Finance Bill

Debate between Lord Campbell-Savours and Lord Leigh of Hurley

3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Wednesday 15th November 2017 Lords Chamber

[Lord Leigh of Hurley (Con)]

My Lords, this year I served on the Finance Bill Sub-Committee of the Select Committee on Economic Affairs. I congratulate the noble Lords, Lord Turnbull and Lord Hollick, and my colleagues on the committee on, and thank the special advisers who helped us so ably for, the report’s publication. I draw your Lordships’ attention to my interest in the register, not least as a member of the Institute of Chartered Accountants in England and Wales and, by something of a fluke, as a member of the Chartered Institute of Taxation. It is something of a fluke because, somehow or other, I passed the exams in 1985, to the great surprise of my teachers and colleagues at the time. Taxation post-1985 has been a bit of a mystery to me, but I have some expertise of it pre-1985.

None the less, it is particularly gratifying to debate the report at Second Reading of the Finance Bill. I served on the sub-committee when we investigated taxation on LLPs, and was very disheartened to find that none of the many recommendations we made were adopted by the previous Chancellor. I am extremely encouraged that the current Chancellor has taken a completely different approach, and is clearly listening to submissions and reports, such as the one made by your Lordships’ committee. However, it was disappointing that the Statement of 13 July thanked many members of the public, and others, for contributions, but did not recognise our report. I think we can take it that they were listening.

As considerable time and effort goes into these reports and, equally important, members of the public give their valuable time making written and oral representations, I was pleased to learn that so much of the report is being implemented in the Finance Bill and subsequent announcements. We heard from a number of witnesses worried about the impact on their businesses and from professional advisers who pointed out that their clients were simply not prepared to tackle digitalisation. As the noble Lord, Lord Turnbull, said, it was eye-opening to learn how many taxpayers and members of the public were either digitally excluded or referred to as “assisted digital”, who would need some sort of help to interact digitally with the Government. This ranged from about 30% of micro-businesses to 45% of the adult population.

Our report welcomed the Chancellor’s announcement of a delay, but made the point that it did not go far enough to allow proper testing in pilot areas, as had been planned. Overall, it must be right to encourage all businesses to go digital, but it is not clear to me that this will close the tax gap as contended, although I of course recognise that the tax gap under this Government is the lowest ever. However, the behavioural assumptions made imply that errors, when corrected, will always be in the Exchequer’s favour. I am not sure this is the case. The Chartered Institute of Taxation surveyed its members; 41% thought that the changes would have little impact on the level of their clients’ errors, and nearly 40% considered that they would increase errors, which could of course lead to a loss of Treasury revenue.

The Association of Accounting Technicians, another institute very much at the front end of helping business, was concerned that time-consuming and costly quarterly reporting requirements would result in businesses turning to the black economy. I was persuaded that the impact of quarterly reporting could substantially increase the error rate. HM Treasury and HMRC seem confident that their estimates will hold up, but I am not convinced that the pilot studies have been as extensive or as deep as they could be.

I can see that where businesses use spreadsheets rather than software, particularly where they have partial exemptions, converting the output figures into the VAT return will be a challenge. There is still time to be flexible as the regulations are not scheduled to be laid before Parliament before spring 2018, so one can only hope that HMRC is listening and talking to those affected.

I can tell noble Lords that quarterly accounting is causing great concern in the business community. To make corporate tax quarterly returns effective will need considerable work, not least in assessing accruals, identifying provisions and computating capital allowances. Is this really a constructive use of entrepreneurs’ time?

Once again, I add my voice to those who plead for tax simplification. I do not have it but there are 640-odd pages.

[Lord Campbell-Savours]

It is 664.

[Lord Leigh of Hurley]

I thank the noble Lord. That does not seem very far along the road of tax simplification. Businesses will have all sorts of challenges when MTD hits them. I hope the Government will listen to the Office of Tax Simplification, which, in its submissions to us, was clear that its opinions had not really had an impact.

It has to be said that, despite my earlier comments, HM Treasury really has by and large listened to those with genuine concerns. One can only hope that it continues in this direction of travel.

I turn my attention to a couple of other areas in the Finance Bill, not the report. I will not touch on inheritance tax, but it was extremely interesting to hear some radical views on it. I would welcome further debate in this House on taxation. It is a little disappointing that so few of your Lordships are able to speak tonight, but although we are not allowed to comment on rates, allowances and so forth, I would have thought we were allowed to comment on structures and new and radical ideas. I hope the usual channels might permit debate on this subject at a later date.

The area I will talk about relates to Clauses 48 to 59, which deal with fulfilment of third-country goods coming in to the UK via online marketplaces. This follows measures in last year’s Budget and gives HMRC much greater powers, as my noble friend Lord Bates said. I first raised this issue in an Oral Question in December 2015 and have, together with my noble friend Lord Lucas, continued to address it in a number of speeches in your Lordships’ House. Accordingly, I welcome these important clauses, but I am concerned that much greater work needs to be done. Only last month I asked in a Written Question whether HMRC obtains data on the amount of goods that non-UK sellers of the likes of Amazon and eBay import into the UK and, if so, whether HMRC reconciles that data with declared sales. The answer from my noble friend the Minister—I join my noble friend Lord Wakeham in congratulating him on his performance here and in other roles—was a little disappointing as it, shall we say, avoided, if not evaded, the question.

I have also asked whether the Government will treat Amazon as a supply chain for VAT purposes and was very encouraged by that answer. I remind my noble friend that there is nothing more irritating to UK retailers than seeing overseas, third-party, non-EU companies sell their goods into the UK without VAT, effectively undercutting UK retailers.

I do not think the importance of these clauses has been recognised. I urge my noble friend to read the written submissions by Richard Allen of vatfraud.org to the Public Accounts Committee hearing on 13 September this year. It states that the VAT registration numbers of traders on Amazon are either not being displayed, or, where they are, could be completely bogus. As a result, customs authorities are unable to police abuse. Consequently, it could be that certain internet retailers will not and should not be regarded as fit and proper fulfilment operators as defined by these clauses. There are many examples of certain internet retailers being aware of abuse and just not acting.

To the extent that Clauses 48 to 59 give HMRC great power, they are very welcome. I do not agree with the Chartered Institute of Taxation; the fact that they could be guilty of committing a criminal offence is a good thing. My concern is that there is evidence of HMRC not using its existing powers and this has now become a national issue. The level of VAT loss here is estimated by HM Treasury to be in the region of £1 billion to £1.5 billion—huge numbers. So, yes, HMRC needs to be properly resourced to pursue this, but the third parties must also share the costs as the ones who are benefiting. They now bear joint and several liability, and action is the only way to tackle this huge loss of VAT and damage to regular UK traders. It is vital that HMRC acts on these clauses and related ones, and a number of us in this House and in the other place will monitor this issue with further Written Questions and debates.

I want finally to address the clauses covering the EIS, or enterprise investment scheme, and VCTs, or venture capital trusts. The clauses in the Finance Bill largely implement previously announced changes to the scheme, but their very existence implies that the Treasury is committed to the VCT scheme and EIS. It was pleasing to see that there were no substantial changes, negatively, in the Finance Bill and I make a plea for no more dramatic changes to the VCT and EIS legislation over the next few weeks, or even days. We of course await the patient capital review, but it is clear that VCT funding is of a longer term, typically seven years, and plugs the finance gap of equity funding in the £2 million to £10 million range. Some excellent research has been done by the venture capital trust association which shows an increase in the number jobs created by VCT investees. I am aware that the Treasury does not like to see a loss of revenue, which occurs when investment is made in such businesses, but to maintain the UK’s position as one of the leading countries for start-up businesses, it would be a great shame if either of these incentives for new business and growing businesses was in any way hampered.

There are many other areas in the Bill which merit further discussion, such as tax avoidance and interest deduction by companies, but I think I have said enough for the moment and eagerly look forward to the proposals in the Budget in a couple of weeks’ time, which I hope will enable your Lordships’ Economic Affairs Finance Bill Sub-Committee to meet again and take on new and fresh challenges.

Trade Union Bill

Debate between Lord Campbell-Savours and Lord Leigh of Hurley

Wednesday 10th February 2016 Lords Chamber

[Lord Campbell-Savours (Lab)]

My Lords, Amendment 65 is on the question of tax relief on the trade union levy. This is not the first time that I have raised this issue in this House. I first raised it on the Transparency of Lobbying, Non-Party Campaigning and Trade Union Administration Bill in 2014. On that occasion, I sought to insert into the Political Parties, Elections and Referendums Act 2000 a new section which provided tax relief on small donations to any political party, and the response of Ministers was to point to the stalled inter-party talks on political funding and the need to find a consensus. There had been seven discussions on political funding, culminating in no reform and a Statement in July 2013 from the Deputy Prime Minister in the last Parliament, in which he said,

“it is now clear that reforms cannot go forward in this Parliament”.—[Official Report, Commons, 4/7/13; col. 62WS.]

That Statement effectively blocked off any sensible discussion on the issue that I wish to raise today of tax relief on the trade union political levy.

I am arguing today that the political levy should be paid out of pre-tax income and not post-tax income. I have to admit that there is some confusion as to whether the levy, as it currently stands, is in or out. My latest advice is that it is out of net income, whatever the circumstance. I am seeking a standardised practice among all trade unions. The proposal I make is built on the gift aid scheme, which applies to donations to charities. I argue that there is much in the work of trade unions which is essentially charitable, as is the case with much of the work carried out by political parties.

In reality, the political levy, per member, is quite small—very often in the region of £10 per member or less. It would therefore be for the convenience of all concerned if the opt-in notice included the application for tax relief on the levy, signed by the applicant member concerned. It would be even more helpful to the whole administrative process if trade unions could opt to have group submissions to HMRC on behalf of each of their members, thereby avoiding the burden for both the Revenue—I keep referring to the Revenue, as I am very old-fashioned on these matters—and the union of handling the tax relief applications individually.

I suppose it could be argued that a very small minority of members do not meet the standard rate threshold for the payment of tax. This, I suggest, could be dealt with by a special Revenue concession based on the presumption that the applicant is a basic-rate taxpayer. Otherwise, dealing with such cases would be administratively burdensome. A tax relief on the levy would certainly help incentivise the take-up of opt-in notices. I would like to think that the Government would not be so malevolent as to resist my amendment on the basis that it would be an incentive for the submission of opt-in notices.

There is a great danger that the change from opt-out to opt-in will reduce the donor base. That should not be the objective. We should all be signing up to the widest possible donor base and making every attempt to foster active forms of political engagement, with money and contributions paid to political parties. That is precisely what President Obama set out to do in America inviting, as he did, a system of mass but smaller donations to his political campaign, as indeed has Mr Bernie Sanders.

Now the Government might again argue the need to resume talks on political funding—that is to say, talks that complement those going on in the special Select Committee currently considering these clauses. I believe we need to break the logjam and begin legislating now. What better to start with than the union levy, which under this Bill is a voluntary contribution to a political party? The breakdown and the inevitable stalemate that followed led to the 2007 review undertaken by Sir Hayden Phillips. It was hoped that this review would lead us out of the impasse but its report indicated only the nature of the problem and did not provide a solution. However, the review did pave the way for further talks between the three main political parties under Hayden Phillips himself. Again, the inevitable happened as the talks broke down in October 2007.

In May 2010, after aborted discussions and a general election, a reference to the problem surfaced in the coalition agreement, where it said:

“We also agree to pursue a detailed agreement on limiting donations and reforming party funding”.

The coalition agreement was followed in July 2010 by the Committee on Standards in Public Life, which re-energised the debate with its 2011 report. The report was accompanied by caveats in the appendices from both Labour and Conservative party representatives. Indeed, we were back on the old merry-go-round, with caps on contributions and trade union donations, and the usual differences and suspicions. Two months later the Political and Constitutional Reform Committee despairingly called for a resolution of the problem to help avoid further party funding scandals, not that that plea had much of an effect.

Then, Mr Francis Maude—now the noble Lord, Lord Maude, at that stage a Minister in the other place—announced a new series of talks. In his statement establishing the talks he said:

“We could also look at how to boost small donations and broaden the support base”,

for the parties. There were seven meetings in 2012 and 2013 which, as I have already explained, predictably collapsed. My amendment does exactly what the noble Lord, Lord Maude, called for in his statement. It seeks to broaden the support base by preserving and boosting small donations, in this case through the machinery of trade union political levies. I beg to move.

[Lord Leigh of Hurley (Con)]

My Lords, I support the amendment from the noble Lord, Lord Campbell-Savours—which is not something I thought I would hear myself say. To put it in context, I declare my interest as a treasurer of the Conservative Party. Having supported the amendment, I have to say that I do not think the right place for it is in this Bill—this Bill is not about party funding but about trade union reform. But I welcome the direction of his remarks. Party funding is a big issue on which, frankly, there will not be much agreement in the near future but there are some very small steps that we can take together—and I have discussed this matter with the noble Lord, Lord Tyler, as well. I think there is general consensus about gift aid—or matched funding from government, which is in effect what it is. Part of the reason for my support is not the financial benefit to all parties but to explain to the public and encourage them to understand that supporting a political party is a public duty. It is a good deed. It is something for the benefit of the entire country and community and moves the dial away from people, unions, business and individuals being perceived as bad people who just wish to support a party financially.