HMRC: Automation of Tax Notices
Jesse Norman Excerpts(4 years, 6 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
The Government are committed to doing what is necessary to protect the Exchequer, maintain fairness in the tax system and give certainty to taxpayers. Therefore, the Government are announcing today that legislation will be brought forward in the next Finance Bill to put the meaning of the law in relation to automation of tax notices beyond doubt. Specifically, that legislation will put beyond doubt that HMRC’s use of large-scale automated processes to give certain statutory notices, and to carry out certain functions is, and always has been, fully authorised by tax administration law. This measure will have effect both prospectively and retrospectively.
The Government introduce legislation with retrospective effect only where necessary. In this case retrospective effect is necessary to close off the Exchequer and operational risks presented by judicial challenges to HMRC’s ability to automate certain functions. It will protect very substantial sums of tax and penalties already legitimately paid. It will preserve the status quo for taxpayers and HMRC, merely confirming the validity of HMRC’s longstanding and widely accepted operational practice. Taking this action will help to guarantee the integrity of the tax base, provide certainty to taxpayers, and allow the Government to continue to administer the tax system efficiently. More details will be published on the Finance Bill 2019-20 pages of gov.uk.
[HCWS61]
Draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019
Jesse Norman Excerpts(4 years, 6 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019.
It is a great pleasure to serve under your chairmanship, Mr Stringer.
The regulations make technical amendments to the rules governing offshore receipts in respect of intangible property—the hyper-sexy acronym is ORIP—that were introduced in the Finance Act 2019. The ORIP rules tackle large multinationals that have entered into arrangements to receive income from their intangible property—copyrights, patents and other intellectual property—in offshore territories where that income is either untaxed or taxed at low effective rates. The rules tax the proportion of that income that relates to the sale of goods or services in the UK.
ORIP reduces the opportunities for large multinationals to gain an unfair competitive and tax advantage by using contrived offshore intellectual property structures to reduce their tax burden, thereby levelling the playing field for businesses operating in UK markets. The rules as enacted include a regulation-making power to allow for amendments to improve targeting and minimise unintended consequences, and this statutory instrument is the result.
Following recent consultation, the statutory instrument makes technical changes to the detailed provisions that are necessary for the regime to work as intended. Overall, ORIP is still expected to yield £1.1 billion over the scorecard, and these changes do not affect the costings. Where they are relieving, most of the amendments are treated as having retrospective effect from 6 April 2019, when the ORIP rules commenced. A few of the amendments, where they are charging, will have effect prospectively from the day after the regulations are made.
Let me briefly say a few words about each amendment. First, ORIP is targeted at territories with which the UK does not have a full double tax agreement, or DTA. That is intended to ensure the UK remains compliant with its international obligations. The regulations make two changes to the scope of the legislation. First, they extend the ORIP charge to businesses that are resident in a territory that has a full DTA with the UK but where resident businesses do not qualify for relief under it. That may be because the business is of a type explicitly excluded from the agreement or because the income paid to the business is not covered by the double tax agreement. The effect of that is to bring as many low-tax territories within scope as possible while remaining consistent with the UK’s international obligations. The change is prospective and will take effect from the day after the regulations are made.
Secondly, the regulations introduce an exemption for companies resident in specified territories with which the UK does not have a full DTA. That exemption, which is subject to anti-avoidance conditions, will be used to ensure that ORIP does not apply to high-tax jurisdictions that do not have a full DTA with the UK.
Kevin Hollinrake (Thirsk and Malton) (Con)
I realise that these matters are very complex and we need to narrow down the opportunities for multinationals to shift their profits around, on which this Government have done much work. However, Google makes a 22% profit margin internationally and turns over around £10 billion in the UK, which means, with a corporation tax rate of 19%, that it should pay around £420 million a year in tax in the UK, yet it pays only around £70 million. Does the Minister agree that we cannot rest in our pursuit of increased measures until it pays the appropriate amount of UK tax?
Jesse Norman
I am grateful to my hon. Friend for his intervention, which reflects his characteristically acute understanding of financial and tax issues. Of course, the question in many of these cases—I will not take one in particular—is whether companies have paid the appropriate level of corporation tax in the jurisdictions where corporate tax is chargeable. There is then the separate question whether they pay a fair level of tax in the jurisdictions where they do business. He will understand that the latter is very much in the Government’s mind. That is part of the purpose of our new digital services tax, which we hope to introduce in the next Finance Bill and for which legislation has already been published.
Neil Parish (Tiverton and Honiton) (Con)
This is probably completely out of order, in terms of considering the draft regulations, but I paid my Amazon bill the other day. Amazon is registered in Luxembourg and, obviously, pays much less tax; yet it does a hell of a lot of business here. I am sure that the draft regulations do not deal with that, but are we thinking about dealing with it in some way in the future?
Jesse Norman
I am not, as a Minister, privy to individual taxpayer relationships with HMRC, but I am certainly given to understand that it is looking very closely at the general question of whether platforms, and international corporations of other kinds, are paying appropriate levels of tax, as the hon. Gentleman would expect.
As I said, the draft regulations introduce an exemption for companies resident in specified territories. That exemption, which is subject to anti-avoidance conditions, will be used to ensure that ORIP does not apply to high-tax jurisdictions that do not have a full DTA with the UK. The regulations include a power to add and remove specified territories by making further secondary legislation. HMRC will consider exercising that power only where non-low-tax territories are identified that do not pose a risk to the statutory purpose of the legislation.
There are three changes to the definition of UK sales, which are designed to make the rules more proportionate and to improve their targeting. First, in determining UK sales, the legislation will look through distributors and re-sellers—that is to say, those who simply sell on goods and services unchanged. That will ensure that ORIP does not discourage businesses from using the UK as a location from which to sell to foreign markets. Secondly, there is clarification that a UK sale will arise in relation to online advertising where the advertising is targeted at UK persons. Thirdly, in circumstances where the intangible property makes an insignificant contribution to UK sales made by third parties, those sales are disregarded.
The draft regulations introduce a targeted amendment that will exempt from charge certain tax-transparent entities whose profits are subject to tax in a non-low-tax territory. Without that exemption, those entities would be subject to an ORIP charge because they do not meet the technical criteria of being a tax resident in a non-low-tax territory, even though the relevant profits will be subject to tax there.
There are three changes designed to minimise double taxation. The first concerns intangible property held by a partnership, and prevents a tax charge on the partners where the partnership is appropriately taxed. The second prevents multiple ORIP charges where a multinational group has more than one entity in a low-tax territory, and the same intellectual property-derived income is paid from one to the other. Thirdly, the draft regulations clarify that where there is a charge under the measure there is no duty to withhold income tax at source on the same income.
The final change provides clarification on the meaning of tax outside the UK, as meaning tax payable or paid that is comparable to UK income tax or corporation tax. These technical changes are being introduced to ensure that today’s important measure, which prevents large multinationals from gaining unfair tax and competition advantages, works as intended. I hope that colleagues will join me in supporting the draft regulations, which I commend to the Committee.
Jesse Norman
I am grateful to the hon. Member for Stalybridge and Hyde and thank him for his support for the SI, and for his warm wishes to all colleagues across the Committee in the forthcoming general election. He raised some important points, which are worth touching on.
The hon. Gentleman asked about an impact review. As he will be aware, the measure has not completed its first year, having been introduced in the last Finance Bill, so we are not in a position to carry out a full impact review. Of course, the proper taxation impact note was supplied with the legislation at the time, and an updated one has been supplied for this SI, and is available in the Library.
The hon. Gentleman also asked for some reassurance about countries with which we have double taxation agreements but which may be low-tax countries. I can reassure him about that. A couple of examples that are particularly salient are the Cayman Islands and Bermuda.
As to the shadow Chancellor’s unitary approach, of course, whatever the outcome of the election may be, politicians across the House are welcome to submit their ideas for improving the taxation of multinationals. Considerable amounts of expert work have been done on that topic within HMRC, but if the shadow Chancellor or any other Member has evidence or ideas that can feed into that process we should be glad to hear them.
I thank the hon. Member for Stalybridge and Hyde for his support for the digital services tax. He will understand that its purpose is a temporary one, and that it is designed to pre-empt and anticipate, but ultimately to be replaced by, a more comprehensive international OECD agreement.
Question put and agreed to.
Cross-border Trade and Accounting
Jesse Norman Excerpts(4 years, 6 months ago)
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Luke Graham (Ochil and South Perthshire) (Con)
It is a pleasure to have secured this Adjournment debate on the exciting topic of accounting systems in cross-border trade. I know the House is racked with anticipation for this debate, as shown by the packed Benches, so I am looking forward to it.
I have to admit that, because of the potential for there being debates on the European Union (Withdrawal Agreement) Bill this week, I thought that cross-border trade would be a hot topic, and that this Adjournment debate would provide an opportunity for colleagues, especially those from Scotland and Northern Ireland, to talk through some of the issues in greater detail. Obviously, events have overtaken us and we are not quite in that situation, so I will continue with the debate but take a slightly different angle. I shall talk about the development of accounting systems, and refer to some of the work by Her Majesty’s Revenue and Customs on Making Tax Digital, and about HMRC’s support for small and medium-sized businesses. I refer Members to my entry in the Register of Members’ Financial Interests.
While on secondment from Marks & Spencer, I had the great fortune to work for the Prince’s Trust’s Accounting for Sustainability project, which is dedicated to using accountants to try to help to solve social and environmental issues. Indeed, His Royal Highness Prince Charles believes that accountants are the key to saving the world: by changing the data that is used in day-to-day business and in organisations, they can help to steer better decision making—
The Financial Secretary to the Treasury (Jesse Norman)
I feel almost embarrassed to be intervening on the promising discussion between my hon. Friends the Members for Ochil and South Perthshire (Luke Graham) and for South Thanet (Craig Mackinlay); it is almost as though one would be intruding by saying anything from the Treasury Bench, given the degree of conversation that was going on. I thank them both for a most engrossing and expert discussion.
When I was thinking about this debate, I did a little research into the background of my hon. Friend the Member for Ochil and South Perthshire and discovered that part of his life had been spent not merely as an accountant at Tesco and Marks and Spencer, where he started to develop the considerable personal knowledge he has demonstrated, but involved an outfit called Tough Mudder. I do not know whether you have come across Tough Mudder, Madam Deputy Speaker. It is an organisation that specialises in ultra-long obstacle courses of 8 to 10 miles, or possibly longer. It holds some rather interesting events. I bring your attention to the “arctic enema” in which participants plunge into a dumpster filled with ice water, dunk themselves underneath the plank that crosses the dumpster and then pull themselves out on the other side. There is also “electroshock therapy” in which live wires hang over a field of mud that participants must traverse. Above all—this is especially important in the context of the House of Commons—there is “Everest” in which participants run up a quarter pipe slicked with mud and grease; just the thing to ascend the ladder of career opportunity in Government and Parliament. It does not surprise me at all that my hon. Friend should have acquired those important skills; he is demonstrating them so brilliantly in his parliamentary career.
It is also quite interesting how my hon. Friend has deployed precisely those Tough Mudder tactics so successfully today in calling for an Adjournment debate on cross-border trade and accounting systems and then taking us into the highways and byways of the tax code. I call that classic bait-and-switch of the kind that the founders of Tough Mudder would be delighted with.
Let me mention a few of the things we have touched on before coming to the main thrust of the topic. My hon. Friend is absolutely right to highlight Making Tax Digital for VAT, not merely as a success for HMRC—although it has had some delay, it is clearly proving to be that in relation to VAT—but because of its wider effects. More than 1.25 million businesses are signed up to Making Tax Digital for business, and very nearly 1.75 million VAT returns have been successfully submitted through the service. Some 81% of all businesses mandated from April are now signed up to it. That is a tremendous achievement, and it fully bears out the point made by my hon. Friend the Member for South Thanet. When the British people are presented with a challenge, particularly on taxation, they rise to it and overcome it. That is an important and valuable characteristic, and it is one we rely on.
There are also wider benefits, and they are becoming quite evident. There are potentially quite significant productivity benefits—we are still measuring them in HMRC. The benefits are starting to become sufficiently well known within the smaller business community to result in many signing up for Making Tax Digital VAT voluntarily; they are not captured by its mandate because they are not above the threshold. That is an important aspect of the wider picture of improving productivity and audit and accountability that goes with these developed processes.
My hon. Friend the Member for Ochil and South Perthshire also rightly mentioned the concerns and opportunities created by new methods of managing and valuing intangibles. That is always of great interest to Revenue and Customs, as he might imagine. He talks about the importance of transactional barriers and the need to avoid them; of course, I agree. He rightly focused on extracting an appropriate level of tax from the very largest companies and platforms—he and I have written about this in other contexts. It is important to level the playing field, with platforms using their power for good rather than yielding to the temptation to exploit insider information and one-to-many power to create an unlevel playing field. In part, that is exactly what our digital services tax is designed to do.
My hon. Friend the Member for South Thanet quite rightly mentions cigarette excise losses. If it is of any reassurance to him, I personally have sat with the HMRC fraud team tracking of some of these gangs in real time. I can tell him that it is an enormously impressive operation and one that yields great benefits to the Revenue and to this country’s Exchequer.
Turning to the issue at hand, let me say a few things about the very important question that my hon. Friend the Member for Ochil and South Perthshire asked about cross-border change and the role that accounting systems can play in that. He will be aware that the Government are committed to an efficient and effective customs system that minimises administrative burdens on people who trade. He will also know that HMRC has invested some £34 million to fund training for individual businesses and—this is the key point—to develop and grow the customs intermediary sector so that it embeds greater expertise and institutional capacity to sustain our customs over the longer term. Indeed, I spoke at the launch of the UK Customs Academy, funded by HMRC, only last month.
It is also important, as my hon. Friend has stressed, to make customs processes as simple as possible. The current declaration system, known as CHIEF, as my hon. Friend the Member for South Thanet mentioned, is being replaced with a new customs declaration service that is much more modern, much more flexible and able to anticipate vastly larger volumes of trade, and much easier and quicker for traders to use. The digital and streamlined processes committed to in the 2018 Budget are already coming into play and the specific commitment to halve the time it takes to receive authorised economic operator status is a further exemplification of that.
Let me come, slightly more widely, to the question of VAT. My hon. Friend the Member for Ochil and South Perthshire is right to ask whether VAT systems can be used to facilitate cross-border trade. This is an issue that officials within HMRC have explored in relation to HMRC’s own VAT regime and whether that can be deployed to facilitate customs processes. The House should be clear that there are specific challenges arising from that. The first has to do with the monitoring of goods, and the UK is under an obligation to demonstrate its control over goods imported and exported from this country. The Government need to be able to monitor the movement of goods in real time, but the trouble is the current VAT system, which is of course typically run on a quarterly returns basis and does not meet the real-time requirement, as VAT is accountable after the movement of goods.
The second challenge is a related one and bears on assurance. It is an underlying principle of the World Trade Organisation and the World Customs Organisation that tariffs should exist as a trade policy tool and must be applied in a fair and reasonable way. Real-time controls are a way of satisfying authorities that the correct tariff has been applied and collected on goods and, of course, it is important not to lose the credibility that border controls confer when they are deployed on the UK as a trading partner. That would potentially be put at risk by this suggestion.
Real-time controls of course also help to ensure that goods that do not comply with regulatory standards or that pose a security risk—of course there are such goods—do not enter this country. Without some customs processes, it would be difficult to identify and check goods that pose a risk to this country. It could be a phytosanitary risk, one from hazardous materials or, of course, one from weapons and other things of that nature.
The final challenge I would identify is that we are under an obligation to show that we have applied trade policy in a fair and uniform manner, and customs controls allow us to differentiate countries that have free trade agreements from those that are subject to most favoured nation status. Of course, any future customs facilitation for UK-EU trade will be a matter for negotiation once we have left the EU. Both we and the EU envisage putting in place ambitious customs arrangements to make use of all the available facilitative arrangements and technologies that we can.
Let me reassure you, Madam Deputy Speaker, and colleagues across the Chamber that we are preparing for that negotiation and will work with Parliament, the devolved Administrations and others to ensure a successful outcome in the interests of all parts of the United Kingdom.
Madam Deputy Speaker (Dame Eleanor Laing)
Thank you. What an interesting debate. It’s all right—I am a lawyer, so I understand accountants.
Question put and agreed to.
HMRC Impact Analysis: Customs
Jesse Norman Excerpts(4 years, 6 months ago)
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John McDonnell (Hayes and Harlington) (Lab) (Urgent Question)
To ask the Chancellor of the Exchequer to make a statement on HMRC’s published impact analysis of introducing new customs legislation and amendments.
The Financial Secretary to the Treasury (Jesse Norman)
I am delighted to respond to the right hon. Gentleman’s question. The Government are devoting huge energies, as the House will know, to Brexit preparations. The Prime Minister has stated that the Government’s preference is to leave with a deal, but, if necessary, they will leave without a deal as it is so vital that we get Brexit done and move the country forward. The last thing that businesses need is more uncertainty and delay. A key part of those preparations is to ensure that there is a functioning customs, VAT and excise regime on exit to put the legal underpinnings in place. HMRC has laid 56 regulations to date following last year’s Taxation (Cross-border Trade) Act 2018 .
To support the latest bunch of statutory instruments, which were debated by this House yesterday, the Government published a third edition of the overarching impact assessment of the movement of goods if the UK leaves the EU without a deal. This updates and builds on previous versions of the impact assessment, which were published in December 2018 and February 2018. The new version provides updates to cover the September 2019 regulations, including transitional and other arrangements for safety and security declaration requirements for the period after exit; further temporary customs and excise easements to extend the transitional arrangements after exit; further VAT data-gathering powers to specify the type of information that was collected from postal operators; and, finally, various technical amendments and transitional provisions.
As I have said, our preference is very much for a deal, but the Government continue to ensure that this country is ready for no deal and that the impact on business is minimised as far as possible, which is why we have introduced a series of easements for traders moving goods in the UK to take effect in a no-deal scenario. Those easements, for example, are planned to simplify radically import processes for EU goods, which means that the costs identified in this impact assessment will be mitigated for UK importers. Crucially, the Government are also working to boost the long-term potential of the economy so that the United Kingdom can seize the opportunities that exist for us outside the EU.
John McDonnell
Perhaps I can help the Minister fill in some of the gaps in the statement. The Government’s own assessment shows that their no-deal Brexit policy will introduce
“significant ongoing administrative costs impacting on UK and EU businesses of all sectors.”
It is an avalanche of paperwork descending on British businesses in the form of import, export, safety and security declarations. The burden will cost our business sector an annual £15 billion in administrative costs, and that does not even include the costs of complying with the new VAT procedures, which will hit our vital service companies—all this to pursue the hardest possible Tory no-deal Brexit.
We have heard the Prime Minister’s previous crude dismissal of British business. Now we are seeing his words become Government policy. Does the Minister not understand that this only compounds the uncertainty brought about by this Government’s failure to secure a deal that protects the UK economy? A senior No. 10 source, who I most believe to be the Prime Minister’s adviser—well, I say “adviser”—Dominic Cummings, said:
“We’ll either leave with no deal on 31 October or there will be an election and then we will leave with no deal”,
and that everything to do with the duty of sincere co-operation that we have with the EU partners
“will be in the toilet”.
Does the Minister agree with the priorities set out by No. 10 as a result of that statement? Does he also challenge the Institute for Fiscal Studies, which said today that this would push UK debt to its highest level since the 1960s, soaring to 90% of national income?
The reckless incompetence of this Government just knows no bounds, does it? At a moment of national crisis, this Government pose a threat to their own people and the economy they rely upon. Has the Minister any idea of the scale of the destruction of confidence in the British economy that this Government’s stated policy is bringing about?
Jesse Norman
This is a long document at some 45 pages or so, but I would have hoped that the right hon. Gentleman could have made it to page 9. He claims that the cost to British business will be £15 billion, but it says perfectly clearly at the bottom of page 9:
“The latest…estimate for the annual administrative burden…is £7.5 billion (updated to reflect 2017 data)”.
I am in no sense happy about that—[Interruption.] I am just correcting the record. The right hon. Gentleman said £15 billion, when in fact the figure is £7.5 billion. That figure is, of course, prior to any mitigations that might be put in place by the Government.
Let me turn to the right hon. Gentleman’s other concerns. He criticised the Government for, as he puts it, failing to secure a deal. All his party had to do was support the perfectly sensible series of deals that have been put before this Parliament, and it would have a deal.
I am not going to comment on unsourced speculation of the kind mentioned by the right hon. Gentleman. Let me just remind the House that when this Government’s predecessor came into office in 2010, debt was at a peacetime high thanks to the previous Labour Government. The deficit was at almost 10% and, interestingly, inequality under the Labour Government was significantly higher than it is today.
Sir Geoffrey Clifton-Brown (The Cotswolds) (Con)
The number of customs declarations is likely to increase from 50 million now to 250 million when we have to start to export to the EU. This will be governed by a customs declaration service system. Will the system cope, and will there be enough agents to handle that volume of transactions?
Jesse Norman
We believe the system will cope. Of course, there are a lot of easements in place, and there is already a functioning CHIEF—customs handling of import and export freight—system to handle the current level of declarations.
Stewart Hosie (Dundee East) (SNP)
I think the Minister is in denial. The cost is £15 billion—£7.5 billion from UK to EU trade, and a comparable amount from EU to UK trade, which will no doubt be paid by consumers and businesses here. This denial runs to the heart of this whole problem. The Prime Minister said that leaving the EU would save £1 billion a month. That clearly only adds up if we ignore and deny any costs such as the £15 billion that we are talking about today. But it is worse than that. This figure is an annual recurring cost, so how will it be mitigated?
The figures exclude additional one-off costs. How will they be mitigated and have they even been assessed? They ignore the new VAT rules on parcels that are damaging to small businesses. How will that be mitigated and has it actually been assessed? The £15 billion also excludes the serious damage done to exports of low-margin items where this cost burden may be significant. Has that been assessed? Finally, the figures ignore the multiple damages done to businesses that ship part-finished goods back and forward across borders many times, which multiplies the administrative burden. Has that been assessed? How many business will be damaged and what mitigation is being put in place?
Jesse Norman
As the House will know, a lot of mitigations have already been passed through statutory instruments, including instruments in relation to stream- lining customs import processes and procedures, special procedures for other areas, and deferment of import duty and VAT. Only yesterday, we passed a statutory instrument on safety and security declarations on our imports.
Mitigation very much depends on the shape of any deal. As the House will appreciate, the figures we are discussing today pertain to a worst-case scenario of a no-deal impact. There are many other areas in which the EU has already indicated that it is happy to give mitigations—for example, in relation to some of our haulage processes and people travelling by air into the European Union.
Greg Hands (Chelsea and Fulham) (Con)
In the debate around the UK-Ireland border, my hon. Friend will be aware of the confusion among commentators between customs checks and customs declarations. Of course, most customs transactions are not done at borders by a uniformed officer sitting in a customs office, but are essentially financial transactions akin to tax or VAT that are done at the point of production, shipment, transit or arrival. Does my hon. Friend agree that there is a role for HMRC in educating commentators about how modern customs practices work?
Jesse Norman
I pay tribute to my right hon. Friend for the work that he and the Secretary of State for Digital, Culture, Media and Sport have done on alternative arrangements. He raises a very important issue. As he says, Customs operates a risk-based assessment system of checks that is quite different from declarations. As for educating commentators, I absolutely agree with him and wish those commentators also included some Members of this House.
Sir Edward Davey (Kingston and Surbiton) (LD)
Given that HMRC has now shown that Brexit means red tape, and that this would harm trade, destroy jobs and cut growth, what estimate has the Treasury made of the impact of lower growth on Britain’s public finances? Does the Minister accept that the Office for Budget Responsibility has said—and now the IFS analysis has shown—that borrowing will rocket under a no deal? Is it not now clear that under the blues, we will be going into the red?
Jesse Norman
I cannot match the right hon. Gentleman on verbal wit. What I can say is that the Government have published estimates of the impact of a no-deal Brexit in different forms, and we continue to believe that it is vastly in the interests of this country, this House and all our constituents to leave with a deal. I hope that the right hon. Gentleman will support that.
Andrew Jones (Harrogate and Knaresborough) (Con)
Does my hon. Friend agree that it is critical for the UK to have an attractive regulatory regime as part of delivering the overall international competitiveness of the economy, and that he will do all he can to minimise the administrative burdens on business?
Jesse Norman
My hon. Friend is absolutely right. I think that in due course it will come to be seen that Brexit was a moment of change in which we moved ourselves to a global position in which we were able to change many of the rules and regulations governing our international and domestic trade for the better—to make them more streamlined, to lighten the burden and to increase our economic efficiency and productivity.
Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)
Given that these are HMRC’s own assessments—the Government’s own assessments—of a multi-billion pound cost, the Minister could have given HMRC any credible assessment of mitigation if he had any. Can he instead confirm that these costs do not even include tariffs, and that they are in fact the costs not simply of no deal but of refusing to have a customs union at all? Given that a proposal for a deal including a customs union only lost by three votes back in April and that such a deal would, according to his own figures, have saved British businesses billions, why have the Government continually refused even to explore a deal that includes a customs union?
Jesse Norman
I could wish that the right hon. Lady, who is widely respected across the House, had used her influence to bring Labour Members into the Lobby to support the deal that was offered—[Interruption]—and, still more, the deal that we are currently exploring, when that is placed before the Chamber. [Interruption.] The impact analysis is a careful piece of work that reflects dozens of statutory instruments that have been placed before the House. It is a composite of all the impact assessments in place, and should be seen as such. Before Members become too enervated, they should reflect that although the number has gone up somewhat, the unit cost of a declaration has not gone up. The increased number reflects the increase in trade in the last couple of years, and in the period to 2017, which is interesting, because it does not look as though trade has been headed off by the threat of Brexit.
Mr Marcus Fysh (Yeovil) (Con)
I welcome the Government’s extensive work to get businesses and us ready to leave at the end of October, and particularly the facilitations and easements, which can substantially reduce the amount of money lost in these sorts of transactions; that has to be the way forward. The cost is much lower than those in the Treasury’s forecasts thus far.
Jesse Norman
My hon. Friend is right to point out that although there is a cost, we do some £275 billion-worth of trade with the EU; we should see this in that context. As I say, the figures are before we take into account any behavioural change, either by UK exporters and hauliers or importers, or by the EU, and should be seen in the wider context of the liberalisation that we expect to occur after Brexit.
Lady Hermon (North Down) (Ind)
The Chief Constable of the Police Service of Northern Ireland has already spoken directly to the Prime Minister, and has made it abundantly clear to him that his police officers will not carry out customs functions at or near the border after the UK leaves the EU. That being the case, the Minister has a duty to explain to HMRC officials what plans the Government have to keep those officials safe when they are carrying out their functions at or near the border after the UK leaves the EU.
Jesse Norman
I am grateful to the hon. Lady for that question. That is a very serious issue. I have discussed it with senior officials at HMRC, and I can tell her that they are taking the issue extremely seriously.
Sir Desmond Swayne (New Forest West) (Con)
Is not the problem with reports of this sort the assumptions on which they are made—not least the assumption that though circumstances change dramatically, behaviour will not change at all?
Jesse Norman
My right hon. Friend, having of course taught economics in his previous life, is acutely aware of the dynamic effects of change when people are confronted with different circumstances. As he correctly points out, this is a static assessment; it does not reflect the dynamics once a change is made.
Helen Goodman (Bishop Auckland) (Lab)
In effect, the Minister is telling the House that a £7.5 billion tax on trade is being introduced by the Government. How many jobs will be lost as a result of the reduction in trade? Given that we control the administration of imports, why are the Government allowing this £3.8 billion figure?
Jesse Norman
I think the hon. Lady misunderstands. Only in the event of a no-deal Brexit would we incur any of the additional declaration costs described here. This is not a tax; these are the administrative costs associated with a change in the country’s trading position.
Jeremy Lefroy (Stafford) (Con)
Does my hon. Friend agree that there will be extremely serious impacts on exports? We have been trying to promote exports for many years, given that we have such a large trade deficit, but the fact that 60% of our exports to the EU will now incur tariffs will be a real problem for our exporters—particularly of ceramics in my area, but also for exporters in many other areas. What does he say to that?
Jesse Norman
My hon. Friend is right to raise that concern on behalf of his constituents. Of course, we run a very substantial services surplus with the rest of the world, and that will be unaffected by these customs declarations. What he says of his concerns is true; that is why I hope very much that the House will come together to support the Government in procuring a deal before we leave the EU.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Diolch yn fawr iawn, Mr Speaker. The Tories’ claim to be the party of business and law and order has been blown apart by its Brexit policies. What is the point of the Conservative party today?
Jesse Norman
I do not need to tell the hon. Gentleman that conservatism, as a body of thought, has many virtues, and business has traditionally benefited from the Conservative party’s commitment to low taxation and a supportive business economy. If he casts an eye over the spending round, he will see an enormous array of investments designed to complement growth in business with growth in public services. It is that balance that makes for good government.
Mr Speaker
If the appetite of the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) remains unsatisfied by that ministerial reply, my counsel is that he should read the biography of Edmund Burke that the Minister penned, which is, at any rate, a stimulating read.
Michael Tomlinson (Mid Dorset and North Poole) (Con)
How many businesses would be affected if we left the EU without a deal—a deal that some Opposition Members seem to be opposing?
Jesse Norman
As my hon. Friend will know, there are over 150,000 VAT-registered businesses that trade with the EU, and another 100,000, we believe, that are not VAT-registered. If they wish to continue to trade with the EU—that trade may be just part of their business—they will experience some effect. It would be impossible for me to improve on the Speaker’s last comment, but if I might direct my hon. Friend to my book on Adam Smith, he will see that economies are dynamic, as has been recognised since the 18th century. We would expect the dynamic effects of the change in our status to offset many of the concerns raised in the impact assessment.
Luciana Berger (Liverpool, Wavertree) (LD)
Anyone outside this place watching the response to this urgent question will be appalled by what they have heard so far, because the party that is supposed to be against red tape is piling it on for so many businesses. I can give the Minister the figures needed to respond to the question from the hon. Member for Mid Dorset and North Poole (Michael Tomlinson): 245,000 businesses will be affected, according to the impact assessment laid out yesterday. It will cost each company £28 at a minimum, and take an employee on average 1 hour and 45 minutes, to fill out each form for each load. How on earth will that ensure growth and jobs in our country?
Jesse Norman
The hon. Lady has managed to pull off the trick of saying almost exactly what I said, but in slightly fewer words. As I pointed out, 150,000 businesses registered for VAT, and a further 100,000 that are not registered for VAT, may be affected. That makes 250,000, which is not a million miles away from the 245,000 that she described. If she looks at the impact assessment, she will see that the declaration cost will vary from between £15 for an export declaration for fast parcel operators, to £56 for traders operating below the VAT threshold and outsourcing their declarations, so there is a range of impacts. This was scouted, as she will know, in previous discussions with HMRC officials and in past impact assessments.
Stephen Timms (East Ham) (Lab)
What has become of the Tory party? If the Minister really believes that a £15 billion additional burden on business is acceptable, can he tell us how large a burden would be unacceptable?
Jesse Norman
I would have expected the right hon. Gentleman, as a man of great assiduity who is widely respected across the House, to differentiate between the £7.5 billion that we are talking about and the overall impact on the EU as well as the UK of £15 billion, which is one of the things that will bring both sides together into what we hope would be, in these extreme circumstances, a deal. Of course, no impact on business is something that we want. That is why we are pressing the House for a deal, and I hope he will support us in doing that.
Alison McGovern (Wirral South) (Lab)
I think we are all confused about the nature of conservatism this afternoon. When the Minister and I joined the House in 2010, Prime Minister David Cameron was embarking on a red tape challenge. I did not understand that the ambition was to increase red tape in the manner that we see today. When did the Minister last speak to the car industry? We know that every 60-second delay takes away from that industry £50,000 of gross value added—every 60 seconds. If, as it seems, there is no deal to be had and we are heading towards that catastrophe, has he asked the car industry how many jobs we are going to lose?
Jesse Norman
The way to respond to that is to remind the hon. Lady that when I was at the Department for Business, Energy and Industrial Strategy, I had extensive engagement with different industrial sectors, including the car industry. The same was true when I was at the Department for Transport. There is no doubt, as she will know, that the importers and exporters that are repeatedly crossing the borders will be affected by this. Of course, there are mitigations in place, and I hope she will help us to avoid those by supporting the deal.
Mr Chris Leslie (Nottingham East) (IGC)
To put this £15 billion figure in context, it is the equivalent of a 7% increase in corporation tax for those businesses and firms—or, to put it another way, the exact plan of the Labour leadership, were they to get into power and increase corporation tax. If the Minister shifts to the ideological fringes, he should not be surprised if he sacrifices any claim to be in the party of business.
Jesse Norman
I think most people would be surprised to hear me considered a member of the ideological fringes of any side of the political debate. We do not wish this country to have to incur this £7.5 billion cost, and we do not think it would be a good idea for the country to have a Labour Government who imposed twice that amount in corporation tax.
Mr Ben Bradshaw (Exeter) (Lab)
The Minister keeps claiming that his preference is for a deal, but is it not clear from the fictional briefing given by Dominic Cummings of the conversation between Chancellor Merkel and the Prime Minister today that the Prime Minister and Mr Cummings have absolutely no interest in a deal whatsoever? The tariffs proposed by the Government have been described by the normally mild-mannered and loyal hon. Member for Tiverton and Honiton (Neil Parish) as extremely disappointing. He says that no tariffs on imports but tariffs on exports will ruin the United Kingdom’s farming industry. In the past hour, the head of the National Farmers Union has called it a “betrayal of British farmers”. How does he respond?
Jesse Norman
I am not going to comment on the detail of tariffs, which were discussed in detail during an urgent question yesterday. I do not think there is any proper suggestion that the Government are in any sense comfortable about incurring these costs or any other costs. We would like to leave the EU with a deal, and the Chancellor of the Duchy of Lancaster and I have been working with colleagues around the clock for the past three months and longer to deliver it.
Dr David Drew (Stroud) (Lab/Co-op)
With regard to what my right hon. Friend the Member for Exeter (Mr Bradshaw) just said, it is absolutely right that the Government—particularly the Chancellor of the Duchy of Lancaster, who was the Secretary of State for Environment, Food and Rural Affairs—listen to what the NFU is saying about no deal. With that in mind, is it not about time the Government updated their own website, which does not seem to have been changed since earlier this year, so that farmers at least know what will happen in the event of no deal?
Jesse Norman
In general, as the hon. Gentleman will know, the gov.uk website is updated daily, but I take the point. As a man with many farmers in his constituency, I will ensure that the website is checked to see that the data is up to date.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
I also recommend the Minister’s book on Burke as great bedtime reading; it is very good. Does he ever discuss the nature of modern conservatism with Dominic Cummings? Is it right that a Minister could have been on the radio at primetime this morning with Paul Johnson from the Institute for Fiscal Studies, but Cummings refused to let a Minister appear?
Jesse Norman
I am grateful for the hon. Gentleman’s kind words about my book, but I cannot comment on remarks that may or may not have been made or rebutted on a media programme of which I know nothing.
Mrs Madeleine Moon (Bridgend) (Lab)
Ford finally came up with its frustration in relation to a lack of customs union and single market and decided to close the engine factory in Bridgend, with 1,700 jobs lost directly at the plant and 12,000 across the south Wales economy. When I look at today’s report, I look with horror at what will happen to the small and medium-sized enterprises across my constituency. What assessment has the Treasury made of the impact of today’s report on SMEs in individual constituencies? Ordinary lives will be devastated, even more so in my constituency than they already have been.
Jesse Norman
The hon. Lady is absolutely right that any job losses are deeply regrettable, and I am sure she will be delighted that, in aggregate, this country has proven to be astonishingly adept at creating good new jobs over the past 10 years. With this impact assessment, I think I am right in saying that the detail is not available that allows for a constituency-by-constituency or even regional assessment, which is why it has been done in aggregate, based on the number of declarations that are expected and the cost per declaration. Of course, it may be possible for other entities to take the number of businesses that were expected to fill out declarations and produce impact assessments for the specific areas that they are concerned about.
Matt Rodda (Reading East) (Lab)
It is quite clear from the Minister’s answers that the Government are willing to place enormous additional burdens on business. Given everything that he has written and said in the past, how can he possibly justify that approach?
Jesse Norman
I gently remind the hon. Gentleman that the burdens that he claims will be placed by this can not only be mitigated by voting for a deal but will be as nothing compared with the burdens that will be imposed on the UK economy by a Labour Government dedicated to nationalising, without full compensation, a swathe of industries and expropriating a large number of people by transferring property into the hands of employees. I think those things will impose much greater costs on the economy than anything that has been contemplated today.
David Hanson (Delyn) (Lab)
The Minister is on a sticky wicket, and deep down, he knows it. After the Prime Minister’s announcement today, it will get even stickier. I am still not clear whether he expects businesses to absorb the £7.5 billion of costs or pass it on to consumers.
Jesse Norman
In the event that we had no deal and this £7.5 billion of estimated costs were incurred, that it was not mitigated and that there were no behavioural reactions by businesses, there would be some costs—we do not know what they would be—and it would be up to businesses to decide how those costs should be allocated between consumers, employees and other stakeholders.
Toby Perkins (Chesterfield) (Lab)
People watching this will be amazed. The Minister appears not to be aware of what is being said out there. He is still speaking as though there is a deal to be done, when the Prime Minister and his advisers are making it absolutely clear that the deal is dead. The impacts that we are discussing will fall on businesses, and they are looking at a Government who appear utterly clueless about what to do. All we are getting now is a blame game. Will the Minister come to the Dispatch Box and say something that might help manufacturing businesses in my constituency?
Jesse Norman
I would be delighted to do that. With the good grace of the people of Great Britain, they will have a Conservative Government for many good years to come, supporting their interests, their welfare and the growth and productivity of the British economy. No finer outcome could be hoped for by British business.
Anna Soubry (Broxtowe) (IGC)
Does the Minister have no shame at all in being a member of a Government who are meant to be on the side of business, having done a job in which, when I used to do it, we were so proud that for every one new piece of regulation we got rid of two? We see now a Government embarking quite clearly on no deal—this sham of trying to get a deal is exactly that—and imposing on our already struggling businesses an additional £15 billion. Has he no shame to be associated with this appalling Government?
Jesse Norman
I am unable to match the right hon. Lady’s capacity for bombastic intervention, but let me just tell her that if she looks at the statutory instruments that have been placed in front of this House, she will see that their purpose is not to regulate, but to create mitigations to protect people in the event of a no-deal Brexit. If we have a no-deal Brexit, these will be useful mitigations and supports for businesses and people. If she doubts that, she can avoid the issue altogether by supporting the Government on the deal that I have no doubt is being promoted vigorously.
Wayne David (Caerphilly) (Lab)
The extra administrative costs for filling in customs forms alone for businesses will be £15 billion per year. This contrasts markedly with the Prime Minister’s claim that if we left the EU with no deal, we would save £1 billion per month. Does the Minister agree with me that there is a growing chasm between the rhetoric of a Prime Minister and the reality of a no-deal Brexit?
Jesse Norman
No, I do not accept that at all. I think that it is perfectly clear that the Government remain very fixed on securing a deal. That is what these negotiations and discussions are about. At the same time, it is important to prepare for the possibility of no deal—no responsible negotiator would fail to have a walk-away position—and this quantifies those. As I have indicated, there are mitigations and dynamic effects that may well reduce their actual effect. In that context, this is wise planning and provisioning—plans that I hope we will never have to invoke.
Customs Safety and Security Procedures (EU Exit) (No. 2) Regulations 2019
Jesse Norman Excerpts(4 years, 6 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the Customs Safety and Security Procedures (EU Exit) (No. 2) Regulations 2019 (S.I. 2019, No. 1219).
It is a pleasure to serve under your chairmanship, Mr Hanson. I welcome Members to the Committee. The Government’s aim is to leave the European Union on 31 October 2019 with a deal that works for citizens and businesses. Until that final deadline, we will make every effort to reach an agreement with the EU, but we also have a duty to prepare and plan for all scenarios, and to prepare comprehensively for Brexit. Today we are considering a statutory instrument that is part of the Government’s package for preparing for the possibility of the UK leaving the EU without a deal.
I hope the Committee will allow me to set out the context of this provision, which the Government wish to introduce to manage the safety and security risk of goods entering and leaving the UK. The measures maintain many aspects of the current safety and security regime. They will facilitate the flow of trade, while working to ensure the continued safety and security of our borders.
In 2005, the World Customs Organisation adopted the SAFE framework of standards as a deterrent to international terrorism, to secure revenue collections, and to promote trade facilitation. As a result, safety and security declarations became required when goods moved across borders. Previously, as part of the EU, the UK required safety and security declarations only for goods leaving or entering the EU. If the UK leaves the EU without a deal, UK importers and exporters will be required to complete safety and security declarations for goods moving to and from the EU, as well as to and from the rest of the world, as happens at present.
The statutory instrument has four key purposes. First, Her Majesty’s Revenue and Customs has listened to industry concerns about the readiness of businesses to comply with UK-EU safety and security requirements on trade from day one, so the instrument gives businesses more time to prepare to start to submit declarations to HMRC for movements to and from the EU. The instrument introduces a 12-month transitional period until 1 November 2020, during which there will be no requirement for entry summary declarations for goods imported from territories where the UK does not currently require the declarations. That means that entry summary declarations will not be required for imports from the EU.
Entry summary declarations will continue to be required for goods imported from the rest of the world. The UK will therefore continue to receive the same safety and security import declarations in a no-deal scenario as it does today. The transitional period introduced by the instrument applies to declarations that the UK does not currently receive. As a result, there is no increased security risk to the UK from this approach.
Secondly, the instrument gives HMRC a discretionary power until 1 November 2020 to allow businesses to submit safety and security declarations for certain exports after the goods have left the UK. That is a contingency power, subject to HMRC’s discretion, and the specifics will be set out in a public notice. The power will be used, if required, in combination with a similar power granted in a previous statutory instrument to extend the period in which the export customs declaration has to be provided. Together, that will be used to allow more time, if needed, to provide the combined export customs declaration and export safety and security declaration. If needed, HMRC will use these powers to facilitate the movement of goods and assist with the continued free flow of trade.
Thirdly, the instrument removes until 1 May 2020 the requirement for exit summary declarations for empty containers, empty pallets and empty vehicles moving from the UK to the EU. They are also not required for any spare parts, accessories and equipment for pallets, containers and means of transport. Those declarations are not required at present, so the Government are giving businesses a longer time to prepare.
Finally, the instrument also clarifies that a combined export and safety and security declaration can be accepted when exporting goods, so that exporters are not required to submit separate exit summary declarations.
The instrument does not apply to movements of goods between Northern Ireland and Ireland. A previous statutory instrument set out that in a no-deal scenario there would be no safety and security declarations between Northern Ireland and Ireland. The Government are committed to supporting the all-Ireland economy by avoiding checks and infrastructure at the border between Northern Ireland and Ireland. Under no circumstances will we put in place infrastructure, checks or controls at or near the border between Northern Ireland and Ireland.
In conclusion, this instrument strikes what we believe is the right balance between giving traders time to prepare for new arrangements with the EU and maintaining the safety and security of the UK, and I commend the regulations to the House.
Jesse Norman
I thank colleagues for the peppering of questions about this piece of legislation. Let me start, if I may, with the hon. Member for Bootle, who was very dismissive of business’s preparedness. He did not recognise the Herculean efforts made to assist businesses with that. If there had not been the delays to Brexit, business would take the current work of the Government more seriously. The Government are attempting to make people understand the reality of the departure from the EU on the 31st of this month.
The hon. Gentleman criticised the Government for making powers via secondary legislation. If the Labour party wished to eschew secondary legislation—if it ever came to power, God forbid—that would be an interesting declaration, and we would look forward to hearing it. Secondary legislation has been a very important part of our system of government for many a long year. It is particularly helpful in areas where regulations can be used to give effect to primary legislation, as in this case.
The hon. Gentleman raised a whole series of questions, which I will go through before turning to others’ questions. He asked why 1 November 2020; as I mentioned, hauliers and carriers have consistently told us that they require 12 months to prepare to submit safety and security declarations. They are increasingly asked to fill these things in directly themselves; they have asked for that extra time, and we are seeking to accommodate them. He asked why there should be a six-month waiver on applying security declarations for empty pallets on exit. The matter is relatively straightforward: if the pallets themselves, or the empty vehicles themselves, are not being exported, there are no goods being carried by them for which safety and security declarations would be required.
The hon. Member for Bootle and the hon. Member for Aberdeen North asked about guidance. There are two forms of guidance. As regards the SI, the guidance the hon. Gentleman seeks is in the explanatory memorandum. As regards the policy roll-out, HMRC has already set out that it will provide guidance and support to assist businesses when the time comes for them to submit declarations.
Kirsty Blackman
Will the Minister clarify whether HMRC has published that guidance already?
Jesse Norman
HMRC has published some guidance already, and plans to publish more in time for the moment when declarations may come into force.
The hon. Member for Bootle asked whether these powers have the effect of undermining scrutiny. He should be aware that of course Border Force will continue to run checks on goods in the way it does at the moment, and these declarations are independent of customs declarations that might be made.
Peter Dowd
I wanted clarity about the declarations because one has to be prepared in advance of the potential for a declaration. Rather than having the guidance only when one gets to the declaration, would it not be much more appropriate to have that guidance laid out clearly and unambiguously much earlier, in advance of the need to make the declaration?
Jesse Norman
I think the hon. Gentleman is making my point for me. The instrument introduces a 12-month transitional period until 1 November 2020, during which there is no requirement for entry summary declarations for goods imported from territories where the UK does not currently require them. That is precisely in order to allow people to adopt guidance as necessary.
Stephen Timms
I am grateful to the Minister for explaining that the UK authority is not going to require these declarations, but what about the EU side? Will the EU still require them? He makes the point that businesses need 12 months to prepare. Are they going to be ready to meet the EU’s requirements, which obviously are not covered by the SI?
Jesse Norman
That is true. The right hon. Gentleman raises the question he asked in his speech, so let me take that point out of order. The EU has indicated that it will still require declarations, and of course declarations are required already on goods imported from outside the EU. That structure is not changed as regards imports; as regards exports, exporters will need to adjust.
Stephen Timms
I am grateful to the Minister for that answer, but if the information and declarations are still required by the EU side, what is the benefit in not requiring them on the UK side?
Jesse Norman
The benefit is that we require, for imports, declarations of safety and security that are reasonably full and cover a whole variety of different elements, and we will need to assure ourselves in due course, if and when we introduce declarations following a no-deal scenario, that that data is being provided. Of course, not to have to provide that, and to give oneself the opportunity to put in arrangements that allow it, is a considerable benefit.
Stephen Timms
I think the Minister is telling us that businesses need 12 months to prepare for providing these declarations, but he is also telling us that, from day one of a no-deal Brexit, the EU is going to require those declarations from our businesses. How are they expected to cope with that?
Jesse Norman
It has always been built into the situation that we cannot control what EU countries may insist or demand. There have been plenty of other areas in which the EU has sought to give reliefs or allow easements for the first period. It has chosen not to do so in this case, but that does not bear on the question of what we require as a matter of import security declarations from our own hauliers and others. That is what the statutory instrument seeks to address.
The hon. Member for Aberdeen North asked about the timing and the process by which the statutory instrument was laid before Parliament. As she will be aware, it was laid on 4 September, which was in plenty of time before 31 October. It should be understood that it was thought at that point that Parliament was going to be prorogued, and that there would have been time to assess the instrument after that, but the timing reflects the reality.
The hon. Member for Aberdeen North asked how the SI relates to the earlier SI introduced by my right hon. Friend the Member for Central Devon. Being in front of him is like being a young priest being pushed up for ordination with the Pope sitting behind him in St Peter’s. It is a great privilege and honour to have him behind me. He will know better than anyone that the SI replaces the earlier one and will come into effect from day one if we have a no-deal scenario.
The hon. Member for Aberdeen North raises an important question about whether too much power has been given to HMRC. She will know that, more widely, I have asked HMRC, alongside Her Majesty’s Treasury, to conduct a serious investigation into the balance of its powers, and to make recommendations on how those can be adjusted. In this case, the power is relatively limited. To remind the Committee, it is a discretionary power, lasting for a year, that allows businesses to submit safety and security declarations for certain exports after the goods have left the UK. It is subject to HMRC’s discretion, but it is required to be exercised according to a public notice.
The broad point is that this is designed to be an intervention that allows HMRC discretion to give additional easements. HMRC does not believe that it needs to do that at the moment; it wishes to have the power to make those easements, conceivably for a 12-month period. In order to do that, it will have to consult Ministers and publish a public notice. It would be a matter of intense public interest if there was any suggestion that those easements picked out a particular subsection in a discriminatory or unfair way, so there are implicit constraints, both of time and of public pressure, on how those powers can be exercised.
Kirsty Blackman
I suppose my concern was not just about this SI, but about the fact that I have sat on so many Delegated Legislation Committees, and Committees scrutinising primary legislation as well, that have given additional discretionary powers to HMRC that it can exercise just by means of a public notice, potentially in consultation with Ministers. It seems that HMRC now has a huge amount of these powers that it did not have two or three years ago. I am concerned that it now has too much power, or that nobody is doing an assessment of the powers. I am pleased about the overview. It would be incredibly useful if the Minister could assure me that it will look at all the new discretionary powers that HMRC has gathered.
Jesse Norman
That is a very interesting suggestion. The work that is being done at the moment has to do with the way HMRC exercises powers in relation to UK taxpayers, particularly individual taxpayers. Once Brexit has taken place, it would be a very interesting idea to consider whether there should be a further piece of work to assess whether there has been a ratchet in some way that has granted HMRC powers that it ultimately should not have. If the hon. Lady is happy with this, I will take that away and reflect on it, because it is an interesting suggestion. I am grateful to her for it.
I was asked how much declarations and the full panoply of the costs associated with Brexit will affect businesses. The Committee will be aware that this has previously been estimated at £6.5 billion, a fact that has been in the public domain for some time. The impact assessment that has just been published has pushed the figure up to £7.5 billion. Although that is a significant increase of £1 billion, it appears to be related mainly to an increase in business activity and trade over the period measured, and also to a slight tweak to the methodology, rather than to any large rise in underlying costs.
The hon. Member for Aberdeen North raised the issue of the UCC. She will be aware that the Union customs code requires safety and security declarations. We are seeking to waive them and have clarified that we will continue the process of combining export and safety and security declarations. It has been deemed straightforward to incorporate aspects of this directly into our law, rather than to go via the UCC, but I am thankful for the question.
Question put and agreed to.
Resolved,
That the Committee has considered the Customs Safety and Security Procedures (EU Exit) (No. 2) Regulations 2019 (S.I. 2019, No. 1219).
Oral Answers to Questions
Jesse Norman Excerpts(4 years, 7 months ago)
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Mr Gregory Campbell (East Londonderry) (DUP)
The Financial Secretary to the Treasury (Jesse Norman)
The Government have listened to concerns expressed across the House about the loan charge, and, as the House will know, an independent review is now in progress under the leadership of Sir Amyas Morse. While it is under way, it is right for the loan charge to remain in force and for the Government to implement legislation on which the House agreed. The review will conclude by mid-November, to let anyone who may be affected know, and to give people time to plan in advance of the January self-assessment filing deadline. To help taxpayers who may need longer to pay, Her Majesty’s Revenue and Customs has confirmed again that there is no maximum time limit for payment plans.
Mr Bone
The loan charge is the worst form of retrospective taxation. It is causing real hardship and distress to law-abiding taxpayers, and this week it was reported that a seventh person had taken their own life because of it. How many more people are going to take their lives before the loan charge is scrapped?
Jesse Norman
Let me correct my hon. Friend on the facts. We have been notified of three suicides that may have some connection with the loan charge, and which have been referred to the Independent Office for Police Conduct. In one case there has been a referral back to HMRC, but in all other cases there has been no further development, so I do not recognise the picture that my hon. Friend has described. Let me also remind him that although these effects have been much bruited, there is also the question of collecting the several billion pounds of back tax that is due.
Nic Dakin
What is clear is that the retrospective loan charge is causing huge pain and upset as people’s livelihoods and homes are threatened. Will the Minister ensure that the review hears directly from people who have been so affected, and will he either suspend the loan charge or at least tell HMRC that those who have signed a settlement agreement can pause their payments until the review has been concluded?
Jesse Norman
I am grateful for the question. Of course any injury to individuals from any act of Government or their agencies is to be deeply regretted. I recognise that, and if it has happened here, it is appropriate for the House to feel that way.
I have no powers to direct Sir Amyas Morse. I understand that he is taking evidence from external sources, including the loan charge all-party parliamentary group and the Loan Charge Action Group, which acts as its secretariat. I have met the APPG and the secretariat separately. So the matter is being fully addressed. The details of settlement have been set out on gov.uk.
Mr David Davis
On the issue that my hon. Friend the Member for Wellingborough (Mr Bone) raised with the Minister, the hard fact is that seven people facing challenge or investigation for the loan charge have taken their own lives. He can attribute cause as he wishes. The fact is also that the distress has been caused by the historical incompetence of HMRC and the subsequent willingness of Ministers to use retrospective taxation. Are the Government going to give up on the premise of using retrospective taxation, or does it fall to the House to pass laws that will stop them doing so in future?
Jesse Norman
The legislation is not retrospective. [Hon. Members: “It is.”] There are defined circumstances in which HMRC and the Government may seek to use retrospective taxation, and they do so with extreme care and attention. All that I am doing is referring my right hon. Friend to the facts as reported to the IOPC. As he will be aware, these are immensely difficult cases in which many circumstances and factors may be in play.
Jesse Norman
The review is designed to assess whether the Government’s policy is appropriate, and it would be wrong to change it until the review has had chance to make a decision on it. The Treasury and the House have a great interest in supporting the provision of public services, which the recovery of tax avoided in this way, in many ways egregiously, is designed to fund.
Anne Milton
I honestly do not think that the Minister is paying attention. These comments are coming from Members behind him, not opposite him. [Hon. Members: “From all sides.”] These people followed professional advice and declared their arrangements to HMRC, which did nothing. Yet it is now going back and taxing them retrospectively, all the way back to 1999 in some circumstances. The Minister cannot stand at the Dispatch Box and just ignore what he is hearing from the Benches behind him.
Jesse Norman
Nothing could be further from the truth. We are carefully attending to concerns that have been expressed. That is why I announced changes in July and have written on two occasions to colleagues to inform them of changes and developments. That is why we have instituted this independent loan charge review, the purpose of which is precisely to scrutinise the extent to which Government policy is appropriate.
Mr Gregory Campbell
The Minister is bound to be aware of the scale of concern across the House and among those who are directly affected. He has outlined a date of mid-November. Immediately upon that date being reached, will he take urgent action to assist those affected?
Jesse Norman
I have no idea what the loan charge review will conclude, but I guarantee that we will look at its findings with all due speed and dispatch.
Justine Greening (Putney) (Ind)
Like many Members, I have constituents who have been egregiously affected by the loan charge. The Minister’s response is unacceptable from their perspective. He should suspend all the loan charge activity while the review is under way and until the Government have responded to it. What preparation is happening in HMRC for the policy shift if the review says that the loan charge is unfair and needs to be changed? How will he deal with my constituents who have already had to pay but may be proven to have paid erroneously?
Jesse Norman
I am unable to comment on what the review will conclude. We can certainly look at whether there may be changes that HMRC would take rapidly thereafter. It possesses the capacity to do so quite quickly if necessary, as does Government. We will have to review that moment when it comes.
Carol Monaghan (Glasgow North West) (SNP)
Jesse Norman
The hon. Lady is absolutely right to focus on the activity of the promoters. They are extremely ingenious in operating within the framework of law, but doing some very nasty and duplicitous things. They often operate offshore and it is extremely difficult to close them down when they are constantly mutating from one company to another. I assure hon. Members that we are looking at the problem extremely closely, and I hope to return to the House at some point fairly soon with some thoughts.
Mr Dominic Grieve (Beaconsfield) (Ind)
I worry that the Government characterise those who are suffering from the loan charge as in some way egregious tax avoiders, when it is abundantly clear that in the case of my constituents they acted on advice, openly, and in the belief that the scheme was approved by HMRC. I also worry that HMRC is behaving towards taxpayers in a fashion that is new, and in many cases, tax advisers say, unprecedented. I also think that the retrospectivity is deeply questionable.
Jesse Norman
I must say, I am surprised to hear a man of my right hon. and learned Friend’s legal standing and status regard this as retrospective, because it plainly is not. [Hon. Members: “It is!”] There are many parts of tax policy that have to look back to the basis of an asset or a liability, and that has happened here. In this case, HMRC has taken quite vigorous action over the years, in different forms, to let people know. Of course, it is subject to the loan charge review; we will see what that concludes. However, I remind my right hon. and learned Friend that these people were in many cases paying very little or zero in tax. [Interruption.] Of course the circumstances can differ, but there are a large number of people who knew, or should have known, that they were avoiding tax, and doing so un—
Several hon. Members rose—
Janet Daby (Lewisham East) (Lab)
The Financial Secretary to the Treasury (Jesse Norman)
That was a cruel blow for my right hon. Friend, Mr Speaker, if I may say so.
In answer to the hon. Lady’s question, the House will I am sure rejoice that between 2010 and 2019 the personal allowance has been increased by more than 90%, so that those on the lowest incomes do not pay any income tax, and since 2015-16 alone 1.74 million people have been taken out of income tax altogether. We will publish a full distributional analysis of the recent spending round alongside the next Budget, and it will also capture the effect of any budgetary announcements made at that time.
Janet Daby
Can the Minister explain how it is fair that a small handful at the very top have run into the distance, making up the top 10% of the population and owning 44% of the nation’s wealth?
Jesse Norman
The hon. Lady may not be aware that at the moment the top 1% of the country pay 29% of all tax. That is up from the 25% in 2010-11.
Christine Jardine (Edinburgh West) (LD)
Stephen Metcalfe (South Basildon and East Thurrock) (Con)
The Financial Secretary to the Treasury (Jesse Norman)
I thank my hon. Friend for that question. I have addressed the substance of it, but let me make a point about Sir Amyas Morse. I think that Sir Amyas is a superb choice. As my hon. Friend may be aware, in a debate in the House of Commons on 6 March 2019, the Chamber united across the parties in praise of Sir Amyas. The Chair of the Public Accounts Committee, the hon. Member for Hackney South and Shoreditch (Meg Hillier), called him
“a fearless advocate for what is good in the public sector and for challenging Governments of whatever party”.
The Liberal Democrat spokesman, the hon. Member for Oxford West and Abingdon (Layla Moran), said that he was not only “unfailingly courteous”, but had
“an intelligence of steel. He has a knack for calling out obfuscation, fudge and imprecision”,
and
“a reputation for being completely fair.”—[Official Report, 6 March 2019; Vol. 655, c. 1004-05.]
He is a very good choice to lead this review.
John McDonnell (Hayes and Harlington) (Lab)
Will the Chancellor give the House a quick fact-check of his speech yesterday? The Conservatives have cut funding for buses by £640 million a year. Yesterday, he announced nothing new; he simply reannounced £220 million from the spending review. His Government have cut £900 million a year from annual youth services budgets. Yesterday, he offered £500 million, possibly as a one-off. The National Infrastructure Commission says that we need £33 billion to roll out full-fibre broadband. Yesterday, he offered £5 billion. All of those promises will count for nothing if there is a no-deal Brexit. Has he not just followed the Cummings code: grab a headline, possibly wrap it around a bus and ignore the truth? But there is one figure that I would like to ask him about: 120,000. What significance does the figure 120,000 have for him?
Amber Rudd (Hastings and Rye) (Ind)
I have had heartbreaking meetings with constituents from Hastings regarding the loan charge, where I have heard tragic and sad stories about the destruction of families and their finances. Although I of course welcome the review that is to take place, may I urge the Chancellor to reconsider the position of not suspending the loan charge during the review period?
Jesse Norman
I do not know whether my right hon. Friend caught the discussion we had about this matter earlier, but the purpose of the review is to establish whether the Government are pursuing the right policy. It makes no sense at all to change the policy until we have heard from the review. I absolutely sympathise with the concerns that have been felt across the House, and both the Government and HMRC itself have taken steps to try to mitigate them.
Grahame Morris (Easington) (Lab)
Stephen Timms (East Ham) (Lab)
Jesse Norman
I do not have the number to hand, but I would be glad to write to the right hon. Gentleman with it.
David Duguid (Banff and Buchan) (Con)
I welcome the Chancellor’s commitment yesterday of £5 billion to support gigabit broadband across the whole of the United Kingdom. He will be aware that, historically, the Scottish Government have been responsible for the roll-out of superfast broadband, which is way behind what they promised, and not a penny of the £600 million that they announced in 2017 has been spent. Will my right hon. Friend confirm that future broadband funding will be paid directly to local authorities, bypassing the Scottish Government, who have failed rural constituents such as mine more than most?
John Cryer (Leyton and Wanstead) (Lab)
Can the Minister answer the question asked earlier by the right hon. Member for Hastings and Rye (Amber Rudd): what is the reason for not suspending the loan charge scheme until the inquiry is completed? It is a request not for a change of policy, but just to suspend the scheme.
Jesse Norman
The reason is that the inquiry is designed to test the policy, and the policy remains in place until the inquiry is over. If the policy were ended now or suspended, all that potentially would occur is more confusion if the inquiry took the view that, ultimately, the Government were in the right.
Fiona Bruce (Congleton) (Con)
I thank Ministers for providing funding to help evidence and establish the business case for reopening Middlewich railway station—a key priority for my constituents. What wider fiscal steps are they taking to support my constituency by supporting the northern powerhouse and midlands engine?
High-income Child Benefit Charge
Jesse Norman Excerpts(4 years, 8 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
It is a great pleasure to serve in this reconvened Parliament under your chairmanship, Mr Hollobone. I thank my hon. Friend the Member for South Thanet (Craig Mackinlay) very much for calling this debate and drawing attention to this important issue, and for his thought-provoking and expert speech, which very much reflected his professional experience as well as his political commitments. I very much welcome that. He raised a lot of issues, and a wide range of issues were raised by the hon. Members for Strangford (Jim Shannon), for Glasgow Central (Alison Thewliss) and for Oxford East (Anneliese Dodds). I will come to all those. Let me address some of them in my opening remarks and then come to the specific questions that were raised.
As you will know, Mr Hollobone, child benefit was introduced in 1977. It has always been, and it remains, a universal benefit payable to individuals who are responsible for what is referred to as a qualifying child or children. Before 2013, there had been significant growth in the use of the benefit—rightly and importantly so; of course, that is why benefits exist—but it was recognised that, at a time of austerity, there was an anomaly, in that more than £1 billion a year was being spent in child benefit on higher-rate taxpayers. That was felt to be not merely imprudent from a financial standpoint but morally problematic. It would mean, as it were, taxing working people on low incomes to pay for the child benefit of those who earned considerably more.
If it is true that, as the hon. Member for Oxford East said, it is now Labour policy to remove the high-income child benefit charge—she was perfectly clear about it, so I think it is true, but she is welcome to correct me if it is not—the Labour party needs to ask itself whether it thinks it appropriate to tax the wider population, including working people on low incomes, to pay the child benefit of those who earn considerably more. We also note that the cost to the Exchequer of such a policy is of the order of £1 billion to £1.5 billion.
Anneliese Dodds
I am grateful to the Minister for giving away. He is well aware that we opposed the measure at the time, as we did many other elements of the Government’s programme. We also criticised the tax cuts given at the same time to the highest earners and to profitable corporations, which in their magnitude over time were more substantial than what we are talking about now.
Jesse Norman
That is an ingenious attempt to link two issues that, in and of themselves, are not connected. One can have a policy on high income tax earners and the payment of child benefit to them and one can have an entirely separate policy about other aspects of the tax system. The question remains whether it is morally appropriate to give the benefit to those people, and the judgment in 2013 was that it was not the right thing to do. That was an important consideration.
If the hon. Lady is concerned about the wider picture, I remind her that—I think I am right in saying this—the top 1% of taxpayers pay a higher percentage of tax now than at any other point in our history.
Jesse Norman
I am keen to press on. If the hon. Lady wants to make another intervention, we will lose time that I can use to respond to other questions.
Mr Philip Hollobone (in the Chair)
Order. The intervention is in the gift of the Minister, but I draw the House’s attention to the fact that the Minister has only 5 minutes left.
Anneliese Dodds
Thank you, Mr Hollobone. I merely state that the Minister is correct in relation to income tax, but not in relation to other taxes.
Jesse Norman
The judgment made in 2013 was that it was appropriate to claw back some of the money paid to people on higher incomes and that everyone should make a fair contribution to removing the deficit while supporting those on the lowest incomes. I think that was the right judgment. Of course, for a minority of claimants where either they or their partner earn more than £50,000 in adjusted net income, there is a requirement to pay the tax charge or to opt out of receiving child benefit payments and therefore not pay the charge.
It is a fair criticism, made eloquently by my hon. Friend the Member for South Thanet and others from across the House, that the charge does not take into account overall household incomes, so it is possible—and it does happen—that a single parent earning more than £50,000 is liable to the charge while a couple each earning up to £50,000 is not. That is because, as he said, the charge is a tax, calculated in accordance with the principles of individual taxation at the individual level alongside other tax policy. Here we have one of those difficult decisions for the Government about what is the right thing to do. The judgment made in 2013 was that it was better to take that approach than to base a charge on household incomes, because that would require HMRC to assess annually both household composition and the incomes of everyone in the 8 million or so households eligible for child benefit, which would effectively introduce a new means test, creating a substantial administrative burden on both the state and families. That is the dilemma.
The effect of the charge is to introduce a high marginal tax rate. That is an unattractive aspect of the policy; we should be clear about that. If I may say so, it is not a salutary lesson in how not to withdraw a benefit, because the alternatives of not levying the charge at all or levying it on a cliff edge rather than by gradual withdrawal are worse. It is open to others to take the view that one of the alternatives is better, and my hon. Friend may do so, but not subject to the fiscal constraints in which we have operated.
A series of questions were raised about HMRC communications. As my hon. Friend recognised, the Revenue and Customs took considerable steps to raise awareness of the higher income child benefit charge. It wrote to about 800,000 affected families when the charge was introduced. It also ran a high-profile advertising media campaign and included a prominent message about the charge in 2 million letters to pay-as-you-earn-only higher rate taxpayers. There was a considerable communication process.
Today, to respond to the question from the hon. Member for Strangford, information on the charge is included in packs for new parents telling them how to claim child benefit. The front page of the child benefit application form includes a prominent message about the charge to help people make a decision on whether they should claim and be paid child benefit, about the importance of claiming even if they do not receive payments, and about the important issue of eligibility, which was rightly highlighted in the debate. Guidelines are available online formally through gov.uk and through innumerable organisations and groups.
As my hon. Friend the Member for South Thanet mentioned, individuals who pay the charge need to make a self-assessment tax return and may face a failure to notify penalty if they do not. I think he will know that HMRC announced a review of cases where a failure to notify penalty was issued for three tax years. It reviewed 35,000 cases and responded by reviewing the amount for over 6,000 people.
There are many other points to cover in the short time that remains. My hon. Friend said that 500,000 people have been forced into self-assessment. I am happy to write to him on that. As he will be aware, the current number paying the charge through tax returns is 293,000. Of course, there are some 40 million people in pay-as-you-earn. He also said that the charge has dragged 1.2 million people into the system. I am not quite sure about that, but if he wants to contact me, I will be happy to assist him further.
The hon. Member for Glasgow Central said that the charge is a gendered policy. I do not think that is true at all, and many other aspects of Government policy do not reflect anything like that position, as she will be aware. For example, there is extensive work in supporting women as entrepreneurs and women in business.
Jesse Norman
I really cannot; I have two seconds left.
The hon. Member for Oxford East mentioned fiscal drag. That is an important issue, but I do not think she is right that the charge has removed the universal nature of child benefit; it merely allows for a charge against it.
HMRC Powers and Taxpayer Safeguards
Jesse Norman Excerpts(4 years, 9 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
Her Majesty’s Revenue and Customs (HMRC) have a vital purpose, to collect the tax revenue that pays for the UK’s public services and benefits system. The Government recognise that public trust is essential to a healthy and effective tax system. UK citizens must know that their tax authority is fair, careful and even-handed and that it adheres to those core values in all its work.
But citizens also need to be reassured that HMRC have the powers they require to ensure that everyone pays their fair share of taxes. In some areas, particularly where HMRC are faced with fraud, evasion and complex avoidance, those powers are necessarily far-reaching. It is therefore of great public importance that they are exercised in a way that maintains public trust, with appropriate oversight and operational checks and balances, and statutory safeguards that enable taxpayers to dispute HMRC’s decisions or complain about their treatment.
I am grateful to the House of Lords Economic Affairs Committee for its report “The Powers of HMRC: Treating Taxpayers Fairly” and for the opportunity to discuss these matters with them. I have also discussed matters of trust at HMRC in detail with officials and outside stakeholders, and I am today announcing several actions HMRC are taking to maintain and develop public trust in their operations.
Professional Standards Committee
The context in which HMRC operate is changing faster than ever before. New technology presents significant opportunities to make tax administration easier for both HMRC and for taxpayers. But it also presents new challenges, as a small minority of taxpayers who wish to escape paying tax seek new ways to find unfair advantages.
As HMRC adapt to these changes, it is important both that they continue to maintain public trust in their approach to new technologies, and that the powers given by Parliament are implemented carefully and remain subject to appropriate oversight and safeguards.
So HMRC will establish a new professional standards committee to advise the Commissioners of Revenue and Customs. The committee, which will take advice from a range of independent experts, will consider, among other things, issues relating to the implementation of HMRC powers. The committee will not consider individual cases or Government tax policies. HMRC will publish details of the committee’s membership and terms of reference in the autumn.
Powers and Safeguards
The House of Lords Economic Affairs Committee proposed a review of all powers granted to HMRC since the conclusion of the powers review in 2012.1 have considered this carefully and concluded that a full review of HMRC powers is not necessary at this time. The powers granted to HMRC since 2012 were properly scrutinised before being granted by Parliament. The Government’s view is that they remain necessary and proportionate. I have, however, asked HMRC to evaluate the implementation of powers introduced since 2012 in relation to the powers and safeguards principles, engaging with stakeholders, including taxpayers and their representatives. This will be published in early 2020.
Adjudicator
The adjudicator’s independent role in complaints handling is a core component of ensuring public trust in HMRC, and of HMRC’s evolution as a service organisation.
HMRC will undertake a comprehensive review of the findings identified in the 2019 adjudicator’s report and will publish the results of the review by the end of this year. HMRC are working with the adjudicator to ensure that they have effective mechanisms in place to learn quickly and appropriately from complaints and, if necessary, to make changes to their operational policy and processes.
To enable better access for taxpayers to the adjudicator service, HMRC are also developing a secure digital channel for complaints.
Support for Taxpayers
HMRC understand that some taxpayers will always need extra help in their dealings with them and that others may need additional support at a point in time because they are dealing with a difficult life event. Some taxpayers may become anxious or distressed as a result of compliance activities, or when they get into debt. Ensuring that people who need support are treated with empathy and dignity is vital to maintaining wider public trust in HMRC.
HMRC have provided tailored assistance to taxpayers who need extra help and those in vulnerable circumstances since 2014 via their extra support service and also work closely with the voluntary and community sector. Working with their new customer experience committee, and drawing on the experience of the committee’s independent, external advisers, HMRC have recently embarked on a programme to strengthen the support they provide to taxpayers who need extra help. Importantly, this includes extending the extra support service to people who may need additional help to deal with HMRC investigations and to help resolve disputes wherever possible without litigation. HMRC will report on the effectiveness of these measures in their next annual report.
HMRC will continue to work closely with external representatives through their forums, such as the additional needs working group and individual stakeholder forum, to understand taxpayers’ needs better and to improve support for taxpayers.
Transparency
HMRC have undertaken to increase transparency and enhance public trust by publishing more data and information about the exercise of their powers. HMRC will engage with stakeholders, including taxpayers and their representatives, to identify what further data and information HMRC should publish in support of these goals.
This year, as a first step towards that commitment, HMRC will expand the range of performance and management information they publish in their monthly and quarterly performance publications. Previous reporting focused on specific aspects of their telephony and post processes, for instance, call waiting and post turnaround times, as well as compliance yield figures. From August HMRC will publish further information, including but not limited to, their debt management, registrations and repayment services.
Taxpayer experience
Compliance enquiries are a necessary and important feature of HMRC’s work in collecting the right amount of tax. Maintaining public trust in HMRC requires that these enquiries are carried out, but also that they are done in an appropriate way. Compliance enquiries can be worrying for taxpayers and HMRC are committed to ensuring that their procedures are accessible and impartial and that HMRC officers treat taxpayers with professionalism and respect. This includes taking into account the specific circumstances of taxpayers.
HMRC are reviewing taxpayers’ experiences during compliance enquiries. Drawing on taxpayer feedback, this work will look at how each stage of an enquiry or investigation can affect taxpayers. It will seek to identify improvements in the process and draw out appropriate common standards and expectations. This work includes a review of the content, language and tone of letters, to ensure that they are clear, courteous and tailored appropriately to the needs of the taxpayer, including those who need extra help. In this, HMRC are working closely with a range of stakeholder groups and forums to develop best practice, which should help HMRC to improve the way that they interact with taxpayers.
The Government will provide a further update to the House of Lords Economic Affairs Committee later this year on all of the areas of work outlined in this statement.
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EU Agreements with Third Countries
Jesse Norman Excerpts(4 years, 9 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
The Government are undertaking a programme of work to replace EU international agreements with bilateral agreements ready for a UK exit from the EU either in the event of no deal or at the end of the proposed implementation period. This is essential preparation for the UK’s withdrawal from the EU to ensure that the UK can, where relevant and possible, maintain the benefits of these agreements, thereby providing continuity and stability to businesses and individuals.
As part of this programme, officials in HM Treasury and HM Revenue & Customs are working with their international partners to replace EU Customs Co-operation and Mutual Administrative Assistance (CCMAA) agreements with UK-third country bilateral agreements. These agreements will provide a legal framework for the exchange of information between the UK and international partners on customs matters and continued co-operation between the parties’ customs authorities, both facilitating legitimate trade and supporting international efforts in fighting customs fraud. They also fulfil domestic legal requirements for Authorised Economic Operator Mutual Recognition Agreements (AEOMRAs), which deliver important trade benefits to some UK businesses.
In cases where the other party’s domestic law allows, the “replacement” UK-third country CCMAA agreements will include provision for them to enter into force upon signature, often referred to as “definitive signature”. The parties would thus be bound by these agreements upon signature, although the agreements’ provisions would not have effect until the EU CCMAA agreements cease to apply to the UK. Use of definitive signature in this case would enable the UK and its international partners, in the event of EU exit without a deal, to transfer without interruption key customs agreements that are currently in place by virtue of the UK’s membership of the EU. This is because there will be no change in effect of the agreement due to it being a replication of the arrangement the EU currently has in place with the third country. While many international treaties are expressly subject to ratification, it is also common in both UK and international practice, where practicable, for treaties to enter into force upon signature; In UK law, where a treaty enters into force upon signature, it is not subject to the procedures for parliamentary scrutiny as provided in section 20 of the Constitutional Reform and Governance Act 2010. However, as CCMAA agreements are straightforward bilateral agreements, and rely on provisions in the Taxation (Cross-Border Trade) Act 2018, which has already been approved by Parliament, the Government consider that definitive signature is appropriate in these instances.
The Taxation (Cross-Border Trade) Act 2018 provides the necessary powers for the UK to create a stand-alone customs regime once the UK exits the EU. In particular, section 26 of this Act allows for the UK to share information on customs matters with international partners and therefore provides the necessary legal basis from a UK perspective for the co-operation between parties outlined in the CCMAA agreements.
Once signed by both parties, a copy of each UK bilateral CCMAA agreement subject to definitive signature will be laid before Parliament as a Command Paper in the treaty series for information in the normal way.
Where third country partners’ domestic law does not permit them to be bound by signature, thereby requiring ratification by them, the CCMAA agreement will not use definitive signature but will be drafted to provide for consent to be bound by a two-stage process of signature and ratification.
[HCWS1731]
Finance Bill 2019-20
Jesse Norman Excerpts(4 years, 9 months ago)
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The Financial Secretary to the Treasury (Jesse Norman)
The Government have consulted on a number of tax policies announced at Budget 2018. Today, the Government are publishing responses to these consultations alongside draft legislation to be included in the Finance Bill 2019-20. This is in line with the Government’s commitment to publish the majority of tax legislation in draft before it is introduced to Parliament.
Policy decisions in response to consultation
In response to consultation, the Government have made a number of policy decisions which are reflected in the draft legislation, relating to:
Off-payroll working rules from April 2020—the Government have previously announced that they will improve compliance with the off-payroll working rules in all sectors by bringing them into line with the public sector from April 2020. The reform will make organisations responsible for determining whether the existing rules apply to the contractors they hire and ensuring the necessary employment taxes are paid. As announced at Budget 2018, outside the public sector, this change will only apply to medium and large-sized organisations. The draft legislation makes clear when non-public sector organisations, including unincorporated organisations, will be considered to be small and therefore not within the scope of the reform. The draft legislation also includes provisions to ensure that all parties in the labour supply chain are aware of the organisation’s decision and the reasons for that decision, and will introduce a statutory, client-led status disagreement process to allow individuals and fee-payers to challenge the organisation’s determinations.
Digital services tax—the Government have previously announced a tax on the UK-linked revenues of certain digital services to ensure that large multi-national businesses pay their fair share towards the public services we all rely on. Following consultation, the Government have made changes to the detailed design to better ensure the legislation delivers on its objectives. The treatment of cross-border marketplace transactions will be changed in cases where a transaction involves a non-UK user located in a country that levies a DST on similar transactions. There will be various changes to the administrative framework. The DST will now be payable annually rather than in quarterly instalments, and it will be assessed on a group-wide basis. An exemption for financial and payment services from the definition of an online marketplace will also be included.
Corporate capital loss restriction—the Government are introducing a new corporate capital loss restriction that will restrict the use of carried-forward capital losses to 50% of the amount of annual capital gains from April 2020. The draft legislation maintains the fundamental design features that were set out at consultation such as the commencement date and the amount of annual deductions allowance. The exemption for the policyholder share of basic life assurance and general annuity business (BLAGAB) gains and losses has been extended to cover all BLAGAB losses that offset BLAGAB gains, and some clarifications have been made to ensure that the regime operates as intended. The Government will also provide exemptions for gains within the oil and gas ring-fence and the REIT property rental business ring-fence. Further provisions have been made in respect of one day accounting periods, connected party losses and loss streaming rules.
Stamp taxes on shares consideration rules—The Finance Act 2019 introduced a targeted market value rule to prevent contrived arrangements involving transfers of listed securities to connected companies to minimise stamp taxes on shares liability. Following consultation, the Government are extending the market value rule to the transfer of unlisted shares to a connected company. The draft legislation also removes an anomaly where a double-charge can arise on certain company re-organisations.
Technical tax changes
In addition, the Government are publishing a small number of technical tax changes that need to be made to ensure legislation works as intended. These include measures relating to:
Capital gains tax: Relief for loans to traders—extending the scope of the capital gains tax relief in respect of loans to traders, so that it applies to loans made to traders located anywhere in the world and not just the United Kingdom.
Share loss relief—extending the scope of the income tax and corporation tax share loss relief, so that it applies to shares in companies carrying on a business anywhere in the world, and not just the United Kingdom.
Legislation with immediate or retrospective effect
The Government have published legislation for the following measures that will have immediate or retrospective effect:
Deferred corporation tax payments on cross border transfers—this legislation will allow companies to defer payment of tax that arises on certain transactions with group companies in the European economic area. This is intended to provide certainty for UK business following a recent first-tier tax tribunal decision. The legislation will apply to corporation tax that becomes payable for accounting periods that end on or after 10 October 2018.
Scope clarification: lease accounting standards—minor amendments to clarify the scope of legislation on changes to lease accounting standards introduced in Finance Act 2019.
Previously announced policy changes
The Government are also publishing legislation for the following policy changes announced earlier this year:
Windrush compensation scheme—payments will not be subject to income tax, capital gains tax or inheritance tax when made under the Windrush compensation scheme.
Future responses
The Government previously consulted on proposals and subsequently draft legislation last year to reform penalty regimes for late filing and late payment across taxes. The Government remain committed to these reforms. The timing and details of implementation will be announced at a future fiscal event.
As announced at Budget 2018, to tackle the hidden economy, the Government are considering a tax registration check linked to renewal processes for some public sector licences. This is known as “conditionality”. The timing of any change will be announced at a future fiscal event.
For other consultations, the Government are continuing to consider the responses and will respond in due course.
Draft legislation is accompanied by a tax information and impact note (TIIN), an explanatory note (EN) and, where applicable, a summary of responses to consultation document. All publications can be found on the gov.uk website. The Government’s tax consultation tracker has also been updated.
[HCWS1713]