Making Tax Digital for VAT (Economic Affairs Committee Report)

Debate between Lord Forsyth of Drumlean and Lord Davies of Oldham

Monday 29th April 2019 Lords Chamber

[Lord Davies of Oldham (Lab)]

My Lords, I welcome the noble Lord, Lord Young. He has a somewhat challenging baptism in replying to this first debate in his new position. We all know his competence and that he always wins considerable support from the House for how he presents his arguments. However, I can scarcely recall another debate in which every contributor has identified issues that the Government have palpably failed to respond to. Nor are these minor pettifogging details; they are fundamental questions about how a government department should operate, and how a response to a committee report should be presented. The noble Lord has a great challenge before him.

I do not need to stress again the points made in this debate because we all have, strongly at the front of our minds, key issues on which we expect the Minister to make a response. The only figure I would like to bring to your Lordships’ attention—I do not know whether the Minister will bring this in as part of his defence—is that HMRC has 15,000 fewer civil servants than in 2010. Of course, we can all see ways in which government departments can work more efficiently and we all know the advantages of new technologies and so on, but a large part of that loss of people was a straight reflection of a determination to create a smaller state, with lower costs for the Government. These circumstances are part of the price that we are paying.

If there is one thing which stands out in this whole sorry saga, it is that HMRC persisted with conduct which was already causing enormous consternation not to people who were adept at tax evasion or those who employed professionals to look after their tax affairs, but to ordinary citizens applying for jobs. The report makes that clear. Their employers, or the agents working for those employers, took them on board and indicated a loan would be advantageous form of payment for their employment. That is why we have so many people who deserve the sympathy of every one of us in this House and all of us concerned with government. Ordinary people now find themselves facing charges which are not the kind of thing that might be easily disposed of by the better-off in society, but multiples of their actual earning power each year; these are now demanded as owed tax. This is a parlous position. What has been identified in this debate is just how dismissive the Government have been thus far on the issue.

[Lord Forsyth of Drumlean]

Of course, the noble Lord is quite right about the substantial cuts in the resources available to HMRC. That has undoubtedly been a factor in its ability to deal with inquiries and to deal with people sensitively. However, it is not to blame for implementing the loan charge, which was passed by Parliament—by the House of Commons. Dealing with this requires a change in the law. Do the Opposition support that?

[Lord Davies of Oldham]

The answer is categorically yes. In fact, I was going to develop that argument briefly but I do not need to now: in his opening speech, the noble Lord made the main charge against the Government and their response to the report thus far quite clear. I utterly endorse that position. I am very grateful for the speech he made today and the way in which he obviously led the committee to produce these high-quality reports.

One of the things which stands out in the reports is that the Government found a whole series of the recommendations quite unacceptable. Of the recommendations in the digital taxation for VAT report, eight were accepted, seven were accepted in part and only six were rejected outright. However, the majority of the recommendations in the other report were rejected. The Government ought to have a pretty strong case when responding on this matter to a significant body such as a House of Lords committee led by the noble Lord, Lord Forsyth, but it seems fairly obvious that the Minister has somehow been shielded behind the perspective that only the House of Commons has any authority with regard to the economy. We all know the law—we all know why the House of Commons produces its Finance Act and we in the House of Lords defer to it as presented—but that is a little different from a committee examining the conduct of a government department. From what I can see, on the whole, Ministers have not been prepared to attend the committee and have been rather dismissive of many of its hugely significant recommendations.

Expressions have been made during the debate with which I have the greatest sympathy. I am not talking about the speeches from the noble Lord, Lord Kerr, and the noble and learned Lord, Lord Judge, who were both quite definitive in what they had to say—I of course agreed with the judgments they reached—but there were other comments that strengthened my support for the committee. The noble Lord, Lord Tugendhat, indicated the difference between how this part of taxation is dealt with and how welfare support is often dealt with. This is a tragedy that has gone on for a number of years, but so has welfare legislation and the great problems with universal credit, in which people who are devoid of resources are being asked to wait for weeks to get the money to which they are entitled. I was very grateful to him for bringing our attention to that.

The noble Baroness, Lady Noakes, criticised the use of the word “customer”. I too found it difficult when the railway companies started to refer to us as customers—they were not very confident that we would become “passengers” and go anywhere, but we were “customers” because we had paid for the ticket. There is a lot that we ought to seek to correct, through gentle persuasion, about the terms in which big organisations and businesses address us.

Two issues about the Government’s estimation come out strongly in the report. We can see that the Revenue and the Government are motivated by the fact that there could be considerable increases in resources through Making Tax Digital. The Opposition understand the argument for Making Tax Digital and endorse it, but it has to be introduced and developed in a better way, as the reports have identified. Those in this unfortunate position with the loan charge have earned salaries and tax is payable on them. There obviously has to be care about how people are challenged to make these payments, because many have limited resources, but there is no doubt that HMRC’s objective was to ensure that tax was legitimately paid on payments allocated to workers. The 2017 court case made this absolutely clear. Therefore we are not in any way, shape or form castigating HMRC for pursuing the issue in principle; we are concerned about the practice.

It has been quite clear from this debate that the committee has identified the department’s position with great force and accuracy. We expect Ministers to take note. We all have faith. I greatly regret the loss of the noble Lord, Lord Bates, the immediate predecessor to the noble Lord, Lord Young. Although I clashed with the noble Lord, Lord Bates, on very many occasions, I never had the slightest doubt about his genuine attempt to present his case accurately, effectively and with the greatest concern for the rights of the House. I am not so sure that Financial Secretaries in the other place have shown much respect for this body, but I am sure that the noble Lord, Lord Young, will seek to answer the very real questions asked in this debate, and treat the committee and its excellent reports with the respect due to it.