Anneliese Dodds
Main Page: Anneliese Dodds (Labour (Co-op) - Oxford East)Department Debates - View all Anneliese Dodds's debates with the HM Treasury
Finance (No. 2) Bill (Fifth sitting)
Anneliese Dodds Excerpts(6 years, 10 months ago)
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The Financial Secretary to the Treasury (Mel Stride)
Good morning, Sir Roger. As ever, it is a great pleasure to serve under your chairmanship.
Clauses 30 and 31 will ensure that companies operating overseas cannot benefit from tax relief twice for the same loss. Many UK companies operate overseas through branches. To prevent double taxation on the profits of those branches—tax payable both in the UK and overseas—rules exist that provide relief in the UK for foreign tax paid. However, we are aware that some companies with foreign branches set losses incurred by those branches against the profits of other overseas group companies, rather than against the future profits of the branch. As a result, foreign tax is paid on future branch profits without taking into account past losses. That foreign tax is then used to claim double tax relief against UK tax on the branch profits.
Relieving foreign losses in that way creates an unfair outcome for the UK Exchequer. UK companies effectively get tax relief twice in the UK—once as a deduction from their taxable UK profits for the loss, and again by way of double tax relief. Clause 30 will address that by restricting double tax relief when the losses of an overseas branch have been used to relieve foreign tax paid by other overseas group companies. The clause will stop companies exploiting the UK’s double tax relief system to disadvantage unfairly the UK Exchequer. The measure will apply only to future claims for double tax relief. However, to be effective and protect significant revenues, it will apply where losses have already been relieved against the profits of other group companies.
The Opposition’s new clause 13 calls for a statutory review of the impact of that restriction of double tax relief. I think it would be useful, in response, to review the processes and track record of Her Majesty’s Revenue and Customs in this area. First, the costings of the measure were prepared by HMRC’s central analytical team, which specialises in quantifying the impact of changes to tax legislation. Secondly, HMRC has significant experience in amending tax legislation to restrict opportunities for companies unfairly to reduce the tax they pay. For example, an amendment to the double taxation relief for loan relationships income in the 2014 Finance Act successfully protected tax revenue. Thirdly, HMRC regularly carries out reviews of tax legislation to ensure that it continues to meet its objectives, and the assessment of tax receipts is an important part of those reviews. The Opposition’s proposed review would not add to that analysis, and it is therefore unnecessary.
Clause 31 will amend the targeted anti-avoidance rule, which protects against certain ways of artificially creating or increasing a double tax relief claim. At present, the obligation to apply the TAAR lies with HMRC, not with the taxpayer. That puts HMRC at a disadvantage. In some cases, HMRC does not have sufficient information to identify, within the relevant statutory time limit, whether the TAAR is applicable. To address that, we are updating the double taxation relief TAAR to align it with more recent TAARs. The clause will remove the requirement for HMRC to give notice that the TAAR is being applied. Instead, the onus will be on the taxpayer to consider, during their self-assessment, whether the TAAR is applicable. We are also slightly extending the scope of the TAAR to ensure that it applies to double taxation relief schemes that involve transactions across a group.
Clauses 30 and 31 will ensure that companies pay a fair amount of tax in the UK and will protect significant tax revenue. I therefore urge the Committee to support them.
Anneliese Dodds (Oxford East) (Lab/Co-op)
It is good to be here under your chairmanship, Sir Roger. I appreciate the Minister’s explanation of clauses 30 and 31, but the Opposition request a review of their effectiveness in deterring the inappropriate use of double taxation relief, particularly as they relate both to funds received by the Exchequer and to the companies potentially affected by them.
Colleagues will be aware that, as the Minister said, double taxation arrangements have been under discussion for an extremely long time—effectively since the beginning of globalisation, if we take that term as referring to the proliferation of multinational companies. The international finance conference in Brussels in 1920 raised the need to consider the impact of double taxation on firms, and from 1923 to 1927 some of the first agreements to avoid double taxation came into force. Such agreements have been under continual discussion in more recent years within the OECD, as have been provisions to prevent the contrary: double non-taxation, which we are discussing today.
The extent of double non-taxation is believed by many commentators to be extremely significant, which is part of the reason why the Opposition are not convinced by claims that the tax gap has recently reduced; that tax gap does not include international profit shifting, such as that obtained by manipulating double taxation rules. That is why Labour’s tax transparency and enforcement programme offers a series of measures to deal with profit shifting.
The measures under discussion follow on from attempts made in the 2009 Finance Bill to clarify measures in the Finance Act 2005 that examine double taxation relief specifically for banks. That Act limited credit for foreign tax paid on trade receipts of a bank to no more than the corporation tax arising on the relevant part of the trade profits. Changes were made after the Act to prevent income being artificially diverted to non-banking companies in bank groups. That loophole, which was being exploited, was shut down by ensuring that the restriction applied to all relevant receipts going across a group. Such profit shifting was therefore prevented. The clauses under discussion will offer a similar tightening for non-bank companies, as well as other alterations and restrictions on the use of double taxation relief.
The Opposition are asking for a review for a variety of reasons. First, it would be helpful to understand from the banking sector’s experience whether the new rules are likely to have a positive effect, and what the magnitude of that effect is anticipated to be. Secondly, alternative approaches are available, and it would be helpful to assess the Government’s approach against those. In particular, I understand that the US has adopted a different approach to limiting the benefits of relief from double taxation. The UK’s approach, which I accept is in common with the OECD’s, is to focus the dissuasion from using an appropriate double taxation relief on the transaction and its nature. By contrast, the US approach relates to those entities that can benefit from favourable tax treatment; it focuses on the entity, rather than the transaction. As I discovered when looking at the debates on the 2003 agreement between the UK and the US on double taxation and non-taxation, the two approaches have to come together when we have a treaty with the US on tax matters. It would be helpful to know whether the Government have considered the apparently more restrictive approach adopted by the US.
It would also be helpful to know more about the removal of the counteraction notice specified in the clauses. Colleagues may remember—though they probably have more important things to think about—that in the discussion on hybrid mismatches, I asked whether a counteraction notice was still required. I do not recall receiving a totally clear answer, although the Minister offered many other helpful clarifications. Clause 31 removes the requirement to give a notice to trigger the double taxation relief targeted anti-avoidance rule, as the Minister mentioned. That seems to follow an approach of amending provisions to remove such notices when the measures concerned are otherwise under review, as part of a wholesale approach to reviewing the measures. The explanatory notes state that the approach follows that adopted under new TAARs, but it is not clear that there has been a more holistic investigation by the Government of this issue. It would be interesting for us to know whether the Government plan to review the existing use of any remaining requirements for counteraction notices in the area of international profit shifting.
The Minister can correct me if I am wrong, but the principle seems to have been accepted that such counteraction notices are no longer necessary before HMRC is able to act, at least in relation to this kind of international artificial profit shifting. He gave us quite a strong rationale for that when he indicated the problems with having to issue a notice when time limits can be relatively tight: it could impact on HMRC’s ability to take appropriate action against those engaging in international profit shifting.
It would be useful to know whether there is a broader review of the use of counteraction notices in this regard, but as I said, we are also calling for a review of the effectiveness or otherwise of the measures in deterring the manipulation of double taxation relief, and of whether the measures will deal with the international profit shifting that existing practices seem to be promoting.
Mel Stride
I thank the hon. Lady for her characteristically thorough dissection of the clause. She gave us something of a history lesson about double taxation agreements going back to the 1920s, before we came into the era of the OECD and more recent activities.
This is not directly relevant to the clause, but the hon. Lady mentioned the tax gap and the veracity or otherwise of the figure for it. The figure is produced by HMRC on an annual basis and audited by the National Audit Office. It is a statistic described by the International Monetary Fund as one of the most robust of its kind in the world. We are very proud of the fact that we have, at 6%, one of the lowest tax gaps in our history.
Interestingly, the hon. Lady introduced the subject of the movement of losses out of branches overseas by way of a discussion of the profits under the banking arrangements, and the shifting from banking to non-banking entities as an approach to avoiding tax. That approach, which certain corporations have taken to avoid tax, is long-established and lies at the heart of the measures that we, the OECD and others have been pursuing to clamp down on avoidance.
This measure is very important. As I described, overseas entities with branches are able to move losses into other overseas entities and claim a tax benefit there, but equally gain a double tax benefit with the UK authorities by way of double tax relief and the impact of the losses on profits that would otherwise fall to corporation tax. We do not believe that the review that new clause 13 calls for is necessary, largely for the reasons I gave in my opening remarks, and in particular because we keep all these measures under review. Indeed, the measures are a product of a review of earlier approaches to clamping down on avoidance, evasion and non-compliance.
The hon. Lady raised several questions that I will attempt to address. The first was whether we had considered the US model and focusing more on entities, which is an interesting point. I would be interested to take any representation from her, and to look at that in more detail with my officials. I do not have a comprehensive answer to her point at the moment, but my door is open for us to look at that in greater detail.
The hon. Lady also mentioned the operation of counteraction notices. As she recognised, the main thrust of the changes to the TAAR is to ensure we do not end up in a situation in which one might reasonably expect HMRC not to understand that something untoward was going on, and in which, by the time it came to the activity, it was out of time. That is the critical point. Once again, if there are further issues of a more detailed or granular nature that the hon. Lady would like to raise with me, I would be very happy indeed to have a look at those. On that basis, I hope we can accept the clause.
Question put and agreed to.
Clause 30 accordingly ordered to stand part of the Bill.
Clause 31 ordered to stand part of the Bill.
Clause 32
Double taxation arrangements specified by Order in Council
Anneliese Dodds
I beg to move amendment 54, in clause 32, page 23, line 37, at end insert—
“(2A) After section 6 of TIOPA 2010 (the effect given by section 2 to double taxation arrangements), insert—
“6A Review of changes made by section 32 of Finance Act 2018
(1) Within twelve months of the passing of the Finance Act 2018, the Chancellor of the Exchequer must review the effects of the changes made by section 32 of that Act on the operation of double taxation arrangements.
(2) The review under this section must consider in particular—
(a) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the principles of Policy Coherence for Development;
(b) the extent to which those changes facilitate UK law giving effect to the Multilateral Instrument in a way which coheres with the UN Model Tax Treaty;
(c) the effect of those changes on the number of disputes decided by arbitration;
(d) the counterparties in each such case;
(e) the outcome in each such case; and
(f) the effects of those changes on the public revenue of the United Kingdom.
(3) The Chancellor of the Exchequer must lay before the House of Commons the report of the review under this section as soon as practicable after its completion.
(4) In this section—
“the Multilateral Instrument” means the Multilateral Treaty to Implement Tax Treaty related Measures to Prevent Base Erosion and Profit Shifting;
“the principles of Policy Coherence and Development” are to be interpreted in the light of relevant publications of the Organisation of Economic and Development Cooperation and of the 2011 Busan Partnership for Effective Development Cooperation, the UN Millennium Declaration and the 2010 UN Millennium Development Goals Summit; and
“the UN Model Tax Treaty” means the United Nations Model Double Taxation Convention between Developed and Developing Countries published in 2011.””
The Chair
With this it will be convenient to discuss the following:
Amendment 55, in clause 32, page 24, line 3, leave out subsection (4).
This amendment removes the retrospective effect of the foregoing provisions of Clause 32.
Clause 32 stand part.
Anneliese Dodds
This is about the arrangements for the incorporation of the multilateral instrument, if I am correct.
Anneliese Dodds
I am looking forward to more detailed explanations on this part of the Bill, because they are enormously important. Our amendment 54 requests a review of the operation of the provisions enabling the MLI’s implementation in the UK, and especially of the extent to which it promotes the principles of policy coherence for development, and the outcomes that would have been produced had the UN’s model tax treaty been used instead.
The MLI is, in many ways, a milestone for international tax law. Rather than being an amending protocol of the type we might have seen before in wholesale changes to international treaties, the MLI provides an instrument to swiftly and consistently implement a range of standards in taxation in existing treaties. It also provides the means, through the OECD, of monitoring its implementation—and, potentially, mechanisms for the future adaptations of treaties; it is important that we consider those, and I will come back to them.
Given that those bodies looking to engage in “treaty shopping” and their advisers are often highly sophisticated international actors that will readily search out new loopholes, the design of the MLI, which makes possible future alterations and provisions to deal with new tax challenges, is surely to be welcomed. I understand that the UK was one of the first 26 signatories to the MLI. There are now 69—more have probably signed since I looked that up. I understand that a UK Treasury official chaired the OECD working group that determined many of its provisions.
The MLI includes six articles to address treaty abuse. Many of them are already in accordance with the UK’s approach to international tax matters. One element of the MLI that seems particularly propitious is the principal purposes test,
“a subjective test based on an assessment of the intentions behind a transaction or arrangement”,
intended to rule out the obtaining of any benefits from a treaty if those benefits are not in accordance with the object and purpose of that treaty. That amounts to a general power, which could be useful for many countries encountering abuse.
In that connection, however, it is surely necessary for tax authorities to be sufficiently staffed, both overall and in terms of expertise, to make any accusation under these powers stick in court, not least if that court is a private international one, which the UK appears to have committed itself to by accepting multilateral binding arbitration. It would be helpful to hear from the Minister whether he feels that Her Majesty’s Revenue and Customs and the Treasury possess sufficient staff with sufficient knowledge of and expertise on international arbitration for our country to be able to defend its interests adequately, should the need arise. As well as measures concerning treaty abuse, the MLI also introduces uniform approaches —or rather, approaches that should be uniform in their outcomes, if not in specific details—to dispute resolution, permanent establishment and hybrid mismatches.
While in many respects there are very positive elements of the MLI, other elements might raise concerns. I will focus the rest of my remarks on those, and will be interested to hear the Minister’s response. First, the UK appears, in its adoption of the MLI, to have ruled in using mandatory binding arbitration where mutual agreement procedures have failed to produce an acceptable outcome within two to three years. Following the discussion last week of the use of mandatory binding arbitration in the UK’s new tax treaty with Lesotho, it was interesting to find, when I was reading the UK’s MLI position paper last night, that we already have mandatory binding arbitration in 18 of our tax treaties, including those concluded with Algeria, Armenia, Albania, Kosovo and Tajikistan, as well as a number concluded with higher-income countries. The UK appears to apply the principle already in relation to developing countries, but it strikes me that we have not had much discussion of that in the House.
Anneliese Dodds
I am grateful to the Minister for those enormously helpful clarifications. I was particularly pleased to hear his commitment to ensuring that the draft affirmative statutory instrument will be tabled in the House and that we will have a proper chance to debate it. As part of that discussion, I would urge him to ensure that additional information is provided on the Government’s reasoning around adopting a number of the provisions that are within the OECD but not the UN approach.
I fully accept that the OECD approach is supported by a large number of countries; that is absolutely right. None the less, as the Minister himself stated, there are then choices to be made by signatories to the MLI about how to interpret different elements. Those choices can make that approach either more like the UN’s or more like traditionally the OECD’s.
As the Minister said, mandatory binding arbitration is an approach that countries can decide to adopt or otherwise. It was positive to hear that that will be adopted only when both countries, as signatories to a double tax treaty, wish to adopt it. I am interested to know, first, on what basis we have already chosen to adopt mandatory binding arbitration or otherwise. I would again point to the inconsistency between the tax treaty agreed last week on Lesotho, and that which was proposed, albeit not yet discussed, around Kyrgyzstan, which seem to have very different approaches to mandatory binding arbitration. Why is there that difference?
Secondly, it would be helpful for us to assess the claim that mandatory binding arbitration promotes certainty and the ability to tax appropriately for all countries if we saw what some of the outcomes from existing cases subject to mandatory binding arbitration have been, particularly for our country’s ability to retain the revenue that is its due. I have not yet seen that kind of consolidated examination of outcomes from mandatory binding arbitration, and it would be very useful for us to have that in relation to our country and the impacts on our ability to collect revenue, and for developing countries as well. We need that before we can assess whether we want to adopt this in a more wholesale manner. The Minister is absolutely correct to say that we already have it in operation—I mentioned that before—but we need to have more detail.
One final point—I am sorry, but I managed to miss this in my previous remarks—is that it would be helpful for us to understand what transatlantic discussions the UK has been having with the US around the adoption of the MLI. It has not yet adopted the MLI and, sadly, some elements within the US have resisted the OECD’s action in this area—a lot of the time for totally unnecessary, politicised reasons—but it would be useful to know whether the US is likely to adopt this approach. That is because when we talk about double taxation, much of the time we will be talking about multinational companies that have the US as their host country or source country, and when those companies then conduct operations in the UK we need to be able to know that we can protect revenue from them.
Mel Stride
On the hon. Lady’s point around the different models—the OECD and the UN models—a number of countries have signed up to the MLI, and implicit in those discussions will be the kinds of issues that she has touched on, but it might be of interest to her that the Government do expect the UN to update them on the treaty in the light of what has been agreed within the MLI, which clearly we will be keeping a close eye on.
I said earlier that I did not have an answer to the hon. Lady’s specific question, but I now do—through a form of divine inspiration known as the officials of Her Majesty’s Treasury. Saudi Arabia is indeed not a signatory to the MLI initiative, but we hope that it will be signing in future, at which point we would intend that our treaty be amended accordingly to accommodate that.
On the hon. Lady’s point about mandatory binding arbitration, one of the points that I should have made earlier is in the context of how fair or otherwise this is on the countries with which we enter into those particular arrangements. Once arbitration is entered into, two arbitrators are appointed—one by each country—so this is not a stacked jury in any sense, and it will be for them, impartially and properly, through the normal processes, to come to their conclusions.
The issue of transparency and the disclosure of the outcomes of arbitrations really falls within the area of tax confidentiality. Inevitably, within those arrangements where companies, and indeed eventually individuals, are involved, it is important that we maintain the rigorous tradition that we have in our country of complete impartiality when it comes to HMRC, our tax affairs, investigations, arbitrations and so on.
The hon. Lady asked specific questions about US policy, which is probably a stretch too far for me to reach on this occasion, but if she has specific questions that relate to UK Treasury interaction with the US as an overseas tax authority, I would be happy to consider any representations that she would like to make.
Anneliese Dodds
I am grateful to the Minister for those clarifications. He rightly said that it is very important that HMRC conducts its affairs in a manner that is impartial between taxpayers and that is fair. That is absolutely right. However, we are surely not talking about anything that would threaten that impartiality when we talk about more transparency; we are not talking about the decisions themselves being altered, but rather the transparency around decisions that are taken. That would not affect the process leading up to those decisions being taken.
If there were concerns about this somehow negatively affecting taxpayers, I am sure that there could be some way of anonymising the results from different arbitration situations. However, I genuinely think it would be helpful for us, whatever side of the House we are on, to see more information about the use of that mechanism, because it can make a significant difference for taxpayers and, indeed, for our revenue.
Finally, on the difference between OECD and UN processes, it is absolutely right that some developing countries were involved in the OECD’s development of its approach. However, they were only observers—as we know, the OECD is a club of generally rich countries. Those developing country members were consultees, not full members. I look forward to seeing exactly that development of the UN model in the light of the OECD’s approach. Developing countries have full status in UN discussions, which they lack within the OECD process.
Question put, That the amendment be made.
Anneliese Dodds
I will speak to both of our amendments, if that is acceptable to the Committee. I am grateful to the Minister for his introduction. As colleagues will know, these measures attempt to close loopholes within the Government’s new non-dom regime. From an Opposition point of view, this is rather frustrating, because we were concerned about many of these issues, particularly the exemption of offshore trusts from the non-dom regime. We are pleased that there has been some tightening, but of course we would like to see more.
We see in these measures new anti-avoidance provisions so that, as was mentioned, it will no longer be possible to wash out trust gains by payments to non-residents. On capital payments made to a close family member of a UK resident, there will capital gains tax and income tax. Where a non-resident beneficiary receives a distribution from a trust and then makes an onward gift of all or part of it, directly or indirectly, to a UK resident, the original payment will be taxed as if received by that UK recipient. Surely that is right and correct.
Although these measures, in and of themselves, do provide some sticking plaster, they do not fundamentally reform the non-dom regime in the manner we would wish to see. I should qualify that by stating that the submission to the Committee by the Institute of Chartered Accountants maintains that the Government’s promises are essentially greater than what they are delivering, even within their own terms. It maintains that the Government’s indication that the inadvertent remittance trap has been closed is not, in practice, fulfilled by these measures, and that such a trap could be continued. It would be helpful to hear the Minister’s assessment of whether the institute is correct in that regard.
We debated the overall provisions on non-doms at length when considering the previous Finance Bill, so I will not rehearse all the arguments now. We are talking about the 121,000 individuals who claimed non-dom status in 2014-15. Non-domiciled UK resident taxpayers account for about 85,000 of those people; the remaining 35,000 or so are non-UK residents. Obviously, those non-doms are still subject to different taxation arrangements from UK residents. That is a fundamental principle of difference, even though, yes, the Government have made changes. Again, I will not rehearse all the previous arguments.
Even the Government’s changes enable people, if they so wish, to have a 15-year wait before triggering the new arrangements, because they have to have been resident in the UK for 15 of the past 20 years in order to be considered UK domiciled and for their status to be changed. We do not feel that those arrangements are strict enough.
We are focusing on the use by some non-doms—obviously, for many people it is a legitimate status—of offshore tax arrangements, particularly trusts. It would be helpful to hear from the Minister about the extent of existing abuse that these measures attempt to deal with. Have the measures arisen because of experience with disclosure of tax-avoidance schemes, for example? If so, can he provide us with some evidence on that? Or have they arisen from cases that HMRC has settled out of court? It would be helpful to understand the magnitude of the problem before considering mechanisms to try to deal with it.
More generally, taxing trusts is a difficult challenge. In public policy terms, there are obviously no simple solutions. Trusts often raise issues relating to capital gains tax, inheritance tax and many other matters. I understand that in November the Government committed themselves to a large programme of activity—or at least a programme of activity—on trust simplification. It would be helpful to hear from the Minister what exactly has moved in that regard.
The Institute of Chartered Accountants has said that it would be willing to participate in that programme of activity, as I know would many other stakeholders. It would be useful to know how far that activity has progressed, because there are many calls for a fundamental overhaul in our approach to trusts, and we also need to change how we deal with offshore trusts. That is particularly the case with evidence of abuse, but not sufficiently systematic evidence; as I mentioned before, we need more of it. We have already discussed in the House Deutsche Bank’s use of trusts to enable bankers to dodge income tax on bonuses. HMRC managed to defeat that scheme, but there are other schemes in use today. Again, concerns about HMRC’s capacity might arise when we are talking about very complex tax matters.
To be clear, Labour opposed the exclusion of offshore trusts from non-doms rules in the first place, and we have made that point consistently. We made it in the debate on the ways and means resolutions for the previous Finance Bill, and then again on Second Reading and in the Public Bill Committee. We still think that exclusion is inappropriate, particularly given the generalised lack of transparency on trusts. We have already referred to the discussions that the Government are having with our Crown dependencies and overseas territories. I know that part of those discussions have been about the creation of registers of beneficial ownership—so far just for companies. That has not yet been fully fulfilled for some of those jurisdictions, but in any case it does not extend to trusts, and we believe that it should. It would be interesting to hear about any progress on that.
Labour is also calling for a public register of UK trusts. Our amendment seeks more transparency on the use of offshore trusts, at least as a start. I am sure that the Minister will mention concerns about the confidentiality of those using trusts, which always seems to be the response when we raise the issue. I have huge faith in the British civil service and think that it is very good at creating appropriately targeted regimes. If we look at how Companies House has developed its system for registration and transparency on company ownership and operation, we see that there is already a mechanism within the regime to prevent inappropriate disclosure that could damage those involved with a company. For example, if we were talking about a firm that breeds beagles for animal experimentation, which could be targeted by animal rights activists or extremists, providing its address could be inappropriate, so it is possible for Companies House to have a different disclosure regime for that company. We could create a similar arrangement for trusts. Surely that would be possible and appropriate.
The British Government will have to come to a position on this because of a matter that I have raised previously: the EU now has an agreement to have transparency for business-like trusts. The devil is in the detail, of course, because we could see gaming around what is then deemed to be business-like, as opposed to other types of trusts. I think that a regime that just excludes those trusts from full transparency where there could be harm to the beneficiaries would be more appropriate. None the less, that is what the EU is moving towards. It would therefore be helpful to know exactly what the Government’s position is on the matter. That would offer a halfway house to much fuller transparency.
We are trying to get at the matter through a side door in our amendment, but we are going to keep pushing this argument for more transparency on trusts, which we think is absolutely essential. In the debate in the House on some of these matters and on the Paradise papers, I remember certain Government Members using an analogy for offshore trusts, stating that they were very similar to ISAs—surely they are exactly similar. I always use the “neighbour test.” I think, “What would my neighbour think?” If I asked her, “Is it okay for you to have an ISA?”, she would say, “If I had enough money, yes I would like to, if I could.” The exact intentions of an ISA are clear within its provisions: they are meant to promote savings. That is the whole point of them.
However, as far as I can see there is no legislation that promotes individuals undertaking trusts specifically as a means of tax avoidance—that is not the stated intention of any piece of legislation, as distinct from the stated intention of ISAs. Therefore, the analogy is inappropriate. We will continue to push for the need for greater transparency in this area.
The Chair
Before we proceed, I remind all hon. Members, both new and longer in the tooth, that all new clauses are debated with other items now but voted on at the end of the Bill. We will not miss it, do not worry; we will come to it in due course.
Anneliese Dodds
Thank you, Sir Roger, and I will aim to keep my remarks brief. This measure was requested by stakeholders during consultations in autumn 2016, particularly on the use of the cash basis in general. As the Minister said, it appears to offer more consistency for different groups of taxpayers, particularly self-employed traders and employees, and unincorporated property businesses. None the less, Labour Members are requesting a review of the measure because we think it important to have more information about its potential revenue effects. The Minister has said that the change is largely to the basis of calculation, but if we are talking about a shift to mileage rates rather than the value of the business technology used in the first place—the car—that could be significant for the amount of tax levied, and it would be helpful to have more information on that.
We know that public services and revenues are under a huge amount of pressure, but we do not have a clear view of the overall impact of reliefs on Government revenue. That point came up in our discussions last week, and a number of my colleagues rightly intervened on it. It would be helpful to have more information about that, and about whether there could be unintended consequences. Such consequences would affect self-employed traders and employees who use mileage rates—it is not just a matter for landlords who might be covered by the new provisions—and it would be helpful to know whether, for example, there has been any consideration of trying to reduce car use in general. Some of the small one-man, one-woman bands who might be covered by the measure could be landlords of a small number of properties in a small geographical area. The Government should consider how to enable people not to use a car in the first place, and it would be helpful to hear their thinking on that.
I fondly remember how, when I was a student, my landlord used to cycle around with his dog—sadly now deceased—in the basket of his bike, and that was how he got around his properties. [Interruption.] The landlord is still going, as I understand it; only the dog is deceased.
Anneliese Dodds
The bike, I think, is still going as well. I still see my previous landlord cycling between his properties, and perhaps we should aim to promote that model, particularly when we are talking about small concerns. I am not belittling the transport requirements of larger landlords or those with properties that are geographically spread out, but it would be helpful to consider such measures. It would also be useful to know whether a thorough analysis has been made of the administrative burdens that the measure might create. The Minister alluded to that, but more information would be helpful.
May we have an indication of the extent to which the Government will try to prevent abuse in this area? I am aware that that already applies to the use of this basis by self-employed traders and employees, but during the Minister’s remarks I was reminded of debates about the business use of private jets, which came up in discussions on the Paradise papers. I have talked to the Isle of Man’s representatives about this. They maintain that activities have generally been above board, and that they are sorting out activities that have not been. We all remember the video of Lewis Hamilton enjoying his new private jet, which, in theory, was just for business use. It appears that appropriate safeguards had not been put in place to make sure that the jet was just for private use.
How are we ensuring that, in these kind of cases and more generally, cars are used overwhelmingly for business use? I believe it is a question of whether they are predominantly for business use. We are talking about small landlords, so it could be quite difficult to make that distinction. It is about how we prevent abuse while protecting the interests of small business.
Mel Stride
I thank the hon. Member for Oxford East for her observations, particularly the curious incident of the dead dog and the bike, which I think might end up being one of the most memorable statements in the passage of the Bill.
The hon. Lady eloquently alluded to the impact of such measures on the size or type of vehicles used to carry out the business activities that we are discussing. I point to my earlier remark that, if a fixed rate per mile can be claimed, there is an incentive to use a less expensive means of transport, be it a bicycle or a less polluting vehicle, while claiming the mileage. A useful dynamic, in terms of her interest in this area, is built into the system.
As I have pointed out, the measure is a simplification, not a tax reduction. That is a pertinent point when it comes to a review of behavioural change, because it does not change the overall weight of the tax burden on this group. As I have set out, the Office for Budget Responsibility has stated that the fiscal impact of the measure will be negligible—meaning that the impact will not exceed £5 million in any year—in every year of the scorecard period, albeit that 1.8 million businesses are affected by it.
The hon. Lady asked how we will know if people are abusing the system by claiming mileage allowances for a use other than business use, or for travel that has not occurred. That problem is implicit in any arrangement of this nature, in which expenses are claimed as a tax deduction. HMRC has become more and more sophisticated in how it looks at tax returns—that is clearly how such information would be provided—and it uses technology to look for patterns and abnormalities. It sometimes looks at whole subsets of taxpayers that have a greater propensity to do certain things, and it therefore investigates members of those groups more rigorously. That would be part of the approach.
Overall, I do not think it is necessary to have a review, particularly given the negligible impact of the change. On the grounds of proportionality, I ask the hon. Lady to consider withdrawing the new clause.