EU: Money-laundering Directive
Lord Davies of Oldham Excerpts(10 years, 7 months ago)
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Lord Davies of Oldham (Lab)
My Lords, I congratulate the noble Lord, Lord Willoughby de Broke, on introducing this debate. The degree of sharp interest shown by all noble Lords in this issue may have surprised him. Passion has been aroused, and so it should be. It is interesting that it has been identified that the evils that the Government should address are tax avoidance and money laundering. We were also greatly concerned about money flowing towards terrorist activities. That agenda has come very much to the fore over the past decade. If we are not concerned about those issues and whether our law is adequate to control them as best as it can, we are clearly not playing our full role in the public interest.
I congratulate the Government on the work done last year. It is quite clear that they are already committed to creating a public register of the beneficial ownership of companies and therefore a substantial part of the issue is being tackled. I am quite sure that all parties subscribe to that position, with the notable exception of the party that is exceedingly well represented in this Room but is not normally well represented in Parliament by elected Members. Although this issue is complex, the Government have made some considerable strides, and it is clear that we have a slightly more difficult issue, which the noble Lord, Lord Dykes, identified, because of our common law than is the case with countries on the continent. We will wrestle with these issues.
Trusts fit into a very distinctive and different pattern compared with organisations elsewhere, but the point is obvious. If trusts are not included in the legislation, they will become the default mechanism whereby all miscreants will carry on their practices. We know that they go on to a significant extent and that the wider public out there expects Parliament to tackle these issues once they have been revealed. It is therefore of the greatest significance that we keep the momentum up. I understand entirely the anxieties of the noble Lord, Lord Willoughby de Broke, but they are overwhelmed by the need of our society for protection against proven misdemeanours in the use of companies and trusts.
I should emphasise that this is not a new issue. Some people will defend freedom to the nth degree and say that you should not intrude upon private arrangements. Between $8 million and $10 million was secreted away in trusts by an individual, General Pinochet. I doubt whether many people in our country think that he was entitled to the privacy vouchsafed to him at that time; nor should we underestimate the dangers that are implicit in defective and ineffective law. That is why we have to tackle these difficult issues, and I am glad that noble Lords today have pressed the Minister with clear questions about the difficulties that have to be overcome.
It is clearly the case that people enter trusts, particularly family trusts, on the basis of an understanding of privacy. It may therefore be necessary for the Government to tackle trusts in more than one category: those that are capable of being used for nefarious purposes and those that clearly come into the common category of a very large number of people who are merely seeking to safeguard relationships in their family and their resources. However, there is no alternative. We particularly need international action because, whatever we do, if it is not carried out by other advanced economies, all our efforts will be insignificant. Automatic exchange agreements, which would leave the miscreants concentrating on the weakest link in the chain, the country that they identify as being least able to enforce such agreements and implement them, would be used. Financial tax laws are all voluntary. We have nothing that is compulsory, which is what this directive and the amendments are directed at.
I recognise that this is a complex issue and that the Minister is bound to indicate that there are areas in which it is more straightforward to act than in others, but we should bear in mind the strength of the majority opinion in this debate, which has been very forcibly expressed, that we cannot have a situation where the significant holders of real wealth are able to avoid their obligations to the wider public and to the consumers and nations that they serve. It is important that we have legislation that carries out the action that we all regard as essential.
Lord Willoughby de Broke
My Lords, some noble Lords, including the noble Lord, Lord Watson, and to a certain extent the noble Lord, Lord Davies, have missed the point that I was trying to make. There are already, under the Money Laundering Regulations 2007, absolute requirements on financial intermediaries and lawyers to report to the relevant authorities if they suspect that there is any illegal use of trusts. They already have the weapons; the idea that there is absolutely no legislation to deal with trusts is entirely misplaced.
Budget Statement
Lord Davies of Oldham Excerpts(10 years, 8 months ago)
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Lord Davies of Oldham (Lab)
My Lords, that was an excellent speech. We are destined to stay on the stony road, according to government plans. It was an excellent speech in a debate in which there have been many excellent speeches on both sides of the House. Inevitably, I took much greater solace from those on my side than from the government side, but nevertheless the Minister introduced the debate very competently, as we would expect, and to all who have contributed I pay due tribute as to the quality of the debate. In the wind-up it will be appreciated that mentioning all 30 contributions would be above and beyond the timescale on which any of us operates.
Let us get this absolutely straight about the Budget. We are engaged in the American experience. This is a year-long election campaign that we are starting. The Americans, of course, extend that to two years, or more. They have almost continuous election campaigns but we have the full-blown one year, or a little longer, election campaign because we were ridiculous enough to agree to establishing a fixed-term Parliament under the auspices of the coalition. It means, of course, that the Queen’s Speech will be cobbled together on the lowest common denominator between the two parties, which want to differentiate themselves before the election. A few dusty Bills that have been locked away in departmental cabinets for so long can now be brought out to keep Parliament vaguely occupied while the MPs do what they always do. They will go back to their constituencies as often and as much as they can. I have never met a Member of Parliament, male or female, who was not absolutely assured that when it came to winning votes the best place they could be was in their constituency.
That is what we are facing and that is what the Budget is about. It is a pre-election Budget. The Chancellor is setting out to shore up his core vote. That is why the noble Lord, Lord Higgins, reflecting on his past as a Member of Parliament for Worthing, emphasised that there would be much joy in Worthing. I am not at all surprised. I reckon that there will be much joy in most of the constituencies that return a Conservative majority of 20,000 or more. Of course, we expect the Chancellor to take some cognisance of the needs of the nation, rather than the needs of those he seeks to shore up against what he probably regards as a somewhat unfair UKIP threat.
The noble Lord, Lord Palumbo, expressed the view that we should begin to pursue the objective of a new politics. However, I would not advance that argument in a pre-election year. There is no way in which we can avoid the circumstances in which a polarisation of debate will take place over the coming year. The noble Lord will have to bide his time and try to win support for his arguments later.
This Budget is highly political. The most striking thing about it was how political the Chancellor was in springing pensions reform upon the nation. As the noble Lord, Lord Stoneham, identified and my noble friend Lord McKenzie emphasised, pension reform in this country has been built on the basis of the parties reaching some modicum of agreement. Of course it has. Pensions have to be sustained over a considerable period of time and are fundamental to the welfare of our fellow citizens. However, this pension reform is not a product of consensus. It is true that my party had indicated growing anxieties reflecting the public mood about the way in which annuities worked and that reform was needed, but this reform was brought in in one fell swoop as part of a carefully guarded government secret purely for electoral and political considerations.
It is all the worse for that because the Chancellor and others will have to wrestle over this coming year with the issues identified by my noble friends. These issues include: how adequate independent advice will be offered to so many people; how we will deal with the situation where some people cash in their pots and then, potentially, subsequently fall back on society; and how we deal with the fact that there will not be a collective response to the development of pensions. We are all at different levels of risk and chance elements as far as the grim reaper is concerned, and that is why the concept of insurance is so important. However, the Government are in danger of throwing people on to their own resources and takings risks, and that is why this reform should never have been introduced in this way.
The second issue on which I wish the Minister and the Government to respond relates to the point made by my noble friend about housing inflation, low credit terms and easy credit being the basis of this recovery. My noble friend Lord Hollick explained that it was exactly these factors that helped to exacerbate the collapse and the crisis that we all endured. How can the Government pretend that they are on the high road to economic recovery when it is based upon the same factors that brought disaster in the past? I hope the Minister will address that point because my noble friend Lord Hollick was emphatic that it should be answered.
There are taxation changes in the Budget which, on the whole, are generally regarded as neutral—of course they are. This is because many of them are lost upon anyone who cannot take a joke such as, “Please have a free pint of beer on the Chancellor after you have consumed 300 prior to that”, or something similar on the reform of bingo. These are the classic budgetary tactics which are adopted in a pre-election year. We got them in pretty full measure, if nothing else.
What my noble friend Lord Haskel sought to emphasise is that the Government are ignoring the cause of difficulties in other countries. They always identify the economic problems of this country as if they happen in isolation—until they begin to tackle them. They have to take on board the fact that we are in a worse position in terms of the length of our crisis than is any other state except Italy. We are boasting about these marginally increased rates of growth after several years when there was no growth at all, and we are ignoring the fact that the United States, for example, is operating on a growth rate at the present time of 5%. The Government had better wise up and realise that they have something to learn from other nations which have tackled these issues differently. They have pursued entirely different strategies, but the Government purport to suggest that their approach, that of austerity, is the only one.
The noble Lord, Lord Low, accurately and eloquently defined how austerity is biting and the significance of that, while the noble Lord, Lord Skidelsky, launched a bit of an Exocet at the Government on the basis of the strategy they are pursuing by explaining just where they have got things wrong.
The Chancellor has got things wrong. He made the fundamental claim that the deficit would be removed by 2015, the year of the next general election. Now he is saying that it is going to take a little longer, deeply into the next Parliament, but not too deep. Well, that looks like failure if it is giving us a promise of the adoption of the Government’s strategy. The Chancellor has also indicated that the recovery would see borrowing reduced in such a way that he will set an example in how he has conducted the economy. But the Government have borrowed more in five years than the previous Labour Government borrowed in 13 years. He has also emphasised that the crisis has been a difficult one, but that he will tackle it in such a way that the country can rest assured under his governance. What has that meant? It has meant austerity of such a kind—I do not think that this has been given a sufficient airing in this debate—that wage earners have seen an average reduction of £1,600 a year in their resources as a result.
As far as the Government are concerned, it is not possible to do anything about the recession except stimulate the demand for housing. We are already finding it very difficult to meet that demand and we all know about the shortage of housing in this country, particularly in the London area. What are the Government doing? They are doing nothing about supply; rather, they are encouraging the development of enhanced demand through their scheme of lending support for mortgages.
The Government have also done absolutely nothing for young people. We all know that there are differences between the needs of the different generations, but what is quite clear is that although pensioners have not seen an enhancement of their position in the way they might have hoped—they are now to get this particular bonus from the Government—it is our young people who are really bearing the weight of the recession. It is our young people who cannot get jobs. In case the House thinks that I am talking about people who cannot get jobs because they are incompetent, what is the developing crisis in the universities about if it is not that people are not repaying their fees? Why are they not? Because they are not earning enough money—£21,000—to be eligible to have to repay their fees. It is causing a crisis in university finance and young people are paying the price.
The Government are also of course taking advantage of those who cannot fight back so easily—350,000 people visit food banks regularly, which is an absolute indictment of the society in which we live. I accept the points the right reverend Prelates made about their concern with the distribution of wealth and the very important point which the right reverend Prelate the Bishop of Sheffield made about seeing that support and economic development occur widely across the country and not, as at present, remain concentrated almost overwhelmingly in the south-east, with the disastrous consequences we have seen for house prices in that region.
In case it is thought that I have been critical of the Government but not faced up to the fact that painful measures need to be taken, of course we recognise that. I emphasise that the first proposal for a welfare cap was made by my leader, Ed Miliband, in June 2013. We were aware of course that the issue of escalating welfare payments had to be tackled—but that does not mean that we can indulge in a Budget which is purely about electioneering and consolidating the Tory core vote.
Finance: Interest Rates
Lord Davies of Oldham Excerpts(10 years, 8 months ago)
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Lord Newby
My Lords, one slightly surprising thing about the way in which the MPC has worked is the independence of its members vis-à-vis the governor. When it was established, I think that there was a view that it would be a poodle of the governor, because a significant number of members are other employees of the Bank of England. That has not proved to be the case, and governors have, if not regularly, then on a number of occasions been overruled by the rest of the committee over the years.
Lord Davies of Oldham (Lab)
My Lords, I have two questions, the second being short. First, the Government used to say that low interest rates were a sign of the success of their policies. Now that rates are beginning to edge up somewhat, they are saying that it is a further sign of the success of their policies. How does the Minister resolve this contradiction? Could he answer a second question: how many women are on the Monetary Policy Committee?
Lord Newby
On the latter question, I am sure that the noble Lord will join me in congratulating the woman who today has been the MPC’s latest appointment as deputy governor. On the first question, the success of the system was that it enabled the Monetary Policy Committee to “look through”—to use the technical phrase—a temporary peak in inflation, when it went up to 5% because of external factors, and keep interest rates low, which helped the recovery. I think that most people would agree that interest rates are at an unusually and historically low level and that, as the economy recovers, we would expect interest rates slowly to rise, although, as the governor said in the recent forward guidance, it is expected that any increase in interest rates will be very gradual and that the new equilibrium is unlikely to be as high as it was in the past.
Economy: Inflation
Lord Davies of Oldham Excerpts(10 years, 8 months ago)
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Lord Newby
Yes, my Lords, the Government welcomed the decision by the current governor to issue forward guidance last August. We continue to support the concept of forward guidance.
Lord Davies of Oldham (Lab)
My Lords, the Minister might try to wear his rose-tinted spectacles, but he knows the facts. He knows that ordinary working people on average have lost £1,600 a year since this Government came into office. He knows that families, through the Government’s tax and benefit changes, have lost £891 pounds a year and he knows from the most recent statistics that zero-hours contracts have increased threefold since this Government came into office. By heavens, they have a lot to do to make up for those deficits.
Lord Newby
There is a question over whose deficit we are talking about here. The noble Lord knows that since the 2010 election, employment has increased by 1.3 million; unemployment is down by 152,000; there are more women in work than ever before; and every single survey for the future suggests higher income, more people in work and a growing economy. That is a record to be proud of.
Economic Inequality
Lord Davies of Oldham Excerpts(10 years, 9 months ago)
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Lord Newby
My Lords, that is no doubt why we inherited such rosy economic circumstances.
Lord Davies of Oldham (Lab)
My Lords, the Minister used the graphic phrase, “making work pay for everyone”. It certainly pays for bankers, as Barclays tomorrow will announce another £2 billion in bonuses, following the £2 billion that it paid out last year. Since 2008, banks will have paid out, in accumulation, £80 billion in bonuses—£1,000 for every man, woman and child in this country. How can the Government talk about us all being in this together when there is such an obvious imbalance in the economy?
Lord Newby
My Lords, as the noble Lord will be aware, bonus levels in the City—although he finds them outrageously high—are now very much less than they were. There is a now a raft of domestic and EU rules in play that will reduce the extent to which bankers can take bonuses, except over a period and when bonuses are linked to the performance of the bank.
Economy
Lord Davies of Oldham Excerpts(10 years, 9 months ago)
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Lord Newby
My Lords, I have always taken what the noble Lord, Lord Myners, has said with the utmost seriousness; everybody across the House has done so as well and I will undoubtedly continue to do so. The most significant and impressive part of the growth in the economy and in employment has been that the preponderance of that growth is private sector led and the private sector invests only if it feels that the overall business climate—which is to a large extent set by the Government—is conducive to new employment and growth in investment.
Lord Davies of Oldham (Lab)
My Lords, my noble friend Lord Myners is sadly not in his place, but if he were, he would not have had the slightest difficulty in identifying for the Minister just why we should be somewhat worried about the development of the recovery. After all, the Minister and his colleagues in the House of Commons constantly emphasise that this recovery needs to be balanced. There are already indications that this recovery is partly housing driven, which is of course a reflection of the only area in which the Government have been directly active. Moreover, the recovery favours the south-east in circumstances in which other parts of the country are not doing anywhere near so well.
Lord Newby
My Lords, the unemployment figures show that the level of unemployment in London, for example, is significantly higher than that in Scotland or Wales. Economic growth is occurring across the whole of the country. As for where it is happening, I will give two examples: aerospace orders last year included new orders of some £39 billion and car production was at a six-year high. This is not froth; this is real high-tech manufacturing where, increasingly, Britain is leading the world.
Public Sector: Debt
Lord Davies of Oldham Excerpts(10 years, 10 months ago)
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Lord Davies of Oldham (Lab)
My Lords, “the party opposite” is critical of the Government for the obvious reason that, if you run an economy with such abysmal rates of growth as this Government have done over the past three years, you find yourself unable to hit the target for the deficit that the Chancellor himself identified in 2010.
Lord Newby
My Lords, I am sure that the noble Lord is an assiduous reader of publications by the IMF and will have seen that, within recent days, the IMF has upgraded its forecasts for growth to 2.4% next year and 2.2% the next year, which is higher than for France and Germany.
National Insurance Contributions Bill
Lord Davies of Oldham Excerpts(10 years, 10 months ago)
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Lord Davies of Oldham
“Post implementation review
(1) Her Majesty’s Revenue and Customs must, after one year, prepare a post implementation review of the employment allowance which the Minister shall lay before Parliament.
(2) The review must consider—
(a) what impact the employment allowance has had on the number of jobs;(b) what impact the employment allowance has had on wage levels;(c) overall take up of the employment allowance; (d) the geographical spread of businesses, charities and sports clubs taking up the employment allowance; and(e) the effectiveness of Her Majesty’s Revenue and Customs’ strategy to promote the employment allowance.”
Lord Davies of Oldham (Lab)
My Lords, I am sure that the Committee’s affairs will not be too protracted today, as we clearly have a consensus from the House that the Bill is a pretty good thing. As the Minister already knows, it is the Opposition’s view that in general terms the Bill pursues a good policy and is vastly superior to the sad instrument that was relied on for the first three years of this Administration with regard to the holiday on national insurance contributions—which of course failed dismally in both its reach and its general effectiveness, with every conceivable expectation that the Government expressed before that Bill became law being disavowed by the process over the following three years. We are now in the business of recognising that the principle behind the Bill is far superior and is a position that we broadly endorse. However, it is incumbent on us to ensure that the policy works effectively and that the Bill that is the basis of that policy is fit for purpose in every respect.
The amendment would require the Government to carry out and publish a post-implementation review of the employment allowance, including HMRC’s assessment of its impact on jobs and wage levels, the overall take-up, the geographical spread of businesses that take it up and the effectiveness of HMRC’s strategy to promote it. I emphasise all these points because on every single one of them the previous policy instrument on NICs failed conclusively, and it is important that all those targets are effectively hit. That is why, although I am not underestimating the difficulties of these demands in some areas, we want to see an assessment, as far as the Government are able to provide one, of job and wage levels as a result of the measure.
We certainly want to be reassured on the overall take-up and the geographical spread of businesses taking it up. The previous Bill had a geographical element to it, which we the Opposition never understood —but we did not have to understand it because the Bill had such a limited impact for good anywhere that those who were left out had missed very little indeed. For obvious reasons, as the Minister will appreciate, we are concerned about significant regional disparities in the employment figures, particularly with regard to young people. That is why we want this review to cover a geographical dimension.
That also brings us on to the extent to which the Government will be successful in promoting the measure. After all, a great deal of the expectation is that the beneficiaries will be small and medium-sized enterprises. The medium-sized ones probably do an effective job in keeping up to date and four-square with government initiatives, and we know that the large corporations monitor the Government so effectively that not infrequently—we will come to this later—they pay a great deal less tax than perhaps they ought.
Small businesses inevitably have a problem with legislation. Part of the difficulty with the previous legislation was the conspicuous failure to promote the concept widely enough for take-up to be at the level for which people—certainly Ministers—had hoped. We want to see that rectified as far as this measure is concerned. The amendment, therefore, establishes the necessity for a report that would guarantee a review to provide early indications of the success or otherwise of the policy. We might, as a result, see the Government learning from difficulties that may be developing.
It took a long time for the penny to drop last time. I recall that it was three years before the previous amendment to the legislation on national insurance contributions was finally written off as being unsuccessful, which shows how slow the Government can be, and how blunt their antennae, in picking up the responses of people who are meant to benefit from the legislation. We want this review, therefore, to oblige the Government to face up to these questions—and to do so early.
The amendment we are proposing follows a clause which was retabled on Report in the Commons. We are retabling it in the Lords because of the difficulties of the earlier legislation; we cannot emphasise too strongly how much we want this to be successful. We note that the Government outlined in the Commons the complexity of some of these issues, but we think it is worth trying to measure the impact of this measure on employment and wages. It seems sensible at least to consider the relationship between the employment allowance and job and wage levels. The Minister will recognise that we have seen the benefit of some of the responses in the other place to this major proposition, but I hope that he has had time to reflect, that his officials have appreciated the anxieties that were expressed in the other House, and that today we will get from him a more constructive response than we obtained elsewhere. I beg to move.
Lord Newby (LD)
My Lords, the proposed new clause seeks to require HMRC to publish a post-implementation review of the employment allowance after one year. I would like to explain why this new clause is unnecessary.
The tax information and impact note already commits the Government to keep the scheme under review through ongoing communication with taxpayer groups affected by it. Moreover, in Committee in the Commons on 21 November last year, and on Report in the Commons on 10 December, the Exchequer Secretary agreed that the Government should publish information twice a year about the overall take-up of the employment allowance, including by geographical location. I am happy to repeat that commitment in the Moses Room today.
This amendment focuses on the number of jobs created by the employment allowance. However, while the employment allowance will clearly reduce the cost of taking on new staff for small businesses and charities, it will be up to those businesses and charities to decide how they use the resulting NICs savings. I remind the Committee of the comments made by the Institute of Fiscal Studies and by the Federation of Small Businesses at the evidence session in the House of Commons on 19 November last year, to the effect that it is impossible to get precise numbers. We cannot conduct the equivalent of a randomised trial with tax policy to determine the number of jobs created because of the allowance. As the IFS pointed out, there are a number of factors in the economy simultaneously influencing the number of jobs.
The Government have not set any target for the number of jobs we expect to be created, although survey evidence from the FSB suggests that 28% of small businesses will use the savings to employ additional staff. It would not, therefore, be possible to provide information about the number of jobs created as a direct result of this measure. Similarly with wage levels, the same research from the FSB suggests that 29% of small businesses would use the NICs savings to boost staff wages. However, it would be difficult precisely to quantify that effect, given that wage levels are subject to many different pressures, varying from business to business.
The new clause also requires an assessment of HMRC’s strategy to promote the employment allowance. HMRC has already been proactive in promoting the allowance, having spoken to various stakeholders—including representatives of software providers, charities and small and medium-sized enterprises—about the design and operation of the measure. There is continuing engagement between HMRC and those stakeholders on guidance for employers and publicity. As a result of these discussions, communications to raise awareness of the allowance will begin more widely in February and March this year to maximise impact in the crucial period running up to the introduction of the allowance in April, using a range of HMRC publications and products and the department’s national network of local Working Together groups. As a result, we are confident that employers across the UK will be ready to claim the allowance in April. These efforts will continue after April to support take-up from companies that have not done so at that point.
With these reassurances, and in the light of the Government’s existing agreement to make information about take-up available twice yearly, I hope that the noble Lord will withdraw his amendment.
Lord Davies of Oldham
My Lords, I am grateful to the Minister for the additional information he has given about the reinforcement of the necessary publicity to promote awareness among those who could benefit from the allowance. I recognise that the issue is being taken seriously. It cannot be taken seriously enough. The Minister is absolutely right to cite what the FSB thinks can be achieved, and we recognise that the Government have to set their sights for advantages within a fairly low range in the early days. It takes time for people to appreciate the advantages.
The Minister made one passing reference to charities. We have no anxiety about the ability of very large charities to keep up with legislation, although they tend to be more preoccupied with legislation that will affect them in other Bills before the House, rather than this more benevolent provision. However, the Minister will appreciate that we are anxious about other charities on that score. I am grateful that he mentioned them en passant—although not as strongly as I would have wished. Nevertheless, it was a constructive and helpful reply and, on that basis, I beg leave to withdraw the amendment.
Lord Davies of Oldham
“Administrative and compliance costs review
(1) Her Majesty’s Revenue and Customs must, after six months of this Act coming into force, prepare a review which the Minister shall lay before Parliament.
(2) The review must consider—
(a) whether there are any administrative or compliance costs associated with the employment allowance being reported by those applying for it; and(b) whether businesses, charities and sports clubs are having any problems in claiming the employment allowance.”
Lord Davies of Oldham
My Lords, this amendment would require a one-off administrative and compliance costs review to take place six months after the employment allowance comes into force. We are using this amendment to ask questions about the 10% of businesses that the Government think will not claim the employment allowance, and to explore ways in which they might be engaged more successfully. We are asking whether the guidance will be available in sufficient time for people to get their software ready.
The Minister’s colleague in the Commons indicated that the necessary changes to software and the pressure on businesses, particularly small businesses, would be challenging. Evidence received by colleagues in the other place suggested that normally three to six months is required for systems to be developed, including time for specification and documentation of the changes, development, testing and release to clients. That cannot be started effectively until it is known what is expected.
The indications were that the guidance would be ready early in the new year—in January. Will the Minister update the Committee on where we are? We believe that there has been some slippage from that optimistic date. Will the system be available in sufficient time for the response that we all want to see? A review would enable us to check six months on that software-type issues or unexpected administrative costs have been ironed out and dealt with. That would give the Government an early opportunity to rectify what needs to be changed.
Lord Newby
My Lords, the proposed new clause would require that HMRC should, six months after the Act comes into force, prepare a review to consider whether there are any administrative or compliance costs that have been reported by employers claiming the allowance, and whether businesses, charities and community amateur sports clubs are having problems in claiming it. I hope that I can persuade the noble Lord that this proposed new clause is also unnecessary for two main reasons.
First, as I pointed out when commenting on the previous proposed new clause, the tax information and impact note already commits the Government to keep the scheme under review through communication with stakeholders affected by the measure. As part of this review, HMRC will speak to stakeholders to gauge their views of the allowance and to ascertain the ways in which it is being used. HMRC talked to various stakeholders over the summer and autumn about the design and operation of the allowance, including the claims process. There are continuing discussions between HMRC and these groups around guidance and publicity, and these will continue after the launch of the allowance in April.
A crucial part of this work has been discussions with software developers. As I said, HMRC has held discussions with representatives of charities, payroll software providers and businesses to help inform the design of the new system. In particular, in July last year the 2014-15 RTI technical pack for software developers was published on the HMRC website and specified that an employment allowance indicator would be needed on the employer payment summary. There is ongoing engagement with stakeholder groups around this draft employer guidance with a view to making employer guidance available early next month. However, this does not affect the calculations in the software packages.
HMRC will also target communications to key stakeholders and use HMRC publications, for example, the Employer Bulletin in February and March, to further build awareness. I hope that I can reassure the noble Lord that the difficulties that he is rightly concerned about are likely to be minimised by the fact that the allowance is very easy to claim. Employers will receive it through their routine operation of PAYE. They will simply need to confirm their eligibility via their regular payroll processes. Enabling the employment allowance to be claimed by employers through their payroll software will ensure that it is straightforward to claim. They will simply have to indicate yes, once, in their employer payment summary. The claim will continue from tax year to tax year.
After making the claim, employers will not need to pay their first £2,000 of secondary class 1 NICs. If their secondary class 1 NICs liability is less than that in the first month or quarter, dependent on whether they pay their PAYE liabilities monthly or quarterly, any unused allowance will be carried forward to the next month or quarter until it is exhausted. If an employer does not have an employer payment summary on his own software, he can use the free HMRC Basic PAYE Tools package. For the very small number of eligible employers—around 2,000—who still submit their returns to HMRC on paper, there will be a paper process to mirror the IT process.
The Government are very keen that this new proposal should have the maximum possible impact because we want to see it promote economic development. We have gone to considerable lengths to engage with the industry and provide the private sector and the charities sector with information in good time. We think that we have prepared well. The guidance will be out next month and there will be ongoing discussions with all the relevant stakeholder groups and individual firms and organisations that might claim it. In those circumstances, I hope that the noble Lord will withdraw the amendment with his proposed new clause.
Lord Davies of Oldham
My Lords, once again I am grateful to the Minister for fleshing out some of the arrangements that the Government will put in place to ensure that this operation is as straightforward as possible.
Reference was made to sports clubs. In my previous incarnation before the most recent general election, I had quite a bit to do with sports clubs and their administration. I have not the slightest doubt that the mega-clubs of the Premier League have no need for the Government to advise them on how they should organise their tax affairs. They seem to be pretty adroit in doing so at present. However, sports clubs run by a small number of people, where decisions are generally taken by amateurs, even if there are one or two professional employees, are a different matter. They will need to be provided with the easiest possible transactions to ensure that they benefit from this measure. We want to see sports clubs and charities as well as mainstream employers adopt a positive, outward-looking perspective as regards young people. After all, they are most likely to engage successfully with youngsters through the sport in which the latter engage.
I emphasise to the Minister that this is a probing amendment. I am grateful for his assurances that the ability of even the smallest employer to make the claim when it is due does not come down to much more than ticking one box, or even answering yes or no in that box. I am reassured on that front. I beg leave to withdraw the amendment.
Lord Davies of Oldham
“(13) The Treasury shall publish a review of the level of youth unemployment as at December 2013 and the effect on the level of youth unemployment if the amendments made in this section were required to be brought into force on 6 April 2014.”
Lord Davies of Oldham
This amendment would place a direct responsibility on the Treasury, so I know that the Minister will respond to it creatively, positively and in the full recognition that we will expect him to fulfil all the obligations entered into.
We, of course, see the advantages of this initiative and we hope that it will encourage employers to take on more young people under the age of 21. We all know the difficulties that our society has undergone in recent years in terms of employment, and we all take pleasure in some welcome signs at last of an improvement in the employment statistics. But those improvements are up against a colossally difficult situation for young people. They have the right to expect, after they have been through their educational experience, at whatever level, that they are part of a society that ought to welcome them into gainful employment—but it presents a desperately bleak face at present.
We all know of the numbers of applications that people have to make, even for roles that are far from the massively competitive positions that we expect at graduate or postgraduate level. We are talking about school leavers who have to produce a CV dozens of times to make any kind of progress. Progress for most of the time, of course, is just the adjustment to rejection. We recognise that the Bill represents a contribution towards helping young people. We do not think that it is bold enough. It does not go far enough to tackle the great problems that we have with youth unemployment, but the situation will be greatly improved if we can measure progress. That is what the amendment would do. It would require a review to be undertaken on the effects of the policy on youth unemployment.
Of course, this is a probing amendment. I have no intention of taking it further, but I am asking the Minister to put on record as much as he can about the likely positive impact of this proposal. He will appreciate that we are concerned that many months will elapse before it starts to take effect. As I enumerated in discussing an earlier amendment, the Government’s record in this area is not good. They produced a policy that we severely criticised at the time and thought was destined to fail, but they seemed to take an inordinate amount of time to recognise that its failure had occurred. That is why the Government are in this position. On the national insurance contribution dimension to employment issues, these were wasted years and there is not much time left in the present Parliament for the Government to show real achievement.
We asked questions in the other place about crucial issues, but we did not feel that we got answers that totally satisfied us. On one question we got no answer at all: how will it be paid for? I would like the Minister to comment on that. It also raises the issue of how tight the timeframe is for employers. I recognise that they will have to move with some dispatch to take advantage of these proposals, but that is what the country is expecting. In circumstances of youth unemployment being in such a critical state, we are expecting employers and the Government to act with dispatch, and effectively.
Will the Minister comment on an aspect that was emphasised in the other place—namely, that we have to take care what demands we place on IT systems as regards the ability of receiving bodies to get their systems squared up, and of the Treasury to adjust to the new measure? The Treasury ought to be light on its feet in these terms. If it is slow, that may be occasioned by the number of disasters that have befallen other departments in this context—for which I am sure the Treasury disavows any responsibility. However, given that this policy is urgently needed, it ought to recognise that responses which blame the amount of time needed to get IT systems squared up look a little—I will not use the word “evasive”, as it is a pejorative term in the tax context, but they suggest that the Treasury is trying to excuse a lack of drive at the centre. I hope that the Minister will reassure me on that point.
Lord Newby
My Lords, this proposed new subsection would require the Treasury to publish a review of the level of youth unemployment as of December 2013 and of the effect on the level of youth unemployment if the zero rate of employers’ class 1 NICs on the earnings of employees under the age of 21 were to be brought into force from 6 April 2014 rather than 6 April 2015.
I would like to explain to the noble Lord why I believe that the amendment is unnecessary. The Government are committed to increasing employment levels for all parts of the working-age population. Employment is now at its highest ever level and unemployment is lower than when the Government came to power. The Government recognise the challenges posed by youth unemployment, and dealing with them has long been a priority of ours and of the predecessor Government. For example, around 370,000 young people have been supported through the Work Programme since June 2011. Furthermore, the Youth Contract provides almost £1 billion in funding to support up to 500,000 young people into employment and education opportunities.
The employment figures published yesterday showed another significant fall in youth unemployment. Although it is not enough, it is not the first quarter in which we have seen such a fall, and now the overall aggregate of youth unemployment is falling significantly. As we have already debated, it is extremely difficult to say what proportion of the fall is attributable to one cause rather than another. However, overall, the improved economic environment and the Government’s policies taken together are clearly having a significant beneficial effect on youth unemployment.
The Autumn Statement, which gave another push in this direction by abolishing employer NICs for under-21s, builds on the policies already in place, and has been widely welcomed by industry. Indeed, John Cridland at the CBI said that the policy,
“will make a real difference and help tackle the scourge of youth unemployment”.
However, I see little point in the Treasury publishing a review of the level of youth unemployment. The Office for National Statistics is responsible for publishing statistics on employment, and these regular releases are available to the public through the ONS website. There is a limited case for the Treasury intervening and also publishing a review.
In addition, I do not think that there is any value in attempting to estimate the impact of a policy introduced at a theoretical date, and I am not sure that the noble Lord is pushing this element of the amendment particularly hard. The Autumn Statement announced that employer NICs would be abolished for those under 21 years of age from 6 April 2015. Attempting to deliver this a year earlier on 6 April 2014 would increase the administrative costs to business, and rushing the measure through in this manner would be likely to lead to cost, confusion and the failure of many employers to take it up.
Such a tight timeframe would not give employers, payroll software developers and HMRC sufficient time to update their IT systems. As regards HMRC, there would not be enough time to ensure that the policy was implemented in a way that does not disrupt its other important IT systems. These difficulties were recognised by the Chartered Institute of Payroll Professionals, which commented on the Autumn Statement:
“We … welcome the news that this will not be enacted until April 2015, giving the payroll industry time to plan properly.”
This is not a case of the Government being complacent or lacking in energy and drive; it is simply that I do not want to be at the Dispatch Box under the lash of the noble Lord because the Government have not implemented a policy with the maximum possible efficiency and effectiveness. The timetable that we have adopted, in our view, will enable us to do it in due time, so that employers and HMRC can prepare and, when the policy comes into effect, it will be well prepared for by all who need to implement it. The fact that it has already been announced means that employers can begin to think about how they will choose to benefit from it when it comes into force.
The noble Lord asked how much it will cost and how it will be funded. In its first year, it is expected that it will cost £465 million, rising to £530 million by 2018. Although the policy obviously carries a significant cost, overall, the Autumn Statement in which it was introduced was fiscally neutral and reinforced the Government’s commitment to reducing the deficit. It is worth repeating that this policy represents half a billion pounds-worth of support to young people in employment—so it is very significant and, we hope, will have an equally significant impact on youth unemployment.
In view of all those considerations, I hope that the noble Lord will withdraw his amendment.
Lord Davies of Oldham
I was certainly not underestimating the significance of the programme. We all know the magnitude of the task before the Government in dealing with youth unemployment, so the figures that the noble Lord has cited seem apt for the task in hand—except that we consider the scheme inadequate for the scale of young people’s difficulties, which we can already measure.
I am grateful to the noble Lord for giving us those facts and am reassured by them. On the question of delay, I sometimes think, on the issues that we have raised with regard to the compatibility of IT operations, that in the wonderful world in which we live, the magnificent speed with which computers can bring huge advantages to society have to be balanced against the fact that the introduction of legislation seems to be tied up in a computed timescale which all pen-pushers would regard as unacceptable. After all, what is the Minister saying to me? He is saying, “We recognise that the present policy that we are operating on the role that insurance contributions can make to improve employment is a dead loss to the country. It has such marginal utility that no one will weep for its passing”. But that policy has dominated three years of this Government’s life, and he is saying that its replacement will see the light of day virtually on the brink of the next Government coming to power.
Of course the Minister is right to say that proper consultation has to take place, that we must not add to the burdens on business unnecessarily and that computer systems are mightily complex and vastly costly when they go wrong. The Government are in quite a good place to assess the costs when computer systems go wrong, because they have a few instances on their doorstep at present. However, the implication is straightforward: the policy of using national insurance contributions and elements of alleviation has failed for three years, and it will make only a marginal impact over the duration of this Government’s life. I beg leave to withdraw the amendment.
Lord Davies of Oldham
My Lords, we have taken the strategy of objecting to the clause because as a matter of principle we want to discuss with the Minister what is going on. Of course, it is not that we are objecting to the application of GAAR to this policy; we want to address some issues with regard to tax avoidance. I must say that I will make a note for any succeeding Labour Ministers whose path happens to cross mine in the future that when we produce concepts that will be abbreviated down to four letters, they might like to produce a somewhat more attractive word than GAAR. Life is difficult enough. We do not often speak the language of Shakespeare in the House, but to constantly use initials that grate on the mind the moment they are introduced is misfortunate. However, it is GAAR that we will be talking about and that is the word I shall use throughout my contribution. I like to think that I am giving the Minister due notice that I shall think of something more felicitous for the Government 15 months from now—but that is probably wishful thinking on my ability rather than a prediction about whether we will have a different Government in 15 months’ time.
GAAR is not an answer to all tax avoidance, as is freely recognised. In fact, when looking at the returns thus far, we are all too well aware of how little they measure up to the massive challenges presented by those who seek to avoid tax with dextrous moves and huge resources. We know the ability of multinational organisations to indicate, in any administration that has an effective tax scheme, that very little of their operation is ever tax-worthy and tax-liable. Of course, a great deal of their activity is carried out in administrations that have precious little in the way of ability to abstract tax from them. That is to say nothing of the transfer of tax out of a significant country in which they operate: for example, the UK, which is a very significant market. The loss of tax revenue to any country is to be deplored when the activities of these companies are so significant in this country.
GAAR, as it stands, is so narrowly defined that the number of occasions on which it can be usefully deployed is obviously limited. The scale of the concept that the Government are working on at present is ludicrous in relation to closing the tax gap that we have all exemplified and identified. It will not go anywhere near closing the tax gap of any one multinational whose figures have come to light in recent years, let alone the totality of the position. We want to prevent that kind of abuse being extended. There is no doubt that the public reaction to those who avoid tax in an extensive and often blatant way is to regard it as utterly unacceptable.
The GAAR is in danger of becoming a bit of a fig leaf for the Government in that, when a difficult issue about tax abuse and avoidance is raised, reference can be made to the GAAR and everything will be resolved. However, the figures utterly and totally belie that fact. That is why I am asking the Minister to reassure the Committee that he will keep in mind the effectiveness of the GAAR. A government scheme for closing down tax avoidance should do more to close a tax gap than they suggest this policy will.
Lord Newby
My Lords, I am grateful to the noble Lord for introducing this debate, because it has given me the opportunity to make a suggestion to him about what we might replace the term GAAR with. I wonder whether he would be happy if instead of calling it GAAR, we called it GREAT, as in Great Britain: the general rule to eliminate the avoidance of tax. If we had done that, we might have satisfied the noble Lord, and summed up our emotion when we think of the new provision.
The noble Lord’s basic argument is that we are not doing enough. As a veteran of debates on GAAR over the past decade, I recollect that noble Lords in the previous Government—perhaps even the noble Lord, Lord Davies—explained to me why the GAAR was totally impossible, completely unworkable and the Government would not countenance it. Indeed, they did not; they did not do anything in this area. The fact that the noble Lord finds this inadequate is slightly sad, given their failure to act in this area.
The noble Lord raised a number of points of failure, as it were, but one of them was in respect of the agreement with Switzerland. The agreement with Switzerland has not brought in as much as was expected, but the Exchequer has received almost £800 million via that agreement. That is £800 million that we would not have had, £800 million that the previous Government showed no inclination to pursue. That is only one of a large number of measures that we have taken to ensure that people and companies who are avoiding or evading tax do not get away with it. In terms of personal taxation, the Lichtenstein disclosure facility has yielded a lot more than was ever envisaged and, along with the Swiss agreement, is part of driving down the ability of those with large resources to avoid tax.
The new automatic information sharing agreements, which have followed the FATCA legislation in the United States, are revolutionising the ability of HMRC to gain information about the tax affairs and bank holdings of British nationals, whether those are held in the Channel Islands or some Caribbean tax havens. Along with the Swiss and Lichtenstein démarche, that will make a big difference to our ability to get the money to which the Government are entitled. On companies, as the noble Lord knows, the work being done in the OECD, particularly on base-erosion and profit-shifting, is aimed to deal with the particularly egregious examples of large multinationals paying very little tax indeed.
As for domestic action, GAAR is only one plank in our overall strategy. HMRC published Levelling the Tax Playing Field alongside Budget 2013 to provide an update on the strategy and to set out the full range of measures being taken in this area. Some people have argued that because GAAR is tightly focused, it will not hit many of the targets and almost gives a green light to other forms of tax avoidance, but if you look at the whole raft of measures that we have taken in Budgets and Finance Bills—most recently, some announcements in the Autumn Statement—it becomes apparent that we have taken measures to protect several billion pounds of Exchequer revenue which might otherwise not have been agreed.
We have, for example, taken firm action to clamp down on stamp duty land tax avoidance, introducing the new annual tax on enveloped dwellings, and continue to close loopholes as quickly as possible after they emerge. In the summer, we publish a consultation entitled Raising the Stakes on tax avoidance, seeking views on proposals for a new set of obligations for promoters of high-risk tax avoidance schemes.
HMRC does an excellent job defeating tax avoidance schemes in court and making sure that people know that many of the schemes simply do not work, but we know that there is much more to do. That is why the consultation also encouraged users of avoidance schemes to settle their tax affairs after similar cases have been lost in court or tribunal. The GAAR is an important step to increase the pressure on the tax avoidance industry, but it is only one step, and we continue to take further action and devote more resources to the fight against tax avoidance in all its forms.
With those reassurances, I hope that the noble Lord will feel that he does not need to press the point.
Lord Davies of Oldham
I am grateful for both contributions to this debate. I particularly appreciate the noble Lord, Lord Razzall, coming along just to discuss GAAR with us in the hope that the Labour Party would make an almighty blunder by the amendment. Far from it; we are guided by safe hands. I also congratulate the noble Lord on finding the time to be present in the Committee when there are so many absorbing issues which affect his party, to which I have no doubt he is devoting an inordinate amount of time to get an effective resolution.
As for the Minister, I recognise that any returns from GAAR are to be appreciated. The fact is that the product thus far in several instances falls far below expectation and will, if we go on for much longer, leave the public enormously dissatisfied because we are not implementing an effective strategy to deal with significant employers, particularly the great multinationals. That disillusionment among the electorate will be so manifest that the Government will be driven to improve their performance.
We used the Motion on clause stand part to look at the way in which GAAR might contribute. A little is better than nothing; that is why I will not oppose the clause; but I tell the Minister that the present rate of progress on GAAR, which is evident in this measure but is certainly the case in much more significant terms across the country, falls so far short of public expectation that the Government will be much criticised on it.
However, that is probably a debate for another day, so I do not oppose the Motion that the clause stand part.
Lord Davies of Oldham
My Lords, if I may, I would like to include Clause 14, which we indicated that we wanted to debate, in this discussion.
The Minister has been constructive in his responses this afternoon, and I thank him for that. If I am less than precise about the issue which I am seeking to identify here, I hope that he will recognise the complexities of the issues involved. We have had one or two late missives. I got my letter from him a mere three-quarters of an hour or so before I came to the debate and, although his prose is lucid and readily comprehensible, I cannot pretend that I am able fully to address that to the Bill in the way that I would like.
If I establish in my argument the broad terms of the issues that give cause for concern, but they lack the absolute precision that we would normally expect, I hope that the Minister will forgive me. I have no doubt that he is both capable himself and will have expert advice to ensure that we have a fruitful discussion about the precise point.
Lord Newby
My Lords, I am grateful to both noble Lords for their contributions to the debate. I apologise to the noble Lord, Lord Davies, for the fact that he has only just received the letter. As he pointed out and knows very well, it has been a somewhat unusual week in terms of my ordered conduct of business and the letter was sitting on my desk for rather longer than it should have been. It is only fair to point out that this is no failure on the part of officials to respond in a timely manner; it is my failure. I am sorry that the noble Lord has only just got the letter.
Two points have been raised. The second was raised by the noble Lord, Lord Razzall, with regard to consultation. He asked whether the legislation had gone beyond the proposals set out in the consultation document. The Government believe that it does not go further than originally proposed or go beyond the original policy intention. In fact, as a result of the consideration of the consultation responses, the Government dropped the first of the original two conditions which were broadly in line with the employment status tests, which would have meant that even senior partners in major professional firms might have been reclassified as employees. The second condition, which contains ownership or economic interest or risk tests, has been slightly broadened because of this change, but it is still a narrower measure than if both conditions had been implemented as originally proposed. The Government also made clear in Budget 2013 and in the consultation document that the proposals will apply to higher-paid staff in the professional services sector and the lower paid if they are LLP members who receive a largely fixed reward and carry little economic risk or interest.
As regards the status of the secondary legislation and the issue of retrospectivity, the noble Lord referred to two sets of secondary legislation. The first, in Clause 13, had already been published in draft and the second, in Clause 14, was, I believe, enclosed with the letter to the noble Lord and has been put in the Library.
This legislation introduces half of a series of provisions that relate to income tax and national insurance. Slightly unusually, we are legislating for the national insurance part first because we happen to have this Bill before us. The relevant identical provisions relating to income tax will be in the Finance Bill, which will be introduced later in the year and will become the Finance Act 2014. The intention is that the provisions in respect of income tax and national insurance will not apply retrospectively but will apply from April 2014. That is made absolutely clear and set out in the secondary legislation.
I am told that the use of the earlier date in the primary legislation follows precedent in respect of other pieces of legislation and does not mean that the Government will introduce this measure going back a decade or, indeed, going back at all. There are technical arguments for putting that earlier date in the legislation, but the secondary legislation, as I said, makes it absolutely clear that the provisions will come into force from this coming April. Therefore, there is no question of an undue degree of retrospection. I hope that the letter which I sent to the noble Baroness, Lady Thomas of Winchester, set that out clearly and, I hope, satisfies the committee and the noble Lord.
Lord Davies of Oldham
My Lords, if it satisfies the committee, it will certainly satisfy this noble Lord, because I hold the committee in the greatest respect and I know how thorough it is in its work and its cumulative expertise, which I could not hope to match—so I am reassured on that front, which is why I thought that I did not need to go into an inordinate degree of detail. I am grateful to the noble Lord, Lord Razzall. I have seen no communication from the Law Society, but one or two people have made representations to us. They do not represent any particular group or profession, but are people who look at these matters closely and thought that they had identified an area of difficulty, which is what I sought to air under the amendments.
I am largely satisfied with the Minister’s response and will of course not press the Motion. I wanted to give him the chance to identify the Government’s position. He knows that we will ensure that those who have made representations to us and others get the chance to examine this thoroughly. I appreciate that, in the spirit of good will that obtains in the Committee, and obtained on Second Reading, the noble Lord is looking forward to a fairly straightforward exercise on Report and at Third Reading. I think that I can go 97% of the way to promising that, but this issue concerns the 3%. I cannot give a full assurance at this stage, because I do not know what the response of others will be, but I am sure that he will have worked hard enough to guarantee that the response is favourable, particularly from the Delegated Powers Committee. I will not press the Motion.
Taxation: Personal Thresholds
Lord Davies of Oldham Excerpts(10 years, 10 months ago)
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Lord Newby
My Lords, the Government have looked at merging national insurance and income tax. It is one of those ideas that is perennially discussed but every time the Government look at it they back off because it is extremely difficult to achieve. The problem with what the noble Lord’s suggests is principally the cost. However, I would remind him that the Government are introducing in the National Insurance Contributions Bill a tax-free national insurance allowance of £2,000 which will benefit every firm but particularly small firms. The Federation of Small Businesses has said that the single biggest consequence of that change will be increased employment.
Lord Davies of Oldham (Lab)
My Lords, the noble Lord deserves an easy ride today given his other responsibilities as Liberal Chief Whip, so I will ask him a very straightforward question. Does he agree with Citizens Advice that, for many low-income families in work, any gains they make from this change to the personal allowance are swamped by the Government’s other changes to tax and benefit, and that working families are £1,600 each year worse off since this Government came to power?
Lord Newby
My Lords, we can improve the status and income of poorer families by having a robustly growing economy and an increase in average earnings and household earnings. This is now under way. Our job is to make sure that we continue it.
Taxation: Fuel Duty
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Lord Newby
My Lords, the Government will have eased the burden on motorists by £22.5 billion over the Parliament to 2015-16. The kind of differential that my noble friend describes in a small area is a classic example of a competitive market operating. I am told, although I do not have one myself, that if you have a certain kind of sat-nav it will automatically tell you the price of petrol at petrol stations in your vicinity at the time, which is a very good way of facilitating the market working.
Lord Davies of Oldham (Lab)
My Lords, the Minister will however recognise that the Chancellor, through his VAT increase, increased the price of fuel by 3p. Why do the Government not go further and introduce a price freeze on domestic fuels?