Finance (No. 2) Bill (First sitting)
Tuesday 16th May 2023
(1 year, 7 months ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 View all Finance (No. 2) Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Chair
We are now sitting in public and the proceedings are being broadcast. I have a couple of preliminary announcements. Hansard colleagues would be grateful if Members could email their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent. Jackets may be removed.
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication. I call the Minister to move the programme motion standing in her name, which was discussed yesterday by the Programming Sub-Committee.
Motion made and Question proposed,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 16 May 2023) meet—
(a) at 2.00 pm on Tuesday 16 May 2023;
(b) at 11.30 am and 2.00 pm on Thursday 18 May 2023;
(c) at 9.25 am and 2.00 pm on Tuesday 23 May 2023;
2. the proceedings shall be taken in the following order: Clauses 1 to 4; Clauses 16 and 17; Clause 26; Clauses 28 and 29; Schedule 2; Clauses 30 to 34; Schedule 3; Clause 35; Schedule 4; Clauses 36 and 37; Schedule 5; Clauses 38 to 44; Schedule 6; Clauses 45 and 46; Clause 49; Clauses 61 to 105; Schedule 10; Clauses 106 to 108; Schedule 11; Clauses 109 to 112; Schedule 12; Clauses 113 and 114; Schedule 13; Clauses 115 to 120; Clauses 313 to 315; Schedules 19 and 20; Clauses 316 to 320; Schedule 21; Clauses 321 to 324; Schedule 22; Clauses 325 to 331; Schedule 23; Clauses 332 to 345; Schedule 24; Clauses 346 to 352; 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 23 May 2023.—(Victoria Atkins.)
Kirsty Blackman (Aberdeen North) (SNP)
I will make a brief comment in relation to the programme motion. It is the convention of the House that a Finance Bill does not take oral evidence. That continues to be a significant issue for the knowledge of the Committee. Written evidence is very important, and everybody does their best to read it, but nothing quite compares to asking questions in an oral evidence session. The programme motion does not allow for oral evidence. The Government have made it clear on previous Finance Bills in previous years that that is because part of a Finance Bill is considered by the whole House and the rest is considered in Committee.
Given the extent of this Finance Bill and how incredibly complex it is, particularly when it comes to corporation tax, it would have been beneficial for the Committee to ask questions of experts. It would not have taken us past any potential dates. We could have scheduled an oral evidence session with, for example, the Association of Taxation Technicians and the Chartered Institute of Taxation, and taken evidence on the parts of the Bill that we are yet to consider in order to better understand what is in the Bill and the issues that it presents for professionals.
Although I will not oppose the Programming Sub-Committee’s recommendations in the programme motion, I raise my concerns, as I do for every Finance Bill Committee on which I sit, that oral evidence sessions would have made a positive difference. They would not have held up the machinery of government and the progress of the Bill, but they would have allowed us to make more informed decisions.
Dame Angela Eagle (Wallasey) (Lab)
It is a great pleasure to serve under your chairmanship, Ms McVey, I think for the first time. I have a great deal of sympathy with what hon. Member for Aberdeen North has just said, and I look forward to what the Minister has to say about it. It may well be that an innovation that has worked well in other Committees should spread to the Finance Bill. In the absence of any progress on that, I refer the hon. Member for Aberdeen North to the work of the Treasury Committee, of which I am a member, alongside one of her colleagues. We do extensive work pre and post Budgets and take a great deal of evidence. While it is not the same as having oral evidence to this Public Bill Committee, it is a pretty good alternative, and at the moment it is all we have.
The Financial Secretary to the Treasury (Victoria Atkins)
May I say what a pleasure it is to serve under your chairmanship, Ms McVey? I am delighted if this is the first Finance Bill over which you are presiding. I should declare that I used to prosecute tax fraudsters for His Majesty’s Revenue and Customs, but I have not done so since being elected to this place. I ought also, while we are in housekeeping mode, welcome all Committee members to this scrutiny. It is an important part of our legislation-making process. Particular thanks go to my hon. Friend the Member for Totnes who—I hope he will not mind my sharing—got married at the weekend and so is perhaps the first parliamentarian to spend his honeymoon in a Finance Bill Committee. My sincere apologies to Mrs Mangnall.
The Chair
Copies of written evidence that the Committee receives will be made available in the Committee Room and will be circulated to Members by email.
We now begin line-by-line consideration of the Bill. The selection list shows how the clauses and the selected amendments have been grouped together for debate. Clauses and amendments grouped together are generally on the same or similar issues.
Clause 1
Income tax charge for tax year 2023-24
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clause 1 legislates the charge for income tax for 2023-24. Clauses 2 and 3 set the main, default and savings rates of income tax for 2023-24 and clause 4 maintains the starting rate for savings nil rate band for tax year 2023-24.
Before I get into the meat of these clauses, it might help to remind hon. Members that, as I have already said, because some measures in the Bill have already been debated on the Floor of the House, many measures will not be debated here in this Public Bill Committee. There is no mystery as to why some clauses are not appearing.
Income tax is one of the most important revenue streams for the Government, expected to raise approximately £268 billion in 2023-24. These clauses are legislated annually in the Finance Bill. Clause 1 is essential; it allows for income tax to be collected in order to fund the vital public services on which we all rely. Clause 2 ensures that the main rates of income tax for England and Northern Ireland continue at 20% for the basic rate, 40% for the higher rate and 45% for the additional rate.
Clause 3 sets the default and savings rates of income tax for the whole of the UK. The starting rate in clause 4 applies to the taxable savings income of individuals with low earned incomes of less than £17,570, allowing them to benefit from up to £5,000 of savings income free of tax. Clause 4 will maintain the starting rate limit at its current level of £5,000 for 2023-24, in order to ensure simplicity and fairness within the tax system while maintaining a generous tax relief. Clauses 3 and 4 are important pillars of the Government’s savings strategy, because we wish to help those with low earned income to save.
In addition to the starting rate whereby eligible individuals can earn up to £5,000 in savings income free of tax, savers are supported by the personal savings allowance, which provides up to £1,000 of tax-free savings income for basic rate taxpayers. Savers can also continue to benefit from the annual ISA allowance of £20,000. Taken together, those generous measures result in around 95% of savers paying no tax on their savings income.
Finally, the Government’s efforts to encourage those on the lowest incomes to save include the Help to Save scheme, which provides savers with a 50% bonus on their savings. The Government have recently extended the scheme while we consult on longer-term options to continue to support low-income savers, which is a good example of our commitment to levelling up opportunity across the whole country. I hope that Committee members feel able to promote the scheme to their constituents, and I encourage them to do so. We are committed to helping people of all incomes, at all stages of life, to save. Recent reforms, coupled with the significant increase to the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to serve on this Committee with you as Chair, Ms McVey. As we heard from the Minister, clause 1 imposes a charge to income tax for 2023-24. It is a formality in every Finance Bill, which provides the legal basis for Parliament to impose an annual income tax. Of course, we will not oppose that clause. Clause 2 provides the main rates of income tax for 2023-24, which will apply to the non-savings, non-dividend income of taxpayers in England and Northern Ireland. As the Minister said, the rates include the 20% basic rate, the 40% higher rate and the 45% additional rate.
With respect to the other nations of the UK, the explanatory notes make it clear that income tax rates on non-savings, non-dividend income for Welsh taxpayers are set by the Welsh Parliament. The UK main rates of income tax are reduced for Welsh taxpayers by 10p in the pound on that income. The Welsh Parliament sets the Welsh rates of income tax, which are then added to the reduced UK rates. Income tax rates and thresholds on non-savings, non-dividend income for Scottish taxpayers are set by the Scottish Parliament. We do not oppose clause 2. However, the income tax rates within it will interact with the level of personal allowance and relevant thresholds to determine how much income tax people pay. I will briefly ask the Minister about them.
Committee members will remember that in the March 2021 Budget, and in the Finance Act that followed, the then Chancellor—now Prime Minister—froze the basic rate limit and personal allowance for income tax for four years. In the recent autumn statement 2022, and in the following Finance Act, the current Chancellor extended those freezes by a further two years. That means that the current 2023-24 tax year is the second of a six-year freeze. The Office for Budget Responsibility has made clear, in its March 2023 economic and fiscal outlook, that the Government’s six-year freeze in the personal allowance will take its real value in 2027-28 back down to the level in 2013-14. When the Minister responds, I would be grateful if she could confirm whether she accepts that conclusion from the Office for Budget Responsibility.
As we have heard, clause 3 sets the default rates and saving rates of income tax for the year 2023-24. Clause 3 specifically sets the default rates that will apply to the non-savings, non-dividend income of taxpayers who are not subject to the main rates of income tax, Welsh rates of income tax or Scottish income tax. It also sets the savings rates that will apply to savings income of all UK taxpayers. We will not be opposing the measure.
Finally, clause 4 sets the starting rate limit for savings for 2023-24, which remains at £5,000, as we heard. As we know, the starting rate for savings can apply to an individual’s taxable savings income, which includes—but is not limited to—interest on deposits with banks or building societies. The extent to which an individual’s savings income is liable to tax at the starting rate for savings, rather than the basic rate of income tax, depends on their total non-savings income, which can include income from employment, profits from self-employment, pensions income, and so on.
If an individual’s non-savings income is more than their personal allowance plus the starting rate limit for savings, the starting rate is not available for that tax year. Where an individual’s non-savings income in a tax year is less than the personal allowance plus the starting rate limit, their savings income is taxable at the starting rate up to the starting rate limit. We will also not be opposing clause 4.
As I have set out, we will not be opposing any of the four clauses in this first grouping of the debate, but I look forward to the Minister’s response on my specific point about the Office for Budget Responsibility.
Dame Angela Eagle
Thank you very much, Ms McVey. I think that the comment that I made earlier about this being your first Committee was about it being your first Committee that included me, not it being your first Committee completely. I am sure that we have an extremely experienced Chair, or you would not have been put in the position of having to Chair a Bill Committee where the Bill is this thick. I think that everyone can have great confidence in your ability to take us through the proceedings today.
I want to raise some questions for the Minister about levels of income tax, so that she could perhaps talk to us about the Government’s thinking. We have here—it is not explicitly referred to in the legislation, but it is there nevertheless—the fact that the thresholds have been frozen until 2028. That effectively drags many more people into paying these rates of income tax, at whatever level. It is called “fiscal drag” in the business.
When we analyse precisely what the Government are doing, we see that, without the headline rates of income tax being affected, 8 million people will be forced to pay higher levels of income tax the threshold has been frozen. That is particularly exacerbated in an era of high inflation, when more people will get dragged into paying higher levels of income tax because prices are going up yet thresholds are frozen.
This has been estimated to be the biggest stealth tax put into place since the doubling of VAT in the early 1990s. Looking at the situation that is expected to prevail in 2027-28—on the plans that the Government are putting forward—8 million people will be affected by fiscal drag. In other words, they will have their income tax increased even though the headline rates have stayed the same. That will mean that one in five taxpayers—20%—will actually be paying the higher rate, at 40% or above, as a result of this Government’s stealth tax.
That is at a time when people’s incomes are being squeezed from all directions. Many of us know that we have a cost of living squeeze that is driving millions to food banks, having to make the choice between heating and eating, and sometimes not being able to do either satisfactorily because of the amount of cash available at the end of a working week to buy essentials.
I will demonstrate just how many people have been dragged into the higher rates of tax by the stealth tax manoeuvre that the Government have turbo-charged for the next few years. In the 1990s, no nurses at all paid the higher rate of tax, and only 5% to 6% of machinists or electricians did. The Minister might have noticed information from the Institute for Fiscal Studies on the front page of quite a lot of newspapers this morning that demonstrates that the situation has totally changed. One in four teachers and one in eight nurses will be higher-rate taxpayers by 2027—presumably, that is before their disputes have been settled one way or the other. That is bad in itself, because it is a stealth tax.
Craig Whittaker (Calder Valley) (Con)
The points that the hon. Lady makes are valid. Another valid point is this: while it is true that more people are paying tax, is it not also true that more people are earning a lot more money than they used to?
Dame Angela Eagle
I am all in favour of people earning more money, but it is important that they are doing so in in real terms. Someone can earn more money in terms that do not take account of inflation, but they can actually be earning less. If the right hon. Gentleman talked to people and asked them whether they were any better off than they had been when this series of Governments came into office in 2010, he would find that people’s nominal salaries and wages might be higher in some cases, but a lot of them are worse off in reality because those earnings have not kept up with inflation. The point about the tax burden and fiscal drag makes that much worse.
Kirsty Blackman
On the point about how well-off people feel, does the hon. Member know that in 2008, 12% of people in the UK believed that their children would be worse off than them? Now, IPSOS has found that that number is up to 41%—some 41% of people now believe that their children will be worse off than them. Does she feel that that needs to be tackled, and that the Government are not taking it seriously?
Dame Angela Eagle
I agree, and the hon. Lady makes a valuable point. For societies to advance in a sensible, healthy way, succeeding generations must have optimism about things changing for the better. That also tends to lead to happier societies with people who are more likely to innovate and go the extra mile. We all want that so that we can rebuild prosperity for our nation in the years ahead in the new, more isolated circumstances in which we find ourselves, as a result of which we must remake the economic foundations of our country. I wonder how much fiscal drag helps us to do that, and I am interested to hear the Minister’s observations on how that approach will help.
There are other undesirable effects of threshold freezes of the kind encompassed by clause 1, including very high marginal tax rates for people in particular circumstances. We know from the Prime Minister’s tax return that he effectively pays 22% on his millions of earnings every year, if one combines the income tax that he pays with the way that he takes out his money through capital gains and in other areas. However, given the present tax thresholds and fiscal drag, there are people who will face marginal tax rates of 45% and 60%, which are very high—much higher than those that the Prime Minister faces.
The Treasury Committee is so concerned about that that we have begun an inquiry into spiky marginal tax rates and cliff edges. As you will know, Ms McVey, from having been Secretary of State for Work and Pensions, cliff edges and high marginal tax rates can often combine to create even greater losses of income. That is a disincentive to work harder, get more hours and move jobs when the increased wage may not compensate for the higher marginal tax rate, or a combination of the higher marginal tax rate and the cliff edge for a particular allowance. When we took evidence a few weeks ago, we discovered a marginal tax rate combined with a cliff edge that was over 100%.
There are issues surrounding the £50,000 threshold, at which point high earners start having child benefit clawed back. That has remained unchanged. It has not gone up; it is another frozen threshold. That is dragging far more people into the means test for child benefit than even the Conservative Chancellor George Osborne—we can say his name now, as he is no longer a Member of this House—intended when he introduced the policy. The Government should be aware of the combined effect of fiscal drag and unindexed rates on real people’s choices.
Freezes are a stealthy and arbitrary way to raise tax revenues. They often have a bigger impact on household incomes than more eye-catching discretionary measures do. They are particularly expected to have an impact on lower earners. By 2028, someone earning £20,000 will be £1,165 poorer under the current fiscal drag system than they would if income tax had been raised by 1%. There have been various calculations of how many pennies this stealth tax raises on the up-front rate of income tax, and they range from 3p to 4p per £1. I hope that the Minister will confirm that and try to justify why on earth the Government are raising money in that way, rather than being more transparent and up-front about rates of income tax. What will they do about the high marginal rates that the fiscal drag and frozen threshold system is landing our entire structure with? It is distorting the structure and making it very difficult to justify much of how it works for the future.
Rob Butler (Aylesbury) (Con)
I am interested in what the hon. Lady is saying. Will she clarify the latter point about the increase in the rate that would have been necessary had it not been frozen? Is she saying that she would rather the basic rate of income tax had been put up by 3% or 4%, such that lower-paid workers—nurses, for example, to whom she has referred—who are in the lower tax bracket would pay more tax? That seems to be the logical end point of what she has suggested.
Dame Angela Eagle
I am not suggesting any policy—far be it from me to do so from this side of the House. I am a mere Back Bencher, and it is not for me to make tax policy from the Opposition Back Benches. I am merely pointing out some problems that the choices that the Government appear to have made with this stealth tax are causing real people out there.
The problems are exacerbated by high marginal rates, and by very difficult and bad incentives that are quite hidden. That is why I am raising some of them here—I am attempting to draw attention to them to see whether the Minister has a response. If the Government are working on those areas, I am trying to find out what they aim to achieve by doing things this way. That is precisely what these Standing Committees are about—one gets to talk in more detail about choices that are made.
The hon. Gentleman must not imagine that I am putting forward a completely costed, different alternative, because this is not the place or time to do that. I am pointing out some of the problems, about which there is cross-party concern. I am not even making highly party political points. Far be it from me to do so—it is too early in the morning for me to do too much of that—but there are issues that we need to surface so that we can hear the Government’s official response.
I fear that we are driving into a cul de sac that will cause more problems than it solves, particularly in the interaction of the income tax system with a range of benefits, not only for the very low paid, but for medium earners. That is not being properly talked about, so by raising the matter at this point in the Bill, I am trying to get a handle on the Government’s thinking. I look forward to listening to what the Minister has to say about it, and perhaps even intervening further if she says something that piques my interest.
Victoria Atkins
In that case, I will try to be extremely dull. I am genuinely grateful to the hon. Lady for her questions. If I may take issue with her challenge that this is somehow hidden or a stealth tax, we debated these thresholds in the previous Finance Bill in the autumn. My right hon. Friend the Chancellor was very clear in his statement and in the following debate, as well as during the consideration of the Bill, about the difficult decisions, and we very much include the threshold decisions in that category. We were up-front and transparent about what we had to do to address some of the underlying issues we face in the economy.
I do not for a moment underestimate the hon. Lady’s intentions in raising the matter, but I must push back on the idea that this is somehow being hidden. Indeed, I remember being asked about it on many occasions both in this place and, dare I say it, on media rounds—understandably so, because this matters to people.
There is one point of agreement across the House, however, and that is the impact of inflation on people’s take-home pay. That is why the Prime Minister has set it as his first of five priorities to halve inflation by the end of this year, because it hurts all of us, but it hurts the poorest in society the most. We have heard the ongoing debate about food inflation, and none of us wants to see the difficult situations that people on the lowest incomes are finding themselves in. That is why the Treasury is doing everything that we can to support the Bank of England, which is of course operationally independent, in lowering the rate of interest.
The hon. Member for Ealing North asked me about the OBR. I am happy to quote the Chancellor, who has said in relation to the OBR’s figures overall that we respect them. It is an independent forecaster, whose job it is to make a forecast. As we all know, however, and as we have seen very recently with the Bank of England, forecasts are exactly that—forecasts. They can change, so we are working to support the Bank of England in its work. We respect the OBR, but fundamentally we are trying to ensure that the lowest paid receive as much of their income without having to pay any tax as we can afford as a country.
Dame Angela Eagle
I assume that those figures are for now. Is there a calculation of where fiscal drag will have left them after 2027-28? The figures will undoubtedly go down, especially if inflation persists for any length of time. It is 10% now, which means that anyone who is within 10% of the next threshold will go over it this year.
Victoria Atkins
The hon. Lady has hit on exactly the point. We have to be so careful with forecasts, because there are so many variables. As she has identified, inflation is one of them. Please do not think that I am speculating about what may or may not be in future fiscal events, but if there are changes to the rate of national living wage, for example, that will have an impact. There are many variables, and that means that our figures are both costed from a Treasury perspective and examined by the OBR. We very much stand by the figures set out in the autumn statement and as part of Budget considerations in the spring.
Dame Angela Eagle
The Office for Budget Responsibility has said that the frozen thresholds will drag 2.1 million people into the higher rate of tax, raising £26 billion a year, which is the equivalent of 4p on the basic rate. One presumes that that is net of all the other things that the Minister is talking about.
Victoria Atkins
The shadow Minister asked that question. We respect the work of the OBR, and of course we understand that it is an independent forecaster. However, as I said, we have never shied away from the fact that this a difficult set of circumstances. I know it is not for the hon. Lady to set tax policy on behalf of her Front-Bench team, but my hon. Friend the Member for Aylesbury posed an interesting question: what is Labour’s alternative? Outside observers may wish to take that into account.
We believe in sound money, and the rate of debt interest that we are paying each year—some £120 billion—is money that we would much rather spend on our NHS, police and defence. However, precisely because of our extraordinary efforts to protect our constituents throughout the pandemic, to help Ukraine and to provide support through the cost of living crisis that has emerged from that, we are having to take these difficult decisions in a fiscally responsible way.
Ashley Dalton (West Lancashire) (Lab)
It is a pleasure to serve under your chairmanship, Ms McVey. This is my first Public Bill Committee, so I am definitely the baby in the room. There is just one thing I would like the Minister to clarify. When she was responding to the point raised by my hon. Friend the Member for Wallasey about the OBR projections, she said very clearly that she respected and understood them. However, does she agree with them?
Victoria Atkins
The hon. Lady will know that I have just answered her shadow Minister’s question on that. I will quote the Chancellor:
“I respect the OBR’s figures. The OBR is an independent forecaster”—
the hon. Lady must use the correct terminology—
“it is their job to make a forecast.”
However, I do observe that forecasts can change, which is why these variables are so important.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clauses 2 to 4 ordered to stand part of the Bill.
Clause 16
CSOP schemes: share value limit and share class
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clauses 16 and 17 make changes to improve two of the tax-advantaged employee share schemes. Clause 16 increases the generosity and availability of the company share option plan, or CSOP. The changes will help larger companies that have grown beyond the scope of the enterprise management incentive—EMI—scheme, to offer more attractive share-based remuneration, helping them to recruit and retain the key talent that they need to succeed and grow. Clause 17 makes changes to the provisions of the enterprise management incentives. Those changes will simplify the process to grant options under an EMI scheme, and remove some of the administrative burdens on participating companies.
CSOP is available to all UK companies wishing to offer their employees share options, but the EMI scheme is specifically targeted at small and medium enterprises. It helps them to compete with larger firms to attract and retain key talent by bolstering the attractiveness of the share-based remuneration they can offer to their employees. At Budget 2021, the Government published a call for evidence to seek views on whether the EMI scheme should be expanded. At spring statement 2022, they announced that it remains effectively and appropriately targeted. However, they also expanded the review to consider whether CSOP could support companies as they grow beyond the scope of EMI. Following the review, we decided that CSOP should be expanded to make it more generous and accessible to a broader base of companies, including scale-ups that are no longer eligible for EMI.
The Government also listened to those who said that the administrative requirements of the EMI scheme could be improved, particularly in relation to the process of granting options. That is an example for the hon. Member for Aberdeen North of the public-facing nature of our efforts in drafting this Bill. We are making these changes to address those concerns.
The changes made by clause 16 will increase the CSOP employee share options limit from £30,000 to £60,000 and allow future changes to the share option limit to be made by regulations. The “worth having” condition will be removed, allowing more share types, and therefore companies, to be included in the scheme. Clause 17 will remove two administrative requirements within EMI. The first is the requirement to include within the option agreement details of any restrictions on the shares to be acquired under the option, as those restrictions are typically set out in other documents. The second is the requirement for an employee who receives an EMI option to sign a declaration that they meet the EMI working time requirement. The clause will not remove the working time requirement itself, which is a key part of the scheme. These sensible changes will reduce the burdens on companies granting EMI options, saving them time and money and reducing the risk that tax relief is lost due to administrative oversights.
The changes to EMI will support an estimated 4,700 small and medium-sized companies, and an estimated 45,000 employees who are granted EMI options annually. The changes will apply to both schemes granted on or after 6 April 2023, and options granted before 6 April 2023 that have not yet been exercised.
Clause 16 will improve the company share option plan, making it more accessible and generous, which will support businesses to recruit and retain key staff. Clause 17 will improve the enterprise management incentives scheme by simplifying the process to grant options, and will support small and medium-sized businesses to recruit and retain the talent they need to succeed. I commend the clauses to the Committee.
James Murray
As the Minister said, clause 16 makes changes to the company share option plan, a tax-advantaged employee share scheme available to all UK companies and their employees. It will double the employee share options limit from £30,000 to £60,000; remove the “worth having” condition, which limits which types of shares are eligible for inclusion within a CSOP scheme; and make changes to the share options limit, which will now be achievable through secondary rather than primary legislation.
We understand from the Government’s policy paper that this measure seeks to support companies to attract talent and to grow by expanding the availability and generosity of CSOP. They hope to allow companies to offer their employees a greater stake in the company so employees can share in their employer’s success. The changes will help companies that have grown beyond the scope of the enterprise management incentives scheme to offer more attractive share-based remuneration, supporting them to recruit and retain talent. These changes to CSOP were announced not by the Chancellor at the spring Budget 2023, but by the previous Chancellor in September 2022, so it seems we have found one of the very few remaining measures from last autumn’s so-called growth plan.
Although the Minister has set out the details of what this measure involves, I would like to ask her to explain some of the detail behind its operational impact, set out in HMRC’s policy paper. In the section on operational impact, it says that a small IT change will be required to support delivery of the measure, which will be expected to cost less than £5,000. It also says that, due to the relaxation and increased generosity of the CSOP rules, HMRC will undertake increased compliance activity to ensure CSOP is being used appropriately. It says that additional resource will be dedicated to compliance work to support the effective delivery and implementation of this measure, and that this resource is expected to cost a total of £570,000.
Will the Minister confirm whether the additional resource dedicated to that compliance work will be additional net resource at HMRC, or will it involve any redeployment of resources? If the latter is true, will she explain the expected impact on other work carried out by HMRC? We know from a recent Public Accounts Committee report that £9 billion in tax revenue was lost during the pandemic because 4,000 HMRC staff fighting tax avoidance were redeployed. We therefore believe it is important to ask questions about any such potential redeployment. I look forward to a clear answer from the Minister on that point.
Kirsty Blackman
Like the Labour party, the SNP will not oppose this measure. These are positive changes. Particularly on EMI, the Government have listened to what companies are asking for, and making some of requested changes is important, particularly when it may not have been the Government’s initial intention to dos so. They have listened to the additional information that has come in and made that change as a result of the response from companies.
There are two sides to what happens in relation to employee share schemes. There is the experience that employers and companies have in relation to whether they are an EMI or a CSOP—it looks like that will be smoother for companies. There is also the experience that the employee has, and whether or not accessing those schemes works for their lives and what they intend to do. The right hon. Member for Knowsley (Sir George Howarth) has put forward a ten-minute rule Bill on the share incentive plan scheme, trying to ensure that lower-income workers can get access to the scheme and that the length of time that an employee is required to stay at the company before they can access their share ownership and benefits is reduced from five years to three years.
We know that the younger workforce these days are moving companies more quickly, and that is not necessarily a bad thing. Younger people are seeing the benefits of working for a number of different companies and building up a significant breadth of experience across companies, and they are more likely to job hop than my parents’ generation. As I said, it is not a bad thing; it is just a change in the way society works. As a result, share ownership schemes, in the way that they are written and organised by the Government, are less attractive to the younger workforce than they were to previous generations.
My key question is: what are the Government’s intentions for employee share ownership? Are they hoping to encourage and increase the amount of employees taking part in such schemes? It seems to me that 4,700 small and medium companies feeling good about EMI access is not all that many, and other companies that could benefit from it that may find there is not much in the way of interest among their employees because of the restrictions. Do the Government hope to make it more attractive for employees, or simply to make it slightly easier and more attractive for employers? If they hope to make it more attractive for employees, are they looking at the current restrictions and restraints on employee share ownership schemes and whether they work for the workforce of today, as opposed to just the workforce of yesterday?
I am incredibly positive about employee share ownership schemes. I do not necessarily think that every single company should use them, and I would certainly not push every single company in that direction. However, all companies that want to use them should have the flexibility to access them without red tape and bureaucracy, so removing some of that is helpful. Companies will be able to use them only if they get buy-in from their employees, which they can do only if the employee sees the benefit of taking part. It would be helpful to have an idea of the Government’s intentions—whether they plan to do any wider consultation or check in on the numbers, whether they have targets for employee share ownership and whether they plan to extend and increase it. It seems to me from clauses 16 and 17 that the Government are positive towards the schemes, but they have not gone quite far enough in increasing accessibility.
Victoria Atkins
If I may, I will answer the hon. Lady’s questions first. For the two schemes to work, we must help employers and employees to administer them and take advantage of them respectively. This is why we have made the changes that I set out.
We are mindful of the changes in the employment market that the hon. Lady described, and we looked very carefully at the gig economy. The issue is that many workers in the gig economy are not employed for tax purposes, so they fall outside the scope of EMI. Extending eligibility to the self-employed would go beyond the aims and objectives of EMI, because it is about employees having not just an earned income interest, but a full share investment in the business for which they work. There are complexities here, but we are mindful of how the modern economy is taking shape. That is why we will be launching a call for evidence shortly on non-discretionary share schemes, which are open to all employees of companies that opt in. I encourage her and others to participate in that call for evidence when it is launched.
The hon. Member for Ealing North asked about compliance, and he will know that HMRC takes compliance very seriously. Indeed, we have increased funding for compliance activities across the board. We want to ensure not only that officers can deal with particular forms of tax evasion or criminal activity, but that they can offer results across the board. I know that the answer will come to me shortly, but I commit to writing to the hon. Gentleman if it does not fall upon my shoulders before I sit down. I am very willing to take questions or interventions from any colleague on this matter, particularly from colleagues on this side of the House, because we fundamentally believe in entrepreneurship and capitalisation. We believe in spreading prosperity and wealth across the workforce, so it is not just the business owners but the employees that must profit.
Craig Whittaker
Before my time in this place, I worked for the Dixons stores group in retail. I remember how valuable the share options were to us—they were available to all employees. In fact, Dixons stores group was such a great company to work for that it often gave us free shares. On one occasion, it helped to pay for a very luxurious family holiday. Does the Minister agree that all the Government can do is to facilitate legislation to enable good employers to keep such things going? Skin in the game, as we used to say, is of as much value as money. Feeling part of the company is just as important.
Victoria Atkins
I am extremely grateful to my hon. Friend, who had a very successful business career before he was rightly elected to this place. He makes a really interesting point about spreading the benefits and how they do not just need to be financial, as he says. They can also be about career development. I recently visited John Lewis on Oxford Street. Although it has a different model of—
Victoria Atkins
Yes, Ms McVey; the trip to John Lewis will have to come later. I am helpfully informed that, as set out in the TIIN, the additional resource will be dedicated to compliance work to support effective delivery and implementation of the measure. That is expected, as the hon. Member for Ealing North said, to cost a total of £570,000, but we will write to him with further details in due course.
James Murray
I appreciate the Minister reading out the information from the policy note, which I also read and quoted during my speech. The question I was specifically asking, just to make sure there is no confusion at all, was whether the additional resource that she referred to—the £570,000 resource that is dedicated to compliance work—will be additional net resource at His Majesty’s Revenue and Customs, or will it involve any existing resource at HMRC being redeployed? If the latter, will the Minister set out—in writing, I presume—what impact the redeployment will have on other work carried out by HMRC?
Victoria Atkins
I am mindful that when the hon. Member asked me quite a technical question in a Statutory Instrument Committee recently, he misunderstood my response and raised a point of order that turned out to be wrong. I had to correct him on the record and with a letter to the Library, so I am pleased to be able to write to him on this matter to ensure that I have answered his question and that he understands the answer.
Victoria Atkins
I got it right. That was the point. He raised a point of order that was wrong.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17 ordered to stand part of the Bill.
Clause 26
Payments under Jobs Growth Wales Plus
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
The clause clarifies that payments made under the Welsh Government’s Jobs Growth Wales Plus scheme are exempt from income tax, with retrospective effect from 1 April 2022. The scheme was introduced by the Welsh Government on 1 April last year to replace traineeships and Jobs Growth Wales. The changes made by the clause will exempt from income tax payments made by way of training allowances under the scheme. Without the clause, the payments would be taxable, which would not be in line with the treatment of payments made for other training allowances.
James Murray
As we have heard, the clause introduces an income tax exemption for payments made by way of training allowances under the Jobs Growth Wales Plus scheme, which the Welsh Government introduced on 1 April 2022 to replace the traineeships and Jobs Growth Wales programmes in Wales. This is a training and employment programme aimed at 16 to 18-year-olds who are not in education, employment or training, and is designed to help them overcome any barriers that they may face in further training or employment.
As I understand it, the scheme has three strands: engagement, advancement and employment. Under the engagement strand, participants receive a training allowance of up to £30 a week; under the advancement strand, they receive £55 a week, and under the employment strand, individuals will be paid at national minimum wage for the age group. We understand that the training allowances paid under the scheme will be exempt from income tax. That was announced by the Financial Secretary to the Treasury in a written ministerial statement on 11 October last year. The objective of the measure is to clarify the tax treatment payments made by way of training allowances under the Jobs Growth Wales Plus scheme, and it will have retrospective effect from 1 April last year. We will not oppose the measure.
Kirsty Blackman
Will the Minister clarify how the payment has been treated in the interim period? I understand that back in October the Government announced their intention to treat it as exempt from income tax, but what has happened to the payments made since 1 April last year? Have the individuals been liable for income tax during that period? Will repayments or tax adjustments be required for those individuals because of the retrospective nature of the measure? Will the Government provide some clarity on how they intend to tackle those things to ensure that everybody has certainty about their tax treatment—that the individual who pays income tax has certainty about their tax treatment and that devolved Governments, when they are putting in place any of the allowances, are certain about the relevant income tax treatment in advance? We do not want uncertainty around something that is supposed to be positive for individuals.
Victoria Atkins
I am happy to be able to tell the hon. Lady that they were exempted. In terms of costs, I see the word “negligible” in the Exchequer impact assessment, so that is the administrative side effect of what we are trying to achieve to support efforts to train young people in Wales, which are commendable and for which I welcome the support. Clause 27, which I do not think we will debate, allows us to clarify the treatment of devolution payments via statutory instrument, which we are keen to do. Indeed, the hon. Lady will know that significant work with the Scottish Government, led by the Chief Secretary to the Treasury, is going on across the Treasury to underpin the arrangements for the fiscal framework.
Kirsty Blackman
Let me make sure that I understand what the Minister is saying. The Welsh payments were considered exempted, and this measure is just the legislation catching up with the treatment that they were being given anyway. Is that correct?
Victoria Atkins
I can confirm that.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 28
Qualifying care relief: increase in individual’s limit
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
The clause makes changes to support foster carers by increasing the amount of income tax relief available to them and ensuring that that relief stays at an appropriate level over time in line with inflation. We are nearly doubling the qualifying care relief threshold, which will give a tax cut to a qualifying carer worth an average of £450 a year. I know that hon. Members are particularly interested in supporting foster carers, who are real public servants, in looking after looked-after children.
Qualifying care relief has been unchanged since 2003. Many carers are now paying income tax on payments intended to represent the additional costs of fostering that qualifying care relief was intended to exempt. Minimum fostering allowances are set to rise by 12.4% in this financial year, and with current tax threshold freezes, current qualifying care relief levels are expected to push approximately 1,500 carers into tax, which could disincentivise care. We are seeking to reflect the higher allowances that are paid to carers and the higher costs of caring compared with when the relief was set originally. By linking the value of the relief to inflation, the measure will also help to ensure that the level of qualifying care relief remains appropriate over time, supporting carers now and in the future. This will help to provide a greater financial incentive for carers to join or stay in the care industry, improving the recruitment and retention of carers in the future.
The measure increases the amount of income tax relief available for foster carers across the UK and shared lives carers using qualifying care relief from £10,000 to £18,140 per year, plus £375 to £450 per week for each person cared for. Those thresholds will be index linked to the consumer prices index. That will benefit more than 33,000 individuals who receive care income in respect of foster caring and other types of care and who currently submit self-assessment returns; such people look after an estimated 58,000 foster children.
We expect to take most care income out of tax by providing a higher level of relief. It will have simplification benefits, because it will allow more carers to use the simpler method of completing their self-employment pages on their self-assessment return. I hope that that will be a welcome improvement to the tax position of foster carers and shared lives carers. I therefore commend the clause to the Committee.
James Murray
As the Minister says, the clause increases the annual amount of care income that a recipient of qualifying care relief will receive that is not subject to income tax. Furthermore, the clause provides for the annual amount to increase in subsequent tax years in line with CPI. We know that qualifying care relief allows carers who look after children or adults, including foster carers, shared lives carers and kinship carers, to receive certain payments tax free, up to an annual limit. We know that the annual limit comprises a fixed amount for each household, plus a weekly amount for each child or adult being cared for.
Qualifying care relief is a tax simplification providing specific tax relief for care income as a replacement for apportioning and calculating full deductions for expenses. The relief allows carers to keep simpler records for their care activities and to use a simpler method of filling in the self-employed pages of their tax returns, as the Minister mentioned. We recognise that the clause increases the fixed and weekly amounts making up the annual limit to bring more carers out of income tax and simplify their tax reporting responsibilities. It also introduces CPI indexation.
We welcome the fact that the clause could provide a greater financial incentive for carers to join or stay in the care industry, potentially improving the recruitment and retention of carers in the future, so we will not oppose it.
Kirsty Blackman
First, given the inflation that we are facing, it is incredibly important that people who are caring, and taking on caring responsibilities, can afford to do so and are not forced to stop because of an impact on their income. This is a positive step. A not insignificant number of those who are cared for face a specific issue, such access to special diets, for which inflation has increased much more than even for food inflation. Individuals caring for anybody who is on a special diet will have seen a differentially large impact on their household spend specifically as a result of having to cater for those special diets. The changes being made therefore could not have come at a better time.
It is also positive to hear recognition for kinship carers, who are so often missed out in conversations about caring, even if people are taking on a formal role as kinship carers. We could not do without the significant amount of work that kinship carers do, so I am pleased, having previously had to argue in my council role for similar benefits for kinship carers as those that foster carers were receiving, that the Government have as a matter of course included kinship carers in the qualifying care relief, and ensured that the changes being made extend to them.
Dame Angela Eagle
I think that this measure will be welcomed across the Committee. As the Minister said, no one will vote against it. All of us know locally, from our constituency advice surgeries and our general work, the pressure that the entire care system is under. We know many of the things that are wrong with it and difficult in it, and how crucial it is to try to get it right, not least for the life opportunities of those people who are caught up in the system.
In the context of a welcome change, could the Minister explain the decision to index to CPI rather than RPI? The retail price index takes into account the costs of rent or housing in a way that I would have thought was directly relevant in this context. Why was it decided to use CPI rather than RPI for future indexation?
Victoria Atkins
We use CPI across the board. What we have tried to do is bring the value of the QCR back to its intended level. As I said, it had not changed since 2003. Index linking protects its value to foster carers in the future, so that a future Finance Bill Committee does not have to consider a similar uprating in the future.
Dame Angela Eagle
I thank the Minister. It is obviously a good thing that there will be indexation. In fact, I was talking about the lack of indexing when we were talking about the freezing of tax thresholds earlier, so I understand that point.
However, I am asking a very technical, specific question about why the Government are using CPI rather than RPI. RPI includes the cost of housing, and the cost of rent, or whatever, for the place where the caring is being done seems to me to be a relevant cost in this context. Indexing to RPI would actually be a better way of representing and indexing those costs going forward. I am asking: why CPI, rather than RPI?
Victoria Atkins
It is because that tends to be our measure across the board. I take the hon. Lady’s point about housing, but if someone needs help with the cost of housing, depending on their income levels, there are other ways in which they can get help from the state for that. This relief was specifically to reflect the extraordinary public service that families across our constituencies provide in helping those most vulnerable of children.
Question put and agreed to.
Clause 28 accordingly ordered to stand part of the Bill
Clause 29
Estates in administration and trusts
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 4, in schedule 2, page 291, line 38, at end insert—
“(za) the property comprised in the settlement is not held for a pensions purpose within the meaning of paragraph 7(3) of Schedule 1C to TCGA 1992 (property comprised in settlements held for a pensions purpose);”
This amendment would mean that a pensions settlement could not be a “qualifying settlement” for the purposes of section 24B of the Income Tax Act 2007 (being inserted by the Bill) or a “relevant settlement” in respect of which the conditions in subsection (9) of that section could be met.
That schedule 2 be the Second schedule to the Bill.
Victoria Atkins
Clause 29 and schedule 2 make changes to provide greater certainty and simpler tax administration for trusts and estates by legislating and extending an existing concession. The changes prevent trusts and estates having to report small amounts of income tax to HMRC, make tax calculations more straightforward for some trustees, and provide technical clarifications for estate beneficiaries.
Trustees of trusts and personal representatives of deceased persons’ estates do not have tax allowances in the same way that individuals do. As a result, they must send HMRC a self-assessment return for all income, even small amounts. HMRC operates a narrow concession so that trustees and personal representatives do not have to report small amounts of untaxed savings income.
Last year, HMRC consulted on proposals to formalise and extend the concession, and on related reforms that would apply to smaller trusts and estates. Respondents broadly welcomed the proposals. We published a summary of the responses to the consultation at the spring Budget and are proposing legislation in line with that publication.
The changes made by clause 29 and schedule 2 will provide greater certainty and simpler tax administration for trusts and estates. Part 1 of the schedule makes technical amendments relating to income distributed from a deceased person’s estate to a beneficiary. Those ensure that the beneficiary’s tax credits operate correctly, and that a person can use their savings allowance against distributed savings income.
Part 2 of the schedule introduces a tax-free amount for trusts and estates with an income of £500 or less in a tax year. That frees smaller trusts, and around one in every seven estates with income, from paying and reporting income tax. The tax-free treatment for estate income is also passed on to the estate’s beneficiaries. For groups of trusts, the £500 limit will be reduced to a minimum of £100 per trust. That will prevent individuals from splitting up their investments into multiple small trusts to build up an inappropriate amount of tax-free income. We have tabled amendment 4 to simplify that rule. It excludes certain pension schemes from consideration when determining the amount of any reduction to a trust’s £500 tax-free amount.
James Murray
As we have heard from the Minister, clause 29 introduces schedule 2, which makes provisions relating to the taxation of estates in administration and trusts. We understand that the clause implements the Government’s response to the “Income tax: Low income trusts and estates” consultation conducted by HMRC between April and July 2022. The response was published at the time of the spring Budget. The clause seeks to legislate for an existing concession on the administration of tax for trusts and estates.
We will not oppose this measure, but I ask the Minister to address concerns raised by the Chartered Institute of Taxation about the impact of this clause on trusts. It believes that the legislation takes a practical approach on estates, which will benefit both the personal representatives of the deceased and their beneficiaries. However, it believes there is less simplification in respect of trusts with low incomes, and that for some people, the administrative burden will actually increase. The institute has concerns about the way that trust income is taxed in two stages. First, the trustees report the trust’s income and pay tax on it. Secondly, when income is distributed to beneficiaries, they must report the income and pay any tax that remains due after credit has been given for the tax that was taken at the first stage.
The Chartered Institute of Taxation draws attention to the fact that although a £500 threshold, like that for estates income, is applied to the income accruing to the trustees of a settlement, that does not exempt the income in the hands of the beneficiaries. Where trustees have no liability to report or pay, basic rate taxpayers will have to pay the basic rate tax due on their income from the trust. Currently, they may not be filing a tax return at all, as their basic rate liability will have been met by the tax deducted by the trustees; this measure may mean that they now have to file a tax return. I would welcome the Minister’s thoughts on that point, and would be grateful for a response to CIOT’s concern that this measure, while described as a simplification, could impact on often vulnerable beneficiaries receiving modest amounts of income, who will now have greater compliance burdens.
Kirsty Blackman
I have a quick question on Government amendment 4. Will it change the application of schedule 2 and proposed new schedule 1C to the Taxation of Chargeable Gains Act 1992, or does it simply clarify what is intended anyway under those schedules? The amendment specifically mentions the property not being held for pensions purposes. I am trying to understand whether that was the original intention, or whether the amendment changes the intent of schedule 2 and of schedule 1 to the TCGA.
Victoria Atkins
On the simplification point, the replacement of the lower-rate band with the new tax-free amount supports our long-standing goal of a modern and simpler tax system. This is a simplification for low-income discretionary trusts, as income within the tax-free amount will no longer be taxed as it arises. The change also simplifies calculations when income distributions are made. The consultation last year outlined that where discretionary trusts make income distributions, the existing 45% credit given to beneficiaries with that income would remain, as would the continued need for trustees to top up their payments to HMRC to match that credit when the distribution is made. I am told that the Chartered Institute of Taxation agreed with that proposition, and the Association of Taxation Technicians saw that as largely a question of timing and did not see a particular issue with the principle.
The hon. Member for Ealing North asked about vulnerable beneficiary trusts. The measures are a simplification for those trusts, as for any other low-income trust, as there will no longer be the need to elect to have income taxed as if for vulnerable beneficiaries. Instead, the income will simply not be taxed as it arises. Most vulnerable beneficiary trusts are, indeed, discretionary trusts, and as I said earlier, both the Chartered Institute of Taxation and the Association of Taxation Technicians have opined on this. The measure does not affect the need for trust beneficiaries to consider their tax reliability on their trust income. On the hon. Member for Aberdeen North’s question, the amendment clarifies our intentions.
James Murray
I thank the Minister for her response to my point. For clarity, my understanding of the Chartered Institute of Taxation’s point was that where trustees have no liability to report or pay, the beneficiaries, if they are basic-rate taxpayers, may still have basic rate income tax due on their income from the trust. I may have misunderstood, but did she say that beneficiaries will not be liable to income tax? Can she clarify that point?
Victoria Atkins
I will repeat exactly what I said for the hon. Gentleman, slowly: the measure does not affect the need for trust beneficiaries to consider their tax reliability on trust income that they receive.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 2
Estates in administration and trusts
Amendment made: 4, in schedule 2, page 291, line 38, at end insert—
“(za) the property comprised in the settlement is not held for a pensions purpose within the meaning of paragraph 7(3) of Schedule 1C to TCGA 1992 (property comprised in settlements held for a pensions purpose);”—(Victoria Atkins.)
This amendment would mean that a pensions settlement could not be a “qualifying settlement” for the purposes of section 24B of the Income Tax Act 2007 (being inserted by the Bill) or a “relevant settlement” in respect of which the conditions in subsection (9) of that section could be met.
Clause 30
Transfer of basic life assurance and general annuity business
Question proposed, That the clause stand part of the Bill.
Victoria Atkins
Clauses 30 and 31 address two issues concerning the tax rules that deal with reinsurance of a specific type of long-term insurance business known as basic life assurance and general annuity business, or more commonly, BLAGAB. Clauses 32 and 33 address the corporation tax and pension tax consequences that will arise from proposed new schedule 12 of the Financial Services and Markets Act 2000, which amends the procedure for a court-ordered write-down of an insurer’s liabilities when an insurer is in financial distress.
Clauses 30 and 31 were originally announced by the Economic Secretary to the Treasury in a written ministerial statement on 15 December 2022 and applied with effect from that date. They address the risk of both tax loss and unfair outcomes for insurers that could otherwise arise from commercial transfers of BLAGAB from one insurer to another.
Insurers writing BLAGAB are charged corporation tax under the “income minus expenses” basis of taxation, which seeks to tax the shareholder profits and the policyholder investment return together as a single taxable amount. When a BLAGAB book is reinsured prior to the transfer of a business, the shareholder profit and policyholder investment return become separated and are taxed differently, which could result in a tax mismatch. Clauses 32 and 33 prevent unintended tax consequences arising for both the insurer and individuals in the event of a court-directed write-down, which will help to ensure that such write-downs are a viable option to insurers in financial difficulty.
Clause 30 addresses a possible tax mismatch arising from the rules applying to the reinsurance of BLAGAB, which can result in a loss of corporation tax when a court-approved transfer of BLAGAB is preceded by reinsurance. In that situation, the clause classifies and taxes the reinsured business as BLAGAB in the hands of the reinsurer, ensuring that profits are taxed on a consistent basis. By protecting the Exchequer in such a way, this measure will increase receipts by £50 million to £60 million per annum.
Clause 31 addresses an industry concern that the current scope of the legislation, which treats certain sums received under a reinsurance contract as taxable income, may be unnecessarily wide and is blocking commercial transactions. It amends section 92 of the Finance Act 2012 so that it does not apply where substantially all the insurance risks of a book of BLAGAB are reassumed by a reinsurer.
Clause 32 addresses the corporation tax consequences that could otherwise arise when an insurer’s liabilities are written down under proposed new section 377A of the Finance Services and Markets Act 2000, and when there is any subsequent write-up under proposed new section 377I of FSMA. Without the clause, any release of liabilities could lead to an undesirable additional tax charge, which would reduce the balance sheet benefits of the write-down. The changes therefore help to ensure that the ailing insurer avoids insolvency. The clause also prevents the insurer from claiming a tax deduction where a write-down order is subsequently varied or terminated, which ensures that when an insurer recovers, the overall impact of the clause is tax neutral.
Clause 33 will extend the circumstances in which a pre-6 April 2015 lifetime annuity or a dependants annuity under a registered pension scheme can be reduced under a section 377A write-down without incurring unauthorised payments charges. This will ensure that those who receive financial services compensation scheme top-up payments, following a write-down under proposed new section 217ZA of the Financial Services and Markets Act 2000, will not face a tax disadvantage.
These clauses address a possible mismatch within the life insurance tax rules and clarify the scope of existing legislation, facilitating commercial transactions and protecting vital Exchequer revenue. They also ensure that write-down orders are a viable option for insurers in financial distress, and do not cause any additional tax liability for either the insurer or the individuals who hold policies with those insurers. I therefore recommend that the clauses stand part of the Bill.
James Murray
As we have heard, clause 30 applies to reinsurers of specific types of long-term insurance businesses known as basic life assurance and general annuity businesses, or BLAGAB. This is a technical change that addresses a tax mismatch in the life insurance rules where reinsurance precedes a transfer of BLAGAB. In that situation, the clause classifies the reinsured business as BLAGAB in the hands of the reinsurer.
We recognise that when books of life insurance policies are transferred between insurers, the economic transfer is typically effected by a reinsurance contract, pending court approval of the transfer. That gives the purchaser the economic benefits of the acquisition immediately. As we know, a tax mismatch can arise, as the profits from the business are initially taxed in the hands of the cedant as BLAGAB, then in the hands of the reinsurer as non-BLAGAB and, finally, after the business transfer scheme occurs, in the hands of the reinsurer as BLAGAB once again. A loss of tax can occur if a non-BLAGAB trade loss arises for the reinsurer and is offset against total profits or surrendered as group relief. The clause resolves that anomaly by ensuring that any profits or losses from the reinsured business that arise to the reinsurer are within BLAGAB. The ensuing result is that any trade profit or loss in the reinsurer will be subject to the BLAGAB rules, which accordingly brings the tax treatment of the reinsurer in line with the seller of the business.
We will not oppose this measure. For completeness, however, I would be grateful if the Minister could confirm the Exchequer impact of the measure, as it was not included in the original policy paper published on 15 December last year. We recognise that, as the policy paper points out, a consultation was not conducted due to the risk of forestalling. We also recognise that the amendments to eliminate the possibility of a mismatch will apply from 15 December last year, regardless of when the reinsurance contract was entered into.
Dame Angela Eagle
We often plead for financial services legislation to be made simpler, but from listening to the debate, it seems that we have not quite succeeded yet. I have a few questions, but the changes seem to be sensible; they ensure that there is no game-playing when it comes to reinsuring those bits of business that might need to be transferred from an ailing or failing insurance company to something stronger, so that those who rely on payments for their pensions or other costs can be assured that they will not lose out.
Have these technical changes been proposed as a result of an issue in the insurance world? Do insurers who wish to join larger companies or pass on some of their insurance policies want to do so because they thought that they had a tax advantage, and have buyers not been wanting to buy because they think that they might be left holding the baby, and face a big tax issue? Is this a structural problem, or does the Treasury see this as a potential problem that it wants to iron out before it manifests in the market? I suppose that is the question I am asking. If we are talking about a problem that has been holding up the efficient working of the market, what will the effect of the change be? Will it be beneficial? Has the Treasury modelled it, so that it knows the implications of the change? I am trying to get a handle on whether this is a theoretical issue, or whether there is an actual problem that has led to these changes, which seem sensible, if complex.
Victoria Atkins
First, in answer to the hon. Member for Ealing North, the Exchequer impact is plus-£15 million for 2022-23—all the figures are positive—plus-£50 million in 2023-24, plus-£55 million in 2024-25, and the same for 2025-26 and 2026-27. That is how long the measure has been scorecarded for. The hon. Member for Wallasey asked whether the risk was possible or actual. We legislated before significant further risk could arise on the adoption of the new accounting standard, IFRS 17.
Clause 30 addresses a possible tax mismatch in the BLAGAB reinsurance rules. Clause 31 addresses a matter brought to HMRC’s attention by the insurance sector, which has a long-standing concern that the current scope of the legislation, which treats certain sums received under a reinsurance contract as taxable income, may be unnecessarily wide and is blocking commercial transactions. In relation to the hon. Lady’s laments about the simplification of financial services legislation, I speak with the scars of having tried to prosecute insider dealing cases in my time, so I can understand why she asks about that.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clauses 31 to 33 ordered to stand part of the Bill.
Clause 34
Corporate interest restriction
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Government amendment 5.
That schedule 3 be the Third schedule to the Bill.
Clause 35 stand part.
That schedule 4 be the Fourth schedule to the Bill.
Victoria Atkins
Clause 34 and schedule 3 make changes to the corporate interest restriction and connected rules in order to protect Exchequer revenue, remove unfair outcomes and reduce administrative burdens for businesses. Clause 35 and schedule 4 amend tax rules for real estate investment trusts, qualifying asset-holding companies, and overseas collective investment vehicles that invest in UK property.
On clause 34, the UK’s corporate interest restriction rules prevent groups from using financing expenses to erode their UK tax base, where those expenses are not aligned with a group’s UK taxable activities. The Government estimate that the rules have increased corporation tax receipts by over £1 billion per annum since they were introduced in April 2017. The rules can be complex because they operate at both worldwide group and individual entity level. Therefore, on their introduction, the Government committed to keeping the rules under review, and in July last year HMRC set up an external working group to consult on proposed amendments to address issues raised by businesses and their advisers.
Following that consultation, we are introducing clause 34 and schedule 3 to make a total of 21 amendments to the corporate interest restriction and related rules limiting deductions for finance costs. There are five changes that protect the Exchequer’s position. I will not go through all five, but they include ensuring that groups cannot reallocate amounts of disallowed financing costs to reduce or eliminate a corporation tax inaccuracy penalty for careless or deliberate errors, and confirming that groups containing charities cannot benefit from tax relief for financing costs incurred in respect of tax-exempt activities. In most cases, the changes implemented by the Bill will take effect for periods of account starting on or after 1 April 2023.
The Government have also tabled amendment 5, which concerns the definition of an insurance company for the purpose of the corporate interest restriction rules. The amendment ensures that the legislation has the desired effect, and I am told that it is supported by the Association of British Insurers.
At Budget 2020, we launched a review of UK investment funds’ taxation and regulatory rules. That led to the introduction of a new tax regime for qualifying asset-holding companies in April last year. Clause 35 and schedule 4 make targeted changes to that regime, to address issues raised by industry. They also make reforms to other tax regimes for investment vehicles that invest in UK property.
There are many changes, including, first, to amend the “genuine diversity of ownership” condition in the tax regimes for qualifying asset-holding companies and real estate investment trusts, as well as the non-resident capital gains tax rules that apply to overseas collective investment vehicles. The second group of changes make targeted amendments to the REIT rules, to address issues raised by industry following a call for input in April 2021. They remove unnecessary constraints and administrative burdens. The third group of changes make amendments to the qualifying asset-holding companies regime, making it more widely available to investment fund structures that fall within its intended scope.
It is right that, after six years, the Government review the corporate interest restriction rules and address issues brought to our attention. That is what these clauses and schedules serve to deliver.
James Murray
As we have heard, clause 34 and schedule 3 make amendments in connection with the corporate interest restriction and predecessor legislation, to ensure that the rules work as intended. As we know, the corporate interest restriction rules superseded part 7 of the Taxation (International and Other Provisions) Act 2010, commonly referred to as the debt cap. The aim of the rules has been to restrict the ability of large businesses to reduce their taxable profits through excessive UK finance costs. Amendments were made to the corporate interest restriction rules in the Finance Acts of 2018, 2019 and 2021, to address various technical issues in order to ensure that the rules operated as intended. In July 2022, a working group was formed to consider proposed amendments to the rules, following further representations from customers, tax advisers and representative bodies regarding unfair outcomes. It was announced at the Budget that the Government would make a number of modifications to the rules, and clause 34 implements those modifications.
We will not oppose clause 34, but I would be grateful if the Minister could give some sense of the scale of the benefit that the changes are likely to bring to businesses or the Exchequer. The policy paper for the measure begins:
“This measure addresses a number of issues to protect the Exchequer and reduce unfair outcomes or high administrative burdens.”
However, in the detail, it states:
“This measure is expected to have a negligible impact on the Exchequer…This measure will have a negligible impact on an estimated 6,800 groups,”
and
“This measure is expected overall to have no impact on business’ experience of dealing with HMRC as the proposals do not significantly change any processes or administrative obligations.”
The policy paper therefore sets out at several points the view that the measure has no impact or, at most, a negligible impact. I would be grateful if the Minister could help us to square those statements with the aim of the measure. For instance, can she explain how the policy paper can claim at one point that the measure will “reduce...high administrative burdens,” yet also conclude that
“the proposals do not significantly change any processes or administrative obligations”?
Clause 35 and schedule 4 update the rules governing the tax treatment of certain investment vehicles. The qualifying asset-holding companies regime was included in the Finance Act 2022 and came into effect from April last year. Amendments to the regime were initially announced in July 2022, with further amendments announced in March 2023. The amendments seek to make the regime more widely available to investment fund structures that fall within its intended scope.
As we have heard, clause 35 and schedule 4 also affect the rules for real estate investment trusts—companies through which investors can invest in real estate indirectly. In a written statement on 9 December 2022, the Chancellor announced changes to the property rental business condition and three-year development rule within the real estate investment trust rules. Schedule 4 gives effect to those changes, and we will not oppose clause 35.
Victoria Atkins
We are making these changes because, as I have said, we are mindful that this is an incredibly complex area of law and of corporate accountability and we are genuinely happy to listen to businesses when they tell us that there are problems and they think that they have solutions for those problems. That is why we have gone through this process and set up an external working group. HMRC, businesses and their advisers have identified issues with the current rules. We are making these changes to protect the Exchequer and reduce unfair outcomes and administrative burdens on affected businesses.
The hon. Member for Ealing North referred to the worldwide debt cap. The corporate interest restriction rules superseded the tax treatment of financing cost and income rules, commonly referred to as the worldwide debt cap, but there are still open inquiries and cases in litigation where the debt cap legislation is in point. The changes clarify that a revised statement of disallowances is ineffective unless a revised statement of allocated exemptions is also submitted, so exemptions must always be reduced in line with disallowances.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Schedule 3
Corporate interest restriction etc.
Amendment made: 5, in schedule 3, page 309, line 4, leave out paragraph 28 and insert—
‘28 (1) In section 494 of TIOPA 2010 (other interpretation), at the end insert—
“(3) The definition of “insurance company” in section 65 of FA 2012 (which is applicable to this Part as a result of section 141(2) of that Act) has effect for the purposes of this Part as if, in subsection (2)(a), the reference to Part 4A of the Financial Services and Markets Act 2000 included a reference to the law of a territory outside the United Kingdom which is similar to or corresponds to that Part.”
(2) In Part 7 of Schedule 11 to that Act (index of defined expressions), in the entry relating to an insurance company, in the second column, for “section 141 of FA 2012” substitute “section 494(3)”.’—(Victoria Atkins.)
This amendment secures that companies count as insurance companies for the purposes of the corporate interest restriction rules if they effect or carry out contracts of insurance and have regulatory permission to do so under a foreign law which is similar to or corresponds to the relevant United Kingdom law.
Schedule 3, as amended, agreed to.
Clause 35 ordered to stand part of the Bill.
Schedule 4 agreed to.
Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)
Finance (No. 2) Bill (Second sitting)
Tuesday 16th May 2023
(1 year, 7 months ago)
Public Bill CommitteesRead Full debate Finance (No. 2) Act 2023 View all Finance (No. 2) Act 2023 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Chair
With this it will be convenient to discuss the following:
Clause 37 stand part.
That schedule 5 be the Fifth schedule to the Bill.
Clause 38 stand part.
The Financial Secretary to the Treasury (Victoria Atkins)
Clause 36 makes changes to ensure that tax is paid on value built up in UK shares or securities even if the shares or securities are exchanged for an equivalent holding in a non-UK company. The measure is already legally in application since the point of its announcement in the autumn statement on 17 November last year. It will ensure that tax cannot be avoided where a UK resident non-domiciled individual with a degree of control in a UK company exchanges shares or securities in a UK close company for shares or securities in a non-UK holding company.
Before the measure was introduced, individuals could claim the remittance basis on disposal of the non-UK company shares and any income received in respect of the non-UK company shares. That means that tax will be paid only on the chargeable gain or the income if it is brought into the UK. The measure prevents the remittance basis from applying to the chargeable gain on disposal where the individual holds more than 5% of shares or securities in a UK close company and exchanges the shares for an equivalent holding in a non-UK company. Instead, the individual will pay tax as if the share exchange had not taken place. The clause will prevent tax avoidance by a small number of individuals, and protects £830 million of revenue across the scorecard period, ensuring that tax is paid on value built up in the UK on UK company securities even when securities are exchanged for securities in a non-UK company.
Clause 37 and schedule 5 make changes to require large multinational businesses operating in the UK to prepare transfer pricing documentation in accordance with the OECD’s transfer pricing guidelines. Transfer pricing is a means of ensuring that the pricing of transactions between connected parties is at arm’s length for tax purposes. From the financial year 2016-17 to 2021-22, HMRC brought in £10 billion in additional tax from transfer pricing compliance activities. HMRC does not currently prescribe specific transfer pricing records that UK businesses must prepare to demonstrate that their tax returns are complete and accurate, or the format of those records.
The proposed changes would require UK businesses to prepare OECD standardised documentation, which is described as a master file providing high-level information of the global business operations and a local file providing more detailed information about material cross-border transactions of UK group members with other members of the multinational group. The changes made by clause 37 and schedule 5 provide greater certainty for UK businesses, provide HMRC with better quality data to enable more efficient and targeted compliance interventions, and align the UK’s practice more closely with the transfer pricing documentation requirements of comparable tax administrations.
Clause 38 makes changes to ensure that access to double taxation relief is limited in respect of dividends received by UK companies in periods prior to the introduction of a broad distribution exemption regime in 2009. Specifically, it will prevent new claims for double tax relief credit calculated at the foreign nominal rate of tax on such dividends being made on or after 20 July 2022, the date on which the Government announced in a written ministerial statement that legislation would be introduced for that purpose. Unlike normal double tax relief, which is given on tax actually paid, foreign nominal rate credit is a notional amount calculated by reference to the rate of tax applicable to the profits out of which the overseas dividends were paid.
A first-tier tribunal decision in 2021 concerning the nature of this credit raised the prospect that certain claims could still be made by companies in receipt of foreign dividends prior to the introduction of distribution exemption in 2009, possibly as far back as 1973, so we needed to act. The measure will protect Exchequer revenue by preventing new claims from being made for long-settled years where no actual additional tax has been paid by the claimant. It does not seek to prevent such claims in relation to periods that are open or remain subject to ongoing litigation. The measure is intended to preserve the balance between taxpayers’ rights to make double-taxation relief claims and the need to impose reasonable time limits in respect of such claims. I recommend that all of these clauses stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
I begin by addressing clause 36, which inserts new sections into the Taxation of Chargeable Gains Act 1992. As we heard from the Minister, the new sections will help to make sure that UK tax cannot be avoided on chargeable gains made on the disposal of a UK business, or on income received in respect of shares or securities held in a UK business, by exchanging securities in a UK company for securities in a non-UK holding company. Under the current legislation, where such an exchange takes place and the individual is a UK-resident non-domicile, they will be able to claim the remittance basis on any chargeable gain made on the disposal of the non-UK company’s securities or on any income received in respect of the offshore company’s securities.
I would be grateful if the Minister could set out the Government’s response to some of the queries about the detail of the Bill that have been raised by the Chartered Institute of Taxation, which has expressed concern that by applying only to individuals in their other guises—for example, when they are acting as trustees—the measure leaves gaps that could be exploited. The Chartered Institute of Taxation believes that there is potentially a straightforward avoidance opportunity here, whereby having shares held by trustees just before the share-for-share exchange could be resolved by extending the measure to cover trustees, rather than just individuals on their own. To tackle this issue, the Chartered Institute of Taxation suggests that individuals acting as trustees, or as partners or members of partnerships or LLPs, be included within the definition of those affected by the change, to ensure that artificial intermediaries are not put in place prior to any exchange.
The second point raised by the Chartered Institute of Taxation, which I would like the Minister to address, relates to the wording of the Bill with respect to the ownership of shares, which it believes may also create an avoidance opportunity. New section 138ZA(1)(d) of the Taxation of Chargeable Gains Act 1992, which clause 36 introduces, refers to the person to whom the shares are issued—the legal owner, as opposed to the beneficial owner. It is well recognised in tax law that the beneficial owner is the real owner for tax purposes, so the Bill should logically refer to beneficial ownership. The Chartered Institute of Taxation is therefore concerned that failure to clarify the beneficial, rather than legal, ownership could leave a possible avoidance opportunity open, and I would be grateful if the Minister could address that point.
More widely, looking beyond the specific detail of the Bill, we believe it is important to consider the context in which the clause operates. It seems clear that the situation that the measure in the clause seeks to address arises only because of the existence of the non-dom tax status and the associated remittance basis. Indeed, the Government’s own policy paper on this matter makes it clear that the measure is expected to affect a very small number of wealthy, UK-resident non-domiciled individuals a year. In practice, the measures we are considering need to be addressed only because the Government refuse to get rid of the £3.2 billion-a-year tax loophole that the Prime Minister has referred to as “that non-dom thing”.
The Minister may recall how she told the House in January that the measures we are debating today would mean that the Chancellor would close the loophole in non-dom legislation, but when we inspect the detail that is before us today, it is clear that this is just a smaller loophole within the much larger and more profound loophole: the continued existence of the non-dom tax status. The policy paper underscores this point and confirms that the measure will raise, on average over the next five years, just one 20th of the £3.2 billion lost through the non-dom tax status every year. I urge the Minister to go beyond the small step today and commit to abolishing the non-dom tax loophole altogether.
Moving on to clause 37 and schedule 5, we understand that this measure is intended to make sure that businesses maintain and provide upon request transfer pricing documentation prepared in accordance with the OECD transfer pricing guidelines. We recognise that accessing high-quality data in a standardised format would enable HMRC to carry out more informed risk assessments, target resources more efficiently and reduce the time taken to establish the facts in compliance interventions. Moreover, having to clearly report transfer pricing information in specific documentation will result in businesses having clearer and more robust transfer pricing positions to inform the filing of their return. This may encourage and incentivise businesses that adopt higher risk transfer pricing positions to change their behaviour.
In recent years there have been significant developments in the field of international taxation. More than six years ago, the OECD presented a package of measures in response to the G20-OECD base erosion and profit shifting action plan, including a requirement to develop rules regarding transfer pricing documentation. The action 13 final report recognised the importance of having the right information at the right time to identify and resolve transfer pricing risks. This led to the introduction of guidance on a standardised approach to transfer pricing documentation.
The standardised approach consists of three things: a master file containing standardised information relevant for all multinational enterprise group members; a local file referring specifically to material transactions of the local taxpayer; and a country-by-country report for the largest multinational enterprise groups containing aggregate data on the global allocation of income, profit, taxes paid, economic activity and so on among the tax jurisdictions in which it operates.
We understand from the policy paper on this measure that the UK did not originally introduce specific requirements regarding the master file and local file because the Government felt that the UK already had broad record-keeping requirements. They seem to have changed their mind on this, which has led to this Bill. It seems that the status quo had created uncertainty for UK businesses regarding the appropriate transfer pricing documentation that they needed to keep. That led to an inconsistency of approach. Although this measure relates to the standardised approach for transfer pricing documentation, I would like to ask the Minister to update the Committee on the status of country-by-country reporting.
The policy paper refers to the fact that the UK implemented the country-by-country minimum standard. However, as we know, the Government have long been hesitant to go beyond that minimum and provide public country-by-country reporting. Indeed, nearly three years ago my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson) made it clear to one of the Minister’s predecessors that for years the Opposition has been urging the Government to commit to country-by-country reporting on a public basis. Will the Minister give us her view on public country-by-country reporting and explain what is preventing the Government from implementing it?
Finally, clause 38 introduces a measure to limit access to double taxation relief in certain circumstances. Specifically, we understand that it will prevent new claims for double taxation relief credit, calculated by the foreign nominal rate of tax, which could arise in relation to overseas dividends received by UK companies in periods prior to the introduction of the distribution exemption in 2009. We recognise that this measure is intended to preserve the balance between double taxation relief claims and the need to impose reasonable time limits in respect of such claims, so we will not be opposing this clause.
Sam Tarry (Ilford South) (Lab)
It is an honour to speak under your chairmanship, Ms McVey. On the points made by my hon. Friend in relation to clause 36, it is important for the record that we understand the Government’s thinking around non-doms. Although work has been done to close the particular loophole that was mentioned, as my hon. Friend has just said it is quite apparent that that work is tiny compared to the scale of the problem. It is worth exploring the breadth of the problem.
Let us be clear. Non-doms receive around £10.9 billion in offshore income. That is capital gains that they are not required to report on to HMRC or pay tax on in the UK each year. For a non-dom using that remittance basis scheme, that amounts to a tax break of on average £420,000. Those unreported capital gains represent a huge untapped pool of tax. There are so many issues facing the country, and that money could be used appropriately to lift many people out of poverty.
Members on Government Benches have expressed on many occasions concerns about abolishing non-dom status and a potential flight or mass exodus from the UK. However, recent interesting research by the University of Warwick found that only 0.3% of those affected would leave the country. That is fewer than 100 people in total, most of whom are paying hardly any tax under the current regime. My question to the Minister is: why is there so little breadth in what has been brought forward? This was an opportunity to completely abolish non-dom status, or, if the Government are not prepared to do that, certainly to apply minds in the Treasury to a far wider range of areas, which would have brought much-needed money into our coffers. It is a problem that the Government are really a bit lax when it comes to tax.
Victoria Atkins
I am delighted to answer the Opposition’s queries on non-domiciled taxpayers. Their stance is an interesting contrast to the Conservative party’s inclusive nature when it comes to wealth creation, and opening ourselves up to the rest of the world to encourage the best and brightest to come here and do business. I am interested to hear that the hon. Gentleman has something against film stars, singers and—dare I say it—movie stars who perhaps cross into the world of football. I will not name any taxpayers. But my goodness, I am sure he is proud of the fact that we have a leading film and creative industry in the United Kingdom, particularly on the outskirts of London. I have the great pleasure of meeting representatives of some of those industries from time to time; the excitement and the welcome they feel from the United Kingdom, partly because of the reliefs and support given by the Government, is really interesting to see.
Turning to the scheme itself, we want to have a fair but internationally competitive tax system, designed to bring in talented individuals and investment that will contribute to the growth of the economy. Non-domiciled individuals pay tax on their UK income and gains in the same way as everybody else, and they pay tax on foreign income and gains when those amounts are brought into the UK. They play an important role in funding our public services through their tax contributions. According to the latest information, non-UK domiciled taxpayers are estimated to have been liable to pay almost £7.9 billion in UK income tax, capital gains tax and national insurance contributions in 2021, and they have invested more than £6 billion in the UK using the business investment relief scheme introduced in 2012.
To put those numbers into context, £7.9 billion is just under half of what we spend on policing in England and Wales. They are extremely big numbers. When the Opposition put their plans forward, they do not address a significant risk, which we have looked into carefully. What happens if, by changing the rules and making ourselves less competitive, we start to turn away those very successful people?
The hon. Member for Ilford South talked about capital flight. I think he was referring to the research published by the London School of Economics and the University of Warwick, which suggested that abolishing the non-domiciled regime would lead to very little immigration—around 0.2%. That study looked at the particular response to the 2017 reforms. As colleagues will know, several policy mitigations that were put in place in 2017 reduced the migration impact of reform: protections for non-resident trusts, the option to revalue non-UK assets at their 5 April 2017 valuation for CGT purposes and the ability to rearrange offshore investments to make it easier to bring money to the UK. Abolishing the remittance basis outright would be expected to have a much more significant behavioural impact in the absence of any policy mitigations, so the headline result of the external research may underestimate the migration response.
Samantha Dixon (City of Chester) (Lab)
This morning we discussed the Office for Budget Responsibility’s statement that the Bill will drag an extra 1.2 million people into the higher rate of tax, so will the Minister explain, in plain English, her reluctance to include non-domiciled taxpayers?
Victoria Atkins
They are taxed, as UK taxpayers are taxed, on their UK income—that is the point. The hon. Lady will know that the threshold for the additional rate was lowered from £150,000 to just over £125,000 at the autumn statement. That will apply to the UK income tax of those who are earning here in the UK. That is precisely the point; the difference relates to their foreign income. We want to help these very mobile and very successful people who work for banks or in the movie and sporting worlds, and we want to help those who work for the various businesses to which the hon. Member for Ilford South referred to help us to build the best tech industry that we can possibly have. We want them to help us to build incredible life sciences solutions.
If the hon. Member for City of Chester took a bit of time to talk to some of the individuals involved in the life sciences industry—that golden triangle between Cambridge, Oxford and London—she would know that what they do is genuinely inspiring. Why on earth would we not welcome people from overseas to help us in that? That little golden triangle has more tech companies in it than any place on the planet other than New York and Silicon Valley. If those places are our competitors in the tech industry, we are doing very well indeed. We want to encourage more of them to come to our country to help us to build that.
Aaron Bell (Newcastle-under-Lyme) (Con)
It is a pleasure to serve under your chairmanship, Ms McVey. The Opposition already seem to have spent the money from this claimed non-dom bonus a dozen times over, by my count. The Minister referred to the University of Warwick research, which I have referred to during various debates in the main Chamber. If the Treasury analysis is that that research—that 0.3% figure—is misguided, is it not the case that the magic pot of money that the Opposition keep spending does not actually exist?
Victoria Atkins
My hon. Friend brings a particular fervour to his intervention, if I may say so. I absolutely want very high-earning people to pay their proper taxes here in the United Kingdom, but we need to stay competitive, which is why we look at other countries around the world. Our competitors have regimes that give tax advantages, or they are more careful with the tax that they apply, to people who are so highly mobile. I want to bring those people to the UK and get them to pay UK taxes on their UK earnings.
Rob Butler (Aylesbury) (Con)
It is a pleasure to serve under your chairship, Ms McVey. Is it not also the case that attracting those very mobile people to this country means that they then spend money in this country? Some of that is on VAT—a further tax—and much of it is on employing other people, who then pay tax themselves, so the very presence of such very mobile people has a multiplier effect on tax.
Victoria Atkins
I completely agree: there is a ripple effect from those individuals. Conservative Members understand the concern that such people should pay their taxes fairly and contribute to our economy, which is precisely why it is a Conservative Government who act on loopholes when they emerge and are drawn to our attention, as we have done in the Bill but also in 2017. There is a delicate balancing act to ensure that we remain internationally competitive.
Sam Tarry
It is important that we are clear that non-dom status is mostly used by British citizens who were born in this country but have decided to not pay their taxes in this country, even though they live here for the majority of the year—[Interruption.] It is true. It is a hangover from the colonial era, when people used to have sugar plantations. Look at the history of non-dom status; it is hundreds of years old. It has not just been cooked up by the Treasury in the last five minutes, has it? It was a way of allowing people to own different things around the world—sugar plantations in the Caribbean are one example—and have that money come back to the UK without paying the taxes. It was a perk, essentially, for those people.
If Conservative Members do not believe me, they should go and look at the history. They are in government. They should know these sorts of things. The fact is that non-dom status is used as a tax dodge. The point is about fairness. Of course we want to encourage the brightest, most talented people to come to this country, make a life here and contribute, be that in life sciences, tech companies, the NHS or whatever, but I strongly suggest to the Minister that she should have a firm conversation with the Home Secretary about putting in place a progressive migration policy, because that is the problem here.
This is about taxation and people paying their fair share. Some 77,000 people—British residents, living most of the time in this country—use the non-dom scheme to not pay taxes—
Victoria Atkins
The hon. Gentleman is trying to tempt me away from the scope of the Bill, and I will resist that temptation. I gently ask him to help me—perhaps afterwards—to understand the evidence he has to support his claim that the overwhelming number of non-dom claimants are British residents. We just need to be a little bit careful about definitions.
Let me move on to the questions from the hon. Member for Ealing North. The share exchange legislation provides a relatively simple way for shareholders to avoid tax. It applies only to individuals. If individuals use artificial arrangements to prevent the legislation from applying, they will need to consider whether other anti-avoidance provisions apply.
The hon. Member asked about the difference between the legal owner and the beneficial owner. Again, the legislation applies to shares held on behalf of the individual in a nominee, or bare trust arrangement. Section 60 of the TCGA treats shares as being issued to the beneficial owner where there is a bare trust or nominee arrangement in place.
On public country-by-country reporting, we remain firmly committed to a multilateral approach, but it is important that such a requirement applies consistently across domestic and foreign headquartered multinationals to avoid distorting decisions on where companies decide to locate.
James Murray
The Minister quoted some figures that we have heard before, and I think it is worth the Committee having the context for them. The Minister tried to defend non-dom tax status by claiming that non-doms paid £7.9 billion in UK taxes last year. As always, that argument entirely misses the point, because we are talking about the £3.2 billion of tax that non-doms avoid paying in this country every year.
The Minister also repeated her line about non-doms having invested £6 billion in investment schemes since 2012, but I am sure the Committee would want to know that that ignores the fact that only 1% of non-doms invest their overseas income in the UK in any given year. In fact, non-dom status discourages people from bringing money into the UK to invest. We have set out the Labour party’s position very clearly, explaining how we would have a modern, short-term scheme for temporary residents.
Finally, the Minister referred to the potential behavioural impact if non-dom status were abolished. She was quick to dismiss some of the independent findings of the LSE and Warwick, made on the basis of HMRC data. If she is so confident that the behavioural difference will be that different, will she publish the Treasury research, so we have it in the public domain?
Victoria Atkins
We have to make judgments on how we ensure that the UK economy is not only internationally competitive but attractive to other countries. We are happy to make the point that non-domiciled taxpayers can make a valuable contribution to the United Kingdom, but of course we want them to pay—we require them to pay—UK income tax, and so on, on their UK income and remittances. We want to ensure that that system is in place.
On the behavioural aspects, we looked very carefully at the University of Warwick report, but what worries us is that there does not seem to be a recognition of the mobility of such people. They are able to live and work anywhere in the world. We do not want to put their living here at risk. Let us not forget that the hon. Gentleman is prepared to put at risk £7.9 billion. That is a risk we are not prepared to take.
James Murray
I will focus on the question in my previous intervention. The Minister was keen to rubbish the LSE and Warwick analysis based on HMRC data. Will she—
James Murray
Thank you, Ms McVey. The Minister was quick to rubbish the conclusions of the LSE and Warwick on the behavioural impact of abolishing non-dom status, even though the research was thorough and based on HMRC data. The question I asked the Minister was whether she will publish the Treasury analysis that she is relying on to rubbish that LSE-Warwick conclusion.
Shaun Bailey (West Bromwich West) (Con)
On a point of order, Ms McVey. My hon. Friend the Minister did not say that. Is it in order for Members of this House to misrepresent the words of other Members? I am pretty sure that “Erskine May” is clear, but I would be grateful for your guidance. I apologise for jumping in.
The Chair
We cannot say “misrepresentation”, but I would like the Minister to give a full response to what was said.
Victoria Atkins
We have been through this on many occasions. We are perfectly entitled to receive advice. We have come to the conclusion that non-domiciled status is right for ensuring that we remain internationally competitive. I am not rubbishing anyone, or anything of that nature, and it is improper to say that I am, but we do have reasonable concerns. We have to look at the evidence base. The one thing that we are not prepared to do is to put at risk that £7.9 billion going into the UK economy.
Question put and agreed to.
Clause 36 accordingly ordered to stand part of the Bill.
Clause 37 ordered to stand part of the Bill.
Schedule 5 agreed to.
Clause 38 ordered to stand part of the Bill.
Clause 39
Payments to farmers under the lump sum exit scheme etc
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 40 stand part.
Government amendments 6 and 7.
Clause 41 stand part.
Government amendment 8.
Clauses 42 and 43 stand part.
Victoria Atkins
Clause 39 makes changes to clarify that payments from the lump sum exit scheme are treated as capital receipts. It aims to set clear and fair rules regarding the taxation of the scheme. Clause 40 creates a fairer system for assessing capital gains when an asset is disposed of under an unconditional contract. Clause 41 makes the capital gains tax rules fairer for spouses and civil partners in the process of separating or divorcing. Clause 42 makes changes to ensure that individuals who pay tax on carried interest are able to better align the time a tax liability arises in the UK with that of other relevant jurisdictions, and therefore claim double taxation relief where it is due. Clause 43 makes changes to ensure that roll-over relief and private residence relief work as originally intended for members of limited liability partnerships and partners of Scottish partnerships.
I will go through the changes in detail. Clause 39 clarifies the tax treatment for around 2,700 sole trader farmers, farming partnerships and farming companies who have received, or will receive, payments from the lump sum exit scheme. That will give certainty to those receiving such payments and remove the need to consider individual cases.
Clause 40 modifies HMRC’s four-year assessment powers so that, in certain circumstances, they will operate by reference to the tax year or accounting period in which the asset is conveyed or transferred. For capital gains tax, those circumstances are where the conveyance or transfer takes place six months after the end of the tax year in which the contract is entered into. For corporation tax, the date is one year after the end of the accounting period for the contract.
Capital gains tax rules provide that the transfer of assets between spouses and civil partners is made on a “no gain/no loss” basis. When spouses or civil partners separate, no gain/no loss transfers can be made only in the remainder of the tax year in which the separation occurs. Clause 41 extends no gain/no loss treatment until the end of the third tax year after the year the parties ceased to live together, the date on which the parties’ marriage or civil partnership ended, or the date when the parties entered into a divorce or separation agreement. No time limit applies to transfers of assets that form part of a formal divorce or separation agreement. The clause also makes changes to the rules that apply to the sale of the former family home. The other change applies to individuals who have transferred their share in the former family home to their ex-spouse or civil partner and who are entitled to receive a percentage of the proceeds when it is eventually sold.
Amendment 6 corrects an issue with time limits. Where a divorce agreement has not been entered into, spouses and civil partners should have up to three full tax years in which to transfer assets between themselves on a no gain/no loss basis. As it is worded currently, clause 41 provides a day short of that, so we want to correct that. Amendment 7 clarifies that the new rules also apply to divorce agreements entered into after spouses and civil partners have ceased to be married or have ended their civil partnership.
The changes made by clause 42 will introduce a new elective basis of taxation for carried interest, a type of reward for asset managers. For those who opt to use the elective basis, it will tax carried interest in the UK at an earlier time than under the current rules. That will mean that individuals receiving carried interest may be able to claim double tax relief in other jurisdictions more easily, avoiding disproportionate tax outcomes. That will help to remove barriers to international trade and support the health of the asset management sector while accelerating, but not reducing, UK tax.
Amendment 8 seeks to refine the calculation of carried interest for the purposes of clause 42. It modifies the calculation methodology so that it works in circumstances where managers are entitled to more carried interest if investors receive fund profits earlier. That means that the measure will better deliver in practice the opportunity to claim relief from double taxation on carried interest, as intended.
Clause 43 will ensure that roll-over relief and private residence relief work as originally intended for members of limited liability partnerships and partners of Scottish partnerships, by clarifying that the reliefs are available to them when an exchange of interest in land or private residences takes place, in the same way as they are when the land is held by the individual members or partners.
This group of clauses will provide greater certainty, consistency and fairness in the taxation of chargeable gains. I therefore commend them to the Committee.
James Murray
Clause 39 clarifies the tax treatment of payments received under the lump sum exit scheme, saying they will be treated as capital receipts rather than income, provided that the eligibility criteria are met. As we know, the lump sum exit scheme was designed to make it easier for farmers who wish to retire or to leave the industry. The basis for the scheme was considered in 2021 by a consultation that we understand received 654 responses.
We will not oppose the clause, which is specifically designed to provide clarity on the tax treatment of payments made under the scheme, but I wish to use this opportunity to ask the Minister for more context around the clause and, in particular, for details on the operation of the scheme and what comes next.
I understand that a total of 2,706 farmers made an initial application to the lump sum exit scheme by the deadline of 30 September 2022. Of those claims, 511 were withdrawn or rejected. Will the Minister tell us what analysis there has been of why those 511 claims were withdrawn or rejected?
I am conscious that when the draft Agriculture (Lump Sum Payment) (England) Regulations 2022, which relate to this matter, were debated in March last year, concerns were raised, on behalf of organisations including Sustain, that the scheme could be open to instances of fraud. Will the Minister confirm whether any of the 511 claims that were withdrawn or rejected were in fact rejected on the basis of fraud? If she does not have that information, perhaps she can at least provide us with the detail about what anti-fraud efforts have been made in relation to the scheme and how successful they have been.
I understand that the Department for Environment, Food and Rural Affairs is conducting five pilots aimed at supporting new entrants into farming, and I would be grateful if the Minister updated us on how those pilots are going and any early lessons that she may be able to share with us.
Clause 40 modifies the operation of the period in which a person must notify HMRC that they are chargeable to capital gains tax or corporation tax, and the time limits for assessing chargeable gains and claiming allowable losses, when an asset is disposed of under an unconditional contract.
When an asset is disposed of in that way, its date of disposal for capital gains purposes is treated as being the date on which the contract is made and not the date on which the asset is conveyed or transferred, if this is different. HMRC subsequently has four years from the end of the tax year or accounting period in which the disposal is treated as taking place in which to assess any tax that is due. Similarly, there is a four-year time limit for making loss claims. If there is a long gap between the disposal contract being entered into and it being performed, that can result in HMRC and taxpayers having little or no time in which to make a tax assessment or a claim.
We recognise that the measure removes potential avoidance opportunities by ensuring that HMRC can assess tax due in circumstances in which more than four years pass between an unconditional contract being entered into and an asset being conveyed or transferred. It also provides the taxpayer with a safeguard by allowing a corresponding period to claim allowable losses. We will therefore not oppose the clause.
As we heard, clause 41 makes changes to the rules that apply to transfers of assets between spouses and civil partners who are in the process of separating. It provides that they be given up to three years in which to make a no gain, no loss transfer of assets between themselves when they cease to live together, and unlimited time if the assets are the subject of a formal divorce agreement. It also introduces special rules that apply to individuals who have maintained a financial interest in their former family home following separation and that apply when that home is eventually sold.
Essentially, the clause seeks to make fairer the capital gains tax rules that apply to spouses and civil partners who are in the process of separating. It gives them more time to transfer assets between themselves without incurring a potential charge to capital gains tax. No gain, no loss treatment is currently available only in relation to disposals made in the remainder of the tax year in which the spouses or civil partners cease to live together. After that, transfers are treated as normal disposals for capital gains tax purposes. The measure extends the time available to give separating couples at least three years to make no gain, no loss transfers between themselves for capital gains tax purposes.
It is worth noting that the “Background to the measure” section of the Government’s policy paper on this matter refers to the Office of Tax Simplification and its consideration of how the capital gains tax rules apply to individuals who separate and divorce. The Government responded to the Office of Tax Simplification recommendations by agreeing that the no gain, no loss window on separation and divorce should be extended, and that is what the clause implements.
There is at the very least something ironic about a Government who use one clause of a Finance Bill to implement a recommendation of the Office of Tax Simplification and another clause of the same Bill to abolish that institution. As the Chartered Institute of Taxation has pointed out, the changes to be made by the clause are a result of an Office of Tax Simplification report. In fact, they are the third recommendation from that report to be implemented: it also recommended an increase in the notification period for the disposal of residential properties from 30 days to 60, and the incorporation of capital gains tax into a single customer account.
Will the Minister offer her views on that when she responds, and set out how the Government reconcile the apparent worth they seem to attribute to the Office of Tax Simplification, as evidenced by their decision to implement its recommendation in clause 41, with their decision to scrap it later in the Bill?
Victoria Atkins
On amendment 8, I had read out that it seeks to refine the calculations of carried interest for the purposes of clause 42. It modifies the calculation methodology so that it also works in circumstances where managers are entitled to more carried interest if investors receive fund profits earlier. That will mean that the measure will better deliver in practice the opportunity to claim relief from double taxation on carried interest, as intended.
James Murray
I apologise to the Minister for missing her comments about Government amendment 8 and remind her that I would like to know whether the amendment, if it is passed, will have any effect on the overall Exchequer impact of the measure.
Victoria Atkins
I will come to that later.
The hon. Gentleman should send his questions about the farmer scheme to DEFRA, which is responsible for the Rural Payments Agency, which operates the scheme. He will know that we are confining ourselves to the tax implications of the scheme, so he ought to direct his questions there.
The hon. Gentleman asked about the Office of Tax Simplification, and that debate awaits us in our next day of consideration in Committee. I will not trespass on those deliberations, but we are in fact going further than the OTS’s recommendation, as we consider that that will give a fairer outcome to the parties involved in complex separation and divorce proceedings. We received representations that the OTS’s recommendations did not go far enough and we wanted to address the issues about the former family home that, for many divorcing and separating couples, is their main asset. We want to try to relieve the pressure during what can be a very upsetting and emotional time for the people involved and to try to ensure that they have time to resolve important family disputes.
In relation to carried interest being taxed as income, depending on the circumstances carried interest can be subject either to income tax rates or to the higher capital gains tax rate of 28% for higher and additional rate taxpayers. This is a balanced approach and one that is followed by comparable jurisdictions. We are supportive of the wider role and importance of the asset management sector. Amendment 8 has no impact on clause 42; it is designed to make the measure work as intended.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Clause 40 ordered to stand part of the Bill.
Clause 41
Separated spouses and civil partners
Amendments made: 6, in clause 41, page 32, line 36, at beginning insert “on or ”.
This amendment ensures that the inserted subsection (1C) applies to disposals made on the days mentioned in paragraphs (a) and (b) of that subsection as well as before those days.
Amendment 7, in clause 41, page 33, line 8, after “etc)” insert—
“, but as if, in subsection (2)(a), after ‘partner’ there were inserted ‘, or former spouse or civil partner,’”. —(Victoria Atkins.)
This amendment clarifies that the inserted subsection (1D) applies in relation to disposals made after A and B have ceased to be married or civil partners.
Clause 41, as amended, ordered to stand part of the Bill.
Clause 42
Carried interest: election to pay tax as scheme profits arise
Amendment made: 8, in clause 42, page 34, line 40, at end insert—
“(5A) Where—
(a) distributions were made by the scheme to external investors before the relevant tax year, and
(b) the timing of those distributions affects the amount of carried interest that actually arises to A,
the amount of carried interest to be presumed to arise in the circumstances mentioned in subsection (5) is to reflect the fact those distributions were made before the relevant tax year.
(5B) But if reflecting that fact would lead to a presumption that an amount of carried interest had arisen before the relevant tax year, any such amount is to be presumed to arise in the relevant tax year.” —(Victoria Atkins.)
This amendment secures that the amount of carried interest that is presumed to arise in the hypothetical situation that determines the amount of the charge properly reflects prior distributions to investors.
Clause 42, as amended, ordered to stand part of the Bill.
Clause 43 ordered to stand part of the Bill.
Clause 44
Meaning of “alcoholic product”
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 6 be the Sixth schedule to the Bill.
Clauses 45 and 46 stand part.
Clause 49 stand part.
The Exchequer Secretary to the Treasury (Gareth Davies)
It is a great pleasure to serve under your chairmanship, Ms McVey. Clauses 44 to 46 and 49 introduce part 2 of the Bill, which delivers on the Government’s commitment to reform alcohol duty. Clauses 47 and 48 were debated in the Committee of the Whole House, which accepted that they should stand part of the Bill. The clauses change the structure of alcohol duty by creating a standardised series of tax bands based on alcohol strength.
At Budget 2020, the Government announced that they would take forward a review of alcohol. This legislation is the result of that review and makes changes to the duty structure for alcohol, moving from individual product-specific duties and bands to a single duty on all alcohol products and a standardised series of tax bands based on alcohol strength. In making these changes, the Government aim to support public health, encourage innovation and ensure that the duty system reflects modern drinking practices.
Clause 44 sets out what is meant by “alcoholic product” and points to definitions in schedule 6. Clause 45 explains the meaning of alcohol strength and gives HMRC the power to make regulations about how strength is to be determined for duty purposes. Clause 46 gives His Majesty’s Treasury the power to amend the categories of alcohol product and treat products as falling within a certain category, even though they may otherwise have fallen in another. Clause 49 explains when excise duty on alcohol is payable, how the amount is determined and how it is paid.
The changes made by the alcohol duty clauses are expected to impact up to 10,000 businesses that produce alcohol, import alcohol or supply it wholesale. This impact will be down to changes in how they calculate the amount of duty that is due on their products. The entire alcohol reform package will cost £155 million in 2022-23 and £880 million across the scorecard period.
To conclude, the clauses and accompanying schedule form an essential part of the Government’s ambitious reform of alcohol duty and will modernise the tax treatment of alcohol. I commend the clauses and schedule to the Committee.
Abena Oppong-Asare (Erith and Thamesmead) (Lab)
It is a pleasure to serve with you in the Chair, Ms McVey. I wish you and Committee members a good afternoon. I take this opportunity to formally welcome the Minister to his new post. I am looking forward to this afternoon’s discussion, which I hope continues to be as productive as this morning’s was.
The clauses are in part 2 of the Bill, on alcohol duty. As the Minister said, clause 44 and schedule 6 introduce the term “alcoholic product” and set out what it means. The term is defined as spirits, beers, ciders, wines and any other fermented products if they have an alcoholic strength of more than 1.2%. Schedule 6 provides a definition for each of the categories I just listed.
The clauses introduce the new alcohol duty regime, which was touched on in the Committee of the whole House. In that debate, I made it clear that the Labour party agrees with the principles behind the alcohol duty review. Indeed, we want to see an alcohol duty system that is simpler and more consistent, while recognising that there is a balance to be struck between supporting businesses and consumers and protecting public health—as the Minister mentioned—and retaining a source of revenue for the Exchequer.
The clauses are administrative in detail so we will not oppose them, but let me lay out some of our underlying concerns about messaging and decision making, which will drive Labour’s scrutiny of the clauses. The Committee may remember that the Government announced a call of evidence on potential alcohol duty reform way back in October 2020. The aim of the review was to make the system
“simpler, more economically rational and less administratively burdensome on businesses and HMRC”.
But since then businesses have seen indecision, U-turns and delays.
The Government’s response to the alcohol duty consultation was published in September 2022, just before the chaotic Tory mini-Budget that crashed the British economy. In that mini-Budget, the then Chancellor announced a freeze on alcohol duty that was due to come into place in February 2023. The new Chancellor then scrapped the planned freeze in October’s autumn statement.
Businesses were scrambling to get their heads around the changes, and some scrapped product lines and slimmed back orders, losing out on the revenue they would expect to see in the run-up to Christmas. The situation has been reflected in many conversations that I have had with businesses up and down the country. I am sure it has caused real distress and difficulties for businesses involved in the supply chain—whether in manufacturing or hospitalities—in the constituencies of all Committee members.
Then, in December, the Government announced a screeching halt and another U-turn. They decided that the freeze was back in place and would last until August 2023. This caused a sigh of relief among businesses facing uncertainty, but it was too late to undo the damage inflicted on their balance sheets. We all know a pub that is facing closure as soaring inflation becomes unmanageable, or perhaps a small brewery that employs local people and has now had to reconsider its expansion plans. Such businesses desperately need certainty, so I hope that the Minister can confirm today that there will be no further U-turns or changes.
The new duty regime will see duty rates adjusted in line with inflation and moved to a system that links them to the ABV—alcohol by volume—of drinks. Clause 45 sets out how alcoholic strength is to be measured and understood, and provides for HMRC commissioners to make regulations on determining the strength of alcoholic products. Alcoholic strength, otherwise known as ABV, is what it says on the tin: the proportion of alcohol contained in a product’s total volume, expressed as a percentage. It is calculated while the product is at a temperature of 20°C.
Dame Angela Eagle (Wallasey) (Lab)
I take this opportunity to welcome the hon. Member for Grantham and Stamford to his new position as Exchequer Secretary to the Treasury. I am told that this is his first Committee as a Minister. I trust that he has been having sleepless nights about it in the run-up, and that he has had his advisers put every size of bottle and every alcohol stamp on his desk, so that he could get to understand how the system works.
Dame Angela Eagle
Of course not; otherwise, I am sure the Minister would be in a much worse situation than we find him in today. However, we will make that judgment after he has finished answering our questions. I genuinely welcome him to his position. It is a fantastic job, and he will be fascinated by it. He will wake up suddenly to realise that his job is to tax all vices, and how interesting that can be.
The Minister is inheriting a completely different regime of alcohol taxation from the one that is about to make an exit. As he heard from my hon. Friend the Member for Erith and Thamesmead, in principle, the Opposition are not opposed at all to the changes, but although there is that agreement, there is an awful lot of detail, potential issues and problems. He will find that definitional issues are not always easy, not least because if tax and duty are to be based on alcohol by volume, the manufacturers will switch the volumes around to get from one band into another. I am interested, philosophically, in what he thinks the right banding is to prevent too much of that.
The public policy reason for having that kind of duty system is, I presume, to persuade people gently that if they are to drink alcohol products with a higher percentage of alcohol in them, they will have to pay more tax, because in general higher-alcohol products are thought to have a greater effect on health than products with less alcohol. That was always the reason, philosophically, for moving to such a system. The Minister will find that, at the margins, manufacturers will try to ensure that their products are in a lower rather than a higher band, although some of the most glorious alcoholic beverages cannot begin to do that. I am thinking of spirits, such as whisky, which are much higher in alcohol.
If we look at the reaction of business and manufacturers to this change, there seems to be an equal division between those with higher alcohol by volume percentages, who find themselves in the higher-taxed bands, and those in the lower-tax bands, such as beer manufacturers. There is an inverse relationship between manufacturer satisfaction and where they are in the ABV bands. The beer and cider manufacturers are basically happy, whereas the wine and spirit manufacturers are less happy. Presumably the Minister will, if he has not already, have them in his office, making it quite clear to his face precisely what they think about that.
Issues other than definitional ones will come to bear on the new system, which will come into being on 1 August. I assume the entire system and HMRC are ready for that; it is a big change. The Minister is presumably confident that when 1 August comes along, the system will come into place seamlessly, and as the old system exits, the new system will appear. I assume he will confirm today that he is more than confident that this large change will come off without any problems. Obviously, we eagerly await his reassurance that there will not be some disaster as the new system comes in.
What, if any, work has been done on the implications for our export trade of changing the way we tax alcohol products? Obviously, countries have different ways of categorising products for tax purposes. I seek reassurance our deviating from a system that used to be EU-wide will not have any deleterious effect on our capacity to export what are often well-known products. I am thinking of not just Scottish whisky—we know how important that industry is to the Scottish economy, but other well-known products associated with this country, which we see when we are on holiday abroad. I assume that he is happy with that.
The OBR has said that it expects alcohol revenue to be £13.1 billion this year. Again, I assume the Minister is confident that the changes will not have an unpredictable effect on alcohol revenue. The OBR expects that to rise to only £15.8 billion by 2027-28. Given that we will have a 10.1% increase—I assume that will happen on 1 August, when the uprating happens—that seems like quite a small amount of increased revenue. I note the uprating is by retail price index when that suits the Government, because it means that they get more revenue, but we learned from our earlier conversations that they link by the consumer prices index when indexing something that gives money out. RPI makes some sense, but I just note that in passing.
Will the Minister talk about the transitional arrangement? There is quite a lot of worry in the trade about certain products that do not qualify for wine industry support. The more general rate is meant to be a transitional arrangement, lasting for the 18 months before the different ABV levels are brought it, in full force. Will he talk about draught relief? When I was Exchequer Secretary, there were big issues between the on-trade and the off-trade. It looks like the trade relief is trying to deal with some of the issues between the on-trade and the off-trade through tax. If I have understood correctly, it looks like there will be tax relief for the on-trade in order to balance out the price differential with the off-trade, and presumably to prevent people from loading up down the shop before they go into a pub. I assume it is an attempt to support the licence trade and the on-trade at the expense of the off-trade, given the “buy one, get one free” discounting that goes on in our supermarkets.
This may make the Minister very unpopular in the southern part of the country, but I note that there is still what is known as cider exceptionalism in the levels. Cider is taxed less than other alcoholic beverages, even though it is the same ABV as them. He might have an explanation for the cider exceptionalism. Now that we are not in the EU, he does not have the excuse that I had that: we could not do anything about cider exceptionalism because of EU rules. I note that he has decided to continue with cider exceptionalism. Perhaps he will tell us why. Does the Treasury prefer cider as a drink, or is there some terrible prejudice against beer that is being found out through this?
The changes introduce a huge range of different forms of taxation. Nobody objects to the principle, but there are quite a lot of anomalies. There are issues between the on and the off-trade, definitional issues, and issues surrounding revenue—why does it continue to be so flat, unlike the beer being taxed? I look forward to the Minister’s response, and I hope that he will not mind me leaping up if he says something that piques my interest, so that we can have a debate about it.
Kirsty Blackman (Aberdeen North) (SNP)
Who knew that a debate on alcohol would be so popular in this place? I will try to limit myself to the clauses that we are talking about, but I will mention a couple of general issues. In Committee of the whole House, we discussed our specific issues with rates. In particular, we discussed the concerns raised by the Scottish whisky industry. We gave our wholehearted backing to the amendment on the subject tabled by the right hon. Member for Orkney and Shetland (Mr Carmichael), because we had concerns about the changes and increases. However, as I said, that has already been discussed, so I will not major on that.
This is a direction of travel for which we have been calling for a very long time. We are pleased that the Government are moving towards applying differential tax rates based on the alcohol in beverages. I share the concerns raised just now about cider, and about exceptionalism for a certain type of product, rather than going simply by the alcohol by volume ratio. It would have been more sensible and fairer across the board to be more consistent.
It is pretty unusual for me to criticise explanatory notes, but those on this part of the Bill are not particularly good. They mention that 77 clauses relate to the changes to alcohol duty, but they give a very general explanation of what the clauses do, rather than a specific explanation of what each clause does. Therefore, we cannot see easily by looking at the explanatory notes what each clause is intended to do. For example, I will ask questions later about clause 87. The explanatory notes could have answered my questions, had an actual explanation been written in there, but the notes just say, “This is what we intend to do with the entirety of the alcohol regime,” rather than providing a commentary on each clause. I understand that a commentary on each clause would have been significantly more work, but presumably the Treasury has an idea of why it is putting forward each clause; it would not have cost it too much to expound on that in the explanatory notes.
Gareth Davies
That was an extensive display of preparation and reading, and quite right too, because that is exactly what we are here to do—scrutinise the Bill. Let me try to answer some of the many points that were raised in the three speeches. First, let me thank Opposition Members for their very generous and kind words. It is a great pleasure to serve in this position in the Treasury.
First out of the gate, let me say that the reforms were extensively consulted on; a lot of the comments related to that. As was pointed out, the reforms were first mentioned in 2020. The hon. Member for Wallasey is quite right: one of my first meetings was on this subject. Engagement with industry is paramount, and that is an ongoing process. Many in the various industries affected by the reforms very much welcome the public health focus that is driving this significant change. Many also welcome the simplification that we are bringing in across the board, and the fact that we are correcting several inconsistencies. I was asked by Opposition Members to give several examples. I can do that. One that springs to mind is the fact that sparkling wine pays 28% more duty than still wine, yet has significantly less or the same alcohol content. The driving principle behind the reforms is that the more alcohol in a product, the more tax that the producer pays. That is very clear for businesses to understand.
We were asked at the beginning about our support for businesses, and were told that businesses require certainty. I completely accept that, and we are providing it with the reforms. This is a massive simplification of our tax system for alcohol, and it builds on all the support that the Government have provided through covid and the energy crisis, as hon. Members will be well aware.
Let me try to rattle off a couple of quick responses to the hon. Member for Wallasey. I was asked about the differences in banding and how certain categories of alcohol can fall into different bands. That is true of spirits; Scotch whisky is required to be over a certain level of alcohol, but cocktails in a can and other items that I am aware of are lower in alcohol content, and so will have a lower tax requirement. That is very pertinent to businesses that have a portfolio of different products in their range.
The question about HMRC readiness is absolutely fair, and we are very confident that the processes have been put in place and businesses are ready to adapt to the new system. As I say, it is based on an extensive programme of consultation and engagement. The hon. Lady asked about exports. They are not subject to alcohol duties, although we are aware of the importance of exports to our alcohol industry. That is a live discussion that we have with the Scotch whisky industry all the time.
Let me address the point about the wine easement, which also relates to the question that the hon. Member for Aberdeen North asked about engagement with industry and others. There is a unique circumstance involving wine that comes from fresh grapes: the alcohol content changes by season, according to seasonal factors. That is different from fortified wine, which involves a more artificial process in which spirits are put into the wine to achieve a specific alcohol content. As part of the consultation that I mentioned, we listened to the wine industry, and for 18 months we have put in place a transitional arrangement for still wine of between 11.5% and 14.5% derived from fresh grapes to enable the industry to transition accordingly.
The hon. Member for Wallasey asked about draft relief. If she will forgive me, that was fully covered in Committee of the whole House, but she is right that it will benefit drinkers of pints in a pub over supermarkets. Draft relief applies to all alcohol below 8.5%. It is something that we are doing in support of beer drinkers and to support our community pubs, which are a vital part of all our communities.
Finally, I will just say that cider is also subject to the general principle that we seek to adhere to—namely, that the higher content of alcohol, the more cider producers will pay. Producers of super-strength ciders above 8.5% will pay more duty, but those of fruit ciders will pay significantly less. At the moment, on certain fruit ciders that are not apple or pear cider, producers pay two to three times the amount of duty. The outcome of these reforms will be a range of differential impacts for the cider industry. I will always support the cider industry, because it is incredibly important to the south of our country, but also to those across the country who enjoy drinking cider in the pub or at home.
Dame Angela Eagle
The Minister talked about simplification, and changing the system to make it easier for people to understand often brings important benefits. However, the reliefs that are coming in complicate it again. Is he satisfied that he has the right balance in extending the reliefs to the new simplified system, particularly the draft relief and the transitional relief?
As the person who brought in the small brewers relief, I have a certain attachment to it, although we will not be talking about that. What revenue does the Treasury believe these reliefs will rob it of, and does he think he has the right balance in imposing a more complicated relief-based system on his simpler system?
Gareth Davies
It is a fair question. We are seeking to simplify the entire system of alcohol taxation, and in the round that is broadly what we are doing. However, we are conscious that certain sectors are under acute pressure—smaller cider makers may have particular vulnerabilities to some of these reforms, for example, and we are mindful of that.
However, we are still applying the principle that I have discussed: the higher the alcohol content, the more tax will be paid. As I mentioned, the wine easement is a reflection of the particular and unique circumstances that I heard about from the wine industry. That is a transitional arrangement, not a permanent reform; overall, we are seeking to simplify the system.
Abena Oppong-Asare
I thank the Minister for his explanations so far. I want to get clarification on a few points. As I mentioned, clause 46 and schedule 6 have been drafted to allow the reclassification of categories. Is any guidance being drafted at the moment? Can the Minister give us more information about how the operation will be carried out to make sure that no issues are identified later? The legislation is not very clear.
To follow on from the points made by my hon. Friend the Member for Wallasey, extra work will be given to HMRC as a result of this. I know that the Government have done work on the issue for some time, but I would like reassurance that adequate processes are in place. How much resource has been allocated to ensure that this is carried out? There will be extra work for HMRC to make sure that the alcoholic strength regulations are determined. It is important that we know whether there have been issues for HMRC in delivering because it has been under a lot of pressure. More information about that would be very helpful.
Gareth Davies
Let me answer the point about guidance. I assure the hon. Lady as well as the hon. Member for Aberdeen North that guidance will be issued very shortly. The hon. Member for Erith and Thamesmead will be able to review that and it should answer a lot of the questions that she has just asked.
Let me repeat what I said about HMRC. The organisation has some incredibly hard-working staff who I have had the pleasure of meeting just in my first two weeks. As a Treasury, we have been preparing for this for quite some time. I have every confidence that our colleagues at HMRC are ready and waiting to implement the system. I have nothing further to add on this, so I urge that the clauses stand part of the Bill.
Kirsty Blackman
I have a brief comment about the guidance. I appreciate that a proportion of the stuff coming out is guidance so will not need to go through any parliamentary processes. However, some of the issues are to do with statutory instruments. Is the Minister satisfied that enough parliamentary time would be given for those, whether under the negative or affirmative procedure? Will they happen as quickly as possible? Clause 119 is about procedure and regulations. Will there be enough time for all that as well as for the less formal guidance coming through from HMRC?
Gareth Davies
We all take parliamentary scrutiny incredibly seriously and of course we will allow appropriate time for scrutiny of the Bill and all the guidance in the appropriate way.
Dame Angela Eagle
Given the newness and thoroughness of the changes that the Minister has outlined, and obviously extensively consulted on, I am presuming that the Treasury will also have a review process once the introduction has happened, so that it can look at how the changes have gone and whether further tweaks are necessary. Certainly, but not surprisingly, some aspects of the industry at the higher ABV end wish the transitional arrangements for wine to be extended beyond 18 months, as the Minister would expect. Is there going to be a review process? Could the Minister briefly outline the kind of time scales that are on his mind?
Kirsty Blackman
Does the hon. Lady share my concern that the post-legislative review scrutiny that is supposed to take place in Government Departments does not always take place—and does not always take place timeously? Does she also share my sense of thanks to the Treasury Committee, which does get hold of and scrutinise the post-legislative review guidance? I am hoping that, as part of the Treasury Committee, she will be keen for the review to take place and for the information to go to the Committee so that it can do the appropriate scrutiny of whether the legislation has achieved what was intended.
Dame Angela Eagle
I agree with the hon. Lady’s comments about the potential role of the Treasury Committee, although I am not the Chair—I am only one modest member. She might want to have a word with the current Chair to ask whether that is appropriate. We are clearly all interested and want the system to work effectively. We do not, however, want to see a sudden reduction in revenue, unless that is because people have started drinking less high-ABV products, and are out running and being very healthy all of a sudden. In that case, they are going to live longer and put much less pressure on our NHS.
Will the Exchequer Secretary give an outline of the Treasury’s thoughts on when it will do a review? Will he also bear in mind the balance between having changes to definitions and those detailed things that make up the essence of a system such as this, which are required by negative and affirmative procedures in this House, and guidance, which does not get to be looked at in the House? That would ensure that his welcome comments about respecting the rights of this House to effectively scrutinise how the system beds in and evolves in the future are realised.
Will the Exchequer Secretary give us an undertaking that he will bear in mind the right of the House to have appropriate scrutiny rights over some of those things—not just shove everything into guidance, which does not have to come before the House at all?
Gareth Davies
All taxes are always under review, as the hon. Lady knows. The Treasury Committee, of which we were both members, plays a vital part in the scrutiny process—of course it does. That process started when the Chancellor appeared before it, and carries on through the parliamentary procedures we are going through right now. The Treasury is unusual in that it has two fiscal events per year—
Gareth Davies
I was waiting for that.
The Treasury has two fiscal events in which the full House has the opportunity to scrutinise our decisions. That also gives the Treasury the opportunity to review existing rates and systems, which is what we are doing as part of the spring Budget.
Question put and agreed to.
Clause 44 accordingly ordered to stand part of the Bill.
Schedule 6 agreed to.
Clauses 45 and 46 ordered to stand part of the Bill.
Clause 49 ordered to stand part of the Bill.
Clause 61
Mergers: general provisions
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 61 to 71 provide for transitional arrangements for small businesses that merge under the new small producer relief and provide definitions for terms used in the chapter.
The Government are committed to modernising and reforming alcohol duty. Part of the reform package is a new small producer relief for businesses that make alcoholic drinks of a strength less than 8.5% alcohol by volume. That will extend the benefit of progressive duty rates enjoyed by small brewers to the producers of other alcohol products. The provisions on mergers and acquisitions mean that small businesses that merge will not face a cliff-edge duty increase in the first year of the merger; instead, their duty rates will increase gradually over a three-year period. The clauses also include some general provisions around definitions for the purposes of the relief.
Clause 61 introduces the concept of a post-merger group, which is a company formed from the merging of two or more companies, and explains how each of the three years in the transitional period will be referred to. Clause 62 sets out the conditions which must be met for a newly merged business to qualify for the relief. Clause 63 explains what is meant by the “relevant production amount” during the transition period. Clause 64 explains what is meant by “post-merger amount”, which determines the level of relief available to newly merged businesses.
Clause 65 provides for termination of a transition period where the amount of alcohol produced by a post-merger group decreases. Clause 66 explains the treatment when another merger takes place during an ongoing transition period. Clause 67 explains the treatment of mergers involving more than two small producers at the same time. Clause 68 provides that that the transition period ends when businesses demerge. Clause 69 gives definitions of “production premises”, “production groups” and “connected premises” for the purposes of small producer relief. Clause 70 explains that the definition of “connected persons” for the purposes of the relief mirrors that in the Corporation Tax Act 2010. Clause 71 provides a table of expressions used throughout the small producer relief chapter.
Around 10,000 businesses in the UK produce alcohol, import alcohol or supply it wholesale. The clauses will help small businesses compete with larger businesses, such as multinationals, and support them as they grow. The entire alcohol reform package will cost £155 million in 2022-23 and £880 million across the scorecard period. These clauses and accompanying schedule form a key part of the Government’s ambitious alcohol duty reform and will support small alcohol producers to grow and thrive.
Abena Oppong-Asare
The clauses under discussion in this group form part of chapter 3 on small producer relief, as the Minister mentioned. I thought it would be helpful to remind the Committee that Labour introduced the small brewers relief in 2002, and we are proud of the effect it has had in supporting small brewers, creating the vibrant UK beer scene, and supporting British business. We therefore support its extension to other producers.
In the context of small producer relief, clauses 61 to 68 specifically deal with the regulations and provisions for when mergers take place. Clause 61 sets out general provisions, determining that a merger of two small producers is to be called a post-merger production group, and is deemed to be in a transition phase for the three years following the merger. Clause 62 introduces modified conditions to determine whether the premises of two small producers that newly merge are small production premises for the purposes of small producer relief. A merged small producer will be eligible for small producer relief if the adjusted post-merger account does not exceed the small producer threshold of 4,500 hectolitres and if, for each set of premises in the group, fewer than half of the alcoholic products produced on those premises in the previous year were produced under licence.
Clause 63 sets out that, in calculating small producer relief for a post-merger group, the adjusted post-merger amount is used for the “relevant production amount” as set out in section 59. Subsection (3) sets out that the exclusion in clause 58(c) does not apply to the premises in a merger transition year. The Minister will not be surprised that I want to ask why that is the case. I cannot find anything about the purpose of the subsection in the explanatory notes, and it would be helpful to get the background as to why it exists.
Clause 64 provides a definition of the adjusted post-merger amount, which is used to determine eligibility and calculate the rate of small producer relief for companies transitioning post merger. Clause 65 sets out that a merger transition period will end early if the total amount of alcohol produced on all premises by a post-merger group in the preceding production year is less than the adjusted post-merger amount for the current year.
Clause 66 lays out provisions for subsequent mergers of alcohol producers. If a second merger takes place, the producer is no longer considered to be in its merger transition period for the first merger. The second merger could be considered a new merger transition period if the eligibility conditions are met. On the other hand, clause 67 lays out provisions for simultaneous mergers, setting out which producers will be considered the “larger producer” and the “smaller producer” for the purposes of determining the small producer relief. Clause 68 sets out what happens when a production group demerges and the regime to be applied for demerged businesses looking to receive small producer relief.
As we know, clauses 69 to 71 provide some guidance on the interpretation of chapter 3. Clause 69 lays out definitions of the terms producer, production premises, group premises and connected premises. Production premises are premises where alcoholic products are produced, including premises outside the UK. Group premises are all the premises on which the same person produces alcoholic products. A production group includes the group premises and all connected premises. A producer is a person who produces alcoholic products.
Clause 70 states that two people will be considered to be connected persons if they meet the test contained in section 1122 of the Corporation Tax Act 2010, although HMRC’s commissioners can overrule that if they think it necessary. Finally, clause 71 provides a table of expressions used in the small producer relief chapter. These clauses are all administrative in purpose, and we will not oppose them.
Gareth Davies
I am very grateful to the hon. Lady for her comments. Let me start by acknowledging the success of small brewers relief. We have seen the number of breweries increase six times since its introduction, and I think we should applaud a good policy, wherever it originates. In fact, we are seeking to build on it by expanding its principles to the new small producer relief and extending it to all alcohol products under the parameters that she has outlined. There was a very specific point of clarification, which I am afraid I do not have to hand at the moment, but I am happy to set out in writing the detailed answers that she seeks.
Question put and agreed to.
Clause 61 accordingly ordered to stand part of the Bill.
Clauses 62 to 71 ordered to stand part of the Bill.
Clause 72
Exemption: production for personal consumption
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 72 to 81 reproduce existing exemptions and reliefs from excise duty on alcohol products. These reliefs and exemptions will continue to operate in the same way as they do now. To reform the alcohol duty system, we are legislating for a restructured duty system and two new reliefs. To ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place, existing exemptions and reliefs from alcohol duty unaffected by the reforms but still needed in the new duty system have been re-enacted in the Bill. The relevant legislation in the Alcoholic Liquor Duties Act 1979 and Finance Act 1995 will be repealed.
Abena Oppong-Asare
The group of clauses sets out circumstances in which producers will be exempt from alcohol duty. Clause 72 sets out that alcoholic products, except for spirits, produced by an individual for their own personal consumption are not subject to alcohol duty. Clauses 73, 74 and 75 provide for alcohol duty to be remitted or repaid when the alcohol is used for research or experiments, where the product is spoilt or unfit for use, and where alcohol was used in the production of qualifying food products or beverages, such as chocolate and vinegar.
The next part of the group of clauses concerns exemptions from alcohol duty for spirits. Clauses 76 and 77 set out that alcohol duty will not be charged on any spirits contained in imported medical products or in flavourings. Clause 78 sets out some circumstances in which a person may receive spirits without the payment of alcohol duty, including where spirits may be used for art or manufacture. Clause 79 provides for alcohol duty to be remitted on spirits contained in imported goods that are not for human consumption. Finally, clauses 80 and 81 set out a penalty regime for people who make unauthorised use of exemptions, such as by claiming the medical exemption for goods that are then not used for medical or scientific purposes.
We do not take issue with the exemptions, so will not oppose the clauses, but will the Minister lay out in more detail how clauses 80 and 81 will work in practice, and whether there will be a monitoring system to ensure that unauthorised exemptions are prevented?
Kirsty Blackman
Alcohol hand sanitiser is obviously not for human consumption, but is it considered to be a medical item and so exempt under clause 76(2), or to be not fit for human consumption and so exempt under clause 79? However it is considered, will the Minister clarify that it is exempt from alcohol duty? Many of us had not often used it prior to 2020, but these days it is a significant part of our lives. It would be a concern if it received an alcohol duty charge, because it is part and parcel of keeping us safe and ensuring that we stop any further spread of covid or anything else.
Gareth Davies
As I set out at the beginning, the changes are largely administrative. To answer the question directly, there is no change whatsoever in terms of how the provisions are operationalised; they are carried over. The whole point is to consolidate the legislation in one place. I think our alcohol taxation system dates back to 1643, and the last change was in the 1990s. A lot of the changes are administrative, and the hon. Member for Erith and Thamesmead should take assurance from that.
Abena Oppong-Asare
I appreciate that a lot of these clauses are administrative. In that case, is the Minister able to tell me whether there has been any work done on unauthorised exemptions? Has that issue come up, does he have data on it and is he confident that unauthorised exemptions are being prevented? Could he give more information about what schemes or measures may be put in place? I appreciate that the clauses are administrative, but there is nothing in them about how to ensure that the system is not being abused.
Gareth Davies
There are penalties already in place if a person uses products or carries out activities that are not approved. The hon. Lady should take my assurance that these are carry-over provisions that come with the protections that we already have in place. I really do not have anything more to add, other than the fact that what was in existence prior to this legislation is being carried over. To answer the specific question on hand sanitizer, it is exempt.
Question put and agreed to.
Clause 72 accordingly ordered to stand part of the Bill.
Clauses 73 to 81 ordered to stand part of the Bill.
Clause 82
Approval requirement: producers
Question proposed, That the clause stand part of the Bill.
Gareth Davies
Clauses 82 to 89 make changes to the approval and registration requirements for alcohol producers, ensuring that they are harmonised across all products. The new alcohol duty rates and reliefs will take effect from 2023, but the commencement of changes to approvals will come into force at a later date. The Government are committed to simplifying the current alcohol duty system, which is complicated and outdated. The clauses repeal and replace the Alcohol Liquor Duties Act 1979, as well as sections 4 and 5 of the Finance Act 1995.
The changes made by the clauses will standardise the approval processes for all alcohol producers, regardless of which alcoholic product they produce. Clause 82 sets out the requirement for a person to be approved by HMRC in order to produce alcoholic products. Clause 83 stipulates that an approval may cover multiple premises and product types, and that HMRC may vary or revoke an approval at any time. Clause 84 provides an exemption from the requirement to be approved for those who make alcoholic products for their own consumption, although that does not apply to spirits.
Clause 85 provides an exemption from the requirement to be approved for those who produce alcohol only for research and experiments. Clause 86 restricts the mixing of multiple alcoholic products except in certain circumstances. Clause 87 reproduces a section of the Alcoholic Liquor Duties Act 1979 with minor changes to update terminology. Clause 88 gives HMRC the power to make regulations regarding the administration and collection of alcohol duty. Clause 89 details the penalties and forfeiture that may apply if a person does not comply with the approval requirements. Overall, the clauses simplify and standardise approval requirements for alcohol producers.
Abena Oppong-Asare
We come to chapter 5 of the Bill and a group of clauses concerning regulated activities and approvals. Clauses 82 and 83 would require any person producing alcohol products to be approved by HMRC as a fit and proper person to do so, as determined by the HMRC commissioners. Clauses 84 and 85 provide exemptions from the approval process, so that a person may produce alcoholic products for their own consumption or for research into, and experiments in, the production of alcoholic products without needing approval from HMRC.
Clause 86 restricts the mixing of multiple alcoholic products, except in certain circumstances, such as if it is done in an excise warehouse and the mixing occurs before the duty point; the alcoholic products being mixed are all of the same type and strength; or the alcohol duty on each product has been paid and the resulting mixed product is to be consumed at the place where the mixing took place, such as a pub or bar. Clause 87 sets out that a person cannot mix water or any other substance with alcoholic products if the mixing is after the duty point, the mixed product is to be sold, and the resultant product would have attracted a higher amount of alcohol duty if the mixing were done prior to the duty point.
Clause 88 provides for HMRC to make regulations concerning the production, packaging, keeping and storing of alcoholic products; charging alcohol duty in reference to a strength that might reasonably be reached; relieving alcohol products from alcohol duty in certain circumstances; and regulating prohibition of the addition of substances and mixing. Before the Minister says that these are all largely administrative clauses, which I do not dispute, these seem like quite wide powers. I am interested to see that they will be subject to the negative procedure. Perhaps he can explain why that is the case?
Clause 89 sets out the penalties or forfeiture that can occur if a person fails to comply with clauses 82, 86 and 87, and any regulations made under clause 88, as we have just discussed. As we know, this is an administrative set of clauses laying out a reasonable approval and exemptions process, so we will not oppose it.
Kirsty Blackman
As I said both in the Committee of the whole House and earlier today, I have a number of questions about clause 87, which relates to the post-duty point dilution of alcoholic products. The Minister mentioned that all the exemptions, some of the technical language, and some of the definitions mentioned in this part and in the previous part are carried over from the Alcoholic Liquor Duties Act 1979 and the Finance Act 1995. I understand that, but the post-duty point dilution changes are relatively recent; they have not been in place particularly long. The clause replicates section 55ZA of the 1979 Act, which I think was added to it in the last few years in relation to concerns that were raised about the post-duty point dilution.
The clause relates to products such as Bacardi Breezers and WKD blue. Hooch was a drink that existed when I was first able to drink alcohol. Basically, it is things that are mixers, in bottles. It was a significant issue because they were effectively being taxed at the wrong rate because they were being charged duty in advance of the dilution. They would have been liable for more tax had they been taxed after the dilution rather than before it. They were being taxed on the basis not of the sold product but of the created product, which was very different. I understand the Government’s intention in introducing the measure, but because it is a relatively new one that is simply being replicated in the new regime, I wonder how much information the Minister has about how well the change has worked. Has it actually done what was intended?
I am slightly unclear about the Government’s intention in relation to the clause. From reading the Bill, it looks like the intention is that no mixing can take place: no other liquids can be added to spirits. If a company adds orange juice to vodka and sells it, the tax rate will not be lower. Have we seen in practice that companies are not mixing? Are they paying the duty at a different point in the journey rather than not creating these products anymore? What effects have the Government’s previous changes had?
Dame Angela Eagle
It is obviously important, when we get on to enforcement, that we are confident that HMRC is on top of this. The Minister was a bit coy about when these clauses will come into being, so perhaps he can explain that, given that they are quite important. They are about the fitness, rightness and properness of the characters out there producing alcohol, who must be properly registered by HMRC.
The Minister gave the impression that this is just a technical thing—that it is a hold-over from older laws dealt with in a more simplified and perhaps modernised way—but he was not very explicit about how it will be simpler or modernised. Can he give us some idea? Will it all be done online? Is there some modernisation such as that? If he can give us a handle on how the administration of the scheme will change, that might give us an idea of HMRC’s intention.
The Minister is about to introduce a new scheme, whereby the taxation of alcohol is based on the alcohol by volume level. That creates a completely different incentive for adulteration along the production process. HMRC’s decisions about which category of duty a product is in become important in terms of what tax is due. That creates new forms of incentives for fiddling. I am not saying that everyone in the alcohol industry, by definition, wants to fiddle and avoid tax, but there will be temptations along that line, given the new focus on alcohol by volume as a way of calculating what tax is due. That makes adulteration and fiddling potentially much more valuable for avoiding tax. It also means that HMRC has to be vigilant in protecting revenue from those taxes.
Will the Minister therefore say a little about enforcement? Given the new dangers around alcohol by volume and the approach to what duties are due, will HMRC beef up its enforcement regarding not only approved producers but checking along the production line when decisions are made on what tax will be due on the particular product being manufactured?
Gareth Davies
Let me respond to those questions in turn, but I will come to the post-duty point dilution last, if that is okay. I was asked about scrutiny in the first instance by the Labour spokesperson, the hon. Member for Erith and Thamesmead. The powers mirror those that we have already, and we are putting exactly the same procedures in place in the Bill, but I will outline, and give an example of, how the Government could use the powers.
The powers allow HMRC to make adjustments to the new reforms by regulation, if needed. It will have that flexibility, given the scale and novelty of the reforms. That is a sensible precaution to allow HMRC to make changes quickly if the reforms are not working as intended. Today, reviewing and tweaking as necessary have come up consistently. We are carrying over a lot of the legislation, and this is one power, in particular, that we are able to use.
The overarching policy is one of simplification and putting in place a simpler, streamlined process, where we have one single approval process for all alcohol products, to answer the hon. Member for Wallasey. She also asked about HMRC’s readiness and, as I have already said, I have full confidence in our colleagues at HMRC to be able to process the changes and—she also asked about this—to enforce the rules, regulations and laws we are putting in place. Furthermore, we are looking to deliver a digitised application process, which will happen at a later date, once robust systems are put in place. As she would rightly expect, we want to get that absolutely right for producers first.
Let me directly answer the question of post-duty point dilution. The hon. Member for Aberdeen North raised that with my predecessor in 2018, and she is a great champion of her constituent, who raised the issue with her. Following the question to my predecessor, we introduced post-duty point dilution specifically to address wine, I think. We now go further by extending the provisions to all alcohol products and not just wine. That goes back to the overarching principle that we are trying to impose a consistent, simplified approach to all alcohol categories. That is why we are doing it, and we believe that it is impactful. I have no anecdotes, but if I obtain any, I will certainly write to her.
Kirsty Blackman
I appreciate the logic behind the original measure and behind the change. Had I been the Minister, I would have been talking positively about the change and about the fact that we are moving from made-wine and wine to everything. He is right that this is a simplification and a good thing, and it will ensure that everyone ends up paying the right tax. He is playing it down a bit by saying that it was just about terminology changes. That is another of the issues I had with the explanatory notes, which could also have sung the praises of the changes that are being made, rather than simply describing them as minor terminology changes to tidy things up. This is a change in the application, and I am glad the Minister has confirmed and clarified that from the virtual Dispatch Box. That will make this change easier for people to understand when they read about it in concert with the Minister’s statements in Committee.
Gareth Davies
I always take constructive feedback on presentation and talking up the policies we are implementing, so I completely accept that. For the record, we believe this is a really important anti-avoidance measure, which will protect the integrity of the duty system we are implementing, and I want to be really clear about that.
Question put and agreed to.
Clause 82 accordingly ordered to stand part of the Bill.
Clauses 83 to 89 ordered to stand part of the Bill.
Clause 90
Denatured alcohol
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss clauses 91 to 97 stand part of the Bill.
Gareth Davies
Clauses 90 to 97 reproduce the existing exemption from excise duty on denatured alcohol. The exemption will continue to operate in the same way as it does now. As mentioned during the debate on clauses 72 to 81, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place.
No policy changes are made by these clauses. They reproduce an existing exemption from the charge of alcohol duty for denatured alcohol. In some clauses, changes to the structure and language have been made to modernise and simplify the legislation, but the operation of the exemption remains the same. The clauses reproduce the exemption for denatured alcohol, which is used for the manufacture of products that are not for human consumption, such as paint fillers, cosmetics and toiletries.
The clauses are an administrative measure to ensure that the current exemption for denatured alcohol will continue as now in the newly reformed alcohol duty system. I therefore urge that the clauses stand part of the Bill.
Abena Oppong-Asare
We now come to chapter 6 of the Bill, which concerns denatured alcohol. Clause 90 states that the definition of “denatured alcohol” will be provided by the HMRC commissioners. Perhaps the Minister could give us an idea of what that definition might look like. The clause also sets out that alcohol duty will not be charged on denatured alcohol.
Clause 91 specifies that a person must be licensed as a denaturer to legally denature alcoholic products or be a wholesaler of denatured alcohol. Clause 92 provides the HMRC commissioners with a sweeping set of powers, such as allowing them to regulate the denaturing of alcoholic products and the supply, storage and sale of denatured products. Perhaps the Minister could outline the purpose of this wide set of delegated powers or give an example of where he would expect them to be used.
Clause 93 sets out that failure to comply with the regulatory regime for denatured alcohol, as set out in chapter 6, will attract a penalty under section 9 of the Finance Act 1994. Clauses 94 and 95 lay out the circumstances in which denatured alcohol is liable for forfeiture or penalty—for example, when a person produces or possesses more denatured alcohol than they are licensed to.
Clause 96 gives HMRC officers a power to inspect, at any reasonable time, premises being used to produce denatured alcohol, and to take samples. Finally, clause 97 lays out the circumstances in which it is an offence for a person to use denatured alcohol—for example, preparing denatured alcohol as a beverage or purifying denatured alcohol. Most of these clauses simply update and integrate into the Bill provisions already laid out in the Alcoholic Liquor Duties Act 1979, so we will not oppose them.
Gareth Davies
Let me again provide reassurance that we are not changing the definition of denatured alcohol, and we have no need to do so—this is a legislative update. However, the hon. Lady should know, for interest and further exploration, that the definition is found in the Denatured Alcohol Regulations 2005. In this measure, we are simply re-enacting existing powers. She should take reassurance from that.
Question put and agreed to.
Clause 90 accordingly ordered to stand part of the Bill.
Clauses 91 to 97 ordered to stand part of the Bill.
Clause 98
Definitions
The Chair
With this it will be convenient to discuss the following:
Clauses 99 to 105 stand part.
That schedule 10 be the Tenth schedule to the Bill.
Clauses 106 and 107 stand part.
Gareth Davies
Clauses 98 to 107 and schedule 10 simply reproduce existing provisions for excise controls on anyone making wholesale transactions in duty-paid alcoholic products.
As mentioned during the debate on clauses 72 to 81, and clauses 90 to 97, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is located in one place. Clauses 98 to 107 and schedule 10 reproduce the requirements for the wholesaling of controlled alcoholic products. Those controls and requirements will continue to operate in the same way as they do now.
To conclude, these clauses and schedule 10 are an administrative measure to ensure that all primary legislation relating to the production and use of alcoholic products for duty purposes are contained in one place.
Abena Oppong-Asare
We now come to chapter 7 of the Bill, which concerns the wholesaling of controlled alcoholic products. Clause 98 provides several definitions relevant to the chapter, and clause 99 allows HMRC commissioners to make specific definitions concerning whether goods are to be considered wholesale or retail sale. Clause 100 lays out an approval process to allow a person to carry out wholesale activity. Again, that simply reproduces, with updated terminology, sections of the Alcoholic Liquor Duties Act 1979.
Clause 101 requires HMRC to keep a publicly available register of all approved wholesalers, and clause 102 provides HMRC with powers to regulate the wholesale system. I would be grateful if the Minister could humour me and give me more information on how the register will be made publicly available, what timescales have been given to HMRC and what publication dates will be required for that information.
Clause 103 turns the focus to purchasers of alcoholic products, specifying that a person may not buy controlled alcoholic products unless they are buying from an approved wholesaler. Clauses 104 and 105 and schedule 10 make it clear that a penalty could be incurred if a person knows, or reasonably suspects, that they have bought alcoholic products from someone who is not suitably approved.
Clause 106 defines a group for the purposes of the alcoholic product wholesaler provisions, and clause 107 provides definitions for some of the terms used in the chapter. We do not take issue with this set of clauses concerning wholesale transactions, and we will not oppose them.
Gareth Davies
I appreciate the points that the hon. Lady has raised. I reassure her that these are technical updates to consolidate the legislation, so that, for simplification purposes, we have in one place all the legislation for alcohol duty and measures—isn’t that a wonderful thing that we are doing?
The hon. Lady made a good point on communication. We will ensure that all communication is as good as it can be, and we will come up with further details on that in due course.
Question put and agreed to.
Clause 98 accordingly ordered to stand part of the Bill.
Clauses 99 to 105 ordered to stand part of the Bill.
Schedule 10 agreed to.
Clauses 106 and 107 ordered to stand part of the Bill.
Clause 108
Reviews and appeals
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
That schedule 11 be the Eleventh schedule to the Bill.
Clauses 109 to 112 stand part.
That schedule 12 be the Twelfth schedule to the Bill.
Clauses 113 and 114 stand part.
That schedule 13 be the Thirteenth schedule to the Bill.
Clauses 115 to 120 stand part.
Gareth Davies
Clauses 108 to 111 and schedule 11 make supplementary changes for the reformed alcohol duty system. The provisions are necessary consequential amendments as a result of changes made elsewhere in the Bill. Clause 112 and schedule 12 reproduce the requirements for duty stamps on alcoholic products. Those controls and requirements continue to operate in exactly the same way as they do now. Clauses 113 to 116 make changes to repeal outdated legislation and provide transitional arrangements for wine businesses and small cider makers as they move to the new duty system. Clauses 117 to 120 allow for regulations to be made to supplement the provisions in primary law.
The Government are committed to simplifying the current system for alcohol duty, which is complicated and outdated. As mentioned in debate on previous alcohol duty clauses, we are legislating to ensure that all primary legislation relating to the production and use of alcoholic products is contained in one place. Clauses 113 to 116 and schedule 13 repeal some parts of the Alcoholic Liquor Duties Act 1979 that are no longer needed, and they ensure that all primary legislation relating to alcohol duty is now contained in one place. They also include specific transitional provisions for cider and wine products, which face the biggest challenges as we move to the new strength-based system. Clauses 117 to 120 allow the Government to commence different parts of the primary legislation at different times by appointed day order.
Clause 108 and schedule 11 provide a right to reviews and appeals for decisions that HMRC makes. Clause 109 ensures that the forfeiture provisions across the reformed alcohol duty system are consistent. Clause 110 updates legislation relating to certain movements of alcohol products from a warehouse so that it applies equally to alcohol products removed from premises that have the new alcohol approval. Clause 111 extends brewers’ existing ability to offset a claim for refunds of excise duty against liability on their monthly return. Clause 112 and schedule 12 reproduce the requirements for duty stamps on alcoholic products. Those controls and requirements will continue to operate in the same way as they do now.
Clause 113 provides a list of repealed legislation. Clause 114 makes consequential amendments to other legislation, which is required as a result of the policy changes. Clause 115 is a temporary provision for producers and importers of certain wine products, to help them to manage the transition to a strength-based system. That will be in place for 18 months, and it will ease the administrative burdens of moving to calculating the duty on wine based on strength. Clause 116 is a temporary provision for small cider producers to maintain the effect of the exemption from registration and paying alcohol duty that they currently hold until the approvals provisions are given effect next year.
Clause 117 provides an index of terms used in this part of the Bill and references to where further detail can be found regarding each. Clause 118 provides a power to make regulations in relation to this part of the Bill and how the power may be used. Clause 119 explains the parliamentary procedure that must be used to make regulations using the various powers included in this part. Clause 120 concerns commencement and states that, other than these clauses and other regulation-making powers, none of the provisions in the Bill concerning alcohol duty takes effect until an appointed day order is laid.
These clauses and accompanying schedules are administrative measures that ensure that the Government’s ambitious alcohol reform is underpinned by modern legislation, and that the transition to the new system is smooth. The clauses conclude the part covering alcohol duty reform, and I commend them to the Committee.
Abena Oppong-Asare
With this group of clauses, we turn to chapters 8, 9 and 10 of the Bill concerning supplementary items, repeals, further amendments, transitional provisions and final provisions. Clause 108 and schedule 11 make relevant amendments to the Finance Act 1994. They appear to be purely administrative, but perhaps the Minister could clarify that? Clause 109 specifies that HMRC may destroy, break up, or spill anything seized as liable to forfeiture. Clause 110 inserts new subsections into the Customs and Excise Management Act 1979. As this is quite technical, perhaps the Minister could explain precisely what the clause achieves, because I found that the explanatory notes did not cover it in depth. [Interruption.]
Abena Oppong-Asare
Clause 111 provides that producers of alcoholic products can offset amounts of alcohol duty that are owed to them against other amounts of alcohol duty that they have been charged. Clause 112 and schedule 12 make provisions about duty stamps.
The next measures in the group cover repeals, further amendments and transitional provisions. Clause 113 provides a list of legislation repealed as a consequence of this Bill, including the Alcoholic Liquor Duties Act 1979 and sections 4 and 5 of the Finance Act 1995. I can see that that is because the Bill will replace those pieces of legislation. Clause 114 and schedule 13 make minor and consequential amendments to other legislation.
The next clauses within the group concern transitional provisions included in the Bill. Clause 115 provides for a temporary period for treating wine of between 11.5% and 14.5% ABV as if the strength were 12.5% ABV, lasting for eighteen months after the new system comes into force. Clause 116 provides a temporary exemption from the new alcohol duty regime for cider that is produced before the new approvals system comes into force, as long as the cider is produced by a cider maker producing less than 70 hectolitres a year. I know that many affected businesses will be grateful that transitional arrangements are being put in place, but they will want to know precisely how those arrangements will be implemented and any tapering, and they will want confirmation of the time periods involved.
We are now at the final set of clauses within this group, concerning final provisions. Clause 117 provides an index of terms defined in this part of the Bill, with a reference to where further detail can be found for each term. That includes terms that we have already discussed, such as “alcoholic strength”, “excise duty point” and “qualifying draught product”.
Clauses 118 and 119 provide broad delegated powers to the HMRC commissioners to provide supplementary provisions to the alcohol duty regime. Will the Minister outline examples of what those supplementary provisions might be, why the negative procedure has been thought appropriate and how affected groups will be consulted prior to any further changes?
Finally, clause 120 concerns the commencement of the new alcohol duty regime. At this stage, perhaps the Minister could confirm—he did not when I asked him previously—when the new alcohol duty regime is expected to come into force, and that there will be no further U-turns or delays.
As has been the trend, we will not be opposing these measures. I look forward to continuing our discussion of the new alcohol duty regime on Report, where I hope to be able to extract the detail and certainty that businesses so desperately need from this Government.
Kirsty Blackman
I will follow up with several similar questions about dates, so that people have a level of certainty about when they will be expected to comply and when transitional provision will run out. On the temporary provision for wine in clause 115, I understand what the Minister said about how the strength of wine fluctuates depending on the time of the season when the grapes were grown or picked. After the 18 months, what does he expect to happen with this fluctuation? Does he think that wine producers will somehow regularise the alcohol percentage of the wine that they produce? I am not sure how they could do that; they cannot do it by dilution. How exactly might they do that, or does he expect that they will pay different rates depending on the percentage of each bottle? I am not hugely fussed about which he thinks will happen, but it would be interesting to know what the Government expect those wine producers to do.
The case that the Minister has laid out around transitional provision for wine makes sense. I understand that the measure will be brought in fairly shortly and does not give wine producers the time to make seasonal adjustments at this point, but this will give them time to make such adjustments before the end of the 18-month period.
In relation to the temporary provision on cider, my understanding from clause 116 is that the current relief is being extended until the new approvals process comes into place, so those who currently qualify to benefit from relief will continue to do so. The date that has been chosen is the date on which the approvals process comes into force, rather than the date on which the new rates come in. I understand from what was said earlier that the approvals process will come into place later than the rest of the Bill, and I wonder whether there is clarity on how much later. Do we have a date on which the process will kick in? If not, do we have a date for when we will know? That would at least mean that people knew that from September, for example, they would have a level of certainty about when the transitional relief will end and the new approvals process will begin.
Two different sets of dates have been chosen. Clause 120 is about commencement, and there is a level of flexibility built in. Can the Minister confirm when the majority of this part of the Bill will commence, and whether only the approvals process will lag behind? Given the dramatic change from one regime to another and the fact that there might be a significant change in rates—as he has made clear, however, there will not be a significant change in exemptions; only the calculation of rates will be changed—does he expect the new rates to be charged from day one? Let us say he picks 1 August; will the old rates be charged until 31 July and the new rates kick in on 1 August?
To prevent any fiddling of the rate, is there clarity about when people will pay it? Is there a risk that they might, for example, stop putting caps on bottles for a period of time to ensure that they are subject to the new rate rather than the old one? If so, is HMRC aware of that, and will it ensure that people pay the appropriate rate and can prove they are eligible for that rate?
There is quite a cliff-edge change. The rates will go up dramatically for some people; they will go down dramatically for other people; and for some people they will stay the same. For an awful lot of people, there will be a change. When the new regime comes in, we need to ensure that it is fair and is applied fairly, so that those who go out of their way to try to swizz the system are not allowed to benefit at the expense of those who are being sensible and paying the correct rates when and where they should be.
Gareth Davies
Let me first address the request from the hon. Member for Erith and Thamesmead for me to further explain certain clauses. Clause 108 ensures that the legislation works, basically, and detail is provided in the explanatory notes. If she requires more detail, I am happy for her to write to me. Clause 110 ensures that this measure works with amended legislation, because it is about the movement of alcohol from excise warehouses to authorised people. Clause 115 basically sets out the period of 18 months that I am about to address. Clause 116 relates to when the period ends and approvals come into force.
The hon. Member for Aberdeen North makes some good points, and she asked a good question about the 18-month period for the wine easement. It has been determined, through consultation and engagement with the wine industry, that 18 months is sufficient time for it to put in place the operational requirements, such as labelling, for it to be able to meet the alcohol reforms that we are making. As I set out at the beginning, some types of wine will see a reduction in duty. Simplification is driving these reforms, and we are moving to the principle that the more alcohol a product contains, the more tax it attracts, so there will be increases and decreases as part of all this.
Question put and agreed to.
Clause 108 accordingly ordered to stand part of the Bill.
Schedule 11 agreed to.
Clauses 109 to 112 ordered to stand part of the Bill.
Schedule 12 agreed to.
Clauses 113 and 114 ordered to stand part of the Bill.
Schedule 13 agreed to.
Clauses 115 to 120 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Andrew Stephenson.)
Data Protection and Digital Information (No. 2) Bill (Third sitting)
Tuesday 16th May 2023
(1 year, 7 months ago)
Public Bill CommitteesRead Full debate Data Protection and Digital Information Bill 2022-23 View all Data Protection and Digital Information Bill 2022-23 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 9 - Question accordingly negatived.
The Committee divided: - Ayes: 9 / Noes: 6 - Question accordingly agreed to.
The Chair
I have a few preliminary announcements that Mr Speaker would like me to make. Hansard colleagues would be grateful if Members emailed their speaking notes to hansardnotes@parliament.uk. Please switch electronic devices to silent mode. Tea and coffee are not allowed during sittings.
The selection list for today’s sitting, which is available in the room, shows how the selected amendments have been grouped for debate. Grouped amendments are generally on the same or a similar issue. Please note that decisions on amendments will take place not in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment will be taken when we come to the clause to which the amendment relates.
The Member who has put their name to the lead amendment in a group will be called first. Other Members will then be free to catch my eye to speak on all or any of the amendments within that group. A Member may speak more than once in a single debate. At the end of a debate on a group of amendments, I shall again call the Member who moved the lead amendment. Before they sit down, they will need to indicate to me whether they wish to withdraw the amendment or to seek a decision. If any Member wishes to press any other amendment in a group to a vote, they will need to let me know.
Clause 1
Information relating to an identifiable living individual
Question proposed, That the clause stand part of the Bill.
The Minister for Data and Digital Infrastructure (Sir John Whittingdale)
It is a pleasure to serve under your chairmanship, Mr Hollobone. May I thank all hon. Members for volunteering to serve on the Committee? When I spoke on Second Reading, I expressed my enthusiastic support for the Bill—just as well, really. I did not necessarily expect to be leading on it in Committee, but I believe it is a very important Bill. It is complex and will require quite a lot of scrutiny, but it will create a framework of real benefit to the UK, by facilitating the exchange of data and allowing us to take the maximum advantage of emerging technologies. I look forward to our debates over the next few days.
Clause 1 will create a test in legislation to help organisations to understand whether the data that they are processing is personal or anonymous. This is important, because personal data is subject to data protection rules but anonymous data is not. If organisations can be confident that the data they are processing is anonymous, they will be able to use it for important activities such as research and product development without concern about the potential impact on individuals’ personal data.
The new test will require data controllers considering whether data is personal or anonymous to consider two scenarios. The first is where a living individual can be identified by somebody within the data controller or processor’s own organisation using reasonable means at any point at which the data is being processed, from the initial point of collection for its use and storage to its eventual deletion or onward transmission. The second scenario is where the data controller or processor knows or should reasonably know that somebody outside the organisation is likely to obtain the information and to be able to re-identify individuals from it using reasonable means. That could be a research partner or a business client with whom the data controller intends to share the data, or an outside organisation that obtains the data as a result of the data controller not putting adequate security measures in place.
What would be considered “reasonable means” in any given case takes into account, among other things, the time, effort and cost of identifying the individual, as well as the technology available during the time the processing occurs. We hope that the clarity the test provides will give organisations greater confidence about using anonymous data for a range of purposes, from marketing to medical research. I commend the clause to the Committee.
Stephanie Peacock (Barnsley East) (Lab)
It is a pleasure to serve under your chairship, Mr Hollobone. I echo the Minister’s thanks to everyone serving on the Bill Committee; it is indeed a privilege to be here representing His Majesty’s loyal Opposition. I look forward to doing our constitutional duty as we scrutinise the Bill today and in the coming sittings.
The definition of personal data is critical, not only to this entire piece of legislation, but to the data protection regime more widely. That is because the definition of what counts as personal data sets the parameters on who will benefit from protections and safeguards set out by the legislation, and, looking at it from the other side, the various protections will not apply when data is not classed as personal. It is therefore important that the definition should be clear for both controllers and data subjects, so that everyone understands where regulations and, by extension, rights do and do not apply.
The Bill defines personal data as that where a data subject can be identified by a controller or processor, or anyone likely to obtain the information,
“by reasonable means at the time of processing”.
According to the Bill, “reasonable means” take into account the time, effort, costs, technology and resources available to the person. The addition of “reasonable” to the definition has caused major concern among civil society groups, which are worried that it will introduce an element of subjectivity from the perspective of the controller when determining whether data is personal or not. Indeed, although recital 26 of the General Data Protection Regulation also refers to reasonable means—making this, in some ways, more of a formal change than a practical one—there must still be clear parameters on how controllers or processors are to make that judgment. Without those, there may be a danger of controllers and processors avoiding the requirement to comply with rules around personal data by simply claiming they do not have the means to identify living individuals within their resources.
Has the Department undertaken an impact assessment to determine whether the definition could, first, increase subjectivity in what counts as personal data, or secondly, reduce the amount of data classified as personal data? If an assessment identifies such a risk, what steps will the Department take to mitigate that and ensure that citizens are able to exercise their rights as they can under the current definition?
Other stakeholders have raised concerns that the phrase
“at the time of the processing”
in the definition might imply that there is no continuous obligation to consider whether data is personal. Indeed, under the current definition, where personal data is
“any information that relates to an identified or identifiable living individual”,
there is an implied obligation to consider whether an individual is identifiable on an ongoing basis. Rather than assessing the identifiability of a dataset at a fixed point, the controller or processor must keep the categorisation of data that it holds under careful review, taking into account technological developments, such as sophisticated new artificial intelligence or cross-referencing tools. Inserting the phrase
“at the time of the processing”
into this definition has prompted the likes of Which? to express concern that some processors may feel that they are no longer bound by this continuous obligation. That would be particularly worrying given the potential subjectivity of the new definition. If whether an individual is identifiable is based on “reasonable means”, including one’s resources and technology, it is perfectly feasible that, with a change of resources or technology, it could become reasonable to identify a person when once it was not.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
My hon. Friend is making an excellent speech. Does she agree that the absence of regard for the rate of technological change, particularly the rise of artificial intelligence—datasets are now being processed at phenomenal speeds—is potentially negligent on the part of the Government?
Stephanie Peacock
My hon. Friend makes an important point, which I will come to later.
In these circumstances, it is crucial that if a person is identifiable through data at any time in the future, the data is legally treated as personal so that the relevant safeguards and rights that GDPR was designed to ensure still apply.
When arguing for increased Secretary of State powers across the Bill, Ministers have frequently cited the need to future-proof the legislation. Given that, we must also consider the need to future-proof the definition of data so that technological advances do not render it useless. Does the new definition involve a continuous obligation to assess whether data is personal? Will guidance be offered to inform both controllers and data subjects on the application of this definition, so that both sides can be clear on how it will work in practice? As 5Rights has pointed out, that could avoid clogging up the regulator’s time with claims about what counts as personal data in many individual cases.
Finally, when determining whether data is personal, it is also vital that controllers take into account how a determined stalker or malicious actor might find and use their data. It is therefore good to see the change made since the first iteration of the Data Protection and Digital Information Bill, to clarify that
“obtaining the information as a result of the processing”
also includes information obtained as a result of inaction by a controller or processor—for example, as the result of a failure to put in place appropriate measures to prevent or reduce the risk of hacking.
Overall, it is important that we give both controllers and data subjects clarity about which data is covered by which protections, and when. I look forward to hearing from the Minister about the concerns that have been raised, which could affect the definition’s ability to allow for that clarity.
Sir John Whittingdale
I agree absolutely with the hon. Lady that the definition of personal data is central to the regime that we are putting in place. She is absolutely right that we need to be very clear and to provide organisations with clarity about what is within the definition of personal data and what is rightly considered to be anonymous. She asks whether the provision will lead to a reduction in the current level of protection. We do not believe that it will.
Clause 1 builds on the strong foundations used in GDPR recital 26 to clarify when data can be categorised as truly anonymous without creating undue risks. The aim of the provision in the Bill is to clarify when information should be considered to be personal data by including a test for identifiability in the legislation. That improved clarity will help organisations to determine when data can be considered truly anonymous and therefore pose almost no risk to the data subject.
The hon. Lady asked whether
“at the time of the processing”
extends into the future, and the answer is yes. The definition of data processing in the legislation is very broad and includes a lot of processing activities other than just the collection of data, such as alteration, retrieval, storage and disclosure by transmission, to name just a few. The phrase
“at the time of the processing”
could therefore cover a long period, depending on the nature and purpose of the processing. The test would need to be applied afresh for each new act of processing. That means that if at any point in the life cycle of processing, the data could be reasonably re-identified by someone by reasonable means, they would then not be able to legally consider to be anonymous. That includes transferring abroad to other regimes.
The clause makes it clear that a controller will have to consider the likelihood of re-identification at all stages of the processing activity. If a data controller held a dataset for several years, they would need to be mindful of the technologies available during that time that might be used to re-identify it. As the hon. Lady said, technology is advancing very fast and could well change over time from the point at which the data is first collected.
Chi Onwurah
I appreciate the Minister’s clarification. He has just said that the test of identification would apply when sharing the data with another authority. However, once that has been done, the test no longer applies. Does he accept that it is possible for data to be shared that could not by this test reasonably be identified but that, over time, in a different authority, could reasonably be identified, without the data subject having any redress?
Sir John Whittingdale
If data is shared and then held by a new controller, it will be still subject to the same protections even though it has been transferred from the original. It is important that there should be the ability to continue to apply protection no matter what technology evolves over the course of time, but it will still be subject to the same protection and, of course, still be enforceable through the Information Commissioner.
Chi Onwurah
Would it be subject to the same protection if it was transferred abroad?
Sir John Whittingdale
Again, yes, it will. It will be transferred abroad only if we are satisfied that the recipient will impose the same level of protection that we regard as necessary in this country.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
Meaning of research and statistical purposes
Stephanie Peacock
I beg to move amendment 66, clause 2, page 4, line 8, at end insert—
“(c) do not include processing of personal data relating to children for research carried out as a commercial activity.”
This amendment would exempt children’s data from being used for commercial purposes under the definition of scientific purposes in this clause.
The Chair
With this it will be convenient to discuss:
Amendment 65, clause 2, page 4, line 21, at end insert—
“7. The Commissioner must prepare a code of practice under section 124A of the Data Protection Act 2018 on the interpretation of references in this Regulation to “scientific research”.
8. The code of practice prepared under paragraph 7 must include examples of the kinds of research purposes, fields, controllers, and ethical standards that are to be considered as being scientific, and those that are excluded from being so considered.”
This amendment would require a statutory code of practice from the ICO on how the definition of scientific research in this clause is to be interpreted.
Clause stand part.
Stephanie Peacock
Fuelling safe scientific research through data will be vital to support the UK’s ambition to become a science superpower. We understand that, as is the case in many areas of data protection law, lack of clarity about what counts as processing for scientific purposes causes organisations to take a risk-averse approach to conducting research. An understanding of exactly what is included would therefore give organisations confidence they need to conduct vital processing that will allow for the scientific discoveries and benefits of the future.
Unfortunately, the clause makes the same mistake as the Bill does in general by focusing on easing regulations on those who hold data, rather than looking at how data can be harnessed for the general greater good. It misses the opportunity to unlock the benefits of safely redistributing and sharing data. Indeed, none of the clauses on processing for research purposes make any attempt to explore options to incentivise controllers to share their data with independent researchers. Similarly, the Bill does not explore how the likes of data trusts or co-operatives that pool data resources in the interests of a larger group of beneficiaries or organisations could create a stronger environment for research. Instead, it leaves those who already collect and hold data to benefit from the regime by processing for their own research purposes, while those who might hope to collaborate will use alternative data sets and are no better off.
By failing to think about the safe sharing of data to fuel scientific research, the Government limit the progress the UK could make as a powerhouse of science innovation. The Bill leaves only those organisations with large amounts of data able to contribute to such progress, entrenching existing power structures and neglecting the talent held in the smaller independent organisations that would otherwise be able to conduct research for the public good.
Turning to amendment 65, it has always been written into the GDPR, in recital 159, that processing for scientific purposes should be interpreted broadly. It is therefore understandable why Ministers provided a broad definition in the Bill that allows for those conducting genuine scientific research to have absolute confidence that their processing falls under this umbrella, preventing a risk-averse environment. However, stakeholders, including Reset.tech and the Ada Lovelace Institute, have expressed worries that clause 2 goes a little too far, essentially providing a blank cheque for private companies to self-identify as conducting scientific research as a guise for processing personal information for any purpose they choose.
All that must be understood in combination with clause 9, which gives organisations an exemption from purpose limitation, allowing them to reuse data as long as it is for scientific purposes, as defined in clause 2. Indeed, though the Bill contains a few clarifications of what the definition in clause 2 includes, such as publicly and privately funded processing, commercial or non-commercial processing and processing for the likes of technological development, fundamental research, or applied research, I am keen to hear from the Minister about what specific purposes would actually be ruled out under the letter of the current definition. For example, as the Ada Lovelace Institute asked, would pseudoscientific applications, such as polygraphy or experimental AI claiming to predict an individual’s religion, politics or sexuality, be categorically ruled out under the current definition?
Though it may not be the intention in the clause to enable malicious or pseudoscientific processing under the definition of science, we must ensure that the definition is not open to exploitation, or so broad that any controller could reasonably identify their processing as falling under it. Regulator guidance would be in a prime position to do that. By providing context as to what must be considered for something to be reasonably classified as scientific—for example, the purpose of the research, the field of research, the type of controller carrying it out, or the methodological and ethical standards used—controllers using the definition legitimately will feel even more assured, and malicious processing will be explicitly excluded from the application of the definition. Amendment 65 would do nothing to stop genuinely scientific research from benefiting from the changes in this Bill and would provide further clarity around how the definition can be legitimately relied upon.
Damian Collins (Folkestone and Hythe) (Con)
I wish to pose a couple of questions, after two thoughtful and well-presented amendments from those on the Opposition Front Bench. With regard to children and the use of apps such as TikTok, what assurance will the Government seek to ensure that companies that process and store data abroad are abiding by the principles of our domestic legislation? I mention TikTok directly because it stores data from UK users, including children, in Singapore, and it has made clear in evidence to the Joint Committee on the Online Safety Bill that that data is accessed by engineers in China who are working on it.
We all know that when data is taken from a store and used for product development, it can be returned in its original state but a huge amount of information is gathered and inferred from it that is then in the hands of engineers and product developers working in countries such as China and under very different jurisdictions. I am interested to know what approach we would take to companies that store data in a country where we feel we have a data equivalence regime but then process the data from a third location where we do not have such a data agreement.
Sir John Whittingdale
I welcome the recognition of the importance of allowing genuine research and the benefits that can flow from it. Such research may well be dependent on using data and the clause is intended to provide clarity as to exactly how that can be done and in what circumstances.
I will address the amendments immediately. I am grateful to the hon. Member for Barnsley East for setting out her arguments and we understand her concerns. However, I think that the amendments go beyond what the clause proposes and, in addition, I do not think that there is a foundation for those concerns. As we have set out, clause 2 inserts in legislation a definition for processing for scientific research, historical research and statistical purposes. The definition of scientific research purposes is set out as
“any research that can be reasonably described as scientific”
and I am not sure that some of the examples that the hon. Lady gave would meet that definition.
The definitions inserted by the clause are based on the wording in the recitals to the UK GDPR. We are not changing the scope of these definitions, only their status in the legislation. They will already be very familiar to people using them, but setting them out in the Bill will provide more clarity and legal certainty. We have maintained a broad scope as to what is allowed to be included in scientific research, with the view that the regulator can add more nuance and context through guidance, as is currently the case. The power to require codes of practice provides a route for the Secretary of State to require the Information Commissioner to prepare any code of practice that gives guidance on good practice in processing personal data.
There will be situations where non-statutory guidance, which can be produced without being requested under regulations made by the Secretary of State, may be more appropriate than a statutory code of practice. Examples of the types of activity that are considered scientific research and the indicative criteria that a researcher should demonstrate are best placed in non-statutory guidance produced by the Information Commissioner’s Office. That will give flexibility to amend and change the examples when necessary, so I believe that the process does not change the provision. However, putting it in the legislation, rather than in the recitals, will impose stronger safeguards and make things clearer. Once the Bill has come into effect, the Government will continue to work with the ICO to update its already detailed and helpful guidance on the definition of scientific research as necessary.
Amendment 66 would prohibit the use of children’s data for commercial purposes under the definition of scientific research. The definition inserted by clause 2 includes the clarification that processing for scientific research carried out as a commercial activity can be considered processing for scientific research purposes. Parts of the research community asked for that clarification in response to our consultation. It reflects the existing scope, as is already clear from the ICO’s guidance, and we have seen that research by commercial bodies can have immense societal value. For instance, research into vaccines and life-saving treatments is clearly in the public interest. I entirely understand the hon. Lady’s concern for children’s privacy, but we think that her amendment could obstruct important research by commercial organisations, such as research into children’s diseases. I think that the Information Commissioner would make it clear as to whether or not the kind of example that the hon. Lady gave would fall within the definition of research for scientific purposes.
I also entirely understand the concern expressed by my hon. Friend the Member for Folkestone and Hythe. I suspect that the question about the sharing of data internationally, particularly, perhaps, by TikTok, may recur during the course of our debates. As he knows, we would share data internationally only if we were confident that it would still be protected in the same way that it is here, which would include considering the possibility of whether or not it could then be passed on to a third country, such as China.
I hope that I can reassure the hon. Lady that emphasising the safeguards that researchers must comply with in clause 22 to protect individuals relates to all data used for these purposes, including children’s data and the protections afforded to children under the UK GDPR. For those reasons, I hope that she will be willing to withdraw her amendment.
Stephanie Peacock
I am disappointed that the Minister does not accept amendment 66. Let me make a couple of brief points about amendment 65. The Minister said that he was not sure whether some of the examples I gave fitted under the definition, and that is what the amendment speaks to. I asked what specific purposes would be ruled out under the letter of the current definition, and that is still not clear, so I will press the amendment to a vote.
Question put, That the amendment be made.
Sir John Whittingdale
The clause clarifies how the conditions for consent will be met in certain circumstances when processing for scientific research purposes. It clarifies an existing concept of “broad consent” that is currently found in the recitals. The measure will enable consent to be obtained for an area of scientific research when the researcher cannot fully identify the purposes for which they are collecting the data.
Consent under UK GDPR must be for a specific purpose, but in scientific research the precise purpose may not be fully known when the data is collected. For example, the initial aim may be the study of cancer, and then later becomes the study of a particular cancer type. Currently, the UK GDPR recitals clarify that consent may be given for an area of scientific research, but as the recitals are only an interpretative aid that may not give scientists the certainty that they need. The clause will therefore add the ability to give broad consent for scientific research into the operative text of the UK GDPR, giving scientists greater certainty and confidence. The clause contains a number of safeguards to protect against misuse. That includes the requirement that seeking consent is consistent with ethical standards that are generally recognised and relevant to that area of research.
Stephanie Peacock
With regard to clause 3, I refer Members to my remarks on clause 2. It is sensible to clarify how controllers and processors conducting scientific research can gain consent where it is not possible to fully identify the full set of uses for that data when it is collected. However, what counts as scientific, and therefore what is covered by the clause, must be properly understood by both data subjects and controllers through proper guidance issued by the ICO.
Clause 4 is largely technical and inserts the recognised definition of consent into part 3 of the Data Protection Act 2018, for use when it is inappropriate to use one of the law enforcement purposes. I will talk about law enforcement processing in more detail when we consider clauses 16, 24 and 26, but I have no problem with the definition in clause 4 and am happy to accept it.
Sir John Whittingdale
I am grateful to the hon. Lady for her support. I agree with her on the importance of ensuring that the definition of scientific research is clear. That is something on which I have no doubt the ICO will also issue guidance.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clause 4 ordered to stand part of the Bill.
Clause 5
Lawfulness of processing
Stephanie Peacock
I beg to move amendment 68, in clause 5, page 6, line 37, at end insert—
“7A. The Secretary of State may not make regulations under paragraph 6 unless—
(a) following consultation with such persons as the Secretary of State considers appropriate, the Secretary of State has published an assessment of the impact of the change to be made by the regulations on the rights and freedoms of data and decision subjects (with particular reference to children),
(b) the Commissioner has reviewed the Secretary of State’s statement and published a statement of the Commissioner’s views on whether the change should be made, with reasons, and
(c) the Secretary of State has considered whether to proceed with the change in the light of the Commissioner’s statement.”
This amendment would make the Secretary of State’s ability to amend the conditions in Annex 1 which define “legitimate interests” subject to a requirement for consultation with interested parties and with the Information Commissioner, who would be required to publish their views on any proposed change.
The Chair
With this it will be convenient to discuss the following:
Amendment 67, in clause 5, page 7, line 18, at end insert—
“11. Processing may not be carried out in reliance on paragraph 1(ea) unless the controller has published a statement of—
(a) which of the conditions in Annex 1 has been met which makes the processing necessary,
(b) what processing will be carried out in reliance on that condition, or those conditions, and
(c) why that processing is proportionate to and necessary for the purpose or purposes indicated in the condition or conditions.”
This amendment would require controllers to document and publish (e.g. in a privacy notice) a short statement on their reliance on a “recognised legitimate interest” for processing personal data.
Clause stand part.
Stephanie Peacock
At present, the lawful bases for processing are set out in article 6 of the UK GDPR. At least one of them must apply whenever someone processes personal data. They are consent, contract, legal obligation, vital interests, public task, and legitimate interests. That is where data is being used in ways that we would reasonably expect, there is minimal privacy impact, or there is a compelling justification for processing. Of the existing lawful bases, consent is by far the most relied upon, as it is the most clear. There have therefore been calls for the other lawful bases to be made clearer and easier to use. It is welcome to see some examples of how organisations might rely on the legitimate interests lawful ground brought on to the statute book.
At the moment, in order to qualify for using legitimate interests as grounds for lawful processing, a controller must also complete a balancing test. The balancing test is an important safeguard. As per the ICO, it requires controllers to consider the interests and fundamental rights and freedoms of the individual, and whether they override the legitimate interests that the controller has identified. That means at a minimum considering the nature of the personal data being processed, the reasonable expectations of the individual, the likely impact of processing on the individual, and whether any safeguards can be put in place to mitigate any negative impacts.
As tech.UK mentioned, the introduction of a list of legitimate interests no longer requiring that test is something many have long called for. When conducting processing relating to an emergency, for example, the outcome of a balancing test often very obviously weighs in one direction, making the decision straightforward, and the test itself an administrative task that may slow processing down. It makes sense in such instances that a considered exemption might apply.
However, given the reduction in protection and control for consumers when removing a balancing test, it is vital that a list of exemptions is limited and exhaustive, and that every item on such a list is well consulted on. It is also vital that the new lawful basis cannot be relied upon in bad faith or exploited by those who simply want to process without the burden, for reasons outside of those listed in annex 1. The Bill as it currently stands does not do enough to ensure either of those things, particularly given the Secretary of State’s ability to add to the list on a whim.
I turn to amendment 67. Although it is likely not the intention for the clause to be open to exploitation, Reset.tech, among many others, has shared concerns that controllers may be able to abuse the new lawful basis of “recognised legitimate interests”, stretching the listed items in annex 1 to cover some or all of their processing, and giving themselves flexibility over a wide range of processing without an explicit requirement to consider how that processing affects the rights of data and decision subjects. That is particularly concerning where controllers may be able to conflate different elements of their processing.
Reset.tech and AWO provide a theoretical case study to demonstrate that point. Let us say that there is a gig economy food delivery company that processes a range of data on workers, including minute-by-minute location data. That location data would be used primarily for performance management, but could occasionally be used in more extreme circumstances to detect crime—for example, detecting fraud by workers who are making false claims about how long they waited for an order to be ready for delivery. By exploiting the new recognised legitimate interests basis, the company could conflate its purposes of performance management and detecting crime, and justify the tracking of location data as a whole as being exempt from the balancing test, without having to record or specify exactly which processing is for the detection of crime.
Under the current regime, there remain two tests other than the balancing test that form a complete assessment of legitimate interests and help to prevent conflation of that kind. First, there is the purpose test, which requires the controller to identify which legitimate interest the company is relying upon. Secondly, there is the necessity test, which requires the controller to consider whether the processing that the company intends to conduct is necessary and proportionate to meet its purposes.
In having to conduct those tests, the food delivery company would find it much more difficult to conflate its performance management and crime prevention purposes, as it would have to identify and publicly state exactly which elements of its processing are covered by the legitimate interest purpose of crime prevention. That would make it explicit that any processing the company conducts for the purposes of performance management is not permitted under a recognised legitimate interest, meaning that a lawful basis for that processing would be required separately.
Amendment 67 therefore seeks to ensure that the benefits of the purpose and necessity tests are retained, safeguarding the recognised legitimate interests list from being used to cynically conflate purposes and being exploited more generally. In practice, that would mean that controllers relying on a purpose listed in annex 1 for processing would be required to document and publish a notice that explains exactly which processing the company is conducting under which purpose, and why it is necessary.
It is foundational to the GDPR regime that each act of processing has a purpose, so this requirement should just be formalising and publishing what controllers are already required to consider. The measure that the amendment seeks to introduce should therefore be no extra burden on those already complying in good faith, but should still act as a barrier to those attempting to abuse the new basis.
I turn to amendment 68. As the likes of Which? have argued, any instance of removing the balancing test will inevitably enable controllers to prioritise their interests in processing over the impact on data subjects, resulting in weaker protections for data subjects and weaker consumer control. Which? research, such as that outlined in its report “Control, Alt or Delete? The future of consumer data”, also shows that consumers value control over how their data is collected and used, and that they desire more transparency, rather than less, on how their data is used.
With those two things in mind—the value people place on control of their data and the degradation of that control as a result of removing the balancing test—it is vital that the power to remove the balancing test is used extremely sparingly on carefully considered, limited purposes only. Even for those purposes already included in annex 1, it is unclear exactly what impact assessment took place to ensure that the dangers of removing the test on the rights of citizens did not outweigh the positives of that removal.
It would therefore be helpful if the Minister could outline the assessment and analysis that took place before deciding the items on the list. Although it is sensible to future-proof the list and amend it as needs require, this does not necessarily mean vesting the power to do so in the Secretary of State’s hands, especially when such a power is open to potential abuse. Indeed, to say that the Secretary of State must have regard to the interests and fundamental rights and freedoms of data subjects and children when making amendments to the list is simply not a robust enough protection for citizens. Our laws should not rely on the good nature of the Secretary of State; they must be comprehensive enough to protect us if Ministers begin to act in bad faith.
Further, secondary legislation simply does not offer the scrutiny that the Government claim it does, because it is rarely voted on. Even when it is, if the Government of the day have a majority, defeating such a vote is incredibly rare. For the method of changing the list to be protected from the whims of a bad faith Secretary of State who simply claims to have had regard to people’s rights, proper consultation should be undertaken by the regulator on any amendments before they are considered for parliamentary approval.
This amendment would move the responsibility for judging the impact of changes away from the Secretary of State and place it with the regulator on a yearly basis, ensuring that amendments proceed only if they are deemed, after consultation, to be in the collective societal interest. That means there will be independent assurance that any amendments are not politically or maliciously motivated. This safeguard should not be of concern to anyone prepared to act in good faith, particularly the current Secretary of State, as it would not prevent the progression in Parliament of any amendments that serve the common good. The amendment represents what genuine future-proofing in a way that retains appropriate safeguards looks like, as opposed to what ends up looking like little more than an excuse for a sweeping power grab.
Sir John Whittingdale
I welcome the hon. Lady’s recognition of the value of setting out a list of legitimate interests to provide clarity, but I think she twice referred to the possibility of the Secretary of State adding to it on a whim. I do not think we would recognise that as a possibility. There is an established procedure, which I would like to go through in responding to the hon. Lady’s concerns. As she knows, one of the key principles of our data protection legislation is that any processing of personal data must be lawful. Processing will be lawful where an individual has given his or her consent, or where another specified lawful ground in article 6 of the UK GDPR applies. This includes where the processing is necessary for legitimate interests pursued by the data controller, providing that those interests are not outweighed by an individual’s privacy rights.
Clause 5 addresses the concerns that have been raised by some organisations about the difficulties in relying on the “legitimate interests” lawful ground, which is used mainly by commercial organisations and other non-public bodies. In order to rely on it, the data controller must identify what their interest is, show that the processing is necessary for their purposes and balance their interests against the privacy right of the data subject. If the rights of the data subject outweigh the interests of the organisation, the processing would not be lawful and the controller would need to identify a different lawful ground. Regulatory guidance strongly recommends that controllers document the outcome of their legitimate interests assessments.
As we have heard, and as the hon. Lady recognises, some organisations have struggled with the part of the legitimate interests assessment that requires them to balance their interests against the rights of individuals, and concern about getting the balancing test wrong—and about regulatory action that might follow as a result—can cause risk aversion. In the worst-case scenario, that could lead to crucial information in the interests of an individual or the public—for example, about safeguarding concerns—not being shared by third-sector and private-sector organisations. That is why we are taking steps in clause 5 and schedule 1 to remove the need to do the balancing test in relation to a narrow range of recognised legitimate activities that are carried out by non-public bodies. Those activities include processing, which is necessary for the purposes of safeguarding national security or defence; responding to emergencies; preventing crimes such as fraud or money laundering; safeguarding vulnerable individuals; and engaging with the public for the purposes of democratic engagement.
Damian Collins
Will my right hon. Friend confirm whether the Information Commissioner’s advice will be published, either by the commissioner, the Minister or Parliament—perhaps through the relevant Select Committee?
Sir John Whittingdale
I am not sure it would necessarily be published. I want to confirm that, but I am happy to give a clear response to the Committee in due course if my hon. Friend will allow me.
As well as the advice that the Information Commissioner supplies, the proposal is also subject to the affirmative procedure, as the hon. Member for Barnsley East recognised, so Parliament could refuse to approve any additions to the list that do not respect the rights of data subjects. She suggested that it is rare for an affirmative resolution to be rejected by Parliament; nevertheless, it is part of our democratic proceedings, and every member of the Committee considering it will have the opportunity to reach their own view and vote accordingly. I hope that reassures the hon. Lady that there are already adequate safeguards in place in relation to the exercise of powers to add new activities to the list of recognised legitimate interests.
Amendment 67, which the hon. Lady also tabled, would require data controllers to publish a statement if they are relying on the new recognised legitimate interests lawful ground. The statement would have to explain what processing would be carried out in reliance on the new lawful ground and why the processing is proportionate and necessary for the intended purpose. In our view, the amendment would significantly weaken the clause. It would reintroduce something similar to the legitimate interests assessment, which, as we have heard, can unnecessarily delay some very important processing activities. In scenarios involving national security or child protection, for example, the whole point of the clause is to make sure that relevant and necessary personal data can be shared without hesitation to protect vulnerable individuals or society more generally.
I hope the hon. Lady is reassured by my response and agrees to withdraw her amendments. I commend clause 5 to the Committee.
Stephanie Peacock
We do not believe that amendment 67 would place an extra burden on those who are already complying in good faith. The idea behind it is that it will be a barrier to those attempting to abuse the new basis.
On amendment 68, we should not have laws that rely on the Secretary of State’s good faith. As the Minister said, it is pretty rare for secondary legislation to be voted on, and for the Government to lose, so I do not see that as a barrier. The hon. Member for Folkestone and Hythe highlighted that although there are some protections, we do not believe that the Government protections go as far as we would like. For that reason, I will press the amendment to a vote.
Question put, That the amendment be made.
Sir John Whittingdale
I beg to move amendment 30, in schedule 1, page 137, line 28, leave out “fourth day after” and insert
“period of 30 days beginning with the day after”.
Annex 1 to the UK GDPR makes provision about processing for democratic engagement purposes, including certain processing by elected representatives. This amendment increases the period for which former members of the Westminster Parliament and the devolved legislatures continue to be treated as "elected representatives" following an election. See also NC6 and Amendment 31.
The Chair
With this it will be convenient to discuss the following:
Government amendment 31.
Government new clause 6—Special categories of personal data: elected representatives responding to requests.
That schedule 1 be the First schedule to the Bill.
Sir John Whittingdale
As the Committee will be aware, data protection legislation prohibits the use of “special category” data—namely, information about a person that is sensitive in nature—unless certain conditions or exemptions apply. One such exemption is where processing is necessary on grounds of substantial public interest.
Schedule 1 to the Data Protection Act 2018 sets out a number of situations where processing would be permitted on grounds of substantial public interest, subject to certain conditions and safeguards. That includes processing by elected representatives who are acting with the authority of their constituents for the purposes of progressing their casework. The current exemption applies to former Members of the Westminster and devolved Parliaments for four days after a general election—for example, if the MP has been defeated or decides to stand down. That permits them to continue to rely on the exemption for a short time after the election to conclude their parliamentary casework or hand it over to the incoming MP. In practice, however, it can take much longer than that to conclude these matters.
New clause 6 will therefore extend what is sometimes known as the four-day rule to 30 days, which will give outgoing MPs and their colleagues in the devolved Parliaments more time to conclude casework. That could include handing over live cases to the new representative, or considering what records should be retained, stored and deleted. When MPs leave office, there is an onus on them to conclude their casework in a timely manner. However, the sheer volume of their caseload, on top of the other work that needs to be done when leaving office, means that four days is just not enough to conclude all relevant business. The new clause will therefore avoid the unwelcome situation where an outgoing MP who is doing his or her best to conclude constituency casework could be acting unlawfully if they continue to process their constituents’ sensitive data after the four-day time limit has elapsed. Extending the time limit to 30 days will provide a pragmatic solution to help outgoing MPs while ensuring the exemptions cannot be relied on for an indefinite period.
Government amendments 30 and 31 will make identical changes to other parts of the Bill that rely on the same definition of “elected representative”. Government amendment 30 will change the definition of “elected representative” when the term appears in schedule 1. As I mentioned when we debated the previous group of amendments, clause 5 and schedule 1 to the Bill create a new lawful ground for processing non-sensitive personal data, where the processing is necessary for a “recognised legitimate interest”. The processing of personal data by elected representatives for the purposes of democratic engagement is listed as such an interest, along with other processing activities of high public importance, such as crime prevention, safeguarding children, protecting national security and responding to emergencies.
Government amendment 31 will make a similar change to the definition of “elected representative” when the term is used in clause 84. Clauses 83 and 84 give the Secretary of State the power to make regulations to exempt elected representatives from some or all of the direct marketing rules in the Privacy and Electronic Communications (EC Directive) Regulations 2003. I have no doubt that we will debate the merits of those clauses in more detail later in Committee, but for now it makes sense to ensure that there is a single definition of “elected representative” wherever it appears in the Bill. I hope the hon. Member for Barnsley East and other colleagues will agree that those are sensible suggestions and will support the amendments.
Stephanie Peacock
This set of Government provisions will increase the period for which former MPs and elected representatives in the devolved regions can use the democratic engagement purpose for processing. On the face of it, that seems like a sensible provision that allows for a transition period so that data can be deleted, processed, or moved on legally and safely after an election, and the Opposition have a huge amount of sympathy for it.
I will briefly put on record a couple of questions and concerns. The likes of the Ada Lovelace Institute have raised concerns about the inclusion of democratic engagement purposes in schedule 1. They are worried, particularly with the Cambridge Analytica scandal still fresh in people’s minds, that allowing politicians and elected parties to process data for fundraising and marketing without a proper balancing test could result in personal data being abused for political gain. The decision to make processing for the purposes of democratic engagement less transparent and to remove the balancing test that measures the impact of that processing on individual rights may indicate that the Government do not share the concern about political processing. Did the Minister’s Department consider the Cambridge Analytica scandal when drawing up the provisions? Further, what safeguards will be in place to ensure that all data processing done under the new democratic engagement purpose is necessary and is not abused to spread misinformation?
Sir John Whittingdale
I would only say to the hon. Lady that I have no doubt that we will consider those aspects in great detail when we get to the specific proposals in the Bill, and I shall listen with great interest to my hon. Friend the Member for Folkestone and Hythe, who played an extremely important role in uncovering what went on with Cambridge Analytica.
Damian Collins
The principle that underpinned what happened in the Cambridge Analytica scandal was the connection of Facebook profiles to the electoral register. If I understand my right hon. Friend the Minister correctly, what he is talking about would not necessarily change that situation. This could be information that the political campaign has gained anyway from a voter profile or from information that already exists in accounts it has access to on platforms such as Facebook; it would simply be attaching that, for the purposes of targeting, to people who voted in an election. The sort of personal data that Members of Parliament hold for the purposes of completing casework would not have been processed in that way. These proposals would not change in any way the ability to safeguard people’s data, and companies such as Cambridge Analytica will still seek other sources of open public data to complete their work.
Sir John Whittingdale
I think my hon. Friend is right. I have no doubt that we will go into these matters in more detail when we get to those provisions. As the hon. Member for Barnsley East knows, this measure makes a very narrow change to simply extend the existing time limit within which there is protection for elected representatives to conclude casework following a general election. As we will have opportunity in due course to look at the democratic engagement exemption, I hope she will be willing to support these narrow provisions.
Stephanie Peacock
I am grateful for the Minister’s reassurance, and we are happy to support them.
Stephanie Peacock
I beg to move amendment 69, in clause 6, page 9, leave out lines 7 to 20.
This amendment would remove the ability of the Secretary of State to amend Annex 2, so they could not make changes through secondary legislation to the way purpose limitation operates.
Stephanie Peacock
One of the key principles in article 5 of the EU GDPR is purpose limitation. The principle aims to ensure that personal data is collected by controllers only for specified, explicit and legitimate purposes. Generally speaking, it ensures that the data is not further processed in a manner that is incompatible with those purposes. If a controller’s purposes change over time, or they want to use data for a new purpose that they did not originally anticipate, they can go ahead only if the new purpose is compatible with the original purpose, they get the individual’s specific consent for the new purpose or they can point to a clear legal provision requiring or allowing the new processing in the public interest.
Specifying the reasons for obtaining data from the outset helps controllers to be accountable for their processing and helps individuals understand how their data is being used and whether they are happy with that, particularly where they are deciding whether to provide consent. Purpose limitation exists so that it is clear why personal data is being collected and what the intention behind using it is.
In any circumstance where we water down this principle, we reduce transparency, we reduce individuals’ ability to understand how their data will be used and, in doing so, we weaken assurances that people’s data will be used in ways that are fair and lawful. We must therefore think clearly about what is included in clause 6 and the associated annex. Indeed, many stakeholders, from Which? to Defend Digital Me, have expressed concern that what is contained in annex 2 could seriously undermine the principle of purpose limitation.
As Reset.tech illustrates, under the current regime, if data collected for a relatively everyday purpose, such as running a small business, is requested by a second controller for the purpose of investigating crime, the small business would need to assess whether this further processing—thereby making a disclosure of the data—was compatible with its original purpose. In many cases, there will be no link between the original and secondary purposes, and there are potential negative consequences for the data subjects. As such, the further processing would be unlawful, as it would breach the principle of purpose limitation.
However, under the new regime, all it would take for the disclosure to be deemed compatible with the original purpose is the second controller stating that it requires the data for processing in the public interest. In essence, this means that, for every item listed in annex 2, there are an increased number of circumstances in which data subjects’ personal information could be used for purposes outside their reasonable expectations. It seems logical, therefore, that whatever is contained in the list is absolutely necessary for the public good and is subject to the highest level of public scrutiny possible.
Instead, the clause gives the Secretary of State new Henry VIII powers to add to the new list of compatible purposes by secondary legislation whenever they wish, with no provisions made for consulting on, scrutinising or assessing the impact of such changes. It is important to remember here that secondary legislation is absolutely not a substitute for parliamentary scrutiny of primary legislation. Delegated legislation, as we have discussed, is rarely voted on, and even when it is, the Government of the day will win such a vote if they have a majority.
If there are other circumstances in which the Government think it should be lawful to carry out further processing beyond the original purpose, those should be in the Bill, rather than being left to Ministers to determine at a later date, avoiding the same level of scrutiny.
The Government’s impact assessment says that clarity on the reuse of data could help to fix the market failure caused by information gaps on how purpose limitation works. Providing such clarity is something we could all get behind. However, by giving the Secretary of State sweeping powers fundamentally to change how purpose limitation operates, the clause goes far beyond increasing clarity.
Improved and updated guidance on how the new rules surrounding reusing data work would be far more fruitful in providing clarity than further deregulation in this instance. If Ministers believe there are things missing from the clause and annex, they should discuss them here and now, rather than opening the back door to making further additions afterwards, and that is what the amendment seeks to ensure.
Sir John Whittingdale
The clause sets out the conditions under which the reuse of personal data for a new purpose is permitted. As the hon. Lady has said, the clause expands on the purpose limitation principle. That key principle of data protection ensures that an individual’s personal data is reused only in ways they might reasonably expect.
The current provisions in the UK GDPR on personal data reuse are difficult for controllers and individuals to navigate. That has led to uncertainty about when controllers can reuse personal data. The clause addresses the existing uncertainty around reusing personal data by setting out clearly when it is permitted. That includes when personal data is being reused for a very different purpose from that for which it was originally collected—for example, when a company might wish to disclose personal data for crime prevention.
The clause permits reuse of personal data by a controller when the new purpose is “compatible”; they get fresh consent; there is a research purpose; UK GDPR is being complied with, such as for anonymisation or pseudonymisation purposes; there is an objective in the public interest authorised by law; and certain specified objectives in the public interest set out in a limited list in schedule 2 are met. I will speak more about that when we come to the amendment and the debate on schedule 2.
The clause contains a power to add or amend conditions or remove conditions added by regulations from that list to ensure it can be kept up to date with any future developments in how personal data should be reused in the public interest. It also sets out restrictions on reusing personal data that the controller originally collected on the basis of consent.
The Government want to ensure that consent is respected to uphold transparency and maintain high data protection standards. If a person gives consent for their data to be processed for a specific purpose, that purpose should be changed without their consent only in limited situations, such as for certain public interest purposes, if it would be unreasonable to seek fresh consent. That acts as a safeguard to ensure that organisations address the possibility of seeking fresh consent before relying on any exemptions.
The restrictions around consent relate to personal data collected under paragraph 1(a) of article 6 of the UK GDPR, which came into force in May 2018. Therefore, they do not apply to personal data processed on the basis of consent prior to May 2018, when different requirements applied. By simplifying the rules on further processing, the clause will give controllers legal certainty on when they can reuse personal data and give individuals greater transparency. I support the clause standing part of the Bill.
Let me turn to amendment 69, which proposes to remove the power set out in the clause to amend the annex in schedule 2. As I have already said, schedule 2 will insert a new annex in the UK GDPR, which sets out certain specific public interest circumstances where personal data reuse is permitted. The list is strictly limited and exhaustive, so a power is needed to ensure that it is kept up to date with any future developments in how personal data is reused for important public interest purposes. That builds on an existing power in schedule 2 to the Data Protection Act 2018, where there is already the ability to make exceptions to the purpose limitation principle via secondary legislation.
The power in the clause also provides the possibility of narrowing a listed objective if there is evidence of any of the routes not being used appropriately. That includes limiting it, by reference, to the lawful ground of the original processing—for example, to prohibit the reuse of data that was collected on the basis of an individual’s consent.
I would like to reassure the hon. Lady that this power will be used only when necessary and in the public interest. That is why the clause contains a restriction on its use; it may be used only to safeguard an objective listed in article 23 of the UK GDPR. Clause 44 of the Bill also requires that the Secretary of State must consult the commissioner, and any other persons as the Secretary of State considers appropriate, before making any regulations.
On that basis, I hope the hon. Lady will accept that the amendment is unnecessary.
Stephanie Peacock
The purpose behind our amendment —this speaks to a number of our amendments—is that we disagree with the amount of power being given to the Secretary of State. For that reason, I would like to continue with my amendment.
Question put, That the amendment be made.
Stephanie Peacock
I beg to move amendment 71, in schedule 2, page 138, line 16, leave out “states” and insert “confirms”.
This amendment would require a person who needs personal data for a purpose described in Article 6(1)(e) (a task carried out in the public interest or in the exercise of official authority vested in the controller) to confirm, and not merely to state, that they need the data for legitimate purposes.
The Chair
With this it will be convenient to discuss the following:
Amendment 70, in schedule 2, page 139, line 30, at end insert
“levied by a public authority”.
This amendment would clarify that personal data could be processed as a “legitimate interest” under this paragraph only when the processing is carried out for the purposes of the assessment or collection of a tax or duty or an imposition of a similar nature levied by a public authority.
That schedule 2 be the Second schedule to the Bill.
Stephanie Peacock
I will begin by addressing amendment 70, which seeks only to make a wording change so that the annex cannot be misinterpreted. Paragraph 10 of annex 2 outlines that further processing is to be treated as compatible with original purposes
“where the processing is carried out for the purposes of the assessment or collection of a tax or duty or an imposition of a similar nature.”
Which? has expressed concerns that that is much too vaguely worded, especially without a definition of “tax” or “duty” for the purposes of that paragraph, leaving the data open to commercial uses beyond the intention. Amendment 70 would close any potential loopholes by linking the condition to meeting a specific statutory obligation to co-operate with a public authority such as His Majesty’s Revenue and Customs.
Moving on, amendment 71 would correct a similar oversight in paragraph 1 of annex 2, which was identified by the AWO and Reset.tech. Paragraph 1 aims to ensure that processing is treated as compatible with the original purpose when it is necessary for making a disclosure of personal data to another controller that needs to process that data for a task in the public interest or in the exercise of official authority and that has requested that data. However, the Bill says that processing is to be treated as compatible with the original purpose where such a request simply “states” that the other person needs the personal data for the purposes of carrying out processing that is a matter of public task. At very least, those matters should surely be actually true, rather than just stated. Amendment 71 would close that loophole, so that the request must confirm a genuine need for data in completing a task in the public interest or exercising official authority, rather than simply being a statement of need.
Beyond those amendments, I wish only to reiterate the thoughts that I expressed during the debate on clause 6. Everything contained in the annex provides for further processing that is hidden from data subjects and may not be within their reasonable expectations. The reliance on the new annex should therefore be closely monitored to ensure that it is not being exploited, or we risk compromising the purpose limitation principle altogether. Does the Department plan to monitor how the new exemptions on the reuse of data are being relied on?
Sir John Whittingdale
As we have already discussed with clause 6, schedule 2 inserts a new annex into the UK GDPR. It sets out certain specific public interest circumstances in which personal data reuse is permitted regardless of the purpose for which the data was originally collected—for example, when the disclosure of personal data is necessary to safeguard vulnerable individuals. Taken together, clause 6 and schedule 2 will give controllers legal certainty on when they can reuse personal data and give individuals greater transparency.
Amendment 70 concerns taxation purposes, which are included in the list in schedule 2. I reassure the hon. Member for Barnsley East that the exemption for taxation is not new: it has been moved from schedule 2 to the Data Protection Act 2018. Indeed, the specific language in question goes back as far as 1998. We are not aware of any problems caused by that language.
The inclusion in the schedule of
“levied by a public authority”
would likely cause problems, since taxes and duties can be imposed only by law. Some must be assessed or charged by public authorities, but many become payable as a result of a person’s transactions or circumstances, without any intervention needed except to enforce collection if unpaid. They are not technically levied by a public authority. That would therefore lead to uncertainty and confusion about whether processing for certain important taxation purposes would be permitted under the provision.
I hope to reassure the hon. Lady by emphasising that taxation is not included in the annex 1 list of legitimate interests. That means that anyone seeking to use the legitimate interest lawful ground for that purpose would need to carry out a balancing-of-interests test, unless they were responding to a request for information from a public authority or other body with public tasks set out in law. For those reasons, I am afraid I am unable to accept the amendment, and I hope the hon. Lady will withdraw it.
Amendment 71 relates to the first paragraph in new annex 2 to the UK GDPR, as inserted by schedule 2. The purpose of that provision is to clarify that non-public bodies can disclose personal data to other bodies in certain situations to help those bodies to deliver public interest tasks in circumstances in which personal data might have been collected for a different purpose. For example, it might be necessary for a commercial organisation to disclose personal data to a regulator on an inquiry so that that body can carry out its public functions. The provision is tightly formulated and will permit disclosure from one body to another only if the requesting organisation states that it has a public interest task, that it has an appropriate legal basis for processing the data set out in law, and that the use of the data is necessary to safeguard important public policy or other objectives listed in article 23.
I recognise that the amendment is aimed at ensuring that the requesting organisation has a genuine basis for asking for the data, but suggest that changing one verb in the clause from “state” to “confirm” will not make a significant difference. The key point is that non-public bodies will not be expected to hand over personal data on entirely spurious grounds, because of the safeguards that I described. On that basis, I hope the hon. Lady will withdraw her amendment.
Stephanie Peacock
I am reassured by what the Minister said about amendment 70 and am happy not to move it, but I am afraid he has not addressed all my concerns in respect of amendment 71, so I will press it to a vote.
Question put, That the amendment be made.
Stephanie Peacock
I beg to move amendment 74, in clause 7, page 10, line 34, at end insert—
“6. Where a controller—
(a) charges a fee for dealing with a request, in accordance with paragraph 2(a), or
(b) refuses to act on a request, in accordance with paragraph 2(b)
the controller must issue a notice to the data subject explaining the reasons why they are refusing to act on the request, or charging a fee for dealing with the request, and informing the subject of their right to make a complaint to the Commissioner and of their ability to seek to enforce this right through a judicial remedy.”
This amendment would oblige controllers to issue a notice to the data subject explaining the reasons why they are not complying with a request, or charging for a request, their right to make a complaint to the ICO, and their ability to seek to enforce this right through a judicial remedy.
The Chair
With this it will be convenient to discuss the following:
Amendment 73, in clause 7, page 12, line 20, at end insert—
“(1A) When considering the resources available to the recipient for the purposes of subsection (1)(c), no account may be taken of any lack of resources which is due to a failure by the recipient to appoint staff to relevant roles where the recipient has the resources to do so.”
This amendment would make it clear that, when taking into account “resources available to the controller” for deciding whether a subject access request is vexatious or excessive, this cannot include where the organisation has neglected to appoint staff, but has the finances or resources to do so.
Amendment 72, in clause 7, page 12, line 25, at end insert—
“(3) The Commissioner must prepare a code of practice under section 124A on the circumstances in which a request may be deemed vexatious or excessive.
(4) The code of practice prepared under subsection (3) must include examples of requests which may be deemed vexatious or excessive, and of requests which may be troublesome to deal with but which should not be deemed vexatious or excessive.”
This amendment would require the ICO to produce a code of practice on how the terms vexatious and excessive are to be applied, with examples of the kind of requests that may be troublesome to deal with, but are neither vexatious nor excessive.
Clause stand part.
Stephanie Peacock
I will speak first to clause 7 and amendment 72. Currently, everyone has the right to ask an organisation whether or not it is using or storing their personal data and to ask for copies of that data. That is called the right of access, and exercising that right is known as making a subject access request. Stakeholders from across the spectrum, including tech companies and civil society organisations, all recognise the value of SARs in helping individuals to understand how and why their data is being used and enabling them to hold controllers to account in processing their data lawfully.
The right of access is key to transparency and often underpins people’s ability to exercise their other rights as data subjects. After all, how is someone to know that their data is being used in an unlawful way, or in a way they would object to, if they are not able to ascertain whether their personal data is being held or processed by any particular organisation? For example, as the TUC highlighted in oral evidence to the Committee, the right of data subjects to make an information access request is a particularly important process for workers and their representatives, as it enables workers to gain access to personal data on them that is held by their employer and aids transparency over how algorithmic management systems operate.
It has pleased many across the board to see the Government roll back on their suggestion of introducing a nominal fee for subject access requests. However, the Bill introduces a new threshold for when controllers are able to charge a reasonable fee, or refuse a subject access request, moving from “manifestly unfounded or excessive” to “vexatious or excessive”. When deciding whether a request is vexatious or excessive, the Bill requires the controller to have regard to the circumstances of the subject access request. That includes, but is not limited to, the nature of the request; the relationship between subject and controller; the resources available to the controller; the extent to which the request repeats a previous request made by the subject; how long ago any previous request was made; and whether the request overlaps with other requests made by the data subject to the controller.
Stakeholders such as the TUC, the Public Law Project and Which? have expressed concerns that, as currently drafted, the terms that make up the new threshold are too subjective and could be open to abuse by controllers who may define any request they do not want to answer as vexatious or excessive. Currently, all there is in the Bill to guide controllers on how to apply the threshold is a non-exhaustive list of considerations; as I raised on Second Reading, if that list is non-exhaustive, what explicit protections will be in place to stop the application of terms such as “vexatious” and “excessive” being stretched and manipulated by controllers who simply do not want to fulfil the requests they do not like?
There are concerns that without further guidance even the considerations listed could be interpreted selfishly by controllers who lack a desire to complete a request. For example, given that many subject access requests come from applicants who are suspicious of how their data is being used, or have cause to believe their data is being misused, there is a high likelihood that the relationship any given applicant has with the controller has previously involved some level of friction and, perhaps, anger. The Bill prompts controllers to consider their relationship with a data subject when determining whether their request is vexatious; what is to stop a controller simply marking any data subject who has shared suspicions as “angry and vexatious”, thereby giving them grounds to refuse a genuine request?
Without clarity on how both the new threshold and the considerations apply, the ability of data subjects to raise a legal complaint about why their request was categorised as vexatious and excessive will be severely impeded. As AWO pointed out in oral evidence, that kind of legal dispute over a subject access request may be only the first stage of court proceedings for an individual, with a further legal case on the contents of the subject access request potentially coming afterwards. There simply should not be such a long timescale and set of legal proceedings in order for a person to exercise their fundamental data rights. Even the Information Commissioner himself, despite saying that he was clear on how the phrases “vexatious” and “excessive” should be applied, mentioned to the Committee that it was right to point out that such phrases were open to numerous interpretations.
The ICO is in a great position to provide clear statutory guidance on the application of the terms, with specific examples of when they do and do not apply, so that only truly bad-natured requests that are designed to exploit the system can be rejected or charged for. Such guidance would provide clarity on the ways in which a request might be considered troublesome but neither vexatious nor excessive. That way, controllers can be sure that they have dismissed, or charged for, only requests that genuinely pass the threshold, and data subjects can be assured that they will still be able to freely access information on how their data is being used, should they genuinely need or want it.
On amendment 73, one consideration that the Bill suggests controllers rely on when deciding whether a request is vexatious or excessive is the “resources available” to them. I assume that consideration is designed to operate in relation to the “excessive” threshold and the ability to charge. For example, when a subject access request would require work far beyond the means of the controller in question, the controller would be able to charge for providing the information needed, to ensure that they do not experience a genuine crisis of resources as a result of the request. However, the Bill does not explicitly express that, meaning the consideration in its vague form could be applied in circumstances beyond that design.
Indeed, if a controller neglected to appoint an appropriate number of staff to the responsibility of responding to subject access requests, despite having the finances and resources to do so, they could manipulate the consideration to say that any request they did not like was excessive, as a result of the limited resources available to respond. As is the case across many parts of the Bill, we cannot have legislation that simply assumes that people will act in good faith; we must instead have legislation that explicitly protects against bad-faith interpretations. The amendment would ensure just that by clarifying that a controller cannot claim that a request is excessive simply because they have neglected to arrange their resources in such a way that makes responding to the request possible.
On amendment 74, as is the case with the definition of personal data in clause 1, where the onus is placed on controllers to decide whether a living individual could reasonably be identified in any dataset, clause 7 again places the power—this time to decide whether a request is vexatious or excessive—in the hands of the controller.
As the ICO notes, transparency around the use of data is fundamentally linked to fairness, and is about being
“clear, open and honest with people from the start about who you are, and how and why you use their personal data”.
If a controller decides, then, that due to a request being vexatious or excessive they cannot provide transparency on how they are processing an individual’s data at that time, the very least they could do, in the interests of upholding fairness, is to provide transparency on their justification for classifying a request in that way. The amendment would allow for just that, by requiring controllers to issue a notice to the data subject explaining the grounds on which their request has been deemed vexatious or excessive and informing them of their rights to make a complaint or seek legal redress.
In oral evidence, the Public Law Project described the Bill’s lack of a requirement for controllers to notify subjects as to why their request has been rejected as a decision that creates an “information asymmetry”. That is particularly concerning given that it is often exactly that kind of information that is needed to access the other rights and safeguards outlined in the Bill and across GDPR. A commitment to transparency, as the amendment would ensure, would not only give data subjects clarity on why their request had been rejected or required payment, but provide accountability for controllers who rely on the clause, and thereby a deterrent from misusing it to reject any requests that they dislike. For controllers, the workload of issuing such notices should surely be less than that of processing a request that is genuinely vexatious and excessive, ensuring that the provision does not counterbalance the benefits brought to controllers through the clause.
Sir John Whittingdale
Let me start by recognising the importance of of subject access requests. I am aware that some have interpreted the change in the wording for grounds of refusal as a weakening. We do not believe that is the case.
On amendment 72, in our view the new “vexatious or excessive” language in the Bill gives greater clarity than there has previously been. The Government have set out parameters and examples in the Bill that outline how the term “vexatious” should be interpreted within a personal data protection context, to ensure that controllers understand.
Damian Collins
Does my right hon. Friend agree that the provisions will be helpful and important for organisations that gather data about public persons, and particularly oligarchs, who are very adept at using subject access requests to bombard and overwhelm a journalist or a small investigatory team that is doing important work looking into their business activities?
Sir John Whittingdale
I completely agree with my hon. Friend. That is an issue that both he and I regard as very serious, and is perhaps another example of the kind of legal tactic that SLAPPs—strategic lawsuits against public participation—represent, whereby oligarchs can frustrate genuine journalism or investigation. He is absolutely right to emphasise that.
It is important to highlight that controllers can already consider resource when refusing or charging a reasonable fee for a request. The Government do not wish to change that situation. Current ICO guidance sets out that controllers can consider resources as a factor when determining if a request is excessive.
The new parameters are not intended to be reasons for refusal. The Government expect that the new parameters will be considered individually as well as in relation to one another, and a controller should consider which parameters may be relevant when deciding how to respond to a request. For example, when the resource impact of responding would be minimal even if a large amount of information was requested—such as for a large organisation—that should be taken into account. Additionally, the current rights of appeal allow a data subject to contest a refusal and ultimately raise a complaint with the ICO. Those rights will not change with regard to individual rights requests.
Amendment 74 proposes adding more detail on the obligations of a controller who refuses or charges for a request from a data subject. The current legislation sets out that any request from a data subject, including subject access requests, is to be responded to. The Government are retaining that approach and controllers will be expected to demonstrate why the provision applies each time it is relied on. The current ICO guidance sets out those obligations on controllers and the Government do not plan to suggest a move away from that approach.
The clause also states that it is for the controller to show that a request is vexatious or excessive in circumstances where that might be in doubt. Thus, the Government believe that the existing legislation provides the necessary protections. Following the passage of the Bill, the Government will work with the ICO to update guidance on subject access requests, which we believe plays an important role and is the best way to achieve the intended effect of the amendments. For those reasons, I will not accept this group of amendments; I hope that the hon. Member for Barnsley East will be willing to withdraw them.
I turn to clause 7 itself. As I said, the UK’s data protection framework sets out key data subject rights, including the right of access—the right for a person to obtain a copy of their personal data. A subject access request is used when an individual requests their personal data from an organisation. The Government absolutely recognise the importance of the right of access and do not want to restrict that right for reasonable requests.
The existing legislation enables organisations to refuse or charge a reasonable fee for a request when they deem it to be “manifestly unfounded or excessive”. Some organisations, however, struggle to rely on that in cases where it may be appropriate to do so, which as a consequence impacts their ability to respond to reasonable requests.
The clause changes the legislation to allow controllers to refuse or charge a reasonable fee for a request that is “vexatious or excessive”. The clause adds parameters for controllers to consider when relying on the “vexatious or excessive” exemption, such as the nature of the request and the relationship between the data subject and the controller. The clause also includes examples of the types of request that may be vexatious, such as those intended to cause distress, those not made in good faith or those that are an abuse of process.
We believe that the changes will give organisations much-needed clarity over when they can refuse or charge a reasonable fee for a request. That will ensure that controllers can focus on responding to reasonable requests, as well as other important data and organisational needs. I commend the clause to the Committee.
Stephanie Peacock
I appreciate that, as the Minister said, the Government do not intend the new terms to be grounds for refusal, but his remarks do not reassure me that that will not be the case. Furthermore, as I said on moving the amendment, stakeholders such as the TUC, Public Law and Which? have all expressed concern that, as drafted, those terms are too subjective. I will press the amendment to a vote.
Question put, That the amendment be made.
Sir John Whittingdale
Clause 8 makes changes to the time requirements to which an organisation must adhere when responding to a subject access request. Currently, organisations must respond to a subject access request within a set period; in the majority of cases, that is one month from receipt of the request. This clause enables organisations to “stop the clock” on the response time when an organisation is unable to respond without further information or clarification from an individual. For example, when the controller has information on multiple data subjects with the same name, they may require further information to help to differentiate the data subject’s information from others’. Organisations must have a legitimate reason to pause the response time; once confirmation is received from the data subject, the original time obligations resume.
The clause will also enable organisations to extend the period permitted for law enforcement and the intelligence services to respond to complex requests by two further months in certain circumstances. This replicates the existing provisions applicable to processing requests under the UK GDPR. Currently, all subject access requests received under the law enforcement and intelligence services regimes must be actioned within one month, irrespective of the complexity or number of requests received from an individual. Consequently, complex or confusing requests can disproportionately burden public bodies operating under those regimes, creating resource pressures.
Clause 8 will rectify the disparity currently existing between processing regimes and put law enforcement and intelligence services organisations on an equal footing to UK GDPR organisations. That will also provide a consistent framework for organisations operating under more than one regime at the same time. The clause also brings clarity on how best to respond to a confusing or complex request, ensuring that organisations do not lose time while seeking this clarification and can instead focus on responding to a request. On that basis, I urge that clause 8 stand part of the Bill.
Stephanie Peacock
I expressed my thoughts on the value and importance of subject access requests when we debated clause 7, and most of the same views remain pertinent here. Clause 8 allows for subject access requests to be extended where the nature of the request is complex, or due to volume. Some civil society groups, including Reset.tech, have expressed concern that that could mean that requests are unduly delayed for months, reflecting concern that they could be disregarded altogether, which was discussed when we debated clause 7. With that in mind, can the Minister tell us what protections will be in place to ensure that data controllers do not abuse the new ability to extend subject access requests, particularly by using the excuse that it is a large amount of data, in order to delay requests that they simply do not wish to respond to?
The clause provides some clarity on clause 7 by demonstrating that just because a request is lengthy or comes in combination with many others, it is not necessarily excessive as the clause gives controllers the option to extend the timeframe for dealing with requests that are high in volume. Of course, we do not want to unnecessarily delay requests, but allowing controllers to manage their load within a reasonable extended timeframe can act as a safeguard against their automatically relying on the “excessive” threshold. With that in mind, I am happy for the clause to stand part. However, I reiterate that my comments on clause 7 should be referred to.
Sir John Whittingdale
May I briefly respond to the hon. Lady’s comments? I assure her that controllers will not be able to stop the clock for all subject access requests—only for those where they reasonably require further information to be able to proceed with responding. Once that information has been received from a data subject, the clock resumes and the controller must proceed with responding to the request within the applicable time period, which is usually one month from when the controller receives the request information. A data subject who has provided the requested information would also be able to complain to a controller, and ultimately to the Information Commissioner’s Office, if they feel that their request has not been processed within the appropriate time. I hope the hon. Lady will be assured that there are safeguards to ensure that this power is not abused.
Question put and agreed to.
Clause 8 accordingly ordered to stand part of the Bill.
Clause 9
Information to be provided to data subjects
Question proposed, That the clause stand part of the Bill.
Sir John Whittingdale
Clause 9 provides researchers, archivists and those processing personal data for statistical purposes with a new exemption from providing certain information to individuals when they are reusing datasets for a different purpose, which will help to ensure that important research can continue unimpeded. The new exemption will apply when the data was collected directly from the individual, and can be used only when providing the additional information would involve a disproportionate effort. There is already an exemption from this requirement where the personal data was collected from a different source.
The clause also adds a non-exhaustive list of examples of factors that may constitute a disproportionate effort. This list is added to both the new exemption in article 13 and the existing exemption found in article 14. Articles 13 and 14 of the UK GDPR set out the information that must be provided to data subjects at the point of data collection: article 13 covers circumstances where data is directly collected from data subjects, and article 14 covers circumstances where personal data is collected indirectly—for example, via another organisation. The information that controllers must provide to individuals includes details such as the identity and contact details of the controller, the purposes of the processing and the lawful basis for processing the data.
Given the long-term nature of research, it is not always possible to meaningfully recontact individuals. Therefore, applying a disproportionate effort exemption addresses the specific problem of researchers wishing to reuse data collected directly from an individual. The exemption will help ensure that important research can continue unimpeded. The clause also makes some minor changes to article 14. Those do not amend the scope of the exemption or affect its operation, but make it easier to understand.
I now turn to clause 10, which introduces an exemption relating to legally professionally privileged data into the law enforcement regime, mirroring the existing exemptions under the UK GDPR and the intelligence services regime. As a fundamental principle of our legal system, legal professional privilege protects confidential communications between professional legal advisers and their clients. The existing exemption in the UK GDPR restricts an individual’s right to access personal data that is being processed or held by an organisation, and to receive certain information about that processing.
However, in the absence of an explicit exemption, organisations processing data under the law enforcement regime, for a law enforcement purpose rather than under the UK GDPR, must rely on ad hoc restrictions in the Data Protection Act. Those require them to evaluate and justify its use on a case-by-case basis, even where legal professional privilege is clearly applicable. The new exemption will make it simpler for organisations that process data for a law enforcement purpose to exempt legally privileged information, avoiding the need to justify the use of alternative exemptions. It will also clarify when such information can be withheld from the individual.
Hon. Members might wonder why an exemption for legal professional privilege was not included under the law enforcement regime of the Data Protection Act in the first place. The reason is that we faithfully transposed the EU law enforcement directive, which did not contain such an exemption. Following our exit from the EU, we are taking this opportunity to align better the UK GDPR and the law enforcement regime, thereby simplifying the obligations for organisations and clarifying the rules for individuals.
Stephanie Peacock
The impact of clause 9 and the concerns around it should primarily be understood in relation to the definition contained in clause 2, so I refer hon. Members to my remarks in the debate on clause 2. I also refer them to my remarks on purpose limitation in clause 6. To reiterate both in combination, I should say that purpose limitation exists so that it is clear why personal data is being collected, and what the intention is behind its use. That means that people’s data should not largely be reused in ways not initially collected for, unless a new legal basis is obtained.
It is understandable that, where genuine scientific, historical and statistical research is occurring, and there is disproportionate effort to provide the information required to data subjects, there may be a need for exemption and to reuse data without informing the subject. However, that must be done only where strictly necessary. We must be clear that, unless there are proper boundaries to the definition of scientific data, this could be interpreted far too loosely.
I am concerned that, without amendment to clause 2, clause 9 could extend the problem of scientific research being used as a guise for using people’s personal data in malicious or pseudoscientific ways. Will the Minister tell us what protections will be in place to ensure that people’s data is not reused on scientific grounds for something that they would otherwise have objected to?
On clause 10, I will speak more broadly on law enforcement processing later in the Bill, but it is good to have clarity on the legal professional privilege exemptions. I have no further comments at this stage.
Carol Monaghan (Glasgow North West) (SNP)
What we are basically doing is changing the rights of individuals, who would previously have known when their data was used for a purpose other than that for which it was collected. The terms
“scientific or historical research, the purposes of archiving in the public interest or statistical purposes”
are very vague, and, according to the Public Law Project, open to wide interpretation. Scientific research is defined as
“any research that can reasonably described as scientific, whether publicly or privately funded”.
I ask the Minister: what protections are in place to ensure that private companies are not given, through this clause, a carte blanche to use personal data for the purpose of developing new products, without the need to inform the data subject?
Sir John Whittingdale
These clauses relate to one of the fundamental purposes of the Bill, which is to facilitate genuine scientific research—obviously, that carries with it huge potential benefits in the areas of tackling disease or other scientific advances. We debated the definition of scientific research earlier in relation to clause 2. We believe that the definition is clear. In this particular case, the use of historical data can be very valuable. It is simply impractical for some organisations to reobtain consent when they may not even know where original data subjects are now located.
The Chair
Order. I apologise to the Minister. He can resume his remarks at 2 o’clock, when we meet again in this room but, it being 11.25 am, the Committee is now adjourned.
Data Protection and Digital Information (No. 2) Bill (Fourth sitting)
Tuesday 16th May 2023
(1 year, 7 months ago)
Public Bill CommitteesRead Full debate Data Protection and Digital Information Bill 2022-23 View all Data Protection and Digital Information Bill 2022-23 Debates Read Hansard Text Amendment Paper: Public Bill Committee Amendments as at 16 May 2023 - (16 May 2023)
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 7 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 10 / Noes: 6 - Question accordingly agreed to.
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Committee divided: - Ayes: 10 / Noes: 6 - Question accordingly agreed to.
The Minister for Data and Digital Infrastructure (Sir John Whittingdale)
When the Committee adjourned this morning, I was nearly at my conclusion; I was responding to points made by the hon. Member for Barnsley East and by the hon. Member for Glasgow North West, who has not yet rejoined us. I was saying that the exemption applies where the data originally collected is historic, where to re-contact to obtain consent would require a disproportionate effort, and where that data could be of real value in scientific research. We think that there is a benefit to research and we are satisfied that the protection is there. There was some debate about the definition of scientific research, which we covered earlier; that is a point that is appealable to the Information Commissioner’s Office. On the basis of what I said earlier, and that assurance, I hope that the Committee will agree to the clause.
Question put and agreed to.
Clause 9 accordingly ordered to stand part of the Bill.
Clause 10 ordered to stand part of the Bill.
Clause 11
Automated decision-making
Stephanie Peacock (Barnsley East) (Lab)
I beg to move amendment 78, in clause 11, page 18, line 13, after “subject” insert “or decision subject”.
This amendment, together with Amendments 79 to 101, would apply the rights given to data subjects by this clause to decision subjects (see NC12).
The Chair
With this it will be convenient to discuss the following:
Amendment 79, in clause 11, page 18, line 15, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 80, in clause 11, page 18, line 16, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 81, in clause 11, page 18, line 27, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 82, in clause 11, page 18, line 31, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 83, in clause 11, page 19, line 4, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 84, in clause 11, page 19, line 7, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 85, in clause 11, page 19, line 11, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 86, in clause 11, page 19, line 12, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 87, in clause 11, page 19, line 13, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 88, in clause 11, page 19, line 15, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 89, in clause 11, page 19, line 17, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 90, in clause 11, page 19, line 26, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 91, in clause 11, page 20, line 8, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 92, in clause 11, page 20, line 10, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 93, in clause 11, page 20, line 12, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 94, in clause 11, page 20, line 23, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 95, in clause 11, page 20, line 28, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 96, in clause 11, page 20, line 31, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 97, in clause 11, page 20, line 35, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 98, in clause 11, page 20, line 37, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 99, in clause 11, page 20, line 39, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 100, in clause 11, page 21, line 1, leave out “data”.
See explanatory statement to Amendment 78.
Amendment 101, in clause 11, page 21, line 31, after “subject” insert “or decision subject”.
See explanatory statement to Amendment 78.
Amendment 106, in clause 27, page 47, line 27, after “subjects”, insert “decision subjects,”.
This amendment would require the ICO to have regard to decision subjects (see NC12) as well as data subjects as part of its obligations.
Amendment 108, in clause 29, page 53, line 11, at end insert—
“(ba) decision subjects;”.
This amendment, together with Amendments 109 and 110, would require codes of conduct produced by the ICO to have regard to decision subjects (see NC12) as well as data subjects.
Amendment 109, in clause 29, page 53, line 13, at end insert—
“(d) persons who appear to the Commissioner to represent the interests of decision subjects.”.
See explanatory statement to Amendment 108.
Amendment 110, in clause 29, page 53, line 21, after “subjects”, insert “, decision subjects”.
See explanatory statement to Amendment 108.
New clause 12—Decision subjects—
“(1) The UK GDPR is amended as follows.
(2) In Article 4, after paragraph (A1), insert—
‘(A1A) “decision subject” means an identifiable individual who is subject to data-based and automated decision making;’”.
This new clause would provide a definition of “decision subjects”, enabling them to be given rights similar to those given to data subjects (see, for example, Amendment 78).
Stephanie Peacock
I am pleased to speak to new clause 12, which would insert a definition of decision subjects, and to amendments 79 to 101, 106 and 108 to 110, which seek to insert rights and considerations for decision subjects that mirror those of data subjects at various points throughout the Bill.
Most of our data protection legislation operates under the assumption that the only people affected by data-based and automated decision making are data subjects. The vast majority of protections available for citizens are therefore tied to being a data subject: an identifiable living person whose data has been used or processed. However, as Dr Jeni Tennison described repeatedly in evidence to the Committee, that assumption is unfortunately flawed. Although data subjects form the majority of those affected by data-based decision making, they are not the only group of people impacted. It is becoming increasingly common across healthcare, employment, education and digital platforms for algorithms created and trained on one set of people to be used to reach conclusions about another, wider set of people. That means that an algorithm can make an automated decision that affects an individual to a legal or similarly significant degree without having used their personal data specifically.
For example, as Connected by Data points out, an automated decision could be made about a neighbourhood area, such as a decision on gritting or a police patrol route, based on personal data about some of the people who live in that neighbourhood, with the outcome impacting even those residents and visitors whose data was not directly used. For those who are affected by the automated decision but are not data subjects, there is currently no protection, recognition or method of redress.
The new clause would therefore define the decision subjects who are impacted by the likes of AI without their data having been used, in the hope that we can give them protections throughout the Bill that are equal to those for data subjects, where appropriate. That is especially important because special category data is subject to stricter safeguards for data subjects but not for decision subjects.
Connected by Data illustrates that point using the following example. Imagine a profiling company that uses special category data about the mental health of some volunteers to construct a model that predicts mental health conditions based on social media feeds, which would not be special category data. From that information, the company could give an estimate of how much time people are likely to take off work. A recruitment agency could then use that model to assess candidates and reject those who are likely to have extended absences. The model would never use any special category data about the candidates directly, but those candidates would have been subject to an automated decision that made assumptions about their own special category data, based on their social media feeds. In that scenario, by virtue of being a decision subject, the individual would not have the right to the same safeguards as those who were data subjects.
Furthermore, there might be scenarios in which someone was subject to an automated decision despite having consciously prevented their personal data from being shared. Connected by Data illustrates that point by suggesting that we consider a person who has set their preferences on their web browser so that it does not retain tracking cookies or share information such as their location when they visit an online service. If the online service has collected data about the purchasing patterns of similarly anonymous users and knows that such a customer is willing to pay more for the service, it may automatically provide a personalised price on that basis. Again, no personal data about the purchaser will have been used in determining the price that they are offered, but they will still be subject to an automated decision based on the data of other people like them.
What those scenarios illustrate is that it is whether an automated decision affects an individual in a legal or similarly significant way that should be central to their rights, rather than whether any personal data is held about them. If the Bill wants to unlock innovation around AI, automated decisions and the creative use of data, it is only fair that that be balanced by ensuring that all those affected by such uses are properly protected should they need to seek redress.
This group of amendments would help our legislative framework to address the impact of AI, rather than just its inputs. The various amendments to clause 11 would extend to decision subjects rights that mirror those given to data subjects regarding automated decision making, such as the right to be informed, the right to safeguards such as contesting a decision and the right to seek human intervention. Likewise, the amendments to clauses 27 and 29 would ensure that the ICO is obliged to have regard to decision subjects both generally and when producing codes of conduct.
Finally, to enact the safeguards to which decision subjects would hopefully be entitled via the amendments to clause 11, the amendment to clause 39 would allow decision subjects to make complaints to data controllers, mirroring the rights available to data subjects. Without defining decision subjects in law, that would not be possible, and members of the general public could be left without the rights that they deserve.
Sir John Whittingdale
I am very much aware of the concern about automated decision making. The Government share the wish of the hon. Member for Barnsley East for all those who may be affected to be given protection. Where I think we differ is that we do not recognise the distinction that she tries to make between data subjects and decision subjects, which forms the basis of her amendments.
The hon. Lady’s amendments would introduce to the UK GDPR a definition of the term “decision subject”, which would refer to an identifiable individual subject to data- based and automated decision making, to be distinguished from the existing term “data subject”. The intended effect is to extend the requirements associated with provisions related to decisions taken about an individual using personal data to those about whom decisions are taken, even though personal information about them is not held or used to take a decision. It would hence apply to the safeguards available to individuals where significant decisions are taken about them solely through automated means, as amendments 78 to 101 call for, and to the duties of the Information Commissioner to have due regard to decision subjects in addition to data subjects, as part of the obligations imposed under amendment 106.
I suggest to the hon. Lady, however, that the existing reference to data subjects already covers decision subjects, which are, if you like, a sub-group of data subjects. That is because even if an individual’s personal data is not used to inform the decision taken about them, the fact that they are identifiable through the personal data that is held makes them data subjects. The term “data subject” is broad and already captures the decision subjects described in the hon. Lady’s amendment, as the identification of a decision subject would make them a data subject.
I will not, at this point, go on to set out the Government’s wider approach to the use of artificial intelligence, because that is somewhat outside the scope of the Bill and has already been set out in the White Paper, which is currently under consultation. Nevertheless, it is within that framework that we need to address all these issues.
Damian Collins (Folkestone and Hythe) (Con)
I have been closely following the speeches of the Minister and the hon. Member for Barnsley East. The closest example that I can think of for this scenario is the use of advertising tools such as lookalike audiences on Facebook and customer match on YouTube, where a company holding data about users looks to identify other customers who are the closest possible match. It does not hold any personal data about those people, but the platform forms the intermediary to connect them. Is the Minister saying that in that situation, as far as the Bill is concerned, someone contacted through a lookalike audience has the same rights as someone who is contacted directly by an advertiser that holds their data?
Sir John Whittingdale
Essentially, if anybody is affected by automated decision making on the basis of the characteristics of another person whose data is held—in other words, if the same data is used to take a decision that affects them, even if it does not personally apply to them—they are indeed within the broader definition of a data subject. With that reassurance, I hope that the hon. Member for Barnsley East will consider withdrawing her amendment.
Stephanie Peacock
I appreciate the Minister’s comments, but the point is that the data could be used—I gave the example that it might affect a group of residents who were not identifiable but were still subject to that data—so I am not quite sure that I agree with the Minister’s comparison. As the use of automated decision making evolves and expands, it is crucial that even if a person’s data is not being used directly, they are afforded protections and rights if they are subject to the outcome. I would like to press my amendment to a vote.
Question put, That the amendment be made.
Stephanie Peacock
I beg to move amendment 77, in clause 11, page 19, line 12, at end insert
“and about the safeguards available to the subject in accordance with this paragraph and any regulations under Article 22D(4);”.
This amendment would require controllers proactively to provide data subjects with information about their rights in relation to automated decision-making.
The Chair
With this it will be convenient to discuss amendment 120, in clause 11, page 19, line 12, at end insert—
“(aa) require the controller to inform the data subject when a decision described in paragraph 1 has been taken in relation to the data subject;”.
This amendment would require a data controller to inform a data subject whenever a significant decision about that subject based entirely or partly on personal data was taken based solely on automated processing.
Stephanie Peacock
New article 22C of the UK GDPR, inserted by clause 11, sets out the safeguards available to those who are subject to automated decision making. One such safeguard is that controllers must provide information to subjects relating to significant decisions taken through solely automated processing. That includes notifying subjects when a decision has been taken or informing them of the logic involved in producing that decision.
That provision is important. After all, how can the subject of an automated decision possibly exercise their other rights surrounding that decision if they do not even know that it has been taken on a solely automated basis? By the same logic, however, the average member of the general public is not likely to be aware of those other rights in the first place, including the rights to express their point of view with respect to automated decisions, to contest them and to seek human intervention.
Amendment 77 therefore recommends that as well as controllers being required to inform subjects about the decision, the same notice should be used as a vehicle to ensure that the subject is aware of the rights and safeguards in place to protect them and offer them redress. It would require no extra administrative effort on behalf of the controllers, because they will already be informing subjects. A proactive offer of redress may also encourage controllers to have extra regard to the way in which their automated systems are operating, in order to avoid unlawful activity that may cause them to receive a complaint or a request for human intervention.
An imbalance of power between those who conduct automated decisions and those who are subject to them already largely exists. Those who conduct decisions hold the collective power of the data, whereas each individual subject to a decision has only their own personal information; I will address that issue in greater detail in relation to other amendments, but there is no reason why that power imbalance should be exacerbated by hiding an individual’s own rights from them. If the intention of new article 22C is, as stated, to ensure that controllers are required to review and correct decisions that have produced a systematically wrongful outcome, there should be no issue with ensuring that the mechanism is properly communicated to the people it purports to serve. I am pleased to see that the hon. Member for Glasgow North West has tabled a similar amendment.
Carol Monaghan (Glasgow North West) (SNP)
I rise to speak to my amendment 120. The explanatory notes to the Bill clarify that newly permitted automated decisions will not require the existing legal safeguard of notification, stating only:
“Where appropriate, this may include notifying data subjects after such a decision has been taken”.
Clause 11 would replace article 22 of the GDPR, which regulates AI decision making, with new articles 22A to 22D. According to Connected by Data, it is built on the faulty assumption that the people who are affected by automated decision making are data subjects—identifiable individuals within the data used to make the automated decision. However, now that AI decisions can be based on information about other people, it is becoming increasingly common for algorithms created through training on one set of people to be used to reach conclusions about another set.
A decision can be based on seemingly innocuous information such as someone’s postcode or whether they liked a particular tweet. Where such a decision has an impact on viewing recommendations for an online player, we would probably not be that concerned, but personal data is being used more and more to make decisions that affect whole groups of people rather than identified individuals. We need no reminding of the controversy that ensued when Ofqual used past exam results to grade students during the pandemic.
Another example might be an electricity company getting data from its customers about home energy consumption. Based on that data, it could automatically adjust the time of day at which it offered cheaper tariffs. Everyone who used the electricity company would be affected, whether data about their energy consumption patterns were used to make the decision or not. It is whether an automated decision has a legal or similarly significant effect on an individual that should be relevant to their rights around automated decision making.
Many of the rights and interests of decision subjects are protected through the Equality Act 2010, as the Committee heard in oral evidence last week. What is not covered by other legislation, however, is how data can be used in automated decisions and the rights of decision subjects to be informed about, control and seek redress around automated decisions with a significant effect on them. According to Big Brother Watch:
“This is an unacceptable dilution of a critical safeguard that will not only create uncertainty for organisations seeking to comply, but could lead to vastly expanded ADM operating with unprecedented opacity.”
Amendment 120 would require a data controller to inform a data subject whenever a significant decision about that subject was based solely on automated processing. I am pleased that the hon. Member for Barnsley East has tabled a similar amendment, which I support.
Sir John Whittingdale
The Government absolutely share hon. Members’ view of the importance of transparency. We agree that individuals who are subject to automated decision making should be made aware of it and should have information about the available safeguards. However, we feel that those requirements are already built into the Bill via article 22C, which will ensure that individuals are provided with information as soon as is practicable after such decisions have been taken. This will need to include relevant information that an individual would require to contest such decisions and seek human review of them.
The reforms that we propose take an outcome-focused approach to ensure that data subjects receive the right information at the right time. The Information Commissioner’s Office will play an important role in elaborating guidance on what that will entail in different circumstances.
Chi Onwurah (Newcastle upon Tyne Central) (Lab)
If I understood the Minister correctly, he said that decision subjects are a subset of data subjects. Can he envisage any circumstances in which a decision subject is not included within the group “data subjects”?
Sir John Whittingdale
It is certainly our view that anybody who is affected by an automated decision made on the basis of data held about individuals themselves becomes a data subject, so I think the answer to the honourable Lady’s question is no. As I said, the Information Commissioner’s Office will provide guidance in this area. If such a situation does arise, obviously it will need to be considered.The hon. Members for Barnsley East and for Glasgow North West asked about making information available to all those affected, and about safeguards, which we think are contained within the requirements under article 22C.
Damian Collins
Further to the point that was made earlier, let us say that a Facebook user was targeted with an advert that was based on their protected characteristics data—data relevant to their sexual orientation, for example—but that user said that they had never shared that information with the platform. Would they have the right to make a complaint, either to the advertiser or to the platform, for inferring that data about them and making it available to a commercial organisation without their informed consent?
Sir John Whittingdale
They would obviously have that right, and indeed they would ultimately have the right to appeal to the Information Commissioner if they felt that they had been subjected unfairly to a decision where they had not been properly informed of the fact. On the basis of what I have said, I hope the hon. Member for Barnsley East might withdraw her amendment.
Stephanie Peacock
I appreciate the Minister’s comment, but the Government protection does not go as far as we would like. Our amendment speaks to the potential imbalance of power in the use of data and it would not require any extra administrative effort on behalf of controllers. For that reason, I will press it to a vote.
Question put, That the amendment be made.
Carol Monaghan
I will not move it formally, Mr Hollobone, but I may bring it back on Report.
Stephanie Peacock
I beg to move amendment 76, in clause 11, page 19, line 34, at end insert—
“5A. The Secretary of State may not make regulations under paragraph 5 unless—
(a) following consultation with such persons as the Secretary of State considers appropriate, the Secretary of State has published an assessment of the impact of the change to be made by the regulations on the rights and freedoms of data and decision subjects (with particular reference to children),
(b) the Commissioner has reviewed the Secretary of State’s statement and published a statement of the Commissioner’s views on whether the change should be made, with reasons, and
(c) the Secretary of State has considered whether to proceed with the change in the light of the Commissioner’s statement.”
This amendment would make the Secretary of State’s ability to amend the safeguards for automated decision-making set out in new Articles 22A to D subject to a requirement for consultation with interested parties and with the Information Commissioner, who would be required to publish their views on any proposed change.
The Chair
With this it will be convenient to discuss amendment 75, in clause 11, page 19, line 36, at end insert—
“7. The Commissioner must prepare a code of practice under section 124A of the Data Protection Act 2018 on the interpretation of references in this Regulation to “meaningful human involvement” and “similarly significant”.
8. The code of practice prepared under paragraph 7 must include examples of the kinds of processing which do, and which do not, fall within the definitions which use the terms referred to in that paragraph.”
This amendment would require the ICO to produce a code of practice on the interpretation of references to “meaningful human involvement” and “similarly significant” in connection with automated decision-making, with examples of the kinds of processing that would not count as falling within these definitions.
Stephanie Peacock
I will begin by discussing amendment 76 in the context of the general principles of this clause. The rise of AI and algorithmic decision making has happened at an unprecedented speed—so much so, in fact, that when the first version of this Bill was published, the likes of ChatGPT were not even launched yet. Now we live in a world where the majority of people across the country have been affected by or have used some form of AI-based or automated decision-making system.
When algorithms and automation work well, not only do they reduce administrative burdens, increase efficiency and free up capacity for further innovation and growth; they can also have remarkable outcomes. Indeed, PwC UK suggests that UK GDP could be up to 10.3% higher in 2030 as a result of artificial intelligence. AI is already being used to develop vaccines and medicines, for example, which are saving lives across the country and the entire world. Labour’s belief, outlined in our industrial strategy, is that the UK should be leading the world on efforts to ensure that transformative AI is aligned with the public interest in that way, and that regulations ensure we are well positioned to do that.
Despite the potential of AI to be harnessed for the public good, however, where things go wrong, the harms can be serious. The first way in which automation is prone to go wrong is by producing discriminatory outcomes. An algorithm, although intelligent in itself, is only ever as fair as the information and the people used to train it. That means that where biases exist in our world, they can become entrenched in our automated systems too. In in 2020, thousands of students in England and Wales received A-level exam results where, due to the pandemic, their grades were determined by an algorithm rather than by sitting an exam. At the hands of the automated system, almost 40% of students received grades lower than they had anticipated, with pupils from certain backgrounds and areas such as those that I represent disproportionately impacted by the lower marks. Within days of the results being published, there was widespread public outcry about the distress caused, as well as threats of mass protests and legal action. Similarly, Amazon was reported to have used an AI tool that systematically penalised women in job application processes. The tool had been trained on a decade’s worth of CVs, predominantly submitted by men. As such examples show, AI on its own can produce discriminatory outcomes. Our regulation must therefore recognise that and seek to protect against it.
The second major way in which automated decision making tends to go wrong, or can be abused, is when it makes legal or critical decisions about our lives based on mismanaged, abused or faulty systems. In the most extreme cases, automated systems can even contribute to deciding whether someone’s employment will be terminated, with grave consequences when that goes wrong. As mentioned in the oral evidence sessions, for example, last month the courts upheld the finding that three UK-based Uber drivers were robotically fired without redress, having been accused of fraudulent activity on the basis of an automated detection system. The court found that human involvement in the firing process was
“not much more than a purely symbolic act”,
and that implementing such a decision without a mechanism for appeal was unjust. Where livelihoods are at risk, data regulation must ensure that proper safeguards are in place to protect against mismanaged and faulty automated systems.
Serious harms sometimes occur under the existing system, but there are laws under the GDPR that try to protect us against discriminatory outcomes and mismanagement. Indeed, article 21 of GDPR gives a data subject the right to object at any time to the processing of their personal data, unless the controller can demonstrate “compelling legitimate grounds” for the processing to override the data subject’s rights. In conjunction, article 22 prevents data subjects from being subject to a decision based solely on automated processing that has significant effects, except in a few circumstances, including when it is based on explicit consent and does not rely on special categories of data. In all cases where automated decision making is allowed, suitable measures to safeguard the data subjects’ rights and freedoms must also be implemented.
Albeit from different perspectives, stakeholders from techUK to the TUC have emphasised the importance of those articles and of the core principles that they promote. For example, the articles place an element of control in the hands of those that an automated decision affects. They emphasise the need for appropriate safeguards, and they consider the need for a different approach where sensitive data is concerned.
Where the clause adjusts the threshold on automated decision making to unlock innovation, therefore—as the likes of the A-level algorithm scandal and the robo- firings show—it is vital that any changes to regulation maintain and in some cases strengthen the principles set out in articles 21 and 22 of the GDPR. However, as the likes of the Ada Lovelace Institute, Which? and the TUC warn, in reality the Bill does the opposite, watering down existing protections. The amendments I have tabled are designed to rectify that.
Sir John Whittingdale
The hon. Lady began her remarks on the broader question of the ambition to ensure that the UK benefits to the maximum extent from the use of artificial intelligence. We absolutely share that ambition, but also agree that it needs to be regulated. That is why we have published the AI regulation White Paper, which suggests that it is most appropriate that each individual regulator should develop its own rules on how that should apply. I think in the case that she was quoting of those who had lost their jobs, maybe through an automated process, the appropriate regulator—in that case, presumably, the special employment tribunal —would need to develop its own mechanism for adjudicating decisions.
I will concentrate on the amendment. On amendment 76, we feel that clause 44 already provides for an overarching requirement on the Secretary of State to consult the Information Commissioner and other persons that she or he considers appropriate before making regulations under UK GDPR, including the measures in article 22. When the new clause 44 powers are used in reference to article 22 provisions, they will be subject to the affirmative procedure in Parliament. I know that the hon. Lady is not wholly persuaded of the merits of using the affirmative procedure, but it does mean that parliamentary approval will be required. Given the level of that scrutiny, we do not think it is necessary for the Secretary of State to have to publish an assessment, as the hon. Lady would require through her amendment.
On amendment 75, as we have already debated in relation to previous amendments, there are situations where non-statutory guidance, which can be produced without being requested under regulations made by the Secretary of State, may be more appropriate than a statutory code of practice. We believe that examples of the kinds of processing that do and do not fall within the definitions of the terms “meaningful human involvement” and “similarly significant” are best placed in non-statutory guidance produced by the ICO, as this will give the flexibility to amend and change the examples where necessary. What constitutes a significant decision or meaningful human involvement is often highly context-specific, and the current wording allows for some inter-pretability to enable the appropriate application of this provision in different contexts, rather than introducing an absolute definition that risks excluding decisions that ought to fall within this provision and vice versa. For that reason, we are not minded to accept the amendments.
Stephanie Peacock
I appreciate the Minister’s remarks about consultation and consulting relevant experts. He is right to observe that I am not a big fan of the affirmative procedure as a method of parliamentary scrutiny but I appreciate that it is included in this Bill as part of that.
I think the problem is that we fundamentally disagree on the power to change these definitions being concentrated in the hands of the Secretary of State. It is one thing to future-proof the Bill but another to allow the Secretary of State alone to amend things as fundamental as the safeguards offered here. I would therefore like to proceed to a vote.
Question put, That the amendment be made.
Stephanie Peacock
I beg to move amendment 121, in clause 11, page 19, line 36, at end insert—
“7. When exercising the power to make regulations under this Article, the Secretary of State must have regard to the following statement of principles:
Digital information principles at work
1. People should have access to a fair, inclusive and trustworthy digital environment at work.
2. Algorithmic systems should be designed and used to achieve better outcomes: to make work better, not worse, and not for surveillance. Workers and their representatives should be involved in this process.
3. People should be protected from unsafe, unaccountable and ineffective algorithmic systems at work. Impacts on individuals and groups must be assessed in advance and monitored, with reasonable and proportionate steps taken.
4. Algorithmic systems should not harm workers’ mental or physical health, or integrity.
5. Workers and their representatives should always know when an algorithmic system is being used, how and why it is being used, and what impacts it may have on them or their work.
6. Workers and their representatives should be involved in meaningful consultation before and during use of an algorithmic system that may significantly impact work or people.
7. Workers should have control over their own data and digital information collected about them at work.
8. Workers and their representatives should always have an opportunity for human contact, review and redress when an algorithmic system is used at work where it may significantly impact work or people. This includes a right to a written explanation when a decision is made.
9. Workers and their representatives should be able to use their data and digital technologies for contact and association to improve work quality and conditions.
10. Workers should be supported to build the information, literacy and skills needed to fulfil their capabilities through work transitions.”
This amendment would insert into new Article 22D of the UK GDPR a requirement for the Secretary of State to have regard to the statement of digital information principles at work when making regulations about automated decision-making.
The Chair
With this it will be convenient to discuss amendment 122, in clause 11, page 22, line 2, at end insert—
“(7) When exercising the power to make regulations under this section, the Secretary of State must have regard to the following statement of principles:
Digital information principles at work
1. People should have access to a fair, inclusive and trustworthy digital environment at work.
2. Algorithmic systems should be designed and used to achieve better outcomes: to make work better, not worse, and not for surveillance. Workers and their representatives should be involved in this process.
3. People should be protected from unsafe, unaccountable and ineffective algorithmic systems at work. Impacts on individuals and groups must be assessed in advance and monitored, with reasonable and proportionate steps taken.
4. Algorithmic systems should not harm workers’ mental or physical health, or integrity.
5. Workers and their representatives should always know when an algorithmic system is being used, how and why it is being used, and what impacts it may have on them or their work.
6. Workers and their representatives should be involved in meaningful consultation before and during use of an algorithmic system that may significantly impact work or people.
7. Workers should have control over their own data and digital information collected about them at work.
8. Workers and their representatives should always have an opportunity for human contact, review and redress when an algorithmic system is used at work where it may significantly impact work or people. This includes a right to a written explanation when a decision is made.
9. Workers and their representatives should be able to use their data and digital technologies for contact and association to improve work quality and conditions.
10. Workers should be supported to build the information, literacy and skills needed to fulfil their capabilities through work transitions.”
This amendment would insert into new section 50D of the DPA2018 a requirement for the Secretary of State to have regard to the statement of digital information principles at work when making regulations about automated decision-making.
Stephanie Peacock
Amendments 121 and 122 would ensure that close attention is paid to the specific and unique circumstances of workers and the workplace when regulations are made under the clause. Indeed, as has already been referenced, the workplace has dramatically evolved in the last decade with the introduction and growth of technology. Whether it be Royal Mail using the postal digital assistant service to calculate the length of time posties spend walking, on doorsteps and standing still, or Amazon collecting data from handheld scanners to calculate how much time workers are spending “off task”, the digital monitoring of workers and subsequent use of that data by managers to assess performance, allocate work hours and decide on levels of pay, is on the rise.
Of course it is absolutely right that workplaces embrace technology. As Andrew Pakes of Prospect said to this Committee, our economy and the jobs that people do each day can be made better and more productive through the good deployment of technology—but the key is in the phrase “good deployment”, and in order to have deployment that works for the greater good, the rights and protections in place at work must keep pace with the changing nature of the workplace and these technological advancements. As Labour outlined in our industrial strategy, we want to do just that: harness data for the public good and ensure that data and the innovation it brings with it benefit our wider society, not just large corporations. Further, as is written in our “New Deal for Working People”, Labour wants to introduce new rights to protect workers in the modern age—for example by legislating to make proposals to introduce surveillance technologies subject to consultation and agreement of trade unions, or elected staff representatives where there is no trade union. After all, we can only truly unlock the benefits of data and become a world leader in this space if there is genuine public trust in these technologies. Good regulation breeds that trust.
Currently, however, and particularly in the Bill, the kinds of measures that would allow for good deployment of technology in the workplace—technology that operates in the greater interest including that of workers—are missing from the Government’s plans. Instead, as the TUC note, we are overseeing a growing power imbalance between worker and employer. This imbalance not only exists by the nature of the relationship, but it is now being exacerbated by the increasing level of knowledge and control that employers have over personal data as the workplace becomes digitised, compared with workers, who have very little power over, expertise on or access to such data.
Some impressive projects have sought to address that imbalance. For example, in 2020 Prospect worked with a coalition of unions, tech specialists and researchers to launch a beta version of WeClock, a free mobile app that helps workers to track and manage their own data such as that related to their location, their commute and when they are doing work on their phone. Those data profiles could then potentially be used by trade union campaigners to improve rights for workers. However, it should not just be down to individual projects to ensure that there is an equal balance between worker and employer. The Bill is a huge missed opportunity to write into law this balance and the principles that we should consider with regard to worker’s rights in the modern age.
The amendment, which has been prepared in partnership with the Institute for the Future of Work, is designed to right that wrong and ensure that where regulations are made about automated decision making, the full impact on workers is considered and strong principles about worker involvement are upheld. It will mean that the Secretary of State has to consider that people have an inclusive digital environment at work, that they should be protected from harms by algorithmic systems, and that they should be meaningfully consulted before and after the use of such tools. Further, under this amendment, consideration will be given to supporting workers in building the information, literacy and skills needed to understand these transitions in the workplace, thereby addressing some of the imbalances in knowledge and understanding.
I will end with an example of the real-life consequences of employment and data laws lagging behind technology. As was revealed by a report by the Worker Info Exchange just last month, 11 Just Eat couriers in the UK were recently robotically fired after receiving allegations of fraudulent activity identified by an automated system. According to the report, these workers were falsely accused of receiving “undeserved financial gain” relating to nominal waiting time payments at restaurants. Just Eat argued that the workers left the restaurant while continuing to claim waiting fees. However, GPS evidence showed that workers had stayed in the vicinity of the restaurant, usually in the car park. In each case, the worker collected the food and completed the delivery, and the average value of the alleged undeserved payments justifying the robo-firings was just £1.44. Cases such as those, in which real livelihoods are impacted and rights infringed for the sake of profit margins, can and must be avoided.
The amendment would take the first steps in ensuring that regulations around automated decision making centre the unique experience of workers. It also highlights the Bill’s failure to move towards a legislative framework in which a distinct focus is placed on harnessing data for the public good, which is something that Labour would have placed at the heart of a data Bill such as this one.
Chi Onwurah
I rise to speak briefly in support of the amendment tabled by my hon. Friend the Member for Barnsley East and to emphasise the points that she made regarding the importance of putting forward a vision for the protection of workers as the nature of working environments change. That is part of what the amendment’s “digital information principles at work” seek to do. I declare an interest: I worked for Ofcom as head of technology before coming to this House. That work highlighted to me the importance of forward-looking regulation. As my hon. Friend set out, artificial intelligence is not forward looking; it is here with us and in the workplace.
Many technological changes have made work more accessible to more people: covid showed us that we could work from many different locations—indeed, Parliament successfully worked from many locations across the country. Technological changes have also made work more productive, and companies and public sector organisations are taking advantage of that increase in productivity. But some technologies have accelerated bad employment practices, driven down standards and damaged the wellbeing of workers—for example, workplace surveillance technologies such as GPS tracking, webcam monitoring and click monitoring, which encroach on workers’ privacy and autonomy. My constituents often say that they feel that technology is something that is done to them, rather than something that has their consent and empowers them.
It is important, as I am sure that the Minister will agree, that working people welcome and embrace the opportunities that technology can bring, both for them and for the companies and organisations they work for, but that cannot happen without trust in those technologies. For that, there need to be appropriate regulation and safeguards. Surely the Minister must therefore agree that it is time to bring forward a suite of appropriate principles that follows amendment’s principle of
“a fair, inclusive and trustworthy digital environment at work.”
I hope that he cannot disagree with any of that.
If we are to get ourselves out of the economic stagnation and lack of growth of the last 10 or 13 years, we need to build on new technologies and productivity, but we cannot do that without the support and trust of people in the workforce. People must feel that their rights—new rights that reflect the new environment in the workplace—are safeguarded. I hope that the Minister will agree that the principles set out in the amendment are essential to building that trust, and to ensuring a working environment in which workers feel protected and able to benefit from advances in technology.
Sir John Whittingdale
I am grateful to the hon. Members for Barnsley East and for Newcastle upon Tyne Central for setting out the thinking behind the amendment. We share the view, as the hon. Member for Newcastle upon Tyne Central has just said, that those who are subject to artificial intelligence and automated decision making need to have trust in the process, and there need to be principles underlying the way in which those decisions are taken. In each case, the contributions go above and beyond the provision in the Bill. On what we are proposing regarding data protection, the changes proposed in clause 11 will reinforce and provide further clarification, as I have said, in respect of the important safeguards for automated decision making, which may be used in some workplace technologies. These safeguards ensure that individuals are made aware of and can seek human intervention on significant decisions that are taken about them through solely automated means. The reforms to article 22 would make clear employer obligations and employee rights in such scenarios, as we debated in the earlier amendments.
On the wider question, we absolutely recognise that the kind of deployment of technology in the workplace shown in the examples that have already been given needs to be considered across a wide range of different regulatory frameworks in terms of not just data protection law, but human rights law, legal frameworks regarding health and safety and, of course, employment law.
Chi Onwurah
I thank the Minister for his comments. I note that he castigates us, albeit gently, for tabling an amendment to this data protection Bill, while he argues that there is a need for wider legislation to enshrine the rights he apparently agrees with. When and where will that legislation come forward? Does he recognise that we waited a long time and listened to similar arguments about addressing online harms, but have ended up in a situation where—in 2023—we still do not have legislation on online harms? My question is: if not now, when?
Sir John Whittingdale
As I was Chair of the Culture, Media and Sport Committee in 2008 when we published a report calling for legislation on online safety, I recognise the hon. Lady’s point that these things take a long time—indeed, far too long—to come about. She calls for action now on governance and regulation of the use of artificial intelligence. She will know that last month the Government published the AI regulation White Paper, which set out the proposals for a proportionate outcomes-focused approach with a set of principles that she would recognise and welcome. They include fairness, transparency and explainability, and we feel that this has the potential to address the risks of possible bias and discrimination that concern us all. As she knows, the White Paper is currently out to consultation, and I hope that she and others will take advantage of that to respond. They will have until 21 June to do so.
I assure the hon. Lady and the hon. Member for Barnsley East that the Government are keenly aware of the need to move swiftly, but we want to do so in consultation with all those affected. The Bill looks at one relatively narrow aspect of the use of AI, but certainly the Government’s general approach is one that we are developing at pace, and we will obviously respond once the consultation has been completed.
Stephanie Peacock
The power imbalance between employer and worker has no doubt grown wider as technology has developed. Our amendment speaks to the real-life consequences of that, and to what happens when employment and data law lags behind technology. For the reasons that have been outlined by my hon. Friend the Member for Newcastle upon Tyne Central and myself, I would like to continue with my amendment.
Question put, That the amendment be made.
Sir John Whittingdale
We have, I think, covered a lot of ground already in the debates on the amendments. To recap, clause 11 reforms the rules relating to automated decision making in article 22 of the UK GDP and relevant sections of the Data Protection Act 2018. It expands the lawful grounds on which solely automated decision making that produces a legal or similarly significant effect on an individual may be carried out.
Currently, article 22 of the UK GDPR restricts such activity to a narrow set of circumstances. By expanding the available lawful grounds and ensuring we are clear about the required safeguards, these reforms will boost confidence that the responsible use of this technology is lawful, and will reduce barriers to responsible data use.
The clause makes it clear that solely automated decisions are those that do not involve any meaningful human involvement. It ensures that there are appropriate constraints on the use of sensitive personal data for solely automated decisions, and that such activities are carried out in a fair and transparent manner, providing individuals with key safeguards.
The clause provides three powers to the Secretary of State. The first enables the Secretary of State to describe cases where there is or is not meaningful human involvement in the taking of a decision. The second enables the Secretary of State to further describe what is and is not to be taken as having a significant effect on an individual. The third enables the introduction of further safeguards, and allows those already set out in the reforms to be amended but not removed.
The reformed section 50 of the Data Protection Act mirrors the changes in subsection (1) for solely automated decision making by law enforcement agencies for a law enforcement purpose, with a few differences. First, in contrast to article 22, the rules on automated decision making apply only where such decisions have an adverse legal or similarly significant effect on the individual. Secondly, the processing of sensitive personal data cannot be carried out for the purposes of entering into a contract with the data subject for law enforcement purposes.
The final difference relates to the safeguards for processing. This clause replicates the UK GDPR safeguards for law enforcement processing but also allows a controller to apply an exemption to them where it is necessary for a particular reason, such as to avoid obstructing an inquiry. This exemption is available only where the decision taken by automated means is reconsidered by a human as soon as reasonably practicable.
The subsections amending relevant sections of the Data Protection Act 2018, which apply to processing by or on behalf of the intelligence services, clarify that requirements apply to decisions that are entirely automated, rather than solely automated. They also define what constitutes a decision based on this processing. I have explained the provisions of the clause, and hope the Committee will feel able to accept it.
Stephanie Peacock
I talked at length about my views about the changes to automated decision making when we debated amendments 77, 120, 76, 75, 121 and 122. I have nothing further to add at this stage, but those concerns still stand. As such, I cannot support this clause.
Question put, That the clause stand part of the Bill.
Sir John Whittingdale
I beg to move amendment 17, in schedule 3, page 140, line 9, leave out sub-paragraph (3) and insert—
“(3) In paragraph 2—
(a) for “under Articles 15 to 22”, in the first place, substitute “arising under or by virtue of Articles 15 to 22D”, and
(b) for “his or her rights under Articles 15 to 22” substitute “those rights”.”.
This amendment adjusts consequential amendments of Article 12(2) of the UK GDPR for consistency with other amendments of the UK GDPR consequential on the insertion of new Articles 22A to 22D.
The Chair
With this it will be convenient to discuss the following:
Government amendments 18 to 23.
That schedule 3 be the Third schedule to the Bill.
Sir John Whittingdale
I can be reasonably brief on these amendments. Schedule 3 sets out the consequential changes needed to reflect references to the rules on automated decision making in reformed article 22 and section 50 and other provisions in the UK GDPR and the Data Protection Act 2018. Schedule 3 also sets out that section 14 of the Data Protection Act is repealed. Instead, reformed article 22 sets out the safeguards that must apply, regardless of the lawful ground on which such activity is carried out.
Government amendments 17 to 23 are minor technical amendments ensuring that references elsewhere in the UK GDPR and the Data Protection Act to the provisions on automated decision making are comprehensively updated to reflect the reforms related to such activity in this Bill. That means that references to article 22 UK GDPR are updated to the reformed article 22A to 22D provisions, and references to sections 49 and 50 in the Data Protection Act are updated to the appropriate new sections 50A to 50D.
Stephanie Peacock
I thank the Minister for outlining these technical changes. I have nothing further to add on these consequential amendments beyond what has already been discussed on clause 11 and the rules around automated decision making. Consistency across the statute book is important, but all the concerns I raised when discussing the substance of those changes remain.
Amendment 17 agreed to.
Amendments made: 18, in schedule 3, page 140, line 30, before second “in” insert “provided for”.
This amendment and Amendment 19 adjust consequential amendments of Article 23(1) of the UK GDPR for consistency with other amendments of the UK GDPR consequential on the insertion of new Articles 22A to 22D.
Amendment 19, in schedule 3, page 140, line 31, leave out “in or under” and insert
“arising under or by virtue of”.
See the explanatory statement for Amendment 18.
Amendment 20, in schedule 3, page 140, line 33, leave out from “protection” to end of line 35 and insert
“in accordance with, and with regulations made under, Articles 22A to 22D in connection with decisions based solely on automated processing (including decisions reached by means of profiling)”.
This amendment adjusts the consequential amendment of Article 47(2)(e) of the UK GDPR to reflect the way in which profiling is required to be taken into account for the purposes of provisions about automated decision-making (see Article 22A(2) inserted by clause 11).
Amendment 21, in schedule 3, page 140, line 36, leave out paragraph 10 and insert—
“10 In Article 83(5) (general conditions for imposing administrative fines)—
(a) in point (b), for “22” substitute “21”, and
(b) after that point insert—
“(ba) Article 22B or 22C (restrictions on, and safeguards for, automated decision-making);””.
This amendment adjusts the consequential amendment of Art 83(5) of the UK GDPR (maximum amount of penalty) for consistency with the consequential amendment of equivalent provision in section 157(2) of the Data Protection Act 2018.
Amendment 22, in schedule 3, page 141, line 8, leave out sub-paragraph (2) and insert—
“(2) In subsection (3), for “by the data subject under section 45, 46, 47 or 50” substitute “made by the data subject under or by virtue of any of sections 45, 46, 47, 50C or 50D”.”.
This amendment adjusts the consequential amendment of section 52(3) of the Data Protection Act 2018 for consistency with other amendments of that Act consequential on the insertion of new sections 50A to 50D.
Amendment 23, in schedule 3, page 141, line 9, leave out sub-paragraph (3) and insert—
“(3) In subsection (6), for “under sections 45 to 50” substitute “arising under or by virtue of sections 45 to 50D””.—(Sir John Whittingdale.)
This amendment adjusts the consequential amendment of section 52(6) of the Data Protection Act 2018 for consistency with other amendments of that Act consequential on the insertion of new sections 50A to 50D.
Schedule 3, as amended, agreed to.
Clause 12
General obligations
Question proposed, That the clause stand part of the Bill.
Sir John Whittingdale
One of the main criticisms that the Government have received of the current legislative framework is that it sets out a number of prescriptive requirements that organisations must satisfy to demonstrate compliance. They include appointing independent data protection officers, keeping records of processing, appointing UK representatives, carrying out impact assessments and consulting the ICO about intended processing activities in specified circumstances.
Those rules can sometimes generate a significant and disproportionate administrative burden, particularly for small and medium-sized enterprises and for some third sector organisations. The current framework provides some limited exemptions for small businesses and organisations that are carrying out low-risk processing activities, but they are not always as clear or as useful as they should be.
We are therefore taking the opportunity to improve chapter 4 of the UK GDPR, and the equivalent provisions in part 3 of the Data Protection Act, in respect of law enforcement processing. Those provisions deal with the policies and procedures that organisations and law enforcement organisations must put in place to monitor and ensure compliance. Clauses 12 to 20 will give organisations greater flexibility to implement data protection management programmes that work for their organisations, while maintaining high standards of data protection for individuals.
Clause 12 is technical in nature. It will improve the terminology in the relevant articles of the UK GDPR by replacing the requirement to implement
“appropriate technical and organisational measures”.
In its place, data protection risks must be managed with
“appropriate measures, including technical and organisational measures,”.
That will give organisations greater flexibility to implement any measures that they consider appropriate to help them manage risks. A similar clarification is made to equivalent parts of the Data Protection Act.
Clause 13 will remove article 27 of the UK GDPR, ending the requirement for overseas controllers or processors to appoint a representative in the UK where they offer goods or services to, or monitor the behaviour of, UK citizens—
The Chair
Order. I am sorry, Minister, but we are talking about clause 12 at the moment; we will come on to clause 13 later. Have you concluded your remarks on clause 12?
Sir John Whittingdale
I think I have covered the points that I would like to make on clause 12.
Stephanie Peacock
Clause 12 is a set of largely technical amendments to terminology that I hope will provide clarity to data controllers and processors. I have no further comments to make at this stage.
Question put and agreed to.
Clause 12 accordingly ordered to stand part of the Bill.
Clause 13
Removal of requirement for representatives for controllers etc outside the UK
Question proposed, That the clause stand part of the Bill.
Sir John Whittingdale
As I was saying, clause 13 will remove article 27 of the UK GDPR, ending the requirement for overseas controllers or processors to appoint a representative in the UK where they offer goods or services to, or monitor the behaviour of, UK citizens. By no longer mandating organisations to appoint a representative, we will be allowing organisations to decide for themselves the best way to comply with the requirements for effective communication. That may still include the appointment of a UK-based representative. The removal of this requirement is therefore in line with the Bill’s wider strategic aim of removing unnecessary prescriptive regulation.
Stephanie Peacock
The rules set out in the UK GDPR apply to all those who are active in the UK market, regardless of whether their organisation is based or located in the UK. Article 27 of the UK GDPR currently requires controllers and processors based outside the UK to designate a UK-based representative, unless they process only occasionally without special categories of data, providing an element of proportionality, or are a public authority or body. The idea is that the representative will act on behalf of the controller or processor regarding their UK GDPR compliance and will deal with the ICO and data subjects in that respect, acting as a primary contact for all things data within the country.
The removal of the requirement for a UK representative was not included in the Government’s consultation, “Data: a new direction”, nor was it even mentioned in their response. As a result, stakeholders have not been given an opportunity to put forward their opinions on this change. I wish to represent some of those opinions so that they are on the record for the Minister and his Department to consider.
Concern among the likes of Lexology, DataRep and Which? relates primarily to the fact that the current requirements for UK-based representatives ensure that UK data subjects can conveniently reach the companies that process their personal data, so that they can exercise their rights under the GDPR. Overseas data handlers may have a different first language, operate in a different time zone or have local methods of contact that are not easily accessible from the UK. Having a UK-based point of contact therefore ensures that data subjects do not struggle to apply the rights to which they are entitled because of the inevitable differences that occur across international borders.
As Lexology has pointed out, the Government’s own impact assessment says:
“There is limited information and data on the benefits of having an Article 27 representative as it is a relatively new and untested requirement and also one that applies exclusively to businesses and organisations outside of the UK which makes gathering evidence very challenging.”
By their own admission, then, the Government seem to recognise the challenges in gathering information from organisations outside the UK. If the Government find it difficult to get the information that they require, surely average citizens and data subjects may also face difficulties.
Not only is having a point of contact a direct benefit for data subjects, but a good UK representative indirectly helps data subjects by facilitating a culture of good data protection practice in the organisation that they represent. For example, they may be able to translate complex legal concepts into practical business terms or train fellow employees in a general understanding of the UK GDPR. Such functions may make it less likely that a data subject will need to exercise their rights in the first place.
As well as things being harder for data subjects in the ways I have outlined, stakeholders are not clear about the benefits of removing representatives for UK businesses. For example, the Government impact assessment estimates that the change could save a large organisation £50,000 per year, but stakeholders have said that that figure is an overestimation. Even if the figure is accurate, the saving will apply only to organisations outside the UK and will be made through a loss of employment for those who are actually based in the UK and performing the job.
The question therefore remains: if the clause is not in the interests of data subjects, of UK businesses or of UK-based employees who act as representatives, how will this country actually benefit from the change? I am keen to hear from the Minister on that point.
Sir John Whittingdale
If there are concerns that were not fed in during the consultation period, obviously we will consider them. However, it remains the case that even without the article 27 representative requirement, controllers will have to maintain contact with UK citizens and co-operate with the ICO under other provisions of the UK GDPR. For example, overseas controllers and processors must still co-operate with the ICO as a result of the specific requirements to do so under article 31 of the UK GDPR. To answer the hon. Lady’s question about where the benefit lies, the clause is part of a streamlining process to remove what we see as unnecessary administrative requirements and bureaucracy.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14
Senior responsible individual
Question proposed, That the clause stand part of the Bill.
Sir John Whittingdale
As I mentioned in our debate on clause 12, clauses 12 to 18 will give organisations greater flexibility about the policies, procedures or programmes that they put in place to ensure compliance with the legislation. As we have discussed, a criticism of the current legal framework is that many of the existing requirements are so prescriptive that they impose unnecessary burdens on businesses. Many organisations could manage data protection risks effectively without appointing an independent data protection officer, but they are forced to do so by the prescriptive rules that we inherited from the European Union.
Clause 14 will therefore abolish existing requirements on data protection officers and replace them with new requirements for organisations to designate a senior responsible individual where appropriate. That individual would be part of the organisation’s senior management and would be responsible for overseeing data protection matters within the organisation. In particular, the individual would be responsible for monitoring compliance with the legislation, ensuring the implementation of appropriate risk management procedures, responding to data protection breaches and co-operating with the information commissioner, or for ensuring that those tasks are performed by another suitably skilled person where appropriate. Senior responsible individuals may perform the tasks specified in clause 14 themselves, delegate them to suitably skilled members of staff or, if it is right for the company and its clients, seek advice from independent data protection experts.
We recognise that some people have raised concerns that giving organisations more flexibility in how they monitor and ensure compliance with the legislation could reduce standards of protection for individuals. We are confident that that will not be the effect of the clause. On the contrary, the clause provides an opportunity to elevate discussions about data protection risks to senior levels within organisations by requiring a senior responsible individual to take ownership of data protection risks and embed a culture of data protection. On that basis, I commend the clause to the Committee.
Stephanie Peacock
In a number of places in the Bill, the Government have focused on trying to ensure a more proportionate approach to data protection. That often takes the form of reducing regulatory requirements on controllers and processors where low-risk processing, which presents less of a threat of harm to data subjects, is taking place. Clause 14 is one place in which Ministers have applied that principle, replacing data protection officers with a requirement to appoint a senior responsible individual, but only where high-risk processing is being carried out.
Such a proportionate approach makes sense in theory. Where the stakes are lower, less formalised oversight of GDPR compliance will be required, which will be particularly helpful in small business settings where margins and resources are tight. Where the stakes are higher, however, a senior responsible individual will have a similar duty to that of a data protection officer, but with the added benefit of being part of the senior leadership team, ensuring that data protection is considered at the highest level of organisations conducting high-risk processing.
However, the Government have admitted that the majority of respondents to their consultation disagreed with the proposal to remove the requirement to designate a data protection officer. In particular, respondents were concerned that removing DPOs would result in
“a loss of data protection expertise”
and
“a potential fall in trust and reassurance to data subjects.”
Indeed, data protection officers perform a vital role in upholding GDPR, taking on responsibility for informing people of their obligations; monitoring compliance, including raising awareness and training staff; providing advice, where requested, on data protection impact assessments; co-operating with the regulator; and acting as a contact point. That provides not only guaranteed expertise to organisations, but reassurance to data subjects that they will have someone to approach should they feel the need to exercise any of their rights under the GDPR.
The contradiction between the theory of the benefits of proportionality and the reality of the concerns expressed by respondents to the consultation emphasises a point that the Government have repeatedly forgotten throughout the Bill: although removing truly unnecessary burdens can sometimes be positive, organisations often want clear regulation more than they want less regulation. They believe in the principles of the GDPR, understand the value of rights to data subjects and often over-comply with regulation out of fear of breaking the rules.
In this context, it makes sense that organisations recognise the value of having a data protection officer. They actually want in-house expertise on data—someone they can ask questions and someone they can rely on to ensure their compliance. Indeed, according to the DPO Centre, in September 2022, the UK data protection index panel of 523 DPOs unequivocally disagreed with the idea that the changes made by the clause would be in the best interests of data subjects. Furthermore, when asked whether the proposal to remove the requirement for a DPO and replace it with a requirement for a senior responsible individual would simplify the management of privacy in their organisation, 42% of DPOs surveyed gave the lowest score of 1.
Did the Department consider offering clarification, support and guidance to DPOs, rather than just removing them? Has it attempted to assess the impact of their removal on data subjects? In practice, it is likely that many data protection officers will be rebranded as senior responsible individuals. However, many will be relieved of their duties, particularly since the requirement to be part of the organisation’s senior management team could be problematic for external DPO appointments and those in more junior positions. Has the Department assessed how many data protection officers may lose their job as a result of these changes? Is the number expected to be substantial? Will there be any protections to support those people in transitioning to skilled employment surrounding data protection and to prevent an overall reduction of data protection expertise in organisations?
Sir John Whittingdale
The clause does not in any way represent a lessening of the requirement on organisations to comply with data protection law. It simply introduces a degree of flexibility. An organisation could not get rid of data protection officers without ensuring that processing activities likely to pose high risks to individuals are still managed properly. The senior responsible individual will be required to ensure that that is the case.
At the moment, even small firms whose core activities do not involve the processing of sensitive data must have a data protection officer. We feel that that is an unnecessary burden on those small firms, and that allowing them to designate an individual will give them more flexibility without reducing the overall level of data protection that they require.
Question put and agreed to.
Clause 14 accordingly ordered to stand part of the Bill.
Clause 15
Duty to keep records
Question proposed, That the clause stand part of the Bill.
Sir John Whittingdale
Clauses 15 and 16 will improve the record-keeping requirements under article 30 of the UK GDPR and the logging requirements under part 3 of the Data Protection Act, which is concerned with records kept for law enforcement purposes. Article 30 of the UK GDPR requires most organisations to keep records of their processing activities and includes a list of requirements that should be included in the record. Those requirements can add to the paperwork that organisations have to keep to demonstrate compliance. Although there is an exemption from those requirements in the UK GDPR for some small organisations, it has a limited impact because it applies only where their processing of personal data is “occasional”.
Clause 15 will replace the record-keeping requirements under article 30. It will make it easier for data controllers to understand exactly what needs to be included in the record. Most importantly, organisations of any size will no longer have to keep records of processing, unless their activities are
“likely to result in a high risk”
to individuals. That should help small businesses in particular, which have found the current small business exemption difficult to understand and apply in practice.
Clause 16 will make an important change to the logging requirements for law enforcement purposes in part 3 of the Data Protection Act. It will remove the ineffective requirement to record a justification when an officer consults or discloses personal data for the purposes of an investigation. The logging requirements are unique to the law enforcement regime and aim to assist in monitoring and auditing data use. Recording a justification for accessing data was intended to help protect against unlawful access, but the reality is that someone is unlikely to record an honest reason if their access is unlawful. That undermines the purpose of this requirement, because appropriate and inappropriate uses would both produce essentially indistinguishable data.
As officers often need to access large amounts of data quickly, especially in time-critical scenarios, the clause will facilitate the police’s ability to investigate and prevent crime more swiftly. We estimate that the change could save approximately 1.5 million policing hours. Other elements of the logs, such as the date and time of the consultation or disclosure and the identity of the person accessing them, are likely to be far more effective in protecting personal data against misuse; those elements remain in place. On that basis, I commend the clauses to the Committee.
Stephanie Peacock
Record keeping is a valuable part of data processing. It requires controllers, and to a lesser extent processors, to stay on top of all the processing that they are conducting by ensuring that they record the purposes for processing, the time limits within which they envisage holding data and the categories of recipients to whom the data has been or will be disclosed.
Many respondents to the Government’s consultation “Data: a new direction” said that they did not think the current requirements were burdensome. In fact, they said that the records allow them easily to understand the personal data that they are processing and how sensitive it is. It is likely that that was helped by the fact that the requirements were proportionate, meaning that organisations that employed under 250 people and were not conducting high-risk processing were exempt from the obligations.
It is therefore pleasing to see the Government rolling back on the idea of removing record-keeping requirements entirely, as was suggested in their consultation. As was noted, the majority of respondents disagreed with that proposal, and it is right that it has been changed. However, some respondents indicated a preference for more flexibility in the record-keeping regime, which is what I understand the clause is trying to achieve. Replacing the current requirements with a requirement to keep an appropriate record of processing, tied to high-risk activities, will give controllers the flexibility that they require.
As with many areas of the Bill, it is important that we be clear on the definition of “appropriate” so that it cannot be used by those who simply do not want to keep records. I therefore ask the Minister whether further guidance will be available to assist controllers in deciding what counts as appropriate.
I also wish to highlight the point that although in isolation the clause does not seem to change requirements much, other than by adding an element of proportionality, it cannot be viewed in isolation. In combination with other provisions, such as the reduced requirements on DPIAs and the higher threshold for subject access requests, it seems that there will be less records overall on which a data subject might be able to rely to understand how their personal information is being used or to prove how it has been used when they seek redress. With that in mind, I ask the Minister whether the Government have assessed the potential impact of the combination of the Bill’s clauses on the ability of data subjects to exercise their rights. Do the Government have any plans to work with the commissioner to monitor any such impacts on data subjects after the Bill is passed?
I turn to clause 16. Section 62 of the Data Protection Act 2018 requires competent authorities to keep logs that show who has accessed certain datasets, and at what time. It also requires that that access be justified: the reason for consulting the data must be given. Justification logs exist to assist in disciplinary proceedings, for example if there is reason to believe that a dataset has been improperly accessed or that personal data has been disclosed in an unauthorised way. However, as Aimee Reed, director of data at the Met police and chair of the national police data board, told the Committee:
“It is a big requirement across all 43 forces, largely because…we are operating on various aged systems. Many of the technology systems…do not have the capacity to log section 62 requirements, so police officers are having to record extra justification in spreadsheets alongside the searches”.––[Official Report, Data Protection and Digital Information (No. 2) Public Bill Committee, 10 May 2023; c. 56, Q118.]
That creates what she described as a “considerable burden”.
Understandably, therefore, the Bill removes the justification requirement. There are some—the Public Law Project, for example—who have expressed concern that this change would pose a threat to individual rights by allowing the police to provide a retrospective justification for accessing records. However, as the explanatory notes indicate, it is highly unlikely that in an investigation concerning inappropriate use, a justification recorded by the individual under investigation for improper access or unauthorised access could be relied on anyway. Clause 16 would therefore not stop anyone from being investigated for improper access; it would simply reduce the burden of recording a self-identified justification that could hardly be relied on anyway. I welcome the intent of the clause and the positive impact that it could have on our law enforcement processing.
Sir John Whittingdale
The intention behind clause 15 is to reduce the burden on organisations by tying the record-keeping requirements to high-risk processing activities. If there is uncertainty about the nature of the risk, organisations will be able to refer to ICO guidance. The ICO has already published examples on its website of processing that is likely to be high-risk for the purposes of completing impact assessments; clause 17 will require it to apply the guidance to the new record-keeping requirements as well. It will continue to provide guidance on the matter, and we are happy to work with it on that.
With respect to clause 16, I am most grateful for the Opposition’s welcome recognition of the benefits for crime prevention and law enforcement.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16 ordered to stand part of the Bill.
Clause 17
Assessment of high risk processing
Stephanie Peacock
I beg to move amendment 102, in clause 17, page 32, line 12, leave out from “with” to the end of line 28 on page 33 and insert
“subsection (2)
(2) In Article 57(1) (Information Commissioner’s tasks), for paragraph (k) substitute—
‘(k) produce and publish a document containing examples of types of processing which the Commissioner considers are likely to result in a high risk to the rights and freedoms of individuals (for the purposes of Articles 27A, 30A and 35);’.”
This amendment would remove the provisions of clause 17 which replace the existing data protection impact assessment requirements with new requirements about “high risk processing”, leaving only the requirement for the ICO to produce a document containing examples of types of processing likely to result in a high risk to the rights and freedoms of individuals.
The Chair
With this it will be convenient to discuss the following:
Amendment 103, in clause 17, page 33, line 9, at end insert—
“(4A) After Article 35(11) insert—
‘(11A) Any public authority, government department, or contractor of a government department which routinely uses public data in the discharge of its functions must publish any assessments of high risk processing conducted pursuant to this Article. Any assessments published under this Article must be redacted where necessary for the purposes of—
(a) removing sensitive details,
(b) protecting public interests, or
(c) ensuring the security of data processing operations.’”
This amendment inserts a new requirement into Article 35 of UKGDPR, for any public authority which uses public data to publish any assessment of high risk processing they conduct under Article 35.
Clause stand part.
Clause 18 stand part.
Stephanie Peacock
As was the intention, the Bill loosens restrictions on processing personal data in many areas: it adds a new lawful basis and creates new exceptions to purpose limitation, removes blocks to automated decision-making and allows for much thinner record keeping. Each change in isolation may make only a relatively small adjustment to the regime. Collectively, however, they result in a large-scale shift towards controllers being able to conduct more processing, with less transparency and communication, and having fewer records to keep, all of which reduces opportunities for accountability.
As mentioned, loosening restrictions is an entirely deliberate consequence of a Bill that seeks to unlock innovation through data—an aim that Members across the House, including me, are strongly behind, given the power of data to influence growth for the public good. However, given the cumulative impact of this deregulation, where increasingly opaque processing is likely to result in a large risk to people’s rights, a processor might at the very least record how they will ensure that any high-risk activities that they undertake do not lead to unlawful or discriminatory outcomes for the general public. That is exactly what the current system of DPIAs, as outlined in article 35 of GDPR, allows for. These assessments, which require processors to measure their activities against the risk to the rights and freedoms of data subjects, are not just a tick-box exercise, unnecessary paperwork or an administrative burden; they are an essential tool for ensuring that organisations do not deploy, and individuals are not subjected to, systems that may lead to a fundamental breach of their rights.
Assessments of that kind are not a concept unique to data processing. The Government routinely publish impact assessments on the legislation that they want to introduce; any researcher or scientist is likely to conduct an assessment of the safety and morality of their methodology; and a teacher will routinely and formally measure the risks involved when taking pupils on a school trip. Where activities pose a high risk to others, it is simply common practice to keep a record of where the risks lie, and to make plans to ensure that they are mitigated where possible.
In the case of data, not only are DPIAs an important mechanism to ensure that risks are managed, but they act as a key tool for data subjects. That is first because the process of conducting a DPIA encourages processors to consult data subjects, either directly or through a representative, on how the type of processing might impact them. Secondly, where things go wrong for data subjects, DPIAs act as a legal record of the processing, its purpose and the risks involved. Indeed, the Public Law Project, a registered charity that employs a specialist lawyer to conduct research, provide training and take on legal casework, identified DPIAs as a key tool in litigating against the unlawful use of data processing. They show a public law record of the type of processing that has been conducted, and its impact.
The TUC and the Institute for the Future of Work echo that, citing DPIAs as a crucial process and consultation tool for workers and trade unions in relation to the use of technology at work. The clause, however, seeks to water down DPIAs, which will become “assessments of high-risk processing”. That guts both the fundamental benefit of risk management that they offer in a data protection system that is about to become increasingly transparent, and the extra benefits that they give to data subjects.
Instead of requiring a systematic description of the processing operations and purposes, under the new assessments the controller would be required only to summarise the purpose of the processing. Furthermore, instead of conducting a proportionality assessment, controllers will be required only to consider whether the processing is necessary for the stated purpose. The Public Law Project describes the proportionality assessment as a crucial legal test that weighs up whether an infringement of human rights, including the right not to be discriminated against, is justified in relation to the processing being conducted.
When it comes to consultation, where previously it was encouraged for controllers to seek the views of those likely to be impacted by the processing, that requirement to seek those views will now be entirely omitted, despite the important benefit to data subjects, workers and communities. The new tests therefore simply do not carry the same weight or benefit as DPIAs, which in truth could themselves be strengthened. It is simply not appropriate to remove the need to properly assess the risk of processing, while simultaneously removing restrictions that help to mitigate those risks. For that reason, the clause must be opposed; we would keep only the requirement for the ICO to produce that much-needed guidance on what constitutes high-risk processing.
Moving on to amendment 103, given the inherent importance of conducting risk assessments for high-risk processing, and their potential for use by data subjects when things go wrong, it seems only right that transparency be built into the system where it comes to Government use of public data. The amendment would do just that, and only that. It would not adjust any of the requirements on Government Departments or public authorities to complete high-risk assessments; it would simply require an assessment to be published in any case where one is completed. Indeed, the ICO guidance on DPIAs says:
“Although publishing a DPIA is not a requirement of UK GDPR, you should actively consider the benefits of publication. As well as demonstrating compliance, publication can help engender trust and confidence. We would therefore recommend that you publish your DPIAs, where possible, removing sensitive details if necessary.”
However, very few organisations choose to publish their assessments. This is a chance for the Government to lead by example, and foster an environment of trust and confidence in data protection
Alongside the amendment I tabled on compulsory reporting on the use of algorithms, this amendment is designed to afford the general public honesty and openness on how their data is used, especially where the process has been identified as having a high risk of causing harm. Again, a published impact assessment would provide citizens with an official record of high-risk uses of their data, should they need that when seeking redress. However, a published impact assessment would also encourage responsible use of data, so that redress does not need to be sought in the first place.
The Government need not worry about the consequences of the amendment if they already meet the requirement to conduct the correct impact assessments and process them in such a way that the benefits are not heavily outweighed by a risk to data rights. If rules are being followed, the amendment will only provide proof of that. However, if anyone using public data in a public authority’s name did so without completing the appropriate assessments, or processed that data in a reckless or malicious way, there would be proof of that. Where there is transparency, there is accountability, and where the Government are involved, accountability is always crucial in a democracy. The amendment would ensure that accountability shined through in data protection law.
Finally, I turn to clause 18. The majority of respondents to the “Data: a new direction” consultation agreed that organisations are likely to approach the ICO voluntarily before commencing high-risk processing activities if that is taken into account as a mitigating factor in any future investigation or enforcement action. The loosening of requirements in the clause is therefore not a major concern. However, when that is combined with the watering down of the impact assessments, there remains an overarching concern about the oversight of high-risk processing. I refer to my remarks on clause 17, in which I set out the broader problems that the Bill poses to protection against harms from high-risk processing.
Sir John Whittingdale
As we have discussed, one of the principal objectives of this part of the Bill is to remove some of the prescriptive unnecessary requirements on organisations to do things to demonstrate compliance. Clauses 17 and 18 reduce the unnecessary burdens placed on organisations by articles 35 and 36 of the UK GDPR in respect of data protection impact assessments and prior consultation with the ICO respectively.
Clause 17 will replace the EU-derived notion of a data protection impact assessment with more streamline requirements for organisations to document how they intend to assess and mitigate risks associated with high-risk processing operations. The changes will apply to both the impact assessment provisions under the UK GDPR and the section of the Data Protection Act 2018 that deals with impact assessments for processing relating to law enforcement. Amendment 102 would reverse those changes to maintain the current data protection impact assessment requirements, but we feel that this would miss an important opportunity for reform.
There are significant differences between the new provisions in the Bill and current provisions on data protection impact assessments. First, the new provisions are less prescriptive about the precise processing activities for which a risk assessment will be required. We think organisations are best placed to judge whether a particular activity poses a high risk to individuals in the context of the situation, taking account of any relevant guidance from the regulator.
Secondly, we have also removed the mandatory requirement to consult individuals about the intended processing activity as part of a risk-assessment process, as that imposes unnecessary burdens. There are already requirements in the legislation to ensure that any new processing is fair, transparent and designed with the data protection principles in mind. It should be open to businesses to consult their clients about intended new processing operations if they wish, but that should not be dictated to them by the data protection legislation.
Clause 18 will make optional the previous requirement for data controllers to consult the commissioner when a risk assessment indicates a potential high risk to individuals. The Information Commissioner will be able to consider any voluntary actions that organisations have taken to consult the ICO as a factor when imposing administrative fines on a data controller. Currently, compliance with the prior consultation requirement is low, likely due to a lack of clarity in the legislation and a reluctance for organisations to engage directly with the regulator on potential high-risk processing. The clause will encourage a more proactive, open and collaborative dialogue between the ICO and organisations, so that they can work together to better mitigate the risks.
The Opposition’s amendment 103 would mandate the publication of risk assessments by all public sector bodies. That requirement would, in our view, place a disproportionate burden on public authorities of all sizes. It would apply not just to Departments but to smaller public authorities such as schools, hospitals, independent pharmacies and so on. The amendment acknowledges that each public authority would have to spend time redacting sensitive details from risk assessments prior to publication. As those assessments can already be requested by the ICO as part of its investigations, or by members of the public via freedom of information requests, we do not think it is necessary to impose that significant new burden on all public bodies. I therefore invite the hon. Member for Barnsley East to withdraw her two amendments, and I commend clauses 17 and 18 to the Committee.
Stephanie Peacock
I am happy not to press amendment 103 to a vote, but on amendment 102, I simply do not think it is appropriate to remove the need to properly assess the risk of processing while removing the restrictions that help to mitigate it. For those reasons, I will press it to a vote.
Question put, That the amendment be made.
Sir John Whittingdale
I beg to move amendment 1, in clause 19, page 35, leave out lines 23 to 25 and insert—
“(5) The Commissioner must encourage expert public bodies to submit codes of conduct described in subsection (1) to the Commissioner in draft.”.
This amendment replaces a duty on expert public bodies to submit draft codes of conduct relating to compliance with Part 3 of the Data Protection Act 2018 to the Information Commissioner with a duty on the Information Commissioner to encourage such bodies to do so.
The Chair
With this it will be convenient to discuss the following:
Government amendments 2 to 4.
Clause stand part.
Sir John Whittingdale
Clause 19 introduces an ability for public bodies with the appropriate knowledge and expertise to produce codes of conduct applicable to the law enforcement regime. The clause mirrors the equivalent provision in the UK GDPR.
As with regular guidance, these codes of conduct will be drafted by law enforcement data protection experts and tailored to the specific data protection issues that affect law enforcement agencies, to help improve compliance with the legislation and encourage best practice. However, they are intended to carry more weight, because they will additionally have the formal approval of the Information Commissioner.
When a code of conduct is produced, there is a requirement to submit a draft of it to the Information Commissioner. While that is good practice, we think it is unnecessary to mandate that. Government amendment 1 replaces that requirement with a duty on the commissioner to instead encourage public bodies to do that. Government amendments 2 and 3 are consequential to that.
Where a public body has submitted a code of conduct to the commissioner for review, Government amendment 4 removes the requirement for the commissioner to review any subsequent amendments made by the public body until the initial draft has been considered. This change will promote transparency, greater clarity and confidence in how police process personal data under the law enforcement regime. Codes of conduct are not a new concept. The clause mirrors what is already available under the UK GDPR.
Stephanie Peacock
The Bill fails to fully recognise that the burdens that organisations face in complying with data protection legislation are not always best dealt with by simply removing the protections in place. In many cases, clarification and proper guidance can be just as fruitful in allowing data protection to work more seamlessly. Clauses such as clause 19, which seeks to create an environment in which best practice is shared on how to comply with data protection laws and deal with key data protection challenges, are therefore very welcome. It is absolutely right that we should capitalise on pockets of experience and expertise, especially in the public sector, where resources have often been stretched, particularly over the last 13 years. We should ensure that learnings are shared with those who are less familiar with how to resolve challenges around data.
It is also pleasing to see that codes that give sector-specific guidance will be approved by the commissioner before being published. That will ensure absolute coherence between guidance and the enforcement of data protection law more widely. I look forward to seeing what positive impact the codes of conduct will have on how personal data is handled by public bodies, to the benefit of the general public as well as the public bodies themselves; the burden on them will likely be lifted as a result of the clarity provided by the guidance.
Sir John Whittingdale
I welcome the Opposition’s support.
Amendment 1 agreed to.
Amendments made: 2, in clause 19, page 35, line 26, leave out from ‘body’ to ‘, the’ in line 27 and insert ‘does so’.
This amendment is consequential on Amendment 1.
Amendment 3, in clause 19, page 35, line 28, leave out ‘draft’.
This amendment is consequential on Amendment 2.
Amendment 4, in clause 19, page 35, line 33, leave out from ‘conduct’ to the end of line 34 and insert—
‘that is for the time being approved under this section as they apply in relation to a code’.—(Sir John Whittingdale.)
This amendment makes clear that the Commissioner’s duty under new section 68A of the Data Protection Act 2018 to consider whether to approve amendments of codes of conduct relates only to amendments of codes that are for the time being approved under that section.
Clause 19, as amended, ordered to stand part of the Bill.
Clause 20
Obligations of controllers and processors: consequential amendments
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to consider the following:
Government amendments 42 and 43.
That schedule 4 be the Fourth schedule to the Bill.
Government amendments 40 and 41.
Sir John Whittingdale
As clauses 12 to 18 remove terms such as data protection officers and data protection impact assessments from the legislation, some consequential changes are required to other parts of the legislation where the same terms are used. Clause 20 therefore introduces schedule 4, which sets out the details of the consequential changes required. An example of that is in article 13 of the UK GDPR, which currently requires controllers to provide individuals with the contact details of the data protection officer, where appropriate. In future, that provision will refer to the organisation’s senior responsible individual instead. Removal of the term data protection officer from the UK GDPR will have knock-on effects in other areas, including in relation to the types of people from whom the ICO receives requests and queries.
Government amendment 40 will provide that the commissioner may refuse to deal with vexatious or excessive requests made by any person, not just those made by data protection officers or data subjects. Government amendments 41 to 43 make further minor and technical changes to the provisions in schedule 4 to reflect the changes we have made to the terminology.
Stephanie Peacock
I have no comments to add on the consequential amendments in clause 20 beyond what has been discussed regarding the obligations on controllers and processors. With regard to Government amendments 40 to 44 and schedule 4, I will address changes to the ICO’s powers to refuse requests when we come to them further on in the Bill.
Question put and agreed to.
Clause 20 accordingly ordered to stand part of the Bill.
Schedule 4
Obligations of controllers and processors: consequential amendments
Amendments made: 42, in schedule 4, page 143, line 20, leave out ‘and section 135’.—(Sir John Whittingdale.)
This amendment is consequential on Amendment 40.
Amendment 43, in schedule 4, page 143, line 24, leave out paragraph 18.
This amendment is consequential on Amendment 40.
Schedule 4, as amended, agreed to.
Clause 21
Transfers of personal data to third countries and international organisations
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Amendment 104, in schedule 5, page 144, line 28, at end insert—
‘4 All provisions in this Chapter must be applied in such a way as to ensure that the level of protection of natural persons guaranteed by this Regulation is not undermined.’
This amendment would reinsert into the new Article on general principles for international data transfers the principle that all provisions of this Chapter of the UK GDPR should be applied in such a way as to ensure that the level of protection of natural persons guaranteed by the Regulation is not undermined.
Government amendments 24 to 26.
That schedule 5 be the Fifth schedule to the Bill.
Government amendments 27 to 29.
That schedule 6 be the Sixth schedule to the Bill.
That schedule 7 be the Seventh schedule to the Bill.
Sir John Whittingdale
Clause 21 refers to schedules 5 to 7, which introduce reforms to the provisions of the UK GDPR and the Data Protection Act 2018, which regulate the international transfers of personal data. Schedule 5 introduces changes to the UK’s general processing regime for transferring personal data internationally. In order to provide for a clearer structure than the current UK regime, schedule 5 will consolidate the existing provisions on international transfers. It replaces article 44 with article 44A, setting out in clearer terms the general principles for international transfers and listing the same bases under which personal data can be lawfully transferred overseas.
Schedule 5 also introduces article 45A, which sets out the Secretary of State’s power to make regulations approving transfers of personal data to a third country or international organisation. The Government now use the term “data bridges” to refer to those regulations, which allow the free flow of personal data. Article 45A outlines that the Secretary of State may make such regulations only if they are satisfied that the data protection test is met. In addition to the requirement that the Secretary of State be satisfied that the data protection test is met, article 45A specifies that the Secretary of State may have regard to other matters that he or she considers relevant when making those regulations, including the desirability of facilitating transfers of personal data to and from the UK.
Article 45B sets out the data protection test that the Secretary of State must consider is met in order to establish new data bridges. In order for a country or international organisation to meet the data protection test, the standard of protection for personal data in that country or international organisation must be “not materially lower” than the standard of protection under the UK’s data protection framework. The reformed law recognises that the Secretary of State must exercise their judgment when making a determination. Their assessment will be made with respect to the outcomes of data protection in a third country, instead of being prescriptive about the form and means of protection, recognising that no two data protection regimes are identical.
The article also sets out a more concise and streamlined list of key factors that the Secretary of State must consider as part of their assessment. However, article 45B(2) is a non-exhaustive list, and the Secretary of State may also need to consider other matters in order to determine whether the required standard of protection exists.
Article 45C amends the system for formally reviewing data bridge regulations, removing the requirement for them to be reviewed periodically. The Secretary of State will still be subject to the requirement to monitor developments in other countries on an ongoing basis. Schedule 5 also amends article 46, which sets out the rules for controllers and processors to make international transfers of personal data using alternative transfer mechanisms.
The new article 46 requirements are tailored for data exporters to transfer defined types of data in specific circumstances. They stipulate that the data exporter, acting reasonably and proportionately, must consider that the standard of protection provided for the data subject would be “not materially lower” than the standard of protection in the UK in the specific circumstances of the transfer. The new requirements accommodate disparities between data exporters, where what is right for a multinational organisation transferring lots of sensitive data may not be right for a small charity making ad hoc transfers.
Schedule 5 also introduces article 47A, which provides a power for the Secretary of State to create or recognise new UK and non-UK alternative transfer mechanisms. The new power will help to future-proof the UK’s international transfers regime by allowing the Government to shape international developments and react quickly to global trends, helping UK businesses connect and trade with their partners around the world.
Schedule 6 amends relevant parts of the Data Protection Act 2018 governing international transfers of personal data, which are governed by the law enforcement processing regime. Paragraph 4 omits the section governing transfers based on adequacy assessments and inserts a new provision to mirror the approach being adopted in schedule 5. As with the changes described in schedule 5, schedule 6 amends the power in new section 74AA for the Secretary of State to make regulations approving transfers of personal data to another jurisdiction. It replaces the current list of considerations with a broader, non-exhaustive one. The schedule also clarifies the test found in new section 74AB that must be applied when regulations are made, giving greater clarity to the UK regulations decision-making process.
The Chair
The Minister is being very courteous and generous, and he makes a very sensible suggestion. Will he respond to amendment 104 after the Opposition have spoken to it?
Sir John Whittingdale
It would make sense to explain the reasons why we are not convinced after we have heard the arguments in favour.
Stephanie Peacock
I am grateful to the Minister, and I will focus my remarks particularly on the contents of schedule 5 before explaining the thought process behind amendment 104.
In the globalised world in which we live, we have an obligation to be outward looking and to consider not just the activities that take place in the UK, but those that occur worldwide. When it comes to data protection, that means accepting that data will likely need to travel across borders, and inserting appropriate safeguards so that UK citizens do not lose the protection of data protection laws if their personal data is transferred away from this country. The standard of those safeguards is absolutely crucial to the integrity of our entire data protection regime. After all, if a controller can simply send the personal data of UK citizens to a country that has limited data protection laws for processing that would be unlawful here, and if they can transfer that data back afterwards, in reality our laws are only as strong as the country with the weakest protections in the world.
As things stand, there is only a limited set of circumstances under which personal data can be transferred to a third party outside the UK. One such circumstance is where there is an adequacy agreement, similar to that which we have with the EU. For such an agreement to be reached, the Secretary of State must have considered many things, including the receiver’s respect for human rights and data rules; the presence, or lack thereof, of a regulator, and its independence; and any international commitments they have made in relation to data protection. These amendments ensure that data can flow freely between the UK and another country as long as the level of protection received by citizens is not undermined by the regulatory structure in that country.
The Bill amends the adequacy-based framework and replaces it with a new outcomes-based approach through the data protection test. The test is met if the standard of the protection provided for data subjects, with regard to the general processing of personal data in the country or by the organisation, is not materially lower than the standard of protection under the UK GDPR and relevant parts of the DPA 2018.
When deciding whether the test is met, the Secretary of State must still consider many of the same things: their respect for human rights, the existence of a regulator, and international obligations. However, stakeholders such as Reset.tech and the TUC have expressed concern that the new test could mean that UK data is transferred to countries with lower standards of protection than previously. That is significant not just for data subjects in the UK, who may be faced with weaker rights, but for business, which fears that this may signify a divergence from the EU GDPR that could threaten the UK’s own adequacy status. Losing this agreement would have real-world consequences for UK consumers and businesses to the tune of hundreds of millions of pounds. What conversations has the Minister had with representatives of the European Commission to ensure that the new data protection test does not threaten adequacy? Does he expect the new data protection test to result in the data of UK citizens being passed to countries with weaker standards than are allowed under the current regime?
Moving on to amendment 104, one reason why some stakeholders are expressing concern about the new rules is because they appear to omit article 44. As it stands, for those who are concerned about the level of data protection available to them as a result of international transfers, article 44 of the UK GDPR provides a guarantee that the integrity of the UK’s data protection laws will be protected. Indeed, it sets out that all provisions relating to the international transfer of UK personal data
“shall be applied in order to ensure that the level of protection of natural persons guaranteed by this Regulation is not undermined.”
If UK data will not be transferred to countries with weaker protections, it is not clear why this simple guarantee would be removed. The amendment would clear up any confusion around that and reinsert the article so that data subjects can be reassured of the strength of this new data protection test and of their rights.
Again, it is important to emphasise that getting the clause right is absolutely essential, as it underpins the entire data protection regime in the country. Getting it wrong could cost a huge amount, rendering the Bill, the UK GDPR and the Data Protection Act 2018 essentially useless. It is likely that the Government do not intend to undermine their own regulatory framework. Reinserting the article would confirm that in the Bill, offering complete clarity that the new data protection test will not result in lower levels of protection for UK data subjects.
Sir John Whittingdale
We completely agree with the hon. Lady that we would not wish to see data transferred to countries that have an inferior data protection regime. However, we do not think amendment 104 is required to achieve that, because the reforms in chapter 5 already provide for a clear and high standard of protection when transferring personal data overseas. It states that the standard of protection in that country must not be “materially lower” than the standard under the UK GDPR. That ensures that high standards of data protection are maintained. In addition, we feel that the amendment would return us to the confusion of the existing regime. At present, the legislative framework makes it difficult for organisations and others to understand what standard needs to be applied when transferring personal data internationally, with several terms used in the chapter and in case law. Our reforms ensure that a clear standard applies, which maintains protection for personal data.
The hon. Lady raised the EU’s data adequacy assessment. That is something that featured earlier in our debates on the Bill, and, as we heard from a number of our witnesses, including the information commissioner, there is no reason to believe that this in any way jeopardises the EU’s assessment of the UK’s data adequacy.
Government amendment 24 revises new article 45B(3)(c) of the UK GDPR, which is inserted by schedule 5 and which makes provision about the data protection test that must be satisfied for data bridge regulations to be made. An amendment to the Bill is required for the Secretary of State to retain the flexibility to make data bridge regulations covering transfers from the UK or elsewhere. The amendment will preserve the status quo under the current regime, in which the Secretary of State’s power is not limited to covering only transfers from the UK. In addition to these amendments, four other minor and technical Government amendments —25, 26, 28 and 29—were tabled on 10 May.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Schedule 5
Transfers of personal data to third countries etc: general processing
Amendments made: 24, in schedule 5, page 147, line 3, leave out “from the United Kingdom” and insert
“to the country or organisation by means of processing to which this Regulation applies as described in Article 3”.
New Article 45B(3)(c) of the UK GDPR explains how references to processing of personal data in a third country should be read (in the data protection test for regulations approving international transfers of personal data). This amendment changes a reference to data transferred from the United Kingdom to include certain data transferred from outside the United Kingdom.
Amendment 25, in schedule 5, page 147, line 12, leave out
“the transfer of personal data”
and insert “transfer”.
This amendment and Amendment 26 simplify the wording in new Article 45B(4)(b) of the UK GDPR.
Amendment 26, in schedule 5, page 147, line 14, leave out
“the transfer of personal data”
and insert “transfer”.—(Sir John Whittingdale.)
See the explanatory statement for Amendment 25.
Schedule 5, as amended, agreed to.
Schedule 6
Transfers of personal data to third countries etc: law enforcement processing
Amendments made: 27, in schedule 6, page 155, line 39, leave out “from the United Kingdom” and insert—
“to the country or organisation by means of processing to which this Act applies as described in section 207(2)”.
New section 74AB(3)(c) of the Data Protection Act 2018 explains how references to processing of personal data in a third country should be read (in the data protection test for regulations approving international transfers of personal data). This amendment changes a reference to data transferred from the United Kingdom to include certain data transferred from outside the United Kingdom.
Amendment 28, in schedule 6, page 156, line 6, leave out
“the transfer of personal data”
and insert “transfer”.
This amendment and Amendment 29 simplify the wording in new section 74AB(4)(b) of the Data Protection Act 2018.
Amendment 29, in schedule 6, page 156, line 8, leave out
“the transfer of personal data”
and insert “transfer”.—(Sir John Whittingdale.)
See the explanatory statement for Amendment 28.
Schedule 6, as amended, agreed to.
Schedule 7 agreed to.
Clause 22
Safeguards for processing for research etc purposes
Sir John Whittingdale
I beg to move amendment 34, in clause 22, page 36, leave out lines 20 to 22.
This amendment and Amendment 37 transpose the requirement for processing of personal data for research, archiving and statistical purposes to be carried out subject to appropriate safeguards from the beginning to the end of new Article 84B of the UK GDPR.
The Chair
With this it will be convenient to discuss the following:
Government amendments 35 to 39.
Clause stand part.
Clause 23 stand part.
Sir John Whittingdale
Clause 22 creates a new chapter in the UK GDPR that provides safeguards for the processing of personal data for the purposes of scientific research or historical research, archiving in the public interest, and for statistical purposes. Currently, the provisions that provide safeguards for those purposes are spread across the UK GDPR and the Data Protection Act 2018.
Clause 22 consolidates those safeguards in a new chapter 8A of the UK GDPR. Those safeguards ensure that the processing of personal data for research, archiving and statistical purposes does not cause substantial damage or substantial distress and that appropriate technical and organisational measures are in place to respect data minimisation. Clause 23 sets out consequential changes to the UK GDPR and Data Protection Act 2018 required as a result of the changes being made in clause 22 to consolidate safeguards for research.
Government amendments 34 to 39 are minor, technical amendments clarifying that, as part of the pre-existing additional requirement when processing for research, archiving and statistical purposes, a controller is to use anonymous—rather that personal—data, unless that means that those purposes cannot be fulfilled. It makes clear that processing to anonymise the personal data is permitted. On that basis, I commend the clauses, and indeed the Government amendments, to the Committee.
Stephanie Peacock
With regards to clause 22, it is pleasing to see a clause confirming the safeguards that are applicable when processing under the new research and scientific purposes. For example, it is welcome that it is set out that such processing must not cause substantial damage or distress to a data subject, must respect the principle of data minimisation and must not make decisions related to a particular data subject unless it is for approved medical research.
Those safeguards are especially important given the concerns that I laid out over the definition of scientific research in clause 2, which could lead to the abuse of data under the guise of legitimate research. I have no further comments on the clause or the Government’s amendments to it at this stage, other than to reiterate that the definition of scientific research must have clear boundaries if any of the clauses that concern research are to be used as intended.
Clause 23 makes changes consequential on those in clause 22, so I refer to the substance of my remarks during the discussion of the previous clause.
Amendment 34 agreed to.
The Chair
With this it will be convenient to discuss the following:
Amendment 105, in clause 25, page 44, line 6, leave out “must consult the Commissioner” and insert
“must apply to the Commissioner for authorisation of the designation notice on the grounds that it satisfies subsection (1)(b).”
This amendment seeks to increase independent oversight of designation notices by replacing the requirement to consult the Commissioner with a requirement to seek the approval of the Commissioner.
Clauses 25 and 26 stand part.
Sir John Whittingdale
Clause 24 introduces an exemption that can be applied to the processing of personal data for law enforcement purposes under the law enforcement regime for the purposes of safeguarding national security. It will replace the current, more limited national security exemptions that exist in the law enforcement regime and mirror the existing exemptions in the UK GDPR and intelligence services regime.
The clause will allow organisations to exempt themselves from specified provisions in the law enforcement regime of the Data Protection Act 2018, such as some of the data protection principles and the rights of the individual, but only where it is necessary to do so for the purposes of safeguarding national security. Like the other exemptions in the Act, it must be applied on a case-by-case basis. There are limits to what the exemption applies to. The processing of data by law enforcement authorities must always be lawful, and the protections surrounding sensitive processing remain.
Subsection (2) amends the general processing regime of the Data Protection Act, regarding processing under UK GDPR, to remove the ability of organisations to exempt themselves, on the grounds of safeguarding national security, from article 77 of the UK GDPR, which provides the right for individuals to lodge a complaint with the Information Commissioner. That is because we do not consider exemption from that provision necessary. The change will align the national security exemption applicable to UK GDPR processing with the other national security exemptions in the Data Protection Act 2018, which do not permit the exemption to be applied in relation to an individual’s right to complain to the Commissioner.
The ability of a Minister of the Crown to issue a certificate certifying the application of the exemption for the purposes of safeguarding national security, which previously existed, is retained; clause 24(8) simply updates that provision to reflect the new exemption. That change will assist closer working between organisations operating under the three distinct data protection regimes by providing greater confidence that data that, for example, may be of importance to a police investigation but also pertinent to a separate national security operation can be properly safeguarded by both organisations. I will allow the hon. Member for Barnsley East to speak to amendment 105, because I wish to respond to her.
Stephanie Peacock
I am grateful to the Minister. I want to speak today about a concern that has been raised about clauses 24, 25 and 26, so I will address them before speaking to amendment 105.
In essence, the clauses increase the opportunities for competent authorities to operate in darkness when it comes to personal data through both national security certificates and designation notices. Though it may of course be important in some cases to adjust data protection regulation in a minimal way to protect national security or facilitate working with the intelligence services, important too is the right to understand how any competent authority is processing our personal data—particularly given the growing mistrust around police culture.
To cite one stark example of why data transparency in law enforcement is important, after Sarah Everard was murdered, more than 30 police officers were reportedly investigated for unnecessarily looking up her personal data. First, that demonstrates that there is a temptation for officers to access personal data without due reason, perhaps particularly when it is related to a high-profile case. Secondly, however, it shows that transparency does hold people accountable. Indeed, thankfully, the individuals who were accused of accessing the data were swiftly investigated. That would not have been possible if that transparency had been restricted—for example, had there been a national security certificate or a designation notice in place.
The powers to apply for the certificates and notices that allow the police and law enforcement authorities exemptions from data protection, although sometimes needed, must be used extremely sparingly and must be proportionate to the need to protect national security. However, that proportionate approach does not appear to be guaranteed in the Bill, despite it being a requirement in human rights law.
In their oral and written evidence, representatives from Rights and Security International warned that clauses 24 to 26 could actually violate the UK’s obligations under the Human Rights Act 1998 and the European convention on human rights. Everything that the UK does, including in the name of national security or intelligence services, must comply with human rights and the ECHR. That means that any time there is interference with the privacy of people in the UK—which is considered a fundamental right—for it to be lawful, the law in question must do only what is truly necessary for national security. That necessity standard is a high one, and it does not take into account whether a change might be more convenient for a competent authority.
Will the Minister clearly explain in what way the potential powers given to law enforcement under clauses 24 to 26, in both national security certificates and designation notices, would be strictly proportionate and necessary for national security, rather than simply making the operations of law enforcement easier and more convenient?
Primarily, the concern is for those whose data could be used in a way that fundamentally infringes on their privacy, but there are practical concerns too. Any clauses that contain suspected violations of human rights could set up the Government for lengthy legal battles, both in the UK and at the European Court of Human Rights, about their data protection and surveillance regimes. Furthermore, any harm to the UK’s important relationships with the EU around data could threaten the adequacy agreement which, as we have all repeatedly heard, is vital to our economy.
It is vital, then, that Minister confirms that both national security certificates and designation notices will be used only where necessary, and exemptions will be allowed only where necessary. If that cannot be satisfied, we must oppose the clauses.
I will now focus on amendment 105. Where powers are available to provide exemptions to privacy protections on grounds of national security, it is important that they are protected from exploitation, and not unduly concentrated in any individual’s hands without appropriate checks and balances. However, Rights and Security International warned that that was not taken into appropriate consideration in clause 25. Instead, the power to issue designation notices has been concentrated almost entirely in the hands of the Secretary of State, with no accountability measures built in.
Designation notices allow for joint processing between a qualifying competent authority and the intelligence services, which could have greatly beneficial consequences for tackling crime and threats to our national security, but they will also allow for both those parties to be exempt from what are usually crucial data protections. They must therefore be used sparingly, and only when necessary and proportionate.
As we have seen—and as I will argue countless times—we cannot rely on the Secretary of State’s acting in good faith. Our legislation must instead protect against a Secretary of State who acts in bad faith. Neither can we rely on the Secretary of State having the level of expertise needed to make complex and technical decisions, especially those that impact on national security and data rights at the same time.
Despite that, under clause 25(2), the Secretary of State alone can specify which competent authorities qualify as able to apply for a designation notice. Under subsection (3), it is the Secretary of state alone to whom qualifying competent authorities will jointly apply. It is the Secretary of State who reviews a notice and has the power to withdraw it, and it is the Secretary of State who makes transition arrangements.
Although there is a requirement in the Bill to consult the commissioner, the amendment seeks to formalise some independent oversight of the designation process by ensuring that the commissioner has an actual say in approving the notices and adjusting the concentration of power so that it does not lie solely in the Secretary of State’s hands. That would mean that should the Secretary of State act in bad faith, or lack the expertise needed to make such a decision—whether aware or unaware of this fact—the commissioner would be able to help to ensure that an informed and proportionate decision was made with regard to each notice applied for. This would not present any designation notices from being issued when they were genuinely necessary; it would simply safeguard their approval when they were.
Sir John Whittingdale
I assure the hon. Lady that clauses 25 and 26 are necessary for the improvement of national security. The reports on events such as the Manchester and Fishmongers’ Hall terrorist incidents have demonstrated that better joined-up working between the intelligence services and law enforcement is in the public interest to safeguard national security. A current barrier to such effective joint working is that only the intelligence services can operate under part 4 of the Data Protection Act, which is drafted to reflect the unique operational nature of their processing.
Carol Monaghan
Of course, the reports on incidents such as those at Fishmongers’ Hall and the Manchester Arena pointed to a general lack of effective collaboration between security forces and the police. It was not data that was the issue; it was collaboration.
Sir John Whittingdale
I certainly accept that greater collaboration would have been beneficial as well, but there was a problem with data sharing and that is what the clause is designed to address.
As the hon. Member for Barnsley East will know, law enforcement currently operates under part 3 of the Data Protection Act when processing data for law enforcement purposes. That means that even when they work together, law enforcement and the intelligence services must each undertake separate assessments regarding the same joint-working processing.
The Chair
Order. I am making a habit of interrupting the Minister—I do apologise—but we have some news from the Whip.
Ordered, That the debate be now adjourned.—(Steve Double.)