Healthcare (International Arrangements) Bill (First sitting)
Tuesday 27th November 2018
(5 years, 11 months ago)
Public Bill CommitteesRead Full debate Healthcare (European Economic Area and Switzerland Arrangements) Act 2019 View all Healthcare (European Economic Area and Switzerland Arrangements) Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 November 2018 - (27 Nov 2018)
The Chair
Before we begin, I have a few housekeeping notes. I ask hon. Members to switch their phones and other electronic devices to silent mode, and remind them that tea and coffee are not allowed during sittings. Today, we will first consider the programme motion on the amendment paper, then a motion to allow the reporting of written evidence for publication, and then a motion to allow us to deliberate in private about our questions before the oral evidence sessions. In view of the time available, I hope that we can deal with those matters formally, without debate. The programme motion was discussed yesterday by the Programming Sub-Committee for the Bill. Date Time Witness Tuesday 27 November Until no later than 10.25am Academy of Medical Royal Colleges; British Medical Association Tuesday 27 November Until no later than 10.55 am Association of British Insurers Tuesday 27 November Until no later than 11.25 am Kidney Care UK
Ordered,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 27 November) meet—
(a) at 11.30 am and 2.00 pm on Thursday 29 November;
(b) at 9.25 am and 2.00 pm on Tuesday 4 December.
(2) the Committee shall hear oral evidence in accordance with the following Table:
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 4 December. —(Stephen Hammond.)
The Chair
The deadline for amendments to be considered at the first line-by-line sitting of the Committee was Monday 26 November and therefore has passed. The deadline for amendments to be considered on the second day of line-by-line consideration of the Bill is the rise of the House on Thursday.
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Stephen Hammond.)
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Stephen Hammond.)
The Chair
Q
I remind hon. Members that questions should be limited to matters within the scope of the Bill, and that we must stick to the timings in the programme motion that the Committee agreed for this session. We have until 10.25 am. I hope, because the Minister has to be on his feet on the Floor of the House immediately after this, to cut a couple of minutes off the session to enable him to carry out his duties.
Are there any relevant interests to declare? No. Will the witnesses introduce themselves?
Mr Henderson: Thank you. I am Alastair Henderson, the chief executive of the Academy of Medical Royal Colleges, which is the umbrella body for all the different medical royal colleges and faculties in the UK and Ireland. We represent the range of specialties, particularly on training, education and standards matters.
Raj Jethwa: I am Raj Jethwa, director of policy at the British Medical Association, which is the trade union and professional association for doctors in the UK.
The Minister for Health (Stephen Hammond)
Q
Mr Henderson: Yes, certainly. I think that the feeling of clinicians and health organisations, and also of patients, is that the current regulations work well because they are simple, well understood, easy to operate and pretty well universal in their coverage. We have a good system at the moment that is effective and easy to operate, and going forward we are looking for something that repeats or replicates that as closely as possible.
Stephen Hammond
Q
Mr Henderson: Yes, I do; we are pleased to see that. I suppose our position is that, overall, the best and easiest thing would probably be for reciprocal healthcare agreements to be covered in an overall agreement. That seems to me to be the best thing. If we are not in the position of having an overall agreement, the Bill, which puts in these complementary arrangements, seems to be exactly the right thing. We are very supportive of it and are pleased to see that there.
Stephen Hammond
Q
Mr Henderson: In terms of the overall cost, that may well be the position. It is not known what the arrangements for cost recovery would be. Both clinicians and health organisations are concerned that we could end up with a system that is both administration-intensive and time-intensive. If all people in this country from the European Union or European economic area have to be charged, what would be the implications for NHS organisations and clinicians?
It is important to say that doctors have had a consistent anxiety about becoming involved in being responsible for either immigration rules or charging rules, which would potentially have a quite adverse effect on the doctor-patient relationship. I think it is really important that whatever arrangements come in are as seamless and as simple as possible, so that they do not take people away from clinical duties or get in the way of delivering care.
Stephen Hammond
Q
Mr Jethwa, good morning. I noticed in your written brief that the BMA stated that the Government should undertake every effort to retain the current model of reciprocal healthcare. My first question is the same as that to Mr Henderson: can you state why you think the current system works so well?
Raj Jethwa: For exactly the same reasons my colleague sets out: the arrangements are wide-ranging, secure and simple. They give security and clarity and are well established. Our view is that the best possible arrangement is for those arrangements to continue. If they cannot, the arrangements that come in their place should mirror them as far as possible.
Stephen Hammond
Q
Raj Jethwa: We largely welcome the Bill for exactly the intention behind it, but because the detail in it is limited we have some concerns about exactly the clarity going forward that the Bill allows for. We support the broad intentions behind the Bill, but we would like to see more detail about exactly how the arrangements will operate in practice, particularly the scrutiny arrangements to ensure there is clarity and transparency in what the arrangements negotiated and facilitated through the Bill would look like.
Stephen Hammond
Q
Raj Jethwa: No, I beg your pardon. We do have concerns about security, but I meant clarity, from the perspective of patients understanding and being secure in themselves about what the arrangements would mean.
Justin Madders (Ellesmere Port and Neston) (Lab)
Q
Mr Henderson: I do not pretend to be an expert on the cost recovery system. I think our members would be very clear that they believe the primary effectiveness of the current arrangements is about providing effective healthcare for citizens across the EU. As clinicians, that is their primary responsibility.
On the recovery of costs, not just in this area but for other areas where recoverable costs were brought in more recently, there are always questions about the amount of effort and return in the whole system. I am not at all opposed to the idea of recovery of costs, but I am not sure we have yet found a hugely simple and easy way of recovering any costs really. I would happily support that, but it seems to us that this works as a system on its most important requirement, which is providing quick, clear and safe healthcare for people.
Justin Madders
Q
Mr Henderson: It is not a hugely attractive prospect, is it, 32 different settings, for those presumably trying to agree the arrangements? In practical terms, the idea that if you are a GP or a hospital doctor trying to work out whether there are different arrangements for 32 different lots of patients sounds pretty much like a nightmare set-up. What clinicians on the ground want is a clear and simple system—ideally a single system—that will cover all the people they are seeing.
Justin Madders
Q
Raj Jethwa: We have done some work on that.
Justin Madders
Would you like to say what you are doing?
Raj Jethwa: Our concern about the situation there is primarily based on the fact that there are some very effective cross-border agreements which have facilitated healthcare over the last two or three decades, particularly through co-operation and working together as a programme. That is only one aspect of it. Given the population demands on the whole island of Ireland, both in the Republic of Ireland and Northern Ireland, there have been some fantastic examples of where clinicians have either co-located services in a particular trust or facility where there is not the demand from the local population to warrant it, or travelled across the border to work on different sites. Those two facets together have meant that there have been some great examples of cross-border co-operation. One of our concerns is that those arrangements remain in place in the future.
Justin Madders
Q
Raj Jethwa: That is something that we can write to the Committee about afterwards. We have been talking to our members about this situation. Our anticipation—our hope—is that an arrangement will remain in place whereby that work can continue.
Justin Madders
Q
Raj Jethwa: We are familiar with the research that the Nuffield Trust has done on this, as most people are. Our members are very cognisant of this. I know the Committee will be familiar with the figure of approximately 190,000 UK pensioners who may require access to healthcare facilities in the future if the S1 arrangements do not remain in place. We have concerns about that. In particular, if the arrangements do not remain in place in the future, those people may need to access healthcare facilities back in the United Kingdom. That would be a concern in terms of doctor and clinician numbers and beds, and the tight financial resources that the NHS has to work under at the moment.
Julie Cooper (Burnley) (Lab)
Q
Mr Henderson: As Raj says, this is an enabling Bill, so it is slightly hard to say whether there is sufficient protection there or not. Clearly, it is a hugely important issue that needs to be fully addressed. Equally, we would say very strongly that, while individual patients’ data must be protected, the free flow of data and exchange of information are absolutely crucial. We should never forget that side of the equation: properly and safely sharing anonymised data for research purposes, clinical trials and so on is crucial. While it is absolutely essential that we ensure that personal data is protected, I would put more emphasis on that other side, which is ensuring that we continue to share and benefit from the exchange of anonymised data for purposes that benefit the health service and research.
Julie Cooper
Q
Raj Jethwa: It is important that an agreement can allow a seamless operation, but there are some well-established ethical principles and safeguards in relation to this. First, it has to be relevant data and it has to be accessed on a need-to-know basis, and only when it is in line with patients’ expectations. Data sharing has to be transparent. We would be absolutely concerned that any safeguards meet those criteria and principles. I do not think the details in the Bill make that clear at the moment. We would like to see more clarity and detail about that in future.
Maggie Throup (Erewash) (Con)
Q
Raj Jethwa: We would like to see much more emphasis on scrutiny of all the discussions in the arrangements going forward. There are some negative procedures—I think that is the term. Given the weight of the issue and the number of people that could be affected by it—I have mentioned the 190,000 UK pensioners who live abroad at the moment, but there are close to 3 million people from the European Union who access healthcare in this country, and there are many more than that who travel across the European Union at the moment—there probably needs to be greater scrutiny of any arrangements going forward.
Matt Western (Warwick and Leamington) (Lab)
Q
Mr Henderson: I am not actually sure I have all the detail. My understanding is that the European health insurance card and such arrangements work for all emergency situations, certainly, and most normal circumstances. I think, and Raj may know better than I, that there are some areas that are not covered particularly, but as I understand it, it is fairly universal. I am not an absolute expert in that, I am afraid.
Raj Jethwa: We can write to the Committee. My opinion is that it is pretty universal. There are probably niche areas that may not be covered. We can look into that and get back to the Committee if that would be helpful.
Justin Madders
Q
Raj Jethwa: I do not know that, but again we are happy to look into that and to come back to you if we find out that somebody back home does know the answer. I am not sure that I know.
Mr Henderson: It is probably lost in the mists of various previous agreements.
Stephen Hammond
Q
Raj Jethwa: One of the concerns we have is the reference to the authorised person and who could fit into that category. Without seeing more detail about what the arrangements will look like in the future, we do have some concerns and we are seeking that level of understanding. Without seeing that and knowing exactly what process will be used to, for example, recoup the money or make payments, it is hard to know exactly what those arrangements would look like and on what basis information would be shared. We do have concerns about the authorised person aspect of the Bill, and we need to ensure that we have greater understanding about exactly who would be an authorised person, beyond that list of specific bodies and individuals who are named in the Bill at the moment.
The Chair
Does the Committee have any more questions? No. I thank the witnesses for helping the Committee with its deliberations, and call the next witness.
Examination of Witness
Alisa Dolgova gave evidence.
The Chair
Q
Alisa Dolgova: Hi. I am Alisa Dolgova. I am the manager looking after Brexit at the Association of British Insurers. We are a membership organisation representing more than 250 insurance and long-term savings firms in the UK, ranging across general, life and reinsurance companies.
Stephen Hammond
Q
Alisa Dolgova: I agree with those who gave evidence before me, in that the advantage of the EHIC is that it is a simple, easy-to-understand system. From an insurance perspective, the EHIC covers the medical treatment of UK nationals travelling through one of the covered countries, in the same way as local nationals would be covered in terms of state provision of healthcare. The insurance then covers anything that is not covered by EHIC, meaning things that are not covered by the state healthcare system—some countries have a greater tradition of state healthcare than others—but also things such as repatriation. The advantage of the current system continuing for customers is mainly that it is a system that is well understood, and there is a minimum that is covered for everybody, irrespective of whether they have travel insurance.
Stephen Hammond
Q
Alisa Dolgova: If EHIC were not in place, those costs would be covered by the person’s travel insurance, if they have insurance in place. That means that costs that are currently covered by EHIC would be borne by the insurer. I think £156 million is currently covered by EHIC, so part of that would be covered by the insurer, and that would have an impact on the claims costs for insurance companies—costs that currently are not there. That might have an impact on the premiums that insurers charge their customers.
Stephen Hammond
Q
Alisa Dolgova: That is difficult. Insurers do not know what the impact is going to be, because currently they do not have the data on where the policyholders travel to. By far the most common type of travel policy that is bought in the market is a multi-year insurance policy, which covers an individual who can travel anywhere in the EU—or the rest of the world, for that matter. Currently, because part of that is covered by EHIC, insurers do not have the breakdown, and it is therefore difficult to give a number for what might happen.
Stephen Hammond
Q
Alisa Dolgova: Generally speaking, premiums will be higher for two reasons: first, if the chance of the person claiming is higher, and secondly, if the volume of payout is likely to be higher—so, if someone has a condition that is particularly expensive to treat. That is why health is one of the risk factors that may increase premiums. Again, it is quite difficult to say what the difference in the potential increase would be between those who have existing conditions and those who are in good health, because it basically depends on where that group of people is likely to travel to, in terms of how expensive healthcare is in that country. For example, if someone travels to the US, that is a lot more expensive than if they were to travel to some other destinations. I would just say that if you look at countries where you do not have EHIC or reciprocal arrangements, insurance policies are available but it may require a bit more effort to locate the right product for the right individual. We are working with the Financial Conduct Authority, Macmillan and other organisations on that.
Stephen Hammond
Q
Alisa Dolgova: Most private medical insurance policies in the UK are generally designed to cover treatment within the UK. It is relatively rare for the policies to also cover healthcare while you are travelling.
Stephen Hammond
Q
Alisa Dolgova: Yes. It may vary depending on the type of policy, but generally speaking that is the most common situation.
Stephen Hammond
Q
Alisa Dolgova: For health insurance?
Stephen Hammond
Yes, for health specifically.
Alisa Dolgova: The implications for health insurance are a lot less than for travel insurance. Apart from that, health insurance would primarily be affected in the same way as any other insurance in terms of transferring data across borders. I am not sure there is likely to be a significant impact on health insurance if the reciprocal healthcare arrangements are not in place.
Stephen Hammond
Q
Alisa Dolgova: We are supportive of the Bill and giving the Government the powers they need to implement reciprocal healthcare arrangements. From the insurers’ perspective, the most important thing for us is to know as early as possible, whatever the outcome, so that insurers can plan for any changes and so that we can let our customers know what the impact is likely to be.
Stephen Hammond
So, the sooner the Bill gets Royal Assent, the happier you will be.
Justin Madders
Q
Alisa Dolgova: My colleague Hugh Savill gave evidence to the House of Lords, where he stated that there is likely to be an increase of between 10% and 20%. To be honest, we do not really know, because it very much depends on the particular insurer, who it insures and where that specific group of people travels to.
Justin Madders
Q
Alisa Dolgova: The main message that insurers are giving to the customers is that it has always been important to have travel insurance because it covers things that EHIC does not, but it will be even more important to have it in case there is not a transitional period, because travellers would no longer have the benefit of EHIC. The message is that you need to have travel insurance in place, and that travel insurance will cover you, irrespective of whether you have EHIC.
Justin Madders
Q
Alisa Dolgova: We have not currently seen an increase in premiums. Firms are currently pricing in the assumption that there will be a withdrawal agreement in place with a transitional period that will allow more time for the Government to enter into a reciprocal healthcare arrangement.
Justin Madders
Q
Alisa Dolgova: I have briefly alluded to the work that we have been doing with the Financial Conduct Authority. The FCA published a feedback statement in June this year, looking at travel for people with pre-existing conditions. The finding was that there are products available on the market but they may be difficult to locate at the moment, which is why we are doing additional work at the moment. So there are products available that will cover people.
Justin Madders
Q
Alisa Dolgova: I do not have information with me about which types of conditions are more expensive than others, but it will be the types of conditions that are more likely to require treatment while you are travelling, and insurers do take factors into account such as, “What has been your recovery time?”
Justin Madders
Q
Alisa Dolgova: Yes, sure. EHIC covers you for public healthcare in the same way as a person from that country would be covered, and healthcare provision differs a lot, depending on which EU country you are in. Some countries, such as Italy, have healthcare systems that are much closer to the NHS than others, and if you travel there, EHIC will give you greater coverage. Some countries, such as Spain, have a mixed public/private system and some countries, such as Germany, have a greater tradition of private healthcare. Actually, that means the degree you are covered by EHIC varies depending on where you travel and that is why you need insurance.
Justin Madders
Q
Alisa Dolgova: Yes. It will give you more coverage across all countries, but what that coverage is depends on what the situation is in that country.
Alberto Costa (South Leicestershire) (Con)
Q
Alisa Dolgova: It depends on the specific terms of the travel insurance policy that you have. For example, some policies have a specific provision that you need to use EHIC first and then have resort to your insurance policy, and insurers may also provide incentives to use EHIC as well. For example, they might provide a waiver for access costs of EHIC; that has been used.
Alberto Costa
Q
Alisa Dolgova: The claims cost will definitely increase, which may lead to an increase in travel insurance costs as well.
Matt Western
Q
Alisa Dolgova: Sorry, your question is who would pick up the cost if treatment were provided overseas, but it fails?
Matt Western
Yes. If that implant failed, whatever it might be, and the cost to revise that implant were then borne by the NHS, who picks up the cost, and how does that work? How does it work currently, and how might it work in the future based on this?
Alisa Dolgova: I am not sure I have a detailed enough answer to give at the moment. I would be happy to come back to the Committee on that, but again, I think it would ultimately depend on exactly what travel insurance policy is in place. I would assume that the travel insurance policy is likely to cover a person for the treatment they receive overseas, and if they then need additional medical treatment back in the UK, they would be treated within the UK healthcare system in the same way as they are currently.
The Chair
Are there any more questions from members of the Committee? If not, I thank you very much for helping the Committee with its deliberations on this Bill, and I call the next witness.
Examination of Witness
Fiona Loud gave evidence.
The Chair
Q
Fiona Loud: My name is Fiona Loud, and I am the policy director for Kidney Care UK. We have been around for over 40 years and were formerly known as the British Kidney Patient Association. We are the national kidney patient support charity, so we give emotional, financial and practical help to patients and their families who are affected by kidney disease, but particularly kidney failure.
Stephen Hammond
Q
Fiona Loud: At the moment, 29,000 people in the UK are dependent on dialysis. That is three times a week, about five hours at a time, and those people cannot miss a session, because those sessions maintain their life. If a person is on dialysis and wishes to travel—anywhere in the world, but let us talk about the EU here—whether to meet family, to have a holiday, or to work, they need to be able to pre-book a slot or slots at a dialysis unit that is convenient to the place they are travelling to. At the moment, the EHIC card either covers it completely or, in countries where there is a co-payment because local residents make a co-payment, it covers the bulk of your care. Many patients tend to go to places such as Spain and France, and some go to Italy, because they are holiday-type destinations. It works for them because they get the EHIC, are able to get their life-maintaining treatment and have the opportunity, for themselves and their families, for a much-needed break. That is an example of one of the main reasons people might use that.
So it works well at the moment. It is not completely perfect because sometimes units that were public become private and it may occasionally happen that someone has booked a holiday a long way in advance. But, in general terms, it means that people are able to go away with the confidence that they will be able to be supported and receive the treatment they need.
Stephen Hammond
Q
Fiona Loud: For people with a pre-existing condition, such as kidney failure, we always advise that they take out insurance in addition to having a current EHIC card, because there will be situations in which they may need to cancel their travel at very short notice due to illness. What we regularly hear from patients—this is probably one of the most common questions asked on our closed social media forums, especially at holiday time—is, “Where do I book? Where do I get insurance from? Where do I get the best deal?” My understanding is that some people go to specialist insurers to get their cover—they will be those that we tend to recommend to people because they are much more likely to understand and to be able to support these complex conditions. Whether everyone gets insurance, I honestly do not know. Some people will say that it is so expensive that they cannot afford it, and that could put them off travelling. Other people will say that they have incredibly cheap deals, and I do wonder whether those would actually cover the situation of someone really needing care.
Let me give you a recent example of someone who booked a holiday a year in advance, not in the EU but further away. They took out specialist travel insurance and during that time their transplant failed, which meant that they became dependent on dialysis, were particular ill and had to cancel the holiday for them and all their family. They were able to get all their money back because they had given a clear declaration and that had been accepted. That is how it should work, and it was some comfort to them in what was not a very good situation.
We have people who are taking the option to travel now because they have no idea what will happen after 29 March. For them, the ability to travel with confidence—I think there is something in the Bill about people being able to travel with confidence—is something they can do now, and they are not confident yet that they will be able to do that after 29 March.
Stephen Hammond
Q
Fiona Loud: We understand the reason for it and we support its intentions. You may have seen some of our comments: we want more assurance, some more detail and some things about contingency as well but, yes, we have been hoping for some time that something could be put in place to set this process in motion.
Stephen Hammond
Q
Fiona Loud: The contingency issues would be for people who have holidays already booked for after 29 March. There are people who have already done that and, because their EHIC card has a date of after 29 March—the cards will go on for many years afterwards, as we all know; they are issued for five or 10-year chunks—they imagine that they can go away and receive their dialysis. What happens in the case of no deal, where holidays are booked on that presumption? Will there be cover?
The second question will be about emergency cover. I have just given an example of somebody who was fine when they booked the holiday but who now may not be fine, because people’s health state can change. Generally speaking, holidays are booked in advance. It is basically about looking at what the immediate arrangements would be and to make sure that no citizens are caught in the gap of assuming they have cover and somehow not realising that things have changed. There is an awful lot about Brexit at the moment and this is a very specific detail in a much noisier environment. Those are the people who might be caught out and whom we are concerned about.
Stephen Hammond
Q
Fiona Loud: Yes, it is our conclusion that it would be very hard. It is worth mentioning that at the moment it is generally easier to obtain dialysis at a unit away from your home in Europe than it is in the UK, because we have a heavily pressed NHS. Trying to get capacity in other units is possible with a lot of planning, but if you want to travel for a funeral or for something at short notice, it becomes very difficult to go away for more than one or two days in between dialysis sessions. NHS staff will help and do their very best, but it is easier to go away for two weeks in Europe and take a break in that way than it is to get two weeks in a UK unit, unfortunately.
Justin Madders
Q
Fiona Loud: I have heard it as a comment.
Justin Madders
Q
Fiona Loud: I have not come across any publicly available guidance on that at all. We have given advice and organisations that we work with give advice, but it is informal advice. It is not formal, because it comes from us as a charity, not from any public health or other such body.
Justin Madders
Q
Fiona Loud: That is what many people would do, for the very reasons we have given. We have people who are sometimes thinking about two years in advance. If you have kidney failure, it may well be that your income is quite limited. If you are spending three days a week in hospital and you are not particularly well, you would be likely to plan a long way in advance, because it is so important. As a charity, we give grants to kidney patients to be able to go away and have that break, so we hear quite a lot about it from various patients. Some can be up to two years in advance; others will be at shorter notice.
Julie Cooper
Q
Fiona Loud: Although we completely understand the need to be able to have the latitude to make bilateral arrangements for everyone’s benefit, from a patient point of view we would like to see a simple arrangement that is the same across all countries. People will not be sitting in these Committees or reading these Bills in great detail. They simply want to be able to go away. They know how a system works at the moment: they will perhaps turn to somebody in their own NHS unit, or they will turn to us or to other specialists, and ask, “How do I go ahead and book my holiday?” and they will assume that, because they have that card, that is how it will be. That would be our wish and our preference, but we understand that that is not always possible.
If I may make a separate comment about Northern Ireland, there are potential issues there that are nothing to do with holiday but are simply about residents who are used to going across the border day to day for their care and treatments. There are pre-existing arrangements and protocols there. For example, somebody might be on dialysis in Northern Ireland but, because the rest of their family live in Ireland—it is only 10 or 15 miles away—they might be planning to retire there in a year or two and assume that they can just carry on having their dialysis there.
The provision exists for people who live in Northern Ireland to be listed on the Irish organ donor register—you can only be on one—and vice versa. They will need to look at where they are registered. Does that change immediately? There are also other arrangements for organ sharing. If an organ is donated in one of those two jurisdictions and the weather is too bad to take it to the mainland, it can be taken across by road. That is not used very often, but those are just a couple of examples of some of the detail that might affect people. That is to do with healthcare but it is also separate. There may, therefore, need to be some other bilateral arrangement for Northern Ireland, which is separate from the more general one that we have just discussed.
Julie Cooper
Q
Fiona Loud: We are. A dialysis session in the EU would cost between €250 and €350, so that is about €1,000 a week. We have had correspondence with Sabine Weyand, who is the deputy chief negotiator for exiting the EU. She confirmed to us that British nationals would be treated as third-country nationals, in the case of no negotiation being in place. Therefore, our conclusion is that for third-country nationals, those costs that I have just referred to would be applied. Therefore, only people who were able to afford that, alongside a higher insurance policy—which would not cover the dialysis, though it would cover other things—would be able to travel, effectively making it out of reach for most patients, unfortunately.
The Chair
Are there any more questions from the Committee? If not, I thank you very much for helping us with our deliberations today. That concludes our oral evidence-gathering for the Bill. The Committee will meet again on Thursday 29 November at 11.30 am in Room 12, when we will commence line-by-line consideration of the Bill.
Ordered, That further consideration be now adjourned. —(Wendy Morton.)
Finance (No. 3) Bill (Second sitting)
Tuesday 27th November 2018
(5 years, 11 months ago)
Public Bill CommitteesRead Full debate Finance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 November 2018 - (27 Nov 2018)
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 10 - Question accordingly negatived.
Peter Dowd (Bootle) (Lab)
I beg to move amendment 17, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the motor vehicle industry in parts of the United Kingdom and regions of England and lay a report of that review before the House of Commons within six months of the passing of this Act.
(9) In this section—
“parts of the United Kingdom” means—
(a) England,
(b) Scotland,
(c) Wales, and
(d) Northern Ireland;
“regions of England” has the same meaning as that used by the Office of National Statistics.’
This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the automotive industry, broken down by nations and regions.
The Chair
With this it will be convenient to discuss the following:
Amendment 18, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the impact of Clause 7 on the uptake of optional remuneration schemes relating to cars and vans.
Amendment 19, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on tax receipts and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the revenue effects of Clause 7.
Amendment 22, in clause 7, page 5, line 2, at end insert—
‘(8) The Chancellor of the Exchequer must review the effect of the provisions in this section on the vehicle hire sector and lay a report of that review before the House of Commons within six months of the passing of this Act.’
This amendment would require the Chancellor of the Exchequer to review the impact of clause 7 on the UK vehicle rental sector.
Clause stand part.
Peter Dowd
I hope everybody had a refreshing lunch and that not too much claret was drunk.
Peter Dowd
That is a nice start to the afternoon. I will turn to amendment 17 to 19 and 22 which, I must say at this stage, we will also push to a vote unless we have the acquiescence, capitulation or otherwise of the Minister after he has heard my words of wisdom. I hope he has even more divine intervention and inspiration this afternoon from his officials telling him to agree with me.
Clause 7 introduces further reforms to optional remuneration arrangements for cars and vans. The measure seeks to make two changes to the current regime, as outlined in the Treasury’s policy paper. First, it is designed to
“ensure that when a taxable car or van is provided through OpRA, the amount foregone, which is taken into account in working out the amount reportable for tax and National Insurance contributions purposes, includes costs connected with the car or van (such as insurance) which are regarded as part of the benefit in kind under normal rules”.
Secondly, this measure is also expected to
“adjust the value of any capital contribution towards a taxable car when the car is made available for only part of the tax year.”
I imagine that the Treasury’s line is that this seeks to ensure that the value of this benefit is connected only to cost, but we are concerned that these changes may further complicate pre-existing optional remuneration arrangements that are already in place for employers and employees to utilise company cars and vans. That in turn may be a deterrent, as some employers may consider that it is too much hassle or too bothersome, and that there is too much red tape, when it comes to offering such a scheme. Similarly, employees may decide that the risks and liabilities of taking up the offer of a company car or van scheme may be too high, and that under these circumstances both rentals and automotive sales may fall.
To put it as succinctly as I can—I accept that I am prone to being succinct, which is a fault of mine—the Opposition do not believe that it is in the interest of our economy, which is heavily reliant on the automotive sector for jobs, or that of workers, to make it harder for them to use a company car or van through an optional remuneration scheme. That is why we have tabled amendment 17, which would amend page 5, line 2 of the Bill and insert:
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the motor vehicle industry in parts of the United Kingdom and regions of England and lay a report of that review before the House of Commons within six months of the passing of this Act”
as linked to the nations.
I accept that Government Members must recognise the clear link between automotive sales and their use as company cars or vans in optional remuneration arrangements. Work vehicles make a significant contribution to the automotive industry’s more than £82 billion annual turnover and £20.2 billion of value added.
Bambos Charalambous (Enfield, Southgate) (Lab)
Does my hon. Friend agree that further complicating the optional remuneration arrangements for employees who wish to use a company car or van could have an effect on the automotive sector as a whole? That would be terrible.
Peter Dowd
It would be. That goes to the heart of the point. We want to tease this issue out and have a review. I know we have raised a million and one issues for review, but that is as much as we can do in the current climate. That is what we want to do: we want to tease all these matters out.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Does my hon. Friend agree that a review would enable us to tease out some of the matters that were presented to us and to explore some of the expert information that has been provided to us? For example, the Institute of Chartered Accountants in England and Wales tax faculty said that the clause will lead to a tax charge so, for example, emergency repairs will be initially paid for or arranged by an employee and then met by the employer. If we had a review, we could look into that matter and others in more detail.
Peter Dowd
That organisation is always helpful, and it points us in the direction that the Government should go in. That goes to the point I am making.
Many proposals have come back to bite us, so we need a proper review to see how they are bedding in. For example, according to the Society of Motor Manufacturers and Traders, the automotive industry employs 168,000 people directly in manufacturing, and more than 856,000 are employed across the wider industry. It accounts for 12% of total UK exports of goods, and invests £3.65 billion each year in automotive research and development. More than 30 manufacturers build in excess of 70 models of vehicle in the UK, supported by 2,500 component providers and some of the world’s most skilled engineers. The automotive industry represents 1% of all employment in the UK and 7% of all manufacturing. It is also one of the few industries in the United Kingdom that has had a huge productivity increase since the financial crisis. The manufacturing of motor vehicles went from 5.4% of UK manufacturing in 2007 to 8.1% in 2017. Those figures do not, however, reflect the role that the automotive industry play in communities across the nations and regions of the UK, and the impact that a fall in sales or rentals relating to optional remuneration might have.
Alex Sobel (Leeds North West) (Lab/Co-op)
My hon. Friend is making an excellent speech in support of the communities around the country that are reliant on motor manufacturing, which include Tyne and Wear, Derby, Swindon and Merseyside. Does he think that the Government should undertake and publish a proper impact assessment on the communities that will be affected by the changes outlined?
Peter Dowd
Yes. That links to others issues. For example, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) is having issues with the car factory in his constituency, where 200 jobs are threatened. These issues are all linked. When the industry is under threat, or there is a potential threat, even if it is not actually visible, we must take steps to ensure it does not appear on the horizon. Our proposal would help that process.
For example, the west midlands has by far the largest number of motor vehicle manufacturing employees of any UK region or country. There are 54,000 employees in the industry working in the west midlands. That is about one third of all motor industry employees in Great Britain. We have to take into account the fact that if fewer companies offer optional remuneration arrangements, that could directly affect jobs in that region. The Government’s job is to plan and—they said this in their industrial strategy—to ensure we are prepared for all eventualities. Our proposal helps with that preparation.
The second-largest region for automotive manufacturing is the north-west, where my constituency is located. It employs 24,000 people and accounts for 7% of the total industry and 1% of all employment. I recognise that a slowdown in automotive sales could be related to a fall in the use of company cars and vans, and could cost workers their jobs. Members from Scotland, where the automotive industry accounts for around 4,000 jobs and 2% of the total UK manufacturing sector, and Members from Wales, where the automotive industry accounts for 9,000 jobs, feel the same. Similarly, any fall in the sale of rental cars and vans used in optional remuneration arrangements will have an impact on foreign direct investment into the UK, as there are now no British-owned mass car manufacturers operating in the United Kingdom. It comes back to the point made by an hon. Member about foreign direct investment. We do not want to put it off.
Clive Lewis (Norwich South) (Lab)
Given the sounds being made by the car makers Nissan over Brexit uncertainty, it would be a most foolish approach if those safeguards were not taken, and if there were no proper impact assessment or analysis of the industry.
Peter Dowd
My hon. Friend is right. To some extent, that is part of the concern we have had about impact assessments and financial reviews on industry generally in relation to Brexit. This is part of the tapestry or mosaic of issues that we always have to keep to the fore if we are to protect jobs. All parties have said that they want Brexit for jobs and the economy. We have said it time after time, and this completely fits in with our policy of trying to protect jobs and our economy. Let us look to the future of how this might impact on an important part of our industry, rather than leaving it to chance.
The domestic automotive market is home to foreign volume car manufacturers, with other companies specialising in commercial or luxury brands, including Honda, which has almost doubled production at the Swindon plant—£240 million of investment into the Burnaston site was announced in March 2017. Jaguar Land Rover invested £400 million in a new engine plant, equipment and the expansion of its design centre in 2015. In October 2016, Nissan announced that it would produce two new models in Sunderland. Members on both sides of the Committee understand that uncertainty in an industry such as the automotive industry, which plans 10 or 15 years in advance, can be disastrous and cost jobs. We need only to look at the current uncertainty around Brexit, as I have indicated, to see that this is clearly the case. Large automotive companies express concern on a daily basis. My colleague the hon. Member for Oxford East receives regular representations from companies in her area who are deeply concerned about the future of the industry in the UK, and any fall in use of company cars will not add further confidence.
I accept that Government Members may accuse me of scaremongering, but figures from Her Majesty’s Revenue and Customs showed that 940,000 employers paid benefits in kind—tax on a company car—in 2016-17. That was a 2% fall on the 960,000 recorded the previous financial year. The decline is not isolated—the number of company cars has decreased over the last 10 years.
Clive Lewis
As I sit here listening to my hon. Friend describe the obscure way in which this tax is being implemented, I wonder whether it would it be fair to call it a stealth tax.
Peter Dowd
My hon. Friend makes a valid point. One could argue that it is a stealth tax, although I think what the Government have introduced is more like an incompetence tax. I am not sure they know the consequences of what they have unleashed, but I suspect my hon. Friend’s use of the term “stealth tax” is pretty apposite.
We all know that employers will have invested in vehicles in good faith on the basis of those calculations, together with the comment from HMRC that that was the correct way to calculate charges. It is therefore to be expected that they will feel let down and perhaps even blindsided by these changes. The more I think about it, the more I think they will consider what the Government are introducing as a bit of a stealth tax.
The ICAEW found that, where vehicles with allowed private use are provided to employees under OpRAs, the clause will impose unexpected increases in tax and national insurance charges on employees and employers respectively. The only way to avoid those charges will be for the employer to dispose of the vehicle. That is likely to result in the employer receiving lower than expected proceeds if the vehicle is owned outright, or suffering financial penalties if the vehicle was acquired under an ongoing contract. It may also upset the employer-employee relationship, which might ultimately lead to both employee and employer leaving the scheme entirely.
That concern led the Opposition to table amendment 18, which we will press to a vote. The amendment seeks to insert the following subsection:
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.”
In effect, it would require the Chancellor to publish a review of the impact of these changes on the number of employees choosing to enter into optional remuneration arrangements. The amendment goes to the heart of the Opposition’s concern that the Government’s constant tinkering and fiddling deters people from taking up such schemes and, no doubt, other schemes.
That feeds into the wider criticism of the Treasury—and Ministers, I have to say—as backed up by the Chartered Institute of Taxation, regarding the constant need to rework and reform measures. The perception is that this is happening all the time. That takes us back to the point raised by the Scottish National party’s spokesperson about the need to tease out these issues in advance and put them into the domain. Let us tease them out and try to get a little bit of sense out of the mix. This amendment goes to the heart of our concerns, and this tinkering and fiddling about just confuses things more.
It is telling that the changes have come about not because of a new onus to reform optional remuneration schemes for the benefit of employees and employers, but rather to clean up the mistakes made in the previous Finance Act. In practical terms, that is what has happened. The Opposition have consistently called for the Government to take a more considered approach to taxation, including the introduction of Public Bill Committee witness sessions, as mentioned both previously and today. Were these concerns and those of the tax experts and advisers who have to implement the change taken seriously, Ministers would not have to come back to the House to redo their homework on every Finance Bill. This is my fourth Finance Bill—excluding the Taxation (Cross-border Trade) Bill—and that seems to be a regular occurrence. Instead, Ministers should be able to get it right first time, not just in relation to consultation but in enabling us to help them do their job.
The Chair
Order. You have made quite a few generalised remarks about consultation, Mr Dowd. It would be appreciated if you could keep your speech to the points of the amendment.
Peter Dowd
Thank you, Ms Dorries. The Minister considered the number of people who will be affected by the measure—1 million—to be rather small. The measure will have a disproportionate impact on van drivers and those who have company cars. The Treasury’s impact assessment shows that the majority are male and, no doubt, from various backgrounds. The Opposition want to get these changes right, which is why we are pushing for the Minister to report back to the House after six months and to offer clear evidence as to why they have had a negative impact on the number of employees able to use a company car or van under these schemes.
Given the lack of knowledge shown by small and medium-sized enterprise employers and employees when it comes to changes to optional remuneration schemes, it is hard to understand how the introduction of these measures will not incur additional expense for both. In fact, in its response to the consultation on the new measures, ICAEW found:
“The new clause introduces additional costs which will change the cost model on which the acquisition finance model was based.”
The Opposition therefore have a healthy scepticism for the Treasury’s figures on the revenue raised from these changes, because it is clear that there will be an additional cost.
In an effort to gain further clarity of the revenue effects of this measure, the Opposition have tabled amendment 19, which we will invoke later. The measures in clause 7 are part of the Minister’s clean-up operation to fully implement the wholesale reform of optional remuneration schemes introduced in the previous Bill. The reforms are aimed at targeting employers and employees who might use salary-sacrifice schemes for the purposes of tax avoidance. With that in mind, the review should consider the changes in the context of wider Government reform of optional remuneration schemes and include the impact of the changes to this specific scheme on the total revenue.
Turning to the vehicle rental sector, an increasing number of the company cars and vans offered by optional remuneration schemes are, in fact, rentals. That means that any changes to these schemes will have consequences for the vehicle rental sector. That is why we have tabled amendment 22, which would insert the following in line 2 of clause 7:
“The Chancellor of the Exchequer must review the effect of the provisions in this section on the vehicle hire sector and lay a report of that review before the House of Commons within six months of the passing of this Act.”
Kirsty Blackman (Aberdeen North) (SNP)
Many of the points that I was going to make have been covered by the hon. Member for Bootle. However, a few things require to be dwelt on for more time or should be looked at from a slightly different angle.
When I first became aware of the Opposition’s amendments, I did not think that it was a tack that they should take. However, when I looked into the information behind them and at the detail, I discovered that it is actually a very sensible tack to take, for a number of reasons. I note the comments about the 4,000 Scottish jobs that could be affected. It is important to note the number of jobs that could be affected by any changes to this area, particularly through tweaks to the benefit-in-kind system.
I also point out the number of new car registrations, which the Society of Motor Manufacturers and Traders has on its website. There has been a 7.2% fall in the year to date, which is incredibly significant. If the Government are thinking about ensuring that companies have those up-to-date cars with the lowest emissions, it is really important that companies are incentivised to ensure that their employees drive an up-to-date fleet, rather than older cars.
The other thing to note is that registrations in October 2018 were at their lowest level since 2013, which is significant. We might expect low numbers when we were coming out of a recession, but there has been a significant drop in registrations over the past year. It is important that the Government think about this wider context when making these decisions.
It is particularly important to note the impact of these changes on the industry, given the context of Brexit and the concerns raised by the car industry. Now is not a good time to consider making changes that are likely to negatively impact the automotive industry, particularly given the nature of its supply chains, which are so integrated with European Union countries. There is the potential for those supply chains and those manufacturing businesses and jobs to move wholesale to the EU, rather than the integrated supply chains that we have now being maintained. It is important to note that wider context when making any changes, because the Bill will not act in isolation; it will have to operate in the context of whatever potential economic hit will come from Brexit.
On the ICAEW’s comments about the potential for an accidental charge following emergency repairs, I agree with the hon. Member for Bootle that the Government might need to amend the Bill further in order to make it workable, so that it does what they intend it to do. If we are not going to listen to the utmost experts on this issue, what is the point in having the consultation? If we are to have a consultation, it will be meaningful only if the Government listen and actually make the suggested changes. These people are the experts and negotiate the tax system on a daily basis, so they are the ones who can highlight potential problems.
To expand on that a little bit, I totally accept that protecting the Treasury is important in the changes being made, and that the Government are attempting to protect the Treasury from problems that it did not necessarily foresee when it created the Bill in the first place. However, there are changes to the Finance Bill every year. As the hon. Member for Bootle said, this is the fourth Finance Bill Committee that I have served on, and every year there seem to be different changes to benefit in kind issues. I understand that the Treasury is trying to protect itself, but if there is an immensely complex tax system and it is changed every year, it is difficult for people to comply with the legislation, even those who are trying to do so. I think that the Government need to think more carefully and do some sort of sensible review, as suggested by the Opposition, into the whole landscape of benefit in kind issues and then make changes in one go, so that they are easily understood and can be complied with them. As I said earlier, there is no point having a tax system if people do not understand it and cannot pay the tax because they do not understand how they are supposed to comply with the system.
That also has a knock-on effect on the automotive industry. If it is too difficult for employees to claim the relief that they are supposed to be able to claim, or to have the benefit in kind accepted as such, as they are supposed to, it means that fewer companies will be willing even to attempt to comply with the legislation. I think that it is really important, in terms of the new vehicles and ensuring that the Government can collect the correct tax.
In relation to whether or not this is a stealth tax, I would certainly say that there are stealth changes being made to these taxes, and not ones that have been widely publicised or understood well enough by individuals having to go through the system. If the only way to comply with tax changes is to ensure that you have a very good tax lawyer or tax adviser in place, then I would suggest that the system is a bit too confusing. It should be easier for people to jump through the hoops that are in place, and constant changes by the Government are not helping.
I will speak briefly to the proposed amendment. The explanatory notes, on pages 14 and 15, state that this was first proposed in the autumn statement 2016 and put through a technical consultation. The Government are having to make changes in relation to the anomalies that were raised. The Government decided to take action to protect the Exchequer at the first opportunity. Although this was consulted on, the Government did not see the potential pitfalls in the way they put forward the legislation. Therefore, either the consultation was deficient or the Government’s ability to listen to the consultation responses was deficient. There was certainly an issue with the process.
I am pleased that the Government have changed their ways—or have said that they will—about the number of Finance Bills we are going to have in any given year, especially as I have served on four Finance Bills since 2016, and I only avoided one in 2017 because a general election was called. That seems to me to be too many tax changes in any year, given that we still have all the changes happening on a significantly more than annual basis. I think the Government need to take a step back in some of these situations and have a much more wide-ranging look at the issues, particularly in relation to benefits in kind. Every single year there are changes in the benefits in kind legislation in the Finance Bill, which every year we have stood up and debated.
First, we need to look at the whole system of benefits in kind and then make decisions about the entire system that are easily understood by people. People are much more likely to comply if they can actually understand the legislation. If there are constant changes, that makes it is much more difficult for people to jump through the hoops they are supposed to jump through and to pay the correct tax that they are supposed to pay.
Secondly, in relation to the impact on the automotive industry, I am particularly pleased that the Labour party has put forward the amendment about the different regions and nations of the UK. It is really important that we consider the differential impact, not least in the context of Brexit. Areas where there is significantly more manufacturing, such as the north of England, are likely to be hardest hit by the economic shock resulting from Brexit. That is shown across the Whitehall analysis papers. If they are being hit by that, we do not want them to be hit by other things. Doing that analysis on a regional basis is really important.
Mel Stride
I thank the hon. Members for Bootle and for Aberdeen North for their contributions to the debate.
Clause 7 makes two changes to ensure that the optional remuneration arrangement—OpRA—rules for cars and vans work as intended. First, the clause addresses an anomaly in the OpRA legislation. Under current legislation, the value of any connected costs is not included when calculating the value of the amount foregone. That was not the original policy intention. It is important to note that we are not looking at new measures as such; we are looking at closing loopholes and ensuring that the original legislation passed in 2017 operates as intended. The clause ensures that the value of the amount forgone includes any costs connected with the taxable car or van, such as servicing and insurance. The clause also ensures that the value of the deduction available for a capital contribution is adjusted if a company car is made available for only part of the tax year. Again, that brings the original intention of the legislation into effect.
Kirsty Blackman
The Minister said that an oversight was made in relation to the legislation as drafted. Does he share my concern that the Government should not be making oversights in tax legislation and agree that, in fact, the process we have for scrutinising tax legislation is therefore deficient?
Mel Stride
I certainly accept the hon. Lady’s contention that oversights are never acceptable—of course they are not. As I set out, there was significant consultation and scrutiny of both the policy measure and the detailed legislation. Unfortunately, on this occasion the two issues being highlighted here did not come to the appropriate attention in the drafting of the 2017 legislation. If the hon. Member for Aberdeen North is saying that there was insufficient scrutiny, I do not believe that was the case, given the large amount of scrutiny applied in this circumstance.
The changes are expected to affect a small proportion of the 1 million or so individuals who are provided with a company car or van for private use. The average cost of the changes for those affected has been estimated at between £120 and £140 a year in extra tax. There will also be a slight increase in national insurance contributions for employers, in line with the original policy intent. The Exchequer yield from the changes is estimated to be negligible, but by stopping the growth of separate arrangements, significant amounts could be protected.
The hon. Member for Oxford West and Abingdon suggested that the issue of emergency repairs needed to be looked at in greater detail. That is already covered by the legislation. As the explanatory notes state, the clause
“does not affect the operation of sections 239(1) and (2) in relation to other payments or benefits. For example, should an employer reimburse an employee for costs incurred (such as replacing a tyre), the exemption in section 239(2) will still apply.”
HMRC will also ensure that that is reflected clearly in the guidance.
Peter Dowd
I want to bring some of the points I raised to the attention of the Minister again. He talked about consultation. Let us not take the totality of the automotive industry, because it is a big industry. What about Arval, which is a leasing company? Did the Government think, “We are going to make changes to leasing and rental arrangements, so let’s consult those companies directly affected”? Were any of those companies, many of which are quite big businesses, consulted on the measures?
Mel Stride
As I said, there were 259 written responses from employers, tax professionals and representative bodies, 77 from individuals, and 18 meetings with a wide range of employers, tax professionals and representative bodies, including two with the ICAEW. Officials had face-to-face meetings with more than 100 employers. There was pretty extensive engagement. The Government are constantly liaising very closely with industry. I know that the Exchequer Secretary recently met, for example, the chief executives of Vauxhall and Jaguar Land Rover in Ellesmere Port, and discussed a variety of important issues. The measures in the Bill were not raised on that occasion, but if the suggestion is that we are not close enough to industry and to businesses, I can assure the hon. Member for Bootle that we are.
The hon. Gentleman talked about the potential impact of the measures on the tax yield. I will use his figures—always a slightly risky thing to do, but I will on this occasion. [Interruption.] That may be unfair. He suggested that the tax yield per company car is, on average, £2,638. It is estimated that in the order of 10,000 individuals of the 1 million company car users in the UK will be affected by the ironing out of the deficiencies in the 2017 legislation—10,000 individuals will be adversely impacted by now having to pay the correct tax rather than being able to rely on the deficiencies in order to legitimately avoid that tax. That equates to about £20.6 million of forgone taxation, if every single one of those 10,000 were, as a consequence of the changes, to drop having a company car.
Of course, there are two points to make here. One is that the vast majority will not do that, so it will be a figure well below £20 million per year, and the other is that it will be offset by the additional taxation brought in by those who will no longer be absolving themselves of taxation as a result of the deficiencies in the 2017 Act. With regard to the impact on tax that the hon. Gentleman raises, I suggest that that underpins the Treasury’s view that the impact will be negligible.
The Government have already published a tax information impact note on clause 7, in line with normal practice. As set out in that note, as I have already said, clause 7 simply corrects two anomalies in the existing legislation. These changes affect only a very small number of people who have been taking advantage of the loopholes, so it will not have a significant impact on any of the areas addressed by the amendments. I therefore call on the Committee to reject the amendments tabled. I commend the clause to the Committee.
Peter Dowd
I want to pick up on a couple of points. We keep coming back to the fact that the Minister seems to brush aside the woeful lack of consultation aimed specifically at leasing companies. They are the ones dealing with this day in, day out. They are the ones who draw up the contracts. They are the people who the Government should be going to. I do not know whether the Government have been to those particular companies, but in future maybe that is something they should consider. If they have, and if I were to have conversations with those companies in future, I would check that they were aware that the Government did discuss this with them because, if that is the case, they appear to have been asleep on the job. I do not know whether that is the case, but I am sure we can check with them; I am certainly happy to check with them.
That goes to the heart of the issue about consultation. It is happening time after time that the Government are rushing through this legislation, and having huge amounts of tax legislation is complicating things as time goes by. The Bill before last, I think—I have lost track of them—was the largest Finance Bill we had ever had. I think that was before the election. It was an attempt to ram through a whole load of proposals that, fortunately, the Opposition at that point were able to stop.
I do not think 10,000 people being affected by this is a small number. It may be a small number in proportion to the number of people who could have been affected by it, but 10,000 people affected is a fair old whack. I am sure that if I were standing here saying that Labour was going to take £150 or £200 off 10,000 people, the gasps of outrage from Conservative Members would be palpable.
The other thing worth noting is that I think an awful lot of people entered into these arrangements in the best of good faith, and the Minister talking about them “taking advantage” of the tax loophole was maybe an unfortunate phrase. I do not want to pick him up on that point, but it is important to note that the vast majority of people affected by this entered into these arrangements with the best intentions, and I do not suspect that they were in any way trying to find any loopholes. They would have been advised of these arrangements by their employers or by leasing or rental companies, and I do not think it would have been on the basis of, “Here’s a tax dodge; here’s a tax loophole; go down this path.” It is important that we try to put that into context.
Mel Stride
I will briefly respond to those comments. I congratulate the hon. Gentleman, because he is about to tease out from me, as he likes to term it—his term “teasing out” has gone into the parliamentary lexicon—the specific issue of consulting leasing companies and listening to their views, which we also feel is important. The draft legislation was subject to technical consultation between 6 July and 31 August 2018. One of the written responses we received was from the British Vehicle Rental and Leasing Association, so we certainly had input from it.
On the hon. Gentleman’s point about those 10,000 people affected, I think two things. First, I certainly accept, and I think I said so in my remarks, that this was not tax avoidance, but a deficiency in the way the tax legislation has been brought into effect. In no way am I casting any aspersions on the activities of those who have benefited from that deficiency. Secondly, this is not about going out and taking money off 10,000 people —I think that was the expression the hon. Gentleman used. It is just about ensuring that the tax rules we introduced in 2017, which operate effectively for the vast majority of taxpayers, apply to everybody, rather than almost everybody.
Peter Dowd
I beg to move amendment 14, in clause 11, page 7, line 39, at end insert “but only if the requirement in subsection (3) is met.
‘(3) The amendment made by subsection (2) may only have effect if the Chancellor of the Exchequer has laid before the House of Commons a forecast of the effect on the public revenue of that amendment coming into effect in the tax year 2019-20 and subsequent tax years.’”
This requires a review of the revenue implications of the provisions of this clause to be reported to the House of Commons before this section can have effect.
The Chair
With this it will be convenient to discuss the following:
Amendment 15, in clause 11, page 7, line 39, at end insert “but only if the requirement in subsection (3) is met.
‘(3) The amendment made by subsection (2) may only have effect if the Chancellor of the Exchequer has laid before the House of Commons a report of a forecast of the effect of that amendment coming into effect on pension benefits to which the exemption in section 307(2) of ITEPA 2003 applies.’”
This requires a review of the effect on pension benefits of the provisions of this clause to be reported to the House of Commons before this section can have effect.
Amendment 16, in clause 11, page 7, line 39, at end insert “but only if the requirement in subsection (3) is met.
‘(3) The amendment made by subsection (1) may only have effect if the Chancellor of the Exchequer has made a statement to the House of Commons detailing discussions between Her Majesty’s Government and the Charity Commission regarding the provisions of this section.’”
This requires a statement to the House of Commons on discussions between the Government and the Charity Commission on this clause.
Clause stand part.
Peter Dowd
The explanatory notes state:
“This clause will amend the tax exemption which provides for employer paid premiums into life assurance products and employer contributions to certain overseas pension schemes to be paid free of tax. Currently, premiums and contributions are only exempt from tax if the beneficiary is the employee or a member of the employee’s family or household. This clause will allow the beneficiary to be any individual or registered charity.”
The explanatory notes go on in some detail, and I exhort hon. Members to read them because they are pretty important and give context to the clause. They state:
“The amended exemption will also allow employees to nominate a registered charity, which is consistent with existing government policy of providing tax relief on charitable donations.”
We tabled a number of important amendments to the clause to ensure it does not create any unforeseen issues with regard to charitable giving, which all parties have long supported. Amendment 14 requires the Government to review the revenue effects of the clause before it comes into effect. That is merely a matter of good practice. It seems that the Government are no longer willing to provide the Opposition with the full information that we need properly to scrutinise the measures they are introducing through Budget legislation, nor the legal means by which to amend them.
We are not asking for much—merely a simple statement setting out the cost of any measures introduced. We were kind enough to perform that exercise for our Conservative colleagues in our “grey book” ahead of the 2017 election, as they all know. It is a fantastic read, I have got to say, and I am happy to sign any copies of it. Unfortunately, the Government did not return the favour.
We are not alone in calling for such information. The amendment reflects the advice of the Chartered Institute of Taxation and the Institute of Government, whose report, “Better Budgets: making tax policy better”, states:
“we have heard that the exceptional processes around tax policy making—in particular, secrecy, more limited scrutiny and challenge, and the power of the Treasury—have led to an ever-lengthening tax code, beset by a series of problems: confusion for taxpayers, poor implementation, political reversals and constrained options.”
That just about sums up what we have been saying today. The report sets out 10 steps to make tax policy better. Again, I ask hon. Members to look through it. It says, for example, that the Budget process should contain fewer measures, and that those should be better thought-out and capable of being implemented efficiently by HMRC, with politicians making informed decisions. It asks for:
“Greater stability in the areas of the tax system where taxpayers—individuals and business—need to make long-run decisions. A tax system that commands public support—and is robust enough to raise the money we need to finance the state we want.”
We are particularly interested in step 9, in relation to this amendment:
“Enhance Parliament’s (and the public’s) ability to scrutinise tax proposals…Parliament needs to do a better job at scrutinising Finance Bills”.
That theme continues throughout the report. It sets out in some detail—I will not go into that now—the issues around the unclear value for money, which is also repeated time and again in the Public Accounts Committee report for 2015-16.
We believe that the amendment, which requests a Government analysis of the cost of these new relief proposals, would help the Government to progress towards enhancing parliamentary scrutiny of the measures that they are introducing, as described in the report that I mentioned. After all, we know that the clause will have some revenue effects as it would introduce a tax relief, under certain circumstances, where there was not one before. It is also in the Government’s interest, surely, to provide such a figure, as that would show the impact of their attempts to boost charitable donations, for example. The Government may, of course, be attempting to support additional revenue streams for charities, but we must consider the wider aims of charities.
The original intention of the big society, for example, was to slash formal public expenditure as part of the proposal—whether it did is a matter of conjecture—but there is a question about how the Government plan to pay for the measures introduced in the clause. I note that the Chancellor is currently unable to pass any tax increases for fear of the immediate loss of support from the Brexiteers, but it is important that we focus our attention on the impacts of continued or further relief being introduced in the clause. If the measure introduced in the clause had been in our manifesto platform, revenue effects would have been included in the costings, and we ask the same of the Government. Let us put the figures in; that is what the amendment seeks to do.
Amendment 15 is an important one, which requires a review of the effects of the provisions of the clause on pension benefits to be reported to the House of Commons before the section takes effect. The precise impact of the provisions on pension benefits is unclear, and I hope the Minister can clarify that. As she will know, our current pension system operates an “exempt, exempt, taxed” system. The House of Commons Library explains that system well in its briefing on reform of pension tax relief. I will quote a bit of it, because it is important:
“The tax treatment of pensions follows an ‘exempt, exempt, taxed (EET) model’…Pension contributions by individuals and employers receive tax relief and employer contributions are exempt from national insurance contributions”,
and it goes on,
“but individuals are able to take up to 25% of their pension fund as a lump sum on retirement.”
I quote that only to give a flavour of the context. Under the previous arrangements for the tax-exempt employer-provided pension benefit, some taxation would have been paid on employer contributions to certain overseas pensions systems, where the beneficiary was an individual or a charitable organisation which was not one of those listed in the original Income Tax (Earnings and Pensions) Act 2003. Those tax-exempt beneficiaries were listed on that legislation as follows:
“‘Retirement or death benefit’ means a pension, annuity, lump sum, gratuity or other similar benefit which will be paid or given to the employee or a member of the employee’s family or household in the event of the employee’s retirement or death.”
The amendment poses a question about the impact on the overall pensions benefits if taxation is not being paid because of the exemptions the clause introduces, and asks whether an analysis of that impact has been done and, if not, why the Treasury has not looked into the matter. The clause makes a broad reference to overseas pension schemes, and it would be helpful if the Minister listed which schemes the clause would affect, and specified where they are actually based overseas. The overseas element is important, especially in the light of the Government’s decision not to uprate the state pensions of British overseas residents, which, in many cases, leaves many older people abroad destitute.
The current system of pension taxation clearly has many inequalities, which means that the way that taxation is applied to pension benefits tends to favour the wealthiest. Top rate tax payers only have to contribute 60p of every £1 saved. Meanwhile, those on low incomes have to pay 80p for every £1 saved. That is a factor in the pensions system.
Kirsty Blackman
Will the hon. Gentleman clarify that when he says Charity Commission, he also means OSCR, which is the relevant body in Scotland?
Peter Dowd
Yes, I agree to that point of clarification. That is the intention. The Charity Commission and the Scottish body would no doubt recognise the seriousness of this problem, and in their strategy for dealing with fraud, they make the following point:
“The commission continues to see, and has to act on, serious problems arising in charities in relation to poor financial management and inadequate financial controls, accounting and record keeping. In 2010-11, out of 1,912 completed compliance assessment cases, the proportion involving serious concerns about fraud, theft and other significant financial and fundraising issues increased from 16% the previous year to 26%.”
Figures for subsequent years can be found in the commission’s annual publication “Tackling abuse and mismanagement”. The commission goes on to say:
“The National Fraud Authority in its annual fraud indicator report of 2012 estimated annual losses of £1.1 billion, or 1.7% of annual charity income during 2010-11.”
There is therefore a problem, because that is cash not going where it was intended. The impact of fraud and financial crime on a charity, particularly smaller charities, can be significant, going beyond financial loss and the impact of the financing of a charity’s planned activity. These crimes cause distress to trustees, and so on, and have an adverse effect on the charity. It is important to deal with them, says the Charity Commission.
If the Treasury is going to offer tax incentives for charitable donations, it is vital that the proper safeguards are in place to ensure that tax forgone does not act as an incentive to other risks. For example, from my understanding, the Charity Commission holds the only centralised list of registered charities; therefore a clear procedure for HMRC and the Charity Commission to communicate would be necessary to guarantee tax exemption. That is important.
Bambos Charalambous
My hon. Friend is making an excellent speech and raising some excellent points. Does he agree that there is a need for further transparency on how these proposals were put together by the Treasury? Does he agree that there is a case for a public register of charities that benefit from this tax exemption?
Peter Dowd
If the Government decided to listen to us and undertake such a review, they would have the ability to tease out—to use that phrase—to check, to put into the mix all these important issues. We do not claim to have absolute authority on how this should be done, which is why we think wider consultation and an extensive review are absolutely appropriate. We all want the £1 that someone gives to a charity to go to the charity, and not be siphoned off in some fashion.
What procedures does HMRC already have in place for instances in which a nominated beneficiary turns out not to be a registered charity, but the person who nominated it assumed that it was? It is an important question, and it surely presents ethical issues if someone chooses to donate their benefits on the basis of fraudulent information. That is not what we want. Clearly, in the event of their passing on that information, it would not be changeable. Does HMRC plan to apply tax in those circumstances?
This will be made all the more difficult by the Government’s repeated attacks on the Charity Commission, which has been attacked time and again. Six years of cuts have led it to repeatedly warn that its ability to properly regulate the charity sector is being limited. We must take that factor into account. As reported by Devex, the news website for the global development community:
“The commission has a staff of 290 and a budget of £21 million, and while budgets have declined, the number of charities it oversees has grown by around 5,000 since 2009. The charity income it regulates has jumped from £52 billion in 2010, to more than £74 billion in 2017.”
Former Charity Commission board chair William Shawcross wrote in a 2014 report that,
“our funding position remains unstable, a matter which has been recognised by many in the charitable world and which I have raised with Government. We cannot absorb unending cuts to our budget and may have to consider alternative sources of funding.”
What assessment has the Treasury made of the impact of this measure on the struggling, underfunded commission? I hope that this matter was discussed with the Chancellor when the clause was prepared. I do not expect so, but I hope that it was.
Finally, it is clear that the measure could represent yet another injection into some private schools that operate as charities under Charity Commission guidelines. That has been recently confirmed by the House of Commons Library, which stated:
“The Government has stated that there are about 1,300 independent schools which are registered as charities and that there is a great variation in size of school across the sector: There are approximately 2,300 independent schools in England, ranging in size from the very small…Many of them are very small…The fees range from £20k per year in a prestigious day school…to far smaller amounts…Similarly, quality varies from world-leading education to some small, poorly-resourced schools”.
What assessment has the Treasury made of the amount of tax that will be forgone owing to the nomination of those particular schools?
Clive Lewis
I thank my hon. Friend for his scintillating speech, which is so full of detail and which I think everybody appreciates. Far be it from me to be a class warrior, but given yet another tax giveaway to the independent schools, which he mentioned, many Opposition Members would say that it is high time that those independent schools had their charitable tax status ended, and that omitting them from this measure would be a good start to that process.
Peter Dowd
In relation to the amendment, it is important to ensure that, where charitable donations are given—whomsoever they are given by and to—the giver knows, in good faith, that the cash that they give will go towards genuine charitable purposes. That is the key issue. Whether the definition of “charity” is open to debate in relation to any organisation is another matter. The key, and the point I think my hon. Friend is trying to make, is that charities really ought to be charities.
We hope that a statement on the discussions between the Charity Commission and the Chancellor would address some of these issues. It continues to be a big issue in this country that people who can afford to pay their taxes should pay their taxes. It is important that anybody who gives to a charity can rest assured that their charitable donation, won through their hard work, will be used with the best intentions. Our amendment would, in all good faith, ensure that.
Kirsty Blackman
The Committee will be glad to hear that I will speak only briefly. I am happy to support the Opposition’s amendments. I want to focus on amendment 16, which deals with the communication that is needed between HMRC and the charities regulator. That is incredibly important. We need such communication for individuals to be assured that their money will go to the right place and that the correct tax exemptions exist for that.
Amendment 16 would require the Chancellor to make a statement to the House
“detailing discussions between Her Majesty’s Government and the Charity Commission regarding the provisions of this section.”
If the Minister is minded not to accept the amendment, which is very sensible and the provisions of which it would be easy for the Government to carry out, is he willing to write to Opposition Members about the discussions between the charities regulators in England and Scotland and the Government, the nature of those discussions and the advice the Government have received from charities on the potential impact of the clause? Will he also cover the eloquent point made by the hon. Member for Bootle about ensuring that protection from fraud is built into any changes that are made under the clause?
If the Minister is minded to accept the amendment, that would be grand. If he is not, will he commit to contacting us with those details so that we are aware of the discussions the Government have had and we can be both comforted that our constituents who decide to give their benefits to charity can do so knowing they are less likely to be the victims of fraud as a result, and aware that HMRC is across the issue and ensuring that people do not unintentionally become victims as a result of the changes?
Sir Robert Syms (Poole) (Con)
I must admit that I am a little surprised by the clause, because it looks to me like the Treasury is giving away money. These days, many people are in pension schemes and, when they die, there is some money. That might go to a relative, but they might wish for it to go to a charity. The Government are being big hearted—dare I say big societied—with the clause, in that they want the individual who goes to meet their maker to leave some of their resources to a charity that is dear to their heart.
My guess is that Cats Protection and various dog charities will be the biggest beneficiaries of the clause, but it will come down to either an employer making a judgment depending on what their employee wanted, or, in the process of probate, a solicitor taking a decision that a particular charity should get that money. In most cases, we probably are not talking about multi-millionaires, and sadly, not enough people have sufficient pension or death benefits. We are probably talking about small sums of money. The simplest solution, given that there is already quite a wide definition, is to widen that definition a little more to allow someone who cares passionately about heritage or pets or some inner-city regeneration scheme to direct the money to their cause rather than to Her Majesty’s Treasury.
I am a bit worried about Treasury Ministers being so generous in introducing the clause, but it probably makes sense on better regulation terms—on reducing some of the red tape when people end up dying. It will give a little more scope for people to dispose of the money that they have earned, because they have worked all their lives for that pension, and when they die, I think it not unreasonable that they should leave it to the cause that they particularly want to support.
Mel Stride
I thank the hon. Members for Bootle and for Aberdeen North for their contributions, as well as my hon. Friend the Member for Poole for his congratulations, which should largely be for me, because I am the Tax Minister and this is, after all, a tax measure, but we will leave it at that.
Clause 11 makes changes to modernise the tax exemption for premiums paid by employers to provide their employees with retirement and death benefits in life assurance products or certain pension schemes. Employers can provide death benefits for an employee through a life assurance policy or a retirement benefit through pension schemes. The employee will receive a pension out of those payments when they retire, or they can name a beneficiary to receive any payment of retirement benefit after they die.
Currently, most premiums or contributions paid by employers into these schemes are exempt from income tax. However, for certain types of scheme, as we have been discussing, this is the case only if the beneficiary is the employee, a member of the employee’s family or a member of their household. “Family” and “household” cover spouses, civil partners, parents, children and their spouses or civil partners, and dependants, domestic staff and the employee’s guests. The premiums paid by the employer for these schemes are treated as a taxable benefit in kind, if the eventual beneficiary is not covered by this definition, such as a charity or a friend. The changes made by this clause make the exemption fairer by extending it to cover premiums for policies where the beneficiary is any individual or a charity. The legislation will apply to premiums paid from 6 April 2019.
I will deal with amendments 14 and 15 together. Amendment 14 would require a review of the revenue implications of the provisions of the clause, to be reported to the House before this change can have effect. Amendment 15 would require a review of the effect on pension benefits of the provisions of the clause, to be reported to the House before this change can have effect. These amendments are unnecessary.
As with other tax measures, the Government have already published a tax information impact note for this measure. This shows that the changes are expected to have a negligible impact upon the Exchequer. Premiums paid by employers to almost all UK pension schemes and overseas pension schemes are already covered by separate tax exemptions, which apply regardless of who the beneficiary is. Therefore, the change introduced by the clause applies only to certain niche overseas pension schemes and employer-financed retirement benefit schemes.
The hon. Member for Bootle asked for specific examples of which schemes fell within the scope of this particular measure. I am afraid that we are unable to provide that information, because it depends what the terms and conditions state within each scheme.
In essence, this is a welcome change, but it affects a small number of schemes and a relatively small number of individuals. As a result, our assessment, supported by the Office for Budget Responsibility, is that the revenue implications are negligible. I think that answers the question raised by the hon. Gentleman on what the impact will be on the Exchequer and whether this has been taken into account. It certainly has been looked at and agreed upon by the Office for Budget Responsibility. The impact on pension benefits will therefore also be relatively minor. This change simply ensures that the benefits-in-kind rules apply in the same way across pension schemes and life assurance policies. I therefore urge him not to press his amendments.
Amendment 16 would require a statement of the House on discussions between the Government and the Charity Commission on this clause. HMRC does, of course, liaise with the Charity Commission and others, wherever appropriate, so such a statement would not be necessary. However, it might be helpful if I explain the position in relation to charities. The exemption will apply only where the beneficiary is recognised by HMRC as a charity for UK tax purposes. These will include charities registered with the Charity Commission in England and Wales, the Office of the Scottish Charity Regulator and the Charity Commission for Northern Ireland. The hon. Member for Aberdeen North asked whether I might write to the Committee with further information on discussions that may have been held, and I would be happy to do that. In the first instance, it might be helpful if she were to write to me, setting out exactly what she would wish me to respond to.
Not all charities need to be registered in England and Wales. Some are exempt or excepted from registration, but most charities will be recognised by HMRC in order to claim tax relief such as gift aid. Employers will need to check with the charity that it is either registered or recognised as a charity for UK tax purposes when it is named as a beneficiary.
I hope that explains the position and that the hon. Member for Bootle might consider withdrawing the amendment.
Peter Dowd
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 11 ordered to stand part of the Bill.
Clause 12
Tax treatment of social security income
Peter Dowd
I beg to move amendment 2, in clause 12, page 9, line 7, at end insert—
‘( ) The Chancellor of the Exchequer must review the revenue effects of the provisions in this section and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the revenue effects of Clause 12.
Peter Dowd
I know people are going to be terribly disappointed that this is my last contribution today. Other colleagues must have an opportunity to have their say. The disappointment is palpable, but I must push on.
The clause deals with the tax treatment of social security income. Again, I refer to the explanatory note, which provides a helpful introduction to the clause:
“The Scottish government is introducing five new social security payments: young carer grant; best start grant; funeral expense assistance; discretionary housing payments; and carer’s allowance supplement.”
It goes on:
“The government is also confirming the tax treatment of another four social security benefits: the council tax reduction scheme, discretionary housing payments and the flexible support fund, overseen by the UK Government, and the discretionary support scheme, overseen by the Northern Ireland Executive.”
Furthermore:
“Social security benefits are administered by a number of different UK government departments and the devolved administrations. The tax treatment of social security benefits is legislated for within income tax legislation. The tax treatment of new benefits should be confirmed when each one is introduced.”
The note continues:
“The Scottish government’s fiscal framework underpins the powers over tax and welfare that are devolved to Scotland through the Scotland Act. This states that ‘any new benefits or discretionary payments introduced by the Scottish Government will not be deemed to be income for tax purposes, unless topping up a benefit which is deemed taxable such as Carer’s Allowance’.”
This, in part, relates to social security changes made by the Scottish Government, which is a matter for Scotland to decide. We also note that this ensures that some new social security payments are not subject to additional taxation, which is a sensible approach that will make the finances of many on the lowest incomes as simple as possible. We would, however, like to query the decision to make the carer’s allowance supplement taxable.
The equality impact assessment for the clause suggested that the carer’s allowance supplement will be confirmed as taxable. That is a supplementary payment to carer’s allowance, which is a taxable benefit paid by the UK Government. The majority of recipients of care allowances are women, so more women than men will receive the carer’s allowance supplement in Scotland. In effect, it looks as though the only additional social security payment being denied the tax exemption is the one that will primarily affect women. Perhaps the Minister will elaborate on why that is the case. It appears to stem from the fact that the UK carer’s allowance is itself taxable—a UK Government decision that is likely to have the very same gender impacts.
The Women’s Budget Group has demonstrated on numerous occasions that women are already disproportionately affected by the Government’s policies in relation to the years of austerity. Its research shows that 86% of the austerity burden was and is being borne by women. That is eight long years during which our mothers, sisters and daughters have borne the brunt of those cuts, and now here we are with yet another measure that will disproportionately affect women more than men. A member of the Women’s Budget Group, Dr Angela O’Hagan, helped put this into context when she said:
“Budget processes have increasingly become the conduit for discriminatory policies, such as the UK Government’s rape clause and the cumulative attacks on welfare income especially among poorer women and women of colour. It is essential that external voices such as UK Women’s Budget Group are engaged and heard, and that the Government’s budget processes are opened up to closer scrutiny for their impact on equalities groups and their potential to advance equality through more effective allocation of public finances and more equitable means of raising government revenue.”
I suggest that had the Government allowed more scrutiny of the clauses and sought consultation as per the normal procedure before they came to office, these issues might have been ironed out during the Bill’s development. Instead, these negative gender impacts are squirreled away in policy papers on particular and specific clauses after it is too late to do anything about them, with the right properly to amend already denied to the Opposition by the Government through their refusal to table an amendment of the law resolution.
I hope the Minister will explain why this discrepancy has been included in the Bill and make moves to rectify it immediately. Time and again, we have called for an equality impact assessment of the Budget to flag these matters up, and every time that has been denied by the Government, who appear to want to slip these inequalities through. We will continue to hold them to account on every single one.
The amendment also relates to the matter of the Government’s behaviour regarding consultation and would require a review of the revenue effects of the clause. In the policy paper on the clause, the Government list the Exchequer impact as negligible. We have heard that several times today, so will the Minister enlighten us as to what “negligible” means in cash terms? It is not necessarily going to be “negligible” on an individual basis for those affected by this proposal. It would be helpful to have a band of figures starting, presumably, at zero and going up the scale. We hope that a proper review of the revenue effects of this measure would be made available for the purposes of good practice alone. I continue to refer Members to the “Better Budgets” report helpfully provided by the Institute for Government and the Chartered Institute of Taxation. The report states that
“the Treasury and HMRC should publish the evidence base behind measures and the assumptions on which costings are based, and ensure that these are appropriately detailed.”
Clearly, that was not the case with this measure. I have already spoken to the Committee on this point, but it is essential that the Government begin to change their behaviour towards the scrutinising of legislation, especially when it places further burdens on women. These proposals have already taken their toll and will continue to do so, unless we stand up and do something about it.
Kirsty Blackman
This is a process question for the Minister about going forward and ensuring that we scrutinise legislation in the best way. It would have been helpful if, in the explanatory notes, there had been some comment provided by the Scottish and Welsh Governments because both measures involve making changes that affect devolved benefits.
Given the devolved and reserved aspects of many of the matters we are discussing, I again make the case for a geographical split in the changes that the clause makes. There could have been specific Scottish, Welsh, RUK or whole UK sections, which would have made effective scrutiny easier. I emphasise that it would have been incredibly helpful to have that. I suggest for next year’s Finance Bill that, if the Government make changes of this nature, they could make both changes to ensure the most appropriate scrutiny.
I am happy to support the Opposition amendment. The hon. Member for Bootle made a powerful case about the gendered impact of the social security changes of recent years and the fact that women have been disproportionately hit by them. We do not want to see those changes exacerbated by a tax system that amplifies the issues faced by women as a result of the Government’s policies on social security. I am comfortable supporting the Opposition’s amendment and I plead with the Minister to consider making the changes that I have requested for future years.
Anneliese Dodds
It is an enormous pleasure to be in this Committee with you in the Chair, Ms Dorries, and to make my first brief speech here. I would like clarification from the Minister on the specific issue of tax treatment of council tax reduction schemes. Subsection (5) on page 8 of the Bill refers to “a” council tax reduction scheme, stating that
“Payment under a council tax reduction scheme”
is exempt from income tax. However, page 26 of the explanatory notes refers to
“the” council tax reduction scheme.
I am sure that colleagues will know that there is no longer one council tax reduction scheme across the UK, since central Government decided to top-slice that form of social security and devolve the design of it to different local authorities, albeit with the stipulation that the protection should be maintained for older people. Only a very small number of local authorities still provide full council tax relief, including council tax relief for low-income families. I am enormously proud that Oxford City Council is one of those.
Central Government have washed their hands of responsibility for this benefit. They have refused to provide figures on take-up, for example, in response to parliamentary questions that I have tabled. They have also refused to provide figures on the number of low-income people now being taken to court because they cannot pay council tax, because they are no longer provided with the relief. I am not cavilling over semantics when I ask the Minister to make crystal clear that the exemption from income tax provided in the Bill will apply to all council tax reduction schemes, not to some particular version of those schemes that the Government might wish to focus on.
Related to that, I heard a very worrying rumour that the Government might seek spuriously to argue that funds spent on council tax relief for families by local authorities should not be counted in central Government’s assessment of local authorities’ expenditures, because they are, in theory, discretionary. I disagree fundamentally with that position, because it would penalise those authorities that support the worst off. It would be helpful if the Minister confirmed that, just as I hope he will confirm that council tax relief for families is viewed as legitimate in the Bill, and for income tax purposes, it will be viewed as legitimate expenditure when it comes to the allocation of central Government support for local authorities.
Mel Stride
I start by addressing the specific points raised by the hon. Members for Aberdeen North and for Oxford East. On the explanatory notes and the value or otherwise of a specific reference to input from the Scottish Government, I will certainly be happy to look at that in the future. I assure the hon. Member for Aberdeen North that there were significant discussions on these measures between the Treasury and Scottish officials in the appropriate manner. On the technical point raised by the hon. Member for Oxford East around “the” scheme versus “a” scheme, the information I have is that the scheme came into force in April 2013. However, I will look into her specific question about whether the measures apply to “a” scheme or “the” scheme. I am afraid that I do not immediately have an answer to that, but I will get back to her as soon as I can.
Clause 12 clarifies and confirms the tax treatment of nine social security benefits. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003, which provides certainty about existing benefits and needs to be updated when new benefits are introduced. For example, the Scottish Government are introducing five new payments following the devolution of powers, including the young carer grant, the discretionary housing payment and the carer’s allowance supplement. Other payments covered by the clause have been in operation elsewhere in the UK for some time, such as the council tax reduction scheme and the flexible support fund, but are not yet covered clearly in legislation.
The changes made by clause 12 ensure that such payments are taxed appropriately, and that that is clear in legislation. The clause clarifies and confirms that such payments are exempt from tax, with one exception—the carer’s allowance supplement—which is taxable. That is in accordance with “The agreement between the Scottish Government and the UK Government on the Scottish Government’s fiscal framework”, which states:
“Any new benefits or discretionary payments introduced by the Scottish Government will not be deemed to be income for tax purposes, unless topping up a benefit which is deemed taxable such as Carer’s Allowance.”
Amendment 2 would require the Chancellor of the Exchequer to review the revenue effects of the clause and lay a report of that review before the House within six months of the passing of the Bill. Such a review is unnecessary. The Government have already published a tax information and impact note for this measure, and our assessment, supported by the OBR, is that the Exchequer effects are negligible.
On the carer’s allowance supplement, which was introduced in Scotland in 2018, as a general rule benefits are taxable if they replace lost income. The carer’s allowance has therefore always been taxable. The vast majority of those receiving the supplement have income below the personal allowance and would therefore not be expected to pay any income tax. That is an important point in respect of the point made by the hon. Member for Bootle. I will not dwell on each payment covered by the clause, but I reiterate that eight of these payments are exempt from taxation. HMRC has not and will not collect any tax from these payments.
As the tax information and impact note sets out, the taxation of the carer’s allowance supplement is expected to have negligible Exchequer effects because, as I have said, the vast majority of those carers receiving the additional payment do not earn sufficient income to pay any income tax at all. However, any income tax receipts from that will of course go to the Scottish Government.
The Committee will also know that taxable social security income is aggregated and reported to HMRC through self-assessment after the end of the tax year. This is an important point in the context of the amendment. That income will not need to be reported until January 2020. A review would therefore be impractical only six months after the Bill’s passing. I therefore ask the Committee to reject the amendment. I commend the clause to the Committee.
Peter Dowd
We will not push the amendment to a vote. However, I push the case to the Government that, while these amounts of money may be negligible to the Treasury or to HMRC, if the measure affects a particular woman who is already under the stresses and strains of helping a relative, it is important that we give them as much latitude as we possibly can. Whether we like it or not, this will be perceived as a continued attack on women who continue to be the biggest assistants to relatives—yet again, it is an attack on those people who are doing a caring role.
Mel Stride
Once again, divine inspiration has arrived and I can confirm that the CTR is a reference to multiple schemes—so it is “a” rather than “the”. The measure therefore covers all those schemes.
Peter Dowd
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 12 ordered to stand part of the Bill.
Clause 13
Disposals by non-UK residents etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 23, in schedule 1, page 147, line 34, at end insert—
21A The Treasury must by regulations require that a list of persons not resident in the United Kingdom whose gains are brought into charge by the changes made to TCGA 1992 in this Schedule be published on a public register.”
This amendment would require a public register of those subject to capital gains tax as a result of the provisions in Part 1 of Schedule 1.
Amendment 24, in schedule 1, page 147, line 34, at end insert—
21A The Chancellor of the Exchequer must review the revenue effects of the changes made to TCGA 1992 in this Schedule and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the revenue effects of the changes to capital gains tax as a result of the provisions in Part 1 of Schedule 1.
Amendment 34, in schedule 1, page 147, line 34, at end insert—
21A The Chancellor of the Exchequer must review the expected revenue effects of the changes made to TCGA 1992 in this Schedule, along with an estimate of the difference between the amount of tax required to be paid to the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 1.
Government amendment 1.
Amendment 29, in schedule 1, page 167, line 47, at end insert—
Part 2A
Review of effects on property prices
118A (1) The Commissioners must, within three months of the end of the tax year 2019-20, provide information to the Treasury on the basis of the exercise of their functions in relation to the changes made in this Schedule about the effects of the changes on the matters specified in sub-paragraph (2).
(2) Those matters are—
(a) residential property prices in the United Kingdom, and
(b) the proportion of residential property in the United Kingdom owned by persons not ordinarily resident in the United Kingdom.
(3) The Chancellor of the Exchequer must, within six months of the end of the tax year 2019-20, undertake a review of the information supplied in accordance with sub-paragraph (1) and lay a report of that review before the House of Commons.”
This amendment would require the Chancellor of the Exchequer to review the effects of the changes in Schedule 1 on residential property prices and foreign ownership of residential property.
That schedule 1 be the First schedule to the Bill.
Mel Stride
Clause 13 and schedule 1 introduce provisions, with effect from April 2019, to tax non-residents on the gains they make on UK commercial property and to extend the charge on residential property. That levels the playing field between UK resident and non-resident investors in UK land and buildings. The modern OECD model tax treaty gives the jurisdiction in which land and buildings are located the primary right to tax income and gains from those land and buildings. Historically, non-residents have not been subject to UK tax on the gains they make on UK land and buildings. That has been the policy of successive Governments over several decades. The Government have steadily revised the UK’s approach in recent years. In 2013, we introduced a targeted tax on gains relating to property within the charge of the annual tax on enveloped dwellings. In 2015, the Government went further and brought in certain non-residents’ gains on the sale of residential property owned directly.
Those 2013 and 2015 changes were a substantive reform to the taxation of non-residents investing in UK property. Now that the charges have been in place for several years, it is the right time to take a more comprehensive approach. Clause 13 achieves that by extending a charge to the gains made by non-residents on commercial property and expanding the scope of the existing residential charge by removing the carve-out for widely held companies. To ensure that transactions that are essentially sales of UK land are taxed, and to reflect the commercial reality of many large property transactions, the clause introduces a charge on indirect disposals of UK property. That charge will apply to gains made on the disposal of an interest in an entity that derives 75% of its value from UK land.
The Government recognise that these reforms are extensive, and recognise the value that investment in UK land and buildings brings to the United Kingdom. The clause implements the rules in a way that minimises disruption and avoids unintended consequences. Non-resident companies will pay corporation tax on all the chargeable gains they make on UK land and buildings, creating a single cohesive set of rules. Those taxpayers who are exempt from UK tax on the gains that they make for reasons other than their residence, for example pension funds and qualifying charities, will continue to be exempt. Steps have been taken, using principles currently applied to UK funds, to ensure that these and other investors are not disadvantaged where they invest in UK property via funds.
In legislating for this policy, the clause restates, in a simplified form, the main charging provisions for the taxation of capital gains. Other than implementing the policy, this makes no changes to the existing law. It significantly and permanently simplifies the legislation and aids taxpayers’ interpretation of the law.
Government amendment 1 will remove a redundant subsection of the Corporation Tax Act 2009. That subsection currently ensures that corporation tax is not charged on gains that are subject to capital gains tax. As I have set out, clause 13 will introduce a single cohesive set of rules charging companies corporation tax on all the chargeable gains they make on UK land and buildings, which means that this subsection is no longer required.
Amendment 23 would require a public register of those subject to capital gains tax as a result of schedule 1. The categories of person who will be brought into scope by clause 13 and schedule 1 are absolutely clear. I have set that out to the Committee today and it is set out in detail in the schedule. The Government do not, as the amendment would require, identify specific individuals or companies that are brought within the scope of particular tax charges; it would be inappropriate to do so.
Anneliese Dodds
I am grateful to the Minister for that explanation. As he stated, this clause and schedule are intended to perform a variety of functions to level the playing field—the number of times that he used that phrase was interesting—between UK and non-UK residents when it comes to the payment of corporation and capital gains tax on gains from disposals of interest in UK land. They include, as he mentioned, the removal of the charge to tax on ATED-related gains, with ATED standing for the annual tax on enveloped dwellings. As was mentioned, these changes follow on from the imbalance in the tax treatment of the disposal of interests in property by individuals as against companies, artificial or otherwise, which has been gradually rectified over recent years.
Part 3 of the Finance Act 2013 introduced ATED as a principle and the concept of enveloped dwellings so that there would be a capital gains tax charge on non-natural persons who had owned properties worth more than £500,000, subject to a range of exemptions. That was followed three years ago by the extension of capital gains tax on gains arising on the disposal of UK residential property interests by certain non-resident persons, including individuals, trustees and closely held companies. However, that was not accompanied by a levelling of the playing field in relation to non-residential property wealth—land and commercial property—until now, although for reasons that I will explain, these measures are wanting in their current form, in particular because they involve a so-called trading exemption, to which I note the Minister, unless I misheard him, and he is normally very clear, did not refer in his comments. I shall speak first about that main and very significant problem with the clause and schedule, before moving on to describe the amendments in relation to them.
In an ideal world, we as the Opposition would have sought to remove the trading exemption for enveloped structures to avoid capital gains tax. Indeed, that is what some of the amendments that we had tabled set out to do. I completely understand why they were ruled out of order. There is absolutely no criticism of the decision to do that. I am sure that it was because of the restrictions imposed on us because of the Government’s failure to table an amendment to the law resolution, which my hon. Friend the Member for Bootle has already referred to. However, that trading exemption threatens to emasculate this measure.
I am sure that members of the Committee will be aware that almost all the measure’s projected yield is expected to derive from non-resident companies when they dispose of UK commercial property such as offices, factories, warehouses, shops, hotels, leisure facilities and agricultural—
The Chair
Order. Amendments 26 and 27 were not selected because they are charging, not because of a lack of an amendment of the law resolution.
Anneliese Dodds
I am grateful for the clarification. I am sorry if I got the situation wrong, and it is helpful to have heard that. However, I understand that it is appropriate for me to discuss the substantive matters in the clause, even if we do not have amendments tabled on them. Other hon. Members have done that, so I will continue to do so before I move on to my amendments, if that is acceptable. I am sorry if I mischaracterised the position and the decisions that were taken.
Anneliese Dodds
To continue with reasons why the trading exemption is illegitimate to our mind, as I mentioned before, the yield that has been described as arising from the measure is expected to derive from non-resident companies disposing of the whole range of different types of UK commercial property that I listed. Unlike residential property, most of which is owned by individuals, almost all major UK commercial property is held by large corporates or collective investment schemes or trusts.
Those large corporate investors in property are sometimes known as property envelopes, which reflects the fact that the companies’ principal purpose is to operate as a synthetic wrapper for owning land. Since the property envelope has full title to the land, any individual or other corporate owning the property envelope—for example, by owning its shares—is the ultimate or indirect owner of the underlying land.
Typically, when selling the property, the ultimate owners do so indirectly, by selling their interests in the property envelope, rather than by a direct sale of the property itself. That form of disposal is often known as an envelope disposal, since the property envelope has full title to the land, and the transfer of its shares to a new owner is tantamount to a conveyance of the property to new ownership. There are often tax reasons for that form of conveyance, since the transfer of shares, rather than land, does not attract any stamp duty land tax charge, which results in a substantial saving for the purchaser.
Recognising that situation, the consultation on the proposed measures proposed charging non-UK residents capital gains on disposals of their interest in property envelopes in the same way as if they had sold the actual land. The consultation document proposed that a property envelope would be defined as a property rich entity if it had UK property assets that represented 75% or more of the value of the entity’s total assets, as the Minister mentioned. Given that the vast majority of high-value UK commercial property is owned through a property envelope, that element of the rules, which I will refer to in future as the anti-enveloping rule for ease of discussion, is critical to the measure securing significant yield.
In response to the consultation responses that the Government received, the draft legislation includes an exception to the charge on disposals of property envelopes if the property owned in that envelope is being used in an ongoing trade that continues after the disposal takes place. In effect, that means that non-residents who make a disposal of shares in a property envelope will not be subject to any charge, provided that the property is being used for a trade.
That condition will be met if the property is being used as an office, a factory, a warehouse, a shop, a hotel, a leisure facility, in a farming trade or for any other similar commercial purpose—I am sure the Committee gets my drift. As such, the exception is surely entirely contrary to the stated rationale for the measure, which is to ensure that non-residents are taxed on gains from the disposal of commercial property in the same way as UK residents. Again, I remind the Committee that the Minister used the phrase “having a level playing field” several times in his remarks. Commercial property will, almost by definition, be used in a trade.
I am sure that the entire Committee will be scratching their heads and asking why the change occurred. Well, there were 120 respondents in all to the consultation, a number of which focused on one question only, many of which came from the most significant actors in this arena, namely the big four and large property concerns, including representatives from the real estate and collective investment scheme sector.
The Government response to the consultation states:
“Many respondents were concerned by”—
what they described as—
“the ‘cliff-edge’ nature of the 75% property richness test. They noted that fluctuations in the value of property and other assets could lead to cases where an entity strayed in and out of property richness. Some were concerned that real-estate rich trades such as retail and hotel chains and utility companies could fall to be property-rich, or that investors in these trades might be concerned that they were, and be forced to go to lengths to explore the rules and test their situation, often finding that there was no impact. To ameliorate this, a number of respondents asked for a trading exemption to make it simple for smaller investors to understand when the rules did not apply to them. They noted that the main policy aim was to tax UK land, not interests in retailers or utility companies.”
The Government response went on to say that,
“the government will agree to add a trading exemption. When a disposal is made of an interest in an entity that is trading both before and after the disposal, as for connected parties under the Substantial Shareholdings Exemption rules, then it will not be considered to be an indirect disposal of an interest in UK land”—
That is, it will not be treated as an enveloped disposal.
“Although the government does not intend to provide a specific exemption for infrastructure, a trading exemption should also deal with instances where the infrastructure disposed of is in use as part of an ongoing trade being disposed of alongside it in the arrangement.”
Surely, that exemption will undermine the overall intent of the measure. First, the main target of the legislation is enveloped disposals of commercial property made by non-residents. Almost all commercial property will, as I mentioned before, by definition, be used in a trade. The examples of commercial property given in the consultation document—offices, shops, industrial units and hotels—are all examples where the property is used in a trade, yet these disposals will be outside the scope of the new rules, provided that the sale is an enveloped one, and that the trade continues under its new ownership.
That is in clear contrast to the situation for UK residents. An equivalent disposal made by a UK resident is chargeable to tax, unless it meets specific conditions laid out in those substantial shareholding exemption rules—the SSE rules, which the consultation response referred to. The original consultation document was clear that non-residents would be able to benefit from the substantial shareholding exemptions in the same way as UK companies. However, the response document, as I just described, goes further than that: it grants a blanket exemption available only to non-residents and in circumstances much wider than the SSE.
Frankly, I very much doubt that many property envelopes or large investors involved in them would go to the lengths of requiring ongoing trades in their ownership—say, a popular hotel—to close while they are selling that commercial property, just so that they can have the joy of paying stamp duty land tax. If the Government think otherwise, perhaps they can enlighten us, but I think the chances of that are fairly slim. That appears to be what would be necessary in order for them to be caught by this measure. Perhaps the Minister can enlighten us, if I have got that wrong.
This trading exemption undermines any claim that the measure creates a level playing field with comparable UK businesses, and also provides an avoidance opportunity that, worryingly, even UK businesses could exploit, if they arrange for their UK property to be held through chains of offshore envelopes. That is surely something that our Government cannot stand by and facilitate, yet they seem to be doing so—albeit unwittingly, I am sure.
The Government’s stated reason for making this change is to help smaller investors, but if that is the aim, surely it would be more appropriate to include an explicit small-investor exemption that would not apply to larger capital gains.
Kirsty Blackman
I will speak relatively briefly. It is always difficult to follow the hon. Member for Oxford East, who is leading for the Opposition on these measures. I concur with her comments about the Labour amendments—the Scottish National party will be happy to support them. Foreign ownership of properties and the impact on price is pertinent and relevant to the SNP proposal.
On amendment 34, the explanatory notes are incredibly difficult to follow. By the time we get to “ggg” in the explanatory notes, things become very difficult to refer to. If there is another explanatory note of that length in future years, it would be useful if the staff could come up with a better numbering system. As I say, it is difficult to refer to those sections when we are going around the alphabet for the third time.
The public register proposed by Labour is an interesting idea and, in principle, the Scottish National party is in favour. As I said, transparency is important when encouraging everybody to pay the correct amount of tax, because if tax owed is publicly known—the calculation of the tax gap is pertinent to this topic—people are more likely to pay. The Government should say clearly, “This is the amount of tax owed, this is how hard we are chasing it down and, as a result, this is the tax gap.” It bothers me that the Government say regularly that the UK tax gap compares favourably with that of other countries. It does not matter whether it compares favourably with other countries: any tax gap is a bad thing and, if one exists, the Government clearly need to work to ensure that they are reducing it as far as possible. Given the issues that have been brought up by Opposition Members and by many external organisations, it is clear that the Government could do more to reduce the tax gap. It is not good enough to say, “We are doing quite a good job, and therefore we should stop here.” The Government need to be able to say, “We are doing the best job on reducing the tax gap that we possibly can.”
On foreign ownership and the residential property price, I was disappointed that the Labour amendment on landholdings was not accepted—I understand the reasons why it was not allowed, but I would have been keen to debate it. There are specific Scotland-related issues not so much about residential property—that is an issue in Scotland but not to the same extent as it is in London—as about other landholdings. That is a significant problem in the Scottish context. Foreign ownership of those landholdings concerns a huge number of people in Scotland.
Regarding the benefits of transparency, the SNP has called for measures to reduce tax avoidance, and the Government have talked a good game about things like Scottish limited partnerships after a huge amount of pressure from the Scottish National party. However, we are still waiting for action. If the Government say they are doing positive things to reduce tax avoidance, they need to follow through. Rather than just producing a consultation, they need to take the required action to reduce the numbers of people who are abusing Scottish limited partnerships. We need the Government to be seen to be serious in this regard, and to take the action they have promised to take. The House operates on trust, and throughout my time in this place, I have seen a number of Opposition amendments withdrawn because ministerial teams from all Departments have given assurances. If the Government do not take action soon on Scottish limited partnerships, they risk seriously eroding that trust and may end up in a situation in which ministerial assurances, and particularly assurances from Treasury Ministers, are not accepted because the Government have not followed through previously.
The income tax, national insurance contribution and capital gains tax gap sits at about £13.5 billion, which is a significant amount of money. If any changes are being made to those taxes, and particularly to CGT, it is reasonable to ask about the impact on the tax gap, and reasonable for the Government to have those figures at their fingertips. They should be able to say not just what the impact is on the total tax take from any changes, but also what the impact is on the tax gap.
If the Government are talking about cracking down on tax avoidance, it is important that they prove to us that the tax gap is being reduced. It is not good enough to just say, “We think this measure will reduce tax avoidance.” The Government need to tell us by how much they will reduce tax avoidance. They need to be clear on the impact of those changes before they introduce them.
I intend to push amendment 34 to the vote if we have the opportunity to do so. I would be happy to support the Labour party on their amendment. I would also like to seek further assurance and a clarification from the Minister in relation to the pursuit of tax avoidance reduction measures, and a commitment from him that the Government will follow through on the tax avoidance reduction commitments they make today.
Mel Stride
I thank the hon. Members for Oxford East and for Aberdeen North for their contributions. I compliment the hon. Member for Oxford East on arraying a mass of highly technical questions on a very technical area. I will do my best to answer her them, but I will write to her accordingly if I am unable to do so. She accurately mapped out the process that we have been going through for a number of years, moving into the space of the appropriate taxation of non-resident entities when it comes to property transactions. She recognises, as I do, that it is the right direction of travel, and that it is right to introduce the measures set out in clause 13, although she has several concerns about the detail.
The hon. Member for Oxford East dedicated a specific section of her remarks to the issue of property-rich businesses and the trading exemption. She gave some examples where she felt that this would be an inappropriate exemption, around both the general principle of the exemption for trading purposes and the specific threshold figure of 75%. She used the expression “cliff edge” to refer to what there might be around that number.
On the basic principle, this measure seeks to avoid the circumstances whereby a business—a significant supermarket chain, for example—might be sitting on a substantial amount of land and might even have banked some land for future development. However, the business’s principal purpose is the purchase and sale of a variety of goods, with that being the core of the particular business being looked at. Were a sale of that business under those circumstances to occur, it would seem appropriate that the investors in that business—where it was consequently below the 75% threshold—would not fall within the measures due to the taxation measures that we have been considering.
As to the specific figure of 75%, it is the same issue as the 25% threshold figure that the hon. Member for Oxford East raised in relation to whether individual investors would fall within these measures, or whether they would be expected to know or not know about the property richness of the business in which they were investing—we inevitably run into a generalised problem with figures, which is that we have to choose one. There will always be a debate about whether 75% is the right figure, or indeed 25%. However, a figure has to be applied, to make it scientific and rigorous.
Then there is the question of what we have done to ensure that 75% and 25% are the right figures, as opposed to figures that we have just plucked out of the air. That leads us to the extensive consultation that has been undertaken in respect of the Bill, with some 80 responses around the measures raised by the hon. Member for Oxford East. As I would say of all tax measures, this one included, they are kept under continuous review by the Treasury, so it is quite possible that we will return to these matters in future legislation, specifically on the issue of thresholds.
The hon. Member for Oxford East spent some time referring to the amendments and the question of whether there should be a register of those who fall within the scope of these capped measures. There is a basic principle here that just feels right to me, which is that the Government should not be in the business of holding up individuals to the public as falling due for particular types of tax. Once you start moving into that kind of space, it feels rather disproportionate and a little authoritarian, if I may say so. It is right to resist that urge.
I was going to raise one other matter in that context, which is important, and that is that the hon. Member for Oxford East referred—she very kindly did this for me although I did not do so in my opening speech—to the implementation of a register of beneficial owners of overseas entities owning or buying property in the UK. We will bring that in by 2021, and the register will be the first of its kind in the world. That underscores the importance of transparency to this Government.
Sir Robert Syms
Is the amount of revenue raised in this area more or less than was raised under the previous Labour Government?
Mel Stride
If I interpret my gallant and hon. Friend’s question as relating to the specific issue of overseas holdings of UK land and properties and paying CGT on the transactions they are in, I would be fairly confident in saying that we will be raising more. Indeed, through time and through dealing with the measures I identified earlier, I strongly suspect that the answer is yes. I am seeing nods of an inspirational kind from over my left shoulder, so I can reassure him that is indeed the case.
The hon. Member for Oxford East also raised the effect of these measures on the market and the suggestion of a review to look at price effects. The Office for Budget Responsibility has already done such an analysis and concluded that these measures would have a negligible effect on price. She also raised the issue of taxation treaties, particularly Luxembourg, which is a fair point because there are instances when the international taxation treaties—the bilateral treaties between ourselves and other tax jurisdictions—do not quite fully accommodate the measures we are looking at here. I know we are actively engaged in the specific case of Luxembourg to seek changes to those arrangements to make sure they facilitate the measures we are looking at here.
With regard to TIINs, I must say that I do not have the same confusion as the hon. Member for Oxford East. I am not making a specific point, other than that I have not noticed it, but I will look at it again. The relevant TIIN is the one entitled “Capital gains tax and corporation tax: taxing gains made by non-residents on UK immovable property”, which was last updated on 7 November 2018.
The hon. Member for Aberdeen North had several points to make, particularly about the tax gap. She suggested that there might be some complacency on the part of the Government, and that it might be assumed that, because we already have a world-beating tax gap level, we are not pushing forward with further measures. I can reassure her that that is not the case. Indeed, the Bill contains several measures that further bear down on the tax gap, of which this is one. It will build our tax base and further enhance our ability to raise tax, which of course is very important. The point I would make is that we have both the legislation, some of which I have referred to, and several other practical measures that the Government are bringing in that are driven by HMRC —for example, making tax digital, which is an approach to bearing down on the tax gap when it comes to the operations of smaller companies in the United Kingdom.
I hope that has covered the majority of the issues raised, but I would be happy for the hon. Members for Oxford East or for Aberdeen North to write to me if they would like me to respond to any other issues.
Anneliese Dodds
I am grateful to the Minister for those comments, but I would like to clarify a few points, so that we are not talking at sixes and sevens. In relation to the trading exemption, the point is not that it would exempt certain categories of business as opposed to others, but that it would exempt those businesses that are trading before and after the disposal, so it introduces a new concept that is not applied to UK-resident investors to the same extent. That is what is relevant, rather than whether we are talking about a supermarket or not. That would be relevant to the property richness test, but the trading exemption is a separate element of the Bill that I was trying to push on.
In relation to the 25%, the Minister always valiantly attempts to support his Government’s policies. He is right that a figure must surely be attached to any numerical proposition in a Bill. He tried to do that here and said that 25% had been arrived at. The suggestion was that any figure could be contested. Again, it is not the specific value of that figure that is problematic, but what the figure refers to. My contention was that the Government should focus not necessarily on the proportion of the gain, but on the value of the gain. His Government have decided to focus not on the value but on the proportion. As I said, 25%—or rather, 20%—of a gain could be £1 million, which is a tremendously large value, but it could be a smaller proportion if it is just 20%.
Kirsty Blackman
Does the hon. Lady agree that having both of those in the Bill would be useful, so we could have the 25% figure or gains over £200,000, or any such figure as the Government deemed appropriate?
Anneliese Dodds
The hon. Lady is absolutely right. The Government are quite keen on double thresholds in other contexts, so this is a case where a double threshold could be introduced if they were concerned about protecting those small investors. One could have both a measure related to the proportion of the gain and one related to the value of the gain. That could be very sensible.
I am grateful to the Minister for his comments on tax treaties, but I was trying to get at whether he feels that the reference in the legislation—I cannot remember the exact term used in the explanatory notes, but it is something like referring to the “intent” or “spirit” of the tax treaty, rather than the letter—is sufficiently legally watertight. I am concerned that it would not be, because many people who have moved their tax affairs to Luxembourg to avoid tax are quite adept at reading just the letter and not conforming with the spirit, when they want to.
Finally, in response to the question from the hon. and gallant Member for Poole—
Anneliese Dodds
I am a new Member and I am always getting my fingers rapped about how to refer to other Members. I never want to upset anyone, so I hope I have not upset the hon. Gentleman.
If we look at the proportion of the commercial property market owned by non-UK investors, we see that there has been a change over time. We should surely consider that when we look at the impact or otherwise of Government policy, as well as the absolute amount of tax revenue that will go up since absolute figures go up because of inflation and so on. I do not wish to try the patience of the Committee, so we will not press our amendments to a vote.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Kirsty Blackman
I am willing to try the patience of the Committee in this instance.
Amendment proposed: 34, in schedule 1, page 147, line 34, at end insert—
“21A The Chancellor of the Exchequer must review the expected revenue effects of the changes made to TCGA 1992 in this Schedule, along with an estimate of the difference between the amount of tax required to be paid to the Commissioners under those provisions and the amount paid, and lay a report of that review before the House of Commons within six months of the passing of this Act.”—(Kirsty Blackman.)
This amendment would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the changes made to capital gains tax in Schedule 1.
Finance (No. 3) Bill (First sitting)
(5 years, 11 months ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 8 / Noes: 10 - Question accordingly negatived.
The Chair
I have the usual preliminary announcements. You may remove your jackets. I remind you that only water may be consumed during Committee sittings. Will you please ensure that you switch your mobile phones to silent mode as I have just done? Document boxes with your names on are provided at the back of the Committee Room. This will be our room for the duration of this Committee, and it will be locked between sittings, so if you wish to leave your papers here rather than carrying them around, please do.
The Committee will consider the programme motion on the amendment paper, for which debate is limited to half an hour, and then proceed to a motion to report any written evidence. We will then begin line-by-line consideration of the Bill. I will first call the Minister to move the programme motion in the terms agreed by the Programming Sub-Committee and then call Kirsty Blackman to speak to amendment (a). There will be a single debate on the motion and selected amendments.
Motion made, and Question proposed,
That—
(1) the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 27 November) meet—
(a) at 2.00 pm on Tuesday 27 November;
(b) at 11.30 am and 2.00 pm on Thursday 29 November;
(c) at 9.25 am and 2.00 pm on Tuesday 4 December;
(d) at 11.30 am and 2.00 pm on Thursday 6 December;
(e) at 9.25 am and 2.00 pm on Tuesday 11 November;
(2) the proceedings shall be taken in the following order: Clauses 1 to 4; Clause 7; Clauses 11 to 13; Schedule 1; Clause 14; Schedule 2; Clause 17; Schedule 5; Clause 18; Schedule 6; Clause 21; Clauses 24 to 26; Schedule 9; Clause 27; Schedule 10; Clause 28; Schedule 11; Clauses 29 to 31; Schedule 12; Clauses 32 to 35; Schedule 13; Clause 36; Schedule 14; Clause 37; Clauses 43 to 45; Clauses 48 to 51; Schedule 16; Clause 52; Schedule 17; Clauses 53 to 60; Clauses 63 to 67; Clauses 79 to 82; Clauses 84 to 88; Schedule 19; Clauses 91 and 92; new Clauses; new Schedules; remaining proceedings on the Bill;
(3) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Tuesday 11 December.—(Mel Stride.)
Kirsty Blackman (Aberdeen North) (SNP)
I beg to move amendment (a), leave out—
“(b) at 11.30 am and 2.00 pm on Thursday 29 November”.
The Chair
With this it will be convenient to discuss the following: Date Time Witness Thursday 29 November Until no later than 12.15 pm HM Treasury; HM Revenue and Customs Thursday 29 November Until no later than 1.00 pm Office for Budget Responsibility Thursday 29 November Until no later than 3.30 pm The Institute for Fiscal Studies Thursday 29 November Until no later than 5.00 pm The Chartered Institute of Taxation”
Amendment (b), after “Tuesday 11 November;” insert—
“(1A) The Committee shall hear oral evidence in accordance with the following Table—
Amendment (c), at end insert—
“(4) The Committee recommends that the programme order of the House [12 November] should be amended in paragraph 7 by substituting ‘18 December’ for ‘11 December’.”
Kirsty Blackman
It is a pleasure to make the first substantial speech in this Finance Bill Committee—the first of many, I am sure.
Once again, the Scottish National party has tabled an amendment to the programme motion. It has concerned me for a long time that Finance Bill Committees do not take evidence and I think it would be better for the quality of debate if they did. This year, there are specific issues relating to the lack of consultation on the draft clauses and to the tight timescale for considering the Bill. I raised in Committee of the whole House my concerns about the fact that paper copies of the Bill were published on a Wednesday and we had to debate them on the Monday, which did not give us enough time given that the House was in recess. External organisations have also raised concerns about the lack of time for scrutiny, particularly for the unusually high number of clauses that were not consulted on in draft form. Glyn Fullelove of the Chartered Institute of Taxation, whom I quoted in Committee of the whole House, has been a particular critic of the process.
The SNP asks that, on Thursday, instead of having two normal sittings as planned, we take evidence from the Treasury, Her Majesty’s Revenue and Customs, the Office for Budget Responsibility, the Institute for Fiscal Studies and the Chartered Institute of Taxation. They all know more about the legislation than we do, so it would be incredibly useful to hear from them.
I must also point out that the Government have included several clauses to make changes to previous legislation that was deficient. If Government legislation is deficient, I contend that more consultation must be a good thing.
Anneliese Dodds (Oxford East) (Lab/Co-op)
Given that, as I understand it, the Committee in the other House is taking evidence on elements of the Bill, surely the hon. Lady agrees that we should be afforded that opportunity in this House.
Kirsty Blackman
Absolutely. It is odd that the House of Lords is more democratic than this place in relation to the Bill.
The Finance Bill Committee should take evidence. I know that it is a long-standing convention that it does not, but having served on the Public Bill Committee on the Taxation (Cross-border Trade) Act 2018 and heard the evidence taken, I know how useful it was for Committee members and how many of them referred to it in subsequent debate. It was an incredibly useful exercise and the legislation that came forward was better as a result.
As I flagged up in last year’s Finance Bill debates, it is very good that external organisations have submitted written evidence, but I guarantee that the majority of hon. Members in this Committee have not read it all because of how little time we have had. Allowing us to question witnesses on the evidence that they provide on the Finance Bill Committee would be incredibly useful. The Government might not accept that this year, but can we consider taking evidence in future years? I am not the only one calling for this. The “Better Budgets” report produced by the Chartered Institute of Taxation and various other organisations called for the Finance Bill Committee to take evidence two and a half years ago, so external organisations have requested it, not just the SNP.
Peter Dowd (Bootle) (Lab)
It is a pleasure to serve under your chairmanship, Ms Dorries. I hear what the hon. Lady says. Some of us have not been in the House for a great deal of time. I sat on the Housing and Planning Bill Committee, which lasted for 20 sittings, with a marathon sitting just before Christmas three years ago. We heard a great deal of evidence that significantly informed the debates. Some members of this Committee might have been on that one. Interestingly, some of the evidence we took proved to be absolutely spot on, because the Government subsequently ended up changing some of their housing policies. The Government made the same argument at the time: “No, we have thought this through. We have consulted”, but the ability to hear from experts who live and breathe these issues was beneficial.
It was the same on the Criminal Finances Bill, which covered a pretty niche area. The job of Parliament is to scrutinise legislation, so we need the tools to do that. Whichever party is in control, it has the full back-up of the civil service, who are themselves experts and, to their credit, know their work, but it is important that the Opposition are able to get independent assessment and adjudication of what the Government tell us. That does not mean I do not believe a word that Ministers say—I believe everything they say. It is just that we do not necessarily get the full facts. I have found it very useful in the past to have evidence sessions, and the Government should give serious consideration to that.
I think this is the fourth Finance Bill I have sat on in the past two years, although my recollection is not what it used to be. We have also had the customs Bill, which is also a finance Bill, so we have had effectively five finance Bills in a short period of time and in a time of incredible turbulence and change. There might not be a convention or a tradition to take evidence in Finance Bills, but there comes a time when we think, “This is as good a time as any to take evidence because the circumstances have changed substantially.”
We have also had what amounts to movement on the convention in relation to the amendment of the law. As everybody knows, it has been used only about half a dozen times since 1929 when Winston Churchill introduced it. It has been used six or seven times, including three times by the Government in less than that period in years. That is a substantive and significant change. The Minister kindly responded to my letter about that and indicated that it was not necessarily a significant change, but it is. If we as a Committee—as a House—have done something only six or seven times in the best part of 90 years, changing that convention is significant. For that reason as well, we need to take a step back and decide that perhaps we need evidence sessions to tease out some of those important things.
It would also give assurance to the House, to Back-Bench Members and to the public in general that we take those matters seriously and that it is not business as usual—that just because we have done something for years or decades, we do not carry on doing it regardless. It would send a message that, in these turbulent times, the House takes the country’s finances seriously.
Therefore, we should seriously consider taking evidence. After all, we are all open to public scrutiny in one fashion or another—in fact, there is no doubt that we welcome it, and I do not suggest that the Government do not welcome it too. If we do not object to that scrutiny, why do we not institutionalise it, do what other Committees have done in the past and take evidence? Let experts in their field challenge us, and let us challenge them.
Kirsty Blackman
One of the Government’s arguments against taking evidence is the fact that the Bill is split between the Committee of the whole House and the Bill Committee, but does the hon. Gentleman agree that we in the Bill Committee tend to consider the more technical amendments on which we most need evidence to make good legislation?
Peter Dowd
That is a perfectly fair point. Inevitably, when we get into Committee, the clauses that we discuss are very technical and it is those technical clauses for which we need some evidence.
At the end of the day, we have had written evidence from the Chartered Institute of Taxation on clauses 7, 11, 81 and several others, which I read with great interest. Some of the comments were very pertinent. It would have been a good opportunity to tease out some of the issues in those clauses in more detail. As I said, none of us are concerned about challenge—that is why we came into Parliament. We are here to be challenged, and that is the nature of our democracy.
Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)
My hon. Friend has hit the centrality of the issue. The failure to move the amendment of the law resolution means that this Bill Committee becomes much less of a political conversation and more of a technical one. We can see on the programme motion the amendments that have been ruled out of order—reasonably, by applying the rules that the Government have put on the Committee. It has not been permitted for us to have a political conversation about different approaches to income tax, and if the Committee cannot have the political analysis, we should surely have the technical one, which has to involve experts.
Peter Dowd
My hon. Friend has a laser-like focus. In that regard, the Government cannot have it both ways. They cannot tell us that, on the one hand, we are dealing with all these technical issues and we should not be dealing with those wider issues, hence the amendment of the law, but in the same breath tell us that we cannot have any face-to-face consultation or oral evidence.
I give credit to the Government in so far as they have consulted pretty widely on these matters, but I have been involved in lots of consultations that have been paper exercises. I do not mean that lightly—they have been genuine attempts at consultation where people have written in to express this or that view—but during the process, I have certainly been in situations where we have decided, in the light of the evidence that we have and of the information provided to us through that consultation process, that we were going to say, in an open and transparent fashion, “Okay, let’s stop. We have all this consultation. We’ve read it. We’ve listened to it. Why don’t we just tease it out a bit more with some of the people who have taken the time to write back to us?” Organisations have indicated to us that they would welcome evidence sessions. The hon. Member for Aberdeen North has indicated some people we could see, but there are lots more. Frankly, we could have three days of evidence sessions, which would not be a bad thing per se. The idea that we focus it down to one day, with the organisations that hon. Lady has identified, is not, in the grand scheme of things, a difficult process, issue or onus. I exhort the Government to listen carefully to what we have said in the genuine spirit of trying to make this a better Bill. There may be agreement and we may have a better Bill where there is no agreement. I exhort the Government to listen carefully and accede or acquiesce—not capitulate—to our request.
Sir Robert Syms (Poole) (Con)
I have just a few points about where we are going. There are a number of events in Parliament that get quite a lot of public interest; the Queen’s Speech is normally one and the Budget is another. People make representations to the Treasury in advance of the Budget, but afterwards the Financial Times and almost every insurance company, bank and accountancy firm produce reams of information on what changes have occurred. The one sure thing about the Budget is that a number of trees will be cut down, to supply information to the great British public on what changes have already occurred. Actually, I do not think that this is one of those Committees that needs to take lots of information, because most of us will have lots of information already.
One could substitute vested interests for the point about experts, because there are an awful lot of vested interests in this country. As a large Committee of the House of Commons, we sometimes have to navigate our way through that, so we could sit for months listening to vested interests on a whole range of subjects and not actually make any decisions. The purpose of this Committee is to look at what the Government have done, maybe make some decisions and then report back to the House.
Kirsty Blackman
On that point, is the hon. Gentleman seriously suggesting that both the Treasury and HMRC have vested interests other than trying to make good law?
Sir Robert Syms
Out in the big wide world, there are an awful lot of people who would come to this Committee, given the chance. The biggest difficulty we would have would be deciding who to invite, and we could be sitting in this Committee for months. I think it is quite clear that most people understand the key points of the Budget, because lots of information has been produced. When I was in opposition and the Labour party was in government, I probably made a similar speech to the one made by the Opposition spokesman. The Minister will probably make the same speech that Labour Ministers made when we raised the same point. The only point of having additional information is that it helps the Opposition in tabling amendments. That is the only reason normally stated.
Jonathan Reynolds
The process of the Bill is not just to review what the Government have done, but to have a contested conversation about the impact of those changes and what the benefits might be. For example, all of the evidence produced for this Budget and many others would say that the Government’s substantial cuts to corporation tax will cost this country a lot of money. That is not a widely accepted point on the Conservative Benches. They would say that, by reducing the tax rate, the revenue has gone up. No experts would sign off on that, but that is surely the conversation we should have in this Committee, as politicians, based on the evidence submitted. That is the right balance between the two.
Sir Robert Syms
I hear what the hon. Gentleman says, but the reality is that we have had a Budget, which is a big event. We then had three or four days of debate on the Floor of the House. We then debated the Finance Bill on the Floor of the House. This Committee will run for a number of sittings. It will then go back to the Floor of the House. This will have more debate than most other Government motions. I suspect that by the end of the process we will be even better informed than we were before, as the serried ranks of the Treasury come in and feed paper to the Minister.
I served on one of the coalition Government’s Finance Bill Committees, and on two or three under the previous Labour Government, dealing with substantive issues such as when we took away all the tax relief on banks when they lost billions of pounds—had we not done so, they would never pay tax again. There were substantial changes made in the Finance Bill after the financial crash. We did not take evidence then, because it was a time for action, not debate. I look forward to hearing Ministers get on with the job of dealing with this Committee and with matters that are important to business and individuals in this country.
Bambos Charalambous (Enfield, Southgate) (Lab)
I have served on one other Public Bill Committee, which was on the energy price cap. We heard lots of evidence from many companies about the benefits or disbenefits of having an energy price cap. I see no difference between that Bill Committee and this one. I do not see why we should not hear evidence from experts who can advise us on what happens, as we do in other Bill Committees. It does not make sense to have one rule for one situation and a different rule for another.
Sir Robert Syms
We could have a general rule that every single Committee of the House should take evidence on every single mater, but the problem is that Committee sittings would then last considerably longer. They would need to be staffed up and we would have difficulty getting Members to serve on the Committees and listen to all that evidence. Ultimately, governing is about taking decisions. There has to be a balance in understanding what points of view people take. We can sit here endlessly listening to advice, but we have to make choices.
Kirsty Blackman
We cannot sit hear endlessly listening to advice, because the Committee has to end by 11 December. We are talking about one day of taking information from people so that we can be better informed in the debates that we will have up until 11 December, at which point this Committee will end, because that is what the House has decided.
Sir Robert Syms
Members of the Committee have a mandate to scrutinise the Government. If we take one day out of that scrutiny, we are reducing our ability to question the Minister on some very important matters. Personally, I would like to take all the time to question the Minister on why decisions have been taken, and I am sure I will get very good answers.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve under your chairmanship, Ms Dorries, and a pleasure to serve on my third Finance Bill Committee—I think that it is the fourth such Committee for the hon. Member for Bootle, but it is reassuring to see broadly the same team arrayed. We were a fairly jovial and decent lot in the last Committee, so I am pleased to be serving alongside them again. The hon. Member for Bootle said that he always believes everything that the Minister says, which is a fine start to our deliberations over the coming weeks. My hon. Friend the Member for Poole said that I was probably dusting off the previous Labour Government’s speech from when they were faced with the same questions. Indeed I have, so I hope that will be acceptable to Opposition Members.
Amendments (a), (b) and (c), tabled by the hon. Member for Aberdeen North, seek to revise the programme motion by introducing a day of oral evidence and extending the time spent in Committee. It is of course important that the provisions of the Bill receive sufficient parliamentary scrutiny. The Government’s tax policy making framework ensures that that occurs, and I do not think that evidence to a Public Bill Committee would effectively further that aim.
The amendments would introduce a day of oral evidence from, among others, the Institute for Fiscal Studies, the Chartered Institute of Taxation and the Office for Budget Responsibility. Let me be clear that I agree that effective parliamentary scrutiny of this and any other Finance Bill is crucial, and I am always open to considering how that can be improved. However, for the following reasons, I am not persuaded by the merits of delaying the Committee in order to allow oral evidence to be taken. We accept that any additional evidence sessions would certainly increase the amount of scrutiny of the Bill, but that is not the same as saying that, in the absence of such sessions, the scrutiny of the Bill would be insufficient—as my hon. Friend the Member for Poole has set out, there has been very considerable scrutiny already—or indeed that additional days of evidence would provide a proportionate response to the need for scrutiny.
First, in line with the new approach to tax policy making set out in the Government’s 2010 framework, the Government already undertake extensive consultation with stakeholders before legislating in the Finance Bill.
Kirsty Blackman
On that point, does the Minister not accept that this year that “extensive consultation” has not been as extensive as it has been in previous years, and nor as extensive as it should be?
Mel Stride
I do not accept that. As I will argue, there is a process that we go through, which starts with the Budget announcement. We then go into formal consultation, which is applied to a number of measures within the Bill. We also of course publish draft clauses—I think that was on 6 July this year. I believe that around 226 pages of draft legislation were published at that time out of a total Bill length of 315 pages. It is considerable. We have received written evidence, the Bill will go through this Committee, it was considered by Committee of the whole House, we will then have Report stage, and we will examine amendments all the way through. The level of scrutiny received by a Finance Bill is well in excess of most Bills that come before the House.
My second point, which was raised by the hon. Member for Aberdeen North, relates to the fact that the Bill was considered in Committee of the whole House. Were the amendments to prevail, any evidence session in this Committee would not capture the important issues debated in Committee of the whole House. The Committee should be aware that Committee of the whole House is, I would argue, where the more important measures are considered, and they are put to the whole House rather than simply the members of this Committee.
Jonathan Reynolds
The Minister referred to the historical state of affairs for scrutinising Finance Bills. My hon. Friend the Member for Bootle said that the change this time has been the failure to move the amendment of the law resolution. This is only the sixth or seventh time that has happened since 1929. By convention of the British constitution, that has happened only very close to or on either side of an election to tidy up the statute book and get measures through before Parliament prorogues. Is this the Government’s established state of affairs? Will we conduct Finance Bills in this way under a limited technical scope by failing to move that amendment of the law resolution?
Mel Stride
I am not going to be drawn into what may or may not happen in future—the usual channels and the Government of the day take those decisions—other than to say that this is not a unique occurrence. As the hon. Gentleman recognises, this has happened in the past. Indeed, the very argument that just because it has not happened in the past does not mean it should not happen now, which is being applied to the seeking of an additional day, could also apply to the amendment of the law resolution. It has happened in the past and this is not the first time with a Finance Bill. In fact, the two I have taken through the House to date have been subject to those provisions.
The IFS, the OBR and others produce analysis of Budget measures before or after the event. They also typically give oral evidence to the Treasury Committee on the Budget as a whole before the Committees on the Finance Bill. Oral evidence at a Public Bill Committee will replicate that analysis while limiting its scope to those parts of the Bill not selected for the Committee of the whole House.
Finally, the programming of business is a matter for business managers and the usual channels. Those channels establish the programme motion that was agreed by the Programming Sub-Committee, which is made up of Government and Opposition Members. They were not persuaded that oral evidence sessions would be beneficial and, I am afraid, neither am I. As such, I urge the Committee to reject the amendments.
Kirsty Blackman
The Minister’s argument does not make sense in relation to the things that are most important being discussed in the Committee of the whole House. I would contend that clause 1 is probably the most important in the Bill given that it allows Government to charge income tax for future years. I suggest that the ones discussed in the Committee of the whole House are the most political, as they are agreed between the usual channels, and ones where the Opposition tend to think they might be able to get a win out of the Government, as was adeptly proven last week with the number of amendments accepted by the Government. I take the opportunity to say that I am pleased about that, because our amendments are not often accepted—I am quite chuffed about that one.
The Public Bill Committee debates are on the more technical aspects. This is less political and less likely to be chewed over by the Financial Times on its front page because it is immensely technical. The tax code has changed significantly and increased massively in the past few years. There is a huge volume of tax legislation and lots of it is incredibly technical. The stuff we are discussing in the Public Bill Committee is immensely technical and I disagree with the Minister on how external organisations have raised concerns about how few of the draft clauses were consulted on.
Mel Stride
The hon. Lady is absolutely right that this Committee will debate a number of technical clauses. Surely if they are technical, does that not lend itself to an examination based on written evidence based on, for example, approaching me with written questions or discussions or indeed a meeting, or perhaps a meeting that I can facilitate with officials present to get into the detail, rather than a broad brush quick day with various advisers and organisations that we quiz?
Kirsty Blackman
The Minister makes a slightly circular argument. He suggests that questioning him would help us to improve the legislation and that questioning external experts who have to apply tax changes would be less useful.
Peter Dowd
Does the hon. Lady agree that there is an issue? The Labour party tabled a number of amendments, 10 or 11 of which were ruled out of scope. I do not criticise that at all. There is no criticism—
The Chair
With this it will be convenient to discuss the following:
Clause 3 stand part.
Clause 4 stand part.
Mel Stride
Clause 1 provides the charge for income tax for 2019-20, clauses 3 and 4 set the main, default and savings rates of income tax for 2019-20. Income tax is one of the most important revenue streams for the Government, and raised nearly £181 billion last year. The power to charge income tax is legislated annually in the Finance Bill, and is central because it allows for income tax to be collected in order to fund the vital public services on which we all rely. Clause 1 grants this power for 2019-20. Clause 3 keeps the basic, higher and additional main rates of income tax at the same level as last year for England, Wales and Northern Ireland. Clause 4 keeps the basic, higher and additional rates of default and savings rates of income tax at the same level as last year for the whole of the United Kingdom.
We are supporting working people by increasing the tax-free personal allowance and the point at which people pay the higher rate of tax to £12,500 and £50,000 respectively. Keeping rates the same alongside increasing the personal allowance and higher rate threshold means people can keep more of what they earn. By April 2019 we will have cut taxes for 32 million people and taken 1.74 million of the lowest-paid out of income tax altogether since 2015. Clause 1 ensures that the Government can collect income tax in the tax year 2019-20 in order to fund key spending commitments. Clauses 3 and 4 ensure that the rates of income tax remain unchanged and make sure that hard-working people keep more of what they earn and that those who earn the most continue to pay their fair share. I commend the clauses to the Committee.
Kirsty Blackman
I hope the Minister can answer my question in the positive. In the clauses, the devolved and reserved aspects are split. They are considered separately, which makes a huge amount of sense. I asked the Minister earlier whether he would consider doing that in future years for all clauses, particularly those similar to clause 5. I am not expecting a positive, definite answer that he will do that in future years, but will he commit to considering splitting the devolved and reserved aspects on income tax in future years, so that the House can better scrutinise legislation?
Mel Stride
I thank the hon. Lady for her question, which we touched on in the Committee of the whole House. She will be aware that clause 3 is subject to the English votes for English laws process because non-savings earnings are devolved to Scotland, so that clause only applies to Northern Ireland, Wales and England, while clause 4 on the savings and dividend rates applies UK-wide. I understand her point and we will be happy to look at that in the future. As things stand, we support where we are at the moment in the division of those particular clauses.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Corporation tax charge for financial year 2020
Peter Dowd
I beg to move amendment 8, in clause 2, page 1, line 7, leave out from “tax” to end and insert
“may be charged for the financial year 2020 if the condition in subsection (2) is met.
(2) The condition in this subsection is, prior to 6 April 2019, the Chancellor of the Exchequer has laid before the House of Commons a review of the corporation tax receipts of multinational companies with UK-domiciled subsidiaries in relation to their publicly available UK-based revenue.”.
This amendment requires a review of the effects of corporation tax receipts of multinational companies compare with their UK-based revenue.
The Chair
With this it will be convenient to discuss the following:
Amendment 9, in clause 2, page 1, line 7, leave out from “tax” to end and insert
“may be charged for the financial year 2020 if the condition in subsection (2) is met.
(2) The condition in this subsection is, prior to 6 April 2019, the Chancellor of the Exchequer has laid before the House of Commons a review of the corporation tax receipts of technology companies with UK-domiciled subsidiaries in relation to their publicly available UK-based revenue.”.
This amendment requires a review of the effects of corporation tax receipts of technology companies compare with their UK-based revenue.
Amendment 10, in clause 2, page 1, line 7, leave out from “tax” to end and insert
“may be charged for the financial year 2020 if the condition in subsection (2) is met.
(2) The condition in this subsection is, prior to 6 April 2019, the Chancellor of the Exchequer has laid before the House of Commons a review of the Commissioners’ effectiveness at applying General Anti-Avoidance Principles with reference to corporation tax collection.”.
This amendment requires a review of the effects of HMRC’s effectiveness in applying General Anti-Avoidance Principles with reference to corporation tax collection.
Amendment 11, in clause 2, page 1, line 7, leave out from “tax” to end and insert
“may be charged for the financial year 2020 if the condition in subsection (2) is met.
(2) The condition in this subsection is, prior to 6 April 2019, the Chancellor of the Exchequer has laid before the House of Commons a review of the current UK tax gap in respect of corporation tax applying globally agreed avoidance measures to multinationals with UK-domiciled subsidiaries.”.
This amendment requires a review of the effects of the current UK tax gap in respect of corporation tax applying globally agreed avoidance measures to multinationals with UK-domiciled subsidiaries.
Clause stand part.
Peter Dowd
In speaking to amendment 8, I will also speak to amendments 9, 10 and 11, each of which we will press to a vote.
Clause 2 enacts the continued charging of corporation tax. As the explanatory note says, the clause
“charges corporation tax for the financial year beginning 1 April 2020 ...Parliament charges CT for each financial year. This clause charges CT for the financial year beginning 1 April 2020. The rate of CT for the financial year 2020 was set at 17% in Finance Act 2016 Part 2 section 46.”
As I indicated earlier, it is vital to hold the Government to account on the matter of their treatment of corporation tax. The Government have offered huge tax breaks to big business even during their continued programme of austerity, which only two weeks ago the special rapporteur described as causing “misery”. It is important to set that context in relation to our amendments. The Government have slashed—that is the word—the amount of corporation tax paid, with a commitment to continue to cut big company taxes further. By 2020, 11% will have been cut from the main rate.
The main rate of corporation tax applies to companies with profits over £300,000—these are not small family businesses, but big corporations of the sort that we have all come to know, because they play a significant part in our economy. There is no criticism of that, but there is a balance to be drawn.
The main rate started at 28% in April 2010. It was reduced by the former Chancellor to 26% in April 2011 and then was reduced again to 24% in 2012 and 23% in 2013, before reaching 20% in 2015. It was cut further, to 19%, in 2017 with a view to reaching 17% by 2020. As of last year, the Institute for Fiscal Studies found that, compared with 2010, those cuts were denying the country £16.5 billion a year in tax revenue. That will increase if the Government stay in power long enough to push the rate down to 17% by 2020.
The Government have already been criticised by tax experts about the matter, which to some extent takes us back to our debate about the ability to tease out the issues. For example, Bill Dodwell, the former head of tax policy at Deloitte—not a company considered to be particularly socialist—said:
“Nobody seems to welcome the cut to 17 per cent.”
The British Chambers of Commerce has called for a pause to the corporation tax giveaways. When corporations’ own trade associations are making that point, it indicates that something might not be quite right. If it is important that we are all in this together, we must all be in it together on this matter too, and corporations should not be outside that.
We seek to take stock of the Government’s policy, which many people describe as corporate welfare, in the context of eight painful years of austerity for some of the poorest in our society and following numerous criticisms of the corporation tax policy by those who will benefit from it. Will the Minister help us to understand the Government’s position by addressing those criticisms in turn? Perhaps the Government might wish to introduce a review of corporation tax changes since 2010, so that we can get to the bottom of this important matter. After all, in eight years under the Government, corporation tax giveaways are likely to amount to hundreds of billions of pounds, while the number of people in poverty has risen to 14 million. A review of the matter would also help us to compare the Government’s actions with Labour party policy, which is to reverse the cuts and invest the money elsewhere.
Let us have a review to tease out the issues, because £16.5 billion works out at more than £25.5 million per constituency in the UK. The combined total cut from the constituencies of Conservative members of this Committee amounts to £228 million; it is important that the figures are put in context, because that translates to a lot of schools and hospitals that they are prepared to sacrifice.
Along with the important matter of what has happened to corporation tax since 2010, we must also draw a link between the Government’s cuts to corporation tax and their wider programme. In our view, there has been economic mismanagement, but we are not necessarily here today to talk about that.
Bim Afolami (Hitchin and Harpenden) (Con)
The hon. Gentleman asserts figures such as £16.5 billion, but does he accept that the tax rate has a dynamic effect on the amount generated for the Exchequer? It is all very well to cite a number as a static figure and say, “Actually, Labour party policy will double the amount we get,” but does he accept that there is a relationship between the rate and the amount that the Exchequer generates because of increased economic growth?
Peter Dowd
The hon. Gentleman makes a fair point, which I will address later in my remarks, and which we can tease out across the Committee if we want.
For Members who do not know, labour productivity is calculated by dividing output by labour input. Output refers to gross value added, which is an estimate of the volume of goods and services by an industry, and in aggregate for the UK as a whole. Labour inputs are measured in terms of workers, jobs—“productivity jobs”—and hours worked, or “productivity hours”.
The cuts to corporation tax have done nothing to improve our productivity. The hon. Member for Hitchin and Harpenden may wish to listen to that point, so I will repeat it: the cuts to corporation tax have done nothing to improve our productivity. That strikes at the heart of the Government’s failure on the issue. In fact, the economic statistics centre of excellence and the centre for macroeconomics at the National Institute of Economic and Social Research published a study this year of Britain’s very poor productivity. That brings us to the point that the hon. Gentleman raised, because one would assume that as a result of the tax cuts, more would be invested and productivity would rise—but that has not happened. The Government have argued that those corporations now receiving significant sums in tax cuts would invest in our economy and drive their business models forward, thus increasing UK productivity. Unfortunately, the 2018 paper shows that the billions of pounds of giveaways have not had a positive productivity effect. To deal with the point raised by the hon. Member for Hitchin and Harpenden, that paper says:
“Average annual…productivity growth was 2.5 percentage points lower during the period 2011-2015 than in the decade before the financial crisis…in 2007. We find that several years on from the financial crisis stagnation remains widespread across detailed industry divisions, pointing to economy-wide explanations for the puzzle. With some exceptions, labour productivity…lost…momentum in those industries that experienced strong growth before the crisis. Three fifths of the gap is accounted for by a few industries that together account for less than one fifth of market sector value added. In terms of why we observe continued stagnation, we find that capital shallowing has become increasingly important in explaining the labour productivity growth gap in service sectors, as the buoyancy of the UK labour market has not been sufficiently matched by investment…The collapse in labour productivity growth has been more pronounced in the UK than elsewhere”
notwithstanding those major cuts in corporation tax.
Anneliese Dodds
Does my hon. Friend agree that there is a contradiction in Government policy? They appear to believe that cutting corporation tax rates will lead to a higher activity rate and a higher investment rate—as he said, that has not been the outcome—but when it comes to social security, the assumption appears to be that cutting the rate of income that people can take home by having a high taper rate, for example, will necessarily lead to a higher work rate. Actually, the evidence shows that the vast majority of people on social security want to work and there is no evidence that they do not want to. The psychological approach to corporations—that if they give them more corporate welfare, they will work harder, although the evidence does not indicate that that is the case—seems to be very different from the approach to social security recipients, where the view is that if they reduce their income they will work harder, when actually most people want to work.
Peter Dowd
I do not want to introduce Gilbert and Sullivan, but the point is that it is a topsy-turvy world where cash for corporations equals productivity, when it does not, and cuts to welfare equal productivity, when they do not. It is not as simple as that and I am afraid that the Government’s rather one-dimensional approach does not work. That report shows that the billions handed to those big companies by the Government have not had the required effect on business investment to drive up productivity. The facts are there for everybody to see. No doubt, if we had had some experts here, we could have teased that out a bit more.
Bim Afolami
The hon. Gentleman has focused on domestic business investment, but would he not accept that having an attractive corporation tax regime and providing a business-friendly climate also helps with foreign direct investment? Britain is still a world leader in that.
Peter Dowd
Yes, but there is not necessarily a causal link there. The reality is—[Interruption.] Let me tease that out. The evidence does not suggest that, as I have tried to point out. The German economy is 35% more productive, because investment in it is significantly better than investment in this country’s economy. We are having a debate at the moment about the question of uncertainty in relation to Brexit, which is probably having a more significant effect than the hon. Gentleman suggests.
The bottom line is that the idea that cutting corporation tax per se will lead to growth in the economy has not proven to be the case. The economy is still flatlining, despite those cuts to corporation tax. The best part of half a billion pounds is still sitting in corporate bank accounts not being invested, despite corporate tax cuts.
Jonathan Reynolds
This is exactly the sort of conversation that we should have, and exactly what the Finance Bill should talk about. International competitiveness is not only an issue of tax rates; I think we all agree on that. We absolutely recognise that the tax rates on corporate taxation are part of that, but there is at the minute a very poor argument for the UK’s being such an outlier among developed nations and continually cutting its rate of corporation tax for diminishing returns, as my hon. Friend has said, when our public services are in dire need, our infrastructure needs are huge and our skills base is being eroded. All of those impact on competiveness as well. It is the balance that we have to get right.
Peter Dowd
My hon. Friend makes an important point: we have to have a balance. The massive cuts in corporation tax—sequentially, over several years—have not had the required effect. If they did, there is an argument to be had, but they have not. There does not appear to be any evidence that that is the case, so it begs the question why. If the Government are trying to make a rational case for it, they have singularly failed and it is time to have another look.
The Government once had a plan to tackle, for example, productivity in 2016 when they tried to maintain that there was an agenda beyond austerity, but that has not been the case. Sadly, the plan was not to reverse the corporation tax cuts and invest in the economy, but simply to push on. As a result, the plan was roundly criticised. The Business, Innovation and Skills Committee said
“we question whether the document has sufficient focus and clear, measurable objectives to be called a ‘plan’. This broad and expansive document represents more of an assortment of largely existing policies collected together in one place than a new plan for ambitious productivity growth.”
That plan was the best attempt so far and it has singularly failed. That is why we will continue to press the Government on the true cost of corporate giveaways both in terms of the tax forgone and their effectiveness.
Amendment 8 requires a review of the effects of corporation tax receipts of multinational companies compared with their UK-based revenue. That is a perfectly reasonable approach in the round—it is not just one-dimensional. The Financial Times reported last year that multinational companies avoided paying as much as £5.8 billion tax in 2016 by booking profits in overseas entities. It reported that that represented almost a quarter of the tax underpaid by large corporations last year. In addition to an apparent avoidance of tax, they also get a tax reduction. It is a great life if you can get it: do not pay tax and get rewarded with another tax cut. If only we could all do that, although I suspect none of us would want to.
Sadly, the situation does not seem to have improved under the Government’s plans, despite the warning signs. The Times reported two weeks ago that HMRC is now chasing £28 billion in unpaid taxes from multinationals. The Government’s response was to give them some more. It is a bizarre approach when they owe £28 billion, or when HMRC is chasing £28 billion. I assume colleagues in HMRC do not simply go around chasing £28 billion for the fun of it, and instead do it because there is a requirement and we need the tax, and importantly because companies should pay their fair share. That represents a 50% increase in avoidance over four years. While the Government give corporations tax cuts, the corporations appear to say, “Thank you very much; we will carry on doing what we usually do and avoid our taxes.”
The problem stems from transfer pricing, which refers to the charges made between different parts of a multinational business for goods, services or intangible assets, including intellectual property, for example. Tax rules provide that transactions between connected parties should be taxed as if they were on arm’s length terms. In recent years, multinationals have been accused of arranging their transfer pricing to minimise their tax liabilities in jurisdictions such as the United Kingdom, which accounts for billions of missing tax in the UK.
The Conservative party not only wants to give the wealthiest a tax break but it does not seem too bothered if they give it to others such as corporations that do not necessarily need it. Of course, as my hon. Friend the Member for Oxford East said, that rule applies only to powerful interests and not to the working single mother who pays in full every single month.
Bim Afolami
The hon. Gentleman uses the word “corporations” pejoratively and then mentions the hard-working single mother. Does he accept that the hard-working single mother might also run a small business? Why did the Labour manifesto commit to increasing corporation tax on small businesses as well as on multinationals?
Peter Dowd
I started my comments by welcoming the role that corporations play in our economy. My use of the word “corporations” was not in any sense pejorative. I have said nothing “pejorative” about corporations. I may have talked pejoratively about those corporations that avoid their tax and I think most other people would, too. Those corporations have a responsibility, and not just legally, to pay tax. I am not suggesting they are evading tax in that sense, but morally they are part of our community. They are part of one of the most stable countries in the world, with a rule of law next—[Interruption.] I am absolutely shocked that the hon. Gentleman is laughing at my assertion that we have one of the best processes for the rule of law in this country. I am sure he did not mean to laugh when I was praising the British constitution—I accept that he did not really mean it.
At the end of the day, the bottom line is that I have not at any time been pejorative, and nor would I wish to be pejorative, about corporations that play their part in society, that pay their taxes, that treat their workers properly and that treat their customers as their first port of call. I would not be pejorative about those corporations, but I will not stop criticising corporations that do not pay their fair share of tax.
To get back to the point, that is why the Government appear to be winding down the diverted profits tax rather than ramping up the pressure on companies that do not pay their way. The review demanded by amendment 8 would strike at the heart of the problem. For too long, the Government have sat idly by and watched the UK being fleeced by many big companies and the public are saying that enough is enough.
On amendment 9, the Government’s blind spot in respect of companies paying their share extends in particular to technology companies. It was reported in The Guardian this year that Amazon had halved its corporation tax despite posting record profits. The article speaks directly to the amendment by saying:
“The company, which has been locked in a race with Apple and Alphabet to be the world’s first trillion-dollar business, revealed that pre-tax profits at its UK business tripled from £24m in 2016 to £72m last year.
The figures were reported by Amazon UK Services, the company’s warehouse and logistics operation that employs more than two-thirds of its 27,000-plus UK workforce, in its annual financial filing to Companies House.
The company almost halved its declared UK corporation tax bill from £7.4m in 2016 to £4.5m last year. It received a tax credit of £1.3m from the UK authorities in 2016, and last year paid £1.7m tax on its profits.”
I do not have the evidence to hand, because time does not permit me to go into all the details, but it would be interesting to know how many of those 27,000 people are on tax credits themselves because the pay they get from that company is pretty low. There is an unacceptable triple-whammy for taxpayers. No. 1 is that some of those companies’ employees get tax credits because they do not get paid enough; No. 2 is that the companies are getting a corporation tax cut; and No. 3 is that they avoid paying their taxes where they can.
Will the Minister guarantee that Amazon will pay a full and reasonable share of tax on its operations next year? I suspect that he is not likely to commit to that suggestion even if he wanted to. What about other companies? Google paid only £50 million last year, despite total sales of £5.7 billion, which is worth repeating. Meanwhile, Facebook paid only £15.8 million in corporation tax, despite collecting a record £1.3 billion in sales. Its accounts show that while it increased its UK income by more than 50% in 2017, its pre-tax profits increased by only 6% to £62.7 million. The Silicon valley-based company’s UK taxable profits were reduced by a £444 million charge for unexplained “administrative expenses”, which is scandalous.
The Chancellor said that he would introduce a digital services tax in response to that flagrant attempt to undermine our tax base. Oddly, though, the tax seemed to bring in only £5 million in the first year and £275 million in the second. Perhaps the Financial Secretary could tell us where the rest is. That seems a pretty pathetic attempt to restore a level playing field in our tax system—the digital services tax is a drop in the ocean. What estimate has the Minister made of the total corporation tax lost to HMRC through avoidance by technology companies? What steps has he taken to work with other nations to deliver a comprehensive response? How many meetings has he had with the European Union since the Budget?
As the Minister knows, the European Union’s approach is much more comprehensive. A Commission press release set out its approach to digital taxation—it is therefore directly relevant to amendment 9. It demonstrates that the EU’s plans are far more developed than the UK’s. It is therefore important that we listen to them. The press release states:
“The Commission has proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU. The measures would make the EU a global leader in designing tax laws fit for the modern economy and the digital age”,
which is what amendment 9 seeks to do. It continues:
“The recent boom in digital businesses, such as social media companies, collaborative platforms and online content providers, has made a great contribution to economic growth in the EU. But current tax rules were not designed to cater for those companies that are global, virtual or have little or no physical presence. The change has been dramatic: 9 of the world’s top 20 companies by market capitalisation are now digital, compared to 1 in 20 ten years ago. The challenge is to make the most of this trend, while ensuring that digital companies also contribute their fair share of tax. If not, there is a real risk to Member State public revenues: digital companies currently have an average effective tax rate half that of the traditional economy in the EU…Today’s proposals come as Member States seek permanent and lasting solutions to ensure a fair share of tax revenues from online activities”
as urgently as possible. Like the European Union, we are seeking to create an initiative
“to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. This forms the Commission’s preferred long-term solution.”
I would like the Government to consider a number of European Union proposals as part of the review, including an interim tax on certain revenue from digital tax activities. The Government could take that issue into account as part of the review, too. I hope they will look at it as well.
Peter Dowd
People will thank me for it—I am sure that is the case—but I exhort people to read that detail, which will give them an insight into a way forward.
The question that a review would fundamentally seek to ask is whether the section of the GAAR that I referred to but will not quote from is strong enough in providing HMRC tax officials with the basis for pursuing corporation tax avoidance. The review would also look at its relationship to the other sections of the guidance in meeting that aim.
A related matter is whether the hollowing out of HMRC has had an impact on its effectiveness in preventing avoidance and evasion, and we cannot ignore that. My constituency, as you are well aware, Ms Dorries, is home to a significant number of HMRC staff, and they have been impacted, as everywhere has, by the Government’s hollowing out of HMRC. This matter should be considered as part of the review proposed by our amendment. The effective resourcing of HMRC needs to be reviewed as well.
Bambos Charalambous
Does my hon. Friend agree that we need more senior HMRC inspectors to go after the corporations that are avoiding tax and that without investment in HMRC we will not be able to recoup the taxes that are necessary to fund this country’s economy?
Peter Dowd
My hon. Friend makes a fair point. This is not about the production of civil servants for the sake of it, just having them in a job where they do very little and are not particularly productive. Those civil servants are incredibly productive. There are various figures on the amount spent on chasing tax avoidance: if we put in £1, we might get £9 or £10 back—more according to certain studies. We need investment in the system, so my hon. Friend’s assertion is absolutely spot on. Resourcing should be considered as part of the review of corporation tax proposed in the amendment.
For too long, the Government have asked HMRC to pay the cost of a financial crisis that it had no part in, by implementing cuts in the very Department we need to support if we are to put an end to some of these avoidance gains. The impact of the Government’s austerity agenda was recognised by the National Audit Office, which published a report suggesting that the quality of services provided by HMRC to personal taxpayers collapsed in 2014-15 and in the first seven months of 2015-16. Between 2010 and 2014-15, HMRC cut personal tax staff from 28,000 to 15,000, which has almost certainly had an impact on the functioning of HMRC. The NAO analysis indicates that the quality of services deteriorated, which I do not think is a surprise to anyone. That gives a sense of the impossible pressure that HMRC is being put under and the difficulty of delivering on tax avoidance under the Government’s agenda.
Finally, amendment 11 requires
“a review of the effects of the current UK tax gap in respect of corporation tax applying globally agreed avoidance measures to multinationals with UK-domiciled subsidiaries.”
In respect of corporation tax, there has been some debate about what the tax gap in question is. I start by referring Members to HMRC’s own analysis of the tax gap, published this year. That analysis says:
“The estimated total tax gap for Corporation Tax was £3.5 billion in 2016-17 (£3.4 billion in 2015-16). This equates to 10.6% of the overall tax gap in 2016-17…The Corporation Tax gap for large businesses in 2016-17 is estimated at £1.1 billion. This represents 5.3% of total theoretical liabilities, the same as in 2015-16. There has been an upward revision to the 2015-16 estimate since the 2017 edition of ‘Measuring tax gaps’ by around £0.1 billion due to more recent data becoming available”.
There are around 170,000 mid-sized businesses in the UK, defined as the smallest businesses previously managed by the Large Business Service and the largest small and medium-sized enterprises that were reorganised into the mid-sized business directorate. Corporation tax on mid-sized businesses is about £0.1 billion higher than in 2015-16, and the corporation tax gap for small businesses is estimated at £1.6 billion for 2016-17, which is equivalent to 8.8% of total theoretical corporation tax liabilities. Those figures demonstrate the Government’s failure to apply proper enforcement measures against corporation tax avoidance: even on their own Department’s analysis, billions are slipping through the net every year. A review would be a first step towards ensuring that we applied the proper rules against multinationals with UK-domiciled subsidiaries, for example, and that those multinationals were paying their fair share.
A recent survey by ActionAid showed that eight out of 10 of British citizens want the Government to get on and deal with this issue. The Government are, in effect, upsetting 80% of the country with their inaction on this matter. Quite a significant number of people believe action has to be taken. I therefore call on the Minister to get on with it, accept our amendments and follow our proposal in dealing with tax dodgers at the corporate level once and for all.
Kirsty Blackman
I will speak relatively briefly on clause 2 and the amendment. To begin with, it is clear that the SNP supports clause 2 and we are not going to argue against the Government having the ability to charge corporation tax next year. It is quite important they do that for a number of reasons. One is that, of all the taxes levied upon businesses, corporation tax is one of those better liked by them. It depends not just on fixed assets, like business rates, but on the profit businesses are making, so they feel less unhappy about paying as it is more of a fair tax than some of the others. It is only a fair tax, however, if it is charged and if the companies are paying the corporation tax they are due to pay.
As for the asks being put forward from the Opposition Front Bench on this, the Government should not be scared of publishing more extensive data than they do currently on the tax gap, particularly around corporation tax in this instance. If the Government were to do that, they would be incredibly transparent and, if they are as good at collecting corporation tax as they suggest, that would dissuade other people from trying to dodge the tax in the first place. This would be both transparent and good for scrutiny, while also dissuading those who are looking to see where they can dodge the system. If people knew that corporation tax was difficult to dodge—if the Government put forward that information—they would be less likely to try and dodge it.
On the issue of multinational corporations and what a small minority—by far a small minority, not all of them—do in trying to not pay the tax they owe in certain countries, the Government have made great play of trying to be global Britain and saying that after Brexit this is going to be, apparently, an outward-looking country. Where better to start being global Britain than by making multinational agreements on improving the tax system? That would be good for everybody.
Every country benefits if more of the tax owed by corporations is taken. Coming together with other countries across the world and making that something that the UK Government set out to do in this new global Britain landscape would be really good. This is about not just the Government trying to make trade deals and seeing what we can do to benefit us, but trying to make these multinational agreements where everybody would benefit. Companies looking to avoid tax would know it would be incredibly difficult to do that because countries across the world would come together. If the Government want to lead the world in anything, I suggest that reducing tax dodging is an area where they should try and think about doing so.
The comments from Opposition Front Benchers about HMRC staff were incredibly important. The SNP has consistently made the case against HMRC offices being closed on the basis that expertise is being reduced. I raised this issue during consideration of the Taxation (Cross-border Trade) Act 2018. We can see where expertise is being reduced in areas such as Border Force, which previously had immigration-related staff and HMRC-related staff, who dealt with tax issues. Due to the Government’s political priorities, the two were put together. They particularly looked at immigration-related staff and improving Border Force’s capacity in that regard, rather than looking at improving capacity with regard to HMRC staff. In that instance, the Government chose not to increase the capacity to crack down on tax dodging and tax avoidance in relation to customs.
I am concerned that the changes to HMRC offices will result in more issues being overlooked. If the Government think they are doing a good job, they should not be scared to come forward with as much information as possible about this. That would achieve two things. First, it would allow them to be transparent and allow us to scrutinise them and ask the necessary questions, particularly about the tax gap and tax avoidance issues. Secondly, it would mean that people who were thinking of coming here to avoid tax would have that information and would see that the UK was not a good place for that.
Mel Stride
I thank the hon. Members for Bootle and for Aberdeen North for their wide-ranging contributions to the important debate about corporation tax. As we know, clause 2 brings in the corporation tax charge for 2020, the rate of 17% having been set in part 2 of the Finance Act 2016.
The hon. Member for Bootle referred to slashing tax for big businesses. It is a typical Opposition characterisation of our tax policy to say that the largest companies are being treated to corporate welfare, as he put it, but tax cuts apply right across the board, including to the smallest businesses in our country. Given that we are reducing tax to 17% by 2020 for both small and large businesses, the Opposition’s proposal to increase it to 26% for large businesses and 21% for smaller businesses would represent overall tax increases of 50% and 25% respectively.
Anneliese Dodds
Does the Minister acknowledge that we are talking about profitable businesses and not about unprofitable businesses, of which unfortunately there are a large number in many parts of the country? I am pleased to hear him acknowledge that Labour’s tax plans include a differential rate for small businesses, but surely he must acknowledge the sunk cost in what his Government have done. Through their cuts to central Government funding, they have forced local authorities to rely more on business rates and council tax, so the fixed costs that all businesses pay have gone up.
Mel Stride
The hon. Lady correctly identifies that Labour’s position is for small businesses to pay 21% in corporation tax. Given that we are taking it down to 17%, her party’s policy would result in the tax bill for hard-pressed companies on high streets rising by some 25% for smaller businesses—a pretty extraordinary and hefty increase—and by some 50% for larger businesses. One has to ask what the effect of those tax increases would be. They would not drive productivity, as the hon. Member for Bootle would have us believe, but do quite the reverse: they would increase the costs on businesses, increase the pressures to drive up prices for their products and, critically, reduce returns to investors. The hon. Gentleman mentioned the importance of investment in our country, but we cannot increase that by driving up corporation tax rates.
As the hon. Members for Oxford East and for Aberdeen North rightly said, business rates are a fixed cost that cannot be avoided, irrespective of whether a business is profitable, but we are driving those rates down. In the last Budget, because of the prudent stewardship of our economy, we were able to announce a 30% reduction in rates for retailers at or below the rateable value of £51,000. That will take a huge amount of pressure off about 90% of the high street retailers in our country.
Jonathan Reynolds
I am extremely grateful for Minister’s courtesy. The Government would have a strong case if those big reductions in corporation tax had produced a commensurate increase in corporate investment. Surely the question for the Government is this: how come this country still has a lower rate of corporate investment than France, which has a corporation tax rate of 38%? How come it has a lower rate of corporate investment than Germany, with its corporation tax at 31%?
On UK inward investment, if as a minimum we simply matched the bottom rate in the G7, that would mean corporation tax rising to 24%. The point surely is the diminishing return from driving it down and relying on business rates and employer’s national insurance instead. The balance is wrong for the UK economy.
Mel Stride
I draw the hon. Gentleman’s attention to the position of the Office for Budget Responsibility on cutting corporation tax rates. It makes a clear link between cutting the level of corporation tax and a commensurate increase in the level of business investment. That is the view of that independent organisation and the information is there for all to see.
The hon. Gentleman raises the issue of the level of investment in the UK economy. In fact, it is 30% higher than it was in 2010, albeit we have been pulling ourselves out of the financial difficulties we entered at that time. He raises the issue of inward investment. It seems clear and obvious to me that the lower the level of corporation tax, the more attractive that is to companies overseas, who look at those businesses. He suggested earlier that our rate was very low compared with others. America has just reduced its corporation tax rate from 35% to just 21%.
Mel Stride
I will be a little more generous even than the hon. Gentleman and say I believe it is 26%. Whatever the interplay between the rates, the corporation tax rate has been substantially slashed, to use the expression adopted by the hon. Member for Bootle. The Irish Republic has a rate of just 12.5%, which has been a big driver of the differential investment between the Irish Republic and Northern Ireland.
Peter Dowd
There is always a danger in these situations of comparing apples and pears. This is to compare the largest economy in the world—the United States—which has 50 states and different levels of tax, with this country. On the other hand, the comparison is with the Republic of Ireland, with a population of about 4 million and a gross domestic product significantly below ours. We need reasonable comparators. I am sure the Minister will agree that those are likely to be our European neighbours.
Would the Minister agree that he is missing the point? We have a contention, which I laid out and will not repeat. The issue is to address the amendments. Our argument is that the amendment requires a review of the effects of corporation tax receipts on multinational companies compared with their UK-based revenue. We make our assertions on the basis of independent evidence and say we should let the Government do that, through institutional mechanisms. Does the Minister not agree that that would be a sensible way forward and we can then have these debates again?
Mel Stride
I shall come to the issue of the amendments momentarily. I would just say in conclusion to this debate on tax that it is a dangerous position for the Opposition to adopt. They are telling large businesses and entrepreneurs and the 5 million small businesses up and down the country that a significant tax hike is in theirs and the economy’s best interest when it clearly is not. The clause introduces the ability further to relieve that element of taxation.
The hon. Members for Bootle and for Oxford East spoke at some length about avoidance. The Government have an exemplary record on clamping down on avoidance, evasion and non-compliance. There have been 100-plus measures since 2010, bringing in and protecting some £200 billion in revenue, a vital amount of money for our public services.
As the Committee will be aware, we have one of the lowest tax gaps in the world at 6% for 2015-16, the last year for which figures are available. That compares very favourably with the record of the last Labour Government—in 2005-06, the figure was well above 7%. The difference would fund every policeman and woman in England and Wales. We recognise that bringing in tax receipts is extremely important.
On HMRC staffing, 28,000 full-time equivalents in HMRC are engaged in tax inspection. We have invested an additional £2 billion in HMRC since 2010 for that purpose. The fruits are already being seen in near record lows in the tax gap.
The hon. Member for Bootle urged us to work closely with the EU on tax avoidance. The Committee of the whole House debated clauses 20, 23 and 19 on control of foreign companies, exit taxation rules and certain anti-hybrid rules, all of which emanate from the EU anti-tax avoidance directive. We have been in the vanguard of the base erosion and profit shifting project, as the Committee will know, to clamp down on avoidance.
The hon. Members for Bootle and for Aberdeen North mentioned digital businesses. We need to understand the important point that, when we look at profits generated by companies through digital platforms and the interaction of UK consumers with them, we are not referring specifically to avoidance—the hon Member for Bootle may have suggested that. We are looking at the current international tax regime and whether it is fit for purpose in taxing that form of profit generation. The current regime basically assigns taxation rights to the jurisdiction when there is economic activity in that jurisdiction, as defined by the buildings, where the intellectual property rests, whether people are employed, where the risks are taken, where the management is domiciled and so on. We want to move to a situation where we are able to tax those businesses because of the profit generation—the value generation—that they are creating, as I have described.
Kirsty Blackman
It would be useful if, after this meeting, the Minister could write to us with details of countries with which he or his team have had discussions. Any other information about the nature of those discussions would be incredibly useful. so that we can be sure that the Government are taking this seriously on a multinational level.
Mel Stride
I would be very happy to do that. The hon. Member for Bootle specifically asked me what meetings I had had about the digital service tax measure. I have had personal interactions with a number of countries. I attended the OECD meeting in Paris some months ago where I furthered and put forward the UK’s position, which is broadly that we should work on a multilateral basis with the OECD and the EU so that we come to a collective agreement. The value of doing that is not limited to the fact that we would iron out any risks of double taxation that would result from going on a unilateral basis. However, we have also made very clear, as the Chancellor announced in the Budget, that we will unilaterally bring in just such a tax by 2020 in the absence of multilateral arrangements. I would be very happy to write to the hon. Lady with further detail on her specific question.
Amendments 8 and 9 seek to make the clause contingent on a report on how the corporation tax receipts of multinational companies and technology companies compare with their respective UK-based revenue. Like most countries, the UK taxes companies on their UK profits and not their UK revenues to reflect their ability to pay. Therefore, the proposed report would have limited relevance to policy. However, the Government have not been complacent about taking action within the rules of the international corporate tax system, as I have described.
Amendment 10 seeks to make the clause contingent on a review of HMRC’s effectiveness in applying the general anti-avoidance principles in relation to corporation tax collection. The Government apply a wide range of anti-avoidance measures, as I have set out, bringing in some £200 billion since 2010. The general anti-abuse rule, or GAAR, has been operational since 2013. Although the GAAR works principally as a deterrent, it has enabled HMRC to counteract the tax advantages that people try to gain by using abusive arrangements. An additional review of the GAAR’s effectiveness would not add significant value. The GAAR advisory panel provides an important safeguard by ensuring that HMRC’s decisions on GAAR cases are informed by its independent opinion.
Anneliese Dodds
On that point, the current incarnation of GAAR is focused on abuse rather than avoidance, as the Minister mentioned. I wonder whether he can clarify something. I understand that the GAAR panel has given 12 opinions, but there are only nine on the website, although in any case that seems a relatively small number of decisions taken. Does he not feel that it would be appropriate to review the GAAR panel’s operations at this stage?
Mel Stride
I do not, for the reasons that I have given. On the matter of how many references there have been, nine in total have supported HMRC’s position. That said, if the hon. Lady has information that suggests there have been 12 referrals, I will look into what might be a further three and what the status of those was.
Anneliese Dodds
I received notice that there were 12 in a ministerial response to a written question that I tabled. That might indicate that the panel did not support HMRC in three cases. If that is the case, it would be enormously helpful for us to know why.
As the Minister knows, when the panel was created, considerable concern was expressed about the variety of its membership. The individuals themselves are obviously upright, knowledgeable people of good standing, but they come from a restricted group of people, many of whom have been involved in devising some of the tax schemes that the panel might be required to look at.
Mel Stride
The hon. Lady makes an entirely reasonable request for that information. As I indicated, I am happy to provide it to her. In fact, divine inspiration has just arrived—I have an answer; I knew it was lost somewhere in my mind. There have, in fact, been 12 opinions, all of which have been supportive of HMRC. If she would care for any further information, I am happy to provide it outside the Committee.[Official Report, 3 December 2018, Vol. 650, c. 5MC.]
Amendment 11 would make the clause contingent on a review of how the application of globally agreed measures to combat avoidance by multinationals would impact the tax gap. HMRC publishes annual updates on its tax gap analysis. The corporation tax gap is estimated to have declined from 12.4% of total theoretical liabilities in 2005-6, under the previous Government, to 7.4% in 2016-17.
Peter Dowd
I have a quick question. There is a cumulative effect of the Minister saying to us that there have been reviews on this and reviews on that. The phrase used is, “We keep these things under review.” I completely accept that the Government do that, but —I think I have asked about this before—it would be helpful to find out what the process is for keeping such things under review, other than a Sir Humphrey-type approach, which is to just say, “We keep these things under review,” so we all sit down and think, “That was a good answer,” and forget to ask the next question.
Mel Stride
I think the hon. Gentleman has described the process beautifully. I would add to his observation that we do have more formal methods of engagement than that which he describes. We publish tax information impact notes for every single tax measure and there is the process that we debated earlier for how taxes and the measures in a Finance Act are scrutinised over time, and so on.
To conclude this fairly lengthy debate, I urge the Committee to reject the amendments and I commend the clause to the Committee.
Peter Dowd
I thank the Minister for his response and those hon. Members who intervened to try to tease the matter out. He has not told me, or anybody on this side of the Committee, anything that suggests that the Government take the matter of corporation tax and the need for reviews as seriously as we do, or that gives reassurance to the public out there. While everybody else is receiving a pay rise—just about—after 10 years, potentially on a sustained level, the Government have said that, eventually, they will invest in the NHS, but as those things begin to come through, people are still not convinced that corporations, which many of them work for, are playing by the rules.
The Minister has not said anything that convinces us to the contrary; hence our amendments. If he is convinced of his argument—I have no reason to believe otherwise—he needs to convince not just Government Members, but Opposition Members and the great British public. Some 80% of people do not believe that large corporations are playing fair by the system. Either they are wrong, in which case the Government should tell them so, or they want an eye kept on this issue, which our amendment would do.
I have no doubt that we will come back to this matter in the next Finance Bill, when the Minister and I might or might not be here in Committee. No matter what the Government think, it is not going away—it will come back to haunt the Finance Committee year in, year out. I exhort the Minister to listen to that.
Mel Stride
If it is in order, Ms Dorries, I will give the hon. Member for Oxford East an additional piece of information on the issue of referrals to the panel. There were nine cases rather than 12; there were 12 opinions on those nine cases, all of which supported HMRC. That might explain how I had a figure of nine while the hon. Lady was focused on 12.[Official Report, 3 December 2018, Vol. 650, c. 5MC.]
Anneliese Dodds
How can there be more than one opinion about an individual case?
Mel Stride
I shall write to the hon. Lady on this matter and any others that she wishes to inquire about.
Question put, That the amendment be made.