Finance (No. 3) Bill

Lord Turnbull Excerpts

2nd reading (Hansard): House of Lords & 3rd reading (Hansard): House of Lords & Committee: 1st sitting (Hansard): House of Lords & Report stage (Hansard): House of Lords
Thursday 7th February 2019 Lords Chamber

[Lord Turnbull (CB)]

My Lords, the principle of financial privilege means that this House has no powers in relation to the structure of tax, its rates and its incidence. It can, however, examine the way in which the tax system is administered, its governance and the compliance burden on different types of taxpayers. This time last year the Economic Affairs Committee, of which I am a member, through its Finance Bill sub-committee, looked into the plans to roll out Making Tax Digital. We found that, while HMRC might have been ready, a lack of communication and testing meant that many taxpayers would not be, especially to meet the requirement to submit returns quarterly. We recommended that the plans be reduced in scope and taken more slowly. To their credit, the Government took our advice and confined the first phase only to VAT and only to businesses with a turnover greater than £85,000. It was promised that there would be no further changes before 2020.

In my view, we helped to avoid a train wreck that would have damaged relations between HMRC and small traders and unincorporated businesses. It might have been nice if Treasury Ministers had said: “Do you know what? You did us a good turn there”. What remains is the undertaking not to extend the scheme before 2020. This is now only about 13 months away—not much time to digest the lessons of progress to date and to get taxpayers and software suppliers ready. The danger is that in next month’s Budget there will be an announcement simply reintroducing in their original form the proposals that were delayed. Instead, the EAC recommended delay until 2022 and the publication of a long-term plan setting out the next phases of this important initiative.

HMRC needs to look again at whether all the information it is seeking—not just total revenue and total spending but the invoices behind them—is really needed and needs to be submitted quarterly, even by very small businesses. The original turnover threshold was £10,000—less than the personal allowance—which, in my view, made no sense whatever. The estimate of costs to the taxpayer provided in the original plans carried no conviction and was strongly criticised by many witnesses to our inquiry. We are still waiting for those costings to be updated.

Two areas in the Finance Bill now before us raise issues about HMRC powers. As well as looking at them specifically, the committee decided to look at the balance of powers more generally, and in particular at whether the balance between clamping down on avoidance and treating taxpayers fairly remained appropriate. Many concerns have been raised, particularly by individual, unrepresented taxpayers. HMRC has been tasked by Ministers and Parliament with collecting more of the revenue that is due. The committee endorses this, although many people are struck by the contrast between a tougher approach for individuals and the more leisurely pace of progress on the taxation of the giants of the digital world.

If HMRC is to be equipped with greater powers and to take a more robust approach, it should logically follow that governance and safeguards should keep pace. In fact, we found the opposite. Paragraph 14 of the EAC’s report observes that the 2016 changes to the charter under which HMRC operates,

“increased taxpayers’ obligations and reduced HMRC’s”.

For example, accelerated payment notices and follower notices have no right of appeal to a tribunal. The committee observed:

“Whenever a new power is introduced or an existing power significantly extended it should be accompanied by a right of appeal against the exercise of the power, not just against the underlying tax liability ”,


Where taxpayers wish to challenge the lawfulness of HMRC’s decisions and there is no right of appeal, they may do so only through the High Court in judicial review, which makes proceedings much more expensive. The committee recommended legislation to give the First-tier Tribunal for tax the power to conduct judicial reviews.

The first extension of powers in the current Bill is to require records to be held for up to 12 years where offshore issues are involved. The justification for this large extension is weak and poorly targeted. Drawn into its scope may be compliant taxpayers with small pensions from time spent working abroad or with overseas properties. The committee considered this proposal to be unreasonably onerous and disproportionate to the risk.

The most contentious issue raised with the committee was the loan charge: a proposal to claw back tax lost from disguised remuneration schemes. I should make clear that the EAC supports the efforts to drive out artificial DR schemes. We rejected the arguments put forward to us that, so long as each step in a scheme was legal, no tax would be payable. This means that we accept HMRC’s argument that, where a series of transactions is contrived and artificial and has no purpose other than to produce a tax advantage, it should not be regarded as effective in reducing tax.

Taking action to bring DR schemes to an end from now on is entirely right. The issue is about how much back tax should be reclaimed. Many taxpayers feel that reclaiming unpaid tax from any past years is retrospective in effect. Mr Mel Stride, the Financial Secretary to the Treasury, vigorously denies that there is retrospection. He argues that tax was always due and still is, and that, using the great mantra of the day, “nothing has changed”. The tax payable is simply being collected.

There are two problems with this argument. First, if the tax was payable, why did HMRC make no effort to collect it at the time? There are many cases where taxpayers informed HMRC that they were in DR schemes, and cases where HMRC raised no queries and closed the return for the year. I am no lawyer, but I understand that there is a principle in law called estoppel, where a person is precluded from asserting facts or rights that are contrary to their previous actions. Perhaps that should apply to HMRC, which had opportunities to require tax to be paid but failed to act on them.

The second problem is that HMRC’s approach fails to take account of the circumstances in which many taxpayers found themselves in DR schemes. They were not affluent, well-advised celebrities who should have known better, but staff whose employers, some even in the public sector, transferred them to different employment contracts that required them to enter into loan schemes. There is resentment that HMRC seems to be targeting individual taxpayers rather than the employers and promoters of such schemes.

The loan charge was approved by Parliament—the other place—in 2016: another example of legislating in haste with inadequate thought to the consequences. The realisation that all is not right has now dawned on the other place, which is evidenced by the amendment to this Bill on Report by Sir Edward Davey requiring the Government to report back by 30 March on the effects of the loan charge scheme. I hope that the Government will use the opportunity created by the amendment to take up the EAC’s recommendation to exclude from the charge loans in years when a taxpayer disclosed their participation in a scheme to HMRC, and for years that otherwise would have been closed. To reduce the likelihood of retrospection, the committee recommended that HMRC should make a clear public statement as soon as it begins an investigation into a potential tax avoidance scheme.

I will end on a more positive note. The final recommendation of the EAC’s report, accepted by the Government, was that there should be a new powers review, so I hope we can restore a better balance between HMRC and the taxpayer and provide a better system of oversight and accountability in how HMRC uses its powers.

Police and Crime Commissioners

Lord Turnbull Excerpts

Thursday 28th June 2018 Lords Chamber

[Lord Turnbull (CB)]

My Lords, I have a long-standing friend who became a PE teacher. For 50 years he worked tirelessly to promote sport in schools and communities. He was the sort of the person we should give an MBE to. But two years ago someone went into a police station and alleged that he had been inappropriately touched by him after a gym lesson sometime in the early 1980s.

The police followed the guidance of Sir Tom Winsor, Chief Inspector of Constabulary, that the presumption that the victim should always be believed should be institutionalised. As a result, they spent little time investigating the plausibility of the claim or the integrity of the accused. In the face of hostile police and aggressive prosecutors, my friend was unable to prove a negative—that something did not happen 30 years ago. Rather than receiving an MBE he went to prison.

I and his many friends and colleagues believe that this is a miscarriage of justice flowing directly from the Winsor guidance. This guidance was severely criticised by the retired judge Sir Richard Henriques in his report on Metropolitan Police investigations into historic sex offences. He recommended that:

“Throughout both the investigative and the judicial process those who make complaints should be referred to as ‘complainants’ and not as ‘victims’”.


He then addressed the Winsor guidance directly. His criticism of it is withering:

“The effect of requiring a police officer … to believe a complainant reverses the burden of proof. It also restricts the officer’s ability to test the complainant’s evidence”.


He went on:

“Replacing an unsatisfactory state of affairs with a flawed system is no solution”,


and:

“The policy of ‘believing victims’ strikes at the very core of the criminal justice process. It has and will generate miscarriages of justice on a considerable scale”—


not just PE teachers but also Members of this House. He recommended:

“The instruction to ‘believe a “victim’s” account’ should cease. It should be the duty of an officer interviewing a complainant to investigate the facts objectively and impartially and with an open mind from the outset of the investigation … In future, the public should be told that ‘if you make a complaint we will treat it very seriously and investigate it thoroughly without fear or favour’”.


What part has been played in this by PCCs? Apparently very little. If you look at the published roles of PCCs, there are references to policing and crime but no mention of their role in maintaining the integrity of the judicial process by providing impartial evidence. It is not surprising, therefore, that the PCC in Wiltshire made no attempt to rein in an out-of-control chief constable. Crispin Blunt MP, who had sought an investigation into the case of a constituent whom he thought had been wrongly convicted, said in a recent Adjournment Debate that the,

“PCC has woefully failed to hold his force to account”.—[Official Report, Commons, 15/5/18; col. 74WH.]

When the noble Lord, Lord Hogan-Howe, stated in 2016 that the police should be neutral, he was criticised by a number of organisations and people, including Vera Baird QC, chair of the Association of PCCs. Sir Tom Winsor claimed that his guidance related only to the recording of crimes, but this is certainly not how it was interpreted.

I have three conclusions. The Winsor guidance should be withdrawn immediately. In any case, HMIC has no right unilaterally to overturn principles of the criminal justice system. The police should conduct their investigations thoroughly and impartially. Our system relies on the police being a neutral investigator rather than a continental juge d’instruction. If they are not impartial, our system becomes unbalanced. Finally, the responsibilities of PCCs need to be expanded to include the duty to maintain the integrity of the judicial process.

Brexit and the Labour Market (Economic Affairs Committee Report)

Lord Turnbull Excerpts

Thursday 8th February 2018 Lords Chamber

[Lord Turnbull (CB)]

My Lords, this was a very difficult report to prepare, the main sources of difficulty being the unsatisfactory evidence base and confused policy objectives. The noble Lord, Lord Forsyth, has highlighted the deficiencies in the statistics. The main source of the figures is the International Passenger Survey, based on 20-minute interviews—which I do not think are compulsory—with a sample of passengers passing through 19 airports and ports. Of those, only 4,000 to 5,000 were identified as migrants. It is on that that this whole policy is based.

The data on those leaving is acknowledged to be especially poor. We go through airports and our passports are swiped. This, I believe, is part of a control measure so that the right people get on the plane; I do not think that as yet it forms part of the evidence base. We also have problems with the number of students and how long they stay. Therefore, not enough is known about why people come, what they will do, what skills they have and how long they will stay. If migration is such a high-priority issue, I too am left wondering whether the UK should reconsider its traditional hostility to registration of identity, regardless of whether it is embodied in a card.

The confusion extends into the policy objectives. We were told that the Government wanted to reduce net migration to under 100,000 per year from over 250,000 to 300,000 in recent years, although, as has been mentioned, the Government were unclear about whether to call this a target. It would have been better if the study commissioned from the Migration Advisory Committee, referred to in the Government’s response, had been undertaken before the figure of 100,000 had been plucked out of thin air.

Part of the justification for Brexit was the need to take back control of our borders. However, only control of migration from the EU would be enhanced by Brexit. This channel has accounted for just under half of the total, and its level has fallen significantly since we reported. So, even if EU migration were reduced to zero, we would still not achieve the target unless new measures were brought forward to tackle non-EU migration.

Two phrases came up repeatedly in the referendum: “regaining sovereignty” and “taking back control”. They sound like synonyms, but they are not. One can regain sovereignty—that is, the ability to make one’s own laws—but that may not improve control if it reduces the co-operation that we get from other countries. For example, we could tighten laws against inflows across the channel but find that we were getting less help from France. We should not lose sight of the fact that collaboration with other countries is one of the instruments for advancing our objectives.

The third problem with the target of less than 100,000 is that it is not rooted in the structure of the labour market. The evidence that we saw showed the extent to which some sectors have, over the last two decades, become extremely heavily dependent on workers from overseas, notably health and care, construction, agriculture and food processing, and hospitality.

At this point, we need to recognise the difference between stocks and flows. Even if net migration were zero, there would still be about 5.6 million EU and non-EU nationals in the UK, of whom about 3.6 million or two-thirds are working. If we control net migration, there will still be a large stock of overseas labour to call on. Nevertheless, any attempt to reduce net migration rapidly has to take account of how fast employers would be able to train and recruit UK nationals or provide investment to mechanise production. The best example is housing. It is difficult to imagine that the Government’s objective of increasing the number of houses being built from 200,000 to 300,000 will be achieved without any increase in overseas workers. It will require a massive increase in construction training to turn this around.

The issue of overseas students came up frequently, with many arguing that students should be excluded from the statistics. This muddles up two concepts: the statistics and how the policy target is specified. Students should be in the migration statistics because they are a component of the population and net migration is meant to measure the increment to the population each year. But they do not need to be in the metric used for designing policy. There are many examples of where we take a statistic as measured by the ONS, using agreed definitions, some of them international, but then modify it in setting policy objectives: for example, RPI minus X; the public expenditure planning total minus privatisation proceeds; CO₂ emissions excluding aviation and shipping. Students should not be in the metric used to measure the Government’s progress in reducing immigration. Overseas students in our schools and universities earn foreign exchange; they are like click-and-collect exports, where the buyer comes to us rather than our sending the product abroad. Normally, we want to promote exports rather than constrain them. I think this is helpfully acknowledged in the Government’s response. If student movement is outside the target, it will still need to be monitored. If it turns out that the rate of students staying on is significantly different from what was expected, then an adjustment to the target would need to be made.

Finally, there is one issue on which I agree with the Government’s response. Our report, in an effort to produce consensus, said that there might be some merit in issuing work permits on a regional basis—for example, for Scotland or London. I always thought, and made the argument but lost, that this made no sense. Take a construction firm based, say, in Ealing. If there were London-only permits, does that mean that any of its overseas workers could work only inside the M25? Could British Gas engineers based in London service boilers in Windsor? What kind of apparatus would be needed to check that employers were deploying people only inside the designated region? We have a flexible labour market nationwide and issuing permits which bear no relation to travel-to-work areas makes no sense.

In conclusion, it would be ironic if, between the referendum in 2016, in which “taking back control” featured so prominently, and our exit in 2019, the net EU migration figures fell to zero—I am inclined to bet that that might happen—rendering the whole exercise pointless. But then there would be crises in many areas of our economy: in public services, in the housing sector, in agriculture and in food processing. Supporters of Brexit should be careful what they wish for.

Finance Bill

Lord Turnbull Excerpts

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 Turnbull (CB)]

My Lords, I am pleased to introduce the report of the Sub-Committee of the Economic Affairs Committee on the draft Finance Bill 2017. It was prepared under the excellent chairmanship of the noble Lord, Lord Hollick, before his term ended. I thank our two advisers, Elspeth Orcharton and Tony Orhnial. It is a funny old world in which we are debating this—only days before the next budget cycle starts—but then 2017 has been a funny old year anyway.

As tax policy and rates are outside its remit, the committee looks into issues of administration and simplification. One issue leapt out of the Bill. Making tax digital, as the Minister indicated, covers only nine pages out of 660 but we were extremely concerned by what we saw. In the original plans there were proposals to require all companies, large and small, plus unincorporated businesses and private landlords—about 5 million entities—to keep records digitally using not only spreadsheets but software compatible with HMRC systems; to submit a tax account quarterly; and to prepare an annual statement. This was to apply to all taxpayers with incomes of over £10,000 a year unless they secured an exemption as digitally excluded, which is not easily done. It was put to us that 80% of farms have broadband speeds below the Government’s minimum standards. Note that this is income over £10,000—not net income or profit—and that this level is below the personal allowance and the minimum wage.

We also found that the consultation process was inadequate and taxpayer awareness of the changes was low. HMRC was making the elementary error of moving to the next phase before the results of any pilots were available and analysed. Even on HMRC’s own figures, it will take businesses 10 years to recoup the start-up costs from the savings made; software development was lagging behind schedule; and inadequate provision was being made for businesses with irregular or seasonal incomes, such as farmers, performers and those working in the gig economy. We were told that 53% of independent retailers still had no electronic point of sale. So it has a lot of ground to cover.

When a major change is introduced, it is better practice to start with larger businesses, which are better equipped, moving down to smaller ones as experience is gained, as was done with pensions auto-enrolment. However, this time, HMRC was starting at the bottom. Why was it behaving in this way? The answer is that it believes that by making small businesses keep quarterly, rather than annual, accounts, it would collect more tax—around £1 billion per annum—by reducing errors and carelessness. Few people believe that this was plausible. It was pointed out that errors could go both ways and better advised taxpayers could end up paying less. The timetable was being driven not by what made sense for the project but by what had been agreed by the OBR and put into the Budget arithmetic.

The FBSC recommended: a slower timetable to allow more consultation and a better pilot study to be completed; no mandatory digital reporting below the VAT threshold, then £83,000; more attention to non-standard businesses; an updated impact assessment for taxpayers; and an updated business case for HMRC. I am pleased to report that HMRC, having for months shown little sign of movement, has brought forward some welcome changes, which were announced in June of this year and which the Minister has just repeated. These include: a slower timetable; no mandation below the VAT threshold, though businesses can opt in; and, above this threshold, initially only VAT submissions are to be digital, with other taxes not brought in until after 2020.

We do not know if this was the result of genuine conversion or just the expediency of jettisoning anything controversial in the post-election panic—but let us give the Government the benefit of the doubt.

So is it job done and a victory for parliamentary scrutiny in this House and the other place? Not quite. The most egregious flaws have been addressed but there are still concerns in the taxpayer community. Taxpayer awareness remains low and the pilots are still seen as too limited. It is far from clear that the principle set out by the noble Lord, Lord Carter of Coles, in his 2006 report on online taxation is being observed—that is, that capacity should be tested at least a year before implementation. There is no sign yet of the revised impact assessments and no clear road map for the proposal to widen the scope of making tax digital beyond VAT.

What are the general messages from this controversy? First, I should make it clear that the committee fully endorses the view that the adoption of digital technology for delivering public services will grow and grow, but the pace and sequencing require careful planning and efforts must be put in to helping all taxpayers to prepare. Businesses come in all shapes and sizes and have different capabilities. Secondly, departments must look at the totality of interventions on the sector. At one point it looked as though the self-employed could be hit by paying more tax, incurring higher costs, higher business rates and higher national insurance contributions while they saw corporation tax being cut and the IT giants getting off lightly. Fortunately that train wreck seems to have been avoided. Thirdly, it is dangerous to introduce major changes to meet an arbitrary timetable for increasing revenues.

There is another wider lesson for HMRC and DWP. They need to recognise just how complicated and chaotic are the lives of many in the poorer and less well-educated parts of society and just how financially precarious they are, as revealed by the recent report by the Financial Conduct Authority. Making tax digital is not the only scheme that has run into criticism for failing to recognise this. The noble Baroness, Lady Primarolo, will well remember the difficulties facing the introduction of tax credits. The same is happening right now with universal credit.

The history is that, for many decades, the Inland Revenue tried to reduce the frequency of its contact with individual taxpayers, through PAYE, MIRAS, interest and dividends deducted at source. The arrival of tax credits has put that into reverse. However, an organisation staffed by highly professional people—mostly graduates—in secure jobs, being paid regularly and with financial resources to fall back on, may find it difficult to empathise with families whose circumstances can change by the day and who are living on the breadline. My final recommendations are that those tax and benefit officials dealing directly with the public should spend time at a CAB office, a debt charity or an MP’s surgery. Then they should tune into “The Archers”—not for the love lives of teenagers or pensioners, which feature so prominently these days, but to follow the fortunes, or otherwise, of the Grundy family, who are scratching a living on all kinds of dodgy enterprises and are barely making ends meet. Officials should ask themselves before they press the button on something like MTD: do the Grundys understand what is being asked of them and can they cope?

In conclusion, there were many pressures on government to modify the original MTD proposals. What we have now is significantly better than it was a year ago and for that this House can claim some credit. I hope, however, that the Minister will convey the remaining concerns back to HMRC and the Treasury.