Taxation (Post-transition Period) (Ways and Means)

Debate between Jesse Norman and Bridget Phillipson

Ways and Means resolution & Ways and Means resolution: House of Commons
Tuesday 8th December 2020 Commons Chamber

[Bridget Phillipson]

That is, frankly, a ludicrous statement for the right hon. Gentleman to make.

With epic irresponsibility, successive Conservative Governments have wasted this time. Still businesses are not clear how they will be trading next month. Still people living along our land border with Ireland are unsure what daily life will bring in four weeks’ time. That epic irresponsibility comes in two forms. First, there is the immediate irresponsibility—the irresponsibility to businesses and working people; to everyone who needs to be able to plan their future and their finances; to everyone who wants the simple security, stability and certainty that a responsible Government should provide; to everyone who believed the Chancellor of the Exchequer when he said on the “Today” programme a year ago tomorrow,

“We won’t need to plan for no deal because we will have a deal”;

and to everyone who believed the former International Trade Secretary when he told us that a trade deal with the EU would be

“one of the easiest in human history.”

That irresponsibility has meant months and years of uncertainty and insecurity for so many families and so many firms. Make no mistake: the Conservative party has now lost forever any claim to be the party of business. That irresponsibility means that people in Fermanagh, Galloway, Anglesey, Kent and all around our key ports today still face the risk of their roads being clogged with queues of lorries for months on end. That irresponsibility—a failure to engage with the problems of our country, to look ahead and to plan, to lead and to rise to the level of events—is sadly of a piece with the Government’s wider failures in recent months.

The country has suffered terribly from the pandemic: the worst economic hit in the G7; the worst level of excess deaths in Europe; a Government who are again and again caught on the hop, scrambling to catch up with the consequences of their own incompetence; a Government who never use the time they have to get ahead of the problems that they know are coming. It is all too familiar. It is the story of everything that this Government touch.

If the Government had got ahead of the issues that our country faces, we would have had a Budget, not a statement, in the summer. Instead of multiple episodes of the winter economy plan, we would have had a Finance Bill with proper time for debate, and proper time for businesses to plan on that basis. But just as the Government were behind the curve on covid, so they are behind the curve on Brexit. And here we are, with tax decisions for next month being bundled together into a last-minute Bill, which they have not yet even published—inaction, incompetence, and scrambling to fix the mess that they have created themselves, again and again, month after month.

[Jesse Norman]

I am awfully grateful to the hon. Lady for giving way. Could she possibly name any EU treaty that has not been concluded by the EU at the last minute?

[Bridget Phillipson]

I look forward to seeing in detail what the Government intend to bring forward on our future trading relationship, as that will determine so much around what our businesses will need for years into the future. I believe that our country is a great place to do business. I want all our businesses to succeed into the future. That is why it is so important that we see a good deal for our country, and that the Government use the time they still have available to them well. They have not done so yet. I look forward to hearing more from the Minister later about exactly what the Government intend to set out in this legislation, because he has not really offered a great deal so far this afternoon.

The Government’s irresponsibility has not been limited to inaction and incompetence in the face of a ticking clock. There is also the greater irresponsibility that we have seen in recent months—an irresponsibility of which I fear the consequences may last for generations—and that is the irresponsibility with which this Government have made it clear that they are prepared to break international law. The world will not forget that just weeks ago the Government introduced legislation to tear up an international agreement that was signed less than a year ago. We welcome the fact that they now propose to withdraw those measures, but we fear that the damage has been done. The Government threatened to break the law to get their own way. What message does that send to Britain’s friends and allies with whom we have signed that agreement, with whom we have other agreements and with whom we hope to conclude future agreements?

Finance Bill

Debate between Jesse Norman and Bridget Phillipson

Report stage & Report: 2nd sitting & Report: 2nd sitting: House of Commons
Thursday 2nd July 2020 Commons Chamber

[Jesse Norman]

If my hon. Friend is asking questions, he ought to stay for the next debate, because he is abusing the privilege of this debate. I thank him for his suggestion of a revenue-raising possibility for the Government; we take all those in great heart.

[Bridget Phillipson]

Could the Minister say a little more about the social investment tax relief? I am not aware that he responded on that point.

[Jesse Norman]

The hon. Lady is absolutely right. Let me address that. As she knows, the relief remains in place until next year. Even its doughtiest supporters would agree that so far it has not been anything like as effective as anyone would have liked or as had been projected or anticipated. Only £11.2 million has been raised under it in the period 2014 to 2018-19.

We are looking at it closely. As I mentioned in Committee, I am in discussions with leading figures across the social investment world about whether we can get some more visibility on the sources of funds that would use such a relief and the sources of projects that those funds would support. If we do not get that and we cannot have that in a slightly more concrete form, it looks like quite an empty request, but there may be other things that we can do to support social investment. As the hon. Lady knows, I have written a book on the big society. It is an area that I care deeply about, so I am happy to respond and I am grateful for her question.

[Bridget Phillipson]

We do not intend to divide the House on the new clause, but I will make a few brief points in response to what the Minister has said. I am glad that he shares our assessment that the current situation and system are unwieldy, and therefore we look forward to seeing real progress in that area. Frankly, it is not good enough that of those 362 tax reliefs, only 15 have had published evaluations since 2015, at a time when costs have risen.

During these extraordinary times, we need to see much more from the Government, not just on tackling tax avoidance, as we discussed at some length yesterday. There needs to be a renewed focus on taxpayer value for money, with greater opportunities for scrutiny of tax reliefs in this place and from external experts. Although we are not seeking to divide the House, I hope that we will see progress in that area. It is an issue to which we intend to return. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Finance Bill

Debate between Jesse Norman and Bridget Phillipson

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Jesse Norman]

My right hon. Friend is absolutely right. My point was a slightly different one. I have not yet come to the thrust of what he is suggesting about mandation, but in the first instance Government should be seeking to support, promote, energise and activate more voluntary compliance, precisely in order to increase a public norm of voluntary reporting, which then does a lot of the job and perhaps isolates the groups that decide not to do it. There are plenty of other contexts in which that approach of voluntary, then moving to mandatory, has been quite successful, including in tax.

[Bridget Phillipson]

The Minister talks about the voluntary nature of compliance, but it is my understanding that EU rules require some element to be reported. Could he clarify? Is that the position, or is reporting entirely voluntary?

[Jesse Norman]

The answer is that what I am talking about is a voluntary disclosure by those companies. I am not aware of a separate EU requirement for them to do so. Certainly, it is the voluntary disclosure that is the thrust of what I am talking about. Many other companies have the capacity to make voluntary declarations, and I am indicating in response to my right hon. Friend the Member for Sutton Coldfield my support for more of those companies doing that. I am only doing that, however, as a preliminary to coming to his point about mandation. We have taken the view that for the time being this approach should remain voluntary and that further legislation will not be needed until and unless we can get public country-by-country reporting agreed on a multilateral basis.

--- Later in debate ---

[Jesse Norman]

I am sorry, but I have been really generous in giving way. I have to allow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) time to speak, and I have an awful lot of material remaining, including on new clauses and amendments and contributions made by colleagues. I do not know how many minutes she wants, but perhaps she could give me a bit more time.

[Bridget Phillipson]

indicated assent.

[Jesse Norman]

In that case, I will indulge the hon. Lady.

[Jesse Norman]

We know that the incentive exists for all the reasons why we get voluntary compliance in a whole variety of areas—that is to say, groups with particular concerns, press organisations and companies. We know that there has been a revolution in corporate social responsibility, although it has not in many ways been an adequate revolution, because it does not extend in some respects to paying tax, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) highlighted. There is a role that Government can play, in terms of improving the norms and setting a bar. This is a reasonable, staged approach.

It is important to have a level playing field for the reasons that I have described, and that applies to tax transparency as it does elsewhere. If a multinational group exceeding the country-by-country reporting threshold operates in the UK, HMRC will, in the vast majority of cases, already receive the report and is already using it for risk assessment purposes. Given that, we do not believe that it is appropriate to introduce these new requirements at this stage, but I understand the principles set out by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking, and the debate has shown that those are widely shared. The argument we are having is over the nature of the approach and the implementation of a broad set of principles with which Members across the House generally concur.

I will turn to the comments made by Members in the debate. The hon. Member for Houghton and Sunderland South has been very generous with her time, and I have covered most of her remarks. The debate rightly touched on the issue of business rates. My hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) will know that we are publishing a business rates review, which will specifically include online forms of taxation and invite public discussion on those. That is another part of the same process of trying to engage more widely and not just recruit information and knowledge but set expectations and norms about the way in which firms should be paying tax.

The hon. Member for Ealing Central and Acton (Dr Huq) talked about sunlight being the best disinfectant. She is right, but she was quoting Louis Brandeis from 1914, who was dealing with forms of corporate thuggery that make what we see today modest by comparison.

The hon. Member for Wirral South talked about the distinction between justice in principle and justice in fact. Of course, she is absolutely right. There is a view at the moment of the nature of the corporation, and it is very widespread—more in America than in this country even—that companies are run in the exclusive interest of their shareholders. That is not true in the UK. That is not, as a matter of legal fact, true in this country. The shareholders are entitled to the residual proceeds but companies are run—it is in the Companies Act 2006—in the interest of their members.

Finally, the hon. Member for Strangford (Jim Shannon) made a very good point. I think I am right in saying that “nation of shopkeepers” was coined by Adam Smith—but then I would say that, wouldn’t I?

[Bridget Phillipson]

Having listened to the debate, we are keen to see greater scrutiny and transparency in this area, so I seek to press the amendment to a Division.

Question put, That the amendment be made.

The House proceeded to a Division.

Finance Bill (Tenth sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 10th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[Jesse Norman]

On a point of order, Mr Rosindell. On behalf of the Exchequer Secretary and myself, I thank you and your co-Chair, the excellent folks at Hansard, our Whips, our Parliamentary Private Secretaries and the officials who have supported us throughout the Committee. Of course, they wrote this note, so I hope they will be aware of the generous terms in which I single out, in particular, Edward Ferguson and Charlie Grainger; our Bill team at the Treasury, consisting of Kate O’Donoghue, the Bill manager, as well as Helena Forrest, Nye Williams-Renouf and Samuel Fenn; and a host of other people. The Opposition do not have access to the same level of resources; it would be astonishing if they could replicate the expertise to which we have access, and I am profoundly grateful for that expertise.

I thank all the members of Committees, on both sides of the Chamber, for making this such an energised and productive Committee, especially considering the great difficulties under which it has had to operate.

[Bridget Phillipson]

Further to that point of order, Mr Rosindell. I would also like to put on record my thanks to you and Ms McDonagh for being so fair and generous in allowing us to speak at some length about our concerns on the Finance Bill. You were exceptionally generous—at times, and arguably today, a little too generous—when it came to some of the wider conversations we had around interesting and irrelevant matters around Scottish separatism. Doubtless we will return to that at a later stage.

I put on record our thanks to the Clerks for all the help that they have offered us, particularly around amendments and the order of proceedings—their expertise at this time is particularly appreciated by us—and to the Hansard reporters.

This is the first opportunity I have had to lead on the Finance Bill in Committee. It has been made much easier thanks to the wonderful support of Members on the Opposition side, not least our wonderful Whip, my hon. Friend the Member for Manchester, Withington.

I thank all members of the Committee for their contributions. I am sure the Financial Secretary has enjoyed talking to more technical aspects of the Bill, although he did particularly relish opportunities to elucidate on Adam Smith and Edmund Burke, and on the transcendental nature of what might be regarded as temporary, or otherwise, when pressed by my hon. Friend the Member for Streatham.

I also thank those individuals and stakeholders who have been very generous in providing advice and information to the Opposition, and, of course, the House of Commons Library, whose staff are, as ever, very prompt and professional in their response to all research requests.

Although this is a small Finance Bill, compared with some recent efforts, I thank my staff and those in the office of my hon. Friend the Member for Ilford North for their dedication and hard work, and for allowing us to hold the Government to account. We have had a wide-ranging debate, and I look forward to returning to some of these issues on Report.

Finance Bill (Eighth sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 8th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The Opposition have considerable sympathy with the hon. Lady’s arguments and the amendments tabled by the SNP. We have many concerns about clause 94, which seems buried, given that it is of such considerable importance for the years ahead.

The change to the language in section 15 of the Taxation (Cross-border Trade) Act 2018 has worrying implications for the Government’s adherence to the World Trade Organisation’s dispute settlement system. Replacing the requirement for authorisation under international law with the more nebulous consideration of appropriateness is extremely concerning, and implies that the Government may seek to sidestep international law regarding trade disputes. The matters set out in section 28 of the 2018 Act already give the Government considerable flexibility over what they consider to be appropriate action in the light of international law. It is effectively up to the Secretary of State to decide which international agreements are relevant to the exercise of the function. Loosening up the language even further in this clause is thus highly questionable.

The proposed changes seemingly downgrade the Secretary of State’s responsibilities when it comes to their international obligations. Having regard is nowhere near as onerous as having authorisation. That would allow the Secretary of State to operate at a much lower standard of requirement, and move away from recognised EU standards. We therefore seek to understand the reasoning behind the change. What is wrong with the current provisions regarding the variation of import duties in trade disputes?

There are further questions to which we seek answers from the Government. What will they use the clause for? It does not detail what kind of dispute is in question. How might the Trade Remedies Authority be involved in the decision-making process? Could this be an upshot of the digital services tax? The US has already found similar measures by France to be trade-restrictive, leaving the office of the United States trade representative to authorise retaliatory tariffs, as we discussed last week in Committee with reference to the digital services tax. While both parties are in the process of reaching a deal over the matter, it is possible that the Government wish to introduce this clause in preparation for a similar confrontation with the US. I hope the Minister can assure us that that is not the case, but why do the Government wish to reduce their responsibilities in adhering to international law?

The amendments tabled by the hon. Member for Glasgow Central and her colleagues go some way towards responding to that. The production of a report by the Chancellor no later than a month before any exercise of the power regarding the economic impact of such an action might enable Parliament to better scrutinise the actions taken through the clause. As it stands, other than through the scrutiny of primary legislation, Parliament has little say over international trade. I welcome the amendment to seek approval of any regulations deriving from the clause by resolution of the House of Commons, in the spirit of parliamentary scrutiny. However, the Government hold a considerable majority, and therefore I question how far the amendment would go in practice towards ensuring that the Government act in accordance with international law.

I welcome the amendment regarding the requirement for the Government to detail the conditions under which they would consider it appropriate to vary the rates of import duty under the clause. However, I believe that the implications of the wider clause are of significance and that the Government ought to provide these details during debate, rather than by September, although we are sympathetic to the intention behind the amendment. I stress that I would like the Minister, when he responds to the hon. Lady’s concerns, to explain the reasoning behind this change, what kinds of disputes the clause would cover, and whether the Trade Remedies Authority will be involved.

If the changes in the clause are in anticipation of a dispute with the US over the digital services tax, does this not involve giving the Government permission to ignore international trade rules when disputes arise, undermining the authority of the WTO in the process? I hope that the Minister will provide assurances on the issue of appropriateness and respond to the concerns that the hon. Lady and I have, because this is a significant change. We have reservations about the measure that the Government are putting forward, and we would like to understand much more about their intentions.

[Jesse Norman]

I thank hon. Members for their comments, and pay tribute to my colleague the Exchequer Secretary for rattling through the clauses we debated earlier with such effectiveness. The hon. Member for Glasgow Central has raised important questions, which I want to address properly, so I will give this issue quite a considerable amount of discussion because it is an important aspect of the Bill.

Clause 94 makes a change to the criteria in section 15 of the Taxation (Cross-border Trade) Act 2018 to ensure that the UK can vary the amount of import duty in the context of an international trade dispute. Provisions in various international trade agreements allow for the UK to vary the amount of import duty applied to goods in the context of an international trade dispute. There is existing provision in section 15 of the 2018 Act that gives the Secretary of State the power to

“make regulations varying the amount of import duty”

where

“a dispute or other issue has arisen between Her Majesty’s government…and the government of a country or territory”.

Currently, section 15 of the 2018 Act is worded in a way that could be interpreted to mean that a binding ruling of the World Trade Organisation is needed before the UK can impose a duty, which would be restrictive. In certain circumstances, countries are within their WTO rights to impose additional tariffs quickly in relation to the actions of other WTO members and, where necessary, outside of WTO dispute proceedings.

In addition, since section 15 of the 2018 Act was enacted, there have been developments in the wider sphere of trade policy, including increasing trade protectionism and problems with the WTO dispute settlement system. The WTO appellate body has stopped functioning, and it has now become possible for final and binding resolution of a WTO dispute to be blocked by a party to the dispute by appealing a panel report. That means it may not be possible to apply retaliatory duties, even where a panel report has found in the complaining body’s favour and the respondent has failed to bring itself into compliance.

Against this background, it is essential to ensure that the UK has the appropriate tools to respond to any unilateral measure or action taken by a WTO member that is not compatible with its obligations to the UK and that harms UK interests. Clause 94 therefore amends the original provision to ensure that, after having regard to relevant international arrangements, the Government may deal with such an issue by varying the amount of import duty. The EU is seeking similar powers, it should be noted, through amendments to its enforcement regulation, because it too recognises the importance of being able to respond quickly in the event of illegal measures being taken against it. What we are talking about is therefore in parallel to a process seeking similar powers within the EU.

At present, section 15 of the 2018 Act permits variation of import duty only where the UK is authorised under international law to deal with the issue. Clause 94 will amend section 15 to allow the Government to vary import duty where they consider it appropriate, having regard to relevant matters, including the UK’s international obligations, as set out in section 28 of the 2018 Act. That amendment will allow the UK to respond more effectively to developments in the international trading system, in line with international laws and our rights as an independent WTO member.

To come to the question asked by the hon. Member for Glasgow Central, there are a number of situations in which it would be appropriate to vary rates of import duty. The most likely situation is that in which the UK has successfully challenged another WTO member’s measures in the WTO dispute settlement system, and the other member has failed to bring itself into compliance. The UK could then impose retaliatory measures, including higher import duty against the other member. That is not contrary to and does not undermine the international rule of law; it insists on the international rule of law, in the face of measures that could disable it.

Import duty variations might also be imposed following a dispute brought under a free trade agreement or in the context of a WTO member applying a safeguard measure but failing to agree an adequate level of trade compensation for the adverse effects caused by the measure. It is also possible that the UK could lose a dispute under a free trade agreement and could agree compensation with another country. The compensation could take the form of lower import duty on certain goods.

In each of those circumstances, the Government are still required by the 2018 Act to have regard to our international arrangements that are relevant to the exercise of this power. It need hardly be said that the UK strongly supports the rules-based international trading system and appropriate enforcement of WTO agreements. It is because appropriate enforcement would be otherwise lacking that this clause is being brought into effect.

Amendment 14 would require the Government to state the conditions in which they would consider it appropriate to vary rates of import duty. As you will know, Ms McDonagh, international trade disputes are broad and varied, depending on the nature of the international agreement under which they are conducted and on the subject matter of the dispute. It would limit the Government’s ability to respond effectively in a particular dispute if they were required to list in advance conditions for varying import duty in a dispute. I have already set out several situations in which it would be appropriate to vary rates of import duty. Examples have also been provided in the explanatory notes to both the Taxation (Cross-border Trade) Act 2018 and the Finance Bill.

Amendment 15 would require the Government to seek the approval of the House of Commons before making regulations varying rates of import duty in an international trade dispute. It is important to say that clause 94 is not an unchecked power. Any specific tariff measure introduced under section 15 of the 2018 Act would require secondary legislation, as is prescribed in that Act. The requirements set out in amendment 15 are therefore not necessary. Secondary legislation will involve the public passage of a piece of legislation. The Government need flexibility to respond effectively to state-to-state disputes, but with the understanding that they must have regard to the international arrangements to which the UK is party.

Amendment 16 would require the Chancellor of the Exchequer to lay before the House of Commons a report containing an assessment of the economic and fiscal effects of the exercise of the powers in clause 94, including a comparison of those fiscal and economic impacts with the effect of the UK being within the EU customs union, and an assessment of any differences in the exercise or effects of those powers in respect of England, Wales, Scotland and Northern Ireland.

Information on the expected impacts of import duty variations will be provided in the documentation accompanying any and each statutory instrument. However, it would not be appropriate to publish extensive detail, because doing so could undermine the effectiveness of the UK’s response. It would also not be appropriate to compare the economic and fiscal impact of the use of the powers in clause 94 with EU customs union membership. First, the EU may not itself have a dispute with the WTO member against which the UK has brought an action. Secondly, even if the EU were applying retaliatory measures against that WTO member, the EU’s retaliatory tariffs would be based on the impact on the EU27 and would not take into account impacts on UK industries and sectors. The amendment would therefore invite the Governments and others to compare apples with oranges.

Finance Bill (Seventh sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 7th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. My hon. Friend and I are sharing the duties on the Front Bench today, and it is I who rises to speak to clauses 72 and 73. The clauses make changes to ensure that additions of assets made by UK domiciled or deemed-domiciled individuals to trusts made when they were non-domiciled cannot be treated as excluded property. As that explanation indicates, it is a somewhat technical measure, which means that such additions are within the scope of inheritance tax.

The clauses have been introduced following a decision by the Court of Appeal. To give some background, the inheritance tax treatment of trusts depends on the domicile status of the person setting up the trust when it was made, known as the settlor, and the location of the assets. If the settlor is UK domiciled, inheritance tax is chargeable on their worldwide assets. By contrast, non-domiciled individuals do not pay inheritance tax on assets in trusts situated outside the UK.

The long-established position of Her Majesty’s Revenue and Customs has been that a settlement is made when a trust is created, and that a settlement is also made when assets are added to that trust. That means that assets would be within the scope of inheritance tax if they were added to a trust by an individual who is currently UK domiciled, even if the trust was set up when the same individual was non-UK domiciled. The Court of Appeal decision created uncertainty by ruling that a settlement was made only when assets were first added to the trust. That ruling meant that the domicile of the settlor for later additions to the trust would not matter. In turn, all subsequent settlements of assets into the trust would not be liable for inheritance tax in the UK. The measure was announced in the autumn Budget 2018, and stakeholders have had nearly two years’ notice of the change.

In July 2019, the draft legislation was published, which provided an opportunity to give feedback to Her Majesty’s Revenue and Customs. HMRC received feedback from a range of bodies including the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Institute of Chartered Accountants in England and Wales, the Tax Faculty and PricewaterhouseCoopers by the deadline for responses. HMRC then made a number of amendments based on the feedback provided, and stakeholders have since provided further feedback regarding the legislation.

Together, the measures will confirm that additions of non-UK assets by UK domiciled or deemed-domiciled individuals to trusts are chargeable for inheritance tax, even when the trust was originally set up while that individual was non-domiciled. The measures will also ensure that transfers between trusts made by a UK-domiciled individual are chargeable for inheritance tax. That will affect UK-domiciled or deemed-domiciled individuals who created an offshore trust when they were previously non-UK domiciled and have subsequently made additions of assets to that trust.

Although the measure will apply only to a small number of individuals, the tax saving for them could have been significant, and there have been claims for tax repayments as a result of the case. The clauses will ensure that the legislation is applied as intended and all tax is collected as expected. The changes introduced by the clauses will add clarity and remove any doubt from the legislation by confirming HMRC’s published and widely accepted views. I commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to see you back in the Chair, Mr Rosindell. We regard the measure as a welcome imposition to provide for a fairer tax system. HMRC figures indicate that the number of individuals who live in the UK but pay no tax on their offshore income has fallen, with the number of UK-based individuals with non-domiciled tax status falling by 13% on the previous year. HMRC believes that that is explained by individuals switching to domiciled status and other individuals leaving the UK tax system. Thus the clauses reflect that particular change. However, there are some issues reported by stakeholders.

Responding to clauses 72 and 73, the Chartered Institute of Taxation states that among its members transfers between trusts are most commonly undertaken for family or related reasons, and without any intention to avoid inheritance tax or to circumvent the excluded property rules. It argues that the main thrust of the legislation should be to limit additions by the settlor after they become deemed or actually UK domiciled.

The institute expresses concern about some scenarios in which property could inadvertently be brought into the scope of inheritance tax because a change is made to a trust, not an addition of assets, that could be treated as a resettlement, or trustees make a transfer between two settlements, both set up when the settlor was non-domiciled. In neither case is inheritance tax avoidance being attempted. There are some situations where trustees, not the settlor, are involved in transferring between two settlements, both set up when the settler is foreign domiciled, or when the second is set up by the trustees of the first. We believe that there should be no loss of excluded property status because of the changing status of the settlor. I would be interested to hear the Minister’s assessment of those concerns.

Secondly, both the Institute of Chartered Accountants in England and Wales and the London Society of Chartered Accountants were critical of the potential for retrospection. The former argued that if clause 72 is

“to be treated as always having been in force, this will result in unexpected IHT charges arising as a result of past events.”

The institute says:

“Given that the clause is not countering avoidance but is changing long-standing rules that are familiar to trustees and are clearly stated in the existing law…new legislation on this point should not affect events that happened earlier than the measure is enacted, ie Royal Assent.”

Similarly, the London Society of Chartered Accountants believes that this

“clause changes the IHT status of trusts to which assets are added. This change will have effect from the time that the trust was set up, so is retrospective. However, as the clause is not an anti-avoidance measure but is just a change to the law, retrospection is not appropriate and the clause therefore does not follow Parliamentary convention.”

I understand that these comments presume that the individuals in question do not seek to avoid tax when transferring assets between trusts, but I would be grateful if the Minister responded to these concerns.

Last, I heard the Minister’s comments, but the Institute of Chartered Accountants in England and Wales has raised the lack of a consultation period or of any follow-up, despite being led to believe that that would happen after a meeting with HMRC in November 2018. It reported that

“trustees of offshore trusts are unlikely to have considered these changes in the necessary detail”

and had concerns that there would be

“insufficient time for trustees to take advice to help them understand the full implications and…whether they want to take any action to unwind structures.”

In working with the intention of the measures the Government have introduced, I would be grateful if the Minister responded to those concerns and addressed the lack of a consultation period.

[Jesse Norman]

I am grateful to the hon. Lady for her questions and for her support on this technical but important measure.

The hon. Lady asks about unanticipated negative effects. I am happy to put on the record that HMRC has given reassurance that it will adopt a cautious approach if there is a case in which a taxpayer may accidently taint a trust that contains a mixture of excluded and non-excluded property. Hopefully, that will address many of the concerns about unexpected consequences that she touched on.

The hon. Lady asks whether this measure is retrospective. As she will be aware, we do not believe that it is retrospective. The key point is that HMRC’s application of the legislation, and therefore the legal position, was widely accepted in practice before the Court of Appeal decision put that position in doubt. The effect of it is going to be that individuals have been liable to the tax owed in the spirit of the legislation. Formally, clause 72 is not retrospective because it does not create any new changes pre-Royal Assent, but we recognise the concern that is raised. It is true that in some cases there may be what I would describe retroactable, and not retrospective, effects. That is precisely because HMRC and the Government are seeking to restore what might be referred to as the position as it had always been understood previously. That is the intended effect of the legislation.

The hon. Lady asks whether there should have been more consultation. As I outlined in my speech, the Government have had this in the public domain for a considerable period and discussed it, with plenty of occasion for people to conform their tax affairs to what is, after all, only a reaffirmation of existing tax law through legislation. There is also the counterpart problem, which the hon. Lady will understand: if the clause is not introduced now, it may allow opportunities for individuals to avoid paying inheritance tax on assets they put into trust or on properties transferred between trusts. I am sure she would not wish to abet or support those opportunities and that she would wish, overall, to join us in protecting revenue and providing certainty to taxpayers.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73 ordered to stand part of the Bill.

Clause 74

Relief for payments to victims of persecution during Second World War era

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Bridget Phillipson]

The Opposition welcome the provision. As the Minister says, it is a very important measure. Exempting from inheritance tax compensation payments made to the survivors of the Kindertransport is a just measure for those who had to face the devastating experience of being torn from their families as children in order to escape persecution. The House of Commons Library states that around 100,000 children were brought to the UK under the Kindertransport scheme, but of course many of those survivors have since passed away. It is only right that in the spirit of the Kindertransport fund all survivors receive their compensation payment in its fullest form and that that remains the case if the compensation is inherited.

According to the claims conference, to be eligible for payment survivors have to have been under 21 when the Kindertransport took place, between November 1938 and September 1939. However, the UK set an age limit of 17 for those transported. The oldest would therefore be born around 1921 or 1922, suggesting that they would be nearly 100 if they were alive today. The average age of the children who were transported was nine, so many would be in their mid-nineties today. Given those figures, we know that many people claiming compensation from the compensation fund will be survivors’ inheritors, so it is welcome that the payment is not subject to inheritance tax. However, I gently urge the Government to consider the issues that child refugees face today, and I urge Ministers to show the same level of commitment and dedication today that our country demonstrated in the past.

The Kindertransport survivor and incredible campaigner Lord Dubs worked tirelessly to protect child refugees following our withdrawal from the European Union, but the Government’s amendment of clause 37 watered down the UK’s commitment to protect unaccompanied child refugees in Europe who seek to reunite with their families in the UK. I hope that the Government will review their approach to child refugees and take seriously their commitment to protect child refugees fleeing violence and persecution in our present, just as they have taken seriously compensating child refugees of the past. Meaningful dedication to supporting child refugees requires both.

[Jesse Norman]

I thank the hon. Lady for her comments. She spoke very well about the Kindertransport scheme. As the Committee knows, the Government stand by our position on child refugees, and this country has a proud record in that area.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Stamp duty: transfers of unlisted securities and connected persons

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Bridget Phillipson]

The Opposition welcome the measures implemented by these clauses to minimise the scope of continuing avoidance of stamp duties by extending the stamp duty and stamp duty reserve tax market value rule to the transfer of unlisted securities to connected companies. However, I raise a point regarding the impact of the clauses.

HMRC’s impact assessment of the policy notes that there will be a negligible impact on 250 to 350 businesses in the first year, disproportionately affecting small and microbusinesses. It estimates that the arrangements are most likely to affect private companies with a small number of stakeholders, such as owner-manager businesses, with an average value of £2.5 million. These may include family businesses, many of which we understand to be struggling in the face of the current pandemic. What assessment has the Minister made of this, and who is really the intended target of these clauses?

The Chartered Institute of Taxation expressed concern that unintended consequences could arise from clause 76 due to significant additional costs that are disproportionate to the tax at stake in many cases. It goes on to say that this

“may in some situations prevent commercially advantageous transactions, with no avoidance motive, from going ahead. The…vague description of policy rationale and the contrived arrangements being targeted has prevented stakeholders from assisting in designing a targeted rule so as to reduce the unintended consequences.”

Similarly, legal firm Cleary Gottlieb notes that

“the new rule is not limited to cases of stamp duty or SDRT avoidance, and it should not be assumed that transactions driven entirely by commercial considerations will fall outside its scope.”

I will be grateful if the Minister explains how the Government will seek to minimise unintended consequences of this measure being the targeting of businesses that are not seeking to avoid stamp duties.

Respondents to the consultation suggested that it would be preferable to introduce a targeted anti-avoidance rule into the legislation, or to extend the general anti-abuse rule or the disclosure of tax avoidance scheme provisions. What consideration have the Government given to inserting a targeted anti-avoidance rule into the legislation?

Last, the Chartered Institute of Taxation points out that, in relation to clause 77, there are a number of circumstances in which a shareholding of 25%—required for this exception to section 77A of the Finance Act 1986 to apply—will be an excessive hurdle, reasoning that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding is at least 10% would be more appropriate to cover a wide range of commercial scenarios. I will grateful if the Minister will address those concerns.

[Jesse Norman]

I am very grateful to the hon. Lady for the questions she raises. Let me take them in order.

On whether these measures will affect most small businesses or organisations, as the hon. Lady highlights, a relatively small number of organisations will be affected. The measures were subject to consultation, and interestingly the respondents were satisfied that there would be little impact on commercial activity as the measures were suitably targeted, and expressed some pleasure that the concerns they raised during the policy consultation about the impact of a more wide-ranging measure had been heard. This is, of itself, a tightly focused measure. It falls—where it falls—on a relatively small number of organisations, as I said.

However, it is important to pick out the logic of what I think the hon. Lady is saying. We all recognise the importance of combating the pandemic. She will be aware that the Government have spent many tens of billions of pounds on supporting businesses, families and jobs during this process. This measure is about something else: avoid a form of tax avoidance, or rather heading off a form of tax avoidance; curbing and preventing it. I do not think people’s concerns about the pandemic should be allowed to obtrude on that.

The hon. Lady asked a question about unintended effects. Our analysis is that precisely because of the targeting that was noted during the consultation phase, unexpected effects, while they can never be ruled out, should be limited and minimal. It is also important to say that there will be a modest additional administrative burden that will decline over time as people become accustomed to the new rules.

The hon. Lady asked whether it would be better to address this with a more targeted anti-avoidance rule, but this is quite a targeted anti-avoidance rule. It picks out particular forms and is restricted to company reorganisations of a certain kind, and it builds on the existing approach for listed shares. I therefore think that it addresses her concerns.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clause 76 ordered to stand part of the Bill.

Clause 77

Stamp duty: acquisition of target company’s share capital

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Bridget Phillipson]

I raised these points in an earlier debate, but I will do so again so that the Minister can respond.

On clause 77, the Chartered Institute of Taxation points out that there are a number of circumstances in which a shareholding of 25%, which is required for the exception to section 77A of the Financial Act 1986 to apply, will be an excessive hurdle. Its reasoning is that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding be at least 10% would be more appropriate to cover a wide range of commercial scenarios. I would be grateful to hear the Minister’s response on that issue.

[Jesse Norman]

The hon. Lady raises a very specific circumstance. It would be appropriate for me to write to her about the specifics of the decision about percentages, rather than try to go through the argument here.

The discussion has already been had between HMRC and stakeholders, and therefore it has to some extent already been addressed through the consultation process, but I am happy to revisit the issue.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.

Clause 78

Call-off stock arrangements

Question proposed, That the clause stand part of the Bill.

Finance Bill (Fifth sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 5th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. I am grateful to all members of the Committee for joining us this morning; I am also grateful it is not too hot outside. It is a rare moment in Parliament when one gets to introduce a new tax—the digital services tax—on to the statute book. With the clauses grouped together, it is appropriate to spend some time in my opening remarks outlining the overall architecture of the tax and how it is designed to work; then we can pick up specific details in the clauses as we come to them.

Clauses 38 to 44 introduce legislation to enact the digital services tax, and they set the scope of this legislation. DST will levy a 2% charge on the revenues that groups receive from providing specific digital services to UK users. The specific services in scope of the charge are search engines, social media, and online marketplaces. I will explain later why those three services are in scope of the new tax. DST will apply only to groups with annual global revenues from services of more than £500 million. It will then be charged on the revenues only where they are attributable to UK users, and only on amounts above £25 million.

An exemption will exclude online financial services marketplaces from the definition of an online marketplace. Businesses making low profit margins on their in-scope activity will be able to pay the tax at a reduced rate, while loss makers will pay nothing; that will minimise the distortions that a tax on revenues can create. To further reduce those distortions, a relief for certain cross-border transactions is also included. It will reduce by half the revenues subject to DST where those revenues are derived from an online marketplace transaction between a UK user and a user from a jurisdiction that also levies a DST. As this is a new tax, there are also extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax concepts to reduce the burden of implementing the new tax for what we hope will be a limited time.

The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy. That economy brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under current rules, digital businesses can derive significant value from UK users, but in many cases they pay little UK tax because international corporate tax rules do not recognise the user-generated value when allocating the right to tax profits between jurisdictions, so undermining the fairness and sustainability of our tax system. It is therefore now widely accepted that the rules require updating.

The Government remain at the forefront of international efforts to secure a comprehensive long-term solution to the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a fair and proportionate manner. DST is a temporary measure, until appropriate global reform is in place.

As a temporary measure, DST is targeted at those business models that rely most significantly on user-generated value and that place the greatest strain on current corporate tax rules. It is the Government’s judgement that these services are search engines, social media platforms and online marketplaces. Of course I recognise that a broad range of digital services could be said to derive value from their users, and I am aware that some hon. Members have called for the scope of DST to be extended to include services such as media streaming. However, the services in scope of this tax are those that rely most significantly on user participation in the creation of value: for example, while media streaming platforms may utilise user contributions in the form of reviews or recommendations, users of a social media platform often create the content that is shared across the platform, and users of an online marketplace provide the market liquidity required for the marketplace to function. Also, while we are engaged in OECD discussions about finding a long-term global solution and exploring the case for broader reform, we judge that it would not be appropriate to implement a temporary tax on a broader basis.

DST follows the recommendations of the OECD’s 2018 interim report. Targeting DST at those services that derive the greatest value from their users minimises the distortive consequences of a tax on revenues and minimises the risks of introducing a temporary measure before global reform is agreed. That will ensure that DST is proportionate, while still raising up to £2 billion over the next five years. That in addition to the UK taxes that digital businesses already pay and, as I have said, reflects the value they derive from UK users.

I will now summarise the clauses that form this part of the Bill—clauses 39 to 44. Clause 39 sets out that DST will apply to all revenues that arise in connection with in-scope digital service activity. That is deliberately a very broad test; it ensures that however these businesses make money from their in-scope activity, that revenue will be subject to the tax. The clause also sets out that revenues should be apportioned on a just and reasonable basis when they are not wholly in connection with an in-scope activity.

Once a group’s digital services revenues have been established, the next step is to determine how much of those revenues is attributable to UK users. Clauses 40 and 41 set out the five cases where revenues are attributable to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. The first case concerns the revenues that a marketplace earns from facilitating transactions between users; this will include a marketplace’s commission, for example. These revenues are attributable to UK users whenever a UK user is a party to the transaction. It does not matter whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border transaction between a UK user and a non-UK user, all of the marketplace’s revenue from that transaction is regarded as attributable to UK users, although this may be subject to cross-border relief.

The second case concerns revenues that arise in connection with accommodation and land in the UK—for example when a user books a holiday let on a marketplace. These revenues are attributable to UK users when the property is in the UK. Where the property is overseas, the revenue will only be UK digital services revenue when the purchaser is a UK user. Some marketplaces charge users to list individual items for sale; under the third case, those revenues will be treated as attributable to UK users whenever the user listing the item is a UK user.

The last two cases apply to social media services and internet search engines, as well as to online marketplaces. The fourth case deals with online advertising revenues. These revenues are attributable to UK users when the advertising was viewed by a UK user; the focus is on the viewer of the advertising, not on who paid for it. The fifth and final case is a catch-all, to include revenue that is not trapped by any of the other rules but that is received in connection with UK users. This will cover any other type of revenue earned by social media services and search engines—for example, subscription fees.

Clause 42 defines each of the services in scope of DST. The tax will be charged on the revenues that businesses earn from providing a social media platform, search engine or online marketplace to UK users. The definitions are designed to be targeted and as clear as possible. They have been carefully drafted after extensive consultation periods with business to ensure that they apply as intended. Alongside the three named services, some businesses facilitate online advertising on other websites. The clause ensures that revenues from that source would also be subject to DST when the advertising service derives a significant benefit from operating one of the three named services.

Clause 43 clarifies the meaning of “user” and “UK user” for the purposes of DST legislation. Clause 44 sets out the exclusion of online financial marketplaces from the definition of online marketplaces. The highly regulated nature of financial services limits their ability to engage with users in the ways that other marketplaces do. As such, the clause ensures that they are not subject to DST.

Together, clauses 38 to 44 set out the scope of DST. The digital services tax is a clear signal of the Government’s commitment to ensuring that tax rules reflect the development of our modern economy. Ultimately, as I have said, our strong preference is for a global solution, which will be the most comprehensive and enduring way to address concerns about the current corporate tax rules. Until such a solution is in place, however, DST will ensure that digital businesses pay UK tax that reflects the value they derive from UK users. I therefore commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It a pleasure to see you in the Chair, Mr Rosindell. Like the Minister, I will use this opportunity to lay out our broad views and concerns about the operation of the digital services tax. We will pick up some of the technical issues with the clauses as they emerge later.

We welcome the principle behind the introduction of a digital services tax. It is regrettable, if not unsurprising, that it has taken the Government so long to get to such a measure, given the wider inertia when it comes to making sure that multinational companies pay their fair share of tax. The gap between the profits that digital companies derive from UK users and how much they pay in tax is stark. That fact has been evident for some time and is recognised by Labour Members, which is why for years we have consistently pressed for a far more ambitious approach.

It is not right that, at a time when high street shops are struggling in an unprecedented way, the likes of Amazon have been allowed to pay a much lower tax rate than British bookstores and other businesses of a comparable nature. Our local high streets are incredibly important; they are the backbone of our local economies. Many family-run businesses have found this time incredibly difficult, but they also have many long-standing problems because of the way they have been undercut by some of these big players, which do not have the same overheads or level of corporate responsibility and do not make the same impact in our communities. During this crisis, many of our local businesses—our small businesses on the high street—have adapted to do all they can to make sure that vulnerable people receive deliveries and support, and that they are open as much as they can be within the guidelines. It is only right that we make sure that the bigger players with large profits make a contribution too.

There is still much unfairness built into the system. As constituency MPs, we only have to visit the businesses on our high streets that have been operating for many decades to appreciate the scale of disillusionment that many of those family-run firms feel about the lack of fairness in the system and the need for change. The economic crisis we are facing only strengthens the call for action because it has compounded the impact on our high streets, which have struggled and will continue to struggle. It is such a shame that, in many of our communities, affluent and perhaps less affluent, there are clothes shops that had their shutters down even before we felt the impact of the lockdown.

Vibrant local high streets are central to a sense of pride in the community and to making sure that we can support local jobs and businesses. We want to do everything we can to support that, but hand in hand with the pressures facing many small businesses during this time, there has been an unexpected boon for digital and tech giants, as we have all had to adapt to life in different and difficult circumstances during the lockdown. It is only right that we ensure that those with the broadest shoulders help to bear the cost of the recovery that we must now achieve as a country. It is more important than ever to make sure that those big players are taxed properly, reasonably and fairly.

--- Later in debate ---

[Jesse Norman]

We now come to clauses 45 to 50. The last discussion was quite a long one, but hopefully it was helpful in framing the overall legislation within which we can now discuss the more specific elements, so we may not need to dwell as long on these parts.

Clauses 45 to 50 set out how the digital services tax charge will be calculated. The Government have sought to ensure that the DST is proportionate and charged only to those businesses that are best able to generate significant value from their users. As such, it will apply only to groups with annual global revenues from the named services of over £500 million. DST will be charged only on those revenues where they are attributable to UK users and only on amounts above £25 million.

Clauses 45 and 46 set out the thresholds and the allowance, and they set the rate of the charge at 2%. A DST tax rate of 2%, as we have discussed, ensures that digital businesses will make a fair and proportionate contribution to our public finances. Clause 46 also sets out how each member of a group should calculate their DST liability.

The Government recognise that some businesses have concerns about levying a tax on revenues rather than profits. That is why our strong preference is for a long-term profits-based global solution. That can be implemented only following an international agreement, however, so although the DST applies to revenues, the alternative basis of charge will reduce the charge for businesses with low profit margins or losses on their chargeable UK activity. Clauses 47 and 48 therefore set out the alternative basis of the DST charge and how DST liability should be calculated on that basis.

Online marketplace transactions will occur between two users, and those users may be based in different jurisdictions. Where one of those users is a UK user, revenues attributable to the transaction will be subject to the UK DST. Where the other relevant jurisdiction also levies a DST, however, there is a risk that the revenues could be taxed twice. Clause 49 sets out the relief for certain cross-border transactions, minimising that risk by ensuring that, in such cases, only 50% of the relevant revenues will be subject to the UK DST. Finally, clause 50 sets out when DST payments are due and payable.

Together, the clauses mean that the DST charge is proportionate while ensuring that digital businesses pay a UK tax that reflects the value they derive from UK users. Overall, as I have noted, the tax is expected to raise up to £2 billion over the next five years in a proportionate and responsible way.

[Bridget Phillipson]

As the Minister said, we have discussed at length the broader implications and the necessary measures set out in the clauses, but I have some technical issues relating to them.

On clause 46, the Institute of Chartered Accountants in England and Wales has said that,

“given the potential compliance burdens imposed by the DST, it is important to ensure that smaller digital businesses are not burdened by DST, so the inclusion of a £25m allowance looks reasonable but should be kept under review.”

On a similar but more general note, the Chartered Institute of Taxation has warned that some businesses will be undertaxed while others may be overtaxed. As we have said before, it is our position on the Opposition Benches that in these challenging times, those with the broadest shoulders should bear more of the load. Can the Minister confirm that he will keep the measure under review to ensure that companies, particularly smaller companies, do not pay more than their larger counterparts, to avoid the distortions that he talked about emerging all the time?

There are perhaps more substantial concerns around clauses 47 and 48 on the so-called safe harbour provision. As HMRC has stated, that is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a lower operating margin from providing in-scope activities to UK users. Its inclusion is obviously well-intentioned, but some assurances will be welcome. It is clear that multinational companies are often adept at structuring their operations in a way that reduces their tax liabilities. Are there safeguards in place to ensure that the safe harbour provision is not used for such a purpose?

Clause 48, for instance, contains a list of excluded expenses that cannot be deducted from a company’s net profit, which goes on to form the basis of the alternative charge. The list, however, does not include royalties, and I am grateful to TaxWatch UK for drawing attention, through the research that it has done, to the implications that that might have, because royalties are at the heart of tax avoidance practices perpetrated by some digital tech companies. It describes how most of those companies’ profits are attributable to various types of intellectual property that they have developed.

By artificially locating the intermediate and ultimate legal ownership of the intellectual property in avoidance-facilitating jurisdictions and tax havens, those companies can avoid tax on UK royalties, and ultimately reduce their taxable profits in the UK. Why, therefore, are royalties not included on the list of excluded expenses? Surely the Minister would accept that that is a potential failure to adequately tackle the use of royalties to reduce tax liabilities, and might further incentivise the use of the safe harbour provision by larger tech companies, which will in turn be able to reduce their taxable profits through their practices with regard to royalties.

More broadly on the safe harbour provisions, the Institute of Chartered Accountants in England and Wales has also said that in spite of those, it is still concerned that low-margin businesses could face a very high rate of tax on UK-allocated profits. Will the Minister address those concerns?

On clause 49, the Chartered Institute of Taxation has highlighted that the interaction with other national tax regimes, including broadly similar but subtly different unilateral taxes in other countries, will still mean some double taxation, which the Minister talked about in our earlier debate. It describes this as a rough and ready way of reducing such instances by reducing the revenue chargeable by 50% if it arises from a transaction where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. Does the Minister agree with its assessment? What analysis has been done in that area? Has consideration been given to other possible approaches to reduce the risk of double taxation?

[Jesse Norman]

I thank the hon. Lady for her questions. She asks whether the £25 million threshold has the effect of clobbering small businesses. Our view is that the purpose and effect of the thresholds is to levy the tax on the businesses that are best able to afford it, and that to have a global revenue base of £500 million and revenue attributable to UK users above the £25 million threshold is in itself a basis that excludes a vast number of small start-ups—which might turn out to be wildly successful and effective unicorns. We do not believe that the threshold will inhibit growth. If this is a direction in which tax will be going over time, as I rather think it is and as colleagues have suggested, an awareness of how tax will bear on future revenues and profitability is in itself an important part of any business’s market development.

The hon. Lady raised a concern about the safe harbour alternative charge arrangements. That is designed to ensure that the DST is not punitive for businesses with low profit margins or losses, and I think that is appropriate. At the margin, there is a risk that some businesses might try to reconfigure their activities to qualify for that, but I think it will be relatively clear to the Revenue from self-assessment when a business that is intrinsically high-margin is disguising that or is, essentially, seeking to utilise the alternative charge unfairly. It is worth saying that the alternative calculation applies only to in-scope UK activity, so businesses will not be able to reduce profit margins by using out-of-scope or non-UK activity. That is an important safeguard.

The hon. Lady asked about royalties. The tax is designed to work based on the consolidated figures of groups as groups. The concern about royalty payments is that, typically, royalties are used within groups to move revenues around, so, from a gross standpoint, they tend not to fall within the scope of the revenue charge, and they should not. Of course, from a tax-principle perspective, there are perfectly legitimate royalty uses and payments that one would want to continue to allow in any case. The alternative charge takes into account only expenses in the consolidated accounts, and is not therefore principally touched by the concern about intra-group royalties, for the reasons that I have described.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Clauses 46 to 50 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Sixth sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 6th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Clauses 51 to 55 come under the broad heading of a duty to submit returns in relation to the digital services tax. Having established that a group has DST revenues above the thresholds, it is appropriate for a group member, the responsible member, to provide Her Majesty’s Revenue and Customs with the necessary information to assess the tax. That is a sensible way of requiring groups to administer the tax. They need to submit a return to Her Majesty’s Revenue and Customs only when there is a potential liability, and they can stop doing so when it is clear that there will not be a future liability.

The group will be required to continue to submit a single return for each accounting period until an officer of HMRC provides a direction for the group to stop. The direction to stop will be given only when it appears that the threshold conditions will not be met. Put simply, the responsible member will be the point of contact between HMRC and the rest of the group. The effect is to make administering the new tax easier for the groups that will be liable for DST and for HMRC. It means that only a single return for HMRC will need to be produced when a group assesses its DST liability.

Clause 51 sets out which members of the group can be the responsible member and what can prevent a company from being a responsible member. Those are sensible precautions to reduce the burden of the tax as much as possible, recognising that it is intended to be a temporary tax. As we have already noted in Committee, groups are dynamic with members joining and leaving all the time. The best choice as the responsible member for a group at one stage may no longer be the best choice later. It is therefore necessary for groups to have the ability to change the responsible member, but where that happens, it is important that nothing is lost by the change of company, which is achieved by clause 52.

Clause 53 sets out the duty for a group to notify HMRC when it has met the DST threshold conditions set out in clause 45. Groups will have 90 days from the end of the accounting period in which they meet the threshold conditions to make the notification. It is important to say that we have listened to businesses in requiring notification after the period to which the notification relates, which gives groups the opportunity to collect the fullest information possible before making contact with HMRC to notify it of any liability.

As I have mentioned, groups are organic and details will change. Clause 54 sets out the duty for a group to notify HMRC when there is a change to the details registered under clause 53. Finally, clause 55 sets out the obligation of the responsible member to submit a return of information to HMRC.

The clause also introduces schedule 7, which provides further details about the obligations of the group and HMRC in relation to the return and ensures by that means that the figures and the return are complete and accurate. As the tax is new, a new set of rules is required to ensure that HMRC has the powers necessary to ensure that the correct amount of tax is paid by those from whom it is due. The new rules borrow and draw from existing concepts that will be familiar to many tax practitioners. The schedule does not grant HMRC any further powers in relation to the tax that do not already apply to other existing taxes. It grants companies the protections from those powers that they would expect from a fair and balanced tax administration. With that in mind, I commend the clauses and the schedule to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

We have no real issue with the clauses, as they are understandable in the context of the overall measures proposed.

I will draw the Minister’s attention to some technical concerns raised by the Institute of Chartered Accountants in England and Wales, which I hope he can address. In September 2019, it wrote:

“Given the complexities which a business could encounter in identifying and quantifying DST revenues, we are concerned that notification within 90 days of the accounting period is unhelpful. It would make sense to tie this notification into the deadline for filing accounts—6 months for a plc or 9 months otherwise”.

The institute also states that there should not be a need to notify HMRC in advance of the payment deadline, as

“businesses will require more time to review their accounting records, analyse and quantify revenues to decide whether they are”

required to pay under the tax. It recognises that such obligations would not pose a problem for larger digital companies, but would be more problematic for marginal cases requiring “advice and review”, so

“the notification deadline should be aligned with the payment date.”

Regardless of whether we believe that the measures go far enough, or whether the tax is set at an appropriate rate, we believe that its implementation and administration should be fair, to give businesses—in particular those that fall on the margins of the scope of the measure—adequate time to provide accurate calculations of what they should be paying. I invite the Minister to respond to those points to provide some clarification.

[Robin Millar (Aberconwy) (Con)]

As much as we have heard excellent contributions on matters of delivery and on technical matters, which are far beyond my knowledge of accounting and such, it strikes me that, as we are talking about the introduction of a new tax, this is the moment at which we should reflect on its meaning and on the purposes behind it.

The phrase that caught my eye is in clauses 53 and 54 —“Duty to”. My sense is that tax should not be, or should not only be, a catch-up exercise—chasing after developments in industry and the disruption brought to different sectors. Nor should it be about how much money we gather, although that is clearly of keen and close interest to us. It is also about the privilege of membership of a community and of participation in the UK economy. I find it interesting that it falls to a Conservative Government to introduce a tax such as this, which I consider to be progressive in its nature and intent.

In support of that, I pray in aid consideration of the principle of permanent residence, for example. Permanent residence was traditionally attached to the ability to trade in a nation, and tax therefore followed. If not trading in—that is, without that permanent residence—someone would be trading with, so coming under a different regime. Now, we have disruption in the digital economy, which means that we are trading in even though there is no permanent residence.

I also point to the development in the understanding of value over the years. At one point, value was measured in amounts of gold, so the question was one of setting a price, or offering gold in return for something; that was in essence a measurement of weight. The free trade argument slugged that one out with the mercantilist over many years, but the free trade argument won because it made the case effectively that the value of gold could be expressed in terms of the labour required to extract it. Discussions of value therefore moved from a physical object to the notion of labour.

As the Financial Secretary to the Treasury mentioned earlier, we are now talking about user-generated value. The notion of value itself has changed, and there are many debates about what value is and how it is best measured and captured. I suggest that they are extremely relevant to a discussion of tax, especially the introduction of a new one.

To look at tax solely in terms of being punitive, a “fair share” or a certain quantum, is to miss the point. Returning to the issue of leadership that was mentioned this morning, tax properly administered is surely more than a statement of how much money we can collect. It is more a statement of what we are trying to become—tax used as an instrument of government. What kind of society do we wish to become? It is not even, as might be suggested, a statement of how well we can co-ordinate with other nations. For this Government—I am interested in whether the Minister agrees with me—it is a statement of leadership, of what we are trying to become as a nation and, in particular, how we are trying to capture value through the proper encouragement of those industries as they participate in our economy.

--- Later in debate ---

[Jesse Norman]

This group of clauses is again of a rather technical character and deals with some of the more detailed technical requirements of the new tax.

Clause 56 sets out the definitions of the terms “group” and “parent”, which are used to define the companies and revenues that will be taxable for the purposes of the digital services tax. It should be read along with clause 57, which makes it clear that the definition of “group” will be the same as that used for accountancy purposes. The choice of using accountancy definitions to define the group is, again, to reduce the burden of this new tax and to make it as straightforward and comprehensible as possible. Wherever possible, the Government are seeking to minimise the burden of administering the tax by using concepts that already exist and are in common use, if for other purposes.

Clause 58 sets out the conditions that determine if a group has remained the same in different time periods. That will be relevant when members of a group change through acquisition, disposal or otherwise over time. Like the changes to the responsible member, these everyday business transactions of companies joining and leaving groups should not prevent the tax operating correctly and this clause ensures that these changes do not prevent the tax from applying.

Finally, clause 59 sets out the treatment of two or more entities that are treated as stapled to each other and are subsidiaries of a “deemed parent”. This is a technical measure designed to enable the tax to work as intended in the widest possible circumstances. I therefore commend these clauses to the Committee.

[Bridget Phillipson]

These clauses are technical in nature and we have no questions to ask of the Minister.

[The Chair]

I cannot imagine that the Minister wants to sum up.

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[Jesse Norman]

These clauses, which are again of a thoroughly technical nature, provide more details on some of the aspects we have been discussing already in relation to the digital services tax.

Clause 60 sets the time period over which a group will account for revenues from relevant business activities for DST. This will usually be the period of account of the parent company of the group, which reduces the administrative burden as far as possible for these groups. They will be able to use figures they collect for other purposes wherever possible.



Clause 61 sets out how revenues and expenditure will be apportioned when a group’s period of account does not coincide with an accounting period. For example, many groups make up their accounts to 31 December each year. For 2020, their accounts will be for the 12 months to 31 December. However, for DST, their accounting period will only be nine months, from 1 April 2020 to 31 December. There is a mismatch in periods, and this clause enables the accounting figures to be used for DST by taking the correct proportion of those accounting figures.

Clause 62 sets out what is meant by

“revenues arising, or expenses recognised, in a period”

for the purposes of the DST legislation. Both of those terms mean the figures recognised in accordance with the applicable accounting standards for that period. Again, this demonstrates that the Government are seeking to minimise the burden of administration as much as possible by using figures that already exist for other purposes. Finally for this group, clause 63 sets out the definition of various terms relating to accounting standards for the purposes of the legislation. I commend these clauses to the Committee.

[Bridget Phillipson]

Once again, these clauses are technical in nature, and we have no further comments for the Minister in this area.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.

Clauses 61 to 63 ordered to stand part of the Bill.

Clause 64

Anti-avoidance

Question proposed, That the clause stand part of the Bill.

[The Chair]

With this it will be convenient to discuss the following:

Clause 65 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Clauses 66 to 69 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clause 71 stand part.

[Jesse Norman]

These clauses and schedules, again technical in nature, are also essential to the effective working of the digital services tax. Clause 64 sets out anti-avoidance provisions for the tax, and I make clear that the digital services tax has not been introduced to counteract avoidance of other taxes by digital groups. It is not about targeting particular businesses; it is a temporary measure designed to address failings in international tax rules. This clause provides HMRC with the power to counteract arrangements that may be designed or used to reduce the amount of DST that a group may have to pay. There are also safeguards within the clause that ensure the counteraction provisions do not apply when the tax advantage obtained was within the spirit of the rules.

Clause 65 sets out the process by which HMRC can collect unpaid DST liabilities from other members of the same group. This is particularly relevant to DST, as the companies liable to the tax may not be resident in the UK. Therefore, to assist HMRC in collecting unpaid debts, it will be possible for it to issue a notice to other members within a group it intends to collect the debt from.

Schedule 8 is introduced by clause 65, and provides further detail about how the notices operate. The combined effect of clause 65 and schedule 8 is to ensure that unpaid debts are collected wherever possible.

Clauses 66 and 67 set out at which rate, and when, interest will be due or required on DST payments that are made early or late, as the case may be. This will mirror the rates and timings found in corporation tax, and will therefore be familiar to many practitioners.

Clause 68 sets out that any DST liability is recoverable as a debt due to the Crown, the effect of which is to ensure that HMRC can collect any amount of DST that goes unpaid.

Clause 69 simply introduces schedule 9, which sets out provisions for minor consequential amendments in other enactments that are required as a result of the introduction of the DST. Primarily, these relate to interest rates, penalties and other tax administration processes.

Clause 71 sets out the meaning of various key terms used in the Bill relating to DST, and I commend the clauses and schedules to the Committee.

[Bridget Phillipson]

We have no substantial issue with these clauses, and obviously we welcome the inclusion of an anti-avoidance provision. As has been evident throughout the course of the discussions in Committee on this section of the Bill, it is a complex area, and we know that many large digital companies use intricate methods with considerable skill in order to reduce their tax liability. I mentioned earlier that some stakeholders have referred to the need for extra capacity at HMRC to make sure that this tax is properly administered and its impact properly accounted for. How confident is the Minister that anti-avoidance strategies will be adequately detected when the overall difficulties in administering the tax are taken into consideration?

Moreover, the Government’s website states that HMRC must counteract such arrangements by making such adjustments as are just and reasonable. The Minister touched on this in some of our earlier discussions, but I would be grateful if he could elaborate on exactly what a just and reasonable adjustment for tax avoidance arrangements entails. As I have already set out earlier today and in other debates we have had, the scale of tax avoidance practices by digital multinational enterprises is large and the methods that they adopt are intricate. The Government’s record so far in this area does not inspire a great deal of confidence on the Opposition Benches, and I would be grateful if the Minister could allay some of our concerns in this area.

[Jesse Norman]

I am grateful to the hon. Lady for raising those questions.

The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.

It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.

HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.

The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.

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[Jesse Norman]

There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.

Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.

The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.

In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.

We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.

[Bridget Phillipson]

I would like to press amendment 7 to a vote.

Question put, That the amendment be made.

Finance Bill (Fourth sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Jesse Norman]

Again, this is a minor and technical amendment that makes a change to the Finance Act 2019 to remove a potential ambiguity in the spreading rules for businesses adopting the latest lease accounting standards.

The Finance Act 2019 made changes to the income and corporation tax rules for businesses leasing assets in order to allow rules to work following the introduction of international financial reporting standards 16. That legislation was designed to ensure equitable treatment for businesses by spreading the tax effects of adopting IFRS 16 over the average remaining terms of asset leases. Consequently, the Exchequer impact of those changes would also be spread out.

It was subsequently brought to the Treasury’s attention that minor aspects of the legislation did not work as originally intended. To address that, this clause makes minor amendments to the legislation, clarifying how the rules ought to be implemented. The Government published the amendments in draft on 11 July 2019, and they were well received by stakeholders.

The changes made by clause 34 clarify that firms ought to spread the tax effect of changes in adopting IFRS 16 over the average remaining term of asset leases. The changes are to be treated as having always had effect from 1 January 2019. They will affect only businesses, and they will have no novel impacts. They provide for only modest amendments to deliver on the policy intent agreed by hon. Members in the Finance Act 2019.

Making these clarificatory amendments will ensure that the legislation introduced in the Finance Act 2019 operates as intended, and therefore that there is fairness, certainty and stability for all businesses when applying the relevant accounting rules. I therefore commend the clause to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to welcome you to the Chair, Ms McDonagh, and to take up the case for the Opposition on what my hon. Friend the Member for Ilford North described as the more technical aspects of the Bill. I am sure we will continue to enjoy debating these clauses none the less.

The Opposition do not object to the principle behind this clause, which appears straightforward and achieves its aim. Bringing leases on to the balance sheet is a welcome step in achieving greater transparency in our system. The Opposition believe that there is a very important need for the Government to continue to do more in this area. I simply ask the Minister why this was not done sooner.

I am keen to raise the broader issue of tax transparency and tax fairness in our system as a whole. Our small and family-run businesses are operating in a very difficult climate due to the ongoing pandemic, and they want to have confidence that everyone is playing by the rules and that there is fairness across the system. We know from various documents that we continue to have an ongoing problem with tax avoidance and the broader tax gap in our country.

I am always grateful to the House of Commons Library for providing additional material in this area. It is a wonderful source of useful information, research and analysis, especially for Opposition Members; our ability to undertake some of this research ourselves is a bit more limited, as we do not have access to the fine officials who the Minister has the privilege of working with on a daily basis. The Library has put to us that the wider tax gap for income tax, national insurance contributions and capital gains tax was estimated at £12.9 billion in 2017-18, based on HMRC documents; there are other assessments, of course.

I am sure that the Minister will want to make sure that we do everything in our power to ensure that there is fairness right across the system, particularly at this time. We believe that income must be more tightly tied to tax treatment, with tax liability going up with income, so that the Government can fund, and can ensure that we have revenue available to fund, our vital public services—not least now, at this very trying time for our country.

We hope that this change and the future legislation that the Government might seek to bring forward will be developed in the same spirit of creating greater transparency within our system. We also hope that the pressures that Ministers and officials are under at this time will not divert them from the necessary action that they must continue to take, to ensure that we have greater transparency and that everyone pays their fair share. We also want to make sure that HMRC has all the resources and staffing it needs to do this work to the best of its ability.

[Jesse Norman]

I am very grateful to the hon. Lady—what an effortless tag team she and the hon. Member for Ilford North make! It is good to see them in action.

The hon. Lady’s points are very well made, and I hope she recognises that the Government take these issues seriously—not just avoidance and evasion, and, in a separate category, fraud, but the wider question of fairness. It is absolutely right that we should do so. In an environment where the vast majority of taxpayers pay tax as due, in good time and do not become subject to any enforcement proceedings, it is all the more vital to maintain that consent and recognition of the public fairness of the system. She is absolutely right about that.

I hope that the hon. Lady will see that some of the issues that we have been facing in this Finance Bill and its predecessors, be they the loan charge or IR35, have reflected a persistent desire of the Government to see fairness through, despite some pretty strong headwinds. Also important is the ability to strike a fair balance within each of those schemes; we have discussed the loan charge and the Amyas Morse review, which is designed to ensure the right balance, even within that area.

However, I also draw attention to other important aspects. As the hon. Lady will be aware, we have announced a consultation on a strategy that takes a much more vigorous approach towards tackling the promoters and enablers of tax avoidance. I hope she will note that there continues to be a robust enforcement process within HMRC—one that has been carefully modulated and restrained in the context of coronavirus, but has not been in any sense left off thereby.

I will also say a couple of other things of which the hon. Lady may be less aware. One is that because of the concern about the balance of powers, which has been raised in part by the Lords Economic Affairs Committee and others, we now have a customer experience committee within HMRC. It has also brought in a series of experts who understand what might be called effective and successful customer and taxpayer treatment, bringing them in from other sources across the private sector to make sure that people do feel well treated and well handled, and that it is not a bruising process to have an interaction with HMRC. That sense of the importance of maintaining consent, and of Revenue and Customs not being oppressive while remaining highly effective in ensuring that people pay the right tax due, is a balance that both HMRC and the Government are constantly seeking to strike.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Enterprise investment scheme: approved investment fund as nominee

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[Bridget Phillipson]

We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.

The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.

We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.

I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.

The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.

The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.

In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.

Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.

The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.

I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.

[Jesse Norman]

I am glad to be able to address clause 35 and the questions the hon. Members for Aberdeen South and for Houghton and Sunderland South have raised.

Clause 35 changes the approved enterprise investment scheme fund rules to focus investments made through such funds on knowledge-intensive companies. It provides additional flexibility for fund managers to make subscriptions in shares and for investors to claim relief. Fund managers will have more time to deploy capital raised, and investors will be able to claim relief one tax year earlier than previously when using an approved fund.  The EIS encourages investment in smaller, higher risk trading companies by offering tax reliefs to individual investors who subscribe for new shares in qualifying companies.

A knowledge-intensive company is defined as a company that has spent a defined proportion of its operating costs on innovation and/or R&D and either creates intellectual property or has a defined proportion of its employees with advanced degrees. The intention to change the existing approved fund structures to focus on knowledge-intensive companies was announced at autumn Budget 2017 as part of the Government’s response to the patient capital review.

The Government consulted on new rules and outlined its response at Budget 2018, which set out planned additional flexibilities for fund managers and investors using this structure. The changes made by clause 35 set out the requirements that must be met for investments to be considered as made via an approved knowledge-intensive fund. They include investing at least 80% of capital raised into knowledge-intensive companies and deploying the majority of capital raised within two years.

Amendment 4 would require the Government to review the economic and geographical impacts of the existing EIS and the changes to approved fund structure, and how far they support wider efforts to mitigate climate change. I understand and appreciate the intention of hon. Members to use EIS more strategically to help with mitigating climate change and to ensure that the benefits of EIS are spread more widely across the country, but I put it to the Committee that the amendment is not necessary.

It is worth reminding ourselves of the principal purpose of EIS. It is designed to address a specific market failure, which is that younger, innovative companies across the UK struggle to get access to patient and long-term equity finance to grow their businesses and to develop the innovative products that consumers may want in future. It is not designed specifically to help certain types of companies—for example those that operate in certain parts of the country or certain sectors. The scheme operates on a neutral market basis, and there is no requirement for that companies use EIS funds in specific ways, such as to develop products linked to the fight against climate change.

I completely understand that Opposition Members would like us to collect more information about how attractive EIS is to companies in different parts of the country. HMRC already publishes statistics about where fundraising companies have their registered offices and where EIS investors have their main household. However, it is also worth reiterating the limits of what we know.

Her Majesty’s Revenue and Customs knows where a company’s registered office is, but companies that benefit from the scheme are free to place their registered offices and places of establishment for EI purposes wherever they please in the UK. A registered office in the south-east may not mean that that investment is going into the south-east, because a registered office does not need to be in the same place as where the bulk of the staff are employed.

The hon. Member for Houghton and Sunderland South is concerned that there might be a lack of clarity in the structure, so let me shed some light on that. The measure limits approved fund status to companies that invest 80% of their capital into knowledge-intensive companies and extends the period in which approved knowledge-intensive fund managers must subscribe for shares in those companies from 12 months to 24 months, provided that 50% of the qualifying individual investment is invested within the first 12 months and 90% within 24 months. It allows the investor to carry back the claim for income tax relief to the tax year preceding the tax year of the fund closure. I would suggest that, within the limits of a description within legislation, that is relatively clear.

The hon. Lady also raised a question about regional investment. Again, I fully share her concern, and the Government’s levelling-up agenda is designed to address that very issue. I must say that across my different ministerial jobs, I seem to spend most of my life investing in the north-east of England, one way or another—the massive pivot towards offshore wind has been nothing but good to that area, and I remember making a substantial investment in the Tyne and Wear Metro and the A19 when I was at the Department for Transport—so I hope that the hon. Lady does not feel that there is any lack of love for or investment in that part of the world from this quarter.

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[Jesse Norman]

The clause introduces the gripping topic of top-slicing relief on life insurance policy gains. It makes changes to ensure that the calculation of top-slicing relief on life insurance policy gains operates fairly and prevents excessive relief from being claimed. This measure supports the Government’s objective, already discussed in the Committee today, of promoting fairness in the tax system by ensuring that the relief is calculated in a fair and consistent way.

Life insurance policy gains arise, for example, when an investment bond is surrendered or matures. In this case, the gain accrues over the lifetime of the policy but is taxed in one year, which can result in gains being taxed at the higher rate. Top-slicing relief, or TSR, was introduced in 1968 as a mechanism to mitigate the impact of that higher tax charge. The principle behind TSR is simple: a taxpayer should not pay a higher rate of tax on their life insurance gain just because all of that gain falls to be taxed in a single year. Instead, the rate of tax on the gain should reflect the fact that it was accrued over the lifetime of the policy, assuming it rose in even amounts over the years during which the policy was held.

The calculation for TSR was intended to be straight- forward. However, changes to the personal allowance from 2010 have led to unintended complexity. A recent first-tier tribunal case brought into question how TSR interacts with the restriction to the personal allowance for higher rate taxpayers, creating uncertainty for taxpayers and a significant administrative burden for HMRC. It is for those reasons that we are making a change and a clarification to TSR in the Bill. I turn to both of those things.

The change made by the clause will permit personal allowances that have been reduced because the gain arises in one year to be reinstated in the TSR calculation. The gain will now be treated as if it arose in even amounts over the years during which the policy was held when determining the availability of the personal allowance in the TSR calculation. The change comes at an estimated cost to the Exchequer of £15 million per annum, but it provides a fairer result for those taxpayers who would otherwise have been taxed on their gain only because that gain has fallen in one year and reduced their personal allowance.

The clause will also put beyond doubt the principle that taxpayers cannot set their gain against their personal allowance first, in preference to their other income, in the TSR calculation. That will ensure that higher-rate taxpayers cannot get the benefit of the relief by effectively taking the benefit of the personal allowance more than once when calculating TSR. That will prevent excessive relief from being claimed and, in turn, protect £240 million of revenue.

The measure is estimated to affect around 2,000 of the 45,000 taxpayers who are entitled to top-slicing relief every year. The clause ensures that the taxpayers receive all the relief that they are entitled to and makes clear that taxpayers who seek to claim excessive relief will no longer be able to do so. It will ensure that top-slicing relief continues to operate in line with its original policy intent, and will therefore provide a fair and consistent outcome for those taxpayers who are entitled to claim the relief. I commend the clause to the Committee.

[Bridget Phillipson]

Before I turn to the substance of clause 36, and without dwelling on it too much, I will take slight exception to the Minister’s comments around the so-called levelling up agenda and the last 10 years. First, though, I must commend him—he is one of the few Ministers I have come across who understands how to pronounce my constituency name properly. He has great north-east knowledge, which will stand us in wonderful stead for the years ahead, when we can make sure that Sunderland and the wider north-east get their fair share of Government investment.

On clause 36, we note the Government’s stated objective of creating fairness in the UK tax system, ensuring that top-slicing relief is calculated in a fair and consistent way, and of seeking to provide legislative clarity. However, there are some issues that still remain around the language of the clause, regarding the treatment of gains before 11 March 2020.

In response to the clause, the Chartered Institute of Taxation noted:

“The amendments made by clause 36 have effect…from the tax year 2019/20. It is not clear why the amendments, which are clarificatory in nature and in accordance with the original policy intent, should not be extended to years prior to 2019/20 to provide the same clarity for taxpayers in respect of earlier gains.”

It also comments that,

“as clause 36 is not retrospective, an individual who is liable to tax in respect of gains from chargeable events before 2019/20 and who wishes to reinstate the personal allowance within the calculation for TSR will instead need to rely on the basis agreed in Silver v HMRC. Decisions of the First-tier Tribunal do not create a legally binding precedent.”

It argues that it is

“not clear whether or not HMRC will accept claims for repayment from taxpayers with gains in years prior to 2019/20.”

The Minister touched on this point in introducing the clause, but I would be grateful if he could clarify whether he intends for HMRC to accept repayment from taxpayers with gains in years before 2019-20. If he does not, as the language stands, do the provisions of the clause still affect taxpayers fairly?

The Chartered Institute of Taxation also notes that the approach is different from the approach in clauses 100 and 101, which we will come to later, which put

“beyond doubt that the relevant rules work as designed and intended but apply both prospectively and retrospectively.”

What assessment does the Minister make of that point?

The institute also draws attention to the fact that clause 36 specifies how reliefs and allowances are set against life assurance policy gains:

“The personal savings allowance does not operate as a typical allowance. It is a nil rate band of tax that does not extend the basic or higher rate bands. The draft legislation should specify that the personal savings allowance is not an allowance for this or any other purpose.”

It regards the term “allowance” as “an unhelpful misnomer”. I would be grateful if the Minister would address that point.

HMRC also notes that the clause will only really affect those with above-average earnings. We have considered that point more broadly in other aspects of the Bill; it points to something of a pattern in the measures that the Government are bringing forward. Over a significant period—over the last decade—we have seen that the impact of changes, whether that is spending reductions or the broader impact of Government policy, has fallen more sharply on those with less ability to make a contribution. Earlier in proceedings, we discussed the distributional impact of Government measures after 2010. We have seen a disproportionate impact on those from lower and middle-earning backgrounds. That cannot be sustained, not least in the current situation.

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[Jesse Norman]

Again, this is a small and technical clause. It widens the scope of share loss relief for income tax and corporation tax so that it applies to shares in companies carrying on a business anywhere in the world and not just in the UK.

Share loss relief is available where an investor or investment company makes an investment in qualifying shares that are later disposed of at a loss. The relief enables the loss to be set against taxable income, rather than against capital gains under the normal rules. Qualifying shares are shares to which the enterprise investment scheme, EIS, or the seed enterprise investment scheme, SEIS, are attributable, or in a qualifying training company, as defined in statute, which can be summarised as a small or medium unlisted trading company that carries on its business wholly or mainly in the UK.

The measure will change the existing statute so that investors can claim relief no matter where the business is based, providing added protection for those investing in high-risk enterprises. It will be backdated to proposals made after 21 January 2019. A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.

The UK has now left the EU and has agreed to follow its rules for the duration of the transition period. On 24 January 2019—hence the date—the European Commission issued a reasoned opinion arguing that applying SLR to shares only in UK companies contravened the free movement of capital principle. The Government accepted that the legislation as drafted was too narrow and agreed to introduce legislation to expand the rules and, thereby, comply with the principle.

The change made by clause 37 widens the relief so that it applies to shares in qualifying businesses worldwide, not just in the UK. The proposed changes are expected to increase the cost of the relief to the Exchequer by £5 million in 2020-21, increasing to £15 million per year thereafter.

The Government consider that this legislation strikes the right balance between supporting overseas investment opportunities for UK-based investors and meeting our residual obligations to the European Union for the free movement of capital. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The Opposition welcome the intention behind this clause, and the statement of the Minister seems straightforward in terms of what the Government are seeking to achieve in this area. For future trading to be as streamlined as possible, it is important that the Government introduce this measure to ensure compliance with article 63 of the treaty on the functioning of the European Union after the end of the transition period.

However, on the transition period—we touched on this this morning, and my hon. Friend the Member for Ilford North raised this issue—we have, sadly, not had the kind of regular updates we would like in the House around ongoing negotiations. We all want the Government to succeed, and we want to secure a great deal for our country, but we want to be confident that the Government are making progress and are on the right track.

Some of the reporting we have seen lately suggests that—for a number of reasons, some of which are entirely fair, given the unprecedented crisis in which we find ourselves—Ministers and officials have found things hard. I understand how difficult it must be to operate during this time, but the pandemic has highlighted how important it is that we ensure everything is properly aligned at the end of the transition period and that we secure an excellent deal, because so much depends on it—workers’ rights, businesses and our ability to export.

We want to avoid any further disruption to our economy. We have been through a very difficult time—we are still going through a very difficult time—for businesses large and small, and not least for our manufacturing sector and our world-class exporters. We want to avoid any further disruption to the economy, at the border or in people’s lives.

The Government have variously described the deal they will secure as

“a great new deal that is ready to go”,

“ambitious”, “broad”, “deep”, “flexible”, “a balanced economic partnership” and “oven ready”—that is one I recall particularly well from the recent general election campaign. Given all of that, I am sure that we will have no difficulty at all, notwithstanding the big challenges we face around the pandemic, and that we can ensure we do not have tariffs, fees or charges, so that our world-leading industries can continue to do well.

On clause 37, especially, businesses will, according to HMRC, need to familiarise themselves with tax changes, make the decision on whether to claim for the loss, determine the tax residency of the company that issued that shares and inform HMRC of this information. I would be grateful if the Minister could assure us that there is no prospect of exploitation in this area and that the Government will do all they can to ensure fairness across the system, so that we do not end up with companies potentially claiming this relief in a way that was perhaps not intended in the scope of the legislation and in the measures that Ministers are quite sensibly seeking to set out here.

[Jesse Norman]

I feel almost sad to be winding up on the final clause of this very good day. I thank the hon. Lady very much for her questions. Regarding the transition period, she has said she is sure the deal will be smooth and tariff-free. In that, she shares the Government’s high hopes and expectations for a deal with the EU. There is not much more I can add to that.

On the prospect of exploitation, I cannot give her, I am afraid, the guarantee she seeks, because if there is anything that my five years on the Treasury Committee and one year as Financial Secretary have taught me it is that there are no limits to human ingenuity in exploiting aspects of the tax code contrary to expectation, so there is some possibility of exploitation. The comfort I can give her is that, as this change is mandated as a result of compliance with an EU procedure, once we are free from the transition period, we will have the ability to make a sovereign change to our own legislation that remedies any concerns that are raised and any risks to the Exchequer that thereby arise.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Third sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 3rd sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you very much indeed, Mr Rosindell; it is a delight to see you in the Chair.

I start by saying that we are at the point in “The Pilgrim’s Progress” where we are about to enter the slough of despond, and I apologise to all colleagues that the slough is a rather extended period of technical amendments. I can promise them that in due course we will enter the place of deliverance, although possibly not for some time.

Clause 21 raises both pensions tapered annual allowance thresholds by £90,000 each and also lowers the minimum annual allowance to £4,000. The Government provide tax relief on pension contributions. To give some background, in 2017-18 income tax and employer national insurance contributions relief cost £54 billion, of which 60% went to higher and additional-rate taxpayers.

The Government therefore impose limits on pensions tax relief. One of these limits—the tapered annual allowance—has affected some senior clinicians in the national health service and also some individuals in other public service workforces. This measure is the outcome of the Government’s manifesto commitment to carry out a review of the impact of the tapered annual allowance on the NHS. That review built on another review of the effect on public service delivery more widely, which was announced last August. Roundtable discussions with public service stakeholders, including representatives of the health professions, were held as part of these reviews. These reviews concluded at the Budget on 11 March.

In the last tax year, in recognition of the impact that the tapered annual allowance was having on some doctors, NHS England announced a special arrangement, for 2019-20 only, in which doctors in England could use that arrangement to ensure that they would not be worse off as a result of taking on extra shifts. As health is a devolved matter, that special arrangement applied only to England, but we are aware that the Welsh and Scottish Governments also put similar arrangements in place during 2019-20 for NHS staff.

Raising the two thresholds at which the tapered annual allowance applies by £90,000 each is the quickest and most effective way to solve this issue for senior doctors and other clinicians. It delivers a tax solution, which has been the British Medical Association’s primary request, and it comes into effect from 6 April, which is the beginning of the current tax year.

The changes made by clause 21 mean that no one with income below £200,000 will now be caught by the tapered annual allowance. The annual allowance will only begin to taper down for individuals who also have total income, including pension accrual, above £240,000. We estimate that this will take up to 96% of GPs and up to 98% of NHS consultants outside the scope of the tapered tax allowance, based on NHS earnings alone.

As this is a tax change, these measures will apply both to clinical and non-clinical staff across the whole UK, and they will apply in the same way to all workforces. These measures will also apply equally across public and private sector registered pension schemes. However, to ensure that the very highest earners pay their fair share of pension tax, the minimum level to which the annual allowance can taper down is reducing from £10,000 to £4,000 from the beginning of this tax year. This will affect only those with a total income, including pension accrual, of over £300,000. These measures will cost over £2 billion over the next five years.

The changes demonstrate that the Government are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments as a result of the interaction of their pay, their pension and the tapered annual allowance tax regime. This meets the Government’s commitment to allow doctors to spend as much time as possible treating patients, and supports vital public services while ensuring that the very highest earners pay their fair share of tax. I commend the clause to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to welcome you back to the Chair this morning, Mr Rosindell.

The Opposition welcome the Government’s efforts to resolve the issue. Hon. Members will know that the primary function of introducing the tapered reduction of the annual allowance in 2016 was to prevent tax avoidance in the private sector, but whatever the original intention of the tapered annual allowance threshold, its impact was not properly considered. The result has been damaging to our NHS: as the Financial Secretary says, it has led to a situation in which senior practitioners have refused to undertake extra shifts because of the tax impact, and in many cases have taken early retirement.

According to a British Medical Association survey, just under a third of doctors have reduced the number of hours they spend caring for patients because of actual or potential pension taxation changes, while 37% of those who have not yet reduced them plan to do so in the next year. That is perhaps unsurprising considering the nature of the tapered annual allowance: as the BMA sets out, it creates a tax cliff edge whereby doctors effectively pay to work. Although the Treasury and HMRC have repeatedly stated that tapering affects only people with earnings over £150,000, in defined benefit schemes it has created a tax cliff at the income threshold of £110,000, which means that those in defined benefit schemes may face additional tax charges of up to £13,500 if they exceed the tax threshold income by just £1, while some could face effective tax charges greater than 100%.

Of course, we should recognise that that is not the only factor contributing to the real problem of staff retention in the NHS. Aside from the impact of coronavirus, hospitals and A&Es have been overstretched for years, increasing numbers of people are waiting too long for operations, and key performance targets are being missed month after month. We also face a chronic lack of family doctors; as the Nuffield Trust has highlighted, we have seen the first sustained drop in GP numbers in 50 years, which adds to the pressures on remaining staff. The problem is particularly acute in certain parts of the country: in Sunderland and the wider north-east, we can see the same picture at a much bigger level, where we face a real challenge to recruit and retain family doctors.

The doctors I speak to are always striving to do the best they possibly can in challenging circumstances, but we must acknowledge that the stress they have been placed under, due to the underfunding and neglect of our NHS by this Government, has made the situation even worse. The pension situation that many have faced since 2016 has no doubt proved to be the final straw, as doctors have opted not to take shifts, or to retire early. As we have seen, that is complicating efforts to retain such important NHS staff.

The situation would be unsustainable even if we were not facing the impact of coronavirus, but the additional pressures on doctors, many of whom will have taken on extra shifts, make resolving the issue more pressing than ever. All of us owe a debt of gratitude to those NHS staff who have put themselves on the frontline, in harm’s way, to do all they can in the national interest at this very difficult time for our country.

It is important to note that the problem is not exclusive to staff within the NHS; the annual allowance is a problem in other defined benefit schemes, including for the armed forces. As the Forces Pension Society states,

“in 2018 almost 4,000 serving military personnel, including those in non-commissioned ranks, received notification that they might have exceeded their annual allowance limit and for many a significant tax charge followed—well ahead of receiving any of the future benefit on which the tax is levied.”

The society argues that

“unless action is taken, there is a real risk to retention and operational effectiveness”—

a concern also highlighted by the Ministry of Defence.

We all owe it to those in our public services and our armed forces, who do so much to care for us, protect us and keep our country safe, to make sure that they are treated fairly and can plan effectively for their pension and later life. It is clear that that has not happened as a result of the changes implemented by the Government in 2016. The proposed measure does at least promise to address the issue in part and in the short term and the BMA has stated that the vast majority of doctors are now removed from the effect of the taper. However, there are still concerns, and I hope the Minister will be able to respond to them.

The proposed tax change would take effect only from 6 April 2020; as the Minister will know, the additional pressures created by covid-19 began before that point. As the Chartered Institute of Taxation has identified, that means that doctors who took on extra shifts during this period face the risk of being hit by higher tax bills later. What consideration has been given to the issue of medical staff who have made extra efforts during this crisis, but before 6 April 2020? Has any analysis been undertaken of the scale of the problem and will any measures be necessary to address it?

Given that the purpose of the clause is to reduce and reverse the trends with doctors not taking shifts and retiring early, I would also welcome confirmation from the Minister that the Government intend to monitor the impact of the clause on an ongoing basis, to ensure that it is having its intended effect.

We have concerns more broadly because, as the Minister said, the proposed change would benefit all high earners, not just NHS staff and those in our armed forces that the clause ostensibly targets. Monitoring the effect on taxation revenue will also be critical, because the Opposition want to see fairness right across the system. Although the measure seems to address the issue in the short term, the Minister will be aware of the wider concerns about whether the tapered annual allowance is appropriate in general.

The Office of Tax Simplification has suggested removing the annual allowance from defined benefit pension schemes, and that move was supported by the BMA. As it said in its response to the 2020 Budget, although it welcomed the Government’s proposal in part, problems remained, given that many doctors with incomes far below the new threshold will face tax bills as a result of exceeding the standard annual allowance, which remains at £40,000. That can happen simply following a modest rise in pensionable pay—for example, when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. The BMA has added that there is no change to the lifetime allowance and many doctors will still need to consider taking early retirement.

The Minister will no doubt be aware that the former Pensions Minister, Baroness Altmann, has similarly warned that just raising the threshold of earnings at which the tapered annual allowance starts will certainly not solve the underlying problem. She has called for fundamental reform to provide those in defined benefit schemes with greater certainty into the future. The Opposition support that call for broader consideration of the issue.

All that brings us to wider considerations around pension tax relief and whether the system as it operates works as well as it could. The Chartered Institute of Taxation, among others, has said that a review of how tax relief applies to pension savings should be considered, given that the solution that the Government have presented here has only been achieved at significant cost to the Exchequer and to the benefit of many higher-earning people, beyond our medical and armed forces staff. Will the Government consider such a review and think more widely about creating a simpler, fairer and more sustainable pensions system?

[Jesse Norman]

I thank the hon. Lady for her remarks and for welcoming these measures. She expresses what I know will be the universal sentiment in this Committee: a sense of profound gratitude to the NHS for the astonishing way in which it and all the public services around them have responded to the crisis posed by coronavirus. I certainly echo that.

The hon. Lady talked about underfunding of the NHS. I really do not recognise that at all: the NHS has been very well funded, with continuous above-inflation funding settlements. In relation to coronavirus alone, public services have received over £16 billion, the NHS central among them. However, that only underlines the point that extraordinary work was being done by the NHS before, and it throws into greater relief how flexibly, energetically and effectively it has responded to the coronavirus pandemic. I think that shows the inner resilience of the organisation.

The hon. Lady asked about people somehow being deterred from taking extra shifts in the NHS. She will be aware that NHS England put in place its own measures for last year, and we understand that parallel measures were implemented in Scotland and Wales.

The effect of the change, which begins in April, is to give a sufficiently generous increase in the annual allowance thresholds so that up to 96% of GPs and up to 98% of senior medical staff will be out of scope of the tapered annual allowance as regards their NHS earnings. It is interesting to note that, as the hon. Lady rightly acknowledges, that has been widely recognised by the key institutions. The BMA said:

“The vast majority of doctors are now removed from the effect of the taper and will no longer be in a situation where they are ‘paying to go to work’”

as they see it. NHS Employers said:

“Employers across the NHS will welcome this significant step in reforming pensions taxation.”

That is all to the good.

The hon. Lady asked whether we will monitor the clause’s impact. The Treasury will of course monitor it as we do the effects of taxation across the piece. This reform will retain a certain political currency and therefore, I think, support and enthusiasm across the Committee. She also asked about fairness across public services. She will be aware that one of the benefits of a tax reform is that it offers fair treatment across those public services, irrespective of how people work.

The question of whether the allowance taper should be removed has been scouted by some. Of course, unless it was replaced by some other approach, it would have the effect of there being no corresponding reduction in the capacity to add pensions relief. The absence of a taper would therefore create precisely the cliff edge that the hon. Lady warned against.

The hon. Lady mentioned the idea of a review. She will be aware that the Treasury had a review only a short number of years ago, which was inconclusive. We continue to reflect on this complex and difficult area of taxation and will do so as we ponder the future fiscal effects. With that in mind, I hope the Committee will agree that the clause should stand part of the Bill.

Question put and agreed to

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Entrepreneurs’ relief

Question proposed, That the clause stand part of the Bill.

--- Later in debate ---

[Jesse Norman]

We continue to stride boldly through the slough of despond. Here we come to the reform of the capital gains tax private residence relief ancillary reliefs. The clause makes changes to capital gains tax private residence relief where individuals have more than one residence, reducing the final period exemption from 18 months to nine months and reforming lettings relief so that that relief only applies where the owner shares occupancy with a tenant.

The clause also makes several other minor changes to make the private residence relief rules fairer. The Government are committed to keeping family homes out of capital gains tax, and private residence relief will still be available for the entire time a property is lived in. However, ancillary reliefs mean that in some circumstances people can accrue relief on two or more properties simultaneously. The reforms make private residence relief fairer by better targeting relief at owner-occupiers.

The final period exemption currently relieves the last 18 months of ownership of a main residence or former main residence from capital gains tax. This provides relief as people go through the process of selling their home, but it allows people to accrue relief on two properties simultaneously. From April 2020, the exemption will be reduced to nine months. The 36-month exemption for those who are disabled or are in a care home will remain.

Lettings relief is available when a property that was someone’s previous main residence is wholly or partly let out. This can extend the benefit of relief by up to £40,000 for an individual and £80,000 for a couple, while they are also accruing relief on their current main residence. In order to better target the relief at owner-occupiers, from April 2020 lettings relief will only be available in cases of shared occupancy. The armed forces future accommodation model is also a source of concern. We want to be sure that the clause will extend the benefit of employer-provided accommodation relief to those service personnel who live in privately rented accommodation under that new model.

The Government are also legislating on two extra existing statutory concessions. The first applies when an individual has more than one residence, but only one has any real capital value. This concession extends the time period for nominating the individual’s main residence. The second allows 24 months of relief where, for specific reasons, a person is unable to occupy a new home for use as their main residence. There is also a change to ensure that, when spouses or civil partners agree to transfer shares in a residential property between themselves, the receiving spouse or civil partner will inherit the transferring spouse’s past use of the property, no matter the use of the property at the time of transfer. This prevents unfair outcomes arising in certain cases.

The Government are committed to keeping family homes out of capital gains tax, through private residence relief. However, the current availability of lettings relief, and the 18-month final period exemption, can mean that people accrue relief on two or more properties simultaneously. These reforms address those concerns and make private residence relief fairer, by better targeting it at owner-occupiers. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The objectives behind the clause seem well intentioned, but the Minister will no doubt be aware of the severe impact of covid-19 on the housing market, as referenced by many stakeholders—a point which I should be grateful if he would address. According to the Chartered Institute of Taxation, the evidential basis for the reduction in the final period exemption was based on an average selling time—before the current pandemic—of approximately four and a half months, and it is concerned that this evidence base may be undermined by the effects of covid-19.

The Minister will be aware of his Government’s own advice, which lasted until 13 May, that physical viewings of homes were not permitted, and as such, that the home-buying process would take longer, with people advised to delay moving into a new house. While there is updated advice, there are still clearly restrictions that will slow down the process of buying a new home, and wider practical difficulties in this area when it comes to estate agents, banks processing payments and the wider conveyancing system.

The Chartered Institute of Taxation referred to research by Zoopla, conducted between 12 and 19 May, which found that 41% of would-be home movers across Britain had put their property plans on hold in light of market uncertainty, loss of income and lower confidence in their future finances, with property inquiries reported to be more than 50% down on pre-lockdown levels. Given that ongoing uncertainty, it is increasingly likely that it may take longer than nine months for some of those affected by this provision to sell their property, given the deterrent impact of covid-19 and the lockdown on potential buyers, as well as all the practical difficulties for buyers, which I am sure we appreciate. That could leave sellers with an unexpected tax liability when a property takes longer than nine months to sell. Many stakeholders consulted on this legislation believe that the fairest way to resolve the issue is to defer the introduction of the final period exemption, so as not to burden some sellers with an unprecedented tax liability.

In their consultation with stakeholders from July 2019, the Government responded to worries about the nine-month period exemption being too short by saying that

“a 9 month final period exemption strikes the right balance between being long enough to provide relief whilst they go through the process of selling their home, but not so long that they are able to accrue large amounts of relief on two properties simultaneously, or on homes that are no longer used as their main residence.”

I will not seek to blame the Government for not predicting at that point the impact of a global pandemic, but we are living through some very difficult times. Has any further consideration been given to the timing of the measures contained in the clause? Given the pressures on the housing market, does he still regard them as appropriate and realistic? Is the Treasury considering the impact more broadly?

Putting the coronavirus aside, concerns have been raised that the clause runs in contradiction to the parliamentary convention on retrospective taxation, whereby retrospection is permissible only when dealing with unacceptable avoidance schemes. The clause is about changing long-standing reliefs rather than countering avoidance, and the Institute of Chartered Accountants in England and Wales has highlighted that the clause is retrospective. It also argues that it would be simpler for taxpayers if the measures were delayed until the start of the next tax year. I am sure the Minister has given consideration to that point, and I am keen to hear his views on the topic.

Another point raised by the Chartered Institute of Taxation is that the new rules must be well communicated. Their introduction coincides with the new 30-day time limit running from the date of completion to the reporting and payment of capital gains tax, meaning that there is now much less time to establish capital gains tax liability. What are the Government doing to communicate such changes, so that they are well understood?

The changes as a whole are projected to raise £50 million for the Government in this tax year and £120 million next year. Given the current situation in the housing market, I shall be interested to hear the Minister’s views on whether any change has been made to any projections in this area. It is vital that the Government can raise funding for our vital public services, but in the grand scheme of things, those seem like relatively modest sums. Although I want to ensure that our public services have the funding they need to get through this crisis, I am sure the Government would not seek to disadvantage those who, through no fault of their own, find themselves in a very difficult situation owing to the pandemic.

Those are the only comments that I seek to offer on the clause. I shall be grateful for a response from the Minister.

[Jesse Norman]

I thank the hon. Lady for her comments. She raises the question of retrospectivity. We do not regard the changes as retrospective. Capital gains tax is due only when a disposal is made, and taxpayers have 18 months’ notice of the changes. They have therefore had plenty of time to rearrange their affairs—for example, by selling property under the old rules if they had wished to do so. It is important to remember that any private residence relief accrued from periods when the property was lived in as a main home is retained.

I am glad that the hon. Lady does not blame the Government for failing to predict the pandemic. That would be a very widespread source of blame; few people across the world could be exculpated from that. She also raised the question of the effect of covid-19. It is worth saying that, as she highlights, the nine-month exemption is based on evidence that the average selling time was four and a half months, and the suggestion is therefore that nine months is not long enough. I note her point and will take it away with me from this sitting; I thank her for that. It still leaves the average significantly short of nine months. It is worth pointing out that, if people are taken over that level, they will still likely pay very little, if any, capital gains tax, because the annual exempt amount, which has just been increased to £12,300, keeps small gains out of CGT. If someone was running over by a month, it would have to be an enormous gain in order to breach the annual limit.

As I said, there are no changes to the wider 36-month exemption that is available to disabled people and to those in care homes. The Government think the CGT allowance provides an additional safeguard in case there are circumstances in which people might inadvertently run over time.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Corporate capital losses

Question proposed, That the clause stand part of the Bill.

Finance Bill (Second sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 2nd sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

What a delight it is to see you in the Chair, Mr Rosindell. As I touched on earlier, this is one of those clauses that I do not think elicits any spirit of contention on the different sides of the room.

Clause 13 creates a statutory income tax exemption for payments and reimbursements of reasonable private expenses incurred by voluntary office holders in carrying out the duties of their offices. Individuals undertaking voluntary work for an organisation such as a charity or local benevolent society are not generally classed as office holders or employees, so the payment or reimbursement of any reasonable expenses incurred by those individuals when doing the work of that organisation is not liable for tax. However, in some circumstances, an individual who does unpaid work for an organisation may also be an office holder. That is because they are appointed to a role that exists regardless of who occupies the position at any one time. They are referred to as a “voluntary office holder” in tax legislation. People in that position include, for example, magistrates and special constables.

An office holder, including a voluntary office holder, is chargeable to tax on any earnings from their position and subject to the tax rules for expenses and deductions on the same basis as employees. Her Majesty’s Revenue and Customs’ long-standing practice is that no tax arises on private expenses paid or reimbursed to voluntary office holders so long as they receive no reward for carrying out the duties of their office and any payments or expenses do no more than meet the expenses incurred. That treats voluntary office holders in the same way as volunteers in relation to expenses paid or reimbursed by their organisation, but the treatment is at the moment only concessionary.

This measure therefore places the current concessionary treatment on a statutory tax footing. That ensures that reasonable out-of-pocket private expenses paid or reimbursed to voluntary office holders in relation to their duties of office remain tax-exempt. The exemption recognises the role of voluntary office holders and the services that they provide. It ensures that the tax treatment of their private expenses continues to be comparable to that of volunteers, and it provides certainty by placing that treatment on a statutory footing.

Those who hold voluntary offices often—in fact, almost invariably—give valuable service in our communities. It is right that we legislate to provide certainty for people in such roles and bring the tax treatment of their expenses in line with that for others who volunteer their time. This is a simple and sensible technical change, and I therefore urge that the clause stand part of the Bill.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Rosindell, and I welcome you to the Chair.

Opposition Members have no issue with the intention behind clause 13. It is right that the tax treatment of those carrying out valuable work on a voluntary basis is put on a statutory footing so that it is the same for all voluntary office holders, across the board.

Of course, most individuals who do unpaid voluntary work for an organisation are not office holders or employees, and I would like to take this opportunity, at this time, to express my gratitude for the amazing work that volunteers are doing right across our country in responding to the crisis we are experiencing. The work they are doing includes running food banks. Amazing volunteers in my constituency are providing that kind of support to vulnerable people and, frankly, to too many families. I yearn for the day when they will be able to be redeployed in other areas of activity because the support provided by the Government—the state—is adequate for all families to put food on the table. Many other volunteers at this time have been delivering meals or supporting people with prescriptions. There is a whole range of help and support being provided, which just demonstrates how important a role volunteers play in our society. That is of course no substitute for the necessary action we expect from Government, which has sadly been too lacking in recent years, and after a decade of big changes. That has meant that volunteers have filled the gap that should be filled by the state itself.

As for the scope of the clause, the Chartered Institute of Taxation has identified some technical issues, and I hope the Minister will be able to respond to some points about them. The first is about the lack of a definition of a volunteer office holder in this legislation and the fact that that may lead to some confusion as to whether charitable or other unpaid trustees would be regarded as office holders for the purpose of this exemption. The Minister was right to point to office holders such as special constables and magistrates—and perhaps those who are office holders in community amateur sports associations—but I would be grateful if he could clarify the scope of the clause.

The second concern that the Chartered Institute of Taxation has identified is whether this legislation will achieve its intended purpose, given that the clause covers expenses incurred in carrying out the duties of the office, but not explicitly those expenses that enable such duties to be carried out—for example, childcare costs. I would be grateful if the Minister could clarify the position and put on record that such costs would be tax-exempt for voluntary office holders under the legislation.

[Jesse Norman]

I thank the hon. Lady for her questions. These are two technical issues that she is right to cover. The position of Revenue and Customs, and of the Government, is that there is adequate clarity about the scope of the clause. It passes into law only a considerable body of accumulated practice in dealing with expenses of the kind that we have described. As I have mentioned, commissioners have discretionary powers—those collection management powers—to manage these taxes and duties, and are able to exercise those powers in particular circumstances. So if there is a concern that, somehow, the scope of the clause is inadequately defined, there remains extra statutory power for the commissioners to exercise those collection management powers in so far as they wish.

The hon. Lady is also absolutely right to raise the secondary issue of what counts as an allowable expense. The answer is that a definition of reasonableness exists in general in people’s minds and in law—of course, it reflects the facts of a case and is context-dependent. The core idea is that the payment or reimbursement should do no more than meet the actual expenditure that has been incurred by volunteers.

To give an example, someone may be volunteering for a charity, perhaps as a treasurer, which is an office holder, and doing most of their work from home. If the charity offers them a small weekly payment to cover the additional cost of using their home, that is a reasonable expense. To take a different example, if someone is volunteering as a magistrate at their local magistrates court for one day a week and seeks reimbursement for their childcare costs for the week, even if the court agrees to that, the full week will not be considered a reasonable reimbursement for private expenses, because it does not relate to the actual expenditure that has been incurred.

I can clarify, to that extent, the point the hon. Lady made. I think that tracks relatively clearly our normal intuitions about working, as well as working practice elsewhere in the voluntary sector. With that said, I would like to move that the clause stand part of the Bill.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Loan charge not to apply to loans or quasi-loans made before 9 December 2010

Question proposed, That the clause stand part of the Bill.

Finance Bill (First sitting)

Debate between Jesse Norman and Bridget Phillipson

Committee stage & Committee Debate: 1st sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

I am delighted to see you in the Chair, Ms McDonagh. I welcome all colleagues and thank them very much for their commitment to this important Bill and this important process. Ms McDonagh, you and our colleagues will be aware that we are scheduled to have seven sets of sittings to give every aspect of the Bill thorough examination. It will be a pleasure to serve on this Bill Committee with colleagues under your chairmanship. It is my first Bill as Financial Secretary to the Treasury, and I hope it will not be my last.

Let me begin by speaking to clauses 1 to 4, which legislate for income tax—the main default and savings rates of income tax, and the starting rate for savings for 2020-21. I shall also speak to amendment 5 to clause 2, tabled by the Labour party.

Clause 1 legislates for the income tax charge for this year, 2020-21. Income tax, as the Committee knows, is one of the most important streams of revenue for the Government, raising more than £190 billion in 2018-19. The clause is put into legislation annually in the Finance Bill. It is essential, because it allows income tax to be collected, so that it can fund the vital public services on which we all rely.

Clauses 2 and 3 set the main default and savings rates of income tax for 2020-21. These clauses, too, are put into legislation annually in the Finance Bill. Clause 2 ensures that for England and Northern Ireland, the main rates of income tax continue to be 20% for the basic rate, 40% for the higher rate and 45% for the additional rate. Clause 3 sets the basic, higher and additional rates of default and savings rates of income tax at 20%, 40% and 45% respectively for the whole of the UK.

I want to consider Labour’s amendment 5 to clause 2, which is in the name of the hon. Member for Houghton and Sunderland South. It would require the Government to review the impact of 2020-21 income tax rates on tax revenues, and both on households with below average incomes, and on high net worth individuals, as defined by Her Majesty’s Revenue and Customs. As the Committee will be aware, the Government already publish comprehensive assessments of income tax rates. In our judgment, the proposed additional review is therefore not necessary.

On revenue impacts, the Office for Budget Responsibility publishes tax revenue forecasts at every fiscal event, and did so most recently at Budget 2020. The Government’s tax information and impact note published in October 2018 provides a clear explanation of the tax impact on the Exchequer and the economy of maintaining the personal allowance and higher rate threshold for 2020-21. On distributional impacts, the Government publish a distributional analysis of the cumulative impact of Government policy at each fiscal event, and did so most recently at Budget 2020. HMRC’s annual income tax liabilities statistics publication provides breakdowns of the number of income tax payers and income tax liabilities across multiple characteristics, including by income source and by tax band. All those publications are in the public domain on gov.uk. Amendment 5 would do little to provide meaningful additional analysis that goes beyond the Government’s existing comprehensive publications, and I ask the Committee to reject it if it is brought to a vote.

Clause 4 maintains the starting rate limit for savings income at its current level of £5,000 for the 2020-21 tax year. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, and also extended the band to which the rate applies from £2,880 to £5,000. The changes made by clause 4 will maintain the starting rate limit for savings at its current level of £5,000 for the 2020-21 tax year. The limit is being maintained at that level to reflect the significant reforms made to support savers over the last few years. That support is provided by the Government across the UK, for those at all stages of life and at all income levels. As a result of the support, about 95% of savers pay no tax at all on their savings income.

The decision in 2015 to increase the starting rate for savings by more than 75% has done much to support savers on low incomes. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income for basic rate taxpayers. This will remove an estimated 18 million taxpayers from paying tax on their savings income in 2020-21. In April 2017, the annual ISA—individual savings account—allowance was increased by the largest ever amount, to £20,000.

As a result of the combination of the personal savings allowance and the starting rate for savings, some savers can receive up to £6,000 of savings income outside an ISA completely tax-free. Most savers will of course also benefit from the tax-free personal allowance, which is set at £12,500.

The Government also support our nation’s youngest savers. To encourage those with children and grandchildren to save, the junior ISA and child trust fund allowance increased by more than double, to £9,000, from April 2020. Child trust funds will start to mature from September of this year, and the increase will provide an opportunity to boost the amount that children will have when their accounts mature.

Finally, I should mention the support that the Government offer those on the lowest incomes who wish to save through the Help to Save scheme. Help to Save provides savers with a 50% bonus on their savings—a perfect example of what the Government’s commitment to levelling up opportunity across the whole country can offer. I encourage Committee members to do what they can to promote the scheme to their constituents.

The Government remain committed to supporting savers of all incomes at all stages of life. Recent reforms, coupled with a significant increase in the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous. Around 95% of people with savings income, as I have mentioned, will continue to pay no tax on that income next year. The Government therefore do not believe that a further increase in the starting rate for savings is appropriate at this time.

Clauses 1 to 3 ensure that the Government can collect income tax, and set the main default and savings rates for the tax year 2020-21. Clause 4 maintains the starting rate for savings income at its current level of £5,000 for this tax year. I commend the clauses to the Committee, and ask it to reject amendment 5.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to serve under your chairmanship, Ms McDonagh, and to welcome other Members to the Committee. I thank the Clerk and all the team in the Public Bill Office for the support that they have provided in recent weeks and will continue to provide as we debate the Bill. Circumstances have been very challenging for staff who have adapted to working remotely. I am grateful for all the discussions and advice that they have been able to offer us. I also extend, via the Minister, our thanks to all the officials in the Treasury who have been working very hard to respond to the crisis that we face. I want to put on the record our thanks for their work, which is often not recognised. Our country’s response to the crisis depends on the work that they undertake on behalf of us all.

I am sure we all accept the importance and necessity of scrutinising the Bill. However, the Opposition find it regrettable that it was not possible to find an alternative arrangement for the Committee stage of the Bill. We hope that the House can resolve the wider issues around protecting those who have shielding responsibilities and making sure that we can all be kept safe at this time. Our proceedings obviously place a great deal of pressure on the staff who are vital to the House’s functioning. Again, I reiterate my thanks to them. We will want to consider certain aspects of the Bill in much greater detail over the coming weeks. I can assure the Minister that we appreciate the pressure that officials are under in responding to the crisis, and that we intend to be responsible in our approach, and will remain focused on our key priorities in the Bill.

Our amendment 5 would require the Government to assess the impact of income taxes in the Bill on tax revenues, and on households and individuals of different income levels. The Government like to tell us that we live in unprecedented times, which is of course true. As such, we need greater scrutiny of policies that may need to be revised in what is clearly becoming an unprecedented economic downturn. The Resolution Foundation estimates that GDP will contract between 10% and 24% owing to the outbreak of covid-19: an economic shock of a kind that has not been seen since the 18th century. Very much is at stake. It is crucial that the Government assess the means by which they generate revenue, given the huge demands facing our public services and economy.

First, we need to know how much revenue we are generating from maintaining income tax rates, in order to determine whether it is enough to meet the demands on our economy and the pressures on public services, as well as the Chancellor’s income support packages. Secondly, we need to better understand its distributional income. Over the past 10 years we have seen large cuts to working age benefits against reductions in direct tax, including a large rise in the tax-free personal allowance. Unsurprisingly, the winners in all this have not been low-income households. According to the Institute for Fiscal Studies, the poor have been disproportionately hit by tax and benefit changes since the Conservatives came to power 10 years ago. The worst-off 10% of households have lost 11% of their income since 2010. When we factor in households with children, that rises to 20%. In contrast, the highest-earning 10% of the population have seen their incomes fall by only 2% in the same period.

In its 2020 Budget analysis, the Resolution Foundation makes it clear that nothing has been done to offset the considerable welfare cuts made by previous Chancellors since 2015. Households in the second net income decile, for example, will eventually be £2,900 a year worse off on average, thanks to the tax and benefit changes announced since 2015, and £900 of that is yet to come; it will result from welfare policies that are still being rolled out. These cuts mean that the incomes of the poorest families have fallen over the last two years, and there is a real risk that child poverty rates will reach record highs by 2024.

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[Bridget Phillipson]

When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.

[Jesse Norman]

The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.

The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.

The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.

Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.

Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.

We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.

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[Jesse Norman]

I had hoped that we might be able to debate clauses 11 and 12 together, because in some respects they sit better together, but let me pick up clause 11 in its own right and we can then take clause 12 separately. The clause confirms that three new specifically Scottish social security benefits are not subject to income tax. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003. That Act provides certainty on existing benefits and needs to be updated when new benefits are introduced.

The Scottish Government are introducing three new benefit payments: the job start payment, disability assistance for children and young people, and the Scottish child payment. The tax treatment of those benefits is governed by the fiscal framework agreement between the Scottish Government and the UK Government, which sets out that any new benefits introduced by the Scottish Government will not be deemed to be income for tax purposes unless they top up or replace benefits deemed to be taxable already. The UK Government currently choose to clarify the treatment agreed in the fiscal framework through Finance Bill legislation, which is why we have the clause before us today.

The changes made by the clause ensure that these three new benefits are not liable to income tax, in line with the fiscal framework agreement between the UK Government and the Scottish Government. The clause is straightforward, clarifying and confirming the tax treatment of several welfare payments and introducing a new power to ensure that a simpler process may be used to effect future changes as may be needed. I commend the clause to the Committee.

[Bridget Phillipson]

The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.