Finance (No. 3) Bill
Thursday 7th February 2019
(5 years, 2 months ago)
Lords ChamberFinance Act 2019 View all Finance Act 2019 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Consideration of Bill Amendments as at 8 January 2019 - (8 Jan 2019)
The Minister of State, Department for International Development (Lord Bates) (Con)
My Lords, I thank the Economic Affairs Finance Bill Sub-Committee for its close consideration of the draft version of the Bill before the House today and its subsequent reports on HMRC powers and making tax digital. The sub-committee’s findings made for very informative reading, and the Government have carefully studied each of the recommendations. On 22 January, the Financial Secretary to the Treasury wrote to the chairman, my noble friend Lord Forsyth, setting out a comprehensive response to these reports. My noble friend is disappointed that he is unable to attend this debate but he is ably represented by other members of the sub-committee, who we will have an opportunity to hear from. I am pleased to confirm to the House that the Government have accepted the majority of the sub-committee’s recommendations in whole or in part.
Before I turn to the main measures enacted in the Bill, I shall briefly set out the broader economic and fiscal context. In October, the Chancellor delivered a Budget which reflected the Government’s commitment to build a stronger, fairer and more resilient economy. The economy has grown every year for the past eight years, and it is expected to continue to grow every year of the OBR’s forecast. There are 3.4 million more people in work since 2010 and employment is at a record high of 32.5 million. We have higher employment and lower unemployment in every region and every nation of the United Kingdom. Since 2010, almost 75% of the fall in unemployment has been outside London and the south-east, with the biggest fall in Scotland. Real regular wages have risen for eight consecutive months, and wages are now growing at their fastest pace in over a decade, putting more money into the pockets of hard-working families, supported by the national living wage.
We understand that the only sustainable way to improve real wages and living standards is through boosting long-term productivity. At the Budget, the Chancellor set out a number of measures to support that ambition, including, as I will come to, a new structures and buildings allowance which will be enacted in this Bill. The Government’s commitment to restoring the health of public finances is stated and we have now reached a turning point. The deficit has been reduced by four-fifths from its post-crisis peak and debt has begun its first sustained fall in a generation. Borrowing and debt are both lower in every year of the forecast than they were in the spring and, at the Budget, the OBR forecast that the Government met both their interim fiscal targets in 2017-18, three years early. However, debt remains too high. It is around £65,000 for each household, so it is important that we continue to take our balanced approach to fiscal policy, which has enabled debt to fall while supporting public services, keeping taxes low and investing in Britain’s future.
At the heart of the Government’s economic and fiscal policy is a desire to improve living standards for ordinary people. That is why we have taken concrete steps to help hard-working taxpayers by allowing them to keep more of their own money. At the Budget, the Chancellor announced that the Government would deliver on their manifesto commitment to increase the personal allowance and higher rate tax threshold a year ahead of schedule. The Bill enacts that change, introducing a tax cut for 32 million people and increasing the personal allowance and higher rate threshold to £12,500 and £50,000 respectively. This means that a typical basic-rate taxpayer will pay £130 less in income tax in 2019-20 than during this tax year.
The Government also announced that the living wage will increase by 4.9% from this April. The Bill takes further steps to keep living costs down for hard-working people by freezing fuel duty for the ninth year in a row, and by delivering a freeze on the duty on beer and spirits and a real-terms freeze on air passenger duty for short-haul flights.
The Government continue to champion home ownership and are committed to making housing more affordable for first-time buyers through direct spending and changes to the tax system. In the previous Finance Bill, the Government legislated for a first-time buyers’ relief on stamp duty. This has already been used to help first-time homeowners in more than 120,000 transactions. In this Bill, we will help take this a step further by expanding that relief to first-time buyers who enter a shared ownership arrangement, and will backdate this relief to benefit those who entered into their purchase on or before the date of the Budget.
The Bill also enacts new measures to encourage business investment and ensure that the UK maintains its status as one of the best places in the world to start a business. The Government have consistently backed business, including by cutting corporation tax to 17% in 2020. The Bill builds on that foundation, continuing to support businesses by introducing key allowances to important tax reliefs. The new structures and buildings allowance, which came into effect from Budget Day, will provide a vital tax break for those businesses investing in new commercial property. The annual investment allowance will be increased from £200,000 to £1 million for the next two years, ensuring that companies have an additional incentive to invest. Businesses will also benefit from a new good will relief in the intangible fixed assets regime.
The Bill also introduces a new transferable tax history mechanism for late-life oil and gas fields. This will support businesses, jobs and expertise in our vital deep-sea oil industry.
The Bill supports the Government’s commitment to a fair and sustainable tax system by introducing new measures to tackle tax avoidance and evasion. The Government have always been clear that taxes should be low, but they must be paid. This is what has been delivered. Since 2010, we have secured and protected over £200 billion by clamping down on tax avoidance and evasion, and have reduced the UK’s tax gap to less than 6%, which is one of the lowest in the world. The Bill continues that commitment to clamping down on avoidance, evasion and non-compliance. Specifically, it enacts provisions to ensure that non-residents pay tax on capital gains they make on UK commercial property and targets more contrived avoidance and evasion by clamping down on those who artificially lower their tax bill through profit fragmentation, whereby companies reduce their tax burden by artificially shifting their revenues around. The Bill also strengthens our diverted profits tax, which has already brought in and protected £700 million since 2015. These measures and others like them demonstrate the Government’s enduring commitment to ensuring that tax is paid, protecting essential revenue for our vital public services.
This Government have made real progress since 2010 in building a stronger and more resilient economy, but we recognise that there is still more to do. We remain committed to supporting our businesses, boosting productivity, reducing living costs for hard-working people and ensuring that tax is paid where it is due. The Bill supports the Government in these ambitions. I commend it to the House and I beg to move.
Lord Tunnicliffe (Lab)
My Lords, our discussion on this Finance Bill takes place at one of the most interesting—we must not lose sight of the fact that that is a Chinese curse—and unpredictable times in British politics in living memory. During our debate on the state of the economy late last year, the noble Lord, Lord Higgins, noted that he had spoken on 60 Budgets. He observed that the Statement from which the Bill derived took place in the most uncertain economic situation of them all. If he thought that things were uncertain three months ago, I am not sure how he would describe the current situation.
We have a Government in paralysis, having been consumed by Brexit. This has been apparent on legislation for some time, but it is unusual to see that paralysis extend to a Finance Bill. Indeed, having lost a Minister after the Culture Secretary overruled her policy on maximum stakes for fixed-odds betting terminals, the Chancellor was forced to perform another of his Budget U-turns. Having alienated Back-Benchers and partners in the DUP, Government Whips accepted multiple opposition amendments rather than risk losing votes at a critical point in the Brexit process. Having failed to rule out a chaotic no-deal Brexit, the Government were defeated on a Finance Bill measure for the first time since 1978. As the Times journalist Matt Chorley likes to remind us, this is not normal.
There are plenty of other reasons why these are not normal times. The Government opted to use a rare parliamentary procedure—used just six times in the past century—to restrict the right of MPs to table amendments on Budget announcements that are not covered by specific tax changes. As my Commons counterpart, Peter Dowd, commented at Second Reading, the Government’s timetable for the Bill required amendments to be tabled before the legislation had even been published. Printed copies of the Explanatory Notes were provided to MPs only on the day of the debate. Several MPs called this an abuse of power. I am sure noble Lords will agree that this is not how financial matters should be handled. Thankfully, we have had more time to consider the Bill’s contents and to reflect on its passage through the other place.
Before I turn to the tax measures in the Bill, I want to say a quick word about the broader approaches of both this Government and your Lordships’ House when it comes to legislation. Over the past year, your Lordships’ House has spent many hours discussing the Government’s attempts to hoard hitherto unseen delegated powers in order to deliver Brexit. This Bill, like almost every other we have considered during the current Session, seeks to take vague and far-reaching powers to amend laws—this time, in the event of a no-deal Brexit.
The Government’s approach has been labelled an unprecedented transfer of powers to the Executive, but to take wide-ranging powers to amend taxation without proper representation truly is without parallel. We are therefore pleased that the amendment in the name of Yvette Cooper was passed at Commons Report stage. While it does not rule out a no-deal Brexit, it ensures that the Government have to seek parliamentary approval for such an outcome should they wish to utilise the Clause 90 powers. Importantly, the vote demonstrated that there is no Commons majority for falling off a cliff edge in seven weeks’ time.
During the past eight years, we have become accustomed to the Chancellor—whether Mr Osborne or Mr Hammond—extolling the virtues of prudence. But last October, the British people were assured that,
“their hard work is paying off, and the era of austerity is finally coming to an end”.—[Official Report, Commons, 29/10/18; col. 653.]
Despite these warm words, and an overdue injection of cash into the NHS, the autumn Budget marked no such turning point. As my noble friend Lord Davies of Oldham and other noble Lords observed in November, the 2018 autumn Budget can be more accurately described as Mr Hammond’s tearing up of his predecessor’s long-term economic plan.
The Office for Budget Responsibility noted that, having missed their original target for eliminating the deficit, the Government’s new aim of balancing the public finances by the mid-2020s,
“appears challenging from a variety of perspectives”.
Forecast GDP growth, while up on March 2018, is “modest by historical standards” and in any event, only the result of a Budget giveaway. It is worth reminding ourselves that the OBR forecasts were predicated on an orderly Brexit, something that is far from certain at the present time. Indeed, the Government’s own economic analysis suggests a no-deal Brexit would have a catastrophic impact on the UK economy. It is a course of action that no Chancellor should support.
While the Cabinet insists that austerity is over, departments continue to have their budgets squeezed. While it is true that there is a spending review to come, there is little prospect of that exercise pleasing dedicated public servants working in the prison service, local government, schools, social care, the police or the Armed Forces. Reforms to universal credit which return just one-third of the scheduled cuts will do little to improve the lives of benefit claimants. Britain deserves better.
Not only did the Budget fail to end austerity, it failed to crack down on tax avoidance and evasion too. Before elaborating, let me first thank the Economic Affairs Finance Bill Sub-Committee for its work on this Bill. The sub-committee published two helpful reports on the Government’s failures in relation to making tax digital for VAT and the need for HMRC to adopt a more sophisticated approach to those who choose not to pay their fair share of tax. This Bill is a series of half measures. It provides no evidence that Ministers will honour their commitment to introduce a full public register of beneficial owners ahead of the 2020 deadline. While the loan charge introduced in 2017 is a means of tackling certain tax avoidance schemes, HMRC has targeted individuals who joined such schemes in good faith rather than those who enabled their very existence. I therefore welcome the Government’s decision to accept a cross-party amendment to review the effects of changes made by Sections 80 and 81, including comparing them to the provisions in Schedules 11 and 12 to the Finance (No. 2) Act 2017.
This Finance Bill resulted from a Budget full of positive rhetoric but short on workable solutions. It does not take an observer long to conclude that the Government are so consumed by Brexit that they are unable to deal with other major issues of the day, such as tackling climate change and tax avoidance. The Bill therefore amounts to a missed opportunity. Nevertheless, the political situation in the Commons means that it has come to us in slightly better shape than anticipated. With opposition amendments inserted into the legislation, it is now for departments to undertake a series of important reviews. Ministers must listen to and implement their findings.
Lord Morrow (DUP)
My Lords, in the time available to me, I would like to address an amendment tabled by some 20 Members of Parliament on Report in the other place. The amendment asked the Chancellor to review the effective marginal tax rate placed on low-income families in the UK. The amendment was not selected or debated, but I hope that by raising it today I can give expression to a matter that the other place clearly wanted to address in relation to the Bill. In doing so, I note that this is a matter which has caught the attention of noble Lords from other parties who would have liked to be here today to speak to it.
The effective marginal tax rate is the amount of any additional pound that someone would earn on top of their current income that would go to the Exchequer in the forms of tax, national insurance and lost benefits. It is a key measure of aspiration. If you know that if you work harder you will keep most of the additional money that you earn, there is an incentive to do so and take your family to better things. If, however, you know that most of the additional money you earn will go to the Government, the incentive to earn your way to better things will be substantially eroded.
It is always good to run an economy in which hard work is incentivised. This, however, becomes an imperative when dealing with low-income working families. Of all people, these are the ones we want to aspire and know that hard work can deliver. Indeed, they are the very people to whom the Prime Minister pledged herself on the steps of Downing Street in July 2016. It is therefore of huge concern to me that it is this income group in particular that our current fiscal arrangements do more to deprive of aspiration than any other.
The CARE and Tax and the Family report, The Taxation of Families— International Comparisons 2017, which was published last year, and the Manifesto to Strengthen Families report, Making Work Pay for Low-Income Families, published by MPs this year, show that low-income families in receipt of tax credits face a marginal effective tax rate of some 73%. This means that the families in question get to keep just 27 pence from every additional pound earned, with 73 pence going to the Exchequer in the form of tax, national insurance and lost benefits. A low-income family in receipt of tax credits, housing benefit and council tax benefit meanwhile faces a staggering effective marginal rate of 96%, meaning that they get to keep just four pence in the pound, with 96 pence going to the Exchequer in tax, national insurance and lost benefits.
If we placed a higher rate of tax of 73%, or—perish the thought—of 96%, on the rich, there would very properly be a national outcry. This, however, is the effective marginal tax rate that we place on low-income families. Rather than empowering these working families to raise themselves up, we push them down and trap them in relative poverty. Of course, I appreciate that some regard has been given to this problem and that under universal credit the 96% rate will come down to 80%. However, I find no comfort in this at all. Eighty per cent is higher than anywhere else in the developed world, and the 73% rate actually increases to 75%.
At this point some might say, “Hang on, is the effective marginal rate not just the inevitable consequence of providing benefits? If you don’t like the effective marginal tax rate, the simplest solution would be to abolish benefits”. I am absolutely not advocating that.
While I acknowledge that if you give benefits you create a marginal rate as income rises and those benefits are withdrawn, the problem I seek to highlight today is that our effective marginal rates are much higher than those anywhere else in the developed world. If we use OECD data to compare the way in which all OECD countries treat a one-earner married couple with two children on 75% of the average wage, the marginal effective tax rate that they face in the UK—that 73%, the lowest of the above rates—is already the highest of any country anywhere in the developed world. The OECD average is just 33%. This poses a very important question that I would like to set before the Minister today. If other developed countries—all of which have effective benefits systems—can have an average effective marginal tax rate of 33%, rather than 73%, so can we. As Fiona Bruce, the Member of Parliament for Congleton, urged recently in another place, “So must we”.
Interestingly, the 73% figure is also very high in the history of the UK. In 1990, the effective marginal rate on such a family was just 34%, practically the same as the OECD average marginal effective tax rate on such families today. The Manifesto to Strengthen Families report concludes that our unusually high effective marginal tax rates are the result, first, of Mrs Thatcher’s failure to accept the proposal of the noble Lord, Lord Lawson, for fully transferable allowance for married couples, and then Gordon Brown’s decision to remove the additional person’s allowance and married couple’s allowance in 2000. The effect was that, from that point onwards, the income tax system made no provision for family responsibility and had to compensate for that by inflating benefits. It is the withdrawal of those inflated benefits, on top of an income tax rate that ignores family responsibility, that creates our confiscatory marginal rates as the inflated benefits are withdrawn.
One response to this problem would be for the Government to try to find more money to further reduce the universal credit taper rate. While that would be welcome, a recent Centre for Policy Studies report shows that for those earning above their personal allowance, it would reduce the effective marginal tax rate to only 66%. This would mean that low-income families would continue to lose more of every additional pound earned to the Exchequer than they would take home. While I would not oppose attempts by the Government to look for more money to reduce the taper rate, I submit that this strategy does not really address the presenting problem.
Rather than looking for new money to help these low-income working families, what is really required is to look at distributing the current money allocated to help those families in a different way, so that it comes partly through the tax system rather than wholly through the benefits system. This would create two mutually reinforcing downward movements on the effective marginal tax rate. First, the income tax element of the effective marginal tax rate would fall as a result of households with family responsibilities being taxed less. Secondly, the benefits element of the effective marginal tax rate would fall as a result of there no longer being a need to inflate benefits, because of the prior change in the tax rate on those families. This would mean that when benefits were withdrawn, they would not create the confiscatory effective marginal rates experienced at present.
This is the central conclusion of the Manifesto to Strengthen Families and the Make Work Pay report. It is a conclusion to which the Government must now give their urgent attention because, ironically, although the very highest effective marginal rates will fall slightly under universal credit, people will become more aware of our confiscatory marginal rates than they were under tax credits. Under tax credits, if someone works overtime this month or takes a second job, it will affect their tax credit entitlement only next year and will not be clearly identifiable with the increased income. By contrast, under universal credit, working more hours or taking another job will affect the amount of credit received next month. The link between working more and receiving less will therefore be much more immediate and apparent. This will make our marginal rate problem much more difficult to sustain.
I am very glad that, although this matter was not debated on Report in the other place, it was the subject of a 90-minute debate a week later. I am delighted that in responding to the debate, the Financial Secretary to the Treasury, Mel Stride, the Member of Parliament for Central Devon, said:
“I will respond directly to the overarching request made of me this morning, which is that I go back to the Treasury with the report and the comments made in this debate and look genuinely and deeply at the issues raised. I can give an unequivocal commitment to do precisely that”.—[Official Report, Commons, 16/1/19; col. 399WH.]
I put on record in this place that, although I should have preferred the amendment moved on Report on effective marginal tax rates to have been accepted, I very much welcome that commitment. Can the Minister advise the House on what stage that promised investigation has reached? If it has not yet been concluded, there are those in this House who are also eagerly awaiting the outcome of those reflections. This is a matter requiring the Government’s urgent attention.
Baroness Quin (Lab)
My Lords, I am pleased to take part in the debate, although it must be said that the wider context, described so well by my noble friend Lord Tunnicliffe, is dramatic and alarming.
Brexit hangs like a pall over everything, not least over this Budget and the previous two. To fund Brexit, £3 billion was announced in the 2017 Budget and £1.5 billion in the previous Budget. The Chancellor warned that austerity would continue for five more years if Britain leaves the European Union with no deal and that an emergency Budget would be needed in that situation. Given this, I implore the Government to take no deal off the table—particularly given the views of industry and trade unions, as well as the clear views expressed through Motions passed in this House and the passing of the Spelman/Dromey amendment in the other place. Like my noble friend Lord Tunnicliffe, I welcome the fact that during the course of its Budget deliberations, the Commons passed the amendment tabled by Yvette Cooper. Obviously, that is now on the record.
However, I want today to raise a narrow specific point of which I gave the noble Lord, Lord Bates, prior notice, having met him earlier this week to raise my concerns. Obviously, I know that we in this House cannot amend the Budget, but by raising this issue I hope that Ministers will look sympathetically on ways to resolve it. I am pretty confident that if the full implications had been known earlier, it would have been raised by some honourable Members in the other place.
The issue relates to the museums and galleries exhibition tax relief brought in by the Government. Overall, it is a good scheme, but the way it is written is also a good example of unintended consequences. Before I continue, I declare a relevant interest in the register as the chair of the strategic board of Tyne & Wear Archives & Museums, one of our major regional arts organisations. I am proud to be associated with such an innovative and entrepreneurial organisation. It does great work in Tyneside schools in some of our least well-off areas, and has an excellent management team with whom it is an absolute pleasure to work. In accordance with the government-commissioned Mendoza review on the functioning of museums, and very much in accordance with the Government’s express wish to see museums form partnerships with other organisations, Tyne & Wear Archives & Museums set up TWAM Enterprises to manage exhibitions. The organisation is funded by four Tyneside local authorities, with Newcastle University operating as a charity.
However, in adopting this structure, TWAM has found itself, much to its surprise, ineligible for museums exhibition tax relief. I should stress that TWAM had changed its structure before the tax relief regulations came into effect. It had done so because it was a good thing to do and because it felt that that would accord with government priorities. Ironically, TWAM took part in the government consultation which took place before the museums exhibition tax relief regulations were brought in. As the Minister knows, but perhaps the House as a whole does not, the regulations stated that for an organisation to benefit, it had to be funded either by a local authority or by a charity. Unfortunately for TWAM, it was funded by both a local authority and a charity. In some ways you could say that it was doubly eligible for tax relief, but so far it has been deemed ineligible for such relief.
We have had discussions with officials from the Treasury and HMRC, and DCMS, which is obviously concerned about this issue. They were all were sympathetic when we raised a number of possibilities in our meetings, such as using the Interpretation Act 1978, which I certainly was not familiar with before this issue was raised. The Act gives guidance on interpreting how legislation should be implemented:
“In any Act, unless the contrary intention appears … words in the singular include the plural”.
We wondered whether that might mean that, given that TWAM is funded by a local authority and a charity, it could be covered by the 1978 Act.
Incidentally, as far as I am aware, no other organisation has inadvertently fallen foul of the regulations in the way Tyne & Wear Archives & Museums has. However, if the regulations are unamended, that might inhibit other museums in forming the kind of partnerships they have said they are in favour of. That point needs to be borne in mind. Certainly, this seems an absurd situation that is contrary to common sense.
It could be said that TWAM should change its structure again. However, that would be a time-consuming and costly process, involving legal advice and so forth. Given that TWAM is funded by public money, it seems crazy to have to spend that money on changing its structure when TWAM clearly fulfils the spirit—if not the actual letter—of the regulations. To have to do that at a financially challenging time is very hard. I do not want to widen the argument to the whole issue of local government finance, but since 2010 TWAM has seen a 60% reduction in funding from local authorities. It is because the organisation is innovative and recognised as such by the Arts Council that it has continued to build on the excellent service it provides to our area.
In conclusion, I know that the Minister is fully aware of the importance of museums and the cultural sector generally to the north-east economy. He knows too how successfully our museums have engaged with the different communities in the area. I am sure that he does not want difficulties to be imposed on museums, so I hope he will be able to respond positively to my remarks.
Lord Turnbull (CB)
My Lords, the principle of financial privilege means that this House has no powers in relation to the structure of tax, its rates and its incidence. It can, however, examine the way in which the tax system is administered, its governance and the compliance burden on different types of taxpayers. This time last year the Economic Affairs Committee, of which I am a member, through its Finance Bill sub-committee, looked into the plans to roll out Making Tax Digital. We found that, while HMRC might have been ready, a lack of communication and testing meant that many taxpayers would not be, especially to meet the requirement to submit returns quarterly. We recommended that the plans be reduced in scope and taken more slowly. To their credit, the Government took our advice and confined the first phase only to VAT and only to businesses with a turnover greater than £85,000. It was promised that there would be no further changes before 2020.
In my view, we helped to avoid a train wreck that would have damaged relations between HMRC and small traders and unincorporated businesses. It might have been nice if Treasury Ministers had said: “Do you know what? You did us a good turn there”. What remains is the undertaking not to extend the scheme before 2020. This is now only about 13 months away—not much time to digest the lessons of progress to date and to get taxpayers and software suppliers ready. The danger is that in next month’s Budget there will be an announcement simply reintroducing in their original form the proposals that were delayed. Instead, the EAC recommended delay until 2022 and the publication of a long-term plan setting out the next phases of this important initiative.
HMRC needs to look again at whether all the information it is seeking—not just total revenue and total spending but the invoices behind them—is really needed and needs to be submitted quarterly, even by very small businesses. The original turnover threshold was £10,000—less than the personal allowance—which, in my view, made no sense whatever. The estimate of costs to the taxpayer provided in the original plans carried no conviction and was strongly criticised by many witnesses to our inquiry. We are still waiting for those costings to be updated.
Two areas in the Finance Bill now before us raise issues about HMRC powers. As well as looking at them specifically, the committee decided to look at the balance of powers more generally, and in particular at whether the balance between clamping down on avoidance and treating taxpayers fairly remained appropriate. Many concerns have been raised, particularly by individual, unrepresented taxpayers. HMRC has been tasked by Ministers and Parliament with collecting more of the revenue that is due. The committee endorses this, although many people are struck by the contrast between a tougher approach for individuals and the more leisurely pace of progress on the taxation of the giants of the digital world.
If HMRC is to be equipped with greater powers and to take a more robust approach, it should logically follow that governance and safeguards should keep pace. In fact, we found the opposite. Paragraph 14 of the EAC’s report observes that the 2016 changes to the charter under which HMRC operates,
“increased taxpayers’ obligations and reduced HMRC’s”.
For example, accelerated payment notices and follower notices have no right of appeal to a tribunal. The committee observed:
“Whenever a new power is introduced or an existing power significantly extended it should be accompanied by a right of appeal against the exercise of the power, not just against the underlying tax liability ”,
Where taxpayers wish to challenge the lawfulness of HMRC’s decisions and there is no right of appeal, they may do so only through the High Court in judicial review, which makes proceedings much more expensive. The committee recommended legislation to give the First-tier Tribunal for tax the power to conduct judicial reviews.
The first extension of powers in the current Bill is to require records to be held for up to 12 years where offshore issues are involved. The justification for this large extension is weak and poorly targeted. Drawn into its scope may be compliant taxpayers with small pensions from time spent working abroad or with overseas properties. The committee considered this proposal to be unreasonably onerous and disproportionate to the risk.
The most contentious issue raised with the committee was the loan charge: a proposal to claw back tax lost from disguised remuneration schemes. I should make clear that the EAC supports the efforts to drive out artificial DR schemes. We rejected the arguments put forward to us that, so long as each step in a scheme was legal, no tax would be payable. This means that we accept HMRC’s argument that, where a series of transactions is contrived and artificial and has no purpose other than to produce a tax advantage, it should not be regarded as effective in reducing tax.
Taking action to bring DR schemes to an end from now on is entirely right. The issue is about how much back tax should be reclaimed. Many taxpayers feel that reclaiming unpaid tax from any past years is retrospective in effect. Mr Mel Stride, the Financial Secretary to the Treasury, vigorously denies that there is retrospection. He argues that tax was always due and still is, and that, using the great mantra of the day, “nothing has changed”. The tax payable is simply being collected.
There are two problems with this argument. First, if the tax was payable, why did HMRC make no effort to collect it at the time? There are many cases where taxpayers informed HMRC that they were in DR schemes, and cases where HMRC raised no queries and closed the return for the year. I am no lawyer, but I understand that there is a principle in law called estoppel, where a person is precluded from asserting facts or rights that are contrary to their previous actions. Perhaps that should apply to HMRC, which had opportunities to require tax to be paid but failed to act on them.
The second problem is that HMRC’s approach fails to take account of the circumstances in which many taxpayers found themselves in DR schemes. They were not affluent, well-advised celebrities who should have known better, but staff whose employers, some even in the public sector, transferred them to different employment contracts that required them to enter into loan schemes. There is resentment that HMRC seems to be targeting individual taxpayers rather than the employers and promoters of such schemes.
The loan charge was approved by Parliament—the other place—in 2016: another example of legislating in haste with inadequate thought to the consequences. The realisation that all is not right has now dawned on the other place, which is evidenced by the amendment to this Bill on Report by Sir Edward Davey requiring the Government to report back by 30 March on the effects of the loan charge scheme. I hope that the Government will use the opportunity created by the amendment to take up the EAC’s recommendation to exclude from the charge loans in years when a taxpayer disclosed their participation in a scheme to HMRC, and for years that otherwise would have been closed. To reduce the likelihood of retrospection, the committee recommended that HMRC should make a clear public statement as soon as it begins an investigation into a potential tax avoidance scheme.
I will end on a more positive note. The final recommendation of the EAC’s report, accepted by the Government, was that there should be a new powers review, so I hope we can restore a better balance between HMRC and the taxpayer and provide a better system of oversight and accountability in how HMRC uses its powers.
Viscount Chandos (Lab)
My Lords, I thank the Minister for his courteous introduction to the Second Reading of this Bill, which follows on from the debate on the Budget report in November—perhaps a rather more popular event in the calendar of your Lordships’ House than today’s proceedings. I also draw the attention of noble Lords to my entries in the register.
Even if the principal measures in the Bill and the economic issues surrounding them have therefore already been extensively debated, I welcome the chance for noble Lords to review them again while the Bill enjoys its rapid passage through this House. It is undoubtedly right, as the noble Lord, Lord Turnbull, has just said, that as a money Bill it should not be capable of amendment by your Lordships. I cannot help thinking that the Government Front Bench, based on its expressions of outrage that other legislation is subject to proper detailed scrutiny and amendment by your Lordships, may believe that the convention covering money Bills should also apply to the avalanche of Brexit-related legislation that threatens to bury Parliament in the weeks—or, more likely, months—to come.
This is a modest Bill from a Government with very much to be modest about—a holding measure designed to mark time while we pass through the maelstrom of Brexit. There is,
“no sign of a long-term strategy”,
concluded the IFS in the immediate aftermath of the Budget. This is nevertheless also an historic Bill in one respect, as my noble friend Lord Tunnicliffe has already said. It is the first Finance Bill for more than 40 years on which the Government have been defeated—through the amendment moved by my right honourable friend Yvette Cooper, which is now included in Clause 90(7). Like many other Members of your Lordships’ House, I welcome this important, if perhaps symbolic, expression of Parliament’s determination to ensure that our departure from the EU is not a disastrous crashing out. Even if that was not as strongly reinforced by the House of Commons’ votes last week as it could have been, I am confident that the wisdom and judgment of the majority of Members of that House will ensure that we will not leave the EU without a deal.
Even though the Prime Minister today returns to Brussels for, in all likelihood, another pummelling in her misconceived attempt to renegotiate the withdrawal agreement to satisfy the unsatisfiables in her party, today in your Lordships’ House we can have a day off from the relentless grind of Brexit—but only up to a point, Lord Copper, since even if Brexit is not in the foreground of this Bill, it is an inescapable gloomy background to our economic situation.
Advocates of a hard Brexit—members of the Donald Tusk mutual admiration society—persistently argue that the prospect of Brexit has had no adverse economic effect on the UK. This claim is as suspect as their nonchalant dismissal of the economic impact of crashing out. The UK slipping from being one of the fastest-growing G7 economies to the slowest has been widely highlighted, yet the Government have proudly boasted of a fractional increase in the projected growth in GDP in 2019 from 1.3% to 1.6% while lowering some long-term projections to a depressing and monotonous sequence of 1.4%, 1.4%, 1.5%, 1.6%, all based on a presumption of an orderly exit from the EU.
We should remember that these figures are for overall GDP. Since 2005, the UK population has been growing at a rate of 0.6% to 0.8% per annum, and this trend is expected to continue, whatever changes there may be to the immigration regime, so GDP per capita is forecast to come in at under 1% per annum year in, year out. That is hardly a scenario in which it is possible to be confident about any increase in disposable income for most people who have suffered 10 years of stagnant earnings or for any increase in spending on public services. The independent commentator IHS Markit has written that it is the,
“weakest growth spell for six years”,
and at the same time it estimated that growth in the fourth quarter of 2018 could have fallen to as low as 0.1%. How confident is the Minister that even these dismally low projected growth rates from 2019 to 2023, on which the Finance Bill is based, will be achieved?
In January, the purchasing managers’ index for manufacturing fell to 52.8%, the second-lowest level since July 2016, while even more ominously, in the light of the Government’s casual neglect of the services sector in its proposed future relationship with the EU, the equivalent for services was announced last Friday to have dropped to 50.1% against consensus expectations of 51%. That is a hair’s breadth away from implying negative growth in what is 80% of the UK’s economy.
Of course there are other factors that lie behind this economic malaise, of which a decade of stalled productivity growth from an indifferent starting point is foremost. Despite the Minister’s protestations, there is little or nothing in the Bill that begins to address the scale of this problem, particularly in relation to the even more depressing position on productivity growth in most regions and nations outside of London and the south-east. I feel a degree of ambivalence about pressing the Minister further on the actual or likely deterioration of economic indicators since the Budget Statement and your Lordships’ debate in October; I fear giving the Government any encouragement to reverse their declared “ending of austerity”—even if that is more in their fevered imagination than something being implemented where economic deprivation is at its most acute.
A clear understanding of where we are and accurate figures for the national accounts are an essential starting point for good policy decisions, whatever level of confidence may be felt in this Government’s ability to make good decisions even with accurate figures at their disposal. Will the Minister confirm that the implications of the ONS’s decision in December to change the accounting treatment for the student loan book will not lead to any tightening of fiscal policy, at least in the short term, since the underlying position has not changed? The cynical manipulation by the Government of both the carrying value of loans and the treatment of outrageously high interest charges was a case of creative accounting of which even the board of Patisserie Valerie would be embarrassed. The estimated impact of the accounting changes proposed by the ONS would be to increase the deficit in the current year from £40 billion to £52 billion and by 0.6% per annum of GDP thereafter. However regrettable the Government’s past treatment of student loans has been, the overdue correction of the accounting treatment must not cause harm either to the UK economy as a whole or, vitally, to the position of the higher education sector.
I end by drawing the attention of the Minister to the point made from his own Benches by the noble Lord, Lord Horam, during the November debate on the Budget report, to which he made no response. As the noble Lord pointed out, there are an estimated 1,200 different tax reliefs, costing the Exchequer up to £400 billion per annum. I have highlighted in previous debates in your Lordships’ House the indefensible reliefs in the area of inheritance tax, on which the Office of Tax Simplification is due to report in the next few months. Will the Government will take a much more concerted and focused approach to examining the effectiveness of these tax reliefs and the scope for a substantial increase in revenue for the Exchequer?
Baroness Kramer (LD)
My Lords, this is one of those occasions when much of the work has been done for me by the excellent preceding speeches. If we go back to the Budget that underpins this Finance Bill, I agree completely with the noble Viscount, Lord Chandos, that it was not an announcement of the end of austerity; that was some clever PR language. If we look, we can see that it comprised a number of short-term fixes for crises in social security and social care, and a scattering of money for potholes, schools and the police. Past cuts in universal credit from 2015 were only halved, not removed, and further welfare cuts were left in place. Other than for the protected budgets of the NHS, defence and overseas development, every department continues to face cuts of the equivalent of 3% per person up to 2023. Austerity is definitely ongoing; the Budget was not an end of austerity by the greatest stretch of the imagination. Even though core protected areas such as the NHS got additional money, that was a completely lost opportunity to put in a dedicated future source of revenue for the NHS with something like the 1p in the pound that we called for in hypothecated financing for the NHS and social care. There was so much that the Government could have done and nothing like the end of austerity that they advertised.
In that Budget and the Finance Bill I very much support the cuts in the threshold for low-income earners but, as I said at the time, I find it incomprehensible that the threshold has been raised for the kick-in of the higher rate of tax, in effect giving a break to higher-income earners. I do not understand why the Government thought it was either necessary or important, because everyone I have talked to who is going to benefit from that increase in the higher-rate threshold—I suspect that many people in this House know individuals in the same situation—would much rather that funding had gone to help people who are homeless on our streets in extraordinary numbers, or who have been suffering from universal credit. I have friends who have suffered enormously from the five-week hiatus before they get their first payment, practically living on handouts. We have so many fundamental issues in this country that to make a cut such as that at this point in time seems incomprehensible. I even noticed that Westminster Council—a Conservative council if ever there was one—is asking band H ratepayers on a voluntary basis to double the amount of council tax that they pay in order to help homeless people in crisis in Westminster. That basically says to the Government that they have completely misunderstood where the British public are on an issue such as this.
I agree completely with the noble Baroness, Lady Quin, and the noble Viscount, Lord Chandos. The noble Baroness talked about the pall that Brexit hangs over everything. We will undoubtedly have a new Budget and Finance Bill at some point in the near future, no matter what happens, other than a decision not to proceed with Brexit. Whatever form of Brexit that we proceed with, as discussions earlier today made clear, it is having such a wide impact on the economy as a whole that this issue will have to be completely revisited shortly, which makes this debate frustrating because we know that change is coming very rapidly.
I endorse every aspect of the speech of the noble Lord, Lord Turnbull. I also have the privilege to be a member of the Finance Bill Sub-Committee of the Economic Affairs Committee and to pursue its two investigations into making VAT digital and into the powers of HMRC, and I am glad that there will be an opportunity to debate those in great detail in this House. Because of that, I am not going to add anything more on making VAT digital, other than to say that it is beyond me why HMRC has not understood the plight of SMEs facing the changes that are coming upon them with pretty much no warning, no testing and relatively limited opportunity to even be able to cope. In the long term it is actually a very sensible change, but implementation matters—something that this Government frequently miss—and implementing badly, too early and without proper preparation under- mines even the most sensible of policies.
I shall focus for a couple of minutes on the loan charge. I share what I read as the outrage of the noble Lord, Lord Turnbull, on this issue. That outrage is widely felt, with more than 120 Members of the other place—completely cross-party; there is no partisan aspect to this—signing an Early Day Motion in protest, and then the Motion tabled by my colleague in the other place, Sir Edward Davey, to force the Government into reviewing the impact of what they are doing.
People do not entirely understand that the massive impact of the loan charge action by HMRC stems from the move in the UK towards outsourcing. Local government, government departments including HMRC, and public bodies such as the BBC, under pressure, sought to cut their costs by no longer employing people on a range of tasks but outsourcing the work to self-employed contractors. They did not do it because they were going to change the people doing these activities but because they saw there was a tax arbitrage. They would be freed from paying national insurance contributions and those who were self-employed could take advantage of a variety of tax schemes, which meant that they could reduce their hourly rates because they reduced their tax liability. In that way, local government and government departments, including HMRC, the BBC and others, were able to bring down their costs.
It is absolutely outrageous that the Government are now turning on these individuals, who basically had no option but to follow the pattern offered to them in order to continue to work. If you were a social worker, you were made redundant and were told that you could continue to be a social worker, provided that you signed up with one of three agencies and signed the forms it gave you. You could have the same job back on Monday and do the same activity for the same take-home pay. None of those people knew they were being put into some kind of disguised remuneration scheme. The real question is: why did their employers not know this? Consider the IT consultants who work for HMRC; anybody who was not part of one of these loan schemes would price themselves out of the opportunity to win the work. The situation is absolute nonsense.
To me, this is a very good example of a weakness that occurs because Finance Bills are not properly scrutinised in this House. When these schemes were identified as disguised remuneration in 2011, the change—the prohibition, in a sense—was initially to be forward-looking, which makes absolute sense. I agree with the noble Lord, Lord Turnbull, that these schemes were not appropriate and I think we all agree that they should have been brought to an end. However, in 2017, with almost no scrutiny or discussion and with pretty much nobody in the other place realising what they were doing, the change in the language effectively allowed the Government, or HMRC, to behave retrospectively. I know it says this is not retrospective, but I think it is, by any definition.
People are now being told that they owe taxes for the past 20 years, which are all to be paid in one year. If they manage to negotiate a deal, they might have five years to pay. For most, the sums they owe are bigger than their entire income. They certainly do not allow them to continue to pay a mortgage or to eat; many of the people are retired. We are in the most extraordinary circumstances. These are small people and the Government must take this opportunity to take the burden off those folks. According to the Loan Charge Action Group, there are 100,000 ordinary people, who we would know and recognise, who work in our communities, who suddenly find themselves falling foul of this law.
What makes this even more outrageous is that if people appeal against this process and reach the end stage—getting a final notice from HMRC and trying to appeal that—they might find themselves paying not only the back tax or penalty but a 60% surcharge on the penalty. To discourage appeals, if you appeal and lose, you pay HMRC a penalty for having brought the appeal in the first place. This is absolutely outrageous and needs to be fixed, so I hope that everybody here, including those on the Government Front Bench, will put a great deal of pressure on Mel Stride to recognise the problem and deal with it promptly.
Lord Davies of Oldham (Lab)
My Lords, this has been an excellent debate, although the participation numbers are a long way below the usual ones. That is a reflection of the exhaustion which Brexit has brought on noble Lords as we have discussed whether we can see the future of the economy with any accuracy at all in the context of that issue. I think a number of noble Lords are holding their weapons ready for the point which the noble Baroness, Lady Kramer, referred to; we cannot be far off another Budget and a clear economic Statement which will take account of whatever deal the Prime Minister succeeds in bringing back to the nation before 29 March.
The Minister sought to put a number of issues in context—a context that I could scarcely recognise. When will the Government face up to the many failures in their economic strategy of nearly a decade? Their long-term economic plan disappeared as a concept embraced by their Members of Parliament and noble Lords, but a great many of its characteristics have persisted. In particular, the Government still follow a broad strategy of considering austerity to be good for the nation. It was directed, in the first instance, at clearing up the deficit, which was meant to be cleared by 2015. The latest target date appears to be somewhere around 2025. However, the OBR and a number of interest groups in the country think that remains a challenging target. It is a measure of the Government setting out a clear objective and falling many years short of reaching it.
The Government have presided over the slowest recovery since the 1920s. The key indicators of investment, growth and productivity still place us among the lowest of the advanced economies. The Minister referred to the growth rate of 1.6%. My goodness, what an achievement. It is lower than in any other advanced country and a long way below the levels of economic growth to which we had been accustomed before the financial crash. The Government have had nearly a decade to recover from that calamity, but have precious little to show for it.
We consider that the alternative strategy is obvious. We need to borrow in order to invest, so that instead of being starved of resources—particularly in respect of the regional imbalance of resources from the Government—our economy will be able to get the resources necessary for growth. There is no doubt that austerity is not yet over. This Bill offers tax cuts for the richest members of our society and welfare cuts for the less fortunate. We are facing the challenges of Brexit with low investment, low wages and low productivity. The Minister mentioned the recent increase in wage rates, but that is the first year in which the Government have been able to say that for a decade. It is quite clear that the Government’s progress is very slow.
Meanwhile, our public services are suffering. Our Armed Forces have had severe cuts; our police numbers are drastically down, while violent crime is up. But contrast the restrictions on public sector pay with what happens in the private sector. Last year, the chief executives of FTSE companies averaged an 11% pay increase on what was a pretty big number beforehand. When will the Government face up to the fact that they cannot expect to build a good society unless they build a fair society? In the real world, outside the FTSE top earners, homelessness has doubled, use of food banks has increased significantly and the number of rough sleepers has increased, and not just in our northern towns and cities, where it is sometimes suggested so many are neglected, but in London itself. Even Westminster has seen growth in these numbers.
The report of the United Nations special rapporteur on extreme poverty and human rights condemns the UK as a two-speed society, where the very richest flourish yet there are many in poverty. Two-thirds of children growing up in poverty are in households where there is at least one earner. That says something about the payment of wages at the lower end of society. I suggest it will not do for the Government to do anything other than take considerable responsibility for creating this situation. The rapporteur went on to say that it was absolutely scandalous for so many children to be poor in a 21st-century economy. It reflected “a social calamity” for our country and “an economic disaster”.
That is what we think in Her Majesty’s Opposition. We will halt the rollout of universal credit, which has been identified so accurately by noble Lords in this debate; particularly the noble Lord, Lord Morrow, who identified for the Minister some pretty challenging figures on how the Government address low-income families and those dependent on benefits. I hope the Minister will respond to what was, after all, an extremely detailed and significant contribution.
The Government’s record shows little success in improving productivity. I have stood at this Dispatch Box for the past 10 years opposite a succession of Ministers, including Ministers who certainly knew what they were talking about on productivity. They were not able to persuade their Governments and their colleagues to do anything about the appalling levels of British productivity that have sustained through to today. It means that, although the Government have put money into apprenticeships—there is much criticism in industry and commerce about the nature of these apprenticeships and the funding for them—they also slashed the improvement of vocational skills, for which they were directly responsible, and hammered the further education colleges. Although we have seen universities make considerable progress in tackling the tuition fees issue, FE colleges have had a devastating onslaught from this Government. It is clear that they are the biggest losers in education spending.
That is to say nothing of the fact that schools are stressed by inadequate resources. In an economy which needs new schools, it is depressing that adult learners—people who recognise that they need to improve their skills and change the potential of their economic role in society—are down from 5.1 million to 1.9 million. The Government should be ashamed of that figure. If the Government is serious about the tax take, it is clear we need a well-resourced HMRC.
I very much enjoyed the contribution of the noble Lord, Lord Turnbull. He asked specifically about loan charge schemes, and he also identified that the digitisation of tax was misdirected when it expected organisations with such small turnovers to be able to cope. The whole position needs to be rethought. We have a report coming out shortly, to which the noble Lord, Lord Turnbull, referred, but nevertheless, this is pretty obvious incompetence by the Government in this area.
The Government also have a very poor record on climate change. Their response has been to cut support for solar energy and slash the subsidies for onshore wind. This is done against a background where we all know that climate change is going to make big demands on the resources of our society. We are also all obliged to look through a glass darkly on the question of Brexit and its implications for the economy.
I am not expecting the Minister to respond on the Brexit issue at great length today. In the other place, they are going to get another dose next Wednesday. Many noble Lords have indicated that they have said pretty much all that can be said about Brexit. But we still have not entered the final act and cannot, at this stage, predict exactly what it will be. The one prediction we all hope will not be fulfilled is to crash out of the European Community without agreement.
My noble friend Lady Quin asked a specific question of the Minister on the taxation position of a museum. Having been a Member of the other place, she knows as well as anyone here that it is not within the power of this House to render a ready solution to this by any direct action we can take. Nevertheless, I hope the Minister can give some response.
I thank all noble Lords who have participated. I particularly appreciated the contributions of my noble friend Lord Chandos. He did what I thought was necessary at this stage in the debate: he looked at the wider issues to which the Government need to respond. The Minister has got quite a lot to answer, and I am sure he is looking forward to the opportunity as much as we are looking forward to listening to him.
Lord Bates
What a kind invitation from the noble Lord. I hope not to disappoint.
The noble Viscount, Lord Chandos, expressed the hope that we might get a day off from the relentless grind of Brexit. I am afraid that we were not quite able to deliver. Brexit was mentioned in the contributions of the noble Lords, Lord Tunnicliffe, who opened, and Lord Davies, as he wound up, and in between by the noble Baronesses, Lady Quin and Lady Kramer. They talked about the uncertainty of the times and the noble Lord, Lord Tunnicliffe, said that these were not normal times—to which the answer, which they have heard many times, is therefore to remove the uncertainty and back the deal, so that we can move on to negotiating the future economic relationship with our friends in the European Union. We could also then remove the necessity to plan for no deal, Yet, so long as no deal remains even as a possible option, it would be remiss of any Government acting responsibly not to plan for that eventuality—although we hope with all our hearts that that outcome does not occur.
This has been an excellent debate and I therefore want to use what time I have available simply to address some of the points raised during the course of it. First, the noble Lord, Lord Davies, talked about income inequality. I should say that income inequality is now lower than it was in 2010 and lower than at any point under the previous Labour Government, in which he was a distinguished Minister. Compared with 2010, there are 1 million fewer people, including 300,000 fewer children, in absolute low income. Moreover, in the context of this legislation the Government’s policy continues to be highly redistributive. In 2019-20, households in the lowest income decile will receive over £4 in public spending for every £1 they pay in tax, while those in the highest income decile will contribute on average over £5 in tax for every £1 that they receive in public spending.
The noble Viscount, Lord Chandos, asked about the reclassification of student loans and its impact. After its review of the treatment of student loans in government finances, the Office for National Statistics has decided that some of the spending on student loans will be included in the deficit when the money is first lent to students. This is a technical accounting decision by the ONS and, although the noble Viscount was very critical of it, I stress that we operate on independent advice in this respect. We support the independence of the ONS and commend its diligence in recognising this.
The noble Baroness, Lady Kramer, talked about Making Tax Digital. I will come back to some of the points raised by the noble Lord, Lord Turnbull, in this respect. She focused on the specific impact on SMEs, on behalf of which she has been a consistent advocate. As the noble Lord, Lord Turnbull, mentioned, that is why only businesses with a taxable turnover above the VAT threshold, which is currently £85,000, will be in the scope of Making Tax Digital. The noble Lord is of course a former distinguished Permanent Secretary at the Treasury, among other things, and he talked about the work done by the committee. He said—I think I have this right—that it would be nice if a Minister were to say, “You did us a good turn there” when the committee advised on making changes and delaying implementation. Having been given that invitation, I am very happy to say that it did a good job there. It did a good turn not just in giving advice to the Government but for small businesses, in terms of how they will be affected.
With respect to all noble Lords, I think that the House will have found the technical analysis of marginal tax rates by the noble Lord, Lord Morrow, very thought-provoking. I will want to take that away and reflect further on it with colleagues. However, the Government are committed to making work pay. The noble Lord said that hard work should be incentivised, and we can all echo that. He said that it was a key measure of aspiration; again, I think we would echo that. In fact, it was part of the rationale for the introduction of universal credit.
The Budget announced that the personal allowance would be increased to £12,500. We are also investing an additional £1.7 billion per year in universal credit to increase the work allowance for working families and disabled claimants. The national living wage will rise to £8.21 from April 2019. In total, it will have delivered a pay rise of £2,750 for a full-time minimum wage worker since its introduction in 2016.
I am hesitant about reading out more such responses, not because they are not right but because I sense that the mood of the House and, certainly, our mood on the Front Bench—my noble friend Lord Young is with me—is that the noble Lord’s analysis is worthy of further consideration. I am delighted that the Financial Secretary to the Treasury and Paymaster-General said in response to the Budget debate that he would write substantively and reflect on that matter. I will take back to him the noble Lord’s contribution today to ensure that that response encompasses some of the points which he has raised.
A number of comments were made on the health of the economy. The noble Viscount, Lord Chandos, talked about the wide range of allowances and then criticised me for not responding to my noble friend Lord Horam in the Budget debate on his point about the 1,200 allowances which exist. Allowances have been used by successive Governments to incentivise right behaviour in certain areas. This Budget is no different, because it increases the annual investment allowance to £1 million for two years, thus significantly increasing the amount of relief given to businesses that do the right thing by investing in their own businesses and therefore increase our productivity—which the noble Lord, Lord Davies, was concerned about—and increase our tax revenues and growth.
One of the allowances referred to related to the issue raised by the noble Baroness, Lady Quin, whom I thank for giving me advance notice. She declared her interest as the chair of the board, but I should declare an interest as having been a beneficiary of the museums of Tyne and Wear as a child and as an adult. I am a frequent visitor to the Shipley Art Gallery, which is a fantastic treasure trove of different art, from old masters to modern, contemporary and regional art, as well as crafts and ceramics. I have enjoyed that since I was taken there as a child at school—education is a key part of it. Anything which enhances the wonderful town of Gateshead, which she and I care for, and its cultural heritage—which is not just the Shipley but the Baltic Centre for Contemporary Art, the Sage, a music centre and the Angel of the North—is welcome. It really is becoming a cultural centre.
The noble Baroness came up with some innovative suggestions as to how the Interpretation Act 1978 could be invoked in the matter that she raised. We have looked carefully at that, and my advice is that the existing legislation is unambiguous and cannot be interpreted in any other way. Any changes would require primary legislation. However—the former Permanent Secretary will be watching carefully what I say here—I think that the spirit and intention behind that measure were clear. Manifestly, it was intended that organisations such as the Tyne & Wear Archives & Museums should be able to benefit from it. The challenge I ask her to leave me with—I have already commenced informal discussions with the Financial Secretary to the Treasury—is how we go about correcting that. Clearly, if it requires primary legislation, which is the current advice, that limits our options as to how quickly we can move, but if there are other ways to do it, we would want to do so. I know that the noble Lord, Lord Davies, echoed his support for efforts in that area and I give her a commitment that it is an anomaly that we want to resolve.
The noble Baroness, Lady Kramer, talked about local authorities. I am conscious that time is short, but loan charges is a hugely important issue that was also raised by my noble friend Lady Noakes in the Budget debate. I wrote to her, and copied in the noble Baroness, Lady Kramer, having gone back to the department and looked again at it. There is no requirement on an individual who is not an employee to use a disguised remuneration loan scheme. The tax system expects people to take responsibility for their own tax affairs and if an arrangement looks too good to be true, then it probably is. Hundreds of thousands of people work and pay tax as self-employed workers or through their company without using highly contrived tax avoidance schemes.
The noble Lord, Lord Turnbull, drew attention to what was new Clause 26. The Government chose to accept new Clause 26 during the passage of the Bill and will lay a report in line with the requirements of that new clause no later than 30 March—that is probably going to be a busy day in Parliament. The report will include a comparison with the time limits for the recovery of lost tax relating to disguised remuneration loans. HMRC is working to help people put things right but can only help those who come forward, so we encourage people to come forward. For those people who settle, there are schemes, depending on the income threshold, whereby people can make those tax settlements over a five to seven-year period. As for why taxpayers do not have the right to appeal against advance payment notices and follower notices, Parliament granted HMRC these powers to discourage tax avoidance. Advance payment notices prevent tax avoiders gaining an economic advantage by holding money during the time it takes to complete lengthy tax litigation. Importantly, these rules in no way affect a taxpayer’s right to appeal their tax liability.
The noble Baroness, Lady Kramer, and the noble Lord, Lord Turnbull, spoke about future plans for Making Tax Digital. The Government set out a vision for modernisation of the tax system through Making Tax Digital in 2015 and our vision remains unchanged. There will be no further Making Tax Digital mandation until the system has been shown to work well. The sub-committee recommended an independent review of HMRC’s powers. The Government agree that HMRC has to balance the collection of tax with important taxpayer safeguards—again, this was raised by the noble Baroness, Lady Kramer, and the noble Lord, Lord Turnbull. The powers review was a major project designed to support the merger of Her Majesty’s Customs and Excise and the Inland Revenue. It took seven years and concluded in 2012. There has been no such fundamental change to the department since which might justify a further review. However, the Government keep the tax system under review and note the sub-committee’s recommendation to update the power review in line with principles about the digital age.
I have tried to address noble Lords’ questions. I will review the record of the debate, which has been of a very high quality with lots of points of insight, and if I have missed anything, I will follow up in the usual way and write to those who spoke in the debate. I beg to move.