Financial Exclusion: Access to Cash

Bim Afolami Excerpts

Tuesday 21st May 2019 Westminster Hall

[Bim Afolami (Hitchin and Harpenden) (Con)]

I thank the hon. Member for Feltham and Heston (Seema Malhotra) for bringing this debate forward. I speak as chair of the APPG on credit unions and as a fellow member of the Financial Inclusion Commission. When I first came to this place two years ago, I visited a credit union just outside my constituency that serves several of my constituents. A lady there said something very important to me. She said, “Bim, it is very expensive to be poor.” I really thought about that, and everything I have seen in the past couple of years has confirmed my sense of the facts. We have already heard that 39% of people have no savings. When people have very little cash—or, should I say, money, resources, or assets—it can often cost them so much to do things and to borrow money. They can quickly fall beneath the waterline. That is one reason why credit unions are so important, and I echo the things that have already been said about promoting credit unions.

Financial education has not particularly come up in the debate. I lose track of the number of times that people have said over the past five, 10 or 15 years, “We need to promote financial education in schools. People need to learn better habits. They need to be able to manage their money more effectively. They need to understand how mortgages work, how credit cards work, what annual percentage rate is and what interest is”, yet we never do anything. Will the Minister respond to that in his remarks? I know he is not the Education Secretary—at least, not yet.

[Peter Aldous (Waveney) (Con)]

Does my hon. Friend know something?

[Bim Afolami]

I do not say that with any knowledge at all.

[The Economic Secretary to the Treasury (John Glen)]

I am happy where I am.

[Bim Afolami]

That is good. I hope that the Minister will tell us what work he can do across Government to champion financial education, which we all agree needs to be improved significantly.

The Minister wrote to me on 20 February about things that the Government were doing to promote affordable lending and credit unions, and about the affordable credit challenge fund, a no-interest loan scheme. Those are all very good things, but I simply say to him: we want more. There is a need for legislative change to allow all types of credit to be provided by credit unions. If he pushed that through Government, he would be a hero not only on the Government’s side of the House but on the Opposition’s side as well.

The last thing I will say about the cashless society is this: I was on a trip to China a year or so ago and I was in a city called Wuhan, a long way away from Beijing, and I could not use cash. Things are moving very fast. I could not use cash. We need to enable people to adapt to the new society and not try to hold back the tide. The Government need to help people achieve that.

Oral Answers to Questions

Bim Afolami Excerpts

Tuesday 9th April 2019 Commons Chamber

[Mr Hammond]

The hon. Lady is absolutely right. As well as pursuing tax avoiders themselves, we have to pursue those who promote tax avoidance. My right hon. Friend the Financial Secretary has just told me that there are over 100 promoters of avoidance schemes who are currently under active investigation by HMRC.

[Bim Afolami (Hitchin and Harpenden) (Con)]

14. What steps his Department is taking to encourage people to save for their pensions.

[The Economic Secretary to the Treasury (John Glen)]

Automatic enrolment has reversed the decade-long decline in workplace pension saving. Department for Work and Pensions statistics show that since 2012 over 10 million people have been automatically enrolled into a pension. Minimum contributions increased this month to 8%, and everyone who is contributing at the minimum rate should see an increase in their overall remuneration package.

[Bim Afolami]

I thank the Minister for that response. One of my constituents in Hitchin is a stay-at-home mother, and the maximum she can contribute to her pension is £3,000 per year, whereas if she were working, she could contribute up to £40,000 per year. I am sure the Minister will agree that we want to encourage people to save for their future. How can we increase the threshold so that stay-at-home parents can increase the amount they put into their pensions?

[John Glen]

The Government do offer generous tax relief on contributions to, and investment growth within, pensions. We also enable tax-free access to a proportion of savings. It is right that the Government control the cost of tax reliefs, and the £3,600 limit is one method of doing that. I can assure my hon. Friend that all aspects of pension policy and the tax system are kept under review in the context of the wider public finances.

UK as a Financial Services Hub

Bim Afolami Excerpts

Wednesday 6th February 2019 Westminster Hall

[Bim Afolami (Hitchin and Harpenden) (Con)]

I beg to move,

That this House has considered the UK as a financial services hub.

It is a pleasure to serve under your chairmanship, Mr Stringer. I started my professional career in financial services, as did the Exchequer Secretary, as a corporate lawyer in the City of London. I worked at Freshfields Bruckhaus Deringer for three years, before working at an American firm called Simpson Thacher & Bartlett for three years. After that, I underwent a bit of a switch, and moved from being a lawyer advising on transactions to working in banking in strategy and restructuring at HSBC. I moved from being an adviser to a principal, or manager.

When I was at HSBC, I started to learn about financial services in their broader sense. As a senior executive, I was deeply involved with several high-profile aspects of the bank’s restructuring, notably on splitting the retail bank from the investment bank, which was necessitated by ring-fencing legislation. I also spent time working across the global bank on the implementation of MiFID II—the markets in financial instruments directive—which required huge changes to how the markets desk operated. I also worked on custody systems, payment systems and business design. That took me up to June 2017, when I was elected to this House as Member of Parliament for Hitchin and Harpenden.

Obviously, financial services matter a huge amount to me, but they also matter a lot to my constituents. An analysis of the latest census data leads me to estimate that my constituency is in the top 50 in the country for those who work in financial or professional services. One cannot move in Hitchin or Harpenden without bumping into a lawyer, a banker or an investor.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

You are really selling it!

[Bim Afolami]

I am really selling it. In fact, when I was canvassing at the last election, a voter told me that after they had looked me up, they said, “Oh, well this is probably the only seat in which being a lawyer and a banker is an advantage rather than a disadvantage.”

[Craig Tracey (North Warwickshire) (Con)]

My hon. Friend makes some important points about banking. Does he agree that the insurance sector has a massive role to play? It brings in £29.5 billion to the UK economy, including, as I am sure the Minister will appreciate, £12 billion in taxes. The critical point about the insurance industry is that it employs 300,000 people, two-thirds of whom live outside London, so the industry has an impact on all our constituencies.

--- Later in debate ---

[Bim Afolami]

My hon. Friend is completely right. Later in my remarks, I will talk about the regional aspects of our financial services sector. Suffice it to say, I called this debate because I believe that our world-leading position in financial services is at risk. That will have an impact not only on London, but on regions outside London, and on industries such as the insurance industry in my hon. Friend’s constituency and across the country.

We must remember that despite the appalling financial crisis of 10 years ago, in which many institutions and firms were culpable of incompetence and wrongdoing—if not outright illegality—the British financial services sector is a national asset and a public good. It is our most successful sector and export. I will try my hardest not to get trapped in a Brexit rabbit hole during the debate, but I will make this point: in post-Brexit Britain, we will have to adapt our financial services sector to ensure that in the next 20 years, the UK remains the world’s global financial services hub, facilitating business and creating growth from Bangor to Bangalore and from Hitchin to Helsinki.

[John Howell (Henley) (Con)]

I am a former partner in Ernst & Young, so mine is a completely different perspective on the sector. Yesterday, I chaired a breakfast meeting to look at the future of digital currencies. Among those present, there was an overwhelming desire to see better regulations in place globally. We have an opportunity to take the lead on that. Does my hon. Friend see that as an opportunity for the UK?

[Bim Afolami]

I defer to my hon. Friend’s experience as a very senior partner at a major accounting practice. The regulation of financial services has moved from a national to a regional level and now to a global level, for instance through Basel and Solvency II. Let us consider the reasons that Solvency II was brought in for the insurance industry. Britain—not just the Treasury but also the Bank of England—needs to make sure that as we leave the European Union, we do not lose our voice at the global level. If we do, we will have to implement regulations that we will not have taken part in shaping. I will address that further on in my remarks.

[John Howell]

The Bank of England was not only present at yesterday’s breakfast meeting, but spoke. It took a strong role in looking at whether the digital currency sector needs future regulation.

[Bim Afolami]

I thank my hon. Friend; I will address that aspect directly in my remarks.

Before I come to that, I think it is worth defining, for people who might read or watch the debate, what financial services actually do. To many, it looks like it is just about shuffling paper around or playing with spreadsheets. Put simply, financial services are partners of business. In 2017, UK banks lent £14 billion per quarter. Almost 1,500 equity finance deals, with an investment value of almost £6 billion, helped smaller businesses grow in 2017.

Another thing to assess and to remember is that financial services create business demand for other goods and services. The financial services industry is the largest buyer of tech services in the UK, for example. A business contributing to what we might call “the real economy” needs financial services to be available, cheap and effective. In Britain, companies from around the world have access to those services through our financial services sector.

What impact do financial services have on the Treasury’s balance sheet? The Minister will be keenly aware of this—I know that the Chancellor is. The financial services sector contributed over £72 billion in taxes last year. To give people a sense of scale, that is half of the NHS budget and about 11% of total UK Government revenue. In addition, the sector provides 1.1 million jobs to the UK-wide workforce. If one includes related professional services in an advisory capacity, such as accounting or legal services, that number rises to 2 million.

We are global leaders. The UK is the leading destination country for foreign direct investment projects in financial services from the United States, Sweden and China. The UK attracts 15% of the US’s global projects of that nature, 47% of Sweden’s and 15% of China’s. I come back to the point made by my hon. Friend the Member for North Warwickshire (Craig Tracey); those who believe that financial services affect the City of London only should think again. Two-thirds of financial services jobs in the UK are based outside London. In fact, with regards to the foreign direct investment that I just described, between 2013 and 2017, regions outside London accounted for 49% of the jobs created, 48% of the gross value added in financial services, 36% of the estimated capital investment in the UK and 37% of the total number of jobs. All that went to regions outside London.

Highly paid bankers and insurance brokers or traders who earn millions of pounds do not reflect the reality of 99% of financial services. A major reason that they matter is the cluster effect of the jobs that major financial institutions create around them. Let us take self-employed freelance workers, who often work as consultants for major firms in the industry. The number of self-employed workers in the UK has gone up by roughly 50% since 2001. According to statistics from IPSE, the Association of Independent Professionals and the Self-Employed—I refer the House to my entry in the Register of Members’ Financial Interests—22% of the self-employed work in financial services, and 40% of those freelancers had at least one project based in the EU in the past 12 months. A good Brexit deal really matters to them, and those statistics show the ancillary losses that a poor deal for financial services will bring.

Numerous challenges and changes are on the horizon, which will require our Government to change and develop their approach to the sector. I will focus on three principal areas: first, the digitisation of the economy and the rise of FinTech; secondly, the challenges and tough choices we face as we leave the European Union; and thirdly, the need to increase the penetration of financial services into our most deprived areas. That will deepen and improve the relationship between the financial services sector and our most deprived people, to ensure that everyone benefits from the sector, not just the affluent.

On digitisation, we are in a new economy: the internet and social media, as all Members of Parliament know, have completely changed not only how politics operates but how goods and services are produced and sold throughout the world. Anyone who has read Stian Westlake and Jonathan Haskel’s book, “Capitalism without Capital: The Rise of the Intangible Economy”, will be in no doubt about the profound economic change that we are seeing. These days, anyone can produce almost anything anywhere using 3D printing; anyone can advertise a product worldwide at the click of a mouse; and, as I saw last week, a film producer based in Hitchin in my constituency can work with clients in China in minutes.

Such changes are exciting from a technological perspective, but present a real challenge to the way in which we do things. For the past 15 years or so, companies have invested more in intangibles, such as branding, design and technology, than they have in machinery, hardware or property. Businesses such as Uber do not own cars; they own software and data. Coffee bars and gyms rely on branding to help them stand out from the crowd, and they often lease their premises and physical goods, rather than owning them. That is capitalism without capital.

What does that mean for financial services and, in particular, for banking? The normal model for bank lending is this: when lending to a business, the assessment of the company’s balance sheet—the assets and liabilities—is a critical aspect of assessing credit-worthiness. In the new economy, banks struggle to understand how to value and monitor intangible property. In the old days, if a company went bust, a bank could recover its money by selling physical assets—it would have a mortgage over the buildings and could sell capital assets such as machinery. If a company with intangible assets folds, those assets cannot be sold off easily—in effect, their value will have sunk with the company.

A lot of smaller businesses in the new economy therefore do not have the same access to bank loans. They are much more reliant on venture capital and angel investors, and that is a very different model of financing from traditional bank lending. My first question to the Minister is this: how will our regulatory system have to change in order to catch up with the new economy, which is changing at both a domestic and a global level? Without changing the rules on bank lending, we will be unable to finance small entrepreneurial businesses properly over the longer term.

FinTech is another success story for Britain in financial services. Indeed, we are the world’s FinTech hub. Of the European Union’s $26 billion of FinTech investment, the UK attracted $16 billion, which is a huge chunk of that European market. In the first half of 2018, that helped the UK to overtake US FinTech investment for the first time. If we consider the size of the United Kingdom, for us to overtake the US in terms of total investment is really something.

Those numbers look impressive, and they are, but there are clouds ahead. I suggest that the money is still being raised easily because the successful companies that attract a lot of the equity investment are based in Britain—they were set up here. However, there is much evidence across the FinTech sector that new start-ups increasingly are created in competitor countries, in cities such as Berlin and Paris. Much of the money raised by companies—the money I was just describing—still comes to Britain, but it is spent abroad. The companies are expanding their footprints elsewhere due to worries about the short and medium-term outlook for FinTech in Britain. We need to face up to that.

The fundamental point that we need to be honest about is that Brexit has put huge uncertainty at the centre of Britain’s short and medium-term economic outlook, which affects financial services and FinTech in particular. There are many reasons for the success of FinTech over the past few years, but the key factor is that London has become the principal magnet for the best software engineers, the best inventors, and the best and most successful investors from all over the world. How will we maintain that while dealing with the challenge of Brexit?

I suggest a twofold approach. First, we need to ensure that we remain one of the best places to raise equity finance, and enable the employees of FinTech start-ups to take equity in the businesses in which they work. Will the Minister undertake to ensure that the Treasury will not seek to change the enterprise investment scheme or entrepreneurs’ relief? Will he also consider eliminating stamp duty on shares? That idea was floated recently by Xavier Rolet, the former head of the London stock exchange. Oxera Consulting calculates that the abolition of stamp duty on shares would cut the cost of raising capital for small and medium-sized enterprises by between 7% and 8.5%. KMPG estimates that that could rise to 13% for some technology companies. Cutting the cost of capital for SMEs would lead to increased growth, profitability and employment, and higher salaries for workers, all of which make revenue for Her Majesty’s Treasury while creating a more dynamic business environment.

The second approach is simple: it is about people. In recent conversations—some took place earlier this week—with major FinTech investors, they were extremely clear that the ability to hire high-quality people, and to keep them in this country away from the clutches of Paris or Berlin, is very important. The £30,000 earnings threshold proposed in the immigration White Paper should not be a huge problem for the sector, because the vast majority of the people brought in by our FinTech companies earn more than that. One consideration, however, might not have been fully appreciated: 42% of our founders in FinTech are from abroad, and when they start their business, they often do not earn much, because they are ploughing what they earn back into their businesses, so they might fall beneath the £30,000 cap.

What are the Government’s plans to ensure that founders—the talented people who are the brains behind FinTech businesses—can move easily to the UK to start their firms? If they cannot, they will go somewhere else, and that innovation and wealth, and those jobs, will go to other countries.

[Robert Neill (Bromley and Chislehurst) (Con)]

My hon. Friend is making a most powerful speech, and I agree with everything that he is saying. Does he agree that it is important to look at the means of retaining those bright graduates who come here and train? They are precisely the people who might wish to start their businesses in the UK. We need a scheme that makes it possible for them to remain in the UK, without having to leave and come back, so that they can move from graduate employment into the sector, using their skills. We would then get the brightest and best from day one.

[Bim Afolami]

I completely agree that we need to make it easier for graduates to stay. My understanding is that the Home Secretary has extended the time in which graduates may search for a job in Britain—I think up to 12 months. I would like to see that go up further, and I think the Home Secretary is quite amenable to that. We have to be honest: if we are thinking about immigration caps and the like, we should not turn away graduates, who will often be the brains of new businesses. We should help as many of them as possible to stay here; I agree with my hon. Friend on that point.

Brexit obviously dominates Parliament and Whitehall at the moment. We are in fast-moving times, so I will offer no predictions, largely because by the time anyone sees this debate, they would be completely out of date. As things stand, the political declaration that sits alongside the withdrawal agreement explains that the UK will have access to the EU market, and vice versa, under an equivalence regime. That means that the usual equivalence assessment will need to be undertaken for UK firms in the EU market, and the UK will have a similar equivalence process for the EU. Let me explain the notion of equivalence for those who are not familiar with it, with reference to the European Union. Essentially, the EU may look at a set of regulations that govern a certain area of financial services, such as bank lending, and deem another country’s regulations equivalent to its own, thereby allowing firms based in that other country to sell products to customers—individuals and firms—in the European Union.

Our reliance on an equivalence regime leaves me with three questions. First, to what extent do the Government wish to align themselves with EU regulations at a time when the European Union is pushing ahead in a much more restrictive and onerous direction, in regulatory terms? In recent years we have seen the alternative investment fund managers directive, the cap on bankers’ bonuses, MiFID II and other regulations, which were often well intentioned but have tended to increase costs, reduce Europe’s competitiveness and increase complexity. That has made accessing financial services more expensive, more complicated and not necessarily any safer for the consumer. I believe that onslaught of complicated regulation has led in part to the poor productivity of financial services since 2008. Productivity has slowed by just over 2% in the past 10 years.

[Craig Tracey]

My hon. Friend is making a powerful case. His point about regulation is critical to ensuring our future success, which will be underpinned by proportional regulation. Does he agree that we need to give the regulator a function as a promoter of the industry? If it had to promote the industry across the world, it would have to understand better what it regulates. The rules that apply to insurance do not necessarily apply to banking; those industries are regulated very differently across the world. The promotion aspect is critical.

[Bim Afolami]

That is a very interesting and important point. My hon. Friend will correct me if I am wrong, but my understanding is that when the Financial Services Act 2012 came in, there was significant debate about whether it should have included a duty on the regulator to promote financial services, both in the UK and abroad. The decision was taken not to put that in statute at that time. The Government should revisit that decision. Giving the regulator such a duty would not be inimical to ensuring that we regulate the industry properly; it would just ensure a balance, and that the regulator considered the impact on consumers—firms and individuals—as much as other impacts.

Recently, the EU has made many changes to the way it treats all non-EU firms that seek to offer financial services to European customers. Changes to MiFID II and large clearing houses are being considered, and I believe the proposals being discussed include setting the bar higher for granting equivalence for firms classed as systemic. It is proposed that the European Securities and Markets Authority—let us just call it ESMA to avoid getting tied up—be given greater powers to oversee the activity of those firms, including powers to open investigations, conduct on-site inspections and the like. It is also proposed that ESMA be able temporarily to restrict or prohibit those firms’ activities in the EU.

In recent months, the EU has shown that it wants to be able to give its supervisory agencies, such as ESMA, greater extraterritorial reach, so they behave a bit more like American financial services regulators often do. The EU wants to ensure that ESMA plays a greater role in overseeing when national regulators can allow EU-based asset managers to outsource or delegate portfolio and risk-management activities to entities outside the EU. At the moment, as the Minister will appreciate, many asset management funds based in Luxembourg and Ireland delegate those activities to London. Some fear that the initial review that is under way is the precursor to the EU seeking to ban those outsourcing and delegation models altogether, although I gather that in recent days an agreement has been reached between British and European regulators—that is what it said in the Financial Times, at least. Perhaps the Minister can enlighten us about that.

Those rather technical points matter, because they show that the equivalence regime—the regime that we are going to rely on under the Brexit deal—is being considerably narrowed. In my judgment, that may make it harder for UK-based firms to sell services directly into the EU in future than it is for, say, Japanese and American firms to do so today. If the Minister’s answer is that the UK will seek in large part to copy the EU’s regulation, does that not make us highly vulnerable to aggressive regulatory behaviour from the EU27, who have already shown that they are very capable of designing regulations that are deliberately inimical to UK interests? Just as importantly, as we look further afield to the huge growth in opportunities for financial services in places such as Asia, how will we be competitive with the centres of Hong Kong, Singapore and New York and ensure that the UK is best placed to attract that business?

On the other hand, if the Minister’s answer is that the UK will seek to diverge from EU regulations where we can—obviously, that is a perfectly legitimate outcome—do the Government have a strategy setting out the areas in which we will seek to diverge, how we might do that and what the benefit will be, bearing in mind that the consequence will be reduced access to the European market in the areas in which we seek to diverge? In my view, we can take that path only if we shift to a regulatory model that significantly increases our relationships with and footprint in emerging markets in Asia and elsewhere. In those circumstances, we would shift more decisively to being a global financial centre, accepting that a certain chunk of European business will move away to the European Union. How do the Government envisage managing that shift and balancing those two approaches?

The Asian powerhouse countries have increasing financing needs, which include servicing $26 trillion of infrastructure spend, providing the backing for the Chinese-led belt and road initiative, and the internationalisation of the renminbi. Over the past 25 years, emerging economies’ share of global activity has risen from 40% to 60%, and their share of global trade has grown from a fifth to a third, yet their financial assets make up only 10% of the global financial system. Things will not stay that way for long, especially as savings rates keep increasing and the Asian economies concurrently get richer and richer. Growth in those countries far outstrips growth in Europe and the United States, and London is not necessarily the automatic choice for Asian financing. Singapore and Hong Kong are redoubling their efforts to ensure that they are the financial services centres that finance that Asian growth. How will we ensure that the UK is the global hub for that work?

I have spoken mostly about regulation—hon. Members are all still awake; I thank them for bearing with me—but tax policy is also a major part of this. The sad truth is that we are no longer internationally competitive on taxes for financial services. A report by UK Finance and PwC published in December 2018 states:

“On an overall basis, over half the profits (50.4%) from participant banks are paid in taxes”

in the UK. Some 43% of the taxes borne are not dependent on profit. In effect, they represent a fixed cost; the profitability of the bank is irrelevant. If we compare London with our major competitors—Frankfurt, New York, Singapore and Dubai—the overall tax burden for a model bank is highest in the UK, at just over 50% of commercial profit. In Frankfurt, that figure is 43%, in New York it is 34%, and in Singapore and Dubai it is 23%.

Putting all that together, given the regulatory challenges I outlined and the tax challenges I have just set out, are we still sure that the UK is in a position to dominate international financial services for the next 30 years, as it has for the past 30 years? Our financial services sector helps productivity and growth in our real economy across the country. Financial services is one of the most productive sectors in British cities, and while the average output per worker in a British city was £59,000 a year in 2016, that figure was almost twice as much in financial services. It would be foolish, however, to suggest that our financial services sector fully penetrates into some of our poorest regions, or that it is used by some of the poorest people in our country. I refer hon. Members to my entry in the Register of Members’ Financial Interests, because I am a commissioner for the Financial Inclusion Commission, and we have been working on this issue since our landmark report on financial inclusion in 2015. Since then, the Treasury and the Government have taken on board most of the commission’s recommendations, and I commend them for that.

What does financial inclusion actually mean? In simple terms, it means belonging to a modern, mainstream financial system that is fit for purpose for everybody, regardless of their income. It is essential for anyone wanting to participate fairly and fully in everyday life. Without access to appropriate mainstream financial services, people end up paying more for goods and services, and have less choice. The payday lending market grew from £330 million in 2006 to £3.7 billion in 2012, and it is probably now worth more than £4 billion. We are a country of about 65 million people, and 13 million people in the UK do not have enough savings to support themselves for one month were they to experience a 25% cut in income—one month! We save less as a percentage of our income than any other country in the European Union.

I have talked about banking, insurance, Asia, and the belt and road initiative, but for the UK to be an effective financial services hub internationally, we must ensure that we are No. 1 in the world for financial inclusion. All our people need the chance to create and develop wealth and savings. There is no excuse for us not to use the talent of the world’s finest firms and individuals involved in financial and professional services in the UK, and for us not making true financial inclusion a reality for all our people.

[Craig Tracey]

I am really interested in this area, and I chair the all-party parliamentary group for insurance and financial services, which is considering that very point. Does my hon. Friend agree that although the internet and digital technology bring a lot of positives, they disproportionately disadvantage vulnerable people, who do not always have access to the face-to-face advice that they used to get on the high street, and who, as people are being driven online, do not always get the best deals?

[Bim Afolami]

Without wanting to out-APPG my hon. Friend, I am chair of the all-party group on credit unions, and one of the main purposes of credit unions is to provide that face-to-face advice. Credit unions are often active in places that banks left long ago. Providing that personal information that helps people to build up their savings is important.

Credit unions in the 10 most deprived communities in Britain are lending heavily, and they consider loans that few other lenders would consider because of the applicants’ credit scores, while also charging considerably less than any other type of financial service. Credit unions in the UK currently have £860 million out on loan, and that lending is predominantly focused on those at the bottom end of the income scale. Evidence shows that once people in deprived communities are given a chance to access credit on affordable terms, they start to see patterns of improvement in their credit profiles. Over time, those people will no longer necessarily need specialist financial advice from credit unions, because they will be able to bank with and access the mainstream financial services sector. Will the Minister agree to work with me on two aspects of credit unions? First, will he consider amending secondary legislation to broaden credit union lending powers, so that they are able to service more people from that vulnerable group? Secondly, will he work with the Bank of England to review capital requirements for credit unions, so that the sector can serve more people more effectively?

In conclusion, I would like the Minister to respond to the following points. First, what is the Government’s approach to adapting bank lending rules to enable more investment in the new economy with more intangible assets? Secondly, what is the Government’s blueprint for improving Britain’s attractiveness to people and firms in FinTech? Thirdly, what is the Government’s current thinking about their regulatory approach as we embark on our negotiations on a future trade agreement with the European Union, bearing in mind our need to be the No. 1 financial services hub for financing Asian investments and investments from the emerging world? Fourthly, how will the Government seek to bring down the tax burden on our financial services sector, given that we need to be more competitive on tax policy in coming years to counteract the uncertainty and destabilisation in the market? Finally, and perhaps most importantly, how will the Government seek to improve the penetration of financial services into our most disadvantaged communities, especially by helping credit unions to professionalise and expand?

[Several hon. Members rose—]

--- Later in debate ---

[Bim Afolami]

I thank the Minister for his response. I would like him to write to me about credit unions, in particular, which he mentioned.

In the remaining 20 seconds, I will take on some points raised by the hon. Member for Oxford East (Anneliese Dodds). The issue with regulation is not whether we should have a bonfire of regulations. Nobody on the Government Benches, myself included, wants to see a bonfire of regulations. It is about having the most effective regulations that we can, rather than just accepting everything that has happened before.

Motion lapsed (Standing Order No. 10(6)).

Oral Answers to Questions

Bim Afolami Excerpts

Tuesday 29th January 2019 Commons Chamber

[Mr Philip Hammond]

A consultation is under way that I believe ends on 13 February. Once it is complete, the Government will consider it.

[Bim Afolami (Hitchin and Harpenden) (Con)]

What is the Treasury’s view of the idea of opportunity zones to help to revitalise some of the more disadvantaged parts of our country, particularly in that they differ from enterprise zones because they involve a capital gains cut rather than other types of tax relief?

[Elizabeth Truss]

I congratulate my hon. Friend on his article proposing new ideas. He raises one example of some of the exciting prospects for the post-Brexit economy that will help to revive some of the industrial areas throughout Britain.

Oral Answers to Questions

Bim Afolami Excerpts

Tuesday 11th December 2018 Commons Chamber

[Bim Afolami (Hitchin and Harpenden) (Con)]

T7. I have been listening carefully to these questions, and it strikes me that from members of all the Opposition parties we hear pleas that business wants uncertainty to end, but at the same time they have been deliberately seeking to provoke chaos by not supporting the Prime Minister’s withdrawal agreement. Does the Chancellor agree that they are playing political games with the lives and jobs of the British people?

[Mr Speaker]

Order. I know that the hon. Gentleman was trying very hard, but—forgive me: I say this by way of kindly counsel to the hon. Gentleman, who is a new Member—questions must be about the policies of the Government, as the Clerk has just swivelled round to remind me, and not about the policies or tactics of the Opposition. We will leave that there, and come to Helen Goodman.

Finance (No. 3) Bill (Eighth sitting)

Bim Afolami Excerpts

Thursday 6th December 2018 Public Bill Committees

[The Financial Secretary to the Treasury (Mel Stride)]

Very good. There will be no singing of “The Red Flag” on this side, Mr Howarth.

[Bim Afolami (Hitchin and Harpenden) (Con)]

“La Marseillaise”?

[Mel Stride]

Maybe. It is a pleasure to serve under your chairmanship, Mr Howarth. I will turn briefly to points raised by the hon. Member for Stalybridge and Hyde.

Finance (No. 3) Bill (Fifth sitting)

Bim Afolami Excerpts

Tuesday 4th December 2018 Public Bill Committees

[Robert Jenrick]

After that excellent start, I will continue. Clause 33 extends the life of the first-year allowances for electric vehicle charge points until April 2023. In the UK, the continued use of high-emission vehicles creates pollution and increases health issues. This measure was first introduced on 23 November 2016 to support the transition in the UK to cleaner vehicles with zero or ultra-low emissions. The measure allows businesses that invest in charge points to reduce their taxable profits by 100% of the cost of their investment in the year it is made. That provides accelerated tax relief compared with normal capital allowances, and so encourages greater investment in these assets. The allowance is currently due to expire in April 2019. The clause enables the first-year allowance to continue as part of the Government’s ambition for all new cars and vans to be zero emission by 2040.

[Bim Afolami (Hitchin and Harpenden) (Con)]

Yesterday evening, for some light relief, I was going through emails from constituents. One constituent runs a business that installs electric charging points. Will the Minister illustrate for the Committee how he thinks that business will flourish as a result of these measures?

[Robert Jenrick]

The Government have taken two measures, the first of which was in the last Budget. That created an electric charge point investment fund— £200 million of public investment—which is designed to spur an extra £200 million of private investment. A business such as the one my hon. Friend describes could be part of that. The measure could enable the business to partner with the public sector and gain the capital that it needs to develop, and will be able to take advantage of the allowance and invest early. There are now two opportunities for such a business to take advantage of tax reliefs and public investment in order to grow rapidly and enter the market.

Finance (No. 3) Bill (First sitting)

Bim Afolami Excerpts

Tuesday 27th November 2018 Public Bill Committees

[Peter Dowd]

In speaking to amendment 8, I will also speak to amendments 9, 10 and 11, each of which we will press to a vote.

Clause 2 enacts the continued charging of corporation tax. As the explanatory note says, the clause

“charges corporation tax for the financial year beginning 1 April 2020 ...Parliament charges CT for each financial year. This clause charges CT for the financial year beginning 1 April 2020. The rate of CT for the financial year 2020 was set at 17% in Finance Act 2016 Part 2 section 46.”

As I indicated earlier, it is vital to hold the Government to account on the matter of their treatment of corporation tax. The Government have offered huge tax breaks to big business even during their continued programme of austerity, which only two weeks ago the special rapporteur described as causing “misery”. It is important to set that context in relation to our amendments. The Government have slashed—that is the word—the amount of corporation tax paid, with a commitment to continue to cut big company taxes further. By 2020, 11% will have been cut from the main rate.

The main rate of corporation tax applies to companies with profits over £300,000—these are not small family businesses, but big corporations of the sort that we have all come to know, because they play a significant part in our economy. There is no criticism of that, but there is a balance to be drawn.

The main rate started at 28% in April 2010. It was reduced by the former Chancellor to 26% in April 2011 and then was reduced again to 24% in 2012 and 23% in 2013, before reaching 20% in 2015. It was cut further, to 19%, in 2017 with a view to reaching 17% by 2020. As of last year, the Institute for Fiscal Studies found that, compared with 2010, those cuts were denying the country £16.5 billion a year in tax revenue. That will increase if the Government stay in power long enough to push the rate down to 17% by 2020.

The Government have already been criticised by tax experts about the matter, which to some extent takes us back to our debate about the ability to tease out the issues. For example, Bill Dodwell, the former head of tax policy at Deloitte—not a company considered to be particularly socialist—said:

“Nobody seems to welcome the cut to 17 per cent.”

The British Chambers of Commerce has called for a pause to the corporation tax giveaways. When corporations’ own trade associations are making that point, it indicates that something might not be quite right. If it is important that we are all in this together, we must all be in it together on this matter too, and corporations should not be outside that.

We seek to take stock of the Government’s policy, which many people describe as corporate welfare, in the context of eight painful years of austerity for some of the poorest in our society and following numerous criticisms of the corporation tax policy by those who will benefit from it. Will the Minister help us to understand the Government’s position by addressing those criticisms in turn? Perhaps the Government might wish to introduce a review of corporation tax changes since 2010, so that we can get to the bottom of this important matter. After all, in eight years under the Government, corporation tax giveaways are likely to amount to hundreds of billions of pounds, while the number of people in poverty has risen to 14 million. A review of the matter would also help us to compare the Government’s actions with Labour party policy, which is to reverse the cuts and invest the money elsewhere.

Let us have a review to tease out the issues, because £16.5 billion works out at more than £25.5 million per constituency in the UK. The combined total cut from the constituencies of Conservative members of this Committee amounts to £228 million; it is important that the figures are put in context, because that translates to a lot of schools and hospitals that they are prepared to sacrifice.

Along with the important matter of what has happened to corporation tax since 2010, we must also draw a link between the Government’s cuts to corporation tax and their wider programme. In our view, there has been economic mismanagement, but we are not necessarily here today to talk about that.

[Bim Afolami (Hitchin and Harpenden) (Con)]

The hon. Gentleman asserts figures such as £16.5 billion, but does he accept that the tax rate has a dynamic effect on the amount generated for the Exchequer? It is all very well to cite a number as a static figure and say, “Actually, Labour party policy will double the amount we get,” but does he accept that there is a relationship between the rate and the amount that the Exchequer generates because of increased economic growth?

[Peter Dowd]

The hon. Gentleman makes a fair point, which I will address later in my remarks, and which we can tease out across the Committee if we want.

For Members who do not know, labour productivity is calculated by dividing output by labour input. Output refers to gross value added, which is an estimate of the volume of goods and services by an industry, and in aggregate for the UK as a whole. Labour inputs are measured in terms of workers, jobs—“productivity jobs”—and hours worked, or “productivity hours”.

The cuts to corporation tax have done nothing to improve our productivity. The hon. Member for Hitchin and Harpenden may wish to listen to that point, so I will repeat it: the cuts to corporation tax have done nothing to improve our productivity. That strikes at the heart of the Government’s failure on the issue. In fact, the economic statistics centre of excellence and the centre for macroeconomics at the National Institute of Economic and Social Research published a study this year of Britain’s very poor productivity. That brings us to the point that the hon. Gentleman raised, because one would assume that as a result of the tax cuts, more would be invested and productivity would rise—but that has not happened. The Government have argued that those corporations now receiving significant sums in tax cuts would invest in our economy and drive their business models forward, thus increasing UK productivity. Unfortunately, the 2018 paper shows that the billions of pounds of giveaways have not had a positive productivity effect. To deal with the point raised by the hon. Member for Hitchin and Harpenden, that paper says:

“Average annual…productivity growth was 2.5 percentage points lower during the period 2011-2015 than in the decade before the financial crisis…in 2007. We find that several years on from the financial crisis stagnation remains widespread across detailed industry divisions, pointing to economy-wide explanations for the puzzle. With some exceptions, labour productivity…lost…momentum in those industries that experienced strong growth before the crisis. Three fifths of the gap is accounted for by a few industries that together account for less than one fifth of market sector value added. In terms of why we observe continued stagnation, we find that capital shallowing has become increasingly important in explaining the labour productivity growth gap in service sectors, as the buoyancy of the UK labour market has not been sufficiently matched by investment…The collapse in labour productivity growth has been more pronounced in the UK than elsewhere”

notwithstanding those major cuts in corporation tax.

[Peter Dowd]

I do not want to introduce Gilbert and Sullivan, but the point is that it is a topsy-turvy world where cash for corporations equals productivity, when it does not, and cuts to welfare equal productivity, when they do not. It is not as simple as that and I am afraid that the Government’s rather one-dimensional approach does not work. That report shows that the billions handed to those big companies by the Government have not had the required effect on business investment to drive up productivity. The facts are there for everybody to see. No doubt, if we had had some experts here, we could have teased that out a bit more.

[Bim Afolami]

The hon. Gentleman has focused on domestic business investment, but would he not accept that having an attractive corporation tax regime and providing a business-friendly climate also helps with foreign direct investment? Britain is still a world leader in that.

[Peter Dowd]

Yes, but there is not necessarily a causal link there. The reality is—[Interruption.] Let me tease that out. The evidence does not suggest that, as I have tried to point out. The German economy is 35% more productive, because investment in it is significantly better than investment in this country’s economy. We are having a debate at the moment about the question of uncertainty in relation to Brexit, which is probably having a more significant effect than the hon. Gentleman suggests.

The bottom line is that the idea that cutting corporation tax per se will lead to growth in the economy has not proven to be the case. The economy is still flatlining, despite those cuts to corporation tax. The best part of half a billion pounds is still sitting in corporate bank accounts not being invested, despite corporate tax cuts.

--- Later in debate ---

[Peter Dowd]

My hon. Friend makes an important point: we have to have a balance. The massive cuts in corporation tax—sequentially, over several years—have not had the required effect. If they did, there is an argument to be had, but they have not. There does not appear to be any evidence that that is the case, so it begs the question why. If the Government are trying to make a rational case for it, they have singularly failed and it is time to have another look.

The Government once had a plan to tackle, for example, productivity in 2016 when they tried to maintain that there was an agenda beyond austerity, but that has not been the case. Sadly, the plan was not to reverse the corporation tax cuts and invest in the economy, but simply to push on. As a result, the plan was roundly criticised. The Business, Innovation and Skills Committee said

“we question whether the document has sufficient focus and clear, measurable objectives to be called a ‘plan’. This broad and expansive document represents more of an assortment of largely existing policies collected together in one place than a new plan for ambitious productivity growth.”

That plan was the best attempt so far and it has singularly failed. That is why we will continue to press the Government on the true cost of corporate giveaways both in terms of the tax forgone and their effectiveness.

Amendment 8 requires a review of the effects of corporation tax receipts of multinational companies compared with their UK-based revenue. That is a perfectly reasonable approach in the round—it is not just one-dimensional. The Financial Times reported last year that multinational companies avoided paying as much as £5.8 billion tax in 2016 by booking profits in overseas entities. It reported that that represented almost a quarter of the tax underpaid by large corporations last year. In addition to an apparent avoidance of tax, they also get a tax reduction. It is a great life if you can get it: do not pay tax and get rewarded with another tax cut. If only we could all do that, although I suspect none of us would want to.

Sadly, the situation does not seem to have improved under the Government’s plans, despite the warning signs. The Times reported two weeks ago that HMRC is now chasing £28 billion in unpaid taxes from multinationals. The Government’s response was to give them some more. It is a bizarre approach when they owe £28 billion, or when HMRC is chasing £28 billion. I assume colleagues in HMRC do not simply go around chasing £28 billion for the fun of it, and instead do it because there is a requirement and we need the tax, and importantly because companies should pay their fair share. That represents a 50% increase in avoidance over four years. While the Government give corporations tax cuts, the corporations appear to say, “Thank you very much; we will carry on doing what we usually do and avoid our taxes.”

The problem stems from transfer pricing, which refers to the charges made between different parts of a multinational business for goods, services or intangible assets, including intellectual property, for example. Tax rules provide that transactions between connected parties should be taxed as if they were on arm’s length terms. In recent years, multinationals have been accused of arranging their transfer pricing to minimise their tax liabilities in jurisdictions such as the United Kingdom, which accounts for billions of missing tax in the UK.

The Conservative party not only wants to give the wealthiest a tax break but it does not seem too bothered if they give it to others such as corporations that do not necessarily need it. Of course, as my hon. Friend the Member for Oxford East said, that rule applies only to powerful interests and not to the working single mother who pays in full every single month.

[Bim Afolami]

The hon. Gentleman uses the word “corporations” pejoratively and then mentions the hard-working single mother. Does he accept that the hard-working single mother might also run a small business? Why did the Labour manifesto commit to increasing corporation tax on small businesses as well as on multinationals?

[Peter Dowd]

I started my comments by welcoming the role that corporations play in our economy. My use of the word “corporations” was not in any sense pejorative. I have said nothing “pejorative” about corporations. I may have talked pejoratively about those corporations that avoid their tax and I think most other people would, too. Those corporations have a responsibility, and not just legally, to pay tax. I am not suggesting they are evading tax in that sense, but morally they are part of our community. They are part of one of the most stable countries in the world, with a rule of law next—[Interruption.] I am absolutely shocked that the hon. Gentleman is laughing at my assertion that we have one of the best processes for the rule of law in this country. I am sure he did not mean to laugh when I was praising the British constitution—I accept that he did not really mean it.

At the end of the day, the bottom line is that I have not at any time been pejorative, and nor would I wish to be pejorative, about corporations that play their part in society, that pay their taxes, that treat their workers properly and that treat their customers as their first port of call. I would not be pejorative about those corporations, but I will not stop criticising corporations that do not pay their fair share of tax.

To get back to the point, that is why the Government appear to be winding down the diverted profits tax rather than ramping up the pressure on companies that do not pay their way. The review demanded by amendment 8 would strike at the heart of the problem. For too long, the Government have sat idly by and watched the UK being fleeced by many big companies and the public are saying that enough is enough.

On amendment 9, the Government’s blind spot in respect of companies paying their share extends in particular to technology companies. It was reported in The Guardian this year that Amazon had halved its corporation tax despite posting record profits. The article speaks directly to the amendment by saying:

“The company, which has been locked in a race with Apple and Alphabet to be the world’s first trillion-dollar business, revealed that pre-tax profits at its UK business tripled from £24m in 2016 to £72m last year.

The figures were reported by Amazon UK Services, the company’s warehouse and logistics operation that employs more than two-thirds of its 27,000-plus UK workforce, in its annual financial filing to Companies House.

The company almost halved its declared UK corporation tax bill from £7.4m in 2016 to £4.5m last year. It received a tax credit of £1.3m from the UK authorities in 2016, and last year paid £1.7m tax on its profits.”

I do not have the evidence to hand, because time does not permit me to go into all the details, but it would be interesting to know how many of those 27,000 people are on tax credits themselves because the pay they get from that company is pretty low. There is an unacceptable triple-whammy for taxpayers. No. 1 is that some of those companies’ employees get tax credits because they do not get paid enough; No. 2 is that the companies are getting a corporation tax cut; and No. 3 is that they avoid paying their taxes where they can.

Will the Minister guarantee that Amazon will pay a full and reasonable share of tax on its operations next year? I suspect that he is not likely to commit to that suggestion even if he wanted to. What about other companies? Google paid only £50 million last year, despite total sales of £5.7 billion, which is worth repeating. Meanwhile, Facebook paid only £15.8 million in corporation tax, despite collecting a record £1.3 billion in sales. Its accounts show that while it increased its UK income by more than 50% in 2017, its pre-tax profits increased by only 6% to £62.7 million. The Silicon valley-based company’s UK taxable profits were reduced by a £444 million charge for unexplained “administrative expenses”, which is scandalous.

The Chancellor said that he would introduce a digital services tax in response to that flagrant attempt to undermine our tax base. Oddly, though, the tax seemed to bring in only £5 million in the first year and £275 million in the second. Perhaps the Financial Secretary could tell us where the rest is. That seems a pretty pathetic attempt to restore a level playing field in our tax system—the digital services tax is a drop in the ocean. What estimate has the Minister made of the total corporation tax lost to HMRC through avoidance by technology companies? What steps has he taken to work with other nations to deliver a comprehensive response? How many meetings has he had with the European Union since the Budget?

As the Minister knows, the European Union’s approach is much more comprehensive. A Commission press release set out its approach to digital taxation—it is therefore directly relevant to amendment 9. It demonstrates that the EU’s plans are far more developed than the UK’s. It is therefore important that we listen to them. The press release states:

“The Commission has proposed new rules to ensure that digital business activities are taxed in a fair and growth-friendly way in the EU. The measures would make the EU a global leader in designing tax laws fit for the modern economy and the digital age”,

which is what amendment 9 seeks to do. It continues:

“The recent boom in digital businesses, such as social media companies, collaborative platforms and online content providers, has made a great contribution to economic growth in the EU. But current tax rules were not designed to cater for those companies that are global, virtual or have little or no physical presence. The change has been dramatic: 9 of the world’s top 20 companies by market capitalisation are now digital, compared to 1 in 20 ten years ago. The challenge is to make the most of this trend, while ensuring that digital companies also contribute their fair share of tax. If not, there is a real risk to Member State public revenues: digital companies currently have an average effective tax rate half that of the traditional economy in the EU…Today’s proposals come as Member States seek permanent and lasting solutions to ensure a fair share of tax revenues from online activities”

as urgently as possible. Like the European Union, we are seeking to create an initiative

“to reform corporate tax rules so that profits are registered and taxed where businesses have significant interaction with users through digital channels. This forms the Commission’s preferred long-term solution.”

I would like the Government to consider a number of European Union proposals as part of the review, including an interim tax on certain revenue from digital tax activities. The Government could take that issue into account as part of the review, too. I hope they will look at it as well.

Finance (No. 3) Bill

Bim Afolami Excerpts

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

[Anneliese Dodds]

I am very grateful to my hon. Friend for her comments. In fact, I will go on to say both, because that is precisely our concern. So far, the Government have been incredibly vague about what commitments they will make on tax matters in relation to preventing avoidance and evasion. Furthermore, we have had some very, very unhelpful comments—to put it extremely mildly—from the Government about whether they might seek to undercut the rest of the EU on tax matters. I know that my hon. Friend follows these matters very closely, as she does money laundering matters, where I argue that we have not been clear enough about how we will collaborate with others into the future.

Our new clause 5 is directed at another Government blank spot: the distributional impact of their tax measures. It would require an equality impact assessment of the Government’s tax avoidance measures in relation to child poverty, household income levels, people with protected characteristics, and our nations and regions. That assessment is necessary because of the continuing leakage from our tax system owing to avoidance as well as evasion. Failure to deal with avoidance has put pressure on the rest of the tax system, which, as I have just mentioned, has been exacerbated by unnecessary tax cuts to the very best-off people and to profitable corporations. As many independent observers have noted, these tax cuts have tended to benefit the very best-off people and often men rather than women, while £4 out of every £5 cut from Government budgets has fallen on women’s shoulders. The Women’s Budget Group has shown how, out of all household types, lone mothers have been the hardest hit by cuts to services and tax and benefit changes, followed by lone fathers and single female pensioners. Among lone mothers, it is black and minority ethnic women who have lost the most.

[Bim Afolami (Hitchin and Harpenden) (Con)]

Is the hon. Lady suggesting that we should have differential tax rates for men, women and different ethnic groups?

[Anneliese Dodds]

I am grateful for the intervention, because it enables me to make the answer clear. Absolutely not. We are asking for something very simple. Sadly, it is something that this Government have not been willing to provide, which is the information about tax incidence. We do not have that information to the extent that the House needs. The process of analysis has been left to bodies such as the Women’s Budget Group and the Child Poverty Action Group. They have to crunch the data. That is an activity that should be carried out by Government, so that we as Members are able appropriately to scrutinise their policy and practice. We do not have that information at the moment.

--- Later in debate ---

[Luke Graham]

rose—

[Bim Afolami]

rose—

[Anneliese Dodds]

I will press on for now.

Labour’s new clause 6 would require a review of the Government’s measures presented in this Finance Bill on tackling avoidance, evasion and the tax gap. It would enable us to consider whether the Government’s reactive approach is sufficient, when many of us suspect that it is anything but. Here we are reminded of one of the biggest gaps in this Bill. Despite much fanfare in the Budget, and indeed in the Minister’s comments just now, there is no digital services tax presented in this Finance Bill. Instead, there will be a consultation on the Government’s approach. Of course, even what is in that consultation is less stringent than European-level proposals, and it includes giant loopholes in its safe harbour and double threshold elements.

The hon. Member for Walsall North (Eddie Hughes)—who is still in his place, which is fantastic—talked about the regime for intangible assets. He is absolutely right that we need tax authorities to deal with these issues more appropriately. When I think about the major strides that have been made on taxing profits arising out of those intangible assets, I think of the cases that have been taken by the European Commissioner for Competition against Starbucks and others. She showed, for example, that Starbucks’ intellectual property relating to its roasting processes was not based in the Netherlands, as it claimed, and that that was just a ruse to avoid tax.

The Government have not shown in this Finance Bill—or, indeed, anywhere else—how they will deal with very large multinational companies that have previously had their tax affairs challenged through the action of the Competition Commissioner when we are outside the EU. We still have a lack of clarity on our competition policy following the transition period and sadly, that is not dealt with in the Bill. I agree with the hon. Member for Walsall North that we should look at that significant problem.

[Bim Afolami]

Does the hon. Lady accept that, when we are dealing with the complexity of international tax treaties, judicial precedent and the rule of law, and given that those treaties and lots of judicial precedent were established at a time when we did not have multinationals in the way we do now, it is only prudent to consult properly before we put measures in place? Does she also accept that this Government have been a leader, according to the OECD and the IMF, in dealing with the problem that she outlines, and that she is not being fair at all?

[Anneliese Dodds]

I am grateful for the hon. Gentleman’s intervention. However, I am sorry to point out that he is slightly behind the times when it comes to the operation of tax treaties. Those are now multilateral, following the development of the OECD’s multilateral instrument, which aims to amend tax treaties for all signatories, including the UK, in a thorough manner.

[Bim Afolami]

I thank the hon. Lady for giving way again. The whole point is that this is all a work in progress, as she would accept.

[Anneliese Dodds]

That appears to be a slightly different point from the one the hon. Gentleman was making a moment ago. None the less, I agree that this is a work in progress. Sadly, our Government and Conservative Members in other jurisdictions have not always been promoting that process. I gently remind him that his colleagues in the European Parliament have consistently voted against measures that would increase tax transparency and have consistently not supported attempts to hold inquiries into, for example, the Panama papers and the Luxembourg leaks. I hope that, at some point, they will catch up with the need for more tax transparency and enforcement. Perhaps he could encourage them; that would be enormously helpful.

It is positive to see in this Finance Bill that the Government have adopted some of Labour’s proposed measures in our tax transparency and enforcement programme. They have finally seen the light on giving HMRC back preferred creditor status. They appear to be undertaking some action against umbrella agencies exploiting the employment allowance. They also appear to be looking towards creating an offshore property levy, although it is unclear to me, even following the Minister’s comments, how appropriately that will be targeted, given that it lacks the precision of Labour’s proposed oligarch property levy. But there are few additional measures in the Bill beyond what is already required by either the EU or the OECD, showing an abject lack of ambition and commitment from this Conservative Government.

Underlying all this, as the hon. Member for Glasgow South West (Chris Stephens) said, is the Government’s failure to appropriately staff HMRC to deal with tax avoidance and evasion and their determination to press ahead with its reorganisation, despite evidence that it is haemorrhaging experienced staff. Some additional money has been provided, which the Minister referred to in his speech. However, we still lack clarity on exactly where that money will go. The Government have committed to provide 5,000 additional customs staff. I still do not know where they will go. We are looking at a situation where, due to the regional reorganisation, there will not be a single HMRC hub along any of the south coast or beyond the central belt. Where customs officials will go is very unclear.

In addition, any additional money that is being provided by the Government, or at least much of it, will in any case just backfill what has been sucked out through the recruitment costs necessitated by the need to replace staff who have been lost due to the reorganisation process.

2019 Loan Charge

Bim Afolami Excerpts

Tuesday 20th November 2018 Westminster Hall

[Peter Aldous (Waveney) (Con)]

It is a pleasure to serve under your chairmanship, Mr Walker. I congratulate my hon. Friend the Member for Wycombe (Mr Baker) on securing this debate, which gives us the opportunity to highlight the devastating impact that the 2019 loan charge is having on many individuals.

My constituent who has been affected by the loan charge is at his wits’ end. His family life has been turned upside down and, as he sees it, he has no alternative but to declare himself bankrupt. He is not a wealthy man. He is not a professional footballer; he is an IT contractor. When he and others were made redundant by BT, they were introduced to financial advisers who set up these schemes for them. He and they acted in good faith, only following the advice given so as to be IR35 compliant.

I want to highlight two issues. My first concern is that HMRC is pursuing the easy targets—individuals who have acted in good faith, are not well off and do not have their own bespoke financial advisers and accountants. My understanding is that the Glasgow Rangers Football Club case, on which the 2019 loan charge is based, concluded that the tax liability fell on the employers. That raises the question why HMRC is not pursuing the client organisations, agencies and umbrella groups that have benefited significantly from setting up these arrangements.

[Bim Afolami (Hitchin and Harpenden) (Con)]

I agree with my hon. Friend’s focus on the individuals involved. Does he agree that the retrospective nature of the measure is not just a matter for the rule of law in the abstract, but that it undermines the trust of those people and their families and communities in our Government and our legal system, and will do so for generations to come?

[Peter Aldous]

I thank my hon. Friend for his intervention—he has a crystal ball, because he has foretold the next item in my speech.

The people affected have become a target. They are vulnerable people. They are not well paid and do not receive many of the benefits and protections that payroll employees do: sick pay, holiday pay and maternity and paternity leave. I would be grateful if my hon. Friend the Minister could advise us when he sums up the debate of whether the impact assessment has looked at the personal circumstances of the individuals who are being pursued, whether they are able to pay and what the impact will be on their lives.

My second point, which my hon. Friend the Member for Hitchin and Harpenden (Bim Afolami) foretold, is that the basis on which the 2019 loan charge has been introduced and many individuals are now being pursued is that it is retrospective. It undermines the cornerstone of taxation, which is that a Government should not seek to impose or increase a tax charge on income earned, gains realised or transactions concluded at a time before the legislation was announced.