Small Charitable Donations and Childcare Payments Bill

Rebecca Long Bailey Excerpts

Committee Debate: House of Commons
Tuesday 18th October 2016 Public Bill Committees

[The Financial Secretary to the Treasury (Jane Ellison)]

It is a pleasure to serve under your chairmanship, Mrs Moon. I am grateful to all Members for being here to examine the Bill in detail and to many Members for their participation in the good and constructive debate we had on Second Reading. I welcomed the Opposition’s pledge to support the principles of the Bill, and I hope that today we can submit the Bill to further constructive scrutiny.

I will give a little bit of general background information before specifically addressing clause 1. The Bill makes a number of amendments to the Small Charitable Donations Act 2012. I know there are Members present who served on the Committee responsible for considering that Bill. The changes will ensure that the gift aid small donations scheme operates effectively and flexibly for a greater number of charities and community amateur sports clubs. The Bill also makes minor and technical changes to the tax-free childcare scheme, to improve parents’ experience.

The reforms to the gift aid small donations scheme are intended to simplify and increase access to it, particularly for new and small charities. We heard more about that on Second Reading. That will be achieved by removing a number of eligibility criteria to allow more small and new charities to benefit sooner, which I will discuss in a moment; reforming the community buildings rules to allow more charities to benefit from the important work they carry out in their local communities; simplifying the rule specifying the total top-up payment that charities and CASCs are entitled to claim, which will ensure fairness and parity of treatment between charities that carry out similar activities but are structured in different ways; and future proofing the scheme by allowing contactless donations to be eligible for top-up payments.

Clause 1 substantially simplifies the gift aid small donations scheme by removing two of the existing eligibility requirements, enabling smaller and new charities to access top-up payments much sooner. A number of charities have voiced support for that. Currently, a charity must have been registered for at least two full tax years and have claimed gift aid in at least two of the previous four tax years without a gap of longer than a year. However, the Government are keen to encourage take-up of the scheme, particularly among small and newer charities. Removing the two-year registration requirement will help to achieve that by allowing the up to 9,000 new charities that apply for recognition by Her Majesty’s Revenue and Customs each year to receive top-up payments as soon as that recognition is granted.

During the Government’s review of the small donations scheme, we heard about the difficulties faced by small charities making irregular or intermittent gift aid claims. The Government therefore consulted on relaxing the gift aid history requirement to only one year, rather than two. However, after listening to the views of the sector, we decided to go even further. Clause 1 removes the two-in-four-year gift aid history requirement entirely, which is a significant simplification for charities. The reforms are a good thing and have been widely welcomed by the charity sector.

The Charity Tax Group commented that relaxing the gift aid history requirement

“will hopefully widen access to the scheme, particularly among smaller charities.”

The Charity Finance Group said:

“The Bill is scrapping these rules and this means that more charities will be eligible and will reduce complexity.”

The removal of the two-year rule and the gift aid history requirement is a meaningful and significant simplification of the gift aid small donations scheme. It will make the scheme more accessible to smaller and new charities. I hope that the clause stands part of the Bill.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure for me, too, to serve under your chairmanship, Mrs Moon.

As the Minister outlined, clause 1 amends the meaning of “eligible charity” for the purposes of the gift aid small donations scheme, removing the requirement for a charity to have been registered for at least two full tax years before it can access the scheme. The provision also removes the two-in-four-year claims rule, which dictates that a charity must have made a successful gift aid claim in at least two of the previous four tax years with no more than two years’ gap between claims. Those measures will simplify the scheme and allow newly formed charities to access the Government top-up payment.

I am pleased that the Government have taken heed of responses to their consultation on reform to the scheme and scrapped the two-in-four-year claims rule fully. The initial proposal was to replace the rule with the requirement that charities must have made a successful gift aid claim only in the previous tax year. I understand that respondents felt that that could disqualify some charities that are currently eligible for the scheme but did not claim gift aid in the previous tax year for a variety of reasons. In the light of that change, the measures are welcomed by the Opposition and the industry. We are happy to support them. However, I have one concern on which I hope the Minister can provide some reassurance.

The requirement for a charity to have been registered for two years is arguably a way of ensuring that charities are not set up for the purposes of claiming a top-up from the Government illegitimately. The Opposition have tabled a new clause about anti-fraud measures, which we will debate later, so I will not digress too much. However it would be helpful if the Minister would assure me that the Government have carried out an assessment of whether removing the two-year rule poses an increased risk of fraud. Other than that small but important point, the Opposition are happy to support the clause.

[Jane Ellison]

I thank the Opposition Front-Bench spokesperson for those points, for her support and for her specific question. By removing the two-year rule, we want the scheme to be more flexible and generous, but we want to ensure that there are some safeguards.

We debated the balance between flexibility, generosity and safeguarding charities on Second Reading. That is why, as the Government made clear in the original impact assessment, the lack of evidence that a cash donation has been made makes the gift aid small donations scheme vulnerable to fraud. We must continue to protect against that but—as we will come to later—that is one of the reasons why the Government are retaining the gift aid matching requirement, which provides sufficient protection while getting the light-touch regulatory balance right. I will say more about that later. I hope that my response is sufficient and that the clause stands part of the Bill.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Meaning of “small donation”

[Rebecca Long Bailey]

I beg to move amendment 1, in clause 2, page 2, line 1, leave out lines 1 to 6 and insert—

“(a) in the heading after “small”, delete “cash payment” and insert “donation”

(b) in sub-paragraph (1) omit the words “in cash”;

(c) after that sub-paragraph insert—

“(1A) The gift must be made—

(b) by cheque;

(c) by electronic communication; or

(d) by a contactless payment.”

(d) in sub-paragraph (3) after the definition of “cash” insert—

““cheque” means a written order instructing a bank to pay upon its presentation to the person designated in it, or the to the person possessing it, a certain sum of money from the account of the person who draws it;

“electronic communication” means a payment made via the internet or text message;””.

This amendment would extend the range of methods by which payments can be made under the Gift Aid Small Donations Scheme.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 2, in clause 2, page 2, line 1, after “contactless”, insert “or SMS message”.

Amendment 3, in clause 2, page 2, line 6, at end insert

“, or

(c) by an SMS message”.

Clause stand part.

[Rebecca Long Bailey]

Clause 2 amends the types of donations eligible under the small donations scheme to include those made by contactless payment. Only cash payments under £20 are currently considered eligible donations. The Opposition support the clause but we question why contactless payments have been singled out in that way.

Amendment 1 would widen the scheme to include donations by text, by cheque or via the internet. A survey carried out by the Charity Finance Group for the National Council for Voluntary Organisations, the Institute of Fundraising and the Small Charities Coalition found that only 36% of the 340 charities surveyed wanted contactless payments to be included in the scheme. It also found that cheques were the method favoured for inclusion: more than 75% of respondents wanted them to be included. Half wanted text donations and two thirds wanted one-off online donations to be eligible. The amendment, which would include all those methods, is supported by the organisations mentioned and by the Charity Tax Group.

The Government’s likely response is that the methods do not need to be included in the scheme because a gift aid declaration can be provided, but the same logic applies to a bucket collection of cash donations: the fundraiser holding the bucket would simply need to hand over a pen and a piece of paper and—voilà—they have a gift aid declaration. However, the point is that it is difficult, albeit not impossible, to get the declaration. Most people send a donation via text in a spur-of-the-moment decision. A follow-up text is then required to ascertain whether the donation is eligible for gift aid, and most people are not as responsive as we would like, so it makes sense to include donations via text in the scheme. As for cheques, I understand that someone who is able to sign a cheque is probably able to sign a gift aid declaration at the same time, but 75% of charities surveyed said that including cheques would increase the efficacy of the scheme for them, so I would be interested to hear the Minister’s reasons for not doing so.

Amendments 2 and 3 would include SMS or text messages in the scheme. For the same reasons that I have already outlined, we see the logic in tabling them and we support them. I hope the Minister will accept our amendment or explain more fully her reasons for not accepting it, but I will not press it to a vote.

[Kirsty Blackman (Aberdeen North) (SNP)]

We support the amendments. As has been stated, a number of charitable organisations have got together and have come back with a really comprehensive survey that says that charities are hugely in favour of such an approach.

The gift aid small donations scheme is a really good Government initiative that has done part of the job it was set up for, but we can see from the number of people making a claim that it has probably not done as well as was intended—it has not quite reached the number of claims that were expected. That is partly because the way the world works has changed: people are giving through other methods. I rarely put money in a bucket, but I quite regularly make text donations or online donations, and I am as guilty as anyone of not following up with that second text with my name and address for the gift aid. In a world that is moving forward, we need to consider that.

I understand the Government’s reluctance to take on cheques, but it has been really clear from the groups that have come forward, particularly church groups, that they receive an awful lot of their funding from small cheques. It would be much better for them if they were able to claim for cheques under the gift aid small donations scheme. Although that may seem almost a backward step, we need to ensure that the gift aid small donations scheme works as best it can, particularly for small charities that do not have the staff—the people power—to fill in all the forms, which is still a requirement. Widening the gift aid small donations scheme would make it better, particularly for small charities.

--- Later in debate ---

[Jane Ellison]

We believe that the definition of contactless payment is wide enough to cover most likely developments but I am more than happy to look into that further before the next stage of the Bill.

Clause 2 amends, as we have discussed, the meaning of “small charitable donation”, enabling charities to claim top-up payments on donations received using contactless technology. Confirmation comes, as if by magic, for my hon. Friend: can the definition include Oyster cards? Yes it can.

As my hon. Friend knows, because he was one of the people discussing it, the matter was raised during the passage of the 2012 Bill. The gift aid small donations scheme was devised only four years ago, when contactless payment technology was in its relative infancy. At the time, the Government promised to look at the issue again during our three-year review of the scheme, and that is what we have done. I hope that the answer I have just given about Oyster cards shows that we are trying to future proof that aspect of it, as my hon. Friend predicted we would need to do.

The changes made by the clause reflect the fact that there is a clear trend away from cash transactions generally in society. They are declining, while contactless payments are increasing. We accept that, unlike other methods, such as cheques, text messages and online giving, which require donors to stop and actively engage with their chosen charity, contactless donations share many of the same limitations. People can just tap to donate and walk away without stopping to fill in a gift aid declaration. Indeed, in some of the situations in which we find bucket collections, it is almost impossible to stop and give a gift aid declaration. Contactless technology could be extended to augment bucket collections in busy tube stations—I imagine we would be less than popular if charities cause great queues to form in busy tube stations—so it is easy to envisage situations in which this measure would be useful. Accordingly, clause 2 amends the scheme, allowing charities to claim top-up payments on contactless donations of £20 or less.

Although the take-up of contactless technology among charities is relatively low, we have had feedback from the sector and have seen demonstrations suggesting that the cost of the technology is likely to decrease. Therefore, we anticipate that the take-up will increase. It is important, as the new technology develops—it is developing at a fast rate—and as the charity sector innovates, that the legislation continues to reflect the realities of the way charities are fundraising.

Clause 2 will allow charities to claim top-up payments on donations made using credit and debit cards, as well as services such as Apple Pay and Android Pay. The scheme will therefore become more flexible, and the charity sector will have more opportunities to claim top-ups on small donations of £20 or less. Including that measure in the scheme will not impose any significant extra burdens on charities that choose to use the technology. Charities will not be compelled to use contactless payments if they do not wish to do so.

Clause 2 will without doubt future proof the gift aid small donations scheme, as was discussed in 2012. It will ensure that charities continue to benefit in years to come as contactless technology expands. I commend the clause to the Committee.

[Rebecca Long Bailey]

I welcome the Minister’s comments. From the contributions from Members on both sides of the Committee, it is clear that there is an issue in relation to some charities being able to avail themselves of the gift aid scheme for the donations. If the Minister will not accept these amendments, will she consider launching a Government review of the gift aid scheme as a whole within the next six months to address the issues that have been raised today?

[Jane Ellison]

I reiterate the comments I have already made. This is about how we make this scheme, which was always designed to be a complement to gift aid, work. We are separately consulting on some changes to regulations around gift aid, which are designed to make it easier. We are seeing an evolution in the way people are able to donate. The question is whether the amendments are suitable for this scheme, which was always meant to deal with the issue of cash or cash-like transactions—instantaneous donations, bucket collections and donations from people walking by in the street.

I am unpersuaded that a review in six months’ time would add anything to the information we have before us today. It goes without saying that all these things remain under constant review, and this small donations scheme is no exception. It is kept under review in the Treasury—the Treasury keeps charity and tax law under review—and the team there has regular meetings with key stakeholders. The Minister for Civil Society also has extremely regular contact with stakeholders, and I look forward to having contact with charities on charity taxation.

I hope to persuade the hon. Lady that there are already data out there. HMRC publishes a national statistics package every year, which contains an absolute wealth of data, including on the total amount claimed under the gift aid small donations scheme. That is a transparent approach and it allows interested parties to monitor constantly the take-up and the effectiveness of charitable tax reliefs. Of course there is more to do to encourage charities to take up such measures, but the answer lies more in the things I mentioned—the outreach I talked about and the work being done by the Minister for Civil Society—than in some of the changes that have been proposed today.

--- Later in debate ---

[Rebecca Long Bailey]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3

Charities running charitable activities in community buildings

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

[The Chair]

With this it will be convenient to discuss clause 4 stand part.

--- Later in debate ---

To summarise, clauses 3 and 4 restore parity of treatment for comparable charities, and so deliver a fairer outcome. Charities can claim under one or other element of the scheme, but not both. Charities with community buildings have the freedom to claim top-up payments under the gift aid small donations scheme in a way that best suits their individual circumstances. For many charities, the rules will be simpler to operate and, given the relaxation of community building rules, more generous.

[Rebecca Long Bailey]

I shall try to keep my comments brief. Clauses 3 and 4 relate to the community buildings rule. Additional top-up payments may be made to those charities that meet and collect small cash donations in a community building. Every charity is entitled to an £8,000 a year allowance. Charities that carry out charitable activities in one or more community buildings can claim additional top-up payments of £8,000 per building subject to certain criteria. As the stewardship comprehensive guide to the scheme explains:

“A community building is a building, or part of a building, to which the public or a section of the public have access at some or all of the time.

So, a building which is kept locked other than at the times that Sunday services are held will qualify, provided that the public have access to it when it is open for public worship. Equally, if a church rents space in a local community centre on a Sunday morning, for the purpose of Christian worship, provided that the public have access to it, the use by the church on a Sunday will mean that the parts of the community centre used exclusively by the church will qualify as a community building.”

The community building is eligible if the charity carries out charitable activities on six or more occasions in the tax year with a group of at least 10 people. Clauses 3 and 4 would make a series of changes to the rules governing community buildings. Clause 3 would allow a charity to claim up to £8,000 from small donations raised anywhere, or up to £8,000 from donations collected from each community building it has. In the latter case, donations would include those made in person in the local authority area in which the community building is situated. Clause 4 affects the rules for connected charities making claims under the scheme where one or more of the charities run charitable activities in a community building. The House of Commons Library briefing paper summarised the change, stating that a group of charities will be entitled to claim

“up to £8,000 small donations made in the local authority area in which each community building is located.”

Alternatively it would be able claim

“up to £8,000 small donations made anywhere in the UK.”

As the first would generally be more beneficial, that would be the default option. The Opposition are very happy to support these changes to the rules governing community buildings. However, the Charity Tax Group has raised one point. It has called for a review of the requirement for there to be at least six events a year in a community building, and that they must be attended by at least 10 people. The group said that the rule is “arbitrary” and “impractical” for many charities, especially those in isolated community buildings or that have peaks in use, for example. Could the Minister use this opportunity to address the Charity Tax Group’s concerns about that rule? Other than that point I have no further comments.

[Jane Ellison]

The issue is really about the balance that we are trying to achieve. It is about trying to ensure that we keep a light touch in terms of what we ask of people claiming under the scheme. We feel that a reasonable balance is struck by the requirement that charities must carry on their charitable activities six times a year and, as the hon. Lady said, to be attended by at least 10 people. Most charities that are regularly active in most communities should be able to meet the requirements. It is not so generous that it is easy to contrive to meet it, and this is the issue. There will be other opportunities, in our debate on the Bill, to talk about striking that balance, but it is important to remember that protecting our precious charities means ensuring that we do not allow the rules to be so easily circumvented that abuse is widespread and that charities and the sector attract criticism for it.

We feel that this is a reasonable balance to strike. It is a light-touch requirement, but it is important to ensure that people do not contrive to work around it.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Childcare payments

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

--- Later in debate ---

[Jane Ellison]

Although not directly germane to the Bill, I am happy to draw the hon. Lady’s remarks to the attention of colleagues in the Department for Education. I suspect that they have already noted the PAC’s reports—I think most of us as Ministers would take great note—but I will of course ensure that they see the point she has made.

To reassure the Committee, HMRC has been user-testing its systems with parents with regard to tax-free childcare. Over 400 parents have been consulted so far. That allows HMRC to improve the services it offers to parents. As a result of that user testing, the first change that the Bill proposes relates to the quarterly reconfirmation process. HMRC has the power to change the length and entitlement period to make parents’ online journey as simple as possible. At the moment, they can change the standard three-month period by up to one month, so entitlement periods of between two and four months can be set. The one-month rule does not allow reconfirmation dates for all of a parent’s children to always be aligned—for example, where a parent applies for a childcare account for an additional child at a later date, or if a new household is formed. If the application is made in the middle month of their existing entitlement period, then alignment for reconfirmation is not possible.

Let me give the Committee an example. Helen is returning to work after maternity leave for her second child, Jenny. She already has a childcare account for her first child, Iain. Her current entitlement period for Iain runs from January to March. She is returning to work on 15 February. Whether the first entitlement period for Jenny is shortened to two months or lengthened to four months, it will not align with that for Iain. Therefore Helen is faced with two online reconfirmation journeys a quarter instead of only one. This amendment to the Childcare Payments Act will allow entitlement periods to be varied to between one month and five months. That will allow HMRC to always give parents such as Helen a single reconfirmation for all her children.

I am taking the second and third changes made to the Childcare Payments Act by this clause together as they are very similar in nature. Both allow HMRC to set out what online forms parents should use when querying HMRC decisions. The first does this for ordinary review requests; the second does it for requests made outside the normal time limits. Parents can query any HMRC decision that adversely affects them, for instance a decision that they are not eligible or a decision to impose a penalty on them. If they remain unhappy after the review they can appeal to an independent tribunal. As I have set out, tax-free childcare is a digital-by-default system. Parents apply to open childcare accounts, and then use those accounts, via online forms set out by HMRC for that purpose.

These amendments give HMRC the power to specify in regulations the online forms to be used by parents when requesting a review of any HMRC decisions. That will allow tax-free childcare to be consistently digital by default across the full service. Regulations under these powers will provide the same safeguards for those unable to interact digitally with HMRC as in-scheme regulations. The safeguards allow those unable to interact digitally to get the same service through other means, which is important. The safeguards are in regulation 22 of the Childcare Payments Regulations 2015.

In conclusion, these are minor, technical amendments to the Childcare Payments Act 2014 that will allow HMRC to improve parents’ experience and the consistency of tax-free childcare. I therefore urge the Committee to accept that the clause should stand part of the Bill.

[Rebecca Long Bailey]

I will keep my comments brief. Clause 5 relates to the Government’s tax-free childcare scheme and makes minor changes to the Childcare Payments Act 2014, which is the legislative basis for the scheme. First, it would allow HMRC to vary the entitlement period in certain cases by two months rather than one, as currently stated in the legislation. The entitlement period refers to the period of time after which parents must confirm that they still meet the eligibility criteria. Typically this must be done quarterly; however, HMRC can vary that in certain cases. Clause 5 changes this variable amount to two months, to

“enable alignment of eligibility periods for additional children when parents already have another child in the scheme.”

We certainly welcome these proposals.

The other change relates to parents who want to apply for a review of a decision made by HMRC that affects them, or who wish to do so outside the usual time limits. Normally that must be done within 30 days of being notified of the decision, although that timeframe can be extended. The clause also allows regulations to be made to specify the form and manner of such applications. I believe that the Government’s intention is to allow such applications to be made digitally, but perhaps the Minister will confirm that.

These are technical changes, and the Opposition do not oppose them. However, we have significant concerns about the tax-free childcare scheme more broadly. I will not say more about that now as we are debating the finer points of the Bill, but we will perhaps revisit that at a later stage.

[Jane Ellison]

I will of course draw the hon. Lady’s wider comments about childcare to the attention of the relevant Ministers.

--- Later in debate ---

[Kirsty Blackman]

I appreciate having the opportunity to move the new clause. Two of the three pieces of evidence that the Committee accepted today strongly support its inclusion in the Bill, one from the Churches’ Legislation Advisory Service and the other from the Charity Tax Group. The other submission is not against the new clause, it just does not mention it. As was mentioned earlier, a paper produced by the National Council for Voluntary Organisations, the Charity Finance Group, the Institute of Fundraising and the Small Charities Coalition says that it is vital that the matching requirement is changed or removed.

I take Members back to when the gift aid small donations scheme was first brought in. I was not present, but the Library has kindly produced a briefing that covers some of the matters that were discussed, and particularly the matching requirement. The right hon. Member for Bromsgrove (Sajid Javid) was the Minister at the time, and I want to quote what he said in the course of the debate on that legislation. Government amendment 30 was added to the Small Charitable Donations Bill, and it allowed the Government to make changes to the matching requirement. He said:

“It will allow us to remove the matching provision entirely…Even so, charities would always need to claim some gift aid in each year to ensure that they can claim under the scheme…It is something that many charities have asked us to introduce”.—[Official Report, 26 November 2012; Vol. 554, c. 98.]

So back then, charities were in favour of flexibility in the matching requirement and argued for it, and ultimately, the Government accepted that.

Having read the comments of Members at that time, I think the reason for that amendment was that the figures are arbitrary. The gift aid small donations scheme was amended fairly heavily during its progress through Parliament, particularly in relation to the matching requirement. When the scheme was introduced, it was suggested that top-up payments should be claimed only for amounts up to £5,000, but that was increased to £8,000. It was also suggested that the ratio of claims through the small donations scheme to gift aid claims should be 1:1 to begin with. The Government moved on that and changed the ratio to 10:1. Both those figures are fairly arbitrary, and the fact that the Government moved so dramatically shows that the figures are not necessarily set in stone.

Small charities have to receive £800 in donations under the gift aid scheme in order to claim the maximum allowance under the gift aid small donations scheme. Some very small charities will not receive £800 in donations that they can claim under the gift aid scheme, but they might receive £8,000 in very small donations, whether through church collections, people writing cheques or people making contactless payments. Unless they have that matching £800, they cannot claim the full allowance under the scheme.

The new clause, which is in my name and is supported by my hon. Friend the Member for Glasgow Central, would get rid of the matching requirement. It asks the Chancellor of the Exchequer to carry out an assessment. Because the change does not need to be made under primary legislation, the Government can carry out the assessment and make the change without being required to bring the matter back before the House in the spectacular way that they have to do with some other things.

Our proposal is widely supported by charities and would very much help the smallest charities, which feel strongly about it. As Members of all parties have stated today, take-up of the scheme has not been as high as expected. I argue that that is because some of the smallest charities are not able to manage the paperwork that is required.

I am not suggesting that we get rid of the requirement to claim gift aid in general. It is reasonable, given the Government’s desire to prevent fraud, that they have charities make at least one claim and fill in the full version of the forms. It is not, however, reasonable for the Government to expect the smallest of charities to go through that cumbersome process to claim the full amount of £800 in gift aid on small donations. That view is strongly supported by the organisations that have taken the time to write to us.

I intend to press the new clause to a vote. I understand that the Government might not want to accept it today, but I would very much appreciate it if they would seriously consider before Report the fact that a 10:1 ratio is possibly not the right arbitrary level. If they will not consider abolishing the matching requirement, will they consider making the ratio 20:1 or 50:1? That would be hugely beneficial to the smallest of charities, which benefit most from the gift aid small donations scheme and do not have the people power to fill in many of the relevant forms. I want them to continue to fill in forms, but not so many.

[Rebecca Long Bailey]

New clauses 1 and 2 both get to the most important issue for the charity sector: the so-called matching requirement. The requirement is that to make a claim under the small donations scheme, a charity must receive a certain amount of gift aid donations in the same tax year. The total of eligible donations on which a charity can claim a top-up payment is restricted to an amount between equal and 10 times the net donations on which gift aid is claimed for the year.

New clause 1 would require the Government to carry out a review of the impact of abolishing the matching requirement within six months of the passing of the Bill, and Labour’s new clause 2 would require the Government to conduct a review into the efficacy of anti-fraud measures designed to regulate the gift aid small donations scheme, with particular reference to the matching requirement. On Second Reading, the Minister said that the requirement is

“to protect from fraud the small donations scheme, which has substantially fewer record-keeping requirements than gift aid—an important factor that was looked at when the scheme was first designed back in 2012. It is by retaining the rule that donations under the scheme must be matched with gift aid donations that we best can do that.”—[Official Report, 11 October 2016; Vol. 615, c. 215.]

However, as far as I am aware, she did not produce any evidence that the matching requirement is an effective anti-fraud measure.

As we have heard, the sector says that the requirement is a huge barrier for many small charities. They would like it to be significantly reformed, if not scrapped entirely. For instance, the Churches’ Legislation Advisory Service has suggested extending the requirement to 20:1. Given the Government’s reasons for not proposing any amendments to the requirement, the Opposition think that we should simply have a chance to see the evidence that the requirement works.

We agree, of course, that preventing fraud in the scheme is of paramount importance, but if the measure is simply adding a layer of red tape and is not effective, the Government should review it. The Charity Finance Group has highlighted the fact that only 275 reports of suspicious activity were shared between HMRC and charity regulators in 2015, which represents a rate of one suspicious activity per 500 charities. The group considers that to be a sign that fraud in the scheme is not of a high enough level to justify the effects of the matching requirement. That might well be the case, or it could be that the requirement is an effective caveat to the scheme, but we would only know that if there was a publicly available assessment of the effectiveness of all the measures in the scheme designed to combat fraud and of where the requirement sits within that. I can see no reason why the Government would not want to carry out such an assessment, and I hope that the Minister will accept our new clause 2, or work with us to table a Government amendment on Report that deals with any issues or concerns with our wording.

Finally, I would welcome the Minister’s comments in response to evidence produced by the Charity Finance Group, which welcomes the intention behind our new clause but believes that the Government should focus on increasing punishments for those who commit abuse and providing more opportunity for charities to report on suspicious organisations.

[Jane Ellison]

As the hon. Member for Aberdeen North said, new clause 1 would require the Chancellor to lay before the House an assessment of the impact of removing the gift aid matching requirement within six months of the passing of this Act. New clause 2 would require the Chancellor to publish an assessment of the efficacy of the scheme’s anti-fraud provisions in the same period.

I should start by saying that I welcome the cross-party consensus on the importance of protecting the gift aid small donations scheme, and charitable tax reliefs more generally, from abuse. Indeed, I completely agree with the shadow Minister, the hon. Member for Salford and Eccles, who said on Second Reading:

“We must make sure that any loosening of the rules for access to Government grants or tax reliefs does not provide a further incentive for tax avoiders, albeit a small minority, to set up a charity.”—[Official Report, 11 October 2016; Vol. 615, c. 220.]

She was exactly right to draw our attention to that. The Government also agree with the hon. Member for Bootle (Peter Dowd), who said during his closing remarks on Second Reading that

“it is vital that sufficient safeguards are in place to prevent fraud when Government funding or tax breaks are provided, as in this case, to the charity sector. I think that sentiment would get cross-party support.”––[Official Report, 11 October 2016; Vol. 615, c. 247.]

Indeed, I think that sentiment does have cross-party support.

Let me say a little about fraud in the charity sector, which is relevant to the new clause. None of us likes to contemplate it or talk about it, but sadly it exists. As the Under-Secretary of State for Culture, Media and Sport, my hon. Friend the Member for Reading East (Mr Wilson), said on Second Reading,

“it is an unfortunate fact that unscrupulous individuals seek to exploit charitable status for criminal purposes.”––[Official Report, 11 October 2016; Vol. 615, c. 250.]

It might shock colleagues to hear that the “Annual Fraud Indictor 2016” document produced by Experian, PKF Littlejohn and the University of Portsmouth’s Centre for Counter Fraud Studies estimates that fraud costs the charity sector about £1.9 billion each year. The report also states:

“Fraudsters are fast, inventive, adaptable and willing to quickly exploit new opportunities.”

I am sure hon. Members will therefore agree that it is vital the Government make sure that any initiatives, no matter how well intentioned, have suitable safeguards in place to limit opportunities for abuse, particularly when those initiatives involve spending public money. Indeed, both the hon. Member for Salford and Eccles and the hon. Member for Bootle made exactly that point on Second Reading.

The gift aid matching requirement provides a deterrent for those who would seek to exploit the small donations scheme. A number of hon. Members have raised concerns about the matching requirement; we have heard them again today. A few hon. Members, including the shadow Minister and the hon. Member for Clwyd South, cited a survey by the National Council for Voluntary Organisations and others that suggested that the matching rule acts as a barrier to claiming from the gift aid small donations scheme, with 50% of respondents with an income under £10,000 wanting the matching rule to be removed or reduced. However, it is worth drawing the Committee’s attention to the fact that the same survey also found that only 5% of respondents claimed no gift aid at all, and just 10% felt that they did not claim enough gift aid to make claiming top-up payments worthwhile. Similarly, the Government’s own assessment found that 92% of charities claiming gift aid for the tax year 2014-15 claimed on donations of £500 or more, entitling them to the maximum small donations allowance, which at that time was £5,000. That is interesting evidence that for the vast bulk of charities, the matching rule is not a barrier.

--- Later in debate ---

Brought up, and read the First time.

[Rebecca Long Bailey]

I beg to move, That the clause be read a Second time. New clause 3 would ensure that local scout groups, guide groups and Army, Navy and Air Force cadet branches are able to claim individually under the gift aid small donations scheme, rather than being considered as part of a single national charity for the purposes of the scheme.

We have received representations on behalf of those groups arguing that the current treatment under the scheme is unfair. Under the connected charities rules, those organisations are considered to be one charity. However, local organisations fund-raise independently and are independent from one another financially. The Charity Finance Group has suggested that the amount of top-up received by individual scout groups in particular equates to about 17p a year. The new clause would simply allow individual groups to make individual claims through the scheme.

According to the sector, that would improve take-up of the scheme and ensure that small local organisations, which were intended to benefit, are able to do so. I appreciate that there are probably many other organisations with comparable structures that would benefit from similar changes. New clause 3 is more of a probing amendment to try and tease out from the Government why they do not want to reform the scheme in such a way. Perhaps we can return to this issue in more detail on Report. I would welcome any moves by the Minister to review the position and propose an amendment on Report that would catch all similar organisations with comparable structures.

[James Duddridge]

I dropped off my kids at beavers and cubs; and one of them is going to scouts. In this amendment, would the division apply to the 2nd Thorpe Bay unit, or would it apply to each constituent part, whether beavers, scouts, cubs, guides and so on?

[Rebecca Long Bailey]

The hon. Gentleman makes a very good point, and that is why I would welcome a review by the Minister of the proposal in the new clause. We need to catch more than what is simply on paper at the moment; the provision needs to go beyond the scope of local scout groups, for example. There are many other organisations that would benefit from being included individually in the ways I have proposed and I welcome comments on this point by the Minister. I also point Members to a note that they received this morning from the Charity Finance Group, which makes some helpful suggestions on this very point.

[Jane Ellison]

The new clause is designed to exempt scouts, guides and military cadet groups from the connected charities provisions of this Bill. We believe the new clause is not necessary.

The connected charities rules are intended to protect the gift aid small donations scheme from abuse and they work in conjunction with the community building rules to deliver fair and broadly equal outcomes for charities structured in different ways.

Without the connected charities rules, large charities would have a perverse incentive to splinter into groups of smaller charities to increase their entitlement to small donations allowances. I am sure none of us would want that to happen. However, it is important to make it clear that while connected charities are entitled only to a single shared £8,000 small donations allowance, they are still entitled to an £8,000 allowance for each of their community buildings.

--- Later in debate ---

[Jane Ellison]

I am fairly certain that the hon. Lady’s example will benefit from the Bill. At the moment, that is a good example of where a charity probably does not do fundraising in its premises, if it has a local office. If it fundraises in the local area through quizzes or events or whatever, it will now be entitled to claim against its community building for any activity in the local area. I will obviously double-check, but I think exactly that charity will benefit from the provisions in the Bill, for the very reasons the hon. Lady gives: they are people who have a base, but it is not usually the place where they fundraise. By contrast, when the original debate took place, the focus was on churches and cash donations within church buildings.

As I said at the outset, the new clause is unnecessary because the provisions in the Bill allow for what it proposes. The hon. Lady has neatly illustrated why we would reject it: it carves out a few selected charities, but we want the provisions to benefit a very broad range of charities, some of which are not named in the new clause.

Clause 3 achieves what Opposition Members are seeking to achieve but in a fairer way. It does not carve out a few selected charities, wonderful though they are, to benefit, but looks at how churches and other connected groups can claim more against their activities in a local area. The new clause is unnecessary and I hope that the hon. Lady will withdraw it.

[Rebecca Long Bailey]

I thank the Minister for her comments. Before we complete today’s proceedings, I would like to draw her attention to comments made by the Charity Finance Group this morning. It stated that “Scouts and so on often cannot claim under community building rules, because buildings have to be open to the public or a section of the public, some or all of the time. Their huts or barracks are often closed and unless they open up their buildings to the public during their activities or rent out part of their building for community activities, they will not benefit from this rule.”

To address that and deal with some of the issues we have just discussed, the Charity Finance Group has made a suggestion that HMRC could develop regulations and criteria to define local groups for the purposes of the Act, as it has done with other aspects of the gift aid regulations. Would the Minister give serious consideration to that proposal?

[Jane Ellison]

I am happy to reflect on the points made.

[Rebecca Long Bailey]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Bill to be reported, without amendment.

Savings (Government Contributions) Bill

Rebecca Long Bailey Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons & Ways and Means resolution: House of Commons
Monday 17th October 2016 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure, as always, to debate opposite the Minister. I thank her for outlining the overarching principles of the Bill, which will introduce the new lifetime ISA and the Help to Save scheme. As we have heard, the lifetime ISA is a new savings product that will be available from April 2017 in which people under 40 may deposit up to £4,000 a year. The Government will then top up those savings by 25%. The savings accumulated in the LISA can be used as a deposit towards a first home, or can be accessed once a person is 60 to “complement”, to use the Government’s word, their retirement income. In the absence of using the product to save for a house deposit, it will be possible for a person to remove funds from the LISA before they are 60, but there will be a charge of 25%, effectively to remove the Government top-up from the funds withdrawn.

The Help to Save scheme will be available for people in receipt of either universal credit or working tax credit. If they receive working tax credit, they must have minimum weekly earnings equivalent to 16 hours at the so-called national living wage.

[Mr Gareth Thomas]

I was grateful to the Minister for her response to my question. Will my hon. Friend commit our Front-Bench team to probing the Government further on whether there should be a two-year qualifying period, or if the period should be reduced to 12 months? Similarly, will she commit our Front-Bench team to exploring in Committee whether credit unions can be allowed to take part alongside National Savings and Investments? NS&I already offers national coverage, so there is no reason why credit unions should be excluded.

[Rebecca Long Bailey]

My hon. Friend makes important points and we would support him in pushing the Government to respond to those questions. I will highlight some of the concerns of our Front-Bench team about the Help to Save scheme in particular. Credit unions are vital for the roll-out of any savings scheme that targets the most deprived communities.

[Lucy Frazer (South East Cambridgeshire) (Con)]

The hon. Lady helpfully outlined the circumstances in which the lifetime ISA kicks in. Does she welcome that ISA to enable young people to save, given that half of present ISA holders are over 55?

[Rebecca Long Bailey]

I welcome the Government’s sentiment of encouraging people to save. If I may make a little progress, the hon. and learned Lady will get a fuller response in due course.

The Opposition have serious concerns about both policies under the Bill and a number of questions, with which I hope the Minister can assist. The Labour party warmly supports the Government’s principal aim of encouraging saving. Many working people in Britain are not saving enough or not saving at all, and that is storing up a multitude of problems not just for their personal finances, but for the public purse. The helpful House of Commons Library briefing states that 28% of people say that they have no savings at all and that 38% would struggle to pay an emergency expense of more than £500. In addition, the Joseph Rowntree Foundation surveys on poverty and social exclusion consistently find that between a quarter and a third of households say that they are unable to make regular savings. In the most recent survey, which was conducted in 2012, 32% of households gave that answer.

It is therefore right for the Government to examine methods and structures that will encourage saving, but I am sure that the Minister agrees that they must also address the root causes of this low saving trend. Will she examine carefully the reasons why many people do not save at all? Is it because they are splashing out on fancy cars and extravagant purchases, or is it because wages are too low and the cost of living is too high to get through the month for some people, never mind whether they have a bit of spare cash at the end of the month to put into a savings plan?

[Jo Churchill (Bury St Edmunds) (Con)]

Does the hon. Lady agree—this is perhaps unlike some of the measures brought in by Chancellor Gordon Brown—that it is important to keep products as simple as possible? It is also hugely important that they are transferable—a Help to Buy ISA can be transferred into the lifetime ISA—and complementary.

[Rebecca Long Bailey]

Indeed. Products need to be explained as simply as possible and there needs to be a commitment from the Government that there will be an adequate advertising campaign to avoid any ambiguity about a product. I shall shortly come on to some of my concerns about the specific products to which the Bill refers.

It is important to examine the fact that those who live in more deprived areas or areas that do not have access to a healthy range of high street financial services are often more financially excluded, having limited access to reasonable lending facilities. This in turn leads many to rely on extremely high interest lending facilities such as payday lenders, which are often the only lending facility available. In many cases, that initiates a cycle of debt and sucks any possible savings surplus out of the monthly pay packet. It cannot be lost on the Minster that for some time now food banks have been reporting surges in the number of people in full-time employment who are accessing them. This in itself may suggest that many people have no spare cash to live on day to day, let alone to save.

These problems bring me to the Opposition’s main problem with the Help to Save scheme that the Bill introduces. We wholeheartedly support moves to encourage saving for a rainy day, but in many cases the idea that those on universal credit and working tax credit have a spare £50 at the end of the month is extremely optimistic. People can barely make ends meet, as the Government found out last year when there was a cross-party backlash after they tried to take thousands of pounds from the recipients of much-needed tax credits. The transition to universal credit will arguably leave people in an even worse position.

[Jane Ellison]

rose—

[Rebecca Long Bailey]

I will pre-empt the Minister’s reply that Help to Save is incredibly similar to the saving gateway scheme that was piloted by the previous Labour Government.

[Jane Ellison]

I do not wish to interrupt the hon. Lady, but it is important to make the point that this is about people saving up to £50. It must not be suggested that everyone must save £50. The figure is up to £50, and that can be a very small amount. I would just like to make that clear.

[Rebecca Long Bailey]

I thank the Minister for clarifying that point, but I think that some people would struggle to save even £5 a month, let alone £50.

Let me go back to the point I was trying to make about Labour’s scheme. We did introduce a similar scheme, but it is important to note that we had not spent the previous six years eroding the disposable income of the people whom it targeted. Help to Save might well look good on paper in terms of helping those on low incomes to save, but I must warn the Minister that, given the long-term effect of Government cuts and wider austerity measures, it will not have the desired impact in many cases. The cuts the Government are making to universal credit alone will cost 2.5 million families up to £1,600 a year, according to the Institute for Fiscal Studies. Where will these families find even £1 a month, or up to £50 a month, to put into this savings scheme?

It appears that the Government are not expecting the measure to put rocket boosters, as it were, under savings by those on low incomes. Their costing for the policy is £70 million in 2020-21. Some 3.5 million people will be eligible for the scheme, so if my and the IFS’s calculations are correct, that works out as a Government bonus of £20 per eligible individual in 2020-21.

I was very excited to read the Government’s impact assessment in the past few hours. However, the Minister should note that it arrived at only 1 pm today, and while I am pleased that it arrived at all, she will appreciate that it is really not acceptable to provide such information at the 11th hour if the Government wish to be transparent and capable of being effectively held to account. None the less, I was interested to see that the Government’s expected take-up rate was 500,000 people in the first two years. I will be grateful if she explains the rationale behind that figure. For example, are specific groups more likely to save than others?

[Lucy Frazer]

The hon. Lady refers to the impact assessment. After the sentence she referred to, it says:

“These estimates were informed by information from similar savings schemes and government savings pilots.”

[Rebecca Long Bailey]

I thank the hon. and learned Lady for reading from the impact assessment, but I was asking whether specific groups are more likely to save than others, and I do not think the assessment provides that information.

Most importantly, however, how will the scheme help the remaining 3 million people who simply cannot afford to participate in it? I can sum up my concerns about this element of the Bill by reiterating comments made by our former shadow Work and Pensions Secretary, who stated that the scheme was

“like stealing someone’s car and then offering them a lift to the bus stop.”

[Kit Malthouse (North West Hampshire) (Con)]

I have to confess that I am a little confused by the hon. Lady’s arguments. Is she saying that because the scheme will not target all 3.5 million people who may be eligible, the Government should do nothing? Despite the fact that it might be a partial success or that a large number of people might take up the scheme, she seems to be saying that because not everybody will take it up, this is not worth doing.

[Rebecca Long Bailey]

No, that is not what I am saying at all. It is important that we address this issue, but we have to be clear about how we do so. Dealing with the root causes of poverty and people’s inability to save is the first important thing that the Government need to look at, and then the second element they need to consider when rolling out the measures in the Bill is the specific groups they intend to target. If they do not target the 3.5 million people who are eligible to take part in the scheme, how will they help those who do not take part in it?

There is considerable unease about the lifetime ISA policy across the pensions industry, the trade union movement, the Office for Budget Responsibility and Select Committees of this House. The Opposition support the idea of incentivising people to save for the future, especially for retirement income, but we are concerned that the scheme could create a diversion from saving in traditional pension products, rather than being an add-on to one’s main pension plan. Even a former Pensions Minister stated that the LISA “could even destroy pensions”. The UK faces a pensions time bomb. Eleven million people are signed up to defined benefit schemes in 6,000 pension funds in the UK, but PricewaterhouseCoopers recently produced data showing that the collective deficit in those 6,000 schemes had risen by £100 billion in just one month so that it stood at £710 billion at the end of August. Earlier this year, the OECD reported that we were facing a “global pension crisis” in which a person buying an annuity today who had saved 10% of their wages into a pension for 40 years could expect just over half the earnings of someone who had saved the same amount but retired 15 years ago.

This situation is very worrying, especially when the state pension in its current form certainly cannot be relied on to plug the gap. Last week, the OBR published a report concluding that recent pensions and savings measures introduced or announced by the Government would create a £5 billion a year black hole in the public finances. The report states:

“The net effect on the public finances is positive in the early years, peaking at £2.3 billion in 2018-19 before turning negative from 2021-22—the year after our March 2016 forecast horizon…But the small net gain to the public finances from these measures over the medium-term is reversed in the long term as the net cost continues to rise, reaching £5 billion by 2034-35. Expressed as a share of GDP—a more relevant metric when considering fiscal sustainability—the net cost builds up until it reaches a steady state toward the end of the period of just over 0.1 per cent of GDP. If that steady-state effect was to continue to the end of our usual long-term projection horizon of 50 years, that seemingly small cost would add 3.7 per cent of GDP to public sector net debt.”

The report also said that these measures

“shifted incentives in a way that makes pensions saving less attractive—particularly for higher earners—and non-pension savings more attractive—often in ways that can most readily be taken up by the same higher earners.”

That is a pretty worrying assessment of the Government’s pensions and savings policy, in which the LISA will play a large part.

I am also worried about the level of assessment that the Government have carried out about the impact that the LISA could have on pension savings, and, more specifically, their auto-enrolment scheme. The Work and Pensions Committee has outlined its concerns about the threat to automatic enrolment in workplace pensions, the roll-out of which is having a great deal of success. The Committee was particularly worried about the risk of people opting out of a workplace pension in order to save in a LISA, thinking that it will be more of a beneficial pension savings product when it is not. The Committee highlighted extreme ambiguity about whether the LISA is intended to be a pension replacement.

As the House will recall, the previous Chancellor stated in his Budget speech that the LISA was for

“those under 40, many of whom have not had such a good deal from the pension system”.—[Official Report, 16 March 2016; Vol. 607, c. 966.]

That was something of an indication that this was a new-generation pensions product. On the other hand, the Department for Work and Pensions has stated that the LISA is

“not a part of the pension system but an additional flexible savings product”.

I am pleased that the Minister has, once and for all, clarified this point and stated that it is a complementary product. None the less, many witnesses who gave evidence to the Select Committee said that all indications so far suggested that the LISA was being interpreted as a pension product, including those from the Centre for Policy Studies, which actually developed the LISA and stated that many employees not already in a pension scheme would have to decide whether to save through a LISA or enrol in the pension scheme. Royal London stated that many people could in fact opt out of workplace pensions.

Will the Minister therefore confirm whether she has made any assessment of the impact of the LISA on automatic enrolment into workplace pensions? Will she confirm what safeguards will be put in place to ensure that people do not opt out of auto-enrolment? Will the Government mount a detailed advertising campaign, as suggested by the Select Committee, to ensure that people do not wrongly view the LISA as their main pension product? The Pensions Regulator has argued that by 2017, when the LISA is available, thousands of small and micro-businesses will not have rolled out auto-enrolment. Have the Government considered timing the LISA roll-out to coincide with the full completion of auto-enrolment to avoid the risks I have outlined?

It is acknowledged that LISAs will be successful among those who have savings elsewhere. There might simply be a case of them transferring those savings into LISAs, but will the Government provide the distributional analysis of the income groups who will specifically benefit the most? Will they confirm what impact the scheme will have on women and minority groups, especially, and therefore provide a much more detailed impact assessment, as the Work and Pensions Committee suggested? Will the Minister confirm what the Government will do to assess those groups that are not currently saving or unable to save, and what will they do to ensure that these people will be able to avail themselves of the scheme? The Select Committee has suggested that those who might benefit most from the scheme could be those who can afford to contribute to a pension scheme and deposit additional savings in a LISA to complement their retirement savings—higher earners, in other words. In these difficult economic times, Opposition Members question whether the scheme is an effective use of up to £2 billion of public funds.

Another concern is not simply that people will use the LISA as an alternative pension product, but that there will be nothing to stop them from taking the money early for other purposes, aside from as a deposit for a house. The Bill enforces a 25% charge for the early withdrawal of funds, which effectively removes the Government bonus, but people will not lose anything from their savings. That will therefore not be a significant deterrent from removing money early, so there is a significant risk for those who use the product as their sole pension income.

LISA funds may be used towards a deposit for a first home. That is not a bad thing, but the Government are failing to address the wider problems that are causing the housing crisis. There is no point having a deposit if there are no houses to buy. We need a significant private and social house building programme supported by the Government, not populist policy making. It is a shame that fewer new homes were built during the previous Parliament than under any peacetime Government since the 1920s. Labour has committed to build more than 1 million new homes over the next Parliament, and that is the level of intervention that is required of any Government who truly want to ensure that everyone can live in a decent and secure home.

[Mr Gareth Thomas]

Before my hon. Friend concludes her speech, may I suggest one further area on which Labour Front Benchers could press the Government in Committee? The Bill does not include a requirement that any employer should offer payroll deduction services, but that could help all savers, especially those on low and middle incomes. In that way, people could, if they wanted, have money deducted from their pay at source by their employer. Ideally that would go into a credit union, but it could go into any other source of savings. I suspect that that would create a significant boost to savings in this country.

--- Later in debate ---

[Rebecca Long Bailey]

My hon. Friend makes a very important point that Labour Front Benchers are considering in detail.

The Opposition have serious concerns about the policies in the Bill, as I have outlined, and I hope that the Minister will respond to my various queries. However, as I have confirmed, we support the overarching aim of encouraging people to save at a time when they are not doing so. There is significant room for improvement in the Bill, so we will try to amend and improve it as it makes its way through Parliament in the coming weeks to try to alleviate some of our stakeholders’ concerns about the possible effect of the lifetime ISA and the Help to Save scheme.

Small Charitable Donations and Childcare Payments Bill

Rebecca Long Bailey Excerpts

2nd reading: House of Commons & Money resolution: House of Commons & Programme motion: House of Commons
Tuesday 11th October 2016 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure to debate opposite the Minister today, as always.

The Bill primarily makes changes to the gift aid small donations scheme and some technical changes to the tax-free childcare scheme. The Opposition are broadly supportive of the specific measures in this nine-clause Bill, but we have a few concerns, which I will briefly outline.

The gift aid small donations scheme was established, as many are probably aware, in 2012 with cross-party support. The idea behind it was that, in situations where it is impractical to get a gift aid declaration in the usual way, such as through collection boxes or church plates, a charity can claim a gift aid-style top-up payment from the Government. A charity can claim 25% on cash donations of £20 or less, up to a yearly total that is now at £8,000.

Since April 2016, a charity has been able to claim £2,000 in a tax year from the Government under the scheme. However, that is subject to a number of qualifying criteria, which must be met if a charity is to access the scheme in the first instance. The Bill removes a number of those qualifying rules to make it easier for smaller charities to access the scheme. I will run through those changes only briefly, as the Minister has already given a fantastic overview of them.

The scheme currently includes a requirement to have been registered as a charity for at least two full tax years—the two-year eligibility rule. The charity must also have made a successful gift aid claim in at least two of the previous four tax years, with no more than two years’ gap between claims—the two-in-four-years claims rule. Clause 1 removes those two rules entirely and makes consequential amendments to the Small Charitable Donations Act 2012 and the secondary legislation that provides for the administration of the scheme.

Clause 2 amends the definition of a small payment to include donations via contactless payments, as we have heard. Clauses 3 and 4 widen the community buildings rules. Clause 3 would essentially allow a charity to claim £8,000 for small donations raised anywhere or up to £8,000 for donations collected from each community building it has. In the latter case, donations would include those

“made in person in the local authority area in which the community building is situated”.

Clause 4 would make a series of amendments to the rules for connected charities making claims, where one or more of the charities runs charitable activities in a community building. A group of charities would then be entitled to make a claim of up to £8,000 for small donations made in the local authority area in which each community building is located. Alternatively, it would be able to make a claim of up to £8,000 for small donations made anywhere in the UK.

When the gift aid small donations scheme was implemented, Labour was generally supportive of the initiative, as the Minister is aware, but we raised concerns at the time that it was quite complex and could create barriers for small charities that could be eligible to claim the top-up payment. Indeed, the Opposition spokesperson at the time said:

“The Bill will make a difference to charities and perhaps changes will be made after the three-year review.”—[Official Report, 26 November 2012; Vol. 554, c. 110.]

The complexity has since been confirmed by the charity sector in practice, and I am pleased that, in this Bill and the consultation preceding it, the Government have acknowledged that there is a problem. However, I am aware that the charity sector has expressed disappointment that the Government have not gone further, a little of which has been reflected in the interventions made so far. The Charity Finance Group, for instance, has said the changes were a missed opportunity for widespread reform of the scheme and that the Government were “locking in future failure”.

In particular, some charities have been calling for changes to the matching requirement, which stipulates that to make a claim under the small donations scheme the charity needs to receive gift aid donations in the same tax year. The total of eligible donations on which the charity can claim a top-up payment is restricted to an amount equal to 10 times the amount of the net donations on which gift aid is claimed for that year. Charity organisations have made representations arguing that changing the matching requirement would remove a significant barrier, particularly for small charities. Indeed, a survey carried out by the National Council for Voluntary Organisations found that 50% of respondents with an income under £10,000 want the matching requirement to be removed or reduced. Will the Minister take the opportunity when summing up to explain in more detail why the Government have not addressed the charity sector’s main concern about the matching requirement?

When discussing eligibility criteria for any kind of Government grant, the issue of fraud must be considered. The Opposition have several concerns about how loosening the eligibility criteria could have an impact on that risk. It is widely known that some charities have been abused in the past, being used as a vehicle to avoid tax and indeed to launder money. In the 1960s and 1970s, there were some high profile cases involving large companies, such as Metal Box and Imperial Tobacco, which used supposed charities to provide education for the children of the UK, but actually spent the money solely to pay the school fees of their directors’ children. That may seem a long time ago, but I am trying to make the point that there is always scope for abuse in such schemes. I hope that the Government will look carefully at any potential loopholes. We must make sure that any loosening of the rules for access to Government grants or tax reliefs does not provide a further incentive for tax avoiders, albeit a small minority, to set up a charity.

I will turn briefly to the elements of the Bill relating to tax-free childcare. Clause 5 will make three minor technical amendments to the tax-free childcare scheme. As the explanatory notes to the Bill explain, under the tax-free childcare scheme, parents will receive top-up payments quarterly and will have to reconfirm at the end of each quarter that they still meet the eligibility criteria. This entitlement period is currently three months, but can be varied by no more than one month by secondary legislation. Clause 5 changes that period to two months, which simply allows for the alignment of eligibility periods for additional children. The other minor change is to the way in which applications for a review of a decision by HMRC can be made. The Bill will allow secondary legislation to be introduced to enable such applications to be made digitally.

Although I appreciate that the Bill makes only minor changes to the tax-free childcare scheme, I believe it is within the scope of a Second Reading debate to discuss the wider policy background. As the Minister will be all too aware, the Opposition have some concerns about tax-free childcare. In particular, the policy is hugely regressive. For instance, the saving is capped at £2,000 per child, as an additional 20p from the Government on top of every 80p spent by the parent, so to get the maximum benefit people would need to spend £10,000 a year on childcare. That is not an option for many working families, and it is not therefore the most efficient way of providing Government support to cover the cost of childcare.

Families certainly need help with childcare costs, which have soared in the past six years of Tory Government. Parents now spend £1,600 more each year than they did in 2010, according to Labour party analysis. According to new data taken from freedom of information requests, costs in some local areas have risen by more than 200%. Labour has established a childcare taskforce, led by the shadow Secretary of State for Education, to bring forward proposals for a comprehensive system of universal, affordable and good quality childcare.

[James Duddridge]

Quite often in these debates, we hear the House of Commons Library quoted, but very rarely do we hear the words “Labour party research”. In order that we can look at those figures in a little more detail, would she be prepared to put that work and the workings that underlie her assertion in the House of Commons Library, so that we can all probe them and reassure ourselves that they are correct and valid figures?

[Rebecca Long Bailey]

I certainly would. If the hon. Gentleman contacts my office directly, I shall be happy to have a chat or to provide him with details directly so that he can peruse them at his leisure.

I want to point the Minister in the direction of the findings of Labour’s childcare taskforce when they become available. I hope the Government can glean some good ideas from it, because they have a bit of form for borrowing ideas, shall we say, of late. I am pleased that the Chancellor has gleaned some good ideas from the Opposition, especially in respect of investing in our economy. However, I am digressing slightly, Mr Deputy Speaker.

I confirm that the Opposition are broadly supportive of the Bill and the steps within it that will make the gift aid small donations scheme more accessible to smaller charities. That said, we do have some concerns, which I have outlined, and I hope the Minister will address them when he sums up.

Tax Credits: Concentrix

Rebecca Long Bailey Excerpts

Wednesday 14th September 2016 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

(Urgent Question): To ask the Chancellor of the Exchequer if he will make a statement on Concentrix’s activities in relation to tax credit investigations made on behalf of Her Majesty’s Revenue and Customs.

[The Financial Secretary to the Treasury (Jane Ellison)]

I want to be very clear: the Government recognise the importance of tax credits to individuals and families. We all recognise that it is important for this support to reach the people who really need it. That is why HMRC works hard to check that it is making the correct payments, and to tackle any fraudulent claims. We must acknowledge that error and fraud exist in the system, and should be addressed to ensure taxpayers’ money is spent correctly. As part of this work, HMRC engaged Synnex-Concentrix Ltd in 2014 to help check people’s eligibility. As a result, almost £300 million of incorrect payments have been avoided.

I want to reassure the House on two key points. First, Concentrix has been paid only for making the right decisions; it has not received payment for taking someone’s money away wrongly. Secondly, Concentrix has not been allowed to engage in fishing expeditions or to pick on vulnerable claimants at random. Where there has been evidence to suggest a claim might not be correct, Concentrix has written to claimants to seek further information and confirm their eligibility. I realise—I know this as a constituency Member myself—that it can be stressful for someone to receive such a letter, but it is right that we investigate the full picture, with contributions from claimants themselves, to ensure we make the right payments. That is why both Concentrix and HMRC, where it does the same work, always send a letter and give claimants 30 days to provide information before taking any further action. It is important that people do indeed respond, and that they get in touch if they are struggling to respond to any of the questions.

Despite the best efforts of the staff manning the phones, Concentrix, with the high volume of calls in recent weeks, has not been providing the high levels of customer service that the public expect and which are required in its contract. HMRC has therefore given notice that this contract will not be renewed beyond its end date in May 2017. HMRC is also no longer passing new cases to Concentrix, but is instead working with it as a matter of urgency to improve the service it provides to claimants and to resolve outstanding cases. I can confirm to the House that 150 HMRC staff have been redeployed with immediate effect to help it to resolve any issues people are having with their claims as quickly as possible.

I realise that colleagues on both sides of the House are concerned to get difficult cases resolved and to assist vulnerable constituents appropriately. In addition to the extra resources I have mentioned, I have arranged a drop-in for Members in Room B, 1 Parliament Street between 9.30 and 11 am tomorrow, at which HMRC officials will be available to offer guidance to colleagues, should that be helpful.

[Rebecca Long Bailey]

I thank the Minister for her reply. Many hon. Members on both sides of the House have been contacted, as she has been, by distressed and anxious constituents—often hard-working individuals who have had their tax credits cut unfairly, in many cases pushing them into extreme hardship. Although Labour Members certainly welcome the fact that HMRC has finally taken action by announcing that the Concentrix contract will not be renewed, it is most regrettable that the Government undertook such action only when events were dramatically exposed by the media and, indeed, by my hon. Friend the Member for Sheffield, Heeley (Louise Haigh) and my right hon. Friend the Member for Birkenhead (Frank Field).

It remains the case that Synnex-Concentrix will be carrying out these services for another eight months. There is therefore a risk that, without radical amendments to the contract itself, service failures will continue. Of most concern is the fact that the payment model arguably creates a conflict of interest, as has been noted by the Social Security Advisory Committee. Will the Minister therefore confirm what arrangements she will make urgently to revise the contract to preserve justice for the claimants?

As the Minister stated, I understand that HMRC will redeploy 150 staff so that claimants can get through to advisers and resolve their claims. Will she confirm how the Government will monitor that? Will the Government now commit to an official investigation into Concentrix’s conduct since it was awarded the contract in 2014, so that we can determine how this situation was allowed to arise? Finally, has she given any consideration to the real prospect of bringing this service back in-house?

[Jane Ellison]

I will try to answer those questions, but it is worth commenting that this Government, and indeed their predecessors, inherited a very complicated system. In the long term, the right answer is to replace tax credits, as is our intention, because we were bequeathed an unnecessarily complex system. However, we must make the system work while it is in operation, and that is now the focus of our activities.

On HMRC’s decision about the contract, I want to reassure the House that monitoring has taken place regularly throughout the contract. Indeed, HMRC has worked closely with Concentrix. It is the case that, as has been documented, performance has not been good in recent weeks. That has clearly been noted, and we are now taking action on it.

On the contract going forward, as I mentioned in my response to the urgent question, Concentrix will focus on resolving outstanding claims, not opening new ones. In other words, it will deal with those already open in an orderly and appropriate manner. HMRC is putting in additional resource. In particular, I have asked it to focus on the difficult cases—there have been some high-profile examples in recent days—to ensure that we resolve them as quickly as possible so that all our vulnerable constituents are helped and supported.

That is the key focus as we go forward. There is no need to go into inquiries and so on. We have a contract that is monitored on a regular basis. It will not be renewed when it comes to an end in May next year. The focus for all of us in the coming days and weeks—and for me and for HMRC in particular—is on making sure that the outstanding cases are resolved, especially those of the most vulnerable, and that people have the money to which they are correctly entitled.

Value Added Tax (Place of Supply of Services: exceptions relating to supplies made to relevant business person) Order 2016 (S.I. 2016, No. 726)

Rebecca Long Bailey Excerpts

Monday 12th September 2016 General Committees

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Gapes. You will be pleased to hear that I will not detain the Committee for long.

The order seeks to prevent avoidance of VAT by some insurance companies, as the Minister outlined. Such avoidance is broadly achieved by the insurance company locating outside EU VAT jurisdictions, so that any repair services can be provided to them VAT-free, as the present legislation provides that the place of supply is where the recipient is based. The provisions of the order seek to close that loophole and, as such, the Opposition support the Government in this legislation.

As the explanatory memorandum sets out, the order

“will require the service provider to charge VAT at the standard rate on the repairs they perform where the provider of the insurance cover for the goods is located outside the VAT territory of the EU”,

but where the supply of services would otherwise be treated as made in the United Kingdom and the services are effectively used and enjoyed outside the territories of the member states. The practical effect is that all UK repairs made under UK insurance contracts will be subject to VAT in the UK.

Generally speaking, the EU VAT system is designed to ensure that the tax is collected in the country where final consumption takes place. That is to ensure that UK VAT arises on consumption in the UK of goods and services. It also ensures that UK VAT is not charged in addition to other foreign VAT and taxes on consumption outside the UK. As the Minister highlighted, it appears that some insurance companies have been exploiting the system to avoid VAT on the provision of repair services specifically. Insurance companies have been setting up offshore so that such services can be supplied to them VAT-free.

The order creates an exception to the current VAT rules based on a provision in the EU principal VAT directive that permits member states to regard the place of supply as being where the services are “effectively used and enjoyed”, thereby ensuring that when the repair is undertaken in the UK, the tax is due in the UK, as the service is effectively used and enjoyed there, regardless of the involvement of offshore entities.

The Chartered Institute of Taxation broadly agrees with the principle that the Government have put forward, but it has some technical concerns about the definitions used in the order. It is specifically concerned about the lack of a clear definition or guidance on the interpretation of “use” and “enjoyment”, which could leave the legislation open to dispute, creating uncertainty for taxpayers and the authorities. As far as I am aware, the terms “use” and “enjoyment” are not defined in the EU principal VAT directive or in UK legislation. The Chartered Institute of Taxation informs me that it has raised the issue directly with HMRC and has suggested that ideally there should be a definition in the legislation and, at the very least, clear guidance on how the terms are to be interpreted.

The final HMRC guidance has not been published yet, but the Chartered Institute of Taxation has been privy to a draft, and it told me that the guidance still does not explain how the terms “use” and “enjoyment” are to be interpreted. Perhaps the Minister could use this opportunity to provide clarification as to whether the Government will define the terms “use” and “enjoyment” in legislation. We certainly would not want any lack of clarification to provide a further loophole for insurers to avoid VAT.

The order was announced in the summer 2015 Budget. According to the corresponding policy costings, I understand that it is expected to save the Exchequer £5 million a year, which is fantastic. However, although we support the order, the money is minor when compared with the Treasury’s estimates of a tax gap of around £35 billion. The latest available figures for the VAT gap was £13.5 billion for 2014-15. That is 10.8% of the estimated net VAT total theoretical liability.

[The Chair]

Order. I would be grateful if the hon. Lady did not deal with the wider question of VAT and the tax gap, and confined her remarks to the order that we are debating.

[Rebecca Long Bailey]

Thank you, Mr Gapes. I was just trying to extract a little bit more information from the Minister. You will appreciate that we rarely have opportunities to do that.

[The Chair]

Order. Please confine your remarks to the terms of the order.

[Rebecca Long Bailey]

I apologise. To conclude my remarks on the order, the Opposition support the provisions introduced by the order to address VAT avoidance by insurance companies located offshore. However, I hope the Minister can address some of the points I have raised and, in particular, the concerns of the Chartered Institute of Taxation.

Finance Bill

Rebecca Long Bailey Excerpts

Tuesday 6th September 2016 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

Amendment 174, page 167, line 40, leave out clause 82.

Government amendments 149 to 151.

Amendment 175, in schedule 14, page 481, line 36, at end insert—

‘(12) Section 169Z makes provision about the expiration of this Chapter.”

Amendment 176, page 499, line 15, at end insert—

“169VZ Expiration of Chapter 5 provisions

(1) The provisions of this Chapter shall remain in force until six years after their commencement and shall then expire, unless continued in force by an order under subsection (2).

(2) The Secretary of State may by order made by statutory instrument provide—

(a) that all or any of those provisions which are in force shall continue in force for a period not exceeding 12 months from the coming into operation of the order; or

(b) that all or any of those provisions which are for the time being in force shall cease to be in force.

(3) No order shall be made under subsection (2) unless—

(a) a draft of the order has been laid before and approved by a resolution of both Houses of Parliament,

(b) the Secretary of State has commissioned a review of the operation of Investor’s Relief and laid the report of the review before both Houses of Parliament.”

[Rebecca Long Bailey]

I shall speak to new clause 14 and amendments 174 to 176. Amendment 174 would remove clause 82 from the Finance Bill, thereby preventing the proposed cut to the rate of capital gains tax. The cut will reduce the basic rate of capital gains tax from 18% to 10%, and the rate on most gains made by individuals, trustees and personal representatives from 28% to 20%. Gains on residential property and carried interest will still be charged at the higher rate.

I do not want to go over old ground, but I must emphasise the Labour party’s opposition to this reduction in the rate of CGT. I thank my colleagues from other parties for joining us in our opposition. At a time when our public services are stretched to breaking point, the NHS is on its knees, our education sector is over-stretched, housing is in a state of complete crisis, people across the UK are being forced to use food banks, some mothers are going hungry because they cannot afford to feed their children and themselves, and the wider economy is in desperate need of direct investment in skills, infrastructure and industry, it seems frankly absurd to give a tax break of £2.7 billion to the richest people in our society.

Let us not forget that this CGT giveaway hails from a Budget that also planned to take away billions in welfare payments from the most vulnerable people in need of state support. The Government seemed quite happy at the time of the Budget for 300,000 disabled people to lose more than £3,000 a year in their personal independence payments. In stark contrast, our own research has found that the CGT-cutting measures of the Finance Bill amount to a tax giveaway to 200,000 people of about £3,000 a year on average. I am pleased to say that due to Labour’s opposition and the support of some Members from other parties, the worst has not yet happened in relation to PIP, but that still does not justify this policy decision in the Bill. Labour party research shows that just 0.3% of the population will benefit, with those taxpayers likely to benefit to the largest degree being in London and the south-east. If the Government do not accept our evidence, perhaps they will listen to the Resolution Foundation, which said that the CGT cut was

“focused on those on higher incomes—unsurprisingly because in general better off households are the ones making capital gains in the first place.”

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The hon. Lady makes a compelling case. One of the major challenges we face in the UK is geographical and individual wealth polarisation. Based on what she says about where the likely beneficiaries of this tax system would be, what does she think that the policy will do to tackle the great challenge of wealth polarisation that we face?

[Rebecca Long Bailey]

I certainly do not think that it will address the issue that the hon. Gentleman raises—quite the opposite, in fact.

The Prime Minister herself made the following commitment to the British public on the steps of Downing Street:

“The government I lead will be driven not by the interests of the privileged few, but by yours.”

Going back on this policy today would be a good place to start.

[Robert Jenrick (Newark) (Con)]

Does the hon. Lady acknowledge that, even after this cut, CGT rates in this country will still be higher than they were for the majority of time under the previous Labour Government?

[Rebecca Long Bailey]

I note the hon. Gentleman’s point and thank him for making it.

If I could see some real benefit to the wider economy or society in these proposals, or if times were good for everybody, perhaps I could understand the Government’s rationale for making such cuts to capital gains tax, but as things stand these proposals are not driven by the interests of the nation as a whole, but to be enjoyed only by the privileged few. I urge all hon. Members to vote with us to remove these cuts from the Bill because the provision simply has unfairness at its very core.

Speaking of policies for the privileged few, new clause 14 would require the Chancellor to publish a report giving the Treasury’s assessment of the value for money provided by entrepreneurs’ relief. When entrepreneurs’ relief was discussed in the Committee of the whole House earlier this year, the then Minister said:

“officials have for some time been developing a detailed research programme designed to identify taxpayers’ motivations for using entrepreneurs’ relief, and I expect the results to be published at some point in 2017.”—[Official Report, 28 June 2016; Vol. 612, c. 236.]

It would seem opportune, then, for the Financial Secretary to accept our provision tying her down to a deadline, given that the Department is already conducting some of the research needed. The Government do not have the best track record of publishing documents when they say they will, so a deadline enshrined in legislation would help. To help the Government in this endeavour, we have listed particular reference points. The report would specifically consider the cost of the relief, the number of individuals who have benefited from it, the average tax deduction received by an individual and the number of new business start-ups since the relief was introduced.

Analysis by Tax Research UK shows that 3,000 people benefited by about £600,000 each from entrepreneurs’ relief in 2013-14, at a total cost of almost £2 billion to the Treasury. Unfortunately, the most up-to-date figures for 2014-15 are not yet available, but I suspect that similar analysis will show the same results. As I said in my remarks about clause 82, this amounts to a large sum going into the hands of the very few, and it certainly seems like an inefficient use of public funds. Of course, Labour Members are in favour of supporting entrepreneurialism wherever we find it and we want businesses to grow and flourish in the UK. However, is simply offering a massive tax break years down the line when a business is sold the best way to achieve that? Should not the Government be providing support to entrepreneurs in the early stages of their business development? How on earth could an entrepreneur know if he or she wants to sell their business further down the line, when it is only starting off, so as to factor in the benefits of this tax relief? Let us see some evidence today. I hope that the Minster will commit to taking my comments on board.

The same principle goes for investors’ relief, which is the subject of amendments 175 and 176. Those amendments would introduce a sunset clause whereby the relief would expire in six years’ time. To extend it, the Government would have to introduce secondary legislation, but in order to do so a review of investors’ relief would need to be laid before the House. When we debated a similar amendment in the Committee of the whole House, which would have brought the relief to a close after five years, the then Minister stated that the first set of data would not be available until 2020-21. We have therefore helpfully amended our amendment to suit the Government’s timetable. I hope that the Financial Secretary will now commit to this sunset provision. Without wanting to repeat the remarks I made in the earlier debate, I think that requiring a review of the scheme’s efficacy would represent good practice—for all reliefs, indeed, not just this one.

Too often, tax reliefs are provided with the admirable aim of incentivising a certain type of behaviour, but there is no analysis—published analysis, I should say—of whether the policy is achieving the desired aim. That means that the limited resources that the Government keep telling us about might be diverted away from our public services, or limits could be put on our capital spending, for reliefs that might not even be working. I will not press amendments 175 and 176 to a vote, but I really hope that the Minister will address the merits of including such provisions when future tax reliefs are introduced.

I will touch briefly on Government amendments 149 to 151, which will ensure that the upper rates of capital gains tax will apply to carried interest gains. In short, carried interest gains refer to the profits paid to investment fund managers from the fund that are classified as capital gains rather than income for tax purposes. We support the amendments.

I am sure that all hon. Members are aware of the 38 Degrees campaign on the Mayfair tax loophole, which filled up our inboxes over the weekend. I will briefly reiterate the Labour party’s position. Clause 37 provides for a tapered system of income taxation on carried interest gains received in respect of investments that are held by a fund for less than three years. As the Minister explained in Committee:

“If the average holding period is less than 36 months, the payment will be subject to income tax. If the period is more than 40 months, the payment will be subject to capital gains tax.”––[Official Report, Finance Public Bill Committee, 30 June 2016; c. 42.]

The Labour party supports that provision, but we would have liked all carried interest to be subject to income tax. We tabled an amendment in Committee that would have removed the taper completely, thereby ensuring that all carried interest was treated at 100%—in other words, taxed as if it were income. Unfortunately, the Government did not support us, but none the less we still support the steps they have taken towards closing the so-called Mayfair tax loophole.

I will press amendment 174 to a vote, because the Labour party cannot and will not agree to a measure that benefits so few by so much. We will divide the House to prevent the unfair cut to capital gains tax from going ahead.

[Rishi Sunak (Richmond (Yorks)) (Con)]

I know that when I mention the word “investor” in this House, some Opposition Members get a little a bit excited: their pupils dilate, their pulses quicken and their minds race with images of plutocrats rolling the dice of financial speculation. The reality, however, is a little different. I have spent my own career investing in businesses, and in this country private equity-backed businesses now account for almost 1 million people in employment. The latest research shows that in the run-up to the last crisis, those companies’ sales, investment in research and development, and, indeed, exports grew at a faster rate than the national average.

Furthermore, I am sure that everyone in the House would welcome more money for charities, more research funds for scientists, more scholarships for students who need them and lower insurance premiums, and that is indeed what the private equity industry delivers. The funds that private equity companies manage benefit all of us through university endowments, charitable foundations, pension funds and the floats of insurance companies. When the private equity industry does well, the pensioner, the scientific researcher and the scholar from a disadvantaged background all benefit.

This is a Finance Bill from a Government who value their investors and will not demonise an industry, and who know that no contribution, however great, should be allowed to skew the scales of social justice. The clauses that involve changes to carried interest will ensure that the rewards that investment managers receive for their efforts are taxed not only correctly, but fairly. The clauses will introduce a 40-month holding period to ensure that capital gains tax treatment is reserved for genuinely long-term investments, as it should be. I know that Members on both sides of the House support the welcome change to remove the base cost shift loophole, which allowed costs to be advantageously offset against gains. The Bill will also consolidate Government action on disguised fee income that was introduced in the last Finance Bill and ensure that fund managers are paying income tax when appropriate. All in all, the measures will raise in the order of £200 million in the next financial year.

Those new arrangements are not only fair for British taxpayers and society; they will also ensure that we remain competitive internationally. Our general treatment of carried interest, which has been the subject of much debate in this House and various Committees, is actually in line with the treatment carried out in the United States, Germany, Australia and France. All those countries agree with the notion that carried interest is capital in nature and should be treated as such. If we look across Europe, we will see that our rate for carried interest will sit in the middle of those for comparable countries: it will be a little bit above that in Switzerland and Germany, and a little bit below that in France.

The clauses reflecting changes to capital gains tax will ensure that the UK remains a pro-enterprise, pro-growth nation. Small and medium-sized businesses of the kinds that I used to invest in account for more than half of private sector employment in the UK. They are responsible for three quarters of all jobs created since 2008, yet I know from first hand that small and medium-sized British enterprises still struggle to attract enough equity capital to grow. Adjusted for GDP, the size of the UK’s venture capital market is a seventh of that of the United States. Just 3% of British companies manage to expand from three employees up to 10, which is half the rate in America.

When I hear about changes to capital gains tax rates, I think about how they will benefit all those small businesses, helping them get the capital they need to grow and to increase investment and employment. Indeed, investors’ relief and the other changes to capital gains tax included in the Bill will build on the success of the seed enterprise investment scheme, the enterprise investment scheme, the funding for lending scheme and the British Business Bank, all of which are providing British companies with the capital that is necessary for growth.

The changes will ensure that Britain remains a competitive prospect for investment without compromising Government revenue. The hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned the state of our finances and the need for revenue. I am sure that she welcomes the fact that the Office for Budget Responsibility projects that capital gains receipts will top £7 billion this year and increase to £9 billion next year, which is higher than in any other year in the past decade and a half. Rather than being a sweet deal for the rich, our capital gains tax rate actually sits in the middle of the OECD league tables of capital gains tax rates. Ten countries have rates of 0%, and our rate of 20% will sit two points above the average.

As we contemplate leaving the European Union, it will be vital that Britain’s economy remains dynamic, open and competitive to attract the investment we need and maximise the opportunities afforded to us. The clauses relating to capital gains tax and carried interest will ensure that the UK does exactly that, and I will support them later today.

--- Later in debate ---

[Jane Ellison]

That point has been made repeatedly. Contributions from those critical of the policy often miss the way in which measures interact. We are trying to create a climate that encourages investment. A number of international studies have indicated that low rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth. The evidence is there. The measures are part of a package that is trying to create a climate that makes our country attractive to invest in and enables domestic investors to invest in company growth. At the same time, as we have stressed and as other measures in the Bill stress, taxes must be fair and must be paid; the hon. Gentleman took part in a good debate last night about some of those measures.

A number of external bodies have expressed support for clause 82—that also goes to the hon. Gentleman’s point. The CBI and the Institute of Economic Affairs have both welcomed the cuts as a means of encouraging entrepreneurship and growth, and, as I have said, there is a body of evidence, not least internationally, to indicate that lower rates support equity investment in firms and promote higher-quality investment in start-ups. Again, I welcome the support of and international perspective given by my hon. Friend the Member for Richmond (Yorks) on this subject.

The changes made by clause 82 are about encouraging investment where we want businesses to expand. As I have said, they are very much a part of a general pro-business agenda, but we have also been clear that we want fair and competitive taxes and that taxes must be paid. We addressed that in a good debate last night, when there was a good degree of cross-party consensus.

The hon. Member for Salford and Eccles (Rebecca Long Bailey) mentioned the geographical distribution of the CGT cut. HMRC publishes national statistics on CGT each year that include a breakdown of its payers by geographical distribution, so there is transparency on that. It is also worth saying that it has been estimated that up to 130,000 individuals will pay lower taxes as a direct result of these changes to CGT, including 50,000 basic rate taxpayers.

The hon. Member for Feltham and Heston (Seema Malhotra) made a typically thoughtful speech, not just on CGT but on her general thoughts on tax reliefs and how we review them, as well as on tax simplification. Again, I felt that she did not perhaps entirely address the interaction between the various measures—they cannot be seen in isolation. The other issues she mentioned are hugely important; for example, the investment in skills, but I did not think she was fair about what the Government have done on that agenda, which has resulted in record levels of apprenticeships. She is right to say that there are other issues such as that one, but these measures are part of a general package and are not the whole picture.

Amendments 175 and 176 were also tabled by the Opposition. In the 2016 Budget we announced the introduction of investors’ relief, benefiting long-term investors in unlisted companies. As has been explained, the amendments seek to end that new relief after a period of six years, with the option of an additional 12-month extension if agreed by both Houses, and ask the Chancellor to lay a review of the operation of the relief before both Houses.

The amendments are unnecessary as the Government keep all tax policy under review in line with normal tax policy making practice. The hon. Member for Aberdeen North (Kirsty Blackman) again, I thought, did not really give credit to the interaction of different measures nor to the wider point that, given that the Government are bringing the measures forward to stimulate economic growth, there is absolutely no incentive for us not to keep a very close eye on them and review them at regular intervals. We do so all the time because we want measures to work—we want our measures to stimulate economic activity, and we do not in any way want them not to work. Indeed, there are a number of measures in the Bill to correct things that have been done in the past, where we feel that an improvement could make something work better.

We feel that there would be limited merit in conducting a review within six years as the first data on the uptake of the relief in its first year of operation will not be available to HMRC until 2021. Amendments 175 and 176 are neither needed nor useful, and we ask the Opposition not to press them to a vote.

New clause 14, again tabled by the Opposition, proposes that the Chancellor publish, within six months of the passing of the Bill, a report of the Treasury’s assessment of the value for money provided by entrepreneurs’ relief. As I have just said, the Government keep all tax policy under review because we want it to do what we have set out as the intention behind it, namely to stimulate economic activity and to make investment in business attractive to people. That review includes entrepreneurs’ relief, as demonstrated by recent action taken to ensure that the relief is effective, well targeted and not open to abuse. We will continue to act, where appropriate.

My predecessor as Financial Secretary has already informed the House of this, but it is worth reiterating, as it is germane to this point, that HMRC officials have commissioned an in-depth survey of taxpayers’ reasons for using entrepreneurs’ relief and its effects on behaviour. We expect the results of that survey, which will be published at some point in 2017, to inform future changes to the relief. I hope that that gives Members some comfort that the relief is being looked at very closely.

In our wider debate, some general points were made about the Budget being tilted towards the south-east of England. A number of points could be made in rebuttal, not least the debate we had last night, which touched on support for the oil and gas sector in Scotland. More generally, some interesting points were made about having a simpler tax system. In the next part of our debate on the Bill, there will be an opportunity to discuss the Office of Tax Simplification, but as this point came up during the current debate it is worth noting that the Bill puts the OTS on a statutory footing. Around half of the OTS’s 400 or so recommendations to date have already been taken on board. I again take on board the point made by my right hon. Friend the Member for Cities of London and Westminster (Mark Field). I feel sure that this a topic that we will return to over the coming months and years.

I thank all Members who have spoken in the debate.

[Rebecca Long Bailey]

I beg to ask leave to withdraw the clause.

Clause, by leave, withdrawn.

Clause 82

Reduction in rate of capital gains tax

Amendment proposed: 174, page 167, line 40, leave out clause 82.—(Rebecca Long Bailey.)

--- Later in debate ---

[Jim Shannon]

As always, the hon. Lady is wise in her interventions. I thank her for what she said, which underlines other important issues. If we can help at that critical time when the pressure is on, I believe that this House should do so. I hope that the Minister will do so, too, in her response.

The impact of the allowance on low-income households also needs to be addressed, as new clause 3 proposes. I hope we can do that at the right time. The new clause refers finally to

“ways in which the allowance could be changed to target low-income families with young children.”

Those points clearly illustrate for me what is necessary in this Bill, although the provisions may not be as hard and fast as I would like them to be.

Let me conclude; I am conscious of the time. In the longer term, there is a pressing need to adopt a more balanced approach to the resourcing of raising the personal allowance and increasing the transferable allowance. I fully support the transferable allowance and I would have hoped that the Government could commit themselves to it. Speaking as someone committed to progressive tax policy which targets those in the lower half of the income distribution scales rather than those in the top half, if the proposal means less money going to the personal allowance, in my judgment and, I believe, in the judgment of many in this House, that would be no bad thing.

[Rebecca Long Bailey]

I wish to speak to new clauses 15 and 19, and amendments 141 and 180 to 182, which were tabled in my name and those of my hon. Friends. I shall also touch on a few of the other amendments and new clauses in the group, which has turned into a bit of a rag-bag of issues.

New clause 15 relates to VAT on energy-saving materials. The new clause would prohibit the making of any order that would have the effect of raising the rate of VAT on the installation of energy-saving materials or any individual category thereof. In short, it would prevent the Government from implementing their planned hike in VAT through secondary legislation.

For hon. Members who might have forgotten the background, let me briefly recap how our ability to debate this amendment today came about. Amid the fallout from the so-called “ultra-shambles” Budget, the Government were forced to become the first in history, so far as I am aware, to accept an Opposition amendment to their Budget. It was designed to block the Government’s planned 300% increase in VAT on solar panels and energy-saving materials—essentially a green energy tax hike. The solar tax alone would add £1,000 to the cost of a household solar energy installation, punishing those who are trying to do the right thing and do their bit to halt climate change. It would also put at risk thousands of jobs in an industry that is already expected to experience up to 18,700 job losses, as was conceded by the former Energy Secretary, and this tax raid would have caused even more damage. For those reasons, we tabled an amendment to the Budget to enable the Chancellor to use the Finance Bill to maintain the current rate of VAT on green energy and home insulation.

The Government initially claimed that a European Court ruling prevented them from stopping the tax hike, although it was apparent that they had failed to negotiate at European level to protect the renewables industry. None the less, the industry made very clear that there was room, even within the ruling, to avoid the drastic measures that they were planning to impose. When that led to a significant number of Conservative Members adding their weight to calls from Opposition Members, it appeared that the Government would be defeated on the issue. Ministers initially backed down, claiming that what we were proposing had been their position all along, only to avoid making such a commitment when pressed during Treasury questions and, just a few weeks later, during questions to the Secretary of State for the now abolished Department of Energy and Climate Change.

That is not surprising, given the Government’s abysmal failure to provide any kind of certainty for the renewable energy sector in the United Kingdom. Over the past six years, they have consistently undermined support by, for instance, cutting the feed-in tariff by 64%, scrapping tax relief for clean energy projects, and removing subsidies for new onshore wind farms. The £1 billion for investment in carbon capture and storage has also been scrapped. At the same time, safeguards to reduce the environmental risks posed by fracking have been stripped away, and fracking under national parks has been given the go-ahead. The executive director of Greenpeace UK put it succinctly recently, saying:

“A tax hike on solar panels was just the latest addition to a litany of poor decisions”.

He also said that the Government should accept that they had

“a reverse Midas touch on energy investment”.

This would be an opportune time for the new Chancellor and his team to signal a change of direction by accepting our new clause, but I fear that, given the abolition of the Department of Energy and Climate Change, the Conservative party’s husky-hugging days are long gone. I am pleased, however, that the Government have finally seen fit to publish the report by the Committee on Climate Change on the compatibility of UK onshore petroleum with meeting the UK’s carbon budgets. I can see now why they sat on it for four months.

The report states:

“Our assessment is…that onshore petroleum extraction on a significant scale is not compatible with UK climate targets”.

That, it says, will remain the case unless three key tests are met: first,

“Well development, production and decommissioning emissions must be strictly limited”;

secondly,

“gas consumption must remain in line with carbon budgets requirements”;

and thirdly, the report specifies the importance of

“Accommodating shale gas production emissions within carbon budgets.”

Does the Minister agree, therefore, that tighter safeguards in fracking—for which Labour consistently called during the passage of the Bill that became the Energy Act 2016 —are now absolutely necessary?

I digress. Let me conclude my remarks about new clause 15. Opposition Members want to ensure that the original solar tax U-turn is guaranteed in statute in the Finance Bill, to prevent a second U-turn. That would give the renewable energy market the certainty that it needs and deserves, and would, we hope, send a signal that the new Administration are prepared to look again at the future of the industry in a green economy. If we are to take seriously the intention of the new Ministers to rethink these fundamental issues, now is the time for them to show it.

New clause 19 was tabled by my hon. Friend the Member for Ilford North (Wes Streeting). As my hon. Friend explained so articulately, it would require the Government to review the impact of the measures in the Bill on households at different levels of income. It would also require the Chancellor to review the impact of Government fiscal measures on households at different levels of income at least once in each financial year. It is an excellent new clause, and it has the full support of the Labour Front Bench.

As I pressed on the Government earlier today in the capital gains tax debate and yesterday on corporation tax, this Bill has unfairness at its very core. The reduction in CGT alone amounts to a tax giveaway to 200,000 people—just 0.3% of the population—of around £3,000 a year on average. Clearly this Government conduct no distributional analysis of the measures they introduce, or if they do the results are so bad that they do not publish them. This amendment would force the Government to publish such analysis, and therefore I am pleased to have heard the Minister’s earlier comments; it seems that the Government are seriously considering this matter and I hope she takes it forward.

Amendments 180 to 182 specify that the chair and tax director of the OTS would be appointed and terminated only with the consent of the Treasury Committee, in line with what happens with the Office for Budget Responsibility. A similar Labour amendment, which would have had the same effect, was debated in the Public Bill Committee, but we did not divide the Committee on it. During the course of that debate I made the point that while Labour supports establishing the OTS on a statutory footing, we feel its independence is of the utmost importance. As I am sure the Minister is aware, Labour has placed on record our concerns about the OTS potentially being used for political purposes, and ensuring that the chair and tax director is accountable to the Treasury Committee seems a sensible approach to safeguarding its impartiality. Again, I am pleased to hear today that the Minister seems to be taking our opinions and those expressed in the House today seriously.

Amendment 141 would introduce a de minimis tax exemption for residual cash balances remaining in a share incentive plan when they are donated to charity, with an upper cap of £10. This seems like an extremely sensible suggestion, and the Labour Front Bench is supportive of the amendment. I congratulate my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) on tabling it and explaining it so articulately.

I shall say a few quick words on new clause 8 in the name of the hon. Members for Kirkcaldy and Cowdenbeath (Roger Mullin), for Aberdeen North (Kirsty Blackman) and for Coatbridge, Chryston and Bellshill (Philip Boswell). This new clause would require a review of how the changes to the tax on dividend income will affect directors of microbusinesses. There are some concerns, as we have heard today, that the changes to dividend taxation will have a detrimental effect on the owners of microbusinesses. Jason Kitcat, who has become quite famous today, has done some detailed analysis which shows that the dividend tax changes included in clause 5 and schedule 1 are somewhat regressive in nature. For instance, Crunch analysis shows that a limited company director paying themselves through dividends would be paying £1,528 more a year when their pre-tax profits are £48,000, whereas a director with £78,000 in pre-tax profits would only be paying £1,343 more in tax.

The Federation of Small Businesses has also stated that these measures have caused substantial disquiet among its members. This is especially acute for members on modest incomes who, unlike their employed counterparts, will now see a rise in their tax liabilities. This is very worrying and indeed makes the case for distributional analysis, referred to in relation to new clause 19, even more important. A review of the impact of these measures therefore seems quite sensible at this stage and we will support the SNP if it divides the House on this issue.

Finally, Government new clause 9 relates to the tax treatment of supplementary welfare payments in Northern Ireland. The Low Incomes Tax Reform Group has outlined some technical points for clarification on which I hope the Minister can shed some light: in essence, which payments will be taxable? The Budget said:

“Where the Northern Ireland Executive intends to top-up UK-wide benefits from within its block grant as it implements welfare reform, the Government will exempt from tax the top-up payments to non-taxable benefits.”

The implication, confirmed in the explanatory notes to the amendment, is that top-ups to taxable benefits will be taxable as well. However, if we take the payments to mitigate the impact of time-limiting contribution-based employment support allowance it seems that two situations are possible. One is that the person’s contribution-based ESA ends and they claim, or are already getting, income-related ESA. If the income-related ESA awarded is less than the person would have received through contribution-based ESA, they will receive a welfare supplementary payment to cover the difference. The second possibility is that their contribution-based ESA ends but they do not get income-related ESA, in which case the WSP will equal the full amount of the lost contribution-based ESA.

--- Later in debate ---

[Rebecca Long Bailey]

I thank the Minister and her Treasury colleagues, past and present, for their progress of the Bill through the House. I thank my own shadow Treasury colleagues, past and present, for their hard work in holding the Government to account. I thank my shadow Treasury team staff for their hard work on the Bill in the interesting times in which we have found ourselves. The Clerks deserve a mention for being pestered every five minutes by members of my staff—indeed, by the staff of other hon. Members, too. I make special mention of all Members who have worked very hard on the Bill and participated in a number of extremely thoughtful and interesting debates.

The Opposition will not be supporting the Bill on Third Reading. Although it contains some measures that we support, we simply cannot vote in favour of a Bill that does nothing to address the underlying issues in our economy. It has unfairness at its very core. I will, however, run briefly over the areas where we have found some consensus across the House.

First, there is the need to zero-rate VAT on women’s sanitary products. Many Members across the House spoke in support of this yesterday. I appreciate the Government’s sympathy with the campaign by my hon. Friend the Member for Dewsbury (Paula Sherriff). I place on record once again my congratulations to my hon. Friend who, along with many women outside this place, has campaigned tirelessly on this issue. Unfortunately, we still had to divide the House, as the Minister refused to put down a firm date for implementation of the zero rating. I hope the policy will not be kicked into the long grass once the Bill has completed its passage through Parliament. I know the Minister supports the general principle of the policy and I am sure that my hon. Friend the Member for Dewsbury will be very quick to call the Government out should they try to avoid taking this matter forward responsibly.

We have also found a broad level of agreement on country-by-country reporting. I am pleased that the Government saw fit to accept the amendment tabled by my right hon. Friend the Member for Don Valley (Caroline Flint). Again, I put on record my thanks and congratulations to my right hon. Friend for her hard work and determination on this issue. The amendment stated that the Government “may” exercise their powers in this regard. However, I hope that the Government “will” exercise their powers in that regard, and I shall follow their progress very closely.

We support the Government’s steps towards closing the so-called Mayfair tax loophole, even though they did not accept our amendment to provide that all carried interest would be subject to income tax—but that, unfortunately, is where the consensus ends.

One of the biggest problems facing the economy at the moment is low rates of investment. Investment by businesses has already fallen for the last two quarters and investment by Government is scheduled to fall in every year of this Parliament. Overall investment as a share of GDP is lower now than it was in 2007—despite rising profits to companies and an all-time low cost of borrowing for the Government.

The Government maintained in yesterday’s debate that cuts to the headline rates of corporation tax and capital gains tax contained in the Bill would incentivise business investment, but they did not convince me or my hon. Friends that that would actually be the case. When we debated the cut to corporation tax yesterday, I provided some helpful figures to demonstrate that it is not clear that reductions will deliver the investment that the country desperately needs. For the benefit of Members who were not in the Chamber yesterday, I shall briefly recap.

The House of Commons Library analysis shows that business investment was higher in the year 2000 when corporation tax was at 30% than it was in 2015 when it was a full 10% lower. There is no obvious correlation between a low rate of corporation tax and high rates of business investment. Furthermore, corporations are not in need of cash in most cases. Figures provided by the House of Commons Library show that the UK corporation industry was sitting on cash reserves totalling £581 billion last year, so something is clearly precluding them from investing in the future. Frankly, the measures in this Bill will do nothing to change that behaviour.

Because of this lack of investment, productivity in the UK has fallen. Every hour of work in Britain produces one third less than every hour worked in Germany, the US or France, while real wages have fallen by 10% since 2008. That is simply not good enough—it is not good enough for British workers; it is not good enough for the economy; and it is not good for our sense of national pride. We need investment in infrastructure, in skills, in innovation and in industry. Labour is committed to providing £500 billion-worth of investment: £250 billion will be Government capital spending; and £250 billion will come from the national investment bank.

The national investment bank, along with regional banks, would transform regional economies and rebuild our financial system. Government capital expenditure would be used to improve vital infrastructure such as transport, housing and energy supply. Those are the kind of policies that businesses need to thrive, and I hope that the Government will consider them. They have not put such policies into the Finance Bill, but they have the power to put them into further pieces of legislation as this Parliament progresses.

The Bill fails to address the long-term pressures facing the UK’s energy supply industry and fails to deliver on our climate change targets, as agreed just a few months ago by the right hon. Member for Hastings and Rye (Amber Rudd), now the Home Secretary. The renewable energy sector, as we heard in the previous debate, has been consistently undermined by this Government, and the Bill before us today does nothing to provide the stability or support that this industry craves.

Earlier today, we debated a specific amendment on the VAT treatment of energy-saving materials in the hope that the Government would make it clear in statute that the proposed solar tax hike would not go ahead. Unfortunately, the Government would not agree to our new clause and as such the insecurity for this industry continues. Furthermore, the Bill still makes sweeping changes to the climate change levy, which could seriously undermine its efficacy. In Committee of the whole House, we tabled an amendment calling for a review of the impact of the climate change levy on carbon emissions, but we were unfortunately defeated in the Lobbies. The change will go ahead with no assessment of whether the somewhat altered levy will do its job. That, too, is just not good enough from the British Government.

Over the weekend, we saw China and the United States ratify the Paris climate deal. Together they are responsible for 40% of the world’s carbon emissions, so that marks a huge step forward in climate change responsibility. Our Government, however, have not ratified the treaty, and have rowed back on almost all their green commitments since the election. I will not list them again, as it is an extensive list, but the Bill does nothing to tackle the issue of climate change head on, and, we believe, weakens measures that are already in place.

As for the key issue of tax avoidance, I must reiterate our view that the Government’s piecemeal approach of slowly introducing new little schemes and penalties is simply not enough. As I said yesterday, we need to see real commitment to an overarching strategy that provides genuine “legal teeth” to tackle the tax avoidance industry. At a time when our public services are tearing at the seams as a result of increased demand and a lack of resources, it is not acceptable for people to be allowed to avoid paying their taxes. It is time for tax avoiders to understand that being part of our society means paying one’s fair share towards the upkeep of that society. Labour has set out its stall with its tax transparency and enforcement programme, much of which was reflected in the amendments that we tabled yesterday. I hope that the Minister took some of our suggestions on board.

It is disappointing, to say the least, that the Government did not see fit to accept our new clause proposing a wide-ranging review of the UK tax gap and its causes. They have to appreciate that we must design a system that will really challenge the tax avoidance industry. We must overhaul our tax laws so that they are based on broad principles that will make avoidance difficult. A full public inquiry would expose the perversity of the industry, and would signal to the world that we are serious about stamping out tax evasion and avoidance wherever they may flourish.

Let me end by saying this. Labour wants to build a high-investment, high-wage economy. It wants to build an economy that will allow the UK to be a country of the future, leading the way on research and innovation; an economy in which everyone pays their fair share, and support is provided for those who need it; an economy and a society of which the British people can be proud. However, that can be done only with a Government who are committed to making it happen. We do not believe that the Bill will achieve those goals, and we will therefore vote against it this evening.

Question put, That the Bill be now read the Third time.

Finance Bill

Rebecca Long Bailey Excerpts

Monday 5th September 2016 Commons Chamber

[Greg Mulholland (Leeds North West) (LD)]

I can worry the right hon. Member for Cities of London and Westminster (Mark Field) a little more by telling him that there was a “Hear, hear” from these Benches as well—[Interruption.] Members will be surprised at how loud we can be, and they will see that in the coming months and years.

It is absolutely time to have the debate about the best way to tax our businesses and to do what the Government claim they are doing—but are actually insufficiently doing through the changes to corporation tax—and support business in this country better through taxation that works but that also recognises and incentivises business.

Amendment 177 is a probing amendment that would sweep away corporation tax altogether and is intended to try to trigger that debate, which we should be having as a country. The reality is that the Government will continue to argue that a cut in corporation tax will somehow boost growth, but the evidence for a cut below 20% is simply not there. The Government are failing to ask whether corporation tax actually works. As the right hon. Member for Cities of London and Westminster has said, it is only a matter of time before we hear the next scandal of a company managing to avoid paying corporation tax. Last week, it was Apple’s deal with Ireland, a few months before it was Google, before that it was Facebook and before that it was Amazon. Even the Labour party got into hot water for having managed to offset profits to reduce their corporation tax bill, so surely Government Members will recognise that there is an issue.

We have endless arguments about the morality of some of these large multinational corporations and how they operate. There is often outrage—sometimes faux outrage—in this place, but that is not good enough and it will not deal with the problem. We must also accept that while the Government are making unnecessary and damaging cuts to HMRC, it makes it harder to challenge these companies that are testing the limits of the law.

There is an underlying unwillingness to address corporation tax and its fitness for purpose regarding the reality of multinational corporations in the 21st century. As Martin Sorrell, the chief executive of WPP, said in 2013 during the Starbucks corporation tax scandal, for many multinational companies whether to pay corporation tax is simply a “question of judgment”, something to be decided according to PR perception and perhaps their own corporate social responsibility policies but not something decided by Her Majesty’s Revenue and Customs as it surely should be.

As the right hon. Member for Cities of London and Westminster made clear, this is not and should not be seen in any way as a left or right issue. It is an issue of practicality. Last week in the Telegraph, Allister Heath published a piece entitled “The Apple fiasco shows why corporation tax is an outdated anachronism”. As the right hon. Gentleman has already said, Lord Lawson famously called for corporation tax to be a tax on revenue rather than profit. There are flaws with that but at least he was seeking to challenge the status quo, which is surely outdated. On the other side of the spectrum, The Guardian, Oxfam and the excellent Tax Justice Network have all rightly highlighted the ease with which multinationals can avoid corporation tax altogether.

There are ways in which we could better support business and could have a tax system that works. Businesses of all sizes are crying out for changes in the tax system. I know many businesses that say that the first thing they would like to see reformed is business rates and the second is VAT. There are industries that provide a huge amount to the British economy and pay a significant amount of tax that are not being listened to because they are not large corporations. For example, a change to VAT would have a much greater impact on the tourism and hospitality industries than tinkering with corporation tax in an attempt to grab headlines for being supposedly supporting business.

As the right hon. Gentleman has said, there is no obvious solution, but surely it is time to find a solution to properly, fairly and sensibly tax businesses in the 21st century. My hon. Friend the Member for Westmorland and Lonsdale (Tim Farron) has already appointed Sir Vince Cable, the former distinguished Business Secretary, to lead a review of corporation tax and business rates for my party. That will make a contribution to the debate. Instead of claiming that the Government are standing up for business, surely it is time to acknowledge that yet more cuts to corporation tax over the next year will not truly deliver that and will not deal with the reality, which is that we are not collecting tax efficiently from companies that are now run in a very different way.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I rise to speak to amendment 162 and new clauses 10 and 11, which stand in my name and those of my hon. Friends the Members for Hayes and Harlington (John McDonnell) and for Bootle (Peter Dowd). I also support new clause 5, which has been explained articulately by the hon. Member for Aberdeen North (Kirsty Blackman), and confirm the Opposition’s support for amendment 177, which has just been spoken to articulately by the hon. Member for Leeds North West (Greg Mulholland).

Amendment 162 would remove clause 45 from the Bill, thereby halting the Government’s cut to the rate of corporation tax to 17% by 2020. The Government claim that cutting the corporation tax rate would make Britain even more attractive to inward investors and more competitive, and that it would support growth and investment. I would be grateful if the Minister elaborated on the evidential basis for those claims.

We all know the theory that states that if we cut tax on profits there is more cash for companies to invest in expansion, research and development and labour, and, theoretically, we become more attractive to foreign businesses. The problem is that, somewhere in the development of that theory, the Chancellor forgot to check the reality, as the figures do not support that age-old Conservative mantra.

Figures provided by the House of Commons Library show that in 1998 business investment as a percentage of GDP was 10.8%, and that in 2000 it was 10.6%. The rate of corporation tax in those years was 31% and 30% respectively. In 2015, business investment as a percentage of GDP was 9.7% and the rate of corporation tax was considerably lower than that in 2000, at 20%. Why, therefore, were businesses not in a state of investment frenzy in 2015, if, indeed, slashing corporation tax is a golden ticket to investment? Of course, I appreciate that there are many factors that affect the level of business investment in the economy, but a comparison of the figures seems to suggest that a lower rate of corporation tax does not correlate with a higher level of business investment.

Let us look at a different variable, namely foreign direct investment. The level of FDI in the UK has been steadily falling since 2005; there have been a few anomalies along the way, but the trend is most definitely downwards. That has coincided with a steady reduction in the rate of corporation tax. In 2005 the level of FDI flows into the UK was £96.8 billion and corporation tax was 30%. In 2014 FDI was £27.8 billion and corporation tax was 21%. Again, there could be many factors at play, but the figures demonstrate that there is no strong correlation between low rates of corporation tax and higher rates of investment and FDI.

I appreciate that, to a degree, low corporation tax rates may attract some companies to locate here, because they will want to pay less tax, but attracting them to truly invest in the development of industry here, as well as encouraging our UK companies to flourish, is another matter entirely, and that requires much more than just a tax break.

According to the Government’s own analysis, this cut is expected to cost the Exchequer almost £1 billion in 2020-21, in addition to the £2.5 billion cost in the same financial year of cutting corporation tax to 19% from 2017. The Institute for Fiscal Studies has also calculated that the Government’s cuts to corporation tax have cost £10.8 billion a year. That gives rise to the question of whether the money could be better spent to incentivise much-needed investment in the UK. The Minister will not be surprised to hear that the Opposition most definitely think it could.

Many businesses already have cash. The House of Commons Library has provided figures showing that the total amount of currency and deposits, or cash reserves, held by non-financial companies in the private sector is currently at a 20-year high, at £581 billion. The problem, then, is not that businesses need more cash, but that other factors in our economy need improvement, including skills, infrastructure, innovation and productivity.

The £10.8 billion estimated by the IFS is a large sum that would be better invested in filling the gaps in our economy that are failing business. We should not be engaging in a race to the bottom to become the world’s next big immoral tax haven, but providing the building blocks to make business actually succeed, and with that comes more revenue in taxes as businesses flourish and well-paid jobs are created.

The Minster would do well to take notes at this point, because Labour has committed to such investment, through a national investment bank and the bank of the north, to address specifically those areas left behind after decades of regional decline. Our national and regional development banks would help unlock £500 billion of investment and lending to small and medium-sized enterprises, including £250 billion of capital investment in the infrastructure that we urgently need and to help prevent economic slowdown. The regional focus of development banks would enable the Government to make sure that investment and lending is spread around the country, not just siphoned into the south, and that it benefits from local knowledge and expertise, thus ensuring that no area in Britain is left behind. Our bank of the north would also unlock the potential of the north of England, with a push to deliver the sort of infrastructure and investment that it has been deprived of for far too long.

We have also committed to ensuring that our workforce have the skills that business needs in a modern economy, through reinstating the education maintenance allowance and maintenance grants for poorer students, which would be funded by a corporation tax rate of 21%. That is the kind of intervention businesses are looking for—policies with a substantive impact on a company’s ability to do and develop business, not simply cuts to the headline rate of corporation tax.

The cut to corporation tax brought about by clause 45 is not the best use of public money to support businesses in the UK. I urge hon. Members on both sides of the House to join us in the Lobby to vote in favour of amendment 162.

The right hon. Member for Cities of London and Westminster (Mark Field) made some fantastic comments earlier on new clause 10, which relates to the patent box. The new clause would require the Chancellor to publish an independent review of the efficacy and value for money of the patent box legislation. The report would have to make an assessment of, first, the size and nature of the companies taking advantage of the patent box legislation; secondly, the impact of the patent box legislation on research and innovation in the UK, including supporting evidence; and, thirdly, the cost-effectiveness of the patent box legislation in incentivising research and development compared with other policy options. My hon. Friends and I are, of course, supportive of Government action to incentivise R and D, but we are not convinced that the patent box legislation has been efficient thus far in achieving that. We are not alone. Many commentators criticised the patent box, even before its introduction in 2012. The IFS has stated that the

“Patent Box is poorly targeted at research as the policy targets the income which results from patented technology, not the research itself…to the extent that a Patent Box reduces the tax rate for activity that would have occurred in the absence of government intervention, the policy includes a large deadweight cost.”

--- Later in debate ---

I will keep my remarks suitably brief. We need a certain amount of humility as legislators. It is very easy to get on a high horse about rich individuals and rich companies. Some of them do break the law—a minority, I trust—and they need to be pursued and prosecuted. Many others are honestly trying to report their tax affairs, complicated as they are, in multiple jurisdictions. This evening we are debating a 644-page addition to our tax code. Given that we are just one medium-sized country and that a multinational company may have to report to 30, 40 or 50 different countries, all of which are generating tax codes on that monumental scale, we should pause a little and ask ourselves whether we are getting in the way of levying fair tax by the very complexity of the rules we are establishing.

[Rebecca Long Bailey]

I will speak to a number of amendments in my name and those of my hon. Friends. New clause 12 would require the Government to report within one year on the impact of the criminal offences relating to offshore income assets and activities created by clause 165. Amendments 167 and 168 would make it compulsory, rather than just possible, for HMRC to publish the names of those who hide behind entities such as companies and trusts when committing offshore tax evasion. Amendments 171 to 173 would expand the definition of “reasonable” referred to in clause 165 to include

“an honest belief that all of the information included was true and accurate”,

because the Opposition are concerned that the category of reasonableness is, on its own, far too subjective. Amendments 163 and 164 would strengthen the penalty for enablers of offshore tax evasion to include 100% of the fees received by the enabler of the service—for the lawyers in the Chamber, the principle of just enrichment, as it were. The aim of that is to neutralise somewhat the commercial aspect of the tax avoidance industry.

Amendments 165 and 166 would increase the minimum penalties for inaccuracy, failure to notify a charge to tax or failure to deliver a return, in relation to offshore matters and transfers, by 15% rather than the Government’s suggested 10%. In their consultation “Strengthening civil deterrents for offshore evaders” the Government considered increasing the minimum penalties by 15% rather than 10%. These are probing amendments to find out why the Government opted for a smaller increase than the one that they initially considered.

Up next we have amendment 170, which would increase from 10% to 15% the asset-based penalty introduced by schedule 22. The Government’s consultation on this penalty cited different rates for such asset-based penalties across the world, including in Italy where the penalty is up to 15%. As I will expand on in a moment, the Opposition think that we must be world leaders on stamping out tax avoidance, so I think our penalty should be, at the very least, on a par with precedents across the world. Those penalties are a start, but I would add that in the light of the latest Government consultation on tackling offshore tax evasion, which would introduce a separate offence not covered by the Bill, there appears to be a clear move by stakeholders to suggest that even higher penalties are required. I urge the Government to consider those suggestions carefully.

I confirm Labour’s support of cross-party amendment 145 on public country-by-country reporting, which was tabled by my right hon. Friend the Member for Don Valley (Caroline Flint). I place on record my thanks to her for the hard work that she has put into pursuing this important issue. It is testimony to that hard work that many Members across the House—including members of the Public Accounts Committee and more than 60 MPs from eight political parties, as my right hon. Friend illustrated—and organisations outside this House have supported this amendment. I will not go over the ground that she has covered, because she has put her case articulately. The enabling power contained in the amendment would give the UK scope to strengthen its influence on international tax transparency negotiations, and it would build greater consensus.

Finally, new clause 13 would require a comprehensive report into the UK tax gap, which is defined as the difference in any financial year between the amount of tax HMRC should be entitled to collect and the tax that it collects. Such difference derives from tax avoidance and evasion. The contents of the report would be as set out in the new clause, and it would have to be carried out in consultation with stakeholders. It would examine a number of areas relating to tax avoidance in the hope that the Government might review their policy and tailor it to deal adequately with such issues.

[Chris Stephens (Glasgow South West) (SNP)]

Does not new clause 13 expose the idiocy of closing HMRC offices, as the Government are planning to do to 90% of them? Would it not also allow Members to look at the number of staff in HMRC dealing with tax avoidance and set that against the 3,765 staff in the Department for Work and Pensions who deal with £1.2 billion of so-called social security fraud?

[Rebecca Long Bailey]

The hon. Gentleman makes a very good point. The report is intended to highlight any deficiencies that might be found in HMRC’s resources or structures that affect its ability to tackle tax avoidance.

As Members who read new clause 13 will see, the part relating to HMRC goes into a lot of detail. Briefly, however, the report would be required to cover figures for the UK tax gap for the past five financial years; details of the model used by HMRC for estimating the UK tax gap; an assessment of HMRC’s efficacy in dealing with the UK tax gap; details of the tax revenue benefits for companies engaged in public procurement that are registered in the UK only for tax purposes; an assessment of the efficacy of the general anti-abuse rule in discouraging tax avoidance; consideration of the benefits for tax revenue of introducing a set of minimum standards in tax transparency for all British Crown dependencies and overseas territories; and, finally, an assessment of the impact on tax revenues of establishing a public register of all trusts located within the UK, British Crown dependencies and overseas territories.

The new clauses and amendments we have tabled are necessary now more than ever. I appreciate that we have limited time today, so we will push to a vote only new clause 13. As I have said, we will support my right hon. Friend the Member for Don Valley should she wish to press her amendment 145. We also support new clause 7, which has been articulately outlined by the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin).

On the other amendments, I hope that the Minister will listen very carefully to the comments throughout my speech. The Government have ample opportunity outside the scope of the Bill—if, indeed, there is the will—to implement many of my requests. I will explain the rationale behind our various amendment.

The law on tax avoidance has been greatly influenced by the words of Lord Tomlin in the case of the Inland Revenue Commissioners v. the Duke of Westminster in 1935. Lord Tomlin decided that it was the right of every Englishman to organise his affairs so as to minimise his liability for tax. Sadly, that idea fuels the tax avoidance industry even today. In this age of so-called austerity, with pressure on the NHS, the armed forces, our teachers and our young people—the list goes on—quite frankly it is not acceptable for people to seek to avoid their taxes.

Hon. Members on both sides of the House have come to agree that tax avoidance should be fought. The trouble is that this Government have failed to tackle the problem head-on, but simply tinkered here and there with piecemeal bits of legislation, and this Finance Bill is no different. We need a real commitment from this Government to an overarching strategy that provides genuine legal teeth to tackle the millionaire tax dodgers and the advisers surrounding them.

To take hon. Members on a little historical, magical mystery tour, in the 1980s, judges, not Parliament, developed a principle that put a dent in the tax avoidance industry—the Ramsay doctrine. The principle provided that artificial tax avoidance schemes should be analysed as a whole, not analysed by each piece separately. That meant that clever tax schemes could be dismantled by taking out all the artificial elements, with what was left being taxed as though the artificial elements had never existed. The effect on tackling tax avoidance schemes was huge.

Unfortunately, case law has moved on over the years, and we have now returned to a world in which tax law is considered to be entirely a matter of statutory interpretation. There are no general principles at work that can be used when interpreting legislation to combat tax avoidance in practice. In addition, our tax statutes are extraordinarily long and very detailed. That is meat and drink to tax specialists. Any Member of the House my age or above may remember the “Peanuts” cartoons. In one episode, Linus says, “Now I know the rules, I know how to get round them.” Linus could have been a tax lawyer.

Tax lawyers love playing with the rules, and we should not underestimate the expertise and determination of the tax avoidance community. In fact, one tax law specialist recently told me something really harrowing about a firm of accountants in the 1990s. A specific piece of legislation had been drafted to tax any trust that shifted offshore. An exception to that rule arose if one of the trustees died and the trust shifted offshore as a consequence. Those accountants canvassed a cancer ward to see whether the relatives of people dying of cancer would be prepared to have their dying family member signed up to act as a trustee of their clients’ trusts. They sought reassurances that the patient would die soon and promised to pay a small fee. That is an extreme case, but is an example of the depths to which people will sink to avoid paying their taxes and of how loopholes can be found in the depths of legislation.

--- Later in debate ---

[Rebecca Long Bailey]

I rise to support amendments 142 and 144 and new clause 4, in the name of my hon. Friend the Member for Dewsbury (Paula Sherriff). I stress that no deals have been struck with the Government on this issue, although we are open to being flexible and to discussing the matter at length with Ministers. I specifically congratulate my hon. Friend and all hon. Members who have campaigned so fervently on the issue. I will keep my comments brief, as my hon. Friend has already made her case very well. I confirm that she has the full support of the Opposition.

The amendments are designed to ensure that the Government’s pledge to abolish the so-called tampon tax has a clear deadline for implementation. My hon. Friend proposes 1 April 2017 or 1 April 2018. I must stress that Government amendment 161 does not address, and in fact suggests a degree of ambiguity, on this specific issue and the scope of our negotiations about VAT within the ambit of our EU membership. The job is not yet done, as the Minister knows. I know that she supports the idea generally and I welcome the comments she is likely to make, but more pressure is most certainly needed.

The explanatory notes to clause 125 state:

“This clause reduces the VAT rate on the supply of women’s sanitary products from 5 % to zero %.”

The Minister will be well aware that that is not the case. The clause does not zero-rate women’s sanitary products; it just provides the Treasury with enabling powers to do so at a time of its choosing and leaves wide open the question of when it will do so. My hon. Friend’s amendments would rectify that by imposing deadlines by which the tampon tax must be a thing of the past— 1 April 2017 in amendment 142, or 1 April 2018 in amendment 144. I hope the Minister will accept one of those amendments. I see no real reason why the Government need to delay this further, especially in the light of the decision to leave the EU.

[John Redwood]

rose—

[Rebecca Long Bailey]

I am conscious that we are trying to make progress, so I am afraid that I will not take any interventions.

As was said earlier, the Chief Secretary to the Treasury stated during the debate in the Public Bill Committee:

“I am optimistic that we will have the measure in place by 1 April 2017; I am happy to put that on the record.”

He also stated that

“the Government have an open mind as to whether we would accept the amendment on Report, when we hope to have greater clarity. We are confident that by 1 April there should be no reason why the measure is not in place. It is possible that the Government will come forward with our own amendment, but we may well simply accept amendment 5.”––[Official Report, Finance Public Bill Committee, 7 July 2016; c. 146.]

As has been noted, my hon. Friend has indeed tabled such an amendment again, and a second amendment that would allow the Government even more flexibility by providing an extra year. The hon. Member for Christchurch (Mr Chope) made some very important points, and tabled another amendment setting a deadline of the start of the next calendar year. The Minister therefore has a vast array of options—more than the Government did in Committee—so I hope she will not disappoint my hon. Friend and, for that matter, the rest of the House.

A related issue has been raised a number of times with the Minister, but I am not convinced it has been fully addressed, so I would be grateful if she provided further clarification. There is concern that the full benefits of the zero-rating of sanitary products will not be passed on to women, and that some retailers will simply seek larger profit margins. When the rate of VAT was reduced to 5%, the Government said they would monitor whether the benefits were passed on to consumers. I asked the Minister in the Public Bill Committee to provide more information about whether this assessment ever occurred, and if so, what the data showed. Will she provide an answer? My hon. Friend has of course taken the initiative in negotiating directly with some retailers, who have committed to passing on the cut in full, but some smaller retailers may not do the same. What steps will the Government take to ensure that women will benefit from this change, not the pockets of retailers?

Finally, my hon. Friend has also tabled new clause 4, which would require the Chancellor to carry out an assessment of the revenue raised from VAT on women’s sanitary products since 1 January 2001, when the then Labour Government introduced the lower rate of VAT, and to lay before Parliament a report of that assessment within 12 months of the Act coming in to force. It must include an estimate of the total revenue raised since January 2001, and provide information about government policy relating to this revenue. As my hon. Friend has explained, that would address future funding for women’s organisations that benefited from the tampon tax fund set up by the previous Chancellor when pressure was originally brought to bear over the issue. We hope that the Minister can give us some reassurances that those services will receive the secure long-term funding they deserve. Should my hon. Friend divide the House, we will support the new clause.

I urge the Minister to accept at least one of my hon. Friend’s amendments and to bring to a conclusion the campaign against the tampon tax, an outcome that will owe much to the hard and determined work of my hon. Friend, along with the women who have fought for it outside this place. Finally, I place on the record my support for the comments made by SNP Members on maternity products, another area that I urge the Minister to look into.

[Jane Ellison]

I rise in 2016 to resume a debate that I first started with some college friends in 1986; I did not think then that this subject would end up being debated across the Chamber of the House of Commons, but I am glad that we are doing so.

The issue of VAT on women’s sanitary products—the tampon tax—has inspired a great deal of interest, as the speeches in this debate and the interest from our constituents have demonstrated. I will try to explain the Government’s approach and the amendment that we have tabled, and to give the Opposition some comfort on some of the questions they have asked, because there really is not very much between us on this issue and we want to try to make progress.

The Bill as it stands includes provisions to apply a zero rate of VAT to women’s sanitary products, with the intention being to do so as soon as possible. The Government strongly support doing so. We agree with the argument put forward by many hon. Members, including the hon. Member for Dewsbury (Paula Sherriff), that VAT should not be applied at the current 5% reduced rate. We have a shared objective of achieving that goal as quickly as we can, in a manner that is legal and proper—I will come back to that—and that, in our new changed circumstances after the referendum vote, will not have a negative impact on our negotiations over the UK’s exit from the European Union.

Achieving that shared goal in a legal manner before we leave the EU requires a change in EU legislation. That must follow a proposal from the Commission and the unanimous agreement of all member states. We have been actively pursuing that, and have made progress, which some Members have alluded to. The former Prime Minister secured the unanimous agreement of all EU Heads of State and Government that the rules must change at the Council in March. Prior to the referendum we received assurances from the Commission that it would publish a legislative proposal for us at the earliest opportunity and definitely before the end of this year. When the Government introduced the Finance Bill, they expected to be able to apply the zero rate soon after Royal Assent.

The referendum result changes the circumstances—my right hon. Friend the Chief Secretary to the Treasury explained in Committee that the result affected the prospects for rapid implementation. However, I reassure those Members who have tabled amendments and all other hon. Members that we will not rest on the issue. The Government will continue to push for the proposal to be brought forward and agreed to as soon as possible. However, until we leave the EU we need the legislative change to introduce zero-rating; until we have it, fixing a date risks contravening EU law at a time when we are entering critical negotiations with the EU about our future.

Turning to those negotiations, the Prime Minister has been very clear that our rights and obligations remain in place until we leave the European Union. That is important: at this time it would be against the UK’s interests and the interests of all our constituents and of the businesses and universities in our constituencies to go into conflict with our legal obligations. We would risk jeopardising our negotiating position by pre-empting EU legislation on sanitary products. We would also risk the UK’s rights in other areas where we expect other EU member states and the Commission to respect their obligations to us. As the Secretary of State for Exiting the EU said in his statement earlier, we must act in good faith towards our European partners. That is why the Government have proposed an alternative amendment that delivers on the intentions of the hon. Member for Dewsbury but ensures consistency with EU law. I hope that that reassures the House that we will give effect to the provisions in the Bill and commence zero-rating. We are pledging to continue to seek the powers to do so, but to put zero-rating into effect at the first moment when it is consistent with our legal duties.

The shadow Financial Secretary is concerned about the vagueness of that phrase. The Interpretation Act 1978 and schedule 1 to the European Communities Act 1972—I am sure it is everyone’s bedside reading—give exact meaning to the phrase “EU obligation”, which is our obligations under EU law. We are clear about that and we want that commitment in the Bill. That is a major step forward for the hon. Member for Dewsbury and everyone who has campaigned for zero-rating. The amendment commits the Government to commence by 1 April 2017 unless it is unlawful to do so. If on that date it is unlawful, there is a duty on the Government to commence at the first point when we can do so legally. That is the strongest commitment we can give, and one that I am happy to give today. I urge all hon. Members to support it.

On the amendments tabled by the hon. Member for Dewsbury and my hon. Friend the Member for Christchurch (Mr Chope), I have tried to offer them and other hon. Members reassurance that the Government and I want the tampon tax removed as soon as possible. We will keep up our engagement in Europe to secure that, but, equally, hon. Members will understand that the Government must act in accordance with the law. Until we leave the EU, that includes our obligations, as I have said. Those obligations prevent us from removing the tax at the moment. We are trying to change it, but we cannot be certain of the timetable, because such legislation has to be agreed by all 28 member states.

For that reason, we must oppose the amendments—they would set in UK law a fixed latest date for zero-rating—but I stress again that there is no great difference between our intention and that of Opposition Members. We all want the tax ended as soon as possible. I hope that will happen by 1 April 2017 and I am even more hopeful that it will happen by 1 April 2018, but it cannot be guaranteed. The Government’s amendment will ensure that zero-rating starts domestically at the first opportunity consistent with our legal obligations.

I ask Members to look at what we are saying and to realise how close together we are. I also urge them not to be irresponsible in supporting something that will bring us into breach of our obligations. The duty in the amendments proposed by the hon. Member for Dewsbury would impose a requirement on the Government to act illegally. We would be in breach of articles 1 and 110 of the principal VAT directive. Whatever Members’ views are of what the directive requires—we are making progress towards changing it—I would be surprised if members of Her Majesty’s official Opposition, or indeed any Member of the House, thought we could disregard it at such a crucial juncture, when the disregarding of the Commission’s and other nations’ obligations towards us could be significantly against the UK’s national interest. I again quote my right hon. Friend the Secretary of State for Exiting the European Union from earlier today, when he said:

“Until we leave the European Union, we must respect the laws and the obligations”

of membership. I agree with him.

I have every sympathy with the hon. Member for Dewsbury—[Interruption.] I should say that I have every sympathy with the amendments. I think she hinted that, if we do not have the legal change we need by 2018, the Government might have to introduce other measures. Our amendment solves the problem of having to revisit a law we have passed that we know might be illegal by April 2018. I suggest that that is not the most sensible way to legislate. The Government’s amendment achieves the same thing but keeps us within our legal obligations.

The other amendment tabled by the hon. Member for Dewsbury calls for a report on the revenue accrued from VAT on women’s sanitary products since 2001 and the tampon tax fund. I am very happy to reaffirm the Government’s commitment to the fund. As I have said, we are taking all actions available to stop charging this VAT as soon as possible, but until that can be achieved the revenue it raises will be put into the tampon tax fund and directed to women’s health and support charities. So far, the £15 million a year fund has supported 25 charities, including many that are well known to us in this House: The Eve Appeal, SafeLives, Women’s Aid and the Haven. I am sure many of us will be “wearing it pink” next week. We will think then of the wonderful charities—I am very familiar with them from my previous role as Public Health Minister—that are benefiting. Funding has also been allocated to Comic Relief and Rosa—again, a charity I know very well—to disburse over the coming year to a range of grassroots women’s organisations, many of which have been championed so ably by Members across the House, in particular by some Labour Members.

Charter for Budget Responsibility

Rebecca Long Bailey Excerpts

Wednesday 20th July 2016 Commons Chamber

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I begin by congratulating the Chief Secretary to the Treasury, the right hon. Member for South West Hertfordshire (Mr Gauke), on his well-deserved promotion. I also welcome the Financial Secretary to the Treasury, the hon. Member for Battersea (Jane Ellison), to the Front Bench. I am looking forward to our first debate, and I hope there will be many more to come.

I thank all Members across the House for taking part in this important debate. My favourite quote was from the hon. Member for Dundee East (Stewart Hosie) who said that the ex-Chancellor’s long-term economic plan was like a unicorn. We also heard from the hon. Member for South Suffolk (James Cartlidge), who rightly highlighted the importance of intergenerational fairness, although I am not sure that this charter actually delivers that, by any stretch of the imagination. We also had a fantastic speech from the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin), who highlighted the problems associated with neoclassical economic thought in a very articulate way.

As the House will be aware, the Opposition did not support the charter for budget responsibility that we are debating today. And as we have heard throughout the debate, the Government were fully aware last summer that large swathes of respected economists did not find the then Chancellor’s charter for budget responsibility economically credible—if indeed the true intention was to generate growth and prosperity for all. My hon. Friend the Member for Hayes and Harlington (John McDonnell), the shadow Chancellor, said at the time:

“The charter before us today…has little basis in economics.”—[Official Report, 14 October 2015; Vol. 600, c. 437.]

This has proved to be the case. If, however, the charter was simply the vehicle to implement an economic ideology that was dedicated to sucking wealth up to the top 1% and that systematically undermined and dismantled public services, it was a very clever plan indeed. I do not intend to spend time in this debate arguing about the moral conundrums of Conservative party economic doctrine, however. Today, I will try to be the moral compass of the new Chancellor and his team, as we are all acutely aware that the economic future of the country is standing at a critical crossroads.

As the shadow Chancellor has already outlined today, the Government have missed or been forced to abandon all three pillars of the charter. The welfare cap was missed in the last financial year and is due to be missed in each year until the end of this Parliament. The debt-to-GDP target has been spectacularly missed. Not only is the ratio of debt to GDP not falling; it has risen, with public sector net debt at 83.3% in the last financial year. Finally, the budget surplus, quite impossible to achieve without finding funds to fill the black hole that opened up in the March Budget, seems to have been more or less conveniently abandoned now on the pretext of the EU referendum result.

I suspect that many on the Government Benches realised some time ago that the target of a £10 billion surplus by 2020 was simply unachievable without drastic cuts to public spending, resulting in a short-term budget surplus. However, the price to pay simply to save embarrassment for missing this fiscal target was long-term economic stagnation and the loss of vital public services. The Financial Secretary to the Treasury may tell the House that the current charter provides a get-out clause whereby the rules are suspended if the OBR assesses that there is a negative shock to the economy. However, the OBR said that it will not publish any revised figures until the autumn, so I urge the Chancellor and his team not to risk floating along directionless until then.

Our approach would allow substantial investment in infrastructure and skills to address the underlying issue of low productivity in our economy. Unfortunately, business investment has been falling for the past two quarters, even ahead of the referendum, and early indicators of pauses in investment and threatened job losses suggest that it could fall even further. British business needs the Government to step in and invest in industry to make Britain a better and more stable place to do business. Businesses do not want cuts to the headline rate of corporation tax. They do not want a raft of foreign takeovers as a result of the fall in the pound following Brexit. British businesses and their workforces should be the kings and queens of global industry. We desperately need a Government that are genuinely committed to what I call “industrial patriotism”, but we have sadly not seen that for some years.

Fortunately, the Chancellor and his team have an ideal opportunity to turn things around and develop their own direction for fiscal policy. The new Prime Minister said in her first speech to the nation:

“When we take the big calls we will think not of the powerful, but you.”

We know that the new Chancellor supported further welfare cuts despite public outcry, so I must educate him as to how bad things really are. We have suffered nearly a decade of economic decline, increasing and stark regional inequality, and deep-rooted alienation and despair in communities that feel left behind, so it was no wonder that people voted in their droves during the referendum. They voted for an answer, for someone or something to blame for the dire economic situation that their communities were in.

Only a few weeks ago, the first Salford poverty truth commission was launched to examine the facets of poverty experienced throughout everyday life in Salford. At the launch, 15 members of the community stood up with real guts and courage in front of a packed hall to tell their individual stories. If the Chancellor and his team could hear what I heard that day, they would know that the economy in its current state is not working for the many.

I heard tales of people suffering horrific childhoods, turning to alcohol and drugs to numb the pain in the absence of counselling—there is no support for them, given the cuts in mental health provision. I heard from families on the breadline, unable to afford to heat their homes and forced to use food banks. I heard from those the Government would deem to have pulled themselves up by their bootstraps—people who are university educated and with well-paid jobs, but still struggling, crushed by a mountain of household debt. I heard from mothers forced to turn to prostitution just to keep a roof over their children’s heads. I heard about families hiding behind the sofa when the loan shark or bailiffs came calling, telling their children to be as quiet as mice. Mr Speaker, you may know that L. S. Lowry, the famous Salford artist, was a rent collector by day in the 1920s, knocking on doors just like today’s bailiffs. He tried to encapsulate the misery and struggle that he encountered in the pictures that he painted. What would he say if he knew that families were still going through the same agonising struggles in 2016?

We have called this debate today to give the Chancellor and his team of Ministers an opportunity to set out their stall, after 10 years of failed austerity economics. It is an opportunity to turn this country around and address regional imbalances; an opportunity to provide investment support for businesses in those areas hit hardest by economic decline; and an opportunity to invest in skills and infrastructure, and to allow businesses to form the capital to invest in themselves. We can make this nation’s economy the envy of the world and we can ensure that the prosperity we generate when we do that is enjoyed by the many not the few, but the direction of fiscal policy over the next few months is critical to that. It is one of the biggest calls this Chancellor is ever going to have to make. I really hope that his team has listened today and that the Prime Minister’s gesture towards “prioritising the many”, as Labour Members do, is not merely rhetoric.

Oral Answers to Questions

Rebecca Long Bailey Excerpts

Tuesday 19th July 2016 Commons Chamber

[Mr Hammond]

The hon. Gentleman is right and I thank him for his kind words. We need to remind ourselves that we are running a 6.9% of GDP external account deficit, and that has to be funded somehow. It has been funded by an extraordinarily successful run of foreign direct investment into the UK—more than into any other country in the European Union. That has slowed as uncertainty around the referendum has been created. We now need to generate the confidence to allow it to resume.

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

I take this opportunity to welcome the Chancellor to his post, and also the Chief Secretary and other new Treasury Ministers. There is a real concern that the uncertainty surrounding Brexit is forcing many businesses and international banks to consider moving their core operations and the jobs that go with them overseas. Banks in particular make use of their EU banking passport arrangements to operate within the UK, so what measures will the Chancellor be taking to avoid the loss of those arrangements?

[Mr Hammond]

The hon. Lady is right to say that passporting is an important feature of the arrangements we have with the European Union. In the negotiations that we will have in the future with the European Union about Britain’s future relationship with it, protecting those rights for our very important financial services sector, which I should emphasise is not just about London—two thirds of financial services jobs in this country are outside London—will be a very important part of those negotiations.

[Rebecca Long Bailey]

Moving back to the issue of ARM, analysts this week have predicted a raft of foreign takeovers linked to the fall in the value of the pound following Brexit. The Chancellor stated this week that Britain is open to foreign investment, barely a week after the Prime Minister wanted to oppose such takeovers, so has the Government’s approach to securing new investment been reduced in the space of a week from an ambiguous industrial policy to merely slashing corporation tax and hoping for the best?

[Mr Hammond]

No. The UK remains very much open to foreign investment, but we are very clear that we want investors who will invest in British technology, British jobs and businesses headquartered, based and directed from the UK. We are not open to asset-strippers.

Draft Major Sporting Events (Income Tax Exemption) Regulations 2016

Rebecca Long Bailey Excerpts

Monday 11th July 2016 General Committees

[Rebecca Long Bailey (Salford and Eccles) (Lab)]

It is a delight to serve under your chairmanship, Sir Edward. It is also a pleasure to be back in a Committee with the Financial Secretary to the Treasury after what I hope was a welcome rest over the weekend for both of us.

The draft regulations exempt non-resident competitors in the 2017 world athletics and Paralympics championships and the 2016 anniversary games from income tax on their earnings from the event. The idea of exempting earnings from major sporting events from income tax for non-UK residents is not new; indeed, it goes back to 2006 and 2010, when the Labour Government introduced special provisions to exempt non-residents who were coming to the UK to take part in certain sporting events—the 2012 London Olympics and the 2011 champions league final. Exemptions of that kind have historically been made through primary legislation in Finance Bills, but the Government announced in the 2014 Budget that they would legislate to enable income and corporation tax relief to be given in relation to major sporting events via secondary legislation. Provision to that effect was made in section 48 of the Finance Act 2014 and the draft regulations are the first set of exemptions made by virtue of the powers granted.

The Minister will be aware that the Opposition were not opposed to the principle of providing tax exemptions for certain sporting events, but we expressed concern about the uncertainty regarding the Government’s approach to selecting such events. During the passage of the Finance Act 2014 we moved an amendment to publish a formal review of those decisions every five years. Speaking for the Opposition at the time, my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) stated

“tax exemptions for sporting events have been dealt with on an ad hoc basis in Finance Bill to Finance Bill. As a result, some athletes and professional sportsmen and women have benefited from exemptions from some sporting events, while others have not.”

She also said:

“Clause 45 and our amendment 13 address this piecemeal legislation relating to sporting events and the fact that the issue recurs at every Finance Bill.”

At that time we questioned what other sporting events the Government envisaged becoming eligible for tax exemptions for non-resident competitors and whether the Government planned to extend the number and range of events that were eligible. Our amendment would have required a review of how the power was being used in that respect. Sadly, the Government did not support the amendment at the time, stating:

“The Government might use the power only once in the next five years, for example, so undertaking to publish reviews to such a schedule would not be proportionate.”––[Official Report, Finance Public Bill Committee, 8 May 2014; c. 238-239, 243-244.]

I appreciate that the Government have only used the power once since it was introduced—in the statutory instrument before us today, which makes provision only for the 2017 world athletics and Paralympics championships and the 2016 London anniversary games—but will the Minister confirm whether the Government have plans to extend the scope of those tax emptions beyond football, athletics and the Olympic and Commonwealth games?

I am particularly concerned about the gender inequality inherent in the relief. Will the Minister confirm whether women’s events are being treated equally? For example, was the UEFA women’s Champions League final held at Stamford Bridge in London on 23 May 2013 given the same tax exemption as the 2013 men’s Champions League final held at Wembley? I understand that it was not. Why do the Government deem the men’s game to be a major sporting event but not the women’s? The impact assessment for that specific legislation stated that the measure was likely to affect more men than women. Those anomalies are exactly why the Opposition called for a review of the legislation every five years, so that we could see the Government’s approach to selecting events. It seems to me that there is an ingrained gender inequality that the Government must address, and I welcome the Minister’s comments in that regard.

I am also concerned that no tax information and impact note has been published for the instrument, despite the explanatory memorandum stating it would be published on the usual section of gov.uk. Prior to coming to the Committee, the only available note I could find there related to the 2014 Act and not the statutory instrument. Will the Minister confirm what impact analysis has been carried out, especially on equality? Will he also clarify what measures are in place to ensure that this relief and others are not used for tax avoidance?

Turning to the events listed in the statutory instrument, it is my understanding that the tax exemption was a condition of the international bidding process for all countries that wanted to host the 2017 world athletics championships. Which international bodies made the exemption a condition of the bidding process? While no doubt appreciating the economic benefit that such sporting events bring to local economies, does the Minister think it right that international sporting bodies should force Governments across the world, not just in the UK, to make an income tax exemption a requirement of hosting specific sporting events?

The Government state that the exemption for the 2016 anniversary games is designed to support the legacy of the 2012 London Olympic and Paralympic games, which were great sporting events that many people across the country thoroughly enjoyed. As an aside from the regulations, I would be interested generally to know whether the Government have made any assessment of the economic effect of the legacy of the games in the immediate Newham area.

The regulations are a continuation of the policy of both the previous Government and the last Labour Government of exempting from income tax non-resident competitors’ earnings from some major sporting events, and we will not oppose them. However, I hope that the Minister can give satisfactory reassurances on the concerns that I have outlined.