We will invest in people, in businesses and in public services, just as we are doing with the 40 new hospitals, the 20,000 new police officers and the extra money we are providing to schools.
Clive Efford
I am grateful to the Minister for giving way again; she is being very generous. It is important that we nail down the issue of where the national insurance increase is going. The Minister said earlier that it was going to the NHS and then it was going into social care, but it cannot be spent twice, so when will that money be switched, and what level of cuts will the NHS face then in order to shift that money into social care?
Lucy Frazer
I find it disappointing when people talk about cuts when actually there is significant investment—record amounts—going into the NHS. This Budget highlighted not just £5 billion for the diagnostic centres the Department of Health and Social Care will be operating around the country, but £9 billion for covid support, and the hon. Gentleman will know that £36 billion was put into the NHS before that—a significant sum. So it is dangerous when people talk inappropriately about cuts. There are not any cuts; this is investment going into the NHS.
Richard Thomson (Gordon) (SNP)
One concern many have about the national insurance increase is that there is an understanding about how much that will raise but no understanding whatsoever about how much will eventually make it through the NHS to social care in England. I am sorry to say that leads many of us to think the Government might not have much of a plan for how they are going to use it first in the NHS and then to benefit service users in the social care sector. Will the Minister have another go at helping those of us with that mindset to understand?
Lucy Frazer
The Government have been very clear that the money will first go to the NHS; there is a significant number of backlogs that we need to tackle and it is important that people can get to see their GP so therefore it is essential that that £13 billion is right now going to the NHS. But we have been clear about this: we are the first Government to tackle the issue of social care—the first Government to put it on the table and put in a plan to raise the money to tackle the social care issue.
As I said at the outset, a number of cities were devasted by the second world war, and I return to my analogy. In London, £65 million is going from the first round of the levelling-up fund to local infrastructure projects to improve everyday life; in Liverpool and the wider north-west, that figure stands at £232 million; separately, in Bristol and the west of England, we are providing £540 million over five years to transform local transport networks.
At the same time, we will never forget our responsibility to strengthen the public finances. The tax changes in this Bill will allow us to achieve all these things, and for those reasons I commend it to the House.
James Murray (Ealing North) (Lab/Co-op)
I beg to move the amendment in my name and those of hon. and right hon. Friends including the Leader of the Opposition and the shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves):
That this House declines to give a Second Reading to the Finance (No. 2) Bill because it does nothing to help people who are struggling with the rising costs of living, who are being hit by the cut to universal credit, or who are facing a rise in National Insurance Contributions and a freeze in the Income Tax Personal Allowance from next April, because it nonetheless cuts taxes for banking companies and derives from a Budget that will see the tax burden rise to its highest level in 70 years and announced cuts in air passenger duty for UK domestic flights, and because it fails to set out a plan to grow the UK’s economy, fundamentally reform business rates, and create better jobs for the future.
I am grateful to have the opportunity to set out the view of the Opposition on the Second Reading of the Bill, which comes at a time when people across the UK are seeing the cost of living, from electricity to food prices, going up and up; when businesses are trying to get back on their feet after 18 months of struggle; and when our country needs leadership to build a new net zero economy with jobs for the future. Yet let us look at what the Government are doing: putting up taxes on working people while cutting them for banks; giving up on fundamental reforms to business rates that would give our high streets the backing they need; and failing to invest in the new jobs of the future that would turn the challenge of net zero into an opportunity for our country’s economy to grow.
The truth is the Tories will never put working people first. I stood here two months ago arguing that the Government were wrong to hike up taxes on working people with their national insurance rise when those with the broadest shoulders should be paying more, and yet what we have before us today is a tax cut for banks. That tells us everything we need to know about the Tories when in power. They do not seem to care whether something is fair for people in this country, except of course when they think something is unfair to one of their own, and then they simply change the rules to suit themselves. The British people are seeing through the Government’s approach: people are seeing that this Government are more concerned with protecting themselves than with protecting the economy and people’s quality of life.
The foundation of any Government’s approach to the economy must be a plan for growth. With a growing economy, we have the chance to create new jobs with better wages and conditions in every part of the country, but without growth it gets ever harder to meet the challenges we face. Let us look at the record of this Government. As the shadow Chancellor my hon. Friend the Member for Leeds West told the Chancellor right after the Budget, it is clear what direction we are going in under the Conservatives. In the first decade of this century, despite the financial crisis, Labour grew the economy by 2.3% a year. In the last decade to 2019, however, even before the pandemic, the Tories grew the economy at just 1.8% a year. In the future, things look even worse. The Office for Budget Responsibility has said that by the end of this Parliament the UK economy will be growing by just 1.3% a year. This low growth is hitting people in their pockets: data from the Office for National Statistics show that average yearly wage growth has fallen from 1.6% in the decade to 2010 to 0.5% in the decade since 2010. We do not have much to look forward to, either, with the Institute for Fiscal Studies saying that over the next five years, real household disposable income is expected to grow by just 0.8% a year, well below the historical average.
Low growth is becoming a hallmark of the Tories in power. What they fail to realise is that with the right investment, the challenges we face can become opportunities for growth. In no part of our lives is that more evident than our response to climate change. Labour has said that we would invest an additional £28 billion every year for the rest of this decade in transforming our economy—from new jobs building batteries for electric vehicles, to manufacturing and maintaining wind turbines, and finally insulating our homes to get energy bills down. With investment on the scale we need, and with Labour’s pledge to buy, make and sell more in Britain, we would turn an urgent, critical response to the climate emergency into an opportunity for new jobs with decent pay and conditions in every part of our country.
In every part of our country, too, we see shops and high streets struggling to get back on their feet after the last 18 months. We should turn their urgent need for support into a chance to fundamentally overhaul the system of business rates, which has had its day. Business on high streets across the country know that the business rates system is broken and that fundamental change is long overdue. We know that, too, which is why we have pledged to scrap business rates and replace them with a new system of business taxation fit for the 21st century, which would incentivise investment, reward businesses moving into empty premises and encourage environmental improvements. Crucially, under our new system, no public services or local authorities would lose out, and online businesses would pay a fairer share.
We thought the Conservatives also knew that change on that scale was needed. We thought they might understand the need for an overhaul of the system, as their 2019 manifesto promised to reduce business rates through
“a fundamental review of the system.”
We thought they might even have meant it: in 2020, the Treasury began a consultation on what it said would be the fundamental review that its Ministers had promised. Yet in last month’s Budget, the Chancellor decided to ditch any prospect of fundamental reform under this Government.
Measures in the Budget for next year may be welcome, but no matter how the Chancellor tries to spin it, the promise of fundamental reform from this Government is over. As the chief executive of the British Retail Consortium put it, what the Government have offered
“falls far short of the truly fundamental reform that is needed and was promised”.
That manifesto promise of a fundamental reform of business rates has been broken, just as the promise not to raise national insurance was broken a month before.
We have a Government who are breaking their promises and failing to set out a plan to grow the UK’s economy and create better jobs for the future. Growing our economy would mean more jobs and higher tax revenues to invest in public services, but if the UK economy had grown at the same rate as other advanced economies over the last decade, we could have had £30 billion more to invest in public services without needing to raise taxes. Yet under the Tories, lower growth means that taxes need to go up. Last month’s Budget saw taxation rise to its highest level for 70 years.
Crucially, the decisions about who should shoulder the burden of tax rises tell us everything we need to know about the Tories when they are in power. The Tories are making life harder for half the population through their personal allowance freeze, for all working people through their national insurance tax rise, and for struggling families through their cut to universal credit, yet they are making life easier for bankers by cutting taxes on banking companies, and for frequent flyers by cutting air passenger duty on domestic flights. A banker flying between London and Leeds is getting a double tax cut, but someone working in the airport where that flight lands is getting a double tax rise.
Rushanara Ali
Does my hon. Friend agree that it is scandalous that the Government have only just agreed to restore schools expenditure to its 2010 level, despite a shortfall of £10 billion for catch-up notwithstanding requests from the former catch-up tsar? If we are serious about improving productivity in this country, we need to invest in our kids and in skills. Government expenditure falls far too short, and that will damage the future of our economy.
James Murray
As my hon. Friend rightly points out, investing in education is critical to the future of our country and the next generation. We heard the Minister say how uncomfortable she feels talking about cuts, but that is the reality of 11 years of Conservative government. No matter how they try to massage the announcements they are making now, the truth is that if we compare 2021 with 2010, we can see the impact that 11 years of the Tories has had on our public services.
At a time when working people are facing rising prices and flatlining wages, it shows the Tories’ true colours that they are prioritising a tax cut for bankers. To rub salt in the wound, as the IFS has pointed out, the cut in air passenger duty will flow through the UK emissions trading scheme and push up electricity prices at home. It was shocking to hear the Chancellor announce a cut in air passenger duty just days before COP26, and it is shocking that his tax cut for banks will cost the public finances £1 billion a year by the end of this Parliament.
That cut will see the corporation tax surcharge for banking companies slashed from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. It is worth reminding ourselves why that sector-specific tax was first introduced. As the policy paper published alongside the Budget—I am sure the Minister has read it—sets out clearly, the charge has been levied on banks to reflect
“the risks that they pose to the UK financial system and wider economy”
and to recognise
“the costs arising from the financial crisis.”
When the surcharge was introduced 10 years ago, in the wake of the financial crisis, the Government at the time seemed to recognise that banks had an implicit state guarantee due to their central position in the UK economy, and that that guarantee should be underpinned by greater tax contributions. Yet, as Tax Justice has pointed out, the Office for Budget Responsibility found in 2019 that £27 billion of Government expenditure on bailing out the banks was still outstanding. It seems that the Government are determined to push ahead with a cut to the surcharge, despite the fact that it will not even have fully repaid the public money spent on banks during the financial crisis, let alone provided any insurance against a future crash. We will question Ministers on that further in Committee.
We will also use that chance to press Ministers on other parts of the Bill, including those that introduce the residential property developer tax and measures relating to money laundering and tax avoidance. We support the principle behind the residential property developer tax, which will be levied on the largest developers in the residential property sector. It is right that those responsible for putting dangerous materials on buildings should pay towards the very significant costs of removing unsafe cladding, but it would be a mistake to assume that levying that tax alone will mean that the cladding scandal will in any way come to an end.
The tax is expected to raise £2 billion over 10 years, yet the Housing, Communities and Local Government Committee has estimated that addressing all fire safety defects in every high-rise or high-risk residential building could cost up to £15 billion. What is more, extreme pressures on labour and materials mean that the cost of fire safety works could rise significantly, all but wiping out the money raised from the new tax proposed in the Bill.
The bottom line is that leaseholders living in buildings with potential fire risks and facing huge remediation costs need to know how those costs will be met in full and that the necessary work will be done without delay. There are plenty of people involved in this scandal who should be paying to fix it, but leaseholders are absolutely not among them.
We also support the principle behind the economic crime levy to raise money from the anti-money laundering regulated sector to pay for measures in the economic crime plan to help tackle money laundering. As the director of the Centre for Financial Crime and Security Studies has said, a
“key challenge for the UK Government’s response to financial crime is a lack of investment in capabilities to respond to its policy ambition.”
We hope that the funding from the levy will go some way towards increasing the capacity in government to tackle economic crime, although we will press Ministers on whether it is enough.
Peter Grant
Does the shadow Minister agree that, as part of the drive to deal with money laundering, there is also a need for significantly greater transparency so that the people who buy up huge swathes of property in London, for example, are openly identified and any illegal money that has been laundered in that way is much harder to hide?
James Murray
The hon. Gentleman makes an important point. Alongside funding, of course, there are also changes to the law that would strengthen the UK’s ability to fight economic crime. Top of the list must be putting in place a public register of the beneficial owners of overseas entities that own UK property. Such a register would bring much needed transparency to the overseas ownership of UK property and help to stop the use of UK property for money laundering.
So, where is the register? In 2016, Prime Minister David Cameron first announced plans to make it a reality. In 2017, the “National Risk Assessment of Money Laundering and Terrorist Financing” confirmed that property continued to be an attractive vehicle for criminal investment, particularly high-end money laundering. In 2018, a draft Bill to set up a register of overseas entities was published. In 2019, a Joint Committee of MPs and Lords published their pre-legislative scrutiny of the Bill and the Government published their response. In that response, published in July 2019, the Minister responsible, the hon. Member for Rochester and Strood (Kelly Tolhurst), said:
“Knowing who ultimately owns and controls a company is an important part of the global fight against corruption, money laundering and terrorist financing.”
We agree. The Minister committed to
“turn this Bill into an Act, and to deliver an operational register in 2021.”
However, since that Government response was published in July 2019—and since, as it happens, the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) became Prime Minister, at the end of that very month—the desire to see the register put into place seems to have lost its energy.
Ministers are legally required by the Sanctions and Anti-Money Laundering Act 2018 to report to Parliament annually on the progress that has been made toward putting such a register in place. In 2020, a ministerial statement was indeed published, but any commitment to the register being operational by 2021 had by then been dropped. This year’s ministerial statement, published on 2 November, barely mentioned the register, arguing:
“The overseas entities register is one of a number of proposed corporate transparency reforms”.
The statement focused mainly on other changes and, in fact, barely mentioned the register, ending with that dreaded phrase:
“The Government intends to introduce legislation to Parliament as soon as parliamentary time allows.”
It is astonishing that the Government feel that the need for the register is becoming less urgent. The Pandora papers confirmed how overseas shell companies secretly buy up luxury property in the UK, and how much transparency is needed to help to tackle money laundering.
What are we meant to conclude from the fact that the appointment of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) as Prime Minister in July 2019 coincided perfectly with a change in direction by the Conservatives away from a commitment to make transparent the ownership of overseas companies buying up UK property? What could possibly be the connection between overseas individuals investing in UK property through anonymous companies and the current occupant of 10 Downing Street? Why on earth would anyone in Government not want to introduce the transparency that their own colleagues have said in the past is crucial to tackling high-end money laundering?
I am sure that later in the consideration of the Bill, we will return to the matter of anti-money laundering. At later stages, we will also consider the effectiveness of measures in the Bill to tackle tax avoidance, as that is an important matter for us and the public. In the Opposition, we have long been pushing for the Government to do more to tackle tax avoidance, and while any action on that is welcome, including the measures in the Bill, we do not believe they go far enough. Crucially, as well as the regulations that are needed, the Government must invest in the resources that Her Majesty’s Revenue and Customs needs to tackle the problem effectively.
The Budget papers confirm that HMRC is set to receive a
“£0.9 billion cash increase over the Parliament”.
However, as TaxWatch has pointed out,
“the vast majority of this will not go towards tackling tax fraud, but rather to deal with the additional complexities surrounding the UK’s departure from the European Union.”
We know that effective investment in tackling tax avoidance can bring in much more than is spent, so it is crucial to make sure that that is not ignored by the Government. We will return to this important matter in later stages of the Bill. We will return to that point because the principle at the heart of our tax system must be that everyone plays by the rules and pays their fair share. That principle needs to be stated and supported, as under this Government, with this Budget and this Finance Bill, our country is moving further and further away from that ideal.
Labour’s vision of the economy is this: invest in good modern jobs with decent pay and conditions in every part of the country; support small businesses and high streets from being undercut by large multinationals who do not pay their fair share of tax; and buy, make and sell more in the UK to use every lever we have to support British industries to succeed. That is how we begin to rebuild and strengthen our economy after a decade of low growth, with no end in sight. That is how we make sure people have more money in their pockets for them and their families, and how we increase tax revenues to invest in public services.
But that is not what we are getting from this Government. The low growth they are responsible for means that taxes have had to go up. Faced with a choice of which taxes to raise, the Tories have shown the British people their true colours. Millions of families across the country are already being hit by the Tories’ decision to cut universal credit. From next April, working people across the country will pay more, as their income tax personal allowance is frozen and their national insurance contributions are hiked up. Yet from the April that follows, banks will see the tax they have paid since the financial crisis cut by £1 billion a year by the end of this Parliament. That is the choice the Tories have made: taxes on working people will go up, while taxes on banks will be cut. For people who are working hard but finding things tough, the Tories have nothing to offer except a tax rise.
Fairness is the one of most British values there is, yet it is one this Government just do not get. The Tories are spending all their time protecting themselves, when they should be looking out for the British people. Labour would grow the economy. We would invest in the future. We would make sure working people were never again the first to feel the brunt of tax rises that this Tory Government are forcing on their shoulders.
Jerome Mayhew (Broadland) (Con)
In this place we often focus on things that can be measured. We talk about money and how it can change the quality of life of our constituents. All too often, however, we underestimate the value of the web of community ties that link us all together. After family, certainly in the communities I represent, it is the community bonds, the web of community ties linking us all together, that are so important in improving the quality of life of each and every one of us.
In Broadland, for example, the largely rural area I have the honour to represent—I know everyone here represents a different type of community—there are community ties such as the active village hall committee, the active church and other faith groups, and organisations such as gardening clubs and amateur dramatics societies. Very important among that list is also the local pub. Those organisations, taken together, are absolutely vital in bringing people together. It is how we create our support networks outside the house or flat in which we live. Covid presented really serious mental health challenges to societies and communities. In my communities, people supported each other, stepped up and got more involved. They got to know their neighbours and they came out of lockdown in a stronger place, not a weaker place.
I want to focus on those really meaningful ties that are not simply economic. I saw a very good example of that last Thursday night, when I was in the village of Rackheath. I had been to the community council meeting, which had finished—Members will be all too familiar with this—sometime after 9 o’clock. I had not had anything to eat, so I went into the Sole and Heel pub to see if I could be served a late supper. Unfortunately, the kitchen had closed at 9 o’clock—so, not a great example on that occasion—but what I noticed when I opened the door was that the pub was full. The pub was full of the local community, with neighbours talking to neighbours at the heart of their community, bringing people together. In Broadland, those kinds of pubs support 1,600 jobs and contribute £46 million to the local community.
It is in that context that I absolutely welcome the announcement in the Budget on draught relief. The proposal will reduce duty on draught beer by 5%. In cider terms, that would be the biggest reduction in duty since 1923. In terms of beer, I understand it is the biggest single reduction in duty for the past 50 years. What impact will that have? It will be a £100 million a year support per annum for our local pubs. For “local pubs”, I think we should read “our local communities”. That will go a long way towards helping to stop the really serious decline that we have seen over the past 20 years in the trade. Since 2000, there has been a 22% reduction in the number of pubs in this country. That is more than 14,000 establishments, and for that, I think of all the community interactions that no longer take place; of all the neighbours who are no longer being brought together in the convivial atmosphere of the village or town pub. That has resulted in real damage to the strength of our communities, and we are here to support our communities.
So without hesitation I welcome this Government’s support for communities in relation to pubs and to the other sectors that bring communities together, including museums and artistic establishments, which have already received some £850 million of support. That goes a long way towards supporting our communities and making them stronger for the future.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to speak on Second Reading of the second Finance Bill of the year. I welcome the Financial Secretary to the Treasury to her place, although I feel obliged to express my sadness that I will not spend the next few weeks in the company of the right hon. Member for Hereford and South Herefordshire (Jesse Norman), who has just left the Chamber. I am sure that he will not miss my constant references to Scottish limited partnerships, but I put the new Minister on notice that I expect her to be the one to fix that issue once and for all.
We on the Scottish National party Benches will of course propose worthy amendments—that will get voted down and ignored—in trying to make the very best of this flawed Finance Bill process, as the UK’s horribly complex tax system obtains yet another layer. I call again for the Finance Bill Committee to be allowed to take evidence. It remains baffling to me that although all the other legislative Committees in this place take expert evidence, the one that will directly affect the lives of everyone and every business in the country does not. That must change.
If the Finance Bill Committee took evidence, perhaps the UK Government would make fewer mistakes. Parts of the Bill correct oversights and errors, such as clause 83 and schedule 11 concerning the plastic packaging tax, about which I raised concerns in the passage of the previous Finance Bill. That measure is due to come into force in April next year, but the explanatory notes state that the changes in this Bill are
“to ensure that the tax…meets”
previously “announced policy objectives” and “works as intended”—well, I hae ma doots. I note that there are also measures to deal finally with the issue of second-hand cars in Northern Ireland—another bit of Brexit red tape that was not written on the side of the bus.
There is no doubt that we are facing a cost-of-living crisis and this Finance Bill provided the biggest possible opportunity for the Government to improve the lives of people across the UK. Instead, however, we see in schedule 6 that the Chancellor has seized the opportunity not to redistribute wealth, but to cut taxes for his banker pals, paid for by slashing universal credit, increasing national insurance and scrapping the pensions triple lock.
Ministers are keen to try to claim that the minimum wage is, in some way, a living wage, but it is not. This week is Living Wage Week and the real living wage rate has risen from £9.50 to £9.90 and to £11.05 in the city of London from today, so the UK Government proposals do not even keep pace with the real living wage, based on the cost of living.
I am proud that I have lots of real living wage employers in my constituency, because they see the benefit to their employees of paying a fair wage—they retain staff better and those staff are happier in their work—and they are right across a full range of sectors. There are 2,400 living wage employers in Scotland, including, in my constituency, Bike for Good, Pure Spa, Thenue housing association and a club that has obtained legendary status in the past couple of weeks: Firewater, on Sauchiehall Street. All of them pay their staff a fair wage and do their bit. I encourage the Government to become a living wage employer with the real living wage, because it would help so many people if they took a lead on that, as the Scottish Government and local authorities in Scotland have done.
David Linden (Glasgow East) (SNP)
I pay tribute to my hon. Friend’s work on campaigning for a fair wage for all, regardless of age. Will she join me on calling on the Government to extend that pay equality to apprentices? We have seen that with such things as the business pledge in Scotland, but unfortunately, this Government continue to think that apprentices can be paid less than £4 an hour, which is absolutely shocking.
Alison Thewliss
My hon. Friend is absolutely right to point that out. I do not know how the Government think that apprentices are supposed to live and pay their bills on the meagre wages set as their minimum wage. In fact, through the years of this Tory Government and since Labour brought in the minimum wage, the rate between the lowest-paid—those youngest workers entitled to the minimum wage—and those at the highest end of that age distribution has increased. That gap is growing wider and wider every single year, and it is a scandal, frankly, that people are being discriminated against solely on the basis of age. The Government should put that right.
It is a grim time for many people in this country and things are not optimistic for many businesses either. As the Minister mentioned, the March Budget gave notice on increasing corporation tax and extended the annual investment allowance until the end of March 2023. These measures, however, come in the context of a national insurance hike—a tax on jobs—that the Federation of Small Businesses estimates might have a 7% marginal rate for some. This should have been scrapped and the employment allowance increased, if the Chancellor was serious about helping business owners and employees.
Hospitality and tourism firms, having been hit the hardest during the pandemic, will not retain their 12.5% VAT rate beyond March. Many did not benefit at all from the reduced rate during the pandemic, because they were not able to trade, and to hike VAT back up to 20% just as the tourist season begins next year seems absolutely daft. The UK Government seem to be playing catch-up with Scotland. The Chancellor’s plan to cut hospitality and business rates next year is less than what they are offering now and far below the 100% relief that the Scottish Government are already offering to those businesses this financial year. That is in addition to the hugely successful small business bonus scheme, which takes many businesses out of business rates altogether.
The tax reliefs in clauses 16 to 22 for businesses in the culture and arts sector that have struggled so much in the past year are welcome, but keeping the VAT reduction could provide an incentive to get people back through the doors of our galleries, theatres, music venues and funfairs.
My SNP colleagues and I have long argued in this House that more should be done to tackle economic crime and I was interested to see some measures in the Finance Bill that deal with this area of policy. Part 3 provides a framework for the Government to issue a new tax to tackle economic crime. This UK Tory Government have failed time and again to tackle tax avoidance and economic crimes—that is not a matter entirely of inadequate legislation or resources, but of woefully poor enforcement.
Under the plans set out in the Bill, all undertakings that fall under money-laundering regulations and have a revenue of over £10.2 million will be subject to the new economic crime levy. Although I support the broad principles, I have some concerns about how this will work in practice, because placing more of a burden on businesses might not exactly have the desired effect. The Law Society of England and Wales has stated its opposition to the levy, stating that it is “an additional tax” on anti-money laundering regulators and against the “polluter pays” principle. The Association of British Insurers has concerns that insurance firms, a very low risk area for money laundering, may be disproportionately hit by the measure, which could result in reducing access to insurance for vulnerable consumers. This is another area where more evidence needs to be taken to be sure that the intended effect of the Government’s measures is actually what transpires.
The Treasury Committee, which I am proud to sit on, has taken a lot of evidence in our inquiry on financial crime and it would be wise of the Government to take heed of that before progressing further with this measure. It would also be useful to know the Government’s full timetable and resourcing plan for Companies House reform. By tightening up company registration, giving Companies House AML responsibilities—as they should have—increasing the comically low fee for company registration and actually enforcing their own laws, the Government could bring in much more money and lose less of it through the complex schemes that Companies House currently facilitates.
When I asked the small business Minister—the Under-Secretary of State for Business, Energy and Industrial Strategy, the hon. Member for Sutton and Cheam (Paul Scully)—in a written parliamentary question recently how much money has been raised by fines on Scottish limited partnerships that have not registered a person of significant control in the past three years, I received a response that stated that one fine had been levied in 2020-21. One fine—is that it? The last time I asked, in March last year, 948 SLPs had not filed PSC information by 31 January 2020. That figure was 2,019 in January 2019 and 7,078 in January 2018. Ministers may claim that this looks like an improving picture, but what is more likely to be happening is that people are moving those business around to similar structures in Ireland or into other vehicles such as trusts. To be clear, Companies House rules state:
“Anyone who does not respond to…notices within one calendar month, or gives false information, commits a criminal offence. They could receive a 2 year prison sentence, a fine or both.”
As far as I can establish, none of the firms that fell foul of the law was fined, apart from one, and no one got the jail. I ask again: how much money are the UK Government forgoing by not enforcing their own rules? What is the damage to our reputation, and to Scotland’s reputation, from being associated with money laundering and criminality that this UK Tory Government are failing to prevent?
The SNP is calling for a root-and-branch review of the tax system, which is much too complex and has too many places to hide and move things around. The UK Government have not confirmed whether any of the money raised by their proposed tax will be used to tackle tax avoidance. I would welcome some clarity on that point today.
Part 5 contains provisions to tackle tax avoidance, which is an issue that I have raised again and again, so I am pleased to see that some limited steps are being taken. The Bill will give HMRC powers to publish information on individuals who promote tax avoidance schemes. We support that approach in principle, but I note the concerns that the Chartered Institute of Taxation has raised about the drafting. HMRC says that it is targeting “the most egregious promoters” who flout the rules, but CIOT is concerned that the definitions of “promoter”, “relevant proposal”, “relevant arrangements” and “connected person” set a low bar.
The Bill’s wording also extends considerable latitude to HMRC officers: an authorised officer need only “suspect” that a scheme falls within the definition for people to be publicly named and shamed. I have constituents who have been named and shamed under minimum wage regulations and who have found it very difficult to challenge that and recover their reputation.
CIOT is also concerned that in future HMRC could use the measure more widely than is being proposed. I appreciate that the Bill makes provision for HMRC to retract and amend published information that has been shown to be incorrect, but it would be much better if we could have some assurances that it will get it right the first time, and some assurances about how the scheme will be resourced.
Lastly, I want to speak about an issue that has been literally close to home in the past few weeks. The eyes of the world have been on my constituency in Glasgow Central as it hosted the COP26 summit on climate change. The summit was an opportunity for the Government to show global leadership and grasp the opportunities that a green economy can provide, but the reality is that the only thing green about the Bill is the paper it is printed on. The Government’s ambivalence towards a just transition is writ right through it.
We need a comprehensive plan that understands the impact of our taxation choices on our emissions—a green OBR, perhaps, to hold this Government to account. The Government have given the Financial Conduct Authority and the Bank of England responsibilities in that area, but are taking none themselves in the Bill. Nowhere is that clearer than in the cut to domestic air passenger duty, which the Red Book says will lose the Government £30 million to £35 million a year in revenue. People do not have many options when they fly long-haul—despite what the Proclaimers say, few people would walk 500 miles and walk 500 more—but within these islands they do have the choice between getting on a plane and getting on a train. It is already much, much cheaper to fly in many circumstances. Cutting APD while allowing train fares to rise again and again is absolutely no way to incentivise people to take more climate-friendly options.
The Bill makes provision for global shipping companies to receive tax breaks for flying the red ensign. Tonnage tax is a complicated scheme that allows companies to disregard profits for tax purposes, creating a very low-tax environment. Would it not have been better to link tax breaks to emissions rather than to waving the British flag, to incentivise the green technologies required to transform shipping, and to take a lead on the issue?
Scotland is delivering action to secure a net zero and climate-resilient future in a way that is fair and just for everyone. We are committed to a just transition to net zero by 2045, with an ambitious interim target of a 75% reduction by 2030. The Bill’s purpose allegedly covers delivery on the commitments made in the 2020 White Paper on energy and the Prime Minister’s 10-point plan, contributing to the Government meeting their legally binding obligations to achieve net zero carbon emissions by 2050, but in reality there is very little in it to help Scotland to achieve our climate change goals. Indeed, in many ways it holds us back.
There is no reversal of the decision to scrap investment in a carbon capture and storage facility in the north-east of Scotland; it looks as if that investment will instead go to Tory marginals in the red wall. That is the worst type of pork barrel politics. The Acorn project at St Fergus would have been a world-leading example of a just transition project, but once again the people of Scotland have been let down by the Tories at Westminster. Neither is there any commitment to help to develop emerging wave technologies, which might well move abroad without the correct support, and there are no measures in the Bill to reform the transmission charging scheme, which costs wind farms in Scotland to plug into the grid while it pays companies in the south-east of England to connect. When I asked the Chancellor about that recently, I got blank looks and blah blah blah in return.
The Bill makes clear once again the UK Government’s lack of interest in Scotland’s commitment to tackling climate change. Schedule 14 makes provision to change VAT rates for freeports; it is disappointing to see no commitment to the fair work conditions and net zero ambitions put forward by the Scottish Government for a green port scheme. Scottish Ministers have engaged in good faith to try to improve a UK Government policy while further progressing our climate change goals: the Scottish Government wanted to take the freeport policy and augment it to work in the best interests of workers and the environment. Who could argue with that, other than Government Members? The Scottish Government have been ignored and sidelined by this UK Government. It is just not good enough.
This UK Tory Government cannot be trusted to act in the interests of Scotland. I look forward to the day when there is a Government who can and will act in those interests, using the levers of taxation powers to benefit our people, make our businesses grow and protect our environment for the future. Only independence can give Scotland that Government.
Rushanara Ali (Bethnal Green and Bow) (Lab)
The Bill and the Budget that it follows do little to respond to the scale of the challenges facing our country, many of which have been brought into sharp focus by how the coronavirus pandemic has hit our society, not to mention the long-term hit on our gross domestic product because of Brexit—a 4% hit to the economy, on top of a 2% hit from the pandemic, as forecast by the Government’s own Office for Budget Responsibility.
Nor does the Bill respond to the climate emergency, as hon. Members have pointed out. Despite the fact that the UK has just hosted the COP26 summit in Glasgow, the Government have no plan for growth. Growth would put more money in people’s pockets and increase tax revenues, but what we are seeing is a low-growth, high-taxes approach, meaning a greater burden on working people because of the Budget.
Matt Western (Warwick and Leamington) (Lab)
My hon. Friend makes an important point. Does she agree that the lack of stimulus from the Government contrasts with what is happening in the US? The Government seem to be making the same mistakes as after the financial crash in 2008-09.
Rushanara Ali
My hon. Friend is absolutely right. The US has already returned to pre-pandemic levels of growth, as have a number of European countries, whereas the UK is still playing catch-up. We need to learn lessons from what happened after the global financial crisis so that we can get growth back up to the level that we need.
The UK faces the additional challenge of making up for the long-term hit on our economy as a result of the trade that we are losing because of our exit from the European Union. Given that we have exited the European Union, we need to know how the Government will make up for the 4% hit on our GDP in the long term, alongside the 2% hit that I mentioned.
Under this Government, taxes will reach their highest level since the Clement Attlee Government in the post-war era. Clement Attlee had a lot to show for the increase: the national health service, our education system and the welfare state, much of which we have benefited from for generations and continue to benefit from. This Government have poor living standards, a poor economic outlook and weak economic growth to show for their tax rises. While the pockets of working people are being hit, this Bill, shockingly, allows a tax cut for banks. It cuts the surcharge on their profits from 2023, which, as I mentioned earlier, will cost taxpayers £1 billion a year. Nowhere is it clearer where this Government’s priorities lie, and where they think the tax burden should lie: the Bill gives a tax rise to workers and tax cuts to the banks.
The Government have wasted billions of pounds of taxpayers’ money by brazenly giving out PPE contracts to a number of people who are linked to the Conservative party. As the National Audit Office has pointed out, a significant amount of money has been wasted and a “high-priority” channel was provided for Government contracts linked to people in Government and they were 10 times more likely to be successful. Some estimates suggest that nearly £2 billion of contracts went to people with links to the Conservative party.
According to the Public Accounts Committee, the test and trace scheme, which cost billions of pounds, has not shown a benefit commensurate with the amount of money spent. If the Government had spent that money wisely, many billions would not have been wasted on crony contracts, and some of the money could have been spent on dealing with the loss of income that many have experienced and the poverty and inequality that people are facing in our country.
This Bill does nothing to improve our country’s bleak economic outlook. As the Office for Budget Responsibility has confirmed, the UK is suffering the slowest recovery in any major advanced economy. GDP in the UK at the end of this year is further below the 2019 level than it is in any other G7 country, and any future economic growth in the medium term is likely to be anaemic: the OBR forecasts an average growth rate of just 1.5% a year between 2024 and 2026. Meanwhile, our long-term growth rate fares little better. Brexit is forecast to reduce the UK’s GDP by a staggering 4%, and the OBR has drawn attention to a 2% hit as a result of the pandemic. If the Conservative Government had grown our economy at the same rate as other countries with advanced economies since 2010, the economy would have been £100 billion larger by 2019, leaving over £30 billion more to spend on public services without the need to raise taxes.
Given poor growth and high taxes, it is no wonder that the outlook for living standards is so dire. The director of the Institute for Fiscal Studies has described the outlook for living standards as “actually awful”, with the country facing
“five more years of stagnant living standards at best”—
and that is in the context of a decade of stagnant wages. How are people meant to cope with all that has happened over the last decade as well as the impact of the pandemic and the increase in fuel prices and the cost of food caused by disruptions in supply chains?
In-work poverty has reached record levels under the Conservative Government. There are now 2 million more people from working households living in poverty than there were in 2010. Of the 6 million families who were hit by the £20-a-week cut in universal credit, fewer than a third will benefit from the changes in the universal credit taper rate. While those changes are welcome, 4 million other people will not be given the help that they need. As the Minister herself admitted, many of those people have caring responsibilities or serious disabilities, and are not in a position to return to work. Their incomes will fall dramatically: they will lose £1,000 a year, and that will force more of them into severe poverty.
In my constituency the child poverty rate has increased over the years, and now stands at 60%. Nearly 20,000 households, which include 11,000 children, have been hit further by the universal credit cut. According to the Independent Food Aid Network, there has already been a 66% increase in demand at food banks across the country since the cut, after only a few weeks. As we approach Christmas, the food bank queues are growing longer and longer in constituencies such as mine, and food banks are struggling desperately to cope with the spike in demand. That is only set to become worse. It seems that the Government have learnt nothing from the lessons taught by campaigners such as Marcus Rashford; in fact, they have made matters worse for people who desperately need support.
The Government have also failed to deliver on their net zero promises. There has been plenty of rhetoric and little substance, and, indeed, a cut in domestic air passenger duty was announced in the run-up to COP26. We have a Government who are treating the climate emergency as an afterthought rather than something that is central to what we do in the future. We need a green jobs and a green investment revolution, and, as has already been said, we need a focus on a just transition. The Government do not seem to have the commitment or the ambition to deal with a climate emergency.
The Bill lands tax rises on working people while giving tax cuts to banks, and this feels like groundhog day because a decade ago, when the Government first came to power, their instincts were very similar. There were tax breaks for bankers and austerity for the rest of the country, and that has continued: the Government have reverted to their worst instincts. There is evidently no plan for economic growth, and we are facing a terrible future with low growth and high taxes. What we need is a Government who will stimulate growth, invest in improving people’s living standards, and ensure that there is more fairness in the distribution of income and opportunity across our country.
If the Government were serious about growth and improving our productivity, which has been poor for a very long time on their watch, they would invest significant sums in school catch-up, so that our economy can benefit from the investment in skills in creating an economic future that addresses the challenges we face now. We have a long way to go to catch up with other countries because of the twin hit on our economy from the pandemic and the long-term impact of leaving the EU. That is why we needed this Government to be creative and innovative in their policy announcements, and bold in terms of investment in our businesses, small, medium and large. They need to do that on a greater scale than we have seen if we are to recover from what has happened in recent years in our country.
Peter Grant (Glenrothes) (SNP)
It is my great pleasure to contribute to this debate. Today, 16 November, we mark the feast of St Margaret Atheling, Queen of Scots, one of our two national patron saints and, like the rest of us, an adopted Fifer. For those not familiar with it, I recommend a read through her life story, because a surprising amount of it has lessons that are as relevant today as they were nearly 1,000 years ago, when she was alive. For example, Margaret was revered for her generosity to the poor. She is said to have regularly gone into the streets dressed in poor clothing and given food to the hungry and money to the poor. She clearly believed that earthly power has no legitimacy unless it is used in the interests of others. We might want to bear that in mind in the decisions we take later today, and indeed every day, in this place.
I wish to look at some aspects of the Finance Bill, and at who it benefits and who it damages. I go back to the question I raised with the Minister earlier about prosecutions and penalties against promoters of the loan charge. I was disappointed that the Minister did not answer the question as to how many such penalties had been applied. I would have thought that, if it was that important to the Government, they would have made sure that their officials put that information into the briefing for today. I have no issue with people who deliberately went into loan charge agreements knowing that they were wrong and that they were doing that only to dodge their rightful tax liabilities going through the full legal process. However, a lot of people who signed up to the loan charge did so because they did not understand it or because they were assured by paid tax advisers that it was all okay, and a lot of them did it because they would have lost their jobs if they had not. They get hounded to the ends of the earth—some of them literally get hounded to death—yet very few of the people who made millions out of these schemes have ever been brought to justice. The victims in my constituency have serious doubts as to whether any of the real villains of the piece will ever be brought to justice or indeed whether this Government have any intention of doing that.
When we look at the impact of this Finance Bill, and of the Budget statement it is based on, we must not let ourselves be hoodwinked by the massive impact of other announcements that have been flipped through by the Government in other ways over the past six months or so to try to make it look as though their Budget was not quite as savage as it was. We must recall the £1,000 a year cut in universal credit; the ending of the pensions triple lock, leaving our pensioners more at the mercy of rampant inflation than they were before; and the national insurance hike, which has been trumpeted as the saviour of the health and social care sector, whereas the reality is that, for several years at least, very little of it indeed will go into improving the availability of social care in England. It might be there in three or four years, but this is not a crisis that is going to be there in three or four years—it is a crisis that has been there and has been ignored for far too long.
Of course, sometimes when the Government want to increase taxes, they like to find sneaky ways to increase taxes on low-paid workers in a way that does not make it obvious what they are doing. All they have to do to achieve that is to do nothing. There is nothing in this year’s Finance Bill about the thresholds for the different rates of income tax. There is nothing in it about the level of income at which someone first becomes liable to pay income tax, because they have left it exactly as it was last year in cash terms. With people likely to face inflation of 4%, people on low incomes will either take a real-terms cut in wage of 4%, or if they get enough of an increase to match inflation the Chancellor will say, “Thank you very much. I’ll have a bigger cut of it for myself than I had before.” People on low earnings who are already struggling need an increase of 4% to stand still and to continue to struggle.
The 1.25% increase in the national insurance charge might not seem to be that much; 10p or 50p an hour below the proper living wage might not seem to be that much, but it soon adds up. Take, for example, someone working 40 hours a week on the Government’s new minimum wage of £9.50 an hour, and paying income tax and national insurance according to the rates and thresholds set out in the Bill. Those are exactly the people the Government say the Budget is designed to help. They are exactly the people for whom work is supposed to pay. Now, take the same person but this time getting the real living wage of £9.90 an hour, let their personal allowances and national insurance thresholds keep pace with inflation, and scrap the national insurance increase, leaving it at 12%, instead of 13.25%. The difference in their take-home pay is £800 a year. That does not seem much to those of us lucky enough to be on an MP’s salary, but for those who are just about managing to get through to the end of the week, another £800 a year in their pocket—or £800 taken out of their pocket by the Budget—makes a significant difference. The impact of this year’s Tory cuts alone—they are cuts, no matter what the Minister might say—is that those people are suffering a pay cut of almost 5% in real terms.
We have not even started to look at the more fundamental issues referred to by my hon. Friend the Member for Glasgow Central (Alison Thewliss) and why we need a complete rehash of the entire tax system. Why should somebody who, by an agreed definition, is earning only enough to live on pay income-based taxes at all? Why do we not set tax and national insurance thresholds to match the proper living wage so that the tax authorities have no claim whatsoever on the wages of those earning only just enough to keep them and their family alive?
The Government may well say that times are difficult, that tough choices must be made and that we cannot afford to inflation-proof tax allowances this year, but the tax allowances of some have been inflation-proofed and more—not individuals but businesses that are, for example, lucky enough to be able to afford to buy a casino. In clause 80, on page 63, we see changes to the thresholds for the various rates of gaming duty: the tax that casino operators pay in what is termed the gross gaming yield, which is the difference between the stakes that people pay in and the winnings they take out. It is in effect an income tax on casinos and similar places. Lo and behold, the tax thresholds for casinos are going up by 5.4%, which is higher than the rate of inflation that the Chancellor expects to see. That is on top of their inflation-busting increase last year. They have had an increase of 8.7% over just two years.
To put that into context, a casino with a gross gaming yield of £10 million a year will pay £100,000 less in tax next year than it would have last year, while the poor souls working their tails off in the casino kitchen keeping the clients fed and watered will be paying higher taxes. How can it be right that a casino owner pays £100,000 less in tax while the people whom they employ on low pay in their kitchens and catering departments have to pay increased tax? That is not a necessity; it is a deliberate political choice, and it is the wrong choice.
If only other businesses had as much to celebrate as the casino industry clearly does. Hospitality businesses are—quite rightly—being told to adapt their business models so that all their workers get paid a fair living wage. I have had some quite difficult conversations with hospitality businesses in my constituency that are not happy at that. But why on earth do the Government think it is also the right time to tell them that they must pay more tax on every single job that they create? Why on earth is it right to tell them that the rate of VAT that they will pay next year will be 60% higher than this year? It is ridiculous.
I am not saying that we should not take difficult decisions. The UK’s finances, like those of many western democracies, are in a seriously difficult place. The Minister said that levels of debt and borrowing are affordable. They are—just about—but they certainly are not sustainable. We must turn that around quickly. Difficult decisions need to be taken, but the problem is that, far too often, the Government are happy to take decisions that are difficult for other people but not at all difficult for their friends, chums and millionaire donors. The economic impact of the covid pandemic has almost certainly been made much worse because of their total lack of planning on the economic impact of the action needed. That means nearly all the Government’s support schemes had to be thrown together at almost no notice, which inevitably means they did not achieve what they were supposed to achieve. Very few of them achieved optimal results from day one. Too many people, several million of them, were excluded from support altogether, and almost all the schemes that were implemented turned out to carry levels of fraud risk that were far higher than they needed to be. Billions of pounds of public money has been lost to fraud that would have been avoided if the Government had prepared better in advance.
The economic damage of the pandemic could have been lessened, although we accept it almost certainly could not have been avoided completely, but the economic damage of Brexit could have been avoided completely if, in 2016, people had been told the truth of what it would involve. Let us not forget that the Government’s analysis is that the self-inflicted damage of Brexit is likely to be twice as bad as the economic damage of the covid pandemic.
To a much larger degree than the Government will admit, the tax rises on the poor contained in this Finance Bill are the price of a Brexit that, let us not forget, was rejected by almost two in three voters and every single local authority area in Scotland. If that is the price for Scotland to remain part of the United Kingdom, it is a price I do not believe the people of Scotland are willing to pay any longer.
Interestingly, a standard form of wording that I do not see in this Bill is, “Extent. This Bill shall apply to Scotland.” I do not expect it to be too much longer before those words are no longer part of any legislation passed by this House.
John McDonnell (Hayes and Harlington) (Lab)
You surprise me, Madam Deputy Speaker, as I am usually last.
I came to this debate solely to make a proposal on local government, but because the House is not packed I will respond to some of the previous comments. I congratulate my hon. Friend the Member for Ealing North (James Murray) on his comprehensive analysis of the Government’s Budget, which revealed its lack of substance as much as anything. The purpose of having a Finance Bill after a Budget, and especially after a spending review, is that it is meant to embody the Government’s strategy and political analysis in line with their appraisal of the economy and the political situation.
It is difficult to discern from this Bill any form of overall Government strategy, and it is difficult to understand how the Bill relates to the many real-world issues we currently face—that is what is so surprising. The hon. Member for Glasgow Central (Alison Thewliss) made the critical point that, having come back from COP, we might have expected the Government to be fired up to mobilise the whole economy with the purpose of ensuring we tackle the existential threat of climate change, but there is very little in the Bill that relates to any of that major threat.
My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) explained the situation of many of our constituents who face deprivation, challenges, insecurity of income and issues with the delivery of public services. Not only is there nothing in this Finance Bill that will tackle those problems, but the reverse is true: benefits are being cut and austerity continues. That is quite remarkable.
On a side point, my hon. Friend the Member for Bootle (Peter Dowd) always says when we have a Finance Bill before us that the Government, yet again, have not tabled an “amendment of the law” resolution. That is an arcane parliamentary point, but it is important because it limits our scrutiny of the Finance Bill.
If I were trying to identify the Government’s strategy on the basis of the Prime Minister’s words, the high-skilled, high-wage economy is meant to be based on high levels of investment. The Chancellor has referred to the ending of austerity on numerous occasion, and the Prime Minister has made reference to the importance of tackling climate change. I see none of that in the Bill.
I caution the Government. Let me put it in this context: we have had two weeks of report after report of corruption, in effect, on top of month after month of public amazement and now, increasingly, shock about what happened with the distribution of covid contracts. Confidence in not just the Prime Minister but the Government is now at an all-time low. At the weekend, I saw in one article that unless things change, the Prime Minister will be out by the summer—and that was Tory MPs speaking, not us. Lots of evidence now abounds that the Foreign Secretary’s and the Chancellor’s leadership election campaigns are up and running and that the structure is being put in place for that challenge, when it comes, but it is more serious than just the future of the right hon. Member for Uxbridge and South Ruislip (Boris Johnson). There is currently a loss of confidence not just in the Government but in governance overall, and more so this week: from what I heard on the news this morning, there are going to be announcements about transport investment this week that renege on the commitments to the funding of rail in the north, particularly in respect of the extension of High Speed 2. In that political context, the Bill takes on a greater significance than usual.
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
I wonder whether I can encourage my right hon. Friend to discuss the fact that the levelling-up agenda is nothing—it is absolutely meaningless. It does not tackle the issues that have led to the high and unequal covid death toll in areas in the north-east and north-west in particular, and it certainly does not cover the disparities in infrastructure investment, such as in transport, which my right hon. Friend mentioned. Would he like to say more about that?
John McDonnell
I raised in my Budget speech the lack of confidence in the Government’s commitment to levelling up overall and even to defining what it means, and I mentioned the importance of the need for a bit of levelling back because of the scale of the cuts that have been endured over the past 11 years.
I make the general point that there is currently a level of insecurity and uncertainty, and a questioning of politics overall and of whether the people can trust any politician. I thought that with a Budget and a comprehensive spending review the Government would at least be able to set out their plans and bring forward the measures in the Finance Bill so that we would at least know where they are going, which might give us some security or confidence that the Government at least have some sense of direction. I do not think it is there—it is certainly not in the Bill. We can take some humour from this situation. The Chancellor certainly led with his chin in respect of the proposals to cut the bankers’ levy and the tax on flights and champagne. No one could blame the shadow Front-Bench team coming forward and taking the rise out of what was quite obviously a bankers’ Budget.
Let me comment on a number of the key issues that have been raised in the debate so far. If the Budget was about the end of austerity, high skills, high wages and so on, the Bill flies in the face of all that. The hon. Member for Glenrothes (Peter Grant) talked about how people have been treated in respect of other announcements; how can the Government argue that the Bill is about high wages when they are freezing tax bands, introducing national insurance increases and cutting universal credit? All those things hit earners.
Something fundamental at the heart of this Bill—it was at the heart of the Budget, too—is the Government’s refusal to take on the imbalance between the taxation of wealth and the taxation of earnings. We have seen it in the Government’s setting out of proposals some time ago on reforming capital gains tax but their failure, yet again, to do it in this legislation. Given that the argument over the need to ensure that we tax on capital and wealth as well as on levels of earnings has been won, the proposal that I thought would be in this Bill was to ensure that taxation on earnings and on capital gains were brought into line. The amount that that would bring in to the Government was initially recalculated at £14 billion, but I see that the TUC’s figure is £17 billion. That could have resolved the issues in social care. That would have ended austerity for large numbers of our population.
The Government argue that, in the Bill, they are doing something about the taxation of earnings from dividends, but it is negligible in comparison with what is needed and it sends out a similar message that they are willing to penalise earners, but, at the same time, allow others who earn their money from wealth to walk away.
The reason that the bank levy offends is not just that it is going back to the days of the crash and the scurrilous role that the banks played in enabling that to happen—the profiteering at all our expenses; it is because what the banks have is the best insurance policy in the world. It is an insurance policy, backed up by the UK Government, that no matter what they do, no matter how much they fail, they will never be allowed to fail because the Government will always step in and bail them out. An additional levy was placed on the banks to make sure that they paid something back from the crash, and also that they paid something in return for the guarantee that they were given. What we find now is that the amount that they have paid so far does not even pay off some of the damaging costs that fell to taxpayers as a result of their wild speculation that brought about the crash.
One matter that has been raised in the debate—the Exchequer Secretary has also mentioned it—is that of tax reliefs and the extension of the annual investment allowance. I can understand why the Government have done that, but what I cannot understand is why they have done that as well as introduce the super deductions. The Government’s argument is that 99% of the business investment that is undertaken will be covered by the annual investment allowance, but to then go on and give a super tax deduction of 130% flies in the face of that argument. If we look at the record of tax reliefs, most of which, historically, have never been reviewed by the Treasury, we see that they mount up year after year, decade after decade. Some of them go back nearly a century, but they are never reviewed, and that is often with scandalous effect. On the entrepreneurs’ allowance, even the Government had to accept that that was an abuse of an allowance. People were walking away with large amounts of benefits without in any way demonstrating their entrepreneurial skills. It is the same with the patent box.
Let me now come to the tonnage tax. I have been lobbying on that now for nearly 15 years. The tonnage tax was introduced by John Prescott—by the way, I hope that all of us will send our best wishes to him in the hope that his recovery from the severe stroke that he had is going on apace—as part of a strategy to revive British shipping. The purpose of it was to give a tax allowance to shipping companies so that they would then employ more UK seafarers, and employ them on a decent wage as well. Year after year, we argued about it with the Government—the Labour Government got into this one as well. Large amounts of money were going to these shipping companies, but the jobs were not appearing. In fact, we were losing UK seafarer jobs. Seafarers were largely being recruited from abroad, and in some instances were not even being paid the minimum wage. The tonnage tax was linked to the training of officer cadets, not ratings, and a limited number of officer cadets were recruited by the shipping companies. As a result of lobbying—I was there in a meeting with the Minister—we did get a bit of flexibility, whereby if a company was not recruiting officers, it was able voluntarily to recruit ratings and still qualify for the tax.
Let me just explain to the House the tonnage tax figures. The tonnage tax was introduced in 2000-01. Its cost—£2.165 billion. How many jobs do hon. Members think have been created, that we know of, for £2.165 billion? Does anyone want to intervene with a figure? All we know about, on the record, is 75; that is £28 million a job.
Christine Jardine (Edinburgh West) (LD)
Almost as good as they get!
John McDonnell
Don’t tempt me.
Those are the only figures that we have, but I thought that we should be generous and say that there were, on average, 25 jobs a year at least. We do not know, as all we have is the figure of 75. In the case that there were 25 jobs a year, we are still talking about, at best, £4 million to £5 million a job in subsidies for the British shipping companies. I do not know what other Members think, but there is an issue of productivity here, is there not? That is the sort of problem that we have when we get into relying on tax reliefs to stimulate the economy and jobs growth.
Let me make a final point on tax reliefs. As the hon. Member for Glasgow Central and my hon. Friend the Member for Ealing North have said, the failure to link these tax reliefs to the achievement of net zero means that we are undermining the ability of the Government to intervene effectively in the economy in order to ensure that we are all signed up to tackling climate change.
I also thought that the Government were going to come forward with amendments in legislation to prevent companies with any record of tax avoidance from being able to qualify for tax reliefs at all, but that is not in this legislation. We are therefore in a situation where we are giving tax reliefs to companies that we know have in the past engaged in tax avoidance. Of course we all welcome the tax avoidance measures that the Government have introduced, but this legislation is an incredibly slow, incremental development. We need to go so much further, with full transparency and enforcement.
When we are trying to enforce against tax avoidance, the one thing that we must not do is open up opportunities for new forms of tax avoidance, but the Office for Budget Responsibility, the UK Trade Policy Observatory and the TUC have said that the introduction of freeports is the new opportunity for tax avoidance schemes, for the displacement of jobs from one area to another with no overall benefit, and—this is exactly what the TUC is saying—for the undermining of trade union rights; and we know what that will do for workers.
I have welcomed the Government’s investment in HMRC. I was sitting here years ago when the first major cuts to HMRC were introduced, and we saw the results. It was an undermining of the work to address tax avoidance and evasion. However, as other hon. Members have said, unfortunately the new jobs have gone into chasing compliance issues as a result of covid, and not into increasing the operation to address tax avoidance.
Those are the issues that I just wanted to comment on. I actually came here to make one specific point and put forward one proposal with regard to local government, but as there are not people rampaging to speak in the debate, I thought that I could at least comment on some wider points.
The point I wanted to make is about what is happening with regard to local authority finance. I thought that as part of the Budget, the comprehensive spending review and then this Bill, the Government would bring forward what has been promised for some time now—a fairly radical reappraisal of local government finance with the potential for reform that would provide local authorities with the resources, as well as a relatively independent source of income, that would then embody their ability to engage in genuine levelling up across our society, as raised by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams). But the figures show that local government funding from central Government grant is about £16 billion a year lower today than it was in 2010. Cumulatively, that is a reduction over that 11-year period of £100 billion in central Government support for local government.
That means that before we can even talk about levelling up, we need levelling back. We need to give councils the power to invest in local services in their communities again. The hon. Member for Broadland (Jerome Mayhew), who is not in his place, raised the importance of the Budget for local communities, and I agree. This Bill should be doing that, but apart from the occasional grant to individual communities—on, unfortunately, a sort of pork barrel basis—there does not seem to be an overall strategy to enable it to happen. As I said during the Budget debate, we have seen the impact, with the cutting of funding for nearly 900 children’s centres, 940 youth centres, 738 libraries, and 1,200 bus routes. Local government was mentioned only once by the Chancellor in the Budget speech. There was no acknowledgement of what councils have endured over the past 10 years—that includes Tory, Labour, Lib Dem and SNP councils—or the debt crisis that is now engulfing many town halls in our country.
I was hoping that we would at least get the opportunity of some resolution of the debt problem of local councils within the Finance Bill, or would have the opportunity to prepare amendments to enable that to happen. Creatively, we will see whether we can bring amendments forward in that way, but that is made more difficult by the amendment to the law motion not being brought forward by the Government. Many councils across the country are in debt. In recent years, three section 114 notices have been issued, in the case of Tory as well as Labour councils, and dozens more have applied for and received emergency Government loans.
Some time ago, as part of their pushing local authorities to try to seek alternative local funding sources, but also as part of their commercialisation agenda, the Government forced councils into a position where many of them sought to compensate for the lack of Government funding by borrowing from the Public Works Loan Board to buy investments with revenue-producing potential. Some of those investments have proved to be risky misjudgments. Admittedly, this has happened across the board, with all political parties in control in different council areas, but the Government have to take some responsibility for the mess, because they have forced those local authorities into that sort of speculative behaviour, which is also beyond their levels of experience and expertise.
In addition, there has been a complete lack of oversight from both the Department for local government, under its various names over recent years, and the Public Works Loan Board, which has lent the money to those councils. The accounts of the Public Works Loan Board reveal that over £2.8 billion was lent last year and over £3 billion was generated in interest income. That is extraordinary: it is robbing Peter to pay Paul.
Councils are under huge financial pressures, and they now owe £71 billion in debt to the Public Works Loan Board. I want to see whether we can amend this legislation to reduce the interest rates to councils. The Bank of England base rate is still 0.1%, so every pound spent on interest by councils—it is the same for central Government—is £1 less spent on social care, children’s services, street cleaning, bin collections or whatever. The average interest rate charged by the Public Works Loan Board is 3.57%. That is 36 times higher than the Bank of England base rate. What we need in the longer term is stronger oversight of loan applications and for the Public Works Loan Board to charge interest at the Bank of England base rate.
In the meantime—this is why I was hoping that the Government would move somewhat in this legislation—to deal with the high interest rates and the high levels of debt, we need some form of debt jubilee for local councils. That could be a zero rating on all existing loans before we move to the Bank of England base rate on all new loans. More expansively, it could recognise the failure in recent years from central Government to oversee and the impact of Government austerity cuts, which have led to the debt crisis in local government. The Treasury arguably should fund a partial debt write-off for councils. With more than £70 billion in principal debts, plus interest rates, even a 20% write-off could free up nearly £15 billion for local councils to spend in the coming years.
That is the proposal I wanted to argue for in this debate. It would be welcomed cross-party in local government and would relieve many local councillors from the appalling decisions they will have to make in the coming months between increasing local council taxes and, more importantly for many of them, another round of cuts in public services, because of the high interest rates they are having to pay and the interest charges that are falling upon them.
The final point I will make in this Budget debate is to return to the points that a number of Members have made. This Finance Bill does not seem to relate to the Government’s strategy overall, and it certainly does not relate to the needs of our communities. I worry that after the experience of covid, people are looking increasingly to the Government to provide leadership. This Budget, the comprehensive spending review and certainly this legislation do not provide that. The Bill will increase the levels of concern and insecurity that unfortunately are impacting on our communities. I find it a disappointing piece of legislation, and I hope that by way of amendment we might be able to improve it. In that way, we might at least meet some of the challenges our communities face, tackle some of the poverty and deprivations, end austerity and maybe give a bit more hope to the communities we represent.
Christine Jardine (Edinburgh West) (LD)
It is a pleasure to follow the right hon. Member for Hayes and Harlington (John McDonnell). I rise to my feet on behalf of the Liberal Democrats to say that we cannot support this Finance Bill, which derives from a Budget that missed a vital opportunity to help struggling families in this country. Instead, it hammers them with tax hikes, empty words and broken promises. It is completely out of touch and offers nothing to help them with the energy bills that they will face this winter. Worse than that for me, the Bill sends a clear message to children and their parents that they are worth less to this economy than investment bankers and banks. Far from providing the support that families needed when we are facing a cost of living crisis, this Finance Bill will provide less in extra catch-up funding for schools than it does in tax cuts for big banks. There will be just £1 of extra catch-up funding for each child, compared with £6 a day in tax cuts for each banker. That brings the £1.8 billion new catch-up money offered to just £5 billion, one third of what the Government’s own advisers said was necessary to allow our children to catch up on the many millions of hours that they have in total lost in their classrooms over the past 18 months, which threaten, according to official figures, to leave them losing anything up to £46,000 in income over the course of their lifetime. Putting bankers before children tells us everything we need to know about the priorities in this Bill.
People who have worked hard, paid their taxes and played by the rules are seeing their incomes squeezed through no fault of their own. They are being crippled by tax hikes and their benefits have been slashed—all in the face of skyrocketing bills. We should be demanding a fair deal for families and an investment in future generations: support for vulnerable families, more investment in our children’s education and more funding for tackling the climate emergency. Instead, we see an end to the £20 uplift to universal credit, nearly half the minimum wage rise clawed back through the increase in national insurance, no help with energy bills, the Chancellor’s announcement on universal credit taper giving back just one third of what he snatched away, and millions of families with no help at all.
When it comes to the climate, while COP26 was getting under way in Glasgow and we were all looking for something that would send a clear message that saving the planet was a major priority, what did we get? We got a reduction in air passenger duty, which will do nothing at all to help to reduce carbon emissions.
This Bill offers nothing of what we would like to see for the people of this country. It offers nothing, either, for the businesses, because it fails to deliver on the Government’s promise to reduce business rates through a fundamental review of the system, leaving companies with no long-term support as they cope with the impact of the pandemic and new international trade barriers. The business rates announcement will not abolish the skewed and complicated system, which only benefits property landlords and not the hard-working business owners who rent from them. Even the tax cuts for businesses investing in green energy for properties are only set to benefit commercial landlords, not our high street shops, whose owners will really pay the bill.
Businesses have been hit hard by endless Government disasters, the handling of the pandemic and a new mountain of red tape introduced post Brexit. However, I cannot agree with the hon. Members for Glasgow Central (Alison Thewliss) and for Glenrothes (Peter Grant) that the answer to all that is an independent Scotland.
Christine Jardine
Not this time. On that point, I cannot agree, because there have been Governments in this place that have done wonderful things for Scotland, not least of which was to deliver devolution, and we have learned in Scotland over the past 14 years that moving the Government to Holyrood does not guarantee it will be any better. On behalf of my colleagues in the Liberal Democrats, we will not support the Finance Bill and we will support the Labour amendment.
Ruth Cadbury (Brentford and Isleworth) (Lab)
I have a lot of sympathy for the last comments by the hon. Member for Edinburgh West (Christine Jardine), and I thank my right hon. Friend and neighbour the Member for Hayes and Harlington (John McDonnell) for bringing into the debate local government, its finance and the challenges it has faced over the past 10 years. Having come from local government to this place, I know that he speaks wise words on this issue.
I too rise to oppose the Government’s Finance Bill and to support the Labour amendments, and I will cover three aspects. The first is the cost of living. Over the recent weeks and months, I have heard from so many constituents about the hardship they face in seeing their energy bills spike and the cost of the weekly shop rise, and from families seeing their rent climb and climb. This Bill does nothing to support the millions struggling with the cost of living.
We should not forget that, even before the Budget, the Chancellor hit my constituents and those across the country with a double whammy. To plug gaps in the NHS and social care, he hiked up national insurance, a regressive tax payable by everyone in work. Other ways could have been found to find the funding needed than this regressive tax hike.
Then the Chancellor decided to cut £1,000 from universal credit for all those claimants. This is essential income that supports over 30,000 families in the Borough of Hounslow alone. About 40% of those claiming universal credit are in work, something that the cloth-eared Conservatives tried to deny for years whenever we raised the issue of universal credit in this House. At last, they have got it, but the changes they have made to taper relief still trap so many in poorly paid and irregular work—work, sadly, that is far too common in my constituency and across the country. The new taper rate only actually benefits about a third of working people on universal credit. The cut in universal credit is absolutely devastating. It is the choice between heating and eating, or between a winter coat and a pair of shoes for a child.
I recently visited the Hounslow Community FoodBox, which supports about 13,000 people in our local area. Demand for its services has skyrocketed locally over the last 18 months, and this is mirrored across the country. The Trussell Trust, the national food bank trust, distributed over 2.5 million food parcels last year, but it saw an increase of 33% over the previous year. How do the Government respond to this food poverty crisis? They ramp up taxes on families, while cutting the very support that is allowing them to barely stay afloat.
I have also recently visited Look Ahead, which is a national charity on contract to Hounslow council. It supports young people in supported accommodation—young people who, by definition, do not have family support. Look Ahead offers vital support services to these young people, and it and the young people warned me that the universal credit cut would be devastating for them. It is worth remembering that universal credit claimants already face a number of hurdles, such as the benefit cap, the two-child limit—the bedroom tax—and the cruel five-week wait, which makes people wait for five weeks to receive crucial support.
Secondly, I will be voting against the Finance Bill because it does nothing to support those already impacted by the loan charge and still being forced to sign illegal disguised remuneration schemes if they want to do the work in which they are skilled. The all-party parliamentary group on the loan charge and taxpayer fairness published a damning report earlier this year on the wild west supply chain of unregulated umbrella companies and rogue recruitment agencies that conspire to lure workers into tax avoidance schemes, often entirely unwittingly, yet the Government have so far done nothing but publish some guidance.
When will the Treasury take some ownership of the bullying and aggressive activities of HMRC in chasing down those who have signed these disguised remuneration schemes? These schemes are still being openly sold and have been targeted at many lower-paid workers, including, shamefully, NHS staff being recruited to help with the nation’s response to the pandemic. Too many ordinary workers advised to use these schemes have been hammered to the point of suicide, while promoters with known links to the Conservative party have not yet been asked to pay a penny. This is an all-too-common theme with this Government, who continue to ignore the reality and the evidence.
The reality is that if HMRC enforces the loan charge on the thousands of people who now face it, there will be many more bankruptcies, more mental anguish and potentially more suicides, as well as more people losing their homes and more unable to continue to work. The fact is that there is considerable new evidence—evidence not known at the time of the last review—showing that the conclusion of the Morse review was flawed. It seems clear that this important evidence was not shared with Sir Amyas, now Lord Morse. Indeed he was not given an accurate or complete picture by HMRC and the Treasury, and having in the past spoken to Treasury Ministers I sometimes wonder how much control the Treasury has over HMRC or whether it has become a rogue agency.
The clause in the Finance Bill mentioned by the Treasury Minister does nothing to stop the ongoing mis-selling. To stamp that out legislation on umbrella companies is needed. Fining the promoters and freezing their assets is all well and good, but it is much easier to legislate to make agencies responsible, as the APPG proposed, and that would stop the schemes overnight. Without legislation to clean up the supply chain there will be ongoing skimming of contractors’ pay, misappropriation of holiday pay, and backhanders between agencies and umbrella companies. Action is needed to actually stop the schemes rather than pursue the scam after it has happened.
We know that HMRC has not been able to find legal precedent for the loan charge and that it itself used contractors on loan schemes while claiming at the same time that it was clear that that was wrong. We now know that all along it knew that many people would not be able to pay while claiming they could and would do so. Common sense, if not compassion, dictates that effective legislation and a fresh and genuinely independent review is needed to come up with a resolution to the loan charge issue, avoiding devastating consequences for thousands of families and going after the right people for a change. We have new Treasury Ministers now and I hope they will approach the issues of the loan charge and disguised renumeration with an open mind and agree to carry out this much-needed review, as my hon. Friend the Member for Ealing North (James Murray) has urged.
Finally, I want to address the air passenger duty changes. This Government repeatedly say one thing and do another on climate change. If I wanted to buy tickets to go to Glasgow in three weeks I would pay £65 to fly with easyJet from London, yet a train ticket to Glasgow on the same day would cost me £69, and that is before the cut in APD on domestic flights is introduced. The fact that it is still cheaper to fly than to travel by train is a key reason why we are not seeing the reduction in carbon emissions we so desperately need. One way to reduce the number of short-haul flights is to improve train travel, but whether in the choice of routes, the length of journey, the cost of tickets or the experience on board other European countries are miles ahead of the UK and have been for many years. It is no surprise that short-haul domestic flights contribute so heavily to our carbon emissions when this Government have absolutely failed to fix rail travel. And this week we hear they are going to cut the proposed rail services to Leeds and Manchester. This Government are not only failing communities across the country but are failing our climate. The Government should impose the polluter pays principle to their transport policies and the fiscal policies that support them.
In conclusion, I will oppose the Bill because it punishes low-income households but does nothing to relieve the nightmare for current and future loan charge victims and it treats the climate emergency as an afterthought.
Richard Thomson (Gordon) (SNP)
It is a pleasure to follow the hon. Member for Brentford and Isleworth (Ruth Cadbury), whose speech was punctuated throughout by the sound of many nails being hit on the head.
The Budget and this Bill needed to address three key issues: the cost of living crisis; the supply crisis with the resulting inflationary crunch from that; and of course the environmental crisis. With regret, I have to say there is little cheer in the Budget or the Bill for anyone other than a bank shareholder or those who profit from the lack of urgency from this Government to tackle financial criminality and the lack of financial transparency as London rapidly gains the unenviable reputation of the washing machine for the dirty money of the world.
Let me deal first with the cost of living. Many Members have spoken at length, in the Budget debate and today, about the Conservatives having broken their manifesto pledge on increasing national insurance. We all know by now—I hope it is incontestable—that that increase hits the lowest earners the hardest. It bakes in generational and geographical inequalities, which will be a feature of our social and economic outlook for many years to come.
I intervened on the Financial Secretary to the Treasury—she was gracious enough to accept that intervention—to try to get some clarity on how the money raised by that increase will make its way through to the social care sector. We all understand that it will go into the health service, and we all appreciate that it can do much good in dealing with the crisis there, but I am sorry to say that until some answers start to be forthcoming about what impact it will have in the social care sector—and, importantly, how—the UK Government will be left looking very much as if they lack a plan.
The UK Government have barely even started to get to grips with the nature of the whole-system problems that we are facing in health and social care, and the need to integrate them. That was the case even before the covid crisis. We require a whole-system approach to many of the problems that we are seeing in health services, and I get absolutely no sense that the UK Government have thought that through. They are doing what they have routinely criticised many other Governments for doing and focusing on the inputs without having any reasonable or intelligent focus on the outputs.
It is not just direct taxes that affect the cost of living crisis; indirect taxes have a massive impact too. My colleagues and I have called for a continuation of the VAT reduction for hospitality. It seems unconscionable and unexplainable that that should be withdrawn in the early part of next year. It is often said that a banker is somebody who will offer you an umbrella when it is not raining and then take it back the instant that some dark clouds appear on the horizon, and many hospitality businesses will feel that that analogy applies to them with the VAT reduction. With lower footfall and cash flow, they did not get the chance to benefit throughout this year, and just as they come into what will be a crucial summer season for many of them, that financial boost is to be taken away. I strongly urge the Government to reconsider that and to allow those businesses to trade their way back to health.
Of course, VAT is intended to be a tax on non-essential goods, yet it is still levied on a wide range of goods that we simply cannot do without, such as domestic energy. It is a tax that can influence behaviour, but it can also be used to stimulate growth and the kind of recovery we need.
I would like to pick up one anomaly in the way that VAT is applied currently, and that relates to school uniforms. I have to say that I was not a particularly enthusiastic wearer of the school uniform when I was at school, unless I had to wear it when I was representing the school, in which case I did not have any quarrel with it. Nevertheless, I accept the arguments on the importance of school uniforms. They are an enormous leveller. The uniform instils a sense of pride and belonging, and it means that everybody is the same. It can also be a boost to household incomes not to have to compete when it comes to the clothes that children wear to school.
School uniforms are often compulsory, yet we still charge VAT on them, at the full 20% rate, for children over the age of 14, and even for children who are under that age yet have grown beyond the size that HMRC stipulates for certain school uniform items. That is hitting hard-working families really hard in the pocket at a time when a whole range of other factors are conspiring to squeeze their incomes. I do not believe that that can be right.
The British Educational Suppliers Association estimates that the cost of waiving VAT on school uniform items in Scotland would be about £1 million. To do it right across the whole UK would not cost a great deal more than £10 million. That is not a sum that is going to trouble the Treasury unduly. Some Conservative Members might not even get out of bed for a consultancy if they were earning less than that. Nevertheless, removing 20% VAT on what are essential purchases in anyone’s estimation could really make a big difference to individual families. We will look to return to that in Committee. I hope the Government will listen very carefully on that because it could benefit family incomes the length and breadth of the UK.
There have been many other hits to household finances in recent times. There is the removal of the £20 universal credit uplift. There is a Government commitment to a real living wage which seems to be at a rate running one year in arrears. No sooner do the Government expect plaudits and hurrahs for hitting the target, than a month later the rate is revised and the Government wait another 11 months to play catch-up. We are also seeing the removal of the pensions triple lock. All those matters will conspire to squeeze family incomes at a time when families can least afford it.
In the remainder of my contribution, I would like to concentrate on the impact of the failure to get to grips with the supply and environmental crises, particularly in the north-east of Scotland. An enormous series of problems is being caused by shortages of labour. That applies in the haulage sector and, in particular, in the food and drink, hospitality and agriculture sectors. We have seen crops rotting in the field because there are not enough people to harvest them. We are seeing a crisis in the pig industry. There simply are not enough skilled abattoir workers and butchers to deal with the throughput from that industry, which is leading to a looming animal welfare and human crisis.
I have heard many Conservatives say, “Why can’t you just hire local workers?” Well, frankly, you cannot just hire that sort of skilled, dedicated and experienced labour. We cannot just wave a magic wand and magic it up out of nowhere. However unskilled and unspecialised the Government might consider many of those positions, they really do need to act and act swiftly. This is not even a financial measure; it is simply about making sure all parts of the UK have an immigration policy that is appropriate for their economic and social needs. If the UK Government are not prepared to do that themselves, they should devolve it to the devolved Administrations to decide for themselves. I have absolutely no doubt that the devolved Administrations could make much better and much more enlightened and productive choices than the UK Government have shown themselves capable of making so far.
Finally, there is the environmental crisis. Let me be very clear about this: there can be no transition to net zero in the UK without the skills, human capital, knowledge and the expertise of the north-east of Scotland, particularly the contribution of the constituents I represent. COP26 made many important steps forward. Despite that, we are still seeing an almost complete mis-match and failure to engage the clutch plate when it comes to aligning Government rhetoric with actual tangible Government action in this Bill.
The Government have already failed to match the £0.5 billion commitment from the Scottish Government to net zero transition work in the north-east of Scotland for Aberdeen city, Aberdeenshire and Moray. They have also, completely and inexplicably, failed to proceed with the Acorn carbon capture and underground storage project just north of my constituency in Peterhead. An enormous percentage of the potential carbon capture storage is just offshore from Peterhead. It was the most advanced project. It is the only one that can repurpose existing infrastructure. It is the one that can come online most quickly. It is the one that can accept imports of carbon dioxide from other parts of the UK that are as yet not up and running and do not have the ability to sequestrate their own carbon. I am thinking particularly of the clusters in south Wales and around the Solent. It is an absolutely inexplicable decision, which seems to have been taken purely for partisan political reasons and the benefit of playing the politics of the pork barrel in parts of the north of England.
In conclusion, the Bill fails to get to grips with the key challenges that we knew we were facing heading into the Budget. We can only hope that it improves as it goes through Committee and on Report.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to respond to this debate for the official Opposition. It is noticeable that the Government could convince only one of their Back Benchers to turn up to defend their Finance Bill. This has been a short but good debate, with many thoughtful speeches, and I thank all the hon. Members who have taken part—in particular, my hon. Friends the Members for Bethnal Green and Bow (Rushanara Ali) and for Brentford and Isleworth (Ruth Cadbury), and my right hon. Friend the Member for Hayes and Harlington (John McDonnell), as well as the hon. Members for Glenrothes (Peter Grant), for Gordon (Richard Thomson), for Edinburgh West (Christine Jardine) and for Broadland (Jerome Mayhew).
The hon. Member for Broadland highlighted the importance of local communities. I look forward to scrutinising the details of the alcohol duty changes in due course.
My hon. Friend the Member for Bethnal Green and Bow spoke powerfully about the Bill’s failure to boost growth, increase living standards and tackle the climate crisis. I will return to those points shortly. She also made a very important point about wasteful Government spending and the dodgy contracts that have been given out during the pandemic.
My right hon. Friend the Member for Hayes and Harlington made a number of important points, including about fairness in the tax base, the Government’s reforms to the tonnage tax and local authority finances. I hope that the Minister can answer the specific questions that he asked about reforms to local government funding.
My hon. Friend the Member for Brentford and Isleworth spoke passionately about the cost-of-living crisis and how she has spoken to many constituents about the hardship that they face. She talked about the reality of what the Government are doing on universal credit and the shameful food and poverty crisis in this country. She also made important points about the loan charge, and I hope that the Minister will respond properly to the points that several Members made on that issue.
This Finance Bill is a product of the Government’s economic failings over the past 11 years. At the Budget, the OBR forecast growth averaging just 1.3% in the final years of the forecast period, which follows a measly 1.8% in the decade leading up to the pandemic. As my hon. Friend the Member for Ealing North (James Murray) said, we can compare that with Labour’s record of growth of 2.3% a year when we were in power. The Conservatives are a party of low growth and the Government have no plan for growth. Working people are paying the price for that failure. They are paying the price in increased national insurance contributions and the freeze in income tax personal allowances. They are paying the price through the cut to universal credit. They are paying the price through lower wages, with real wages on course to be more than £10 an hour lower in 2026 than if the pre-2008 trend had continued. And they are paying the price through inflation that is hurting family finances, with food, heating and petrol all more expensive.
Yesterday, a member of the Bank of England’s Monetary Policy Committee told the Treasury Committee that consumers are spending an increasing proportion of their incomes on food and energy. They made the point that businesses may struggle with the rising cost of materials and labour because consumers will not have additional disposable income to spend. Does the Finance Bill include measures to help people with the cost-of-living crisis? Does it reduce the burden of taxes on those who can least afford to pay? Does it encourage investment and boost growth? The answer is no. Like the Budget that it stems from, the Bill has no plans to tackle the cost-of-living crisis, no plan to grow our economy and no plan to help businesses to succeed.
Instead, the Government’s priorities in the Budget and the Bill are to cut taxes on the banks and make domestic flights cheaper. It is beyond belief that in a Budget just days before COP26 began in Glasgow, the Chancellor chose to cut domestic air passenger duty. I am afraid that that is yet further evidence that the Treasury is not serious about our net zero commitment. Clause 6 will slash the corporation tax surcharge for banking companies from up to 8% to 3% and will raise the surcharge allowance from £25 million to £100 million. Those are the wrong priorities for an increasingly out-of-touch Government.
Labour’s priorities are different. We would use the Finance Bill to bring down energy bills with a cut in VAT on domestic energy; to tackle the climate crisis, rather than making it worse; and to fundamentally reform business rates to help businesses in every part of the country.
With the transition to net zero, the Government seem intent on leaving individuals and businesses to meet the costs on their own, without recognising the opportunity for growth and jobs. Labour knows that investment can unlock good jobs across the country, while helping households to cut bills and keep their homes warm. On business rates, Labour has put forward proposals for fundamental reform, while the Government have broken their promise to do so.
This week, research by the Resolution Foundation found that business investment in the UK lags behind that in countries with higher productivity. Business capital investment in Britain was 10% of gross domestic product in 2019, compared with 13% on average in the United States, Germany and France. There are many reasons for that, including the Government’s patchwork Brexit deal, but the Bill does nothing to help to boost investment.
Labour’s plan for replacing business rates will introduce a system that will incentivise investment, reward businesses moving into empty premises and encourage environmental improvements. Our climate investment pledge will encourage billions in private finance, and unlike Government Ministers, we have a real plan for growth.
No doubt at further stages there will be considerably more to say about other clauses, but I would like to make a few points now. On the residential property developer tax in part 2, we support the principle of taxing the largest developers to pay for the cost of removing unsafe cladding, but we are concerned that the levy alone will not be enough. The Select Committee on Housing, Communities and Local Government estimates that there is a gap of £13 billion between the £2 billion that the levy is expected to raise and the £15 billion cost of works—and it has been reported that the rising cost of works as a result of the Tory supply chain crisis will wipe out much of the £2 billion.
Can the Exchequer Secretary confirm who will meet the gap? Labour is clear that it should not be the leaseholders. The Government must ensure that those who are responsible for putting dangerous material on buildings pay their fair share. Time and again, the Government’s handling of the cladding crisis has left leaseholders on the hook. The Government must finally get a grip on the problem and help the thousands of people who, shamefully, are still living in unsafe accommodation.
My right hon. Friend the Member for Hayes and Harlington raised the measures on tax avoidance. We support the principle behind the new economic crime levy, which will raise funds to pay for measures to tackle money laundering. Can the Exchequer Secretary tell us more about how the levy will be spent? Does she think that it will be enough to implement the measures in the economic crime plan?
My hon. Friend the Member for Ealing North made several critical points about other measures to fight economic crime. Will the Exchequer Secretary confirm exactly when the Government will introduce the vital legislation on the register of overseas entities? “When parliamentary time allows” is simply not good enough, when the Government first announced the policy in 2016. As my hon. Friend for Ealing North said earlier, it is notable that the momentum to implement the measure seems to have disappeared since the current Prime Minister took office. We know that this Prime Minister is no fan of transparency or of playing by the rules, but we are facing a crisis of dirty money and corruption—and not all of it is in relation to the Cabinet. The Pandora Papers show how many shell companies are laundering money in this country and buying up luxury properties. We will use the further stages of the Bill to push the Government to do more about economic crime and tax avoidance.
This is a Finance Bill that fails to rise to the challenges we face. It contains nothing to make up for the years of low growth over which this Government have presided, nothing to tackle the climate crisis or to unlock opportunities that the transition to net zero brings, and nothing to ease the growing tax burden on working people. Indeed, the Government have used this Finance Bill to cut taxes on banks rather than cutting them for working people.
The truth is that the Government’s failure on growth means less money for public services while the Government increasingly take more from people’s pay packets. In contrast, Labour has a plan to grow the economy, to invest sustainably in the jobs of the future, and to make our tax system fair. It is for this reason that we will not support the Bill tonight, and I urge all hon. Members to vote against it.
The Exchequer Secretary to the Treasury (Helen Whately)
It is a pleasure to close this debate on behalf of the Government. In a moment I will address many of the points raised in the debate, but I want to begin by reminding the House of the announcements made by the Chancellor in the Budget: more investment in infrastructure, innovation and skills; business rates cut by £7 billion, including the 50% business rates discount for the retail, hospital and leisure sectors; a cut in the universal credit taper; a £500 increase in work allowances; and an increase in the national living wage, rewarding people for their hard work. Those are announcements that the Finance Bill builds upon.
Let me remind the House what the Bill is designed to achieve. First, it will deliver a stronger economy for the British people by encouraging businesses to invest in the UK’s future growth and prosperity. Secondly, it will help to deliver stronger public finances. Thirdly, it will improve our ability to tackle economic crime, tax avoidance and tax evasion. Finally, it will contribute to a simpler and more sustainable tax system, in turn supporting businesses and consumers.
A stronger economy and a strong, dynamic business environment go hand in hand. As a Government, we will always do everything that we reasonably can to encourage business investment. The previous Finance Bill delivered the super deduction, the biggest business tax cut in modern British history, and extended the annual investment allowance, to the end of this year, at its higher level of £1 million. Now is not the time to remove tax breaks on investment. That is why the Bill extends the £1 million level again until the end of March 2023, encouraging businesses to bring forward investment—because this is a Government who back business. It is also why the Bill will make our creative tax reliefs more generous by extending the relief for museums and galleries for another two years and doubling the reliefs for theatres, orchestras, museums and galleries until April 2023.
A number of Opposition Members spoke about the taxation of banks. I should like to put everyone straight on that. As the Bill explains, the surcharge will be set at 3% from 2023, which means that the combined tax rate on banks’ profits will increase—I emphasise that: the tax rate will increase—from 27% to 28%. [Interruption.] There seems to be some problem with doing maths. Opposition Members are shouting at me, but it is a simple fact: the rate will go up from 27% to 28%. Banks will be paying more tax. It may be convenient for Opposition Members to suggest something different—they like the rhetoric—but it is simply not true.
Richard Thomson
As the Minister is so good at maths, can she tell us what the tax rate would be if the surcharge was not being reduced?
Helen Whately
The answer to that question is 33%, but the fact is that the rate is going up, from 27% to 28%. That is an increase in tax; it really is quite simple maths.
While supporting investment and competitiveness in our key industries, we must also continue to fund our crucial public services and strengthen our public finances. To keep this Government on the path of discipline and responsibility, the new charter for budget responsibility sets out two key fiscal rules. First, underlying public sector net debt, excluding the impact of the Bank of England, must, as a percentage of GDP, be falling. Secondly, in normal times the state should only borrow to invest.
That is the context for the introduction of the health and social care levy, which we have already voted on, and the 1.25% increase to tax rates on dividend income, delivered through this Bill. This funding is to provide a new long-term funding stream for health and social care, raising more than £12 billion a year over the spending review period, of which £5 billion is earmarked for social care—that picks up on the question from the hon. Member for Gordon (Richard Thomson). I would be delighted to tell him more about the plans involved in that, but I would be digressing too much from the context of the Bill and that is probably one for another occasion. However, what I will say to Opposition Members who want to scrap that extra funding is that they have no other plan to finance getting down the NHS backlog or social care reform, other than through borrowing—they would pass the cost on to future generations. The Government are taking a responsible, fair and progressive way to raise revenue. Additional and higher-rate taxpayers are expected to contribute more than three quarters of the revenue from this increase in 2022-23. Those with the broadest shoulders will pay more.
A number of hon. Members asked about the funding of net zero. Taking a step back for a moment, let me say that the net zero strategy sets out our path to net zero by 2050. Overall, we have earmarked £30 billion-worth of investment in net zero, but that is a long-term investment. Net zero funding in this spending review and Budget specifically includes £1.3 billion of energy innovation funding, £1.4 billion of public sector decarbonisation funding, £1.8 billion to help low-income households to transition to net zero, £620 million extra for the transition to electric vehicles and up to £1.7 billion for large-scale nuclear energy. So, as hon. Members can see, there is funding for net zero in the spending review and Budget. In addition, the revised Green Book means that all policy objectives need to align with net zero.
Let me turn to measures in the Bill that tackle economic crime, and tax avoidance and evasion. The Government are committed to making the UK a hostile place for illicit finance and economic crime, helping to protect our security and prosperity. In recent years, we have taken a series of steps to combat economic crime, including the creation of a new National Economic Crime Centre to co-ordinate the law enforcement response, as well as passing the Criminal Finances Act 2017, which introduced new powers for enforcement authorities to investigate cash believed to be derived from criminal proceeds. The Bill builds on those steps by introducing the new economic crime levy, which will help fund further action on money laundering, including the ambitious reforms that the Government announced in the 2019 economic crime plan, and help safeguard the UK’s global reputation as a safe and transparent place to conduct business. It is a proportionate measure, which will be paid by entities that are regulated for anti-money laundering purposes.
We are also taking action through the Bill to clamp down on promoters of tax avoidance schemes. In response to the question from the hon. Member for Brentford and Isleworth (Ruth Cadbury), we are giving HMRC new powers: to freeze and secure a promoter’s assets; to introduce a new penalty on UK entities who support offshore promoters; to petition the courts to close down companies or partnerships that promote avoidance schemes; and to share more information on promoters to support taxpayers to steer clear of such schemes.
James Murray
Will the Minister explain when the register of overseas entities owning UK property will be in place?
Helen Whately
I am happy to write to the hon. Member on that question.
Finally, I turn to the administration of the tax system. Only last year, the Government published a 10-year tax strategy that seeks to improve the tax system and its support for taxpayers. The House will recall that the Chancellor was clear in his Budget speech that we must deliver a simpler, fairer tax system that supports consumers and is also competitive for business, and we have, for example, the most radical simplification of alcohol duties for more than 140 years. As part of that, community pubs can look forward to a new and simpler system of alcohol duties, including draught relief, which will cut duty on beer and cider served in pubs by 5%, as celebrated in the contribution of my hon. Friend the Member for Broadland (Jerome Mayhew). Alcohol duties will also be reformed around the simple, common-sense principle that the stronger the drink, the higher the rate. That will be legislated for next year after a detailed consultation.
In the meantime, the Bill does more to build a simpler and more sustainable tax system. Basis period reform, for example, will remove the existing highly complex requirements around basis period rules, including double taxation of early years of trading. Anyone who, like me, has studied accountancy will appreciate that.
As my right hon. and learned Friend the Financial Secretary said at the beginning of the debate, the Bill comes before us when we are seeing significant improvements in the economic situation. The Government are rightly focused on economic recovery, and let there be no doubt that our plan is working. A year ago, the country was experiencing the deepest recession on record, but thanks to our plan for jobs, which the Office for Budget Responsibility has called “remarkably successful”, we are recovering fast. The OBR expects the economy to return to pre-pandemic levels at the turn of the year, several months earlier than it thought in March. We do still have historically high levels of debt, but new fiscal rules together with measures in the Bill will ensure that the public finances remain on a sustainable path.
It is a Bill that encourages business investment, delivers stronger public finances, tackles tax avoidance and evasion, contributes to a simpler and more sustainable tax system and fundamentally delivers a stronger economy for the British people. For those reasons and more, I commend it to the House.
Question put, That the amendment be made.
Proceedings | Time for conclusion of proceedings |
Clause 4; Clause 6; Clauses 7 and 8 and Schedule 1; Clause 12; any new Clauses or new Schedules relating to the subject matter of those Clauses and that Schedules 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86; any new Clauses or new Schedules relating to the impact of any provision on the financial resources of families or to the subject matter of those Clauses and that Schedule | 2 hours from commencement of proceedings on the Bill |
Clauses 27 and 28; Clauses 53 to 66; Clauses 84 to 89; Clause 90 and Schedule 12; Clause 91 and Schedule 13; Clause 92; any new Clauses or new Schedules relating to the subject matter of those Clauses and those Schedules | 4 hours from commencement of proceedings on the Bill |
Clauses 68 to 71 (value added tax); Clause 93 and Schedule 14 (free zones); any new Clauses or new Schedules relating to the subject matter of those Clauses and that Schedule | 6 hours from commencement of proceedings on the Bill |
Finance (No. 2) Bill
Wednesday 1st December 2021
(2 years, 11 months ago)
Commons ChamberRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 1 December 2021 - (1 Dec 2021)
15:47 - The Committee divided: - Ayes: 301 / Noes: 206 - Question accordingly agreed to.
16:02 - The Committee divided: - Ayes: 52 / Noes: 307 - Question accordingly negatived.
17:23 - The Committee divided: - Ayes: 212 / Noes: 306 - Question accordingly negatived.
17:37 - The Committee divided: - Ayes: 215 / Noes: 299 - Question accordingly negatived.
The Chairman of Ways and Means (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Clauses 6 to 8 stand part.
That schedule 1 be the First schedule to the Bill.
Amendment 5, in clause 12, page 10, line 44, at end insert—
‘, and at the end of section 32(1) insert “, but eligibility for the increased maximum annual allowance from 1 January 2022 to 31 March 2023 is available only to businesses which can demonstrate that they have taken steps to reduce carbon emissions within their own business models and have set out further steps for how they plan to reduce carbon emissions towards a net zero goal”.’
This amendment would restrict access to the extended temporary increase in annual investment allowance to businesses that support transition to “net-zero”.
Amendment 6, page 10, line 44, at end insert —
‘, and at the end of section 32(1) insert “, but eligibility for the increased maximum annual allowance from 1 January 2022 to 31 March 2023 is available only to businesses which do not have a history of tax avoidance”.’
This amendment would restrict access to the extended temporary increase in annual investment allowance to businesses that do not have a history of tax avoidance.
Amendment 4, page 11, line 10, at end insert—
‘(3) The Chancellor of the Exchequer must, no later than 5 April 2022, lay before the House of Commons a report—
(a) analysing the fiscal and economic effects of the temporary increase in annual investment allowance, and the changes in those effects which it estimates will occur as a result of the provisions of this section, in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland; and
(b) assessing how the temporary increase in annual investment allowance is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—
(i) each NUTS 1 statistical region of England and England as a whole,
(ii) Scotland,
(iii) Wales, and
(iv) Northern Ireland.’
This amendment would require the Chancellor of the Exchequer to analyse the impact of changes proposed in clause 12 in terms of impact on the economy and geographical reach and to assess the impact of the temporary increase in the annual investment allowance on efforts to mitigate climate change.
Amendment 7, page 11, line 10, at end insert—
‘(3) In paragraph 2(3) of Schedule 13 of that Act—
(a) after “second straddling period is” insert “the greater of (a)”; and
(b) after “of that sub-paragraph” add “and (b) the amount (if any) by which the maximum allowance under section 51A of CAA 2001 had there been no temporary increase in the allowance exceeds the annual investment allowance qualifying expenditure incurred before 1 April 2023.”’
This amendment would amend the transitional provisions for the reversion of the AIA to £200,000 on 1 April 2023, to ensure that smaller businesses with lower levels of qualifying capital expenditure are not disadvantaged by having their effective AIA limit restricted to significantly less than £200,000 for a period.
Clause 12 stand part.
New clause 1—Review of the impact on revenues from tax on dividend income—
‘The Chancellor of the Exchequer must, within six months of the passing of this Act, publish an assessment of the impact on revenues from tax on dividend income of increasing the rates set out in section 8 of ITA 2007 by—
(a) 1.25%,
(b) 2.5%, and
(c) 3.75%.’
This new clause requires an assessment of what extra revenue would be derived by increasing the rates of tax on dividend income by different amounts.
New clause 2—Review of the impact on revenues from banking surcharge—
‘(1) The Chancellor of the Exchequer must, within six months of the passing of this Act, publish an assessment of revenues from the banking surcharge.
(2) This review must consider—
(a) the total revenue raised by the banking surcharge since its introduction,
(b) the total public expenditure on supporting the banking sector since 2008, and
(c) an assessment of risks to the banking sector in the future including the likelihood of further public support being required.’
This new clause requires an assessment of the banking surcharge in the context of the cost of public support to banks since the financial crisis and an assessment of the risk of the need for further public support in future.
New clause 3—Review of the impact of the extension of temporary increase in annual investment allowance—
‘The Chancellor of the Exchequer must, within three months of the end of tax year 2022-23, publish a review of decisions by companies to invest in the UK in 2022-23, which must report on which companies, broken down by size, sector, and country of ownership, have benefited from the annual investment allowance; and this assessment must also assess the merits of the existence of the superdeduction in light of the AIA.’
This new clause requires a review of which companies have benefited from the Annual Investment Allowance in 2022-23, broken down by size, sector, and country of ownership, and an assessment of the merits of the superdeduction in light of the AIA.
New clause 8—Review of changes to taxation of dividend income—
‘(1) The Chancellor of the Exchequer must, not later than six months after the passing of the Act, lay before the House of Commons a review of the fiscal and economic effects of the changes in the taxation of dividend income resulting from the provisions of section 4 of this Act.
(2) The review under subsection (1) must also include an assessment of the fiscal and economic effects of—
(a) removing the personal dividend taxation allowance, and
(b) amending the dividend income rates of taxation to match the existing rates of taxation of earnings.’
This new clause would require the Government to report to the House on the fiscal and economic effects of the changes made by clause 4 to the rates of taxation of dividend income, and also to assess the effects of other changes to the taxation of dividend income.
New clause 10—Assessment of annual investment allowance—
‘The Government must publish within 12 months of this Act coming into effect an assessment of—
(a) how much the changes to the annual investment allowance under section 12 of this Act will affect GDP in the event of the Finance Act coming into effect, and
(b) how the same changes would have affected GDP had the UK—
(i) remained in the European Union, and
(ii) left the European Union without a Future Trade and Investment Partnership.’
This new clause would require an assessment of the effects of the provisions in clause 12 on GDP in different scenarios.
New clause 11—Review of temporary increase in annual investment allowance—
‘The Government must publish within 12 months of this Act coming into effect an assessment of
(a) the size, number, and location of companies claiming the increased annual investment allowance,
(b) the impact of this relief upon levels of capital investment, and
(c) the percentage of total business investments that were covered by this relief in 2019, 2020 & 2021.’
This new clause would require an assessment of the take-up and impact of the temporary increase in the AIA.
New clause 16—Assessment of revenue effects of increases in the rates of tax on dividend income—
‘The Chancellor of the Exchequer must, no later than 31 January 2022, lay before the House of Commons an assessment of the effects on tax revenues of—
(a) the provision of section 4, and
(b) increasing the rates of tax on dividend income to the default rates of income tax.’
New clause 17—Review of impact of the abolition of basis periods—
‘(1) The Chancellor of the Exchequer must, within six months of the passing of this Act, review the impact of the abolition of basis periods.
(2) The review must consider the effects of the abolition on—
(a) farmers and other seasonal businesses,
(b) sole traders, and
(c) partnerships.
(3) The review must consider the effects of the abolition in respect of—
(a) each region of England and England as a whole,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland.
(4) In this section, “region” has the same meaning as that used by the Office for National Statistics.’
This new clause would require a report on the effects of the abolition of basis periods on particular sectors, including farming and other seasonal businesses, sole traders and partnerships.
The Financial Secretary to the Treasury (Lucy Frazer)
In the Budget, the Chancellor set out his vision for an economy that will allow the UK to succeed. This was a vision of a fair, simple and modern tax system that enables our businesses to be world leaders. The clauses we are considering today, along with other measures in this Bill, will help us to achieve these goals. For example, on fairness, these measures will make sure that everyone plays their part in helping to fund new investment in health and social care. That is because the Bill provides that, in addition to the new health and social care levy, we will ask for an equivalent contribution from those who earn income through dividends. This will spread the burden more equally across society.
On tax simplicity, these measures will support the smaller businesses that are at the heart of our economy through reforming basis periods. That change will make the tax system easier and fairer for these firms.
On competition, we have set the rate of the bank surcharge to ensure that the UK remains internationally competitive while making sure that banks continue to pay their fair share of tax.
Finally, these measures will help businesses create jobs and growth by extending an increase in the annual investment allowance on plant and machinery assets. This will encourage firms across the country to invest more and earlier. I will now turn to each of these clauses in depth.
I shall start with clause 4. This increases the rate of income tax that is applied to dividend income by 1.25%. The increase will be used to help fund the health and social care settlement announced in the spending review. By way of background, dividend tax is paid by people who receive dividend income from shares. That income is not subject to national insurance contributions or to the new health and social care levy. The increase in dividend tax rates will mean that those with dividend income will also contribute to the health and social care settlement, just like employees, the self-employed and businesses.
As well as supporting the Government to fund this critical area of public services, the measure will deter individuals from cutting their tax bills by incorporating as a company and remunerating themselves via dividends rather than as wages. That is something that the Office for Budget Responsibility has pointed out as a potential risk. However, it is important to point out that many everyday investors will be unaffected by this change. That is because shares held in ISAs are not subject to dividend tax. In addition, because of both the £2,000 tax-free dividend allowance and the personal allowance, around 60% of those with dividend income outside of ISAs are not expected to pay any dividend tax or be affected by this change next year.
The measures contained in clause 4 are also progressive. We have calculated that additional and higher-rate taxpayers are expected to contribute more than three quarters of the revenue raised by the measures next year. In short, this clause supports the Government to fund public services and tackle the challenges in social care, but in a fair and progressive way.
I shall now turn to the proposed new clauses, 1, 8 and 16. These all call on the Government to publish information on the changes to dividend tax rates set out in clause 4 as well as on alternative potential changes to the dividend tax system. The Government have already published an assessment of the fiscal and economic impacts of the 1.25% increase in tax rates on dividend income. The fiscal impacts were set out in the Budget document and the fiscal and economic impacts were both set out in the taxation information and impact notes for that measure. Both of these are available for the public to consider on gov.uk. It is not standard, however, for the Government to publish assessments of the fiscal and economic impacts of measures that they are not introducing and it is not clear in this case that doing so would be a beneficial use of public resources. I therefore recommend that the House rejects the new clauses.
I now turn to clause 6. Before turning to the bank surcharge itself, it is important to remember the overall context for this clause. From April 2023, corporation tax will rise from 19% to 25%. That increase, combined with a current banking surcharge rate of 8%, would have led to banks paying an effective rate of 33% on their profits. That is not competitive. Such a rate would have put us at a competitive disadvantage in relation to other major financial centres, such as the US, Germany and France. Clause 6 makes sure that banks pay their fair share of tax while remaining internationally competitive, protecting British job and tax receipts.
I know that the Opposition may like to bash banks, but it is important to remember that the banking sector accounts for almost half a million jobs across the country, and 65% of those jobs are outside London. Let us not forget that the sector contributes around £37 billion a year in tax revenue, ultimately paying for vital public services. The changes made in clause 6 will therefore support those jobs and protect that tax revenue while making sure, as I said, that banks pay their fair share. A surcharge rate of 3% will mean that banks pay an overall rate of 28% on their profits. That is, of course, more than the 27% that the banks now pay and above the 25% paid by most other businesses. In combination, the changes to corporation tax and the bank surcharge will result in banks paying an additional £750 million in tax over the period to 2026-27 based on current forecasts.
I should also point out that none of our global competitors charges an additional rate on banking profit. Clause 6 also increases the allowance above which banks pay the surcharge—from £25 million to £100 million. This new, increased allowance will support growth and competition for smaller, retail and challenger banks, benefiting consumers and businesses.
New clause 2 would require the Chancellor to publish an assessment of revenues from the bank surcharge since its introduction, of public expenditure on supporting the banking sector since 2008, and of future risks to the banking sector. The Government already publish figures on revenues raised from the bank levy introduced in 2011 and the banking surcharge introduced in 2016 in the Red Book at each Budget. On state support, as of 27 October this year the independent Office for Budget Responsibility estimated an implied balance, excluding financial costs, of £13.5 billion for the net direct effect from the public finances of financial sector interventions made as a result of the 2007-08 crisis. We must also remember that the costs of the financial crisis would almost certainly have been more significant in the absence of direct interventions.
James Murray (Ealing North) (Lab/Co-op)
The economy the British people need is one that works for all parts of the country, that meets the goal of net zero, and that improves people’s quality of life. To achieve that, we need strong economic growth, yet we have a Chancellor who is failing at this most fundamental of tasks. In the first decade of this century, Labour grew the economy by 2.3% a year. In the past decade to 2019, however, even before the pandemic, the Tories grew it by just 1.8% a year, and now the Office for Budget Responsibility has said that by the end of this Parliament the UK’s economic growth will have fallen to just 1.3% a year. If we had an economy that was growing strongly, we could create new jobs with better wages and conditions in every part of the country, but without that growth it gets ever harder to meet the challenges we face—and the truth is that low growth means that the Conservatives have had to put up taxes.
The tax burden in our country is set to reach its highest level in 70 years. Faced with the decision over which taxes to put up, where have the Tories chosen to let that tax burden fall? It is falling on the backs of working people who face a national insurance hike from this Chancellor at the same time as he cuts taxes for banks. In power, the Conservatives are showing themselves to be the party of low growth, high taxes, and the wrong choices for this country. The Tories are making the wrong choice by pressing ahead with clause 6, which cuts the rate of the banking surcharge and raises its allowance. That cut will see the corporation tax surcharge for banking charges slashed from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. It will cost the public finances £1 billion a year by the end of this Parliament.
We will oppose this clause and we have tabled new clause 2 to make sure that Members of this House do not forget why the banking surcharge was introduced in the first place. Let us not forget that following the financial crisis of the late 2000s, there was recognition that banks have an implicit state guarantee thanks to their central position in the UK economy. At the time, the Government seemed to realise that this guarantee should be underpinned by a greater tax contribution. Indeed, this has been a critical justification behind both the bank levy and the banking surcharge. The Government’s own policy paper published alongside the October Budget clearly stated:
“Since 2010, banks have been subject to sector-specific taxes. As a result they have made an additional contribution to public finances, reflecting the risks that they pose to the UK financial system and wider economy and recognising the costs arising from the financial crisis.”
Yet despite appearing to acknowledge the justification behind this surcharge, the Government are today pushing ahead with slashing it by nearly two thirds.
That is why our new clause 2 would require the Government to publish a review that considers the total revenue raised by the banking surcharge since its introduction, alongside the total public expenditure on supporting the banking sector since 2008, and an assessment of risks to the banking sector in the future, including the likelihood of further public support being required. I would welcome the Government’s support for such a review, but if it is not forthcoming, perhaps the Minister could explain why the need for banks to make an additional contribution to public finances is suddenly less now than it has been for the past decade. Without clear evidence from the Government, we can only go on what others say. Tax Justice UK has pointed out that
“it appears that the bank levy and bank surcharge will not even have fully repaid the public expenditure on the banking sector at the financial crisis; let alone provided any insurance against a future crash, before being cut”.
It is clear that cutting this tax on banks is the wrong choice at the wrong time. At a time when the Government are being forced to raise taxes, it tells us everything we need to know about the Conservatives’ instincts—that they have decided to cut taxes for banks while raising them for working people.
Elsewhere in the Bill, clause 4 also draws to our attention other choices the Government are making on taxes. Although the clause increases the rate of tax on dividend income, let us make no mistake over the context of this measure. When the Prime Minister set out the Government’s plans for their new health and social care levy in September, he was rightly criticised by Members in all parts of the House for funding it overwhelmingly through taxes on working people and their jobs. At the time, the Prime Minister tried to soften the blow by claiming that the Government’s tax plans were fair because the tax rise on working people would be accompanied by a tax rise on income from dividends. He said that a rise in dividend tax rates would mean the Government
“will be asking better-off business owners and investors to make a fair contribution too.”—[Official Report, 7 September 2021; Vol. 700, c. 154.]
The Prime Minister was desperate to give the impression that this tax rise is not falling overwhelmingly on working people and their jobs.
Now, I am sure the Prime Minister would never be loose with his language, nor the truth, but let us look at the facts. The reality is that the dividend tax rise in clause 4 would raise just 5% of the total revenue needed for the health and social care levy. The rest of that tax bill—95% of its total, or £11.4 billion a year—will land on working people and their jobs. The Government do not seem to have considered asking those receiving income from dividends to take a greater share of the burden, the impact of which our new clause 1 asks them to assess.
Richard Thomson (Gordon) (SNP)
It is a pleasure to speak in this section of our consideration of the Finance Bill. At the outset, may I just say that notwithstanding the valiant efforts of the Minister to try to persuade me otherwise, I will still be pressing amendments 5, 6 and 7 and new clauses 10 and 11 in my name and those of my colleagues?
Before I get to the nub of amendment 5, it is always important to place on record, when dealing with matters such as finance, that we are also dealing with a climate emergency. It is very important that we are using every single resource and every single incentive that we have at our disposal to encourage a move to net zero across the public sector and the private sector, and as quickly as possible.
Amendment 5 would restrict access to the extended temporary increase in the annual investment allowance to businesses that support a transition to net zero. To go back to a previous life, I was once the joint leader of Aberdeenshire Council. I think I am right in saying—I have no objection to being corrected by anyone in the Chamber, or anyone outside the Chamber who happens to be watching this—that we were the first local authority in the UK to introduce a carbon budget and to put it on an equal footing in governance with the capital budget, the revenue budget and the housing revenue allowance budget. It was therefore considered on exactly the same basis, and every single measure we were taking, whether in policy or budgetary terms, was worked through so that the carbon impact was understood and the emissions that resulted from activities were always on a downward trajectory.
That is exactly the sort of net zero philosophy that needs to be baked into the private sector. One way we could do that is by making qualifying for the allowance contingent on companies having taken steps to reduce carbon dioxide in their business model and how they go about their business, but we could also challenge companies on how they will build further on the progress they have made in reducing carbon dioxide. That seems to me a sensible measure and a proportionate approach, and I commend it to colleagues.
I will move on to amendment 6. I do not doubt the good intentions and best endeavours of the Government in trying to address tax evasion at any level, but it was nevertheless extraordinary to hear the Minister suggest that requiring companies to demonstrate their tax compliance would represent an onerous burden on them. This is pretty basic, baseline, default stuff. We should expect businesses to comply with the tax code and to pay their taxes in full and on time to the best of their abilities and not to try to avoid that. People want to see businesses and others succeed, but they also want to know that others are playing by the rules, and that is particularly the case for businesses. We want businesses to do well by competing and being the best that they can be, but we want to see them succeed on the basis of the quality and effectiveness of what they do, rather than by being incentivised perversely not to contribute to the common good and to undercut their more scrupulous competitors.
We often hear from the Government Dispatch Box that there is no such thing as tax revenues without businesses, but we miss the other side of the balance sheet and the other side of the equation: it is much, much harder for businesses to succeed without the high quality of the public goods that they consume, whether that is an educated population, a health service, investment in our infrastructure, the provision of a stable market, law and order and the emergency services—everything else that is fundamental to underpinning the activities of the society we live in. Fundamentally, tax cuts of this kind should be going to businesses that play by the rules and do not undercut their competitors by not playing by the rules. It is important to incentivise and reward that good behaviour, and that is precisely what amendment 6 would do.
We tabled amendment 7 to ensure that smaller businesses with lower levels of qualifying capital expenditure were not disadvantaged in any way by having their annual investment allowance limits restricted. Again, the amendment would ensure that we are playing fair for those who play by the rules.
Moving on to new clauses 10 and 11, it is very important that the measures we have in the Finance Bill or any legislation have the intended effects, that we can see whether they are having those intended effects and that we can quantify that and ensure, so far as is possible, that we are avoiding any adverse, unforeseen consequences. New clause 11 would insist that the Government publish within 12 months an assessment of the size, number and location of companies claiming the increased annual investment allowance; the impact of the reliefs on levels of capital investment, to see that we are getting the desired outcome from that reduction; and the scope of total business investments that are being covered by the relief, to see whether it is helping to drive investment and growth in the economy. That should be a fundamental set of baseline assessments that the Government should wish to undertake. New clause 11 would ensure that happens.
Moving on to new clause 10, and from unforeseen adverse circumstances to entirely foreseeable adverse circumstances, Brexit continues to be a millstone around the neck of businesses and families, and it is important that we understand the continued consequences and ramifications of choices that have either been made freely or, in the case of the area I represent and the people of Scotland, been forced upon us.
A programme I used to like watching on television on a Sunday afternoon was “Bullseye” with Jim Bowen. I do not know if anyone remembers that. His catchphrase at the end when the contestants did not do nearly as well as they had hoped—they had gone for that 101 with six darts and had sadly fallen short—was, “Let’s have a look at what you could have won.” New clause 10 is about having a look at what we could have won. It would ensure that the Government carry out an assessment of how the changes in the annual investment allowance would have affected our GDP had we remained in the European Union and had we left with that future trade and investment partnership in place.
Finally, I turn to clause 6 and the banking surcharge. My party was happy to support the increase in corporation tax generally, but people still bear the scars of the 2010 banking crisis. They believe that, in the spirit of fairness, the banks should make a fair contribution, not just to help businesses to grow and develop to make sure that the economy is growing and that they are making the best contribution they can, but to ensure that they are repaying some of the harm caused by the reckless approach to banking in the lead-up to the financial crash. Many people will look askance at the reduction in the surcharge, notwithstanding the increase in the corporation tax rate generally, and will feel that banks are not fulfilling their proper roles as prudent lenders or their social responsibilities but seem to be getting off the hook.
Christine Jardine (Edinburgh West) (LD)
I confirm that the Liberal Democrats will not be supporting the Bill and will be supporting the Opposition amendments. There are several specific reasons for that, which I have expressed previously, including that the Bill fails to address the cost of living crisis in this country and fails to adequately address the need to have and to shift to a greener, more sustainable economy. It also fails to address the concerns that the hon. Member for Gordon (Richard Thomson) expressed about the changes to the banking surcharge, which strike many people in the country as inappropriate at the moment.
I will focus on one issue that is dealt with by new clause 17, which has been tabled by my party. The Minister mentioned the innocuously titled basis pay rate and the basis period reform. One of the frustrating things about the Bill is that the more we look into the detail, the more we find to object to. Hidden in it are huge accounting changes that will make life much harder for tens of thousands of farming businesses, and other partnerships and sole traders around the country. Under the basis period reform, farmers will have to submit two tax returns instead of one, doubling their administrative burden.
Proud farming communities from Shetland to Shropshire are worried about the costs and burdens that will come with those changes. In Shropshire alone, there are more than 6,000 partners and directors in the sector who are likely to be affected by the reforms. Like many others from communities in the so-called blue wall, they find that the Government are taking them for granted and saddling them with administrative burdens and costs—and yet more promises that somehow seem to be ignored. They will force farmers to submit estimated tax returns when there is no good way of knowing the value of a crop yield when it is still in the ground.
We would like Ministers to put those plans on hold immediately and listen to farmers’ concerns. They should at least offer them an extended deadline, so that they do not have to estimate their profits but can submit just one final tax return. They should also explore the options laid out by the Office of Tax Simplification about changing the tax year to a 31 December end date. Farmers across the country have already seen their basic payments cut by at least 5% and could be facing even more costs. They deserve better. This is unfair and counterproductive, and it is yet another reason why people are disappointed with what they have heard about this Finance Bill.
Therefore, the Liberal Democrats will not vote to support the Bill, but we will support the Opposition amendments.
Richard Burgon (Leeds East) (Lab)
As always, it is a pleasure to serve under your chairship, Dame Eleanor. I wish to speak in support of new clause 16, which is in my name, and new clause 8, which has been tabled by my hon. Friend the Member for Hemsworth (Jon Trickett).
Both new clauses aim to tackle the gross injustice of taxes on share dividends being set at less than income tax rates. They are both part of a wider push for tax justice and wealth taxes—a push made ever more urgent by the growing inequality that we have seen throughout the pandemic. I also support the new clause on this issue from the Leader of the Opposition and the new clause on the banking surcharge. It is shameful that the Government are cutting taxes for banks while increasing the tax burden on working families.
Faced with a backlash over their plans to impose tax rises on working people, the Government made a very limited change, increasing the taxes on share dividends by 1.25%. That was done to try to give the impression that they were sharing the burden of the so-called health and care levy equally between ordinary working people and those lucky enough to live off their wealth. But that was just smoke and mirrors, done solely to deflect the media and distract the public, not to help to actually secure economic justice. That is obvious from the amounts that will be raised by the so-called health and social care levy. The national insurance increases will raise £11.4 billion a year, while the increases in tax on share dividends will raise just £600 million a year. We need to be clear about this: the Government’s change is woefully inadequate.
However, this can act as a watershed moment when we finally get to grips with the great injustice in our tax system that wealth is often taxed at much lower rates than income tax. It is clear, is it not, that our economy is rigged in the interests of the 1%? That has become even clearer during the pandemic, when we have seen the corrupt contracts that have been handed out or the fact that the billionaires have increased their wealth by £290 million a day while food bank use has hit record levels. How completely grotesque.
Our tax system is also rigged in the interests of the top 1%. One obvious way in which that happens is that those with wealth get special discounts on their tax rates. They pay lower tax rates than the vast majority, who have to go out to work day in, day out. My new clause seeks to put a stop to that racket, to that injustice. Why on earth is someone lucky enough to have inherited millions of pounds of shares and who now lives comfortably off their annual share dividends allowed to pay a lower rate of tax than people who have to go to work day in, day out? That is completely unfair and completely unjustifiable. It needs to change. Economic justice demands change, and my new clause would deliver that. It would raise tens of billions of pounds that could go towards funding a national care service, for example, in a progressive way by taxing wealth and not by hitting the pockets of working people.
Let us look at how this rigged system works in practice for those lucky enough to be in the top 1% of incomes. They currently have to pay a 45% rate of tax on income but pay way less on earnings from share dividends: just 38.1%. That tax discount applies even though payments to shareholders primarily go to a very wealthy minority. One quarter of the total income of the richest 1% is generated from dividends and partnership income alone.
The Government try to give the impression that we somehow live in some kind of shareholding democracy where everybody has an equal stake in owning shares, but I am afraid that that is just not true. TUC research shows that UK taxpayers earning over £150,000, which is just 1% of all taxpayers, captured about 22% of all direct income from UK dividends, so the wealthiest accumulate their money from share dividends instead of working, and the Government reward them for this with a tax discount. That is totally unjustifiable, totally unreasonable and totally indefensible.
The changes I have called for in new clause 16 would raise billions for the Treasury—billions that could go towards funding a national care service. Institute for Public Policy Research calculations in 2019 estimated that this would raise £29 billion over the lifetime of this Parliament, even after accounting for behavioural changes. But I am afraid the Conservative party does not want to tax the income of the super-rich who bankroll the party. This new clause has been tabled as an opportunity for the Government to really tackle the injustice in our taxation. It is absolutely outrageous and it needs to change, and that is why I put down this amendment.
Lucy Frazer
I will take the opportunity to respond to some of the points that have been made on the Bill, and I will start with those made by the hon. Member for Ealing North (James Murray). He started by suggesting that there was not a sufficient growth rate in the economy, but what the Budget documents show and the OBR has said is that there will be growth year on year for every year in the Budget forecasts.
The hon. Gentleman asked me to come back to him on cutting taxes for banks. I do not think he heard some of the points I made in my speech, because I did mention that the tax the banks are paying is not actually reducing, but increasing. I think he did not hear me say that they will be paying an additional £750 million in tax over the period to 2026-27, based on current forecasts.
The hon. Gentleman talked quite a lot about fairness—fairness to working people—and he suggested that the rise in the dividend payment was not fair. I do not accept that. What we have calculated is that the additional higher rate taxpayers are expected to contribute over three quarters of the revenue raised by this measure next year. It is interesting to note that the Resolution Foundation thought that this measure was indeed fair. It said that it welcomed the
“moves to address some of the fairness problems”
that came with choosing to focus on the tax increase on national insurance by raising dividend taxation.
The hon. Gentleman asked me a specific practical question on what support will be provided to traders who are affected by basis period reform, and I am very pleased to get back to him on that. I would like to reassure him that more than 80% of affected businesses are represented by a tax agent, but HMRC is currently exploring how best to help unrepresented taxpayers through basis period reform.
The hon. Member for Gordon (Richard Thomson) rightly talked about the importance of getting to net zero. He will know—he will have attended many debates in this House and I am sure he will have read our net zero strategy—about the emphasis the Government place on net zero. He talked about his work in Aberdeenshire, so I hope that he welcomes the investment we have made in that area in Scotland. We continue to deliver on important existing commitments in Scotland, including £27 million for the Aberdeen energy transition zone and £5 million for the global underwater hub, which will help support Scotland’s standing as a world leader in clean energy.
The hon. Gentleman also mentioned the important issue of playing by the rules, which Conservative Members think, as he does, is very important. I am sure he will be pleased to know that, since 2010, the Government have introduced over 150 new measures and invested over £2 billion extra in HMRC to tackle fraud.
The hon. Member for Edinburgh West (Christine Jardine) mentioned the cost of living. Obviously, many of the spending measures are in the spending review, rather than in the Finance Bill, so I hope she will not mind my mentioning some of our spending measures. The significant tax cut for people on universal credit, and the raising of the national living wage, are two measures that are really helping those on lower incomes.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Government amendments 2 and 3.
Clause 28 stand part.
Clauses 53 to 66 stand part.
Clauses 84 to 90 stand part.
That schedule 12 be the Twelfth schedule to the Bill.
Clause 91 stand part.
That schedule 13 be the Thirteenth schedule to the Bill.
Clause 92 stand part.
New clause 5—Reviews of Economic Crime (Anti-Money Laundering) Levy—
‘(1) The Government must publish a review of the operation of the Economic Crime (Anti-Money Laundering) Levy by 31 December 2027.
(2) The Government must publish on 31 December each year until the establishment of a register of beneficial owners of overseas entities that own UK property—
(a) an assessment of the contribution to the effectiveness of the Levy that such a register would make; and
(b) an update on progress toward implementing such a register.’
This new clause will put into law the Government’s commitment to undertake a review of the Levy by the end of 2027, and require them to publish an assessment every year until a register of beneficial owners of overseas entities that own UK property is in place an assessment of what impact such a register would have on the effectiveness of the Levy, and progress toward the register being established.
New clause 7—Reporting on provisions relating to publication of information about tax avoidance schemes—
‘(1) The Chancellor of the Exchequer must, within three months of the passing of this Act, lay before the House of Commons and publish a review of the impact of measures contained within this Act that relate to the publication by HMRC of information about tax avoidance schemes.
(2) The review undertaken by the Chancellor under subsection (1) must include commissioning an independent assessment of the information published by HMRC about disguised remuneration loan schemes.
(3) The independent assessment under subsection (2) must include consideration of the following with respect to the purposes set out in section 85(1)(a) and (b) of this Act—
(a) HMRC’s approach to the loan charge scheme; and
(b) recommendations for altering that approach.
(4) The Government must before the review commences make a statement to the House of Commons stating what efforts have been taken to guarantee the independence of the assessment under subsection (2).
(5) The Government must within three months of the publication of the review under subsection (1) make a statement to the House of Commons stating which of any recommendations under subsection (3)(b) it will be accepting, and give reasons for any decision not to accept one or more of those recommendations.
(6) The Government must every six months after the publication of the review in subsection (1) make a statement to the House of Commons stating what progress has been made towards implementing any of the recommendations that arise from subsection (3)(b) which the Government has accepted.’
This new clause would require the Government to review the impact of measures contained in clause 85 of the Bill, and as part of that to commission an independent review of the information published by HMRC about disguised remuneration loan schemes. This independent assessment must consider HMRC’s approach to the loan charge scheme and consider recommendations for altering that approach, and the Government would be required to state to the House its response to the recommendations.
New clause 12—Assessment of Economic crime (anti-money laundering) levy—
‘The Government must publish within 12 months of the Act coming into effect an assessment of the impact of Part 3 of this Act (Economic crime (anti-money laundering) levy) on the tax gap and how it has affected opportunities for tax evasion, tax avoidance, and other economic crimes.’
This new clause would require an assessment of the impact of the Economic crime (anti-money laundering) levy on the tax gap and on opportunities for tax avoidance, evasion and other economic crimes.
New clause 13—Review of avoidance provisions of sections 84 to 92 on the tax gap—
‘The Government must publish within 12 months of the Act coming into effect an assessment of the provisions in sections 84 to 92 of this Act on the tax gap in the UK.’
This new clause would require an assessment of the impact of the provisions on tax avoidance in clauses 84 to 92 on the tax gap.
New clause 14—Review of provisions of section 85 and publication of information on overseas property ownership—
‘(1) The Government must publish within 12 months of this Act coming into effect an assessment of the impact of the provisions of section 85 about the publication by HMRC of information about tax avoidance schemes.
(2) This assessment must include consideration of the impact of the publication of a register of overseas property ownership upon the promotion of tax avoidance in the UK.’
This new clause would require an assessment of the impact of the provisions of clause 85, and consideration of the impact of publishing a register of overseas property ownership.
New clause 15—Review of Economic crime (anti-money laundering) levy rates—
‘(1) The Government must within six months of the Economic crime (anti-money laundering) levy coming into effect lay before the House of Commons an assessment of the effectiveness of rates of the levy in section 54(2) in achieving the levy’s objectives.
(2) The assessment under (1) must also make an assessment of how the effectiveness of the levy would be changed if each of the rates of the levy in section 54(2) were (a) doubled and (b) tripled.’
This new clause would require the Government to assess the effectiveness of the proposed levy rates and of levy rates twice and three times as high.
Lucy Frazer
This Government are committed to making the UK a hostile place for economic crime and illicit finance. In recent years, the Government have taken major steps to achieve this goal. For instance, our landmark 2019 economic crime plan set out 52 actions to be taken by both the public and private sectors to ensure that the UK is not exploited by such criminals. However, as we set out in our report on progress on the economic crime plan earlier this year, both the public sector and the private sector must contribute if we are to deliver these reforms. The Bill therefore introduces a new economic crime levy, which aims to raise around £100 million a year to help to fund additional action on money laundering. The revenue raised through the levy will supplement the Government’s investment, announced at this year’s spending review, of £18 million in 2022-23 and £12 million a year in 2023-24 and 2024-25 to tackle fraud and money laundering.
The Bill also introduces new powers and penalties to clamp down further on tax avoidance, tax evasion and other forms of non-compliance, building on the Government’s strong record in this area.
Dame Margaret Hodge (Barking) (Lab)
I find the Minister’s introduction quite extraordinary, given that money laundering, fraud and economic crime are on the rise even on the National Crime Agency’s own figures. Has she had regard to the revelations in, most recently, the Pandora papers or the FinCEN papers, where it is seen that Britain, more than any other jurisdiction, is at the heart of economic crime, fraud, corruption and money laundering?
Lucy Frazer
The right hon. Lady is very committed and has done a lot of work in this area, but I would point out that the Government have introduced a number of measures to tackle fraud. Since 2010, the Government have introduced more than 150 new measures and invested more than £2 billion extra in HMRC to tackle fraud, and that action has so far secured and protected more than £288 billion-worth of revenue. This is money that would otherwise have gone unpaid.
We recognise there is more to do. Although most promoters of tax avoidance schemes have been driven out of the market, we know a determined group remains. The Bill addresses that group by disrupting their business models, by providing taxpayers with more information on schemes and by targeting offshore promoters. The Bill also takes steps to combat electronic sales suppression and tobacco duty evasion, ensuring everybody pays their fair share.
This Government have a strong record of tackling both economic crime and non-compliance in the tax system, and the Bill builds on the steps we have already taken to protect UK security and prosperity.
Dame Margaret Hodge
There is a difference between the action taken on tax avoidance and the growth of economic crime, money laundering and all that goes with it, such as the funding of terrorism and drug smuggling. I have become far more concerned about that in recent years, because Britain has become the jurisdiction of choice. Although I accept that action has been taken and that HMRC officials are working hard to tackle tax avoidance, can the Minister really justify that the work is sufficient when big tech companies such as Amazon and Google get away with paying such minuscule amounts of tax on the profits they make in this jurisdiction?
Lucy Frazer
The right hon. Lady conflates a number of points. She knows that HMRC and the Serious Fraud Office play an important role in cracking down on crime. Work is ongoing, and the Bill does two things: it introduces the economic crime levy, which will bring in £100 million; and it tackles promoters who sell schemes. We have an economic crime plan that has a large number of measures that address this area in broader terms.
Clauses 53 to 66 introduce the new economic crime—anti-money laundering—levy. As I mentioned, the levy will aim to raise about £100 million per year. Funds raised will help to support action to combat illicit finance in the UK while providing the Government with greater scope to tackle emerging risks and improve enforcement across the economy.
The levy will take effect from April 2022, with the first payments collected in the financial year 2023-24. The levy will be paid as a fixed fee, based on a business’s UK revenue. It will be collected by one of three statutory anti-money laundering supervisors: HMRC, the Financial Conduct Authority or the Gambling Commission. We have ensured that it is those with big pockets that will pay the levy. Larger firms will be making this contribution. Small firms with an annual UK revenue of below £10.2 million will be exempt. Out of approximately 90,000 anti-money laundering regulated businesses, about 4,000 organisations will be in scope. It is expected that the levy fees will not be more than 0.1% of a business’s UK revenue.
On new clauses 5, 12 and 15, which would require the Government to review clauses 53 to 66, that includes evaluating whether the levy is operating effectively, its impact on the tax gap and its effectiveness in achieving its objectives under different levy rates. The Government have already agreed to conduct a wide-ranging review of the levy by the end of 2027 and to publish an annual report on the levy, which is expected to provide a breakdown of how the levy will operate in the forthcoming year, including the levy rates. The Government also already publish information year on year on the tax gap, including the parts of it that relate to avoidance and evasion, and these figures bear witness to the Government’s successes over time in driving down the amount of tax lost to avoidance and evasion. An additional review would not add value and I urge Members to reject these clauses.
Let me now turn to clauses that clamp down on promoters of tax avoidance, the first of which is clause 84. It allows HMRC to petition the courts to wind up a company or partnership that promotes tax avoidance schemes when it believes it would be in the public interest to do so. By removing those businesses, we will hamper promoters’ ability to sell dubious avoidance schemes, and we will provide vital protection to taxpayers and the tax system. This power uses Insolvency Act 1986 procedures and maintains all current safeguards, including the right to make representations during the court hearing and the right to apply to the court to rescind the winding-up order or to stay the winding-up process. This is a firm but proportionate approach.
Clause 85 allows HMRC to share information about promoters and the tax avoidance schemes they recommend, as well as those connected to them. The measure will allow HMRC to tackle promoters who tout these dubious schemes. Under this measure, HMRC will be able to publish promoters’ details on gov.uk and in other appropriate places. It will also be able to contact taxpayers and other interested parties directly. These steps will allow taxpayers to better understand the risks of tax avoidance schemes and to steer clear of them. I recognise that this is a significant change, but legitimate businesses and individuals have nothing to fear, and the legislation has been carefully designed with safeguards in mind. For instance, HMRC will be required to offer all those it intends to name a 30-day opportunity to make representations as to why they should not be mentioned.
Dame Margaret Hodge
I welcome these attempts to secure responsible behaviour on the part of promoters. Does the Minister agree on the issue of personal services companies, which are being used now in a way that Parliament never intended? We always wanted plumbers to set up new businesses, but we did not want MPs to use personal services companies to avoid tax. Does she agree that it would be appropriate for HMRC to bear down on the abuse of personal services companies? Will she be bringing forward further legislation to ensure certainly that MPs do not take advantage of what has become a tax avoidance scheme?
Lucy Frazer
Of course, HMRC has a duty to look into all tax matters. I wonder whether the right hon. Lady was present for the previous debate, in which we talked about why we are introducing the increased social care levy in respect of the payment of dividends. One of the reasons that I pointed out was to ensure that people did not take advantage of being paid by a company through dividends rather than paying income tax.
New clauses 7 and 14 seek to require the Chancellor to publish a review on the impact of clause 85. New clause 7 would require the commissioning of an independent assessment of the information published by HMRC about disguised remuneration loan schemes. Such a review would consider HMRC’s approach to what is referred to as the loan charge scheme and consider recommendations for altering that approach. Under the new clause, the Government would be required to state to the House their response to the recommendations.
The Government already regularly review and report on their progress in tackling disguised remuneration, including on action taken against those who promote tax avoidance schemes. For example, only yesterday, HMRC published its annual report on the use of marketed tax avoidance schemes and earlier this month it published its annual report and accounts. The information is therefore already in the public domain and will be updated in future. The Government introduced the loan charge to tackle the use of disguised remuneration schemes and it has already been the subject of an independent review that concluded less than two years ago. The Government accepted all but one of that review’s 20 recommendations. A further review is therefore unnecessary and I urge Members to reject the new clause.
New clause 14 states that any assessment
“must include consideration of the impact of the publication of a register of overseas property ownership upon the promotion of tax avoidance”.
The Government continue to make progress on work to set up a public register of beneficial owners of overseas entities that own UK property. That will enable us to combat money laundering and achieve greater transparency in the UK property market. The Government remain committed to those reforms, so the new clause is unnecessary and I urge Members to reject it.
Clause 86 allows HMRC to seek a court freezing order to freeze a tax avoidance scheme promoter’s assets. This would happen when HMRC has applied or is about to apply to a tribunal in England and Wales to charge a penalty. The measure will make sure that promoters face the financial consequences of their actions.
Clause 87 mirrors for Scotland the provisions in clause 86, clause 88 does the same for Northern Ireland, and clause 89 provides for some definitions and interpretations. The clauses I have outlined target the most persistent promoters, who repeatedly go to extreme lengths to sidestep the rules and frustrate HMRC’s efforts to tackle their behaviour.
Clause 90 introduces a new penalty that is chargeable on UK-based entities that facilitate tax avoidance schemes that involve offshore promoters. It aims to deter the enabling of such schemes by UK entities by imposing a penalty of up to 100% of the total fees earned by all those involved. This significant penalty reflects the seriousness of such behaviour.
Clauses 27 and 28 relate to the diverted profits tax, which was introduced in 2015 to target large multinationals that try to avoid tax by redirecting their profits away from the UK. The tax has been hugely successful in its main aim of changing corporate behaviour; in fact, it has helped to secure £6 billion in extra taxes to fund our public services.
Clause 27 will ensure that the UK can meet its tax-treaty obligations by allowing HMRC to implement a mutual agreement procedure decision to alter a diverted profits tax charge, should that situation arise.
Clause 28 introduces technical amendments to ensure that the diverted profits tax legislation operates as intended. First, it will ensure that HMRC cannot issue a corporation tax closure notice until after the diverted profits tax review period has ended. This means that the taxpayer must resolve their profit diversion before a diverted profits tax charge can be displaced. Government amendments 2 and 3 ensure that the clause applies as intended to those diverted profit tax cases where a foreign company has structured its UK activities to avoid them meeting the definition of a permanent establishment. This is in line with the Budget announcement. Secondly, this clause will extend the period in which a taxpayer can amend their own company tax return to obtain relief from diverted profit tax.
James Murray
I rise to speak in support of the new clauses in my name and those of the Leader of the Opposition and the shadow Chancellor.
Key principles of our tax system are that everyone should pay their fair share and that, in turn, the Government should treat everyone fairly. On the first of those two principles, the fact that large multinationals avoid paying their fair share of tax in the UK is one that rightly angers people across the country. This behaviour means that the UK misses out on vital revenue that could support our public services and it leaves British businesses that play fair at a disadvantage.
As the Minister will know, we were very disappointed that the Government recently allowed the global minimum corporate tax rate, which seeks to limit profit shifting and tax avoidance, to fall from the initial 21% proposed by President Biden to just 15%, but this is still progress. Before I turn directly to clauses 27 and 28, which relate to profit shifting, I ask the Minister to briefly confirm when she next speaks exactly what the timetable is for the Government putting the global minimum rate into UK law.
Clauses 27 and 28 amend the operation of the diverted profits tax, which was introduced in 2015 to try to limit multinationals from entering into profit-shifting arrangements through which they could avoid paying tax. As we have heard, clause 27 amends UK law on double tax treaties to allow mutual agreements between the UK and the other relevant tax state to take effect in relation to the diverted profits tax. Clause 28 is also technical, although it raises an important question about this Government’s willingness to hold companies to account for tax fraud. I would like to press the Minister on that point. TaxWatch has highlighted that HMRC’s annual accounts, published in November, show that HMRC is currently carrying out 100 investigations into multinational companies that may be diverting profits away from the UK, and HMRC’s statements clearly imply that a number of these investigations relate to fraudulent conduct.
In 2019, HMRC introduced a new profit diversion compliance facility, which allows multinationals to come forward and pay the taxes that they should have paid, plus any penalties, without having to pay the diverted profits tax. The changes in clause 28 appear to facilitate the settlement of disputes without diverted profits tax being charged, by extending the time period for which a company can amend previous tax returns in order to get out of having to pay it. Will the Minister confirm whether any company that is currently under investigation for fraudulent conduct involving diverting profits away from the UK may have the investigation of their fraudulent conduct dropped if they make use of the profit diversion compliance facility? It is an important question about how robust the Government’s approach to tax avoidance really is. As TaxWatch has put it,
“the Profit Diversion Compliance Facility should not become an amnesty for tax fraud.”
More widely, it is critical that the Government take more action on economic crime. We therefore support the principle behind the levy introduced by clauses 53 to 66, and hope that the funding from the levy will go some way towards increasing much needed capacity for the Government to tackle economic crime. We question, however, whether it will be enough, so our new clause 5 would require the effectiveness of the levy to be reviewed. This concern is evidently shared across the House, as new clause 15 in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge) and some Government Members would require the Government to assess the effectiveness of the proposed levy rates, and of levy rates twice and three times as high.
We also question why the Government are failing to make critical changes to the law that everyone agrees would strengthen the UK’s ability to fight economic crime. At the top of the list must be finally putting in place a public register of the beneficial owners of overseas entities that own UK property, to which our new clause 5 refers. A new public register would bring much needed and much delayed transparency to the overseas ownership of UK property, and help to stop the use of UK property for money laundering.
Plans to introduce a register were first announced by the Conservatives in 2016. Legislation was first published in 2018. We were promised that it would be operational by 2021, yet with just one month of this year left to go, this has become another broken promise from the Conservatives. It is very hard to conclude anything other than that the Government are, under the leadership of the current Prime Minister, deliberately abandoning their commitment to the register. We need only look at the language in the annual written statements on progress toward its introduction to see a clear pattern emerge.
In May 2019—two months before the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) became Prime Minister—a ministerial update on the register reported:
“Over the past year, significant progress has been made towards the introduction of the register... the Government intends that the register will be operational in 2021”.
Yet a year after the current Prime Minister took office, the next ministerial update, in July 2020, took a different tone, saying rather more cautiously:
“This register will be novel, and careful consideration is needed before any measures are adopted”.
By November 2021, the latest ministerial update simply said:
“The overseas entities register is one of a number of proposed corporate transparency reforms... The Government intend to introduce legislation to Parliament as soon as parliamentary time allows.”
Those statements do not sound like a toughening of resolve.
What is more, the ministerial statements themselves have only been published because the Government have been required, by section 50 of the Sanctions and Anti-Money Laundering Act 2018, to publish three reports on progress toward the register—one in each of the years 2019, 2020 and 2021. That is why our new clause 5 would require the Government to continue publishing annual updates on 31 December each year on progress towards implementing the register. We are determined not to allow the Prime Minister to let this commitment slip out of sight.
As I said on Second Reading, it is astonishing that the Government feel that the need for this register is becoming less urgent. The Pandora papers confirmed how overseas shell companies secretly buy up luxury property in the UK and how much transparency is needed to help to tackle money laundering. Ministers did not respond to my questions on Second Reading, but I did receive a letter from the Exchequer Secretary yesterday, where she wrote:
“While these measures have full Treasury support, they are not Treasury led.”
It is quite astonishing that Treasury Ministers are now trying to blame their colleagues in the Department for Business, Energy and Industrial Strategy for the delay in bringing in the register, when every indication is that the lack of determination comes directly from the Prime Minister. The truth is that concerns over Russian donations to the Conservative party and the use of high-end property in the UK for Russian money laundering mean that putting in place the register of overseas owners without delay is a key part of restoring the trust in politics that Conservative MPs and the Prime Minister have done so much to erode.
Clauses 84 to 92 and schedules 12 and 13 relate to tax avoidance. Our new clause 7 requires an independent assessment of HMRC’s approach to the loan charge scheme and recommendations for altering that approach. In my opening remarks on the previous group of amendments, I said that a key principle of our tax system was that the Government should treat everyone fairly. We fear that with their approach to the loan charge the Government are sorely failing in that duty. The Government’s approach to the loan charge means that ordinary people who are victims of mis-selling are facing huge bills that are causing untold distress and personal harm. It was truly shocking to read reports only last week of eight cases of suicide among those facing demands for payments. A new approach to the loan charge is urgently needed.
That is why our new clause would require the Chancellor to commission an independent review to consider HMRC’s approach to the loan charge scheme and make recommendations on how it should be altered. This new review must finally offer a truly independent assessment, which is why we would require the Government to make a statement to the House of Commons on what efforts have been taken to guarantee its independence. Once recommendations have been made, we would then require the Government to explain which of them they will accept, and why, and to report on progress towards implementing them every six months.
It is clear that something is very wrong with the Government’s approach on the loan charge scheme and that efforts until now to find a solution have fallen far short. Our proposal would finally offer a way forward. I urge Members on both sides of the Committee to support our new clause on this matter when it comes to a vote. I also urge them to support our new clause to make sure that the register of the beneficial owners of overseas entities that own UK property does not get forgotten. We have already seen that the promise to have this register operational by this year has been broken. We must now ensure that the Government do not allow it to disappear altogether.
Alison Thewliss (Glasgow Central) (SNP)
On 10 November, the Prime Minister said that the UK is
“not remotely a corrupt country”.
One can believe or disbelieve things that the Prime Minister says, but it is clear from the Bill that the UK is certainly not a transparent country when it comes to taxes. Efforts in the Bill to tackle economic crime are of course welcome, but, as ever, this Government are not going far enough to do so. The Minister mentioned the economic crime plan. On Monday, we had the Minister for Security and Borders at the Treasury Committee, where he set out that 34 of the 52 actions have been completed, while the rest are in progress and a few of them appear to be some way from being completed. It worries me that priority is not being given to these actions.
Clauses 53 to 66 provide for the Economic Crime (Anti-Money Laundering) Levy, which the Government estimate will raise approximately £100 million per year to help to fund anti-money laundering and economic crime reforms. SNP Members are concerned that this part of the Bill is not well targeted and could potentially act as an additional tax on businesses that are not breaking the rules. For example, the Association of British Insurers is concerned that insurers will be disproportionately hit, because they present very little risk to the Treasury of tax avoidance and money laundering. The Chartered Institute of Taxation has expressed concern that smaller tax adviser firms may be driven from the market because of the increasing costs and reducing choices for consumers. It has also said that the measure could increase the tax gap by incentivising de-professionalisation. If it becomes too costly for firms to meet compliance, they may just choose to de-register from professional bodies altogether. De-professionalisation can result in less ethical behaviour and increased costs of supervision by HMRC, neither of which is particularly in keeping with the aims of this legislation. I understand that more than 32,000 firms are already supervised directly by HMRC, and the staffing to cover that does not nearly match the size of the job.
Dame Margaret Hodge
I will speak to new clause 15, which stands in my name and those of right hon. and hon. Members from across the House, and I rise in support of new clause 5, which was moved so eloquently by my hon. Friend the Member for Ealing North (James Murray). New clause 15 is complementary to the first part of new clause 5.
I shall start by making a general observation. It seemed to me, when the Minister spoke, that either she does not completely understand what is going on in the world of economic crime, particularly in relation to the UK’s position on that; or there is a deliberate attempt by the Government to downplay it so that they do not take the very necessary action that is available and, as SNP Members and the Labour Front Benchers said, is probably as oven-ready as any legislation that we have. The Government are simply choosing not to implement it.
I will give an example of how the impact of economic crime is filtering and seeping into our politics. There are two Russian kleptocrats, Viktor Fedotov and Alexander Temerko—both of whom have questionable backgrounds and whose money has questionable origins—who are involved in a company called Aquind, which is trying to build an energy cable from Portsmouth to France. It is a controversial proposal. As for the origins of the money that they are using to fund this project, for me, it is money that has probably been stolen from the Russian people. That is really where that money comes from.
What is particularly disturbing is that when we look at the accounts of Aquind, the company, and the donations being given by one of the individuals, Alexander Temerko —the other one hides himself—to Conservative parties and to Conservative Members of this House, we see that it is enormous. There is a bit of time this afternoon so I am going to take the liberty of reading through the list. The right hon. Member for South West Surrey (Jeremy Hunt) has received money on a number of occasions from Aquind. The right hon. Member for Middlesbrough South and East Cleveland (Mr Clarke) has received money from Aquind of Russian origin. The hon. Member—
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
Order. I will just check that the right hon. Lady has informed other Members that she was going to mention them.
Dame Margaret Hodge
Thank you, Dame Rosie; I have not, because I did not realise that there would be so few people in the House this afternoon that I would have the opportunity to do so.
What I can say is that 24 Members of Parliament—all of them Conservative Members, many of them Front-Bench Members, some of them with ministerial positions—have received money from Aquind or from Alexander Temerko. I can also tell the House that further parties have received such money and that some former MPs and local parties have received money. I hope that is in order, and thank you for correcting me, Dame Rosie. The impact of economic crime and economic activity on our politics is a worrying trend that has been growing exponentially over recent years.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I am listening with rapt attention to my right hon. Friend’s remarks. Does she not think it strange that there is a Member of the House of Lords with very close connections to Russia—indeed, he is a Lord of Hampton and of Siberia—but we never hear from him and he is never seen? Whatever the story is of great interest in Russia, he is never on the media in this country.
Dame Margaret Hodge
My hon. Friend makes a really important point.
I think, having taken guidance from you, Dame Rosie, that I am at liberty to mention the political parties. Am I correct?
The First Deputy Chairman
The right hon. Lady can mention former Members and the location of political parties. What she cannot do without having informed them previously—it would be very discourteous—is to refer to existing Members of the House.
Dame Margaret Hodge
I am very grateful for the advice you have given me, Dame Rosie. I apologise, and I will write to the Members I had mentioned before you drew that to my attention.
If I can mention the political parties, they are those in Reading West, The Wrekin, Staffordshire Moorlands, Morecambe and Lunesdale, North Somerset, Great Yarmouth, Selby and Ainsty, Northampton North, Colchester, Daventry, Corby, Vale of Clwyd, Berwick-upon-Tweed, Richmond (Yorks) and North Swindon. If I can mention the former MPs, and these are quite important, there is one in particular—the former MP for Stockton South, James Wharton, who was of course very involved in the campaign—
The First Deputy Chairman
Order. I have a little further clarification. If any of those Members are in the House of Lords, it is not in order to refer to them. I know it is quite complicated, but it is best to get it right.
Dame Margaret Hodge
Well, I will also write to that individual, having transgressed. I apologise for that, Dame Rosie. I think I am okay on the other two: one is Guto Bebb, the former MP for Aberconwy, and the other is Mark Field, the former Member for Cities of London and Westminster.
I read out that list partly because we have the time to do so, but also to demonstrate how absolutely critical it is, I say to the Minister, that we start tackling economic crime seriously in this country. If we do not, we are in danger of allowing this to seep into our politics and seep into the public domain, and far from being a trusted jurisdiction, we will become a jurisdiction that is not very different from others to which we all too often preach that they should tackle the corruption endemic in their Administrations—we will become one of them.
Just to put that further into context, we are now the jurisdiction of choice for far too many kleptocrats, far too many criminals, far too many people who avoid tax and far too many people who launder money. Money laundering in itself is an activity that leads to the funding of terrorism, drug smuggling and all sorts of other crimes that we and the Government ought to want to bear down on in a very firm way, but we are just not doing so. The National Crime Agency has a figure of £100 billion that it thinks is laundered into the UK each year, but I think that is a very conservative estimate. It is probably plucked out of thin air a little bit, and I think the real or true figure is probably much greater. We only have to look at Moody’s credit rating, on which we have gone down a notch. One of the reasons for that happening is that it has argued there has been a
“weakening in the UK’s institutions and governance”.
To come back to my new clause 15, it is partly about our enforcement agencies, but it is also about the way in which all Government agencies tackle economic crime here.
The evidence of the toothlessness and the timidity of our enforcement agencies is overwhelming. In part, that is because of the regulatory framework in which they have to operate. As I have said time and again from these Benches, that deregulation started under the Conservatives and was continued by the Labour Government. Both parties take responsibility for that deregulation, and it is now time to revisit the issue and toughen up the regulations, so that we have an appropriate regulatory framework that can tackle not just tax avoidance and evasion, but the growth of the economic crime that is so insidious.
There is also pathetic enforcement by all our agencies. In part that is due to a lack of money, but I also believe that a lack of political will lies at the heart of it. We have only to look at the United States, ironically, which has a strong and clear resolve that it will pursue those guilty of financial crime and fine them heavily. Let me provide two examples of that. In 2019, the USA pursued and secured 25 penalties, which gave a total of $2.29 billion in revenue secured back to the public purse. In the UK, in the same year, we pursued and secured only 12 penalties, totalling £338 million.
Let me take one example of a British bank, Standard Chartered. In 2019, it was fined in both the USA and the UK, not only for its poor anti-money laundering controls, but for breaking sanctions in relation to Iran. Here in the UK, the Financial Conduct Authority fined it a total of £102 million. In the USA—this is a British-based bank, not an American bank—it was fined £842 million. There is just a different approach between the USA and the UK in pursuing those who are guilty of economic crime and should be paying back to the public purse. Our role in money laundering and economic crime is growing. It is not just economic crime here in the UK; it is economic crime facilitated by the UK because of our regulatory framework.
The hon. Member for Glasgow Central (Alison Thewliss) spoke about Companies House, which is a vital ingredient in the leaks of all the documents we get. Someone can pay £12 to form a company in the UK. Endless people from all over the world use UK formation to form shell companies, which they then use to create complex financial structures that will facilitate money laundering and economic crime. We have seen that in a regular flow of leaked documents, and I will talk about two. The Financial Crimes Enforcement Network files came out in 2020, showing that $2 trillion was moved by global banks in just under 20 years between 1999 and 2017. That movement gave rise to suspicious activity reports, which banks have to provide to the American authorities when they have a red flag about a transaction. More UK companies were cited in that tranche of leaks than companies from any other country, showing the concentration of economic crime in the UK. Indeed, 3,267 of the companies cited were UK shell companies.
Formation agencies are one of the things that we do not regulate properly. We do not enforce the legislation strongly enough, and four formation agencies had created more than half of those UK shell companies. The sort of thing that happens is that a limited liability partnership is established and registered at the Belgian address of a dentist. A young worker in north London was paid £800 a month for his flat’s address to be used for the registration of companies, and when he gave up doing that, the same address was used by a cleaner who worked in Leicester. Underlying that is one example when J. P. Morgan allowed a company to move more than £1 billion through a London account. It later emerged that that company was probably owned by a mobster on the FBI’s “Ten Most Wanted” list. That is the sort of facilitation of economic crime that we allow to happen.
I do not want to take too much of the House’s time, but I turn to the Pandora papers, the largest cache of documents we have ever received. Again, the UK lies at the heart of everything that was revealed in those papers. Others have talked about the secret property transactions that have taken place, with £4 billion identified in the Pandora papers. There are more UK citizens than citizens of any other country cited in that tranche of leaks. The relationship between the UK and our tax havens is central to the facilitation of economic crime, and again we see the weak and toothless enforcement agencies.
That brings me to our new clause 15. The evidence for the need for well-resourced and determined enforcement is overwhelming, but the money to be raised by the levy is woefully inadequate. As the Minister said, it will be £100 million. I had a meeting recently with personnel from major banks who are responsible for implementing anti-money laundering provisions. They said that they—the regulated financial sector—spend £49.5 billion on financial crime compliance. That gives us an idea of how little our £100 million raised from the levy is.
We must act within the constraints of the Bill in tabling new clauses, but we think £100 million is a pittance. Far more should be raised—it should be doubled or tripled—and I think that case would be made if a review were undertaken. If the Minister is confident that she is right—if she is confident about everything she said in her opening remarks—she will not shy away from a review that could then be considered in the House. I often think that Ministers should think about propositions that are tabled; they should not just reject them because they are not their ideas, but should really consider whether they are worthwhile on their own grounds. In this case, I urge the Minister, if she is really committed to tackling economic crime, money laundering and the rest, to do something.
I suppose the only thing I would say about the new levy, while I welcome it, is that for the first time ever we see the Treasury agreeing that there should be a hypothecation of tax to spend on a particular issue. I always thought it was Treasury orthodoxy that there should be no hypothecation. In this case, we have broken that orthodoxy; the money is going to be spent on fighting money laundering. I welcome that change. I hope to see it in other areas where a hypothecated tax could do a lot to create a fairer society.
I also think that the bands are unfair. Why should a company with a revenue of £10 million pay £10,000, while a company with a revenue of £1 billion pays only £250,000? We need a more progressive system that reflects the revenue that these companies get.
Simply increasing the levy is not enough; there have to be other measures. We need to put a cap on the potential costs of litigation that the enforcement agencies will engage in. All too often, the potential cost to an agency stops it taking action that would bear down on economic crime. We have seen that with unexplained wealth orders, where the agencies started off with a great burst of energy, and then when they lost one case and got a huge bill, they stopped doing anything. We could do away with the entitlement to secure costs, except in cases where there is no reasonable justification to prosecute. I think we could provide a financial incentive to the enforcement agencies to litigate by saying that any money that they raised through action could come back to them to be used.
All that could be reviewed, and the level of the levy could be increased. I would be really heartened if, just for a change, Ministers listened to the strength of the argument and accepted new clause 15, with its cross-party support. Then, hopefully, we could come back and see who is right and who is wrong.
Lucy Frazer
I will take a few moments to respond to some of the points raised in the debate on this group, starting with those made by the hon. Member for Ealing North (James Murray). I am very grateful for his welcome of the economic crime levy. He asked for a review, but, as I mentioned, we have already committed to a review. A review will take place by the end of 2027.
Lucy Frazer
I am not going to give way because I want to make a number of points and the hon. Member has had an opportunity to put forward his points.
The hon. Gentleman also mentioned the loan charge and asked for a review. He will have heard in my speech and will know that we had a review less than two years ago. I know that this is an issue that concerns many Members. We did legislate as a result of that. We legislated on 3 December 2020. As a result of the review, 30,000 individuals benefited. In fact, 11,000 were removed from the loan charge.[Official Report, 6 December 2021, Vol. 705, c. 2MC.]
Lucy Frazer
I am going to move on to another point raised by the hon. Member for Ealing North (James Murray), in relation to the timetable for the OECD reforms. He asked when the Government would implement those reforms. The Government are following the OECD’s implementation. The implementation date for the two-pillar solution is 2023.
Lucy Frazer
The hon. Member for Ealing North also asked me about the changes in relation to clause 28 and whether they would facilitate firms getting out of their fraudulent activities and investigation. I would like to give him an assurance that no company fraudulently diverting profits from the UK would have an inquiry dropped as a part of this measure. The only way in which a valid diverted profits tax charge can be displaced is if the company accepts a corresponding corporation tax charge within the diverted profits tax review, and that is the measure in the Bill.
Lucy Frazer
I would like to turn to the points made by the hon. Member for Glasgow Central (Alison Thewliss) on transparency and the tax gap. I pointed out, and I hope she is aware, that each year we publish measures in relation to the tax gap. She talked about reforming Companies House. I know she will be aware that the Treasury has provided £63 million in funding for reforms to Companies House. She is interested in Scottish limited partnerships and we had a brief discussion about that. I hope she is aware that since October 2020, Companies House has brought forward 28 prosecutions in relation to Scottish limited partnerships and persons of significant control offences.
I want to turn to some of the comments made by the right hon. Member for Barking (Dame Margaret Hodge). I would like to start by commending her for the work she has done. This is an area in which she is significantly interested and she has done a great deal of work through the all-party parliamentary group on anti-corruption and responsible tax. However, I strongly object to her suggestion that the Government are not committed to tackling economic crime. They absolutely are. It is for that reason that they set out 52 measures in the economic crime plan in 2019. I also take issue with her implicit suggestion, which was highly inappropriate, that there was a link between the Government’s actions on economic crime and donations made to a number of Members. I did not think that that was a wholly appropriate link to make in this House. In my six years in Parliament, I have found that colleagues across the House are committed to their work in public service.
David Linden
Will the Minister give way on that point so that I can provide a public service to my constituent?
David Linden
I am very grateful indeed; the Minister is incredibly kind and generous. May I take her back to a point that she made to the hon. Member for Ealing North (James Murray) about the loan charge? My Gartloch constituent, Michael Milne, has been in touch with me regularly about the issue. Will she commit at the Dispatch Box to personally taking a look at his case? He has expressed enormous concern to me about the impact that the loan charge is having on him. Will she give me that commitment from the Dispatch Box, please?
Lucy Frazer
I understand why the hon. Gentleman presses the matter, because there is obviously an issue that relates to his constituent. If the hon. Gentleman writes to me about those points, I will be very happy to take a look and pass over anything appropriate for HMRC to look at.
Let me go back to the points that the right hon. Member for Barking made. She was suggesting that our law enforcement is not sufficient. Of course there is always more we can do, of course people who want to do wrong work very hard at it, and of course we need to keep up with them—the Government are committed to doing so—but I point her to two figures. First, the Financial Conduct Authority has issued fines totalling £336 million since 2018, which does not suggest inactivity. Secondly, before I took on my Treasury role I was very proud to be a Law Officer overseeing and superintending the Serious Fraud Office, so I know how hard the SFO works to tackle fraud and crime. Since 2014, through deferred prosecution agreements, it has delivered £1.6 billion to the public purse.
The Bill will put on the statute book a number of measures to protect our economy from disruption and tackle economic crime. I hope that those hon. Members who have spoken so vociferously in favour of such action will support those measures in our Bill.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 28
Diverted Profits Tax: Closure Notices Etc
Amendments made: 2, in page 22, line 40, leave out from “to” to end of line 41 and insert “a relevant enquiry”.
See the explanatory statement for Amendment 3.
Amendment 3, in page 23, line 5, at end insert—
“(3A) In subsection (2), ‘relevant inquiry’ means—
(a) an enquiry into the company tax return for the accounting period mentioned in subsection (1)(a);
(b) where the charging notice mentioned in subsection (1)(a) is issued to a company (‘the foreign company’) for an accounting period by reason of section 86 applying in relation to it for that accounting period, an enquiry into any company tax return for the avoided PE (within the meaning of section 86) that may be amended by virtue of section 101B(2) so as to reduce the taxable diverted profits arising to the foreign company in that accounting period.”—(Lucy Frazer.)
This amendment (together with Amendment 2) is to prevent the issuance, during a diverted profits tax review period of a foreign company, of a closure notice in respect of a company tax return of an entity carrying on trading activity in the UK where that return is capable of being amended to bring into account amounts that would otherwise be taxable diverted profits of the foreign company.
Clause 28, as amended, ordered to stand part of the Bill.
Clauses 53 to 66 ordered to stand part of the Bill.
Clauses 84 to 90 ordered to stand part of the Bill.
Schedule 12 agreed to.
Clause 91 ordered to stand part of the Bill.
Schedule 13 agreed to.
Clause 92 ordered to stand part of the Bill.
New Clause 5
Reviews of Economic Crime (Anti-money Laundering) Levy
‘(1) The Government must publish a review of the operation of the Economic Crime (Anti-Money Laundering) Levy by 31 December 2027.
(2) The Government must publish on 31 December each year until the establishment of a register of beneficial owners of overseas entities that own UK property—
(a) an assessment of the contribution to the effectiveness of the Levy that such a register would make; and
(b) an update on progress toward implementing such a register.’—(James Murray.)
This new clause will put into law the Government’s commitment to undertake a review of the Levy by the end of 2027, and require them to publish an assessment every year until a register of beneficial owners of overseas entities that own UK property is in place an assessment of what impact such a register would have on the effectiveness of the Levy, and progress toward the register being established.
Brought up, and read the First time.
Question put, That the clause be read a Second time.
The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
With this it will be convenient to discuss the following:
Clauses 69 to 71 stand part.
Clause 93 stand part.
That schedule 14 be the Fourteenth schedule to the Bill.
Lucy Frazer
VAT is our third-biggest tax. It raised £130 billion in 2019-20, making a major contribution to the public finances. It helps to pay for our schools, hospitals and police throughout the UK.
Now that we have left the EU, we are free to set our own VAT rules and are already using that freedom to create a fairer, more robust tax system. We have altered how VAT is paid on low-value consignments from overseas suppliers. We have also implemented changes to passengers’ policy and introduced a zero rate on women’s sanitary products. On top of all that, we are reviewing the UK funds regime, including the VAT treatment of fund management fees. We are establishing an industry working group to review how financial services are treated for VAT purposes. As I have illustrated, this Government are focused on using our new freedoms to create a VAT system that is ready for the future, and the measures in the Bill build on that work.
Some clauses being discussed today will be of most relevance to businesses and consumers in Northern Ireland. The UK has implemented the Northern Ireland protocol in a way that seeks to protect the UK internal market. Today’s clauses play a part in achieving that objective by allowing Northern Ireland businesses and consumers to have the same economic opportunities as those in the rest of the UK.
Finally, as Members will be aware, freeports are an important part of the Government’s levelling-up agenda. We see them as central to our goal of sparking regeneration, creating jobs and inspiring innovation throughout the country. One of the clauses that we are debating today supports the delivery of their VAT benefits.
Let me turn to the clauses themselves. The second-hand car sector in Northern Ireland relies heavily on sourcing vehicles in Great Britain for resale in Northern Ireland. Clauses 68 to 70 will together ensure that second-hand car dealers in Northern Ireland can continue to sell cars and other motor vehicles sourced in Great Britain and the Isle of Man on an equal footing with their counterparts in the rest of the UK.
Under the Northern Ireland protocol, the VAT second-hand margin scheme is not available for goods in Northern Ireland if they were purchased in Great Britain or the Isle of Man. This means that motor vehicle dealers in Northern Ireland must account for VAT in full on sales of these vehicles rather than on the profit margin. That would disrupt the UK’s internal market, potentially increase prices for consumers or costs for businesses and risk undermining the trade in motor vehicles in Northern Ireland altogether. It is only right that the Northern Ireland used car industry has the same economic opportunities as that of the rest of the country. That is why the Government are actively discussing arrangements with the EU to enable the margin scheme to continue in Northern Ireland for cars sourced from Great Britain.
Clause 68 provides the legislative basis for an interim arrangement that allows dealers in Northern Ireland to continue to use the VAT second-hand margin schemes for vehicles sourced in Great Britain once an agreement is reached with the EU. This interim arrangement will be available for motor vehicles first registered before 1 January 2021. It will end once the second-hand export refund scheme is introduced.
Clause 69 introduces a power to bring in an export refund scheme, which the Government intend to apply to second-hand motor vehicles. The aim of this permanent scheme, once introduced, is to give dealers in Northern Ireland a comparable financial outcome to the margin scheme. The clause achieves this by enabling businesses to claim a refund equivalent to VAT on the price they paid on used vehicles. The scheme will be available for used motor vehicles moving to Northern Ireland and the EU from Great Britain. Legislation to implement the scheme will be introduced once we have held further discussions with the industry.
Clause 70 simply makes some consequential changes to VAT to limit the zero rate for export or removal of goods where they are subject to the margin scheme. This is a technical measure that will ensure that businesses are not at an advantage compared with before the end of the transition period. Businesses will still be able to export goods at zero rate outside the margin scheme. This ensures consistency of treatment across the UK.
These clauses are necessary to ensure that the motor vehicle sector and consumers in Northern Ireland are not disadvantaged. Taken together, they will benefit the 500 businesses that trade in used cars in Northern Ireland.
Clause 71 makes changes to extend a VAT exemption to the importation of dental prostheses. Before the end of the transition period, such prostheses were supplied by registered dentists or dental technicians between Great Britain and Northern Ireland, and were exempt from VAT because an exemption applies to domestic sales. However, following the end of the transition period, the exemption no longer applies to the movement of these goods between GB and Northern Ireland. As the VAT that is due cannot be recovered by the registered dentist, there is a risk that it might be passed on to patients. The changes made by clause 71 extend the current domestic UK VAT exemption to include dental prostheses imported into the UK, including those moving between GB and Northern Ireland, ensuring that we meet our international obligations, and that VAT treatment between GB and Northern Ireland is consistent.
Clause 93 and schedule 14 concern the treatment of goods in the customs-free zones, which are located in freeports. Freeports will help to regenerate areas across the country and bring prosperity to the regions. The Government have already legislated for a beneficial VAT regime on certain business-to-business transactions while in the free zone of a freeport. Clause 93 makes additional VAT elements to freeports by introducing an exit charge to ensure that VAT is collected on goods that have benefited from a zero rate of VAT in a free zone to prevent tax losses or unintended VAT advantage. It therefore maintains a level playing field for UK businesses.
The clause also amends existing VAT legislation to remove any conflict with the new free zone rules. Finally, the clause gives HMRC the power through regulations to adapt the exit charges provisions as necessary. This will ensure that the exit charge is correctly targeted—for instance, to prevent any abuse of the VAT zero rate. Clause 93 and schedule 14 therefore prevent tax loss by introducing an exit charge, and provide clarity to free zone rules by amending existing legislation that may conflict with them.
Our VAT measures take advantage of the opportunities following our exit from the EU to allow our businesses to prosper. I urge the Committee to ensure that clauses 68 to 71, and 93, stand part of the Bill, and that schedule 14 be the fourteenth schedule to the Bill.
James Murray
Thank you, Mr Evans, for the opportunity to respond on behalf of the Opposition to the clauses selected for this debate on particular aspects of the operation of VAT. As the scope of these clauses is quite limited, I suspect that you will not allow me to speak in detail about our call on the Government immediately to cut VAT to zero on domestic energy bills.
The Second Deputy Chairman of Ways and Means (Mr Nigel Evans)
That’s right.
James Murray
Of course, we believe that such a change would offer immediate help now for people struggling with the cost of living over the winter ahead. I therefore urge the Chancellor to reconsider the Government’s refusal of our suggestion, even at this late stage.
Let me turn to the specific measures in the Bill. As we have heard, clauses 68 to 71 make a number of changes to the operation of VAT as it relates to Northern Ireland. Clause 68 allows motor dealers in Northern Ireland to continue to sell vehicles under the second-hand margin scheme, provided that they were sourced in Great Britain or the Isle of Man. This is a temporary measure before a more permanent scheme comes into place. It is, in effect, a technical change to reduce VAT on car dealers in Northern Ireland, and we do not oppose it. We understand that clauses 69 and 70 are necessary consequences of clause 68 to avoid the interim provisions being created for second-hand car sales in Northern Ireland leading to a distortion in the UK market, so we do not oppose them either.
Clause 71 similarly means that registered dentists or dental care professionals, or those importing on their behalf, can exempt from VAT the importation of dental prostheses—medical devices to replace broken or missing teeth. Domestic supplies of such goods are exempt from VAT when made by a registered dental professional. However, under the Northern Ireland protocol, movements of goods between Great Britain and Northern Ireland will technically be treated as exports and imports for VAT purposes. Applying the same VAT treatment to domestic supplies and imports will ensure the equal treatment of dental prostheses supplied within the UK. Again, we do not oppose this measure, as we do not want to see businesses or other workers in Northern Ireland at a disadvantage compared with those in other parts of the UK.
Clause 93 and schedule 14 relate to free zones—secure customs sites within a wider freeport area. Existing regulations already provide for the zero rating of certain supplies of goods and services in free zones, and the purpose of the clause is to put in place an exit charge to ensure that businesses do not gain unintended advantage from the zero rate. Again, we recognise the role this measure plays and we will not be opposing it.
Peter Grant (Glenrothes) (SNP)
I am not planning to take up all the allotted time until 8.52 pm, although I did warn my colleagues in the SNP group that I was going to take until half-past 8 and then go to a Division, which did not make me flavour of the month.
The Minister can put a bold face on the wonderful gift the Government are giving to the people of Northern Ireland, and to car dealers in Northern Ireland in particular, under clauses 68, 69 and 70, but this is just another sticking plaster over the botched job that Brexit has been, especially in relation to Northern Ireland. That is because nothing that is delivered to businesses or customers in Northern Ireland is any better than the deal they already had before they were dragged out of the European Union against, let us not forget, the express wish of a majority of people in Northern Ireland at the referendum in 2016.
The question is: how many more of these patch-up jobs do we need? I have lost count of the number of times that I have spoken in Bill Committees or in Delegated Legislation Committees pointing out that the only reason more and more legislation is needed is to fill gaps in previous legislation that had been put there to correct mistakes in even earlier legislation, rushed through by a Government who went into Brexit with no idea of what it meant and who ever since then have been trying to prevent us from understanding, and trying to conceal from the general population, just how much of a mess it continues to be. Anyone who says that Brexit has been got done either does not understand the truth or cannot be trusted to tell the truth.
In relation to clause 93 and schedule 14, the Committee will be aware that the approach that has been taken to free zones in Scotland is very different—or at least it would be very different if the Government were not so determined to force their lack of concern for workers’ rights and for the environment on to the proposals of the Scottish Government. The Scottish Government had a proposal that should have been acceptable to the UK Government but for two problems: it demanded net zero freeports or free zones and it demanded enhanced workers’ rights. What problem can the Government have with that? Why do the Government not want the Scottish Government to undertake action on green ports or freeports that delivers our net zero commitments? What do the Government have in mind for future legislation on workers’ rights if they were not prepared to allow the Scottish Government to build that into legislation around green ports in Scotland?
The Scottish Government had a productive dialogue with the Treasury. They were ready to launch a joint applicant prospectus for green ports in March, but it never happened. In September, the Secretary of State for Scotland made it clear that Scotland’s proposal was not acceptable to the Government. I do not know whether this is technically within the scope of what we are discussing just now, so it may not be appropriate for the Minister to explain it, but I, my colleagues on the SNP Benches, a lot of colleagues in the Scottish Parliament and a lot of businesses in Scotland really want to know why the Government are refusing to allow the Scottish Government to legislate for green ports to meet the needs of Scotland and meet the demands and values of the Parliament that the Scottish people have elected.
I will not be seeking to divide the Committee on any of these clauses. Quite clearly, they are all necessary. As my colleagues mentioned earlier, there are any number of parts of the Bill that we would have liked to divide the Committee on, but we cannot because of the crazy way that this place does Budgets, where effectively most of the big decisions are taken before there is any proper debate on them. That is not a sensible way to set Budgets that will impact the lives of every single person and every single business in these islands. I hope that for once the Government will listen to these representations and come back next year with a method of setting Budgets that is more inclusive, more in tune with what happens in modern democratic Parliaments across the rest of Europe and elsewhere, and will almost certainly deliver a better Budget and a better Finance Bill than the one we have just now.
Lucy Frazer
I will be brief. I am pleased that these measures have cross-party support. We can tell that because both Front-Bench spokesmen took the opportunity to talk about other measures that are not in the Bill. To touch briefly on what they said, the hon. Member for Ealing North (James Murray) will know that we do not support reducing VAT on energy bills because it will not protect specifically those on the lowest incomes, but just give a tax break to those on high incomes. We are therefore bringing in specified measures to protect those on low pay.
The hon. Member for Glenrothes (Peter Grant) talked about the Scottish green ports. We would like to ensure that the whole UK can benefit, and we remain committed to establishing at least one freeport in Scotland, Wales and Northern Ireland as soon as possible. We are confident that our model embraces the highest employment and environmental standards, and they will be national hubs for trade, innovation and commerce. For all the reasons that I have set out, I commend the clauses and the schedule to the Committee.
Question put and agreed to.
Clause 68 accordingly ordered to stand part of the Bill.
Clauses 69 to 71 ordered to stand part of the Bill.
Clause 93 ordered to stand part of the Bill.
Schedule 14 agreed to.
The Deputy Speaker resumed the Chair.
Bill (Clauses 4, 6 to 8, schedule 1, clause 12, clauses 27 and 28, clauses 53 to 66, clauses 68 to 71, clauses 84 to 92, schedules 12 and 13, clause 93 and schedule 14, and certain new clauses and new schedules), as amended, to lie upon the Table.
Finance (No. 2) Bill (First sitting)
Tuesday 14th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)
The Chair
We are now sitting in public, and the proceedings are being broadcast. I do not think I need to remind people about the advice being given in relation to the wearing of face coverings; I will assume that anybody not wearing one has a reasonable excuse for not so doing, but we do not challenge people. I also remind colleagues that Hansard would be grateful if Members emailed their speaking notes to hansardnotes@ parliament.uk. The consumption of tea or coffee is not permitted during sittings, and we would like electronic devices to be switched to silent.
We do not want to see an abuse of the indulgence of laptops and things like that; the impression given to people watching is that Members might not be concentrating on the debate, and might instead be doing other work. The convention is that people should use their electronic devices to help inform their work on this Committee. I am not going to be able to invigilate that, but I rely on Members to be co-operative and think about the impression given to people watching this Committee.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 14 December 2021) meet—
(a) at 2.00 pm on Tuesday 14 December 2021;
(b) at 3.30 pm and 6.00 pm on Wednesday 5 January 2022;
(c) at 9.25 am and 2.00 pm on Tuesday 11 January 2022;
(d) at 11.30 am and 2.00 pm on Thursday 13 January 2022;
2. the proceedings shall be taken in the following order: Clauses 1 to 3; Clause 5; Clauses 9 to 11; Clauses 13 and 14; Schedule 2; Clause 15; Schedule 3; Clauses 16 to 24; Schedule 4; Clauses 25 and 26; Clause 29; Schedule 5; Clauses 30 and 31; Schedule 6; Clauses 32 to 41; Schedule 7; Clauses 42 to 45; Schedule 8; Clauses 46 to 49; Schedule 9; Clauses 50 to 52; Clause 67; Clauses 72 to 75; Schedule 10; Clauses 76 to 83; Schedule 11; Clause 94; Schedule 15; Clauses 95 to 99; Schedule 16; Clauses 100 to 102; new Clauses; new Schedules; remaining proceedings on the Bill;
3. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 13 January 2022.—(Lucy Frazer.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Lucy Frazer.)
The Chair
Copies of the written evidence that the Committee receives will be circulated to Members by email, and some was circulated yesterday. The selection list for today’s sitting is available in the room. It shows how the selected amendments have been grouped together for debate; generally, that is because they cover the same subject matter. The decisions on amendments do not take place in the order they are debated, but in the order in which they appear on the amendment paper. This is designed to help people who are following these proceedings keep up to speed.
Clause 1
Income tax charge for tax year 2022-23
Question proposed, That the clause stand part of the Bill.
The Financial Secretary to the Treasury (Lucy Frazer)
It is a pleasure to serve under your chairmanship, Sir Christopher. Clause 1 legislates for the charge of income tax for 2022-23. Clauses 2 and 3 set the main default and savings rate for income tax for 2022-23, and clause 5 maintains the starting rate for savings limit at its current level of £5,000 for 2022-23.
Income tax is one of the Government’s most important revenue streams, expected to raise approximately £230 billion in 2022-23. The starting rate for savings applies to the taxable savings income of individuals with low earned incomes of less than £17,570, allowing them to benefit from up to £5,000 of savings income tax free. The Government made significant changes to the starting rate for savings in 2015. They lowered the rate from 10% to 0%, and increased the band to which it applied from £2,880 to £5,000. These clauses are legislated annually in the Finance Bill.
Clause 1 is essential because it allows for income tax to be collected in order to fund vital public services on which we all rely. Clause 2 ensures that the main rates of income tax for England and Northern Ireland continue at 20% for the basic rate, 40% for the higher rate, and 45% for the additional rate. Clause 3 sets the default and savings rates of income tax for the whole UK—the basic, higher and additional rates of 20%, 40% and 45% respectively. Clause 5 confirms the band of savings income to which it applies, maintaining the starting rate limit at its current level of £5,000 for the 2022-23 tax year. The limit is being held at that level rather than increased by the consumer prices index to ensure simplicity and fairness within the tax system, while maintaining a generous tax relief.
Clauses 1 to 3 ensure that the Government can collect income tax for 2022-23. Clause 5 continues the Government’s commitment to support people of all incomes and at all stages of life to save. Taken with the personal savings allowance and the annual individual savings account allowance of £20,000, those generous measures mean that about 95% of savers will pay no tax on their savings income.
James Murray (Ealing North) (Lab/Co-op)
I am grateful for the opportunity to respond to the clauses on behalf of the Opposition. As we have heard, clause 1 imposes a charge for income tax for the year 2022-23. It is for Parliament to impose that tax charge for the duration of the financial year. I understand from my well-informed parliamentary researcher that the first income tax that bears a resemblance to the modern graduated form that the clause refers to was introduced by William Pitt the Younger in 1798; as we will see in later clauses of the Bill, there has been some departure from the tax bands of £60 and £200 annually introduced then. We will of course not oppose clause 1, although we note for the record that under this Government the tax burden will rise to its highest level for 70 years.
Clause 2 sets the main rates of income tax for the year 2022-23, which will apply to the non-savings, non-dividend income of taxpayers in England and Northern Ireland. The clause provides that the main rates of income tax for 2022-23 are the 20% basic rate, the 40% higher rate, and the 45% additional rate. Income tax rates on non-savings, non-dividend income for Welsh taxpayers are set by the Welsh Parliament. The UK main rates of income tax are reduced for Welsh taxpayers by 10p in the pound, and the Welsh Parliament sets the Welsh rates of income tax, which are added to the reduced UK rates. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament.
We note that, although the rates of income tax are not rising in the Bill, the same cannot be said for national insurance. That tax was increased by the Health and Social Care Levy Act 2021, which we debated in September. As I said at the time, that national insurance rise and the new levy being introduced represented a tax rise that falls directly on working people and their jobs, which is why we opposed the progress of that Act.
Clause 3 sets the default rates and savings rates of income tax for the tax year 2022-23. Subsection (1) provides for a basic default rate of 20%, a higher rate of 40% and an additional rate of 45%. Subsection (2) provides for savings rates on income tax at the same rates as the default: 20% for basic, 40% for higher and 45% for additional. Those rates match the rates of earned income, and we will not oppose the clause.
Clause 5 freezes the starting rate limit for savings in the tax year 2022-23 at £5,000. As it is not a devolved matter, the freeze applies across the United Kingdom. The starting rate for savings can apply to an individual’s taxable savings income, such as interest on bank or building society deposits. The extent to which an individual’s savings income is liable to tax at the starting rates for savings rather than the basic rate of income tax depends on the total of their non-savings income, including income from employment, profits from self-employment and pensions income. If an individual’s non-savings income is more than their personal allowance and exceeds the starting rate limit for savings, the starting rate is not available for that tax year. Where an individual’s non-savings income in a tax year is less than the starting rate limit, their savings income is taxable at the starting rate up to that limit.
Income tax is charged at the 0% starting rate for savings rather than the basic rate of income tax on that element of an individual’s income up to the starting rate for savings income. The clause sets the starting rate limit for savings for 2022-23 at £5,000, but it does not override section 21 of the Income Tax Act 2007 in relation to the starting rate limit for savings for 2022-23. We know that the freeze on the limit is taking place in the context of a rising rate of inflation, which will have an impact on savers in real terms. In her reply, I would be grateful if the Minister explained what assessment the Treasury has made of those who will be affected by the freeze.
Lucy Frazer
I will make a couple of points in response. First, the hon. Member for Ealing North mentioned the tax burden rising; he will know that we are still in the midst of a pandemic and that the Government have spent £400 billion to ensure that public services, particularly the NHS, get the money they need. He will know why we are introducing a rise in national insurance contributions for the first time: to fix social care. He asked me about savings and those on the lowest incomes. The Government have raised the personal allowance by nearly 50% in real terms in the last decade. It is the highest basic personal tax allowance of all countries in the G20, and remains one of the most generous internationally.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2, 3 and 5 ordered to stand part of the Bill.
Clause 9
Liability of Scheme Administrator for Annual Allowance Charge
James Murray
I beg to move amendment 11, in clause 9, page 5, line 20, leave out “6 years” and insert “5 years and 9 months”
James Murray
Clause 9 relates to the liability of insurance scheme administrators for the scheme’s annual allowance charge. I welcome the opportunity to discuss the clause and our amendment to it. The clause amends the period within which an individual can give notice to their pension scheme administrator to pay the annual allowance charge of previous tax years, using a system known as “mandatory scheme pays”.
The clause also amends the period within which a scheme administrator must provide information about and account for an amount of the annual allowance charge. As we know, mandatory scheme pays is the process that helps an individual pay their annual allowance charge liabilities for a current tax year when certain conditions are met. The individual elects for their pension scheme administrator to be jointly liable for their annual allowance tax charge, in return for an actuarial reduction in the value of their pension pot.
The annual allowance is the maximum amount of tax relieved pension savings that an individual can build up during a tax year. Where an individual exceeds the maximum amount of tax relieved pension savings, they will be liable to a tax charge on the excess amount. That tax charge recoups the excess tax relief that the individual has already received on their pension savings. For mandatory scheme pays, the annual allowance charge must exceed £2,000, and the individual’s pension input amount for that pension scheme must exceed the £40,000 annual allowance.
The clause will enable more individuals who meet the conditions to benefit from the mandatory scheme pays facilities because the measure applies to all individuals that receive a retrospective amendment to their pension input amount for the previous tax year. This is a measure we broadly support—the simplification of a relatively complex tax rule is a good thing both for the pension contributors and for those who hitherto had to disentangle its complexity.
However, we would like to raise a point with the Minister; we have tabled amendment 11 as a probing amendment with that in mind. Amendment 11 would affect clause 9, page 5, line 20, by leaving out “6 years” and inserting “5 years and 9 months”. We have tabled the amendment out of concerns drawn to our attention by the Chartered Institute of Taxation about the hard stop deadline being introduced for notices under section 237B of the Finance Act 2004. Clause 9 part 3 introduces a new section
“237BA Time limit for notices under section 237B”.
Subsections (4)(b) and 5(b) provide for a hard stop deadline of
“the end of the period of 6 years beginning with the end of the tax year in question”
for both the scheme administrator providing an individual with information about a change to their pension input and output and the individual member giving notice to the scheme administrator to pay the annual allowance charge through scheme pays.
The result of the two subsections is that it is possible for the scheme administrator to issue a statement with a change to the pension input amount in line with the legislation after, say, five years, 11 months and 30 days, meaning that the member would have just one day to make the scheme pays election and give notice to the scheme administrator that they want to do so. That is clearly an unreasonable timeframe for the member, so our amendment suggests one possible way of making sure the scheme member is given fair warning.
Our amendment proposes a ring-fenced three-month period during which the member would have time to process and make arrangements for a scheme pays election and to give notice to the scheme administrator. I hope we can agree that such an approach would simply allow members some protection against unreasonable circumstances that could arise. We will not push the amendment to a vote, but I would be grateful if the Minister addressed the points it raises in her reply.
Lucy Frazer
Clause 9 extends the reporting and payment deadlines so that an individual can ask their pension scheme to settle their annual allowance tax charge of £2,000 or more from a previous tax year by reducing their future pension benefits in a process known as scheme pays. The annual allowance limits the amount of UK tax relieved pension savings that an individual can benefit from in the tax year. If an individual’s pension savings exceed the annual allowance, a tax charge is applied. The tax charge recoups the excess tax relief that the individual has already received.
Scheme pays was introduced to help individuals pay an annual allowance charge in their current tax year where certain conditions are met. The unlawful age discrimination found in the 2015 public sector pension reform known as McCloud, which I will come on to in clause 11, highlighted a need for scheme pays to be available also for previous tax years from when an annual allowance tax charge arises. The changes made by clause 9 extend the date by which an individual can ask their pension scheme to pay an amount of their annual allowance tax charge. That means that where the charge arises because of a change of facts and the charge is £2,000 or more, the scheme pays facility is now another option for the individual to pay their tax charge.
The changes made by clause 9 also extend the date by which the pension scheme administrator must report and pay an annual allowance tax charge to Her Majesty’s Revenue and Customs using the accounting tax return. The extended date applies where the charge has arisen because of a change of facts about an individual’s pension savings. The date for reporting and paying the charge relates to when the scheme administrator is notified of the charge by the individual, following a change of facts rather than a fixed period after the end of the tax year. That means that the scheme pays facility is now available to individuals for their annual allowance tax charge from an earlier tax year.
Amendment 11 seeks to reduce the relevant time for a scheme to notify individuals from six years to five years and nine months. Unfortunately, that would mean that if an individual were notified more than five years and nine months after the tax year, scheme pays would not be available. The individual would, however, still be liable to the tax charge, leaving them to pay it out of their own pocket. I therefore urge the Committee to reject amendment 11.
In summary, clause 9 provides for scheme pays to be an option for individuals to have their pension scheme pay their annual allowance tax charge for a previous tax year where the conditions are met.
James Murray
I recognise that the Minister is unwilling to accept the amendment, although I would have welcomed a reassurance that she would take the principle behind the amendment away, discuss it with her officials and perhaps report back to the Committee at a later stage. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 9 ordered to stand part of the Bill.
Clause 10
Increase of normal minimum pension age
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 10 makes changes to increase the normal minimum pension age to 57. It also establishes a protection regime, which will enable some individuals to continue to access their pension before the age of 57 without any adverse tax impacts. The normal minimum pension age is the age at which most savers can access their pension without incurring an unauthorised payment tax charge. The coalition Government announced in 2014 that the normal minimum pension age would rise to 57 in 2028, reflecting long-term trends in longevity and changing expectations of how long we will remain in work and in retirement.
Clause 10 legislates to increase the normal minimum pension age to 57 on 6 April 2028. That increase will not apply to members of the police, firefighters, or armed forces public service pension schemes, who will receive protected pension ages to reflect the special nature of their work. Those who have an unqualified right in their scheme rules to take their pension before age 57 will also receive protected pension ages. Those who made a substantive request to transfer their pension before 4 November 2021 will still be able to complete their transfer into a pension scheme that already offered unqualified rights to a pension below age 57 and get a protected pension age.
That is a shorter window during which pension scheme members can transfer their pension to keep a protected pension age than was initially published in the summer. The Government listened carefully to stakeholder concerns that a longer window could have adverse impacts on the pensions market. The shorter window still delivers the original policy intent, so that those who were in the process of transferring their pension when the protection regime was first announced do not lose their protected pension age. Closing the window without prior notice avoided unnecessary turbulence in the pensions market and helped to protect consumers.
Those with protected pension ages will be able to access their pension benefits before age 57 without incurring an unauthorised payment tax charge. A protected pension age is specific to an individual as a member of a particular scheme. If an individual has a protected pension age in one scheme, they will not automatically have a protected pension age in another scheme: that would depend on the second scheme’s rules. Increasing the normal minimum pension age to 57 in 2028 reflects the principle that the normal minimum pension age should be set 10 years below the state pension age. The protection regime balances the need for fairness to pension savers with simplicity for pension providers. I therefore commend the clause to the Committee.
James Murray
As we have heard, clause 10 relates to the increase of the normal pension age to 57 from 6 April 2028. The stated intention of the clause is to protect members of the registered pension schemes who, before 4 November 2021, had a right to take their entitlement to benefit under those schemes at or before the existing normal minimum pension age. It exempts members of certain uniformed service pension schemes from the increase, and it introduces new block and individual transfer rules specific to the new protection framework in order to reduce the restrictions on retaining a protected pension age following a transfer. The UK has a long tradition of protecting and rewarding those who have served their country. It is therefore right that we support clause 10, as it provides that protection by safeguarding recipients’ right to retain entitlement to benefits when transferring schemes.
We note, however, that the Low Incomes Tax Reform Group has concerns about the transitional arrangements relating to the clause. Paragraph 28 of the Government’s explanatory note regarding this clause states:
“There may be some transitional issues. For example, an individual who does not have a protected pension age and at 5 April 2028 will have reached age 55 and has started but not completed the process of taking pension savings before the change in normal minimum pension age. The government will provide further advice on the proposed transitional arrangements and provisions in due course.”
That raises concerns about when further advice on the proposed transitional arrangements will be made available, as well as questions about the extent to which that advice will be effectively communicated to the people concerned.
It is vital that people have full detail of any transitional provisions well before the increase to age 57 comes into effect; otherwise, there is a risk that people reaching age 55 in the run-up to 6 April 2028 will make decisions without knowing all they need to know. For example, an individual could cash in a pension in full and put the money in the bank so as to crystallise access to those funds, which may well leave them worse off in the long term, having likely incurred a large tax liability on the encashment and potentially affected their means-tested benefit entitlement. They might also have triggered the money purchase annual allowance, therefore restricting—perhaps unwittingly—their ability to make further contributions. In light of this, will the Minister clarify precisely when “due course” is, in relation to the Government’s further advice regarding the proposed transitional arrangement for the provisions? Will she also confirm what measures the Government will take to make sure that people are aware of the advice when it is finalised?
Alison Thewliss (Glasgow Central) (SNP)
This issue speaks to what I and my colleagues have often asked for in Finance Bills—that is, to be able to take evidence. We have received some very good written evidence from different organisations—I thank Scottish Widows, the Low Incomes Tax Reform Group and the Chartered Institute of Taxation for sending evidence to the Committee—but some of the detail requires a bit more interrogation. It would be useful if Finance Bill Committees were able to take evidence on the detail.
I agree with much of what the hon. Member for Ealing North said. Saying that something will happen in due course is not a great reassurance to many people. We have seen the terrible mess that the Government left for the WASPI women—the Women Against State Pension Inequality—who did not receive enough notice of state pension age changes. As a result, many have lost out on what they expected to happen when they reached retirement.
In its evidence, Scottish Widows makes the point well:
“Simplicity is a key driver of engagement with pensions… The average person has 11 jobs in their lifetime—with auto enrolment that could mean them having at least 11 pension pots. Some of these will now be accessible at age 55, others at 57.”
It also notes that
“some customers may have different pension ages within the same pension pot.”
That is not the simplicity that people really need when it comes to planning for their retirement.
There is a range of views. Scottish Widows appears to welcome the changes. The Chartered Institute of Taxation is not convinced that a change to the normal minimum pension age is necessary or desirable. What ought to be at the centre of this discussion is the people who will claim that pension. They need the clearest possible advice and the longest possible amount of notice in order to plan. I ask for clarity from the Government. It is just not acceptable to come before the Committee today without a date and say, “in due course”. People need to be able to plan for one of the most important events in their lives.
Lucy Frazer
The hon. Members for Glasgow Central and for Ealing North both mentioned the transitional arrangements and notice. They are right to identify that the Government have acknowledged the importance of establishing a clear position on the transitional arrangements and that we have said that we will provide further advice on the proposed transitional arrangements and provisions in due course. That remains the position, but I am very happy to keep both Members updated as we progress.
The hon. Member for Glasgow Central made a point about evidence. I know she is interested in the taking of oral evidence—she has made that point before. There is, of course, a standard process on the measures in the Finance Bill. That process involves a huge amount of consultation, with particular milestones, including engagement with industry and stakeholders, often a consultation, and sometimes draft legislation that then comes forward into the Finance Bill. That is the way the Finance Bill operates.
The hon. Member mentioned the WASPI women, which I know many hon. Members from all parties feel strongly about. As she will know, it was decided 25 years ago to make the state pension age the same for men and women in what was then a long overdue reform.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clause 11
Public service pension schemes: rectification of unlawful discrimination
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
The clause allows for regulations to be made to address the tax impacts of the remedy to the unlawful age discrimination that arose from the 2015 public service pension reforms. The Government reformed most public service pensions in 2015, but excluded those closest to retirement from the reforms. The court found that that exclusion amounted to unlawful discrimination on the basis of age. That is known as the McCloud case.
Following consultation, the Government are introducing a remedy to rectify that discrimination, which affects about 3 million people. The remedy includes options for them to choose at retirement what type of pension rights they will receive for the remedy period. The remedy period covers the years between 2015 and 2022, with an exception for the judiciary, who will instead make their choice in 2022. That was decided following consultation with the sector.
Most of the legislation required to implement the remedy is contained in the Public Service Pensions and Judicial Offices Bill, which is progressing through the Commons. However, where those changes mean that the Government will provide individuals with different historical pension rights, changes to pension tax legislation are also required. The purpose of clause 11 is therefore to allow the Government to make regulations to put the individual, as far as possible, in the tax position in which they would have been had the discrimination never happened. It also ensures that regulations can be put in place to address the tax impacts of the public service pensions remedy on the employers and those responsible for the tax affairs of the pension schemes.
I mentioned that the legislation implementing the remedy is going through Parliament. Once it is finalised, the Government will use the power in clause 11 to draft regulations that will provide for the tax changes needed as part of our move to rectify the discrimination. For example, the Government will use the power to ensure that compensation payments payable as a result of the remedy can be made tax free, as they are calculated on that basis under the Public Service Pensions and Judicial Offices Bill.
The Government will also use the power in clause 11 to ensure that pensions and lump sums payable as a result of the remedy that would have been authorised payments had they been made at the relevant time are treated as meeting the conditions to be authorised. One further example is that members may choose benefits for the period 2015 to 2022 that lead to a significant increase in their pension accrual in a single tax year. Without a change to legislation, that could result in individuals paying more tax than if the pension that they ultimately chose had accrued annually.
The Government will use the power in clause 11 to make good the tax treatment of those affected by the remedy set out in the Public Service Pensions and Judicial Offices Bill. Regulations made under the power will ensure that, broadly, those affected will be in the tax position that they would have been in had they not suffered discrimination. I therefore commend the clause to the Committee.
James Murray
As we have heard from the Minister, clause 11 relates to public service pension schemes and the rectification of unlawful discrimination. It provides the Treasury with the power to make regulations to address the tax impacts that arise in consequence to or in connection with the rectification of unlawful discrimination set out in part 1 of what is expected to become the Public Service Pensions and Judicial Offices Act 2022. Those changes will have effect on or after 6 April 2022, and are capable of having retrospective effect.
As we are aware, when reformed public service pension schemes were introduced in 2014-15, the Government agreed, following discussions with trade unions, to allow active members of pre-existing public service pension schemes who were close to retirement to remain in those schemes, rather than requiring them to start to accrue pension benefits in a new scheme. That was called transitional protection. In December 2018, the Court of Appeal found in what is known as the McCloud judgment that the transitional protection unlawfully discriminated against younger members of the judicial and firefighter pension schemes, and gave rise to indirect sex and race discrimination.
On 15 July 2019, the then Chief Secretary to the Treasury, the right hon. Member for South West Norfolk (Elizabeth Truss), made a written ministerial statement setting out that the Government considered that the Court of Appeal’s judgment had implications for all public service pension schemes, and planned to introduce proposals to remedy the discrimination across the schemes. On 19 July 2021, the Government introduced the Public Service Pensions and Judicial Offices Bill. The provisions of part 1 of that Bill will apply retrospectively, to provide a remedy for the discrimination. The rectification affects individuals who were members of a public service pension scheme on or before 31 March 2012 and at any time between 1 April 2015 and 31 March 2022, and so had pensionable service during that time.
Under chapter 1 of part 1 of Public Service Pensions and Judicial Offices Bill, individuals who were moved to a new scheme will be retrospectively returned to their previous scheme for the period of remediable service. Any member with remediable service will be able to choose to receive pension scheme benefits based on the rules of either the legacy scheme or the new scheme, although for most individuals there will be no significant change in the tax position. The legislation will provide the Treasury with the power to make regulations that make the necessary changes to tax legislation so that, as far as possible, individuals can be put in the position in which they would have been, absent the discrimination. We will therefore not oppose the clause.
Lucy Frazer
I am grateful for the hon. Member’s indication that he will not oppose the clause, and have nothing further to add.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Clause 13
Structures and buildings allowances: allowance statements
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 13 makes provisions to improve the operation of the structures and buildings allowances for taxpayers. The clause will require relevant allowance statements to include the date that qualifying expenditure is incurred or treated as incurred in cases where its absence could prevent future owners of an asset from claiming the full amount that they are entitled to.
The SBA allows companies to reduce their taxable profits each year by 3% on the cost of construction, acquisition, renovation or conversion of non-residential buildings and structures. The investment is fully relieved after 33 and a third years. A business must hold a valid allowance statement to claim SBA. That document records information such as the relevant building or structure and the amount of qualifying expenditure incurred. It is passed on to subsequent owners to ensure the right records are kept for an asset.
The allowance period is the period over which SBA can be claimed, and it typically begins on the date when the structure or building is first brought into non-residential use. However, in cases where expenditure is incurred or treated as incurred after non-residential use has commenced, the allowance period will begin from that later date. That may be the case where renovation work is being carried out in a multistorey office building and the first tenants move in to one floor of the office building even though some construction continues on a different floor.
Without the inclusion of that date on the allowance statement, subsequent owners of a structure or building may not claim all the relief they are entitled to. Instead, they may reasonably assume that the allowance period began on the day the asset was first brought into non-residential use, not the date of the subsequent expenditure. Clarity for businesses on the remaining length of the allowance period for each portion of expenditure means they will be able to claim the full relief to which they are entitled.
The changes made by clause 13 are wholly relieving and will only benefit firms towards the end of the allowance period of 33 and a third years. The measure will apply across the UK. The clause will be effective for qualifying expenditure incurred or treated as incurred on or after the date of Royal Assent of the Bill. Therefore, it will not be retrospective and will not impact allowance statements already in existence. Clause 13 ensures that, in future, businesses can claim the full tax relief to which they are entitled.
James Murray
Clause 13 concerns the structures and buildings allowance statements. As we heard, it introduces a new requirement for allowance statements to include the date that qualifying expenditure is incurred or treated as incurred when that is later than the date on which the building or structure was first brought into non-residential use. The clause has effects for qualifying expenditure incurred or treated as incurred on or after the date of Royal Assent.
As we know, SBAs are a capital allowance available for the cost of constructing, renovating, converting or acquiring non-residential structures and buildings. When SBAs were first introduced, from 29 October 2018, the allowances were given at 2% per annum of qualifying expenditure on a straight-line basis. That rate was increased to 3% per annum with effect from April 2020. The period over which SBAs are available to be claimed is known as the allowance period.
A business must hold an allowance statement to claim SBAs, which includes certain details such as the date the asset is first brought into non-residential use. As we heard, that is normally the date that the SBA’s allowance period of 33 and a third years commences. However, where qualifying expenditure is incurred after the asset is brought into non-residential use, the allowance period starts on a later date. The new paragraph inserted by the clause adds an additional requirement to record that later date on the allowance statement, where relevant, to ensure the correct amount of SBAs may be claimed over the allowance period. The minor amendment to section 270IA(4)(b) of the Capital Allowances Act 2001 ensures consistency with the new paragraph.
We do not oppose the clause, as it is important to ensure the correct amount of SBA is claimed over the correct time to avoid unnecessary hardship or disruption.
Lucy Frazer
I am happy that the hon. Gentleman recognises that this is a clause worthy of Bill.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Qualifying Asset Holding Companies
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendments 1 to 6.
That schedule 2 be the Second schedule to the Bill.
Lucy Frazer
Clause 14 and schedule 2 introduce a new regime for the taxation of certain asset-holding companies being used by funds and institutional investors to make their investments. Asset management firms manage the savings and pensions of millions of UK citizens. The majority of UK households use an asset manager’s services, either directly or indirectly, for example through their workplace pensions. The reforms have been developed following extensive consultation as part of the wider review of the UK funds regime announced at Budget 2020. A key objective of the review is to consider reforms to enhance the UK’s competitiveness as a location for asset management and investment funds. It is a well-established principle that investors in funds should be taxed broadly as if they had invested directly in the underlying assets.
The new qualifying asset holding companies regime seeks to ensure that, where intermediate holding companies are used to facilitate the flow of capital, income and gains between investments and investors, the tax they pay is proportionate to the limited activities that they perform. With that policy objective in mind, the regime comprises a number of features, including a gains exemption for the disposal of certain shares and overseas property; specific rules where investment returns are passed to investors; withholding tax removed from payments of interest; and exempting repurchases of share and loan capital from stamp tax charges.
The new regime also contains safeguards. For example, the existing taxation of profits from trading activities, UK land and intangibles will not be affected. Furthermore, the new regime will be available only in certain circumstances—to prescribe investment arrangements involving diversified investment funds, charities, long-term insurance business, sovereign immune entities, certain pension schemes and public bodies.
Government amendments 1 to 6 seek to address three technical points better to reflect the original policy intention of the new regime and to ensure consistency with wider tax rules. Those include refinements to the eligibility criteria and ensuring that they are applied consistently. They follow engagement with the industry on the legislation since the introduction of the Finance Bill.
The clause introduces a new regime for qualifying asset holding companies from April 2022 that will build on the UK’s strengths as an asset management hub by enhancing the attractiveness of the UK as a location for the establishment of asset holding companies. I recommend that the clause and schedule 2 form part of the Bill.
James Murray
As we have heard, the clause concerns qualifying asset holding companies, and sits alongside schedule 2. The aim of the clause, we understand, is to recognise certain circumstances where intermediate holding companies are used only to facilitate the flow of capital, income and gains between investors and underlying investments to tax investors, broadly as if they had invested in the underlying assets, and to enable the intermediate holding companies to pay tax that is proportionate to the activities they perform.
At Budget 2020, the Government announced that they would carry out a review of the UK funds regime, covering tax and relevant areas of regulation. The review started with a consultation on the tax treatment of asset holding companies in alternative fund structures, also published at Budget 2020. The Government responded to that consultation in December 2020, launching a second-stage consultation on the detailed design features of a new regime for asset holding companies. The Government’s response to that consultation was published on 20 July 2021.
The clause and schedule 2 introduce the new regime. We understand that the purpose of the measures is to deliver a proportionate and internationally competitive tax regime for qualifying asset holding companies that will remove barriers to the establishment of such companies in the UK. The Government have said that the new regime will include the following key features: eligibility criteria to limit access to the intended users; tax rules to limit the qualifying asset holding company’s tax liability to an amount that is commensurate with its role; and rules for UK investors to ensure that they are taxed so far as possible as if they had invested in the underlying assets directly.
We understand that the eligibility criteria will ensure that the asset holding companies may only be used as part of investment structures where funds are managed for the benefit of a broad pool of investors or beneficiaries. An asset holding company cannot carry out other activities, including trading, to any substantial extent. The tax benefits arising from asset holding company status apply only in relation to qualifying investment activity. The tax treatment of any limited trading activity or any non-qualifying investment activity that is carried on by an asset holding company will not be affected by the company’s status as an asset holding company.
We note that the Government have tabled six amendments to schedule 2, which accompanies the clause. Amendments 1 and 2 seek to pin down the definition of investment management profit-sharing arrangements. According to the explanatory statement, that is to ensure that the legislation is capable of encompassing arrangements in which an entitlement to profits arising in connection with the provision of investment management services by an investment manager arises to another person, such as a company or a trust.
Amendments 3 and 6 provide that a fund that is 70% controlled by category A investors meets the diversity of ownership condition. Amendment 4 seeks to allow existing funds marketed before the commencement of the qualifying asset holding company regime to be treated as meeting regulation 75(2) of the Offshore Funds (Tax) Regulations 2009 if certain information has been produced by the fund and has been made available to Her Majesty’s Revenue and Customs. Amendment 5 modifies the way in which the interests of creditors are accounted for in determining whether a fund is closed. We will not be opposing clause 14 or the Government’s amendments to it.
Alison Thewliss
I am a wee bit concerned that the Government have brought these amendments so late in the day. I appreciate that they have brought them now, rather than seeking to come back and amend legislation further down the road. That is something, I suppose. Does the Minister intend to review this legislation, and on what timescale? I am a wee bit worried about the letter we received yesterday, which said that, as originally drafted, the legislation includes some inconsistencies with wider tax rules and within the regime’s eligibility criteria. Given those worries and these amendments, I would like some reassurance from the Minister that the Government are going to keep an eye on this legislation to make sure that it is not exploited or used in the way that it is not intended to be. We need to make sure that people are paying the tax that they ought to be and that the legislation is not used as some kind of dodge.
Lucy Frazer
I welcome the lack of opposition to these clauses, which will support UK growth, by the hon. Member for Ealing North. The hon. Member for Glasgow Central made a point about the fact that the Government have made amendments late in the day. I reassure her that they are technical changes. Following engagement with the industry since the introduction of the Finance Bill, the amendments required were pointed out to us and, therefore, it is important that we include the amendments in the Bill. We keep all legislation under review. We are very concerned, as the hon. Member will have seen from other measures in the Bill, about tackling tax avoidance, so we will keep an eye out for any misuse of the measures. I commend the amendments and clause 14 to the Committee.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Amendments made: 1, in schedule 2, page 97, line 24, leave out “performing investment management services”.
This amendment is one of a pair of amendments designed to secure that the definition of investment management profit-sharing arrangements is capable of encompassing arrangements where an entitlement to profits arising in connection with the provision of investment management services by an investment manager arises to another person (such as a company or a trust).
Amendment 2, in schedule 2, page 97, line 25, leave out from “profits of” to end of line 26 and insert
“investments in connection with the provision of investment management services in relation to those investments.”
This amendment is one of a pair of amendments designed to secure that the definition of investment management profit-sharing arrangements is capable of encompassing arrangements where an entitlement to profits arising in connection with the provision of investment management services by an investment manager arises to another person (such as a company or a trust).
Amendment 3, in schedule 2, page 99, line 36, leave out paragraph (c) and insert—
“(c) the fund is 70% controlled by category A investors.”
This amendment is one of a pair of amendments that provide that a fund that is 70% controlled by category A investors meets the diversity of ownership condition.
Amendment 4, in schedule 2, page 99, line 42, leave out “6 April 2020” and insert “1 April 2022”.
This amendment will allow existing funds marketed before the commencement of the QAHC regime to be treated as meeting regulation 75(2) of the Offshore Funds (Tax) Regulations 2009 if certain information has been produced by the fund and has been made available to HMRC.
Amendment 5, in schedule 2, page 100, line 19, at end insert ‘—
(i) as if in subsection (4) of section 450 of that Act, the reference to a loan creditor were to a creditor of the fund in respect of a normal commercial loan (within the meaning it has in paragraph 3),
(ii) as if in that subsection, at the end there were inserted “and for the purposes of subsection (3)(d)”, and
(iii)’
This amendment modifies the way in which the interests of creditors are accounted for in determining whether a fund is “close”.
Amendment 6, in schedule 2, page 100, line 30, leave out sub-paragraph (6) and insert—
“(6) A fund is 70% controlled by category A investors if a category A investor, or more than one category A investor between them, directly or indirectly possesses—
(a) 70% or more of the voting power in the fund or, in the case of a fund that is not a body corporate, an equivalent ability to control the fund,
(b) so much of the fund as would, on the assumption that the whole of the income of the fund were distributed among persons with interests in the fund, entitle that investor or those investors to receive 70% or more of the amount so distributed, and
(c) such rights as would entitle that investor or those investors, in the event of the winding up of the fund or in any other circumstances, to receive 70% or more of the assets of the fund which would then be available for distribution among persons with interests in it.
(6A) For the purposes of sub-paragraph (6)—
(a) a category A investor indirectly possesses something if the investor possesses it through a body corporate or a series of bodies corporate;
(b) the interests of the participants in a category A investor that is a collective investment scheme that is transparent (within the meaning given by paragraph 6(7)) are to be treated as interests of the investor (instead of its participants) if that investor meets the diversity of ownership condition as a result of sub-paragraph (2)(a);
(c) in determining, for the purposes of sub-paragraph (6)(b) or (c), proportions of income or assets persons with an interest in the fund would be entitled to, ignore any interest any person has as a creditor of the fund in respect of a normal commercial loan (within the meaning it has in paragraph 3);
(d) paragraphs 5(5) and 6(5) and (6) apply for the purposes of determining the interests of persons in a fund as they apply for the purposes of determining relevant interests in a QAHC.
(6B) For the purposes of sub-paragraphs (5)(a)(i) and (6A)(c), references to a creditor of a fund are to be treated, in the case of a fund that is a partnership, as not including any creditor who is a partner of that fund.” —(Lucy Frazer.)
This amendment is one of a pair of amendments that provide that a fund that is 70% controlled by category A investors meets the diversity of ownership condition.
Schedule 2, as amended, agreed to.
Clause 15
Real Estate Investment Trusts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 3 be the Third schedule to the Bill.
Lucy Frazer
Clause 15 makes targeted changes to the tax rules for real estate investment trusts. These changes alleviate certain constraints and administrative burdens to enhance the attractiveness of the UK’s real estate investment trust regime for real estate investment.
A real estate investment trust, or REIT, is a collective vehicle that allows investors to obtain broadly similar returns from an investment in property as they would have had had they invested directly, through a specific set of tax rules. This regime has proved popular since its introduction in 2006, with around 100 UK REITs currently established. However, recent consultations issued as part of the Government’s review of the UK funds regime have identified a number of areas where the REIT regime could be reformed to remove unnecessary barriers and make it more competitive. The Government are now acting to amend these areas of their regime to make the UK a more attractive location for holding real estate assets.
The changes to the REITs tax rules will reform a number of areas. They will remove some administrative and cost burdens for existing UK REITs and remove some barriers to entry, widening the scope of businesses able to elect to be a UK REIT. In particular, the changes will remove the requirement for REIT shares to be admitted to trading on a recognised stock exchange where institutional investors hold at least 70% of the ordinary share capital. They will amend the definition of an overseas equivalent of a UK REIT to allow it to be met by companies and jurisdictions without an equivalent regime and remove the “holder of excessive rights” charge, where property income distributions are paid to investors entitled to receive them without deduction of withholding tax.
Finally, the changes will introduce a new, simplified balance of business test, which are the rules requiring that at least 75% of the rights, profits and assets relate to the property rental business, and exclude certain activities relating to the planning obligations from the test.
The targeted changes introduced by the clause and schedule will make the existing REITs regime more attractive, consistent with the Government’s objective for the review of the UK funds regime. The changes will come into force on 1 April 2022.
James Murray
As we have heard, clause 15 and schedule 3 concern real estate investment trusts. The clause and schedule amend the REIT rules and, as the Government have said, seek to remove superfluous restraints and administrative burdens. That includes the removal of the requirement for REIT shares to be admitted to trading in certain circumstances; the amendment of the definition of an overseas equivalent of a UK REIT; the amendment of the “holder of excessive rights” charge to corporation tax; and changes to the rules which ensure that a REIT’s business is primarily focused on its property rental business. The changes take effect from 1 April 2022.
A REIT is a company through which investors can invest in real estate directly. Specific tax rules for UK REITs were introduced in the Finance Act 2006. The regime has proved popular, and the number of UK REITs steadily increased to 92, as of June 2021. Subject to meeting certain relevant conditions, the company may notify Her Majesty’s Revenue and Customs that it is to be treated as a UK REIT. Its property rental profits and gains are then, in broad terms, treated as exempt from corporation tax, subject to ongoing conditions such as the requirement to distribute 90% of its exempt profits as property income distributions, which are in turn treated as property rental income in investors’ hands.
At Budget 2020, the Treasury launched a consultation on the tax treatment of asset holding companies, which included questions about investments in real estate. Responses to the consultation led to the inclusion of proposals for changes to the REIT regime in a second consultation on asset holding companies, which was launched in December 2020. The schedule introduces those changes, which are intended to remove restrictions and administrative burdens where they are no longer necessary. For that reason, we do not oppose the clause or schedule.
Alison Thewliss
I have a question about transparency and how the regime will interact with the Government’s draft Registration of Overseas Entities Bill. I remember some discussion about people moving ownership to trusts and other things, but I am not quite clear how this interacts with that work on transparency.
Lucy Frazer
I am grateful to the hon. Member for Ealing North for indicating that he will not oppose this aspect of the Bill. As he has said, the regime is very popular. I am very happy to get back to the hon. Member for Glasgow Central on her particular question.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Schedule 3 agreed to.
Clause 16
Film tax relief: films produced to be television programmes
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 14—Review of effectiveness of film tax relief provisions of Act and of potential for misuse—
“(1) The Government must publish, within six months of this Act coming into force, a report on the effectiveness of the provisions of section 16 of this Act.
(2) This review must include an assessment of the extent of, and potential for, misuse of the relief provided in section 16.
(3) The assessment under subsection (2) must include an evaluation of the relevance of the experience of misuse of existing film tax relief.
(4) The evaluation provided for in subsection (3) must include—
(a) the—
(i) total number of enforcement actions, and
(ii) number of successful enforcement actions taken against companies suspected of misusing film tax relief,
(b) the actions taken against the promoters of schemes designed to enable misuse of film tax relief, and
(c) a statement as to the plans the Government has for further action against misuse of film tax relief.”
This new clause would require a review of the effectiveness of the provisions in section 16. This review would include assessing actual and potential misuse of the relief, drawing on experience of the present film tax relief regime.
Lucy Frazer
Clause 16 makes changes to the film tax relief to give added flexibility to film producers who might decide to change their distribution method. The Government are ensuring that film producers can claim the film tax relief for films that are broadcast or streamed rather than released in cinemas, provided that the film meets the criteria for high-end television tax relief.
There is an imbalance between release for film and TV where some films that are no longer intended for a cinematic release and switch to streaming lose eligibility for tax relief. The distribution landscape has changed significantly since the introduction of these reliefs, and more films are released directly to video on demand services. This trend has accelerated recently due to the covid pandemic.
The changes made by the clause to the film tax relief will provide greater certainty for producers, ensuring that relief is not lost should a company decide to change its distribution method. This will help ensure that the UK remains an attractive place to invest and encourage the production of culturally British films.
New clause 14 would require the Government to review the effectiveness and potential misuse of clause 16 within six months of the Act coming into force, and would include within it an evaluation of misuse of the film tax relief. That evaluation would include the total number of enforcement actions, and the number of successful enforcement actions, taken against the companies suspected of misusing film tax relief.
The Government oppose the new clause on the basis that it is not necessary, as the Government are already monitoring and evaluating the success of their tax reliefs. This follows the structured approach to evaluating tax reliefs that HMRC began in October 2020 as a general good practice policy approach. HRMC has contracted an independent research agency to evaluate the screen tax reliefs, including film tax relief and high-end television tax relief. That evaluation aims to provide a thorough and independent evaluation of the reliefs, including their effect on employment and business growth. The impact of clause 16 will be noted as part of the evaluation, which is expected to be published next year, although that evaluation will not cover misuse of the relief. The requirement in new clause 14 that a review of clause 16 be published in six months is also impractical, because the measure only comes into effect for accounting periods ending on or after 1 April 2022. It is likely to be at least a year before companies make claims in relation to clause 16, and even longer before enforcement action is taken.
It is also worth noting that HMRC is taking actions to clamp down on the abuses that the new clause is concerned about. The current film tax relief was introduced in 2007 to replace film partnership reliefs. It is a corporate relief, and now focuses on film producers, not on investing partnerships. HMRC continues to settle and litigate historic schemes related to the old film partnership reliefs, but the current regime has not been subject to the same abuse, and has had a positive reputation in the industry.
The corporate film tax relief has proved very successful at attracting inward investment. It is highly popular with film-makers, and has contributed to making the UK a top film-making destination. This new relief is well targeted and has not been subject to abuse like the previous scheme. The change made by clause 16 is therefore to support businesses that meet the qualifying criteria for the relief, and while HMRC will remain vigilant regarding any emerging risks, we do not believe that clause 16 poses any significant additional risk. Further, reviews and disclosure of enforcement action statistics as requested by the new clause would not be useful. As such, I urge the hon. Gentleman to withdraw it.
The changes made by clause 16 will help ensure that the film tax relief continues to support the UK’s thriving film-making scene. I therefore commend it to the Committee.
James Murray
As we have heard, clause 16 allows films to remain eligible for film tax relief even if those films are no longer intended for theatrical release, provided they are intended for broadcast and meet the four conditions required for high-end television tax relief. The clause is effective for accounting periods ending on or after 1 April 2022. We do not oppose measures that support the entertainment and hospitality industry, particularly given the ongoing challenges brought about by the covid-19 pandemic. Indeed, the measures contained in clause 16 are, in themselves, sensible and appropriate.
More widely, though, we are aware that film tax relief was introduced by the Finance Act 2006, and applied only to films intended to receive theatrical release. That intention must be met at the end of every accounting period. Similarly, high-end television tax relief was introduced by the Finance Act 2013, and allows companies to claim relief on television programmes so long as they meet certain conditions.
The intention to broadcast must be met at the outset of production activities, and is then treated as being met for the remainder of production activities, regardless of the intention for the programme. That raises the possibility that a film that was initially intended for theatrical release may miss out on either relief if the intention changes part-way through production, and it is instead planned to have a television release. This is the case even when such a film would have been eligible for television tax relief if the decision had been made at the very start of production activities. Clause 16 ensures that where a film would have been eligible for high-end television tax relief if not for the date that the broadcast intention was decided on, it will not miss out on that relief, but will be eligible to claim it.
I am sure that the measures in this clause will provide welcome relief to those in the film industry. However, we would like to take this opportunity to ask the Minister about the operation of the film tax relief more widely, which is a debate that our new clause 14 seeks to encourage. Looking back briefly to 2014, the Public Accounts Committee reported on the misuse of tax relief, including the film tax relief, to which it made explicit reference. The report found:
“There is a lack of transparency and accountability for tax reliefs and no adequate system of control, following their introduction….Tax expenditures are often alternatives to spending programmes, but are not managed or evaluated as closely…The Departments do not keep Parliament adequately informed of changes in the costs of reliefs…The Departments are unable to cope with the demands of an increasingly complex tax system, including tax reliefs…The Departments do not respond promptly to unexpected increases in the costs of tax reliefs. Data on movements in the cost of reliefs is not available until tax returns are received, and HMRC takes time to react when it notices a cost increase, as it wants to ensure its response is appropriate. However, a longer elapsed time in reacting to an increase in the cost of a tax relief raises the total amount of public money at risk. In the case of film tax relief, it took ten years to resolve the problems and cost over £2 billion.”
I am aware that the operation of the film tax relief has been changed in recent years, but it is important to ensure that the tax relief continues to be effective. We need the Government to reassure us that they are taking adequate action against the possible misuse of tax reliefs. With that in mind, we tabled new clause 14, which would require the Government to include an assessment of the extent of, and potential for, misuse of the relief provided in clause 16. That assessment must also include an evaluation of the misuse of existing film tax relief more widely.
In relation to that wider potential misuse of existing film tax relief, our new clause requires the Government to set out, first, the number of total and successful enforcement actions taken against companies suspected of misusing film tax relief; secondly, a report of what action has been taken against the promoters of schemes designed to enable to misuse of film tax relief; and thirdly, what plans the Government have for further action against the misuse of film tax relief in the future.
The Minister has set out that she will not accept our new clause, but I ask her to commit to a firm timetable for a review of existing film tax relief that would have a similar effect. There are already reports suggesting that the use of film tax relief is increasing. I remind her that the 2014 Public Accounts Committee report said that
“Departments do not respond promptly to unexpected increases in the costs of tax reliefs.”
If the Minister will not commission a review along the lines that we have suggested, I would be grateful if first she could reassure us on the record that she does not believe that there are significant levels of misuse of film tax relief. Following the point that she made earlier, I would be grateful if she could also explain what the timetable is for the publication of the evaluation of film tax relief. If she does not have that to hand, could she write to me before the recess?
Alison Thewliss
I am more than happy to support what the Government are proposing here. Consistency in these tax reliefs is really important to allow businesses to plan. My constituency particularly has a booming TV and film production sector, with the recent announcement of the BBC Studioworks development at Kelvin Hall in my constituency, and an £11.9 million investment, £7.9 million of which is coming from the Scottish Government to invest in the high quality TV and film production in Glasgow.
It is important to acknowledge the wider picture. This is not just about one tax relief; it is about the wider ecosystem. We have lots of independent production companies in Glasgow Central, and more widely in Glasgow, working away and producing high quality stuff. We have post production as well in companies such as Blazing Griffin, which does high-end stuff for the likes of Netflix. However, I would be doing them all a wee bit of a disservice if I did not mention the significance of Channel 4, and the importance of keeping it in its current model and standing away from the plans to privatise it. That model is what supports the wider ecosystem in the city of Glasgow—the model where independent production companies are able to keep their intellectual property and products, and sell them. That allows all the certainty within the sector to continue.
As I said, the issue is not just about this one tax relief; it is about the Government looking at and acknowledging the wider ecosystem that supports independent production within Glasgow. Companies such as Blazing Griffin have pointed out to me that, were it not for Channel 4, we would not have Netflix. One thing in the ecosystem depends on another, and I urge the Government to look at that in the round when it considers such tax reliefs. Where tax reliefs have been withdrawn or changed in the United States, all that happens is that production companies lift and shift, and go elsewhere. We do not want to risk doing that with such changes as those that the Government propose for Channel 4.
Lucy Frazer
I will briefly respond to the points made by the hon. Member for Ealing North. There are four short points: first, I hope the hon. Member has taken some reassurance from the fact that I mentioned that the current regime is not subject to the same abuse as the historic regime. Secondly, I mentioned that we were doing an independent review of reliefs. Thirdly, he asked me for the timing of that project. It started in May 2021, and we expect the project to be finished and to have written a report before the end of March 2022, for publication later in the year.
The hon. Member also mentioned avoidance quite a lot; we are also interested in tackling avoidance, and we will be coming to, later on in this Committee, a whole raft of measures tackling promoters. I am sure that he will welcome those.
Lucy Frazer
Clauses 17 to 22 make a series of changes to the creative industry tax reliefs, in order to support the cultural sector as it recovers from the effects of the pandemic. These changes include temporary rate increases for theatre tax relief, orchestra tax relief, museums and galleries exhibition relief and an extension of the museum and exhibitions tax relief. The changes ensure that reliefs remain targeted, free from abuse and sustainable.
The effects of covid on the creative industries have varied depending on the nature of the medium. Social distancing and wider restrictions have had a particular impact on theatres, orchestras, museums and galleries, as they rely on live performances and exhibitions to generate revenue. Clauses 17 and 21 temporarily double the headline rate of relief for theatre tax relief and museums and galleries exhibition tax relief, from 20% for non-touring productions and 25% for touring productions to 45% and 50%, respectively. From April 2023, the rates will be reduced to 30% and 35%, and they will return to 20% and 25% on 1 April 2024.
Clause 19 temporarily doubles the headline rate of relief for the orchestra tax relief from 27 October 2021, from 25% to 50%, reducing to 35% from 1 April 2023 and returning to 25% on 1 April 2024. The temporary higher rates of relief will provide a further incentive for theatres, museums, galleries and orchestras to put on new productions, exhibitions and concerts over the next two and a half years. This is a tax relief for culture worth almost a quarter of a billion pounds.
Clauses 18 and 20 make changes to theatre tax relief and orchestra tax relief to help clear up areas of legislative ambiguity and reinforce the original policy intent. The changes will apply to any new productions commencing from 1 April 2022. The clarifications are as follows: first, the commercial purpose condition for theatre tax relief and orchestra tax relief will be clarified so that productions must be separately ticketed to be considered as having been performed before a paying audience.
Secondly, the educational purposes condition will clarify that it is the audience that is being educated, not the performers. Thirdly, the legislation clarifies that productions made for training purposes will be excluded. Fourthly, teaching costs incurred by educational establishments, which are not directly related to performances, will be specifically excluded from relief. Finally, the definition of a “dramatic piece” will be clarified, so that to qualify for the relief, productions must contain a story or a series of stories and must have an expected audience of at least five people.
Clause 22 extends the sunset clause of museums and galleries exhibition tax relief from April 2022 to April 2024 in order to give certainty to museums and galleries through the recovery from the effects of the pandemic. The Government will also take steps to prevent abuse or attempted abuse of museums and galleries exhibition relief by clarifying the existing legislation. The clause makes minor changes to clear up areas of legislative ambiguity and reinforce the original policy intent. The changes will apply to any new exhibitions commencing from 1 April 2022.
The first clarification will be to the definition of an exhibition, which will be clarified so that the
“display of an object or work”
cannot be secondary to another activity. Secondly, to prevent private companies that are not museums or galleries from claiming on temporary outdoor sites, it will be clarified that being responsible for an exhibition is not sufficient for a company to qualify as maintaining a museum or gallery. Finally, the Government are relaxing the criteria for qualifying as a primary production company to allow more flexibility for museums and galleries scheduling touring exhibitions.
The changes will help UK theatres, orchestras, museums and galleries bounce back by incentivising new productions over the next two and a half years; continue Government support for charitable companies to put on high-quality museum and gallery exhibitions; and ensure that the relief is targeted and sustainable.
James Murray
Clause 17 will temporarily increase the rate of theatre tax credit for theatrical productions that commence production on or after 27 October 2021. From 27 October 2021 to 31 March 2023, companies will benefit from relief at a rate of 50% or 45% for touring and non-touring productions. From 1 April 2024, the rates of relief will return to the existing levels of 25% and 20% respectively.
Companies qualifying for theatre tax relief can surrender losses in exchange for a payable tax credit. The amount of loss able to be surrendered in a period is dependent on several factors, but will ultimately depend on the amount of core production expenditure that has been incurred in the UK or European Economic Area. A higher rate of relief is also available to theatrical productions that take place at more than one premise and are considered touring productions. I would be grateful if the Minister could clarify how the definition of touring will be applied.
Section 1217K(6) of the Corporation Tax Act 2009 defines touring thus:
“A theatrical production is a ‘touring production’ only if the company intends at the beginning of the production phase—
(a) that it will present performances of the production in 6 or more separate premises, or
(b) that it will present performances of the production in at least two separate premises and that the number of performances will be at least 14.”
Paragraph (b) indicates that if a theatre company puts on 14 performances that were split between two venues—perhaps in the same town, just round the corner from one another—it would be eligible for 5% more tax credits than if it kept all 14 performances in the same venue. Perhaps the Minister could confirm whether that is the case.
As we have heard, clause 18 concerns theatrical production tax relief. It amends part 15C of the Corporation Tax Act 2009 to clarify several areas of legislative ambiguity relating to eligibility for theatre tax relief in relation to theatrical productions where the production phase will begin on or after 1 April 2022. We understand that the amendments are made to narrow the focus of the legislation and, according to the background of its explanatory note, to
“reinforce the original policy intent”.
Subsection (2) requires the intended audience to number at least five people for a production to be considered a “dramatic production”. It also stipulates that for a dramatic piece to qualify as a dramatic production, it must tell
“a story or a number of related or unrelated stories.”
Subsection (3) adds productions made for training purposes to the list of productions that are not regarded as theatrical and do not qualify for relief.
Subsection (4) amends the commercial purpose condition in section 1217GA of the 2009 Act so that a performance will not meet the condition unless it is separately ticketed and such ticketing is expected to make up a significant proportion of the performance’s earnings. A ticket may cover things besides admission to the performance, so long as such things are incidental to the performance and it is possible to apportion the ticket price between the performance and anything else included in the price. The subsection additionally clarifies that for a performance to meet the commercial purpose condition by being educational, it must be provided mainly to educate the audience.
As we have heard, clause 19 provides a temporary increase to orchestra tax credit. It temporarily increases the rate of orchestra tax relief for concerts or concert series that commence production on or after 27 October 2021. From 27 October 2021 to 31 March 2023, companies will benefit from relief at a rate of 50%. From 1 April 2023 to 31 March 2024, the rate of relief will be set at 35%. From 1 April 2024, the rate of relief will return to its existing level of 25%.
Companies qualifying for orchestra tax relief can surrender losses in exchange for a payable tax credit. The amount of loss that can be surrendered in a period is dependent on several factors, but ultimately it depends on the amount of core production expenditure that has been incurred in the UK and the European Economic Area. This temporary rate rise is also being introduced to theatre tax relief, in clause 17, and museums and galleries exhibition tax relief in clause 21. It allows companies to claim a larger tax credit and is designed to support the industries as they recover from the adverse economic impact of the covid-19 pandemic.
Orchestral productions are a tremendously important cultural asset in this country, and we are pleased to support the clause, which provides additional support to a cultural industry that has been hit hard by the pandemic. However, will the Minister outline what measures are in place to support musicians of other genres, or who perform in non-orchestral configurations? This is a welcome relief for orchestras, but other musical groups could be left out.
As we have heard, clause 20 pertains to tax relief for orchestras. This clause amends part 15D of the Corporation Tax Act 2009 to clarify several areas of legislative ambiguity within orchestra tax relief. These changes have effect in relation to concerts or concert series where the production process begins on or after 1 April 2022, and they are comparable to the changes concerning theatre productions in clause 18, in so far as the Bill clarifies that relief is not applicable to orchestral productions that take place for training purposes. It amends the Corporation Tax Act so that a concert will not meet the definition unless it is separately ticketed and such ticketing is expected to make up a significant proportion of the performance’s earnings.
Those are uncontroversial provisions that we do not oppose, because they reduce the risk of the tax relief being misused and maintain the spirit in which the legislation was originally developed. However, we note the Chartered Institute of Taxation’s concern that orchestras that made a series election before the Budget—for example, an orchestra that made a series election in September for its whole annual season—would appear to lose out on the higher rate of relief for their entire season. That is perceived to be unfair, and we would welcome clarity over whether that is the Government’s intention.
Clause 21 provides a temporary increase to the rate of relief afforded to museums and gallery exhibitions that commence production on or after 27 October 2021. From 27 October 2021 to 31 March 2023, companies will benefit from relief at a rate of 50% or 45% for touring and non-touring exhibitions respectively. From 1 April 2023 to 31 March 2024, the rates of relief will be set at 35% and 30%. From 1 April 2024, the rates of relief will return to their existing levels of 25% and 20%.
Companies qualifying for this relief can surrender losses in exchange for a payable tax credit. The amount of loss that can be surrendered in a period is dependent on several factors, but it ultimately depends on the amount of core production expenditure that has been incurred in the UK and European Economic Area. We do not oppose the measure, because it relates to another sector that has been hurt by the pandemic and that we want to see back on its feet, providing the best educational and cultural enrichment that it can to the British people.
However, will the Minister clarify where world heritage sites fit into the legislation, and whether they could be considered museums or gallery exhibitions? According to UNESCO, the UK and Northern Ireland have 33 world heritage sites: 28 cultural, four natural and one mixed.
Finally, clause 22 concerns the aforementioned tax relief to museums and gallery exhibitions, clarifying some legislative ambiguities and amending criteria for primary production companies. Those amendments have effect in relation to exhibitions where the production stage begins on or after 1 April 2022. The relief was introduced with a sunset clause and was due to expire from 1 April next year, but this clause extends the relief for a further two years. Any expenditure incurred after 1 April 2024 will not qualify for relief unless there is a further extension.
As we can see, subsection (1) amends the definition of an exhibition so that a public display of an object is not an exhibition if it is subordinate to the use of that object for another purpose. For example, if a historic passenger train offers rides between two towns, although the train may have historical or cultural significance, its main purpose is to provide passenger transport. This does not preclude the possibility of there being an exhibition on board the train.
Finally, and more broadly, we are aware of concerns from within the industry regarding productions that straddle the commencement dates of these reliefs. For each relief, the increased rate applies only to productions where the production stage for the exhibition began on or after the Budget on 27 October 2021, when the change was announced. So, a production that received the green light on 26 October, or earlier, would not gain the benefit of the increased rate, however long it ran for after the commencement date for the increased rate. We understand there are those in the sector who perceive that as harsh and arbitrary, and we welcome the Minister’s thoughts on the matter.
Alison Thewliss
Of course, I support the proposed tax credits. They will be a useful part of the picture of support for theatres, museums and orchestras, of which there are many in my constituency of Glasgow Central—which is, of course, the best constituency in the country, as I am sure everyone would agree. We have the Royal Scottish National Orchestra, the BBC Scottish Symphony Orchestra and Scottish Ballet, as well as Tron Theatre company and the Citizens Theatre company. These proposals may be of assistance to them, so I ask the Minister what communication has been put out to the sector to ensure that it is aware of the relief and taking it up as required.
I share the concerns expressed by the hon. Member for Ealing North, and I, too, seek answers from the Minister to the questions that the hon. Gentleman asked. It strikes me that many of these proposals provide assistance for productions of some kind, but that misses the other side of the equation. It is good to support companies, but if the venues and theatres in which they wish to perform go bust because they do not have the support that they need, that will not solve the problems that the companies have faced for the past year as a result of the pandemic. I urge the Minister to look at support for the sector more widely.
Many who work in the sector—in orchestras and in theatres, behind the scenes and on the stage—are freelancers, and many have received no support whatsoever from the Government during the pandemic. They have faced a very difficult time, and the Government need to resolve that part of the equation. They could perhaps do so by looking at extending the VAT relief that they introduced, as the SNP has called for.
We were very glad that the Government brought in the reduction in the rate of VAT, but it would be useful to see that continued beyond the cut-off in April next year. That would give a sector that has faced such a difficult time a bit of extra support into next year. It does not make much sense to me to cut that off, and not to incentivise people to go out and make use of the theatres and music venues we all have in our constituencies.
The sector has had a very difficult time. The proposed tax credits are useful, but we need to look at the wider picture. If there is no venue in which to perform or to showcase an orchestra, ballet, theatre production or pantomime, because those venues have gone bust and no longer exist, the Government are missing a trick. It is important that we support the venues and those who work in the sector, wherever that is, and that we look at the wider picture, rather than at a narrow bracket of tax reliefs.
Lucy Frazer
The hon. Member for Ealing North asked about world heritage sites. The answer to his question is that a world heritage site would be considered to be a site of cultural significance. It would be considered as an exhibition and would qualify, so long as it is maintained by a charity or local authority.
The hon. Gentleman recognised that those who had commenced productions before 27 October would not qualify for the relief. He is right about that, although we have doubled relief until 2023 and increased it until 2024. Productions that started before the announcement have been able to benefit from the normal rates of relief and the comprehensive package of support provided for the cultural sector over the pandemic. They will continue to benefit from relief at the 2020-21 rates. It is important, and we have made it clear, that these proposals relate to new activity, because it is new activity that we want to support through this particular relief.
The hon. Gentleman also asked about touring and musicians. HMRC has recently issued further guidance where industry has asked for it, in relation to the interpretation of the legislation. I will get back to him about those two points.
The hon. Member for Glasgow Central made a few points; I am afraid I must challenge her on her statement that Glasgow Central is the best constituency in the country. The best constituency is, of course, South East Cambridgeshire—fortunately, no one will have an opportunity to respond to that. She made an important point about communication. The Chancellor mentioned these reliefs in the Budget statement and they were included in all the communications about it at the time, which were highly publicised. The hon. Lady makes an important point, however, and I will continue to ensure that when we make reliefs, those who qualify for them are aware that they do. We are doing quite a lot of work on how to spread the message more broadly to enable companies to take up the reliefs that the Government offer.
Alison Thewliss
The point is that large production companies will have accountants who will know what those companies are eligible for, but smaller companies might not even be aware of what is available because they are too small to fill in the paperwork. They may need extra support to do so. Anything the Government could offer in that regard would be useful.
Lucy Frazer
That is a valuable point. I know in my constituency that small organisations got a variety of grants from the Arts Council and were able to access those reliefs, but I will discuss that point further with my officials. I thought the hon. Lady might want to intervene on the question of which constituency is the best in the country.
Lucy Frazer
I commend the clauses to the Committee.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clauses 18 to 22 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Alan Mak.)
Finance (No. 2) Bill (Second sitting)
Tuesday 14th December 2021
(2 years, 11 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)
The Financial Secretary to the Treasury (Lucy Frazer)
Clause 23 extends the time for payment of capital gains tax on property disposals from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. It will affect disposals that have a completion date on or after 27 October 2021. Since April 2020, UK resident persons disposing of UK residential property where capital gains tax is due have been required to notify and pay the tax within 30 days of their sale completing.
Most people are not affected by the requirement because the sale of main homes is exempt from capital gains tax through private residence relief. Non-UK resident persons have paid within 30 days since April 2015 for residential property and from April 2019 for disposals of both UK residential and non-residential property, even if they have no tax to pay. However, the Government recognise that having 30 days has not always allowed taxpayers enough time to settle their affairs. In recognition of that, the Government are extending the 30-day time limit to 60 days. The change was informed by taxpayer representations and comes in response to the Office of Tax Simplification report in May 2021, where increasing the time limit to 60 days was a key recommendation.
The measure allows taxpayers more time to produce and provide accurate figures, particularly in more complex cases, as well as sufficient time to engage with advisers. It also clarifies the rules for a UK resident person calculating the capital gains tax notionally chargeable for mixed-use properties. The changes made by clause 23 will, first, extend the time limit for capital gains tax payment on property disposals to 60 days following completion of the relevant disposal. Secondly, for UK residents, the changes clarify that when a gain arises in relation to a mixed-use property, only the portion of the gain that is the residential property gain is to be reported and paid within 60 days.
Increasing the time limit to 60 days will delay some revenue until later in the scorecard. That is because some capital gains tax payments will now be paid in a different tax year. The Office for Budget Responsibility expects the measure to move £80 million out of the scorecard to later years, with the majority incurred in 2021-22. The measure is expected to impact an estimated 75,000 individuals, trustees and personal representatives of deceased persons who sell or otherwise dispose of UK land and property each year.
In summary, those liable to pay capital gains tax will now have 60 days instead of 30 days to report and pay the tax due on UK land and property disposals. I commend the clause to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship, Sir Christopher. I want to say for the record that I believe Erith and Thamesmead is the best constituency. As the Minister has described, clause 23 relates to returns for the disposal of UK land. It extends the time limit for payment on property disposal from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. As the Minister has rightly pointed out, that will affect disposals with completion dates on or after 27 October 2021.
A reporting and payment period for selling or otherwise disposing of an interest in UK land was initially introduced to help reduce errors and increase compliance. The measure increased the time available for taxpayers to report their disposals. The increase intends to allow more time for taxpayers to produce and provide accurate figures, which will be particularly helpful in more complex cases, as well as assuring sufficient time to engage with advisers. The change also clarifies the calculation for the capital gains tax notionally chargeable for mixed-use properties.
We do not oppose the doubling of the time period for reporting and paying capital gains tax on UK property. However, we remain concerned about the lack of awareness surrounding the reporting and paying process. I would be grateful if the Minister could outline the measures the Government will take to help individuals selling properties to be aware of their obligations and what support the Government will offer individuals struggling to access the stand-alone digital system for reporting those transactions.
Lucy Frazer
I am grateful to the Labour Front-Bench team for not opposing the measure, which is indeed very sensible. Her Majesty’s Revenue and Customs regularly engages with all stakeholders and agents, who will therefore know about the change, but the hon. Lady makes an important point about communication, which we touched on this morning. I commend the clause to the Committee.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 24
Cross-border group relief
Question proposed, That the clause stand part of the Bill.
The Chair
With this, it will be convenient to discuss that schedule 4 be the Fourth schedule to the Bill.
Lucy Frazer
Clause 24 makes changes to abolish cross-border group relief to ensure that loss relief is limited to UK losses, thereby providing relief only for companies that the UK can tax. It also amends the rules restricting the amount of losses foreign companies with a UK branch can surrender to UK companies, bringing companies resident in the European economic area in line with companies resident in the rest of the world.
Cross-border group relief provides UK companies with the ability to claim relief for the losses of their EEA resident group companies, even though the UK is unable to tax any profit made by those companies. The UK cross-border relief rules were introduced in 2006, owing to a 2005 decision by the Court of Justice of the European Union that found the previous rules to be incompatible with the EU freedom of establishment principle.
Under the current system, the UK Exchequer bears the cost of giving relief to UK companies for losses of EEA companies, as the latter pay no tax to the UK Government. The rules for restricting surrender of losses of a UK branch of a foreign company were also amended to be more favourable to EEA companies as a result of CJEU judgments. Favourable treatment for losses of EEA companies or UK branches of EEA companies is not right, and is inconsistent with our approach to the rest of the world, especially now that the UK has left the EU and is no longer bound by EU law.
Clause 24 will principally affect large, widely-held corporate groups, and will ensure both equal treatment of losses of companies in EEA and non-EEA countries and protection for the UK Exchequer against unfair outcomes. Historically, group relief was available only for losses of UK companies or UK branches, so the abolition of cross-border group relief and the alignment of branch rules is a reversion to a previously accepted position. Other countries generally do not give cross-border loss relief, so abolishing it would be very much in line with the international mainstream.
In summary, the change will allow the UK to depart from this historic position and more effectively pursue its fiscal policy objectives. I therefore commend the clause to the Committee.
Abena Oppong-Asare
As we have heard, clause 24 concerns cross-border group relief and is accompanied by schedule 4. The clause and schedule repeal legislation that provides for group relief for losses incurred outside the UK and amend legislation that provides for group relief for losses incurred in the UK permanent establishment of an EEA resident company.
Following the UK’s exit from the EU, the Government are bringing group relief relating to EEA resident companies into line with relief for non-UK companies resident elsewhere in the world. Claims involving companies established in the EEA are currently subject to more favourable rules in the UK relating to relief for non-UK losses and losses incurred by the UK permanent establishment of a foreign company.
These rules were introduced to give effect to the UK’s obligations as a member state of the EU. Having left the EU, the UK is no longer required to maintain those rules, and it is inconsistent to treat groups with EEA resident companies more favourably than those with companies resident elsewhere in the world. The clause therefore removes that inequality by aligning group relief rules for all non-UK companies.
The changes to legislation made by the clause broadly restore the group relief rules to what they were before separate rules were introduced for EEA resident companies in line with EU law. We do not oppose this measure, as it rightly removes an inequality between companies and contributes towards a level playing field.
Lucy Frazer
I thank the hon. Lady for indicating her support for clause 24, and I commend it to the Committee.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Schedule 4 agreed to.
Clause 25
Tonnage tax
Question proposed, That the clause stand part of the Bill.
The Exchequer Secretary to the Treasury (Helen Whately)
It is a pleasure to serve under your chairmanship, Sir Christopher.
Clause 25 reforms the UK’s tonnage tax regime from April 2022, with the aim that more firms will base their headquarters in the UK, using the UK’s world-leading maritime services industry and flying the UK flag. The UK tonnage tax regime was introduced in 2000 to improve the competitiveness of the UK shipping industry. It is a special elective corporation tax regime for operators of qualifying ships. Now that the UK has left the European Union, the Government will make substantive reforms to the regime for the first time since it was introduced, to help the UK shipping industry grow and compete in the global market. The reforms will make it easier for shipping companies to move to the UK, make sure that they are not disadvantaged compared to firms operating in other countries and reduce administrative burdens.
Clause 25 will make changes to the tonnage tax legislation contained in schedule 22 to the Finance Act 2000 to reform the regime from April 2022. Specifically, it will give effect to the following measures announced at the autumn Budget in 2021. The Government will give HMRC more discretion to admit companies to the regime outside the initial window of opportunity, where there is a good reason. The Government will reduce the lock-in period for companies participating in the tonnage tax regime from 10 to eight years, aligning the regime more closely with shipping cycles.
Now that the UK has left the EU, the Government will remove the consideration of flags from EU and EEA countries. Following this legislative change, HMRC will update its guidance to encourage the use of the UK flag by making it an important factor in assessing the value that companies who want to participate in tonnage tax will bring to the UK in the strategic and commercial management test. Finally, following the UK’s departure from the EU, the Bill will simplify a rule that may include distributions of related overseas shipping companies in relevant shipping profits.
These changes to modernise the tonnage tax regime will make sure that the UK’s maritime and shipping industries can compete in the global shipping market, bringing jobs and investment to nations and regions across the UK. I commend the clause to the Committee.
Abena Oppong-Asare
I thank the Minister for her explanation of clause 25, which makes amendments to the tonnage tax regime. Tonnage tax is a special elective corporation tax regime open to operators of qualifying ships that fulfil certain conditions. The amendments will have effect from 1 April next year. At the autumn Budget in 2021, the Government announced that they would introduce a package of measures to reform the UK’s tonnage tax regime from April 2022, which they say aims to ensure that the British shipping industry remains highly competitive in the global market. As part of the package, the Government say these amendments support their aim of simplifying the operation of tonnage tax legislation and making it more flexible following the UK’s departure from the European Union. Clause 25 gives effect to some of these measures by amending the tonnage tax legislation contained in schedule 22 to the Finance Act 2000, as the Minister said.
In his Budget speech on 27 October, the Chancellor of the Exchequer said:
“When we were in the old EU system, ships in the tonnage tax regime were required to fly the flag of an EU state, but that does not make sense for an independent nation. So I can announce today that our tonnage tax will, for the first time ever, reward companies for adopting the UK’s merchant shipping flag, the red ensign. That is entirely fitting for a country with such a proud maritime history as ours.”—[Official Report, 27 October 2021; Vol. 702, c. 282.]
Alison Thewliss (Glasgow Central) (SNP)
I support the comments made by the Labour Front-Bench spokesperson on this issue. Switching flag is the most crazy kind of gesture politics. Would it not have been better to look at green shipping? That would create a tax incentive for the industry, which is one of the leading contributors to emissions, to transfer to better forms of power, to reduce its carbon emissions and to have some positive impact on global emissions and the net zero target, rather than pursuing the gesture politics of switching flags on a ship.
Helen Whately
As I set out, the clause reforms the UK’s current tax regime to help the UK shipping industry grow and compete in a competitive global market. Overall, this will be to the benefit of our maritime industry and, therefore, to the UK as a whole, supporting GDP, tax revenues and jobs in the UK.
I will pick up on a couple of comments made by the Opposition Front-Bench spokespeople. On the points made by the hon. Member for Erith and Thamesmead, the clause is all about helping our shipping industry compete in a global market and making sure firms are not disadvantaged compared to those operating in other countries. It comes at a minimal cost to the Exchequer and we expect to see tax revenues in the sector increase as a result, because it will mean that more shipping groups are likely to headquarter in the UK. That will bring tax advantages and benefits to the UK, as well as tens of thousands of jobs that relate to that.
On the second point that the hon. Member made, I emphasise that the Treasury takes the recommendations of the Macpherson review very seriously and follows them in full. The reforms to our tax regime were rightly announced some months before they will come into force, in April next year.
The hon. Member for Glasgow Central talked about environmental factors. As part of the reforms, HMRC expects to update the guidance on assessing eligibility for the tonnage tax regime, and environmental factors will be considered as part of that, so it can help us on decarbonisation actions and ambitions.
Abena Oppong-Asare
I thank the Minister for her explanations. Has an assessment been made of whether anyone profited as a result of the Chancellor’s premature announcement to the press? Has any assessment been carried out?
Helen Whately
I emphasise what I said a moment ago: the Treasury followed in full the approach that should be taken, as set out in the Macpherson review in 2013. The Government’s tonnage tax reforms will ensure that the UK’s maritime and shipping industries remain highly competitive and bolster our reputation as a great maritime nation.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Amendments of section 259GB of TIOPA 2010
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 26 makes a change to ensure that corporation tax rules for hybrids and other mismatches operate proportionately in relation to certain types of transparent entity. Following recommendations by the OECD, the UK was the first country to implement anti-hybrid rules in 2017. These rules tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how jurisdictions view financial instruments and entities.
With the benefit of three years’ experience of operating the rules, and with other countries following suit and introducing their own version of the rules, the Government launched a wide-ranging consultation on this area of legislation at Budget 2020. Following that consultation, several amendments were made to the rules in the Finance Act 2021, but the change that we are now considering, relating to transparent entities, was withdrawn from that Bill to allow the Government additional time to consult stakeholders, so that they could ensure that the amendment had no unintended conse-quences.
We have had further engagement with stakeholders, and the amendment now provides for the specific change for transparent entities that the Government committed to making following last year’s consultation. The change made by the clause is technical and will impact multinational groups with a UK presence that are involved in transactions with certain types of entity that are seen as transparent, for tax purposes, in their home jurisdictions. Following the changes, this type of entity will be treated in the same way as partnerships in the relevant parts of the rules for hybrids and other mismatches. It is important that these rules are robust in tackling international tax planning, but also that they are not disproportionately harsh in their application.
Abena Oppong-Asare
The Minister clarified what the clause does. We do not oppose the clause.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 29
Insurance contracts: change in accounting standards
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.
Lucy Frazer
Clause 29 introduces a power to lay regulations before Parliament in connection with the new international accountancy standard for insurance contracts, known as IFRS 17, introduced by the International Financing Reporting Standard Foundation. These regulations will allow the Government to spread the transitional impact of IFRS 17 for tax purposes, and to revoke the requirement for life insurers writing basic life assurance and general annuity business to spread their acquisition expenses over seven years for tax purposes. The corporation tax liabilities of insurers are based on their accounting profit. IFRS 17 will apply to companies that prepare their accounts under international accounting standards and is expected to become mandatory for accounting periods beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board.
Depending on the types of insurance business written, adoption of IFRS 17 will create a large, one-off transitional accounting profit or loss for many insurers. The Government expect that spreading these one-off transitional profits and losses for tax purposes will greatly reduce volatility in Exchequer receipts and should also help to mitigate the cash flow and regulatory impacts of the accounting change. This will support the long-term stability of the insurance sector in the UK and contribute to the UK maintaining its position as a leading financial services centre.
The adoption of IFRS 17 will also make it more complex for life insurers writing basic life assurance and general annuity business to undertake the necessary calculations to spread their acquisition expenses over seven years for tax purposes, as currently required. Additionally, commercial changes in the life insurance market mean that the need for this requirement has reduced in recent years. Removing it for all life insurers writing basic life assurance and general annuity business, and instead following accounting treatment for tax purposes, will be a welcome simplification. The details of the final legislation will be informed by a consultation that was published alongside the “Tax Administration and Maintenance” Command Paper on 30 November.
The clause will allow the Government to respond to the potentially large and one-off tax implications caused by the adoption of the new international standard for insurance contracts, IFRS 17. I therefore recommend that the clause and schedule 5 stand part of the Bill.
Abena Oppong-Asare
As we have heard, clause 29 sits alongside schedule 5 and refers to insurance contracts and changes in accounting standards. As the Minister has mentioned, the clause has an enabling power that will allow the Government to make provisions in secondary legislation in connection with international financial reporting standard 17, and to revoke the requirement for all life insurance companies to spread acquisition costs over seven years for tax purposes.
The corporation tax liabilities of insurers are based on their accounting profit, and many insurers prepare their accounts under international accounting standards. The new international accounting standard for insurance contracts, IFRS 17, is expected to become mandatory for periods of account beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board. IFRS 17 will affect the timing of recognition of insurers’ profits and losses, and its adoption will create transitional accounting profits or losses, which we understand may have significant regulatory consequences. We recognise that the Government will need powers to be able to deal with the tax implications of IFRS 17.
The removal of the requirement for all life insurance companies to spread their acquisition costs over seven years for tax purposes is a simplification that has been allowed by IFRS 17. We welcome the simplification of tax arrangements and do not oppose the clause, but can the Minister tell us what provision will be put in place for insurers, for whom the change in accounting standards could cause a transitional administrative burden?
Lucy Frazer
I thank the hon. Member for her question, but the whole purpose of the clause, which will allow costs to be spread over a number of years, is to make things easier for insurers. I am glad that she is satisfied that the clause is sensible, and I am very grateful for her support for this provision. I ask that the clause stand part of the Bill.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 30
Deductions allowance in connection with onerous or impaired leases
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 30 makes technical amendments to the corporate loss relief rules introduced in 2017. They ensure that the rules continue to operate as originally intended and that eligible companies can claim the relief to which they are entitled. When a company makes a loss, it can carry forward that loss and use it to offset its taxable profits in the future.
The Finance (No. 2) Act 2017 reformed the UK’s loss relief regime. The corporation tax loss rules restrict set-off for carried-forward losses for large companies. In general, this means that only 50% of the current-year profits above the deductions allowance of £5 million can be covered by carried-forward losses. The restriction does not apply to accounting profits stemming from lease renegotiations that are aimed at preserving a company’s ability to continue trading. The impact of covid and the associated restrictions on businesses has resulted in an increase in the restructuring and renegotiation of leases. The introduction of a new accounting standard has meant that the legislation needs amending to cover the change in accounting treatment for leases, as without that, the lease renegotiations providing companies with the opportunity to remain in business will result in a prohibitive tax charge, which may instead force them into insolvency.
Abena Oppong-Asare
Clause 30 concerns deductions allowance in connection with onerous or impaired leases. The clause amends sections of the Corporation Tax Act 2010 to ensure that the legislation continues to work as intended. It does so by continuing to provide an exemption from the loss reform rules for companies in connection with onerous or impaired leases in specific circumstances. As the Minister said, the measure enables such companies to obtain full relief for carried-forward losses that offset profits arising from lease renegotiations where they adopt international financial reporting standard 16.
Loss reform was introduced in section 18 of schedule 4 to the Finance Act 2017, and had effect from 1 April 2017. The reform made two main changes. It increased a company’s flexibility to offset carried-forward losses either against the company’s own total profits in latter periods or in form of a group relief in a later period. Additionally, it limited the amount of profit against which carried-forward losses can be set. Each group or a company that is not part of a group has an annual deductions allowance of £5 million in profit. Carried-forward losses can be set against that amount, which is restricted to a maximum of 50% of a company’s total profits for the period. The restriction to carried-forward losses was extended to include corporate capital losses with effect from 1 April 2020. Having reviewed the clause, the Opposition do not oppose it.
Lucy Frazer
I am grateful for the fact that the Opposition do not intend to oppose the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31
Provision in connection with the Dormant Assets Act 2022
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.
Lucy Frazer
The Committee will be disappointed to learn that this is probably the last clause that we will deal with today. It introduces schedule 6, which supports the expansion of the dormant assets scheme to a wider range of assets. The clause ensures that where an asset is transferred into the dormant asset scheme and an individual later makes a successful claim to the ownership of that asset, they are in the same position for capital gains tax purposes that they would have been in without the scheme.
The dormant asset scheme enables funds from dormant bank and building society accounts to be channelled towards social and environmental initiatives. The scheme allows dormant funds to be unlocked for good causes, while protecting the original asset owner’s legal right to reclaim the amount that would have been paid to them had a transfer into the scheme not occurred.
In 2021, following a consultation, the Government announced their intention to expand the scheme to include assets from the pensions, insurance, investments and securities sectors. The process of transferring the assets into the scheme could, in certain cases, qualify as a disposal for CGT purposes, resulting in neither a gain nor a loss. As the asset owner cannot be located and does not know that the transfer has occurred, it is not appropriate or feasible for the tax to be paid by the individual at the point of transfer to the scheme, or for a notice of a loss to be made. The change made by the scheme addresses that by ensuring that a CGT charge arises only where a person comes forward to claim the asset. That ensures that the individual remains in the same position for tax purposes that they would have been in had the asset not been transferred into the dormant asset scheme.
Where the asset had previously been held in an individual savings account, changes made by the schedule ensure that no income or CGT arises when the asset is reclaimed. That ensures that savers in ISAs are not disadvantaged by their accounts being transferred into the scheme. The scheme also updates references in the existing legislation to ensure that it reflects the widest scheme created by the Dormant Assets Bill.
The schedule will commence only on the making of a Treasury order, because the Dormant Assets Bill is not yet law. The intention is to lay the necessary commencement order before Parliament when that Bill becomes law. For that reason, the schedule contains time-limited powers that allow the Treasury to make changes by secondary legislation if changes to the Dormant Assets Bill result in additional tax issues. The Government believe that the provisions strike the right balance between supporting good causes and taxpayer fairness.
Abena Oppong-Asare
As we have heard, clause 31 and schedule 6 concern the Dormant Assets Bill. The changes broadly ensure that individuals remain in the same position for tax purposes as they would have done had the assets not been transferred into the dormant assets scheme. Overall, we do not oppose the measure, but we are aware that the Chartered Institute of Taxation has concerns about the availability of accessible guidance to those making a claim under the dormant assets scheme who may be unaware of the tax consequences of their actions. Will the Minister clarify when guidance will be issued?
Lucy Frazer
I am grateful for the hon. Member’s indication that the Opposition will not oppose this measure. HMRC does generally provide guidance, and I am very happy to update the hon. Member on any guidance on this issue.
Question put and agreed to.
Clause 31 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
The Chair
I wish all Members a merry Christmas and a happy and healthy new year, and I extend that to the Clerks and officials and everybody involved with the Bill.
Ordered, That further consideration be now adjourned—(Alan Mak.)
Finance (No. 2) Bill (Third sitting)
Wednesday 5th January 2022
(2 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 5 January 2022 - (5 Jan 2022)
The Chair
We are now sitting in public and the proceedings are being broadcast. I have a few preliminary announcements, the first of which is to wish everybody on the Committee a very happy new year—[Hon. Members: “Happy new year!] I hope that you have had a decent rest that will put you all in fine spirits for at least the rest of today.
I remind Members that they are expected to wear a face covering except when speaking or if they are exempt, in line with the recommendations of the House of Commons Commission. Please also give each other and members of staff space when seated, and when entering and leaving the room. I remind Members that they are asked by the House to have a covid lateral flow test twice a week if coming on to the parliamentary estate, which can be done either at the testing centre in the House or at home. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. As I am sure you all know by now, tea and coffee are not allowed during sittings.
Any decisions on new clauses that have been debated with related clauses are taken formally after consideration of the Bill in the order that they appear on the amendment paper. It is helpful to the Chair if Members indicate at the end of those debates whether they expect or want to vote on any such new clause when the appropriate time comes.
Clause 32
Introduction
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 33 stand part.
Clause 52 stand part.
New clause 3—Review of impact of Residential property developer tax on the tax gap—
“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of Part 2 of this Act (Residential property developer tax) on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance.”
This new clause would require a Government assessment of the impact of the Residential Property Developer Tax introduced in this Bill, and of its effect on opportunities for tax evasion and avoidance.
New clause 18—Review of the residential property developer tax—
“(1) The Government must publish a review of the residential property developer tax within three months of the end of the first year of it applying.
(2) The review under subsection (1) must be updated annually, within three months of the end of each subsequent year that the residential property developer tax applies.
(3) The review under subsection (1), updated as set out in subsection (2), must assess—
(a) how much the RPDT has raised in each year of its operation so far;
(b) how much it is estimated that RPDT would have raised at a level of—
(i) 6%,
(ii) 8%, and
(iii) 10%; and
(c) any wider effects of setting the RPDT at the levels set out in subsection (3)(b).”
This new clause would require the Government to review the RPDT each year in order to assess the revenue it has raised and also what revenue it would raise, and the other wider effects it would have, at certain higher levels.
The Financial Secretary to the Treasury (Lucy Frazer)
It is a pleasure to serve under your chairmanship, Dame Angela. Like you, I wish all members of the Committee a happy new year. As the Committee will know, the Government are determined to bring an end to unsafe cladding, to reassure homeowners and to support confidence in the housing market. As part of the building safety package announced in February 2021, we are introducing a new residential property developer tax, which will raise at least £2 billion over the next decade to help to pay for building safety remediation.
As announced on 10 February 2021 by the previous Secretary of State for Housing, Communities and Local Government, my right hon. Friend the Member for Newark (Robert Jenrick), the RPDT is one of two new revenue-raising measures that will ensure that developers make a fair contribution to the costs of remediation. Clauses 32 and 33 introduce a new residential property developer tax to be charged at a rate of 4% on the profits of businesses carrying out residential property development activity that exceed its allowance for an accounting period. The clauses confirm that the RPDT is charged as if it were an amount of UK corporation tax.
Clause 52 is an anti-avoidance provision, which prevents taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage. The clause will apply where trading profits derived from residential property development activities arise in the accounting period ending before the commencement of RPDT, and arose only because of arrangements made on or after 29 April 2021.
New clause 3, tabled by the hon. Member for Glasgow Central, seeks to require the Government to publish an assessment of the impact of RPDT on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance. As the RPDT has been designed to be aligned with UK corporation tax, the existing corporation tax compliance mechanisms, such as inquiries, information powers and penalties, will apply to RPDT, as well as anti-avoidance rules including transfer pricing and the general anti-abuse rule.
Her Majesty’s Revenue and Customs regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. HMRC will assess the impact of RPDT on the tax gap in its annual “Measuring tax gaps” reports, and will monitor RPDT revenue in its annual tax receipts statistical publications. The Government also carefully assessed the impacts of RPDT throughout the consultation period and published a detailed impact assessment of RPDT at the autumn Budget. For those reasons, I believe that a further impact assessment is not appropriate, and I therefore ask the Committee to reject the new clause.
New clause 18, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, seeks to require the publication of an annual review of the tax, including the revenue raised, the estimated yield that would have been raised had the tax been set at various differential rates—6%, 8% and 10%—and the wider effects of the higher rates. HMRC regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. The revenue raised from RPDT will be published in HMRC’s annual tax receipts statistics publications.
The RPDT rate was carefully considered in the context of the upcoming increase in the main rate of corporation tax in 2023, other taxes and forthcoming regulatory changes, as well as the wider macroeconomic environment. The 4% rate of RPDT balances the need to raise £2 billion over a decade—at the same time as seeking a fair contribution from the residential property development sector—against the need to ensure that the tax does not have a significant impact on housing supply. The Government monitor the tax system continuously and will keep the tax under review. For those reasons, I believe that a further annual review of RPDT is not appropriate, and I therefore ask the Committee to reject new clause 18.
In conclusion, the clauses in this group form the first part of the legislation needed to introduce RPDT in April 2022 and the necessary anti-avoidance provisions. I therefore recommend that the clauses stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on a second Finance Bill Committee under your chairship, Dame Angela.
I will address the clauses that the Minister set out in her remarks, starting with clause 32, which notes that the new residential property developer tax will be applicable from 1 April 2022, as announced at the spring Budget of 2021. As we have heard, this is a new, time-limited tax on the profits of residential property development companies’ property development activity, with a rate of 4% over a £25 million allowance. The Government estimate that it will generate £2 billion over the course of a decade, and they said that the funds are earmarked to help with cladding remediation costs, according to the former Secretary of State for Housing, the right hon. Member for Newark (Robert Jenrick), who spoke to the Building Safety Bill in February 2021. The explanatory note for the clause states that the tax is to
“ensure that the largest developers make a fair contribution to help fund the Government’s cladding remediation costs.”
We support the principle behind the new tax, but I intend to use this Committee sitting to question the Ministers on the detail of its design and to probe their views on its place in the Government’s wider response to the cladding scandal. We know that the Bill has been consulted on, but we also note stakeholders’ disappointment that the consultation process was truncated, as stage 1 —setting out objectives and identifying options—was cancelled. Although we recognise the importance of moving quickly to raise revenue in order to help meet the costs of remediating unsafe cladding on buildings, it is disappointing that the Government were not able to conduct a thorough consultation.
Clause 33 sets the rate of the RPDT charge at 4% on profits that exceed the allowance of £25 million. The tax is charged as if it were an amount of corporation tax chargeable on the developer. As I mentioned earlier, the Government expect that £2 billion of revenue will be generated while the tax is in effect, so I will ask the Minister several questions in order to try to clarify the reasoning behind some of the Government’s decisions on the detail of the tax. First, we note that the tax does not come with a sunset clause, and therefore active legislation will be required to repeal it when it comes to an end. Will the Minister explain the reasoning behind that decision? If the tax is intended to be time-limited, why have the Government have chosen to leave it in need of active repeal, rather than simply adding a sunset clause?
Secondly, I mentioned that the expected revenue from the tax is £2 billion. We know, however, that that is just a fraction of the total cost of remediating unsafe cladding, which was estimated by the then Housing, Communities and Local Government Committee in April 2021 to be about £15 billion. What is more, labour and material shortages have significantly driven up the cost of construction. That is thought to add £1.2 billion to the overall cost of remediation, wiping out most of any gain from this tax. With the cost of cladding remediation already thought to be so much greater than the amount that the tax is expected to raise, and with that gap likely only to increase, will the Minister try to explain further why the rate was set at 4%? Will she confirm whether, if the amount raised should fall short of £2 billion or if costs should increase substantially, the Government would be open to considering raising the level of the tax?
It was in pursuit of an answer to that question that we tabled new clause 18, which would require the Government to publish a review of the residential property developer tax within three months of the end of the first year of it applying, and thereafter annually, within three months of the end of each subsequent year that the tax applies. The review, as updated, must assess how much the RPDT has raised in each year of its operation so far and how much it is estimated that it would have raised at levels of 6%, 8% and 10%.
As I mentioned, the cost of remediating unsafe cladding was estimated last year to be about £15 billion, and the cost of labour and materials has increased due to supply chain crises. Industry experts have estimated an 8% increase in the cost of cladding jobs, compared with last year. As I mentioned, that could increase the total cost by £1.2 billion. As I said, this tax aims to raise £2 billion, which is just a fraction of the total cost and much of which, it seems, will be wiped out by rising costs.
We have therefore tabled this new clause to ask the Government to assess how much they could raise through the tax and how much they could raise with different rates. Given the significant discrepancy between the estimated revenue raised by the RPDT and the estimated cost of remediation, will the Minister set out in further detail, when she responds, exactly how the rate of 4% was reached and what specific consideration was given to alternatives? It was with that in mind that we tabled the new clause. We will not seek to put it to a vote, but we hope that it will help us to debate and probe the important and central issue of the rate at which the RPDT has been set.
In summary, I will be grateful if, in her reply, the Minister could set out exactly how the figure of 4% was arrived at and, furthermore, how she expects the rest of the cost of cladding remediation to be met. I would be grateful if she could set out, either in her reply now or in writing, what other sources of funding she anticipates being used to meet the total cost of cladding remediation.
Finally in relation to this group, I will briefly mention clause 52, which is an anti-avoidance provision preventing taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage for the purposes of this tax. We welcome the intent behind that clause and will not oppose it.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairmanship, Dame Angela. I rise to speak to new clause 3, in the name of my hon. Friend the Member for Glasgow Central. As the Minister outlined, this new clause would require a Government assessment of the impact of the residential property developer tax being introduced by the Bill and of its effect on opportunities for tax evasion and avoidance.
We are all familiar with what this tax sets out to achieve and those on whom it should fall. There is a £25 million annual allowance for construction firms, and the tax will be levied above that at 4%. That does not take a great deal of time to say, but unfortunately, giving it effect requires 16 pages and a further eight pages across two schedules in the Bill and a great many more pages in the explanatory notes to say exactly how it will work in practice. Therefore, the opportunity for genuine confusion, for interpretation and, sadly, for evasion and avoidance is certainly a real and present danger in the legislation.
The anticipated impacts are set out in table 5.1 of the “Autumn Budget and Spending Review 2021”. We are not talking huge sums from this tax, but given its stated purpose and the means to which the revenues are going to be put, I think that reviewing its impact—not just in a financial sense, but in the sense of the unintended consequences that it could have and the havoc that it could wreak in terms of confusion, differences of interpretation, and avoidance and evasion—seems to be an eminently reasonable thing to do. I urge the Minister to reconsider how the Government intend to tackle that once the tax is implemented.
Lucy Frazer
I very much welcome the initial comments of the hon. Member for Ealing North, and that he welcomes the points in principle. That is important, given that we are trying to help those people who have suffered a terrible tragedy and ensure that we have the necessary funds to remedy the situation. He asked several questions, the first of which related to consultation. I reassure him that the Government undertook extensive stakeholder engagement as part of the 12-week consultation —holding 40 consultative meetings—to help ensure that the issues raised in the consultation about the design and impact were considered fully.
The hon. Gentleman also mentioned a sunset clause. We have been clear that this is a measure to raise £2 billion-worth of revenue by way of tax, and that it will be time limited and will be repealed once sufficient revenue has been raised. As with all other taxes, the Government will keep this tax under review.
The hon. Gentleman asked whether the 4% rate was sufficient. However, at the same time, he also mentioned the supply chain issues that might mean that the cost of construction has gone up. It is, of course, important to ensure that what we ask from developers is fair, in order to ensure that their businesses remain viable and sustainable at the same time as contributing to this issue. The rate was carefully considered in the context of the upcoming increase in corporation tax, other taxes, the regulatory changes and the wider macroeconomic environment. We feel that 4% represents the right balance, raising the £2 billion over a decade while being fair and not having an impact on housing supply. The hon. Gentleman asked how we came to this rate; we considered it very carefully and decided on 4%.
James Murray
For the sake of clarity, I would be grateful if the Minister could help my understanding. She said that the tax was intended to raise £2 billion over 10 years, but she may have implied that if it has not raised £2 billion over 10 years, it would keep applying until £2 billion was raised. Is it for 10 years, or is it for £2 billion? The Government will not necessarily raise £2 billion over exactly 10 years; one has to come before the other. Is it going to be for 10 years and then finish—no matter what it has raised—or will it keep going until it has raised £2 billion?
Lucy Frazer
The Government have made clear that they propose to raise £2 billion from this tax. They have done extensive analysis as to what the appropriate rate is to recover that amount. At a rate of 4%, we anticipate that we will raise that £2 billion—in fact, slightly more than that—in 10 years, and that is when the tax will come to an end.
I will address the points made by the hon. Member for Gordon, because he rightly raised an important point about tax avoidance. It is HMRC’s duty to ensure that we do not have tax avoidance and evasion. However, I reassure him that the existing corporation tax compliance mechanisms that currently exist—which include inquiries, information powers and penalties—will apply to this tax, as well as anti-avoidance rules, including transfer pricing and the general anti-abuse rule. He did not specifically raise any particular measures that he thought would be anti-avoidance or abuse—if there are any, I would be very interested to hear them in due course and discuss that with him.
For those reasons, we ask the Committee to reject the two new clauses and to agree that clauses 32 and 33 stand part.
Question put and agreed to.
Clause 32 accordingly ordered to stand part of the Bill.
Clause 33 ordered to stand part of the Bill.
The Chair
The decision on clause 52 stand part and any decisions on new clauses 3 and 18 will be dealt with later in our proceedings, though I note that the Labour Front-Bench spokesman indicated that Labour will not push new clause 18 to a Division.
Clause 34
Meaning of “residential property developer”
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clauses 35 to 38 and 47 to 49 stand part.
That schedule 9 be the Ninth schedule to the Bill.
Clauses 50 and 51 stand part.
Lucy Frazer
Clauses 34 to 38 set out key definitions for the residential property developer tax, which collectively set out the conditions that need to be satisfied for a business to be in scope of the tax. Clauses 47 to 51 and schedule 9 address a mix of aims within the tax, including the definition of a group, excluding a deduction for the tax when calculating profits or losses for other tax purposes, and the application of transfer pricing principles for the purpose of the residential property developer tax.
Clause 34 defines a residential property developer, and confirms that to be in scope of the RPDT, a business must be a company that undertakes residential property development activities as further defined in clause 35. Clause 34 provides an exclusion for non-profit housing companies and their wholly owned subsidiary companies from being treated as residential property developers for the purposes of the RPDT. The clause defines a non-profit housing company by reference to existing legislation, and a power has been taken that allows the definition to be updated in future in line with any changes to regulatory frameworks.
Clause 35 provides a non-exhaustive list of what amounts to residential property development activities, and confirms that profits from these activities undertaken by the developer on or in connection with UK land in which it has an interest will form the tax base.
Clause 36 explains that a residential property developer or a related company will have an interest in the land for the purposes of the tax where it has an interest in or over the land that forms part of its trading stock used in its development trade. It explains the tax’s application to related companies and joint venture companies.
Clause 37 provides a definition of residential property and sets out the types of properties that will not be regarded as residential property. The clause excludes certain types of buildings from the definition of residential property, so that any profits or losses from their development are not taken into account when computing profits that are subject to the tax. These include, typically, specialised institutions that provide temporary or longer-term accommodation for a specific class of residents, and buildings that are occupied purely under licence to occupants who do not hold any lasting rights over the property. Finally, the clause sets out the criteria to be met in relation to buildings that are excluded from the definition of residential property as student accommodation. Clause 38 sets out the formula used to calculate the residential profits or losses from residential property development activity by a developer for an accounting period.
Clause 47 introduces an exit charge that applies when a non-profit housing company ceases to meet the conditions to be exempt from the RPDT, and sets out the operation of the exit charge. This rule has been welcomed by the non-profit sector.
Clause 48 provides the definition of a group of companies for the purposes of the RPDT, other than for the group relief rules in schedule 7. Since a group of companies is entitled to a single £25 million allowance, it is important to set out clearly what constitutes a group for that purpose.
Clause 49 introduces schedule 9, which introduces a rule preventing a residential property developer from obtaining any deduction for the tax when calculating any profits or losses for income tax or corporation tax purposes. Clause 50 sets out where the meaning of various terms used in the RPDT legislation can be found.
Clause 51 confirms that the RPDT will apply for an accounting period for UK corporation tax purposes of a developer that ends on or after 1 April 2022. It sets out the treatment of accounting periods that straddle the commencement date of 1 April 2022. The RPDT will be chargeable only in respect of profits calculated from 1 April 2022 to the end of the accounting period, with an apportionment being made of the profits for the whole accounting period on a time basis.
In summary, this group of clauses defines key terms needed for the RPDT to work and provides the essential framework for the administration of the tax. The clauses will be supported by guidance to provide further clarity for taxpayers.
James Murray
As we have heard, clauses 34 to 38 concern the key concepts contained in the RPDT legislation. Clause 34 sets the basic conditions that, when satisfied, mean that a company is to be designated as a residential property developer, potentially within the charge of the RPDT. Subsection (1) defines an RP developer as either a company that undertakes residential property development activities or one that holds
“a substantial interest in a relevant joint venture company.”
The company’s interest in such a joint venture is aggregated with those of other members of the same group to determine whether that is a substantial interest.
Subsection (3) clarifies that a non-profit housing association or organisation is not treated as an RP developer for the purposes of the tax. That is a very important distinction that we support. My colleagues in the shadow housing team pressed the Government on that point during Committee stage of the Building Safety Bill, and I welcome that being reflected in this Bill.
Subsection (4) is a logical extension of subsection (3), determining that wholly owned subsidiary companies of non-profit housing companies are also excluded from being treated as RP developers for the purposes of the tax. It makes sense to exclude non-profit housing associations from RPDT, particularly given that they have already made a much more substantial contribution to cladding remediation than private developers. Research by the National Housing Federation in October 2021 found that private developers and cladding manufacturers had allocated £643 million of future profits to remediate unsafe cladding, while non-profit housing associations have estimated that their remediations will cost in excess of £10 billion.
Subsection (5) allows the Treasury to amend the definition of a non-profit housing company by regulation, and to make any consequential changes to this part of the legislation. As we have heard, that allows the definition to be updated, in line with any changes to the regulatory framework for registered social housing providers. It may be understandable that the Government want to be able to adjust definitions to match any changes in the way that social housing providers operate, as well as to recognise the impact of any changes to the regulatory framework. However, so that we can better understand the Government’s concerns, I would be grateful if the Minister could indicate why it may be necessary to amend the definition of a non-profit housing company.
Clause 35 sets out the criteria and definitions of residential property development activities for the purposes of the tax, as well as setting the territorial scope of the legislation. Subsection (1) brings within scope anything that is done by an RP developer or in connection with land in the United Kingdom for the purposes of the development of a residential property. A developer must have an interest in the land at some point for the activity there to be RP developer activity for the purposes of the tax. Land in that respect is taken to include buildings or structures on a piece of land. The requirement for an interest in land means that profits from similar activities undertaken by companies acting purely as third-party contractors, who are not RP developers, do not come within the charge of the tax.
Clause 36 raises an important question about who the RPDT applies to. Subsection (1) sets out the definition of an interest in land for the purposes of the tax. Broadly, it sets out that, when an RP developer has an interest in land, it must have
“an estate, interest, right or power in or over the land”.
That estate, interest, right or power must form
“part of the RP developer’s, or the related company’s, trading stock”.
Subsection (4) elaborates what “trading stock” refers to and makes clear the importance of an estate, interest, right or power in or over land being disposed of. It is the point about disposal that I would like to probe further. Discussions with Clerks about whether new clause 19 was selectable drew out the fact that the residential property developer tax is aimed at developers that do development work in order to trade property once the work has been done. It seems clear to me that the RPDT would apply in the case of a developer who builds homes and sells their freehold interest once the development is complete, but what happens when the developer retains some sort of interest for a specific period of time, or indefinitely?
Alison Thewliss (Glasgow Central) (SNP)
A happy new year to you, Dame Angela, and to all colleagues.
I have just a few queries about these clauses. First, I want to touch on the issues relating to exempting registered social landlords. During the consultation, the Scottish Federation of Housing Associations asked the Government to exempt all non-profit housing providers and wholly owned subsidiary companies. It highlighted the social housing sector’s concerns that developers would look to pass on costs where properties are purchased off the shelf, as it were, rather than housing associations doing it themselves, and it was very pleased that it had that exemption as part of the rules that the Government are introducing. That is very welcome, and I am glad that has been the case.
A “registered social landlord” is defined in clause 34(4)(b), and paragraph (c) refers to the Housing (Scotland) Act 2010. Does the Minister intend to keep in touch with the Scottish Government should there be any further changes to Scottish legislation that might be impacted by the Bill? The definition of a registered social landlord in Scotland is slightly different from that in England. An RSL is not allowed to be for-profit in Scotland, and that is very clear in the legislation. I understand that on the English register there are 1,625 providers of registered social housing, 60 of which are classed as for-profit.
Out of curiosity, has the Minister or her colleagues had any discussions with the for-profit organisations? Looking at some of the names, I think that some of the people they seek to provide housing for appear to be reasonably laudable causes—people we would wish to support—even though it is through for-profit social housing. I am curious about what the impact might be on the sector as a result.
On clause 34(5) and the point made by the hon. Member for Ealing North, it is important that a lot of the measures are going to secondary legislation and we will lose sight of any future changes that the Government make to the definitions of non-profit and any other definitions that they seek to make. How does the Minister intend to report that back to the House in a way that allows Members to ensure that there will be no unintended consequences from things that happen once the Bill leaves Committee?
On the definitions of residential property in clause 37 and the exemptions in subsection (2), I was interested to see that student accommodation is a part of this. In many respects I agree with student accommodation being exempted, particularly accommodation run by universities themselves for no profit. Universities looking not to make a profit but simply to make the accommodation pay for itself are very different from the rapacious student accommodation providers that seek deliberately to make profits from students. Some of the fees that they can charge and the developments that they create are sizeable.
There are huge accommodation providers in Glasgow Central. They have a worthy goal in providing accommodation for students, but students have to pay through the nose for it and they are not quite in the same classes of accommodation. What conversations has the Minister had with student accommodation providers, both those working on a non-profit basis and those working on a commercial basis? It is clear that there are implications from cladding on student accommodation. Unite was mentioned in the press as having in its portfolio 22 high-rise buildings that are affected by cladding. I understand that it is meeting the cost of removing the cladding but, as I say, it is a profitable business in many respects. What more can the Government tell me about their conversations on that?
My other points were covered by the hon. Member for Ealing North, but I have one final point about the preparedness of HMRC to implement the significant and complex new tax. My hon. Friend the Member for Gordon mentioned the complexity. When legislation starts to get into equations, we are talking about something that is quite complicated, especially when we look at the detail in the clauses and the schedules that follow them. What preparations is HMRC meant to be making for this? HMRC has had a busy couple of years, given all the things it has had to do as a result of coronavirus. A lot of that was done at pace, with other stuff put to the side, and I wonder whether this might be one thing that was put to the side while HMRC dealt with coronavirus.
It is clear from some of the press coverage of the coronavirus schemes that HMRC did not have the staff to check up on where the money was going, and that it has been trying to claw back some of that money without the staff complement to do that properly and fully. I would like to know from the Minister the size of the team that has been working on this and what more needs to be done to ensure that this goes smoothly in April 2022.
Lucy Frazer
There are quite a lot of points to address. I will deal with those that are easy to deal with orally, and I will get back to the hon. Member for Ealing North in writing on some of the more detailed points he raised. I am very grateful to him and to the hon. Member for Glasgow Central for welcoming our decision on affordable housing and the not-for-profit sector. We had obviously thought about that very carefully. I think it is the right decision, and I am pleased that it has cross-party support. I welcome, as does the hon. Member for Ealing North, the work that has already been done to reduce cladding by that sector.
The hon. Member for Ealing North asked why we will not extend the definition beyond that to not-for-profit providers. It is because this measure relates to a charge when people have made a significant profit of more than £25 million. He also asked why we need flexibility to come back, by way of regulation, and change the definitions. The definitions are based on legislation from the devolved Administrations, and if those definitions change, we need the flexibility to change them here as well.
The hon. Gentleman also asked about different scenarios for disposals of land. He will know that, when coming up with this policy, we thought carefully about what should and should not fall within it, and what was right to fall within it. We excluded build-to-rent because it is a very different sector in which profits are earned in a different manner at a different time. It was not comparable to the build-to-sell sector. He posited a number of scenarios in which commercial entities might change their activities in order not to pay this charge over the period of time but may ultimately sell properties in due course. We of course considered the possibility that people might change arrangements in order not to pay the tax, but we took the view, having discussed the issue, that significant change in commercial behaviour or business models in order simply to avoid the tax would be unlikely. I will get back to him on some of his specific points.
The hon. Gentleman also made a point about student accommodation, which I will answer from a broad perspective. Those who build properties and are able to pay the levy, because they have an income of more than £25 million, are subject to the tax. It is on house sales of a particular kind, where the purpose of the sale is essentially a sale of a property but it so happens that some other services are provided at the same time. It is essentially competing with the build-to-sell sector, which is why it is included in the legislation.
The hon. Member for Glasgow Central asked whether we would keep in touch with the Scottish Government, which we of course will and are very happy to. She asked what happens when people provide good services, for example in the affordable housing sector, but are profit making. I want to reiterate that the levy will catch significant property developers earning in excess of £25 million—it is that type of company that will be caught by the levy. We will of course keep everything under review, and the same point relates to the point that the hon. Member for Glasgow Central made about student accommodation. This is about big providers that are selling property to individuals, rather than renting the accommodation in short order.
I am really pleased that the hon. Member for Glasgow Central recognised the successful work that HMRC has done over the course of the pandemic in pretty short order. The furlough scheme and all the grants have largely been administered by HMRC, and it has done a tremendous job, delivering at pace. She is right to point out that HMRC has been stretched at times and that there is a significant amount of work coming its way in due course with the social care levy, but I want to reassure her that it is fully aware that this legislation is coming down the path and that it will be ready to deliver. For those reasons, I commend the clauses to the Committee.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clauses 35 to 38 ordered to stand part of the Bill.
The Chair
The decisions on clauses 47 to 49, schedule 9 and clauses 50 and 51 will be dealt with later in our proceedings.
Clause 39
Adjusted trading profits and losses
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
Clauses 40 and 41 stand part.
That schedule 7 be the Seventh schedule to the Bill.
Clause 42 stand part.
Lucy Frazer
Clauses 39 to 42 set out how to calculate the tax base for the purposes of RPDT for an accounting period. Clause 39 sets out what adjustments are made to the UK corporation tax trading profits or losses to arrive at the adjusted trading profits or losses of a residential property developer for the purposes of RPDT. The clause provides that any apportionment of in-scope activity and other activities are to be made on a just and reasonable basis. The clause also provides for an exclusion for any trading profits from residential property development activities that are carried out by a company for charitable purposes.
Clause 40 sets out how any joint venture profits or losses attributable to a developer are determined for the purposes of calculating RPDT profits or losses. The clause confirms the criteria for a relevant joint venture company to fall within the charge to RPDT and how the joint venture profits or losses will be attributed to the developer.
Clause 41 introduces parts 1 to 4 of schedule 7, which make provisions for loss relief and group relief for the purposes of RPDT. As they largely replicate the rules that apply generally for corporation tax, I do not propose to spend long taking the Committee through them. Part 1 of schedule 7 allows any unrelieved RPDT loss to be carried forward against RPDT profits in the next accounting period. Parts 2 to 4 of schedule 7 apply equivalent rules for UK corporation tax group relief for the purposes of RPDT.
Clause 42 restricts the amount of a carried forward loss that can be set against profits of a later period for the purposes of RPDT. This ensures that carried forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%, in line with the treatment of carried forward losses under UK corporation tax.
In summary, these clauses and the schedule set out important mechanics for the calculation of the base of the tax, and I therefore recommend that they stand part of the Bill.
James Murray
As we have heard, clause 39 concerns adjusted trading profits and losses relating to the calculation of the RPDT charge. Subsection (2) lists the circumstances in which trading profit and loss can be ignored in the calculation of the charge. These are those profits, losses, and any allowances or charges under the Capital Allowances Act 2001 that do not relate to residential property development activity, corporation tax loss relief, and group relief, and any amounts that are taken into account in calculating trading income by the operation of the loan relationship and the derivative contracts rules.
Also, any trading profits from residential property development activities that are carried out by a charitable company and apply for the purposes of the charitable company are ignored. Furthermore, we can see that in subsection (3) there is provision whereby corporation tax profits, losses or capital allowances and charges that relate to both the company’s residential property development activity and any other activities may be apportioned between the RP developer activities and other activities on a just and reasonable basis.
Clause 40 focuses on attributable joint venture profits and losses. The clause sets out how an amount a joint venture profits or losses attributable to a developer is determined for the purposes of calculating RP developer profits or losses under clause 38 for the purposes of this tax. The clause confirms the criteria for a relevant joint venture company to fall within the charge of this tax. Notably, we see that where there are five or fewer persons who between them own at least 75% shareholding, the holdings of members of the group are to be aggregated and treated as one holding.
Clause 41 introduces schedule 7 and relates to RPDT reliefs where provision is made for loss relief and group relief for the purposes of RPDT. Part 1 of schedule 7 clarifies that an unrelieved RPDT loss is to be carried forward against RPDT profits in the next accounting period, but its use is subject to the restriction to setting off against 50% of the profits of any future accounting period, as provided for by clause 42, which I shall refer to shortly. Part 2 concerns RPDT group relief, which is comparable to corporate tax group relief that has been set out specifically for the purposes of the tax under discussion today. Part 3 is similar, in that it applies the principles of carried-forward group relief from corporation tax to the RPDT.
Relatedly, we see clause 42 impose a restriction on the use of carried-forward losses for the purposes of the RPDT. That ensures that carried-forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%. That corresponds to the treatment of carried-forward losses for the purposes of corporation tax on trading profits. We will not be opposing the clauses or the schedule.
Lucy Frazer
I am grateful for the indication that there will be no opposition, so I ask that the clauses stand part of the Bill.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clauses 40 and 41 ordered to stand part of the Bill.
Schedule 7 agreed to.
Clause 42 ordered to stand part of the Bill.
Clause 43
Allowance
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clauses 43 and 44 provide for the operation of the annual allowance. The RPDT will be charged on the profits that exceed a residential property developer’s £25 million annual allowance. Clause 43 provides for the operation of the £25 million annual allowance that is available to each group of companies before profits become chargeable to RPDT. A power is included that allows HMRC to set the process for a group of companies to allocate its allowance in secondary legislation.
Clause 44 provides for the calculation of the annual allowance for the RPDT where the profits of a member of a joint venture company are not chargeable to UK corporation tax. It provides for the allowance of a JV company to be reduced and for the exempt member to instead have an annual allowance that can be allocated to its joint venture interests. Although the rule may seem complicated at first glance, it will ensure that where a non-taxable investor, such as a pension fund, has interests in several joint ventures, those joint venture companies do not benefit from multiple allowances. In summary, clauses 43 and 44 ensure that RPDT is proportionate, administrable and targeted at the largest developers.
James Murray
As the Minister has described, clause 43 relates to allowances and provides for the operation of the allowance that is deducted from profits chargeable under the RPDT. Under clause 43, the £25 million allowance is adjusted pro rata when an accounting period is less than a year. Within a group of developers, the allowance can also be allocated between member companies at the direction of an allocating member. In the absence of an allocating member, the allowance is to be evenly split between the total number of members.
Clause 44 applies a similar principle to joint venture companies and sets out the terms of allowance within the RPDT. Critically, where a member of a joint venture company is outside the scope of corporation tax because it is an offshore entity, a sovereign immune entity or an institutional investor, the allowance afforded to the joint venture company is reduced in proportion to the percentage competition of members that are outside its scope. We support the principle of removing unfair tax advantages and maintaining fair competition in the market, and therefore we will not oppose the clauses.
Lucy Frazer
Again, I am very grateful for that indication. I commend the clauses to the Committee.
Question put and agreed to.
Clause 43 accordingly ordered to stand part of the Bill.
Clause 44 ordered to stand part of the Bill.
Clause 45
Application of corporation tax provisions and management of RPDT
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 8 be the Eighth schedule to the Bill.
Lucy Frazer
Clause 45 and schedule 8 provide for RPDT to be treated for administrative purposes as an amount of UK corporation tax. Clause 45 outlines the framework within which RPDT will operate and makes necessary amendments to existing administrative legislation to accommodate RPDT. It also introduces schedule 8, which makes further provisions about the management of RPDT, including setting out the circumstances in which a company will not be required to report its RPDT profits, which will reduce any administrative burden for groups with profits that are unlikely to exceed the annual allowance.
In summary, the clause and schedule set out important mechanics for the collection, management and payment of RPDT.
James Murray
As the Minister has described, clause 45 and schedule 8 concern the application of corporation tax provisions and management. The clause applies general corporation tax principles to the RPDT and provides that RPDT be treated for administrative purposes as an amount of corporation tax. The clause and schedule outline the framework within which RPDT will operate and make necessary amendments to administrative legislation to accommodate RPDT.
As pointed out by the Chartered Institute of Taxation, the alignment with corporation tax and other existing mechanisms should reduce some administrative burdens for both developers and HMRC, which we welcome. However, we note that the turnaround on this novel tax, as mentioned earlier in this Committee sitting, is rapid. Given the truncated consultation period, I seek reassurances from the Minister that HMRC’s systems will be ready for the collection, management and payment of RPDT. I would be grateful if the Minister could also confirm whether any additional budget allocation has been offered to HMRC to support the roll-out of RPDT and, if so, what the value of the allocation is.
Lucy Frazer
I assure the hon. Gentleman, as I assured the hon. Member for Glasgow Central some moments ago, that HMRC will be ready to bring in the tax that we are legislating for. As he will know, we have just gone through a spending review. HMRC will have sufficient funds to ensure that it can comply with its duties and obligations.
Question put and agreed to.
Clause 45 accordingly ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 46
Requirement to provide information about payments
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 46 provides for RPDT receipts to be monitored. It introduces a requirement for residential property developers making an RPDT payment to state the amount of the payment to HMRC in writing in order to ensure that RPDT receipts can be monitored. It also provides for a penalty if there is a failure to comply with that requirement. In summary, the clause sets out an important requirement to enable HMRC to monitor RPDT revenue.
James Murray
As we have heard, clause 46 introduces a requirement for companies making a payment of RPDT to provide information about a payment to HMRC so that receipts for the tax can be monitored. The clause sets out the definition of the responsible company—the company making payment on behalf of the RP developer under relevant group payment arrangements or, in any other case, the RP developer itself.
The clause further requires that the responsible company must notify an officer of HMRC in writing, on or before the date when the payment is made, of the amount of the payment due under RPDT. In addition, the clause refers to penalties for failing to inform HMRC about payments owed. Penalties are aligned with previous legislation on corporation tax notices. We will not oppose the clause.
Question put and agreed to.
Clause 46 accordingly ordered to stand part of the Bill.
Clauses 47 to 49 ordered to stand part of the Bill.
Schedule 9 agreed to.
Clauses 50 to 52 ordered to stand part of the Bill.
Clause 67
Securitisation companies and qualifying transformer vehicles
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 67 introduces a power enabling changes to be made by secondary legislation to stamp duty and stamp duty reserve tax in relation to securitisation and insurance-linked security arrangements. The Government are keen to ensure that the UK’s stamp duty and SDRT rules contribute to maintaining the UK’s position as a leading financial services sector.
On 30 November, the Government published a response document and a draft statutory instrument following consultation on reform of the tax rules for securitisation companies. The consultation explored issues including the application of the stamp duty loan capital exemption to securitisation and ILS arrangements. The consultation sought views on whether uncertainty as to how the existing stamp duty loan capital exemption applies increases the costs and complexity of UK securitisation and ILS arrangements, and whether that is a factor in arrangements being set up outside the UK.
Clause 67 will allow Her Majesty’s Treasury to make regulations to provide that no stamp duty or stamp duty reserve tax charge will arise in relation to the transfer of securities issued by a securitisation company or a qualifying transformer vehicle. A qualifying transformer vehicle is the note-issuing entity in an ILS arrangement. The power will also allow HMT to make regulations to provide that stamp duty or SDRT is not chargeable on transfers of securities to or by a securitisation company. The power allows the Government to make changes to allow UK securitisation and ILS arrangements to operate more effectively, and reduce cost and complexity. There is currently no power to make changes through secondary legislation to the stamp duty and SDRT rules in relation to securitisation and ILS arrangements.
In summary, clause 67 will support the Government to respond flexibly to the evolving commercial practices of the securitisation and ILS markets, and ensure that the UK’s securitisation and ILS regimes remain competitive. I therefore commend the clause to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
I am delighted to serve under your chairship, Dame Angela. Happy new year, everyone.
As we heard from the Minister, clause 67 relates to stamp duty on securities and related instruments. We do not oppose efforts to increase the efficiency and flexibility of this sector, but we wish to see appropriate safeguards to ensure that these changes do not increase the risk of stamp duty evasion and, as the Minister mentioned, to make sure that they meet the UK’s position as a leading financial sector.
Securitisation can be a useful source of finance for UK businesses and can aid capital liquidity and risk management. I note that the Treasury has consulted on the impact of stamp duty on securitisation and insurance-linked securities. Clause 67 gives the Treasury powers to make changes through secondary legislation to stamp duty as it relates to securitisation. Can the Minister explain why the Government feel that it is necessary to make those changes through secondary legislation, rather than using the Finance Bill or other primary legislation?
Can the Minister also give us some detail on the exact changes that the Government intend to make through this secondary legislation? For example, in what circumstances will the trading of securities be exempt from stamp duty? How will she ensure that this does not increase the scope for tax avoidance? Can she also provide reassurance that Parliament will still be able to scrutinise these changes? The clause really needs to be scrutinised.
Lucy Frazer
I thank the hon. Lady very much for those points. I welcome the fact that she, too, thinks it important that this country remains competitive and flexible, and supports growth in this very important sector.
The hon. Lady asked why we need these changes to be made by secondary legislation. The answer is that technical changes of the type consulted on are more often and more appropriately made through secondary legislation than by primary legislation. Making the changes through secondary legislation gives Government flexibility to ensure that technical changes respond to the evolving nature of the securitisation and ILS markets.
However, it is of course important that we have scrutiny and review. We had a consultation on this issue, from which these provisions follow; of course, anything that comes through secondary legislation will be scrutinised. We will keep this under review, as we do all taxes.
Abena Oppong-Asare
I thank the Minister for taking the time to explain that. It would be helpful if she could also explain what measures were put in place to allow Parliament to scrutinise these changes. I am sure that she would agree that it is important that Parliament should be able to scrutinise these changes properly; if she could list what steps have been put in place, that would be extremely helpful.
On my other question, it is really important that there is no increase in tax avoidance. Can the Minister set out what the Government have put in place to ensure that it does not increase?
Lucy Frazer
Like me, the hon. Lady will be aware that when things go through the secondary legislation procedure they are subject to scrutiny by this House, through those Committees. She will also know that this Government are absolutely committed to ensuring that we tackle tax avoidance; there are a large number of measures in this Bill that tackle tax avoidance and evasion, through cracking down on promoters and other mechanisms. It is something that we are alive to and acting upon, and for those reasons I ask that clause 67 stand part of the Bill.
Question put and agreed to.
Clause 67 accordingly ordered to stand part of the Bill.
Clause 72
Identifying where the risk is situated
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 72 relocates into IPT legislation the criteria to determine the location of an insured risk for the purpose of insurance premium tax. IPT is charged on most general insurance, where it provides cover for risks located within the UK.
Insurance for risks located outside the UK is exempt from UK IPT. That exemption prevents double taxation across different tax jurisdictions and puts UK-based insurers on a level playing field with overseas insurers. Legislation sets out how to determine the location of a risk in order to establish whether the IPT exemption applies. Regulations previously used to determine the location of an insured risk were replaced in 2009, and the new regulations did not include an equivalent provision. Instead, reliance was placed on directly effective European Union legislation. To ensure clarity for the insurance industry, this measure relocates the criteria into primary legislation. This is a technical change and does not reflect a change in IPT policy.
The changes made by clause 72 will remove references to inoperative regulations in the Finance Act 1994, introducing criteria to the same effect directly into the IPT legislation. The measure ensures that insurance for risks located outside the UK remains exempt from IPT, providing clarity and continuity for the insurance industry and supporting the maintenance of an effective and fair tax system.
Abena Oppong-Asare
I thank the Minister for her explanation of clause 72; it does seem like a straightforward clause that simply moves the criteria for determining where the risk is located into primary legislation. The Chartered Institute of Taxation has stated that the legislation does meet its stated objectives. For that reason, we do not oppose the clause.
I note that there has been wider consultation on the insurance premium tax, including on how to address the avoidance of the tax and how to reduce the administrative burden on HMRC and the industry. That is particularly important as HMRC has been under a lot of pressure—particularly during the pandemic. In the Government’s response to the consultation on the issue of IPT avoidance, they said that, on reviewing the responses,
“neither of the proposed options provide a proportionate solution to the issue this chapter sought to address. As such, neither option will be taken forward at this time.”
That seems like the Government have given up at the first hurdle. Why, if the proposed measures are not appropriate, are the Government not considering other measures to prevent avoidance in this sector?
Alison Thewliss
I do not have any major objections to what is being proposed, but I would be doing the Association of British Insurers a disservice if I let the clause go through without mentioning its concern, which I share, that insurance premium tax is quite a regressive tax. We are about to discuss tobacco duty; the ABI points out, through some research by the Social Market Foundation, that insurance premium tax now raises more revenue than beer and cider duty, wine duty, spirits duty, or betting and gaming duties.
Since 1994, the standard rate of IPT has increased more rapidly than tobacco duty. Those are all things that we want people not to do; we would prefer it if people did not drink as much, smoke as much or gamble as much, so we tax those things. It seems ludicrous to tax people on insurance, which we would like people to have and which benefits them and society, so I ask the Minister to consider further whether insurance premium tax is something sensible that we want to keep doing.
Lucy Frazer
I am grateful to the hon. Member for Glasgow Central for her broader points about the subject matter. I do not think she raised a particular point in relation to the clause under consideration, but this is an area that, like others, we will keep under review. I undertake to get back to the hon. Member for Erith and Thamesmead in writing on the specific point that she raised in relation to the consultation.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clause 73
Transitioned trade remedies: decisions by Secretary of State
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
The clause gives the Secretary of State for International Trade the power to call in and take control of reviews of trade remedies measures transitioned from the EU. This ensures that the Government can effectively take steps to prevent harm to UK industry where there is evidence of unfair competition.
Trade remedies are additional tariffs or tariff-rate quotas temporarily imposed to protect domestic industries from dumped or subsidised imports or unforeseen surges in imports. At the end of the transition period, the Government transitioned 43 of the EU’s trade remedy measures. The Trade Remedies Authority is now reviewing the transitioned measures to assess whether their continuation is suitable for the UK economy. The TRA is responsible for collecting and analysing evidence relating to trade remedies cases, and it currently makes recommendations to the Secretary of State for International Trade on whether particular measures should be revoked or varied or, in certain cases, retained or replaced. The Secretary of State can only accept or reject a TRA recommendation in its entirety.
The current framework was introduced in 2018. Since then, it has become clear that in some circumstances, greater ministerial involvement in decision making is required. The call-in power is designed to address that. It will allow the Secretary of State to call in a case if she considers it necessary. For example, she will be able to take a closer look at an individual case if needed in the wider public interest. The intention is that the Secretary of State will continue to rely on the expertise of the TRA to collect and analyse evidence, but that it will do so under her direction.
Whether a case is called in or not, the process will continue to be robust, transparent and evidence based, but the power will allow the Secretary of State greater flexibility in decision making than our legislation currently allows. The call-in power will apply only to transition reviews, and where the TRA is reconsidering its previous conclusions from a transition review. In parallel, the Government are considering wider changes to the trade remedies framework to ensure that it can consistently defend UK industry. That is separate from the limited scope of this clause, and the International Trade Secretary will report on the findings of that review in due course.
The changes made by clause 73 will amend the trade remedies regime to allow the Secretary of State for International Trade to call in transition reviews and reconsiderations of transition reviews conducted by the TRA. After calling in a case, the Secretary of State will be responsible for determining the outcome of that review or reconsideration. That will ensure that the Secretary of State can have greater oversight and involvement in a particular transition review or reconsideration of a transition review as appropriate, and therefore the ability to decide on appropriate measures, such as varying the tariffs that apply to particular products under the UK’s trade remedies framework.
Where this power is exercised, the Secretary of State need not necessarily base their decision on a prior recommendation or decision of the TRA. The Secretary of State will be required to publish the notice of a decision made under this clause. The Government will make secondary legislation to set out in more detail how the call-in power is to be exercised.
In summary, clause 73 will help to prevent injury to UK industry by empowering the Secretary of State to call in transitional reviews where appropriate, and give her control to determine the outcome of a particular transition review or reconsideration of a transition review. Such a determination may include retaining, varying, revoking or replacing the trade remedies already in place on the goods subject to the review.
Abena Oppong-Asare
This important clause relates to trade remedies. As we have heard, it allows Ministers to override the powers of the Trade Remedies Authority in order to maintain safeguard tariffs on cheap imports that unfairly undermine UK industry.
The clause’s introduction was prompted by the row over the TRA’s proposals to get rid of tariffs on cheap steel imports. In June last year, the TRA recommended the removal of limits inherited from the EU on about half of the UK’s steel imports. Slashing those safeguards and opening the floodgates to cheap steel imports would have been devastating for steel plants across our country and damaging for our wider economy. At the time, the director general of UK Steel said:
“On their first major test in a post-Brexit trading environment, the UK’s new system has failed our domestic steel sector.”
The Government U-turned on that decision after pressure from Labour and the industry, and belatedly maintained protections for the steel industry. Obviously, however, there are concerns about future TRA decisions, so we support the clause. Indeed, Labour campaigned for the Government to take more action to support our vital steel industry.
I ask the Minister to expand on subsection (5), which allows the Secretary of State to make regulations regarding how to make decisions on transitioned trade remedies. Will she set out what sort of regulations she envisages that the Secretary of State will make and how those decisions will be made? It is important that there is a transparent process for making these important decisions on trade remedies.
Finally, although we welcome this measure and hope that it ensures that vital British industries are better protected in the future, we remain concerned about the Government’s wider failure to support British industry. Industries such as steel are of vital strategic importance for our economic prosperity and national security, but the Government’s lack of an industrial strategy means that the steel industry is lurching from crisis to crisis. We need a proper plan to decarbonise the sector, to boost business competitiveness and to use British steel in UK infrastructure projects, in order to safeguard the future of the steel industry, as Labour’s plans to buy, make and sell in Britain would do.
Labour would also invest up to £3 billion over the coming decade in greening the steel industry. We would work with steelmakers to secure a proud future for the industry to match the proud past and present of British steel communities. I urge the Government to do the same.
Lucy Frazer
I did not want to interrupt the hon. Lady, but I think she has gone outside the remit of the measures in the Bill. However, I would like to correct her on a point—[Interruption.] She was talking about the steel industry as a whole, when we are dealing with a provision that relates in particular to the power of the Secretary of State to call in trade remedies.
The Chair
Order. I will allow some leeway for reasonable debate, and if anyone goes out of order, I will stop them. The Minister should feel free to make some general comments, so long as they are not too long and do not stray too far.
Lucy Frazer
That is very kind, Dame Angela. I want to correct a general point that the hon. Lady made in relation to steel and the decision that was made by the then Secretary of State for International Trade. The hon. Lady suggested that there was a U-turn and that pressure was put on by the Labour party. In fact, there was no decision by the Government; the decision was made by the Trade Remedies Authority. I just wanted to clarify that point.
Lucy Frazer
The clause simplifies the way that technical updates are made to the UK’s tariff schedule. This measure inserts a new provision into the Taxation (Cross-border Trade) Act 2018 so that changes to the UK’s tariff schedule that do not alter the tariff duty rates applied to imported goods can be made by public notice rather than by secondary legislation, as is currently the case.
The clause will ensure that routine technical changes to tariff legislation, such as changing the codes used to classify goods or removing redundant codes, can be implemented more easily and quickly for those who refer to the legislation. Importantly, this measure also reduces the burden on parliamentary time in considering routine technical changes, while maintaining Parliament’s current levels of scrutiny of tariff duty rate changes.
In summary, the clause amends the Taxation (Cross-border Trade) Act 2018 so that technical changes can be made by public notice, thus ensuring simpler and quicker implementation of those changes to the UK’s tariff schedule.
Abena Oppong-Asare
This relatively minor change allows technical updates to the tariff schedule to be made by public notice rather than secondary legislation. Given that there are safeguards to ensure that substantive changes, such as varying the rate of import duty, continue to be made by regulation and are therefore subject to parliamentary oversight, we do not oppose the clause.
Question put and agreed to.
Clause 74 accordingly ordered to stand part of the Bill.
Clause 75
Restriction of use of rebated diesel and biofuels
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider that schedule 10 be the Tenth schedule to the Bill.
The Exchequer Secretary to the Treasury (Helen Whately)
It is a pleasure to serve under your chairmanship, Dame Angela.
Clause 75 and schedule 10 make technical amendments to the existing legislation that restricts the entitlement to use rebated red diesel and biofuels from 1 April 2022, to adjust restrictions and ensure that the legislation operates as intended.
To help achieve net zero and improve UK air quality, the Government announced at Budget 2020 that they would reduce the entitlement to use rebated diesel and biofuels, which currently enjoy a duty discount, from this April. These tax changes will ensure that most current users of rebated diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce. The changes will also incentivise users of polluting fuels, such as diesel, to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or just use less fuel.
Following consultation in 2020, the sectors that will be allowed to continue to use rebated diesel and biofuels beyond April 2022 were confirmed at spring Budget 2021, with the changes legislated for in the Finance Act 2021. Clause 75 and schedule 10 will make technical amendments to the Hydrocarbon Oil Duties Act 1979 and the Finance Act 2021 to adjust restrictions on the entitlement to use rebated diesel and rebated biofuels, clarify how the changes to the new rules work, and allow the legislation to operate as intended.
In summary, the changes will alter the circumstances in which the use of rebated diesel and rebated biofuels will be permitted from 1 April 2022, including provisions aimed at transition to the new rules. They will also amend definitions relating to certain vehicles, machines and appliances. Some of these changes follow feedback received from stakeholders since the Finance Act 2021 received Royal Assent. Overall, the technical changes in this clause and schedule will ensure that the Government’s reforms to the tax treatment of rebated diesel and biofuels from April 2022 work as intended.
Abena Oppong-Asare
I thank the Minister for her explanation of the clause, which introduces technical amendments to the changes introduced to restrict the entitlement to use rebated fuel, more commonly known as red diesel. We discussed the substance of that change in Committee on the last Finance Bill. As I said then, we support the intention behind the Government’s measure. There is a clear need to ensure that fuel duty rebates are as limited as possible in order to meet our net zero commitment.
The amendments made by this Bill are technical in nature, and we do not oppose them. However, will the Minister set out which, if any, industries will be affected by the changes and what work is being done to ensure that they are prepared, given that we are now only a few months from the introduction of the changes? Will she also update us on preparations by Her Majesty’s Revenue and Customs and other agencies for the changes? Is she confident that the Government will be able to ensure compliance from April this year? The Minister’s colleague, the Financial Secretary to the Treasury, mentioned that there has been some restructuring around HMRC, but I echo the earlier comments by the hon. Member for Glasgow Central and my hon. Friend the Member for Ealing North, who explained that HMRC has been busy for a number of years. Will the Minister update us on what work has been done to ensure that we are prepared for this change?
Alison Thewliss
I am glad that the definitions are being amended to include fairs and circuses, of which there are many in my constituency, to allow them to continue to use rebated diesel and biofuels after 1 April 2022. In that industry it is quite difficult to adapt machines to use other sources. The showpeople I represent will be pleased that the Government have listened on this measure, and I thank the Minister for that.
Helen Whately
I welcome the support that the hon. Member for Erith and Thamesmead expressed for the intention behind this measure and her recognition that the changes are of a technical nature and that the Opposition therefore will not oppose the clause. I assure her that there has been substantial consultation on the overall policy. Indeed, as the hon. Member for Glasgow Central said, the Government have listened, and that is reflected in some of the changes. I am confident in HMRC’s ability to monitor compliance.
Question put and agreed to.
Clause 75 accordingly ordered to stand part of the Bill.
Schedule 10 agreed to.
Clause 76
Rates of tobacco products duty
Question proposed, That the clause stand part of the Bill.
Helen Whately
The clause implements changes announced in the autumn Budget 2021 on tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with additional increases made for hand rolling tobacco and to the minimum excise tax on cigarettes.
Smoking rates are falling in the UK, but smoking remains the biggest cause of preventable illness and premature deaths in the UK, killing around 100,000 people a year and about half of all long-term users. All those factors mean that we need to continue to encourage more people to kick the habit. We have already set out ambitious plans to reduce the number of smokers from 14% to 12% of the population by 2022, as set out by the Department of Health and Social Care in its tobacco control plan. We have announced that we aim to reduce smoking prevalence in England to 5% or less by 2030. That includes a commitment to continue the policy of maintaining high duty rates for tobacco products to improve public health.
According to Action on Smoking and Health, smoking costs society almost £14 billion per year, including a £2 billion cost to the NHS because of the disease caused by smoking. At autumn Budget, the Chancellor announced that the Government would increase tobacco duty in line with the escalator. The clause specifies that the duty charge on all tobacco products will rise by 2% above retail price index inflation. Duty on hand-rolling tobacco increases by a further 4%, to 6% above RPI inflation. The clause also increases the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—by an additional 1%, to 3% above RPI inflation.
The clause will continue our tried-and-tested policy of using high duty rates on tobacco products to make tobacco less affordable and to continue the reduction in smoking prevalence. That will reduce the burden placed on our public services by smoking. I commend the clause to the Committee.
Abena Oppong-Asare
As the Minister set out, the clause raises the duty on tobacco products, in line with the duty escalator, by RPI plus 2% for cigarettes and RPI plus 6% for hand-rolling tobacco. The minimum excise tax has been increased. We do not oppose those increases, but I will take this opportunity to make a couple of wider points about action to prevent smoking and the Treasury’s role in it.
Action on Smoking and Health stated that last year’s Budget was
“a small step forward on tobacco, but on its own won’t deliver on the Government’s commitment to a Smokefree 2030.”
In fact, projections show that the Government will miss that target by seven years, and double that for the poorest in society. As the Minister knows, tobacco duty has a dual role: raising revenue for the Government and reducing smoking rates. The latter role is most effective when combined with a comprehensive funded strategy to reduce smoking. Unfortunately, the funding for such a strategy has been repeatedly cut in recent years as part of broader cuts to public health grants. The Minister mentioned that smoking has fallen, but recently published evidence shows a 25% increase in smoking among young adults since the first lockdown, so it is clear that there is a lot of work to be done.
In a debate on smoking last year, the Under-Secretary of State for Health and Social Care, the hon. Member for Erewash (Maggie Throup), said in response to a question on taxation:
“That is a matter for Her Majesty’s Treasury. However, the Department continues to work with HMT to assess the most effective regulatory means to support the Government’s smoke-free 2030 ambition, which includes exploring a potential future levy.”—[Official Report, 16 November 2021; Vol. 703, c. 181WH.]
Will the Minister tell us what work the Treasury is doing to design a levy on tobacco manufacturers, along the lines of the “polluter pays” principles, to pay for campaigns to stop smoking and other public health measures? Those large and profitable companies often pay relatively little tax in this country, while those who smoke rightly pay a large amount of tax every time they buy a pack of cigarettes. Many public health experts urge the Government to look at the idea of a levy, and I strongly hope that the Minister will say more on that.
Helen Whately
I am glad to hear that the Opposition will not oppose the clause. The hon. Lady has said that it is not enough on its own, and the Government agree. Our tax treatment of tobacco is just one of a set of policies in place to reduce smoking. I assure her that the UK is seen as a global leader on tobacco control. Over the last two decades, we have implemented regulatory measures to stop young people smoking and non-smokers from starting, and to support to help smokers quit.
The hon. Lady also asked about a tobacco levy. I can tell her that the Government consulted on proposals for a tobacco levy in 2015. That consultation concluded that a levy is not the most effective way to raise revenue or protect public health. It would add complexity and additional costs, while the amount of revenue it could raise is uncertain.
Abena Oppong-Asare
I appreciate the time the Minister has taken to answer this question. The Department of Health and Social Care is saying something completely different. Last year, the Health Minister, the hon. Member for Erewash, said that taxation was a matter for the Treasury and that the Department was working with the Treasury to look at an effective regulatory means to support the Government’s smoke-free 2030 ambition, which included exploring a potential future levy. Could I have clarification on that?
It seems that the Department is saying something different from what the Minister has just said—that the consultation was done in 2015 and it was decided that a levy was not appropriate? I am not trying to be difficult here, but I think the Government need to explore this idea. A number of health experts and even the Health Minister are saying that, so some work needs to be done on this in detail. The last review was done in 2015, and we have moved on a number of years.
Helen Whately
I am happy to take that point away and look into the position taken by my colleagues in the Department of Health and Social Care and the Treasury. I will get back to the hon. Lady on the question of the levy. I can assure her that work is currently happening on a tobacco control plan. The Government are considering policy and regulatory changes, which will be part of our ambition to be smoke-free by 2030. Those will be set out in due course in our tobacco control plan. I commend the clause to the Committee.
Question put and agreed to.
Clause 76 accordingly ordered to stand part of the Bill.
Clause 77
Rates for light passenger or light goods vehicles, motorcycles etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 5—Vehicle taxes: effect on climate change goals—
“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plans to reach net zero by 2050.”
New clause 15—Review of VED revenue from light passenger or light goods vehicles, motorcycles etc in context of future demand for electric vehicles—
“(1) The Government must publish within twelve months of this Act coming into effect an assessment of the expected level of revenues of Vehicle Excise Duty from light passenger or light goods vehicles, motorcycles etc in future years in the context of the expected uptake of electric vehicles.
(2) The Review must also consider possible alternatives to Vehicle Excise Duty on these vehicles.”
Helen Whately
Clause 77 makes changes to uprate vehicle excise duty—or VED—for cars, vans and motorcycles in line with the retail prices index from 1 April 2022. VED is paid on vehicle ownership, and rates chargeable are dependent on various factors, including the vehicle type, date of first registration and carbon emissions. The Government has uprated VED for cars, vans and motorcycles in line with inflation every year since 2010, which means that rates have remained unchanged in real terms during this time. The changes made by clause 77 will uprate VED rates for cars, vans and motorcycles by RPI only for the 12th successive year, meaning that VED liabilities will not increase in real terms. The standard rate of VED for cars registered since 1 April 2017 will increase by only £10. The flat rate for vans will increase by £15 and motorcyclists will see an increase in rates of no more than £5.
New clause 5, tabled by the hon. Member for Glasgow Central, asks the Government to publish within 12 months of this Bill coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050. Similarly, new clauses 4 and 8 tabled by the hon. Lady ask the Government to publish, within 12 months of this Bill coming into effect, impact assessments on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050, first on the Act as whole, and, secondly, on section 99 and schedule 16. These amendments are unnecessary and should not stand part of the Bill.
The Government are proud of our world-leading climate commitments, most recently set out in the net zero strategy. The latest Budget and spending review confirm that since March 2021, the Government will have committed a total of £30 billion of domestic investment for the green industrial revolution. That investment will keep the UK on track to meet its carbon budgets and nationally determined contribution, and to reach net zero by 2050. The net zero strategy sets out how the Government will monitor progress to ensure that we stay on track for our emissions targets. That includes commitments to require the Government
“to reflect environmental issues in national policy making”.
At fiscal events, including the spending review 2021, all Departments are required to prepare their spending proposals in line with the Green Book, which sets out the rules that we use in the Treasury to guide individual spending decisions. The Green Book already mandates consideration of climate and environmental impacts in spending, and it was updated in 2020 to emphasise that policies must be developed and assessed against how well they deliver on the Government’s long-term policy aims such as net zero.
Furthermore, the Treasury carefully considers the climate change and environmental implications of relevant tax measures. The Government incorporated a climate assessment in all relevant tax information and impact notes for measures at Budget—they are published online—and we will continue to do so in future TIINs. For example, the TIIN for the new plastic packaging tax incorporates an assessment of anticipated carbon savings—nearly 200,000 tonnes of carbon dioxide in 2022-23. In addition, HMRC is exploring options further to strengthen the analytical approach to monitoring, evaluating and quantifying the environmental impacts of tax measures.
Given the substantial work already under way on these issues, the proposed amendment would add unnecessary bureaucratic requirements and layers of complexity. I therefore urge the Committee to reject new clause 5 and, for the same reasons, I will urge the Committee to reject new clauses 4 and 8 when we turn to those.
New clause 15, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, asks the Government to publish, within 12 months of the Act coming into effect, a review of the impact on VED revenue of future demand for electric vehicles. This new clause is also unnecessary and should not stand part of the Bill. The Government are committed to achieving net zero carbon emissions by 2050, and the transition towards electric vehicles and the phase-out of new petrol and diesel cars and vans will make a vital contribution to that. The Government have committed to ensuring, as we move forward with this transition, that revenue from motoring taxes keeps pace with this change, to make sure that we can continue to fund the excellent public services and infrastructure that people and families across the UK expect.
Analysis that projects the possible impact on VED revenues of future demand for electric vehicles is already in the public domain. First, since 2016, the Government have asked the Office for Budget Responsibility to publish a fiscal risks statement to improve disclosure and management of fiscal risks. The OBR’s 2021 fiscal risks report makes an assessment of the fiscal impact of achieving net zero, including the impact on VED and fuel duty receipts, which it explores under different climate change modelling scenarios.
Secondly, the net zero review published by the Treasury in October of last year also examines the possible decline in tax revenues, including VED and fuel duty receipts, as part of the transition to net zero. It notes that, were the current tax system to remain unchanged across the transition period, tax receipts from most fossil fuel-related activity would decline towards zero across the first 20 years of the transition, leaving receipts lower in the 2040s by up to 1.5% of GDP in each year relative to a baseline where they stayed fixed as a share of GDP.
Given that analysis of future VED revenues has already been published by both the Government and the OBR, the review of this issue sought by this new clause is unnecessary. I therefore urge the Committee to reject new clause 15.
Overall, the changes outlined in clause 77 will maintain revenue sustainability by ensuring that motorists continue to make a fair contribution to the public finances. I therefore urge that this clause stand part of the Bill.
Abena Oppong-Asare
Clause 77 raises the rate of vehicle excise duty for various categories of vehicle by RPI. This is a regular update to VED to ensure that it remains the same in real terms, and we do not oppose it. I do wish to make broader points about taxes affecting drivers and, in particular, to speak to our new clause 15.
Electric vehicles are not liable for vehicle excise duty, and of course their owners do not pay fuel duty. New clause 15 calls on the Government to report on expected future levels of vehicle excise duty in the context of the increasing uptake of electrical vehicles. It is designed to encourage the Government to begin to think and talk publicly about that critical question.
The transition from petrol and diesel cars to electric vehicles is critical as part of our broader transition to net zero. The Opposition have constantly raised concerns about the fact that the Government are not doing enough to support the take-up of electric vehicles, whether through supporting consumers and producers or improving the critical charging infrastructure. We continue to believe that the Government must do more in that area, but we also believe that they must begin to set out how they will deal with the fiscal consequences of the transition.
Fuel duty and VED currently raise around £35 billion for the Treasury each year. They are by far the largest revenue-raising environmental taxes. It is a truly significant amount of Government revenue, equivalent to nearly half the Education budget, but as electric vehicles become an increasing share of vehicles on the roads, that revenue will decline rapidly. One estimate shows that tax revenues from car usage could fall by around £10 billion by 2030, £20 billion by 2035, and £30 billion by 2040. The Treasury’s own net zero review stated that much of the current revenue from taxing fossil fuels was likely to be eroded during the transition to a net zero economy.
We might have expected the review to set out what the Treasury planned to do about that, but it was notably silent on that matter. When the Minister responds, can she tell us what work the Treasury is carrying out on that important issue and when it will set out its plans? Can she tell us what alternatives to VED the Treasury is considering—for example, road pricing or other taxes? Crucially, how will the Treasury balance the need to maintain income from driving with the need to incentivise the switch to electric vehicles? Those are critical questions, which cannot and must not be left to the last minute. We deserve to have an open debate about the best way forward. Motorists and taxpayers deserve clarity about how they will be taxed in the future. I hope that the Minister can begin to give us some insight into the Treasury’s thinking on this issue.
Mr Richard Holden (North West Durham) (Con)
Thank you very much indeed, Dame Angela—
Richard Thomson
Thank you, Dame Angela; it is a relief to find out that my hearing is not as dodgy as I momentarily thought it was.
Richard Thomson
I rise to speak in support of new clause 5, which is in the name of my hon. Friend the Member for Glasgow Central. The Minister has run through why we are looking to have an assessment. I say to her as gently as I can that it is all fine and well to be proud of commitments that the Government have made, but it would be much better to rack up more quickly achievements that she could point to and be proud of on climate change, rather than just making statements of aspiration. This is one area where it is quite important to get some more chalk on the board.
As we have heard, the Bill sets a series of incremental changes to vehicle excise duty, and precisely because they are incremental, we might expect, at best, an equally incremental impact, or even an imperceptible one, on changing behaviour and on the resulting climate change impacts. We are all aware of the mandate to end the sale of new petrol and diesel vehicles in a bid to encourage the take-up of alternatively fuelled vehicles, but I am of the same view as the hon. Member for Erith and Thamesmead: we will need some significant further incentivisation if we are to drive the change through that policy on the scale and at the pace that is required.
My party is very fond of drawing comparisons with Norway—another small country, like Scotland, of 5 million people—on the other side of the North sea. Sometimes those comparisons are about what might have been, but we also point to what could and perhaps what should be. Norway has been so successful in incentivising the take-up of electric vehicles that the Government are running out of hydrocarbon-fuelled vehicles to tax, which has resulted in a 19.2 billion kroner gap in their latest budget.
That is not a problem that the UK Government are likely to encounter any time soon, in view of the current take-up of electric vehicles, and that is why new clause 5 is so important. It would provide for an assessment of how effective or—as we suspect—ineffective these particular changes will be over the year, so that the UK Government had the necessary information base to set future policy as quickly as possible. I think the Minister knows that we need to do that at some point, and surely it is better to start sooner rather than later.
The Chair
I am waiting for the Whip. If the Whip wishes to move the adjournment, I will call Richard Holden first when we come back after the break.
The Lord Commissioner of Her Majesty's Treasury (Alan Mak)
What would you prefer, Chair?
The Chair
I intend to come back promptly at 6 o’clock. If you could be here very promptly, Richard Holden, I give you prior warning that I intend to call you on the dot.
Ordered, That the debate be now adjourned.—(Alan Mak.)
Finance (No. 2) Bill (Fifth sitting)
Tuesday 11th January 2022
(2 years, 10 months ago)
Public Bill CommitteesRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 11 January 2022 - (11 Jan 2022)
The Chair
With this it will be convenient to discuss the following:
Government amendments 7 to 10.
That schedule 15 be the Fifteenth schedule to the Bill.
New clause 7—Uncertain tax treatment—
“The Government must publish within 12 months of this Act coming into effect an assessment comparing the rates of uncertain tax in the UK to those of all other OECD countries.”
The Financial Secretary to the Treasury (Lucy Frazer)
Clause 94 introduces schedule 15, which covers a new requirement for large businesses to notify Her Majesty’s Revenue and Customs when they adopt an uncertain tax treatment. The clause seeks to reduce the legal interpretation tax gap, which stands at £5.8 billion—an issue that I am sure hon. Members agree is worth tackling. Through collaborative engagement with stakeholders and several formal consultations, the policy has been refined to minimise administrative burdens, while still achieving the policy objectives.
The requirement will apply only to the largest of UK businesses, companies or partnerships—those with a turnover of over £200 million per year, or a balance sheet total exceeding £2 billion. They will need to notify only those uncertainties that involve a tax difference of more than £5 million. The requirement will apply only to corporation tax, VAT, income tax and pay-as-you- earn returns, and will apply to returns due on or after 1 April 2022.
The Government are committed to ensuring that businesses pay the tax they owe. They have made significant inroads in reducing the tax gap, which fell from 7.5% of total theoretical liabilities in 2005-06 to 5.3% in 2019-20. However, there is further to go in protecting revenues in order to enable the Government to invest in our public services. Schedule 15 is designed to reduce the legal interpretation portion of the tax gap, the majority of which is attributable to large businesses.
Legal interpretation tax losses arise when businesses take a different view from HMRC of how the law should be applied, resulting in a different tax outcome. This issue has proven stubborn and difficult to tackle. Disputes often arise late in the day and are not identified in time for formal compliance enquiries to be undertaken, resulting in irrecoverable losses to the Exchequer. The new notification requirement will tackle the legal interpretation tax gap in a well-targeted and proportionate way, raising £150 million over the next five years, while driving positive behavioural change. The new notification regime breaks new ground by enabling earlier identification of potentially high-risk legal interpretation disputes that often are not apparent from tax returns. That will help to level the playing field for those large businesses that are already transparent with HMRC about their uncertain tax treatments.
The changes made by clause 94 will affect approximately 2,300 large businesses, which will need to consider whether they have taken an uncertain tax position in their returns. If they have, they will now be required to notify HMRC. They will not need to notify HMRC if they have already brought the uncertain position to its attention by other means, such as through discussions with their customer compliance manager, by contacting HMRC’s customer engagement and support scheme, through the non-statutory clearance process, or through other legislative disclosure requirements.
The Government have listened carefully and have developed the policy design to arrive at a regime that is objective and simple to understand. There are now only two conditions that trigger the notification requirement, which consultees agreed are objective and clear. The first is if the business has made a provision in their accounts to recognise the uncertainty. The second is if the tax treatment is contrary to HMRC’s known interpretation of the law or how the law applies to a certain set of facts. Business will be able to find HMRC’s known position in statements, in published guidance and in briefs, as well as through their dealings with HMRC. HMRC’s guidance on the regime will set out information on those sources, so that taxpayers are not required to extensively search HMRC’s current and historical positions in order to comply.
James Murray (Ealing North) (Lab/Co-op)
As we heard from the Minister, the purpose of clause 94 is to introduce schedule 15, which, in turn, introduces a new requirement for large businesses to notify HMRC when they have taken a tax position that is uncertain. The new requirement has effect for returns within scope that are due to be filed on or after 1 April 2022. We understand that large businesses are defined as those with a turnover above £200 million, or a balance sheet total of over £2 billion. Uncertain tax amounts with a tax advantage below the threshold of £5 million will not need to be notified to HMRC. We also understand that uncertain tax treatments are defined as those that meet one of two criteria: either a provision has been made in the accounts for the uncertainty, or the position taken by the business is contrary to HMRC’s known interpretation of the law.
The stated intention of the clause and schedule is to reduce the gap between taxes paid and taxes thought by HMRC to be owed that is attributable to differences in legal interpretation. The measure aims to ensure that HMRC is aware of all cases where a large business has adopted a treatment with which HMRC may disagree, and to accelerate the point at which discussions occur on these uncertain tax treatments. It also claims to identify areas of law that are currently unclear and to allow HMRC to focus on clarifying these areas of uncertainty, ultimately resulting in fewer disputes caused by uncertainty in the tax law.
We know from HMRC figures that in the financial year 2019-20, the tax gap attributable to differences in legal interpretation was £5.8 billion. Of this, £3.2 billion was attributed to large businesses. We do not oppose the broad intention of the measure. It is important that revenues are not lost to legislative ambiguity, and that tax liabilities are clear to large businesses. Measures that seek to reduce the administrative cost of dealing with uncertain tax treatment for both HMRC and businesses are worth pursuing. However, we note concerns raised by the Chartered Institute of Taxation. It was unconvinced that the measure would achieve its aim. It points to the additional compliance burden that all businesses will face, regardless of whether they have been transparent and open with HMRC about their tax dealings.
HMRC’s own figures suggest a cost of £1,300 for each business impacted, and the House of Lords Finance Bill Sub-Committee described that cost as disproportionate. I would be grateful if the Minister could tell us approximately how many large businesses the measure aims to change the behaviour of. I am sure that HMRC or Treasury officials will have estimated the scale of the problem before proposing a remedy, so I would be grateful if the Minister could share any figures she has.
On the operation of the measure, we understand that HMRC does not expect the legal interpretation part of the tax gap to be impacted immediately by the introduction of the measure alone, and it expects to have to take further action. It is therefore not immediately obviously why this extra measure is needed, and why HMRC’s existing powers are not enough. As the Chartered Institute of Taxation said,
“it is not clear to us how this measure will itself additionally impact on the legal interpretation tax gap, given that HMRC already have extensive powers to open an enquiry into, and investigate, a tax return, from which any disputes in respect of legal interpretation can be addressed.”
I would be grateful if the Minister addressed that point directly. Could she explain what practical advantage the new measures lend HMRC? Could she also comment on the penalties levied for non-compliance with the measure? Given that it targets a minority of non-compliant large businesses with a tax advantage above £5 million, the penalties for non-compliance seem rather small: £5,000 for a first offence, £25,000 for a second, and £50,000 for repeated failures to notify HMRC of uncertain tax treatments. Those amounts seem rather low for businesses with a £5 million-plus tax advantage. I would be grateful if the Minister explained how these figures were arrived at, and confirmed whether she believes these measures serve as a robust disincentive for large businesses to use differing legal interpretations to alter their tax liability.
Richard Thomson (Gordon) (SNP)
It is a pleasure to serve under your chairmanship, Sir Christopher. I apologise for arriving slightly behind schedule this morning. It was good to see the ministerial team picking up exactly where we left off, getting their rebuttal in first, and telling us what was wrong with our new clauses before we had the chance to utter a syllable. I look forward to that continuing this morning—and this afternoon, if we get that far.
HMRC estimates that a potential £5.8 billion of the UK’s estimated £35 billion tax gap for the tax year 2019-20 is attributable to a difference in legal interpretation between HMRC and the businesses concerned. It is that situation that motivated us to draft new clause 7, which is in the name of my hon. Friend the Member for Glasgow Central. We support all and any reasonable and proportionate measures to try to narrow the gap. I would add, in passing, that it is disappointing that the third trigger has been dropped, which is that HMRC should be made aware by companies if there is a substantial possibility that either a court or tribunal might find that the taxpayer’s position was incorrect in certain material respects.
While there will always be a level of uncertainty around tax, it is useful to try to get a measure of the tax gap on its own terms—one that is as objective as possible. It is also very useful to compare, as far as possible, the estimated size and scale of our tax gap with the gap in other comparably advanced economies, so that we can see what we might learn from others.
I accept that direct comparisons might not be possible, but I do not accept the Minister’s argument that meaningful comparisons are impossible, because we can get an understanding of practices and of analysis; that is at the heart of the matter. This is about trying to get to grips with the scale, and developing an understanding of what will be a continually moving target, as entities seek to minimise their overall liability as legitimately as they can within the confines of the broader tax code. That backdrop of information would allow policy makers to reflect adequately on how the domestic tax code might be amended to ensure greater clarity and better compliance. It is on that basis that we tabled new clause 7.
Lucy Frazer
I am grateful for the contributions from Opposition Members. I was very pleased that the hon. Member for Ealing North recognised the importance of closing the tax gap and welcomed the provisions from that perspective. As I set out, the provisions will affect only the largest companies, which have the means of dealing with and communicating their issues to HMRC. He asked me about the practical advantages of the provisions, given that we have existing measures. Quite simply, some, though not all, companies are looking at all times to minimise the tax they pay, and are coming up with new ideas. They have the ideas first, and HMRC does not want to be slow in reacting. The best way to get on the front foot is for the companies to tell us what measures they are thinking about, so that we can engage at the first moment. That is what the provisions seek to do—to ensure that we can engage at the first moment, so that we can make sure that companies comply with their tax obligations.
The hon. Gentleman also asked about penalties. The Government originally proposed a flat £5,000 penalty for failure to notify under this regime. In response to stakeholder feedback, we revised the penalties, which now escalate for repeated failures to a maximum of £50,000. The Government considered carefully the penalties to ensure that they were proportionate and fair for a notification regime. Penalties are charged for failure to notify and are not charged by any determination of the amount of tax at stake—providing for a larger penalty in those circumstances would be disproportionate. If it was eventually found that a tax return contained a deliberate error, then a larger tax-geared penalty could still apply. As with all policies, the Government will of course keep this under review.
I was very pleased and interested to hear from the hon. Member for Gordon about his disappointment about the dropping of the third trigger. As I have said, we keep all measures under review and will keep looking at this area. If we do bring any further measures forward on uncertain tax treatment, I look forward to his support.
“Notification under paragraph 8(2)(b) of an amount included in a PAYE return or VAT return delivered to HMRC for a financial year | On or before the date (determined in accordance with this table) by which the notification would be required if— (a) the notification were required by paragraph 8(2)(a), and (b) the return were delivered to HMRC for the financial year following the financial year in which the accounting provision is recognised in the accounts of the company or partnership.” |
Lucy Frazer
Clauses 95 and 96 concern tax administration provisions. They provide certainty that HMRC may use discovery assessments to take action in certain cases in which taxpayers have not declared or returned tax that is due. For consistency, fairness and certainty, they also make minor changes to the rules requiring notification of liability.
I will briefly explain the context for introducing the clauses. The upper tribunal recently found that HMRC did not have powers to recover an individual’s high-income child benefit charge, which I will refer to as “the child benefit charge”, by issuing a discovery assessment where the taxpayer had neither notified HMRC of their liability nor submitted a tax return. The purpose of notifying tax liability is for HMRC to know to ask a taxpayer to complete a tax return. A discovery assessment is the mechanism HMRC uses to collect tax that it finds out should have been assessed but has not been—essentially, HMRC sends the taxpayer a bill for the tax that they ought to have self-assessed. HMRC uses discovery assessments frequently and routinely for taxpayers who ought to but have not notified tax liability and completed a tax return, whether because they are evading tax or they have made a genuine mistake.
HMRC can use discovery assessments in two scenarios: where it discovers that income tax in a tax return has been understated, and where a tax return has not been submitted at all. We are concerned here only with the latter scenario. The tribunal did not dispute the validity of the child benefit charge; in fact, it confirmed that the charge was still due. However, the tribunal found that HMRC could not use discovery assessments in that case. HMRC firmly disputes that ruling and has appealed to the Court of Appeal. The ruling prevents HMRC from using the usual discovery assessment mechanism to collect the correct tax payable where taxpayers liable to the child benefit charge and similar charges have not notified their liability, and so have not been sent a tax return.
There are three related clauses: 95, 96 and 97. The first and most significant is clause 95, which ensures that discovery assessments can be used to recover the child benefit charge, as well as similar charges relating to pensions and gift aid, where taxpayers have failed to notify HMRC and self-assess those charges. I stress that the legislation does not create any new liabilities or obligations for taxpayers; it simply puts taxpayers who do not declare and pay the child benefit charge on an equal footing with the majority who do.
Without clause 95, a taxpayer who did not declare and return their liability might not have to pay the child benefit charge at all, while others in otherwise identical circumstances who had rightly notified HMRC of their position would have to pay. Clearly, even if that is an honest mistake, which it is in many cases, it is not right.
The legislation introduced under clause 95 will apply retrospectively to child benefit, gift aid and pension charges. For those three types of charge, the legislation will be treated as having always been in force and will ensure that previously issued discovery assessments remain valid. The Government do not introduce retrospective legislation lightly; we do so only in exceptional circumstances, and we will do so, on occasion, when a court ruling upsets the widely accepted way in which the law is understood to work.
In this instance, retrospection is necessary for two reasons: first, to protect public services by ensuring that tax that is properly due and that has been charged and paid through discovery assessments over a number of years remains undisturbed; and secondly to provide fairness to the general body of taxpayers who have declared their liability, submitted their returns and paid their tax. The retrospective element applies only to the use of discovery assessments where taxpayers subject to such charges have neither notified HMRC of their liability nor submitted a tax return; it does not affect anyone’s tax liability. It is important to emphasise that although this is retrospective legislation, it is not retrospective taxation.
Some taxpayers will not be subject to the retrospective effects of clause 95. It would be unfair for it to apply to those taxpayers who were part of the original litigation and those who submitted appeals to HMRC on the same basis before the tribunal judgment was handed down. To include them would overturn the upper tribunal’s judgment and curtail the appeal rights of taxpayers who will already have spent time and money bringing an appeal on the same grounds, so the Government are excluding those taxpayers from the retrospective element of the legislation, ensuring that they can continue to pursue their appeals.
The prospective effect of clause 95 is somewhat wider. It is sensible to future-proof the legislation so that it applies to any income tax or capital gains tax that ought to have been, but has not been, assessed.
Clause 96 is introduced with prospective effect only. It will provide certainty that taxpayers who become liable to certain tax charges, including the pension and gift aid charges that I mentioned in reference to clause 95, must notify HMRC of their tax liability. Taxpayers are required to notify HMRC that they are chargeable to income tax or capital gains tax for any given year when that tax has not otherwise been accounted for.
Recent litigation has called into question whether certain tax charges are adequately covered by the obligation to notify chargeability; clause 96 provides certainty that they are so covered. That will achieve consistency of treatment across the types of tax charge, ensuring that taxpayers are always obliged to notify HMRC in circumstances where HMRC might not otherwise become aware of their tax liability.
It is right that taxpayers are required to report and self-assess their tax liabilities and that HMRC can take the necessary action to recover tax when they do not. Clauses 95 and 96 will enable HMRC to carry on doing so, shoring up the tax administration provisions in response to litigation that could otherwise create confusion, unfairness and inconsistency, as well as putting public revenues at risk. I commend the clauses to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve under your chairship again, Sir Christopher. I thank the Minister for her explanation of clauses 95 and 96, particularly in respect of discovery assessments. As she says, clause 95 will amend the Taxes Management Act 1970 to provide certainty that HMRC can use discovery assessments to make good a loss of tax where it discovers that certain charges have not been accounted for; when the Bill gains Royal Assent, the clause will apply both retrospectively and prospectively.
The amendment to the 1970 Act has to be understood in the context of the legal challenge in HMRC v. Wilkes, in which the upper tribunal ruled that HMRC could not use discovery assessments to assess tax charges arising from sources that do not meet the definition of income within the relevant provision. Clause 95 will amend the law to enable HMRC to use discovery assessments in such circumstances. The background note in the explanatory notes states that the aim is to
“put the matter beyond doubt and confirm HMRC’s long-standing policy”.
Although there has clearly been historic doubt and an unsuccessful legal defence mounted by HMRC, and while this is being applied retrospectively, there is an exception for those who have appealed on the grounds that HMRC was inadequate at the time prior to the Wilkes case. However, as the Minister probably knows, the Low Incomes Tax Reform Group has raised the point that the retrospective application in the clause could be uneven and unfair.
While those who have appealed have been exempted, those who did not make the necessary appeal will face retrospective charges. Those who accepted the charge at face value and paid it will clearly not get their money back, despite the upper tribunal’s finding that HMRC’s use of discovery assessments in this way was outside the scope of its powers and, therefore, not legal. The Wilkes judgment will soon no longer be a legitimate basis for legal contest; I would be grateful if the Minister could make an assessment of the fairness of this uneven, retrospective application.
Under clause 96, there will be further amendments to the Taxes Management Act 1970. It will amend section 7 and extend the circumstances in which a person must make a notification under section 7 to the charges listed in section 30 of the Income Tax Act 2007. As the Minister mentioned, that requires the taxpayer to notify HMRC of any liability to income tax or capital gains tax charges per accounting year. The amendments to the fundamental piece of primary legislation have been extended to include liability, as set out in clause 95. For this reason, we will not be opposing the clause.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to see you in the Chair, Sir Christopher. While we support its broad principles, this type of clause brings me out in a cold sweat. I completed my self-assessment tax return last night, and I am now worrying that I have not done it right and at some point in the future HMRC will come running after me because I have ticked the wrong box on the form somewhere.
The clause goes to the sense of a lot of the things to do with the higher income child benefit charge, particularly this retrospective aspect. Since it was introduced in 2013, there have been challenges around the charge, in terms of people knowing about it and the way in which the system works. The child benefit and HMRC systems do not necessarily talk to one another, and people have been brought into self-assessment without realising it.
I can use myself as an example. When I first phoned HMRC to ask about the issue, it asked, “What is your husband’s income?” I said, “I have no idea—it is his income. It is nothing to do with me.” Many people will not know their partner’s income. There may be reasons why the partner does not want to tell them their income, and that will leave them in a very difficult position. People may be in a relationship of coercive or financial control, and they may not be aware of their partner’s income but may end up falling into liability under the rules that the Minister has set out.
What kind of mitigation, if any, may be put in place should people in future be held liable for something they were not aware of for entirely legitimate reasons? Will there be any such mitigation, or will HMRC try to claw back all the money regardless of the person’s situation? Many people may end up in a situation where they are having income clawed back that they were not aware of. How do the Government intend to continue to raise awareness of the higher income child benefit charge and whether people are going to be affected by it?
As the Low Income Tax Reform Group point out in its excellent evidence to the Committee,
“The number of families affected by the charge has increased substantially since it was first introduced because the £50,000 threshold has not been uprated for nine years”.
The effect is that every year it affects more people, who are then drawn into the charge without being aware of it.
Lucy Frazer
Again, I thank hon. Members on the Opposition Benches for their contributions. The essence of the points made by the hon. Member for Erith and Thamesmead was one of fairness, and there are three points to make in response. The first is that, as I said, this is retrospective legislation but not retrospective taxation. The tax was due, has been due and is due, but it has not been paid. What was in question was the process by which it was recovered.
The second point is that, in terms of fairness, it is right that everyone pays the right amount of tax and does not manage to escape paying that tax because they do not declare it to HMRC. The essence of the issue is actually about fairness—that everyone is in the same position and that where tax is due, it is paid by everyone equally.
Thirdly, to build on the point I made earlier about the tax being due but the process being in error, the court found in HMRC v. Wilkes that the tax was due from the applicants but the discovery assessment process was not appropriate for recovering it. This legislative measure is fair because it ensures that people who have to pay tax do so and that everyone pays it equally.
I now respond to the points made by the hon. Member for Glasgow Central, who I am sure has completed her tax return successfully and correctly. I encourage everybody to do so, because the tax deadline is 31 January. Although HMRC has extended the deadline for a month and will not be charging penalties, people will still be paying interest on their tax if they have not filed their returns by the 31 January deadline. I am sure hon. Members present have all dutifully done so, but that is a little reminder.
The hon. Member for Glasgow Central mentioned the unfortunate circumstances of individuals. Having spoken to HMRC, I know that it looks carefully at individual circumstances where there is difficulty with paying. There is an essential procedure where people can have time to pay, and there is a vulnerable unit where we look very carefully at people’s vulnerabilities and treat them appropriately.
As I mentioned in my opening remarks, the provision will apply to gift aid, but I am very happy to answer any questions that the hon. Member for Glasgow Central has about that by following up in writing. For those reasons, I ask that the clauses stand part of the Bill.
Question put and agreed to.
Clause 95 accordingly ordered to stand part of the Bill.
Clause 96 ordered to stand part of the Bill.
Clause 97
Calculation of income tax liability for certain charges relating to pensions
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 97 is the third of three clauses relating to HMRC’s tax administration provisions. The clause makes minor technical revisions to the provisions for the calculation of income tax in respect of certain pension charges.
Section 23 of the Income Tax Act 2007 sets out the steps to be followed when calculating income tax liability. At step 7, additional amounts of tax that have not been taken into account in the earlier steps are added to the calculation, and those are listed in section 30. The list in section 30 includes a number of freestanding tax charges relating to registered pension schemes.
The Committee will remember that clause 96 operated on those freestanding charges to provide certainty that taxpayers liable for them must notify their liability to HMRC. The Government have identified the fact that some of those freestanding charges—some of the unauthorised payment charges and surcharges, and the overseas transfer charge—have been omitted from the list in section 30, so we are taking this opportunity to correct that by adding them.
Clause 97 adds to the list in section 30 the overseas transfer charge and the missing unauthorised payments charge and surcharges. The charges ensure that the correct amount of tax due in respect of those charges is produced at the correct step of the tax calculation. The effect is to ensure that HMRC will be able consistently to calculate and assess tax liabilities in respect of those pension charges. In combination with clause 96, clause 97 requires taxpayers to notify HMRC of their liability for the charges, and HMRC will be able to charge penalties for failure to notify and will use discovery assessments to recover tax that has not been notified. Clause 97 is introduced with prospective effect only from the 2021-22 tax year.
Clause 97 makes minor technical revisions and, together with the changes in clauses 95 and 96, gives consistency and certainty of tax treatment in HMRC’s tax administration provisions relating to those freestanding tax charges. I commend the clause to the Committee.
Abena Oppong-Asare
I thank the Minister for her explanation. As she mentioned, clause 97 follows on from clauses 95 and 96, and is a chiefly technical clause to amend the list of other income tax charges in subsection 30(1) of the Income Tax Act 2007. The Labour party will not oppose the clause.
Lucy Frazer
I thank the hon. Lady.
Question put and agreed to.
Clause 97 accordingly ordered to stand part of the Bill.
Clause 98
Power to make temporary modifications of taxation of employment income
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
Clause 98 introduces regulation-making powers to allow the Government to make temporary changes to provide income tax relief on certain benefits in kind or expenses in a disaster or emergency of national significance.
Covid has highlighted the limited scope to respond quickly to make changes to the current benefits-in-kind and expenses tax system to support people during the pandemic. The Government are determined to learn from that experience and ensure that we are prepared for future crises. It is expected that during any future disaster or emergency of national significance, it may be necessary to make similar changes on a temporary basis. The current legislation allows only for changes to be made through secondary legislation in limited circumstances. The clause introduces regulation-making powers that will allow the Government to respond quickly and effectively to various future emergency situations—including, but not limited to, pandemics—if deemed necessary.
The clause introduces regulation powers to allow employers to support their employees through the provision of a certain benefit in kind or expense in a disaster or emergency of national significance without creating an additional income tax charge. The powers can be exercised only in a way that provides support to taxpayers, as changes can be wholly relieving only and cannot create a tax charge. The Treasury can determine when it is appropriate to use the powers, but may make changes only to the income tax expenses and benefit-in-kind rules. Any changes made through the powers will have effect only for a limited time, up to a maximum of two complete tax years. The clause allows the Government to respond quickly and effectively to provide support to taxpayers in disasters or emergencies of national significance, and I commend it to the Committee.
James Murray
As we have heard, clause 98 relates to the power to make temporary modifications of taxation of employment income. The clause will grant the Treasury the power to make regulations to modify temporarily parts 3, 4 and 5 of the Income Tax (Earnings and Pensions) Act 2003 under ministerial direction, in the event of a disaster or emergency of national significance. The regulations must set out which disaster or emergency they are made in respect of, and the powers can be exercised only in a way that is wholly relieving to the taxpayer and cannot be used to create a tax charge.
This measure has been introduced in the context of the covid-19 pandemic, and indeed covid has highlighted the limited scope to make changes to the current benefits in kind and expenses rules to respond quickly to the pandemic. We understand that the aim of clause 98 is to enable changes to primary legislation to be made rapidly in response to significant national events. In that respect, we do not oppose this clause, provided that it is applied in strictly exceptional circumstances of national importance.
The clause uses the terms “emergency” and “disaster”, but a specific description of these criteria is missing. I would be grateful if the Minister set out what the Treasury would consider to be an emergency or disaster. Without a doubt, the onset of the covid-19 pandemic was a good example, but without a robust and transparent framework to guide the Treasury—given that the use of the power seems to be at its sole discretion—it is important that we are clear about the circumstances in which income tax liability can effectively be waived. Moreover, clause 98 notes that such measures would be temporary and would not apply longer than necessary. Again, guidance and a framework are conspicuously lacking, as the Government has provided no definition of “temporary”.
Early in the covid pandemic, emergency measures were needed, but as the pandemic has gone on the need for emergency measures has lessened. I would be grateful if the Minister assured us that a clear and transparent framework for establishing what constitutes “emergency”, “disaster” and “temporary” will be published, and when. If not, why not?
I am sure that we agree that this is a matter of effective policy rather than politics. As I have said, the context in which the clause has been introduced is uncontroversial, but I would be grateful if the Minister addressed this ambiguity and assessed whether the measure could be applied in a manner that deviates from its stated intention.
Alison Thewliss
I agree very much with what the Labour Front-Bench spokesman has said. Clause 98 is very wide-ranging, and vague in a lot of ways. It is important to understand its scope, because one person’s definition of a disaster or emergency might be quite different from another’s. It is important that we define that slightly more than is the case in the clause, which states that the regulations
“may only specify a disaster or emergency which the Treasury considers to be of national significance.”
That could be a lot of things, depending on how the Treasury considers it.
I wonder whether the Minister, in looking at the clause, has taken into account the findings of the Public Accounts Committee and the National Audit Office on the Government’s lack of financial preparedness, specifically coming into the pandemic. There was a lot of talk about medical preparedness, stockpiling and things like that, but both the National Audit Office and the Public Accounts Committee found that there was no preparedness in the Treasury for a pandemic or national emergency of this type.
It would be useful to know what further work, in addition to clause 98, Treasury officials are putting in place to ensure that, should something like this occur in future, the box of learning from this pandemic can be taken off the shelf and easily applied, without having to make a load of new provisions and regulations, so that things are ready to go, and we do not have to scratch around, trying to figure out what happened last time. Another pandemic may occur in five years or 50 years—we do not know. Certainly, our hope in the SNP is that we will not be here in 50 years, if not five, but it would be useful to know what provisions are being considered in the Treasury to ensure that the learning from this pandemic sits very tightly with this clause and can be applied very easily.
Lucy Frazer
I thank hon. Members for their contributions. Both the hon. Member for Ealing North and the hon. Member for Glasgow Central asked us to be more prescriptive in the legislation—to define the circumstances in which there would be a disaster or emergency—but we are bringing in this legislation precisely because we did not have the flexibility that we needed when we went into this pandemic. Therefore we do not want to tightly define the circumstances. We are bringing in this legislation to ensure that we have the tools at our disposal to exercise the necessary powers should an event like the one we have been through and hopefully are at the end of occur.
Alison Thewliss
My point was not about the reaction to the pandemic but preparedness. All the systems had to be put in place suddenly and with little planning. There has been significant fraud in many of the schemes as a result of the lack of tight planning. They were reactive emergency measures. Does the Minister agree that it would have been much better for all those things to have been set out clearly, so they could be taken off the shelf should they be needed? Instead, they were reactive measures that had not been planned ahead of time.
Lucy Frazer
The hon. Lady is right to say that a number of measures were reactive, but they were brought it at extremely quick pace and were effective pretty much immediately. She makes a valid point about learning; I know the Treasury is learning and has learned throughout the pandemic. The schemes we put in place at the outset have been refined, including the self-employment income support scheme, the furlough schemes and the coronavirus job retention scheme.
The hon. Lady mentioned the level of fraud; as the pandemic went on and the measures were refined, fraud reduced. She makes a valuable point about learning, and I am sure all Departments are learning. We do not want to be in this position again, which is precisely why we are bringing forward this legislation, to ensure that we are ready for any other emergency that should come our way.
James Murray
For the avoidance of doubt, I would like to clarify the point I raised with the Minister earlier. I was not seeking to ask the Government to be entirely prescriptive about what an emergency or disaster is; I merely asked them to publish a clear and transparent framework for establishing what constitutes “emergency”, “disaster” and “temporary”. If the Minister is saying that the Government will refuse to publish a clear and transparent framework for establishing the meaning of those words, will she confirm that it will remain at the sole discretion of the Treasury, based on unpublished guidance or frameworks, as to what constitutes “emergency”, “disaster” and “temporary”?
Lucy Frazer
The hon. Member is being a little unfair in his categorisation of what would happen and what we are seeking. That has not been defined in legislation because it is very hard to predict, and we do not want to limit severely the opportunities to exercise that power. The hon. Member has seen how the Treasury would react by the way it has reacted. That should give him some comfort.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clause 99
Vehicle CO2 emissions certificates
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 16 be the Sixteenth schedule to the Bill.
New clause 8—Emissions certificates—
“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 99 and Schedule 16 of this Act on the goal of tackling climate change and the UK‘s plans to reach net zero by 2050.”—(Alison Thewliss.)
I think we might try to see whether we can let SNP Members speak to new clause 8 before the retaliation from the Government Benches, because I think that will make it easier to follow the debate.
The Exchequer Secretary to the Treasury (Helen Whately)
I thank you, Sir Christopher—and the hon. Member for Gordon, who duly flagged the order of proceedings. Clause 99 and schedule 16 make technical amendments to capital allowances, company car tax and vehicle excise duty legislation so that the tax system continues to function as intended when vehicles are certified through the new domestic comprehensive vehicle type approval scheme due to be introduced this year.
A vehicle manufacturer is able to apply for a type approval to allow specific types of vehicles to be used on the road and can then certify that each vehicle manufactured within that type conforms with the specifications of the approval obtained. Since the end of the transition period on 31 December 2020 following the UK’s withdrawal from the European Union, European type approvals have no longer been automatically recognised for vehicles for use on roads in Great Britain.
Since 1 January 2021, a provisional domestic type approval scheme has been in operation. Manufacturers with an EU type approval have been required to apply for a provisional domestic type approval, which is valid for a maximum of two years. During 2022, the provisional domestic type approval scheme will be gradually replaced with a new comprehensive domestic type approval scheme, which will introduce new certificates of conformity. This will be implemented through separate legislation in 2022 by the Department for Transport.
Clause 99 and schedule 16 make technical amendments to relevant legislation to update the types of official vehicle approval certification recognised for determining the level of a vehicle’s carbon dioxide emissions for the purposes of capital allowances, company car tax and vehicle excise duty, including new certificates of conformity that will be introduced through the domestic type approval scheme, allowing manufactures to continue to report their CO2 emissions. This will ensure that vehicle owners and keepers continue to pay the tax for their vehicles as intended from 2022 following the introduction of the new scheme.
For the purpose of capital allowances, the clause and schedule will also confirm in legislation that the applicable CO2 emission figure from the official documentation will be that certified under the worldwide harmonised light vehicle test procedure. The technical changes in the clause and schedule will ensure that the tax system continues to function as intended when vehicles are certified through the new domestic comprehensive vehicle type approval scheme due to be introduced in 2022.
Abena Oppong-Asare
I thank the Minister for her explanation of clause 99, which introduces schedule 16, which concerns emissions certificates for vehicles. When purchasing a car, capital allowances are in part determined by the level of CO2 emissions. A 100% first-year allowance is available for new cars that have zero CO2 emissions, including electric cars. Otherwise, writing down allowances are available at the main rate of 18% per annum for electric cars and those with low CO2 emissions—up to 50 grams per kilometre driven—or 6% per annum for those with emissions exceeding 50 grams per kilometre. The measures in the clause allow for greater CO2 emissions figures to be used for purposes of capital allowances, taxable benefits arising from provisions of cars and vehicle excise duty. For that reason, we will not oppose the clause.
Richard Thomson
Thank you, Sir Christopher, for your opening comments on this group. My party does not get too many advances or victories in this place, so it is important to savour them when we can. I will certainly savour this one. I have a sense of clairvoyance about what the Minister will say in response.
We fully support the intention behind schedule 16. It is important to have the certification regime in place. However, as I argued when discussing the SNP’s new clause 5 in the previous group, it is important not only that consumers have confidence in the figures that are published, but to understand the impact that their publication has on behaviour. When we discussed new clause 5, we talked about the very incremental changes to vehicle excise duty, and my party proposed that we should look at the impact of those on consumer behaviour. Similarly, we feel we must understand how emissions certification changes consumer and manufacturer behaviour.
As a fundamental point, when we are as engaged in trying to achieve net zero as all Governments in these islands say that they are, it is important that Government have clear oversight of how spending and taxation influence behaviour in driving movement towards net zero. This measure should be no exception, and that is what our new clause seeks to achieve. In the fairly safe assumption that it will not be accepted by the Government, I would like to know how they intend to monitor how the changes drive behaviour.
Helen Whately
It is a pleasure to hear the hon. Member for Gordon argue for new clause 8. It would require the Government to publish, within 12 months of the Bill coming into effect, an assessment of the impact of clause 99 and schedule 16 on the goal of tackling climate change and the UK’s plans to reach net zero.
For the reasons we set out in detail during the Committee’s debate on new clause 5, this similar new clause is simply not necessary. Moreover, clause 99 and schedule 16 make only minor technical amendments to vehicle tax legislation to ensure that it continues to function as intended. The measure is not expected to have any significant climate change impacts. I therefore urge the Committee to reject new clause 8.
I thank the hon. Member for Erith and Thamesmead for expressing the Opposition’s support for clause 99 and the schedule. I commend the measures to the Committee.
Question put and agreed to.
Clause 99 accordingly ordered to stand part of the Bill.
Schedule 16 agreed to.
Clause 100
Increase in membership of the Office of Tax Simplification
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 9—Composition of the Office of Tax Simplification—
“The Government must publish within 12 months of this Act coming into effect an assessment of the composition of the Office of Tax Simplification membership with a view to ensuring it is diverse and representative.”
New clause 10—Capacity of the OTS—
“The Government must publish within 12 months of this Act coming into effect a review of the membership and capacity of the OTS, including consideration of the capacity the membership would have to deal with an expansion of its remit to include fairness in the tax system.”
Lucy Frazer
Clause 100 increases the maximum independent representation on the board of the Office of Tax Simplification by two members, giving a total membership of 10. The OTS is the independent adviser to the Government on simplifying the UK tax system. The clause provides the ability to add two additional members to the board of the OTS following the publication of Her Majesty’s Treasury’s five-year review of the effectiveness of the OTS, which was required by the Finance Act 2016. Allowing for the appointment of two additional members will ensure that the board comprises the fullest appropriate breadth of skillsets to support the work of the OTS.
Sir Christopher, I very much look forward to the submissions from the SNP on new clauses 9 and 10.
Richard Thomson
New clause 9 ought to speak for itself. On 23 November, in a written response to the hon. Member for Liverpool, Walton (Dan Carden), the Financial Secretary to the Treasury said:
“The Government has an ambition that by 2022 half of all new appointees should be women and 14 per cent of appointments should be made to those from ethnic minorities.”
Clearly, we are interested in ensuring diversity going forwards, but we should also be interested in diversity in the here and now, and in ensuring that all our public institutions are as representative as they can be of the country that we seek to govern and administer.
In looking at that diversity, both present and future, it is important that we have it in the board, in the team and in employment within the OTS more generally. We must not only have an understanding of where we are in the present, but ensure that the pipeline of talent for future appointments to senior positions is flowing as it needs to, so that we benefit from the widest and deepest possible pool of talent as the body carries out its functions.
Moving on to new clause 10, we spoke earlier about the estimated tax gap of £35 billion. An important aspect of tax fairness is being sure that we apply the tax code equally and consistently, and we need to understand the impact of it’s being applied equally and consistently and how fair the outcomes are. There are still many inconsistencies and perverse incentives across the entirety of our tax code, not least in how it interacts with the benefits system.
If we are serious about ensuring fairness, the Office of Tax Simplification would be an excellent starting point. Our view is that the OTS should have the remit and capacity to look at fairness, and new clause 10 would provide evidence on the OTS’s current capacity to achieve that.
James Murray
As we heard from the Minister, clause 100 relates to an increase of two members in the maximum independent representation on the board of the Office of Tax Simplification, bringing the overall membership to 10. The OTS was brought in by the coalition Government in 2010 and put on a statutory footing by the Finance Act 2016. It is an independent body that sits alongside the Treasury to advise the Chancellor on the simplification of the tax system and suggest ways to increase system efficiency. We recognise the value in adding further expertise to the board, although we also recognise the important principle in the SNP’s new clause 9, which would require the Government to report on the diversity of the OTS board.
We note the wider concerns of the Chartered Institute of Taxation, which questions whether the broader changes suggested by the OTS will be implemented. Between 2010 and 2015, only 166 of the OTS’s 403 recommendations to Government were wholly accepted. It is therefore surprising that there is so much enthusiasm for increasing the size of the OTS board, given that the Government do not always seem to listen.
We note a suggestion from the Chartered Institute of Taxation that the Government formally respond to every OTS recommendation within a prescribed timeframe. I would be grateful if the Minister set out whether she is willing to commit to doing so.
Lucy Frazer
I thank the hon. Members for Gordon and for Ealing North for their contributions. I was very interested to hear about the new clauses from the hon. Member for Gordon. New clause 9, which was tabled by the hon. Member for Glasgow Central, would require the Government to publish
“an assessment of the composition of the Office of Tax Simplification”
to ensure that it is diverse. I assure hon. Members that the OTS is an independent office of HMT, so all appointments are made in line with the principles of the Office of the Commissioner for Public Appointments. Public appointments to the OTS should therefore reflect the diversity of the society in which we live and increase in diversity. The Government have an ambition that, by 2022, half of all new appointees should be women and 14% of appointments should be made to those from ethnic minorities.
I know that the Government are very committed to this issue, as my first appointment to Government was as a Parliamentary Private Secretary in the Cabinet Office. I dealt with and saw the work of the Cabinet Office on this issue, and it is doing a broad amount of work across Government to ensure diversity.
New clause 10, which was also tabled by the hon. Member for Glasgow Central, would require the Government to publish
“a review of the membership and capacity of the OTS”.
The Government remain committed to supporting the OTS to provide advice on the simplification of the tax system, and published their first five-year review of the OTS’s effectiveness this autumn. The review makes a number of recommendations on the resourcing and governance of the OTS and recognises the value of a mix of skillsets and expertise on the OTS board. It recommends that HMT build on that further and, following the nomination by the chair, appoint additional independent members to bring in expertise in areas not currently represented. Given the recent examination of the OTS’s resourcing and governance, the Government do not believe that a review of the membership and capacity of the OTS is necessary.
To respond to the point the hon. Member for Ealing North made about the value of the work of the OTS, as he will know, the OTS will be looking into how it produces its reports and carries out its reviews. The fact that the Government do not always fully accept the recommendations of the OTS is not a sign that the OTS is not performing an important function: it is performing an important function in making recommendations that the Government can look at. The OTS also has a power to make suggestions on proposals that the Government themselves are thinking about, and it works with officials to make suggestions as to how we can change and improve the legislation and proposals that we are putting forward.
For those reasons, I encourage Members to reject the new clauses.
James Murray
The Minister may have missed my question in my earlier comments, which was whether she would commit to responding formally to every OTS recommendation within a prescribed timeframe.
Lucy Frazer
I understand why the hon. Member has made that suggestion, but the OTS is independent and can look at what it wishes to look at. That might not necessarily be what the Government are focusing on at any particular moment, so for those reasons and others, I will not be accepting that proposal today.
Question put and agreed to.
Clause 100 accordingly ordered to stand part of the Bill.
Clause 101
Interpretation
Question proposed, That the clause stand part of the Bill.
Lucy Frazer
This might be the shortest speech in this sitting. Clauses 101 and 102 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation. I therefore commend them to the Committee.
James Murray
Clauses 101 and 102 are entirely reasonable, and we do not oppose them. I take this opportunity, however, on behalf of myself and my hon. Friend the Member for Erith and Thamesmead to thank other members of the Committee, including of course our Whip, my hon. Friend the Member for Blaydon. I also thank you, Sir Christopher, and all the House of Commons staff who have supported us through this Committee, in particular Chris Stanton, whom I thank for all his help and advice.
The Chair
We have not quite got there yet. We have some new clauses to consider after these clauses, but thank you very much for those comments.
Alison Thewliss
I was also going to thank people, but I am aware that we have new clauses. If you would rather that I waited until we have finished those, Sir Christopher, I will do so. [Interruption.] I am prompted by the hon. Member for Wolverhampton South West to thank Members for their indulgence of the many new clauses and amendments that we have tabled in Committee.
I will also take the opportunity to thank you, Sir Christopher, and the other Chairs for their smooth running of the Committee, and the Clerks for all their expertise and advice—especially Mr Stanton, as was mentioned by the hon. Member for Ealing North. Without the Clerks and their advice, we would have found it very difficult to put all these amendments together, and I thank them very much for that. I will also take the opportunity to thank Scott Taylor and Gus Robertson from our research team. They have now left—I do not think it was the Finance Bill that did it—and I wish them all the very best in their new jobs. I also thank Jonny Kiehlmann from our research team for his assistance, and the Ministers and Opposition Front Benchers for their comments.
A lot of the proposals we have tabled reflect the limitations that we, as the Opposition, face in moving amendments to the Finance Bill. We wish that there were a better process for this—rather than just calling for reports and things of that kind, we would like to be able to make substantial changes to the legislation before us—but that is not the way that things work in this House. It would also have been useful to take evidence from those who sent us written evidence, but I thank all of those who took the time to submit substantial written evidence to this Committee, because it gives us a great deal of assistance in making comments on the Bill. We will now go on to move our new clauses, which I am sure Members are all looking forward to.
Lucy Frazer
If you wish me to thank everybody before the new clauses are considered, Sir Christopher, I am very happy to do so.
The Chair
No, no.
Question put and agreed to.
Clause 101 accordingly ordered to stand part of the Bill.
Clause 102 ordered to stand part of the Bill.
New Clause 1
Review of reliefs on investments
“The Government must publish within 12 months of this Act coming into force an assessment of the impact on the tax gap of the reliefs on investments contained in this Act, and of whether those reliefs have increased opportunities for tax evasion and avoidance.”—(Richard Thomson.)
Brought up, and read the First time.
The Chair
With this it will be convenient to discuss new clause 6—Review of impact of reliefs in Act on the tax gap—
“The Government must publish within 12 months of the Act coming into effect an assessment of the impact of the tax reliefs in this Act on the tax gap, and of whether they have increased opportunities for tax evasion and avoidance.”
Richard Thomson
I echo everything that everyone has said so far about the smooth running of the Committee. I congratulate and give grateful thanks to the Clerks and everyone who has supported each of us in what we have tried to achieve here.
I will try to be as brief as possible. New clause 1 is self-explanatory. If we had a simple tax code, we probably would not need an Office of Tax Simplification or have a tax gap as large as £35 billion. The new clause simply asks the Government to assess this, because they cannot possibly hope to address problems that they do not know about or understand.
At the risk of sounding like a broken record, my comments about new clause 1 are relevant to new clause 6 as well. With that, I draw my remarks about the new clauses to a close.
Lucy Frazer
I would like to address the points made by the hon. Member for Glasgow Central about the process, which she made earlier in the Committee’s proceedings too. There is a clear process for how we make legislation and taxation. There is a large amount of consultation. The process is that we announce a consultation, there is a consultation, we reflect on the consultation, and then we bring in legislation. So long as I am in this position, I am happy to hear points made by the Opposition in the course of that consultation process, to ensure that we have the right and appropriate legislation on our statute book.
New clauses 1 and 6 would require the Government to publish an assessment of the impact of the tax reliefs in the Bill, including the reliefs on investments, on the tax gap, and to look at whether they have increased opportunities for tax evasion and avoidance. There are a number of new measures already in the Bill to ensure that we reduce the tax gap as far as possible. There are also measures in the Bill that deal with tax avoidance more broadly.
We have had significant success in bringing down the tax gap since 2010, as a result of the measures we have taken. I reassure the hon. Member for Gordon that we produce estimates of error and fraud, where we deem those appropriate. For example, estimates on corporation tax research and development reliefs were included in the annual reports and accounts, and we will continue to do that.
For those reasons, I believe that a separate reliefs impact assessment is not appropriate, and I ask the Committee to reject the new clauses.
Richard Thomson
I think I have said all that needs to be said on this subject; I am happy to let my remarks stand. I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 2
Effect on GDP of international matters in Act, and of whole Act
“(1) The Government must publish an assessment of the impact on GDP of—
(a) the provisions in sections 24 to 28 of this Act, and
(b) this Act as a whole.
(2) The assessment must also compare these impacts to the impacts had the UK—
(a) remained in the European Union, and
(b) left the European Union without a Future Trade and Investment Partnership.”—(Richard Thomson.)
This new clause would require a Government assessment of the effect on GDP of the international provisions of the Act, and of the Act as a whole, in different scenarios.
Brought up, and read the First time.
Richard Thomson
I beg to move, That the clause be read a Second time.
In Committee of the whole House, I referred to a new clause as the Jim Bowen from “Bullseye” clause. I am sure that we all remember that programme with great affection and especially recall what he said at the end if someone had not got 101 with six darts—“Let’s have a look at what you could have won.” This is the “let’s have a look at what we could have won had we remained in closer alignment with the European Union” clause.
It is fair to say that there have been significant trade losses to date since Brexit. It is important not only that the Government should have a solid evidential basis of what those losses are and make conclusions about how they came about, but that others should have that information too. That is the basis of this new clause.
Lucy Frazer
The new clause would require the Government to publish a review of the impact of the international tax policy changes in the Bill, and of the overall tax changes in the Bill, on GDP. It also asks us to compare the impacts on GDP under two scenarios—one where the UK remained in the EU, and one where the UK left the EU without a future trade and investment partnership.
The hon. Member for Gordon will know that the Office for Budget Responsibility provides economic and fiscal forecasts and is required to provide an assessment of the impact of Government policy. The OBR published the impact on GDP at the autumn Budget 2021, ahead of its inclusion in the October 2021 economic and fiscal outlook, and the OBR will continue to monitor the impact of these measures in future forecasts. Since the independent OBR provides precisely such a forecast, it would be wholly unnecessary and unhelpful to public debate to induce the Government to produce a rival one.
Richard Thomson
I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 4
Impact of Act on tackling climate change
“The Government must publish within 12 months of this Act coming into effect an impact assessment of the changes in the Act as a whole on the goal of tackling climate change and the UK‘s plans to reach net zero by 2050.”—(Richard Thomson.)
Brought up, and read the First time.
Richard Thomson
I beg to move, That the clause be read a Second time.
I have made the argument numerous times in various guises that for every action, every policy choice and every pound spent, we should understand the contribution, positive or negative, that that makes to achieving net zero and tackling climate change. That is why we tabled new clause 4.
Lucy Frazer
New clause 4, tabled by the hon. Member for Glasgow Central, asks the Government to
“publish within 12 months of this Act coming into effect an impact assessment of the changes in the Act as a whole on the goal of tackling climate change and the UK’s plans to reach net zero”.
I want to emphasise that we have just had COP26, which the Government led. Of course the Government are committed to ensuring that we reach the legislative target of being net zero by 2050, which we were the first country to set, and I reiterate that the Government have put in a significant fund of £30 billion to achieve that objective.
The hon. Member for Gordon asks us to consider that at each stage of the legislative process. I can give him some comfort that we are of course embedding those processes in Government. The “Net Zero in Government” chapter of the net zero strategy sets out how the Government will monitor progress to ensure that we stay on track to meet our target emissions.
At fiscal events, including the recent spending review, all Departments are required to prepare their spending proposals in line with the Green Book, which already mandates the consideration of climate and environmental impacts on spending. The investment decisions in spending review 2021 were informed by data and evidence on the expected contribution of proposals to meet net zero. In addition, the relevant tax information and impact notes that are prepared for all Budget measures carefully consider climate change and environmental impacts of relevant tax measures as they go through the process.
For those reasons, new clause 4 is unnecessary. We already consider the impact on the environment as we bring forward legislation, so I urge the Committee to reject the new clause.
Richard Thomson
I listened carefully to what the Minister said. I look forward to seeing how those governance measures operate in practice—how they are introduced and how effective they turn out to be. On that basis, I beg to ask leave to withdraw the clause.
Clause, by leave, withdrawn.
New Clause 12
Impact of Act on tax burden of hospitality sector
“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of the Act as a whole on the tax burden on the hospitality sector.”—(Richard Thomson.)
Brought up, and read the First time.
Richard Thomson
I beg to move, That the clause be read a Second time.
New clause 12 seeks to place an obligation on the Government to
“publish within 12 months of the Act coming in effect an assessment of the impact of the Act as a whole on the tax burden on the hospitality sector.”
Our main concern is about VAT. It seems bizarre to be removing the 5% VAT relief so early in the new year, particularly given the situation we are in, especially when most of us agree that the best way for the hospitality sector to get back on its feet is to allow it to trade its way out of the situation that it is in, cognisant of our obligations to wider public health objectives.
The hospitality sector needs our help. As I say, we think the best way of doing that is to allow it to trade as circumstances allow and for the Government to change their mind on VAT—although I accept that they are unlikely to do so at this stage. We would therefore very much welcome a review of the impact of the Act as a whole on the hospitality sector after 12 months, which would provide an evidence base for future tax and policy changes that may be beneficial.
Right across these islands, we have a hospitality and tourism sector to be proud of. It is imperative that we ensure that there are no unintended tax consequences from the measures in the Bill, and we should do all we can to support the sector to support itself and get on with doing what it does best. I would like a review, just to make sure that we are utterly mindful of that at all stages and that we do not build in perverse incentives or add any unnecessary drags, anchors or impediments to the sector’s recovery.
Lucy Frazer
As the hon. Gentleman says, the new clause asks the Government to
“publish within 12 months of the Act coming in effect an assessment of the impact of the Act as a whole on the tax burden on the hospitality sector.”
He is right to highlight the importance of that sector to the British economy and the British people. He will be aware of the significant support that the Chancellor has given to the hospitality sector over the course of the pandemic, reducing the burden of business rates by over £7 billion over the next five years, including by providing almost £1.7 billion in further business rates relief in 2022-23, which will benefit the hospitality sector. I hope that shows not only that we have supported the hospitality sector during the pandemic, but that we are supporting it in different ways as we come out of the pandemic.
Of course, we already carefully consider and monitor the impact of all tax changes, including on different sectors, such as hospitality, as part of our decision-making process. The Government also publish TIINs—the tax information and impact notes I mentioned—to accompany tax legislation. Those include the impact of tax changes on businesses. The new clause would introduce unnecessary additional bureaucratic requirements and complexity, and I therefore urge the Committee to reject it.
Richard Thomson
I beg to ask leave the withdraw the clause.
Clause, by leave, withdrawn.
Question proposed, That the Chair do report the Bill, as amended, to the House.
Lucy Frazer
I thank you, Sir Christopher, and your co-Chair, Hansard, the Doorkeepers, our Whips, our Parliamentary Private Secretaries and our officials at Her Majesty’s Treasury and Her Majesty’s Revenue and Customs, who have supported us through the Committee. I thank all Committee members for their diligence, their contributions and their support, or constructive criticism, throughout the Committee, and for making this a productive session. I very much look forward to Report. I also thank my co-Minister, the Exchequer Secretary to the Treasury, for the work that she has done.
The Chair
It has been a pleasure to co-chair the Committee and I much appreciate the work that my co-Chairs have done, including the one who stepped in at the very beginning. On behalf of the Committee, I thank all the people who have made it work so smoothly: the Clerks, the Hansard Reporters, the Badge Messengers, the police and everybody else involved. I offer them my sincere thanks. We have finished sooner than we expected, and it is obviously the wish of the Minister that people should use the time made available to ensure that they get their tax returns in on time.
Question put and agreed to.
Bill, as amended, accordingly to be reported.
Finance (No. 2) Bill
Wednesday 2nd February 2022
(2 years, 9 months ago)
Commons ChamberRead Full debate Finance Act 2022 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 2 February 2022 - large print - (2 Feb 2022)
18:01 - The House divided: - Ayes: 228 / Noes: 306 - Question accordingly negatived.
18:14 - The House divided: - Ayes: 230 / Noes: 301 - Question accordingly negatived.
18:26 - The House divided: - Ayes: 228 / Noes: 301 - Question accordingly negatived.
18:50 - The House divided: - Ayes: 302 / Noes: 226 - Question accordingly agreed to.
The Financial Secretary to the Treasury (Lucy Frazer)
I beg to move, That the clause be read a Second time.
Madam Deputy Speaker (Dame Eleanor Laing)
With this it will be convenient to discuss the following:
Government new clause 3—Public interest business protection tax.
New clause 2—Review of impact of section 25 (Tonnage tax)—
‘(1) The Chancellor must review the impact of the changes made by section 25 of this Act (Tonnage tax), and lay a report of that review before the House of Commons, within 12 months of that section coming into force.
(2) The review carried out under subsection (1) must include assessment of the impact of the provisions of that section on—
(a) the training of UK—
(i) cadets and
(ii) ratings, and
(b) the employment of UK—
(i) cadets and
(ii) ratings
by operators of qualifying ships.
(3) The review carried out under subsection (1) must include assessment of the effect of changes to flagging arrangements made by subsections 25(6) and (7).’
This new clause would require the Government to report to the House on the impact of the provisions of clause 25 on the training and employment of UK seafarers.
New clause 4—Reviews of Economic crime (anti-money laundering) levy—
‘(1) The Government must publish a review of the operation of the Economic Crime (Anti-Money Laundering) Levy by 31 December 2027.
(2) The Government must publish on 31 December each year until the establishment of a register of beneficial owners of overseas entities that own UK property—
(a) an assessment of the contribution to the effectiveness of the Levy that such a register would make; and
(b) an update on progress toward implementing such a register.’
This new clause would put into law the Government’s commitment to undertake a review of the Levy by the end of 2027, and require them to publish an assessment every year until a register of beneficial owners of overseas entities that own UK property is in place an assessment of what impact such a register would have on the effectiveness of the Levy, and progress toward the register being established.
New clause 5—Review of the impact of the extension of temporary increase in annual investment allowance—
‘The Chancellor of the Exchequer must, within three months of the end of tax year 2022-23, publish a review of decisions by companies to invest in the UK in 2022-23, which must report on which companies, broken down by size, sector, and country of ownership, have benefited from the annual investment allowance; and this assessment must also assess the merits of the existence of the superdeduction in light of the AIA.’
This new clause would require a review of which companies have benefited from the Annual Investment Allowance in 2022-23, broken down by size, sector, and country of ownership, and an assessment of the merits of the superdeduction in light of the AIA.
New clause 6—Review of the impact of this Act—
‘(1) The Government must publish a review of the measures in this Act within three months of its passing.
(2) The review in subsection (1) must consider how the measures in this Act will affect—
(a) the amount of tax working people will be paying in 2022/23;
(b) household finances in 2022/23;
(c) the rate at which the economy will be growing in 2022/23.’
This review would require the Government to review what impact measures in this Act are having in 2022/23 on the amount of tax working people will be paying, household finances, and economic growth.
New clause 7—Equality Impact Analyses of Provisions of this Act—
‘(1) The Chancellor of the Exchequer must review the equality impact of the provisions of this Act in accordance with this section and lay a report of that review before the House of Commons within six months of the passing of this Act.
(2) A review under this section must consider the impact of those provisions on—
(a) households at different levels of income,
(b) people with protected characteristics (within the meaning of the Equality Act 2010),
(c) the Government’s compliance with the public sector equality duty under section 149 of the Equality Act 2010, and
(d) equality in different parts of the United Kingdom and different regions of England.
(3) A review under this section must include a separate analysis of each separate measure in the Act, and must also consider the cumulative impact of the Act as a whole.’
New clause 8—Government review of operation of Economic crime (anti-money laundering) levy—
‘(1) The Treasury must conduct a review of the Economic crime (anti-money laundering) levy.
(2) The review must consider the impact on the effectiveness of the levy that would be made by the following measures—
(a) the establishment of a register of overseas entities as proposed in the draft Registration of Overseas Entities Bill that was laid before Parliament on 23 July 2018; and
(b) proposals for corporate transparency and reform of the companies register announced in a Ministerial Statement to Parliament on 21 September 2020.
(3) The review must be published and laid before Parliament within two years of the levy coming into operation.’
This new clause would require the Treasury to conduct a review of the economic crime (anti-money laundering levy). In particular, the review would need to consider how the introduction of corporate transparency measures previously announced by the Government would affect the levy’s operation.
New clause 9—Assessment of annual investment allowance—
(a) how much the changes to the annual investment allowance under section 12 of this Act will affect GDP in the event of the Finance Act coming into effect, and
(b) how the same changes would have affected GDP had the UK—
(i) remained in the European Union, and
(ii) left the European Union without a Future Trade and Investment Partnership.’
This new clause would require an assessment of the effects of the provisions in clause 12 on GDP in different scenarios.
New Clause 10—Review of temporary increase in annual investment allowance—
The Government must publish within 12 months of this Act coming into effect an assessment of—
(a) the size, number, and location of companies claiming the increased annual investment allowance,
(b) the impact of this relief upon levels of capital investment, and
(c) the percentage of total business investments that were covered by this relief in 2019, 2020 & 2021.’
This new clause would require an assessment of the take-up and impact of the temporary increase in the AIA.
New clause 11—Assessment of Economic crime (anti-money laundering) levy—
‘The Government must publish within 12 months of the Act coming into effect an assessment of the impact of Part 3 of this Act (Economic crime (anti-money laundering) levy) on the tax gap and how it has affected opportunities for tax evasion, tax avoidance, and other economic crimes.’
This new clause would require an assessment of the impact of the Economic crime (anti-money laundering) levy on the tax gap and on opportunities for tax avoidance, evasion and other economic crimes.
New clause 12—Review of avoidance provisions of sections 84 to 92 on the tax gap—
‘The Government must publish within 12 months of the Act coming into effect an assessment of the provisions in sections 84 to 92 of this Act on the tax gap in the UK.’
This new clause would require an assessment of the impact of the provisions on tax avoidance in clauses 84 to 92 on the tax gap.
New clause 13—Review of provisions of section 85 and publication of information on overseas property ownership—
‘(1) The Government must publish within 12 months of this Act coming into effect an assessment of the impact of the provisions of section 85 about the publication by HMRC of information about tax avoidance schemes.
(2) This assessment must include consideration of the impact of the publication of a register of overseas property ownership upon the promotion of tax avoidance in the UK.’
This new clause would require an assessment of the impact of the provisions of clause 85, and consideration of the impact of publishing a register of overseas property ownership.
New clause 14—Review of reliefs on investments—
‘The Government must publish within 12 months of this Act coming into force an assessment of the impact on the tax gap of the reliefs on investments contained in this Act, and of whether those reliefs have increased opportunities for tax evasion and avoidance.’
New clause 15—Effect on GDP of international matters in Act, and of whole Act—
‘(1) The Government must publish an assessment of the impact on GDP of—
(a) the provisions in sections 24 to 28 of this Act, and
(b) this Act as a whole.
(2) The assessment must also compare these impacts to the impacts had the UK—
(a) remained in the European Union, and
(b) left the European Union without a Future Trade and Investment Partnership.’
This new clause would require a Government assessment of the effect on GDP of the international provisions of the Act, and of the Act as a whole, in different scenarios.
New clause 16—Review of impact of Residential property developer tax on the tax gap—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the impact of Part 2 of this Act (Residential property developer tax) on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance.’
This new clause would require a Government assessment of the impact of the Residential Property Developer Tax introduced in this Bill, and of its effect on opportunities for tax evasion and avoidance.
New clause 17—Impact of Act on tackling climate change—
‘The Government must publish within 12 months of this Act coming into effect an impact assessment of the changes in the Act as a whole on the goal of tackling climate change and the UK‘s plans to reach net zero by 2050.’
New clause 18—Vehicle taxes: effect on climate change goals—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK‘s plans to reach net zero by 2050.’
New clause 19—Review of impact of reliefs in Act on the tax gap—
‘The Government must publish within 12 months of the Act coming into effect an assessment of the impact of the tax reliefs in this Act on the tax gap, and of whether they have increased opportunities for tax evasion and avoidance.’
New clause 20—Uncertain tax treatment—
‘The Government must publish within 12 months of this Act coming into effect an assessment comparing the rates of uncertain tax in the UK to those of all other OECD countries.’
New clause 21—Emissions certificates—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 99 and Schedule 16 of this Act on the goal of tackling climate change and the UK‘s plans to reach net zero by 2050.’
New clause 22—Composition of the Office of Tax Simplification—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the composition of the Office of Tax Simplification membership with a view to ensuring it is diverse and representative.’
New clause 23—Capacity of the OTS—
‘The Government must publish within 12 months of this Act coming into effect a review of the membership and capacity of the OTS, including consideration of the capacity the membership would have to deal with an expansion of its remit to include fairness in the tax system.’
New clause 24—Gambling—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the provisions of clause 80 on—
(a) the volume of gambling, and
(b) public health.’
New clause 25—Impact of Act on tax burden of hospitality sector—
‘The Government must publish within 12 months of this Act coming into effect an assessment of the impact of the Act as a whole on the tax burden on the hospitality sector.’
New clause 26—Review of the residential property developer tax—
‘(1) The Government must publish a review of the residential property developer tax within three months of the passing of this Act.
(2) The review under subsection (1) must assess how much money the RPDT would raise at a range of rates at 0.5 percentage point increments.’
This review would assess how the revenue the RPDT would raise at range of rates at 0.5 percentage point increments.
New clause 27—Review of Economic crime (anti-money laundering) levy—
‘(1) The Government must publish an impact assessment of the operation of the Economic crime (anti-money laundering) levy within six months of Royal Assent to this Act.
(2) The assessment carried out under subsection (1) must include an assessment of the contribution to the effectiveness of the levy that a register of beneficial owners of property would make.’
This new clause would require the Government to produce an impact assessment of the operation of the new Economic crime (anti-money laundering) levy, and assess how a register of beneficial owners of property would contribute to the effectiveness of the levy.
Amendment 35, page 2, line 30, leave out Clause 6.
This amendment deletes clause 6 which reduces the rate of the banking surcharge and the level of the surcharge allowance.
Amendment 36, page 10, line 44, at end insert—
“, and at the end of section 32(1) insert “, but eligibility for the increased maximum annual allowance from 1 January 2022 to 31 March 2023 is available only to businesses which can demonstrate that they have taken steps to reduce carbon emissions within their own business models and have set out further steps for how they plan to reduce carbon emissions towards a net zero goal”.”
This amendment would restrict access to the extended temporary increase in annual investment allowance to businesses that support transition to “net-zero”.
Amendment 37, page 10, line 44, at end insert—
“, and at the end of section 32(1) insert “, but eligibility for the increased maximum annual allowance from 1 January 2022 to 31 March 2023 is available only to businesses which do not have a history of tax avoidance”.”
This amendment would restrict access to the extended temporary increase in annual investment allowance to businesses that do not have a history of tax avoidance.
Amendment 38, page 11, line 10, at end insert—
‘(3) In paragraph 2(3) of Schedule 13 of that Act—
(a) after “second straddling period is” insert “the greater of (a)”; and
(b) after “of that sub-paragraph” add “and (b) the amount (if any) by which the maximum allowance under section 51A of CAA 2001 had there been no temporary increase in the allowance exceeds the annual investment allowance qualifying expenditure incurred before 1 April 2023.”’
This amendment would amend the transitional provisions for the reversion of the AIA to £200,000 on 1 April 2023, to ensure that smaller businesses with lower levels of qualifying capital expenditure are not disadvantaged by having their effective AIA limit restricted to significantly less than £200,000 for a period.
Amendment 34, page 19, line 41, at end insert—
‘(10A) The Secretary of State must consult trade unions representing UK seafarers before making any regulations pursuant to subsection (8).’
This amendment would require the Government to consult trade unions representing UK seafarers before making regulations pursuant to subsection (8) of this clause. This subsection extends to ships not registered in the UK the power of the Department to make regulations requiring proof from companies and groups within the tonnage tax regime that their ships comply with safety, environmental and working conditions.
Government amendments 1 to 13.
Government new schedule 1—Freeport tax site reliefs: provision about regulations.
Government new schedule 2—Public interest business protection tax.
Government amendments 14 to 33.
Lucy Frazer
I thank all Members who have taken part in the debates on the Finance Bill so far. Today we are focusing on a number of potential amendments to the Bill. Many of the amendments seek to ensure the proper functioning of the legislation in response to stakeholder scrutiny and feedback. Others take forward responses to substantive issues that have emerged during the Bill’s passage. I will address each amendment in turn.
Amendments 1 to 8 to clause 36 relate to the Bill’s measures to establish a residential property developer tax, or RPDT. These amendments ensure that those holding a specific type of build licence giving them effective control of the land are subject to RPDT. That will ensure that the legislation works as intended, and closes a potential loophole.
Amendments 9 and 10 to clause 58 relate to the Bill’s clauses on the economic crime (anti-money laundering) levy. These amendments seek simply to amend clause 58 by replacing two references to “entities that are” with “persons”, providing further clarity by using terms consistently throughout the legislation.
Amendments 11 to 13 form part of the extensive action that the Government are taking to address the current heavy goods vehicle driver shortage. As Members will remember, at the last autumn Budget, the Government temporarily extended cabotage rights for foreign operators of heavy goods vehicles until 30 April this year to ease supply-chain pressures. That change was made on a short-term basis to support essential supply chains. These amendments seek to introduce an enabling power through the Bill to make temporary changes to vehicle excise duty legislation should the Government decide to introduce a further temporary extension of road haulage cabotage flexibilities beyond April and up to 31 December 2022. These amendments do not, in themselves, extend those flexibilities. The Government have made no decision to extend the cabotage easement. Any such decision would be taken only after consulting with interested parties, and in consideration of wider pressure on supply chains at the time.
Amendments 14 to 17 are technical amendments to clauses 7 and 8, and to schedule 1, which seek to abolish the basis period rules for the self-employed and partners, and introduce the tax-year basis from April 2024. The amendments will ensure that eligible taxpayers are able to benefit from certain tax reliefs, including double taxation relief, that are given as a deduction against tax rather than against profits during the transition to the new tax-year basis. The amendments are required to avoid an unintentional outcome of the basis period reform transition rules.
Amendments 18 to 30 address a number of technical points in the new asset holding companies regime to better reflect the original policy intentions. These amendments follow engagement with industry. They will make the rules of the tax regime clearer for companies that will use it, and will ensure that it can be more effectively implemented.
Amendments 31 to 33 relate to accounting standards. They make minor technical changes to part 2 of schedule 5, which revokes the requirement for life insurance companies to spread their acquisition costs over seven years for tax purposes. These changes will simply ensure that the legislation functions as originally intended.
I turn now to the Government new clauses and new schedules. New clause 1 and new schedule 1 will deal with provisions about regulations regarding freeports. These new provisions seek to build on our existing powers that allow us to introduce, amend and remove conditions to enable businesses to qualify for freeport tax reliefs. The provisions do that by allowing the Government to use secondary legislation to remove and recover those reliefs from individual businesses, if necessary on a prospective basis. This power could be used to enforce compliance. For instance, it would allow the Government to introduce new reporting requirements if needed, and to respond if companies did not adhere to them by removing reliefs or taking other action.
These provisions support our critical freeports programme, which will help to create employment in left-behind areas, and allow them to prosper with additional and much-needed investment. We look forward to seeing them, and the businesses within them, prosper.
New clause 3 and new schedule 2 seek to legislate for a new public interest business protection tax. Energy groups will often enter into derivative contracts to hedge their exposure to fluctuations in wholesale energy prices, and help to ensure that they can supply energy to customers at the prices fixed and under the price cap set by Ofgem. They will typically use a forward purchase agreement to buy energy in the future at a price that is fixed at the time when the contract is entered into.
The Government have been monitoring the global rise in wholesale energy prices very closely. We have a serious concern about certain arrangements whereby energy suppliers do not own, control or have the economic rights to the key assets needed to run their businesses, including forward purchase contracts. It is currently possible for an energy business to derive value from such a valuable asset for its own benefit and the benefit of its shareholders, while leaving its energy supply business to fail, or increasing the costs of a failure. The costs of that failure would then be picked up by the taxpayer or consumers, because it would trigger a special administration regime or a supplier of last resort scheme. These are special Government-funded administration routes that help to ensure that UK customers continue to be supplied with energy.
Ofgem is now consulting on a range of regulatory actions that it proposes to take to ensure that the right protections are in place in these circumstances. That work will ensure the ongoing resilience of energy supply businesses. However, it will take months for these changes to come into effect. The Government recognise that it would be unacceptable for a Government to allow business owners to profit from engineering this kind of outcome in the interim period, at great and direct expense to the taxpayer.
Peter Grant (Glenrothes) (SNP)
I do not think that anyone would argue with the intention behind the new schedule, but it is not so much a new schedule as a Bill within a Bill. It is 25 pages long, and it introduces a tax that has not existed before. It was tabled less than 48 hours ago, and as far as I can see there has been no consultation with anyone. Given that this issue has been known about for so long, why has it taken until now for the Government to table such a large, complex and unwieldy amendment to their own legislation?
Lucy Frazer
I understand the hon. Gentleman’s concern. The Bill has been tabled at this time because Ofgem has identified a risk related to energy suppliers in the circumstances that I have described. If that eventuality came to pass, there would be a significant loss to taxpayers if we did not introduce the legislation to prevent it. I understand his concern, but it is necessary for the Government to introduce this tax and to introduce it now, to ensure that these risks do not materialise.
Mel Stride (Central Devon) (Con)
Am I right in assuming that the purpose of the new tax is to discourage certain types of behaviour rather than to raise revenue?
Lucy Frazer
My right hon. Friend is right. We are not seeking to raise revenue; we are seeking to prevent certain circumstances from coming about, and we hope that this deterrent will be sufficient. Of course, if it were not, we would be able to recoup the money by way of tax. He will have spotted that the legislation is only in force for a short period to allow Ofgem to take regulatory action to ensure that we deal with this issue in the appropriate way through regulation rather than by bringing preventive action by way of a tax.
As I was saying, this new tax will have effect where steps are taken to obtain value from assets that materially contribute to a licensed energy supply business entering into special measures or to the increased costs of the business where it is a subject of special measures on or after 28 January this year and before 28 January next year. The tax will apply to the value of the assets that are held in connection with a licensed energy supply business where the assets in scope of the tax exceed £100 million, including assets held by connected persons. This is to ensure that the tax would capture only the very largest energy businesses. The tax will apply at a rate of 75% so as to be an active and effective deterrent against actions that are not in the public interest, and to recoup a substantial proportion of the costs that would otherwise fall to the Government under special administration measures in the event that such action was taken, as my right hon. Friend the Member for Central Devon (Mel Stride) pointed out.
In order to ensure that the tax is robust against avoidance activity, and given the sums at stake, the Government consider it necessary for Her Majesty’s Revenue and Customs to be able to recover the tax from other persons if it cannot recover it from the relevant company. These joint and several liability provisions will apply only to companies under common ownership, as well as investors and persons connected with those investors in limited circumstances. Safeguards are also in place to permit certain affected persons to make a claim for relief to limit the amount of joint and several liability to the amount that they potentially benefit from such transactions. It is our hope and expectation that no business would pursue such action and that the tax will not be charged. The tax is a temporary and necessary safeguard that will protect the taxpayer and energy consumers in the interim period before the regulatory change takes effect.
The Government amendments will ensure that the legislation works as it should and protects the interests of the people of this country. I therefore commend to the House amendments 1 to 33, new clauses 1 and 3, and new schedules 1 and 2, and I urge Members to accept them.
James Murray (Ealing North) (Lab/Co-op)
Any member of the public hearing that the Government were today voting their Finance Bill through the House of Commons might expect such a Bill to do something to help with the cost of living crisis facing families up and down this country. Our new clause 6 makes this simple point. It asks the Government to set out how the measures in the Bill will affect household finances, the amount of tax working people are paying, and the rate of growth in the economy in the coming year.
I suspect that Ministers will want to avoid our new clause 6 because they know what the answers will be. The truth is that whether through this Bill or any other means, the Government are letting energy bills soar, refusing to cancel their national insurance hike, and failing to set out a plan for growth. The Conservatives’ failure to grow the economy over the last decade, and their inability to plan for growth in the future, has left them with no choice but to raise taxes. This low-growth, high-tax approach to the economy has become the hallmark of these Conservatives in power.
Let me make it clear why our new clause 6 might make such difficult reading for Conservative Members. People see their energy bills going up and about to soar, inflation at its highest rate in decades, and their wages falling in real terms—and what do the Tories do? They raise national insurance by £274 for a typical full-time worker. It is the worst possible tax rise at the worst possible time. We warned that it was wrong when the Government pushed it through Parliament last year. Our arguments have only got stronger since then, so instead of digging in, the Chancellor and the Prime Minister should do the right thing and scrap this tax hike on working people and their jobs. Despite calls on the Government from all sides, they are so far refusing to budge. In this Bill, they offer no relief to working people, who face soaring prices and tax bills. They have managed to find time, however, to put into law a tax cut for banks, as we see in clause 6.
Clause 6, which our amendment 35 seeks to delete, would see the rate of the banking corporation tax surcharge fall from 8% to 3%, with the allowance for the charge raised from £25 million to £100 million. That will cost the public finances £1 billion a year by the end of this Parliament. Throughout the passage of the Bill, the Financial Secretary to the Treasury has used smoke and mirrors desperately to pretend that the Government are not cutting taxes for banks. She has tried to hide this tax cut under a separate change to corporation tax that may never even come to pass.
Anthony Browne (South Cambridgeshire) (Con)
Including corporation tax and the surcharge, the taxation of banks is currently at 27%. After this legislation, it will be 28%. Does the hon. Member agree that 28% is higher than 27%, and therefore taxes on banks are actually going to rise, not go down?
James Murray
It is the same tired doublespeak by Government Members trying to hide this tax cut for banks. However they try to present it, in this Bill the banking surcharge is cut from 8% to 3%; it is there in the policy costings from the Treasury that the measure will cost the public purse £1 billion a year by the end of this Parliament. If Government Members do not like this tax cut, they can simply vote with us to delete it at the end of Report, rather than pretend it does not exist.
James Murray
No, I am going to make some progress.
The truth is that this tax cut is going ahead at a time when bankers’ earnings are on the rise, with investment banks’ profits soaring off the back of a wave of takeovers and mergers caused by the pandemic. The UK arm of Goldman Sachs—a business that the Chancellor will know well—boosted its pay by more than a third last year, Barclays is set to raise bonus payments by more than 25% in its corporate investment bank, and boutique banks in the City are expected to do especially well, as they are exempt from rules that limit bonuses.
These measures show just how out of touch this Government and this Chancellor are: they are championing a tax cut for banks while ignoring calls from the TUC, the Federation of Small Businesses, the Institute of Directors, Labour MPs, some on their own side, and the British public, to abandon their tax cut on working people and their jobs. If Ministers are still refusing to listen, today we are giving their Back Benchers an opportunity to say, “Enough is enough.” They can vote with us tonight to cancel the banking tax cut and make the Government think again.
The national insurance hike is wrong because it threatens people’s financial security. I will now turn to other aspects of the Bill that relate to wider economic security and the threat of economic crime.
Simon Hoare (North Dorset) (Con)
Just before the hon. Gentleman leaves the rise in national insurance contributions—a difficult decision for any Government, particularly given the backdrop of a manifesto commitment—surely he would criticise the Government were they to put the ideology of a manifesto front and centre, instead of trying to find a way of ameliorating what would clearly be growing waiting lists and people queuing at all our advice surgeries and offices, complaining that they could not get the treatment they needed, which they were denied during the pandemic. Surely that is the right thing to do for public health and all our citizens.
James Murray
No one denies that the NHS needs more money, but hiding behind the hon. Member’s intervention is the idea that there is no other way to raise the £12 billion that the national insurance rise will raise. It takes some cheek to hear that from Conservative Members, when just yesterday we heard of £8.7 billion being wasted on PPE procurement and £4.3 billion of fraud being written off by the Chancellor—there is the £12 billion. Frankly, the Chancellor should stop wasting money, stop letting criminals get away with fraud, and stop expecting working people to pick up the bill.
Peter Grant
I commend the hon. Member for reminding the Government just how much of our money they have wasted in the last year. Does he remember a message on the side of a bus that promised a huge cash boost to the NHS if we left the European Union, and has he wondered what happened to that money?
James Murray
I remember many slogans that the Conservative party has used and I would not trust many of them. However, I would like to make some progress and talk about what the Government are doing, or failing to do, to tackle economic crime.
Jackie Doyle-Price (Thurrock) (Con)
It is a great pleasure to address the House on the subject of new clause 2, which I am happy to sponsor with the hon. Member for Easington (Grahame Morris), with the support of the RMT. I recognise that the Government are reviewing the tonnage tax regime with exactly the right attitude, but I encourage them to think more widely about how we genuinely get a post-Brexit bonus for the entirety of this industry—not just the shipowners, but the workers. I make my comments from my position as chairman of the all-party group for maritime and ports. I am very proud of our maritime sector and I am very proud to represent the ports in Thurrock, particularly in Tilbury and Purfleet, and, of course, the Thames freeport.
The great thing about this Finance Bill is that it shows that the Government are taking advantage of the new freedoms that we have now that we have left the European Union. We now have more tax freedoms, which will encourage more business investment. I am greatly looking forward to watching the Thames freeport grow and grow. There has been a fantastic partnership between Forth Ports, which is based in Scotland, DP World, which invests in London Gateway, and of course Ford at Dagenham. It will bring a whole new lease of life to economic opportunities on the Thames. But I am very keen that workers get a better chance to share in our post-Brexit freedom. It is with that in mind that I have been very happy to engage with the RMT and with the hon. Gentleman to give my support to this sector.
If we are genuinely a maritime nation, which is one of those platitudes that we often trot out in this Chamber, we should have our own maritime workforce, whether it be through ports, or those engaged in shipbuilding—I am very pleased that the Prime Minister has given his personal backing to expanding our shipbuilding sector and getting back to making ships here. But this is also for our seafarers. On a day when we are celebrating levelling up, we should remember that our coastal communities are among those in most need of levelling up. For the workers in those areas, the opportunity to have access to more opportunities for skilled jobs surely should be grasped. With that in mind, I support new clause 2 and the amendment sponsored by the hon. Member for Easington.
Let me tell Members a story about my constituency. I have many retired seafarers in my constituency, as I would, representing what I call the ports capital of the UK—they tell me these great stories of the romantic adventures that they had as young men travelling the world—but I have no seafarers among the current generation. Although the current tonnage tax regime encourages the shipping companies to invest in training opportunities for officers and cadets—all fine and good—I would like to see that extended to encourage more training opportunities for ratings, too. I cannot think of a better way for a young person to enter the world of work than to travel and to see the world while they are learning new skills. Many skills required on a ship can be migrated into employment later in life. To me, it seems like a no brainer if we really want to open up horizons and opportunities for all our young people. It feels a bit elitist to me if, with entirely the right attitude, we use this tax regime and the concessions around it to encourage investment and training and restrict that to the officer class.
We know what has happened in the shipping industry. We are training people to fill senior positions, while shipping companies are recruiting cheaper labour from elsewhere in the world, and we all know where those countries are. At a time when we are encouraging companies to be more virtuous about their supply chains and tackling the issue of modern slavery, it seems slightly hypocritical to me that we turn the other way when we know of companies that are taking advantage of cheap labour in the maritime sector.
To be fair, the Government have done an awful lot of work on this. I congratulate them on making changes to minimum wage legislation, for example, which has improved conditions in our waters, but we are nothing if not leaders by example. I encourage the Government to go further. I am grateful for the conversation I have had with my right hon. and learned Friend the Financial Secretary to the Treasury and my hon. Friend the Exchequer Secretary to the Treasury about this. As they go through the review, I encourage them to think imaginatively about what more we can do to properly use this important measure to encourage more employment in that industry.
Alison Thewliss (Glasgow Central) (SNP)
It is a pleasure to follow the hon. Member for Thurrock (Jackie Doyle-Price). I very much agree with the principles of her new clause 2 because, if this tonnage tax is to mean anything, it should be about more than just changing a flag; it should be about changing the culture, as she mentioned. I am proud to have in my constituency City of Glasgow College, which has trained a lot of seafarers. It is a big hub for maritime education worldwide. It would be a real boon to it if we could encourage that within the UK, as we are at the moment, and in an independent Scotland it will certainly be a beacon to the world as an island nation.
I rise to speak to the amendments and new clauses in my name and those of my colleagues. As we did in the Bill Committee, we want to highlight the points on which the Finance Bill falls short. Last year, we saw COP26—also in the great constituency of Glasgow Central, where the world came to Glasgow—and I feel that the Finance Bill could have been the opportunity to mark in the legislative process in this place how important the climate change agenda is. It should have run through this Finance Bill and this Budget as through a stick of rock, but unfortunately we are left with just a fluffy sweetie in the bottom of someone’s pocket. It is not enough.
We therefore feel that there should be an assessment of the effect of the Bill’s provisions on climate change and how they affect the UK Government’s net zero targets. In Scotland, we have more ambitious net zero targets than the UK does. The Scottish Government are delivering lasting action to secure a net zero and climate-resilient future in a way that is fair and just for everyone. The SNP, in government in Scotland, is committed to a just transition to net zero emissions by 2045, with an ambitious interim target in 2030 of a 75% reduction—targets that form the heart of Scottish Government policies and actions.
An example of how that is already being delivered includes the groundbreaking and truly historic ScotWind announcement. We also already have the equivalent of almost 100% of gross electricity consumption generated from renewable sources in Scotland. We have commitments for the renewal of peatland, for the planting of trees and for the tackling of biodiversity loss, and we are leading the Edinburgh process to ensure that a whole-of-Government approach is adopted globally, while committing to protect 30%—and highly protect 10%—of our land for nature by 2030.
All those things are laudable policies, but we see no actions by the UK Government to incentivise them. Finance Bills are full of tax cuts, tax rises, incentives and different measures, and this Bill could have moved so much further to incentivise net zero through the measures introduced. The Bill does not go far enough. It is important to measure not only what is being done, but what could be done. Were the UK Government serious about their climate change commitments, they would rethink the illogical decision to deprioritise the carbon capture and storage facility in the north-east of Scotland. It was a real opportunity. The Government could have and should have gone further, but they short-changed Scotland yet again.
We support a great number of the new provisions in the Bill to do with economic crime. Members should have read already the excellent report released by the Treasury Committee, on which I sit, and which I came from earlier on this afternoon. The 11th report of the Committee, on economic Crime, is a very compelling and detailed read. It notes:
“Economic crime is a major and rapidly growing problem in the UK”,
and that while there has been a range of different initiatives by the UK Government, economic crime
“seems not to be a priority for law enforcement.”
Ministers came to the Committee and told us that they were “not happy” with the progress the Government have made in tackling economic crime, and I could not disagree with the Government on that point. There is certainly a lot more to be done.
While the economic crime levy is broadly welcome, it strikes me that a lot of taxes here are taxing people who are doing the right thing already, rather than chasing the people who are not. That really ought to be more the priority, because we have seen a Minister in the House of Lords resign because of the Government not doing enough and being frustrated at the lack of action by the Government to tackle fraud in the coronavirus loan schemes. There is an awful lot more that the Government could and should be doing on this.
We seek movement on the economic crime Bill. We want there to be an economic crime Bill because so much of the legislation on this issue is still held at Westminster. On the registration of companies, for example, I have spoken long and weary, and will continue to do so, about the deficiencies in Companies House. The register is complete and utter guff, in that people can put anything in and it is not checked, because there is only an information gathering function, rather than any kind of checking, verification or anti-money laundering organisation at Companies House, and that needs to change. We very much want to see movement on the long overdue registration of overseas entities Bill, and we support all amendments to this Finance Bill to that end. I sat on the Joint Committee, with Members of the House of Lords, on the draft Registration of Overseas Entities Bill, and we took copious information from experts in the field. They said to us, “If you shut down this route, we know where people are going to go next”, and “If you do this, then this will happen.” We made recommendations to the Government, and the Government did not even at that time take up all the recommendations the Committee made.
Since that report was published and the Joint Committee sat, things have only got markedly worse. The criminals are getting away with more, and that has a real effect, because there are implications if those buying up huge swathes of London property cannot be traced. If that property, which should be housing people, is not available to them because it is being used as a means of money laundering, that should worry us all. There are of course implications more widely of the money coming in from Russian oligarchs, with the Government being left vulnerable in dealing with the wider crisis in Ukraine.
If we do not know who owns such property, how can we sanction them and follow them up? How can we take some action against those using the UK as a means of laundering their dirty lucre? We cannot, and it is really important that the UK Government act on this more urgently than they have before. As the hon. Member for Ealing North (James Murray) mentioned, some of this began in 2016. There were Bills in 2018, including the opportunities in the Sanctions and Anti-Money Laundering Bill in 2018, and all such opportunities have been missed, and they are being missed yet again in the Finance Bill we are discussing this afternoon. I think there needs to be an awful lot more action taken, and an awful lot more quickly.
I have quoted other people talking about economic crime recently, but I want to mention Professor Sadiq Isah Radda, who, as the executive secretary of the Presidential Advisory Committee Against Corruption in Nigeria, told our Prime Minister that London was actually
“the most notorious safe haven for looted funds in the world today”.
That really should spur the Government here to action. This has been going on for far too long, and it absolutely must be tackled. It is a stain on the UK and, through things such as Scottish limited partnerships—the legislation those on is reserved to here; it has nothing to do with Scotland—it tarnishes Scotland with a dirty name by association.
Each Finance Bill makes our tax code more complex and, within that, there are more opportunities for people to seek loopholes and ways to reduce the tax that they should pay. For all of us, tax should be regarded not as some kind of burden, but as a duty and the price we pay for living in a civilised society. The more complicated the tax code, the more it can be exploited.
That complexity is hinted at somewhat in the corrective amendments that Ministers have tabled at this late stage. Although this Bill is so complicated, they come to us on Second Reading and in Committee and say, “Oh yes, all things are fine”, but today, at this late stage, we find that things are not quite right and have to be corrected. That makes it all the more worrying that the Government are bringing in this whole new proposal—the public interest business protection tax—without due notice. Again, there may be legitimate reasons for not giving due notice, but there is no consultation or evidence gathering that we get to see before we come here to vote on it today. That goes alongside my general complaint about Finance Bills, which is that their Bill Committees do not take evidence and they should, because that is really important. The public interest business protection tax may well be laudable, but we just do not know sufficiently whether it will be effective, what the evidence is or the Government’s full motivations for introducing it.
I am very grateful to George Crozier of the Chartered Institute of Taxation and the Association of Taxation Technicians, who wrote to me last night with some of his concerns about the proposal and the way that it has appeared at this late stage. Some of his questions about bringing in a new tax without due notice are about the mechanisms in the Bill. It is supposedly time-limited to 12 months, so theoretically it could then be extended in time and in scope by regulation. We do not know whether the Government intend to do that if Ofgem do not move as quickly as they want it to. Again, I accept that the proposal may be about getting Ofgem out of a hole. I am sure that is fine, if that is what the Government want to do, but does that not indicate that it is much easier to make tax changes than effective regulatory changes when there is a point of crisis?
I was very glad that, by coincidence, we on the Treasury Committee had Jim Harra of Her Majesty’s Revenue and Customs in front of us this afternoon. I asked him what he felt the impact of this proposal would be, including whether it would have an operational impact. He said, “No, because we hope it raises no taxes whatsoever”. It is unusual for the head of HMRC to say that he hopes to raise no tax from a measure in a Finance Bill, but that is what he said.
As an anti-avoidance, preventive measure, sure, that is fine, but the way in which it has been introduced this afternoon is not very good. We have seen this very late, and we get all the documents, explanatory notes and all the other things that come with it. To introduce something such as this in a Finance Bill seems very suboptimal, as the Minister is wont to say.
Bringing in a policy such as this also misses the wider set of reforms that are needed to the energy system, which the Government are not taking forward with sufficient urgency. My Glasgow Central constituents and households across these islands are urgently crying out for practical support with their energy bills. They need to know that they can afford to put the heating on in the morning. They need to know whether they can afford to use the cooker to heat up their kids’ dinner. They need to know whether they can turn the lights on or whether they all have to huddle in the dark with candles. That is the stark reality for so many people, and it is part of what is missing from this Government’s action. I said at Treasury questions yesterday that it had been almost two months since the Chancellor came to the House. Although he came yesterday, there was still no practical solution for such people; there is no practical solution in this Finance Bill.
While I am here, I want to ask the Minister about a query raised by the former Pensions Minister, Steve Webb, who pointed out a change on the HMRC website that says:
“Rates for Working Tax Credit, Child Tax Credit, Child Benefit and Guardian’s Allowance for the 2022 to 2023 tax year are provisional and may change between now and 6 April 2022”.
I asked HMRC officials why that change to the website was made and they did not know. I ask the Minister whether she knows why that change has been made. Are the Government riding to the rescue of those people, or is it just a change on a website? It would be useful for people to know the full implications.
Several hon. Members rose—
Madam Deputy Speaker (Dame Eleanor Laing)
Order. I hope to bring in the Minister at 5.55 pm at the very latest, because many questions have been asked that hon. Members want the Minister to answer, so it is only fair to give her the time to answer them. Three hon. Members have tabled new clauses to which they must have the opportunity to speak. I must ask for short speeches, please; I hope we can manage without a time limit, but if those who are speaking to their new clauses can keep to five minutes, everyone will have the opportunity, however briefly, to address the House.
Layla Moran (Oxford West and Abingdon) (LD)
I rise to speak on behalf of the Liberal Democrats, particularly on new clause 27, which is tabled in my name.
The Liberal Democrats have concerns about this Bill. People who work hard, pay their taxes and play by the rules are seeing their incomes squeezed through no fault of their own. They are being crippled by tax hikes, benefits slashes and skyrocketing bills, and today I am afraid the Chancellor is letting them down. He is providing less in extra catch-up funding for children than he is in a tax cut for bankers. In contrast, the Liberal Democrats are calling for a £15 billion catch-up fund for kids, support for small businesses and protection from energy bill rises for the most vulnerable, and we support all new clauses that help to that end. We live in precarious times and we must do more.
In the context of escalating tensions with Russia, I am also concerned about what is missing from the Bill. New clause 27 has support from both sides of this House. It is similar to new clauses 4 and 11, tabled by Labour and SNP Front Benchers—I am grateful to them for rowing behind this clause—but it also has Conservative Members as signatories, which goes to show the cross-party support for bringing in this measure.
The new clause asks for an impact assessment to be produced on the operation of the new economic crime levy, and would require the Government to assess how a register of beneficial owners of property would contribute to the effectiveness of such a levy. Sadly, due to the scope of the Bill, the new clause cannot introduce such a register, but that does not make the need for it any less urgent.
The register would close the loopholes that allow oligarchs to launder money through British property. Lax regulations have turned London into a playground and a laundromat for Russian oligarchs, with successive warnings from the intelligence and security communities painting the city as “Londongrad”. Prior to the pandemic, Transparency International identified 87,000 properties in England and Wales that were owned by anonymous companies registered in tax havens. A new analysis has found that, of the £6.7 billion-worth of UK property bought with suspicious money, £1.5 billion comes from Russia.
On Monday, the Foreign Secretary spoke about introducing new sanctions, and I welcomed that. It is interesting that The Moscow Times reported on Monday that the Kremlin was “alarmed” at the British threat and vowed to retaliate. The dirty money that oligarchs invest in yachts, football clubs and Belgravia mansions has close ties to Putin’s own wealth. We know how he operates: he gives them the money to buy the assets. If we aim at the oligarchs, we aim at Putin, but there is a problem, because we cannot sanction what we cannot see. Claims from the Government that we are standing up to Putin’s military manoeuvres ring hollow when he and his friends know full well that they have already hidden half the money in our own back garden, and the Government continue to do nothing about it.
Dirty money also undermines our credibility with our allies. The Centre for American Progress, a think-tank closely linked to the Biden Administration, said:
“Uprooting…oligarchs will be a challenge given the close ties between Russian money and the United Kingdom”.
I am afraid to say that the stench of corruption and dirty money wafts over our political system and the whole country, and it is incumbent on us here and the Government to clean it up. There is a way to do that, and it is through the economic crime Bill, but waiting for that feels like waiting for Godot. It should not be this difficult to get the Government to make good on their own promises, because it was a Conservative Government six years ago who said they would introduce it. Two thousand days later and we have had nothing.
Just this week, the Prime Minister stood at the Dispatch Box and announced plans for a register of beneficial ownership, but at this stage it feels like he is the boy who cried wolf. I urge the Minister to accept new clause 27, which has support on both sides of the House, to start those tentative steps, to show Putin we are serious and to make sure that we clean up dirty money from our politics and our country for good.
Grahame Morris (Easington) (Lab)
I appreciate the opportunity to speak to new clause 2 and amendment 34. I thank all Members who have co-sponsored or signed the new clause. It indicates extensive support not just from Labour Members, but from Members from across the House and a variety of parties. I must declare my interest as a member of the National Union of Rail, Maritime and Transport Workers parliamentary group, and I refer Members to my entry in the Register of Members’ Financial Interests.
New clause 2 is very important to UK-based employment in the maritime sector. The issue has been raised with the current shipping Minister, the hon. Member for Witney (Robert Courts), who is sympathetic to the arguments we are making, and previously with his predecessors, most notably the right hon. Member for South Holland and The Deepings (Sir John Hayes), who was enthusiastic about what we propose.
Clause 25 of the Bill makes tonnage tax more flexible for ship owners but no corresponding adjustments for seafarer jobs and skills based in the UK, as eloquently pointed out by the hon. Member for Thurrock (Jackie Doyle-Price). The tonnage tax’s original purpose—it was introduced by a Labour Government, by Gordon Brown—was to arrest the decline in training and employment opportunities for British seafarers in an increasingly deregulated labour market. We have seen the increasing dominance of flags of convenience.
I remind those on the Treasury Bench that at the time of the Falklands war—unbelievably, 40 years ago—there were 45,000 British-based ratings and officers in the UK. Today, that number is below 23,000. About a quarter of all seafarer jobs in the UK industry are UK-based. The Bill does not seek to improve the mandatory link to train officer cadets or to create a separate mandatory link for the training of ratings.
The comprehensive spending review Red Book commits the Government to
“explore how best to make use of existing powers regarding the training commitment”.
However, I understand from discussions with the maritime unions that the process, which I inform the Treasury Bench is being taken forward by the Maritime and Coastguard Agency, is not considering any specific measures to train British ratings or to employ British seafarers, including those who were trained on the tonnage tax vessels. This is a real wasted opportunity. If there is to be a Brexit dividend, we really must address that.
Perhaps it is a case of the Government, without taking action, inadvertently damaging the UK maritime sector, but there is an opportunity to put it right. New clause 2 would require the Government to review the impact of clause 25—tonnage tax—on employment and training for British officers and ratings, including the effect of changes to flagging arrangements on qualifying ships.
Jackie Doyle-Price
The hon. Member is making the case persuasively. Does he agree that one of the difficulties is that Government policy is siloed in this area? Perhaps that is why the Government are missing the opportunity. He is right that the maritime Minister—the Under-Secretary of State for Transport, my hon. Friend the Member for Witney (Robert Courts)—gets it completely and is sympathetic, but the decision-making capability rests with the Treasury. Does he think that we need to get the Government together to see the right outcome for everyone involved in the shipping industry?
Grahame Morris
I am grateful for that intervention, and of course the hon. Member is right. The new clause’s proposal is not revolutionary; it is common sense. It is joined-up Government and application of the principle of trying to ensure benefits for British-based seafarers from the growth predicted for the maritime sector, particularly in relation to zero-carbon and offshore. That is particularly important, given that the Government could seek to use clause 25 to attract more flags of convenience into the tonnage tax scheme. Tonnage tax is a tax break that has already provided £2.165 billion in relief from corporation tax for UK and international ship owners.
In truth, the new clause would be a modest change. The real measure required to boost seafarer jobs and training, including in some of our most deprived coastal communities—including mine—would be a new mandatory link to ratings training, as well as officer cadet training, as advocated by the ratings’ union, the RMT. I do not propose that, however, because that is beyond the scope of the Bill.
Amendment 34, which is linked to new clause 2, seeks to provide the Secretary of State with the power to consult maritime trade unions over compliance with environmental safety and working conditions on non-UK flagships in the tonnage tax scheme. That would be consistent with the minimum standards on seafarer safety that everyone in the House would seek to support and which are part of the maritime labour convention to which the UK Government are a signatory along with all other maritime nations. I could say a little more but time is short, so, in the interests of progress, I shall leave it at that.
Bell Ribeiro-Addy (Streatham) (Lab)
I rise to speak to new clause 7, on equality impact analyses. The Government’s efforts to date on equality impact assessments overall have been woeful. There should not be a need for me to speak to any detail of the new clause. We cannot talk about sexism, racism, homophobia, ableism, poverty and regional inequality properly without talking about the economy, because we know that structural inequality and discrimination hold many of our communities back. As my hon. Friend the Member for Ealing North (James Murray) said, we have a right to know exactly who benefits from the Government’s policy agenda, but their continued refusal to publish proper impact assessments for their Bills speaks for itself.
I want to emphasise how the Government and the Bill are deepening already existing inequalities. For all the talk of levelling up, the Government’s policies amount to a sharp widening of all types of inequality, which are already among the widest in western Europe.
Mr Deputy Speaker (Mr Nigel Evans)
Order. I can see two Members standing and I intend to call the Minister at 5.55 pm. I call you first, Mr Grant, and any time you do not use up before 5.55 can be used by your colleague—no pressure.
Peter Grant
Thank you, Mr Deputy Speaker; I am pleased to be able to make a brief contribution to tonight’s debate. I commend the three previous speakers, the hon. Members for Streatham (Bell Ribeiro-Addy), for Easington (Grahame Morris) and for Oxford West and Abingdon (Layla Moran). It is unfortunate that the very inadequate time that the programme motion allowed did not give any of them the time they deserved, given the amount of work they put into their amendments.
I mentioned new clause 3 and new schedule 2 earlier, but “schedule” is a misnomer here. We are not talking about a schedule; we are in effect talking about the “Finance No. 3 Bill”, 25 pages long and intensely complicated. This is our one and only chance to get it right and none of us can feel comfortable that it was tabled on Monday, it is being debated on Wednesday and it comes into force on Friday—not next Friday, but the previous Friday. What on earth are the Government playing at?
I do not have an issue with any of the other important business that took up today’s time—nobody could have any issue with any of that. My issue is that when the Government knew they were going to table such a substantial, technical and complicated amendment at this stage, it was up to them to amend the programme motion to give a decent amount of time, because 90 minutes for this debate is ludicrous. Only the Government had the ability to put forward a change to the programme motion; and only the Government had the opportunity to consult with Opposition parties in advance of that amendment being tabled, or indeed to discuss it with outside stakeholders. Not doing so was a failure, unless the Minister can give a very good reason as to why secrecy was so important. Springing it on the House in this way was, I believe, an abuse of the Government’s powers and shows contempt for Parliament.
The aim of the new tax is laudable and nobody would argue against it, but we have been given no indication as to why the tax is the way to prevent the kind of behaviour that we are trying to deter. It appears that it is just because they can change the tax system immediately and make it retrospective, whereas other things would take a bit longer. I ask the Government this question outright: is the urgency because they have picked up intelligence that another major player in the energy market was about to cut and run—to cash in and bail out? If they cannot answer that in public today, I would appreciate it if they contacted me after, on a guarantee of confidentiality. To be honest, I can see no other reason why there was a need for such secrecy and last-minute panic.
The amendment is restricted to energy companies, but it can also be extended to apply to any other kind of company the Treasury chooses to designate. What is that for? Can the Minister explain what other companies might need to be brought in, and in what circumstances that might need to happen? The measure is only to be in place for a year, or for such other time as the Treasury decides it wants to extend it, and it can extend it as often as it wants, although only until 2025. However, given that the Minister has said that the amendment is essentially a stopgap until Ofgem is able to amend the regulatory environment to prevent these abuses in the market, just how lacking in confidence are they of Ofgem and its ability and willingness to fix this long-standing problem if they think it might need another three years before it is fully dealt with?
Paragraph 41 of new schedule 2 gives the Government the power to change the law retrospectively. No Parliament should ever lightly agree to such a power, but tonight we have been given no choice; we simply have not had sufficient time to look at the detail of that or to get the assurances we would usually want about what that power will and will not be used for.
My hon. Friend the Member for Glasgow Central (Alison Thewliss) referred to comments from the Chartered Institute of Taxation, and the Association of Tax Technicians told me yesterday:
“We have a brand-new tax without any prior announcement, no consultation, little debate, which will be enacted before the next Budget, and will be effective from 28 January 2022. OK, these are arguably special circumstances, but is this a good way to run a tax system?”
The short answer is no, it is not.
Lucy Frazer
I shall endeavour to answer all the points raised swiftly, Mr Deputy Speaker.
The hon. Member for Ealing North (James Murray) began by asking in new clause 6 for us to publish a review of the impact of the amount of tax working people will be paying. He will know that we have already published the “Impact on households” document in the October Budget of 2021 and the Office for Budget Responsibility already produces fiscal forecasts. However, he used the amendment to discuss the issue more broadly, suggesting that the Government were not doing enough to help working families. That simply is not correct, and he knows it.
We have cut tax for low-income families by introducing the universal credit taper rate, saving working families £1,000 a month. The hon. Gentleman will know that we increased the rate for the national living wage, and he will know about the half a billion pounds of household support for the hardest-hit families—not to mention the significant covid support that we have given the families who have needed it over the last 18 months to two years. However, the best way to help people to have appropriate incomes to support themselves is to get them into jobs, and that is why we have spent £2 billion to get young people into the kickstart scheme, and £2.9 billion to help the 1.4 million long-term unemployed to get into jobs, ensuring that we have a lower unemployment rate than comparable countries such as Canada, France, Italy and Spain.
The hon. Member for Oxford West and Abingdon (Layla Moran) talked about the need to put more money into people’s pockets, and to support services. That is exactly what we did in the spending review, with a cash increase of £150 billion a year by 2024, the largest real-terms increase provided by any Parliament in this century. Only yesterday, I was pleased to see an announcement about levelling up education funding across the country.
The hon. Member for Ealing North mentioned the NHS and social care levy. I am proud that this Government are willing to tackle the really difficult issues that face this country. My hon. Friend the Member for North Dorset (Simon Hoare) pointed out that if we secure sufficient funds, we shall be able to tackle waiting times and have more doctors. I should point out that it was a Labour Government who, in the same way, increased national insurance contribution rates by 1% in 2003, specifically to increase NHS funding. The hon. Member also mentioned the banking surcharge, but, as was mentioned by my hon. Friend the Member for South Cambridgeshire (Anthony Browne), tax rates for banks are going not down, but up—to 28%, when they would otherwise be at 27%.
A number of Members on both sides of the House mentioned the economic crime measures in the Bill, and the beneficial ownership register. I hope that those Members were present for Prime Minister’s Question Time this afternoon and heard what the Prime Minister said, showing that we are committed to introducing this legislation. However, we have already done a significant amount to tackle economic crime. Since 2010 the Government have introduced more than 150 new measures and invested more than £2 billion in HMRC to tackle fraud. We do not want in this country money that has been gained through criminality or corruption—it is not welcome in the UK—and the international Finance Action Task Force concluded in December 2018 that we have some of the strongest controls in the world. Since then, we have strengthened those powers even further.
I will spend a couple of seconds on the new clause relating to tonnage tax, referred to by the hon. Member for Ealing North, my hon. Friend the Member for Thurrock (Jackie Doyle-Price) and the hon. Members for Glasgow Central (Alison Thewliss) and for Easington (Grahame Morris). It is important to ensure a fair wage for our seafarers, who are recognised worldwide as some of the most highly skilled. That is why, in 2020, the Government extended the minimum wage entitlement to seafarers on domestic voyages.
The Department for Transport’s “Maritime 2050” strategy shows that we want a diverse and rewarded workforce, so we will continue to engage closely with industry and trade unions to support the training and employment of both British officers and ratings. I understand that the RMT has had recent meetings with the DFT and the Maritime Skills Commission on the training of ratings and has been invited to submit its analysis to inform further discussions. I wish I had more time to deal with that matter, but I will be happy to take it up further.
On the residential property tax, the hon. Member for Ealing North will know that the Secretary of State for Levelling Up, Housing and Communities is actively working on the matter.
Climate change goals were mentioned by the hon. Member for Glasgow Central, who said that there was not enough investment in businesses to incentivise them. However, in the last financial year, we issued £16 billion-worth of green bonds and set up the UK Infrastructure Bank to invest in net zero, backed with £12 billion of capital, which will also help to unlock more than £40 billion of overall investment in infrastructure.
For all those reasons, and many others, I urge hon. Members to accept the Government amendments, but not the others.
“30 | Public interest business protection tax | (a) Return under paragraph 8 or 9 of Schedule (Public interest business protection tax) to FA 2022 (b) Accounts, statement or document required under either of those paragraphs.” |
“Public interest business protection tax | Return under paragraph 8 or 9 of Schedule (Public interest business protection tax) to FA 2022. |
“Public interest business protection tax | Return, statement or declaration in connection with a claim for a relief |
“Public interest business protection tax | Accounts in connection with ascertaining liability to tax.” |
“1B | Public interest business protection tax | Amount payable under paragraph 8(6) of Schedule (Public interest business protection tax) to FA 2022 | The date falling 30 days after the date specified in that paragraph as the date by which the amount must be paid |
1C | Public interest business protection tax | Amount payable under paragraph 9(7) of Schedule (Public interest business protection tax) to FA 2022 | The date falling 30 days after the date specified in that paragraph as the date by which the amount must be paid |
1D | Public interest business protection tax | Amount payable under paragraph 12(8) of Schedule (Public interest business protection tax) to FA 2022 | The date falling 30 days after the date specified in that paragraph as the date by which the amount must be paid.” |
Lucy Frazer
I beg to move, That the Bill be now read the Third time.
In the autumn Budget, the Chancellor set out a vision to build a stronger economy that would allow this country to bounce back from the pandemic. This Finance Bill takes forward measures that will help to turn that vision into reality and drive growth for our country long into the future. Its measures will support business across the UK, including our banking, creative and shipping sectors. In addition, the Bill will protect businesses and the public by clamping down on tax evasion and economic crime, improving trust and building a fairer UK economy.
I turn first to the measures in the Bill designed to safeguard and strengthen industry and the wider economy. To help businesses invest and grow, we are extending the annual investment allowance at its highest-ever level of £1 million until 31 March 2023. The £1 million AIA level means that more than 99% of businesses will have their plant and machinery expenditure covered.
We are also extending the support offered to the creative industries by providing additional tax reliefs to theatres, orchestras, museums and galleries as the sector recovers. These rates of higher relief will provide a further incentive for new productions, exhibitions and concerts up to April 2024.
Finally, reforms to the UK tonnage tax regime will encourage more firms to base their headquarters in the UK to use our world-leading maritime services industry and to fly the flag of the UK. This will bring jobs and investment throughout the country, and especially to our coastal communities.
I now turn to how the Bill will deliver stronger public finances. The Bill sets the rate of the bank surcharge so that the combined rate on banks’ profits will increase to 28% from April 2023. It also increases the surcharge allowance to £100 million. These changes will ensure that the banks continue to make a fair contribution while encouraging growth and competition for smaller groups within the UK banking market.
The 1.25% increase on dividend income rates from 6 April 2022 will help fund the health and social care settlement, ensuring that contributions are made based on employed and self-employed earnings. The Government are also introducing the new 4% residential developer tax on the most profitable developers. This will raise at least £2 billion over the next decade to help pay for the removal of unsafe cladding, providing reassurance to home owners and boosting confidence in the UK housing market.
At the heart of this Finance Bill is the desire to safeguard taxpayers’ interests and deal with those who avoid paying their fair share. The economic crime levy will help deliver the Government’s objectives to combat economic crime and will raise an expected £100 million per year to fund anti-laundering measures. The levy is calculated by UK revenue and provides the fairest and simplest method for the anti-money laundering regulated sector to contribute further. That will cement the UK’s reputation as a secure country in which to conduct business and solidifies the Government’s ambition to permanently tackle economic crime.
As I mentioned earlier, the Bill’s measures will clamp down on tax avoidance and evasion. It will give HMRC more powers to tackle promoters of tax avoidance schemes by levying penalties on UK entities that enable them. The measures are accompanied by an increase in the duty charge on tobacco products by 2% and a rise in the minimum excise tax to 3% above RPI inflation, alongside new measures to tackle duty evasion. That will help reduce the long-term burden on the NHS and improve public health generally.
By targeting businesses that manipulate electronic records to evade tax, the Bill reinforces the Government’s efforts to tackle unscrupulous businesses that carry out electronic sales suppression. The measures are essential to Britain’s reputation as a global hub for businesses and as a secure and transparent place in which to conduct business.
I thank hon. and right hon. Members for their helpful and insightful contributions to the debates during the Bill’s passage.
To conclude, this Finance Bill supports our efforts to build a stronger economy. It tackles tax evasion and avoidance, and, ultimately, its measures will create a brighter and simpler future for industry, the economy and the UK as a whole. For those reasons, I commend it to the House.
James Murray
When we first debated this Finance Bill on Second Reading in November last year, it was clear to us that it offered nothing to help people struggling with the rising costs of living and facing tax rises this April. Since that time, pressures on people across this country have only become more intense, and the need for the Government to act has only become more urgent.
Inflation is now at its highest rate in decades and energy bills are set to soar in April, just as the Chancellor is set to hike national insurance on working people. That tax rise, when combined with energy price rises and other tax hikes, will leave families on average £1,200 worse off a year. Yet there is nothing in the Bill to help with the cost of living. There is, however, a tax cut for banks in the Bill, despite bankers being widely expected to receive large bonuses this year, as investment banks’ profits have soared off the back of a wave of takeovers and mergers caused by the pandemic. It shows just how out of touch this Chancellor is. At the weekend, he decided to dig in over his tax rise for working people. By the middle of the week, he is using the Bill to cut taxes for banks by £1 billion a year.
In earlier debates on the Bill, we were critical of the Government for not doing enough to combat economic crime. We welcome the principle of a levy, but we are left wondering why on earth legislation that would set up a register of overseas owners of UK property—a critical tool to tackle money laundering—has been left to gather dust. On Second Reading, we challenged the Government over their failure to establish such a register. Our country has earned the shocking reputation as the world’s laundromat for illicit finance. A new public register would bring desperately needed transparency to the overseas ownership of UK properly, and would help to stop it being used for money laundering.
Since that time, the need to bring transparency to the question of who owns high-end property in the UK has only become more urgent. Economic sanctions against Russia will never have the effect that they should as long as our Government let those who are linked to Putin and his regime hide their wealth in the mansions of Knightsbridge and Belgravia.
We also asked what the Bill does for another type of property: buildings with unsafe cladding that need to be remediated. We questioned Ministers on how they had arrived at their decision on the level of the residential property developer tax when so much more was needed to protect leaseholders from bearing the cost. Since we first raised our concerns about the detail of that tax, the Government have realised that they were wrong to make leaseholders in buildings of between 11 metres and 18 metres take out forced loans to cover the cost of cladding remediation in their buildings. The Housing Secretary now says that he is planning to convince developers to hand over £4 billion voluntarily. If he fails, we want to know how leaseholders and those in need of affordable homes will be protected. Despite our questioning earlier today, Treasury Ministers have been unable to offer people the reassurance they need.
Finally, there is no plan for growth in the Bill. We are stuck in a low-growth, high-tax cycle. With strong growth, we would have the chance to create new jobs, with better wages and conditions, in every part of this country. With low growth, it gets ever harder to meet the challenges we face, and the Tories have no choice other than to put up taxes.
The shadow Chancellor, my hon. Friend the Member for Leeds West (Rachel Reeves), has set out Labour’s plan for growth: investing in skills, research and development, and the industries of the new green economy; choosing to buy, make and sell more in Britain; and creating jobs in every part of the country. We would build a stronger economy with our plan to give working people the respect they are due, to give people real economic security, and to ensure prosperity in every part of Britain. That is the approach that our country needs in order to grow and meet the challenges of the future.
Right now, people across the country need the Government to protect them from the cost of living crisis and protect our country from dirty money from Russia. All we have instead is a Prime Minister who does everything he can to protect himself. We opposed the Bill on Second Reading and, as our reasons for doing so have only grown stronger, we will vote against it tonight.
Alison Thewliss
I thank the Government and the official Opposition Front-Bench teams for the way in which proceedings on the Bill have been conducted. We have all learned an awful lot about each other, and it has been a genuinely interesting process. I thank the Clerks, Chris Stanton and Kevin Maddison, for their support, without which we would definitely have struggled to put our amendments forward. I thank Clorinda Luck, one of the SNP’s senior researchers, for stepping in at short notice to cover some of the research on the Bill—I am very grateful to her for that work.
Although some of the measures in the Bill are welcome, we in the SNP have to oppose it because it is such a missed opportunity to do so much more about economic crime and the scourge of money laundering and kleptocracy coming to the shores of these islands. There is a lack of action to tackle the misuse of Scottish limited partnerships and shell companies, and to tackle the money flowing through the very city we are standing in. The Bill is also a missed opportunity to do more on net zero in particular. Given last year’s COP, there should have been a great deal more to focus minds and move to a greener and fairer economy.
The Bill is indicative of a Government who are removed from the problems that ordinary people face and who are without solutions to the challenges that our constituents are seeing right now: the challenges of inequality, the scars of 10 years of austerity, the cost of living crisis, which is making life so very difficult for so many people right now, soaring inflation and energy prices that are spiralling out of control.
Contrast that with the opportunity presented by Kate Forbes in the Scottish Parliament last week. With the limited powers that we have over the Scottish Budget, that Budget offers great hope to the people of Scotland. We look enviously at the powers that we could have as a full, independent, normal nation with the full levers to make the real inroads into inequality, to make life fairer, better and more just for the people of Scotland. So we cannot support this Budget and we wish that very soon we will have that full range of powers to make things better for our own citizens.
Question put, That the Bill be read the Third time.
Finance (No. 2) Bill
Thursday 3rd February 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate Finance Act 2022 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 2 February 2022 - large print - (2 Feb 2022)
Finance (No. 2) Bill
Tuesday 22nd February 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate Finance Act 2022 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 2 February 2022 - large print - (2 Feb 2022)
Baroness Penn (Con)
My Lords, we are here to debate the annual Finance Bill, introduced in the House of Commons following the Budget on 27 October last year. My right honourable friend the Chancellor of the Exchequer outlined then a Budget to build a stronger economy: an economy of higher wages, higher skills and rising productivity, with more investment in infrastructure, innovation and skills; stronger growth, with the UK recovering faster than our major counter- parts; a stronger labour market, with falling unemployment and record numbers of payrolled employees; and stronger public finances, with a simpler, fairer and more sustainable tax system to support businesses and consumers. That is the Government’s vision for the future of this country, and this Finance Bill will help to deliver that vision for the tax system.
It may be helpful to noble Lords to start with a little of the context behind the Bill. Our country’s economic situation has significantly improved in the past year. The UK’s real GDP growth was the highest in the G7 in 2021, at 7.5%, and the IMF is now forecasting that we will have the highest growth in the G7 again in 2022, at 4.7%. GDP remained at pre-pandemic levels in December, despite the impact of the omicron variant and plan B measures. The labour market is also performing extremely well, with the total number of employees on payrolls above pre-pandemic levels, redundancies at an all-time low and record numbers of vacancies. However, there are challenges ahead, with global supply chain disruption and high energy prices adding to inflation around the world and helping to explain the rise in inflation above the 2% target in the UK in recent months.
These are global problems, neither unique to the UK nor possible for us to fully address on our own, but the Government are committed to working with international partners to monitor global supply chain pressures and strengthen the resilience of our critical global supply chains. We are also providing support worth over £20 billion this financial year and next to help families with the cost of living. In 2021, we moved away from providing emergency economic support to focusing on our economic recovery. This is a transition from a period where the Government rightly provided unprecedented support, to a promising future.
Credit for this recovery must, of course, go to our vaccination programme, including the outstanding booster programme, but equally we must not overlook the steps that this Government have recently taken to support families and businesses, including through measures contained in the last Finance Bill. This action has boosted public finances, allowing the Government to invest at scale through the Budget and the spending review, with significant increases for government departments in overall spending.
But debt is still at a historically high level. It is set to pass £2.3 trillion and is currently at its highest level as a percentage of GDP since the early 1960s. While the level of debt is currently affordable, there are significant risks associated with elevated levels of debt. Although the fiscal outlook has been improving, new fiscal rules will help to ensure that public finances remain on a sustainable path. This approach will ensure that the Government can continue to invest in first-class public services, support people and businesses through the next stage of our economic recovery and lay the foundations for future economic growth. This is also a responsible approach to our public finances that allows the Government to respond to global challenges where needed, including the recent package of support to help households with rising energy bills, worth £9.1 billion this year.
I now turn to the content of the Finance Bill itself. The Bill contains several measures that will help build a stronger economy and help businesses to invest in the UK’s future growth and prosperity. Noble Lords will be aware that productivity in this country has long lagged behind that of our international counterparts. The Government are determined to rectify this and to help businesses to reach their full potential by making it easier for them to invest and grow. That is why, in March 2021, the Government introduced the new super-deduction. As the Chancellor noted at the Budget, now is not the time to remove tax breaks on investment. The Bill therefore extends the temporary £1 million limit of the annual investment allowance again until the end of March 2023, instead of allowing it to revert to £200,000, as planned, from the start of 2022. This higher AIA level provides businesses with more upfront support and encourages them to bring forward investment.
Measures in the Bill will also help to protect our unique culture and heritage, by making our creative tax reliefs more generous. Social distancing and wider restrictions have had a particular impact on companies relying on live performances and exhibitions to generate their core revenue, such as theatres, orchestras, museums and galleries. It is therefore right that the Government support charitable companies to put on high-quality museum and gallery exhibitions. That is why the Bill extends the tax relief for museums and galleries by another two years, to March 2024. It also doubles the tax reliefs for theatres, orchestras, museums and galleries until April 2023; they then revert to their normal rate only in April 2024. This is a tax relief for culture worth almost £0.25 billion, which will enable our creative industries to continue to flourish.
I turn now to another sector that makes an important contribution to our economic well-being, namely the maritime industry, which is responsible for 95% of our trade in goods. The UK has always been a seafaring nation and we must continue to help our shipping industry to succeed. First, that means removing any requirements for ships in the UK tonnage tax regime to fly the flag of any EU country. We will focus instead on boosting the use of the UK’s merchant shipping flag, the Red Ensign. Our flag has a well-deserved reputation for maintaining the highest international standards, and we want more ships to benefit from this by registering in the UK. Secondly, the Bill will make it easier for shipping companies to move to the UK from April this year, bringing jobs and investment to nations and regions around the UK. These measures will support our thriving shipping industry, helping to drive jobs in our coastal communities and boosting our world-renowned maritime services industry.
In March last year, the Government committed to reviewing the bank surcharge, in light of the decision to increase the corporation tax rate to 25% from 2023. As outlined in the Bill, the surcharge will be set at 3%. From 2023, this means that the overall tax rate on banks’ profits will increase from 27% to 28%, a rate that is higher than that of most other companies. This will ensure that banks continue to pay their fair share of tax, while maintaining the UK’s financial services competitiveness and safeguarding tax revenue. The Bill also raises the annual allowance to £100 million to ensure that the tax system is supportive of growth for smaller retail and challenger banks.
The economic recovery is under way, and we are investing record amounts in our public services. However, we must still take a prudent and responsible approach to our national finances, and this can mean tough choices. As the House will know, the Government are introducing a new ring-fenced health and social care levy, based on national insurance contributions. This will be supported by increasing the tax rates on dividends by 1.25 percentage points in the Bill, ensuring that those with dividend income make a contribution in line with that made by employees and the self-employed. But our generous allowances mean that everyday investors will be entirely unaffected. Around 60% of individuals with dividend income will pay no dividend tax in 2022-23.
I now turn to the new residential property developer tax. This is a 4% tax on the profits made by the largest developers carrying out residential property development activity in the UK. It forms part of the Government’s building safety package, aiming to bring an end to unsafe cladding. It will help to ensure that developers pay a fair contribution to help fund this package, and it will apply from April.
The Bill also contains measures that will help tackle economic crime, tax avoidance and tax evasion, all of which undermine our efforts to strengthen the country’s finances and build a stronger economy. The new economic crime anti-money laundering levy will help to fund new and uplifted anti-money laundering measures, including the ambitious reforms the Government announced in their 2019 Economic Crime Plan. The Bill will implement the levy on entities that are regulated for anti-money laundering purposes. These firms will benefit, both directly and indirectly, from the new and uplifted measures funded through the levy. It will impact an estimated 4,000 businesses, which will be liable to pay the levy. The amount payable will be determined by reference to the business’s size, based on its UK revenue.
I turn to tax avoidance. We know that the vast majority of tax advisers adhere to high professional standards and are an important source of support for taxpayers. However, promoters of tax avoidance schemes who use every opportunity to sidestep the rules to sell their wares fall into a very different category. The Government have taken action to clamp down on these promoters. Indeed, as a result of this action, the tax gap attributed to marketed tax avoidance has already steadily declined from its peak of £1.5 billion in 2005-06 to £0.5 billion in 2019-20—a fall from 0.4% to just 0.1% of total tax liabilities.
But we have not stopped there. We have developed, through continued engagement and consultation with stakeholders, further powers to disrupt avoidance. Measures in this Finance Bill will reduce the scope for promoters to market tax avoidance schemes. They will allow HMRC to clamp down on these schemes by giving it the power to impose penalties on UK entities that enable offshore promoters, freeze promoters’ assets to ensure that penalties they are liable for are paid, and shut down promoters which continue to sidestep the rules.
The Bill introduces tougher sanctions to tackle tobacco duty evasion, which is estimated to have cost the Exchequer £2.3 billion in 2019-20. Electronic sales suppression will also be tackled by the Bill. This is a form of tax evasion whereby a business deliberately manipulates its electronic sales records to reduce the recorded turnover of the business and corresponding tax liabilities. The Bill will make those facilitating ESS liable to a penalty fine of up to £50,000.
The Bill also helps to deliver a simpler and more sustainable tax system; for example, by simplifying the rules around basis periods. These rules determine how profits are split between tax years. The Bill will create a simpler, fairer and more transparent set of rules for the allocation of trading income to tax years. Currently, small businesses that choose an accounting date other than the dates between 31 March and 5 April face complex rules. They also face double taxation in the early years of trade and the need to maintain accurate records of overlap relief, which is often lost and not used by taxpayers. These reforms will remove this double taxation and the existing requirements of the basis period rules, creating a simpler tax environment for many small businesses.
Finally, noble Lords may also have noted that the Government brought forward a new tax during the Bill’s passage through the House of Commons. This is the new public interest business protection tax, a temporary measure aimed at protecting taxpayers and energy consumers. It is, in principle, possible for an energy business to derive value from a valuable financial asset, such as a forward purchase contract, for its own benefit and the benefit of its shareholders, while leaving its energy supply business to fail or increasing the costs of a failure. The costs of that failure would then be picked up by the taxpayer or consumers, because it would trigger a special government-funded administration regime.
Ofgem is now consulting on a range of regulatory actions that it proposes to take to ensure that the right protections are in place in these circumstances. However, it will take some time for these changes to come into effect. It would be unacceptable for the Government to allow business owners to profit from engineering this kind of outcome in the interim period, at great and direct expense to the UK taxpayer. That is why we are introducing this temporary tax. It is our hope and expectation that no business will undertake this course of action and that the tax will therefore not be charged.
There is no doubt that the pandemic has cast a long shadow over this country and our finances, but now is the time to open a new chapter in this country’s story, characterised by economic growth and renewal. We will invest in people, businesses and public services, but we will also never forget our responsibility to strengthen the public finances. A simpler, fairer and more sustainable tax system will help us achieve this. The measures in the Bill support these goals, while also continuing our long-standing efforts to tackle fraud, avoidance and evasion. For these reasons, I commend the Bill to the House and beg to move.
Lord Sikka (Lab)
My Lords, I draw attention to my entry in the register of interests. I am an unpaid senior adviser to the Tax Justice Network. I too thank the Minister for her very eloquent speech, but it cannot hide the fact that the Budget does not really do anything at all for the average person. It is regressive, the word “redistribution” is missing altogether, and taxes are piled upon the poorest. On tax avoidance, all we need to do is look for evidence. I once again ask the Minister to name any big accounting firm that has been investigated, disciplined and fined after the courts declared that the tax-avoiding schemes that it marketed were unlawful. I am still yet to hear any name at all.
In the time available, I will raise three questions about the Bill. They relate to an area that I have not really seen debated either in this House or the other House. The first follows on from the Minister’s speech, relating to the tax rate on dividends. From April, it will be in the range of 8.75% to 39.35%. That is still less than the marginal rate of income tax on earned income. Earned income is taxed at 20%, 40% and 45%. Because the two rates are different, that opens the floodgates for the tax avoidance industry. Numerous schemes designed by accountants and lawyers enable clients to convert income into dividends, so that the beneficiaries pay tax at a lower rate and national insurance contributions at a zero rate. Nobody pays any national insurance on unearned income, and that includes dividends, even though those who are not paying can use the National Health Service and receive the benefit of social care.
The Government’s approach is clearly distorting taxpayer behaviour because taxpayers will try to minimise their duty. The Government are fuelling the tax avoidance industry and then expecting HMRC to go and chase down the avoidance schemes. This is an exercise in futility, and it has gone on for years and years. The Government could take a leaf out of the book of the former Conservative Chancellor, the noble Lord, Lord Lawson, who recognised that there is no difference between earned and unearned income—both augment somebody’s wealth and purchasing power. In 1988, the Government decided that earned income needed to be taxed at exactly the same rate as unearned income; both were taxed at the same rate—at least, that was applied to capital gains, which were taxed at the same marginal rate. So the Government at that time ended a whole variety of tax avoidance schemes. The current Government are fuelling the demand for them.
In respect of this, I ask the Minister two questions. First, why do the Government aid the tax avoidance industry by taxing unearned income at a lower rate than earned income? Secondly, what is the cost of chasing the tax avoidance schemes facilitated by the Government’s own policies? I hope that the Minister will be able to give me some numbers, and then we will see where to go.
The second issue I wish to raise relates to tax reliefs. Under this Government, and other Governments since 2010, the number of tax reliefs have vastly increased. The Office of Tax Simplification, which published its final report in November 2021, had previously identified some 1,140 tax reliefs—that is how many tax reliefs we give. The cost of principal tax reliefs is published, but the disclosures by HMRC do not cover all the tax reliefs. Even worse, little is known about the macroeconomic benefits of handing out vast numbers of tax reliefs, or the amount of tax concessions—the actual amounts that people do not pay.
Following on from this, the related question is about the anomalies and abuses of tax reliefs. Let me give one or two illustrations. The first relates to something called video games tax relief, which the Government created in 2014. It was thought that this tax relief would come to about £35 million a year. By the end of March 2020, 1,000 games had received the kitemark that they need—it is called “culturally British accreditation” and is given by the British Film Institute—as a prerequisite for getting video games tax relief. However, anything seems to go; it is nothing to do with being British. Some of the games that received this accreditation are called “Batman”—I did not know that Batman lived in Downing Street—“Goat Simulator” and “Sonic the Hedgehog” are just some examples of games that have been given this culturally British accreditation and millions in tax relief. The real truth is that this culturally British fig leaf was really designed to get around the EU Commission’s rules on state aid and, in reality, it is costing the taxpayer millions of pounds.
Two of the 1,000 games that have been accredited were published by a company called Rockstar: “Grand Theft Auto V”, which received the accreditation in 2015, and “Red Dead Redemption 2”, which received it in 2019. In 2020, Rockstar claimed £56.6 million in video games tax relief. According to its accounts, it has claimed £136.6 million in total in tax relief over the years. It has paid no corporation tax at all but has paid £67.5 million in dividends. Where exactly did those dividends come from? They came from picking the pockets of the British taxpayer. There is no other explanation for this. It does not seem to me that these kinds of tax reliefs are monitored. No evidence is provided by any government department to show what exactly the benefit to the UK economy is of this American company receiving all these tax reliefs.
I will give noble Lords another example, which relates to the James Bond films. James Bond is a quintessentially British fictional hero, but the enterprise is also very lucrative for minimising the UK tax liabilities of the foreign companies behind it. In recent years, the company known as EON, which controls the Bond movies and is behind the films, has declared pre-tax losses while simultaneously receiving a total of about £120 million in tax credits via the UK’s creative industry tax relief schemes. “Spectre”, a Bond film, received £30 million, with £47 million given to “No Time to Die”. “Skyfall” received £24 million. “Quantum of Solace” received around £21 million. The James Bond films are made and marketed through a complex labyrinth of opaque offshore entities. The upshot is that, despite receiving £120 million of subsidy, EON has been paying less than £500,000 a year in UK corporation tax. So where exactly is the benefit of these things?
I would like to talk a little more about these things. A good example concerns R&D—research and development —tax credits or reliefs. For 2019-20, 85,900 claims were made for this tax relief. Some £7.4 billion of tax reliefs were claimed on an expenditure of £47.5 billion. But the Office for National Statistics data for the UK’s total R&D spend is only £25.9 billion. How come the Government have given relief on £47.5 billion?
One explanation is that, when companies conduct research and development—there is a big issue about what that means and, as an accountant, I can tell you that you can classify almost anything as R&D and claim tax relief on it—it appears that foreign companies can also claim. A company may operate and have a subsidiary here but do its R&D in the Bahamas; it can also claim these tax reliefs. So there is a discrepancy of £21.6 billion between the HMRC and ONS data. No explanation has ever been provided by the Government of why these numbers differ and why foreign entities that have little or no economic link with the UK are able to claim these things. The tax reliefs are clearly being abused, yet there is no urgency from the Government to investigate.
I will ask the Minister to do a number of things. First, at every Budget, can we have a complete list of the tax credits? Tell us exactly what their tax cost is and what the abuses might be. Tell us whether the economic benefits that are claimed actually materialise. Have they been audited? At the moment, we get very little or almost no data.
The last issue I would like to talk about is the impending global minimum tax rate of 15%, which the Government support. While the Government are handing out 1,140-plus tax reliefs, what is the impact of these reliefs on the commitment to a 15% global minimum corporation tax rate? The Government say that they are increasing the corporation tax rate but, at the same time, they are giving so many tax reliefs and allowances—at 130% of the cost and so on—that the effective tax rate is incredibly low, and the Government are reducing it even further by handing out more and more tax reliefs. So can we also see some reconciliation from the Government on the relationship between handing out these tax reliefs and a commitment to a global minimum tax rate of 15%?
Lord Razzall (LD)
My Lords, since 1911 the House of Lords, quite rightly, has not been able to amend or reject a Finance Bill, but, in recent years, we have been given the opportunity to debate them. This enables us to range somewhat more widely over government economic policy. As the Minister realises, this Finance Bill comes at a time of unprecedented financial turbulence that is affecting so many. She will be aware of fuel price increases; oil and gas prices continue to rise, affecting everybody’s bills, and recent events in Ukraine will not help that. As she will be aware, inflation is now at its highest level for 30 years. As she indicated in her remarks, government debt as a proportion of GDP, although falling, is at record levels.
Against this background, although the Minister made a brave attempt to defend the Government’s economic policy, does she not agree that this Budget and Finance Bill are a missed opportunity for the Government? To me, and I suspect to other noble Lords, it is not entirely clear what government economic policy is today. In the light of the problems faced by ordinary families, does the Minister really think that now is the time to raise national insurance? This is ostensibly to fund social care although we know that, in the medium term, it will go towards propping up the National Health Service. Does she really think the Chancellor’s plan to reduce fuel bills is the correct way to help hard-pressed families? Does she also believe that the recent cut in universal credit was fair, just and necessary?
What is the Government’s overall strategy? The Chancellor says in public that he is a tax cutter—but how? It is clear from Mr Gove’s White Paper on levelling up that there is a split at the heart of government. The White Paper contains wonderful aspirations but no details of costs, payments or how levelling up will be funded. There is no commitment to building up business and infrastructure banks to support local enterprise. Where is the financial commitment to serious transport investment so that journey times and frequencies match those of London? Where is the serious investment in social infrastructure that is promised in the White Paper? Do the Chancellor and the Minister really believe in creating one globally competitive city in each of our regions? More particularly, will the Government let him and her do that? There is surely no point in promising a gain of £2.5 trillion, as the Government have done with levelling up to the economy, if they do not provide the resources to achieve it.
I fear that the Government hope that a Brexit dividend will save them, but this is a chimera. The £350 million paid to the NHS from Europe, promised on the side of a bus during the Brexit referendum, was a lie then and is a lie now, as the cartoonist Peter Brookes demonstrated so well in his cartoon last week, with Jacob Rees-Mogg in his favourite position, lying on top of a bus.
Great play was made by the Minister of the highest growth rate in the G7 as a result of Brexit. But, first, after 2022, there is no forecaster who thinks this will last. Secondly, it is a statement of the obvious that it is easiest to be the fastest if you start from the lowest point. Thirdly, and most worryingly, growth has come primarily from a one-off increase in public expenditure as a result of the pandemic, and the private sector has been noticeably flat. It remains the case, as the Office for Budget Responsibility said last year, that our economy will be 4% smaller each year as a result of Brexit, contrasted with only 1% as a result of the pandemic. As the chair of the Public Accounts Committee in the other place said recently, all Brexit has given our industries is
“increased costs, paperwork and border delays.”
The Government cannot say they were not warned.
Lord Bilimoria (CB)
My Lords, in May last year, I chaired the B7 before the G7 in my role as president of the CBI. One of our speakers was Gita Gopinath, chief economist of the IMF. She said that an economy like the UK would have a V-shaped recovery because of our £400 billion of spend to save businesses, jobs and the economy—which is one of the highest in the world per capita, and for which businesses are very grateful—and because of our world-beating vaccination programme. But what has happened since then? We have had labour shortages, supply chain problems, energy prices soaring, with inflation predicted now to go up to 8% and interest rates rising. We have a very fragile recovery. The noble Baroness, Lady Penn, mentioned productivity: productivity has been flatlining since the financial crisis of 2008-09.
On 3 February this year, our director-general of the CBI made an excellent speech on growth. It was very well received all round. He said—the noble Lord, Lord Razzall, just mentioned this—that the Government say we are the fastest-growing economy in the G7 but that V-shaped recoveries around black swan events are not the time for credit or blame. The downward nosedive is not an accurate judgment of economic performance, and nor is the climb back up. He went on to point out that the OBR is forecasting the UK’s economic trajectory, after the rebound is complete in the next 18 months, to grow at 1.3% to 1.7%.
As a country, historically we have grown at between 2% and 2.5%. Between 1993 and 2008, before the financial crisis, we grew at an average of 3%. Are the Government willing to accept a forward growth rate of 1.3% to 1.7%—such a low level of growth? A Government should have low taxes but also fiscal discipline and dynamic regulation. Do the Government agree? Today we have high spending, high taxes and low growth—a vicious cycle. We have a record 6 million people in England on waiting lists for routine hospital appointments. Sajid Javid, Secretary of State for Health, at one stage said that the waiting lists might go up to 13 million people. We have backlogs in courts, schoolchildren who have lost out on learning, transport funding models that are under pressure and, on top of all this, an ageing population. The CBI has worked out that by 2030, we may need to find an additional £40 billion to £50 billion per year to cover the costs of an ageing society. Do the Government accept this?
How do we pay for this? Is it by turning to taxation? Is it by raising taxes? We are already facing the highest tax burden in 17 years. On corporation tax, analysis by the CPS and the Tax Foundation demonstrates that we are currently the 11th most competitive country in the OECD. A lot of that is to do with the super-deduction that the Minister mentioned. However, when this ends in April 2023, and corporation tax increases from 19% to 25% in one swoop, we will fall to 31st place. Will the Minister and the Government accept that?
Our property tax is eyewatering, one of the highest in the OECD. I will come to business rates later. We know that raising taxes reduces growth and cutting taxes drives growth up. Look at the examples just now. We remove road tax to stimulate the buying of electric vehicles and sales are rocketing. We reduce VAT to stimulate consumption. We reduced VAT during the pandemic from 20% to 5% in hospitality. We put that up to 12.5% but the Government are now putting it back to 20% in April. Why are they doing that? I ask them to keep it at 12.5% for a while longer. UK Hospitality and the British Beer and Pub Association are saying that they need help for longer. What is the point in a VAT relief when for the past two years, restaurants, pubs and hotels have been shut? They cannot avail themselves of a relief when they are shut, only when they are open. What is the point, when there is guidance to work from home in December and January and their outlets are empty because of it? They need the help when their outlets are full, which is starting to happen now. Give more help and let it carry on.
We will not pay down todays debt or extend the public services and reduce taxes on a growth rate of 1.3% to 1.7%. We need sustainable long-term growth based on investment, innovation, and productivity. Tony Danker, the director-general of the CBI, where I am president, says:
“Now it has been the Treasury’s job as an institution since the stone age to be sceptics of this kind of talk. But economic policy and fiscal policy are not the same thing. No CEO… puts the Finance Department in charge of sales. Or lets them alone determine strategy. Companies can’t afford not to invest in growth. And nor can countries.”
We have seen this before. The growth rate that I spoke about, at an average of 3% per year between 1993 and 2008, was twice the rate of the last decade, and three-quarters of that growth was driven by investment, technology, and innovation—double what they have contributed over the past decade.
Let us look at other countries and take an example. Tony Danker took the example of Singapore, which reduced its operating costs, cut corporation tax by 10%, incentivised investment, spent on infrastructure, and had new venture capital services, low-interest loans, and tax incentives. The result of all those measures is 6% growth per year.
There is talk of Singapore-on-Thames: the three forces of Brexit, the race to net zero and the end of the pandemic give us a huge opportunity. During the pandemic, we have proven what a powerhouse of innovation and life sciences we are, with Oxford/AstraZeneca and the collaboration with the Serum Institute of India. Three-quarters of companies adopted new technologies. In 2020 alone, 700,000 new businesses were created. In offshore wind, we have shown with contracts for difference that the Government can use the balance sheet to unlock high-growth markets. The Budget mentioned skills bootcamps—this is just the sort of thing we need to do.
The CBI has recommended that, when the super-deduction ends in March 2023, we should replace it with a permanent investment deduction—a 100% tax deduction for capital spending. I will come to that later. Would the Government also agree that it is time to turn the apprenticeship levy into something far more flexible, which would allow businesses, for example, to buy training modules and have greater flexibility in types of training, and to incentivise and reward firms that go the extra mile to train their people, with an upside kicker for any businesses that spend more than their levy?
We must incentivise green growth. We need an extra £3 billion a year to properly retrofit our homes and businesses to bring down energy bills. Hydrogen is the future. The University of Birmingham, of which I am chancellor, was proud to demonstrate at COP 26 the world’s first retrofitted hydrogen-powered train, designed by the university and built in collaboration with Porterbrook, the rolling stock company, and 20 other companies, including Siemens and the Government’s Innovate UK—universities, business and government all working together for a world first. This is the sort of thing we should be doing.
We at the CBI have recommended that the Prime Minister should set up a new office for future regulation. Labour shortages are an acute problem across all sectors; the Government did not listen when we brought up the issue of drivers and butchers last June—sadly, pigs have been unnecessarily culled. We suggest that there should be, in effect, a revamped Migration Advisory Committee, an independent council for future skills; as the Monetary Policy Committee sets interest rates that the Bank of England has to follow and the Low Pay Commission sets a minimum wage which the Government have to follow, this body would from time to time say “We need so many thousand jobs—open up the shortage occupation list and provide a one or two-year visa.” Do the Government agree that this is required to address the labour shortages?
Growth is the only real answer to our cost-of-living crisis, with rising energy prices and high inflation. Better growth ensures that we will not be imprisoned in a cycle in which we cannot afford what we need or raise taxes to pay for it. The noble Baroness, Lady Penn, spoke about the super-deduction; the day before yesterday, the CBI released our survey. A super-deduction successor, which I spoke of, could trigger a £40 billion a year boost for UK business investment. According to our survey, 22% of investment qualifying for the super-deduction would not have taken place in the UK without it; another 19% of investment qualifying for it has been brought forward to take advantage of the relief. The Government announcing a permanent successor now could increase annual capital investment by 17% by 2026—worth £40 billion a year. Will the Government acknowledge this and listen to this recommendation?
We need to incentivise investment much further. It is not just about taxes going up to the highest level in 70 years; we need to reduce taxes. We have seen research time and again which shows that, if you reduce taxes, growth increases. The most famous example is the Laffer curve—in the growth that took place in the 1980s, you had low levels of inflation, a steep rise in private investment and rising incomes. Between 1982 and 1990, the foundations of the Laffer curve enabled the second-longest peacetime economic expansion in the history of the United States—of course, Laffer was an adviser to both President Reagan and Margaret Thatcher. Yet here we are with the highest tax burden in 70 years.
We now really need to focus on investment. Are the Government aware that the UK has been seriously underpowered when it comes to investment? It has deteriorated from 14.7% of GDP in 1989, to as low as 10% at the end of 2019. Of course, we have had the pandemic, but we are still 5% below our pre-Covid levels by the end of 2022. We must do everything we can to increase investment. Between 2021 and 2025, the UK Government were projecting to invest an average of 3.4% of GDP, versus 3.9% in America, 4.1% in Canada, and 5.9% in Japan—let alone 9% in China. Green spending represents 3.8% in the US and 1.8% in the EU, compared with just 0.55% here in the UK. Our business rates, which I mentioned earlier, are four times higher than Germany and three times higher than the OECD average. We invest 1.7% of our GDP in innovation and R&D, compared with 3.2% in Germany and 3.1% in the United States of America.
Instead, we have: a freezing of the income tax thresholds; National Insurance increases of 1.25% for employers and 1.25% for employees; corporation tax going up from 19% to 25%; the super-deduction of 130% being removed in 2023; VAT, having gone down from 20% to 5% and then up to 12.5%, is being put back up to 20%; and dividend tax being increased. On top of that, we were just informed yesterday by the Prime Minister that lateral flow tests will be removed from 1 April. Could the noble Baroness, Lady Penn, tell us that this has surely been penny-wise and pound-foolish? How much of the £2 billion that was spent in January on testing, which the Government speak about, was for lateral flow testing or for PCR testing? What is the bet that a small proportion was for lateral flow testing and the Government are trying to cut-back cost when they should be making that available to people who need it—whether they have symptoms, are visiting vulnerable people or need to test to get the antivirals which the Government have just ordered? People are now used to taking these tests. It has taken a year of people using them regularly to feel comfortable with them.
Finally, debt to GDP went up to 250% after the Second World War—arguably the last major global crisis before the pandemic. We have gone up to 100%. Now is not the time to give up. With the fragile recovery that we have, we need to ensure that we are like India, which did not put up its taxes in the February budgets of either last year or this year, because it did not want to stifle its recovery or for businesses to suffer. What is the result? The IMF has forecast India to be the fastest growing major economy, with a 9% growth rate.
With £400 billion, let us not stop at the last mile; let us keep giving help to businesses. Then we will have the investment, the growth and the jobs that will pay the taxes and pay down the debt.
Baroness Bennett of Manor Castle (GP)
My Lords, it is a pleasure to follow the noble Lord, Lord Bilimoria, and I will pick up some of the points he raised as I reach the end of my contribution. It is also a great pleasure to listen to the rich, informative speech from the noble Lord, Lord Sikka. Many people outside this Chamber would be interested to learn that the James Bond films enjoy a government subsidy. It does not seem like that, does it? When you consider the amount of money they must make from product placement, you really would not think that they also need to get a subsidy from the taxpayer to be able to make these films. Often, they look more like an advertisement than any sort of creative endeavour.
I want to begin by looking at the formal language behind this Bill—something I am continually informing myself on as I get to grips with the archaic, often incomprehensible, language of the governance of the UK. This is a language which reflects the distance of our Government from the life of the people of these islands. This is a Bill, I learn, of aid and supplies—aid, in this context, means taxation. It provokes the question: who is being aided by this Bill and who is not being aided by this Bill? First, the group I would identify as being aided by this Bill, by an act of omission—which is an action every bit as much as a provision is—are the oil and gas companies. As we heard earlier from the noble Lord, Lord Sikka, in Oral Questions, oil and gas companies are benefiting hugely from the rise in the global price of their product, while the cost of its production remains static.
That is the very definition of a windfall—wealth falling into your lap without effort—yet we do not see an oil and gas windfall tax in the Bill before us. That is despite the fact that the Chancellor, repute suggests, is a fervent disciple of Margaret Thatcher, and it was Margaret Thatcher who in 1981 introduced the first windfall tax on the banks, whose profits had leapt following a rise in interest rates. In her memoirs, Margaret Thatcher said that it was because the increased income was not because of increased efficiency or better services to customers but purely by economic accident that she brought the tax in. Can the Minister perhaps explain to me how the situation now with oil and gas companies is different from that of the banks in 1981?
Of course, there have been very widespread calls for an oil and gas windfall tax, going back to the Green Party leaders who called for it in the autumn. Some of the arguments we heard from the Government and the Benches opposite during the Oral Question from the noble Lord, Lord Sikka, just do not stack up. Investment in the North Sea contributes very little to the UK’s energy security—80% of its oil and gas is exported and the price is decided by the global market. Conversely, if we, say, had that windfall tax and spent it on a massive programme of energy-efficiency measures, particularly for private homes, that is something that could not be exported, could not be lost and could be directed towards the poorest in society.
It is worth noting that we do not hear the Government often talking—in that phrase they like to use—about “windfalls” when it comes to their oil and gas tax regime. This is not surprising, because it is one of the least effective regimes in the world. The Government pull in an average of $2 a barrel from production, whereas Norway, by contrast, collects $21 a barrel. As the noble Baroness, Lady Sheehan, pointed out on the Oral Question, our oil and gas majors are contributing only a derisory amount to investment in renewables. Where is the aid going? To the oil and gas companies. Who is losing out? Energy consumers and the general society.
Secondly, I come to another group being aided by this Bill, again by omission. We saw efforts in the other place to introduce reports on the progress of establishing a register of overseas beneficial owners of UK property and a review of HMRC’s publication of tax avoidance schemes. Opposition amendments to introduce such simple and moderate measures were defeated on party lines. Who does this aid? It is clear who the US and EU allies think it aids: Russian dirty money, much of it closely associated with the regime of President Putin, whose dangerous, aggressive actions we will be discussing later in this Chamber.
On 10 February, the Government laid legislation to allow the sanctioning of entities and businesses of economic and strategic significance to the Russian Government and their owners, directors and trustees. But to impose a sanction, you first have to be able to find the sanctionee. The highly respected NGO Transparency International reports that more than 85,000 properties in the UK are owned anonymously by entities registered abroad. It estimates that £1.5 billion of property is owned by Russians accused of corruption or of links to the Kremlin.
We have been promised this register of beneficial ownership in London since 2016. Provision was included in the 2019 Queen’s Speech, but despite the flood of Bills we are now seeing in your Lordships’ House—a Bill to attack some of the most vulnerable people on this planet: refugees seeking asylum on these shores; a Bill to suppress the turnout of voters least likely to support the Government; a Bill to reduce the capacity of our courts to defend the rule of law—the Government have not found time in the parliamentary agenda for this register to be created. Who is being aided here? I am afraid it is very obvious. Who is losing out? We are all losing out through insecurity for the people of the UK and damage to the security of the world.
Thirdly, I come to something that is apparently being aided by this Bill, social care, for this is the legislative mechanism by which the Government are bringing in the health and care levy. But is it really for social care? What is it doing to address the acute staff shortage or the extreme exploitation by hedge fund owners taking 16% of every pound paid for care? What will be its impact? The first two questions are very easy to answer: nothing. On the third, the Commons Treasury Committee points out that, with this levy being announced outside a fiscal event, Parliament has not been provided with important information that would usually accompany a decision of this kind, such as an independent impact assessment from the Office for Budget Responsibility or a distributional analysis. Who is being aided here? Not the overworked, underpaid care worker or the clients she is trying to serve.
Finally, I shall move away from the question of who benefits to an even bigger one: who decides? This morning, I was at a debate held by UK in a Changing Europe which reflected on the extreme centralisation of power and resources in the UK. Our local councils are left without the funds to provide essential services, simply delivering the statutory requirements decided by Westminster and unable to make the decisions they want to for their local communities. Of course, the centralisation is even tighter than Westminster dominating our councils and, as we often see in this House, resisting the devolved power that is supposed to have been handed to the nations of the UK. Power is in fact concentrated in one address in Westminster, and that is not the Prime Minister’s.
We are all familiar with a Minister apologising from the Dispatch Box opposite for some departmental failing, explaining that there is no money to fix it and rolling their eyes to the heavens, muttering “Treasury”. It is a gesture that is almost guaranteed to get a sympathetic laugh from all sides of your Lordships’ House. I have been delving again into the history of this. The Chancellor of the Exchequer is a post that predates that of Prime Minister by several centuries. The Treasury’s structure, like so much of our governance, was created in early medieval times. Interestingly, the department is the only one that has two Ministers in Cabinet. It has also been said that Prime Ministers govern via the Treasury.
We are aware that the Treasury sees its role as governing for the economy, maintaining economic stability and promoting growth. This is where I get to a bit of a response to the noble Lord, Lord Bilimoria. What is the Treasury operating for? It is operating for the economy and growth. The noble Lord talked about the period he obviously saw as a golden age, when we had regular annual growth rates of 3%. That was a period when we had 15%-plus of pensioners living in poverty. It was a period when we saw increased casualisation of the economy, with the gig economy growing and young people in particular finding it harder and harder to get a steady job. Fewer and fewer people were able to afford to buy or rent a home. We had growth and we had a society of poverty, inequality and very poor public health. The fact is that we have a situation in which people are working for the economy instead of the economy working for people. It is this dedication to growth—the Treasury’s chasing of growth —that has given us this situation.
There are other ways of doing things. I will point, as I have before in your Lordships’ House, to New Zealand—a system based originally on our Westminster model. Its Treasury is guided by the living standards framework. It looks at a balanced set of measures about the economy, yes, but also about poverty, inequality, public health and the state of the environment and says that we need to keep all these at a decent level when managing for people.
Lest noble Lords think that I am standing out here with something just the Greens are saying, I point to a report called The Tragedy of Growth, which was co-authored by, among others, Caroline Lucas, the Green MP, Clive Lewis from Labour and the noble Lord, Lord Deben, from the Conservative Benches. It points out that growth does not enhance living standards, alleviate poverty or protect the environment. To quote the report:
“To protect human wellbeing and avoid environmental disaster, we must escape the growth paradigm once and for all.”
I would say that we need to go further than simply escaping the growth paradigm; we need to see and escape from the dictatorship of the Treasury. There might be quite a number of Ministers and former Ministers in your Lordships’ House who will quietly agree with me.
Lord Butler of Brockwell (CB)
My Lords, as an old Treasury man I cannot go all the way with the noble Baroness, Lady Bennett. It is regrettable that we do not have more speakers in this evening’s debate because it is not, as the contributions so far have made clear, as though there is a lack of important economic and, indeed, social issues arising from the Finance Bill.
Unlike the contributions so far, I will concentrate my remarks on two rather technical aspects of the Finance Bill which were the subject of a report by the Finance Bill Sub-Committee of your Lordships’ House. I was privileged to serve on that sub-committee, as was the noble Baroness, Lady Kramer. One of the aspects covered by the report was—the Minister referred to this—tax basis reform, the effect of which is that self-employed individuals and partnerships are to be taxed on profits arising in a financial year rather than on their own accounting years. The second is uncertain tax treatment, under which large companies will be statutorily required to report to HMRC instances where the company’s view of the likely tax treatment may be different from that of HMRC. I do not need to weary the House by going through the technicalities that these provisions throw up. They are set out clearly in the sub-committee’s report and the government response. I want to just make some general points.
I particularly wanted to speak in this debate because I did not want the report of the sub-committee to go unnoticed by the House. I believe that the sub-committee provides a useful service, excellently chaired by the noble Lord, Lord Bridges, who could not be here tonight because he is on jury service, and expertly supported by the sub-committee’s clerks and advisers. The sub-committee, in effect, provides an additional channel of communication between representative taxpayer associations and HMRC. That is the basis of an objective assessment by the sub-committee. I say an “additional” channel of communication because there are, and certainly should be, close communications already between HMRC and representative taxpayer associations. I hope that the sub-committee’s work, through the process of taking evidence from both sides, supports this process and provides an independent assessment of the position of both sides.
Although inevitably the Government have not accepted all the sub-committee’s recommendations, their response has shown some helpful movement on some of them. On the substance of the provisions, I merely want to say that my main concern with both sets of provisions is that their complexity for both HMRC and taxpayers did not seem to have been properly thought through in the first place. Their introduction was not given sufficient time. In fact, the implementation of both sets of proposals has had to be postponed for a year. Even now doubts remain about their practicability and the resources needed to successfully implement them. An additional complication has been Covid, which must have interfered with the preparations for these changes on both the HMRC and taxpayer sides. I am reminded of Denis Healey’s mot that the best time for removing a man’s appendix is not when he is carrying a piano upstairs.
However, that is not the only cause of difficulty. Some of these proposals could have been surfaced with more notice and been subject to earlier consultation. For example, the proposals for simplifying the tax basis period were first made some eight years ago, yet proposals for implementing it were brought forward at the same time as the changes involved in making tax digital, when they were going to have to be implemented. Also, when the proposals for requiring large companies to report uncertain tax treatment—whatever that may be—were first introduced, those proposals were half-baked, and they are not fully baked even now at the time of their introduction in this Finance Bill.
We know that the resources of HMRC are already under great pressure and these reforms will add to that pressure, at least in the short term. They will also add costs to the taxpayers affected by them. There is a question mark over whether the return in terms of extra revenue will be worth the resources devoted to them. I hope that all goes well but I have to say that, despite the Government’s response to the sub-committee’s report, I remain uneasy about the ability of both HMRC and businesses to cope.
The Minister referred to the Government’s aim of achieving a simpler and fairer tax system. That is a worthwhile objective and I have no doubt that they are sincere about it, but I am afraid I do doubt whether, in the shorter term, this will be the result of these measures in the Finance Bill. The difficulties have been exacerbated by the manner in which the Government, in their zeal to close the tax gap, have introduced them with such little notice and consultation. I hope that HMRC will give serious consideration to the general lessons set out in the sub-committee’s report.
Lord Sharpe of Epsom (Con)
My Lords, I believe that it would be convenient to adjourn the debate and break briefly before the Statement on Ukraine.
Finance (No. 2) Bill
Tuesday 22nd February 2022
(2 years, 9 months ago)
Lords ChamberRead Full debate Finance Act 2022 Read Hansard Text Amendment Paper: Consideration of Bill Amendments as at 2 February 2022 - large print - (2 Feb 2022)
Baroness Kramer (LD)
My Lords, this almost feels rather an anti-climax—in a sense, I feel privileged to have been able to sit through that crucial, important debate. This is a very technical Bill. Normally at Second Reading I would take the opportunity to discuss the broader economic issues, but we have done that again and again in this House.
I will pick up on the comments made by the noble Lord, Lord Bilimoria, in particular; I agree with so much of his analysis of the condition, although I do not necessarily agree with his solutions. However, the point he made that crystallises the problems we face is the forecast growth rate of 1.3%, with a rate the following year of 1.2%. At that level of economic growth, we cannot sustain the public services and general living style of our population today. Will the Minister go back and try to get somebody in the Treasury to truly take seriously some of the economic issues we are facing? They are not just a series of small, isolated issues; they add up to a critical problem that the Government will have to grapple with. Nothing we have seen grapples with the extent and depth of that problem. I will focus on a few particular points in this Bill; as I say, it is highly technical, but sometimes those technical pieces have consequences.
I start with the reduction in the bank levy from 8% to 3% from 1 April 2023. Taxpayers’ contribution in the form of CBILS, BBLS and bounce-back loans amounted to some £80 billion of support for businesses during Covid; it was vital, but that same money also cushioned the banks. This week, Britain’s four major high street banks are anticipated to report some £34 billion between them in full-year profits and to follow that with payments of huge bonus pots to senior bankers. To quote the FT,
“banks are unveiling the sort of payouts that prompt a run on champagne”.
This is against the background of a rise in NICs of 1.25% for some of the lowest-paid workers and a cost of energy and living crisis for much of the population, who are now facing a choice of “heat or eat”. The Governor of the Bank of England encouraged workers not to ask for pay rises to limit inflation, but his words have clearly not discouraged bank bonuses on the back of some of the highest windfall years that our major banks have experienced. How on earth in that situation do the Government justify a cut in the levy for the banks?
I move on to the issue of freeports, primarily because it directly reflects on the issues we discussed on the Floor a few moments ago. I have raised this issue in the context of the National Insurance Contributions Bill, to which this House was good enough to pass an amendment. The amendment required that for businesses operating in a freeport, there has to be a public—I stress “public”—register of beneficial ownership. We know that freeports are a lure for criminal activity and money laundering because the normal disclosures which are made through customs and tax are not available. We know now that the Government have asked the freeports to have registers of beneficial ownership, but they have declined to make those public, even though they lecture virtually the entire world on the importance of public registers, because then civil society, activists, journalists and others can shine a light on wrongdoing, and only then does it become effective.
Will the Minister go back and say that, when the National Insurance Contributions Bill reaches the Commons again, the Government will change their approach and provide a public register? Otherwise, we are taking a step backwards and providing yet more mechanisms for people who want to launder money. Indeed, in the freeports, since we make them tax attractive, we are basically offering not only money laundering but tax-enhanced money laundering. That is absolutely the wrong message, and we should not believe for a second that Putin’s henchmen and autocrats have not noticed and are not planning to take advantage.
This leads me to ask why the provisions to make a public register of the beneficial ownership of property in the UK—which has been promised over and over—have not been included in this Bill. We know that that legislation has been written and has been sitting on the stocks for weeks now, if not months, and the Government have chosen not to bring it forward. I think we need to understand why the Government are holding back.
I think the noble Lord, Lord Butler, referred to the Economic Affairs Finance Bill Sub-Committee report— I have the privilege, as he does, of sitting on that committee—which looked at the issue of basis period reform. I will not pre-empt speeches which I hope the noble Lord, Lord Bridges, will have the opportunity to make at a later date. He was unable to be here today. But when we as a committee reviewed the case for basis period reform, which now sets the fiscal year for all businesses in the UK as between 31 March and 5 April, I have to say that we were not impressed, to put it mildly. The noble Lord, Lord Butler, addressed many of the reasons why: flawed consultation, rushed proposals, and the fact that a compelling case was not made that this was either simplification or a prerequisite for making tax digital.
There are two things that absolutely stuck in the gullet with this. During the transition period, some companies will be paying tax on profits made over 23 months rather than over a single year. I know the Government are going to allow them five years to make those payments, but a whole lot more flexibility would have been extremely welcome, and I do not understand why it has not been given. The Minister herself mentioned overlap relief—the problem that start-up businesses often have more than one year’s-worth of profits falling into a particular tax year—and that as we go through the transition period, companies will be able to offset any excess profits by subtracting or by qualifying for overlap relief. But, as she said, so many of those companies do not have the records. HMRC has the wretched records, but it is not committed to delve into its resources and provide them, or else reconstruct them from the data that it holds. Will she please go back to HMRC and tell it that it has to act in the interests of taxpayers and make that effort?
However, I have a particular issue that concerns me far more than the transition issues. It is the permanent impact of requiring a significant number of companies in the UK to use a tax year end that makes no sense for their business cycle. Some of this applies to large international partnerships that will now have a different tax year end for their operations in the UK and in other parts of the world—but they can afford all the expensive lawyers and accountants. However, I am concerned about the farmers for whom a March/April year end is entirely inappropriate. They depend on a summer growing season and have no control over weather and prices. I look at the hospitality sector, and again it is highly volatile and highly seasonal and a 31 March to 5 April year end is completely wrong. This applies also to a lot of small seasonal retailers. Those entities will now have to estimate—and given the volatility it is basically “guesstimate”—what profits they will make during that season in order to report their taxes. At the very least, these little companies will need to hire some very expensive accountants and lawyers, and at worst they will constantly be filing tax forms that contain significant and wide-ranging errors.
I just do not understand why, at a time when technology would allow us to deal easily with variable tax year ends, the Government have made the decision to push everybody into this very narrow 31 March to 5 April band. For years, when we dealt with taxes by pen and paper, we accepted the importance of variability, but now that we have programs that can deal with it, the Government have decided not to. The only thing I can think is that they hope through these various measures to up-front a whole series of tax payments because of that transitional year to give them a buffer ahead of the next election. It makes absolutely no sense otherwise and, as we say, it has nothing to do with making tax digital: in fact, making tax digital should enable you to deal with the variability.
On the issue of uncertain tax treatments, mentioned by the noble Lord, Lord Butler, let me just say this. This is a notification of uncertain tax treatments issue and is absolutely classic. Companies that are determined to do the right thing and not take any risks on tax and make sure that they think through everything will spend a fortune trying to comply with the new notification requirements, and the companies that intend to take risks will make very little effort and will probably get away with it. Again, I cannot see why on earth the Government have brought this in.
Because of the time I just want to say something very quickly about a letter that the FBSC has written to the Financial Secretary on off-payroll working. It raised a lot of questions about the CEST—check employment status for tax—tool to determine whether contractors fall inside or outside IR35. The Government really are not taking seriously, I think, the 20% of requests to the CEST system that come back with the result that says “unable to determine”. It is a tool that needs to be refined to deal with that big 20% number and also to reflect the other issue missing from the test that undermines confidence in it, which is that it needs to reflect the mutuality of obligation test for whether one falls inside or outside IR35.
However, underlying all of this is the concern that the Government are still not implementing the Taylor review, which could provide a holistic framework for self-employment. We are moving into a nonsense where we will have people paying tax as if they are employed but having few of the rights of being employed. I think everyone can recognise that that is both unfair and inequitable. Perhaps the Minister will give us an update on what is happening with the Taylor review.
The Finance Bill was also remarkable for what it did not do, and here I am picking up some of the points made by other noble Lords, including the noble Baroness, Lady Bennett. It did not set up a windfall tax on fossil fuel producers with record profits. That could have raised £5 billion to £10 billion. It did not rectify the injustice done to the 5 million excluded self-employed people who got no Covid help. It did not reform the unfair business rates system, rather than just provide short-term relief.
There is one particular issue which small businesses had really hoped would be caught at the time of this Bill—and it was not. As the Minister will know, big businesses are very successful in the recruiting market, stripping people away from small businesses because they can afford to pay joining bonuses and higher wages. As a consequence, small businesses are suffering disproportionately from the labour shortages we are now experiencing. This could be combated by significantly increasing the small business employment allowance. I notice that the Federation of Small Businesses is calling for this. It seems like a small measure—not even an expensive one—but it would make a huge difference by at least providing small businesses with something of a level playing field through the recovery.
There is so much more to say about the economy and about this Bill, but I think I have exercised the patience of the House enough.
Lord Tunnicliffe (Lab)
My Lords, I am grateful to the Minister for introducing this Finance Bill, and to other noble Lords for the contributions they have made.
I am particularly grateful to the noble Lord, Lord Butler of Brockwell, for presenting the work of the Finance Bill Sub-Committee. While the sub-committee’s report focused on just two measures in the Bill, its observations were all too familiar: this is a Government who rush ahead, irrespective of evidence base and without regard to reputational impact.
The work of the Finance Bill Sub-Committee always creates an almost democratic dilemma. An enormous amount of effort goes into the presentation of these reports, and the depth they go into is really powerful, yet it has so little impact on what actually happens. Indeed, I am committing this sin by the fact that I am no longer going to talk about it, other than by talking about the general economic situation. Somehow or other, we must find a way of engaging these talents, especially as so much of the control of the financial services in the future is going to be generated by regulation which will not come before the House. However, the institutions involved in generating this regulation want engagement with parliamentarians and we must find a better way of making that happen.
This has been a very interesting debate, although it must be noted that the Finance Bill seems to attract less interest with each iteration. Today, we have had no Conservative Back-Bench speakers. I am sure there are many reasons, but perhaps one is a growing frustration with the Chancellor’s handling of the economy. If so, who could possibly blame them? The Prime Minister continues to insist that the UK has the strongest economic performance in the G7. This was true over the past year—for reasons I will come on to—but it is no longer the case. Indeed, if we look at the last quarter, the UK ranks fifth out of seven—much closer to the last place than the first. Just over a week ago, the Chancellor said that the fastest annual growth rate since the Second World War amounted to proof that the Treasury was
“making the right calls at the right time.”
Based on their experience of the last two years, I am sure that many creative freelancers and hospitality businesses would vehemently disagree. Given the nature of his resignation, so would the noble Lord, Lord Agnew.
What Mr Johnson seems less keen to stress each week at Prime Minister’s Questions is that the UK experienced one of the largest contractions of any economy when GDP fell by 9.4% during 2020. Annual growth of 7.5% in 2021 may look flattering, but that headline hides several other pieces of bad news. In its latest release, the ONS revised down its initial estimate for Q3. It also noted that, when studying quarterly GDP figures, the economy remained 0.4% below its pre-pandemic level. Looking at monthly figures, it appears that the economy may now match its pre-pandemic level, but that achievement was marginal when considering that GDP fell by 0.2% in December. The Office for Budget Responsibility and other forecasters expect GDP growth to be sluggish in the coming years —just as it has been for the bulk of the last decade. The rate of quarterly growth which puts us fifth in the G7 is far more typical of this Government’s economic performance than the annual growth witnessed last year.
I do not want to labour the point, but in honour of the Deputy Chief Medical Officer, who will shortly move on from his role, there is room for a sporting analogy. The current political and economic situation in this country is akin to a football team on the brink of relegation. The manager, knowing that his job is on the line, is keen to talk up any minor victory. In this case, despite conceding an early, embarrassing own goal, a late equaliser is presented as the result of a tactical masterstroke. In truth, the team’s form remains unchanged; there is no sign of an upturn in its fortunes. The manager’s head is still very much on the chopping block and, despite their attempts to paint a positive picture, the supporters see right through it.
Budgets and Finance Bills are the ultimate expression of an Administration’s priorities. There are some items in this Finance Bill which make sense but, taken as a whole, it fails to address the many fundamental problems which are holding back the British economy. With the Chancellor’s recent economic statements having done little to help working families, there can be no surprise that this Bill does nothing to ease the mounting pressures of the cost of living crisis.
It also does nothing to make the tax system fairer. It facilitates tax reliefs for experimental freeports and lowers the banking surcharge at the same time as the tax burden is due to hit its highest level in 70 years. The hit to family finances comes alongside inflation that has hit 5.5%. Worryingly, it is expected to rise further still, far exceeding the predictions published late last year.
While the measure is not contained in this Bill, on energy prices, the Chancellor has offered only a glorified buy now, pay later scheme. Why, as we discussed during an earlier Oral Question, has he not imposed a windfall tax on the very energy companies which have recently announced billions in profits, share buybacks and dividend payments?
The Government may have capped rail fare increases but many household bills are due to go through the roof. Many essential costs, including broadband and phone subscriptions, will rise by 10% or more from April. Ordinary people are suffering, in some cases having to choose between heating and eating, at the same time that HMRC systematically fails to act on fraud and economic crime.
The Bill establishes an economic crime levy, which we welcome in principle, but monitoring and enforcement agencies have been warning central government for years that they are being outrun and outwitted by criminal gangs. The lack of action over many years means that criminals have been allowed to operate not one but several steps ahead of the bodies tasked with chasing them down. The levy may help address that in years to come, but in many senses the horses have already bolted.
The Commons Public Accounts Committee noted that HMRC has effectively written off £4 billion-worth of fraud. The Treasury continues to dispute that figure but cannot name a more accurate one. Can the Minister provide one today? The PAC has labelled the Government’s plans to recover money as “unambitious”. It says that HMRC’s customer service has collapsed, and that there is a lack of concerted action to tackle tax avoidance. In the words of Dame Meg Hillier:
“Every taxpayers’ pound lost to a fraudster will lead to honest ordinary people feeling the post-pandemic pinch harder and harder.”
It seems that the Chancellor’s Eat Out to Help Out scheme also attracted fraudulent claims, meaning that potentially it spread not only Covid but a perception that fleecing the taxpayer will come without punishment. This is all the more baffling as successive Conservative Administrations have talked tough on benefit fraud. While individuals clearly should not seek to exploit the social security system, many thousands have faced severe financial sanctions for innocent mistakes. Why is it one rule for benefits claimants and another for businesses and criminals?
The Prime Minister talks tough on fraud but is failing to act over Russia. He has recently warned that an escalation in Russian aggression against Ukraine could lead to steps to expose Russian beneficial ownership of firms in the UK. We have been waiting for—indeed, we were promised—public registers of beneficial ownership for years. However, at every opportunity, the Treasury has ducked the challenge. Why are the Government using this threat as a diplomatic tactic? Is it not in the public interest to address money laundering, regardless of the state of international affairs? Why has not a single unexplained wealth order been issued during Boris Johnson’s premiership? The Foreign Secretary recently identified these as the main tool in the fight against corruption. Have the Government thrown in the towel?
We will not oppose the Bill, but we do not see it as credible. It is yet another example of the Government’s failure to adequately address the cost of living crisis, economic crime and other pressing issues. It increasingly feels like the Chancellor is simply going through the motions, rather than steering the economy in the right direction. He may well be biding his time for a leadership bid, but that should not be so apparent to the rest of us. While he holds that great office of state, he has a responsibility to the people of this country. They are assiduous in paying their taxes and following the rules, and they elected this Government to spend that money wisely. It is hard to believe the Chancellor is living up to that duty when one looks at the Bill before us.
Baroness Penn (Con)
My Lords, I thank all noble Lords for their contributions to this debate. In closing, I will focus on responding as far as possible to the many and varied points raised.
The noble Lord, Lord Sikka, asked about the different tax treatment of earned and unearned income. The measure in the Bill increasing dividend tax rates by 1.25 percentage points for all bands is precisely to ensure that those with dividend income contribute to the health and social care spending settlement, as well as those with earned income. This measure supports the Government’s objective of raising revenue to fund our national priorities while also helping to limit the incentive for individuals to work through an incorporated company and remunerate themselves via dividends rather than wages to reduce their tax bill. I also point out that dividend income is paid out of corporate profits, which are usually also subject to corporation tax.
The noble Lord also raised various tax reliefs, specifically for video games, films and TV. They are available only to productions that pass the British cultural test. The production is considered against a range of criteria—not just where it is set but where it is made, and the nationality of the personnel involved in making it. The Government recognise the valuable economic and cultural contribution of the video games industry and other cultural industries. The video games tax relief has supported £4.4 billion of UK expenditure on 1,640 games since its introduction in 2014. I reassure the noble Lord that HMRC keeps these reliefs under review. An external evaluation of the video games tax relief was published in 2017, and a review of the film and TV reliefs is currently under way.
I also noted the request by the noble Lord, Lord Sikka, for information about tax reliefs to be set out at each Budget. I will take his suggestions back to the Treasury. He also asked how the global minimum tax rate will be assessed. The UK is proud that, in October 2021, more than 130 countries signed up to a new global minimum tax framework that built on a deal brokered in principle by the G7 during the UK’s presidency of that grouping. The OECD has published the model rules for pillar 2, which will help to ensure that multinational groups pay a minimum level of tax in each jurisdiction in which they operate, and the UK Government have now published a consultation on how those rules will be implemented in UK domestic legislation.
The noble Lord, Lord Razzall, asked about the timing of the health and social care levy, given pressures on household budgets, and the noble Lord, Lord Bilimoria, spoke more generally about the impact of high tax burden in the UK. I would say to noble Lords that the Government are committed to responsible management of public finances, and the plan for health and social care will lead to a permanent increase in spending. It is important, therefore, that that spending is fully funded, particularly in the context of record borrowing and debt to fund the economic response to Covid.
The health and social care levy will allow the Government to implement necessary adult social care reform, tackle the elective backlog in the NHS as it recovers from coronavirus, develop our pandemic response and preparedness, and ensure that the NHS has the resources it needs through this Parliament. These are things I hear noble Lords call for time and again in debates in this House, and the decision to implement the health and social care levy is the mechanism that means we can afford to do them. I would also point out that the highest earning 15% will pay over half the revenues, and 6.1 million people earning less than the primary threshold and lower profits limit will not pay the levy. The levy also applies to businesses; as those businesses benefit from having a healthy workforce, it is only fair that they contribute.
On the more general point made by the noble Lord, Lord Bilimoria, the fact is that the Government remain committed to fiscal responsibility and funding excellent public services. It is vital not just to borrow to fund those services but to fund them fairly, with both businesses and individuals contributing. That is why the Government have had to make difficult choices, but those choices mean we are now bringing debt under control and investing in public services.
The noble Lord, Lord Bilimoria, and the noble Baroness, Lady Kramer, raised the question of economic growth. I would say to noble Lords that this Government are absolutely seized of the need to drive up productivity, which is why there is such a focus on investment in recent budgets and in the measures in this Finance Bill.
The noble Lord, Lord Razzall, also asked about universal credit. The Government have reduced the universal credit taper rate from 63% to 55% and increased universal credit work allowances by £500 per annum to make work pay. This is essentially a tax cut for the lowest paid in society, worth around £2.2 billion in 2022-23. The change also means that 1.9 million households will, on average, keep an extra £1,000 on an annual basis. That will be combined with the national living wage increase of 6.6% to £9.50 per hour in April 2022 for those aged 23 and over, which will benefit over 2 million workers. Since its introduction in 2016, the national living wage has increased the pre-tax earnings of a full-time worker by over £5,000 a year. That increase is consistent with the Government’s target to go even further and raise the national living wage to two-thirds of median earnings for over-21s by 2024, provided economic conditions allow. That is an ambition to abolish low pay in this country altogether, which I hope will be welcomed across this House.
The noble Baroness, Lady Bennett, the noble Lord, Lord Tunnicliffe, and others raised the issue of the windfall tax. The noble Lord, Lord Razzall, and others also asked whether our approach to support households with the cost of their energy bills is the right one. I do not want to go over all the ground we covered in Oral Questions earlier today, but I would say to noble Lords that the UK Government do place additional taxes on the extraction of oil and gas. Indeed, the headline tax rate charged on the profits from UK oil and gas production at 40% is currently more than double that charged on company profits in most other areas of the economy. To date, the sector has paid more than £375 billion in production taxes.
Noble Lords expressed scepticism about ensuring that there is adequate investment in this sector to secure ongoing energy security and the feed-through that that will have on people’s household bills. In 2020-21, investment in the sector was at an all-time low; that is part of the context in which we need to think about the arguments for a windfall tax on those producers. An abrupt tax change would create uncertainty and potentially deter significant investment opportunities.
As I said earlier, the Government have set out a significant programme of support for households with their energy bills, worth more than £9 billion. I must disagree with the characterisation of the noble Lord, Lord Tunnicliffe, of that support as “buy now, pay later”. A large part of that support is a £150 rebate on council tax bills for all homes in bands A to D. This is a more targeted approach than the VAT cut proposed by the Benches opposite; it also gets support to households faster because the rebate will be available from April, whereas a VAT cut would be spread across the course of the next year.
The noble Lords, Lord Butler and Lord Tunnicliffe, and the noble Baroness, Lady Kramer, touched on the work of the sub-committee that is looking at the Bill. I thank it for its incredibly detailed work. It is an incredibly important part of the system that we have and the contribution that this House makes to these processes, even though we do not amend or vote on Finance Bills. Speaking from the Treasury’s point of view, I know that that work is taken incredibly seriously, is looked at in detail and provides a contribution to the process.
The Treasury’s assessment is that basis period reform creates an ongoing administrative burden saving of £1.1 million a year for business, but the Government are planning further engagement to explore whether and how to introduce easements to reduce possible associated administrative burdens. In agreement with the committee’s recommendation, the Government will reassess the administrative burdens and savings of basis period reform in the course of exploring these options for easements. The Government have delayed basis period reform in response to consultation feedback, giving businesses and accountants more time to prepare. The transition to the new tax year basis needs to take place before Making Tax Digital is introduced, to avoid hard-coding complexity into the new Making Tax Digital systems.
Noble Lords also asked about HMRC’s resources for the Making Tax Digital income tax self-assessment. The spending review process between HM Treasury and HMRC considers demands on the department, including on both customer service and policy development, to arrive at an agreed spending settlement that ensures that HMRC has sufficient resources and capacity to deliver its commitments and service levels. HMRC is confident that it has the resources it needs.
Many noble Lords raised the Government’s efforts to tackle economic crime. Indeed, we heard some discussion of that in the Statement repeat we just had. The Government are absolutely clear that we will not tolerate criminals profiting from dirty money, and that we will do whatever is necessary to bring such criminals to justice. The economic crime plan of three years ago was a landmark piece of work that brought together government, law enforcement and the private sector in close co-operation. I will not repeat all the measures that we have taken under that plan, but we have undertaken around 7,900 investigations, 2,000 prosecutions and 1,400 convictions annually for stand-alone money laundering or cases where money laundering is the principal offence. We have restrained £1.3 billion and recovered £1 billion since 2014 using the Proceeds of Crime Act, civil recovery and agency-specific disgorgement mechanisms.
The Government are bringing forward significant investment to tackle these crimes, including through, in this Bill, legislating for the economic crime anti-money laundering levy. I reiterate to noble Lords the Government’s commitment to reforming Companies House and the register of overseas entities’ beneficial ownership. As we heard from the Prime Minister earlier this month, the Government are committed to bringing forward an economic crime Bill to deliver those reforms.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Tunnicliffe, raised the issue of the bank surcharge and, in particular, pointed out the support that the Government provided to business during the pandemic through bounce-back loans, CBILS and so on. That is exactly why we are asking business to contribute to the costs of the recovery. The combination of the corporation tax increase and the new bank surcharge rate means that banks will have a higher rate of tax under the new regime than currently.
The noble Lord, Lord Tunnicliffe, asked a specific question about the Commons Public Accounts Committee’s claim that HMRC has effectively written off £4 billion of fraud and what the Treasury’s assessment of that is. We do not recognise any claims that we have written off any money. We definitively have not and do not intend to do so. Over the course of this financial year and the next, HMRC expects to recover another £800 million to £1 billion of overclaimed grants on top of the £500 million already recovered to date. Beyond that, we are not giving up on this. We continue to seek to recover everything we can. These overclaimed grants result from error as well as fraud and, where individuals have made genuine mistakes, HMRC will help them to put things right.
The Finance Bill comes before us in a significantly improved economic situation. The Government are rightly focused on economic recovery. In 2020, this country experienced the deepest recession on record, but thanks to the actions this Government have taken, including the vaccination programme, we have recovered fast.
Lord Bilimoria (CB)
I thank the noble Baroness for giving way and appreciate her efforts to answer many of the questions I raised in my speech. I would be grateful if I could have a written response to the ones she was not able to answer. In particular, I specifically asked about the £2 billion that the Government say they spent on testing in January. They are withdrawing lateral flow testing from 1 April, which will be an additional burden on consumers and businesses. I asked for the breakdown of that £2 billion between PCR tests and lateral flow tests. I was attacked in the Chamber earlier for saying that £2 billion is a lot of money, but it could be a small proportion of that. If the noble Baroness could give the figures, it would clarify the situation for the House, the public and business.
Baroness Penn (Con)
I always admire the noble Lord’s ability to cram in the most questions or points in his contributions to these debates. I make an effort to address as many as I can—this one strayed slightly beyond the brief I had on the Bill, but I undertake to take that question back and provide a written answer if I can.
I was nearly the conclusion of my response. We are focused on recovery from the recession that we experienced. I spoke about the vaccination programme and the tribute we should pay to its role in our recovery. However, we still have historically high levels of debt. New fiscal rules will help to ensure that the public finances remain on a sustainable path despite this, a sustainable path that this Bill also helps to chart. It is a Bill that supports our businesses and our economy as we recover from the pandemic. It supports stronger public finances through these exceptional times. It helps to tackle tax avoidance and evasion and contributes to a simpler and more sustainable tax system. For these reasons, I commend it to the House.
Royal Assent
Thursday 24th February 2022
(2 years, 9 months ago)
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