Finance Bill

Alison Thewliss Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Mr Mitchell]

There is an important principle: while commercial confidentiality should not be compromised, we should move to greater transparency to tackle the problems that lie behind what the right hon. Gentleman is saying. I agree with that and I think that there is common cause across the House that that is what we want to do. Clearly, getting a multinational standard will be the right result, but these things have to be led.

In summary, the new clause is part of the noble campaign that is supported across the House, to shine a light on the profit shifting, transfer pricing and tax haven abuse that is used to minimise tax liabilities. The House has already voted in favour of public country-by-country reporting through an amendment to the Finance Bill in 2016, which gave the Treasury the power to make the information public. My right hon. Friend the Financial Secretary will no doubt rely on the prayer of St Augustine, “O Lord, make me chaste, but not yet,” and argue that the UK would not want to implement this reform unilaterally, and he has already acknowledged, in a letter to the right hon. Member for Barking (Dame Margaret Hodge) dated 27 February this year, that a multinational agreement to do country-by-country reporting would be a good achievement, but I put it to him that that is too timid an approach.

As we contemplate Britain’s role post Brexit and we set out what we mean by global Britain, let my right hon. Friend stand tall, show leadership internationally, and follow the proud, confident example of David Cameron and George Osborne. Let global Britain lead by example, to the huge benefit of our domestic taxpayers and taxes, and for those in the poorest countries, whose mineral wealth is so often developed without their citizens reaping the benefits they should receive and that they deserve. This reform would be in the finest traditions of Britain’s past international development leadership, and I commend the new clause to the House.

[Alison Thewliss (Glasgow Central) (SNP)]

We support a fit-for-purpose digital services tax. Our new clause 5 seeks a review of how effective the Treasury plan is. It would force the Government to assess the digital services tax’s effectiveness and draw conclusions on that information within six months.

It is unfair that multinational online firms pay less tax than small high street shops, and the SNP has long said that we would support a fit-for-purpose tax, but during the lockdown many people have become adept at finding what they need online, from replacement parts for the oven and a tablet and macaroon subscription in my case, to clothes, trampolines, desks, chairs, food and drink, and this period may well have a permanent effect on how people do their messages.

The high street has been facing difficulties for many years now, under fierce competition from digital competitors. Retailers including Intu, Debenhams, Oasis and Warehouse have gone into administration, and job losses were announced today at Harrods, John Lewis and Arcadia Group—all while online retailers are booming. It is not a level playing field, and it seems only fair that the taxation system catches up and seeks to level it out. I agree with the hon. Member for Houghton and Sunderland South (Bridget Phillipson) that streaming services are also a huge money-spinner, and I do not see why the UK Government would not want to get in on that action. Taxes going uncollected in an area that is growing would be useful to Treasury coffers right now.

As the digital services tax is a new measure, it is vital that we try to capture how effective it is. By their very nature, online companies can be nimbler than their bricks-and-mortar counterparts, and it is always possible to find loopholes. We will wait to see how successful the policy is, but it is regrettable that the UK failed to implement it alongside international partners, despite countries such as France, Spain and Italy seeking to introduce similar measures. I appreciate the difficulties and limitations of work in the OECD, but co-operation is all the more important in the face of the US attempting to apply pressure to shut down the measure. Steve Mnuchin, the US Treasury Secretary, has stated:

“The United States remains opposed to digital services taxes and similar unilateral measures… As we have repeatedly said, if countries choose to collect or adopt such taxes, the United States will respond with appropriate commensurate measures.”

I wish the UK Government all the best in that fight, but it would surely be wise to enlist other countries for hauners, rather than taking the UK through this alone. I would be grateful if the Financial Secretary to the Treasury updated us on the progress of international co-operation.

On the subject of loopholes, I share the concerns that my hon. Friend the Member for Aberdeen South (Stephen Flynn) made clear in our amendment in Committee on the significance of Scottish limited partnerships. SLPs have been used for a huge and well documented range of nefarious ends, including money laundering, arms running and undermining democracy, yet they are still being advertised as an ideal way to avoid paying tax and hide under a veneer of respectability. It is entirely conceivable that online companies could use SLPs or other such vehicles to avoid their obligations and shift their profits, and we in the SNP want to ensure that the Government are aware of this, and to encourage them to act. The abuse of SLPs has gone on for far too long.

--- Later in debate ---

[Mr Davis]

Thank you, Mr Deputy Speaker. I shall move on to the other issue that I want to discuss today.

Amendment 20 would delay the imposition of the IR35 rules from 2021 until April 2023. It is very unlikely that the economic crisis we are facing will be over by April 2021, and attempting to implement IR35 will cost jobs and do serious economic damage. A few months ago, the powerful Cross-Bench House of Lords Economic Affairs Committee wrote a report on IR35, and much of what I am going to say involves quotations from that report. I will start with this:

“It is right that everyone should pay their fair share of tax. But the evidence that we heard over the course of our inquiry suggests that the IR35 rules—the government’s framework to tackle tax avoidance by those in ‘disguised employment’—have never worked satisfactorily, throughout the whole of their 20-year history. We therefore conclude that this framework is flawed.”

It is right not to impose unnecessary burdens on business at a time like this. I agree with a great deal of what the right hon. Member for Wolverhampton South East had to say about the importance of preserving—and, indeed, not destroying—employment in the current circumstances. This goes right to the issue of IR 35. The report states that

“the government made this decision after considering the issue too narrowly, in terms of its tax take. It has severely underestimated the costs to business of implementing the changes…And it did not analyse sufficiently the unintended behavioural consequences of the proposed reforms or their wider potential impact on the labour market, and on the gig economy in particular.”

Many contractors in the coming years will be left in an “undesirable halfway house”. They do not enjoy the rights that come with employment, yet they are considered employees for tax purposes. In short, IR35 will create “zero-rights employees”. I am saying this directly to Labour Members, because the idea that a Government action can create a class of employee with zero rights is an issue close to their hearts. Such employees have no rights under employment law but under tax law they are employees.

The Lords Committee called on the Government to commission an independent review to devise a better implementation of the scheme. I think that is exactly right, which is why I want to see another two years before we implement whatever the decision is. We need that time to understand precisely what the effect of our new policy will be.

It would be a disaster if, in the context of the economic crisis and the growing gig economy, the Government accidentally created that class of zero-rights employees with no holidays, no sick pay, no pension, no redundancy —no employment rights whatsoever. We must stop that happening either accidentally or deliberately, and on that basis I ask the House to support amendment 20.

[Alison Thewliss]

I am glad to follow the right hon. Member for Haltemprice and Howden (Mr Davis), who set out well the impact that the loan charge has had on many people’s mental health and wellbeing. Many of them will be watching the House tonight.

The implementation of the loan charge has been a disgrace. Our new clause 1 would force the Treasury to come clean on its unfairness and would require a review of the impact of the scheme. That reflects the limitations of Finance Bill amendments, but given the freedom of information revelations released yesterday by the all-party parliamentary group on the loan charge, suggesting that there was too cosy a relationship between Government officials and the staff working on the independent Morse review, looking again at this whole shambles seems appropriate.

It remains a scandal that tax professionals advise their clients to use such loopholes. It is important that people pay their fair share for the public services we all use, and the UK Government must pursue the organisations and individuals who facilitated these loans. An independent review should be carried out of the advice given. As I said in Committee, those who trade in the business of loopholes are surely looking for the next thing to come along, so coming down on those scheme promoters now would prevent future loss to the Treasury.

There is widespread concern that HMRC has failed to work constructively with those seeking a loan charge repayment plan, with concerns that some may face bankruptcy and homelessness. I thought the right hon. Member for Haltemprice and Howden laid that out quite well. He mentioned the seven people who sadly took their own lives.

We continue to call on the UK Government to review the implementation of this policy, and our new clause 1 would force them to publish one within six months, including on the fairness with which HMRC has implemented the policy and whether it has provided reasonable flexibility on repayment plans, with the aim of avoiding business failures and individual bankruptcies.

My hon. Friend the Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) tabled early-day motion 296 to welcome the publication of Sir Amyas Morse’s loan charge review and the fact that, through this Bill, the UK Government would amend relevant legislation such that loans made before 2010 would no longer be subject to the loan charge. The motion also welcomes the fact that the self-assessment deadline has been delayed until 30 September 2020.

Initial analysis suggests that more than 30,000 individuals will benefit from those and related measures, but a pause in the policy is still necessary to assure MPs that HMRC is working constructively with those who are seeking a reasonable repayment plan—one that recoups the unpaid tax while avoiding the unacceptable risks that people face. If HMRC cannot deliver on that, an independent arbitration scheme should be used.

We on the SNP Benches support the cross-party amendment 55 and new clause 31, which, as the right hon. Member for Kingston and Surbiton (Sir Edward Davey) pointed out, has 54 names to it and would provide that a prior settlement with HMRC could be unwound unless the worker failed to account for a pre-2016-17 tax liability in his or her return deliberately, despite knowing that the loan should have been included as income.

It is disappointing to hear that there may be no vote on new clause 31, given how many signatories there are to it and the lobbying we have all had. People watching this debate at home will not understand why. Since we are trading FDR quotes, we should note that he said: “In politics, nothing happens by accident. If it happens, you can bet it was planned that way.”

The Tories have failed to address our concerns about IR35, which is why we tabled amendment 16 to scrap it. Instead of pressing ahead with the discredited IR35 in the Bill, the Government should take the advice of the House of Lords—that is not something I often say, but they should; they should pause this policy and go back to the drawing board. It seems evident that the UK Government have not learned from their previous experience in the public sector and are ploughing on regardless.

On a process issue, we maintain that it was not acceptable that the Government introduced all this through a deeply contentious 45-minute money resolution debate instead of going through the full scrutiny of the Budget process. We have been against IR35 since the start, and these proposals would introduce a new group of zero-hours employees, paying full taxes without the associated employment rights—something that should give us all pause for thought. People working in our constituencies in a huge range of jobs should be entitled to those employment rights.

Under the present economic circumstances, it is wrong to place new and unfair taxes on firms. Contractors are particularly liable to be struggling at this point—not least those who are part of the 3 million people excluded from the UK Government’s support schemes. I pay tribute to ExcludedUK and all those who have sought to highlight this issue.

--- Later in debate ---

[Stephen Flynn]

A number of constituents in my Aberdeen South constituency have contacted me because they are facing a triple whammy of covid-19, the oil and gas sector downturn, and the impact of IR35. Should the Government not think again?

[Alison Thewliss]

I agree with my hon. Friend. I was going to mention the oil and gas sector, because it is part of the triple whammy. The situation is very difficult for people at the moment and the Government should not be in the business of trying to make it more difficult. They should be thinking again and looking at the circumstances we are in, rather than pressing ahead with something that does not suit these circumstances.

The “check employment status for tax” online tool for IR35 is also problematic. The UK Government have basically tried to replace a complex legal specialty—employment law—with an online quiz, which objectively does not give the same results as the courts in deciding whether an individual is an employee. We have asked questions about the empirical methods used to test that tool, but I have not been provided with any specifics other than it has apparently been rigorously tested. It is hardly surprising that employers feel that these are moving goalposts, and they may avoid the risk by avoiding using contractors altogether. We support new clause 35, which would provide that the IR35 provisions of the Bill would not take effect unless the Treasury had conducted and published a review of legislation on off-payroll working.

Our new clause 12 would make clear the economic hit that would follow the ending of the coronavirus support schemes. Along with many others across the country, I fear that winding up these schemes too soon will prompt companies to lay off staff. The major job losses announced in the past few days really must prompt the Treasury to reconsider this strategy. It is no coincidence that Airbus, Wigan Athletic, Harrods, John Lewis, easyJet, Upper Crust, TM Lewin, Royal Mail, Harveys and Arcadia have all laid off staff today and in the past few days. They are all looking at the scheme and thinking, “How are we going to survive in the next few months without any support for our workers?”

New clause 12 seeks assessments of the impact of the Bill within a month and various economic variables, comparing a situation where the Treasury sees sense and continues its covid support schemes for the next year with the likely reality that it discontinues them as planned, leaving the economy and people’s living standards reeling. The review set out in the new clause would consider the effects of the provisions on GDP, business investment, employment, productivity, company solvency, public revenues, poverty and public health.

The right hon. Member for Wolverhampton South East (Mr McFadden) set out quite well his experience of growing up in Glasgow. We still live today with the post-industrial legacy and generation of health harms of the ’80s—with the shutdown of heavy industry and the impact that had on people’s wellbeing. I am determined that we will not see that again from this crisis. The Chancellor must live up to his pledge to do whatever it takes to protect people’s jobs and livelihoods. The Treasury Committee report published the other week said that over 1 million people have fallen through the gaps in the UK Government’s welcome support schemes. In the report, the Committee also asked the UK Government to explore measures to help those newly in employment and self-employment, freelancers and those on short-term contracts, all of whom face barriers to accessing support schemes or have sadly been excluded from them altogether. This is now a choice. The Government cannot say that they did not know that these people were left out. They are now choosing not to support them.

With the ONS earlier revealing that the UK’s economy suffered its biggest monthly slump in GDP on record—of 20.4%—in April due to the coronavirus pandemic, we have renewed our calls on the Treasury to extend the income support schemes rather than wind them down. We need only look at Leicester, where the outbreak has meant a further shutdown, and wonder whether that will happen again. How will people be incentivised to stay at home and protect their friends, neighbours and families if they do not have an income coming in? People cannot survive on statutory sick pay and without support.

There is an effect across different sectors, such as theatre and arts productions, which may not come back until March next year. How are staff in those sectors going to pay their wages without some kind of job retention or support scheme? What about the people in hospitality—many of whom have businesses next to the very same theatres that will not open their doors until March? Where are the pre-theatre dinners if there is no theatre to go to afterwards? The tourism sector faces the prospect of three consecutive winters and cannot survive without support schemes. If we want these businesses and livelihoods to exist, the Government need to pay the money now, because if they do not, they are going to pay it out in unemployment benefits. We also need to look across the nations of the UK. Scotland’s experience is different from those of England, Northern Ireland and Wales. None of the countries of the UK should be punished for putting public health first. With businesses struggling to survive, thousands of jobs on the line, and households taking a severe hit as people’s income drops or they lose their jobs, it is vital that the Treasury strengthens and extends these schemes, and brings forward a comprehensive financial package to ensure that a strong economic recovery from this crisis happens, rather than pushing ahead with these plans.

Our new clause 18 would force the Government to come clean on the damage our economy faces from Brexit in the midst of this crisis. The new clause would require a review of the impact on investment, employment and productivity of the changes to the capital allowance over time; in the event of a free trade agreement with the USA; in the event of leaving the EU without a trade agreement; in the event of leaving with an agreement to maintain single market and customs union membership; or in the event of leaving with a trade agreement that does not include single market and customs union membership.

With our economy already struggling with coronavirus, leaving the EU single market and customs union this year would do unthinkable damage to our economy. It was a bad decision before, but it is a worse decision now. The risk of long-term scarring to the economy is significant, and investment from the UK Government could stave that off, if they choose to do this. Roosevelt’s new deal was equivalent to 40% of US GDP. Germany has invested 4% of its GDP, whereas the Prime Minister has invested 0.2%. It is not just FDR’s clothes that the Prime Minister has attempted to steal this week, because President Duterte of the Philippines, whose “build, build, build” phrase he plagiarised, invested $177 billion in the Philippines economy. The UK response is completely inadequate. It is the emperor’s new clothes, leaving Scotland bare. We call on the UK Government to take up Scottish Finance Secretary Kate Forbes’ plan , which would inject £80 billion into the UK’s economy as a whole. I commend that and our new clauses to the House.

[Andrew Jones]

I share colleague concerns about the prospect of unemployment. One of the best things that happened over the past decade was the growth in jobs, with 1,000 new jobs a day on average. Unemployment in Harrogate and Knaresborough fell to about 2%. The current crisis is, of course, changing that dramatically. We have 9,500 people working in the hospitality sector in my constituency, so I am anxious about that and have welcomed the partial lockdown release this weekend.

The measure to help business prosper that I was most pleased to see in the Bill was the encouragement for further investment in research and development, specifically the increase in the R&D expenditure credit from 12% to 13%. Businesses win in the long term by ensuring that their product or service has competitive advantage—a reason why customers should buy it. I spent 25 years in business before coming to this place and I spent that time making sure that the companies I worked for had the right products for our customers. In some sectors it takes significant resource to develop one’s product, be it automotive or pharmaceutical—both sectors in which this country is strong—or one of plenty of others. There is a strong record of creativity in the UK, but we are not always as good at finding ways to commercialise those ideas, to go from start-up to scale-up. Creating a better environment for the development of ideas is important for the longer-term success of our economy.

I wish to make a few comments on a significant issue before us in this section of this debate, which is off-payroll working. That has attracted much attention and there are clearly some problems to solve, but they are not easy to solve. In some cases, the issue is straightforward, in that people have been working for one employer for prolonged period, perhaps for many years, and they are really employees. They do similar jobs to the person who is sitting next to them and they use the same company equipment, but it could of course be on totally different terms of employment. They could be paid better or less in terms of their headline salary, but the situation is more complex than that because they will not be paid for holidays, pension contributions and so on. I have read of cases where the imbalance of power that can exist between employer and employee has led to pressure on people to choose a particular route—in effect, people being bullied into self-employment by unscrupulous employers seeking to save on costs and national insurance. That is wrong for all parties—wrong for the employee certainly, wrong for the employer, and wrong for taxpayers too, as revenue for public services is missed. However, that is not the case for the vast majority of people. They choose a route of self-employed, freelance or contractor work expressly because they enjoy the challenge of that type of work, or perhaps they want to be their own boss and more in control of their own destiny, or there could be all sorts of other personal reasons. That is a good thing. It is to be encouraged, because the flexibility that that provides has been a great boost to our economy.

Contractors and consultants play a huge role in the economy. Their work is one of the ingredients that has contributed to the recent economic progress. Being swift of foot in response to commercial opportunities is competitive advantage. It has allowed companies to bring in extra resource when they need to boost operational capacity, or extra skills when they are needed. I have been contacted by or met many people, including many in my Harrogate and Knaresborough constituency, who have built careers adding real value to their clients. In some sectors, there is more use of contractor work than in others; such sectors include IT and technology more broadly, as well as marketing and the creative industries—sectors where the UK is strong. There is also the growing sector of interim managers.

I see a balance to be struck here—a balance between protecting some employees and recognising that the vast majority have chosen this route and are providing real value; a balance between employment rights and protections, and between those who are employed and self-employed contractors. That balance has to be struck while ensuring that the rules do not have a sclerotic effect on the economy. Flexible and nimble companies responding to their customers, adding value, creating wealth, seizing opportunities—that is how economies grow, it is how jobs are created. Fair taxation, employment protection, company flexibility, highly skilled contractors and freelancers—finding the right balance of these benefits everyone in our economy.