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.
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.
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.
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.