Public Country-by-country Reporting

Anneliese Dodds Excerpts

Wednesday 22nd November 2017 Westminster Hall

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

Thank you, Mrs Main, for your stewardship of this debate. I welcome the debate, and congratulate the hon. Member for Amber Valley (Nigel Mills) on securing it, and thank him for his considerable work promoting tax transparency, building on his experience professionally before entering this place. Of course, I also want to hail the work of others in promoting public country-by-country reporting, not least that of my right hon. Friend the Member for Don Valley (Caroline Flint), who has strenuously promoted it many times, and that of my right hon. Friend the Member for Barking (Dame Margaret Hodge), who has ensured that this matter has been promoted consistently by the all-party parliamentary group on responsible tax and many others. I also commend my hon. Friend the Member for Ealing Central and Acton (Dr Huq), who importantly drew our attention to the fact that this is about not only tax transparency, but trying to deal with corruption and money laundering.

I will try to keep my remarks succinct, but I want to first say how pleased I am that we are having this debate, because of the huge amount of public concern around tax matters, as highlighted by other hon. Members. My right hon. Friend the Member for Barking has already referred to public opinion polling that shows that there is enormous support for more transparency around taxation matters, particularly for multinational enterprises. That is particularly important, because public country-by-country reporting enables us to focus on profit-shifting activities. Often when we talk about aggressive tax-avoidance in this place we hear the Government claim that the tax gap is reducing—of course, there is a debate and discussion around that—but their own figures for the tax gap do not cover profit-shifting by multinational enterprises. That is becoming an increasingly large problem, especially with issues around digitisation, which my right hon. Friend rightly referred to.

I remember having a discussion with representatives of Facebook when I was in the European Parliament, before I joined this place. Information about the amount of tax it was paying and how much it paid its staff had been leaked—Facebook had not made it public—and it appeared to be paying incredibly low levels of tax. A representative of Facebook said to me, “Oh, you just don’t understand.” I said, “No, I do understand; I have the figures. I just don’t agree with them—that’s where the difference lies.” I think everyone should be able to have those figures, so they can properly assess them.

As has already been mentioned, in February 2016 the Government required multinational companies to provide their tax details, as well as other details relating to revenue, total employment and so on, to the Exchequer, which was obviously a good first step. Then, in the Budget, the Chancellor maintained that he had introduced new measures to improve large business compliance, including the publication of tax strategies. On that point, we have not seen the level of publication of tax strategies that some of us might have hoped for—I hope that will be coming soon.

None the less, that hook at least enabled my right hon. Friend the Member for Don Valley to table an amendment to the Finance Bill to include public country-by-country reporting. I remind Members of what she said of her amendment, which was passed by this House. She said that it

“will enshrine in law support for the principle of public country-by-country reporting with the power for the Government to introduce when the time is most appropriate.”—[Official Report, 5 September 2016; Vol. 614, c. 136.]

That statement includes no qualification that it should happen only when there is multinational agreement on that principle. Rather, my right hon. Friend stated that it should be introduced when the time is most appropriate. I believe that the time is appropriate now, and other hon. Members have articulated very strongly why that is the case.

It is right for the Government to aim to take a lead on this issue. As was mentioned, there is a blockage at EU level at the moment. The European Parliament supports public country-by-country reporting, but there is disagreement in the Council. That is partly because this issue is now bundled in with debates at EU level about having a blacklist of tax havens run by the EU, which is a contentious issue. As a result, we have an opportunity to make a clear statement and push other countries in the right direction by setting an example. In fact, I know the UK has been arguing for disaggregation of figures at EU level. I am pleased to see that, but we now need to show an example. Above all, we need to show how this kind of activity need not lead to comparative disadvantages for our nation—quite the opposite. There is a good deal of existing evidence about the impact of public—

[Mrs Anne Main (in the Chair)]

Order. I ask the hon. Lady to bring her remarks to a close.

[Anneliese Dodds]

I beg your pardon, Mrs Main; I certainly will do. There is lots of evidence already about country-by-country reporting in extractive industries and in banking. Reports from PwC, for example, have shown it to be very successful for companies; it has not been negative for them. We have the examples of SSE, Pearson and others. It has made business sense, and it would make business sense for the UK as well.

Duties of Customs

Anneliese Dodds Excerpts

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

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

I am grateful to the Minister for his introductory remarks, but I have to say that both they and the resolutions leave four important problems unresolved. Many Members have spoken to those problems today. I will speak as telegraphically as I can about them, and speak to amendments (e) and (f).

First, as many colleagues have said, the resolutions fail to ensure that the Government’s approach on customs is properly democratically accountable. The hon. Member for Aberdeen North (Kirsty Blackman) said the Government proposals were a guddle, and my hon. Friend the Member for Croydon Central (Sarah Jones) spoke eloquently about their incoherence, but I think there is an element of coherence, as stated clearly by my hon. Friends the Members for Edinburgh South (Ian Murray) and for Bootle (Peter Dowd), who highlighted the presence of the paragraph that, sadly, we see in the European Union (Withdrawal) Bill, elements of the Finance Bill and the Trade Bill. The resolutions would give Ministers the ability to vary customs duties without what we regard as proper parliamentary scrutiny, and we cannot stand by and allow that as a House that is accountable to our constituents, who could suffer greatly from that sort of action.

Secondly, the Minister would say only that we need some kind of customs association during the transition period. It is unfathomable to Opposition Members why the Government are refusing to rule in continuing customs union membership, even during a transition period, when that is what business has so clearly demanded.

Thirdly, we had very little enlightenment about the capacity of HMRC and the concrete actions the Government will take to deal with the many challenges my hon. Friends expressed so very eloquently. My hon. Friends the Members for Liverpool, Riverside (Mrs Ellman) and for Walthamstow (Stella Creasy) expressed concerns about the additional administrative burdens that will apply, as did my hon. Friend the Member for Cardiff South and Penarth (Stephen Doughty). It has been suggested that the number of customs declarations could shoot up by 100%, and that is in the context of HMRC’s headcount being reduced by over a sixth since 2010. Of course, we did not have the clarification we needed about the scope and functions of the new trade remedies authority, despite my hon. Friend the Member for Stoke-on-Trent Central (Gareth Snell) pushing hard on the issue.

Fourthly, we have had much discussion about the dangers of a hard border between Ireland and Northern Ireland. I can say very strongly that we on the Labour Benches do not just want an aspiration to avoid such a border, we need a cast-iron assurance and we do not have it yet from the Government.

I understand, and indeed agree, with many of the sentiments underlying amendments (e) and (f), especially as they were articulated by my hon. Friends the Members for Edinburgh South and for Nottingham East (Mr Leslie). It is absolutely right to highlight, as they did, the recklessness of the Government in ruling out membership of the customs union as part of our future relationship with the EU. I am concerned, however, about how the amendments would interact with WTO rules, not least because of the Government’s disturbing unwillingness to rule out leaving the EU without a deal. The amendments would apply regardless of the future customs model. The scope is not restricted, as currently drafted. We on the Labour Benches have repeatedly indicated why leaving the EU without a deal would be a huge blow to British businesses and British jobs, yet the Government have failed to rule out this eventuality and their existing negotiating approach does not inspire confidence—quite the opposite.

[Angela Smith]

May I read my hon. Friend’s comments as a statement that the Labour Front Bench does support staying in the customs union, but on technicalities will not support the amendment? Do Labour Front Benchers support staying in the customs union?

--- Later in debate ---

[Anneliese Dodds]

I am grateful to my hon. Friend for her helpful intervention. As she will know, the Labour position is that we want to leave all possibilities open. We think that is an appropriate approach to take. [Interruption.] I see Government Members laughing at that. We are in a negotiation where it is surely absolutely essential that we put Britain’s interest first and that means not taking options off the table. Sadly, the Government did that very early on and caused an enormous amount of bad will from our other EU partners, which we regret enormously. They should not have done that.

If the worst does happen and the Government lead us—through their lack of application and, frankly, the internecine squabbles on the Government Benches—to leave the EU without a trade deal, the rules of the WTO leave us no option but to trade with our European partners on the same basis as we trade with all countries with which we have no free trade agreement. This is the most favoured nation principle at the heart of the WTO: that there must be no arbitrary discrimination between trading partners of a similar developmental status, unless those countries have negotiated a free trade agreement that meets the WTO’s definitional requirements.

If we were to adopt amendments that allow the UK Government to set customs duties on imports and exports from every other country in the world but not our European neighbours, in the case of a chaotic no-deal situation we would be faced with two unpalatable options. First, we could disregard the most favoured nation rule, in which case we would be exposed to virtually limitless potential dispute challenges from all other WTO members. The second option is abiding by the most favoured nation rule, but that would mean having to trade with all other countries on the same basis as we traded with the EU—namely, as the amendments would have it, without tariffs or quotas. Some Conservative Members and groups, such as the so-called Economists for Free Trade, would wish for such an outcome—a unilateral abolition of tariffs and all other trade barriers—freely admitting that such a scenario would see the end of manufacturing in the UK, as well as the end of agricultural production and the concomitant loss of millions of jobs.

[Mr Leslie]

I hear very much my hon. Friend’s argument, but would she acknowledge that this is a paving Ways and Means motion seeking, at this snapshot in time, to circumscribe the scope of the Bill to ensure that we can replicate the current customs union? Should we have, at some hypothetical point in the future, that crashing-out scenario, Parliament could address that at that point, and so at present the amendments from my hon. Friend the Member for Edinburgh South (Ian Murray) are absolutely pertinent to the message we need to send to the Government.

[Anneliese Dodds]

I am grateful to my hon. Friend for his question, but the problem is that the Government’s stated intention with these motions—they have said it time and again—[Interruption.] May I finish my point? They have said time and again that these motions are about our future relationship with the EU. I am afraid that they do not see them as part of a negotiation that might change. I would hope that generally the Government would be far more open about their negotiating position—

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

Answer the question.

[Anneliese Dodds]

I just have, if the hon. Gentleman doesn’t mind. The Government have stated that the motions are about that future relationship, and so we have to take them at their word, even if we might have been mistaken in doing that on other issues.

It has been suggested that, if the Government recover a sense of responsibility and sincerity and genuinely engage us in negotiations, albeit after wrongly ruling out a customs union with the EU, it could involve the adoption of deals similar to CETA or the Turkish deal. Now, CETA does not cover agriculture, so if we get a deal on industrial goods procurement and so forth, we might then need, concomitantly, still to have a deal on the protection of sensitive agricultural products, so we would need to have those powers still there. The Turkish bespoke deal, for its part, still necessitates anti-dumping and countervailing duties on both the Turkish and the EU sides.

To conclude, we have to be clear about what amendments (e) and (f) ask for. They do not, in and of themselves, guarantee that the Government will seek continued customs union membership, because they would apply across the piece of whatever arrangements the Government lead us to.

[Ian Murray]

I have tremendous respect for my hon. Friend and the work she has done on this, but if she disagrees with the technical aspects of my amendment but agrees with the principle of staying in the customs union, where are the Front-Bench amendments to do that?

[Anneliese Dodds]

I am a new Member and I do not know how appropriate it is to talk about which amendments have been allowed and which have not. Ultimately, we are seeking a more democratic process, but we cannot vote on that, which is unfortunate. My hon. Friend will know, as will other Opposition Members, that, as I stated before, the Labour Front-Bench position is to leave all options on the table. That is the best thing for Britain to do. It is very unfortunate that the Government have failed to do that, because it is enormously damaging to our negotiating position. I very much regret that the Government still could, irresponsibly and recklessly, lead us towards a no-deal scenario. In that case, these amendments—sadly—would worsen our situation. I know that that is not his intention—quite the opposite—but as stated that is technically what they would lead to.

Finance Bill

Anneliese Dodds Excerpts

Tuesday 31st October 2017 Commons Chamber

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

I beg to move amendment 1, page 14, line 15, leave out “different” and insert “higher”.

This amendment removes the power for the Treasury to reduce the £30,000 threshold in connection with the taxation of termination payments by regulations.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Amendment 2, page 14, leave out lines 20 to 23.

This amendment is consequential upon Amendment 1.

Amendment 3, page 14, leave out lines 27 and 28 and insert—

“(2) “Injury” in subsection (1) includes—

(a) psychiatric injury, and

(b) injured feelings.”

This amendment explicitly includes (rather than excludes) injured feelings within the definition of “injury” for the purposes of payments which are excluded from the provisions of Chapter 3 of Part 6 of the Income Tax (Earnings and Pensions) Act 2003 (payments and benefits on termination of employment).

[Anneliese Dodds]

Labour’s amendments on redundancy payments focus, first, on ensuring that there is proper democratic scrutiny of any attempt to reduce the £30,000 threshold for the taxation of termination payments, rather than the power to do so residing merely in regulations and, secondly, on ensuring that injured feelings are included in, rather than removed from, the definition of injury for the purpose of tax-excluded payments.

It is frustrating to be back in the Chamber to debate these issues again, with, again, no indication from the Government of any change in their position. The discussions in the Bill’s previous stages, including in Committee, detailed many ways in which provisions against aggressive tax avoidance and evasion could be tightened. Yet, rather than heed those reasonable suggestions for the removal of loopholes, the Government seem keen to target those made redundant as a potential source of revenue.

The changes in clause 5 are occurring in the context of the Government being determined to rush headlong into reducing corporation tax rates, despite the Institute for Fiscal Studies and others being clear that there is no automatic link between lowering rates and increasing revenue. In fact, I would hazard to suggest that in this case the opposite might be true. The Government’s previous cuts to corporation tax have manifestly not increased business investment.

The changes in the clause are also occurring when, as we have discussed, many loopholes have been retained for non-doms and, furthermore, while new measures for corporations exempt some of those firms that appear to have the most labyrinthine business arrangements, designed for tax purposes—not least some public infrastructure companies.

One might, then, wonder exactly why the Government have decided to stick to their guns and focus tax increases on those who are made redundant, which is effectively the idea that the provisions in the clause promote. We have been told by the Minister repeatedly that there are no immediate plans to reduce the threshold beyond which termination payments are taxable. If that is the case, why create the power to reduce it?

[Mel Stride]

rose—

[Anneliese Dodds]

If I may finish, I will be more than happy to take an intervention.

To use an appropriate analogy on Halloween, I would not have bought a pumpkin last weekend if I expected it to sit on the shelf when I brought it home. I would have bought it because I expected to carve it, although not very artistically, for my children. I would not purchase something if I did not think I was going to use it, so why are we spending valuable parliamentary time debating a measure that will never be used?

[Mel Stride]

I simply wish to point out that, as I think the hon. Lady will know, the statutory instrument on changing the £30,000 threshold would have to be passed by the House under the affirmative procedure. It would be an affirmative SI, so it would have to be voted on by the House.

[Anneliese Dodds]

The Minister’s point exemplifies exactly what I anticipated might happen. I was just about to say that the second line of defence from the Government, after proclaiming that they would abstain from using the powers that they are so keen to give themselves, is that, in any case, they would have to bring any change to the House for a vote. Indeed, that is what has occurred just now. We are all aware of the difference between passing a measure through the ordinary legislative procedure, with the amount of scrutiny that that receives, and passing a measure through the type of approach that the Minister has mentioned just now. I regret that this appears to be part of a piece, with a broader trend to exempt new policies from the parliamentary scrutiny that they deserve and that the British public have rightly come to expect from its elected representatives.

Arrangements for those facing redundancy are not, and should not be, a matter of purely technocratic interest. The Government’s failure to raise the tax-free threshold for statutory redundancy pay has meant that it has already lost much of its original real value. That perhaps explains why, when the Government consulted on this issue, there was no conclusive evidence in the consultation either of widespread abuse in this area or of a clamour for a reduction in the threshold.

We are also asking the Government to reconsider their plans on injury to feelings payments as part of termination payments.

[Mr Tanmanjeet Singh Dhesi (Slough) (Lab)]

My hon. Friend is making an excellent speech. Does she agree that the watering down of injury to feelings compensation is just another part of this Government’s plans to undermine and erode workers’ rights?

[Anneliese Dodds]

The concern is that this could be part of a piece of a broader movement to erode some rights that have existed for working people in the past.

[Antoinette Sandbach (Eddisbury) (Con)]

Some 85% of payments under the £30,000 threshold are not touched by these changes. Where there is the potential for manipulation of amounts above £30,000, does the hon. Lady not agree that that potential tax avoidance loophole should be closed?

[Anneliese Dodds]

I am grateful to the hon. Lady for her comments, but I must tell her that the consultation on the measure did not reveal widespread evidence of such manipulation of the rules. It was quite clear in that regard. Indeed, when advice was sought about appropriate measures in this area in the future, a range of different views came from stakeholders and consultees about the way forward. She is right to say that we are not talking about these changes affecting everyone who is made redundant. They apply to a minority of people, but it could be people who have had a very difficult time and who really rely on that redundancy payment for sustaining some kind of quality of life into the future. It is absolutely important that we have a proper debate about, and parliamentary scrutiny of, any changes, which is exactly what our amendments are intended to do.

I was talking about the new plans for injury to feelings payments as part of termination payments. I noted that there were many claims from the Government on this topic on First and Second Readings of the Bill, not least that payments allotted via tribunals would not be affected by these measures, but it is not the case that employment tribunals can decide whether payments are subject to tax or otherwise. That is not within their power. Yes, in some cases, some types of employment tribunal award are “grossed up” to take account of the tax that will be due, but that is very different from deciding whether an award is in and of itself taxable, which seemed to be implied in some of the previous debates on this issue.

In addition, the measures proposed in the Bill would cover the far more common payments made directly by an employer to settle discrimination complaints as part of a redundancy or other dismissal.

[Mel Stride]

The hon. Lady asserts that those awards made by tribunals are not necessarily non-taxable, but those made for discrimination, for example, are completely non-taxable.

[Anneliese Dodds]

If we are talking about payments made for discrimination in the context of a redundancy payment, yes, they are. That is our exact point, which is why we are discussing this matter about injury to feelings. We have had some comments in this House which appear to misunderstand the nature of injury to feelings payments. In some cases, these have been trivialised, almost suggesting that these payments are made because an employees’ nose has been put out of joint rather than something potentially more serious. But “injury to feelings” is a substantive legal category. Where there is genuine evidence of misuse of this category, that should be stamped out, but we have not been provided with such evidence as part of our deliberations on the Bill. Injury to feelings is related directly to discrimination experienced by a person because of their characteristics as an individual—their age, gender, sexual orientation, disability status or ethnicity. This should be taken seriously and it should not be a focus for penalising individuals, as is the case under these proposals. Again, as my hon. Friend suggested, this appears to be part of a piece, with more general measures watering down the protection to individuals suffering from discrimination at work, whether or not they take that discrimination to a tribunal. Clearly, tribunal fees have been struck down because of their discriminatory impact. Now measures are popping up that water down individuals’ protections in other ways.

[Robert Jenrick]

Just so that our constituents appreciate what is happening in the broader context, does the hon. Lady welcome the announcement that was made in September by the presidents of the employment tribunals of England and Wales that, in each of the three bands for injury to feelings, the maximum award is rising?

[Anneliese Dodds]

Again, I would be very careful to separate out tribunal awards that are made in the context of discrimination at work, which is not what we are talking about, from awards that might relate to redundancy, which is what we are focused on. In relation to discrimination generally, there has been a long-running discussion about what the rates should be for different bands. If one looks at the average award, or, even better, the median award, we are not talking about massive sums of money. It is very important that the public receive that message. For example, someone who has experienced discrimination on the basis of sexual orientation is generally receiving much less than £10,000—I regret that I cannot recall the exact figure. It is very important that we do not give the impression that people are somehow holding companies to ransom in this area. Indeed, that is perhaps underlying some of the change that has been forced on the Government through the court decision that we should not have tribunal fees, because these tribunals are being used not vexatiously, but purposely for people to protect their rights at work.

In conclusion, Labour’s message on this Finance Bill is clear. We felt that it offered an opportunity to reboot our economy, to deal with our massive productivity challenges and our cost of living crisis, and to shore up public finances by sealing loopholes for the very best-off people and biggest multinational companies. Instead, we have a series of missed opportunities and measures focused on soft targets, rather than on those who can afford expensive accountants and engage in complex schemes to avoid tax.

[Kirsty Blackman]

The House will be delighted to know that I do not intend to speak for very long. We have discussed this matter a number of times before. It is important to note that this measure is a revenue-raising one; the aim is to make £430 million for the Government. However we paint it, these workers are facing redundancy. They are receiving the pay-out at the same time as losing their jobs, so they are vulnerable by their very nature, and are having to think carefully and reassess how they go forward. This additional money will go to the Government, rather than to these workers who are being made redundant. For that reason, the Scottish National party will support the Labour party’s calls, particularly those regarding termination payments.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 24th October 2017 Commons Chamber

[Mel Stride]

My hon. Friend is absolutely right—we have collected £160 billion since 2010, far more than was raised during the 13 years under the Labour party. The latest figures show that our tax gap overall is now at 6.5%, better than any year under Labour, where in 2005-06, for example, it was as high as 8.3%.

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

Successive cuts to British corporation tax have manifestly not led to greater business investment, and according to the Institute for Fiscal Studies they are not responsible for the rise in receipts since 2010. So, with huge pressures on our public finances, will the Chancellor delay his proposed cuts to corporation tax?

[Mel Stride]

I am surprised that the hon. Lady should raise the issue of corporation tax, because we have brought corporation tax down from 28% in 2010 to 19% and we have further plans to reduce it further, to 17%, and yet the hon. Lady’s party wishes to inflate those rates of tax to 26%, which would destroy jobs, destroy wealth, destroy growth and lower the amount of tax that we can collect to support those vital public services that we all wish to see thrive.

Finance Bill (Fifth sitting)

Anneliese Dodds Excerpts

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

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

It is a pleasure once again to serve under your chairmanship, Mr Howarth. Clause 43 will ensure that rates of air passenger duty for the tax year 2018-19 increase in line with the retail prices index. The changes will ensure that the aviation sector continues to play a part in contributing towards general taxation.

APD forms an important part of Government revenue. The Government have raised APD by RPI each year since 2012, and the clause continues that trend. With no tax on aviation fuel or VAT on international and domestic flights, APD ensures that the aviation sector plays its part in contributing towards general taxation, raising £3.1 billion per annum. The aviation sector continues to perform strongly. The UK has the third largest aviation network in the world, and passenger numbers at UK airports have grown by more than 15% in the past five years.

Clause 43 sets the APD rates for the tax year 2018-19 in line with RPI. The changes will increase the long-haul reduced rate for economy class tickets by just £3 and the standard rate for all classes above economy by just £6. The rounding of APD rates to the nearest pound means that short-haul rates will remain frozen for the sixth year in a row. That will benefit 80% of all airline passengers. To give industry sufficient notice, we will announce APD rates for 2019-20 at the autumn Budget 2017, legislating in the corresponding Finance Bill.

APD is a fair and efficient tax, where the amount paid corresponds to the distance and class of travel of the passenger. The changes made by clause 43 will ensure that the aviation sector continues to play its part in contributing towards general taxation, raising £3.1 billion a year.

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

It is a pleasure to serve under your chairmanship, Mr Howarth. I have a couple of questions. Air passenger duty is a matter of considerable public debate, and debate within the industry, so it is appropriate that we probe this.

First, can the Minister provide us with a little more understanding of what he views as the purpose of this tax? In his introductory remarks, he appeared to reduce it specifically to revenue raising. Others have seen the duty as a potential green tax as well, although clearly it is not hypothecated for that purpose. It would be helpful to know whether he believes the duty has any kind of deterrent effect.

Secondly, in the light of the Scottish Government’s policy approach, does the Minister anticipate a race to the bottom in relation to APD in future, particularly given the representations made by Newcastle airport and others about potential unfair competition from across the border?

Finally, mention has been made in some of the discussions on this duty of the potential impact on those with protected characteristics who might need to travel more frequently on long-haul flights, for example. It would be helpful to hear the Minister’s views on whether these changes might have a disproportionate impact on certain ethnic minorities. That has come up in some of the debates around APD.

[Mel Stride]

I thank the hon. Lady for her questions, which I will answer in order.

The purpose of APD is clearly, as the hon. Lady identified and as I explained in my opening remarks, to raise revenue—£3.1 billion in this instance. Like all taxes, it will also change behaviour to some degree, and to the extent that it makes flying a little bit more expensive, it could be expected to have the effect of diminishing demand for air travel. The lower rates for economy, which takes up more space on aircraft than first class, assist in ensuring that flights are as full as they can be.

The hon. Lady mentioned the Scottish Parliament and the devolution of APD, which will become air departure tax in Scotland. That tax has not yet been switched on, although devolution arrangements are in place, and we will of course monitor the issues that she has understandably raised in respect of competition with airports, particularly in the north of England. On long-haul flights and the impact on various groups, including ethnic minorities, I would be happy to write to the hon. Lady with any information that we have.

--- Later in debate ---

[Kirsty Blackman (Aberdeen North) (SNP)]

It is welcome that the Government are looking to reduce the administrative burden in relation to elections for oilfields to become non-taxable. That is positive news. The Chancellor of the Exchequer has mentioned in two Budgets that there will be changes in the taxation system to make it easier for late-life assets to be transferred. I have heard noises from the Chancellor in recent times that he may not introduce that in the autumn statement this year, and I will just make this pitch to the Minister. This issue is incredibly important. The oil and gas industry is not asking at this moment for significant changes, but for the change in relation to the transfer of late-life assets. I would very much appreciate it if, in the context of reducing the administrative burden and making things easier for companies dealing with the very mature field in the North sea, the Minister would hear my case on that and make the case to the Chancellor.

[Anneliese Dodds]

I must admit to being slightly confused about the purported impact of this change. Some of the inputs from stakeholder bodies seem to imply that there will be some kind of Revenue impact as a result of the changes in relation to procedures for elections for oilfields to become non-taxable. For example, Oil & Gas UK has welcomed the change, saying that the move will reduce the headline rate of tax paid on UK oil and gas production. In contrast, Friends of the Earth has expressed disappointment at the tax cut. As I understand it, petroleum revenue tax was permanently zero-rated in 2016, and the Government’s assessment of the measure’s impact on the Exchequer is that it will be negligible. Therefore, can the Minister enlighten us on why some people appear to view the measure as potentially having an Exchequer impact, but the Government do not appear to have that view?

[Mel Stride]

Perhaps I should set the scene that I would have set had I realised that others were going to contribute to this debate, because I think that that will pick up some of the questions that have been raised. However, before I do that, I shall turn immediately to the question raised by the hon. Member for Aberdeen North about the transfer of long-life assets. I will take her remarks as a Budget representation, but I am sure that she understands that at this moment, in the run-up to the Budget, I will not comment further on specific taxes or arrangements relating thereto.

Clause 44 makes changes to simplify the process for opting oil and gas fields out of the petroleum revenue tax regime, reducing the administrative burdens on affected companies. To ensure that participators could take advantage of the changes as soon as possible, the legislation had effect from the date of its announcement, on 23 November 2016. I shall provide Committee members with some background to the measure.

At Budget 2016, as part of a £1 billion package of measures to support the oil and gas industry, the Government announced that PRT would be permanently zero-rated. That was to simplify the tax regime, to level the playing field between older fields and new developments and to increase the attractiveness of UK investment opportunities. It was decided that the tax should not be abolished completely, because some companies still require access to their tax history for carrying back trading losses and decommissioning costs. As a result, participators still have to submit returns, which many find complex, time consuming and expensive. Following consultation with industry, the Government are therefore simplifying the rules for opting fields out of the PRT regime. The changes made by clause 44 will allow the responsible person for a taxable oilfield to remove the field from the PRT regime simply by making an election to do so and then notifying HMRC. When coupled with the Government’s removal of other reporting requirements, these changes will save companies an estimated £620,000 in total ongoing costs per annum.

The clause builds on the Government’s support for the UK oil and gas industry, including the £2.3 billion package of fiscal reforms announced in the 2015-16 Budget. I therefore hope that the clause will stand part of the Bill.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clauses 45 to 47 ordered to stand part of the Bill.

Clause 48

Carrying on a third country goods fulfilment business

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

--- Later in debate ---

[Anneliese Dodds]

As the Minister has helpfully set out, the measures will introduce new penalties for tax avoidance enablers. Specifically, penalties charged will be equal to the amount of consideration received or receivable by the enabler for their role in enabling the tax avoidance arrangements that were defeated.

Our amendments 41 and 42 would require the publication of information about how the new scheme will operate. Specifically, we think it is necessary for lawmakers, the public and others to be aware of who is being penalised through these new tax measures; the nature of the abusive tax arrangements that have been uncovered and dealt with; the extent to which they apply to offshore income, assets and activities; and the extent to which successful criminal prosecution is used rather than this penalty.

We think that that information is necessary because we are concerned that, although it is a welcome step, this measure is potentially insufficient. We are concerned that the Minister’s aspirations for this measure to have a behavioural impact might not be realised, and that concern relates specifically to the extent of the penalty.

As I have said, the penalties charged will be equal to the amount of consideration received or receivable by the enabler for their role in enabling the tax avoidance. Therefore, in effect, they will be required to pay back merely the payment they received for the inappropriate arrangement in the first place. That payment might not even cover HMRC’s costs of investigation and recovery.

As I understand it, penalties have been reduced after consultation, which is regrettable. Given that this is the Finance Bill, we cannot suggest that those penalties should be restored to a level that would cover HMRC’s costs—that would be inadmissible. None the less, we can ask for the information that we will require to assess whether this regime is watertight and driving the behavioural change suggested by the Minister.

[Ruth George]

Does my hon. Friend think that the clause provides HMRC with any impetus to investigate such schemes at an early stage? At that point, very little tax may be recoverable, resulting in a smaller penalty. That would create a perverse incentive to delay investigations until greater charges can be levied in order to cover HMRC’s costs. I would hope that the Minister would want to incentivise the early investigation of such schemes.

[Anneliese Dodds]

My hon. Friend makes a good point about the potential perverse incentives created by focusing uniquely on HMRC receiving payment from the client for the creation of such schemes and the enrolling of individuals and firms on to them, rather than on the activity of creating those schemes in the first place and, above all, on HMRC’s costs as a result of investigating them.

All of us, as Members of Parliament, are well aware of the kinds of schemes under discussion. It was interesting to hear the Minister mention the principle of eliminating those schemes that no reasonable person would think should be followed by taxpayers. We have voluminous evidence that that is not currently the case. We need only look at some of the flow charts produced and revealed during the Lux and Panama leaks to be aware that there clearly is an industry in creating such tax avoidance schemes.

We need very tough measures against those schemes. Given that they could be costing the Exchequer dearly, we feel it is appropriate to have a greater amount of information about the measures and, in particular, to compel HMRC and the Government to publish that information in full so that we can assess their efficacy.

[Mel Stride]

I make clear the Government’s total commitment to clamping down on tax avoidance. We have brought in £160 billion since 2010 by clamping down on avoidance, evasion and non-compliance. We have already introduced legislation that clamps down on those who generate abusive schemes, and the Bill seeks to catch up with those who have benefited or who expect to benefit from such schemes. That leaves us to deal with the enablers in the centre of the equation.

The hon. Member for Oxford East raised the issue of naming. The Bill will allow the flexibility to name those who have been enabling these schemes. We believe that a proportionality test should be applied to take account of how significant and widespread the abuse has been, but if a very serious level of abuse has occurred, there is provision for the individuals, partnership or company concerned to be named in the way she described.

The hon. Member for High Peak is entirely correct that HMRC should be encouraged to address these cases early, rather than letting them run on. The clause seeks not only to ensure that we can catch up with these things quickly, but to prevent them from happening in the first place. It is about behavioural change, which is so important. We have seen a lot of evidence that many of these schemes are beginning to close down because we are sending the right signals and getting tough and serious about it.

[Anneliese Dodds]

I am concerned about incentives. HMRC is not being given specific additional resources, and some of the investigations may be quite detailed. As my hon. Friend the Member for High Peak asks, where is the incentive to crack down on the schemes early? The funds receivable may be very small because the schemes are unlikely to be used by a large number of taxpayers. I am concerned that we may be making it difficult for HMRC to take action, because the Bill does not include a requirement to cover its costs.

[Mel Stride]

The incentive for HMRC and for the Government is to squeeze the tax gap and minimise the number of people avoiding tax. If we do not get on with clamping down on those individuals and companies in a timely fashion, we will make things worse right across the piece and generate less tax as a consequence. We have a clear incentive to ensure that these measures bite at the earliest opportunity. It is about changing behaviour. The very best approach to tax avoidance is to ensure that it does not happen in the first place.

Question put and agreed to.

Clause 65 accordingly ordered to stand part of the Bill.

Schedule 16

Penalties for enablers of defeated tax avoidance

Amendment proposed: 41, in schedule 16, page 609, line 4, leave out “may” and insert “must”.—(Anneliese Dodds.)

This amendment would remove HMRC’s discretion over whether to publish information on people have incurred a penalty and the conditions of paragraph 46 have been met.

Question put, That the amendment be made.

Value Added Tax (Place of Supply of Services) (Telecommunication Services) Order 2017

Anneliese Dodds Excerpts

Monday 23rd October 2017 General Committees

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

It is a pleasure to serve with you in the Chair, Mr Hosie. I am grateful to the Minister for his explanation of the order, which clearly, as he set out, will bring the UK’s practice in this area in line with much international practice. I just have two brief questions.

First, the commencement date of the new rules—1 November—is obviously quickly approaching, so we are on a short timescale. I wonder whether the Minister is able to comment briefly on the extent of industry preparedness for this measure. That is particularly important given that the explanatory memorandum makes it clear that there may be some uncertainty about the nature of arrangements in this regard when we leave the EU. Therefore, compliance costs and issues are particularly pertinent. It would be helpful to hear whether he believes that the industry will be ready for these changes.

Secondly, the Minister talked about the likely impact of the measure on revenues accruing to the Exchequer. He mentioned apparent evidence of some telecommunications firms in effect exploiting uncertainty about where consumers are located to retain funds that should be paid in VAT. He provided three different figures. He suggested that there would be increases in revenue of £25 million in 2017-18 and of £65 million after that. I assume that £65 million is an annual figure and that the £25 million is just because the 2017-18 tax year has a short time left to run, but I wonder where the overall £1 billion figure comes from. Is that just an estimate over time? Will he provide a little more information about that?

Finance Bill (Third sitting)

Anneliese Dodds Excerpts

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

[Stella Creasy]

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

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

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

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

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

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

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

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

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

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

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

--- Later in debate ---

[Stella Creasy]

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

[Anneliese Dodds]

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

[Mel Stride]

I thank hon. Members for their contributions to this important and interesting debate. To come back on a few of the points made by the hon. Member for Walthamstow, at the heart of this there is a distinction. She kept raising the issue of how PFI organisations should have taken into account that tax treatments could change. To some degree that is a fair argument, but there is a distinction for a company that is involved in highly leveraged infrastructure projects, which after all is delivering to public services. While she might be right that many PFI contracts have been very lucrative, not all of them have been; some are far more marginal. She has to conjure with the possibility that, if we go down the road she suggests, some may fail. That is an important point for her to consider.

On the hon. Lady’s second point, it may be the case that part of the rationale for entering into PFI agreements was an assumption about what future taxes may be paid under the pre-chapter 8 system. However, such a decision would have been taken at that time, on that basis, and that is nothing other than what she would expect them to do. An important point is that after the announcement of these arrangements all PFI arrangements will not be subject to chapter 8; they will be under the arrangements we discussed previously.

The hon. Lady talks about smoke and mirrors in relation to overseas businesses effectively brass-plating over here, with all the profits being diverted elsewhere. There is plenty of anti-avoidance legislation out there, including the diverted profits tax, to address those matters.

The hon. Member for Oxford East raised the BEPS project and recommendation 4. She is right that there is a corridor—a range of percentages that could be applied for the corporate interest restriction—and that is between 10% and 30%. The Government have a balance to strike because of the importance of the UK remaining competitive. Germany, Italy and Spain have all elected to go for 30%. It should not be overlooked that these measures are bringing in £1 billion extra every year in which they operate, which is a considerable increase in the tax take. The Bill will bring in about £16 billion across the scorecard period, about £5 billion of which will be from this one measure. On that basis, I ask the Committee to reject the amendments and to support the clause and the schedule.

Question put and agreed to.

Clause 20 accordingly ordered to stand part of the Bill.

Schedule 5

Corporate interest restriction

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

“443A Review of effects in relation to PFI companies

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

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

(a) the Chapter, and

(b) the exemption in section 439 were not to apply to PFI companies.

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

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

Question put, That the amendment be made.

--- Later in debate ---

[Mel Stride]

Quite right, Mr Howarth. I think we should just agree that I will see you at Glastonbury next year. Sorry—I will see the hon. Gentleman there; I might see you there as well, Mr Howarth.

On the specific point the hon. Gentleman raised about ensuring that relief is not abused, anti-avoidance rules are clearly critical to the long-term success and stability of the museums and galleries exhibition tax relief. The Government will include rules similar to those applied under the film tax relief to prevent artificial inflation claims. In addition, there will be a general anti-avoidance rule, based on the general anti-abuse rule, denying relief where there are any tax avoidance arrangements relating to the production. During the consultation, respondents generally said that the strategy appeared robust and did not identify any additional opportunities for abuse. Of course, as I have said previously, HMRC will continue to monitor these important matters. On that basis, I hope that the hon. Gentleman will not press his amendment.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 22

Grassroots sport

[Anneliese Dodds]

I beg to move amendment 30, in clause 22, page 27, line 25, at end insert—

“217E Review of operation of this Part

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

(2) The review shall, so far as practical, identify the extent to which the provisions have benefitted particular eligible sports.

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

This amendment would make statutory provision for a review of the new relief for grassroots sport, including identification of benefits to particular sports where possible.

[The Chair]

With this it will be convenient to discuss clause stand part.

[Anneliese Dodds]

I should at the start declare an interest in this topic: my partner is an amateur football referee in the Uhlsport Hellenic League and others.

First, we need to be clear that the measures have been introduced, according to the Government’s consultation of last year, at least partly due to a lack of other funding sources for sport. That is obviously rather worrying, particularly following widespread concern that the legacy of the Olympic games has not been capitalised on to build the habitual involvement of the wider population in sport.

We also need to consider this measure in the context of other taxation measures that affect sports facilities, not least the changes to business rates and the fact that there was such a long postponement of the uprating. That has had a significant impact on many clubs, whose headquarters or area of operation is also that of a small business; I am particularly thinking about riding schools, for example, which may have seen a substantial increase in their business rate. There is also an unfortunate interaction between small business rate relief and the relief provided through the community amateur sports clubs relief. I mention that because it is important that we do not look at this issue entirely in isolation, because corporate support for sport can be enormously fickle; it will relate to the nature of the business environment. Many smaller sports clubs—exactly those the measure seeks to support—need reliable funding over the long term, and they particularly need to know that their premises will be supported over the long term.

For those reasons and others, we believe that there needs to be a thorough review of the benefits of this proposed relief for grassroots sports. We think it particularly important that that review examines which sports would be supported through the mechanism. That is especially important when it is clear that there are funding gaps in certain areas of sport in Britain, compared with other countries. For example, the provision of athletics facilities outside the capital is very patchy, particularly for amateur athletics. That is why we request a review of the measure.

[Mel Stride]

Before I speak to the amendment, I will set out for Committee members the general background and aims of the clause. Clause 22 introduces a new tax relief to support investment in grassroots sports by companies and our sports national governing bodies. It will help governing bodies channel their profits into grassroots sports and will give companies a simple means of making valuable contributions to support grassroots sport activity.

The changes made by the clause will allow qualifying expenditure on grassroots sports as a deduction from the company’s total profits in calculating their corporation tax profits. Sport governing bodies and their subsidiaries will be able to make deductions for all their contributions to grassroots sports. Companies will be able to make deductions for all contributions to grassroots sports through sport governing bodies, and deductions of up to £2,500 in total annually for direct contributions to grassroots sports. The relief has been designed to be simple to make it attractive to potential contributors and to allow as many organisations that support grassroots sports to benefit as possible.

Contributions must facilitate participation in eligible amateur sport, and the activities must be open to a sufficiently broad section of the public. The hon. Member for Oxford East asked who would be included and excluded. I am happy to write to her on that matter so that she has all the information she needs. No payments to participators will be allowed, other than to cover the reasonable cost of participation. Such requirements will ensure that payments are made for the intended purposes and will prevent payments from being made for personal benefit.

Following the calling of the general election, clause 22 was removed from the original Bill. The clause will take effect from 1 April 2017 so that taxpayers can still benefit from the changes being made from the original commencement date.

I do not want to dwell too long on amendment 30 because I am conscious that we are eager to make progress on what is a very lengthy Bill. On the issue that the hon. Lady raised about the interplay between business rate relief and sports club reliefs, if she writes to me with her questions I will be happy to provide the information to her. However, I can reassure hon. Members that the Government ran a full consultation on the policy and the legislation prior to its inclusion in the Bill. During that process, there was extensive engagement with key stakeholders to ensure that the legislation is well designed and targeted at meeting its policy objectives. I was pleased to see a recent article in World Sports Advocate welcoming this new relief as

“a welcome incentive to support community sport for everyone”.

An important aspect of the legislation is that it has been deliberately designed to be as simple as possible to operate. There is no new reporting requirement and we want the new relief, particularly the relief for small deductions by companies, to benefit a wide range of sports in the UK without added administration burdens and costs. The Department for Digital, Culture, Media and Sport will of course continue to liaise closely with the sports governing bodies on a range of issues through their existing processes. A review, particularly to the timescale proposed, is neither practical nor necessary, and I hope that Opposition Members will not press their amendment to a vote.

[Anneliese Dodds]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 22 ordered to stand part of the Bill.

Clause 23

Profits from the exploitation of patents: cost-sharing arrangements

[Anneliese Dodds]

I beg to move amendment 31, in clause 23, page 32, line 45, at end insert—

“357GCZG Review of changes to provisions for cost-sharing arrangements

(1) Within fifteen months of the passing of the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review about the effects of the changes to cost-sharing arrangements.

(2) In this section, “the changes to cost-sharing arrangements” means the changes to this Part of this Act made by section 23 of the Finance (No. 2) Act 2017.

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

This amendment would make statutory provision for a review of the effects of the changes relating to cost-sharing arrangements on profits from the exploitation of patents or similar intellectual property.

[The Chair]

With this it will be convenient to debate clause stand part.

[Anneliese Dodds]

As hon. Members will be aware, the patent box system in the UK was introduced following the Labour Government’s 2009 Budget, which committed to,

“consider the evidence for changes to the way the tax system encourages innovative activity and the relative attractiveness to global firms as they make decisions on where to locate their research and development and other innovation activities.”

As a result of that commitment, the patent box was created, intended to cover income from patents dating from April 2013. In 2010, before it came into practice, it was altered by the coalition Government.

The patent box rules reduced the corporation tax that accrues to profits from the development and exploitation of patents and some other forms of intellectual property. Our regime was identified during the OECD BEPS process, which we have already referred to this morning, as harmful and open to abuse. It was also identified as potentially harmful by the EU’s code of conduct group in 2013. It is therefore positive to see attempts to tighten the regime, following other measures that were discussed last year.

We have already seen a shift to the nexus basis for identifying the fraction of profits that will be allowed in a claim through the patent box as derived from R and D activities. That brings us in line with international best practice. It is good to see other countries adopting that approach as well. In this context, the British tax regime undoubtedly will have some impact on business investment decisions, but comparative evidence suggests that other factors, not least infrastructure and the availability of highly skilled researchers, technologists and other workers, are most significant to our overall competitiveness.

--- Later in debate ---

[Mel Stride]

The Opposition amendment would require the Government to review the effects of the changes to cost-sharing arrangements made in clause 23. Before I set out why that review would be inappropriate, I will remind Committee members of the background of the clause and what it is designed to achieve.

The clause introduces provisions for companies undertaking R and D collaboratively under a cost-sharing arrangement that will ensure that those companies are neither advantaged nor disadvantaged compared with those undertaking R and D outside such an arrangement. Following the calling of the general election and subsequent wash-up negotiations between the Government and the Opposition, clause 23 was removed from the Bill that became the Finance Act 2017. The Government propose that the provisions in the clause will apply from 1 April 2017 as originally intended and announced.

The UK patent box was introduced by the coalition Government in 2012. It provides a reduced rate of tax to companies exploiting intellectual property, such as patents, to incentivise them to grow their businesses and to create jobs in the UK. The Finance Act 2016 included changes to the patent box rules in line with the new international framework agreed by the OECD for intellectual property regimes, as part of the BEPS action plan. The main change was the introduction of the R and D fraction, which connects the amount of profit from an item of intellectual property that can benefit from the patent box to the proportion of the R and D activity undertaken by the claimant company.

The 2016 Act did not directly address R and D undertaken as part of cost-sharing arrangements, as it required further consultation to ensure that, as the hon. Member for Oxford East pointed out, very complex collaborative arrangements are appropriately addressed. Following completion of the consultation, the clause now adds specific provisions to deal with cost-sharing arrangements.

Under a cost-sharing arrangement, typically companies agree to undertake a proportion of R and D activity as part of a collaborative project, therefore receiving a commensurate proportion of income if the project is successful. That means that the calculation of the R and D fraction must take into account how the company has discharged its proportion of the R and D costs throughout the life of the arrangement.

The arrangements create specific challenges in the application of the OECD framework. Over the life of the arrangement, the claimant’s R and D activity may fluctuate year on year and trigger additional top-up contributions—balancing payments—payable to and from the claimant company to other companies in the cost-sharing agreement. Although at the end of the project the claimant may have met its agreed proportion of R and D costs, the interim position can differ greatly. Without providing a specific mechanism to deal with the treatment of the payments, the claimant’s R and D fraction would be unduly depressed, putting it at a comparative disadvantage to claimants undertaking R and D outside a cost-sharing arrangement. The changes made by clause 23 are therefore exclusively focused on addressing that issue. Specifically, balancing payments made by the claimant will generally be treated as if subcontracted to the other member of the cost-sharing arrangement, so the impact on the fraction will depend on whether the two parties are connected.

It might be helpful at this stage to remind the Committee that under the revised patent box rules, payments to connected subcontractors reduce the R&D fraction, as does spending on acquired intellectual property, in line with the OECD guidelines. Balancing payments received by the claimant—that is, receipts—will be offset against outgoing payments, again depending on the relationship between the parties.

The hon. Lady raised the question whether that could be used for the purposes of tax avoidance. My comment is that the OECD base erosion and profit shifting project agreed an acceptable framework for intellectual property regimes that would address concerns about profit shifting, and the UK patent box regime was revised in the Finance Act 2016 to align with that framework. The changes ensure that the amount of profit and benefit from the patent box is restricted to the proportion of research and development undertaken by the company when compared with the total research and development. As a result of the changes, the payments and receipts should net out to ensure that, at the end of the project, the claimant’s R&D fraction reflects only the costs it has incurred to meet its agreed share of R&D activity.

Amendment 31 would impose a requirement on the Government to undertake a review of the effects of these changes to the patent box regime. However, the Government have carefully considered the regime and consulted extensively with stakeholders to ensure that the changes comply with the relevant international frameworks and provide no opportunities for abuse. The Government regularly publish statistics on the patent box and will continue to monitor the impacts of both the patent box and these legislative changes. On those grounds, I urge the hon. Members to reject the amendment.

[Anneliese Dodds]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 23 ordered to stand part of the Bill.

Clause 24 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 26 ordered to stand part of the Bill.

Clause 27

Substantial shareholding exemption

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

[The Chair]

With this it will be convenient to discuss the following:

Government amendments 1 and 2.

Clause 28 stand part.

--- Later in debate ---

[Anneliese Dodds]

I have a couple of brief questions. Clause 27 provides the Treasury with new powers to regulate the list of approved investors that qualify for the substantial shareholding exemption. It would therefore be helpful to know what checks will be placed on the Treasury’s use of those new powers. In its assessment of the measure, the Treasury said that the financial impact would be negligible, which sounds slightly peculiar. Any further information about that would be gratefully received.

I understand the rationale for the measure in clause 28, which will shift the qualifying conditions for exemption from the activities of the disposing company or the company being disposed of to instead focus on, as described by the Minister, the shareholding for which the disposal is made and to the other shareholders of the company disposed of. I would be interested to learn whether the Minister believes that the new measures will extend beyond trading companies to encompass, for example, commercial real estate. What assessment has he made of the likely impact that might have?

More broadly, I am keen to learn how the Government are trying to balance the need to ensure that tax treatments do not artificially impact on commercial decision making with the need to prevent any potential for abuse.

[Mel Stride]

The hon. Lady asks a large number of technical questions, which are gratefully received, but I hope she will forgive me if I drop her a note on the more specific points. The measures have been scored by the Office for Budget Responsibility as having a negligible cost. They are independently assessed and scored by that authority. I hope on that basis we can move forward.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

Substantial shareholding exemption: institutional investors

Amendments made: 1, in clause 28, page 38, line 5, leave out from “applies” to “in” in line 6.

Amendment 2, in clause 28, page 38, line 10, leave out “paragraph 7” and insert “this Schedule”.—(Mel Stride.)

Clause 28, as amended, ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Graham Stuart.)

Finance Bill (Fourth sitting)

Anneliese Dodds Excerpts

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

[Mel Stride]

I am clearly not in a position to share with the hon. Lady the entire ins and outs of all the intricacies of calculating such figures, but I can assure her that the numbers are looked at in great detail and are scored by the independent Office for Budget Responsibility. They are robust figures, albeit that no figures are entirely, absolutely guaranteed in cast iron ahead of time—but they are robust.

During the debate, the hon. Lady raised an important issue about transparency of trust arrangements. The UK is right at the forefront of greater transparency. We spearheaded an initiative to systematically share information on beneficial ownership arrangements with more than 50 countries. That will help law enforcement to unravel complex, cross-border changes in companies and trusts. Following our work with international partners, by September 2018 more than 100 jurisdictions will be sharing information with the UK under the common reporting standard, which will provide HMRC with taxpayer information from tax authorities around the world, enabling it to better target tax evaders.

That brings me to my next point. The hon. Member for Bootle would have us believe two things: that we are only on the side of the wealthy and that we are not actually that interested in clamping down on tax avoidance. On the first point, I remind the Committee that the top 1% of earners in this country pay 27% of all taxes. That is virtually at an historic high, and is certainly higher than was the case under the previous Labour Government.

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

Does that not reflect the wealth of the very richest in our society? Surely it would be more appropriate to assess the ratio of tax against their whole income and wealth. In that case, most studies would suggest that the very worst-off people pay much more of their income in tax than the very best-off. That figure does not suggest that we have a more progressive tax system—it does not give us any indication of the progressivity of the tax system.

[Mel Stride]

I hate to disagree with the hon. Lady, but I have to. If she checks something called the Gini coefficient, which is about income inequality—

[Anneliese Dodds]

rose—

[Mel Stride]

I will give way to the hon. Lady. She is keen.

[Anneliese Dodds]

With all due respect, the Gini coefficient does not reflect the impact of tax on people’s incomes. I repeat my point: if we are looking at the progressivity of the tax system, considering the overall tax that is contributed by the 1% is not helpful. The two are independent.

[Mel Stride]

With respect, the first point is that income inequality is at its lowest level for 30 years. That is a simple fact. Secondly, in terms of how progressive the tax system is, we are the Government that, since 2010, have raised the personal allowance to £11,500, which has taken about 3 million people out of tax altogether, and we have a manifesto commitment to raise that still further, by 2020, to £12,500. Much that we are doing is extremely progressive.

It is also a fact that the wealthiest 3,000 in this country pay as much tax as the poorest 9 million, just to put some of those figures into perspective.

[Anneliese Dodds]

That is clearly a reflection of very severe income inequality. If we focus on income, rather than on tax, which the Minister is trying to pull us towards, and look at the overall impact to the fiscal system, taking into account that fact that working tax credits are being folded into universal credit, we will see that the very poorest people in Britain are much worse off now than in previous years.

[The Chair]

Order. We will indulge the Minister with one more response. We might then have to make a little progress.

--- Later in debate ---

[Mel Stride]

Given the resource that HMRC has, which the hon. Gentleman suggests is inadequate, the tax gap—the amount of tax that we have failed to collect by not bearing down on avoidance—is at its lowest level for many, many years, including every year under the last Government. It is 6.5% compared with, I think, 8.3% in 2005-06. In terms of bearing down on avoidance, we are doing our bit.

[Anneliese Dodds]

rose—

[The Chair]

Order. Everybody sit down for a bit. We have not heard the word non-domiciled for a long time. I would quite like to hear it.

[Anneliese Dodds]

I am grateful, Mr Walker. I was grimacing because I felt like I had to come back on the Minister’s assertion, but we are talking generally about tax avoidance and evasion and we have had those general debates in earlier discussions. It is just that when specific claims are made, it is hard for the Opposition not to react and respond to them. To repeat points that we went around the houses on in earlier debates, the tax gap figures—as I know the Minister is aware, because he is very well-versed in these matters—do not cover problems related to profit-shifting, which many experts have suggested constitute a huge portion of taxes that are forgone. The element of error in the tax gap has increased.

[The Chair]

Order. I may not have a grasp of English, but I do have a grasp of this Committee, and it is trying my patience. Let us get back to the subject. I am very cross.

--- Later in debate ---

[Mel Stride]

Clause 34 introduces schedule 11, which makes changes to ensure that businesses and individuals who have used disguised remuneration tax avoidance schemes pay their fair share of income tax and national insurance contributions. Clause 35 and schedule 12 follow on from clause 34 in tackling similar avoidance schemes used by the self-employed, introducing new rules to make those schemes ineffective and ensuring that individuals pay the tax they owe.

Disguised remuneration schemes claim to avoid tax and national insurance contributions by paying individuals through third parties in ways that promoters claim are not taxable, such as loans. These schemes are highly artificial, and it is the Government’s firm view that they have never worked. The coalition Government began tackling the schemes in 2011, introducing legislation to successfully stop the schemes that existed at that time. Since then, HMRC has collected more than £1.8 billion in settlements from scheme users.

However, not every scheme user settled, and since 2011 the tax avoidance industry has created and sold more than 70 new and different schemes aimed at sidestepping the 2011 legislation. These schemes are generally more contrived and aggressive than those that existed before and are growing in popularity, including with the self-employed. These schemes deprive the Exchequer of hundreds of millions of pounds each year and have been used by up to 65,000 companies and individuals. The Government’s firm view is that they do not work. We therefore need to take further action to tackle this avoidance and ensure that scheme users pay their fair share.

The Government introduced legislation in the Finance Act 2017 to put it beyond doubt that new employment income schemes are caught within the existing rules. Schedule 11 will tackle the existing use of schemes by introducing a new charge on loans outstanding from these arrangements on 5 April 2019. Affected scheme users can avoid the loan charge by repaying the loan and replacing it with a commercial loan, or by settling the tax due with HMRC. The Government will bring forward further measures in the coming year’s Finance Bill to ensure that the rules are appropriately targeted.

Clause 35 will put it beyond doubt that these schemes do not work for the self-employed. Where there is an arrangement of this type, the receipt will be taxed as a trading receipt, no matter what form it is received in by the self-employed individual. The clause applies from 6 April 2017 to protect Exchequer revenue and ensure that scheme users pay their fair share. Schedule 12 introduces a new charge on loans outstanding from self-employed schemes on 5 April 2019 in a similar way to schedule 11.

It is right that everyone should pay their fair share of tax and make a contribution to public services. These changes will ensure that users of disguised remuneration schemes pay the tax they owe and will help to bring in more than £3 billion by 2020-21.

[Anneliese Dodds]

I will first address clause 34 and schedule 11 before moving on to clause 35, given that both were created at the same time. As I understand it, clause 34 and schedule 11 re-characterise loans as remuneration for tax purposes, but in some cases they would be doing so many years after the original transaction. The Opposition want to see change in this area, because abuses have been clearly documented.

However, this measure comes after a long period of relative inaction, at least in the areas where this legislation is focused. That has meant that many people believed the arrangements they entered into were legal and did not constitute tax avoidance. The April 2019 change in these circumstances could, some have opined to us, cause significant problems, for example to individuals whose situation has changed such that they no longer have the funds to meet the tax charge. How will the Minister ensure that this measure will not cause hardship or injustice to individuals who planned on the basis of previous arrangements, and how will that be balanced against the clear and pressing need to prevent the abuse, which the measure is targeted at?

Clause 35 and schedule 12 aim to tackle avoidance by the self-employed and those trading through a partnership, where their taxable income has been replaced by loans and other non-taxable amounts in order to avoid tax. The pertinent question is how to ensure that the measure is not overly wide-ranging. In particular, how will it be ensured that a transaction entered into in the ordinary course of business, and on commercial arm’s length terms, is not caught within the definition of remuneration? The scope of the measure appears to be relatively wide, particularly when compared with others—for example, the Income Tax (Earnings and Pensions) Act 2003, which discards remuneration—where certain transactions are excluded, but they are not here. It would be helpful to have more specification on that.

Finally, there is a broader question: how will the Minister ensure that these measures are genuinely achieving their objective of ensuring that the full earnings of self-employment remain part of the individual’s taxable income, subject to income tax and national insurance contributions, and that attempts to circumvent that position and still reward the individual are genuinely ignored?

[Mel Stride]

I thank the hon. Lady for her typically thoughtful contribution and important questions. She raised the issue of the retrospection or otherwise of these measures. We will certainly be looking at individuals who may have entered into these kinds of arrangements as far back as 1999. Critically, they have until 2019 to clean those arrangements up, if they wish to. If the schemes are legitimate and above board, they have no reason to be concerned because those schemes will stand the tests that we have set.

--- Later in debate ---

[Anneliese Dodds]

We support measures to increase the uptake in electric vehicles, and we recognise that creating more electric vehicle charge points is a part of that. However, I would be grateful if the Minister addressed two questions.

First, as I understand it—he will correct me if I have the wrong end of the stick—the clause focuses on firms that invest at least £200,000 a year in plants and machines. Small business will not be able to take advantage of the same tax breaks, and I am concerned that that could create an imbalance. In town centres with a zero-carbon target—the first was in my home city of Oxford—businesses are required to use only electric vehicles or other zero-carbon modes of transport, so it is important that they are on a level playing field. Is there an imbalance? I may have misunderstood the legislation, but I would appreciate the Minister’s thoughts.

Secondly, how does the policy relate to other measures within the fiscal system that aim to promote low-carbon technologies? The founder and CEO of the renewable energy investor Rockfire Capital states:

“Increasing availability of charging for electric cars is all very good but the biggest challenge is making sure the energy used is as green as the cars. These measures are a drop in the ocean compared with what is actually required.”

Removing the renewable energy exemption from the climate change levy has reduced the tax incentives for business to invest in large-scale renewable energy schemes. Green cars are only green if green energy is going into them.

[Ruth George]

Like my hon. Friend, I am pleased to see decent allowance made for expenditure on electric vehicle charge points. It is much needed, particularly in my rural constituency, where it will be difficult to install the infrastructure in a way that business can comply with. I echo her point about small businesses. I understand that the Automated and Electric Vehicles Bill may introduce a requirement for service stations to install electric vehicle charge points. Many service stations are independently owned; it seems particularly hard on them that they will not receive tax incentives for installing charge points, but larger companies will.

Will the Minister explain why the cut-off date is 31 March 2019 for corporation tax and 5 April 2019 for income tax? The technology is already being produced but will change constantly over the next few years. It is important to ensure that companies can consider the full range of technology coming on the market and adapt their charging points to the most successful and future-proofed. For that reason, it seems odd to include an arbitrary time limit. Can the Minister explain that?

--- Later in debate ---

[Mel Stride]

I believe that is the review date—the point at which we would naturally want to look again at the issue and see how the roll-out has occurred.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clause 39 ordered to stand part of the Bill.



Clause 40

Co-ownership authorised contractual schemes: capital allowances

[Anneliese Dodds]

I beg to move amendment 32, in clause 40, page 58, line 31, at end insert—

“262AG  Review of operation of co-ownership authorised contractual schemes

(1) Within fifteen months of the passing of the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the operation of the new provisions for co-ownership authorised contractual schemes.

(2) The review shall, in particular, consider the operation of these provisions in relation to master funds.

(3) In this section, “the new provisions for co-ownership authorised contractual schemes” means—

(a) sections 262AA to 262AF of this Act, and

(b) regulations made under sections 41 and 42 of the Finance (No. 2) Act 2017.

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

This amendment would make statutory provision for a review of the operation of the new provisions for co-ownership authorised contractual schemes.

[The Chair]

With this it will be convenient to discuss clauses 40 to 42 stand part.

[Anneliese Dodds]

As colleagues will have noted, the Opposition are requesting a review of the operation of the new provisions for co-ownership authorised contractual schemes. Authorised contractual schemes, previously referred to as tax transparent funds, can be established as either limited partnerships or co-ownership schemes, although this discussion will focus on the latter.

The schemes were introduced in 2013 to aid the establishment of UCITS—undertakings for collective investment in transferable securities—master funds in the UK. A number of the new rules appear relatively sensible from my perspective—for example, in clause 41, the provision of additional information by schemes to their investors—but I have some concerns, particularly about clauses 40 and 42. That is why we have suggested that a review would be helpful.

Clause 40 focuses on reducing the administrative burdens of such schemes. I am concerned that additional consideration should be given to the potential for tax avoidance now that the Government are loosening rules. Luxembourg and Dublin already provide tax transparent vehicles. Surely, in our focus on ensuring that Britain is an attractive destination for investment, we must ensure that our offer is based on our investment expertise and the investment opportunities available here, rather than any artificial factors. Furthermore, I do not feel from what I have examined that I have sufficient understanding of the rationale for enacting some of the provisions through secondary legislation. It would be helpful to understand how the Minister will ensure that the measures are discussed with an appropriate degree of accountability.

--- Later in debate ---

[Anneliese Dodds]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clauses 40 to 42 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Graham Stuart.)

Finance Bill (First sitting)

Anneliese Dodds Excerpts

Committee Debate: 1st Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

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

May I say at the outset what a pleasure it is to serve under your chairmanship, Mr Howarth? I look forward to serving under the chairmanship of Mr Walker in due course, and to having a constructive and positive engagement with all Committee members over the next couple of weeks.

Clause 1 makes changes to ensure that there is a clear and consistent date for making good on non-payrolled benefits in kind. Those changes will provide greater clarity and help employers and employees to understand their obligations.

As the Committee will be aware, a benefit in kind is a form of non-cash employee remuneration. The cash equivalent of a benefit in kind is subject to tax and employer national insurance contributions. Making good is where an employee makes a payment in return for a benefit in kind that they receive. A making good payment has the effect of reducing the taxable value of a benefit. For example, a television manufacturer might provide an employee with a television with a taxable value of £1,000; if the employee makes good by repaying the employer £1,000, the taxable value is reduced to nil.

There is currently a range of dates by which employees need to make good on benefits in kind, and for some no fixed date is prescribed in legislation. Employers, large accountancy firms and representative bodies have told us that that often causes confusion and have asked for greater clarity about the deadline for making good. Clause 1 will set the date for making good for non-payrolled benefits in kind as 6 July following the end of the tax year in which the benefit in kind is provided. That is the date by which employers have to notify Her Majesty’s Revenue and Customs of any taxable benefits in kind on their P11D form. For that reason, it is also the date by which many employees already make good in practice. This approach has been greatly welcomed by employers.

The change will take effect for benefits in kind that give rise to a tax liability for the 2017-18 tax year and all subsequent tax years. This small but sensible change will bring greater clarity for businesses.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Taxable benefits: ultra-low emission vehicles

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

I beg to move amendment 13, in clause 2, page 5, line 7, at end insert—

‘(5A) After section 170 (Orders etc relating to this Chapter), insert—

“170A Review of changes to appropriate percentages etc for cars

(1) Prior to 31 March 2018, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the forecast effects of the amendments made by subsections (1) to (4) of section 2 of the Finance (No. 2) Act 2017.

(2) The review shall consider in particular the effects on—

(a) the use of zero and ultra-low emission cars as company cars, and

(b) air quality in towns and cities

in each year from 2020-21 to 2030-31.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”’

This amendment would require HMRC to undertake a review of the changes to be made by Clause 2 in advance of their implementation.

[The Chair]

With this it will be convenient to discuss clause 2 stand part.

[Anneliese Dodds]

First, I apologise to colleagues —I am full of the cold, and I had a nose bleed this morning given the excitement of the topics that we would be discussing, but I hope that I will be able to struggle through.

We tabled amendment 13 because we believe that it would be sensible for HMRC to undertake a review of the changes to be made by clause 2 in advance of their implementation.

[Mel Stride]

I welcome the hon. Lady to her position. I am sorry about her cold, and about the excitement that caused her nose bleed. I assure her that there will be no further nose bleeds, because there will probably not be much excitement as the Committee continues, but that is where we are.

Before I respond to what the hon. Lady said about amendment 13, let me remind the Committee about what the clause seeks to achieve. Clause 2 changes the taxation of company cars to support the uptake of the cleanest zero and ultra-low emission cars. As the Committee will be aware, the taxation of company cars is linked to carbon dioxide emissions to promote the purchase of environmentally friendly vehicles. The appropriate percentages for company car tax increase each year in order to ensure that there is always an incentive for company car drivers to choose the most environmentally friendly vehicles.

By 2020-21 the current ultra-low emission vehicle bands in the company car tax regime will no longer support the uptake of the cleanest cars using the latest technology. The changes being made by clause 2 will address that by updating the current two ultra-low emission vehicle bands. From April 2020, the graduated table of company car tax bands will include a differential for cars with emissions of 1 to 50 grams per kilometre based on the zero-emission range of the car. A separate zero-emission band will also be introduced. In addition, the clause will increase the appropriate percentage for conventionally fuelled cars by 1 percentage point in 2020-21, to sharpen the incentive for people to choose ultra-low emission vehicles instead of more heavily polluting ones.

The changes in the clause mean that in 2020-21 a basic rate taxpayer driving a popular battery-powered company car, such as a Nissan Leaf, will be £720 better off compared with 2019-20. That is a saving of £750 per year compared with a basic rate taxpayer choosing an average petrol-powered car such as a Vauxhall Corsa. Legislating in advance will provide certainty and stability for industry and give companies and employees the chance to make informed choices about the future tax implications of their company car.

Amendment 13 proposes that the Chancellor should publish a report reviewing the impact of these changes, focusing on the effects on the use of zero and ultra-low emission vehicles as company cars, as well as air quality in towns and cities in each year from 2020 to 2030-31. I appreciate that the hon Members are trying to ensure that policies are being assessed to ensure they are supporting the uptake of greener vehicles, but a report on our forecasts is not the way to achieve that.

Company car tax rates are set three years in advance, so that companies and employees are able to make informed choices about the future tax implications of their company car. Of course, we have had to take a view of how the market will develop, including for ultra-low emission vehicles, when we set the rates. However, the amendment is asking us to provide a review of the effect of the measure before it has been implemented. It is also not appropriate for the Government to provide commentary on their forecasts, as that could lead to uncertainty that we could make last-minute changes to our proposals. That would go against our policy to announce CCT rates three years in advance for taxpayer certainty.

Hon. Members should also bear in mind that the 2020-21 rates have come out of an extensive consultation with our stakeholders that we carried out in the summer of 2016 into how CCT should be structured. That consultation looked specifically at how to encourage company car drivers to choose the cleanest vehicles. That is what clause 2 seeks to achieve by updating the current two ultra-low emission vehicle bands. Increasing the incentive for people to purchase cleaner cars will help to ensure we meet our legally binding carbon emissions and air quality targets, helping to improve the air quality of our towns and cities and protect the environment for the next generation. Of course, we continue to review the uptake of ultra-low emission vehicles as part of our wider strategy on improving air quality. On that basis I believe that the amendment is unnecessary, and I ask the hon. Lady to withdraw it.

To conclude, the clause strikes the right balance between supporting the purchase and manufacture of ultra-low emission cars, and ensuring that all company car drivers and their employers pay a fair level of tax. I therefore commend the clause to the Committee.

[Anneliese Dodds]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3

Pensions advice

[Peter Dowd (Bootle) (Lab)]

I beg to move amendment 14, in clause 3, page 5, line 22, leave out “£500” and insert “£1,000”.

This amendment would increase the income tax exemption in relation to pensions advice from £500 to £1,000.

--- Later in debate ---

[Peter Dowd]

In the spirit of co-operation and the assurances the Minister gave, I am prepared to withdraw the amendment in relation to a review. None the less, serious concerns have been identified by organisations. The Minister alluded to the fact that there did not appear to be much concern, but that is not what I am hearing, hence the need for a review. However, in the light of the Minister’s assurances, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 ordered to stand part of the Bill.

Clause 8

Dividend nil rate for tax year 2018-19 etc

[Anneliese Dodds]

I beg to move amendment 18, in clause 8, page 15, line 17, at end insert—

‘(1A) After section 13A (income charged at the dividend nil rate), insert—

“13B  Review of effects of changes to dividend nil rate

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effects of the changes made to this Act by section 8 of the Finance (No. 2) Act 2017.

(2) The review shall consider in particular the effects on the self-employed.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”’

This amendment would require HMRC to undertake a review of the effects of the change to the dividend nil rate in Clause 8.

[The Chair]

With this it will be convenient to discuss clause 8 stand part.

[Anneliese Dodds]

As colleagues know, the clause changes, from 2018-19 onwards, the amount to which the dividend nil rate applies down to £2,000 under section 13A of the Income Tax Act 2007. The Opposition are particularly keen to hear the Government’s position on what the impact of the change is likely to be for the self-employed, who could be significantly affected. I would be grateful if the Minister clarified that today.

That change is occurring in a context where existing changes to tax arrangements for self-employed people have not always been adequately dealt with. For example, HMRC’s electronic portal is frequently raised with us as an issue by tax practitioners. I do not mean to sound like a stuck record in relation to my hon. Friend the Member for Bootle, but that is occurring in the context of considerable structural change in HMRC, and we know that many people are already struggling to get through to it to receive advice on making tax returns. This measure will clearly have interaction with other allowances, so greater clarification would be welcome.

That is why we are calling for a review. There needs to be more consideration of these issues and the tax system’s readiness to deal with the change. The amendment would therefore require HMRC to undertake a review of the effects of the change to the dividend nil rate in the clause.

[Kirsty Blackman]

I hear the hon. Lady’s words, but I would probably go even further. We do not agree that the change should be made to the dividend nil rate for a number of reasons. To begin with, those people who are self-employed may have been planning their self-employment for some time and may have been relying on the fact that the dividend nil rate is currently £5,000 in their financial planning. I do not think that there is enough notice for those people who have been making plans to become self-employed. It is not good enough from the Government. There is not enough notice, and the change they are making is pretty rubbish. People on pretty low incomes are going to be hit by some of the change. It is really important that, for example, people who are becoming self-employed for the first time have the nil rate allowance that they thought they were going to have. Those people have not been given enough time to make considerations.

The point raised by the hon. Lady in relation to getting through to HMRC is relevant, particularly given the closures of tax offices and the difficulty that my constituents are having when trying to contact HMRC. The guidance and forms on its website tend to be black and white, but the answer might be somewhere grey in the middle, so people have to phone to get the advice they need to fill in the form online appropriately. As I said, one of our concerns about the general movement towards making tax digital is how people can get advice on filling in online forms, never mind anything else. It is difficult for people to get through to HMRC, and that is a relevant consideration. We are inclined to vote against clause stand part when that comes. However, we would support the amendment, were it to be pressed to a vote.

[Mel Stride]

Before I respond to the amendment as well as the other points raised in the debate, let me first remind the Committee of what the clause seeks to achieve. As we have heard, it reduces the tax-free dividend allowance from £5,000 to £2,000 from April 2018. The change will ensure that support for investors is more effectively targeted and helps to deliver a fairer and more sustainable tax system. It will also help to reduce the tax differential between individuals working through their own company and those working as employees and self-employed. Crucially, it raises revenue to invest in our public services, raising approximately £2.6 billion out to 2021-22.

Since the tax-free dividend allowance was first announced, the landscape for small business owners, savers and investors has changed. The hon. Member for Oxford East specifically asked about support for businesses in the context of these changes. I can assure her that, as the party of business, we are wholeheartedly behind businesses. First, we have supported businesses by reducing the main corporation tax rate to 19%, which is now the lowest rate in the G20. Secondly, for savers, we have increased the amount of money that an individual can save or invest tax-free through an ISA, by the largest amount ever, to £20,000, nearly doubling the limit since 2010. Thirdly, we have continued to increase the personal allowance to £11,500 this April. We have committed to increasing it further, to £12,500, helping individuals keep more of the money that they earn.

The hon. Member for Aberdeen North raised a specific point about response rates from HMRC to telephone contact. That is one of the measures that we are constantly looking at—how good are customer services—and I reassure her that it is one measure where HMRC performance has been relatively strong recently.

The clause should be considered in the context of that wider support for business and the need to deliver a tax system that works for everyone. We also need to take account of the ongoing trends in the different ways in which people are working. The design of the current tax system means that individuals who work through a company can pay significantly less tax than individuals who are self-employed or who work as employees. That can be true even when those individuals are doing very similar work.

At the autumn statement last year, the Office for Budget Responsibility estimated that the faster growth of new incorporations, compared with the growth of employment, would reduce tax receipts by an additional £3.5 billion in 2021-22. By that year, HMRC estimated that the cost to the public finances of the existing company population will be more than £6 billion.

The Government are committed to helping all businesses to succeed, large and small, and in all parts of the United Kingdom, but to deliver and maintain low taxes for everyone, we need a tax base that is sustainable. The cost to the public finances of the growth in incorporation is clearly not sustainable. It is, therefore, right to make the small but sensible change to reduce some of the distortions to which I have referred.

As we have heard from the hon. Member for Oxford East, amendment 18 would commit HMRC to undertake a formal review of the effect of this change to the dividend nil rate by the end of June 2019. It has been specifically proposed that such a review should consider in particular the effect of the change on the self-employed. Such a formal review is not necessary.

As I have mentioned, the change needs to be considered in the context of the wider support that the Government have provided to business owners all across the United Kingdom, from reducing the rate of corporation tax to giving the self-employed the same access to the state pension as employees, worth almost £1,900 more per year, to introducing successive increases to the personal allowance, which is available in addition to the dividend allowance.

Indeed, the Government have given careful consideration to the impact of reducing the dividend allowance. A £2,000 allowance ensures that support is more effectively targeted following this change. Around 65% of all recipients of dividend income will continue to pay no tax on such income. That includes around 80% of all general investors. Typically, a general investor will still be able to invest around £50,000 without paying any tax on the resulting dividend income. Those investors who are affected will have, on average, investments worth around £100,000, which will put them in the top 10% of wealthiest households in the country. I therefore invite the hon. Lady to withdraw the amendment.

The Government are delivering a tax system that works for everyone, including businesses, savers and investors. As the OBR has highlighted, there is a rising and unsustainable cost to the public finances of the growth in incorporation. The clause would help to address that by reducing the tax differential between those who work for a company structure and pay themselves in dividends and those who work as employees or self-employed, while ensuring that support for investors is more effectively targeted. I, therefore, urge the hon. Lady to withdraw amendment 18, while I commend clause 8 to the Committee.

[Anneliese Dodds]

I am grateful to the Minister for his comments. However, we still feel that this is a substantial change. Despite his helpful comments, it does not appear that there has been sufficient consideration, specifically of the impact of this new measure on the income of the very entrepreneurs we should support, especially when they are beginning the life cycle of their new firm. We are concerned that, in effect, many of those live off the income from dividends at the beginning of their business and we do not feel that we have had the assurances that we require that there will not be a negative impact on their income. Therefore, we would like to push this amendment to a vote.

--- Later in debate ---

Life insurance policies: recalculating gains on part surrenders etc

[Anneliese Dodds]

I beg to move amendment 19, in clause 9, page 17, line 45, at end insert—

“512B  Review of operation of sections 507A and 512A

(1) Prior to 30 June 2020, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the operation of sections 507A and 512A.

(2) The review shall consider in particular—

(a) the number of applications made under each section,

(b) the number of occasions a gain was recalculated on a just and reasonable basis under each section.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”

This amendment would require HMRC to undertake a review of the operation of the new provisions for requests for new calculations in relating to wholly disproportionate gains by policyholders.

[The Chair]

With this it will be convenient to discuss clause 9 stand part.

[Anneliese Dodds]

Clause 9 removes tax liability where wholly disproportionate gains inadvertently are made from surrendering life insurance. We can understand the motivation behind the measure. We know that the clause aims to introduce an application by which policyholders who part surrendered or part assigned their life insurance policies, including capital redemption policies and contracts for life annuities, and generated a wholly disproportionate taxable gain, can apply to HMRC to have their gain recalculated on a just and reasonable basis. None the less, we are concerned about the lack of key safeguards and the exercise of what is essentially a discretionary remedy by HMRC. The measure is not backed by the fundamental safeguard of a statutory right of appeal to a first-tier tribunal of the officer’s decision on what constitutes a just and reasonable basis for the calculation. It would be helpful if the Minister explained the reasoning for not making express legislative provision for a right of appeal, which we feel is a fundamental safeguard in the exercise of a discretionary remedy. Therefore, our amendment asks for greater consideration of that and other issues through a review, and I hope the Government will accept that request.

[Mel Stride]

Clause 9 makes changes to ensure that policyholders who take value from their ongoing life insurance policies in such a way that a wholly disproportionate gain is generated, as the hon. Member for Oxford East pointed out, can apply to HMRC to have the gain recalculated on a just and reasonable basis. Recent litigation has exposed circumstances in which cash withdrawals from life insurance policies, known as part surrenders, can give rise to a wholly disproportionate taxable gain. That could also occur following an early sale of part of a policy, also known as a part assignment. In particular, large early withdrawals of cash from a policy that shows little or no underlying economic growth can generate taxable gains that are wholly disproportionate in size and effect. Usually, if cash had been taken by a different method, little or no gain would have arisen.

At Budget 2016, the Government announced their intention to change the tax rules on part surrenders and part assignments of life insurance policies. The changes made by clause 9 will introduce an application process through which policyholders who trigger wholly disproportionate gains can apply to HMRC to have their gain recalculated on a just and reasonable basis.

The hon. Lady raised the issue of appeals. Although taxpayers do not have a right of appeal, they have strong safeguards through the complaints procedure, which provides a simple and straightforward way for policyholders to express dissatisfaction with a decision and have it scrutinised independently. Recalculation applications will be dealt with by a small team in HMRC, ensuring consistency and quality of approach. If taxpayers are unhappy with the decision made, they can complain, and any complaint will be dealt with fairly and impartially by someone independent of the original decision maker. If taxpayers are still not satisfied, the complaint can be referred to the adjudicator or the Parliamentary and Health Service Ombudsman.

The changes will provide a fair outcome for policyholders who inadvertently generate disproportionate gains. An important point is that the measure is expected to affect fewer than 10 policyholders per year and to have a negligible cost to the Exchequer. The impact on life insurance companies, which broadly support the measure, is also expected to be negligible.

The Opposition amendment would require HMRC to complete a review of the operation of these changes by June 2020. The proposed changes in the clause provide a fair outcome for the very small number of policyholders—around 10—who inadvertently generate these gains. As mentioned earlier, we expect fewer than 10 policyholders to be affected. A formal mandated review, followed by a report to the House of Commons, would be an excessive requirement for changes so narrow in scope and for such a small number of individuals affected. I therefore ask the Committee to resist the amendment.

To conclude, clause 9 will provide a fairer outcome for a small number of policyholders who generate wholly disproportionate gains. I invite the hon. Lady not to press her amendment, and I commend the clause to the Committee.

[Anneliese Dodds]

We are willing to withdraw the amendment, but we want to ensure above all that the information and advice about the provisions are definitely made available to the albeit small number of policyholders. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 9 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(Graham Stuart.)

Finance Bill (Second sitting)

Anneliese Dodds Excerpts

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

[Mel Stride]

It is a great pleasure to serve under your chairmanship, Mr Walker. Clause 10 provides the power to amend by way of statutory instrument the property categories that the holder of a life annuity, life insurance policy or capital redemption policy can select without making that policy or contract a personal portfolio bond.

The personal portfolio bond rules introduced in 1999 countered avoidance arrangements where an individual could select personal investments, such as property portfolios, in life insurance policies to defer the tax charge on any resulting income or gains. The legislation treats a policy as a personal portfolio bond if it allows the holder to select the property held in that policy. A policy will not be a personal portfolio bond if it permits only the selection of property specifically listed in the legislation. The categories of property listed in the legislation have features that ensure that the policyholder cannot customise them to allow personal property to be placed within the policy.

The list of permitted property has not materially changed since the rules were introduced in 1999. Since then, various new types of investment vehicle have been developed that similarly cannot be manipulated to include personal property. Up to now, those have not been added to the list. That unnecessarily narrows the range of investment choices for policyholders.

The clause provides the power to make secondary legislation to amend the categories of property listed. The power will ensure that, in future, the rules can be updated more quickly to accommodate new types of investment vehicles. Following Royal Assent, the Government will lay regulations using the power to add three investment vehicles as permitted property: real estate investment trusts, overseas investment trust companies and authorised contractual schemes. Draft statutory instruments have been provided to the Committee. The power will allow the Government to respond quickly as new methods of investment develop, to enable legislation to keep pace with changes in the financial services industry and ensure that tax rules do not needlessly impede innovation and competition in the sector.

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

I am grateful to the Minister for providing clarification. Is there any evidence of the extent of awareness among fund advisers regarding the existing restrictions, and how will they be made aware of the new rules? That is particularly important if new rules are to be adopted through secondary legislation. We have heard about the new categories of property that might be incorporated, but there is likely to be less spotlight on them in future if we do not discuss them in the context of a Finance Bill. At present, it is possible for fund advisers to accidentally acquire non-permitted assets for a client’s policy, which rules it out as a PPB and means that the rules on yearly deemed gain do not apply.

[Mel Stride]

I reassure the hon. Lady that there has been extensive consultation on the measure. The consultation on reviewing the list of properties ran from 9 August to 3 October 2016 and explored adding three types of investment vehicle. The majority of respondents welcomed the proposed addition of the investment vehicles discussed. Many suggested further additions, which will require further review before any recommendation is made.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

EIS and SEIS: the no pre-arranged exits requirement

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

[Mel Stride]

Clauses 11, 12 and 13 make changes to the tax-advantaged venture capital schemes: the enterprise investment scheme, the seed enterprise investment scheme and venture capital trusts. The changes provide small but useful easing of the rules, which I shall explain in more detail. Following the calling of the general election and subsequent negotiations between the Government and the Opposition, these clauses were removed from the Finance Act 2017. As all the clauses are wholly relieving, the Government have introduced retrospective legislation to ensure that taxpayers can still benefit from the changes being made from the original commencement date.

The tax-advantaged venture capital schemes provide a range of generous tax reliefs to encourage individuals to invest directly or indirectly in certain smaller and higher-risk early stage companies. These small companies would otherwise struggle to access the funding they need to grow and develop, because they have little or no track record to attract funding from the market.

Clause 11 makes changes to an anti-abuse rule, the no pre-arranged exits requirement, in the enterprise investment and seed enterprise investment schemes. The rule prevents tax relief from being provided if arrangements under which the shares were issued might lead to a disposal of those or other shares in the company and so potentially put the future continuation of the company at risk.

Many companies include such rights in their standard documents. However, rights allowing for share conversions in the future carry no risk to the integrity of the scheme, as excluding the rights can be administratively burdensome for some companies. The changes will allow companies to qualify for relief if they issue shares that include rights to a future conversion into shares of another class in that company. The changes are wholly relieving and will apply retrospectively, with effect for shares issued on or after 5 December 2016.

Clause 12 makes technical changes to clarify the law and ensures venture capital trusts can provide follow-on funding to certain groups of companies. The changes ensure that the VCT rules work in the same way as those for EIS. The rules for VCTs and EIS were changed in late 2015 to target the schemes more closely on early stage companies. However, the rules do allow older companies to receive tax-advantaged investments in some situations. These include follow-on funding provisions. Broadly speaking, follow-on funding may be provided to an older company as long as the company received its initial tax-advantaged funding at a time when it met the basic age limit. The changes made by clause 12 ensure that, where certain conditions are met, VCTs will be able to provide follow-on funding for companies that have been taken over by a new holding company after the initial funding was received.

Clause 13 makes changes to extend a power for the Treasury to make regulations on the exchange of certain investments held by a VCT. A VCT may hold non-qualifying investments, but only in very limited circumstances. Regulations under the current power ensure that VCTs are not at immediate risk of losing their approved status when they are obliged to exchange a qualifying investment for a non-qualifying investment. However, the power to make regulations applies only where the original investment is a qualifying investment.

The new regulations will provide broadly similar protection to VCTs where the original investment is a non-qualifying investment and the VCT is similarly required to exchange the investment as part of a commercial reorganisation or buy-out. Without the new regulations, VCTs would continue to rely on Her Majesty’s Revenue and Customs exercising its discretion to avoid immediate loss of approval when a non-qualifying investment is exchanged. Draft regulations will be published for public consultation later in the year. The regulations will provide certainty to a VCT regarding the treatment of the new shares or securities obtained when it exchanges non-qualifying investments.

Clauses 11, 12 and 13 make technical easements to reduce administrative burdens and smooth certain rules within the tax-advantaged venture capital schemes. I therefore hope that they will stand part of the Bill.

[Anneliese Dodds]

I have two questions about clauses 11 and 12. First, EIS and SEIS are two of the four tax-advantaged venture capital schemes, alongside venture capital plus and social investment tax relief, which we will discuss under a later clause. In addition to the features mentioned by the Minister, the schemes share in common the fact that advance assurance applications and submissions of statutory compliance statements are often sought by those seeking to reassure potential investors about the tax treatment of their investments. Clearly, the new requirement will widen eligibility for EIS and SEIS, potentially leading to a greater number of requests to HMRC for these kinds of ex-ante assessments. I would be grateful if the Minister could assure us that HMRC will be able to satisfy those requests in a timely manner.

I understand from the Minister’s response to my parliamentary question on this matter that there is no time limit on an advance assurance application, and while the target for more complex cases is 40 days, he admitted that more complex cases may take longer. Although I agree with him that the changes will simplify the administrative side for business to an extent, they could complicate qualifying criteria from HMRC’s point of view. How will the Minister ensure that that does not lead to greater pressures on an already struggling HMRC?

On clause 12, my second question is perhaps more fundamental. As I understand it, EU state-aid rules generally suggest that the operation of such tax reliefs should focus on genuinely promoting new growth rather than on the acquiring of existing businesses, given that we are talking about the state exempting certain categories of firms from tax that others must pay. Will the Minister provide us with a taste of how he has assured himself that this relief genuinely will focus on the promotion of such new growth?

[Mel Stride]

I thank the hon. Lady for her questions. On clause 11, she has been in touch with the Treasury about the important matter of advance assurances from HMRC, which always does its utmost to provide advice in as timely a manner as possible. The change proposed by the clause, however, is to remove a requirement on HMRC to opine on the approach that some companies intend to take, which will introduce greater certainty.

Clause 12, which relates to VCTs and the introduction of a parent company, is also likely to ease the investment decision because it will take away the uncertainty that would otherwise accrue by having a parent company inserted into the corporate structure under consideration. These technical amendments therefore make important changes to existing legislation.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clauses 12 and 13 ordered to stand part of the Bill.

Clause 14

Social investment tax relief

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

--- Later in debate ---

[Anneliese Dodds]

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

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

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

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

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

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

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

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

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

[Anneliese Dodds]

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

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

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

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

[Kirsty Blackman (Aberdeen North) (SNP)]

I do not want to speak for long, but I wanted to say that the hon. Member for Oxford East made a comprehensive, passionate and well-informed case on the amendment. If the Labour party seeks to press the amendment to a vote, we will support it. If the Minister responds to any of the comments by letter, I would be keen to see some of his answers, so I would appreciate being copied into that response.

--- Later in debate ---

[Anneliese Dodds]

I am grateful to the Minister for his clarification, which has been enormously helpful. However, he referred to winkling out particular anomalies and we feel that that is exactly what we need a little more of. On the issue of the seven years of activity as a social enterprise before qualifying for the three-year £1.5 million cap, I am concerned, despite the Minister’s helpful comments, that we are not focusing on the exact loci of risk. We seem to be assuming that risk is inherent in the age of the social enterprise concerned and not on the activity that it is engaged in. It is perfectly possible—I mentioned an example earlier—for an older social enterprise to try to attract funding in order to undertake a very risky activity. Dealing with some of those risky activities is what we need social enterprise to be engaged in, particularly as we have many areas where local authority funding is no longer available and there are also market failures. We really need to have community facilities and different services preserved. I therefore wish to press the amendment.

[Mel Stride]

I think we are in total agreement with the hon. Lady on the issue of focusing these funds and incentives on riskier social enterprises, in other words, the ones that would not naturally happen without this kind of intervention. However, while those that are less than seven years old will be subject to the £1.5 million cap, which is a considerable increase in what we have had before and will not be restricted by the £300,000 maximum investment in any three-year period, those social enterprises that have been trading for longer than seven years, can still have access to £1.5 million in total, albeit in any three-year period they are restricted to £300,000 maximum to be raised. It is not as if there is a terrible cliff edge between the two. We will still be providing a lot of support for older social enterprise.

[Anneliese Dodds]

I thank the Minister, but I am still concerned about why exactly seven years has been chosen as the cut-off. Listening to his helpful remarks, I imagine that we could see some gaming around this, because there is a significant tax advantage from having a younger social enterprise. Would we see social enterprises being created out of previous ones just to qualify for the different tax treatment when actually they would be focused on the same activity? It seems peculiar to me and I do not understand why the seven-year figure has been chosen. My dad was an accountant; he always said to me, “You’ve got to keep your bank statements for seven years”, so I can understand seven years from that perspective. Why is there no gradation? Why seven and not another figure—three, five, 15 or 20 years? Perhaps some clarification can be provided.

[Mel Stride]

I suppose we are saying that whatever number of years we chose, the hon. Lady’s argument would always be relevant, in the sense that it is an arbitrary figure. It happens to be seven years in this case. In terms of anti-avoidance and gaming at the margins, to which she referred, there are some strong anti-avoidance measures in the Bill that, for example, seek to address directly the specific issues she raised of perhaps one social enterprise taking over another that has a different age profile and in some way gaming the system as a consequence. Those elements are addressed in the anti-avoidance measures.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Schedule 1

Social investment tax relief

Amendment proposed: 20, in schedule 1, page 103, line 37, at end insert—

“10A After section 257TE (minor definitions etc), insert—

“257TF  Review of operation of this Part

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the operation of social investment tax relief.

(2) The review shall consider in particular—

(a) the effects of changes made to this Part by Schedule 1 to the Finance (No. 2) Act 2017, and

(b) the effectiveness of the anti-abuse provision.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.””—(Anneliese Dodds.)

This amendment would require HMRC to undertake a review of the operation of social investment tax relief, including the changes to it made by Schedule 1.

Question put, That the amendment be made.

--- Later in debate ---

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker.

I appreciate that the strictures of Finance Bill procedure commonly give rise to the overwhelming excitement of review amendments, so I ask the Committee to withhold its lack of surprise that amendment 21 would introduce yet another review. The Government’s sensible stated aim in introducing the allowance is to recognise that many taxpayers no longer fit within a neat and simple model of PAYE-only income or self-assessment-only income. We all recognise that that is the reality, but we should not get too carried away by the idea that online hobby trading is an entirely new activity triggered by the advent of the online sharing economy; I suspect it is more like old wine in new skins. Spending a weekend repairing a few clocks as a hobby and then selling them on eBay for extra income on the side is not an entirely new phenomenon. People 20 years ago did the same through car boot sales, antique fairs or classified ads; this is just a modern version.

Modernising the tax system to recognise the multiple sources of income that taxpayers may now receive is sensible, but we should not always imagine that the problems that we are trying to solve are entirely new, nor should we make too hasty a stab in the dark for solutions. The Association of Taxation Technicians says that, as drafted, the provisions discriminate against individuals who, in addition to having the type of microbusiness to which the trading allowance is intended to apply, also have a sole trader business which cannot benefit from the trading allowance. In that situation, the provisions prevent the microbusiness from qualifying for the trading allowance. The ATT’s concern is that the allowance is potentially discriminatory.

The Government state that the aim of the allowance is to provide

“simplicity and certainty regarding Income Tax obligations on small amounts of income from providing goods, services, property or other assets…and to help the UK become leaders in the digital and sharing economy”,

but it could easily end up creating new complications for taxpayers, or lead inadvertently to perverse incentives. The Chartered Institute of Taxation’s Low Incomes Tax Reform Group welcomes the aim of the measures, but has said that it is

“very concerned that unrepresented low-earners will struggle to understand some of the more complex rules, especially if they have overlap profits, more than one trade or source of income or have not elected, as often will be the case, to use the cash basis of accounting.”

Its concerns stem especially from the fact that this relief’s intended group of users is less likely to engage professional accountants or other advisers. As a result of the complications involved in having to choose a particular accounting basis or work out the types of income that apply, the allowance may fail to benefit that group of users. It may instead become yet another strand in the complex web of allowances that professional advisers throw into the mix when helping their clients to avoid tax.

[Anneliese Dodds]

I appreciate my hon. Friend’s comments about the role of personal advisers; the same point came up this morning. Moreover, has not HMRC’s online system for calculating the taxes payable on relatively small amounts of income already been found wanting? As a result of the interaction between the four different allowances—personal savings, tax-free dividend income, the savings starting rate and the personal allowance—individuals have become liable for more tax than they should have to pay, because the online system is not calibrated appropriately. In theory, the new provision is meant to obviate the need to declare income for those purposes, but does my hon. Friend not agree that it must be designed carefully to avoid the flaws that affect people with small incomes who qualify for the allowances?

--- Later in debate ---

[Peter Dowd]

We always have to be vigilant—that is the key. Vigilance is crucial. Virtually no one had experienced anything like the banking crisis in living memory. Given that, we have to be on our guard that we do not all breathe such a sigh of relief that it was so long ago that we lose our vigilance.

It seems to me that strong regulations, which will not only protect the taxpayer and their savings, but develop practices at the heart of the industry, are the only bulwark against another financial crisis being created and enacted through reckless banking practice. I hope that the Minister will give some thought to that, particularly given that when we finish the summer-autumn Finance Bill we will immediately start the winter Finance Bill. Given the Government’s delayed and, I have to say, sometimes chaotic timetable, it will no doubt end up being called the spring Bill instead. Dare I say it, we have a Minister who is the man for all seasons in that regard. [Interruption.] Don’t give up the day job, as they say—or perhaps hon. Members would like me to.

Many of the stakeholders to whom the Opposition spoke raised concerns about the complexity of the proposals and the speed with which the Government have attempted to take them through.

[Anneliese Dodds]

I am grateful to my hon. Friend for running through many of the problems that stakeholders have mentioned to us. One addition to the many ambiguities he mentioned is that, to my mind, a clear rationale does not seem to have been provided for the decision to loosen the rules so that past losses can be offset against any type of profit, rather than the current position of only being able to offset them against the same type of profit—for example, only offsetting trading losses against trading profits. That is yet another change for which we perhaps require further information and debate.

[Peter Dowd]

My hon. Friend makes another good point. The Chartered Institute of Taxation has criticised the Government—“criticise” is the word I use, although I am not sure it would say that; it would most probably say it has brought this to the Government’s attention—for not balancing

“its desires to raise some modest revenue with its duty to produce legislation that can be followed with predictability and certainty.”

Other financial organisations have argued that the measure is likely to create winners and losers. Small groups unlikely to have £5 million of losses, for which this is a high proportion of the total, will benefit from the change. For large groups that wish to access the group relief changes, it is less clear. Deloitte has argued that the slowdown in offset of brought-forward losses for large groups may in fact mean an acceleration in the tax cost for larger companies. Will the Minister offer more clarity on how the group relief will work in practice—particularly the nomination process, whereby a specific company has to be nominated to manage the whole group relief?

The measure seems fraught with potential dangers. For starters, the Bill makes no mention of what happens when a company chooses to join or leave a group that benefits from the group relief. Will the Minister explain whether such a mechanism will be built into the legislation, or whether we will need a further clause in a future Finance Bill that tinkers with carried-forward losses once more? Given the uncertainty felt by many in the business community, the Opposition believe it is only right that the Government submit a review of the operation of the group relief in the carried-forward losses, assessing the cost and impact of the new restrictions and how they will impact on large companies.