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
(3 years 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.