All 7 contributions to the Finance Act 2022 (Ministerial Extracts Only)

Read Full Bill Debate Texts

Tue 16th Nov 2021
Finance (No. 2) Bill
Commons Chamber

2nd reading & 2nd reading
Wed 1st Dec 2021
Finance (No. 2) Bill
Commons Chamber

Committee stageCommittee of the Whole House & Committee stage & Committee stage
Tue 14th Dec 2021
Tue 14th Dec 2021
Wed 5th Jan 2022
Tue 11th Jan 2022
Wed 2nd Feb 2022
Finance (No. 2) Bill
Commons Chamber

Report stage- & Report stage

Finance (No. 2) Bill

(Limited Text - Ministerial Extracts only)

Read Full debate
2nd reading
Tuesday 16th November 2021

(2 years, 6 months ago)

Commons Chamber
Finance Act 2022 Read Hansard Text Watch Debate

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- View Speech - Hansard - - - Excerpts

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 Portrait Clive Efford (Eltham) (Lab)
- Hansard - - - Excerpts

Can the Minister tell the House just exactly how much of that national insurance increase is going to go to social care?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

Clive Efford Portrait Clive Efford
- Hansard - - - Excerpts

Will the Minister give way again?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Peter Grant (Glenrothes) (SNP)
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Rushanara Ali (Bethnal Green and Bow) (Lab)
- View Speech - Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Rushanara Ali
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Clive Efford
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Richard Thomson (Gordon) (SNP)
- View Speech - Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

--- Later in debate ---
Helen Whately Portrait The Exchequer Secretary to the Treasury (Helen Whately)
- View Speech - Hansard - - - Excerpts

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 Portrait Richard Thomson
- Hansard - - - Excerpts

Will the Minister give way?

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

I should be delighted to give way to the hon. Member.

Richard Thomson Portrait Richard Thomson
- Hansard - - - Excerpts

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 Portrait Helen Whately
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

Will the Minister explain when the register of overseas entities owning UK property will be in place?

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

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.

--- Later in debate ---
17:02

Division 109

Ayes: 238


Labour: 174
Scottish National Party: 38
Liberal Democrat: 11
Democratic Unionist Party: 5
Independent: 3
Social Democratic & Labour Party: 2
Plaid Cymru: 2
Alliance: 1
Alba Party: 1
Green Party: 1

Noes: 310


Conservative: 308
Independent: 1

Question put forthwith (Standing Order No. 62(2)), That the Bill be now read a Second time.
--- Later in debate ---
17:16

Division 110

Ayes: 314


Conservative: 310
Democratic Unionist Party: 3
Independent: 1

Noes: 233


Labour: 175
Scottish National Party: 38
Liberal Democrat: 11
Independent: 3
Social Democratic & Labour Party: 2
Plaid Cymru: 2
Alliance: 1
Alba Party: 1
Green Party: 1

Bill read a Second time.

Finance (No. 2) Bill

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Wednesday 1st December 2021

(2 years, 5 months ago)

Commons Chamber
Finance Act 2022 Read Hansard Text Watch Debate Amendment Paper: Committee of the whole House Amendments as at 1 December 2021 - (1 Dec 2021)

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- View Speech - Hansard - - - Excerpts

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.

--- Later in debate ---
Richard Burgon Portrait Richard Burgon (Leeds East) (Lab)
- View Speech - Hansard - - - Excerpts

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 Portrait Lucy Frazer
- View Speech - Hansard - - - Excerpts

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.

--- Later in debate ---
15:47

Division 126

Ayes: 301


Conservative: 298
Democratic Unionist Party: 3

Noes: 206


Labour: 151
Scottish National Party: 35
Liberal Democrat: 11
Social Democratic & Labour Party: 2
Independent: 2
Alliance: 1
Plaid Cymru: 1
Green Party: 1

Clause 6 ordered to stand part of the Bill.
--- Later in debate ---
16:02

Division 127

Ayes: 52


Scottish National Party: 34
Liberal Democrat: 11
Social Democratic & Labour Party: 2
Independent: 2
Alliance: 1
Plaid Cymru: 1
Green Party: 1

Noes: 307


Conservative: 301
Democratic Unionist Party: 3

Clause 27
--- Later in debate ---
Rosie Winterton Portrait The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge (Barking) (Lab)
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- View Speech - Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

--- Later in debate ---
Margaret Hodge Portrait Dame Margaret Hodge
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- View Speech - Hansard - - - Excerpts

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.

--- Later in debate ---
James Murray Portrait James Murray
- View Speech - Hansard - - - Excerpts

Will the Minister give way?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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.]

David Linden Portrait David Linden (Glasgow East) (SNP)
- Hansard - - - Excerpts

Will the Minister give way?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

David Linden Portrait David Linden
- Hansard - - - Excerpts

Will the Minister give way?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

David Linden Portrait David Linden
- Hansard - - - Excerpts

Will the Minister give way?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait David Linden
- Hansard - - - Excerpts

Will the Minister give way on that point so that I can provide a public service to my constituent?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

The hon. Member has been very persistent. I give way.

David Linden Portrait David Linden
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

--- Later in debate ---
17:23

Division 128

Ayes: 212


Labour: 153
Scottish National Party: 36
Liberal Democrat: 11
Democratic Unionist Party: 4
Conservative: 2
Independent: 2
Social Democratic & Labour Party: 1
Alliance: 1
Plaid Cymru: 1
Green Party: 1

Noes: 306


Conservative: 302

New Clause 7
--- Later in debate ---
17:37

Division 129

Ayes: 215


Labour: 157
Scottish National Party: 37
Liberal Democrat: 11
Democratic Unionist Party: 4
Independent: 2
Conservative: 1
Social Democratic & Labour Party: 1
Alliance: 1
Plaid Cymru: 1
Green Party: 1

Noes: 299


Conservative: 296

--- Later in debate ---
Rosie Winterton Portrait The First Deputy Chairman of Ways and Means (Dame Rosie Winterton)
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- View Speech - Hansard - - - Excerpts

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 Portrait James Murray
- View Speech - Hansard - - - Excerpts

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.

--- Later in debate ---
Peter Grant Portrait Peter Grant (Glenrothes) (SNP)
- View Speech - Hansard - - - Excerpts

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 Portrait Lucy Frazer
- View Speech - Hansard - - - Excerpts

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)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Tuesday 14th December 2021

(2 years, 5 months ago)

Public Bill Committees
Finance Act 2022 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clauses 2, 3 and 5 stand part.

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- Hansard - - - Excerpts

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 Portrait James Murray (Ealing North) (Lab/Co-op)
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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?

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

None Portrait The Chair
- Hansard -

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.

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

That schedule 3 be the Third schedule to the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

--- Later in debate ---
Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

None Portrait The Chair
- Hansard -

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

--- Later in debate ---
None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clauses 18 to 22 stand part.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait James Murray
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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 Portrait Alison Thewliss
- Hansard - - - Excerpts

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 Portrait Lucy Frazer
- Hansard - - - Excerpts

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.

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

There is no question!

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

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)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Tuesday 14th December 2021

(2 years, 5 months ago)

Public Bill Committees
Finance Act 2022 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 14 December 2021 - (14 Dec 2021)

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- Hansard - - - Excerpts

Clause 23 extends the time for payment of capital gains tax on property disposals from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. It will affect disposals that have a completion date on or after 27 October 2021. Since April 2020, UK resident persons disposing of UK residential property where capital gains tax is due have been required to notify and pay the tax within 30 days of their sale completing.

Most people are not affected by the requirement because the sale of main homes is exempt from capital gains tax through private residence relief. Non-UK resident persons have paid within 30 days since April 2015 for residential property and from April 2019 for disposals of both UK residential and non-residential property, even if they have no tax to pay. However, the Government recognise that having 30 days has not always allowed taxpayers enough time to settle their affairs. In recognition of that, the Government are extending the 30-day time limit to 60 days. The change was informed by taxpayer representations and comes in response to the Office of Tax Simplification report in May 2021, where increasing the time limit to 60 days was a key recommendation.

The measure allows taxpayers more time to produce and provide accurate figures, particularly in more complex cases, as well as sufficient time to engage with advisers. It also clarifies the rules for a UK resident person calculating the capital gains tax notionally chargeable for mixed-use properties. The changes made by clause 23 will, first, extend the time limit for capital gains tax payment on property disposals to 60 days following completion of the relevant disposal. Secondly, for UK residents, the changes clarify that when a gain arises in relation to a mixed-use property, only the portion of the gain that is the residential property gain is to be reported and paid within 60 days.

Increasing the time limit to 60 days will delay some revenue until later in the scorecard. That is because some capital gains tax payments will now be paid in a different tax year. The Office for Budget Responsibility expects the measure to move £80 million out of the scorecard to later years, with the majority incurred in 2021-22. The measure is expected to impact an estimated 75,000 individuals, trustees and personal representatives of deceased persons who sell or otherwise dispose of UK land and property each year.

In summary, those liable to pay capital gains tax will now have 60 days instead of 30 days to report and pay the tax due on UK land and property disposals. I commend the clause to the Committee.

Abena Oppong-Asare Portrait Abena Oppong-Asare (Erith and Thamesmead) (Lab)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairship, Sir Christopher. I want to say for the record that I believe Erith and Thamesmead is the best constituency. As the Minister has described, clause 23 relates to returns for the disposal of UK land. It extends the time limit for payment on property disposal from 30 days to 60 days, as well as clarifying the rules for mixed-use properties. As the Minister has rightly pointed out, that will affect disposals with completion dates on or after 27 October 2021.

A reporting and payment period for selling or otherwise disposing of an interest in UK land was initially introduced to help reduce errors and increase compliance. The measure increased the time available for taxpayers to report their disposals. The increase intends to allow more time for taxpayers to produce and provide accurate figures, which will be particularly helpful in more complex cases, as well as assuring sufficient time to engage with advisers. The change also clarifies the calculation for the capital gains tax notionally chargeable for mixed-use properties.

We do not oppose the doubling of the time period for reporting and paying capital gains tax on UK property. However, we remain concerned about the lack of awareness surrounding the reporting and paying process. I would be grateful if the Minister could outline the measures the Government will take to help individuals selling properties to be aware of their obligations and what support the Government will offer individuals struggling to access the stand-alone digital system for reporting those transactions.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful to the Labour Front-Bench team for not opposing the measure, which is indeed very sensible. Her Majesty’s Revenue and Customs regularly engages with all stakeholders and agents, who will therefore know about the change, but the hon. Lady makes an important point about communication, which we touched on this morning. I commend the clause to the Committee.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Cross-border group relief

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this, it will be convenient to discuss that schedule 4 be the Fourth schedule to the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 24 makes changes to abolish cross-border group relief to ensure that loss relief is limited to UK losses, thereby providing relief only for companies that the UK can tax. It also amends the rules restricting the amount of losses foreign companies with a UK branch can surrender to UK companies, bringing companies resident in the European economic area in line with companies resident in the rest of the world.

Cross-border group relief provides UK companies with the ability to claim relief for the losses of their EEA resident group companies, even though the UK is unable to tax any profit made by those companies. The UK cross-border relief rules were introduced in 2006, owing to a 2005 decision by the Court of Justice of the European Union that found the previous rules to be incompatible with the EU freedom of establishment principle.

Under the current system, the UK Exchequer bears the cost of giving relief to UK companies for losses of EEA companies, as the latter pay no tax to the UK Government. The rules for restricting surrender of losses of a UK branch of a foreign company were also amended to be more favourable to EEA companies as a result of CJEU judgments. Favourable treatment for losses of EEA companies or UK branches of EEA companies is not right, and is inconsistent with our approach to the rest of the world, especially now that the UK has left the EU and is no longer bound by EU law.

Clause 24 will principally affect large, widely-held corporate groups, and will ensure both equal treatment of losses of companies in EEA and non-EEA countries and protection for the UK Exchequer against unfair outcomes. Historically, group relief was available only for losses of UK companies or UK branches, so the abolition of cross-border group relief and the alignment of branch rules is a reversion to a previously accepted position. Other countries generally do not give cross-border loss relief, so abolishing it would be very much in line with the international mainstream.

In summary, the change will allow the UK to depart from this historic position and more effectively pursue its fiscal policy objectives. I therefore commend the clause to the Committee.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

As we have heard, clause 24 concerns cross-border group relief and is accompanied by schedule 4. The clause and schedule repeal legislation that provides for group relief for losses incurred outside the UK and amend legislation that provides for group relief for losses incurred in the UK permanent establishment of an EEA resident company.

Following the UK’s exit from the EU, the Government are bringing group relief relating to EEA resident companies into line with relief for non-UK companies resident elsewhere in the world. Claims involving companies established in the EEA are currently subject to more favourable rules in the UK relating to relief for non-UK losses and losses incurred by the UK permanent establishment of a foreign company.

These rules were introduced to give effect to the UK’s obligations as a member state of the EU. Having left the EU, the UK is no longer required to maintain those rules, and it is inconsistent to treat groups with EEA resident companies more favourably than those with companies resident elsewhere in the world. The clause therefore removes that inequality by aligning group relief rules for all non-UK companies.

The changes to legislation made by the clause broadly restore the group relief rules to what they were before separate rules were introduced for EEA resident companies in line with EU law. We do not oppose this measure, as it rightly removes an inequality between companies and contributes towards a level playing field.

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I thank the hon. Lady for indicating her support for clause 24, and I commend it to the Committee.

Question put and agreed to.

Clause 24 accordingly ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 25

Tonnage tax

Question proposed, That the clause stand part of the Bill.

Helen Whately Portrait The Exchequer Secretary to the Treasury (Helen Whately)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Sir Christopher.

Clause 25 reforms the UK’s tonnage tax regime from April 2022, with the aim that more firms will base their headquarters in the UK, using the UK’s world-leading maritime services industry and flying the UK flag. The UK tonnage tax regime was introduced in 2000 to improve the competitiveness of the UK shipping industry. It is a special elective corporation tax regime for operators of qualifying ships. Now that the UK has left the European Union, the Government will make substantive reforms to the regime for the first time since it was introduced, to help the UK shipping industry grow and compete in the global market. The reforms will make it easier for shipping companies to move to the UK, make sure that they are not disadvantaged compared to firms operating in other countries and reduce administrative burdens.

Clause 25 will make changes to the tonnage tax legislation contained in schedule 22 to the Finance Act 2000 to reform the regime from April 2022. Specifically, it will give effect to the following measures announced at the autumn Budget in 2021. The Government will give HMRC more discretion to admit companies to the regime outside the initial window of opportunity, where there is a good reason. The Government will reduce the lock-in period for companies participating in the tonnage tax regime from 10 to eight years, aligning the regime more closely with shipping cycles.

Now that the UK has left the EU, the Government will remove the consideration of flags from EU and EEA countries. Following this legislative change, HMRC will update its guidance to encourage the use of the UK flag by making it an important factor in assessing the value that companies who want to participate in tonnage tax will bring to the UK in the strategic and commercial management test. Finally, following the UK’s departure from the EU, the Bill will simplify a rule that may include distributions of related overseas shipping companies in relevant shipping profits.

These changes to modernise the tonnage tax regime will make sure that the UK’s maritime and shipping industries can compete in the global shipping market, bringing jobs and investment to nations and regions across the UK. I commend the clause to the Committee.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

I thank the Minister for her explanation of clause 25, which makes amendments to the tonnage tax regime. Tonnage tax is a special elective corporation tax regime open to operators of qualifying ships that fulfil certain conditions. The amendments will have effect from 1 April next year. At the autumn Budget in 2021, the Government announced that they would introduce a package of measures to reform the UK’s tonnage tax regime from April 2022, which they say aims to ensure that the British shipping industry remains highly competitive in the global market. As part of the package, the Government say these amendments support their aim of simplifying the operation of tonnage tax legislation and making it more flexible following the UK’s departure from the European Union. Clause 25 gives effect to some of these measures by amending the tonnage tax legislation contained in schedule 22 to the Finance Act 2000, as the Minister said.

In his Budget speech on 27 October, the Chancellor of the Exchequer said:

“When we were in the old EU system, ships in the tonnage tax regime were required to fly the flag of an EU state, but that does not make sense for an independent nation. So I can announce today that our tonnage tax will, for the first time ever, reward companies for adopting the UK’s merchant shipping flag, the red ensign. That is entirely fitting for a country with such a proud maritime history as ours.”—[Official Report, 27 October 2021; Vol. 702, c. 282.]

--- Later in debate ---
Alison Thewliss Portrait Alison Thewliss (Glasgow Central) (SNP)
- Hansard - - - Excerpts

I support the comments made by the Labour Front-Bench spokesperson on this issue. Switching flag is the most crazy kind of gesture politics. Would it not have been better to look at green shipping? That would create a tax incentive for the industry, which is one of the leading contributors to emissions, to transfer to better forms of power, to reduce its carbon emissions and to have some positive impact on global emissions and the net zero target, rather than pursuing the gesture politics of switching flags on a ship.

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

As I set out, the clause reforms the UK’s current tax regime to help the UK shipping industry grow and compete in a competitive global market. Overall, this will be to the benefit of our maritime industry and, therefore, to the UK as a whole, supporting GDP, tax revenues and jobs in the UK.

I will pick up on a couple of comments made by the Opposition Front-Bench spokespeople. On the points made by the hon. Member for Erith and Thamesmead, the clause is all about helping our shipping industry compete in a global market and making sure firms are not disadvantaged compared to those operating in other countries. It comes at a minimal cost to the Exchequer and we expect to see tax revenues in the sector increase as a result, because it will mean that more shipping groups are likely to headquarter in the UK. That will bring tax advantages and benefits to the UK, as well as tens of thousands of jobs that relate to that.

On the second point that the hon. Member made, I emphasise that the Treasury takes the recommendations of the Macpherson review very seriously and follows them in full. The reforms to our tax regime were rightly announced some months before they will come into force, in April next year.

The hon. Member for Glasgow Central talked about environmental factors. As part of the reforms, HMRC expects to update the guidance on assessing eligibility for the tonnage tax regime, and environmental factors will be considered as part of that, so it can help us on decarbonisation actions and ambitions.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

I thank the Minister for her explanations. Has an assessment been made of whether anyone profited as a result of the Chancellor’s premature announcement to the press? Has any assessment been carried out?

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

I emphasise what I said a moment ago: the Treasury followed in full the approach that should be taken, as set out in the Macpherson review in 2013. The Government’s tonnage tax reforms will ensure that the UK’s maritime and shipping industries remain highly competitive and bolster our reputation as a great maritime nation.

Question put and agreed to.

Clause 25 accordingly ordered to stand part of the Bill.

Clause 26

Amendments of section 259GB of TIOPA 2010

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 26 makes a change to ensure that corporation tax rules for hybrids and other mismatches operate proportionately in relation to certain types of transparent entity. Following recommendations by the OECD, the UK was the first country to implement anti-hybrid rules in 2017. These rules tackle aggressive tax planning by multinational companies that seek to take advantage of differences in how jurisdictions view financial instruments and entities.

With the benefit of three years’ experience of operating the rules, and with other countries following suit and introducing their own version of the rules, the Government launched a wide-ranging consultation on this area of legislation at Budget 2020. Following that consultation, several amendments were made to the rules in the Finance Act 2021, but the change that we are now considering, relating to transparent entities, was withdrawn from that Bill to allow the Government additional time to consult stakeholders, so that they could ensure that the amendment had no unintended conse-quences.

We have had further engagement with stakeholders, and the amendment now provides for the specific change for transparent entities that the Government committed to making following last year’s consultation. The change made by the clause is technical and will impact multinational groups with a UK presence that are involved in transactions with certain types of entity that are seen as transparent, for tax purposes, in their home jurisdictions. Following the changes, this type of entity will be treated in the same way as partnerships in the relevant parts of the rules for hybrids and other mismatches. It is important that these rules are robust in tackling international tax planning, but also that they are not disproportionately harsh in their application.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

The Minister clarified what the clause does. We do not oppose the clause.

Question put and agreed to.

Clause 26 accordingly ordered to stand part of the Bill.

Clause 29

Insurance contracts: change in accounting standards

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 29 introduces a power to lay regulations before Parliament in connection with the new international accountancy standard for insurance contracts, known as IFRS 17, introduced by the International Financing Reporting Standard Foundation. These regulations will allow the Government to spread the transitional impact of IFRS 17 for tax purposes, and to revoke the requirement for life insurers writing basic life assurance and general annuity business to spread their acquisition expenses over seven years for tax purposes. The corporation tax liabilities of insurers are based on their accounting profit. IFRS 17 will apply to companies that prepare their accounts under international accounting standards and is expected to become mandatory for accounting periods beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board.

Depending on the types of insurance business written, adoption of IFRS 17 will create a large, one-off transitional accounting profit or loss for many insurers. The Government expect that spreading these one-off transitional profits and losses for tax purposes will greatly reduce volatility in Exchequer receipts and should also help to mitigate the cash flow and regulatory impacts of the accounting change. This will support the long-term stability of the insurance sector in the UK and contribute to the UK maintaining its position as a leading financial services centre.

The adoption of IFRS 17 will also make it more complex for life insurers writing basic life assurance and general annuity business to undertake the necessary calculations to spread their acquisition expenses over seven years for tax purposes, as currently required. Additionally, commercial changes in the life insurance market mean that the need for this requirement has reduced in recent years. Removing it for all life insurers writing basic life assurance and general annuity business, and instead following accounting treatment for tax purposes, will be a welcome simplification. The details of the final legislation will be informed by a consultation that was published alongside the “Tax Administration and Maintenance” Command Paper on 30 November.

The clause will allow the Government to respond to the potentially large and one-off tax implications caused by the adoption of the new international standard for insurance contracts, IFRS 17. I therefore recommend that the clause and schedule 5 stand part of the Bill.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

As we have heard, clause 29 sits alongside schedule 5 and refers to insurance contracts and changes in accounting standards. As the Minister has mentioned, the clause has an enabling power that will allow the Government to make provisions in secondary legislation in connection with international financial reporting standard 17, and to revoke the requirement for all life insurance companies to spread acquisition costs over seven years for tax purposes.

The corporation tax liabilities of insurers are based on their accounting profit, and many insurers prepare their accounts under international accounting standards. The new international accounting standard for insurance contracts, IFRS 17, is expected to become mandatory for periods of account beginning on or after 1 January 2023, subject to its endorsement by the UK Endorsement Board. IFRS 17 will affect the timing of recognition of insurers’ profits and losses, and its adoption will create transitional accounting profits or losses, which we understand may have significant regulatory consequences. We recognise that the Government will need powers to be able to deal with the tax implications of IFRS 17.

The removal of the requirement for all life insurance companies to spread their acquisition costs over seven years for tax purposes is a simplification that has been allowed by IFRS 17. We welcome the simplification of tax arrangements and do not oppose the clause, but can the Minister tell us what provision will be put in place for insurers, for whom the change in accounting standards could cause a transitional administrative burden?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I thank the hon. Member for her question, but the whole purpose of the clause, which will allow costs to be spread over a number of years, is to make things easier for insurers. I am glad that she is satisfied that the clause is sensible, and I am very grateful for her support for this provision. I ask that the clause stand part of the Bill.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 30

Deductions allowance in connection with onerous or impaired leases

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 30 makes technical amendments to the corporate loss relief rules introduced in 2017. They ensure that the rules continue to operate as originally intended and that eligible companies can claim the relief to which they are entitled. When a company makes a loss, it can carry forward that loss and use it to offset its taxable profits in the future.

The Finance (No. 2) Act 2017 reformed the UK’s loss relief regime. The corporation tax loss rules restrict set-off for carried-forward losses for large companies. In general, this means that only 50% of the current-year profits above the deductions allowance of £5 million can be covered by carried-forward losses. The restriction does not apply to accounting profits stemming from lease renegotiations that are aimed at preserving a company’s ability to continue trading. The impact of covid and the associated restrictions on businesses has resulted in an increase in the restructuring and renegotiation of leases. The introduction of a new accounting standard has meant that the legislation needs amending to cover the change in accounting treatment for leases, as without that, the lease renegotiations providing companies with the opportunity to remain in business will result in a prohibitive tax charge, which may instead force them into insolvency.

--- Later in debate ---
Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

Clause 30 concerns deductions allowance in connection with onerous or impaired leases. The clause amends sections of the Corporation Tax Act 2010 to ensure that the legislation continues to work as intended. It does so by continuing to provide an exemption from the loss reform rules for companies in connection with onerous or impaired leases in specific circumstances. As the Minister said, the measure enables such companies to obtain full relief for carried-forward losses that offset profits arising from lease renegotiations where they adopt international financial reporting standard 16.

Loss reform was introduced in section 18 of schedule 4 to the Finance Act 2017, and had effect from 1 April 2017. The reform made two main changes. It increased a company’s flexibility to offset carried-forward losses either against the company’s own total profits in latter periods or in form of a group relief in a later period. Additionally, it limited the amount of profit against which carried-forward losses can be set. Each group or a company that is not part of a group has an annual deductions allowance of £5 million in profit. Carried-forward losses can be set against that amount, which is restricted to a maximum of 50% of a company’s total profits for the period. The restriction to carried-forward losses was extended to include corporate capital losses with effect from 1 April 2020. Having reviewed the clause, the Opposition do not oppose it.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful for the fact that the Opposition do not intend to oppose the clause.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Provision in connection with the Dormant Assets Act 2022

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

The Committee will be disappointed to learn that this is probably the last clause that we will deal with today. It introduces schedule 6, which supports the expansion of the dormant assets scheme to a wider range of assets. The clause ensures that where an asset is transferred into the dormant asset scheme and an individual later makes a successful claim to the ownership of that asset, they are in the same position for capital gains tax purposes that they would have been in without the scheme.

The dormant asset scheme enables funds from dormant bank and building society accounts to be channelled towards social and environmental initiatives. The scheme allows dormant funds to be unlocked for good causes, while protecting the original asset owner’s legal right to reclaim the amount that would have been paid to them had a transfer into the scheme not occurred.

In 2021, following a consultation, the Government announced their intention to expand the scheme to include assets from the pensions, insurance, investments and securities sectors. The process of transferring the assets into the scheme could, in certain cases, qualify as a disposal for CGT purposes, resulting in neither a gain nor a loss. As the asset owner cannot be located and does not know that the transfer has occurred, it is not appropriate or feasible for the tax to be paid by the individual at the point of transfer to the scheme, or for a notice of a loss to be made. The change made by the scheme addresses that by ensuring that a CGT charge arises only where a person comes forward to claim the asset. That ensures that the individual remains in the same position for tax purposes that they would have been in had the asset not been transferred into the dormant asset scheme.

Where the asset had previously been held in an individual savings account, changes made by the schedule ensure that no income or CGT arises when the asset is reclaimed. That ensures that savers in ISAs are not disadvantaged by their accounts being transferred into the scheme. The scheme also updates references in the existing legislation to ensure that it reflects the widest scheme created by the Dormant Assets Bill.

The schedule will commence only on the making of a Treasury order, because the Dormant Assets Bill is not yet law. The intention is to lay the necessary commencement order before Parliament when that Bill becomes law. For that reason, the schedule contains time-limited powers that allow the Treasury to make changes by secondary legislation if changes to the Dormant Assets Bill result in additional tax issues. The Government believe that the provisions strike the right balance between supporting good causes and taxpayer fairness.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

As we have heard, clause 31 and schedule 6 concern the Dormant Assets Bill. The changes broadly ensure that individuals remain in the same position for tax purposes as they would have done had the assets not been transferred into the dormant assets scheme. Overall, we do not oppose the measure, but we are aware that the Chartered Institute of Taxation has concerns about the availability of accessible guidance to those making a claim under the dormant assets scheme who may be unaware of the tax consequences of their actions. Will the Minister clarify when guidance will be issued?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful for the hon. Member’s indication that the Opposition will not oppose this measure. HMRC does generally provide guidance, and I am very happy to update the hon. Member on any guidance on this issue.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Schedule 6 agreed to.

Finance (No. 2) Bill (Third sitting)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Wednesday 5th January 2022

(2 years, 4 months ago)

Public Bill Committees
Finance Act 2022 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 5 January 2022 - (5 Jan 2022)

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

Clause 33 stand part.

Clause 52 stand part.

New clause 3—Review of impact of Residential property developer tax on the tax gap

“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of Part 2 of this Act (Residential property developer tax) on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance.”

This new clause would require a Government assessment of the impact of the Residential Property Developer Tax introduced in this Bill, and of its effect on opportunities for tax evasion and avoidance.

New clause 18—Review of the residential property developer tax—

“(1) The Government must publish a review of the residential property developer tax within three months of the end of the first year of it applying.

(2) The review under subsection (1) must be updated annually, within three months of the end of each subsequent year that the residential property developer tax applies.

(3) The review under subsection (1), updated as set out in subsection (2), must assess—

(a) how much the RPDT has raised in each year of its operation so far;

(b) how much it is estimated that RPDT would have raised at a level of—

(i) 6%,

(ii) 8%, and

(iii) 10%; and

(c) any wider effects of setting the RPDT at the levels set out in subsection (3)(b).”

This new clause would require the Government to review the RPDT each year in order to assess the revenue it has raised and also what revenue it would raise, and the other wider effects it would have, at certain higher levels.

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Dame Angela. Like you, I wish all members of the Committee a happy new year. As the Committee will know, the Government are determined to bring an end to unsafe cladding, to reassure homeowners and to support confidence in the housing market. As part of the building safety package announced in February 2021, we are introducing a new residential property developer tax, which will raise at least £2 billion over the next decade to help to pay for building safety remediation.

As announced on 10 February 2021 by the previous Secretary of State for Housing, Communities and Local Government, my right hon. Friend the Member for Newark (Robert Jenrick), the RPDT is one of two new revenue-raising measures that will ensure that developers make a fair contribution to the costs of remediation. Clauses 32 and 33 introduce a new residential property developer tax to be charged at a rate of 4% on the profits of businesses carrying out residential property development activity that exceed its allowance for an accounting period. The clauses confirm that the RPDT is charged as if it were an amount of UK corporation tax.

Clause 52 is an anti-avoidance provision, which prevents taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage. The clause will apply where trading profits derived from residential property development activities arise in the accounting period ending before the commencement of RPDT, and arose only because of arrangements made on or after 29 April 2021.

New clause 3, tabled by the hon. Member for Glasgow Central, seeks to require the Government to publish an assessment of the impact of RPDT on the tax gap, and of whether it has increased opportunities for tax evasion and avoidance. As the RPDT has been designed to be aligned with UK corporation tax, the existing corporation tax compliance mechanisms, such as inquiries, information powers and penalties, will apply to RPDT, as well as anti-avoidance rules including transfer pricing and the general anti-abuse rule.

Her Majesty’s Revenue and Customs regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. HMRC will assess the impact of RPDT on the tax gap in its annual “Measuring tax gaps” reports, and will monitor RPDT revenue in its annual tax receipts statistical publications. The Government also carefully assessed the impacts of RPDT throughout the consultation period and published a detailed impact assessment of RPDT at the autumn Budget. For those reasons, I believe that a further impact assessment is not appropriate, and I therefore ask the Committee to reject the new clause.

New clause 18, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, seeks to require the publication of an annual review of the tax, including the revenue raised, the estimated yield that would have been raised had the tax been set at various differential rates—6%, 8% and 10%—and the wider effects of the higher rates. HMRC regularly reports on the taxes that it is responsible for collecting, and the RPDT will be no exception. The revenue raised from RPDT will be published in HMRC’s annual tax receipts statistics publications.

The RPDT rate was carefully considered in the context of the upcoming increase in the main rate of corporation tax in 2023, other taxes and forthcoming regulatory changes, as well as the wider macroeconomic environment. The 4% rate of RPDT balances the need to raise £2 billion over a decade—at the same time as seeking a fair contribution from the residential property development sector—against the need to ensure that the tax does not have a significant impact on housing supply. The Government monitor the tax system continuously and will keep the tax under review. For those reasons, I believe that a further annual review of RPDT is not appropriate, and I therefore ask the Committee to reject new clause 18.

In conclusion, the clauses in this group form the first part of the legislation needed to introduce RPDT in April 2022 and the necessary anti-avoidance provisions. I therefore recommend that the clauses stand part of the Bill.

James Murray Portrait James Murray (Ealing North) (Lab/Co-op)
- Hansard - - - Excerpts

It is a pleasure to serve on a second Finance Bill Committee under your chairship, Dame Angela.

I will address the clauses that the Minister set out in her remarks, starting with clause 32, which notes that the new residential property developer tax will be applicable from 1 April 2022, as announced at the spring Budget of 2021. As we have heard, this is a new, time-limited tax on the profits of residential property development companies’ property development activity, with a rate of 4% over a £25 million allowance. The Government estimate that it will generate £2 billion over the course of a decade, and they said that the funds are earmarked to help with cladding remediation costs, according to the former Secretary of State for Housing, the right hon. Member for Newark (Robert Jenrick), who spoke to the Building Safety Bill in February 2021. The explanatory note for the clause states that the tax is to

“ensure that the largest developers make a fair contribution to help fund the Government’s cladding remediation costs.”

We support the principle behind the new tax, but I intend to use this Committee sitting to question the Ministers on the detail of its design and to probe their views on its place in the Government’s wider response to the cladding scandal. We know that the Bill has been consulted on, but we also note stakeholders’ disappointment that the consultation process was truncated, as stage 1 —setting out objectives and identifying options—was cancelled. Although we recognise the importance of moving quickly to raise revenue in order to help meet the costs of remediating unsafe cladding on buildings, it is disappointing that the Government were not able to conduct a thorough consultation.

Clause 33 sets the rate of the RPDT charge at 4% on profits that exceed the allowance of £25 million. The tax is charged as if it were an amount of corporation tax chargeable on the developer. As I mentioned earlier, the Government expect that £2 billion of revenue will be generated while the tax is in effect, so I will ask the Minister several questions in order to try to clarify the reasoning behind some of the Government’s decisions on the detail of the tax. First, we note that the tax does not come with a sunset clause, and therefore active legislation will be required to repeal it when it comes to an end. Will the Minister explain the reasoning behind that decision? If the tax is intended to be time-limited, why have the Government have chosen to leave it in need of active repeal, rather than simply adding a sunset clause?

Secondly, I mentioned that the expected revenue from the tax is £2 billion. We know, however, that that is just a fraction of the total cost of remediating unsafe cladding, which was estimated by the then Housing, Communities and Local Government Committee in April 2021 to be about £15 billion. What is more, labour and material shortages have significantly driven up the cost of construction. That is thought to add £1.2 billion to the overall cost of remediation, wiping out most of any gain from this tax. With the cost of cladding remediation already thought to be so much greater than the amount that the tax is expected to raise, and with that gap likely only to increase, will the Minister try to explain further why the rate was set at 4%? Will she confirm whether, if the amount raised should fall short of £2 billion or if costs should increase substantially, the Government would be open to considering raising the level of the tax?

It was in pursuit of an answer to that question that we tabled new clause 18, which would require the Government to publish a review of the residential property developer tax within three months of the end of the first year of it applying, and thereafter annually, within three months of the end of each subsequent year that the tax applies. The review, as updated, must assess how much the RPDT has raised in each year of its operation so far and how much it is estimated that it would have raised at levels of 6%, 8% and 10%.

As I mentioned, the cost of remediating unsafe cladding was estimated last year to be about £15 billion, and the cost of labour and materials has increased due to supply chain crises. Industry experts have estimated an 8% increase in the cost of cladding jobs, compared with last year. As I mentioned, that could increase the total cost by £1.2 billion. As I said, this tax aims to raise £2 billion, which is just a fraction of the total cost and much of which, it seems, will be wiped out by rising costs.

We have therefore tabled this new clause to ask the Government to assess how much they could raise through the tax and how much they could raise with different rates. Given the significant discrepancy between the estimated revenue raised by the RPDT and the estimated cost of remediation, will the Minister set out in further detail, when she responds, exactly how the rate of 4% was reached and what specific consideration was given to alternatives? It was with that in mind that we tabled the new clause. We will not seek to put it to a vote, but we hope that it will help us to debate and probe the important and central issue of the rate at which the RPDT has been set.

In summary, I will be grateful if, in her reply, the Minister could set out exactly how the figure of 4% was arrived at and, furthermore, how she expects the rest of the cost of cladding remediation to be met. I would be grateful if she could set out, either in her reply now or in writing, what other sources of funding she anticipates being used to meet the total cost of cladding remediation.

Finally in relation to this group, I will briefly mention clause 52, which is an anti-avoidance provision preventing taxpayers from adjusting their profits arising in an accounting period in order to obtain a tax advantage for the purposes of this tax. We welcome the intent behind that clause and will not oppose it.

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I very much welcome the initial comments of the hon. Member for Ealing North, and that he welcomes the points in principle. That is important, given that we are trying to help those people who have suffered a terrible tragedy and ensure that we have the necessary funds to remedy the situation. He asked several questions, the first of which related to consultation. I reassure him that the Government undertook extensive stakeholder engagement as part of the 12-week consultation —holding 40 consultative meetings—to help ensure that the issues raised in the consultation about the design and impact were considered fully.

The hon. Gentleman also mentioned a sunset clause. We have been clear that this is a measure to raise £2 billion-worth of revenue by way of tax, and that it will be time limited and will be repealed once sufficient revenue has been raised. As with all other taxes, the Government will keep this tax under review.

The hon. Gentleman asked whether the 4% rate was sufficient. However, at the same time, he also mentioned the supply chain issues that might mean that the cost of construction has gone up. It is, of course, important to ensure that what we ask from developers is fair, in order to ensure that their businesses remain viable and sustainable at the same time as contributing to this issue. The rate was carefully considered in the context of the upcoming increase in corporation tax, other taxes, the regulatory changes and the wider macroeconomic environment. We feel that 4% represents the right balance, raising the £2 billion over a decade while being fair and not having an impact on housing supply. The hon. Gentleman asked how we came to this rate; we considered it very carefully and decided on 4%.

James Murray Portrait James Murray
- Hansard - - - Excerpts

For the sake of clarity, I would be grateful if the Minister could help my understanding. She said that the tax was intended to raise £2 billion over 10 years, but she may have implied that if it has not raised £2 billion over 10 years, it would keep applying until £2 billion was raised. Is it for 10 years, or is it for £2 billion? The Government will not necessarily raise £2 billion over exactly 10 years; one has to come before the other. Is it going to be for 10 years and then finish—no matter what it has raised—or will it keep going until it has raised £2 billion?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

The Government have made clear that they propose to raise £2 billion from this tax. They have done extensive analysis as to what the appropriate rate is to recover that amount. At a rate of 4%, we anticipate that we will raise that £2 billion—in fact, slightly more than that—in 10 years, and that is when the tax will come to an end.

I will address the points made by the hon. Member for Gordon, because he rightly raised an important point about tax avoidance. It is HMRC’s duty to ensure that we do not have tax avoidance and evasion. However, I reassure him that the existing corporation tax compliance mechanisms that currently exist—which include inquiries, information powers and penalties—will apply to this tax, as well as anti-avoidance rules, including transfer pricing and the general anti-abuse rule. He did not specifically raise any particular measures that he thought would be anti-avoidance or abuse—if there are any, I would be very interested to hear them in due course and discuss that with him.

For those reasons, we ask the Committee to reject the two new clauses and to agree that clauses 32 and 33 stand part.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

--- Later in debate ---
None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

Clauses 35 to 38 and 47 to 49 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clauses 50 and 51 stand part.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clauses 34 to 38 set out key definitions for the residential property developer tax, which collectively set out the conditions that need to be satisfied for a business to be in scope of the tax. Clauses 47 to 51 and schedule 9 address a mix of aims within the tax, including the definition of a group, excluding a deduction for the tax when calculating profits or losses for other tax purposes, and the application of transfer pricing principles for the purpose of the residential property developer tax.

Clause 34 defines a residential property developer, and confirms that to be in scope of the RPDT, a business must be a company that undertakes residential property development activities as further defined in clause 35. Clause 34 provides an exclusion for non-profit housing companies and their wholly owned subsidiary companies from being treated as residential property developers for the purposes of the RPDT. The clause defines a non-profit housing company by reference to existing legislation, and a power has been taken that allows the definition to be updated in future in line with any changes to regulatory frameworks.

Clause 35 provides a non-exhaustive list of what amounts to residential property development activities, and confirms that profits from these activities undertaken by the developer on or in connection with UK land in which it has an interest will form the tax base.

Clause 36 explains that a residential property developer or a related company will have an interest in the land for the purposes of the tax where it has an interest in or over the land that forms part of its trading stock used in its development trade. It explains the tax’s application to related companies and joint venture companies.

Clause 37 provides a definition of residential property and sets out the types of properties that will not be regarded as residential property. The clause excludes certain types of buildings from the definition of residential property, so that any profits or losses from their development are not taken into account when computing profits that are subject to the tax. These include, typically, specialised institutions that provide temporary or longer-term accommodation for a specific class of residents, and buildings that are occupied purely under licence to occupants who do not hold any lasting rights over the property. Finally, the clause sets out the criteria to be met in relation to buildings that are excluded from the definition of residential property as student accommodation. Clause 38 sets out the formula used to calculate the residential profits or losses from residential property development activity by a developer for an accounting period.

Clause 47 introduces an exit charge that applies when a non-profit housing company ceases to meet the conditions to be exempt from the RPDT, and sets out the operation of the exit charge. This rule has been welcomed by the non-profit sector.

Clause 48 provides the definition of a group of companies for the purposes of the RPDT, other than for the group relief rules in schedule 7. Since a group of companies is entitled to a single £25 million allowance, it is important to set out clearly what constitutes a group for that purpose.

Clause 49 introduces schedule 9, which introduces a rule preventing a residential property developer from obtaining any deduction for the tax when calculating any profits or losses for income tax or corporation tax purposes. Clause 50 sets out where the meaning of various terms used in the RPDT legislation can be found.

Clause 51 confirms that the RPDT will apply for an accounting period for UK corporation tax purposes of a developer that ends on or after 1 April 2022. It sets out the treatment of accounting periods that straddle the commencement date of 1 April 2022. The RPDT will be chargeable only in respect of profits calculated from 1 April 2022 to the end of the accounting period, with an apportionment being made of the profits for the whole accounting period on a time basis.

In summary, this group of clauses defines key terms needed for the RPDT to work and provides the essential framework for the administration of the tax. The clauses will be supported by guidance to provide further clarity for taxpayers.

James Murray Portrait James Murray
- Hansard - - - Excerpts

As we have heard, clauses 34 to 38 concern the key concepts contained in the RPDT legislation. Clause 34 sets the basic conditions that, when satisfied, mean that a company is to be designated as a residential property developer, potentially within the charge of the RPDT. Subsection (1) defines an RP developer as either a company that undertakes residential property development activities or one that holds

“a substantial interest in a relevant joint venture company.”

The company’s interest in such a joint venture is aggregated with those of other members of the same group to determine whether that is a substantial interest.

Subsection (3) clarifies that a non-profit housing association or organisation is not treated as an RP developer for the purposes of the tax. That is a very important distinction that we support. My colleagues in the shadow housing team pressed the Government on that point during Committee stage of the Building Safety Bill, and I welcome that being reflected in this Bill.

Subsection (4) is a logical extension of subsection (3), determining that wholly owned subsidiary companies of non-profit housing companies are also excluded from being treated as RP developers for the purposes of the tax. It makes sense to exclude non-profit housing associations from RPDT, particularly given that they have already made a much more substantial contribution to cladding remediation than private developers. Research by the National Housing Federation in October 2021 found that private developers and cladding manufacturers had allocated £643 million of future profits to remediate unsafe cladding, while non-profit housing associations have estimated that their remediations will cost in excess of £10 billion.

Subsection (5) allows the Treasury to amend the definition of a non-profit housing company by regulation, and to make any consequential changes to this part of the legislation. As we have heard, that allows the definition to be updated, in line with any changes to the regulatory framework for registered social housing providers. It may be understandable that the Government want to be able to adjust definitions to match any changes in the way that social housing providers operate, as well as to recognise the impact of any changes to the regulatory framework. However, so that we can better understand the Government’s concerns, I would be grateful if the Minister could indicate why it may be necessary to amend the definition of a non-profit housing company.

Clause 35 sets out the criteria and definitions of residential property development activities for the purposes of the tax, as well as setting the territorial scope of the legislation. Subsection (1) brings within scope anything that is done by an RP developer or in connection with land in the United Kingdom for the purposes of the development of a residential property. A developer must have an interest in the land at some point for the activity there to be RP developer activity for the purposes of the tax. Land in that respect is taken to include buildings or structures on a piece of land. The requirement for an interest in land means that profits from similar activities undertaken by companies acting purely as third-party contractors, who are not RP developers, do not come within the charge of the tax.

Clause 36 raises an important question about who the RPDT applies to. Subsection (1) sets out the definition of an interest in land for the purposes of the tax. Broadly, it sets out that, when an RP developer has an interest in land, it must have

“an estate, interest, right or power in or over the land”.

That estate, interest, right or power must form

“part of the RP developer’s, or the related company’s, trading stock”.

Subsection (4) elaborates what “trading stock” refers to and makes clear the importance of an estate, interest, right or power in or over land being disposed of. It is the point about disposal that I would like to probe further. Discussions with Clerks about whether new clause 19 was selectable drew out the fact that the residential property developer tax is aimed at developers that do development work in order to trade property once the work has been done. It seems clear to me that the RPDT would apply in the case of a developer who builds homes and sells their freehold interest once the development is complete, but what happens when the developer retains some sort of interest for a specific period of time, or indefinitely?

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

There are quite a lot of points to address. I will deal with those that are easy to deal with orally, and I will get back to the hon. Member for Ealing North in writing on some of the more detailed points he raised. I am very grateful to him and to the hon. Member for Glasgow Central for welcoming our decision on affordable housing and the not-for-profit sector. We had obviously thought about that very carefully. I think it is the right decision, and I am pleased that it has cross-party support. I welcome, as does the hon. Member for Ealing North, the work that has already been done to reduce cladding by that sector.

The hon. Member for Ealing North asked why we will not extend the definition beyond that to not-for-profit providers. It is because this measure relates to a charge when people have made a significant profit of more than £25 million. He also asked why we need flexibility to come back, by way of regulation, and change the definitions. The definitions are based on legislation from the devolved Administrations, and if those definitions change, we need the flexibility to change them here as well.

The hon. Gentleman also asked about different scenarios for disposals of land. He will know that, when coming up with this policy, we thought carefully about what should and should not fall within it, and what was right to fall within it. We excluded build-to-rent because it is a very different sector in which profits are earned in a different manner at a different time. It was not comparable to the build-to-sell sector. He posited a number of scenarios in which commercial entities might change their activities in order not to pay this charge over the period of time but may ultimately sell properties in due course. We of course considered the possibility that people might change arrangements in order not to pay the tax, but we took the view, having discussed the issue, that significant change in commercial behaviour or business models in order simply to avoid the tax would be unlikely. I will get back to him on some of his specific points.

The hon. Gentleman also made a point about student accommodation, which I will answer from a broad perspective. Those who build properties and are able to pay the levy, because they have an income of more than £25 million, are subject to the tax. It is on house sales of a particular kind, where the purpose of the sale is essentially a sale of a property but it so happens that some other services are provided at the same time. It is essentially competing with the build-to-sell sector, which is why it is included in the legislation.

The hon. Member for Glasgow Central asked whether we would keep in touch with the Scottish Government, which we of course will and are very happy to. She asked what happens when people provide good services, for example in the affordable housing sector, but are profit making. I want to reiterate that the levy will catch significant property developers earning in excess of £25 million—it is that type of company that will be caught by the levy. We will of course keep everything under review, and the same point relates to the point that the hon. Member for Glasgow Central made about student accommodation. This is about big providers that are selling property to individuals, rather than renting the accommodation in short order.

I am really pleased that the hon. Member for Glasgow Central recognised the successful work that HMRC has done over the course of the pandemic in pretty short order. The furlough scheme and all the grants have largely been administered by HMRC, and it has done a tremendous job, delivering at pace. She is right to point out that HMRC has been stretched at times and that there is a significant amount of work coming its way in due course with the social care levy, but I want to reassure her that it is fully aware that this legislation is coming down the path and that it will be ready to deliver. For those reasons, I commend the clauses to the Committee.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clauses 35 to 38 ordered to stand part of the Bill.

None Portrait The Chair
- Hansard -

The decisions on clauses 47 to 49, schedule 9 and clauses 50 and 51 will be dealt with later in our proceedings.

Clause 39

Adjusted trading profits and losses

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to consider the following:

Clauses 40 and 41 stand part.

That schedule 7 be the Seventh schedule to the Bill.

Clause 42 stand part.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clauses 39 to 42 set out how to calculate the tax base for the purposes of RPDT for an accounting period. Clause 39 sets out what adjustments are made to the UK corporation tax trading profits or losses to arrive at the adjusted trading profits or losses of a residential property developer for the purposes of RPDT. The clause provides that any apportionment of in-scope activity and other activities are to be made on a just and reasonable basis. The clause also provides for an exclusion for any trading profits from residential property development activities that are carried out by a company for charitable purposes.

Clause 40 sets out how any joint venture profits or losses attributable to a developer are determined for the purposes of calculating RPDT profits or losses. The clause confirms the criteria for a relevant joint venture company to fall within the charge to RPDT and how the joint venture profits or losses will be attributed to the developer.

Clause 41 introduces parts 1 to 4 of schedule 7, which make provisions for loss relief and group relief for the purposes of RPDT. As they largely replicate the rules that apply generally for corporation tax, I do not propose to spend long taking the Committee through them. Part 1 of schedule 7 allows any unrelieved RPDT loss to be carried forward against RPDT profits in the next accounting period. Parts 2 to 4 of schedule 7 apply equivalent rules for UK corporation tax group relief for the purposes of RPDT.

Clause 42 restricts the amount of a carried forward loss that can be set against profits of a later period for the purposes of RPDT. This ensures that carried forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%, in line with the treatment of carried forward losses under UK corporation tax.

In summary, these clauses and the schedule set out important mechanics for the calculation of the base of the tax, and I therefore recommend that they stand part of the Bill.

James Murray Portrait James Murray
- Hansard - - - Excerpts

As we have heard, clause 39 concerns adjusted trading profits and losses relating to the calculation of the RPDT charge. Subsection (2) lists the circumstances in which trading profit and loss can be ignored in the calculation of the charge. These are those profits, losses, and any allowances or charges under the Capital Allowances Act 2001 that do not relate to residential property development activity, corporation tax loss relief, and group relief, and any amounts that are taken into account in calculating trading income by the operation of the loan relationship and the derivative contracts rules.

Also, any trading profits from residential property development activities that are carried out by a charitable company and apply for the purposes of the charitable company are ignored. Furthermore, we can see that in subsection (3) there is provision whereby corporation tax profits, losses or capital allowances and charges that relate to both the company’s residential property development activity and any other activities may be apportioned between the RP developer activities and other activities on a just and reasonable basis.

Clause 40 focuses on attributable joint venture profits and losses. The clause sets out how an amount a joint venture profits or losses attributable to a developer is determined for the purposes of calculating RP developer profits or losses under clause 38 for the purposes of this tax. The clause confirms the criteria for a relevant joint venture company to fall within the charge of this tax. Notably, we see that where there are five or fewer persons who between them own at least 75% shareholding, the holdings of members of the group are to be aggregated and treated as one holding.

Clause 41 introduces schedule 7 and relates to RPDT reliefs where provision is made for loss relief and group relief for the purposes of RPDT. Part 1 of schedule 7 clarifies that an unrelieved RPDT loss is to be carried forward against RPDT profits in the next accounting period, but its use is subject to the restriction to setting off against 50% of the profits of any future accounting period, as provided for by clause 42, which I shall refer to shortly. Part 2 concerns RPDT group relief, which is comparable to corporate tax group relief that has been set out specifically for the purposes of the tax under discussion today. Part 3 is similar, in that it applies the principles of carried-forward group relief from corporation tax to the RPDT.

Relatedly, we see clause 42 impose a restriction on the use of carried-forward losses for the purposes of the RPDT. That ensures that carried-forward losses do not reduce profits above the annual allowance that are chargeable to RPDT by more than 50%. That corresponds to the treatment of carried-forward losses for the purposes of corporation tax on trading profits. We will not be opposing the clauses or the schedule.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful for the indication that there will be no opposition, so I ask that the clauses stand part of the Bill.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

Clauses 40 and 41 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 42 ordered to stand part of the Bill.

Clause 43

Allowance

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clause 44 stand part.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clauses 43 and 44 provide for the operation of the annual allowance. The RPDT will be charged on the profits that exceed a residential property developer’s £25 million annual allowance. Clause 43 provides for the operation of the £25 million annual allowance that is available to each group of companies before profits become chargeable to RPDT. A power is included that allows HMRC to set the process for a group of companies to allocate its allowance in secondary legislation.

Clause 44 provides for the calculation of the annual allowance for the RPDT where the profits of a member of a joint venture company are not chargeable to UK corporation tax. It provides for the allowance of a JV company to be reduced and for the exempt member to instead have an annual allowance that can be allocated to its joint venture interests. Although the rule may seem complicated at first glance, it will ensure that where a non-taxable investor, such as a pension fund, has interests in several joint ventures, those joint venture companies do not benefit from multiple allowances. In summary, clauses 43 and 44 ensure that RPDT is proportionate, administrable and targeted at the largest developers.

James Murray Portrait James Murray
- Hansard - - - Excerpts

As the Minister has described, clause 43 relates to allowances and provides for the operation of the allowance that is deducted from profits chargeable under the RPDT. Under clause 43, the £25 million allowance is adjusted pro rata when an accounting period is less than a year. Within a group of developers, the allowance can also be allocated between member companies at the direction of an allocating member. In the absence of an allocating member, the allowance is to be evenly split between the total number of members.

Clause 44 applies a similar principle to joint venture companies and sets out the terms of allowance within the RPDT. Critically, where a member of a joint venture company is outside the scope of corporation tax because it is an offshore entity, a sovereign immune entity or an institutional investor, the allowance afforded to the joint venture company is reduced in proportion to the percentage competition of members that are outside its scope. We support the principle of removing unfair tax advantages and maintaining fair competition in the market, and therefore we will not oppose the clauses.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Again, I am very grateful for that indication. I commend the clauses to the Committee.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44 ordered to stand part of the Bill.

Clause 45

Application of corporation tax provisions and management of RPDT

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to consider that schedule 8 be the Eighth schedule to the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 45 and schedule 8 provide for RPDT to be treated for administrative purposes as an amount of UK corporation tax. Clause 45 outlines the framework within which RPDT will operate and makes necessary amendments to existing administrative legislation to accommodate RPDT. It also introduces schedule 8, which makes further provisions about the management of RPDT, including setting out the circumstances in which a company will not be required to report its RPDT profits, which will reduce any administrative burden for groups with profits that are unlikely to exceed the annual allowance.

In summary, the clause and schedule set out important mechanics for the collection, management and payment of RPDT.

James Murray Portrait James Murray
- Hansard - - - Excerpts

As the Minister has described, clause 45 and schedule 8 concern the application of corporation tax provisions and management. The clause applies general corporation tax principles to the RPDT and provides that RPDT be treated for administrative purposes as an amount of corporation tax. The clause and schedule outline the framework within which RPDT will operate and make necessary amendments to administrative legislation to accommodate RPDT.

As pointed out by the Chartered Institute of Taxation, the alignment with corporation tax and other existing mechanisms should reduce some administrative burdens for both developers and HMRC, which we welcome. However, we note that the turnaround on this novel tax, as mentioned earlier in this Committee sitting, is rapid. Given the truncated consultation period, I seek reassurances from the Minister that HMRC’s systems will be ready for the collection, management and payment of RPDT. I would be grateful if the Minister could also confirm whether any additional budget allocation has been offered to HMRC to support the roll-out of RPDT and, if so, what the value of the allocation is.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I assure the hon. Gentleman, as I assured the hon. Member for Glasgow Central some moments ago, that HMRC will be ready to bring in the tax that we are legislating for. As he will know, we have just gone through a spending review. HMRC will have sufficient funds to ensure that it can comply with its duties and obligations.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 46

Requirement to provide information about payments

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 46 provides for RPDT receipts to be monitored. It introduces a requirement for residential property developers making an RPDT payment to state the amount of the payment to HMRC in writing in order to ensure that RPDT receipts can be monitored. It also provides for a penalty if there is a failure to comply with that requirement. In summary, the clause sets out an important requirement to enable HMRC to monitor RPDT revenue.

James Murray Portrait James Murray
- Hansard - - - Excerpts

As we have heard, clause 46 introduces a requirement for companies making a payment of RPDT to provide information about a payment to HMRC so that receipts for the tax can be monitored. The clause sets out the definition of the responsible company—the company making payment on behalf of the RP developer under relevant group payment arrangements or, in any other case, the RP developer itself.

The clause further requires that the responsible company must notify an officer of HMRC in writing, on or before the date when the payment is made, of the amount of the payment due under RPDT. In addition, the clause refers to penalties for failing to inform HMRC about payments owed. Penalties are aligned with previous legislation on corporation tax notices. We will not oppose the clause.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.

Clauses 47 to 49 ordered to stand part of the Bill.

Schedule 9 agreed to.

Clauses 50 to 52 ordered to stand part of the Bill.

Clause 67

Securitisation companies and qualifying transformer vehicles

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 67 introduces a power enabling changes to be made by secondary legislation to stamp duty and stamp duty reserve tax in relation to securitisation and insurance-linked security arrangements. The Government are keen to ensure that the UK’s stamp duty and SDRT rules contribute to maintaining the UK’s position as a leading financial services sector.

On 30 November, the Government published a response document and a draft statutory instrument following consultation on reform of the tax rules for securitisation companies. The consultation explored issues including the application of the stamp duty loan capital exemption to securitisation and ILS arrangements. The consultation sought views on whether uncertainty as to how the existing stamp duty loan capital exemption applies increases the costs and complexity of UK securitisation and ILS arrangements, and whether that is a factor in arrangements being set up outside the UK.

Clause 67 will allow Her Majesty’s Treasury to make regulations to provide that no stamp duty or stamp duty reserve tax charge will arise in relation to the transfer of securities issued by a securitisation company or a qualifying transformer vehicle. A qualifying transformer vehicle is the note-issuing entity in an ILS arrangement. The power will also allow HMT to make regulations to provide that stamp duty or SDRT is not chargeable on transfers of securities to or by a securitisation company. The power allows the Government to make changes to allow UK securitisation and ILS arrangements to operate more effectively, and reduce cost and complexity. There is currently no power to make changes through secondary legislation to the stamp duty and SDRT rules in relation to securitisation and ILS arrangements.

In summary, clause 67 will support the Government to respond flexibly to the evolving commercial practices of the securitisation and ILS markets, and ensure that the UK’s securitisation and ILS regimes remain competitive. I therefore commend the clause to the Committee.

Abena Oppong-Asare Portrait Abena Oppong-Asare (Erith and Thamesmead) (Lab)
- Hansard - - - Excerpts

I am delighted to serve under your chairship, Dame Angela. Happy new year, everyone.

As we heard from the Minister, clause 67 relates to stamp duty on securities and related instruments. We do not oppose efforts to increase the efficiency and flexibility of this sector, but we wish to see appropriate safeguards to ensure that these changes do not increase the risk of stamp duty evasion and, as the Minister mentioned, to make sure that they meet the UK’s position as a leading financial sector.

Securitisation can be a useful source of finance for UK businesses and can aid capital liquidity and risk management. I note that the Treasury has consulted on the impact of stamp duty on securitisation and insurance-linked securities. Clause 67 gives the Treasury powers to make changes through secondary legislation to stamp duty as it relates to securitisation. Can the Minister explain why the Government feel that it is necessary to make those changes through secondary legislation, rather than using the Finance Bill or other primary legislation?

Can the Minister also give us some detail on the exact changes that the Government intend to make through this secondary legislation? For example, in what circumstances will the trading of securities be exempt from stamp duty? How will she ensure that this does not increase the scope for tax avoidance? Can she also provide reassurance that Parliament will still be able to scrutinise these changes? The clause really needs to be scrutinised.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I thank the hon. Lady very much for those points. I welcome the fact that she, too, thinks it important that this country remains competitive and flexible, and supports growth in this very important sector.

The hon. Lady asked why we need these changes to be made by secondary legislation. The answer is that technical changes of the type consulted on are more often and more appropriately made through secondary legislation than by primary legislation. Making the changes through secondary legislation gives Government flexibility to ensure that technical changes respond to the evolving nature of the securitisation and ILS markets.

However, it is of course important that we have scrutiny and review. We had a consultation on this issue, from which these provisions follow; of course, anything that comes through secondary legislation will be scrutinised. We will keep this under review, as we do all taxes.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

I thank the Minister for taking the time to explain that. It would be helpful if she could also explain what measures were put in place to allow Parliament to scrutinise these changes. I am sure that she would agree that it is important that Parliament should be able to scrutinise these changes properly; if she could list what steps have been put in place, that would be extremely helpful.

On my other question, it is really important that there is no increase in tax avoidance. Can the Minister set out what the Government have put in place to ensure that it does not increase?

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Like me, the hon. Lady will be aware that when things go through the secondary legislation procedure they are subject to scrutiny by this House, through those Committees. She will also know that this Government are absolutely committed to ensuring that we tackle tax avoidance; there are a large number of measures in this Bill that tackle tax avoidance and evasion, through cracking down on promoters and other mechanisms. It is something that we are alive to and acting upon, and for those reasons I ask that clause 67 stand part of the Bill.

Question put and agreed to.

Clause 67 accordingly ordered to stand part of the Bill.

Clause 72

Identifying where the risk is situated

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clause 72 relocates into IPT legislation the criteria to determine the location of an insured risk for the purpose of insurance premium tax. IPT is charged on most general insurance, where it provides cover for risks located within the UK.

Insurance for risks located outside the UK is exempt from UK IPT. That exemption prevents double taxation across different tax jurisdictions and puts UK-based insurers on a level playing field with overseas insurers. Legislation sets out how to determine the location of a risk in order to establish whether the IPT exemption applies. Regulations previously used to determine the location of an insured risk were replaced in 2009, and the new regulations did not include an equivalent provision. Instead, reliance was placed on directly effective European Union legislation. To ensure clarity for the insurance industry, this measure relocates the criteria into primary legislation. This is a technical change and does not reflect a change in IPT policy.

The changes made by clause 72 will remove references to inoperative regulations in the Finance Act 1994, introducing criteria to the same effect directly into the IPT legislation. The measure ensures that insurance for risks located outside the UK remains exempt from IPT, providing clarity and continuity for the insurance industry and supporting the maintenance of an effective and fair tax system.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

I thank the Minister for her explanation of clause 72; it does seem like a straightforward clause that simply moves the criteria for determining where the risk is located into primary legislation. The Chartered Institute of Taxation has stated that the legislation does meet its stated objectives. For that reason, we do not oppose the clause.

I note that there has been wider consultation on the insurance premium tax, including on how to address the avoidance of the tax and how to reduce the administrative burden on HMRC and the industry. That is particularly important as HMRC has been under a lot of pressure—particularly during the pandemic. In the Government’s response to the consultation on the issue of IPT avoidance, they said that, on reviewing the responses,

“neither of the proposed options provide a proportionate solution to the issue this chapter sought to address. As such, neither option will be taken forward at this time.”

That seems like the Government have given up at the first hurdle. Why, if the proposed measures are not appropriate, are the Government not considering other measures to prevent avoidance in this sector?

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

I do not have any major objections to what is being proposed, but I would be doing the Association of British Insurers a disservice if I let the clause go through without mentioning its concern, which I share, that insurance premium tax is quite a regressive tax. We are about to discuss tobacco duty; the ABI points out, through some research by the Social Market Foundation, that insurance premium tax now raises more revenue than beer and cider duty, wine duty, spirits duty, or betting and gaming duties.

Since 1994, the standard rate of IPT has increased more rapidly than tobacco duty. Those are all things that we want people not to do; we would prefer it if people did not drink as much, smoke as much or gamble as much, so we tax those things. It seems ludicrous to tax people on insurance, which we would like people to have and which benefits them and society, so I ask the Minister to consider further whether insurance premium tax is something sensible that we want to keep doing.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful to the hon. Member for Glasgow Central for her broader points about the subject matter. I do not think she raised a particular point in relation to the clause under consideration, but this is an area that, like others, we will keep under review. I undertake to get back to the hon. Member for Erith and Thamesmead in writing on the specific point that she raised in relation to the consultation.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73

Transitioned trade remedies: decisions by Secretary of State

Question proposed, That the clause stand part of the Bill.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

The clause gives the Secretary of State for International Trade the power to call in and take control of reviews of trade remedies measures transitioned from the EU. This ensures that the Government can effectively take steps to prevent harm to UK industry where there is evidence of unfair competition.

Trade remedies are additional tariffs or tariff-rate quotas temporarily imposed to protect domestic industries from dumped or subsidised imports or unforeseen surges in imports. At the end of the transition period, the Government transitioned 43 of the EU’s trade remedy measures. The Trade Remedies Authority is now reviewing the transitioned measures to assess whether their continuation is suitable for the UK economy. The TRA is responsible for collecting and analysing evidence relating to trade remedies cases, and it currently makes recommendations to the Secretary of State for International Trade on whether particular measures should be revoked or varied or, in certain cases, retained or replaced. The Secretary of State can only accept or reject a TRA recommendation in its entirety.

The current framework was introduced in 2018. Since then, it has become clear that in some circumstances, greater ministerial involvement in decision making is required. The call-in power is designed to address that. It will allow the Secretary of State to call in a case if she considers it necessary. For example, she will be able to take a closer look at an individual case if needed in the wider public interest. The intention is that the Secretary of State will continue to rely on the expertise of the TRA to collect and analyse evidence, but that it will do so under her direction.

Whether a case is called in or not, the process will continue to be robust, transparent and evidence based, but the power will allow the Secretary of State greater flexibility in decision making than our legislation currently allows. The call-in power will apply only to transition reviews, and where the TRA is reconsidering its previous conclusions from a transition review. In parallel, the Government are considering wider changes to the trade remedies framework to ensure that it can consistently defend UK industry. That is separate from the limited scope of this clause, and the International Trade Secretary will report on the findings of that review in due course.

The changes made by clause 73 will amend the trade remedies regime to allow the Secretary of State for International Trade to call in transition reviews and reconsiderations of transition reviews conducted by the TRA. After calling in a case, the Secretary of State will be responsible for determining the outcome of that review or reconsideration. That will ensure that the Secretary of State can have greater oversight and involvement in a particular transition review or reconsideration of a transition review as appropriate, and therefore the ability to decide on appropriate measures, such as varying the tariffs that apply to particular products under the UK’s trade remedies framework.

Where this power is exercised, the Secretary of State need not necessarily base their decision on a prior recommendation or decision of the TRA. The Secretary of State will be required to publish the notice of a decision made under this clause. The Government will make secondary legislation to set out in more detail how the call-in power is to be exercised.

In summary, clause 73 will help to prevent injury to UK industry by empowering the Secretary of State to call in transitional reviews where appropriate, and give her control to determine the outcome of a particular transition review or reconsideration of a transition review. Such a determination may include retaining, varying, revoking or replacing the trade remedies already in place on the goods subject to the review.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

This important clause relates to trade remedies. As we have heard, it allows Ministers to override the powers of the Trade Remedies Authority in order to maintain safeguard tariffs on cheap imports that unfairly undermine UK industry.

The clause’s introduction was prompted by the row over the TRA’s proposals to get rid of tariffs on cheap steel imports. In June last year, the TRA recommended the removal of limits inherited from the EU on about half of the UK’s steel imports. Slashing those safeguards and opening the floodgates to cheap steel imports would have been devastating for steel plants across our country and damaging for our wider economy. At the time, the director general of UK Steel said:

“On their first major test in a post-Brexit trading environment, the UK’s new system has failed our domestic steel sector.”

The Government U-turned on that decision after pressure from Labour and the industry, and belatedly maintained protections for the steel industry. Obviously, however, there are concerns about future TRA decisions, so we support the clause. Indeed, Labour campaigned for the Government to take more action to support our vital steel industry.

I ask the Minister to expand on subsection (5), which allows the Secretary of State to make regulations regarding how to make decisions on transitioned trade remedies. Will she set out what sort of regulations she envisages that the Secretary of State will make and how those decisions will be made? It is important that there is a transparent process for making these important decisions on trade remedies.

Finally, although we welcome this measure and hope that it ensures that vital British industries are better protected in the future, we remain concerned about the Government’s wider failure to support British industry. Industries such as steel are of vital strategic importance for our economic prosperity and national security, but the Government’s lack of an industrial strategy means that the steel industry is lurching from crisis to crisis. We need a proper plan to decarbonise the sector, to boost business competitiveness and to use British steel in UK infrastructure projects, in order to safeguard the future of the steel industry, as Labour’s plans to buy, make and sell in Britain would do.

Labour would also invest up to £3 billion over the coming decade in greening the steel industry. We would work with steelmakers to secure a proud future for the industry to match the proud past and present of British steel communities. I urge the Government to do the same.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I did not want to interrupt the hon. Lady, but I think she has gone outside the remit of the measures in the Bill. However, I would like to correct her on a point—[Interruption.] She was talking about the steel industry as a whole, when we are dealing with a provision that relates in particular to the power of the Secretary of State to call in trade remedies.

None Portrait The Chair
- Hansard -

Order. I will allow some leeway for reasonable debate, and if anyone goes out of order, I will stop them. The Minister should feel free to make some general comments, so long as they are not too long and do not stray too far.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

That is very kind, Dame Angela. I want to correct a general point that the hon. Lady made in relation to steel and the decision that was made by the then Secretary of State for International Trade. The hon. Lady suggested that there was a U-turn and that pressure was put on by the Labour party. In fact, there was no decision by the Government; the decision was made by the Trade Remedies Authority. I just wanted to clarify that point.

--- Later in debate ---
Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

The clause simplifies the way that technical updates are made to the UK’s tariff schedule. This measure inserts a new provision into the Taxation (Cross-border Trade) Act 2018 so that changes to the UK’s tariff schedule that do not alter the tariff duty rates applied to imported goods can be made by public notice rather than by secondary legislation, as is currently the case.

The clause will ensure that routine technical changes to tariff legislation, such as changing the codes used to classify goods or removing redundant codes, can be implemented more easily and quickly for those who refer to the legislation. Importantly, this measure also reduces the burden on parliamentary time in considering routine technical changes, while maintaining Parliament’s current levels of scrutiny of tariff duty rate changes.

In summary, the clause amends the Taxation (Cross-border Trade) Act 2018 so that technical changes can be made by public notice, thus ensuring simpler and quicker implementation of those changes to the UK’s tariff schedule.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

This relatively minor change allows technical updates to the tariff schedule to be made by public notice rather than secondary legislation. Given that there are safeguards to ensure that substantive changes, such as varying the rate of import duty, continue to be made by regulation and are therefore subject to parliamentary oversight, we do not oppose the clause.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Restriction of use of rebated diesel and biofuels

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to consider that schedule 10 be the Tenth schedule to the Bill.

Helen Whately Portrait The Exchequer Secretary to the Treasury (Helen Whately)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Dame Angela.

Clause 75 and schedule 10 make technical amendments to the existing legislation that restricts the entitlement to use rebated red diesel and biofuels from 1 April 2022, to adjust restrictions and ensure that the legislation operates as intended.

To help achieve net zero and improve UK air quality, the Government announced at Budget 2020 that they would reduce the entitlement to use rebated diesel and biofuels, which currently enjoy a duty discount, from this April. These tax changes will ensure that most current users of rebated diesel use fuel taxed at the standard rate for diesel from April 2022, like motorists, which more fairly reflects the harmful impact of the emissions they produce. The changes will also incentivise users of polluting fuels, such as diesel, to improve the energy efficiency of their vehicles and machinery, invest in cleaner alternatives or just use less fuel.

Following consultation in 2020, the sectors that will be allowed to continue to use rebated diesel and biofuels beyond April 2022 were confirmed at spring Budget 2021, with the changes legislated for in the Finance Act 2021. Clause 75 and schedule 10 will make technical amendments to the Hydrocarbon Oil Duties Act 1979 and the Finance Act 2021 to adjust restrictions on the entitlement to use rebated diesel and rebated biofuels, clarify how the changes to the new rules work, and allow the legislation to operate as intended.

In summary, the changes will alter the circumstances in which the use of rebated diesel and rebated biofuels will be permitted from 1 April 2022, including provisions aimed at transition to the new rules. They will also amend definitions relating to certain vehicles, machines and appliances. Some of these changes follow feedback received from stakeholders since the Finance Act 2021 received Royal Assent. Overall, the technical changes in this clause and schedule will ensure that the Government’s reforms to the tax treatment of rebated diesel and biofuels from April 2022 work as intended.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

I thank the Minister for her explanation of the clause, which introduces technical amendments to the changes introduced to restrict the entitlement to use rebated fuel, more commonly known as red diesel. We discussed the substance of that change in Committee on the last Finance Bill. As I said then, we support the intention behind the Government’s measure. There is a clear need to ensure that fuel duty rebates are as limited as possible in order to meet our net zero commitment.

The amendments made by this Bill are technical in nature, and we do not oppose them. However, will the Minister set out which, if any, industries will be affected by the changes and what work is being done to ensure that they are prepared, given that we are now only a few months from the introduction of the changes? Will she also update us on preparations by Her Majesty’s Revenue and Customs and other agencies for the changes? Is she confident that the Government will be able to ensure compliance from April this year? The Minister’s colleague, the Financial Secretary to the Treasury, mentioned that there has been some restructuring around HMRC, but I echo the earlier comments by the hon. Member for Glasgow Central and my hon. Friend the Member for Ealing North, who explained that HMRC has been busy for a number of years. Will the Minister update us on what work has been done to ensure that we are prepared for this change?

Alison Thewliss Portrait Alison Thewliss
- Hansard - - - Excerpts

I am glad that the definitions are being amended to include fairs and circuses, of which there are many in my constituency, to allow them to continue to use rebated diesel and biofuels after 1 April 2022. In that industry it is quite difficult to adapt machines to use other sources. The showpeople I represent will be pleased that the Government have listened on this measure, and I thank the Minister for that.

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

I welcome the support that the hon. Member for Erith and Thamesmead expressed for the intention behind this measure and her recognition that the changes are of a technical nature and that the Opposition therefore will not oppose the clause. I assure her that there has been substantial consultation on the overall policy. Indeed, as the hon. Member for Glasgow Central said, the Government have listened, and that is reflected in some of the changes. I am confident in HMRC’s ability to monitor compliance.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 76

Rates of tobacco products duty

Question proposed, That the clause stand part of the Bill.

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

The clause implements changes announced in the autumn Budget 2021 on tobacco duty rates. The duty charged on all tobacco products will rise in line with the tobacco duty escalator, with additional increases made for hand rolling tobacco and to the minimum excise tax on cigarettes.

Smoking rates are falling in the UK, but smoking remains the biggest cause of preventable illness and premature deaths in the UK, killing around 100,000 people a year and about half of all long-term users. All those factors mean that we need to continue to encourage more people to kick the habit. We have already set out ambitious plans to reduce the number of smokers from 14% to 12% of the population by 2022, as set out by the Department of Health and Social Care in its tobacco control plan. We have announced that we aim to reduce smoking prevalence in England to 5% or less by 2030. That includes a commitment to continue the policy of maintaining high duty rates for tobacco products to improve public health.

According to Action on Smoking and Health, smoking costs society almost £14 billion per year, including a £2 billion cost to the NHS because of the disease caused by smoking. At autumn Budget, the Chancellor announced that the Government would increase tobacco duty in line with the escalator. The clause specifies that the duty charge on all tobacco products will rise by 2% above retail price index inflation. Duty on hand-rolling tobacco increases by a further 4%, to 6% above RPI inflation. The clause also increases the minimum excise tax—the minimum amount of duty to be paid on a pack of cigarettes—by an additional 1%, to 3% above RPI inflation.

The clause will continue our tried-and-tested policy of using high duty rates on tobacco products to make tobacco less affordable and to continue the reduction in smoking prevalence. That will reduce the burden placed on our public services by smoking. I commend the clause to the Committee.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

As the Minister set out, the clause raises the duty on tobacco products, in line with the duty escalator, by RPI plus 2% for cigarettes and RPI plus 6% for hand-rolling tobacco. The minimum excise tax has been increased. We do not oppose those increases, but I will take this opportunity to make a couple of wider points about action to prevent smoking and the Treasury’s role in it.

Action on Smoking and Health stated that last year’s Budget was

“a small step forward on tobacco, but on its own won’t deliver on the Government’s commitment to a Smokefree 2030.”

In fact, projections show that the Government will miss that target by seven years, and double that for the poorest in society. As the Minister knows, tobacco duty has a dual role: raising revenue for the Government and reducing smoking rates. The latter role is most effective when combined with a comprehensive funded strategy to reduce smoking. Unfortunately, the funding for such a strategy has been repeatedly cut in recent years as part of broader cuts to public health grants. The Minister mentioned that smoking has fallen, but recently published evidence shows a 25% increase in smoking among young adults since the first lockdown, so it is clear that there is a lot of work to be done.

In a debate on smoking last year, the Under-Secretary of State for Health and Social Care, the hon. Member for Erewash (Maggie Throup), said in response to a question on taxation:

“That is a matter for Her Majesty’s Treasury. However, the Department continues to work with HMT to assess the most effective regulatory means to support the Government’s smoke-free 2030 ambition, which includes exploring a potential future levy.”—[Official Report, 16 November 2021; Vol. 703, c. 181WH.]

Will the Minister tell us what work the Treasury is doing to design a levy on tobacco manufacturers, along the lines of the “polluter pays” principles, to pay for campaigns to stop smoking and other public health measures? Those large and profitable companies often pay relatively little tax in this country, while those who smoke rightly pay a large amount of tax every time they buy a pack of cigarettes. Many public health experts urge the Government to look at the idea of a levy, and I strongly hope that the Minister will say more on that.

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

I am glad to hear that the Opposition will not oppose the clause. The hon. Lady has said that it is not enough on its own, and the Government agree. Our tax treatment of tobacco is just one of a set of policies in place to reduce smoking. I assure her that the UK is seen as a global leader on tobacco control. Over the last two decades, we have implemented regulatory measures to stop young people smoking and non-smokers from starting, and to support to help smokers quit.

The hon. Lady also asked about a tobacco levy. I can tell her that the Government consulted on proposals for a tobacco levy in 2015. That consultation concluded that a levy is not the most effective way to raise revenue or protect public health. It would add complexity and additional costs, while the amount of revenue it could raise is uncertain.

--- Later in debate ---
Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

I am happy to take that point away and look into the position taken by my colleagues in the Department of Health and Social Care and the Treasury. I will get back to the hon. Lady on the question of the levy. I can assure her that work is currently happening on a tobacco control plan. The Government are considering policy and regulatory changes, which will be part of our ambition to be smoke-free by 2030. Those will be set out in due course in our tobacco control plan. I commend the clause to the Committee.

Question put and agreed to.

Clause 76 accordingly ordered to stand part of the Bill.

Clause 77

Rates for light passenger or light goods vehicles, motorcycles etc

Question proposed, That the clause stand part of the Bill.

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

New clause 5—Vehicle taxes: effect on climate change goals

“The Government must publish within 12 months of this Act coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plans to reach net zero by 2050.”

New clause 15—Review of VED revenue from light passenger or light goods vehicles, motorcycles etc in context of future demand for electric vehicles

“(1) The Government must publish within twelve months of this Act coming into effect an assessment of the expected level of revenues of Vehicle Excise Duty from light passenger or light goods vehicles, motorcycles etc in future years in the context of the expected uptake of electric vehicles.

(2) The Review must also consider possible alternatives to Vehicle Excise Duty on these vehicles.”

Helen Whately Portrait Helen Whately
- Hansard - - - Excerpts

Clause 77 makes changes to uprate vehicle excise duty—or VED—for cars, vans and motorcycles in line with the retail prices index from 1 April 2022. VED is paid on vehicle ownership, and rates chargeable are dependent on various factors, including the vehicle type, date of first registration and carbon emissions. The Government has uprated VED for cars, vans and motorcycles in line with inflation every year since 2010, which means that rates have remained unchanged in real terms during this time. The changes made by clause 77 will uprate VED rates for cars, vans and motorcycles by RPI only for the 12th successive year, meaning that VED liabilities will not increase in real terms. The standard rate of VED for cars registered since 1 April 2017 will increase by only £10. The flat rate for vans will increase by £15 and motorcyclists will see an increase in rates of no more than £5.

New clause 5, tabled by the hon. Member for Glasgow Central, asks the Government to publish within 12 months of this Bill coming into effect an assessment of the impact of sections 77 to 79 on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050. Similarly, new clauses 4 and 8 tabled by the hon. Lady ask the Government to publish, within 12 months of this Bill coming into effect, impact assessments on the goal of tackling climate change and on the UK’s plan to reach net zero by 2050, first on the Act as whole, and, secondly, on section 99 and schedule 16. These amendments are unnecessary and should not stand part of the Bill.

The Government are proud of our world-leading climate commitments, most recently set out in the net zero strategy. The latest Budget and spending review confirm that since March 2021, the Government will have committed a total of £30 billion of domestic investment for the green industrial revolution. That investment will keep the UK on track to meet its carbon budgets and nationally determined contribution, and to reach net zero by 2050. The net zero strategy sets out how the Government will monitor progress to ensure that we stay on track for our emissions targets. That includes commitments to require the Government

“to reflect environmental issues in national policy making”.

At fiscal events, including the spending review 2021, all Departments are required to prepare their spending proposals in line with the Green Book, which sets out the rules that we use in the Treasury to guide individual spending decisions. The Green Book already mandates consideration of climate and environmental impacts in spending, and it was updated in 2020 to emphasise that policies must be developed and assessed against how well they deliver on the Government’s long-term policy aims such as net zero.

Furthermore, the Treasury carefully considers the climate change and environmental implications of relevant tax measures. The Government incorporated a climate assessment in all relevant tax information and impact notes for measures at Budget—they are published online—and we will continue to do so in future TIINs. For example, the TIIN for the new plastic packaging tax incorporates an assessment of anticipated carbon savings—nearly 200,000 tonnes of carbon dioxide in 2022-23. In addition, HMRC is exploring options further to strengthen the analytical approach to monitoring, evaluating and quantifying the environmental impacts of tax measures.

Given the substantial work already under way on these issues, the proposed amendment would add unnecessary bureaucratic requirements and layers of complexity. I therefore urge the Committee to reject new clause 5 and, for the same reasons, I will urge the Committee to reject new clauses 4 and 8 when we turn to those.

New clause 15, tabled by the hon. Members for Ealing North, for Erith and Thamesmead and for Blaydon, asks the Government to publish, within 12 months of the Act coming into effect, a review of the impact on VED revenue of future demand for electric vehicles. This new clause is also unnecessary and should not stand part of the Bill. The Government are committed to achieving net zero carbon emissions by 2050, and the transition towards electric vehicles and the phase-out of new petrol and diesel cars and vans will make a vital contribution to that. The Government have committed to ensuring, as we move forward with this transition, that revenue from motoring taxes keeps pace with this change, to make sure that we can continue to fund the excellent public services and infrastructure that people and families across the UK expect.

Analysis that projects the possible impact on VED revenues of future demand for electric vehicles is already in the public domain. First, since 2016, the Government have asked the Office for Budget Responsibility to publish a fiscal risks statement to improve disclosure and management of fiscal risks. The OBR’s 2021 fiscal risks report makes an assessment of the fiscal impact of achieving net zero, including the impact on VED and fuel duty receipts, which it explores under different climate change modelling scenarios.

Secondly, the net zero review published by the Treasury in October of last year also examines the possible decline in tax revenues, including VED and fuel duty receipts, as part of the transition to net zero. It notes that, were the current tax system to remain unchanged across the transition period, tax receipts from most fossil fuel-related activity would decline towards zero across the first 20 years of the transition, leaving receipts lower in the 2040s by up to 1.5% of GDP in each year relative to a baseline where they stayed fixed as a share of GDP.

Given that analysis of future VED revenues has already been published by both the Government and the OBR, the review of this issue sought by this new clause is unnecessary. I therefore urge the Committee to reject new clause 15.

Overall, the changes outlined in clause 77 will maintain revenue sustainability by ensuring that motorists continue to make a fair contribution to the public finances. I therefore urge that this clause stand part of the Bill.

Abena Oppong-Asare Portrait Abena Oppong-Asare
- Hansard - - - Excerpts

Clause 77 raises the rate of vehicle excise duty for various categories of vehicle by RPI. This is a regular update to VED to ensure that it remains the same in real terms, and we do not oppose it. I do wish to make broader points about taxes affecting drivers and, in particular, to speak to our new clause 15.

Electric vehicles are not liable for vehicle excise duty, and of course their owners do not pay fuel duty. New clause 15 calls on the Government to report on expected future levels of vehicle excise duty in the context of the increasing uptake of electrical vehicles. It is designed to encourage the Government to begin to think and talk publicly about that critical question.

The transition from petrol and diesel cars to electric vehicles is critical as part of our broader transition to net zero. The Opposition have constantly raised concerns about the fact that the Government are not doing enough to support the take-up of electric vehicles, whether through supporting consumers and producers or improving the critical charging infrastructure. We continue to believe that the Government must do more in that area, but we also believe that they must begin to set out how they will deal with the fiscal consequences of the transition.

Fuel duty and VED currently raise around £35 billion for the Treasury each year. They are by far the largest revenue-raising environmental taxes. It is a truly significant amount of Government revenue, equivalent to nearly half the Education budget, but as electric vehicles become an increasing share of vehicles on the roads, that revenue will decline rapidly. One estimate shows that tax revenues from car usage could fall by around £10 billion by 2030, £20 billion by 2035, and £30 billion by 2040. The Treasury’s own net zero review stated that much of the current revenue from taxing fossil fuels was likely to be eroded during the transition to a net zero economy.

We might have expected the review to set out what the Treasury planned to do about that, but it was notably silent on that matter. When the Minister responds, can she tell us what work the Treasury is carrying out on that important issue and when it will set out its plans? Can she tell us what alternatives to VED the Treasury is considering—for example, road pricing or other taxes? Crucially, how will the Treasury balance the need to maintain income from driving with the need to incentivise the switch to electric vehicles? Those are critical questions, which cannot and must not be left to the last minute. We deserve to have an open debate about the best way forward. Motorists and taxpayers deserve clarity about how they will be taxed in the future. I hope that the Minister can begin to give us some insight into the Treasury’s thinking on this issue.

--- Later in debate ---
None Portrait The Chair
- Hansard -

I am waiting for the Whip. If the Whip wishes to move the adjournment, I will call Richard Holden first when we come back after the break.

Richard Holden Portrait Mr Holden
- Hansard - - - Excerpts

I will be really quick.

Finance (No. 2) Bill (Fifth sitting)

(Limited Text - Ministerial Extracts only)

Read Full debate
Committee stage
Tuesday 11th January 2022

(2 years, 4 months ago)

Public Bill Committees
Finance Act 2022 Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 11 January 2022 - (11 Jan 2022)

This text is a record of ministerial contributions to a debate held as part of the Finance Act 2022 passage through Parliament.

In 1993, the House of Lords Pepper vs. Hart decision provided that statements made by Government Ministers may be taken as illustrative of legislative intent as to the interpretation of law.

This extract highlights statements made by Government Ministers along with contextual remarks by other members. The full debate can be read here

This information is provided by Parallel Parliament and does not comprise part of the offical record

None Portrait The Chair
- Hansard -

With this it will be convenient to discuss the following:

Government amendments 7 to 10.

That schedule 15 be the Fifteenth schedule to the Bill.

New clause 7—Uncertain tax treatment

“The Government must publish within 12 months of this Act coming into effect an assessment comparing the rates of uncertain tax in the UK to those of all other OECD countries.”

Lucy Frazer Portrait The Financial Secretary to the Treasury (Lucy Frazer)
- Hansard - - - Excerpts

Clause 94 introduces schedule 15, which covers a new requirement for large businesses to notify Her Majesty’s Revenue and Customs when they adopt an uncertain tax treatment. The clause seeks to reduce the legal interpretation tax gap, which stands at £5.8 billion—an issue that I am sure hon. Members agree is worth tackling. Through collaborative engagement with stakeholders and several formal consultations, the policy has been refined to minimise administrative burdens, while still achieving the policy objectives.

The requirement will apply only to the largest of UK businesses, companies or partnerships—those with a turnover of over £200 million per year, or a balance sheet total exceeding £2 billion. They will need to notify only those uncertainties that involve a tax difference of more than £5 million. The requirement will apply only to corporation tax, VAT, income tax and pay-as-you- earn returns, and will apply to returns due on or after 1 April 2022.

The Government are committed to ensuring that businesses pay the tax they owe. They have made significant inroads in reducing the tax gap, which fell from 7.5% of total theoretical liabilities in 2005-06 to 5.3% in 2019-20. However, there is further to go in protecting revenues in order to enable the Government to invest in our public services. Schedule 15 is designed to reduce the legal interpretation portion of the tax gap, the majority of which is attributable to large businesses.

Legal interpretation tax losses arise when businesses take a different view from HMRC of how the law should be applied, resulting in a different tax outcome. This issue has proven stubborn and difficult to tackle. Disputes often arise late in the day and are not identified in time for formal compliance enquiries to be undertaken, resulting in irrecoverable losses to the Exchequer. The new notification requirement will tackle the legal interpretation tax gap in a well-targeted and proportionate way, raising £150 million over the next five years, while driving positive behavioural change. The new notification regime breaks new ground by enabling earlier identification of potentially high-risk legal interpretation disputes that often are not apparent from tax returns. That will help to level the playing field for those large businesses that are already transparent with HMRC about their uncertain tax treatments.

The changes made by clause 94 will affect approximately 2,300 large businesses, which will need to consider whether they have taken an uncertain tax position in their returns. If they have, they will now be required to notify HMRC. They will not need to notify HMRC if they have already brought the uncertain position to its attention by other means, such as through discussions with their customer compliance manager, by contacting HMRC’s customer engagement and support scheme, through the non-statutory clearance process, or through other legislative disclosure requirements.

The Government have listened carefully and have developed the policy design to arrive at a regime that is objective and simple to understand. There are now only two conditions that trigger the notification requirement, which consultees agreed are objective and clear. The first is if the business has made a provision in their accounts to recognise the uncertainty. The second is if the tax treatment is contrary to HMRC’s known interpretation of the law or how the law applies to a certain set of facts. Business will be able to find HMRC’s known position in statements, in published guidance and in briefs, as well as through their dealings with HMRC. HMRC’s guidance on the regime will set out information on those sources, so that taxpayers are not required to extensively search HMRC’s current and historical positions in order to comply.

--- Later in debate ---
Richard Thomson Portrait Richard Thomson (Gordon) (SNP)
- Hansard - - - Excerpts

It is a pleasure to serve under your chairmanship, Sir Christopher. I apologise for arriving slightly behind schedule this morning. It was good to see the ministerial team picking up exactly where we left off, getting their rebuttal in first, and telling us what was wrong with our new clauses before we had the chance to utter a syllable. I look forward to that continuing this morning—and this afternoon, if we get that far.

HMRC estimates that a potential £5.8 billion of the UK’s estimated £35 billion tax gap for the tax year 2019-20 is attributable to a difference in legal interpretation between HMRC and the businesses concerned. It is that situation that motivated us to draft new clause 7, which is in the name of my hon. Friend the Member for Glasgow Central. We support all and any reasonable and proportionate measures to try to narrow the gap. I would add, in passing, that it is disappointing that the third trigger has been dropped, which is that HMRC should be made aware by companies if there is a substantial possibility that either a court or tribunal might find that the taxpayer’s position was incorrect in certain material respects.

While there will always be a level of uncertainty around tax, it is useful to try to get a measure of the tax gap on its own terms—one that is as objective as possible. It is also very useful to compare, as far as possible, the estimated size and scale of our tax gap with the gap in other comparably advanced economies, so that we can see what we might learn from others.

I accept that direct comparisons might not be possible, but I do not accept the Minister’s argument that meaningful comparisons are impossible, because we can get an understanding of practices and of analysis; that is at the heart of the matter. This is about trying to get to grips with the scale, and developing an understanding of what will be a continually moving target, as entities seek to minimise their overall liability as legitimately as they can within the confines of the broader tax code. That backdrop of information would allow policy makers to reflect adequately on how the domestic tax code might be amended to ensure greater clarity and better compliance. It is on that basis that we tabled new clause 7.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

I am grateful for the contributions from Opposition Members. I was very pleased that the hon. Member for Ealing North recognised the importance of closing the tax gap and welcomed the provisions from that perspective. As I set out, the provisions will affect only the largest companies, which have the means of dealing with and communicating their issues to HMRC. He asked me about the practical advantages of the provisions, given that we have existing measures. Quite simply, some, though not all, companies are looking at all times to minimise the tax they pay, and are coming up with new ideas. They have the ideas first, and HMRC does not want to be slow in reacting. The best way to get on the front foot is for the companies to tell us what measures they are thinking about, so that we can engage at the first moment. That is what the provisions seek to do—to ensure that we can engage at the first moment, so that we can make sure that companies comply with their tax obligations.

The hon. Gentleman also asked about penalties. The Government originally proposed a flat £5,000 penalty for failure to notify under this regime. In response to stakeholder feedback, we revised the penalties, which now escalate for repeated failures to a maximum of £50,000. The Government considered carefully the penalties to ensure that they were proportionate and fair for a notification regime. Penalties are charged for failure to notify and are not charged by any determination of the amount of tax at stake—providing for a larger penalty in those circumstances would be disproportionate. If it was eventually found that a tax return contained a deliberate error, then a larger tax-geared penalty could still apply. As with all policies, the Government will of course keep this under review.

I was very pleased and interested to hear from the hon. Member for Gordon about his disappointment about the dropping of the third trigger. As I have said, we keep all measures under review and will keep looking at this area. If we do bring any further measures forward on uncertain tax treatment, I look forward to his support.

--- Later in debate ---
None Portrait The Chair
- Hansard -

With this it will be convenient to discuss clause 96 stand part.

Lucy Frazer Portrait Lucy Frazer
- Hansard - - - Excerpts

Clauses 95 and 96 concern tax administration provisions. They provide certainty that HMRC may use discovery assessments to take action in certain cases in which taxpayers have not declared or returned tax that is due. For consistency, fairness and certainty, they also make minor changes to the rules requiring notification of liability.

I will briefly explain the context for introducing the clauses. The upper tribunal recently found that HMRC did not have powers to recover an individual’s high-income child benefit charge, w