Finance Bill (First sitting)

Alison Thewliss Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

We had a wide debate on Second Reading about the fact that our public services are overstretched; they have faced a decade of real challenge, and were left ill prepared for the crisis we face. We also face an important challenge in the months and years ahead in recognising the important role that key workers have played during this crisis. Their contribution has been undervalued and not recognised for far too long, and that must change. The measures the Government will adopt in their approach to taxation and social security will play an important role in shaping that. That is why we tabled amendment 5: so that we can have that scrutiny and greater consideration. We want to avoid the mistakes made in the past. The amendment will help the Government to tread carefully, to recognise the challenges we face in responding to the current crisis, and to make evidence-based revisions to policy, both in the here and now in responding to this crisis, and in the future. We hope to push the amendment to a vote.

[Alison Thewliss (Glasgow Central) (SNP)]

It is a pleasure to see you in the Chair, Ms McDonagh, and to join all the members of the Finance Bill Committee.

I echo the thanks that other hon. Members have given to the Clerks and staff who have made this possible, but I share the concerns about having to meet physically, and about the fact that there is no option for hon. Members to participate remotely or to vote digitally.

Given that the Secretary of State for Business, Energy and Industrial Strategy was taken ill yesterday at the Dispatch Box, we should think more carefully about how we spend our time in this place and how close together we are. I know discussions were had about how far apart we should sit and how that would work, but the reality is that the highest risk factor is people being in a room together and talking for hours on end, which sounds very much like the Finance Bill to me.

I agree with many of the comments made by the hon. Member for Houghton and Sunderland South, and I congratulate her on her position and her lead on this Bill. It is clear that for many people there is a fundamental unfairness in the economy. There are issues that are longstanding and intractable, and the Government have not shown great interest in trying to deal with those inequalities or in addressing the situation, particularly for women, ethnic minorities and disabled people, who still, after so many years, remain the worst off in society. The Government need to take far more and firmer action to address that.

The Government need to take further action to address the climate emergency. We should be seeing a lot more on that in the Bill, and should take our responsibilities on this issue far more seriously. If there ever was a time to do that, it is now. We have the opportunity. We have shut down huge chunks of the economy, and we can think, in this small time that we have, about how we want to reopen the economy, and how we could make changes that could otherwise pass us by. The amendments that the SNP will table to this Bill are in that vein. We want to look at equality and the environment. We want to look at how we can instil fairness in the system, if indeed that can be done.

I will also mention an issue that my hon. Friend the Member for Aberdeen North (Kirsty Blackman) has spoken about on many occasions: the need for this Committee to take evidence. The Domestic Abuse Bill Committee is also meeting today and is taking evidence from a range of experts. The Finance Bill does not do that. It will take written evidence—a lot of that has arrived, and I thank all those who have sent it—but we do not get the opportunity to take oral evidence and interrogate the people who have the most knowledge on the implications of the Bill. If we took that evidence, we would make better, wiser decisions and more fully understand the implications of the Bill, and the Government could avoid making mistakes and having to come back and change things retrospectively in the next Finance Bill. It would be incredibly helpful if people such as the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales could come before the Committee and we could hear from them. I urge the Government to consider why that could be helpful to all of us in this Room, rather than just passing it over as not necessary.

The amendment tabled by the official Opposition is worthy, but I would caution them, slightly, with respect to its implications for Scotland. They have not considered fully how it would affect Scottish income tax rates. What we do in this Parliament has that impact. Scotland has a progressive taxation system, and we are proud of it. We have taken the measures we can within the restrictions we have. However, if that system is not considered within the amendment, that will miss out a huge chunk of the impact on the Scottish budget and mechanisms within it for funding the Scottish budget and all the things we want in Scotland. I would not, at this stage, be willing to support the amendment, because it does not encompass that aspect, and it should. Scotland should be kept in mind in many of the measures or suggested changes. I will conclude my remarks with that reasonable point.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Main rates of income tax for tax year 2020-21

Amendment proposed: 5, in clause 2, page 1, line 10, at end insert—

‘(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—

(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and

(b) the effect of income tax rates for 2020-2021 on annual income for the following:

(i) Households below average income, and

(ii) High-net worth individuals as defined by HMRC.’ —(Bridget Phillipson.)

This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.

Question put, That the amendment be made.

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[Jesse Norman]

The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.

The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.

The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.

Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.

Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.

We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.

[Alison Thewliss]

Corporate taxation is not within the power of the Scottish Parliament. We have to live with the decisions that Westminster makes on this, but I am glad the Government have realised the error their ways in originally aiming to cut corporation tax. Given the money that would have been lost to the economy, that is wise.

The Minister mentioned the impact on women in work. Findings from various women’s organisations suggest that coronavirus will have an impact on women’s employment, and that employment will not recover unless there is significant investment in childcare to redress that as we come out of this crisis. If we were to take evidence from groups such as the Women’s Budget Group, we would have a lot more detailed evidence on the impact of the proposed measures on women. I encourage him to look at that evidence and engage with the Women’s Budget Group to consider how better we can have evidence brought from groups who have expertise in this area. Such groups have pointed out that women are more likely to be furloughed and more likely to lose their jobs. As the furlough scheme is wound up, they will face unemployment sooner than they would have anticipated as employers look at the scheme and say, “I can’t afford to pay these wages. I’m just going to sack my staff.” None of that necessarily relates to the amendment on corporation tax, but I want to make sure those points are on the record.

--- Later in debate ---

As I said, nothing here for us to oppose, but I hope that when the Minister replies, she addresses that point about complexity.

[Alison Thewliss]

There is indeed not terribly much to oppose here, but this is about the ambition of the Government to make a change, to make something different out of this Bill and to do something different. I draw the attention of Government Members to what Norway has done to increase the use of electric vehicles, so that 42% of its cars are now electric vehicles. The Norwegians did that with incentives such as no annual road tax for electric vehicles, company car tax reduction to 40% on electric vehicles, changes to purchase and import taxes, and an exemption from 25% VAT on purchase. They had an ambitious programme, and they needed the infrastructure, but they took those actions and they saw a dramatic change in the number of electric vehicles as a result.

I encourage the Government to look at what can be done. If cars are to be around for some time to come, how can we make them better? In many parts of Scotland, for example, people need a car to get around In large parts of rural Scotland it would be impossible to do anything other than have a car, but if we can make those cars electric vehicles, providing the plug-in infrastructure for them and the tax incentives to reduce their cost, we could make that change achievable. I ask the Government to be more ambitious.

[Kemi Badenoch]

I thank both hon. Members for the points that they have made and the good questions they asked. I reiterate that tackling climate change and improving the environment are top priorities of the Government. The UK is a world leader on climate change. The reason why we are doing this is to address several things at once.

Let us remind ourselves what the WLTP is. It is designed to ensure that we are reflecting real world driving conditions more accurately by including a longer test time. The aim is to reduce the 40% gap between lab tests and real world driving. We have put many other levers in place to address the broader issue of climate change.

I accept the point about complexity—I recognise the need to ensure that this does not have an overall impact on the consumer. One of the reasons why we are phasing it in this way is to better protect the automotive sector. I thank both Members for the points they made.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

Clauses 8 and 9 ordered to stand part of the Bill.

Clause 10

Apprenticeship bursaries paid to persons leaving local authority care

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

[Wes Streeting]

The Financial Secretary is right that he will not get much by way of argument from us. The bursary is obviously a laudable policy designed to support people in our society who lived in care as children and who far too often face serious disadvantages in terms of educational outcomes, employment opportunities and life chances.

It is a source of deep regret to me, as the son of a parent who spent time in care—care leavers are a big part of my family—that we have not done more as a country to narrow the attainment and opportunity gap for care leavers. Of course it is right that individuals who are in or have left local authority care who subsequently join an apprenticeship scheme should not be subject to income tax and national insurance contributions. We will certainly not oppose a clause designed to give effect to that.

I have some questions for the Financial Secretary about how the Bill deals with that, as much out of curiosity as anything else. There is an existing exemption in section 776 of the Income Tax (Trading and Other Income) Act 2005 for income from scholarships, which includes bursaries held by an individual in full-time education. Section 776 could have been amended to include the bursary payment, instead of introducing a new section to the Income Tax (Earnings and Pensions) Act 2003. I would be grateful if he could clarify why the Government have chosen to enact the provision by amending legislation in that way, rather than using section 776 of the 2005 Act.

I understand that it is the Government’s view that the bursary is employment income rather than other income, but other bursaries are classed as other income, and care leavers could be entitled to bursaries outside an apprenticeship. I would be grateful if the Minister explained why the Government consider this bursary to be employment income. If it is employment income, legislation will be required to exempt the payment from national insurance contributions; if it is not, additional legislation might not be needed. Some understanding of that, for our interest and the interest of all those who follow proceedings such as these closely, would be welcome.

[Alison Thewliss]

Again, I am not looking to oppose the clause. The aim is laudable, but I want to highlight a couple of things about apprenticeships. Coronavirus could significantly affect the number of apprenticeships that will be available to young people this year and perhaps even into next year as well. What do the Government intend to do to make sure that those opportunities are not lost to a generation of young people who are leaving school as well as leaving care?

As you will appreciate, Ms McDonagh, if those young people do not have the opportunities that they should, the impact on them will be devastating—as it will be on society as a whole if their skills and talents do not go into the workplace. I implore Ministers to look carefully at that, to make sure that they do not miss those young people, and that those concerns are high on their agenda. Apprenticeships can be transformational for young people. They can give them new opportunities and a chance to do something that they would never have anticipated through their family background or their ambitions growing up. It is vital to protect them in the months ahead.

I would also highlight the fact that the minimum wage rate for apprenticeships remains staggeringly low. The Government should look carefully at apprentices more generally. The bursary in the clause is fine and laudable, but apprenticeships for all young people need to be properly remunerated. Some of those young people will have families themselves and will be unable to take up those opportunities if they cannot afford to put food on the table because the apprenticeship rate is so low.

Not all young people live with their families, as the bursary recognises; but all young people who want them should have access to apprenticeships. I urge the Government to reconsider minimum wage rates more generally. There should be a living wage for everyone, but apprenticeship rates in particular are incredibly low in this country and they need to be addressed urgently so that all young people who want to can take up those places.

The Government could also look at the work done in the care review in Scotland. We appreciate that not all the things that could have been done to help young people have been done. The care review took an in-depth look at that. I urge the Minister to look at that and at what more can be done to support young carers in society.

[Jesse Norman]

Those were two useful, helpful contributions from the Opposition. The broad answer to the technical question raised by the hon. Member for Ilford North is that this is a cleaner and more direct way of addressing the problem; but I should be delighted to write to him and set out the reasoning in more detail.

The hon. Gentleman raised the question of other exemptions. As he will be aware, we are absolutely amenable to considering these things on a case-by-case basis, and if there are others that he thinks deserve further consideration, he is again welcome to write to me and we will give that a review.

The hon. Member for Glasgow Central raised a point about apprenticeship opportunities more widely, and she is absolutely right. The Government have already been leaning into the issue of apprenticeships, as she will know, through the levy. There is much more work to be done in this area, and it is well understood, certainly from the Prime Minister down, that the response to the coronavirus may well cause the Government to want to look at the whole area in more detail.

I cannot pass from this topic without drawing the hon. Lady’s attention to a personal interest that I have, which is the New Model Institute for Technology and Engineering, in Hereford. That is the new university we are setting up precisely to integrate the academic and the vocational in a way that gives scope for very high value-added learning, using apprenticeships but also actual project work, in a way that is integrated into the engineering curriculum in many ways.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

Tax treatment of certain Scottish social security benefits

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

--- Later in debate ---

[Bridget Phillipson]

The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.

[Alison Thewliss]

I am happy to support the clause and the actions of the Scottish Government in bringing in these new social security measures, which will be of great benefit to the people of Scotland. My only regret is that we have to come asking the UK Government to put these measures into force—we would rather take care of all these things ourselves.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Power to exempt social security benefits from income tax

[Alison Thewliss]

I beg to move amendment 8, in clause 12, page 7, line 2, leave out ‘may’ and insert ‘must’.

This amendment seeks to exempt all social security benefits from income tax.

[The Chair]

With this it will be convenient to discuss amendment 9, in clause 12, page 7, line 4, leave out from ‘benefits’ to end of line 5.

This amendment seeks to exempt all social security benefits from income tax.

[Alison Thewliss]

I am happy to move the amendment and speak to amendment 9, which The Scottish National party tabled just as a query. When we were looking at the Scottish social security system and the opportunity not to have income tax levied on social security benefits, it got us thinking about what the logic is of taxation on social security, because it is the Government giving with one hand and clawing back with another, resulting in an incredibly complex system where some benefits—indeed, some parts of benefits, some types of benefits and some subsets of benefits—end up liable for income tax whereas others are not. We end up with a cumbersome system that is difficult to navigate.

Our thought process in looking at the benefits was to ask why it should be that bereavement allowance, carer’s allowance, contributory and youth ESA, income-based ESA, some but not all incapacity benefit, industrial death benefit pensions, state pension, widowed mother’s allowance, widowed parent’s allowance and the widow’s pension are all taxable, whereas others such as personal independence payment, war widow’s pension and universal credit are not.

The young carer grant is not, but carer’s allowance is. There are a huge number of inconsistencies in the social security and income tax system, and our amendment seeks to ask: why should that be? Should we not look for a much simpler system, which would give people the money in their own hands without having to negotiate backwards and forwards with the Government? That would save the Government a job in clawing back that taxation and allow people to get on with their lives, rather than having to worry about what the taxman will take from their benefits. The SNP thought it was worthwhile exploring this issue with the Committee.

[Bridget Phillipson]

As with clause 11, the Opposition have no objection to what the Government seek to achieve in this clause. On the substance of the amendments put forward by the hon. Member for Glasgow Central, there are a few issues that I hope she will be able to clarify. She will be aware that the general principle is that a benefit is taxable if it is an earnings replacement benefit. As the Treasury’s tax benefit reference manual notes, the reason behind that is to avoid creating an incentive whereby an individual receiving social security benefits is better off than someone on a comparable income whose earnings are liable to tax. What consideration has she given to that potential outcome of her amendments?

My second observation is about the cost of the measure. I am grateful to the House of Commons Library, which has sought to estimate the cost. The cost of exempting all taxable social security benefits from income tax would be around £5.9 billion in 2020-21. Of that amount, 95%, or £5.6 billion, is attributable to the state pension. The Library’s analysis identifies that those in the top decile of income distribution would benefit the most, while those in the lowest would gain the least. I know that the hon. Lady cares very much about those issues, and I would be grateful if she addressed that point, because it strikes me that such an approach would usually be regressive, and I would like to understand a bit more about the assessment of the distributional impact of such a policy.

[Alison Thewliss]

I thank the hon. Lady for her comments, which she is quite right to make—the Library analysis is really important. I am moving the amendments to point out just how complex the system is that there is of course a cost to having and administrating such a system. People have difficulty navigating that system, because it makes it more difficult to claim what they are entitled to, particularly if they are moving from one benefit to another. Although I appreciate the points that she has made and understand why she made them, these are probing amendments to see what the point is and what the Government are doing to make an ongoing assessment of the logic of that complexity, for which there is a cost and a difficulty. Although I in no way deny the cost—I know the amendments have no prospect of being passed by the Committee—I would like the Government to consider carefully the impact of that complexity on individuals, and whether they can simplify the system, which is ludicrously complicated.

[Jesse Norman]

I thank colleagues for their contributions. As they have recognised, the amendments are very technical in nature. I will keep my remarks brief because, if we can, I would like to discuss clause 13 before we break, which will leave us a clear run at the afternoon. Clause 12 introduces a power that commits the Government to clarifying tax exempt status for future new social security benefits introduced by the UK Government or devolved Administrations using a statutory instrument. That power has a more general applicability and creates an additional flexibility that will be of value to Government in making changes to address needs more rapidly than at the moment.

The hon. Member for Glasgow Central tabled her amendments in an interrogatory—or probing—spirit, for which I thank her. My response has been very well articulated by the hon. Member for Houghton and Sunderland South. Scottish benefits are treated in line with the fiscal framework and, under that framework, which exists between the UK Government and the Scottish Government, only new benefits that top up or replace an existing taxable benefit will be liable to tax. That is an established principle of taxation exactly to avoid the perverse incentives that might otherwise be created.

In addition to the questions raised by the shadow Minister about cost and equity, it is worth mentioning that the effect of entertaining the amendments would be to undermine the fiscal framework agreement and that longstanding principle of taxation. I ask the hon. Member for Glasgow Central, in a rhetorical spirit, whether she really means to overturn the fiscal framework that was hammered out over a number of years between those two sides. If she does, is it her intention to throw out other settled agreements between the Scottish Government and the UK Government within that framework? I suggest that that is not her intent and, because the meaning and purpose of the clause is clear, I commend it to the Committee and invite her to withdraw the amendment.

[Alison Thewliss]

I am indeed content to withdraw the amendment, but the point stands that there is an inconsistency within the system, in which a war widow’s pension is not taxable but a widow’s pension is. There are huge inconsistencies about which I have questions. The Minister is being mischievous when he suggests that I would want to undermine the fiscal framework, but he knows fine well that I long for the day when the fiscal framework is not necessary because Scotland is an independent country that makes for ourselves the full range of decisions about what is best for our people. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 ordered to stand part of the Bill.

[The Chair]

We now have four minutes to go. Does the Committee wish to move on to clause 13?