Stamp Duty Land Tax (Temporary Relief) Bill

Lord Mackinlay of Richborough Excerpts

2nd reading & 2nd reading: House of Commons
Monday 13th July 2020 Commons Chamber

[John Glen]

I thank the hon. Lady for her point. I would look at it in terms of opening up the market, creating more churn and momentum that allows all participants to be able to get on the housing ladder.

The Government’s cutting stamp duty land tax in this way will mean that nine out of 10 people buying their main home will pay no stamp duty at all, and buyers can save up to £15,000. In my own constituency, the average family looking to buy a home worth £349,000 will go from paying £7,450 in stamp duty to absolutely nothing. Indeed, this Bill will take most properties outside of London and the south-east out of stamp duty entirely.

The Bill is the latest in a long line of measures from this Government designed to support current and prospective homeowners in this country. Historically, stamp duty has been charged at a single rate on the whole purchase price of a property, with different rates for different value bands. The same rate of tax was charged irrespective of the number of properties owned by the buyers. In 2014, the Government reformed stamp duty land tax on residential properties, cutting the tax for 98% of buyers who pay it, unless they are purchasing additional property. In 2015, the Government introduced the higher rates of SDLT, which apply on purchases of additional residential properties such as second homes and buy-to-let properties. Finally, in 2017, the Government introduced first-time buyers relief. This increased the price at which a property becomes liable to pay stamp duty, for first-time buyers, from £125,000 to £300,000, with a reduced rate between £300,000 and £500,000.

Together, these reforms have made the tax system fairer and more efficient. They have cut the cost of home ownership for first-time buyers, helping more than 500,000 families to secure a foot on the housing ladder. This Bill will cut the cost of home ownership further, at a time when personal finances are under considerable pressure. In doing so, it will inject new momentum into the property market, protecting thousands of jobs in both the construction industry and the wider economy.

This stamp duty cut is one of several measures in the Government’s plan for jobs that will benefit families and businesses across the country. From September, homeowners and landlords will be able to apply for a green homes grant of up to £5,000 to make their homes more energy efficient. For low-income households, we will go even further, with vouchers covering the full cost up to £10,000. This, too, will support local jobs, as well as reducing carbon emissions and cutting energy bills for hard-pressed families.

[Craig Mackinlay (South Thanet) (Con)]

I wonder if the Minister could clarify a couple of points. On the 31 March date, we all worry that this will end up being a cliff edge, as the date approaches. Will that be the date of exchange, which is usual, I think, in these matters? Is he not concerned about that cliff edge? For some people, for no reason of their own, late finishing of their property will mean they fall the wrong side, very expensively?

[John Glen]

I thank my hon. Friend for his point. We are in a situation where, if the transaction is substantially completed by 31 March, it will be able to qualify for the relief.

Almost four months ago, the Government took the extraordinary step of ordering businesses across the country to close for an extended and unspecified period of time. Millions of people put their lives on hold for the greater good, but now that the virus is under control, the time has come to reopen our economy. Providing infection rates remain low, people should be able to get on with their lives, wherever possible. There are few aspirations more important to the British people than home ownership, and this Bill will ensure that those looking to buy a family home will see their stamp duty bill disappear altogether. It is part of our plan to turn our national recovery into millions of stories of personal renewal. In doing so, it will stimulate the housing market, safeguarding many thousands of jobs and helping Britain to bounce back stronger than before. For all these reasons, I commend the Bill to the House.

--- Later in debate ---

[Craig Mackinlay (South Thanet) (Con)]

I warmly welcome this reduction in stamp duty land tax as part of the covid-19 stimulus provisions. The Minister has outlined very ably the stagnation that we have seen in the housing market over the past few months, with lockdown viewings obviously impossible. That has led to a very serious situation for conveyancers, solicitors, removal companies and all those involved in the supply chain of getting houses sold.

I very much welcome what is, actually, a simplification. We have gone down from six rates to just four. It gives us an opportunity to ask ourselves what is stamp duty land tax for and what is it doing to the residential market. We levy taxes in this country broadly for two reasons. Obviously, the first is to fill the public purse so that the public services that we all know and love—the defence of the realm, our policing, the NHS and everything else—can be paid for. We all realise that that tax cake has to be made up across myriad taxes, allowances and complications—a fairly mind-boggling number of them—and I am not sure that our 23,000 pages of tax legislation are much to be proud of. None the less, SDLT has proven itself to be a useful fill-up to the public purse, and it has been increasing in recent years. The residential market for the last four quarters has provided £8.4 billion in SDLT receipts for the Treasury.

We often use nudge theory—the second arm of tax if you like—to change behaviour. We use taxes to change behaviour, and we saw that with the £300,000 threshold for first-time buyers, which was introduced in November 2017 to help and encourage people into their first homes. We have also used SDLT with the 3% surcharge that came into place under the higher rate for additional dwellings rules that was introduced in April 2016. It is difficult to see exactly what the effect of that higher rate has been because we do not have the equivalent data from before that change happened in the second purchase market. None the less, it was imposed for good reasons and we can discuss that. It was used to dampen down the potential buy-to-let market, allowing more properties to be available to those genuinely seeking owner-occupation. Of that £8.4 billion raised in SDLT over the past four quarters, £3.8 billion has been in that 3% higher rate charge.

The Government have also introduced other tough tax measures, such as limiting the higher rate tax relief for landlords on their interest payments. That has come in over a phased period from 6 April 2017. There has been a restriction of lettings relief, operative from April 2020, for those who used to live in their own home and have now rented it out and it has subsequently been sold. There has been a number of red tape increases, so, for many small landlords, the pursuit of having rental properties has been somewhat dimmed over the past few years—so perhaps these measures have had the effect. There is no doubt that the £300,000 first-time buyer limit has been beneficial in many areas.

We have therefore used SDLT, as a nation, to flex behaviour—to encourage what we perceive to be good behaviour and discourage what is perceived to be bad behaviour, and that is not uncommon across the tax system. We see high rates of tax on alcohol and cigarettes to try to discourage bad behaviour, but then we enter that debate about what is fair. What is fair in capital taxes? We have capital taxes on inheritance tax, capital gains tax and, obviously, SDLT. Are they simply measures to fill the Treasury pot? Are they designed to be penal measures? Are they designed to be redistributive measures? Obviously, there is a wide debate to be had about the suite of taxes that we have, and we probably have 650 different views in the House about what is fair and reasonable.

The reduction in SDLT, with the first £500,000 at 0%, has “nudge” written all over it, because it is deemed a good thing to encourage people to keep the housing market rolling round. The rates that were in effect have obviously been perceived as an impediment to the normal functioning of that market, so, very thankfully, SDLT has been removed for most people until 31 March.

I do not think it even needs stressing that property transactions create a lot of business activity. That is taxable business activity: the conveyancers; the estate agents; the builders; the VAT on DIY sales. Commonly, the kitchen or bathroom gets changed as one of the first measures, and the lids come off the tins of paint that are purchased elsewhere.

But have we created fairness? Is the progressive SDLT banding system, which is continuing, fair? Is it fair that someone who buys a certain type of property in Kent pays more than someone who buys exactly the same type of property in, say, County Durham or elsewhere? They obviously face a higher charge because the value is greater, but then they are penalised for the property price because they enter a higher band. That unfairness is simply due to what could be called national and local planning failure over many decades. That extra SDLT has to be paid out of net salary that has been saved, or perhaps out of additional loans—or, for those lucky enough, from the bank of family.

Labour mobility will be really important in the future. I do not think we will see how important until this period of crisis with covid-19 is over. Employment will change and opportunities will change, and there will be a need for people to pursue jobs elsewhere. SDLT restricts their choice, because someone has to be not just a bit sure but very, very, very sure that the purchase they are making, with the incumbent SDLT, is really the right one. We dare not make a mistake when there are potentially fives or tens of thousands of pounds at stake.

I encourage the Chancellor, in his Budget later this year, to ensure that job mobility forms part of the tax system. Someone may have to rent a property elsewhere to test the area and the market, and they may have to rent out the old property that they leave elsewhere. Surely, there should be a tax relief on that new rent that they pay, against the rental income on the property that they had to leave to seek employment elsewhere. That could certainly be used elsewhere to help to nudge behaviour.

If we are going down the route of nudging through the tax system, let me suggest something that I have often proposed: downsizing relief for the elderly. Far too many elderly people are stuck in a property that is far too big for their current needs. They might have lost their partner, and they are now residing in a property that is simply too big. However, faced with the potential for a big SDLT charge if the rates come back into play after March, many older people will say, “Well, I’m simply not going to pay it. I don’t want to pay £5,000 or £10,000 just to move.” They will stay stuck in an inappropriate property, effectively blocking the bigger properties that many families are crying out for.

My message to Ministers today is that the new rates for SDLT should become permanent, for regional fairness, for job flexibility—that will be really important—and to encourage property transactions. We all know that property transactions create positive taxable work into the future, through either VAT or profits that are taxed through self-employment or a corporate regime.

My concern is that we are now creating a cliff edge. I think that, in the first weeks of April next year, we will all face stories of people who just could not quite get the job done before the cliff edge of 31 March, perhaps because a house that was meant to be built had problems or the builder was delayed; myriad issues could emerge. I feel very sorry for those who, for reasons not of their own making, will find themselves on the wrong side of that cliff edge date that we are creating. So I sincerely welcome these changes, but please let us make them permanent.

VAT (Listed Properties)

Lord Mackinlay of Richborough Excerpts

Wednesday 4th March 2020 Westminster Hall

[Craig Mackinlay (South Thanet) (Con)]

I beg to move,

That this House has considered VAT on listed properties.

It is a pleasure, as ever, to serve under your chairmanship, Sir Christopher. I apologise again to the Minister, whom I seem to drag to Westminster Hall on a fairly regular basis on tax issues. This debate is about VAT on listed properties, which come in all shapes and sizes. They can be modest country cottages, terraced houses, farmhouses and former industrial buildings being brought into some other type of use. They are spread across the entire UK.

[John Howell (Henley) (Con)]

To that list, I add churches, which are also listed buildings. Does my hon. Friend think that the grant scheme is adequate and properly replaces VAT in the way that it is carried out?

[Craig Mackinlay]

The listed places of worship grant scheme has been in place since 2001. It has been taken up by 89% of churches; one third take up the scheme every year; and most churches, over the cycle, have used it six times. It is working quite well, but obviously it is not as clean as a pure exemption. I will come on to analyse that further.

Listed properties are owned by the normal cross-section of the population. The beautiful town of Sandwich in my constituency is home to more listed properties than any other town in the country. It is one of the best-preserved medieval towns in England. I want to do everything I can to help to preserve it and the other great medieval towns across our country.

[Philip Dunne (Ludlow) (Con)]

I congratulate my hon. Friend on securing this important debate for those of us who represent areas like Sandwich that have a high preponderance of listed buildings. There are more than 3,000 in my constituency. They are often in rural areas where properties are remote, isolated and, in many cases, hard to heat. I hope that he will talk about the opportunity to reduce VAT to, say, 5% on renewable energy initiatives in listed properties, which the Minister might want to take into account in the forthcoming Budget or the comprehensive spending review later this year.

[Craig Mackinlay]

My right hon. Friend makes an important point for people who have older properties, which are expensive to heat. We have ambitions to be carbon neutral by 2050, so the current regime of charging full VAT on trying to do the right thing for the Government’s other ambitions seems somewhat perverse.

[Philip Dunne]

My hon. Friend will remember that it was introduced by the EU. We had to reduce the previous concession as a result of an EU directive. Now we are free from EU directives, we may be able to be more liberal in our interpretation of VAT laws.

[Craig Mackinlay]

We are branching into another area, but my right hon. Friend is correct. Just a few months ago, we were forced to raise the rating on small renewable units from 5% to 20% because we lost a European Court of Justice judgment. That is quite perverse in the current environment.

[Hywel Williams (Arfon) (PC)]

Does the hon. Gentleman agree that there was a missed opportunity in 2008, when the ECOFIN conference in Helsinki agreed that VAT could be reduced to 5% on labour-intensive industries, which include building repair and renovation? Despite the best efforts of hon. Members, successive Governments have refused to take advantage of that opportunity, which would have been of great benefit to areas such as his constituency and mine, where there is a high concentration of listed buildings, very low incomes and a reduced ability for people to renovate their houses.

[Craig Mackinlay]

I was not aware of that ECOFIN conference. Any country under the EU VAT regime has always had the ability to reduce VAT to 5% on items, but the problem is that it is a ratchet, so once VAT has been implemented on something, it can never return to zero. That has been a feature and problem of our VAT membership. We have had various discussions about that in the main Chamber on the so-called tampon tax.

[Hywel Williams]

That particular dispensation was for labour-intensive industries and, at that time, certain countries reduced their VAT. For example, France reduced VAT on restaurant meals; Italy reduced VAT on building renovation and repair; and Belgium reduced VAT on bicycle maintenance and repair. The reduction in Italy was an alleged example—a rare or perhaps unique example—of the Laffer curve in operation in that, when VAT was reduced, receipts to the state increased massively as people moved out of the dark economy.

[Craig Mackinlay]

The hon. Member shows his great wealth and breadth of experience of international VAT matters, and I stand educated.

I want to do everything that I can to help preserve our great medieval towns. Listed properties are not grand ancestral piles; a huge majority are very modest properties that are owned and loved by normal people. Private listed property owners are protecting the vast majority of Britain’s built heritage out of their own pocket, but the costs for doing repairs and renovations have risen sharply in recent years.

[Sir Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend agree that one of the great challenges with climate change and pollution is tackling some of the problems with the heating and insulation of such properties? If they are listed, there are features that have to be protected in the process, so it is an expensive business. It is very much in the national interest that these changes should be made, and it is only right that the Treasury should consider whether previous concessions could be reintroduced.

[Craig Mackinlay]

My right hon. Friend makes a very good point. There have been certain schemes over the years for wood pellet-type boilers, and grants have been available, but he highlights the unique features of older properties. It is often not feasible or possible to put in a cheap, efficient gas boiler, which other property owners might be able to do.

I turn to the obvious desire to insulate homes and make them more energy efficient. It is a very reasonable desire, because a lot of listed properties are draughty and old and do not have modern insulation. They are expensive to heat, which adds to the costs of being a listed property owner.

[Sir Oliver Heald]

My hon. Friend will be aware that North East Hertfordshire is one of the constituencies that has a high number of listed properties, many of them modest. Does he agree that the situation in urban areas is different from that in rural areas? If someone lives in a rural area with a significant number of listed buildings, there has to be some sort of level playing field to try to help them make the relevant changes.

[Craig Mackinlay]

My right hon. Friend makes a perfect point about country living, as opposed to living in towns, because cheaper piped gas is often not available. People might have Calor-style units in their garden, or they might rely on solid fuels such as coal. We had discussions, dare I say, with the Government last week and advanced various measures that I cannot say I fully agree with at this time.

In 2012, we got to the point where the zero VAT rating for authorised alterations to listed properties was removed. The owners of 500,000 listed buildings across the country, 98% of which are privately owned, then suffered a potential increase of 20% in anything that they do to keep their properties in a good state of repair. As listed property owners often say, an individual never really owns a listed property, but is merely borrowing it.

Before the 2012 Budget, the zero VAT rating was available as long as people had applied for the proper listed property consent with the local authority. As hon. Members know, such consent is often costly to obtain and requires input from specialists, including architects and building control, the navigation of the local planning system and a variety of interpretations by conservation officers. All of that is on a scale that is wholly different from that of people who do not live in listed properties, and such requirements all add costs—even before having the bespoke works required.

The all-party parliamentary group on listed properties, of which I have been the chairman, is currently being re-established. It has evidence that the addition of VAT reduced the number of recorded works being carried out to protect and maintain listed properties by some 30% in the first four years, between 2012 and 2016. There was a notable and recorded drop in applications for proper conservation works. One can only guess what was happening. Were people simply not bothering to go through the process? Owing to the extra cost, were they simply deciding to make do with where they were? There was a full 75% drop in applications over just three years, subsequent to the change in the VAT rules.

These works will be of ongoing economic benefit, often creating a new home where one did not exist before or converting an older property into a business premises. They are positive goods that would perhaps take pressure away from new builds on green spaces. I have spoken to many listed property owners who face financial hardship. Many have been forced to sell their home as a result of costs increasing by 20%. It has to be said that a tax on listed buildings is not a tax on the wealthy, but a tax on attempts to protect our cultural heritage.

I secured the debate to join thousands of listed property owners in calling on the Government to introduce a form of VAT relief. Preferably, let us go back to where we were: a reduction from the 20% rate back to zero, which would be a great place to be. That will be possible in the post-Brexit world, but we are currently in our implementation period, so 5% could be achieved at the Budget next week.

Maintaining listed buildings has a lot more in common with other kinds of building work that has a lower rate of VAT. Some energy-efficient measures qualify for the 5% rate—obviously a restriction was introduced recently, which seemed rather perverse. Converting houses into flats, and renovating empty properties that have lain empty for two years qualify for a lower VAT rate of 5%. The Government and Treasury quite rightly want to encourage bringing such properties into use, and that nudge effect is advanced through the lower VAT rate.

Of course, the biggest anomaly of all—a correct anomaly, in my view—is that we have had a zero VAT rating on new builds since we became a member of the EU. There is a long history to this type of debate, going back to the 1940s. We had the Town and Country Planning Acts 1944 and 1947, which implemented the listing system that we know today. Even back then, the Government knew that they were imposing upon listed property owners a new range of probably unwelcome regulations, and that they had to give something in return. The something in return was a zero VAT rating or, before 1972, sales tax exemptions for this type of work. It is essential that we have a lower rate of VAT on listed properties, because we want to give people the opportunity to make the necessary improvements to this country’s built heritage.

In the 2012 debate—that year’s Budget did not go down too well, because there were quite a few VAT measures in it—the then Prime Minister, David Cameron, said that the reason for the change was to prevent an exemption for a

“big swimming pool in a listed Tudor house”.—[Official Report, 18 April 2012; Vol. 543, c. 319.]

That was a fairly thin argument, because I do not think it was taken up by too many of the 500,000 listed property owners. If such behaviour was going on, we could have exempted that from the zero VAT rating in isolation.

[Hywel Williams]

Perhaps I can reinforce the hon. Member’s point by declaring an interest. When I bought my listed house some 20 years ago—very cheaply, I should say—it came with a name from my children. They called it the pizza house, because it came with added mushrooms growing out of the walls. It certainly did not have a swimming pool, but I, like everyone else, had to pay 20% VAT on the renovation. I think that strengthens the point that he is making.

[Craig Mackinlay]

The hon. Member makes that point well. Such properties need significant renovations that are not the norm when buying newer-type properties. We need to make listed buildings properties that people want to own, to spend money on, and to do the right thing by maintaining them. Maintenance costs for those properties can simply huge, so offsetting some of that cost would make a meaningful impact.

What is VAT there for? It was always designed to be a tax on consumption. Painstakingly maintaining a national heritage asset should not be considered consumption, but action in the national interest. Not only is the economic cost of the work often more expensive than other work, the VAT is an additional tax for doing the right thing. Removing the VAT does not give money back to the owners; it simply means that the Exchequer does not gain a little bit from the maintenance of the fabric of the nation.

Across the country, the built environment of our great towns and cities drives tourism and the continuation of many historic building skills. Government policy in the national policy planning framework, as well as guidance from Historic England, state that heritage protection must enable buildings to stay in active use and alterations can support that. If owners make changes to their properties without any impact on historic features that is considered a positive outcome, as it enables the continued use of such properties. The old way of removing VAT by zero-rating the renovation was simple, easy and reasonable. There is no reason not to return to that pretty simple scheme.

Hon. Members have mentioned energy efficiency. The type of energy efficiency required of older buildings is vastly different from more modern buildings. Materials are likely to be different, and the skills required to make such properties more energy efficient are different. We do not want those listed properties to fall out of use, and support would help to keep them in use. As has been accepted within other parts of the VAT code, renovations can be at a lower rate of VAT if properties have been out of use for two years, so reductions are not unusual.

Works on listed buildings are often carried out by tradesmen who specialise in conservation work. They are often small local businesses, rather than big corporates, so a reduction in VAT would increase correspondingly the amount of activity and would be a boost to a small and declining sector. Cutting VAT would encourage investment in skills in those types of artisanal works, and could encourage more young people into a sector that struggles to recruit. The increased taxable profits in those businesses would benefit the Treasury in corporation tax and income tax receipts. Cutting VAT would prime the pump in that whole area.

It is estimated that, through tourism, heritage across the country contributes £31 billion of value added to the economy. Those homes make our towns desirable places to visit, whether they are in Sandwich or in the constituency of Bath, which is represented in the Chamber. Who benefits from that tourism? Local businesses. There is not much in it for the public, who are busy maintaining their own properties rather than attracting tourists.

An interesting example is the Isle of Man, which has been through a similar process, following an argument similar argument to one that I am advancing. The Isle of Man has reduced VAT on such repair work to 5%, but only for the labour element. Some 96% of the Isle’s construction firms have reported increased workloads; 43% have reported taking on more staff; and 40% reported that their clients were having work done that they would otherwise have put off or not had done at all. There was a significant move away both from the owners having a go and carrying out work with which they are not fully conversant, and from rogue traders and cash-in-hand deals, which are not too far away from most street corners. The Isle of Man scheme was meant to be an experiment but, owing to its success, it is now permanent.

The Listed Property Owners Club keeps vast records on activity in the listed property market. There has been a drop in listed property applications to local councils and in works being undertaken. Figures from Historic England show that cost was one of the biggest reasons for works not being carried out. The numbers are significant: in 2017, 30% of people said it was just too costly and that they were not going to do the work at all. Another reason is that specialist local skills are dying out. In 2017, 17% of people could not get works done because they simply could not find a qualified trader. Historic Houses suggests that £1.3 billion of outstanding work to listed properties is being put off or not carried out at all. That is money that people would want to spend if they could afford it and if VAT were reduced.

I have not been quiet on this topic. I corresponded with the Minister just a few weeks ago, and I can anticipate some of the arguments that he may make in response. He might say that the rationale for the removal of the zero rating was to restore or to address a VAT anomaly, but we already have anomalies, with zero-rated new builds and the two-year lower VAT rate for bringing a property back into use. He might say that it was unfair that some people got a relief, while others did not. We are not talking about normal properties, however. We are talking about unique skills, because very expensive bespoke repairs are often required.

Getting new PVC windows done is VAT-able, but there are a vast number of companies that can do that and it is a cut-throat industry. The approach to a listed building is different, because it will often need bespoke wooden frames made at three or four times the price. That is an anomaly, and I am asking for an exemption from VAT on those bespoke works. Even without the VAT, those bespoke works would still be far more expensive than most standard products that are taxed at the 20% rate.

The old VAT relief used to nudge people towards the painful experience of applying for listed property consent, because saving 20% on a repair bill was seen as a good thing. That made sure that conservation works were up to the proper local standard, because there was an incentive. A worry is that people are undertaking inappropriate repairs to their properties to save money and, because enforcement by the local authority is highly unlikely, they are willing to take that risk. That is not a good place to be; I want to encourage people to do the right thing with their properties.

Another scheme that has been running for a very long time is the listed places of worship scheme, which was mentioned by my hon. Friend the Member for Henley (John Howell). Through Government grants, the scheme pays for the VAT that listed places of worship suffer—that could be implemented in lieu of a full zero rating. The scheme seems to work, and 89% of such places have used it. Over the period, many churches have used it five or six times, and a third of all churches use it annually. The Treasury might say, “It’s complicated and cumbersome”, but 13,000 applications have been managed effectively. It seems to work—if that is a method HMRC will consider—but the simpler method would be to go back to what we had before, which was zero rating if the proper listed property consent had been granted by the local authority.

To summarise, we can achieve what I would like to achieve by two means: either we go back to where we were before the 2012 Budget; or we go to a scheme akin to the listed places of worship grant scheme—so by means of a grant, which might make it targeted and would certainly prevent the swimming pool in the Tudor mansion. Now we are not so bound by rules on VAT, we have an opportunity. We can create our own framework that is right for our country, and I would like the Treasury to be part of people doing the right thing—improving, maintaining and repairing their properties. I have heard no great reason why the perceived anomaly was an anomaly at all, given that many charitable institutions receive VAT relief and other building works have a variety of VAT reliefs. We could push training, skills and profits into declining trades, and unleash a lot of pent-up expenditure into a market that is part of the good fabric of the country. Next week, I will be delighted to hear about some movement of support.

--- Later in debate ---

[Craig Mackinlay]

I thank all Members who took part in the debate. I want to clarify one area: the Minister said that a lower rate of VAT applies to certain energy-saving measures, but, according to my understanding of the types of properties under discussion, that is available only to those in receipt of a broad range of benefits. I understand that the lower rate is not available to those not in receipt of benefit.

[Anneliese Dodds]

My understanding is that there is still a reduction but it relates to the labour-materials ratio in the cost of the overall installation. There is a question about how many schemes fit within that, and the answer is possibly not very many.

[Craig Mackinlay]

I thank the hon. Member, who has clarified that it is a complicated area. I thank the Minister for his comments. Dare I say it, but I think I will be disappointed next week.

Question put and agreed to.

Resolved,

That this House has considered VAT on listed properties.

Motorhomes and Vehicle Excise Duty

Lord Mackinlay of Richborough Excerpts

Tuesday 21st January 2020 Westminster Hall

[Ruth Jones]

I thank the hon. Gentleman for making that succinct and clear point. He does it so much better than I could. Why are we penalising those who will not see their incomes grow or those who have stable incomes and have planned accordingly for their futures? They are entitled to holidays, and the Government should not make it difficult for them. I note that my hon. Friends the Members for Kingston upon Hull West and Hessle (Emma Hardy) and for Kingston upon Hull East (Karl Turner) take that point seriously and have made it over recent months. We now have a Government with a solid majority who are looking to their first post-election Budget. I am sure the Chancellor is busy across the road as we approach 11 March, but I remind the Government that they have no more excuses for inaction. They have a clear majority in this House, so they can act if they want to.

[Craig Mackinlay (South Thanet) (Con)]

I thank the hon. Lady for securing this powerful and important debate. She has made the point that it is often elderly, retired people who enjoy such vehicles, but quite a big lump of younger families also enjoy motorhomes. The clear point is surely that these are not vehicles for personal transport, but leisure vehicles. Has she ever seen such a vehicle in a supermarket car park? I never have.

[Ruth Jones]

The hon. Gentleman makes a powerful point. As I said earlier, these vehicles are not designed to be used as cars because they are not used to transport goods and people as cars are. He is quite correct in that.

I urge the Minister to listen to the industry, to Members from all parts of the House and to the thousands who enjoy using their motorhomes, and to get this mess sorted out.

--- Later in debate ---

[Mr Clarke]

We are trying to standardise the way in which we deal with VED. There is a particular grievance at the moment that it applies to motorhomes but not to vans, for example, as the hon. Member for Newport West mentioned. In the 2018 Budget, the Government confirmed that vans would move to a CO₂-based emissions system, which will apply from April 2021. At that point we will have at least ended the imbalance between the treatment of one sector and another. Clearly, we need to look very closely at how we move forward, in order to ensure that the operation of VED does not penalise people who use such vehicles relatively infrequently. I understand the distinction between vehicles that are on the road every day or every week and those that may be on the road for only a month or two in any given year.

[Craig Mackinlay]

I thank the Minister for being generous. The heart of the nonsense is that the Euro 6 engines, which many of these vehicles will now have, are low on particulates. Let us put CO₂ aside; particulates are what are important with diesel engines. We are actually encouraging the continued use on the road of older vehicles to the detriment of new ones that are, in the round, better for the environment. We are creating the opposite of what we are trying to achieve.

[Mr Clarke]

I thank my hon. Friend for that remark. Reducing particulates is a major aspect of Government policy in terms of air quality as well. It is not solely a question of CO₂. As I remarked in relation to a question from the hon. Member for Kingston upon Hull West and Hessle (Emma Hardy), we are trying to address the matter in a way that does not lead to retrospective taxation of people who have already invested in a vehicle. However, I recognise the point that, were we to create a situation in which it was unviable to buy new vehicles, we would effectively lock them in in perpetuity.

I close by emphasising that we really are listening to the remarks of hon. Friends and Members across the House. We understand the centrality of the sector to jobs and the tourism industry, and the pleasure that people derive from going away in caravans and motorhomes. The Government reformed VED because we believe that tax rates should reflect environmental impact. Although ultra-low or zero-emissions motorhomes may not yet be available, the Government are seeking to incentivise new motorhome purchasers to make the most rational low-emission choices that they can. However, like all taxes, VED remains under review. Any tax changes are considered and announced by the Chancellor as part of the Budget process. As all Members know, the Budget will be on 11 March. Thank you very much, Sir David, and thank you to everyone who contributed.

Question put and agreed to.

Cross-border Trade and Accounting

Lord Mackinlay of Richborough Excerpts

Wednesday 30th October 2019 Commons Chamber

[Craig Mackinlay (South Thanet) (Con)]

I congratulate my hon. Friend the Member for Ochil and South Perthshire (Luke Graham) on securing the debate. We came to a bit of a joint decision that it should happen around the time of the withdrawal agreement, because much of the debate on that has been about how borders will operate post Brexit. The hon. Member for Strangford (Jim Shannon) obviously has concerns, as do I, about the differences between trade happening between GB and NI, between NI and GB, and across the Republic border. I think we all want those things to be as seamless as possible.

As my hon. Friend the Member for Ochil and South Perthshire said, we are not in the old world of wet stamps and guys with kepi caps on borders checking paperwork; we are very much in a new world where digital information is in place to make things work. I have had concerns—I refer to my entry in the Register of Members’ Financial Interests—about the push towards making tax digital, particularly for smaller traders, for which I can see very little use for it. However, bigger companies have naturally migrated away from the old systems of Kalamazoo and paper-based things of years of old—you have to be a very old accountant to remember those—to entirely digital systems. VAT returns now have to be sent completely digitally, with details of all the transactions underlying them.

Therein lies the solution to many of the problems raised. My hon. Friend the Member for Ochil and South Perthshire mentioned the VIES system, which is already live in Northern Ireland. There is also the CHIEF—customs handling of import and export freight—system and economic operators registration. We are in a new world, but for people to say that intra-EU trade is somehow seamless and completely frictionless is simply not true.

[Stephen Kerr (Stirling) (Con)]

What does my hon. Friend say to people like me who are gravely concerned about the degree of complexity in these accounting systems, which makes any kind of audit trail really difficult? The big four audit companies have such a poor record in auditing these accounting systems. What does he say to people like me who are sceptical about how to drive transparency, which was mentioned by my hon. Friend the Member for Ochil and South Perthshire?

[Craig Mackinlay]

I would go against that. I think my hon. Friend will find that the digital trail is more likely to be there than the old paper trail. It is rather like my hon. Friend’s tweet from 10 years ago: it is still there, and it will be with him for a lifetime. This gives us an opportunity to have greater audit accountability. I take his point about the big four auditors, but we are talking about volumes of transactions that are mind-blowing, and to ask an auditor—I declare an interest: I am an auditor, and I still hold registration—to be responsible for every jot of every transaction lacks an understanding of what the audit process is all about.

I will return to the point I was making, because I know that the Minister will want to speak for some time. I was talking about the fact that things are not completely frictionless today. If I sell, as a VAT-registered entity in the UK, to another VAT-registered entity, it is not frictionless. That transaction has to be recorded on both sides, and it will find its way through Making Tax Digital on to a VAT return, so the trail is there. If I sell to an EU company, a level of complication comes into play, because I have to obtain an EU registration number, and I can then zero-rate that transaction. On the other side, they have to do a reverse charge to recreate that VAT for themselves and claim it back. It is a burdensome system, whichever way we look at it. Whether or not a business is partially exempt, at the end of the day, the transaction looks the same, but it is not frictionless; it is far from it.

A big trader with transactions of more than £250,000 going out to the EU and more than £1.5 million coming in enters the ambit of the Intrastat system, which is quite burdensome. A business has to classify each and every commodity that it is selling abroad, according to an Intrastat classification nomenclature. If one were to look on the UK Trade Info website, they would find that there are literally thousands of lines of code. One really must ask whether this is bureaucracy gone mad. I was looking at the website as I was listening to the very worthwhile speech by my hon. Friend the Member for Ochil and South Perthshire. There is a different code for frozen lamb carcases and half carcases from frozen meat of lamb. One wonders why we have such a complex system.

This is all done electronically, and it comes down to trust. When we buy something in a shop, there is not a man from HMRC at the counter making sure that the transaction finds its way on to a VAT return, just as not every single transaction across EU borders is checked. But those records and proof of a good being transferred have to be maintained for six years. Again, this is not a frictionless system.

The issue of trust is very relevant to the Republic-Northern Ireland border. There are massive excise duties across that border. There are different currencies and a different VAT rate. Corporation tax is different, and income tax is different. There are a vast number of different things going on. I always give the example of the Jameson lorry that trundles from the Republic across the border into the north and perhaps then over to GB, and the Bushmills lorry going from Northern Ireland across the border to the south. There is no physical border infrastructure, yet there are hundreds of thousands of pounds of potential differences in the excisable duties. These lorries are never stopped, however, because there is trust, and that is the route to solving this problem.

Many people will say they have concerns about VAT losses across the border. There are such concerns, but again, this is based on trust. I consider that the amount of excise losses even today, during our membership of the European Union, must be of very great interest to the Financial Secretary to the Treasury. Let us just consider the cigarette trade, in which cigarettes come across the border from Poland at £2.50 a packet versus a UK cigarette price of about £10 or more, yet we accept those losses because individuals are allowed to bring in as many of these products as they please. That obviously feeds into a black market, and I can assure the Financial Secretary that those are just the cigarette trade excise losses. We have chosen as a country—for good or evil, but that is a debate for another day—that such evil products should have a very high rate of excise in the UK for health reasons, and we find that a good percentage of cigarettes for sale in the UK come in from other EU countries.

I am very pleased that my hon. Friend the Member for Ochil and South Perthshire mentioned that the US has a federal system. The US is often held up as the land of the free, as it is called, but I do not think that holds very true of Uncle Sam. The level of bureaucracy in running a business in the US is infinitely higher than in running one in the UK. I was quite intrigued to learn that if an individual in California decides to buy goods on eBay or whatever site they please from a low-tax state such as Dakota, they have to do a personal return for a transaction above a certain size monthly or quarterly, and actually return the equivalent of the sales tax—VAT, in other words—that the Californian authorities have lost because they have taken their trade outside California. These things are solvable.

I really wish the hon. Member for Strangford (Jim Shannon) was still in his place, because I understand the Northern Ireland concerns. As with anything in the profession of accounting or of running a business, when there is change, everybody puts their hands up in the air and says, “We’ll never get to grips with this. I’m retiring. I’m giving up. It’s all too complicated.” That applies to the real-time information for PAYE that we imposed some years ago—there were the same concerns—or auto-enrolment for pensions, but we get on with it.

[Luke Graham]

My hon. Friend is making a very strong point about taxation returns and the problems in Northern Ireland. Does he agree with me that some of the simplest solutions can be the best? Some of the best tax regimes are in places such as Hong Kong where there are flat taxes, which are simple and elegant. He talked about some of the complications in the US, which has a tax code that runs to some 75,000 pages, so it is said, whereas the UK’s had about 17,000 pages in 2015.

[Craig Mackinlay]

That is a topic for a wider debate, which I have often considered. The UK tax code does not have 17,000 pages; it has been rather well expanded to 22,000 pages. When we compare that with the tax code of Hong Kong, which runs to 350 pages, we can see the difference. When I was a councillor on Medway Council, we had a document on the localisation of council tax that ran to 370 pages. I wondered how on earth the entire tax code of a very successful and vibrant economy such as Hong Kong could run to 350 pages, yet Medway Council, which I served on, managed to get a 370 page document just to consider the localisation of council tax.

I know the Minister will want me to conclude, Madam Deputy Speaker, and I do not want to take up any more of his time, but the fact is that these things can be solved through the trust that exists today and the digital returns that exist today, including internationally. The concerns that our friends in the Democratic Unionist party have about a future trading bureaucracy are real, but once this is in operation, they will fade away, and people will get used to the new system within a very short time. I thank my hon. Friend the Member for Ochil and South Perthshire for bringing forward this debate, and I look forward to hearing from the Minister.

The Economy

Lord Mackinlay of Richborough Excerpts

Thursday 24th October 2019 Commons Chamber

[Sir Michael Fallon]

I certainly understand that, and my hon. Friend takes me to the point with which I wish to conclude, which is what more we can do to encourage share ownership. Some of the employee share schemes we have—I have written to the Chancellor on this—are still very complicated. The qualifying periods are still very long and do not reflect the mobility of the modern workforce. I am afraid some of the lower-paid staff simply cannot afford to participate in them. I hope that when it comes to his Budget, the Chancellor will keep looking at how we can do more to promote employee share ownership in particular, by reducing the qualifying periods and giving people a real incentive to save.

[Craig Mackinlay (South Thanet) (Con)]

Will my right hon. Friend give way?

[Sir Michael Fallon]

I am sorry but I will not; I am just finishing.

One of my heroes of the year—there may be many other candidates—is an entrepreneur called Julian Richer, who is now coming up to retirement and is handing over 40% of his company, Richer Sounds, to the employees, ensuring that they have a stake in the future. We need more incentives like that to promote loyalty and give people a real stake in their future. I thoroughly support the Queen’s Speech.

--- Later in debate ---

[Craig Mackinlay (South Thanet) (Con)]

I refer Members to my entry in the Register of Members’ Financial Interests.

Let us contrast where we are today with the background we inherited in 2010. We have unemployment down by 1.3 million—a 50% reduction from 2010. We have halved the number of young people who are out of work. We have made progressive increases to the national living wage. We have had a tax cut for 32 million through much bigger than inflation increases to the personal allowance, meaning that a basic rate taxpayer—the lower-paid—are paying £1,205 less in tax. Add that to increases in the national living wage, and the take-home pay—what lands in people’s bank accounts—is £4,000 more for the lower-paid, and that really matters.

We have reinforced our position as a world leader in financial services. That industry provides £127 billion of value added to our economy, paying £29 billion in tax and with a trade surplus of £61 billion. We have seen corporation tax reduced from artificially high levels of 28% to 19% today, and that will come down to 17%. That is a key driver in making sure that Britain remains a place to do international business and in keeping businesses that might consider going abroad in this country earning money for us. We have an infrastructure plan of the kind that we have never seen before to increase services on our roads and rail, and, of course, superfast broadband, on which we have been lagging behind for some time.

In the limited time left to me, I want to concentrate on our tax system. We need a debate about liberating our tax system to make sure that risk versus reward is properly in place and we do not penalise those who are willing to take risks and employ people to earn the money in the future. We have done very good work with the personal allowance, increasing it from the 2010 rate of £6,475 to £12,500 today. If we had had an inflation rate of 27%—on the figures during that period—we would have had a personal allowance of only £8,230, so we have got rid of the fiscal drag in that system. I am asking the Chancellor of the Exchequer, as he progresses towards his Budget, to consider the other aspects of fiscal drag that we have seen over the years.

For instance, on inheritance tax, the £325,000 limit has remained unchanged since 2009, whereas the house price index shows that house prices have increased quite substantially. We have had the main residence nil-rate band, but it has its complications, so this is a plea that we address fiscal drag across the system. We should treat tax not as though it is one move at a time; we need to play it strategically. We have done lots to improve the stamp duty system by getting rid of the rather hated slab system some years ago, but we are now seeing the additional 3% second property surcharge and, with the rates that exist at higher levels, a reduction in the tax take. We saw an increase in the tax take when we reduced the higher rate of income tax from 50p to 45p, and I propose that we can do the same with stamp duty.

I have advanced many of my proposals on capital gains tax to the Treasury, because I perceive there to be hundreds of thousands of properties stuck in second ownership owing to the application of penal CGT rates to those who own second properties but do not rent them out. We have a great opportunity to put our tax system back on the right footing—and please, please, let us not return to those old times when we penalised such people; let us support them.

No-deal Brexit: Short Positions against the Pound

Lord Mackinlay of Richborough Excerpts

Monday 30th September 2019 Commons Chamber

[Mr Clarke]

I am an historian rather than an economist, but I certainly do not take my lessons on hedge fund activity from Hollywood. We need to be very clear about the fact that there is a real need to provide certainty, and that certainty is hugely important.

Let me say gently—and it is gently—that I did not vote for the deal on the first two occasions when it came forward, for the very reasons that my right hon. Friend the Prime Minister did not do so, namely the concerns about the backstop provisions. Those provisions need to be addressed, and we are working to address them. Fundamentally, we did vote to leave, on a deal or no-deal basis. The hon. Lady’s constituents voted to leave the European Union. [Interruption.] The hon. Member for Stalybridge and Hyde (Jonathan Reynolds) says, from a sedentary position, “Not on a no-deal basis.” I find that my constituents are very clear about the fact that they voted to leave, deal or no deal, and that was very clear at the time.

[Craig Mackinlay (South Thanet) (Con)]

I congratulate my hon. Friend on his new position. He is truly doing sterling work this afternoon. It will come as no surprise to him to learn that I am fully in favour of well-run and smooth capital markets, from which London is reaping an international reward. Would he care to speculate on what sort of short-selling and sterling damage would be done under the Labour party—given their unfunded tax proposals and their potential sequestration of public assets—and what the market would think of them if they were anywhere close to power, which I pray that they will not be?

[Mr Clarke]

My hon. Friend is absolutely right. I am afraid we cannot get around the fact that we are now dealing with something very dangerous in terms of the division between the two parties: the division between economic rationality and a programme that would well-nigh destroy the free-market economy in this country. [Interruption.] Labour Members scoff and sneer, but the reality is that anyone looking at the prognosis from the Labour party conference last week—let alone the trillions of pounds of commitments that Labour is now adding up—will see that it would not only destroy our public finances, but would do massive damage to the competitiveness of British business, on which jobs and homes and mortgages depend.

High-income Child Benefit Charge

Lord Mackinlay of Richborough Excerpts

Tuesday 3rd September 2019 Westminster Hall

[Craig Mackinlay (South Thanet) (Con)]

I beg to move,

That this House has considered the high-income child benefit charge.

It is always a great pleasure to serve under your chairmanship, Mr Hollobone.

One might ask why I have brought this debate; it is a fairly obscure area of tax and benefits. I have done so out of the frustration felt by a number of constituents who face the high-income child benefit tax charge and its after-effects and, as a chartered accountant and chartered tax adviser, anything tax-related always rattles my bell. This is a topic of great interest on mumsnet.com and moneysavingexpert.com, which have covered the issue in some depth.

I suppose we must start at the beginning—always a good place to start. Why did we implement this high-income child benefit tax charge, when child benefit had been a universal benefit, enjoyed by all, for very many years? The issue was first raised in October 2010 by the then Chancellor, George Osborne, and it was one of the measures used to try to get some more savings for the Treasury after the simply appalling state of the nation’s affairs that we were left with after the 2010 election.

The legislation was first mooted in the 2012 Budget, and it came into effect on 7 January 2013. That in itself was a bizarre date to choose, and one might ask why it was not simply started on 6 April in the next available tax year, which might have made life a little simpler. I have not found figures for how much the clawback and the lack of take-up of child benefit have saved the Treasury, but I estimate it to be somewhere in the region of £2 billion to £3 billion a year—certainly a very useful amount to fill up the hole left by Labour in 2010.

The charge applies above an adjusted net income of £50,000. Adjusted net income is not the usual measure of what we anticipate to be our taxable profit or income; it is the gross income from all sources, less gift aid and pension contributions. It does not include personal allowance. In very simple terms, if a pay-as-you-earn employee has a gross income of £50,000 before personal allowance, they would start to feel the effects of the high-income child benefit tax charge.

The way it works is that there is a clawback of 1% of child benefit for each £100 of additional income over the £50,000, so by the time someone has an adjusted net income of £60,000, all that child benefit is tapered away. It sounds complicated even trying to lay it out in the simple terms that I have, but one thing that comes out of this is that it is a salutary lesson in how not to withdraw a universal benefit through the tax system. What we have on the statute book, which runs to many tens of pages of tax law, is the truly mad basis of trying to claw back a benefit. It is not related to overall family income, which many people describe as one of the real drawbacks of the system.

Let me give an example. Family income is recognised as the measure for most other Department for Work and Pensions benefits. For instance, there is no withdrawal of child benefit for a couple both earning £50,000—the high-income child benefit tax charge does not apply, even though the family income is a generous £100,000. In another family, in which only one parent is working and earning, say, £60,000, and the other is not working, there would be a full claw-back of the child benefit given. That makes life complicated for people on pay-as-you-earn, who can do nothing about their income, and there is also the issue of fairness. Family businesses, or people in sole trade, perhaps have a greater opportunity for sharing income, splitting income or indeed creating a partnership to split the income down to the golden £50,000, so that there is no loss of child benefit.

I feel that this situation has led to an inherent unfairness in the system, which is one of my concerns. My other concern is the means of collection, and there lies the problem that we have faced. People who recognise that they will not qualify for child benefit can choose simply to disclaim the benefit and not receive it at all. That has been on the rise over the years since the charge has been in place. In 2013, 397,000 people were not claiming the benefit, and the number has now increased to 516,000. That is due to two issues, one of which is fiscal drag—the level has not been raised since January 2013, which is something I will raise later.

Some people are happy and feel that it is to the family advantage to maintain their cash flow—get the money into their bank with the monthly receipt of child benefit, then simply pay it back at the end of the year. Some people do that. However, the real madness in the system—we should have tax systems that make things easier—is that the implementation of these measures forced 500,000 more people into the requirement to fill in a self-assessment tax return. It is a huge bureaucratic cost to taxpayers, and managing the system must also be a significant cost to Her Majesty’s Revenue and Customs. It is the root of the problem of collection.

Many PAYE employees have had never had to touch the tax system or fill in a self-assessment return. Luckily for them, they have been merrily ignorant of anything to do with tax. It is all done at source by their employers—if they have no further complicated tax affairs, they need do no more. The current situation has been a particular hardship for these taxpayers. They might not have spotted the advertising that was fairly extensive at the time. They perhaps received less than £50,000 at the time, but over the years their income has crept over that figure due to wage rises and better business.

I have raised this issue for a couple of my constituents and pursued it with great vigour. I have argued with HMRC that the information about which PAYE employees would face this charge is well known to Government through the real-time information system of payroll that bigger employers have had to implement since April 2012, and was rolled out gradually over time to all employers, even the smaller ones, running a PAYE system. The information was available—primarily to the DWP, so that it can assess whether people in receipt of benefits should not be, but HMRC had access to the system.

I have failed to agree with HMRC’s stance on this. It claims that the arm of Government dealing with the DWP has got no relevance to their arm, which deals with tax. The data has not been shared, even though the arms of Government had the information at their fingertips and could have advised people that they were potentially falling foul of the system. In my arguments to HMRC on behalf of my constituents, I argued for extra-statutory concession A19, which is often used when HMRC makes a mistake—often with the elderly. I saw this very regularly when I was one of the volunteers for Tax Help for Older People in Kent. HMRC has had the information and applied the wrong code across different pensions. Three years later, an assessment turns up. Extra-statutory concession A19 makes HMRC give up that tax if it has been in receipt of information but has not used it properly.

Of the constituents who have been found not to have done what they should have done—registered to do a self-assessment return, possibly for the first time in their life—they have been, well, not happy, but comfortable enough, even given what ESC A19 says: that they should pay the money back. They are quite happy with that. However, many of these people have faced a tax-geared penalty under section 97 of, and schedule 24 to, the Finance Act 2007. That penalty has generally been at the lowest rate of 15% under the careless but prompted regime, under HMRC’s fines regime. However, they have also faced statutory interest, which is currently at 3.75%. Many people understand that, if they have been in receipt of child benefit for a few years and should not have been, they should pay it back, but they feel particularly aggrieved about a 15% penalty and the statutory interest.

I argued with HMRC, for my constituents, that the suspended penalty regime, under paragraphs 1 and 14 of schedule 24 to the Finance Act 2007, should be the equitable solution. This is a procedure by which HMRC, with discretion, is allowed to put those penalties on hold and effectively say, “If you are good taxpayers for the next couple of years, this will disappear”; the penalty is then discharged. HMRC responded to me with, I must say, an innovative obtuseness that I rarely see. It responded that schedule 41 of the Finance Act 2008 applies, as the taxpayer had failed to notify, in accordance with section 7 of the Taxes Management Act 1970. They had failed to notify, so that penalty suspension, which is allowed for other taxpayers, does not apply. The taxpayer is also in some difficulty should they wish to go to the first-tier tribunal as well, which would always result in failure on a statutory basis.

I think the pressure of mumsnet.com, moneysavingexpert.com and, hopefully, myself has made HMRC use a degree of discretion in its ability to interpret “carelessness”, which is always a vague term. My thought of carelessness might be different from yours, Mr Chairman. However, HMRC has gone back and reassessed many penalty assessments. Over the time of this new charge, there have been 97,405 penalties across 37,406 customers. As ever, thanks to the Library for pulling out that type of detail for me. The charge has raised £15 million of penalties, which is not a vast sum. A recent review—I think the Daily Mail was very much behind this, with pressure from some of its readers—shows that, of those 35,000 cases involving a failure to notify, a penalty of 15% had been charged because a reasonable excuse was not accepted. HMRC has actually recanted on that and allowed quite a number of thousands—6,000, I believe—of these penalties to be waived, with £1.8 million of penalty refunds.

As part of its work, HMRC has designed a helpful flow diagram showing two events for which penalties could be refunded. The first is for when income has increased from below £50,000 to above £50,000 since the start of the high-income child benefit tax regime, and the second is for when a taxpayer has started a new relationship, since the introduction of the charge, with a partner who is in receipt of child benefit. Those are the two cases for which HMRC has given in and agreed to the suspension of penalties, and that is to be very much applauded.

What do people do when they have a new child and make a claim? If they know that their income is over the limit, they may not bother at all—they might think, “We just won’t get involved.” For other families there is the CH2 form, which I will mention in more detail shortly. As I have laid out thus far, we have dragged half a million people into the self-assessment net. We have raised penalties under a system that I do not agree is reasonable on statutory grounds. We are learning a lesson: should we seek to withdraw universal benefits in some other field—that suggestion is not on the Conservative agenda, but it is raised from time to time, for example with winter fuel allowance—this has to be a salutary lesson in how never to use the tax system to withdraw benefits.

I will conclude by addressing five areas, which might take a little time. We have fiscal drag, because the thresholds at which the full benefit is withdrawn—namely £50,000 and £60,000—have applied unchanged for six years. We now find that as wages rise, more people are dragged annually into self-assessment. Since its inception in 2013, 370,000 more families have to fill in a self-assessment return.

I am very surprised that the House did not pick up at the time on the fact that the system completely blows away the independent status of taxation for couples. Even up to 1990, women were deemed to be the chattels of their husbands, and there was a single tax return. In 1990, that was thankfully blown away, having been overdue for a long time. I think the groundwork was laid by Geoffrey Howe and seen through by Lord Lamont. After that date, people were treated as they should be for tax: as individuals.

The system blows that away because one partner now needs to ask the other, “What do you earn, because I need to determine whether it is you or I who pays the high income child benefit tax charge?” The partner in receipt of the child benefit might not be the one paying the charge; it always falls on the higher earner. Whereas before there was decent independence and secrecy between partners should they so wish, that was blown away by the legislation, and I do not feel that could ever be right.

Subsequent tax legislation has also had an unusual and, I think, unforeseen impact, including, particularly, on buy-to-let property. At the start of my speech, I mentioned the concept of adjusted net income, which is income from PAYE, rents, dividends and whatever else one might receive. Changes to buy-to-let allowability of mortgage interest, however, have had an unforeseen impact. Years ago, rental income less expenses and mortgage interest would give a net figure, which would form the top end of the tax return and be part of the creation of the relevant net income. With the gradual restriction of the allowability of mortgage interest—I will not expand on whether that is right, wrong or indifferent—the tax return looks different. Net relevant income for rental purposes does not include the deduction for mortgage interest, which now comes at the bottom part of the tax return. Instantly, the net relevant income at the top part of the tax return is now bigger for many people with mortgage interest, even though the net effect for cash flow and everything else might be the same. There is now some relief for mortgage interest at the bottom part of the tax return, by way of a credit of tax.

I did not see the full shortcomings of that piece of legislation at the time, even though, at that Budget statement some years ago, I raised concerns about changing the whole deductibility regime, which is fundamental to tax. That legislation has caused another group of families, who are doing nothing particularly exotic, to be dragged into the high income child benefit tax charge, as their income has pitched into the £50,000-plus bracket because of the deductibility of mortgage interest, even though nothing has changed.

A real concern shared by all hon. Members in the Chamber is that of the Women Against State Pension Inequality Campaign. They have been active because they have an axe to grind and I think that many of us have sympathy with some of what they have to say. We are potentially building another problem for the future—thankfully, I might be long gone from this place before it has to be solved.

Earlier I described what people might do when they have a new baby. If they have earnings of more than £60,000, they might think, “I just can’t be bothered to fill in the form. I’m not going to get anything; why would I bother?” The CH2 form is not unreasonable or too complex—it is actually quite free flowing and easy to understand—but a lot of people do not bother at all.

The other choice they have, by filling in form CH2, is to take the child benefit and then pay it back annually through their self-assessment return, or to register for a nil award so that they are in receipt of child benefit but at nil value. That is really important for those who do not follow that route. They do not want the hassle of a self-assessment return, so they decide to do nothing. The partner in that relationship, who is perhaps not working, will not be building up a national insurance record, because if someone fills in form CH2 and decides not to take any child benefit, they will at least be crediting up a national insurance contribution under class 3. My concern is that people do not know that this is there for them and are saying, as many of us do, “I can’t be bothered to fill in another form. I don’t think I will get anything. I won’t do it.”

We are potentially building up a problem of people—let us be frank, it is probably predominantly women—who will find in the future that they do not have the national insurance record that they thought they had. When they get their DWP statement with details of the award they will receive with the new state pension some six months before retirement age, they will find it is rather less than they thought.

We have to ask ourselves why we have dragged 1.2 million families into the system—and that figure is rising, due to fiscal drag and the measures for buy-to-let property mortgage interest. It is worth mentioning the perversities in the whole tax calculation. I do not know how Parliament missed that. I was not here in 2013, but had I been I might have spotted it. It is an unusual situation, but when dealing with tax systems, I think it best to flex the edges to find out where the problems are.

This is an extreme case, but it is catered for on the gov.uk website: in 2019-20 a family with 10 children—there are not too many of those around—would be in receipt of £7,500 of child benefit. Anyone earning £50,000, including a self-employed person, would be in receipt of £7,500 in child benefit, but if they had the opportunity of a great new contract to get their income up to £60,000, under this system they would have to pay back that entire £7,500. In my view, tax lost—tax paid—and benefit lost are the same thing. What lands in someone’s bank account is the same thing, whether that is through losing benefit or paying more tax. In effect, therefore, for that extreme example of a family, there would be a 75% clawback charge, because they would pay back the £7,500 child benefit owing to that £10,000 in additional income.

That is not where the matter ends, of course. People who earn £50,000 are higher-rate taxpayers, paying 40% tax and, if employed, 2% national insurance. We therefore have the perversity, which I am sure is not always seen, of a 117% tax charge and benefit loss. For that extra £10,000, that taxpayer will actually be worse off by £11,700. There should not be such perversities in the tax system.

I like a debate to end with a solution, but there is no easy solution to this one—I grant the Financial Secretary that great problem. I would like to extend the penalty suspension to all, because I think HMRC has been rather obtuse about this one. If people start to do the right thing, past penalties should be suspended and, if they do the right thing for the following two years, those penalties should disappear.

The easier option would be to restore the universality of child benefit. Nothing is simpler than that—everyone gets it without means testing or complication—but the Government and the Treasury understandably want to claw back that benefit from people in receipt of higher income. A complicated solution—or, rather, a politically difficult one—would be to reduce the personal allowance for those with children. They would get their full child benefit but pay a little more in tax. At least that could be coded out—they need not worry about the self-assessment system—and for the PAYE taxpayer with simple affairs, things would be just as they are. However, that would be a difficult way to do it.

It would be simpler, perhaps, to make a higher universal child benefit payment, which this year is £20.70 for the first child and £13.70 for subsequent children, subject to the benefits cap. Any increased child benefit, however, should be made a taxable benefit. Therefore, through coding, the Government could claw back 20% from a basic rate taxpayer, and 40% from a 40% taxpayer. For those with complicated tax affairs, adding the layer of clawing back the high income child benefit tax charge is no great difficulty. Something similar happens already. The retired have a simple coding adjustment for private pensions to reflect the level of their state pension.

We need a new and elegant solution, and to learn the lesson that whenever Governments in future claw back benefit, they should not do it in this way, through the tax system. It has created bureaucracy and angst, and I am worried that normal, law-abiding taxpayers now feel that they have done something very wrong because of those levels of penalties. That is my appeal to the Financial Secretary.

--- Later in debate ---

[Craig Mackinlay]

I am delighted to have the final say. I thank hon. Members who attended the debate. There were contributions from the hon. Member for Strangford (Jim Shannon), as ever, as well as the hon. Members for Glasgow Central (Alison Thewliss) and for Oxford East (Annelise Dodds). We spar regularly on tax matters across whichever Chamber we are in, but I think we are broadly in agreement that the system is complex, that it could have been made easier and that there are problems that need to be solved.

I am pleased to receive a degree of assurance from the Financial Secretary to the Treasury. He accepted that the charge was a measure of its time, when urgent measures were needed to respond to the state of the country’s finances. It has not been part of my argument that such a clawback should not exist. My observation has been that, if we are to have methods of clawback, we need to design systems that are more elegant than this one. I hope he will pass on to HMRC my issues regarding the penalty regime. Perhaps this can be the last of it, with people made aware that, yes, if they do wrong in the future, a penalty regime may apply. However, I would like to see a softer touch, given the modest amounts involved, for those stuck in cases at the moment.

Question put and agreed to.

Resolved,

That this House has considered the high income child benefit charge.

NHS Pensions: Taxation

Lord Mackinlay of Richborough Excerpts

Monday 8th July 2019 Commons Chamber

[Elizabeth Truss]

The answers to the problems within the NHS lie within the Department of Health and Social Care, which is why the Department is launching a consultation. As I said earlier, we need to make sure that the pension tax system is designed around all employees. Of course NHS employees are extremely important, but we need to make sure the system works for all employees. That is a longer-term task, but we are specifically looking at the 50:50 idea in the consultation. No doubt the Health Secretary is talking about other ideas that could be introduced, and I am sure he is very interested in the right hon. Gentleman’s views, too.

[Craig Mackinlay (South Thanet) (Con)]

We have created the most unbelievably complicated tax system. If working additional time makes the pension pot larger, there could be a 55% tax charge when taking those surplus benefits, and restrictions on the annual allowance are resulting in these large tax bills.

It is not surprising that many health professionals are choosing not to do the extra work or are simply retiring earlier. My right hon. Friend the Member for Wokingham (John Redwood) makes a key point, because extra earnings would take many of these people into the slice above £100,000 to £125,000, where a 62% tax charge applies.

This is not just an NHS problem. My concern is that we are putting a brake on those entrepreneurs who want to create enterprise, jobs and the tax payments of the future. A simple step would be to get rid of the lifetime allowance.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Lord Mackinlay of Richborough Excerpts

2nd reading: House of Commons & Ways and Means resolution: House of Commons
Tuesday 30th April 2019 Commons Chamber

[Craig Mackinlay (South Thanet) (Con)]

It is always a pleasure to follow the hon. Member for Aberdeen North (Kirsty Blackman). The two of us often seem to be in the Chamber at a similar time discussing tax issues.

These measures have been a long time in process. Back in the Budget of 2016, there was talk of a consultation on trying to align more closely national insurance with tax treatment. I note that, today, the Exchequer Secretary to the Treasury said that this is a form of simplification of the tax system. I might disabuse him of those thoughts by telling him to look more closely at the new rules regarding post-employment notice pay within payments in lieu of notice as part of termination payments. Far from being simple, it is actually rather complex.

As I said at the very start, these proposals have been making their way through this House in various forms. There were some delays because of the unexpected election in 2017, but they did find their way into a draft Bill in December 2016—the National Insurance Contributions Bill. Some proposed changes came through in the 2017 Budget, which included the scrapping of class 2 national insurance for the self-employed—currently £3 a week—and a corresponding increase in class 4 national insurance contributions for the self-employed. They were highlighted as fairly controversial at the time, but I did not share that view. I was quite supportive of the increase in class 4 national insurance because of the generosity, as I saw it, of the new state pension that came into play. That slight increase in the class 4 national insurance rate was, I felt, a fair quid pro quo for the quite substantial increase in the new state pension, but, for whatever reason, that measure was not taken through. I had some serious concerns about scrapping class 2 national insurance, and I will explain why.

The lowly paid self-employed person may not hit the threshold for class 4 national insurance contributions, which is, I believe, something above £8,500, but is more likely to have paid class 2 national insurance contributions and so would be ticking up a national insurance record into the future. Given that WASPI women have concerns about where they find themselves today, I was worried that this House and future Members of this House—I will probably be long, long gone—would face a raft of new people saying, “Where’s my pension. I have been self-employed all these years.” They would then be told, “Ah, but you didn’t pay any national insurance; you didn’t pay class 2, and you certainly weren’t earning class 4.” I was pleased to see that that idea disappeared and that we are back to what was the old system.

We have had this £30,000 threshold for tax-free redundancy payments—let me put it in easy terms—for quite some time. It could be argued that we have been at that level of £30,000 for too long. I did a bit of research before today and found that the last time that the £30,000 threshold was raised was with effect from 6 April 1988. It must have been considered to be the right rate at the time—it was an increase in rate from £25,000 to £30,000. I did not manage to find out when the £25,000 rate was first implemented, but it must have been deemed at the time to have been the right rate for what was a tax-free settlement, or payment, for years of service within a company. It was obviously deemed to be the right amount for people to adjust to a new work situation, or to act as a bridge towards retirement for people who were getting towards the end of their normal working life, which was perhaps more traditional in those days of the ’80s. I know the hon. Member for Bootle (Peter Dowd) raised some of those points in his speech.

Having consulted the Office for National Statistics for inflation increases since 6 April 1988, I found that £100 then is now worth £266 today. Applying that inflationary increase from 1988—no more, no less—that £30,000 would inflate to £79,800, or in broad terms £80,000. However, I do understand—for the record I am a member of the Chartered Institute of Taxation and a chartered accountant—that there is probably a perception that the £30,000 settlement payment has been a target to hit rather than a proper target for any other reasons. Hence we now have this fairly complicated formula for payments in lieu of notice. Changes came in on 6 April 2018, including this whole concept of post-employment notice pay. It was really to recognise the difference between contractual payments in lieu of notice and non-contractual payments in lieu of notice. I will not bore the House for too long with the formula that applies, but it is a fairly beefy one: it is basic pay multiplied by the number of days from the last day of employment, divided by the number of days in the last pay period, minus the amounts paid on termination—a formula given the letter T. Therefore, far from it being a tax simplification measure, the PILON rules have added quite a layer of complication to a figure of £30,000 that, in due course, should have been given adjustment for inflation in any effect.

We are now left with PILONs—the new PILONs assessment of what they are actually worth—holiday pay, and any restrictive covenants being included within that £30,000 limit that is tax free and national insurance free. Above that, we have the normal rules of tax and— in complex speak—employers’ class 1A national insurance coming into play. What we are likely to see in terms of adjustment, in answer to the hon. Member for Aberdeen North, is an increase in employer contributions to pension schemes as part of a settlement on the way out, which is not any bad thing. There is nothing wrong with that.

We have a very powerful and strong message to tell about auto-enrolment. It must be the right thing for all employees now. We are now running into millions, and there will be a fund approaching tens, if not hundreds, of billions in due course, and that must be to the good, as people accumulate their own pension funds. We will look back at auto-enrolment and see it as one of the most successful and vital measures that any Government could have implemented. It is like any other measure. It sounds expensive—it means a percentage off salaries, which will always be unwelcome particularly in times of low inflation, and it means that people might see their take-home salary go down—but there will be a lot of thanks from many employees in due course that these funds have been accumulated. If, in trying to circumvent, in an entirely legitimate way, paying the class 1A national insurance on these amounts—for normal employees over £30,000—employers provide more funding to a pension scheme, then that is something as a quid pro quo that the Treasury should actually support.

These measures should have come into play in April 2019. They were deferred last year for a further year, which is mentioned on page 42 of the official Red Book. Therefore, far from saying that these things have come out of the blue and have not been considered, they have been consulted upon since 2016. They nearly got somewhere, but were deferred for another year. Therefore, in terms of planning and getting that together, there is plenty of time for employers to make any due adjustment. I have really concentrated on part 1 of the Bill.

Let me turn to the sporting side of things and the £100,000 limit. There have been a lot of discussions on this subject, because we are talking about huge figures, especially when the very well-known sports stars have their testimonials. When there are millions of pounds involved, these people—who are already very wealthy—often decide to give all the money to charity, which is a laudable ambition. I suppose that the one downside of this type of legislation is that it is possible for the employer in such cases to suffer the national insurance on an amount that the recipient has never actually received because he or she has decided to put it through their tax return as a very generous donation to charity.

This subject brings out the debate about certain limits in our tax regime that have not been touched for a very long time. What was the purpose of the £30,000 threshold? There was a reason for it in 1988, but does it still apply in the modern employment market? Perhaps people do not work as long for the same employer now; that feature is probably slightly different today from how it might have been in 1988. What should the figure be? Does it deserve flexing up? We could have a similar debate across other bits of the tax code—perhaps including inheritance tax.

Lots of parts of the tax code have fallen behind inflation. They were originally there for a reason. Some were introduced when the Labour party was in government, but now that we are in government perhaps there is a debate to be had about what these things were for in the first place, as part of the tax simplification process. But if there is any fear or threat that there has been manipulation of the tax and NI system, it is right that these payments should be part of the normal weft and weave of what we are doing with national insurance. I therefore have no difficulty supporting the Bill, and I wish the Exchequer Secretary to the Treasury every success in its progress through the House.

Business Rates

Lord Mackinlay of Richborough Excerpts

Tuesday 2nd April 2019 Commons Chamber

[Sir Geoffrey Clifton-Brown]

I well remember meeting my hon. Friend for the first time in the Eight Bells pub in 1997, when we were both a little younger—[Interruption.] She says, in parentheses from a sedentary position, “better looking”—I was not going to say that in case I came within the bounds of the code, which I think might well touch on the sort of remark that I might make. Nevertheless, I wholly concur with her sedentary remark.

[Craig Mackinlay (South Thanet) (Con)]

I put on record that I have been trying to take action for a number of years to exempt public conveniences from business rates. Especially in respect of the towns in my constituency—Ramsgate, Broadstairs and Cliftonville are tourist areas—I have always said that public loos are often the first thing that people use and the last thing that they remember, and they should be thus exempted.

[Sir Geoffrey Clifton-Brown]

I am sure that the tourists in my constituency will be greatly relieved to hear what my hon. Friend has to say. In my constituency, which is very dependent on tourism, I have been having a big battle with the local council to keep public conveniences open, because it is really important. If someone comes for a day’s outing to the Cotswolds or goes to my hon. Friend’s constituency, they cannot last all day. They need somewhere to go, and I was delighted when the Government gave that sort of relief.