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. 3) Bill (Ninth sitting)
Anneliese Dodds ExcerptsTuesday 11th December 2018
(5 years, 11 months ago)
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Anneliese Dodds (Oxford East) (Lab/Co-op)
It is a pleasure to see you in the Chair again, Ms Dorries. I agree with many of the comments of the hon. Member for Aberdeen North. I will first speak to our amendments that push in a similar direction to the Scottish National party’s, before moving on to those that highlight other shortcomings of the clause.
To address the effect of the extended time limits on vulnerable taxpayers, our amendment 139 would introduce a de minimis threshold of £50 for the extended time limits, pushing in a similar direction to SNP amendments 105, 106, 107, 137 and 138. It follows the advice of the Chartered Institute of Taxation’s low incomes tax reform group, which raised concerns about the clause. Its written evidence states:
“LITRG remain deeply concerned about the impact of these changes on low income, unrepresented taxpayers.”
Our amendment seeks to restore a sense of balance to the new procedures set out in the clause. Given the serious restrictions on amending this legislation, which we have raised many times in this Committee, we are not able wholly to reform the process, but we think our amendment would improve the clause by making a moderate change that has been requested by groups that have lobbied Committee members. LITRG’s written evidence continues:
“In order to reduce the impact of the measure, the Government should introduce a de minimis threshold for the extended time limits to apply. For example, the approach taken by HMRC in assessing trivial amounts under the Worldwide Disclosure Facility (WDF), e.g. where the net amount due after applicable reliefs is no more than £50, may be suitable.”
Why might a de minimis threshold be necessary? LITRG points out that the changes
“only affect those who have acted non-deliberately and they erode the distinction…between those who take reasonable care and those who are careless.”
It further notes:
“Threatening letters from HMRC cause a great deal of unnecessary distress”—
particularly to vulnerable people who may not understand why they have been contacted. Surely it would be sensible to focus HMRC’s resources on dealing with large-scale tax evasion, rather than on people—especially older people—who may accidentally have failed to pay a very small amount of tax. I hope that the Minister will consider accepting amendment 139 in the spirit in which it was intended: as a genuine improvement that would protect vulnerable people.
Amendment 140 would introduce a public register of companies included under the changes. It relates to Labour’s wider policy, which we have pushed several times in this Committee, of having a public register of offshore trusts. It would be wonderful if the Government decided that they wanted to accept that policy now. Perhaps they will do so in this potentially final sitting. Who knows? We can always hope.
To further address the potential effect on vulnerable people, amendment 141 would require the Chancellor to review the impact of the changes in relation to characteristics including age, income, primary language and legal status. That would help us to better understand how they may affect individuals or organisations, because we need to get a sense of who the measures focus on and who HMRC will be chasing as a result. It is essential that all tax owed is paid, but given the impact on the Exchequer of the large tax breaks and sweetheart deals that the Government have engaged in, it seems unlikely that the measures will affect those who have avoided the largest amounts of tax. It would be helpful if we understood more about that, which is what our amendment pushes for.
In its briefing, LITRG has some interesting information about this point. It says:
“Many people assume that ‘offshore’ tax matters relate only to the wealthy. However, 24% of daily enquiries to the charity Tax Help for Older People in September 2018 were related to the Worldwide Disclosure Facility. The average age of the callers was 76 and they had small amounts of foreign bank interests and/or pensions.”
It continues:
“In our experience and from insight garnered from THOP, the vast majority of taxpayers who have undisclosed liabilities related to offshore investments will want to be compliant upon simply being made aware of the error”.
LITRG also makes a point about accessibility for non-native English speakers:
“Migrants, whose first language is unlikely to be English and who may therefore struggle to navigate the complex rules on the taxation of offshore income and gains, are another group likely to be affected because they are more likely to have offshore investments prior to their arrival in the UK.”
The measures are significant because they change the conventions on how long taxpayers would anticipate having to save information about their tax affairs. The LITRG briefing states:
“The measure adds complexity to the question of taxpayer certainty on when a tax year is ‘closed’ and impacts on a taxpayer’s record-keeping obligations—effectively requiring people to keep records for 12 years just in case they need to make a disclosure to HMRC. This is well beyond the current statutory time limit for keeping records.”
Most of us, I think, would assume that seven years is the normal period for which one would be sure to keep those records, and 12 years is a significant extension. The Government’s equalities impact statement on the proposals makes no attempt to understand how those different individuals would be affected. We think it is necessary for the Government to look carefully at the question.
As to amendment 142 and amendment 145, which pushes in the same direction, more information is necessary about the proposed revenue effects of the clause. We have spoken many times in Committee about the importance of publishing full and transparent information on policy changes, to allow for proper opposition. We have often felt that there has not been adequate scrutiny of the Bill. Of course, I am saying this on the day that was set for the meaningful vote, which has been cancelled, when we were hoping for a chance to scrutinise another area.
The policy papers accompanying the clause point to “negligible” revenue effects from the change, for at least three years, along with some costs, also described as negligible. I have said many times that it is essential that all tax due should be paid, but one must wonder what the Government are doing when they say that there will be only a negligible impact on revenue from the changes, given the scale of the wider tax gap, and the avoidance going on in certain sectors. It would be helpful to have more information about that, so that we can understand why the Government are prioritising in this direction.
We also need an understanding of the measures in relation to incentives to comply with tax rules, which is what amendment 143 would provide for. The issue is once again eloquently set out by LITRG, which states:
“the proposals erode a general feature of the current law that the circumstances leading to the error determine the length of time which HMRC have in order to raise a discovery assessment. The incentive to take reasonable care is therefore reduced under the proposals, because an individual will have the same time limit applicable when they make a non-deliberate error, whether or not that error is careless.”
So it seems that, according to the experts, the changes may make it less likely that HMRC will collect its full due of tax, and that, instead, incentives not to comply will be created. It would be helpful to hear the Minister’s comments on the LITRG assessment. What provisions have the Government put in place to ensure that incentives are not weakened by these measures? If the Government have not put policies and protocols in place, they should accept the amendment and conduct the review the Opposition ask for.
Amendment 145 would apply a review of revenue effects to clause 80, which is similar to what amendment 142 would do. The two clauses need to be taken together, because both impose longer time limits, in relation to income tax and inheritance tax. However, a big area has arguably been missed out—corporation tax. As I understand it, both measures taken together are forecast to raise £15 million in the scorecard up to 2022-23, which is, as I have said, a quite small amount. We feel that that could be because of the decision to restrict this measure to income tax, inheritance tax and capital gains tax, and not to apply it to corporation tax.
That is peculiar, because there was a commitment in the consultation document to potentially apply the extended time limit to corporation tax as well, dependent on the result of the consultation. The consultation document stated:
“given that many offshore structures involve corporate entities, the government is considering, and would welcome views on, applying this proposal to CT”.
Doing so would have made a lot of sense, because there is currently exact alignment between assessing time limits for companies and individuals—four years for innocent error, six years for carelessness and 20 years for deliberate error or fraud.
However, the Government’s response to the consultation, issued this summer, said that, while the extended time period for assessment will apply to income tax, inheritance tax and capital gains tax, the Government would, as a result of feedback, not apply the measure to corporation tax at this stage. That leads to many surprising anomalies. In the future, assuming that these measures are enacted, HMRC will have at least 12 years to investigate the affairs of small, unincorporated businesses involved in offshore transactions, but it will have only four years to do so if identical transactions are undertaken by corporates. A small sole trader or partnership whose business involves offshore transactions will be subject to investigation for at least 12 years, while a huge company such as Google or Amazon that is engaged in similar activities will have finality after just four years, unless fraud or carelessness are involved.
At this stage we surely need to know why the Government decided to reject a longer assessment period for corporation tax. There were only 11 responses to the consultation in total, including from some very large firms that work with very large corporates. The response document stated that
“the majority of respondents were not in favour of applying ETL—
extended time limits—
“to corporation tax (CT) and raised concerns about the possible impact on increasing administrative costs if this was done.”
The document said that “12 years of uncertainty” were
“a particular concern for corporates with complex affairs.”
It added that some existing anti-avoidance measures relating to offshore structures do not apply to corporates—it did not state which ones, and corporates are generally subject to more stringent anti-avoidance rules for offshore transactions than individuals—and that applying them would create inconsistencies.
The response document also noted that respondents were concerned about the 12-year time limit applying to those groups subject to controlled foreign company—CFC—rules, even though such rules are designed to apply only to the most egregious avoidance structures, so not the kind that would be targeted by this measure. The document states:
“CFC legislation applies to corporates and their offshore subsidiaries. The application of a 12 year assessment time limit was seen by the majority of respondents as creating major complications for corporates with CFCs who might need to keep records for each subsidiary for many years as a precautionary measure.”
[Interruption.] Ooh, I am about to be beamed up. Anyway, I will continue. In the light of those concerns, the Government said in the response document that they would not apply the extended time limits to corporation tax.
The rationale offered for extended time limits for income tax, inheritance tax and capital gains tax in the original consultation document was that the existing time limits are inadequate for HMRC to investigate the full facts, because of the complexity of offshore structures. At the same time, the response document says that the reason the measure will not be applied to companies is that the affairs of large companies are so complex that it would represent an unacceptable administrative burden for them to be subject to the same time limits as smaller, unincorporated businesses. I hope the Committee is picking up on some of the paradoxes in this response document.
The response document also asserts that applying extended time limits to companies would create inconsistencies, yet at the moment, as I mentioned, assessing time limits for individuals and companies are aligned. It is this measure that creates the inconsistency by making small businesses subject to new time limits three times longer than those applicable to corporates.
In practice, complex offshore structures are rarely used by small businesses. However, they are routinely employed by multinational enterprises as a way of minimising their tax—for example, the type of structures known to be used by the likes of Google and Amazon that put their profits into territories where no or little tax is paid. Having extra time to investigate the affairs of such companies seems a proper response to their use of these offshore structures, yet they will be unaffected by the new extended time limit rules. On the other hand, small, unincorporated businesses will be subject to them, as well as, potentially, elderly individuals with few resources to draw on to fully understand the complex impact of tax rules.
As well as being unfair, the exception for corporates provides an easy way around the rules. Simply transferring an existing offshore structure into a corporate body means the measure will have no impact. This arguably makes the measures a trap for the poorly advised, while having no impact on those from whom any yield might be expected to derive—multinational enterprises and the wealthy, who can create corporations to avoid potential investigation.
Because of the limits within which the Bill has been set, we cannot directly table an amendment that would push in the direction of including corporates. However, we do ask for a review of revenue impacts because it would enable us to get further into the question of how much revenue this measure could raise as against other measures.
The Financial Secretary to the Treasury (Mel Stride)
It is a pleasure to serve again under your chairmanship, Ms Dorries. I thank the hon. Ladies opposite for their contributions, and I will deal with some of the specific points that were raised and then deal in more general terms with the measures and the amendments.
The hon. Member for Aberdeen North raised the issue of retrospectivity. I can assure her that the Law Officers have confirmed that there is nothing retrospective about the measures in the clause. It is the case that no investigation that has been closed, for example, will be reopened as a consequence of the measures here. At the point that the measures come into effect, no one who is, at that point in time, out of scope of the changes would be brought into scope.
On the issue raised by the hon. Members for Aberdeen North and for Oxford East on consultation, we held a public consultation on the details of the reform on 19 February 2018. The consultation closed on 14 May, and the response to the consultation and the draft legislation were published on L-day, on 6 July.
The hon. Member for Oxford East raised the issue of the de minimis amount and referred to LITRG. It is not true that we are not securing significant amounts from the most wealthy, whether individuals or corporations. For the last year for which we have records, 2017-18, HMRC secured £1 billion in tax from the wealthiest individuals and £9 billion from the largest and most complex businesses operating in the UK—tax that would otherwise have gone unpaid.
The hon. Member for Oxford East also raised at length the important issue of why corporation tax is not included along with inheritance tax and income tax. As she said, we consulted on this aspect at some length. The vast majority of responses did not support extending the measure to corporation tax and raised a number of new practical and legal issues with such an extension. The hon. Lady identified some of them, although I know she was not persuaded by the arguments that were put. However, there were a number of them.
For example, the rules that identify offshore issues were not designed for corporates and would result in a wide range of genuine commercial transactions being caught that were never considered when the rules were originally designed. Tax indemnity agreements on the sale or purchase of businesses could also be affected retrospectively, as a 12-year time limit was never anticipated. The 12-year time limit could create major complications for corporates with control of foreign companies—the hon. Lady spoke about that at length. Some corporates are also subject to other rules, such as the senior accounting officer rule, so it was seen as unnecessary to extend the measure to such companies.
The hon. Lady also specifically mentioned Google and Amazon, or a similar type of business, in this context. She should not overlook the fact that we are right at the forefront of looking at a digital services tax to make sure that those companies pay their fair share of tax in the United Kingdom.
Anneliese Dodds
Will the Minister explain whether those firms were strongly in favour of the measures that have been taken in relation to them and others, such as the diverted profits tax, or whether they have argued against them, potentially in consultations? Is consulting those who may, or whose clients may, have a revenue hit as a result of the measure and only listening to them really the appropriate way to make policy?
Mel Stride
I was making a slightly different point. It was not so much about what the response may or may not have been—I do not know the answer to that, regarding the measure that is under consideration by the Committee—but rather about our push to make sure that just those companies pay the appropriate level of taxation in the United Kingdom. Frankly, I think the businesses themselves want to be seen to be paying a fair level of tax. That is the impression that I get from the Treasury perspective. We are not on the back foot on this; we are very much on the front foot, pushing within both the OECD and the European Union to make sure that we can come up with a multilateral solution, which has particular advantages over going it alone. However, we have made it clear, as the Chancellor set out in the recent Budget, that in the event that there is not a multilateral solution, we will of course act unilaterally by 2020.
Mel Stride
Yes, of course. I would be very happy to do that and in some detail. As I have already suggested, the general point is that those businesses that would not be in scope of these new arrangements, at the moment that they come into effect, would remain out of scope of these arrangements. That is the important point, I think, but I will certainly write to provide further detail.
My final point is about whether we are going soft on larger businesses, which I think was the overarching implication of the hon. Member for Oxford East. She should bear it in mind that at any one time, about half the 210 largest businesses in the United Kingdom are under active investigation. That does not mean that they are doing anything wrong—it may be far from it—but I sincerely believe that HMRC are very good at making sure that those businesses are thoroughly engaged with, particularly the large ones, because that is where a lot of yield lies.
Anneliese Dodds
We are not talking about whether those large businesses are taxed at all, are subject to new tax measures or are investigated at all. What we are talking about are the time limits for that investigation. There is an anomaly in what the Government are presenting between the time limits for corporates against individuals. Surely that is what needs to be addressed.
Mel Stride
I am reflecting the fact that while corporation tax is not covered by these measures, that is not the same thing as saying that we do not have an appropriate regime overall for making sure that large businesses pay their fair share. I was giving some examples such as the diverted profits tax, common reporting standards and all sorts of things, including base erosion and profit shifting, that the hon. Lady will know feed into that particular argument.
To turn to the generality of the measures, clauses 79 and 80 make changes to help ensure that everyone pays the tax they owe. Individuals under inquiry by HMRC for offshore non-compliance will now face assessment for 12 years of back taxes for income tax, capital gains tax and inheritance tax. It applies only to cases where tax losses arise in respect of offshore matters or offshore transfers.
Those clauses will affect only individuals with offshore structures who are not paying the correct amount of tax. The measure is not retrospective as it does not give HMRC the power to reopen any currently closed cases. It is right and fair that everyone pays the tax they owe. It can take longer for HMRC to establish the facts where offshore non-compliance is involved. In some complex offshore cases, tax cannot be collected as the time limits for HMRC to assess the tax run out before the facts can be established.
The changes made by clauses 79 and 80 will ensure that HMRC is able to deal with offshore cases effectively, where the facts are often difficult to establish. The time limit for assessment by HMRC will be extended for non-deliberate behaviour from four years in ordinary circumstances and six years in cases where there was carelessness, to 12 years. The time limit for assessment will remain at 20 years for deliberate behaviour. This measure will help to prevent individuals from avoiding a full investigation by HMRC because of the difficulty in assessing information on offshore structures and investments.
The new extended time limits will not enable HMRC to assess any tax that can no longer be assessed under current rules at the time the legislation comes into force. That was the point at the heart of the concerns expressed by the hon. Member for Aberdeen North. The new time limits will not apply where HMRC has received information in accordance with certain international agreements from other tax authorities, on the basis that it was reasonable to expect an assessment to be made within the existing time limit. The clauses will raise £30 million by 2024.
Amendment 105 would unbalance the safeguards that ensure that the new time limits only apply if HMRC already has the information to make an assessment and could reasonably make it within the current time limits. If the amendment was passed, HMRC could receive information on a tax compliance case that it would be unable to act on. If, for example, information was provided from overseas immediately before the end of the current time limit, HMRC would be timed out of collecting the lost tax. That could incentivise slow responses from overseas intermediaries when partner jurisdictions gather information in response to HMRC requests.
Amendments 106 and 107 would change the years for which the clause would have effect. Where loss of tax is brought about carelessly, that would change from 2013-14 to 2019-20, and where brought about in any other case from 2015-16 to 2019-20. The amendments would water down the Government’s commitment to tackling offshore non-compliance now and delay, for at least a further four years, the additional time that the provision gives HMRC, so that the time limits would only begin to extend from tax year 2023-24. The Government are clear that the provision should start helping HMRC’s compliance work as soon as possible.
Amendment 139 would insert a de minimis threshold of £50 tax loss before the time limit applied. As currently drafted, the clause ensures that HMRC has the time necessary to conduct complex investigations. It is right therefore that HMRC can collect the tax due, regardless of the amount, once it has been calculated. It would be fundamentally unfair if the de minimis principle applied to offshore cases but not to onshore cases.
Anneliese Dodds
Forgive me, but is there a 12-year time limit for onshore cases for individuals?
Anneliese Dodds
I am grateful to the Minister for very generously giving way again. He said that it would be unfair to create an anomaly between the tax affairs of those with offshore and onshore business, but we have just established that there is not a 12-year time limit for those onshore. Is there not therefore an anomaly?
Mel Stride
This is probably a classic case of me speaking too quickly and the hon. Lady not being given the fair opportunity to digest exactly what I said, which I will repeat, because it is a slightly different point. We are talking about the £50 de minimis, not the 12-year extension. I will reiterate exactly what I said for the hon. Lady’s benefit, so she is absolutely certain that I am not bamboozling her on this point. I said that it is right therefore that HMRC can collect the tax due, regardless of the amount, once it has been calculated. It would be fundamentally unfair if the de minimis principle—I am referring to the £50 threshold—applied to offshore cases but not to onshore cases. In other words, it is her amendment that would create the anomaly.
Anneliese Dodds
I thank the Minister for allowing me to comment on this again. We are surely talking about very different cases. One deals with the normal process of tax collection and investigation, which most individuals assume would apply for seven years, and people need to keep papers for that long. The other is fundamentally different, and deals with the extension of the time limit to 12 years. If we were to do that onshore, then we may also wish to introduce a de minimis for that process, which would, as his measure introduces, go back between seven and 12 years. That is a point that needs to be made.
Mel Stride
I sense that the hon. Lady might have accepted my earlier point that my reference was actually to the £50 de minimis rather than the time limit. She has now introduced another argument, which she prosecuted during her opening remarks—that somehow we should not have a difference in the amount of time to investigate such matters pertaining to whether they are offshore or onshore-related. The whole crux of what we are doing rests on the, I think, fair belief that offshore transactions are less transparent. Those situations are more complicated and often involve dealing with different jurisdictions and intermediaries in order to establish the information that is required for HMRC to carry out its duties. That lies at the heart of why there should be a longer period for offshore entities than for those that are onshore.
Anneliese Dodds
I was talking about the application of a de minimis. I was trying to say that, if the Government were looking, for example, to extend the investigation period for domestic tax affairs beyond the existing time limits, they might even wish to consider a de minimis of £50. I was cognisant of the de minimis—my confusion was caused by the Minister’s remarks. He seemed to suggest that having a de minimis only in relation to offshore tax affairs and not to domestic affairs would be peculiar. We are talking about a de minimis only in those cases of that very long period, not in relation to general tax affairs. I would never say that we should have a de minimis on tax generally, which would mean that we could not pay tax on anything—VAT and so on. That is not what I suggested at all.
Mel Stride
This is probably a discussion for another day, in the sense that the hon. Lady is asking that, in the event that we revisit the issue of the time limits for onshore investigation, we should on that basis consider her amendment anew, because it might dispense with the different treatment between onshore and offshore. We might come to that in another world on another occasion, in another Finance Bill.
I am anxious to make progress—the hon. Member for Bootle sits there looking like he has got all day, but we have to make progress. Amendments 141, 142 and 143 on clause 79, and amendments 144 and 145 on clause 80, would require the Government to review the impact and effectiveness of the clauses within six months of the passing of the Act. Such reviews, however, would not have the intended effect: no data in relation to the characteristics of persons affected, the revenue effects of the changes, or the effects of the changes on incentives on persons to comply, will be available after six months. That is because it is unlikely that a full assessment of any relevant cases will be conducted within the six months after Royal Assent. Thus a report would likely be impossible or meaningless.
On that basis, I commend the clauses to the Committee.
Kirsty Blackman
If the Minister writes to me with the comments about retrospectivity, it may be that we will not press our proposal to a Division on Report, but I will not press it now in anticipation of receiving that letter.
Anneliese Dodds
I appreciate the Minister’s remarks, but we believe there is still an anomaly, and we remain concerned about the potential treatment of elderly taxpayers and so on. We will press our amendments to the vote.
Kirsty Blackman
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment proposed: 139, in clause 79, page 53, line 28, at end insert—
‘(7A) But an assessment under subsection (2) may not be sought by the Commissioners unless they are satisfied that the liability to tax is in excess of £50.’—(Anneliese Dodds.)
This amendment establishes a de minimis threshold for the extended time limits of £50.
Question put, That the amendment be made.
Anneliese Dodds
I beg to move amendment 146, in clause 81, page 55, line 39, at end insert—
“(3A) No regulations may be made under this section unless the Commissioners have issued guidance on the conditions necessary for an officer of Revenue and Customs to be satisfied that the requirement for security is necessary for the protection of the revenue (for the purposes of the provisions of regulations made in accordance with the duty in subsection (2)).”
This amendment would require the Revenue and Customs Commissioners to issue guidance on how it is determined that security is necessary for the protection of the revenue.
The Chair
With this it will be convenient to discuss the following:
Amendment 147, in clause 81, page 56, line 25, at end insert—
“(3A) No regulations may be made under this paragraph unless the Commissioners have issued guidance on the conditions necessary for an officer of Revenue and Customs to be satisfied that the requirement for security is necessary for the protection of the revenue (for the purposes of the provisions of regulations made in accordance with the duty in sub-paragraph (2)).”
This amendment would require the Revenue and Customs Commissioners to issue guidance on how it is determined that security is necessary for the protection of the revenue.
Amendment 148, in clause 81, page 56, line 44, at end insert—
“(4) The Chancellor of the Exchequer must review the effects of the changes made by this section on the construction industry and lay a report of that review before the House of Commons within six months of the passing of this Act.”
This amendment would require the Chancellor of the Exchequer to review the effects of the provisions of Clause 81 on the construction industry.
Clause 81 stand part.
Anneliese Dodds
The overall aims of the clause appear sensible, providing HMRC with powers to make secondary legislation to require a person to provide security for corporation tax liabilities and construction industry scheme deductions that are or may be liable to HMRC. Under the clause, failure to provide security when required will be a summary offence and a person who has committed it will be subject to a fine.
As I understand it, securities may be required where a taxpayer has a poor compliance record, and in phoenix-type cases where a business accrues a tax debt, goes into liquidation or administration and the person responsible for the operation of the business sets up again, with the risk of running up further tax debts. Sadly, we have seen far too many of those cases.
The measure is effectively an extension of HMRC’s powers to require security in relation to some areas of business tax—the powers it has currently—to include VAT and PAYE, as well as national insurance contributions, insurance premium tax and some environmental and gambling taxes.
The Government maintain that the clause will be specifically targeted at the minority of businesses that seek financial gain from non-compliance with their tax obligations rather than those that are genuinely unable to pay. They argue that it will not affect those who are managing their debts with HMRC under agreed time-to-pay arrangements with which they are complying—we have touched on that subject previously.
The Government argue that the power will apply only where an HMRC officer considers that the provision of a security is necessary to protect revenue. None the less, we believe that the changes merit further scrutiny, and therefore have tabled a number of amendments.
Amendment 146 seeks to introduce a requirement for HMRC officials to issue guidance on their use of securities to protect revenue. It is a probing amendment that seeks to clarify the circumstances under which a security will be requested for revenue protection. We do not in principle object to the measures being taken to protect revenue—they appear essentially sensible—but we seek to understand better the scope offered to HMRC officials in making such a judgment or, conversely, the guidance they are offered by the Department in making such a decision.
Will the Minister clarify what guidance will be offered and undertake to publish it later? After all, in the Government’s consultation, the feedback was pretty clear. The feedback document stated:
“Most respondents wanted to see clear guidance put in place to support the introduction of the securities and ensure that securities will only be used where it’s appropriate and proportionate to do so. Two thought that legislation should be expanded to provide the rules under which the securities regime should operate.”
How have the Government responded to that point? It is clear that more transparency is needed.
With amendment 147, which follows the previous one, we are likewise seeking to determine what guidance HMRC commissioners would receive. As I said, we do not object in principle to the use of securities to protect tax revenues; we simply seek to understand how and when they will be applied and whether the guidance is determined by Government policy or subject to the discretion of officials. I hope the Minister will either provide that information to the Committee or accept our amendment, which would ensure that further information is provided before these powers are enacted.
The policy papers relating to the clauses suggest that that is necessary. They state:
“Experience from the existing securities regime has shown that, when used in a carefully targeted manner, securities can be very effective in changing the behaviour of non-compliant businesses and protecting future revenues against the risk of non-payment. Currently these powers apply only to certain taxes and duties.”
We need to understand how these powers will be targeted and which criteria will be used. I hope the Minister will respond to that reasonable request.
Through amendment 148, we seek to understand how the new measure will affect the construction industry. As I said, this is an extension of the security deposit legislation to the construction industry scheme and companies chargeable to corporation tax. The documents on the impact of the policy do not discuss the construction industry in detail. The expectation should be that anyone avoiding tax should pay, but it is clear that providing a security could reduce capital stock in some companies, so we need a sense of the impact on those who may be required to pay a security. Again, that was reflected in the Government’s consultation, which stated:
“Several respondents commented specifically on the implications for insolvency and commented that HMRC should give careful consideration in cases where viable businesses were struggling financially and a security could force the business into insolvency. Similarly, respondents did not want the use of securities to limit the rescue environment for financially distressed businesses. One respondent suggested that before extending the security deposit regime, HMRC should commission independent research into its current approach and the effect that demands for a deposit have on struggling businesses.”
The context is that HMRC has lost a large number of its experienced staff, who might have had expertise in security regimes in relation to other taxes. Therefore, we need to know what the impact is likely to be on businesses that may have to deal with HMRC officers who have less understanding of the construction industry than previously would have been the case.
Finally, I note that we are informed by the tax information and impact note that HMRC will need to make changes to its IT systems to process the new security cases. The cost of the changes is estimated to be in the region of £840,000. It will also incur operational costs currently estimated to be in the region of £5 million. Those costs seem fairly high to me. I hope the Minister will explain why they are of such a significant magnitude.
Kirsty Blackman
Very briefly, if the Labour party chooses to press these amendments to a vote, we will support it, because we think that what it is trying to achieve is very sensible.
Anneliese Dodds
In the light of the Minister’s response, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 81 ordered to stand part of the Bill.
Clause 82
Resolution of double taxation disputes
Kirsty Blackman
I beg to move amendment 137, in clause 82, page 58, line 9, leave out from “section” to “may” in line 10.
This amendment provides for all regulations under the new power to be subject to the affirmative procedure.
Kirsty Blackman
I will come to amendments 137 and 138, but first I would like to speak briefly to Labour amendments 149 and 150.
We have seen the complete and total shambles over the past 24 hours—and not just over that period, but over the past two years. The past 24 hours have highlighted where we are in relation to EU withdrawal. Various people are suggesting that no deal is more and more likely, so it is incredibly important we know the potential effects of any changes that the Government propose to make to legislation in the event of a negotiated deal or no negotiated deal. We have a clear idea of the effect of retaining the status quo, which is the Scottish National party’s preferred position, and the revenue effects would be much easier to calculate. We are comfortable supporting Labour’s amendment 149 on that subject and amendment 150, which is about the expected revenue effect of the regulations.
I turn to the two SNP amendments. Amendment 138 is consequential on amendment 137, so I will focus on amendment 137. Given what has happened in recent times, trust in the Government is possibly at its lowest ever point. We are being asked to agree to give the Government power to make changes without going through proper scrutiny procedures. The Government are basically asking us to trust them, and we feel that we cannot trust pretty much anything they say right now, so more scrutiny is sensible.
When people who support leave talk about the European Union referendum and Brexit, they talk about taking power away from faceless bureaucrats in Brussels and returning it to Parliament. A lot of the legislation that is being considered just now does not return that power to Parliament in any meaningful way, and it does not allow Parliament proper scrutiny of the range of things that could come through. We are talking here about just one small area, but that problem has been highlighted in a huge number of things that have come out of the European Union (Withdrawal) Act 2018. There is massive concern from members of the general public, who now understand what Henry VIII powers are—we are in unprecedented times. There has been a power grab from the Scottish Parliament, and this is one more small thing the Government are trying to do to take power away from where it should sit.
Given that the Government cannot command a majority in the House; given that they folded on SNP amendments to the Bill—that was, clearly, because the SNP amendments were wonderful, rather than because the Government did not have a majority—and given that they cannot get legislation through, the level of Executive power needs to be tested. We need to make the Government use their majority if they want to get powers through the House, rather than relying on the fact that because they are the Government, they can do what they like. That is why the SNP has tabled amendment 137, which would require the Government to ensure that more of the regulations made under clause 82 go through the proper scrutiny procedure, rather than relying on the Treasury to make some of them without proper scrutiny.
Anneliese Dodds
I will speak briefly to the clause. The hon. Lady has set out the SNP’s reasons for tabling amendments 137 and 138. The official Opposition agree with those reasons, and it seems highly sensible to require regulations to be subject to the affirmative procedure. We have argued for that consistently in relation to our future relationship with the EU and the no deal process. We are concerned about the wholesale power grab that unfortunately appears to be continuing apace. We would support SNP Members if they decided to press their amendments to a vote.
We have tabled two amendments, and I am pleased to hear that the SNP support them. Under the Prime Minister’s proposed withdrawal agreement, the UK would initially, at least, continue to align itself with EU regulations, but little information has been provided alongside the clause to indicate how the Prime Minister’s Brexit deal would impact on Council directive 2017/1852, particularly if there was divergence later on. Similarly, the Treasury’s policy note offers no guidance about whether the EU’s resolution mechanism would be upheld for all future double taxation disputes in the event of a no deal Brexit.
That is of a piece with the general lack of information about the Government’s anticipated future relationship on tax matters with the EU. I have consistently asked whether we would seek to be a member of the code of conduct group, for example, and I have had no indication of the Government’s views on that matter. With that in mind, the Opposition have tabled amendment 149, which would require the Chancellor to publish a review of the impact of the powers under clause 82 in the event that the UK leaves the EU under a no deal Brexit or under the current withdrawal agreement—or whatever it becomes. It is unclear whether it will be changed or whether assurances will simply be produced in relation to it. Whatever happens, we may or may not be voting on it at some point, hopefully in the near future. Amendment 149 would require the Treasury to offer a clear indication of how the EU’s dispute resolution mechanism for double tax disputes would be maintained, and the likelihood of the different possibilities.
Amendment 150 would require the Chancellor to undertake a review of the revenue effects of the measure. The Treasury policy note states that the measure will raise no revenue and will have no economic impact on taxpayers. That is rather hard to believe, given that even the most benign change to the tax system can have far-reaching and unseen consequences. They may be unpredictable, but surely it would be better to say that than to say that the change will have no impact. The Chancellor would therefore be required to outline in the review the possibility of any unforeseen economic impacts, and the revenues that are likely to be raised from this measure after the Treasury makes regulations to use the powers.
Sir Robert Syms (Poole) (Con)
Had we had a meaningful vote today—we are not going to have one—I would have voted with the hon. Members for Oxford East and for Aberdeen North. However, I find it a little strange that those who intend to vote against the agreement should criticise the Government for a no deal Brexit, because ultimately that is not the Government’s position.
There are about 800 statutory instruments for leaving the European Union. About 600 of them are negative, and a hundred and something are affirmative. It is perfectly possible for the Opposition to pick any number of negatives to pray against. If the Opposition have a problem with something, they can pray against it when it appears on the Order Paper and get a debate. There is a remedy for hon. Members’ concerns, but the reality is that so many of these things are modest and technical, and there are more important matters of principle for us to discuss. I do not think we want to spend a lot of time in this Committee or others debating minor, technical issues.
Kirsty Blackman
I do not have much to add other than that I still want to press amendment 137 to a vote.
Anneliese Dodds
Briefly, the Minister referred to TIINs. I wonder whether, for the next Finance Bill, he will commit to ensuring clear linking from the Bill website to the different TIINs so that we can quickly see which one applies to each clause. It has been quite a waste of time having to search for them randomly.
As to the question whether the provisions should be examined using the affirmative procedure or should have to be prayed against using the negative procedure, I take on board the points made by the hon. Member for Poole. However, we all know that, when measures are dealt with by the affirmative procedure by default, much greater attention needs to be given to them. That is the reality. Generally, I fear that attention is not always paid to matters that may superficially appear technical but that, when one delves into them, may be discovered to have a concrete impact on different groups. Even with the affirmative procedure, the level of debate on taxation matters has, I would argue, traditionally been quite limited. I note that, for the first time in Parliament’s history, we have recently had votes in relation to tax treaties. I was pleased that we motivated those votes, yet UK tax treaties with other countries have never been subjected to proper scrutiny in the House.
Many matters covered by Delegated Legislation Committees are not purely technical. In fact, this has been talked about by my hon. Friend, who represents Leeds—help me out. [Hon. Members: “Stalybridge!”] I am sorry, I am not great at the memory game. In talking recently about some of the no-deal planning, my hon. Friend the Member for Stalybridge and Hyde has been talking about the potential for some of those measures to have such a significant impact that the Government themselves are not au fait with it. Given the time allotted, they seem to expect the Opposition to pass them with a rather cursory glance. I am afraid, therefore, that the suggestion that we already have a failsafe system for dealing with some of those significant matters is simply incorrect, so if the SNP presses amendment 137 to the vote, we shall support it. However, we will not press our amendments.
Mel Stride
Perhaps I may quickly respond, Ms Dorries, just to say that on the important matter of the TIINs, and the link from the website, I know that the hon. Lady raised that on a previous clause, and I should be happy to look into it for her. If she has any specific ideas that she would like to put to me in that respect, I should be grateful to receive them.
Finally, on the matter of negative SI procedure, and prayers against such measures, in the event that we have an effective, strong, organised, united and well led Opposition, I am sure that that will not be beyond them.
Question put, that the amendment be made.
Mel Stride
There is no need for consultation on this measure because, as the hon. Gentleman will know, it was just putting beyond doubt what has been established practice over a very long period. He raised the issue of retrospection. The measure is retrospective, inasmuch as it is putting beyond doubt the fact that these rates were appropriate in the past. We are just bringing the long-standing practice out of any sense of uncertainty.
The hon. Gentleman suggested that the loan charge was retrospective. It is not, because the arrangements entered into under the loan charge scenario were always defective. They never worked at the time when they were entered into, and therefore the tax was due in the past. It is being collected in the present.
Anneliese Dodds
In that case, when advisers advised individuals to undertake these schemes, were they promoting illegal schemes? It would help to have a clear answer on that.
Mel Stride
They were in many cases promoting schemes that did not work and were defective, and in many cases promoting schemes that had been taken through the courts by HMRC—and, in a case involving Rangers football club, through the Supreme Court. On each occasion, they have been found defective.
Anneliese Dodds
The Minister says those schemes were defective; is he saying that they were illegal?
Mel Stride
I am saying that the schemes were taken through the courts and were found defective; they were found not to work. As this is the third exchange between us, let us be clear about what lies at the heart of the way in which these schemes operate. If as an employer I said to an employee, “Instead of paying you normal earnings, from which you would pay your national insurance and your income tax—as the employer, I would pay the national insurance—I will pay you by way of a loan. You and I know it is not really a loan, as there is no intention of you ever repaying it. I may well send that loan to an offshore trust”—as many of these schemes do—“before sending it back to you. The consequence is you pay no, or next to no, tax, because it is treated as a loan, not earnings or income.” That lies at the heart of these schemes. That model never worked, and the schemes were always defective at the time they were entered into.
Anneliese Dodds
However, those taxpayers who are required to face the loan charge have been told that they have done something illegal. I am asking the Minister whether those who advised them to undertake these schemes were advising them to do something illegal, because the advisers have not faced anything as a result of this, whereas the taxpayers have.
Mel Stride
The enablers and promoters of those schemes have been subject to various pieces of legislation, going back a number of years. In almost every Finance Act, or every year, there has been legislation clamping down on them. They are subject to a penalty of up to £1 million as a consequence of that kind of behaviour. Where they have acted inappropriately, the legislation is there, and HMRC has the powers to pursue them.
Question put and agreed to.
Clause 87 accordingly ordered to stand part of the Bill.
Clause 88
Regulatory capital securities and hybrid capital instruments
Question proposed, That the clause stand part of the Bill.