Duties of Customs

Stella Creasy Excerpts

Ways and Means resolution: House of Commons
Monday 20th November 2017 Commons Chamber

[Mel Stride]

The hon. Lady raises an extremely important point, particularly in relation to roll-on/roll-off ports. I have been to Dover to meet the port’s chief executive and other staff, and Her Majesty’s Revenue and Customs is closely engaged through various roundtable exercises with all the UK’s ports. We recognise the paramount importance of ensuring that we have fluid trade flows through those ports. The hon. Lady will know that the White Paper set out clearly the sorts of approaches that we will be taking, if necessary, to ensure that those flows are rapid and effective, and that trade is kept moving.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Following our time together in Committee considering the Bill that became the Finance (No.2) Act 2017, the Minister will know my concern that small businesses in Britain will be saddled with the 13th VAT directive. He has set out that the Government’s intention is that a new directive will come into place before we leave the European Union, so will he clarify whether he expects British businesses to have to deal with all the vagaries of the 13th VAT directive?

[Mel Stride]

As the hon. Lady knows, at the point at which we leave the European Union, we will gain further control over VAT, although that depends on the precise nature of the deal that is negotiated. It might be that we move from acquisition VAT to import VAT depending on where that negotiation lands, which remains to be seen. The general principle is that the Government are entirely committed to ensuring that burdens on businesses are kept to an absolute minimum and that trade flows are maintained.

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[Mr Fysh]

My hon. Friend makes an important point, and I completely agree.

It is massively important that we look at the data systems, and I have talked a lot with Ministers about the customs declaration service that we are putting in place by January 2019. I have met industry representatives, and I have to thank my hon. Friend the Member for Dover (Charlie Elphicke) for organising some of those meetings in a very efficient fashion. They have been incredibly useful in bringing key civil servants and key stakeholders up to date with exactly what is required.

I do not think we need to reinvent the wheel. We do not need to go for full, all-singing, all-dancing, new solutions overnight; there are some practical steps we can take in the interim. We heard from one panel about a system called Intrastat, whereby economic flows around the European Union, based on actual transactions, are recorded. It was suggested that it is possible to, effectively, bolt the tracing of different liabilities on to that system, with the customs system operating in parallel with it.

What our partners in the EU, or in any other part of the world, want to know when goods are moving across one of their borders is what is in those consignments and whether they need to think about a tariff or take into account some other regulatory provision. It is massively important that we can talk to our counterparts on the other side. I implore Ministers to try to persuade the EU, even though so far it has been very reluctant, to allow member states’ national customs authorities to talk properly to us about what data interfaces are going to be required for what will probably be quite a lot of extra transactions and considerations that will have to be made. I certainly stand ready to help with my contacts, if I can, to enable some of those conversations to happen. Whether it is a ramped-up trade facilitation exercise—the “option 1” that the Minister described—or a partnership based on a new type of tracing of the way in which goods move around our economy and across our external borders and those of the EU, at the moment, we will need to make and record lots of declarations of one kind or another, and the other side will have to be confident that what we say is the status of these goods is in fact the case.

VAT processing has been the Cinderella of this conversation over the past few months. Everyone has been focused on the duty side, and not enough focus and attention has been given to the VAT side. The manner of the processing of VAT really makes a difference to very many businesses, and it is a major cash-flow issue for most businesses. If we want to stay open to ideas, as we do, with our EU friends and allies, and if we want to have good facilitation of cross-border trade, we need to address, for example, the ability of a vendor to attend a trade show and take a load of samples with them, because if there is a VAT issue, that could really be a problem. It is also a problem in the art world where very high-value objects are moving around. We need to think about that.

[Stella Creasy]

I entirely agree with the hon. Gentleman’s comments. Does he share my concern that because the Government are not giving any clarity on this issue, it is very likely that British businesses will have to deal with all the vagaries of the 13th directive on VAT unless we look for some clarity on retaining our current systems for trading, whether through the customs union or the single market?

[Mr Fysh]

I thank the hon. Lady. I agree that we need clarity as early as possible on all these issues, and I encourage Ministers to come forward with ideas on that.

Returning to what we heard about Ireland in various interventions on the Minister, I would like him to think about whether, in the VAT resolutions, we are confining ourselves a little too much by saying that the Government may not, through the Bill, make any amendment relating to VAT rates, exemptions and zero rating. One of the issues with the Irish border historically, and where the real problems came from when Ireland was given its independence, was the amount of smuggling, and the rates and tariffs on goods going into the UK were a major factor in that. Perhaps we could look to smoothing the feelings and the actual processes on the Irish border to make sure that, as far as possible, our VAT rates are as harmonised as they could be so that there is no temptation to smuggle there.

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[Stella Creasy]

Will the hon. Gentleman give way?

[Ross Thomson]

No. I want to make some more progress.

Scotland’s exports are world-renowned—I am sure the hon. Member for Edinburgh South (Ian Murray) and I can absolutely agree about that—and whisky is just one example of a British export success story, with more than 90% of Scotch whisky being sold outwith the UK.

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[Ian Murray]

I anticipated that intervention, although not quite so early in my speech. I return the hon. Gentleman’s compliments—he is one of the nicest gentlemen in this House. The Labour party’s position on the customs union is that we want the UK to have tariff-free access to the European Union throughout the transition period, with the added option of the UK staying in the customs union. That is the position of our Front-Bench team. It is perfectly clear and chimes perfectly well with amendments (e) and (f).

I am disappointed that the amendments in the name of the hon. Member for Aberdeen North (Kirsty Blackman) were not selected. She has done a lot of work to bring the Ways and Means motion to the House, and I think the arguments advanced reflect the fact that we both want our country to stay in the single market and the customs union, not for ideological reasons, but because we know that the businesses of Aberdeen North and Aberdeen South require us to stay. It is impossible to suggest that the United Kingdom should have exactly the same benefits of the single market and the customs union, with a frictionless border and tariff-free access, but not keep the customs union and the single market on the table. It makes no sense.

[Stella Creasy]

My hon. Friend is making a powerful case. Often it is said that sometimes we just need to simplify: if it walks like a duck and talks like a duck, it is a duck. If everything the Government are saying they want looks like and sounds like the customs union and single market, why are we wasting time debating other things?

[Ian Murray]

I am tempted to say that is because they are all quackers, but I am sure that would not go down well and I gave up on the bad jokes some time ago. My hon. Friend is right: the Government are actually arguing for the single market and the customs union, but do not want either. That is why the Bill on the customs union, which will be published tomorrow, will show clearly that the Government are hell-bent in the negotiations with the EU to take us off a cliff edge. No deal is probably their preferred option, and that is what they are promoting in the Ways and Means motion.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to follow the hon. Member for Glenrothes (Peter Grant), who made another powerful case for what is becoming incredibly evident in British society.

Let me start by trying to find some common ground on something that has divided us for more than 18 months now. I do not think that anybody here tonight wants to re-run the referendum; we all recognise the referendum result. I do, however, disagree with the right hon. Member for Broxtowe (Anna Soubry). I think we can get deals with anybody. The question is, what kind of deal and what are the consequences? And that includes no deal. Yes, we could get a free trade deal with other countries but, as we saw when Switzerland tried to negotiate with China, when big goes against little, the results are often not good for little. It is a real Hobson’s choice. China now has immediate access to the Swiss market, while the Swiss will have to wait decades to get similar access to the Chinese market.

All the options have consequences, including the option that this Government have taken over the past 18 months: trying to fudge and bombast their way through. Like many Government Members, I welcome the fact that we are finally having this debate because I want to speak up, above all, for the people whose lives, livelihoods and businesses depend on the certainty of knowing what happens next. That is a certainty that they are not getting from this Government. Some 18 months after the referendum, there are some 759 different treaties that have to be renegotiated, but there has been no progress on any of them, and we are fewer than 18 months away from the date on which we are supposed to leave the European Union.

The Government are spending money, hand over fist, to try to sort out the mess that they are creating every single day. We have had it confirmed that that money is coming from our armed forces, and the Minister has confirmed to me today that it is also coming from our education services. Money is being reprioritised to try to figure out what on earth a deal with Europe would look like. Eighteen months on, we have no answers. And all because the Prime Minister simply cannot admit that she simply got it wrong in the Lancaster House speech when she ruled out of access immediately the customs union and the single market.

I support the amendments in the name of my hon. Friend the Member for Edinburgh South (Ian Murray) because the British public deserve better. If the Government are going to make a mess of it, it is up to us as parliamentarians to try to give the people we represent—who need certainty and to understand what their future holds—the clarity that they desire.

[Peter Grant]

Does the hon. Lady think that it says something about the Prime Minister’s priorities that she took the time to apologise to her own Back Benchers for the disastrous general election that she dragged them into, but she will not apologise to the people of these islands for the disastrous Brexit that she is dragging us into?

[Stella Creasy]

I was struck by the discussion earlier about making decisions so quickly. I, too, did not vote for the article 50 legislation to be triggered, because I was concerned it was too soon in the process. However, some disasters are of our own making, and a snap general election in which the public thoroughly rejected her hard Brexit is certainly something the Prime Minister should learn from.

In her Lancaster House speech, the Prime Minister said that she wanted associate membership of the customs union—a membership that does not exist. The legislation that will come from the motion before us tonight is supposed to answer that question. Yet, I have read the Government’s White Paper, I have asked the Prime Minister repeatedly about the idea of associate membership, and I have asked her whether she has raised it with her European counterparts, and we have no answer.

It is a bit like someone asking to be an associate member of a gym—to use the swimming pool, but not to pay for all the weights or classes. Oddly enough, most business people would turn them down flat or at least give them an answer. I am very struck by the fact that, 18 months on, the Government cannot even tell us whether they have asked whether the wonderful, mythical, innovative, creative, dynamic partnership they believe they can get is even on the table.

This approach literally makes no sense. If we look at the reality of how we trade as a nation, we see that we are not an island factory; we are a nation that works with other countries to produce goods, and we are proud of the goods we produce through our hard endeavour. Let me give a great example. In the food and beverages industry, the EU accounts for almost 70% of our supply chain. In our car industry, 44% of the value of UK car exports comes from imported products. In the UK, we are great at making bumpers, brakes and clutches, but we are not so good at radiators, suspension or gearboxes. That is why we work with other countries to produce the great British cars that we are all so proud of. That is what is at stake when we reject the customs union out of hand: the ability to navigate and manage those relationships effectively and efficiently. For every £1 in car exports from the UK, 44p is spent on importing foreign parts. Some 24% of all imports from the EU are from the car industry. That is at stake when we suddenly rip up the rules under which that relationship happens.

The car industry is not alone. In 14 different sectors, at least 15% of the supply chain is dependent on the European Union—dependent on not having the kind of customs tariffs we are talking about and on having frictionless trade. That is true of some sectors much more than others. In the paper industry, 71% of the supply chain is dependent on the European Union. In the rubber and plastics industry, the figure is 69%; in pharmaceuticals, it is 66%. That is why we know that leaving the customs union will cost us £25 billion. These new tariffs alone will add at least £4.5 billion a year to importers’ costs—money they can ill afford to spend.

Then we get on to the practicalities—this is not just about the money that being part of the customs union and the single market helps us to save. We will see delays at Dover because nobody has yet invented the technology that will allow this frictionless trade. When we talk about pre-lodging customs checks, we know that that means still more paperwork and more complexity in the supply chain. It is no wonder the car industry is desperate for us to continue our membership of the customs union. So too is the National Farmers Union; so too are the leading pharmaceuticals brands. Being part of the EU gives us access not just to markets in the EU but, through our free trade agreements, to a third of all global markets at preferential trading rates.

When we look at the case for the customs union and at what it gives us now, it is clear that this is not about nostalgia for the “Ode to Joy”; cold, hard business sense says that if we have a good way of working, why would we rip it up? But ripping it up is exactly what the Government are doing—for something that, 18 months on, they still cannot tell us will exist. [Interruption.] I am sorry to see that I have made the Ministers entirely leave the Front Bench by pointing that out, because I really hope that at least one Minister will be here to answer one of my concerns about this legislation and particularly about the VAT proposals.

We have all talked about tariffs and customs tonight, but I want to unmask myself as a geek interested in VAT. When I talk to small businesses in my local community, VAT is one of their prime concerns. [Interruption.] I am grateful to the Minister of State, Ministry of Justice, the hon. Member for Esher and Walton (Dominic Raab) for being here. I am particularly looking for answers on the 13th directive—I know it is something he knows intimately.

VAT is one of those issues every business will say is a nightmare. I never thought that Labour Members would be arguing for less red tape than Government Members were, but that is exactly what we are talking about tonight. Some 63% of small businesses say that Europe is their priority market. If we add to the paperwork they have to deal with by removing the customs union and the single market, we will of course make trading harder for them. Compared with the bigger companies, they do not have the flexibility that Ministers blithely suggest they have.

Currently, businesses incurring VAT in the EU are able to claim it back through intra-country mechanisms. If they sell printers to Sweden, and they incur VAT as part of that, they can claim it back—it is relatively easy. Specifically—I am sure the Minister will want to look this up—we are talking about articles 170 and 171 of Council directive 2006/112/EC—the prime VAT directive. The detailed rules are in Council directive 2008/9/EC, and they are in our legislation. These Ways and Means resolutions will therefore have to address this point. I am sad that the Financial Secretary to the Treasury is not here to hear it, because I have been raising it with him for some time. I can see that he is talking to his officials. I very much hope that in his concluding remarks he will finally be able to tell me the answer.

Right now, because we have the single market, businesses trading with Europe can reclaim their VAT and manage VAT relatively simply. If we leave the single market, they will have to move on to the 13th directive, which covers non-EU companies trading in the EU. The details of the 13th directive are clearly written to be advantageous to companies, saying that they can set their own VAT terms. Let us think about that for a moment. A UK car manufacturer trying to trade across Europe in radiators and the pieces and parts that make them will suddenly have to deal with VAT across 27 different countries, and 27 different pieces of paper. I am glad that the Financial Secretary is now here because he and I share a concern to remove red tape for our businesses to make sure that British businesses are not facing additional paperwork and additional complexity.

[Mrs Ellman]

Does my hon. Friend agree that the very serious problems for businesses that she is so ably identifying have implications for the whole of a local community? As companies get into great difficulties and jobs may be lost, that reduces spending power and affects the whole community and the services there.

[Stella Creasy]

I absolutely agree. This is the challenge that we face.

Eighteen months on, it is not unfair that businesses across the country are saying “What next?” and asking how they might adapt to whatever the final deal with Europe might be. Eighteen months on, none of us is any closer to being able to give them any answers. They do not need White Papers that talk about ambition and creativity in VAT proposals; they need clarity, because if they are going to have to learn new systems and have additional paperwork, and if there are going to be excessive delays in their imports and exports, they need to be able to adjust for it. The Government can say all they want about getting these ambitious deals, but they have to negotiate with 27 other countries that are quite happy with the relationships that they already have, perfectly satisfied with the intra-EU arrangements that they already have, and think that the customs union works for them. If we in this House want frictionless trade, if we want to make it as easy as possible for our businesses, big or little, to trade, and if we want them to have as little paperwork—digitised as it is—as possible, then the answer is the single market and the customs union. In 18 months, nobody has been able to come up with a better arrangement. I will wager that the same will be true in 18 months’ time.

Let us not leave British businesses hanging any longer. I am backing the amendment tabled by my hon. Friend the Member for Edinburgh South because I want to be able to go tomorrow to those businesses in my community that trade with Europe and say to them, “This is what it’s going to look like. You can plan ahead in your supply chain, you can buy ahead, you can do the deals you need to do, and you can invest.” I understand why they feel that they cannot do that right now, and it is my job to try to help them gain that certainty. That is why I ask other Members of this House to join us in voting for this amendment and giving this Government the message that Britain deserves better.

Tax Avoidance and Evasion

Stella Creasy Excerpts

Tuesday 14th November 2017 Commons Chamber

[Mel Stride]

The hon. Lady raises an important point.

There is an assumption on the Opposition Benches that nothing is being done about these various issues. The right hon. Member for Barking referred to an element of the “Panorama” programme on the Panama papers that described income that had been diverted overseas and then loaned back to individuals. That is known as disguised remuneration. She rightly asked what the Government were doing about such practices. Let me point her in the direction of the Finance Bill that has just gone through this House. On the matter of disguised remuneration, individuals will be given until 2019 to clear up those arrangements. Otherwise, they will pay a penalty. It is as simple as that.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Will the Minister give way?

[Mel Stride]

I want to make just a little more progress, as I am conscious of the time and the shortness of the debate.

In fact, we have brought in 75 measures since 2010 to clamp down on these practices. A further 35 will come in from 2015, raising £18.5 billion by 2020-21. One of the problems is that we have been so active in bringing in so many measures that, unfortunately, not all of them have been noticed. In last week’s debate, the right hon. Member for Barking raised the issue of taking action against those who promote tax avoidance schemes. Once again, she needs only to look at the Finance Bill—all 777 pages of it; it is very technical, and it will probably put her to sleep at night—in which she will find measures to deal with precisely what she was urging us to take action on last week. We have already done it!

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[Mel Stride]

Going after the tax gap is exactly what this Government are doing, and we have an exemplary record. We have the lowest tax gap in the entire world. It is the lowest in history—far lower than it was under the last Labour Government. The hon. Gentleman asked a specific question about tax officers. We need to move towards an HMRC that is ready and equipped for the 21st century. That does not mean a large number of scattered offices; it means hub offices with the necessary staff and technical skills to facilitate the transfer of knowledge and understanding in order to move forward.

[Stella Creasy]

rose—

[Mike Amesbury (Weaver Vale) (Lab)]

rose—

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[James Cartlidge]

I do not want to go global in my answer as I am talking about the general position in the UK property market, but it is undoubtedly true that a sense of great unfairness now pertains. Prices have risen so sharply and beyond the means even of those on relatively high incomes—let alone modest ones—particularly in London. Young professionals can be on £100,000 and still struggle to get on the ladder in significant parts of the capital. But it is not just about London. My constituency of South Suffolk and those in the counties around London know that the ripple of high prices in expensive areas comes out many miles—[Interruption.] The hon. Member for Na h-Eileanan an Iar (Angus Brendan MacNeil) is shaking his head, but many people move to my constituency because of the sheer cost of living in London.

[Stella Creasy]

The hon. Gentleman is talking about property prices. He just mentioned the Government’s decision to close the loophole whereby foreign owners of residential properties were avoiding capital gains tax. Does he regret not joining with the Opposition to close the loophole regarding commercial properties? That is having exactly the same impact on the property market.

[James Cartlidge]

It has to be said that the commercial sector is one area that has been much weaker since the Brexit vote, but the main issue of fairness from the point of view of taxpayers and first-time buyers relates to residential property. Making changes to tax is about not just tax avoidance, but about provisions such as the higher stamp duty we now levy on second-home ownership and properties purchased to rent out. The key point is that those measures have had a huge impact in supporting first-time buyers.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

May I start by joining Members on both sides of the House who have congratulated my right hon. Friend the Member for Barking (Dame Margaret Hodge) on bringing this important debate? I also congratulate all the journalists involved in this investigation.

In my short contribution, I hope I might elicit from the Minister a modicum of regret for some of his recent actions. What we need to talk about today is tax avoidance, and, if I can, I want to take on the challenge put forward by the hon. Member for Morecambe and Lunesdale (David Morris). What precisely is the issue with these offshore companies? More specifically, why would anybody hold UK property and UK entities overseas?

When we look at those questions, these papers raise two clear issues for us. First and foremost, there is the case for transparency, and I want to use the example of private finance initiative companies to show why that is a problem. Secondly, there is the case for addressing the loopholes that this evidence has highlighted for us, which the hon. Member for Amber Valley (Nigel Mills) set out.

[David Morris]

Will the hon. Lady give way?

[Stella Creasy]

I will not give way at this point, because I have only two minutes left.

Nine offshore infrastructure companies own between 50% and 100% of the equity in 335 PFI companies, which account for 45% of all projects. Twelve companies have equity in 74% of all current projects. At this point, we do not know what tax is being held overseas as a result—tax that was part of the PFI value-for-money assessment. These papers reveal how that happens. Secondly, on avoidance of capital gains tax, these papers reveal that Blackstone avoided stamp duty and capital gains tax on UK commercial property to a value of around £66 billion.

These are all choices. At the end of the day, we know that the lawyers involved are like water moving towards the sea—they will follow the easiest route. The problem here is politicians, not lawyers.

[Bambos Charalambous]

Does my hon. Friend support country-by-country reporting, which will help some of the most deprived parts of the world?

[Stella Creasy]

Absolutely, and I concur with all those who have raised that.

We can take action in this House. Specifically, new clause 2 to the Finance Bill—as my right hon. Friend the Member for Don Valley (Caroline Flint) said, many of us brought forward proposals—looked at the tax loophole relating to capital gains tax on commercial property. I will take no lectures from Conservative Members about how wonderfully this Government are doing on tax avoidance, when, just two weeks ago, they voted down a measure that would have brought in £6 billion a year to our Exchequer and given British businesses a level playing field. The Paradise papers show exactly why there is a problem, and I have mentioned £66 billion of capital gains tax and stamp duty that we are not getting because companies are registered overseas.

Nor will I take lectures from the Minister about loans, given that he passed in the Finance Bill a measure to reduce the share relief that PFI companies can claim on their loans. Those companies own millions of pounds’-worth of our public sector, and are able to trade off the interest that they pay on those loans in overseas companies, but the Minister has just passed an amendment that will make sure they do not even have to pay any tax on that. Those companies can comfortably be held overseas so that we will not even see what is happening.

In the minute I have left, therefore, I want to make some simple proposals. As my hon. Friend the Member for Enfield, Southgate (Bambos Charalambous) said, we absolutely need a public register. However, we also need a moratorium on all public investment in these companies until we know precisely what tax we are missing, and until we can be confident that these offshore companies are not milking the British taxpayer twice—by not paying their taxes and by getting us to pay them through PFI and public infrastructure investments. We must also close the loophole on capital gains tax on commercial properties as a matter of urgency. Nobody who faces cuts in their public services can allow that to continue for a second longer.

Finally, we need to rethink the decision to give PFI companies the tax relief that the Government have just given them. I hope the Minister regrets his actions, because, frankly, this is not about the Paradise papers; it is about parasites bleeding money from our public sector.

Paradise Papers

Stella Creasy Excerpts

Monday 6th November 2017 Commons Chamber

[Mel Stride]

My hon. Friend is absolutely right. The diverted profits tax works every day of the week. It works where HMRC has to step in and sort out the companies that fall foul of it, but it works even better than that: it prevents and deters many, many companies from behaving in an inappropriate fashion.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

The Minister says that HMRC is now seeking to investigate this matter. Ahead of the Budget, when I suspect the Government may wish to make some public spending commitments, will the Minister commit to a moratorium while this matter is being investigated on any public contracts going to companies that have offshore trusts?

[Mel Stride]

I am not going to get into the business of providing moratoriums on any particular matter at the Dispatch Box, tempting though the hon. Lady’s suggestion may be. That is not a path I am going to go down.

Finance Bill

Stella Creasy Excerpts

Tuesday 31st October 2017 Commons Chamber

[Stella Creasy (Walthamstow) (Lab/Co-op)]

As it is Halloween, I rise to give the Minister a fright, because if he thinks he is going to get away without properly examining new clause 2 and the benefits that it could bring to our country and British business, he is in for a trick-or-treat moment. There are certainly ghosts that haunt our politics—[Interruption.] I am disappointed to see you being so slow, Mr Deputy Speaker—[Interruption.] That is certainly very spooky.

As I said, there are ghosts that haunt our politics, so I start my speech by putting on record my thanks to the former Member for Tatton, George Osborne, for inspiring new clause 2. Indeed, I noted that the Minister referred to his work, too. These were the words of the former Member for Tatton in 2015 when the then Government brought in the first rules around tax and non-doms:

“It is not fair that non-doms with residential property here in the UK can put it in an offshore company and avoid inheritance tax.”—[Official Report, 8 July 2015; Vol. 598, c. 325.]

By using those words, the former Chancellor raised two important issues: first, the fairness of our taxation system and, secondly, how it extends to foreign ownership. He was absolutely right to introduce those measures, but what we are talking about today is the necessary and inevitable conclusion of that debate: what we do when people raise issues about fairness and foreign ownership. The new clause answers that call because, frankly, it is not fair that British businesses have to pay corporation tax on their capital gains when they sell commercial properties, but overseas businesses trading in the UK in UK-based property do not.

It is not fair that we are one of the few countries in the world to treat its businesses in this way and let foreign companies off the hook—all those real estate investors who some might feel donate so much else to some in this country, but who do not pay their taxes. As the previous Chancellor argued, people can put property into an offshore company to avoid tax.

If the Minister’s main objection to the new clause is the way in which I have described the domicile of these people, he ought to think again. Certainly, he ought to do as I did today and google the term “tax efficient Jersey UK real estate”, because when he does and he sees the advice being offered to non-resident companies, I suspect he will find it galling. He will find companies including BNP Paribas Real Estate, Ogier, Bedell Cristin and Hawksford boasting about how UK real estate investment trusts based in Jersey but listed on the international stock exchange do not pay the same rates of stamp duty as those resident in the UK, and do not pay capital gains tax. Indeed, the International Stock Exchange itself states:

“we have pragmatic listing requirements for this product”.

That simply means that the businesses involved get to avoid the same charges that our British businesses have to pay. We as British taxpayers should be asking why any company is using such a model—why such companies are given these listings and are able to buy and sell UK property in this way—because it is very hard to see what the justification is, and why we make it so easy to exploit this loophole when there is tax on residential property sales, but not on commercial properties.

The former Chancellor boasted in 2015 that making non-UK-based people pay capital gains tax on their residential property sales would raise £1.5 billion over the course of this Parliament. The purpose of the new clause is to tell us just how much closing this loophole would raise, and just how much these companies are making through such behaviour.

Sadly, because the Minister was so determined to get through his speech so quickly, I did not hear the number he came up with. I certainly find it striking that HMRC does not know how much money is missing, but in the spirit of this cross-party measure, let me offer the House some of my own figures.

The British Property Federation says that there is about £871 billion of commercial real estate in the UK, which represents 10% of our nation’s entire wealth. That is a hugely important market in its own right, but how we buy and sell commercial property also affects our residential property market, as it has an impact on the price of land. For those of us who represent constituencies where house prices are exorbitant, to say the least, tackling the overheating in our property market would be a very noble thing to do. I believe that we would get support for that from both sides of the House.

We know that about 20% of commercial real estate is sold every year, and that it was worth an eye-watering £115 billion in 2015—that is the figure the taxman knows about. We also know that about 30% of commercial property in the UK is held in these offshore trusts and companies. For those who are fans of “Countdown” and want to see how I have done my homework, I have done my sums assuming an 8% increase as the long-term trend rate for commercial property prices. Working on that assumption, if about 20% of that property is sold and the current 19% rate of corporation tax is used, there would be about £11 billion of taxable gains every year. It is therefore not unrealistic to expect that around £6 billion of taxation could be collected.

[Jim McMahon]

We are told time after time that we should live within our means and that our public services will pay the price if we do not, so is it not the case that the first thing we should do is to maximise our means?

[Stella Creasy]

Spoken like a true former local authority leader who has had to deal with the consequences of Government cuts!

This is about the question of fairness that was put forward by the former Chancellor. None of this is illegal. We might consider it immoral, but it is certainly not illegal, and none of it is captured by UK anti-avoidance rules. The Minister is not being open about companies that might include UK residents who have their properties held offshore. This is unfair to UK businesses. I understand that at present there is concern about economic policies and a dangerous air of radicalism in British politics. Let me reassure Conservative Members who might feel frightened about supporting this measure to close the loophole, and fear that it could be a radical socialist policy—I happen to think that it could be—that this is simply a question of fairness.

This is also something that most other countries do. Canada, Australia and the rest of Europe do it, so the new clause would bring us into line with them. Indeed, the OECD model double tax treaty explicitly preserves the right of countries to tax non-residents on their capital gains from the disposal of local real estate.

The Bill itself brings in anti-avoidance measures relating to inheritance tax and to holding property through non-UK companies. That is why it is difficult, having listened to the Minister in Committee, to understand why this particular proposal has been put into the “too complex” category. In Committee, he voted against a similar provision because he argued that it was just too complex, while admitting that the rules introduced in 2015 were designed to catch individuals holding a title over a dwelling in a trust or a closely held company. He argued against the proposal because he said that it would require what he considered to be a whole tax code. My problem with the Minister’s saying that this is too complicated is that it places him and the British Government in a special category. If most other countries can get their heads around how to tax non-resident companies’ capital gains on commercial properties, I simply fail to understand why it is beyond the wit and wisdom of the UK Treasury to do so.

My hon. Friend the Member for Oldham West and Royton (Jim McMahon) has mentioned the human impact of this situation. The Institute for Fiscal Studies tells us that the Chancellor has black hole in his budget of £20 billion and rising, and that is before we even consider the cost and impact of Brexit. If my estimate is right that closing the loophole would raise £6 billion every year, that money would pay for the entire public health budget helping people with diabetes and heart disease. It would cover restoring nursing bursaries and keeping open our police stations that are currently destined for closure. It would entirely cover the cost of a public sector pay rise in line with inflation—that is according to the IFS’s figures, not mine. When reports tell us that the Government are so short of money at a time when a Budget is coming up, “Is it fair?” and “Can we afford not to do this?” are two important questions for British taxpayers.

I disagree with the Minister, but if he is worried about the drafting of new clause 2, I would support his tabling an amendment to address the use of the term “domicile”. Even if Government Members are worried about the detail, new clause 2 simply looks at the numbers, so it would give us some information. HMRC does not know the amount that we are missing out on as a result of this loophole. The Minister mumbled something about OBR figures, but I have done my own calculations and we are not talking about small change. This money could have a tangible impact on our public finances now.

I am sad that the hon. Member for Dover (Charlie Elphicke) is not in the Chamber because he chided my hon. Friend the Member for High Peak (Ruth George) in September about a lack of action on loopholes. This proposal has cross-party support, so I would love Members from both sides of the House to recognise that when we see something that is unfair and costs us billions of pounds, we can act quickly. I am sure that the Minister will be given an opportunity to respond to the debate, so if other countries can do this, if British businesses are suffering unfairness, and if our public services desperately need the cash, will he think again? He says that he keeps the tax situation under review, so if he will pledge to publish a specific review of capital gains tax on commercial properties, I will happily not press the new clause to a Division.

British taxpayers have a right to know how much money is leaking out of our system as a result of the loophole. I would wager that many MPs will be lobbied by their constituents about closures in their community, public service cuts and struggling businesses, and by people who cannot afford their own home due to the overheated property market. Those people will want answers, so I look forward to what the Minister has to say. When we were young, we were all told that money does not grow on trees, but in this instance the roots are overseas, and it is up to the Minister to pull them up.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call the Minister.

[Mel Stride]

It is pleasure to appear before you for my second appearance, Madam Deputy Speaker.

To pick up quickly on a point made by the hon. Member for Aberdeen North (Kirsty Blackman), digital exclusion is covered in clause 62, which provides that the digital exclusion condition is met if

“for any reason (including age, disability or location) it is not reasonably practicable for the person or partner to use electronic communications or to keep electronic records.”

That is the test, and the Bill contains powers to allow HMRC’s commissioners to bring in further grounds for exclusion as the measure is rolled out and we see how it operates.

I see that the hon. Member for Walthamstow (Stella Creasy) has been on her phone and has already tweeted that I have rejected her advances in this debate, but I am now at the Dispatch Box trying to make my points. She makes her points powerfully and raises an important issue, as I signalled earlier, but she has to accept that new clause 2 would not actually do what she would intend it to do. It confuses non-doms with residents, which is the critical distinction, and would classify companies as being non-domiciled, which they cannot technically be. This is a complicated area about which we had an extended debate in Committee, but I have made it clear that we will continue to consider it. We take on board the general thrust of what the hon. Lady wants to achieve.

[Stella Creasy]

I make it clear that I am not making advances to the Minister; I am making arguments to him. Let me ask him one simple question: if this is so complicated—if it seems that the UK Treasury cannot do it—why can most other countries operate without a loophole?

--- Later in debate ---

[Mel Stride]

It is not a question of publishing information on every area we look into, but I have made it clear that we are seriously considering the issues that have been raised. I have also made it clear that new clause 2 would not do what the hon. Member for Walthamstow describes.

[Stella Creasy]

Will the Minister give way?

[Mel Stride]

I will give way one last time. We went through this at considerable length in Committee.

[Stella Creasy]

I disagree with the words “at considerable length.” I am grateful to the Minister for trying to explain what I am attempting to do. For the avoidance of doubt, the Opposition are asking that British taxpayers and businesses who are paying this charge know exactly what other companies are getting off paying. He tried to mention something from the Office for Budget Responsibility and he clearly has some figures in his head for how much the loophole is potentially costing the British taxpayer. Will he repeat loudly and clearly what he thinks the number is and where he got his evidence?

[Mel Stride]

As I have said, we are looking at this and we will continue to do so. I have carefully considered the points raised by the hon. Lady both on Report and in Committee, and I think I have a clear understanding, as she does, of what she wishes to achieve.

New clause 2 would not do what the hon. Lady intends. I hope that she will take some comfort from my assurances about our looking at this matter and that she will not press the new clause to a Division. Whether or not she does, I urge the House to reject the Opposition amendments and new clauses.

Finance Bill (Sixth sitting)

Stella Creasy Excerpts

Committee Debate: 6th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

Brought up, and read the First time.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

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

It is a pleasure to serve under your chairmanship, Mr Walker. I am conscious that several members of the Committee may wish to take part in the emergency debate on universal credit—a subject close to many of our hearts—so I do not intend to speak for a long time. However, we ought to get value for money out of these Committee sittings and, indeed, this Bill, so I hope that my new clause gives the Government some ideas about how we can solve the pressing problem of the public finances and the lack of funding.

Government Members often argue that Labour only wants to spend money, but my proposals very much seek to save money for the country. Indeed, they present a way to protect UK taxpayers and British businesses, generate potentially billions for the Exchequer, and address the pressures on the housing market. I am sure that none of us would want to lay claim to the magic money tree, but I believe that my new clause would provide for a concrete cash cow in which the Government could invest, and I hope to convince Ministers and Government Back Benchers to support it.

The new clause relates to a proposal by the previous Chancellor of the Exchequer—I am not sure how many jobs he has now, but he is currently the editor of the Evening Standard—about the way in which capital gains tax was applied to property sales.

[Kelvin Hopkins]

I am interested in the former Chancellor and how many jobs he has. It is particularly interesting to learn how much he is being paid for those jobs.

[Stella Creasy]

I am afraid that I do not have that figure to hand, but I do have figures relating to the amount of money that the new clause could raise for the public Exchequer. I hope that my hon. Friend will be as pleased with and as interested in those numbers as I am.

Historically, only UK residents or those with a permanent UK base have been subject to capital gains tax. In April 2013 that was changed to include the disposals of UK dwellings owned by non-resident companies, partnerships and collective investment schemes, which were subject to an annual tax on enveloped dwellings. In April 2015 that was extended to all non-UK residents disposing of UK residential property, and the critical point is that that was about residential property. The argument that non-doms should be paying capital gains tax on the disposal of property was put forward by the previous, and indeed current, Government. The question is: why did they make it apply only to residential properties? As I hope to prove, that has created a loophole through which some people have chosen to put their properties.

We are talking about a rate of tax that is between 18% and 28%, or 20% for corporates. The standard OECD double tax treaty expressly preserves the right of countries to tax non-residents on capital gains from the disposal of local real estate. Many of us will have seen at first hand in our communities the impact of this country’s over-inflated housing market and the connection between the residential and the commercial property market. The Adam Smith Institute reckons that there are 1 million non-doms in the UK, although only 110,000 are declared. Those people are part of our communities, but they are benefitting from an advantageous tax position because of this loophole.

The Bill tries to address issues relating to inheritance tax and holding property through UK companies, so the Government are interested in where people might be using companies to avoid paying tax. Indeed, that is one of the debates that we have been having. The new clause addresses another issue, which is the ability to designate a property as a commercial property to avoid paying the residential charge that this Government introduced in 2015. We know that that is hitting UK companies competing with non-UK companies. In tabling this new clause, I am making a plea to the Minister to be on the side of British businesses that are being unfairly treated in our tax system. We know that people set up property holding companies to avoid those charges. By changing the loophole, we would be able to apply the charge fairly across the board. Indeed, it has to be asked why anybody would hold UK real estate through a foreign company except for tax purposes.

The Minister might say that this about a competitive tax advantage for the UK. Let me reassure him that almost nowhere else in the world exempts foreigners from tax on selling real estate. By closing the loophole, we would simply bring ourselves into line with Canada, Australia and indeed the rest of Europe. The Minister may claim that there are anti-avoidance rules that would take precedence, but if a non-resident company operates in the UK through a UK permanent establishment, the disposal will be subject to UK capital gains tax. That is not the requirement we are talking about; we are talking about organisations that hold property in the UK through offshore companies and designate that property as commercial property. It is the difference between the residential and the commercial that we need to deal with in terms of this loophole.

--- Later in debate ---

[Ruth George (High Peak) (Lab)]

Does my hon. Friend think that the definition of commercial properties would include properties that were previously residential, such as those in my constituency in the Peak district? They were residential homes, but they were sold to owners who live outside the area and are now used primarily as second homes, although they are rented for a very small number of weeks during the year. That has turned them into commercial properties, severely depleting the number of homes available to local people, particularly in rural areas of outstanding natural beauty.

[Stella Creasy]

My hon. Friend has shown how simple it is to evade the tax by avoiding the loophole—the previous Chancellor tried to close it by ensuring that non-doms paid capital gains tax on the sale of residential property—simply by repurposing a building as commercial property. Even given the rules on closed companies in existing legislation, people can get around the charge. I am suggesting that the figure could be as much as £8 billion. I certainly think that at least £1 billion of public revenue could come from closing the loophole and simplifying the way we treat non-doms with capital gains tax. The Minister may have a different number, but the point of the new clause is to get the number.

The Bill is about how we manage public finances. Giving this tax loophole to non-doms means that our British businesses are unfairly treated and our property market faces artificial pressure. We are missing out on vital funds that could go into our public services. The new clause is not a magic money tree; it is a concrete cash cow. If the Minister will not agree to publishing the data, will he commit to looking at how we can close the loophole?

[Mel Stride]

New clause 2—I think it is now known as the concrete cash cow clause—provides us with an opportunity to discuss the rules surrounding UK commercial property and those who are foreign-domiciled. As the hon. Member for Walthamstow explained, her new clause would require HMRC to review the taxation of capital gains on commercial property disposal by UK taxpayers with a foreign domicile.

There is no question but that all UK residents, whether UK-based or non-domiciled, are chargeable for tax on profits from selling UK land. That includes non-domiciles who are taxed on a remittance basis, where foreign income and gains are taxed only when they are brought into the UK. Our tax base is predominantly those who are resident in the United Kingdom. As the hon. Lady has drawn to our attention, recent changes removed non-residents into the UK tax base for the sale of UK residential property. The new clause raises the fact that that treatment does not extend to non-residents for the sale of commercial property in this country. While I understand why she suggests that extending the laws would raise revenue, I should point out that this is a very complex area, which needs to be carefully considered.

The 2015 rules were designed to catch individuals and ways in which a person may hold title over a dwelling such as via trusts and closely held companies. They do not apply to companies with lots of shareholders. The structures that are used to own commercial property are different from residential property, often more complex and involving corporates, joint ventures and specialist property vehicles. We would need rules that address such structures and get to the heart of the ultimate owner.

Will the hon. Lady consider this illustration? I might live in Canada and own 50% of a home in Walthamstow. I might easily conceive, if I did not know for sure, that selling my part of the house in the UK would mean paying some UK tax. However, imagine instead that I own a handful of shares in a fund of some kind, which in turn owns half an office block in Walthamstow. Being such a minor shareholder, I may not even know how my money is invested. To send the tax man chasing round overseas for the little shareholder in a commercial building would hardly be cost-effective. We would need to design balanced rules that look at how the market works and what would yield the Exchequer the best return.

Extending the current rules to include any UK property is not a simple matter of striking through “residential property” and inserting “all UK property” into the current provisions, as this would not take into account the intrinsic differences in the way that commercial properties are owned and dealt with.

[Mel Stride]

The point I was trying to make was not so much whether one classified a property as residential or commercial. My point was that where it is commercial, the ownership arrangements can be so complicated that this kind of approach is far from simple.

[Stella Creasy]

I think the Minister is making a strong case for the new clause and providing the data. He may want to update his colleagues on the fact that the closed company model is five or fewer participants. Were there to be six participants, that would extend the limitations he is talking about. I also want to ask him, now that we have the residential rules in place, whether he will commit to publishing how many properties that were previously cast as residential are now categorised as commercial use since that legislation came in. We might begin to get an understanding of whether people are using this loophole to evade the capital gains tax to which we are entitled.

[Mel Stride]

I am certainly happy to look into the issue of what data are available that might reasonably be released for those properties that might have changed from residential to commercial. My point is that the existing rules for residential property involve, for example, consultation with external experts over a period of two years. They are arguably, for reasons that we have been discussing, more simple and straightforward than the arrangements that would need to be in place for a commercial property situation. To ensure that legislation works effectively, HMRC would be able to collect taxes from overseas taxpayers.

The UK commercial property market is even more complex and inextricably linked to many other markets and investments both in the UK and overseas. Bringing non-resident companies into these rules would bring with them a whole tax code for corporates, which would need to be considered and applied consistently in the context of someone who may have no other UK tax footprint.

Of course, there are existing exemptions and reliefs for the UK investor that would need to be considered to see whether and how they might apply to an overseas equivalent and whether such exemptions could be used to undermine the idea as a whole. Any change to further broaden our base would require consultation with the public, tax experts and affected sectors, particularly those involved with funds and pensions, to ensure they were clear, enforceable, robust to avoidance, and achieved their intention. I assure the hon. Member for Walthamstow that we keep all taxes under careful and continuous review to ensure that the tax system works effectively for the taxpayers of this country.

[Stella Creasy]

Again, the Minister makes a compelling case for the new clause, which would enable exactly such an information-gathering exercise. As he points out, this may be a complex area. I note, however, that the Bill deals with overseas companies and their inheritance tax positions. I fail to understand why Ministers accept that we need to address the use of commercial entities to avoid inheritance tax but do not accept that we need to address their use to avoid capital gains tax. Will he say a little about that?

[Mel Stride]

As I have said, I assure the hon. Lady that we keep all taxes under careful review to ensure that the tax system works effectively for the taxpayers of this country. I favour that, rather than requiring HMRC by statute to conduct reviews, as the best way to develop tax policy. I heard what she had to say about those taxes, and I will certainly consider the questions that she raised, but I urge the Committee to reject the new clause.

[Stella Creasy]

I am afraid that I am not satisfied that the Minister has made a strong enough argument against his own argument that this is a complicated area in which we need information. The new clause would not commit the Government to closing the loophole; it would simply start the process of asking how much the loophole costs us and recognising that, where we create a category for one type of property and people can apply it to another, that may generate a loophole that is exploited to the detriment of the UK taxpayer. With that in mind, and in full support of the British businesses that are being penalised as a result of the Government’s failure to address that loophole, I wish to test the will of the Committee on this matter.

Question put, That the clause be read a Second time.

Finance Bill (Fifth sitting)

Stella Creasy Excerpts

Committee Debate: 5th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[Kirsty Blackman]

I appreciate the Minister’s point. In an earlier sitting, he mentioned the positive timelines when people phone HMRC for advice; apparently the phone is answered very quickly. I get that he says the statistics show that, but people are walking into my surgeries and into my constituency office saying that they have tried for hours to phone HMRC and have really struggled to get through. Despite him saying that the statistics show one thing, the lived experience of my constituents is very different. That is why I have these concerns, and even if one person or a handful of people cannot get through on the phone and fill in their form on time because they are not able to answer the question, it is a concern. I implore the Minister to continue working on call times and to ensure that, when people phone, they get through as quickly as possible and that the calls are answered, and that the advice provided is correct so that people can make the correct choice, particularly with online forms.

Labour Members have tabled a number of amendments to the clause. We were clear in the SNP manifesto that we supported a phased move to digital reporting, so what the Minister has proposed is now much more in line with what we were thinking. I ask that Labour Members, in speaking to the amendments, explain why they chose 2022, and I will make a call after that on whether we think supporting them is relevant. One Labour amendment suggests that we should not move towards digital reporting, which would be a concern for us because our manifesto commitment was positive about digital reporting. I look forward to hearing the comments from the Opposition and the Minister.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

As ever, I am eager to serve under your chairmanship, Mr Howarth. I come to the Committee with a series of amendments on what digital reporting might offer us to resolve some of the challenges faced by employers and employees in our country. There are two issues in particular, which I will come to in turn, because as ever with the Finance Bill, they are technical.

First, I will deal with the treatment of the lowest-paid staff in our country—Office for National Statistics data show that, of all low-paid people, waiters and hospitality staff get paid the least—and what we can do to help them with their incomes. Secondly, I will look at how digitisation could help us to address compliance, which is one of the biggest issues for small businesses. To prefigure the Minister’s comments, I know he will say that that is for another Bill, but given how important it is for the systems to work together, I think this is an issue for this Bill. I hope he will bear with me.

I turn first to amendments 7 and 8—amendments 8 and 39 are identical—which concern the treatment of waiters and hospitality staff. Many Members may be familiar with campaigns on the treatment of tips, service charges and gratuities and with evidence showing that some employers were using those to top up people’s wages and to avoid paying the national minimum wage. Members might therefore be relieved that legislation was brought in to prevent that, but it has become clear that many employers still use tips, service charges and gratuities to avoid paying their staff properly. The amendments go to the heart of how we can address that.

In particular, Members might not be aware that people are supposed to pay tax and national insurance on their tips. If an employee is paid their tips through a tronc, where their employer collects the money usually using an online system, which is what we are debating today, the employer is supposed not only to pool the tips and share them out—after all, I think we would all recognise that as well as the person who serves a meal, the people who work in the kitchen deserve recognition of their work—but to check that the employee has paid national insurance and tax.

--- Later in debate ---

[Stella Creasy]

Yes, that is the concern. There is a lot of evidence that the exemption, which lets staff run their own tips scheme—it is like staff in a small café sharing the money in the jar, but across a large restaurant chain—is being used by major employers to avoid paying national insurance and, indeed, pension obligations further down the line, especially given auto-enrolment.

Another issue to which the amendments relate is the variations in charges that employers apply to employees for administering such schemes. Some restaurant chains will pass on 100% of the tips paid to a member of staff, while others will charge up to 20% in administration fees for doing it through an electronic system. Clearly, that is not fair and I warrant that customers have never had a restaurant explain to them how much they will charge the employee to pass on the tip that customers want to give them. The amendments are designed to help us understand what is going on.

I hope that the Minister will have strong words with his colleagues in the Department for Business, Energy and Industrial Strategy, because if, as we fear, a tax take is being avoided and the lowest-paid people in our country are being exploited as a result, surely we all agree that we need to do something about that. That is why I tabled the amendments. Indeed, 18 months ago, many of us took part in a Government consultation on precisely those issues—that is, how to ensure a fair system for administering tips, service charges and gratuities. I have to tell the Minister that, 18 months on, the Government have not even published the results of that consultation, let alone looked at what could be done to make sure that neither the Exchequer nor the employer is being short-changed.

The Bill offers the Minister an opportunity to make progress on an issue that his ministerial colleagues have kicked into the long grass. If we are digitising records, we can ask employers to clarify precisely what is being collected in tips, service charges and gratuities, and what is income. The amendments address exactly that point: they simply propose that an employer should record the different forms of income—with electronic systems that should be a relatively easy thing to do—and an employee would then be able to access that information.

That is important because if someone is self-employed and working in restaurants—my colleagues from north of the border have mentioned people administering their own tax records—they ought to know what their liabilities are. At present, however, someone who is part of a tronc system does not necessarily know what they are being paid in tips, gratuities and service charges. These simple amendments ask the employer to set out precisely the different streams of income, which their computer systems will easily collate for them, so that our tax system acts more efficiently.

If the Minister is not prepared to accept the amendments and acknowledge the need to make progress—we are, after all, talking about the poorest-paid employees in our country—will he commit to asking his ministerial colleagues in BEIS why it is that, 18 months on, when so many people have provided information about how we could solve the problems, nothing has happened? Indeed, I have regularly asked when the consultation results might at least be published, but the answer has always been, “Sometime in the future.” I am sure that the Minister would agree that the people who serve him a cup of coffee in a restaurant deserve better service from us in making sure that they are not exploited.

Amendment 10 relates to an issue that has come up very little in this Committee—we should correct that—namely the Japanese knotweed that is Brexit, which has taken up so much of our time. I appreciate that the Minister will say that the amendment is not needed because he has published a White Paper on how customs and VAT should fit together. However, having read that White Paper, I must draw attention to an omission from it.

I am sure that Government Members will judge me because I have become slightly obsessed with things such as the 13th directive on VAT, and I am sure they would all like to do a pub quiz on it too. Normal VAT rules allow that businesses registered in the UK can recover UK VAT. People understand that: for most businesses, VAT compliance is one of their biggest pieces of work. The issue with the 13th directive, which the amendment addresses, is the question of what happens when businesses trade in Europe. After all, Europe is still the primary market for the vast majority of businesses: 63% of members of the Federation of Small Businesses have said that Europe is their priority market. That means that if a salesman goes to Sweden and stays in a hotel, the hotel might charge VAT and there is no way that that business would be able to deduct Swedish VAT on its UK VAT return. At the moment, however, under the single market procedures, there is a process by which foreign VAT can be recovered directly from the country in which it was incurred.

For those Members who are VAT geeks, that provision is in articles 170 and 171 of Council directive 2006/112/EC, the prime VAT directive. I will, of course, pass that detail on to Hansard. The detailed rules are in Council directive 2008/9/EC. That is implemented in our own domestic legislation, in section 39 of the Value Added Tax Act 1994 and regulation 20 of the Value Added Tax Regulations 1995. In practice, that means that each European state is obligated to make a VAT refund. Obviously, there are rules on that, but it works pretty straightforwardly through an online electronic system, which is why it is relevant to the charge under discussion. I can see the Whip wondering where I am going with this, but there is a direct connection.

A similar scheme applies across the EU to businesses that are not established in the EU. That is the 13th VAT directive, which is implemented by section 39(2)(b) of the 1994 Act and is a more complicated system. The amendment is simple. When we leave the EU, we will no longer be able to rely on the simplicity of the intra-country VAT collection scheme that has helped businesses in Britain to trade and provide services, particularly in Europe. We will, therefore, need to move to the 13th directive, or we may move to something else. The customs White Paper, for instance, mentions an “innovative” scheme, but I am pretty sure that other countries, for which the intra-country scheme works well, would not be particularly willing to undertake such innovation. I think they would be happy for us to move to the 13th directive.

I am concerned that there is a lot of evidence that the 13th directive and its administration is not very effective for countries outside the EU. In particular, the 13th directive states that member states must refund VAT to foreign traders. It also states:

“Member states may make the refunds…conditional upon the granting by third states of comparable advantages regarding turnover and taxes.”

One could argue that the Bill’s introduction of an online electronic system provides a comparable advantage, but my amendment asks the simple question being asked by many businesses, including local businesses in my constituency, which are starting to panic about how they will manage their VAT returns in future. How will the proposed electronic scheme fit in with regard to both the current regulations relating to intra-EU VAT refunds and the 13th directive?

Having looked at the Minister’s document, I am concerned that, although it talks a lot about what the UK will do, it does not talk a lot about the 13th directive and what it will mean for British businesses. Page 19 refers to contingency in case there is no deal—of course, we all know that that is a sensitive question for the Cabinet—but what British businesses need to know now is, if they are going to continue to trade in Europe, how they can do that in a cost-effective and red-tape-free way?

One of the more bizarre elements of Brexit is that we seem to be arguing about red tape as though the other side wants more of it, and those of us who wanted to stay in the European Union are bad for wanting less of it. This issue is a great example of that challenge, where being part of the European Union had simplified a process for British businesses. A quarter of FSB members have said that the introduction of any tariff or complication with trading with Europe would put them off trading altogether. We need this Bill to match what is going to happen in future, so that businesses using an online system will not have to change it very quickly as a result of the rules of the 13th directive implemented by other countries making it harder for them to use.

If the Minister will not accept my very simple amendment asking him to set out just how this Bill will impact on the 13th directive, will he commit to discussing with British businesses what the directive might mean for them in terms of VAT compliance and recouping their costs, and what the consequences for them will be in terms of administering the scheme? All small businesses in our constituencies that are looking at that future trading relationship will want to know how much additional paperwork they are going to get, and they deserve an answer.

[Peter Dowd]

I will to speak to clauses 60 and 61, schedule 14 and clause 62 together, as they represent a package of measures that would introduce powers and regulations surrounding digital reporting and record keeping for both VAT and income tax.

The Opposition’s concerns about the Government’s plans for making tax digital are well-versed. We raised them on Second Reading of the March Finance Bill, before they were dropped, and raised them again in the debate on the Ways and Means resolution for this Bill, as well as on its Second Reading. We fully support digitalised tax reporting, which we can all agree has the potential to drastically reduce the amount of time individuals and business owners will have to spend filling out long and complicated tax returns. We could also free up some of HMRC’s time, so that it is better spent clamping down on tax avoidance.

--- Later in debate ---

[Stella Creasy]

I am a little surprised, given that we have presented evidence today that tax may be being avoided by using HMRC’s E24 guidelines, that the Minister says that we have to wait. We have been waiting 18 months for the consultation even to be published. If he will not accept the amendments today, can he just tell us how long he is prepared to wait and how many people he is prepared to see exploited by the regulations before the Government act?

[Mel Stride]

I thank the hon. Lady for what is a slightly loaded question, if I may say so. I am certainly not prepared to wait for abuses of any kind, but I am prepared to wait, and it is right to wait, for a deep and considered consultation, as opposed to a short debate in the context of the Finance Bill. That is the critical point to bear in mind on this matter.

The clauses before us provide for making tax digital for business. That concerns the way in which businesses record and report their tax liabilities. The hon. Lady made some powerful points about the treatment of service charges, but I believe that they would be better pursued through the Department for Business, Energy and Industrial Strategy. It has responsibility for this area and is best placed to ensure that tips, gratuities and service charges are treated in line with the principles of clarity and transparency set out in its recent consultation. Dealing with the matter through legislation on digital taxation would risk missing crucial elements for employees or businesses that have been captured in the submissions to the consultation.

[Mel Stride]

The hon. Lady raises an extremely important matter, which is those employers who do not adhere to the requirements of the national minimum wage. HMRC and the Treasury take that extremely seriously, and we have mechanisms in place, as she may know, for reporting instances of that where they occur. I can assure her that the Treasury is the Ministry directly responsible for strategic oversight of HMRC and that HMRC takes any abuse of the national minimum wage requirements and regulations in this country extremely seriously, and pursues and brings to book those who commit abuses.

[Stella Creasy]

Will the Minister therefore commit today to investigating the use of the E24 guidelines and the tronc schemes, to which we have referred? He may not accept our wider point about protecting people and the tips that they have rightly earned, but HMRC’s E24 guidelines fall directly within his remit, and it is precisely that scheme that we are worried employers are abusing, so will he commit today, given that he has just explained to my hon. Friend the Member for High Peak that he cares very much about this matter, to an investigation and to publishing the results, so that we can all be confident that no one is being exploited in that way?

[Mel Stride]

HMRC can already investigate when it suspects the kind of abuse to which the hon. Lady alludes. To be specific, if HMRC opens an inquiry into whether PAYE or NICs are being operated correctly, it will be able to ask the employer or the troncmaster how they have recorded service charges and tips and how those have been allocated, and trace them back even to which customers paid for them. The tools are there, the willingness is there and the evidence is there that HMRC is doing precisely what the hon. Lady would expect it to do in pursuing this matter.

[Stella Creasy]

Just so that we are all clear, because I can see that Government Members are also concerned that there may be abuse of the E24 guidelines—this is not about individual companies—will the Minister commit today to his officials doing an investigation on whether the E24 guidelines are being abused in the way that has been described and to reporting back to all of us in the House?

[Mel Stride]

As I just said to the hon. Lady, we can say in relation to any aspect of HMRC’s operation or any of the rules that it is there to clamp down on that we want regular reporting and all the rest of it. The point is that as a Ministry, the Treasury is there to have strategic oversight of HMRC and to ensure that it is behaving in an appropriate way and chasing down tax avoidance, evasion and non-compliance in whatever form they may appear, including the forms that she has raised. We will continue to do just that.

--- Later in debate ---

[Mel Stride]

I thank the hon. Lady for her further point. I guess it comes down to interpretation. It seems to me that if it is not reasonably practical for a person or company to use electronic communications, the reliability of the service—another way of describing the point she raised—would be an important part of the judgment that would be made.

The clause continues with “Further exemptions”. Proposed new paragraph 15(1) states:

“The Commissioners may by regulations make provision for further exemptions.”

New paragraph 15(1) states:

“The exemptions for which provision may be made include exemptions based on income or other financial criteria.”

There is therefore a recognition in the Bill that not only do we need to get it right for the current circumstances, but we need the flexibility to be ready for any circumstances that might present themselves and which we have not considered at this stage. Those would need to be addressed further down the line.

For those who can go digital but require additional assistance, HMRC will continue to provide a diverse range of digital support, including webinars, helplines and YouTube videos, to help them meet the requirements of making tax digital.

The hon. Member for Aberdeen North also seeks to provide for a phased implementation period, with the commencement of each new stage requiring approval by the House. We have already revised the implementation to start with businesses that report quarterly, and stakeholders are operating on the basis of the new timeline. We are phasing in the implementation by piloting the changes and by starting with mandation only for VAT and those above the VAT threshold. The secondary legislation required to lay out the detailed operation of MTD will be laid before the House in due course, offering Members a further opportunity to scrutinise our plans and consider our proposals.

The hon. Member for Walthamstow has tabled an amendment to require HMRC to publish an assessment of the effect of our exit from the European Union on MTD for VAT for small businesses. HMRC wants to give businesses plenty of time to adapt to MTD and is allowing for a full year of piloting the changes before mandation applies and before the UK leaves the European Union. If businesses wish to begin keeping their records digitally before we leave the EU, they will be able to do so.

The hon. Lady raised specific issues in respect of VAT and the 13th directive. The Government do not consider there to be an MTD issue here. MTD is about how records are kept and reported, rather than the nature of the VAT regime itself. The regulations will be consistent with the requirements of the 13th VAT directive, but if she has specific concerns, HMRC will be happy to look into them.

[Stella Creasy]

I am happy to clarify. At the moment, the intra-country VAT scheme is administered online, which makes it relatively simple for people in the UK to reclaim VAT they have incurred in other countries. As we know, the 13th directive requires every single other country to come up with its own VAT scheme, so there is a question about the compliance of different schemes with our scheme. If we have a digitised system, it needs to be able to interact with 27 other countries’ VAT schemes, rather than one EU-wide scheme. Has the Minister’s Department done any work on how the other 27 schemes will interact with our online scheme, so that businesses can be assured of the frictionless transfer that his Government so often promise on these issues?

[Mel Stride]

The hon. Lady raises a very specific point within what is a large set of negotiations on all the issues of customs, excise and VAT. She will be aware that a customs and excise Bill will be presented to Parliament fairly shortly.

[Stella Creasy]

I have looked at the Minister’s White Paper, and it does not mention the 13th directive at all. If he could clarify that a second White Paper will address this issue with the 13th directive, I am sure that many small businesses would be relieved.

[Mel Stride]

As I am sure the hon. Lady knows, the White Paper sets out that the Bill will be a framework Bill. The purpose of the Bill will be to ensure we can enact through legislation—largely secondary legislation—whatever arrangements we arrive at as a consequence of the negotiations we are in the middle of. It is not my position here today to prejudge exactly where we will end up on VAT, but I can reassure the hon. Lady that all the preparations and legislation will be in place to accommodate in as frictionless a manner as possible—as she rightly says—the exercise of VAT between ourselves and our former European partners, as well as customs at the borders and all the other important issues that will arise once we leave the European Union.

[Stella Creasy]

The Minister is being incredibly generous. I hope he will forgive me; sometimes I must feel like a bear of very little brain on these issues. The 13th directive is the manner by which EU countries deal with non-EU countries’ VAT claims. It is an immovable part of the post-Brexit landscape, as I am sure the Minister agrees. Can he clarify that it is the 13th directive that his Department is engaging with? He said that the White Paper was a framework document. Will the customs union legislation deal with the 13th directive, or does he think there will somehow be a completely different scheme? I know that the White Paper talks about innovation, but it seems a bit pie in the sky to suggest that the 13th directive will not be part of this. Why is he not talking about it?

Finance Bill (Fourth sitting)

Stella Creasy Excerpts

Committee Debate: 4th sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Mel Stride]

Clause 33 and schedule 10 introduce the final element of this historic package of non-dom reforms. As with the clauses that we have just discussed, it was our intention to include these provisions in the previous Finance Bill, and we are pleased to be able to introduce the changes from April 2017 as we originally intended. The changes will ensure that non-domiciled individuals who hold UK residential property through an overseas structure are liable for inheritance tax on that property, in the same way as UK residents.

The basic inheritance tax position is that a non-UK-domiciled individual is liable for UK inheritance tax only on the property in their estate that is situated in the UK. That has been the case since inheritance tax was first introduced.

However, it has long been fairly common practice for some individuals to take deliberate steps to avoid tax on homes they hold in the United Kingdom. Instead of owning UK residential properties directly in their own names, they set up an overseas company or partnership that has legal ownership of the property. They will often use overseas trusts as part of those structures. The effect of doing so is that the non-domiciled individual is no longer a UK homeowner; instead they own shares in an overseas company or an interest in an overseas partnership. In other words, by changing the structure of the way they hold UK assets—UK property is transformed into overseas property—they are no longer subject to UK inheritance tax.

The Government do not believe it is fair that non-doms with residential property in the UK can avoid paying UK inheritance tax in that way. That is why we are making changes to ensure that, from now on, they will pay the same tax as everybody else. The changes made by clause 33 and schedule 10 will ensure that individuals domiciled overseas pay inheritance tax on UK residential properties they hold through overseas structures. They will do so by looking through the overseas structures to the underlying UK property, bringing any share or interest into the scope of inheritance tax, even if those shares are overseas. In other words, the clause will ensure that an inheritance tax charge will arise wherever the value of such structures is derived from a residential property in the UK.

The clause closes a long-standing loophole that has allowed non-domiciled individuals to structure their assets to avoid inheritance tax on their UK homes. This change will ensure that non-dom individuals with residential property in the United Kingdom are treated the same way as everyone else, raising an estimated £250 million over the next four years.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Having heard the Minister make a compelling case about the importance of ensuring that non-doms do not avoid paying tax, I look forward to the debate that we will have on new clause 2, which raises exactly the same issues about the treatment of commercial property as a way for non-doms to avoid residential property taxes. I look forward to the Minister supporting the new clause accordingly.

[Mel Stride]

Like the hon. Lady, I cannot wait to get to the matter at hand.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 34

Employment income provided through third parties

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

Finance Bill (Third sitting)

Stella Creasy Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

Amendment 5, in schedule 5, page 364, line 10, at end insert—

“443A Review of effects in relation to PFI companies

(1) Within three months of the coming into force of this Chapter, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effects of the provisions of this Chapter in relation to PFI companies.

(2) The review shall consider in particular the effects if the provisions of—

(a) the Chapter, and

(b) the exemption in section 439

were not to apply to PFI companies.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons within three months of its completion.”

This amendment requires a review to be undertaken of the impact of the provisions of Chapter 8 of new Part 10 of TIOPA 2010 in relation to PFI companies and if the provisions did not apply to PFI companies.

Amendment 28, in schedule 5, page 367, line 46, at end insert—

“448A Sectoral reporting on operation of this Chapter

(1) Within fifteen months of the coming into force of this Chapter, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review about the operation of its provisions in relation to different sectors.

(2) The sectors covered by this review shall be—

(a) water and sewerage,

(b) gas and electricity,

(c) telecommunications,

(d) railway facilities,

(e) roads and other transport facilities,

(f) health facilities,

(g) educational facilities,

(h) facilities or housing accommodation provided for use by any of the armed forces,

(i) facilities or housing accommodation provided for use by any police force,

(j) court or prison facilities,

(k) waste processing facilities,

(l) buildings (or parts of buildings) occupied by any relevant public body other than for purposes principally concerned with matters specified in paragraphs (a) to (k).

(3) A review under this section shall separately identify, in respect of each sector, information on operation in respect of qualifying infrastructure companies undertaking activities that were previously undertaken by a nationalised industry.

(4) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons within three months of its completion.”

This amendment would require HMRC to report on the operation of the special provisions in Schedule 5 relating to public infrastructure in relation to sectors and, within sectors, in relation to privatised companies as a group.

Amendment 6, in schedule 5, page 368, line 13, at end insert—

“‘a PFI company’ means a company which has entered into a contract with a public sector body under the Private Finance Initiative or the PF2 initiative.”

This amendment defines a PFI company.

That schedule 5 be the Fifth schedule to the Bill.

New clause 1—Review of relief from corporation tax relief for PFI companies—

“(1) Within three months of the passing of this Act, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review about how corporation tax relief is given for losses, deficits, expenses and other amounts of PFI companies.

(2) For the purposes of this section, ‘a PFI company’ means a company which has entered into a contract with a public sector body under the Private Finance Initiative or the PF2 initiative.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons within three months of its completion.”

This new clause requires a review to be undertaken of the corporation tax reliefs available to PFI companies.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I am looking forward to this debate because it is something all of us across the House feel concerned about. I recognise that we are debating the Finance Bill. I reassure you that the amendments and the majority of what I will talk about today are about taxation and, in particular, the requirements of the legislation. I just want briefly to set out how that fits into the context of the concerns that are shared across the House about private finance and the cost to the public sector of borrowing to be able to build the infrastructure that we all know we need.

To be clear, Governments of all colours have used private finance and continue to do so. The private finance initiative and private finance 2 schemes are little different from each other. It is recognised that questions about the companies involved and the role of taxation in the decision to use PFI or PF2 to fund public infrastructure are questions for all of us, because we see in our constituencies the problems that are caused.

I note that the constituency of the hon. Member for Brentwood and Ongar now has repayments of £169 million as a result of private finance. The constituency of my hon. Friend the Member for Bootle, the shadow Minister, has £423 million-worth of repayments required under private finance contracts. I would describe private finance as the hire purchase of the public sector—indeed the legal loan sharks of the public sector— because the companies offer credit to the public sector, but at a high cost. In particular, the cost of the credit—the taxation that will come from the companies involved—is part of the decision to go with them. That is specifically part of the Green Book calculations. I am looking forward to the Minister telling us what has happened to those Green Book calculations, which were supposedly withdrawn in 2013 but I understand are still being used by Departments for private finance deals, to understand how tax plays a part in the decision to use private finance companies. The idea is that this form of credit may be more expensive but that the companies will repay us in taxation in the UK. That forms part of the decision to use them. The widespread evidence now is that those companies are not paying UK taxes, and that they are benefiting from changes in our tax regime over the past 20 or 30 years. That should trouble all of us because we are not getting the value for money that the deals were supposed to be.

One of my concerns that I hope the Minister will address is that PF2 also pays little regard to the question of where the companies are situated and how much tax they pay. I have therefore tabled two amendments—in fact, three; one is about defining private finance companies—to understand what kind of deal we are getting from those companies and how we as taxpayers and those who represent taxpayers can get a better deal for the British public.

For the avoidance of doubt, the debate is not about not using private finance. One day, I hope that we will have another debate—I am sure the Minister will look forward to it as much as he is looking forward to this one—about the alternatives to private finance. There is a role for private finance, but the question is, if we are getting a bad deal and if the companies are not honouring the obligations that we as taxpayers assigned to them, what can we do about it?

Clearly, the PFI companies are making huge profit. Research from the Centre for Health and the Public Interest shows that over the next five years almost £1 billion in taxpayer funds will go to PFI companies in the form of pre-tax profits. That is 22% of the extra £4.5 billion given to the Department of Health alone.

In my constituency I see at first hand the impact of this. Whipps Cross University Hospital is technically in the constituency next door, but serves my local community—it is part of Barts, which has the biggest PFI contract in the country: £1 billion-worth of build, £7 billion to be repaid. The hospital is paying back £150 million a year in PFI charges, more than 50% of which is interest alone on the loan. The hospital downgraded the nurses’ post to try to save money, and so found that many nurses left. It therefore faced a higher agency bill.

It is clear that PFI and the cost of those loans drives problems. It is also clear that those companies make what I would term excessive profits. That is where new clause 1 begins to try to offer us some answers. If the companies make excessive profits, that is not part of the contract that we signed with them. The National Audit Office has been incredibly critical of how taxation played a role in decisions about private finance companies, but that has not been realised.

Also, not that many companies are involved, yet the tax returns are huge. Just eight companies own or appear to have equity stakes in 92% of all the PFI contracts in the NHS. Innisfree manages Barts, which is my local hospital, and it has just 25 staff but stands to make £18 billion over the coming years. It might be thought, therefore, that companies of that size and stature would pay a substantial amount of tax—I see that the hon. Member for Brentwood and Ongar can predict where I am going with this; sadly, it does not appear to be the case.

Indeed, many of the companies seem to report little or no tax in the UK. One of the simple reasons for that is that many of them are not registered in the UK. That is crucial because the provisions in the Bill to give those companies a relief on paying tax on the interest that they get from shareholder debt are predicated on the idea that they are UK companies. That is the starting point for amendments 5 and 6. The Bill will bring in a cap on the amount of relief that companies can claim against interest. However, there is a public sector exemption, for public sector infrastructure companies, and it will substantially benefit the companies in question.

Having been a Member of this House for seven years, I have always assumed that when such a provision is introduced we will be able to debate its merits. I note that the restrictions in relation to the measure mean that we cannot stop it, or ask whether we are being wise and whether, given that we know the companies do not necessarily pay the tax it was assumed they would in the UK, we are getting their tax situation right. We cannot stop the measure, but we can certainly ask just how much the companies are going to benefit from it.

Amendments 5 and 6 are intended to enable taxpayers to understand how much the companies will benefit from the exemption, and how much extra money they will be able to write off against their tax bill, thus paying little tax in the future. It matters very much to the companies, because most are heavily indebted to their shareholders. They use a model involving 80% to 90% senior debt; the rest is equity loans in terms of the products that they offer. PF2 will change that very little. The amount of debt that they carry, and therefore the amount of interest that they can trade off, which the measure will allow them to do, will be relevant to their ability to give returns to their shareholders.

It is clear that those companies give their shareholders substantial returns, and will be able to fund that through such tax relief. Indeed, the shareholders’ returns are 28% on their sales—more than double the 12% to 15% that was predicted in the business cases. Between 2000 and 2016 the total value of sales of shares in PFI companies was £17 billion. It is notable that in 2016 100% of equity transactions involving those companies were to offshore infrastructure funds in Jersey, Guernsey and Luxembourg. That is based on a sample of 334 projects.

Those companies are going to get a substantial tax relief from the exemption. Yet they do not pay tax in the UK—or, certainly, there is a lot of evidence that they do not. It is an exemption that will enable them to continue to justify paying little or no tax; they will be able to write off the interest on their loans and projects against it. Yet taxpayers are not benefiting from the tax that they said they would pay.

New clause 1 goes to the heart of that question. Those companies signed up for public sector contracts, with particular rates of tax at the time they were finalised. Yet, as we know, corporation tax has varied substantially over the past decade. The debate is not about what the right level of corporation tax is; it is about a simple principle. If a company has signed up to pay a certain rate of tax, and the tax rate changes, it clearly benefits from that. We signed up to the deals for taxpayers, however, on the basis that they would pay a certain rate of tax. That tax rate will now change. New clause 1, again, asks just how much the companies are benefiting from the changes.

I know that the Minister will tell me that there are various anti-discriminatory clauses in the PFI and indeed the PF2 contracts. I agree with him. Therefore, how we might start to reclaim some of that excessive profit is a tricky question, but there is a strong case that, if a company has signed up in good faith to a particular rate of tax, surely that is the rate of tax that it should pay. That is written into the contract, it is part of the business case in the Green Book that is made on these sorts of deals. We as taxpayers have an expectation. Indeed, I would expect the Minister to have a series of sums reflecting the amount of money that would be paid back that he would write off against the large sums that I talked about. However, given that the corporation tax situation has moved from some of these companies nominally paying 28% to their paying 19% or less, that is clearly a substantial discount on what they were expected to pay. New clause 1 asks us to do what, frankly, at the moment we do not do as a country—understand what the difference is between what we expected to get in from tax from these companies and what we will get in.

It is always troubling to me that the Treasury does not seem to have a central database either of how much we were paying to take on these loans—particularly the rates of return, which we know are substantially higher than the rate of borrowing on the public sector—or of the taxation these companies are paying back versus what they were expected to pay back. New clause 1 would get to the heart of that matter and it sits alongside amendments 5 and 6 in trying to understand where these companies are making excessive profits from the public sector.

I am sure that the Minister will tell me that this is a dreadful attack on the private sector and that we should not be saying that these companies are ripping the British public off and that they are legal loan sharks. However, I ask him: if he will not accept the amendments, will he commit to gathering the data about how much these companies have paid in tax, how much difference these have made to the value-for-money case for these businesses, and therefore how our communities will be able to pay back the sums involved?

I am sure that the hon. Member for Brentwood and Ongar would love to have £169 million to invest in his local community; there are many worthy causes that I am sure he would support. I am sure that the hon. Member for Hitchin and Harpenden would be interested in the £170 million that I believe Stevenage, near his constituency, will have to pay out to PFI companies. That money could be invested in the public infrastructure that we so desperately need.

I am sure that all of us would agree that we expect these companies to pay their tax, as they signed up to in these contracts, yet it is clear that they do not. So if the Minister is not prepared to accept these incredibly reasonable amendments in this environment, I hope that he will set out precisely what he is going to do to get our tax money back. All of us and all of our constituents need and deserve nothing less.

[Peter Dowd (Bootle) (Lab)]

It is again a pleasure to serve under your stewardship, Mr Howarth.

I thank my hon. Friend for tabling the amendment, which seeks a review of the effect that the measures we are discussing will have on PFI companies. The Government blithely assert, including in their notes on the Bill, that companies involved in public benefit infrastructure spending are an inherently low risk for tax avoidance. That is an odd claim, especially in the light of what my hon. Friend has said. We know that some PFI companies have engaged in profit shifting to non-UK jurisdictions. It does not make sense to say that just because the profits of a company are extracted from public investment it cannot seek to be paid in a way that is fiscally undesirable.

No one should bemoan the huge public infrastructure investment that the last Labour Government enabled. It was fixing many of the problems left from years of neglect in the public sector. All Governments have taken part in PFI. When PFI was in effect the only game in town, so to speak, many public authorities took up the chance to make the investment they needed; my hon. Friend identified some in my constituency that benefited from such investment. However, we know that some contracts have produced excessive costs for the public sector, where direct borrowing could have produced much lower ongoing costs and provided for more direct influence over the quality of some ancillary services. Therefore, it is right that a review be used to work out whether we should be privileging PFI companies with exemptions from these measures at the same time as knowing that they often benefit from guaranteed profits at the public expense.

[Kirsty Blackman (Aberdeen North) (SNP)]

I appreciate where the hon. Member for Walthamstow is coming from with the amendments. We support Labour on new clause 1, which calls for a review of how much we are spending and where the money is going. Good points have been well made about how companies are making more of a profit as a result of the changes in corporation tax rates.

On the other amendments, we are concerned about the possible impact that any changes to PFI would have on Scotland. We are still paying off a number of PFI projects in Scotland. I know that people say that all Governments have implemented such projects, but the Scottish Government have moved away from the PFI funding model because the SNP does not support it. We have the Scottish Futures Trust and not-for-profit delivery mechanisms, which mean that profits do not go to private companies.

[Stella Creasy]

To be clear, the evidence of the problems with the PFI model extends to the not-for-profit model. I encourage the hon. Lady to read the work of Mark Hellowell of the University of Edinburgh. No political party can claim the moral high ground when it comes to private finance in this country.

--- Later in debate ---

[The Financial Secretary to the Treasury (Mel Stride)]

It is once again a great pleasure to serve under your chairmanship, Mr Howarth. Before I respond specifically to the amendments tabled by Opposition Members, I will set out the aims of the Bill and some details of how it will work.

Clause 20 and schedule 5 introduce new rules to limit the amount of interest expense and similar financing costs that a corporate group can deduct against its taxable profits. Interest is a deductible expense in the calculation of profit subject to corporation tax. Therefore, there is a risk of groups borrowing excessively in the United Kingdom, with the resulting deductions for interest expense eroding the UK tax base.

The new rules are part of the Government’s wider changes to align the location of taxable profits with the location of economic activity. The rules follow the internationally agreed recommendations from the OECD’s base erosion and profit shifting, or BEPS, project to tackle tax avoidance by multinational companies. The rules aim to prevent businesses from reducing their taxable profits by using a disproportionate amount of interest expense in the UK.

The schedule introduces a new part into the Taxation (International and Other Provisions) Act 2010 and will raise about £1 billion a year from multinational enterprises and other large companies. The rules take effect from 1 April 2017, as announced in the business tax road map published in 2016 and reconfirmed at the spring Budget this year. Maintaining that commencement date ensures that groups that have already made changes in light of the new rules are not unfairly disadvantaged and that there is no delay in protecting the UK tax base. Given the sophisticated nature of corporate finance, the rules are detailed and technical. However, the core effect of the rules, which aim to match deductions with taxable profits, is relatively simple.

All groups will be able to deduct £2 million in net interest expense a year, so only larger businesses—those with financing costs above that level—can suffer a restriction. Above that threshold, the core rules will restrict interest deductions to a proportion of the group’s UK earnings or the net external expense of the group, whichever is lower. I will discuss the rules in further detail.

First, the fixed ratio rule will limit interest deductions to 30% of the company’s taxable EBITDA—earnings before interest, tax, depreciation and amortisation. Secondly, the modified debt cap will limit interest deductions to the net external interest expense of the worldwide group; this rule is consistent with the recommendation in the OECD BEPS report. There are provisions to ensure that the rules will not adversely affect groups that are highly leveraged with third-party debt for genuine commercial reasons. Thirdly, the group ratio rule will allow groups to increase their deductions if their UK borrowing does not exceed a fair proportion of the external borrowing of the worldwide group. In addition, there are public infrastructure rules that provide an alternative but equally effective approach for companies that are highly leveraged because they own and manage public infrastructure assets.

The Bill provides rules to help address fluctuations in levels of net interest expense and EBITDA. Amounts of restricted interest are carried forward indefinitely and may be deducted in a later period if there is a sufficient allowance. Unused interest allowance can also be carried forward, for up to five years.

The Bill introduces additional provisions to ensure that the rules work for certain types of business, such as banks and insurers, joint ventures, securitisation vehicles and real estate investment trusts. There are also rules to deal with particular issues including related parties; leases; payments to charities; the oil and gas tax regime; incentives such as the patent box and research and development tax credits; and double taxation relief. Given the technical nature of the Bill, we need to deal with a wide range of corporate arrangements. We will, as always, continue to keep their detailed implementation under review.

I welcome the opportunity to debate amendments 5 and 6 and new clause 1, tabled by the hon. Member for Walthamstow. Amendments 5 and 6 propose a review within three months of Royal Assent on the effect of the provisions contained in the new chapter 8 proposed by the schedule on companies with PFI contracts. Legislating for a review of the rules within three months is unnecessary. The Government have already undertaken extensive work and consultation on the issue over the past 18 months. We will continue to monitor the impact of the legislation, and Government officials continue to meet key stakeholders impacted by the rules in the chapter.

Proposed new chapter 8 includes the public infrastructure rules designed to ensure that companies holding public infrastructure assets are not disproportionately affected by the corporate interest restriction. In particular, proposed new section 439 of chapter 8 contains a grandfathering provision for loans entered into by certain companies on or before 12 May 2016. Such companies are highly leveraged as part of their standard business model, given their fixed assets and fixed income flows. The grandfathering ensures that investors who entered into contracts to provide Government services in good faith are not unfairly impacted. That could be the case where the additional tax expense was not factored into original funding models and there is no scope to pass on any of the cost. Given that PFI projects are long-term in nature and provide many of our vital public services, the rules grandfather the treatment of interest payable to related parties to the extent that the loan was agreed prior to the publication, on 12 May 2016, of detailed proposals for the interest restriction rules.

[Stella Creasy]

The Minister says that he has met the stakeholders affected and is setting out how those companies might be impacted. Will he clarify which companies his officials have met to discuss these rules?

[Mel Stride]

With respect to the hon. Lady, I do not think I said that I had met all the stakeholders, but as part of their ongoing work in this area officials naturally meet a large range of officials. If she is keen to know exactly who they are and what types of companies, I would be happy to ask my officials to write to her with that information.

The hon. Lady also proposes a new clause, which would require a review within three months of Royal Assent of how tax relief is given for losses, deficits, expenses and other amounts in relation to PFI companies. PFI companies do not obtain any special treatment under the tax rules in the way that losses, deficits, expenses and other amounts are treated. Legislating for a review of these rules in three months is unnecessary. As we debated on Tuesday, the Government have already undertaken extensive work on the treatment of losses and deficits over the past 18 months and through extensive consultation. The Government will continue to monitor the legislation’s impact, and officials continue to meet key stakeholders impacted by the rules in this chapter.

I turn now to some of the more general and specific points that the hon. Lady has raised. In doing so, I should acknowledge the important contribution she has made over a long period in Parliament on the important issues surrounding PFI. She is right to point out that PFI contracts are the creatures of many different Governments. It would be widely accepted that many of the issues that have arisen, and to which she and other Members have alluded, certainly occurred under the watch of the previous Labour Government. She rightly points out that not all of those contracts are perfect. That is evidenced by the fact that this Government have secured a rebate of about £2.5 billion by working with the private sector and raising funds through that approach.

We have had a general discussion about PFI, and proposed chapter 8 gives rise to the question whether PFI infrastructure projects should be treated differently from other projects that would otherwise be subject to the interest restriction. I have two important points to make. First, these are infrastructure projects, so they are, by their very nature, highly leveraged. They are projects where large amounts of interest are often part of the natural, right and proper, way in which they are constructed.

The second point, which in a sense follows from that, is that of proportionality. To what degree does one apply this kind of approach to a business of that particular nature, given that the downstream revenues from PFI arrangements cannot be easily adjusted to accommodate the provisions that would otherwise apply in the Bill?

The hon. Lady raised two specific points. One was related to the Green Book calculations. In 2012 we set up the operational efficiency programme to deliver savings from existing programmes. That brought in £2.5 billion. We also introduced the new PF2 model, to offer better value for money and greater transparency in the operation of these arrangements.

--- Later in debate ---

[The Chair]

I am going to call the hon. Member for Walthamstow, who tabled two of the amendments. The hon. Member for Bootle cleverly managed to balance the context and the amendments, but we need speeches that, although they might refer to the context, actually speak to the amendments at hand.

[Stella Creasy]

Be under no illusions, Mr Howarth; I intend very much to speak to the amendments at hand.

The Minister argued, slightly bizarrely, that we already have information about whether the changes would affect PFI companies, because the Government have been able to assess that, yet they are rejecting our call to put that information in the public domain. The Minister said clearly that his officials have met PFI companies, and I asked him to clarify which companies. I hope that when he meets stakeholders he will meet my local hospital, which is dealing with the difficult consequences of PFI deals for its financial position. I would argue that officials who are essentially having to sack nurses to pay back PFI loans are equally stakeholders, so I would be interested to know whether he has met any of them.

[Kelvin Hopkins]

Does my hon. Friend have a figure for the total cost of PFI repayments every year to the national health service? That would illustrate the enormous burden of PFI schemes on our health service.

[Stella Creasy]

I can go better than that—

[The Chair]

Order. We do not want too much context.

[Stella Creasy]

Well, this is why how much tax these companies pay matters. I hate to tell the Minister how to do his job, but I have looked at the PFI and public sector comparator documents used to assess the value for money of the deals, and they explicitly talk about the levels of tax that the companies pay and, indeed, look at how those would be traded off against the cost of borrowing to the public sector.

My hon. Friend the Member for Luton North asks about the £300 billion for which we are now indebted in repayments on the loans, as against the £55 billion of outlay. One reason why we took on the £300 billion was that we expected to get back in tax from the companies money to trade off against it. That was an explicit part of the value-for-money calculations done by the Departments. That is why the Green Book matters. That is why I am slightly troubled when the Minister says that tax treatment is part of the deal, but does not then want to give us those data. He says that his Department has looked at the matter and therefore the amendment is unnecessary. Will he therefore commit simply to publishing the information used to assess whether the exemption was in the public interest? It can be in the public interest only if it does not affect the amount of tax that we get back from the companies to go towards the £300 billion that we will have to pay out as a consequence of signing the contracts.

I encourage the Minister to read the work from the National Audit Office on this issue, and specifically about the tax adjustments made in the contracts and whether that really did get value for money for us, and indeed its assessment of PF2. Far be it from me to suggest that pride comes before a fall, but I think that he will find it as troubling as I do that we have not cracked how best to borrow, given that, as my hon. Friend the shadow Minister says, we are always a good bet. Frankly, we never let hospitals or schools go bust, so we always repay our debts. I also encourage my colleagues from north of the border in Scotland to do that, given that the problems also apply to the Scottish Futures Trust. This is about the use of private finance companies. Their tax take is absolutely part of the calculation.

I note, too, that the Minister did not address at all new clause 1 and the levels of tax that the companies signed up to pay. Again, that is very troubling. Either the Minister is telling us that he knows and does not want to tell us, or he does not know and does not care. Either way, we as taxpayers should know and should care, because that money should go towards the £300 billion.

The new clause matters because we know that tax relief on interest paid to shareholders and other affiliates where the debt is held at arm’s length, which is what many of these companies do, has been widely abused, with shareholders injecting debt for the sole purpose of reducing their pre-tax profits and hence the company’s corporation tax. When the Minister gives the tax relief to these particular companies, which he admits are highly leveraged, he is giving them a bonanza. All the amendments do is ask the Government to admit just how much that is, because all of us will have to recognise that that money, which the companies will be able to pay off against their loans, is money that we will have to find to bridge the gap in relation to the £300 billion that we have now committed to paying them. It is entirely in order and within the scope of this legislation, Mr Howarth, that we should ask for that information.

For the avoidance of doubt, let me be very clear that I have absolutely no intention of giving these companies a penny more of taxpayers’ money. I do not wish to get into litigious battles with them about their tearing up their contracts and giving their lawyers an opportunity to claim even more money. Frankly, they have had more than enough from the British taxpayer. I am determined that we can table legislation and show these companies that we are serious about recognising where they have generated excessive profits, where we can learn from the windfall tax of the previous Labour Government, to be able to bring them to the table to renegotiate the costs and get the money back for the British taxpayer so that we can properly invest in infrastructure.

There is another debate to be had about the range of credit available to this country, but with this legislation and the tax breaks that this Government are giving to these companies, it is the taxpayer who will lose out, and we deserve to know by just how much.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship, Mr Howarth. I have just two comments. The first is in response to what the Minister said about the extent to which the new measures implement OECD recommendations. The second is a comment about our amendment 28.

As I am sure the Minister is aware, the OECD BEPS recommendations, and specifically recommendation 4, which applies to this area, offer a range of possibilities when it comes to deciding what the write-off can be. The cap is allowed to be between 10% and 30%. Her Majesty’s Government have decided to go with 30%, but it is feasible for states to go down to 10%. When the EU looked at implementing this measure through the anti-tax avoidance directive, which of course applies to us for as long we are still a member of the EU, again a range between 10% and 30% was given. I have not yet heard why the Government have chosen 30% rather than 10%.

On amendment 28, our request for a review is specifically about the rationale for having special provisions for public infrastructure-providing companies. That is in the light of some quite worrying developments occurring around large swathes of British public infrastructure now being owned by firms and in effect provided through debt finance.

One example we touched on in some Finance Bill debates is Thames Water. As the Minister will know, back in 2006 Macquarie bank purchased Thames Water. It did sell it off—after a number of problems, if we are honest—but during that period our water infrastructure was owned by a firm that was in effect debt-financed, and through the Cayman Islands, which is a separate issue. There are genuine questions about whether that model is appropriate. Does it cause additional potential risks to service quality and continuity? What would happen if that debt financing model could not be serviced by one of these firms?

[Stella Creasy]

My hon. Friend is making a powerful point about the nature of these companies based overseas. Does she share my frustration that the Minister seems to think that does not matter because these clauses will only affect companies in the UK while not recognising that those companies have only nominal addresses in the United Kingdom, with their parent companies being based overseas? They are able to trade off the tax exemptions that the Bill will bring in. All of these PFI infrastructure companies may well claim to be UK-based for tax purposes to trade off these incomes, but actually they will be in Guernsey and Jersey, the Cayman Islands and the like. It is a con.

[Anneliese Dodds]

I am grateful to my hon. Friend for making those points. Indeed, that issue came up in Committee of the Whole House. There needs to be much more muscular engagement in questions around profit shifting between jurisdictions and especially between those that have low or no-tax regimes, where there appears to be a lot of evidence of harmful tax practices.

Finance Bill (Second sitting)

Stella Creasy Excerpts

Committee Debate: 2nd Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Anneliese Dodds]

As the Minister has indicated, amendment 20 is to the schedule, which is grouped with clause 14. We have a number of concerns about the proposed changes to social investment tax relief, which is why our amendment asks for a review of their effectiveness and impact.

As colleagues will be aware, social investment tax relief is aimed at supporting social enterprises, comprising those businesses that plough their profits—or at least a proportion of them—back into a social and/or environmental mission. With this relief, where investments by individuals are eligible, they can reduce an individual’s income for income tax purposes by almost a third. It is clearly a significant relief and one that, while having many positive impacts, has been suggested as leading to abuses, with the social or environmental impacts from investment in some anecdotal cases being cosmetic rather than actual.

There are also underlying issues about whether there is a level playing field between social enterprises and the public sector when it comes to the delivery of some public services, which could be intensified by the development of additional scope or type of tax reliefs when it comes to social enterprises. Indeed, for those reasons, some people have entirely rejected even the principle of social investment tax relief in the first place. I understand Dame Hilary Blume, director of the Charities Advisory Trust, was concerned about the creation of the relief in the first place, saying it would attract those interested in profits rather than social good to the sector.

In my experience as a constituency MP—and others may share this experience—social enterprises that operate in my constituency, such as the charity Aspire Oxford, undertake work that the Government either have never done or which they have abandoned due to a lack of resources, such as the enormous reductions in support provided through probation services. It is important that organisations such as these, which genuinely deliver additionality, are supported. Nonetheless, in that context, we have a variety of concerns about the currently proposed changes and it is for that reason that we ask for a review. I would be grateful—even if our amendment does not pass—if the Minister could provide answers to a number of these concerns, presently or by letter in the future.

The first concern we have is about the process surrounding these measures. As colleagues will know, rather confusingly, not all social enterprises qualify for social enterprise relief. Predominantly, the relief is focused on community interest companies, charities and community benefit societies. For that reason, before receiving investment, many social enterprises ask HMRC for advance assurance—this topic pops up again—that they will qualify for SITR. I am concerned to have learned from the sector that assessors seem to have been taking decisions already about whether social enterprises will qualify for SITR on the basis of the rules we have in front of us today, which have not yet been passed by Parliament, rather than on the basis of the current rules.

I know the rules would have retrospective impacts: in practice they would be for investments dating from 1 April. It seems strange, however, for assessors to be taking decisions already on the basis of the new rules and this is potentially a disadvantage for social enterprises that are negatively affected by the new rules.

I have also heard concerns about the new treatment of leasing within the new provisions. As I understand it, the Government conceive of leasing as an inherently low-risk activity and therefore not worthy of subsidy, but it is not clear to me that all the implications of this position have been thought through. An example is that of a specialist facility, such as a rundown heritage swimming pool. In fact, many of us may have those in our constituencies—as we know, many have closed. It is very difficult for local authorities to redevelop those facilities in current financial circumstances. We could imagine an example where a social enterprise might want to take on that pool, purchase it, attract investors into that project, but not run the swimming pool themselves as they do not have the expertise to do so. They might then want to have a leasing arrangement with a specialist leisure provider to deliver the services from that swimming pool. The problem with the new changes is that, in this context, even though the risk of that new approach would be reduced because the specialist provider would have more experience of running swimming pools than the social enterprise, the latter would be left in an invidious position, because it would lose the tax break if it engaged in that kind of leasing arrangement.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

My hon. Friend is making a powerful case about the importance of trying to make these kind of rules work for the reality of how social investment often happens in our local communities. Does she agree with me that there is also a concern that by excluding asset-leasing, things like community pubs and community land trusts might also be excluded by the Government, probably unintentionally? Many of us know of small community groups that may want to take over pubs in our communities that would be excluded by this measure and unintentionally actioned against. Surely we should be acting on that.

[Anneliese Dodds]

I am grateful to my hon. Friend for making that point, and I agree that this could apply to a range of different facilities. In many circumstances, this kind of arrangement is the only way to keep those facilities going. We could see them entirely disappear—we all know about the sad disappearance of community pubs in our areas—so I am grateful to her for making that point.

In addition to those potential issues, we are also concerned about the differential treatment of social enterprises by age, with the £1.5 million cap being lifted for social enterprises under seven years old. Will the Minister explain why there is precisely this seven-year limit? It may in practice be that local authorities are relying on well-established, well-run and highly experienced social enterprises to help to provide essential services and facilities in conditions of extreme budget cuts, but it is those older enterprises that are potentially disadvantaged by this scheme. I hope that we are going to learn the exact decision-making process on this seven-year cut-off point. If it is specifically to advantage younger social enterprises, why is that the point? Is it the case that youth is being viewed as a proxy for the ability to take on risky activities? If so, where is the evidence basis for that?

I point again to the example of Aspire in my constituency that operates a range of programmes, including one that supports offenders going into work—people who would not normally necessarily be taken on by different employers. Surely that is a highly risky activity, but it is one at which they—as an established social enterprise—excel. Age does not necessarily appear to be a good proxy for the ability to take on riskier activities. If this seven-year cut-off is not there to encourage younger social enterprises, then why has it been instituted? We need more information on this.

Finally, we feel that additional evidence on the effectiveness of the anti-avoidance clauses within the new provisions is required. Social enterprises in the voluntary sector have a long history in areas such as hospice care, specialist domestic violence and mental health services where they have often genuinely driven innovation. Other social enterprises, such as those I mentioned earlier, have merely donated some of their profits to charity, rather than having a genuinely social or environmental mission. May we have more clarification on how abuse will be identified and dealt with?

[Mel Stride]

Compared with typical companies, social enterprises face greater difficulties in accessing the funding they need to grow and develop. Social investment tax relief provides a number of generous tax reliefs to encourage individuals to invest in social enterprises that deliver social or community benefits. The current limit to the amount of investment that a social enterprise can receive through SITR is around £300,000 over three years. We announced in 2014 that we would look to expand the scheme, and we are now doing so.

The changes made by schedule 1 will increase the investment limit to £1.5 million over the lifetime of all social enterprises using SITR. In order to target the relief more effectively at the social enterprises that most struggle to attract investment, those under seven years old will no longer be bound by the three-year rolling investment limit of £300,000. I think this addresses the issues raised by the hon. Member for Oxford East about why the period is seven years. There is a greater vulnerability when social enterprises start up and they are fresh and young. They have yet to have a track record on which they can build, in order to grow. For those we are removing the roaming £300,000 over three years requirement. Social enterprises older than seven years can still use SITR for investment up to the three-year rolling investment limit of £300,000, subject to the lifetime limit of £1.5 million.

Schedule 1 makes a number of other changes to ensure that the scheme is well targeted at activities that will genuinely achieve socially beneficial aims, and provides value for money. That includes targeting SITR at social enterprises with fewer than 250 employees. Some activities have always been excluded from the relief so that it is not used as a tax-advantage route for low-risk investment. The excluded activities list will be updated to exclude a number of low-risk activities, including leasing assets and raising finance to lend on to others.

I agreed wholeheartedly with the hon. Member for Oxford East’s assertion about the importance of these social enterprises. She mentioned Aspire, for example, in her own constituency and many of us can think of similar organisations in our constituencies. On the more detailed process points that she was interested in, particularly around HMRC and advanced assurances, I am happy to write to her.

On the specific issue of leasing, allowing those activities to benefit from SITR would risk diverting finance away from higher risk social enterprises. We must not lose sight of the fact that the whole purpose of this scheme is to encourage those kinds of organisations and all the good works that they do, which might not otherwise come forward for the reason of being high risk. Of course, those organisations struggle the most to raise finance. Leasing assets typically provides a reliable income stream, which makes it a lower risk activity. Allowing social enterprises to raise money to lend on to other enterprises would be complex to administer and would leave the scheme open to misuse.

[Stella Creasy]

As a Co-op, as well as Labour, MP, I am rather passionate about the idea of social investment. The Minister seems to be a little short-sighted about the idea of assets—after all, there are many people looking at running community pubs, for instance, which is a great example of a community asset that we might want to support. I would not see that as an example of a low-risk venture. Surely, if he accepts our amendment, we can look at some of those issues and make sure that he is not missing out on some of the things he would like to see investment in because of a concept of risk that is rather narrow, rather than recognising some of the boundaries of co-operative and social investment.

[Mel Stride]

I thank the hon. Lady for her intervention. I guess there is a trade-off between getting very detailed and more precise in where we target these kinds of reliefs and, on the other hand, sometimes having complexity and confusion. It can be difficult to winkle out the precise anomalies that she may be alluding to. However, I can reassure her that, under the EIS scheme, many pubs, including community pubs, can qualify. They may be excluded under certain circumstances within the SITR scheme, but under EIS she will find that there are at least possibilities.

On the general issue of anti-avoidance, we are seeking to avoid situations where these schemes—whether they are EIS, SITR or VCTs—are simply being used as places to preserve capital at very little risk and to give a tax return as a consequence of the scheme. It is important that we have tight, sensible and effective avoidance measures in place.

Finally, further provisions to align the rules more closely with the enterprise investment scheme, including anti- abuse provisions, will also be introduced. Amendment 20 would require a review of the effects of the scheme, including the effectiveness of the anti-abuse provision and other changes being made by schedule 1. The Government have already committed to a full review of SITR within two years of its expansion. An early review would make it impossible to adequately gauge the effectiveness of the provisions that we are introducing now. Further, these anti-abuse provisions were introduced in direct response to HMRC becoming aware of the creation of aggressive tax-planning structures designed to exploit this relief. We estimate that around 800 social enterprises will benefit from the relief over the next five years. By 2021-22, SITR is forecast to cost £65 million per year, £30 million more than if the scheme was not enlarged.

We have had an interesting debate on the scheme. As we have already committed to a full review, I ask the hon. Member for Oxford East to withdraw amendment 20. Schedule 1 will increase the amount of investment that social enterprises can raise through SITR making it attractive to a wider range of enterprises and investors. Other changes will ensure that the scheme is well targeted and delivers value for money.

Finance Bill

Stella Creasy Excerpts

Tuesday 12th September 2017 Commons Chamber

[John Redwood]

The idea is to provide a better-quality service, applying modern technology and techniques to serve those who need the scheme. I am sure that the Minister will be interested in any detailed criticisms the hon. Gentleman may have. This Government have spent a lot of our public money on dealing with abuse on the tax side, because they rightly believe that we should be fair, crack down on tax abuse and ensure that people do not cheat the welfare system. Neither is a good thing to do. If we want a sensible financial balance, we should surely be fair to both sides by ensuring that we are not cheated out of public money and that we are not short-changed by people who break the law on tax.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

The right hon. Gentleman was waxing lyrical about corporation tax earlier. Of course, private finance initiatives—with companies that Members on both sides of the House have concerns about—have been beneficiaries of the Government’s changes to corporation tax. Those companies benefit from the lower corporation tax espoused by the right hon. Gentleman, even though they signed contracts with the Government to pay a higher rate of corporation tax that was part of the value-for-money assessment for those contracts. If he wants to get the money owed to the public sector, does he recognise that corporation tax may need to be amended in certain ways and with some companies to reflect that?

[John Redwood]

The hon. Lady is very brave to mention PFI because that was a failed experiment by the Labour Government, who got through an awful lot of public money needlessly by not doing good deals with the private sector and not understanding that they had to be more careful in the kinds of contract they signed.

[Stella Creasy]

rose—

[John Redwood]

I will give her another go.

[Stella Creasy]

I welcome the right hon. Gentleman’s concerns about PFI. I would like to hear him talk about Private Finance 2, which is this Government’s proposal, including £23 billion of infrastructure investment that will be done under the same contracts, and which therefore faces the same challenges. Many Labour Members recognise the need to deal with PFI. I would hope to hear the right hon. Gentleman—a man who has been so proud of the role of corporation tax—deal with them equally rather than avoid the question. I am sure that his constituents would like that too.

[John Redwood]

I did not avoid the question at all. I pointed out that most PFI contracts were signed under the Labour Government. When I was a Secretary of State, I remember being offered a PFI route to financing a new hospital. I looked at the numbers and did not think they worked, so I said, “I’d rather finance it in the normal way by public borrowing because that would clearly be cheaper and give us more control.” That was a bit of a surprise to my officials but they quite liked the advice I gave them on the subject. It is the job of a Minister to understand these things, but a lot of Labour Ministers did not understand the contracts they were signing, and those contracts had weaknesses. If the hon. Lady has problems with contracts that Ministers are currently signing, it is her job as an Opposition MP—she will not be shy about doing this—to give chapter and verse. She has not been specific, but we do not have time to turn this into a debate about individual contracts. I am sure that my ministerial friends, particularly in the Treasury spending department, would be very interested to hear where she thinks they have gone wrong. However. we probably need to move on.

[Stella Creasy]

rose—

[John Redwood]

Oh, if she really wants to intervene again, she may.

[Stella Creasy]

I thank the right hon. Gentleman for giving way again. I am pleased to hear his concerns. I note his intention to increase public sector borrowing. I repeat that the Government are talking about £23 billion of infrastructure spending financed by this Bill. They are looking at PF2, which is “exactly the same” as PFI. They are not my words, but those of the National Audit Office. Will he join me in supporting amendments to the Bill to ensure that those companies pay their fair share of tax and the public sector gets the money it deserves?

[John Redwood]

I have no evidence that makes me believe they will not pay their fair share of tax. I am sure that my ministerial friends have heard the hon. Lady’s point and will look carefully at the issue. It is good that a lot of our future infrastructure programme will be privately financed, but I always apply a simple test. If the thing is going to be privately financed, I want to ensure that the private sector is bearing significant risk in return for the reward it wants to earn. I do not like phoney PFIs, whereby the private sector cajoles the public sector into taking all or most of the risk while giving a higher reward than one would get on a normal Government bond in order for the contract to be signed. There were quite a lot of those under the Labour Government and the taxpayer is much the poorer as a result. It is part of the reason that we did not get the gains in public sector productivity that we would like to achieve. If we do not discipline the big investment spend, we do not drive forward the productivity gains that we clearly need to make across a large public sector.

In conclusion, the best way to raise the extra money we need to pay wages and improve public services—an aim that is shared across the Chamber, contrary to Labour’s belief—is to drive further growth in the economy so that more people are in jobs to pay tax, and so that more companies are doing things here and making profits here on which they can pay tax. We need a series of tax rates that are not too complicated and that are low enough to be sensible so that we are internationally competitive. Then individuals and companies will have every incentive to do more, invest more, work harder and work smarter in order to carry the economy forward. I trust that is what my hon. and right hon. Friends will be doing.

I do have some worries about the length of modern Finance Bills. It is useful to have another doorstop, but it is a bit of a barrier to our reading every page and giving it the credit that it undoubtedly deserves. It would be good to see whether we could have a period of fewer and simpler taxes so that we do not need quite so much language in Finance Bills. It would also certainly be good to look at what one can learn from the success of raising more revenue from richer income tax earners by going from 50% to 45% and getting more revenue out of companies by going from 28% to 19%. We could apply that principle more generally to other taxes because we would then have a win-win situation. We would have more money for our public services, more economic growth, more people in jobs and more people keeping more of the money they earn. That might make for happier constituents, and that is my main aim in being here.

--- Later in debate ---

[Mr Harper]

I am grateful to my hon. Friend for that intervention. By the way, Madam Deputy Speaker, I did not think that it would be out of order for me to make some brief remarks about something other than the Finance Bill, given that the Opposition Front-Bench spokesperson spent 10 minutes talking about yesterday and the hon. Member for Aberdeen North spent quite some time doing the same.

Let me move on to finance and the essential capability of the Bill, which is, of course, to raise revenue. My right hon. Friend the Member for Wokingham (John Redwood) talked about that, and of course the central point is about balancing the public finances. I shall not talk about that at length because I was fortunate enough to secure a Westminster Hall debate on the subject which, much like today’s, was well attended, with more than 20 Conservative colleagues and only one Opposition Back Bencher, the hon. Member for Islwyn (Chris Evans). To be fair to him, he spoke extremely well, but he was the only Opposition Back-Bench Member to speak in that debate, which demonstrated that when it comes to balancing the public finances, Opposition MPs are very good at spending money, but not so good at thinking of ways of balancing the books and ensuring that we have sound public finances. That is important because the sound public finances that the Bill helps to put in place will ensure that the country continues to grow and that we can continue to deliver pay rises for people across the country.

[Stella Creasy]

I want to take up the right hon. Gentleman’s challenge. I am sure that he is proud that the previous Government, of which he was part, extended capital gains tax to residential property sales for non-domiciles, so will he join me in suggesting that we close the loophole on commercial property sales? There is one idea that could raise some money for investment in this country.

[Mr Harper]

I am very pleased that the measures in this Bill, which Opposition Front Benchers seem so unwilling to support, raise something like £1.6 billion—I am sure that the Financial Secretary will correct me if I am wrong—on top of the £1 billion we have raised from non-doms. Put together, that is £2.6 billion, which is more than the Labour party raised in all the time it was in government. If the hon. Lady compares Labour’s record in government with ours, she will see that we have been much more effective in raising taxes from non-doms to spend on our public services than her Government ever was.

--- Later in debate ---

[Wes Streeting]

rose—

[Stella Creasy]

rose—

[Mr Harper]

I will give way to the hon. Gentleman again.

[Stella Creasy]

I thank the right hon. Gentleman for—

[Mr Harper]

I am sorry; I meant to give way to the hon. Member for Ilford North (Wes Streeting).

[Stella Creasy]

Age before beauty.

[Wes Streeting]

Imagine lacking both!

The right hon. Gentleman is absolutely right to say that we need more international co-operation if we are to curb the excesses of multinational corporations’ power. Does he therefore share my sadness that we are currently driving a coach and horses through the most sophisticated political and economic alliance in the history of the world—the European Union—which gives us that global power and the leadership to tackle those global excesses?

--- Later in debate ---

[Stella Creasy (Walthamstow) (Lab/Co-op)]

I congratulate the hon. Member for Moray (Douglas Ross) on a wonderful maiden speech. He paints a fantastic picture of a part of the country that I have yet to visit and that clearly has many delights to try, although, on his advice, I will pass on the home-made scones, if I may.

May I offer the hon. Gentleman some advice, as somebody who has been here all of seven years? He will find watching “Monty Python” a very useful guide to what goes on in Parliament. Sometimes this Chamber can feel like the argument clinic, where some people have been paid to argue. The Brexit Secretary also appears to be taking his lead from the Spanish inquisition in his approach to the negotiations, and he is equally effective. Ultimately, Brexit is really like the big Monty Python foot, slamming down on everything we do in the Chamber in this Parliament.

That is why this Finance Bill is so important and why I look forward to the many hours we will spend debating it in Committee. It is vital that we do not let Brexit deter us from dealing with some of the many problems we have in our country. The test we must therefore set for all proposed legislation in this House is, does it progress the needs of our communities and our country? I have to say that I find this Bill wanting in many different ways. The Government seem to have an economic plan based on personal debt, not UK productivity.

This week, I heard the Chancellor desperate for ideas. I want to be a helpful contributor to this House and to our debates, so in my speech today I shall set out for Ministers—I hope they will listen to some of our ideas—some suggestions on how we could get this country on to a sound economic footing. One of the Ministers is a former sparring partner of mine on the Public Accounts Committee, so he will know my personal commitment to value for money for the British public.

However, we first need to understand the context in which the Finance Bill is proposed—how we got to this position, why the legislation represents so many missed opportunities and why my colleague from the Scottish National party, the hon. Member for Aberdeen North (Kirsty Blackman), was right to talk about people feeling the squeeze. We know that for many of our constituents there is too much month at the end of the money. Therefore, when we are looking at tax measures, we are looking at how we might help our constituents, and we have to ask first about those who will bear the brunt of a Government who do not do things to tackle the impact on their lives of rising inflation, stagnant wages, low productivity and, indeed, that Brexit Monty Python foot.

Our country has an eye-watering £200 billion of personal debt. In every single legislative measure we make we must ask what we are doing to reduce that debt, because the consequences for so many are so great. My concern is that that debt is so high because the Government are balancing the books out of the pockets of our constituents.

In 2010, I sat on the Opposition Benches—a new MP, like the hon. Member for Moray—and listened to a Chancellor promise that the deficit would be eliminated. In 2016, I read the note from the Office for Budget Responsibility that recognised that the Government had broken their own deficit rule. The hon. Member for Moray talked about being a referee. We are not even on yellow cards with this Government as regards economic competency—it is a straight red card, as far as I am concerned.

Previous Chancellors have claimed time and again that they would get a grip on the public finances. Time and again, they have moved the goalposts. They changed the targets in 2014 to 2017 for eliminating the debt. In 2015, they changed the target to running a surplus in normal times by 2020-21. Then, in 2016, they changed the target again to reduce net borrowing to below 2%. Now, in the Tory manifesto, it has changed to 2026, and we are hearing that in the autumn Budget it could be changed to 2027. Last year we borrowed £52 billion, and it is expected that this year we will borrow another £60 billion. So forgive me, but I will not take any lectures from Government Members about fiscal responsibility. If, in these seven years, you had been on a business board and the finance director had come to you every single year, as Conservative Chancellors have, asking for more money because yet again they have not got to grips with how they were spending it, you would sack them. That is certainly what I hope the British public will do.

At the same time as we are borrowing more and failing to tackle the debt, our productivity is worse. I agree with the right hon. Member for Forest of Dean (Mr Harper), who is sadly no longer in his seat, that this is a challenge we cannot ignore, whatever is going on in Europe. A typical French person need only work Monday to Thursday compared with a typical Brit, and it is the same for Germany, which has a 29% higher GDP per hour than the UK. We have seen a lost decade of productivity in this country, and our communities and businesses are paying, so that we are now in an extraordinary position where it is more expensive than ever before to employ somebody, despite the squeeze on wages. Stagflation is upon us. Inflation is up by 12% since 2010, but wages are down by 6%. It is little wonder that so many in our communities are borrowing.

When we come to legislate on income tax or on the increasing numbers of people who are self-employed—the small business owners whom we all cherish in our communities—let us ask what we can do to help them. Let us not be blind to these challenges, or to the inequality that is stubborn in our country. During this time, the people who benefit from many of the measures in such legislation have done rather well. In 2000, FTSE 100 chief executives were paid, on average, £1.4 million a year. Now, it is £4.5 million—a 220% increase. That is not market forces, but it shows a failure by us as a country to invest in people. Our productivity reveals that challenge, and the personal debt of our communities is paying for it.

Ministers may ask what I would do to raise money—we have heard that question before—so let me give them some examples of things that we could put into this Bill. We could, for example, look at clause 16 on capital gains tax. Earlier I asked Government Members whether they might join me on this. After all, there has been much talk about tackling the issues of non-doms. Indeed, the previous Chancellor changed the legislation to put capital gains tax on to residential property sales, but now there is a loophole around commercial property sales. Let me reassure Government Members that if they choose to follow our advice on this matter, it has been tackled in the United States, in Canada and in Australia. It is not crazy economics but sensible planning.

We could apply the same rate of tax on carried interest to hedge fund managers. Why are they not paying the same rates of income tax as the cleaners who clean their offices—still, on this Government’s watch, seven years on? We could change business property relief, too often used to avoid inheritance tax, restricting it to small businesses and perhaps bringing in a cap of, say, £5 million, so that people do not use that to avoid taxation. We could deal with commercial real estate in cases where people are avoiding the 5% stamp duty by putting it into companies. Those are all things that could be put into clause 16 to raise money and to be fair about who is paying all the taxes that are avoided.

Clause 69 talks about gathering information. We should be dealing with the information about the debts that our communities are based around. Forty-one per cent. of consumer debt is on credit cards. Hon. Members should talk to the people in their communities who are now called zombie debtors, paying the interest but not the capital on the money that they owe. They are borrowing to stay afloat because their wages have not risen, and they are borrowing for basics—to put food on their table, to keep a roof above their head, and to put petrol in their car to get to their jobs where they are not getting the pay rise that they deserve. Nothing in this Bill will tackle the squeeze on them from that debt or help the third of people who are now in debt because they are behind on credit card repayments. Clause 69 could introduce an FCA consultation, as despite the fact it is looking at credit card debt it is not considering the lessons that Ministers could learn from the cap on high-cost credit companies. When some people are paying £2.50 for every £1 they are borrowing in this way to stay afloat, it is time to extend the cap on high-cost credit and payday loans to credit card companies. We could do that in this Bill; we could certainly gather the information on the impact it would have.

We could also look at the creditors we as a country owe. Members on both sides of the House will know of my interest in private finance initiatives and my recognition that Governments of all colours have used them and continue to use them. I note that Ministers have talked about the £23 billion they wish to invest in infrastructure and I am sad that the right hon. Member for Wokingham (John Redwood) is not in the Chamber given the concern we share about whether private finance is the best way to do that. Of the additional money put into the NHS in the spending review, 22% will leach out to PFI companies as profit, and every constituency in this country has one of these deals.

Let me give an example of the kind of money we are talking about. The company that owns University College Hospital in London has made pre-tax profits of £190 million out of the £735 million that we as taxpayers have paid it. That is enough money to build another hospital outright. This country now owes £300 billion in PFI debts on projects that should have cost £55 billion. Nobody in this House can be smug about PFI. When PF2 is as expensive and the preferred model for how the Government intend to invest in infrastructure, Members on both sides should be asking whether their communities can avoid such contracts.

With eight companies owning 92% of the equity stakes in the hospital sector, there is certainly more work to be done to look into them. Indeed, the Bill gives an exemption to the very companies for the interest that they pay on shares. These companies signed deals with the public sector to pay a certain rate of corporation tax and to commit to paying UK taxes. Indeed, the value for money assessments of the deals was predicated on that, and I note that the Government have not updated the value for money deal to take account of this information from 2013, despite promising more than four years ago that they would.

Schedule 10 to the Bill allows those companies to claim back the interest without the cap. How can we, as a society, give these companies more money through that investment relief as we see our public sector struggling and that money being leached out of it? Surely we should change that, and I hope that Members from all parties will listen and support changes to proposed new section 439.

While Brexit is a Monty Python foot, for many of our small businesses VAT is their biggest compliance issue. Many of them trade in Europe and therefore have to reclaim VAT from other countries. The clock is ticking for us to leave the European Union and the lack of information in this legislation about how companies will manage VAT post-Brexit is alarming. In particular, articles 170 and 171 of the Council of Ministers’ 2006 directive—I hope that the Minister is writing this down—are matched by section 39 of the Value Added Tax Act 1994. That allows companies in Britain to seamlessly reclaim VAT through intra-EU legislation. Those options will be gone for our companies when we leave the European Union unless we have alternative arrangements, so when the Government are making legislation through part 4 of the Bill on VAT, the lack of any correlation between the 14th directive and the importance of aligning those measures so that businesses have a seamless transition and can be confident that they can manage their VAT if they trade with other countries is very frightening.

[Mel Stride]

The hon. Lady’s point about VAT and the arrangements that may or may not pertain when we leave the European Union will be dealt with in the upcoming customs and excise Bill.

[Stella Creasy]

I thank the Minister for that point, but obviously the Bill is about Making Tax Digital and the intra-EU process is digitised. That is what makes it so seamless for so many companies. When we are making legislation about making VAT a digital entity and working online, surely we should be joining these things up to make it as easy as possible for our constituents who have to deal with these issues, rather than separating it out. My point is simply that this Bill is now coming towards the House at the same time as those negotiations are happening. Our constituents deserve clarity on how these things are going to work together.

That applies particularly to our self-employed constituents. Clause 64 could help many of them who have to deal with the errors relating to their welfare entitlement and their tax entitlement. We know that 18% of self-employed people get tax credits, compared with 10% of people who are employed, yet there is nothing in the Bill to help them. I am sure that my colleague—another gentleman from the SNP, whose constituency is I am sure as beautiful as Moray but unfortunately I have forgotten what it is—would agree that we could help those people through this legislation by joining up the way in which the state works with self-employed people. Issues such as how they deal with VAT, with universal credit and with insurance will all be covered in the Bill, but there is an absence of ideas from the Government on how to help those people.

The Government also seem to be overlooking some of the poorest people in our society. I know this because, 18 months ago, I took part in the consultation on tips, gratuities and service charges—the disguised remuneration that the Government are so concerned about—yet, 18 months on, we are no further forward on finding out what the Government are going to do to prevent some of the poorest workers in our retail industries from being ripped off by employers who dip into their tips and use them to prop up their businesses. I have given examples of this to the Treasury and to HMRC, and these issues could have been dealt with in this Bill, but there is nothing there. There is nothing in the Bill to protect workers who get their tips through an electronic system or to ensure that their employers are not taking a surcharge from them. There is nothing in the legislation that even gives a legal right to a payslip—a very basic piece of information that would help to stop those people being exploited.

Those 10 ideas reflect the things we could have done, through this Bill, to help the poorest hard-working people in our communities who will be stamped on by that Brexit “Monty Python” foot. I look at the gaps in the Bill and at the ease with which non-doms will slip through the loopholes, and I see a Government who are not only running out of ideas but running out of road on Brexit. God willing, with the work that we will do, they will also run out of time soon.