National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill (Second sitting)

Anneliese Dodds Excerpts

Tuesday 14th May 2019 Public Bill Committees

Clause 3 makes a sensible, proportionate change to the NICs treatment of sporting testimonials, putting their treatment beyond doubt. Given the reassurances that I have provided to hon. Members, both now and in answer to questions this morning, I hope that they will not press their proposals and will agree that clauses 3 and 4 stand part of the Bill.

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

It is a pleasure to serve in the Committee with you in the Chair, Sir Henry. I am grateful to the Minister for those explanatory comments. However, I would like to speak in favour of the official Opposition’s amendment 2 and new clause 5, as well as the SNP’s new clause 2, which overlaps with our amendment 2. I do not want to repeat what we have already covered in our discussions today or, indeed, in the House. None the less, even after all that, we surely require more information about the impact of these measures to make a proper judgement about them.

As the Minister acknowledged, our amendment 2 and the SNP’s new clause 2 ask for additional information about how the Bill would affect charities, and individual sportspeople and charities, respectively. There are quite a few elements that still remain unclear, even after the discussions we have had. I am sorry to drag us back yet again to the topic of what is customary and what is not, but, surely, when we are looking at the design of tax measures, we need to ensure that there is crystal clarity about what every concept could mean, particularly when there might be manipulation of some of those different concepts.

When we debated the meaning of “custom” in the House, the then Minister, after questioning by the hon. Member for Aberdeen North, said that funds from a testimonial above £100,000 would be subject to NICs where such a payment was “customary”. He described “customary” as referring, for example, to cases where, in a particular sports club,

“there is a testimonial every year for a particular player or group of players, and that had been going on for some time”.

He said that

“that would be a customary testimonial situation”—[Official Report, 30 April 2019; Vol. 659, c. 173.]

I explained in the previous session why I think that that kind of circumstance is extremely unlikely to occur. We need to have a reality check about how things are operating in different sports, so that we can assess them.

I looked at some of the information that has been provided by the Professional Footballers’ Association. It noted that, in 2015, about 0.5% of professional footballers had a testimonial to celebrate them, whereas on an average career length of about eight years—that is the average career length, which, as was mentioned before, is much shorter than it was historically, certainly in the professional game—12% of footballers should finish their career each season. Very roughly, that means that about one in 25 of the professional football players we would anticipate being eligible for a testimonial actually receives one. That is clearly a very small proportion of those who could qualify for one, which suggests that this is a very unusual process, so the use of the term “customary” does not have much weight.

I then looked at the evidence from the England and Wales Cricket Board, which states explicitly that there must be no pattern to the granting of testimonials and no specific connection with the player’s number of years’ service at the club, and that there is no specific period of time that should be seen as an automatic trigger for a testimonial. It appears, in the case of that organisation, that it is not possible for there to be a customary testimonial. It just cannot exist.

[James Cartlidge]

As I understand it, the difference is between something that is contractual and the fact that it is customary, in the general sense, to have what are called “benefit games” or “testimonials”. That does not mean that there has to be a specific number; in fact, if there were, that would presumably be contractual. The fact is that they are customary when someone has made a contribution or has been with a team for a long time, however that is defined or specified. It is a tradition of sport; surely that is all we are saying.

--- Later in debate ---

[Anneliese Dodds]

I am grateful to the hon. Gentleman for his passion about this issue, and—I am sure—about the sport of cricket, but he has underlined the point that I was trying to make. He has talked about a particular period of time, “however that is defined”. My point is that the quote I read out indicates that, according to the England and Wales Cricket Board, there can be no definition of the period of time that can be used for these testimonials, because if there is an automatic trigger for such an event, that should not be grounds for a testimonial. One assumes that it should instead be due to the fans themselves, the people who are calling for such a testimonial, but there is not an automatic trigger for it. That leads again to the question of what the term “customary” actually means. When we make legislation, it is important that we are clear about what those concepts mean, and whether they have any content. If it is just an empty placeholder, I think we would all agree that the term should not be used.

The Minister maintains that HMRC provides guidance about this. In my lunch break, I tried to look this up—I know how to live, Sir Henry—and I found the information about income tax. This language is already applied to income tax liability, exactly as the Minister mentioned, and reference is made to “normal practice” and case law. However, that information does not specify what the case law is, or indeed what the normal practice is. If there is a pattern to testimonials, one concern is that it would potentially be possible to argue that a pattern somehow is not there, and that a particular testimonial is non-customary, in order to get around having to pay the employer’s NICs. Equally, there could be pressure on employers to reduce the number of testimonials that are called for—to dissuade calls for testimonials in order to make them less likely to occur.

[Kirsty Blackman]

Picking up on that point, we are relying on HMRC guidance, which can be changed in the future. The word “customary” is written here, but that is reliant on guidance alone. If there had been more explanation in the Bill of what “customary” means, or if it had just said “contractual and not customary”, we probably would not be in this situation. We would not be relying on guidance that may or may not be accessible, and may or may not change in the future.

[Anneliese Dodds]

I absolutely agree with that point. Looking at that guidance, it is interesting that there is a lot of detail about certain issues, such as what happens if there is a second testimonial for whatever reason. Let us say that £70,000 was received from the first one, and then the second one goes over the £100,000 threshold; there is detail about what the tax treatment should be. There is detail about what the tax treatment would be if the testimonial was for a player who had, very sadly, died on the pitch, and the money was going to their family. Just about every eventuality is covered, apart from this issue of “customary nature”. In the interests of clear tax policy, it would help if we had more detail about that.

Secondly, explicitly concerning the tax treatment of charitable giving, we had a discussion about this before and the Minister referred to it again in his comments. It was argued that testimonial committees could use payroll giving from the testimonial to route funds to charities, given that they would be class 1A employer NICs. Indeed, he mentioned that players could use the gift aid procedures if payments were made directly to them. My hon. Friend the Member for Bootle rightly pointed out—and it was confirmed during the session—that this would add an additional layer of complexity and administration to the process. To inform those reading Hansard, the Minister is shaking his head. Perhaps he can explain why that would not be the case. We are talking about potentially large sums here that could provide the largest of any cash boosts received by a player’s foundation. We need more detail.

Finally, new clause 5 asks for an assessment of the Bill’s impact on testimonial payments made to professionals from different sports, including footballers, cricketers, rugby league players, rugby union players and other sportspeople. It is important that all varieties of sport receive adequate support and it would be helpful to have a better understanding of the likely incidence of the charge in that regard—for example, whether there is a similar rate of use in other sports to that provided by the PFA for professional football, and whether a similar proportion of those testimonials are contractual or non-contractual. As I said before, the implication of the information provided by the England and Wales Cricket Board is that there would be no customary non-contractual testimonials. Is that the case in other sports? We do not know. It would be useful to understand that. We also need that information because favourable tax treatment is still being provided for that first £100,000 of non-contractual, non-customary testimonial payments.

It may well be the case that in different sports, the employment opportunities on retirement as a professional player are very different. Within football, some go on to be agents, coaches, commentators and so on; many others do not. Such roles may not be as available in other sports. It would help if we understood more of the background to this.

[Kirsty Blackman]

I will not add a huge amount to what the Opposition spokesperson has said on this. I am particularly concerned about the effect on donations to charities that would result from the sporting testimonial changes contained in the Bill. New clause 2 requests a report on the assessment of the expected impact of

“the total amounts received by individuals from sporting testimonials”

which is the other concern here, and also

“the donations made to charity from sporting testimonial proceeds.”

If the Government are contending that there will be no change in the amount of money given to charity from sporting testimonial proceeds, it would be useful if they said that. If they believe it is unquantifiable, it would be useful if they said that too, so that we are clear what the Government expect—or what they think they expect—from the changes they are putting forward in the Bill. Once again, the Government have said they are expecting a negligible Exchequer impact from this. It would be useful to know the trade-off: how much they believe charitable organisations will be losing in order to generate a negligible Exchequer impact.

I agree with both of the Labour party positions: on amendment 2, which is similar to mine on donations to charities, but also on the one on the review of different sportspeople. It is important that we work out what is almost a distributional analysis. We all know that footballers in the male professional game get paid an awful lot more money than any other individuals. If we see that people who are getting paid far less are subject to the highest percentage of impact, there is a problem in what the Government are suggesting.

Lastly, on clauses 3 and 4, I raised the issue this morning and I got an answer—but not a very descriptive one—on the reason that the Government have used the term “general earnings”, which is different from the wording used in part 1 of the Bill. I was told that there is a good reason for it, but I am still not clear what that good reason is, although I understand that the Minister believes there is one. It would be useful to know why that change has been made, and whether it makes it easier or harder for the Government to change the threshold level. If changing the £30,000 threshold level in part 1 is by affirmative secondary legislation, how does the difference in language affect whether or not affirmative secondary legislation is required to change the £100,000 threshold as well? Is there a different process because of the choice of language?

--- Later in debate ---

[Robert Jenrick]

Let me respond to as many of those points as possible. We have had a discussion of the impact of these measures on charities. Without repeating myself too much, we expect this to have a minimal impact. Where the sporting testimonial committee and the sportsperson make use of payroll giving, there would be no impact whatsoever. Were an individual to receive the money themselves and then pay tax and take advantage of gift aid, there would be a different tax treatment. Obviously, that would be the choice of the individual. The sportsperson and the sporting testimonial committee could and should choose to use payroll giving, which is a very generous and unlimited relief.

The hon. Member for Oxford East queried whether the measure would create a new bureaucratic impact on testimonial committees. It should not create any more impact than is already in place because we have already legislated for this from an income tax perspective; that is on the statute book. If a sportsperson wanted to use payroll giving today to avoid the income tax liability and ensure that the greatest possible amount of money went to the charity, the sporting testimonial committee today would already have to register for payroll giving, which they would then be able to use a second time for income tax and for the employer’s national insurance liability. This measure does not add bureaucracy. One could argue about the measure that has already been legislated for, but that is already on the statute book and the level of bureaucracy involved is pretty low.

We have had another debate around the definition of customary or non-customary sporting testimonial. The hon. Lady has already used her lunch break to root out the guidance, in her usual assiduous manner. If Members look at it, they will see that it is thorough. It is several pages long and goes into a degree of detail. I am happy to circulate it to other members of the Committee. It sets out that while the concept of “customary” is not defined in legislation, it has its ordinary, everyday meaning. The guidance says that in general, “customary” means a practice that is recognisable as the norm and where a failure to observe it would be exceptional. I think that is pretty clear. That suggests that if it is normal practice, a sportsperson would have a legitimate expectation of that as part of their employment at the club, and if the sportsperson did not receive the testimonial that they were expecting, that would be an exceptional occurrence.

[Anneliese Dodds]

I am grateful for that explanation, but I am sure the Minister will recall that in the expert evidence session, note was taken of the fact that the scope of that norm is not clearly indicated. One could look at the norm for a whole sport, the norm for a particular club, the norm for one year, and so on. Does he accept the need for greater clarity in the guidelines about what the norm is defined with reference to?

[Robert Jenrick]

I am happy to review the guidance and see whether we can give more examples. There are a number of examples within the guidance on a range of different issues, but if it would be helpful to give one or two examples on this specific issue, I am happy to do so. Without sounding as though I am not giving serious consideration to the issue, it is worth restating that this has not arisen as an active issue. Sporting bodies, sportspeople and sporting testimonial committees have not raised it. The practice is of long standing; it dates back to 1927. We legislated for it from an income tax perspective two years ago, and we have not had any adverse feedback since then.

[Anneliese Dodds]

Playing devil’s advocate, the whole point surely is that under the rules, if a testimonial is customary, the tax is payable. Therefore, if there is any ambiguity, one would not necessarily want to go stirring hornets’ nests to try to resolve that. Surely the Minister understands what I am trying to get at: the bias would surely be towards not seeking advice, rather than going out of one’s way to have the joy of paying tax.

[Robert Jenrick]

I understand that, although those sporting testimonial committees would want a degree of certainty that they were following the law, particularly if large sums of money were involved. They might seek the guidance of sporting bodies, or HMRC, perhaps on an anonymous basis, and that does not appear to have occurred.

Earlier in the day, the hon. Lady asked whether the customary test is specific or exclusive to sporting testimonials or whether it has a wider basis in law. There are other examples of the use of the customary test in tax law and case law, one being employer accommodation, where two factors are taken into account: first, how long the practice had existed, and secondly, whether it had achieved general acceptance with the relevant employers. There is therefore a history, as we have already described. I am happy to take away from today’s debate that we will review the guidance and ensure that there is a sufficient number of examples to provide clarity, should anyone require it, although it is not our experience that individuals have requested further clarification in the past.

The hon. Lady also questioned the wider point about the impact on different sports, which is one of the objectives of new clause 5. HMRC has announced that testimonials for sports other than football are all likely to be unaffected, as they are likely to be below the threshold. The measure is most likely to impact footballing testimonials. As I said earlier, the average testimonial, to the best of our knowledge, is around £72,000 a year and is therefore unaffected by the measure.

Without repeating myself, we have consulted many of the sporting bodies, and in fact, I met some of them. It is worth restating that in this instance, sporting bodies expressed a legitimate concern that the proposed threshold of £50,000 was too low. The Treasury responded by not just increasing it, but doubling it to £100,000. We have to be careful not to create unfairness for other members of society and taxpayers in the way that their payments are treated at the end of their career, or when one occupation ends and they unfortunately have to move on to another.

The hon. Member for Aberdeen North asked this morning, and again this afternoon, why there is a difference in language between part 1 and part 2 of the Bill. My experts at HMRC have looked into that, and the difference in language between the legislation for termination awards and sporting testimonials is accounted for as follows. First, in respect of termination awards, it is a charge on the employer. Secondly, termination awards are treated as earnings of the employment. Thirdly, the liability in respect of sporting testimonials is a charge on a third-party controller of a testimonial. Fourthly, there is no link between sportspeople and the testimonial committee. Fifthly, general earnings include earnings from the employment and any amount treated as earnings in, for example, the testimonial payment. I hope that provides some explanation. If the hon. Lady would like further information, I am happy to write to her and the Committee.

The hon. Lady also questioned the amount of revenue that is likely to be raised from the measure. We have said that it is negligible, which means, in the terminology of the Treasury and the OBR, less than £3 million per annum; but in all likelihood, it will raise significantly less than that. When we modelled it prior to doubling the threshold from £50,000 to £100,000 it was also negligible—less than £3 million a year—so it is likely to be closer to zero than to £3 million, now that the threshold has doubled. Once again, our motivation in introducing the measure is to clean up, and provide certainty and clarity to individuals and those organising such matches, rather than to raise revenue.

[Anneliese Dodds]

I am grateful to the Minister for that. Is he implying, therefore, that there would be a significant behaviour change as a result of the measure? Surely, otherwise there would not be zero income resultant from it.

[Robert Jenrick]

No—with respect, I did not say that there would be zero income. I said that within the spectrum of zero to £3 million, the likely amount of revenue raised would be closer to zero than to £3 million. The sums involved are very low—negligible, in our terminology—so I do not have more precise figures, but it helps to give some guidance that it is unlikely to be closer to £3 million. Clearly, the vast majority of testimonials will be excluded, and will be below the £3 million level. I hope that I have been able to allay some of the concerns, and that the amendments will not be pressed.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.

Clause 4 ordered to stand part of the Bill.

Clause 5

Extent, commencement and short title

Value Added Tax (Tour Operators) (amendment) (EU exit) Regulations 2019

Anneliese Dodds Excerpts

Thursday 9th May 2019 General Committees

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

It is a pleasure to serve on this Committee with you in the Chair, Sir Henry, and I am grateful to the Minister for that explanation. Of course, this statutory instrument is one of a series that is intended to prepare the country for the event of a no-deal Brexit. The Committee will be aware that the Opposition have repeatedly voiced our concern about this process, in particular the fact that, in our opinion, very often the precise impacts of these measures have not been sufficiently spelled out. That is a point I will return to in a moment in relation to this SI. In addition, we are concerned that the process has not facilitated the accountability necessary for potentially significant changes to rules around tax and many other financial and economic issues.

Having said that, we agree with the premise of these specific regulations, which is to prevent the double taxation of travel companies or tour companies in the event of a no-deal Brexit—something that we have long argued the Government should have ruled out from the very beginning. However, these regulations do not deal with the significant uncertainty, and especially the additional cost, that companies would face in relation to their tax liabilities abroad if there was a change to the current VAT process, especially if they suddenly had to register separately for VAT in every EU country in which they operate.

I think this is a matter of omission by the Government, rather than commission. My concern is that the Government have not spelled out how they would help those companies and what they would do specifically to deal with the bureaucratic obstacles that would arise in what may currently seem an unlikely eventuality, although I think it is perhaps more likely than the Government appear to believe.

As the Minister explained, the current system of VAT for tour operators treats the place of supply for VAT purposes as the UK, irrespective of where their travel service is employed. Therefore, VAT currently stands at 20% across the board for outbound tourist services. Under the new system, as I understand it, the amount of VAT due would differ depending on the country the service was provided in, if those different EU27 countries decided they wanted to levy it; I appreciate that they might not, but equally they might decide to do so.

The rate due in that eventuality would vary depending on the country, with the burden of operating in, say, Scandinavian countries such as Norway or Sweden increasing due to their higher VAT rate of 25%. It would also potentially become very complicated; as we know, in some countries such as Germany there are different VAT rates for different aspects of tourism-related activities. In the hotel sector, for example, VAT is 7%, compared with restaurants where it is 19%.

The Government’s impact assessment insisted that the impact of this regulation was negligible, but I understand from the representations made to me by industry that the changes could be felt in significant ways by outbound tourist companies. If it was necessary to have multiple VAT registrations, it would place a significant financial burden on tour companies, particularly small and medium-sized enterprises. Those tour operators would need to understand the operation of VAT in all those other countries in which they operate within the EU and how each VAT system could affect their business. That could place a considerable burden on tour operators and many would need to pay for local advice.

There is also the fact that different types of digital tax systems have been introduced in different EU states. Under these proposals, tour operators may need to have systems capable of compliance with multiple different versions of digital tax accounting. For example, I understand that the digital tax system in Spain—the biggest destination for UK holidaymakers—has been described as particularly complicated and likely to lead to high compliance costs for British businesses.

Those new costs would have to be absorbed by those companies, potentially at the same time as they had to comply with making tax digital for the first time, given the Government’s timetable on MTD. In fact, it has been suggested that the typical cost of basic local compliance in each EU member state could amount to between €8,000 and €15,000 per VAT-registered entity per annum. That is a pretty big burden. If we look at the outbound tourist industry, according to the Association of British Travel Agents, 90.7% of companies in the industry employ fewer than 10 people and a further 8% employ fewer than 50. They are not gigantic organisations that can have whole sets of staff dealing with VAT; that is just not on the cards for them at all.

As a first question, can the Minister explain clearly to this Committee what his Government would do to support small and medium-sized enterprises through this transition, if necessary? I must say that I find the impact assessment quite peculiar in its claim that there would be a minimal impact on business, because that surely would not be the case if they suddenly had to comply with all those different systems.

This is very evocative for me of what happened with the situation for VAT on digital services. I am sure that Committee members remember that the EU introduced a lower threshold for the payment of VAT on digital services, and changed the locus of payment from the location of the seller—that is effectively the same approach as that of these regulations—to the location of the consumer. It also introduced the VAT mini one-stop shop—I am sure hon. Members remember VATMOSS. The VATMOSS system calculated the VAT that was payable for businesses without their having to do that work, but even with VATMOSS lots of businesses found it very difficult to comply with the new system. There does not appear to be anything equivalent even to VATMOSS in the regulations for tour operators if they suddenly have to start paying all that VAT in EU27 countries. My second question is, have the Government made any attempt to encourage the EU27 to consider creating a one-stop shop if these regulations are acted upon?

There is also the matter of the impact of these new rules on revenue to the Exchequer. Studies have shown that TOMS VAT equates to about 1.08% of tour operating turnover. ABTA estimates that its members paid in the region of £300 million in TOMS VAT last year. Thirdly, I hope the Minister will be able to outline what measures the Government intend to adopt to avoid the loss of revenue that looks set to arise from this approach if it is acted upon.

It is important, as we head into economically uncertain times, that the Government do all they can to support the tourism sector, particularly given that the UK has one of the most developed outbound travel markets in the world. I want to pause a little to consider the Minister’s claim that it is very unlikely that we will see change here because third-country regimes are not being invoked at the moment and because EU27 countries currently do not charge VAT to third-country operators. The UK is in a different situation because of the number of trips organised by UK-based tour operators for people from outside the EU which begin in the UK and follow a so-called grand tour of Europe. That is very important for many of our tour operators.

The overall industry of outbound tourism is worth more than £11.7 billion a year to the UK economy, and in excess of £28.3 billion a year by the time aggregate impacts are taken into account. Those tourists sometimes start their trip in Paris or Berlin, but I estimate that quite a large proportion of them start in the UK. Therefore, the incentives are stronger for the EU27 to look into changing this regime, particularly if they think that there could be a positive revenue impact on them or that there is the opportunity to persuade those tourists to start their trips within their jurisdiction, rather than the UK, or to prevent tours from being run by a UK tour operator.

This is all occurring at a time when the tourism industry is facing difficulties. We have all heard about what has been happening with Thomas Cook. There is growing uncertainty, and it is creating an increasingly difficult environment for the tourism and hospitality sectors to operate in. It is also affecting consumers, who have been warned by travel companies that they will not be compensated if a no-deal Brexit causes travel chaos.

[Mr Barry Sheerman (Huddersfield) (Lab/Co-op)]

I am sorry I was late, Sir Henry. It is Europe day, and I was asking a question in business questions about celebrating our membership of the European Union. Does my hon. Friend agree that working people in the travel and tourism industry in our country, which is very important, are extremely worried about their jobs and their future? This statutory instrument is very important indeed to their lives.

[Anneliese Dodds]

I could not agree more. That is absolutely the case. To an extent, I have an interest in this sector, as some of my family members have been involved in it. It is often a route for social mobility, because small, innovative firms can develop a specific offer and, as a result, grow, innovate and create new jobs. It is a dynamic part of the UK economy. We need more information—I hope that the Minister can provide some—about how the Government will try to protect and nurture those firms, given the potential impact of the additional administrative and perhaps financial burden if these measures are required.

National Insurance Contributions (Termination Awards and Sporting Testimonials) Bill

Anneliese Dodds Excerpts

2nd reading: House of Commons & Ways and Means resolution: House of Commons
Tuesday 30th April 2019 Commons Chamber

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

It is a pleasure to follow the hon. Member for South Thanet (Craig Mackinlay), who always talks about these issues from a professional perspective, related to his work before he first entered this place. It was very interesting to hear his comments, and I will return to some of them as I set out the Opposition’s summary of our concerns about the Bill.

When the Minister was introducing these measures, he said that they were expected. As many Members have said, they most certainly were expected. In fact, they were introduced a lot later than we had anticipated, as the hon. Member for Aberdeen North (Kirsty Blackman) pointed out. In fact, the Government’s paperwork associated with the measures indicated that some revenue has been loss as a result of that late presentation. The hon. Member for South Suffolk (James Cartlidge) noted that the figures here were “baked in” to the Government’s accounts. Well, if he looks at the accompanying paperwork to these measures, he will see that it actually appears that those expectations have had to change given the late presentation of the Bill to the House. Of course, Labour would take very different decisions on taxation. We believe that the rates for the very best-off should be increased for the top 5%, that a different approach should be taken to corporation tax and, in particular, that we should not be focusing on trying to increase tax on those people who have, above all, lost their jobs—of course, that is part of the focus of this legislation.

I will, however, start by discussing the sporting testimonials element of the Bill. These measures would see NICs treatment of sporting testimonials charged to class 1A NICs, mirroring the tax liability. As has been mentioned, this would only apply to testimonial payments exceeding £100,000. Many members have already noted that the situation—I hesitate to say “playing field” because we have definitely had enough puns in this debate—has changed since these testimonials were introduced, when many players were not earning enough money adequately to save for their retirement. Particularly in football, which is the sport that I know best in this regard, players at the very top levels are earning more than enough throughout their lifetime not to have to rely on these testimonial payments for future revenue. It is therefore appropriate that clubs as employers, or the testimonial committees that would be providing the payments, look to make these national insurance contributions.

The public are rightly angry about the amount of tax avoidance that the wealthiest in this country engage in, but I am concerned that these measures do not come close to addressing systemic issues within football, particularly around taxation. As I understand it, as of January, HMRC was looking into the financial affairs of 173 players, 40 clubs and 38 agents. Now, I have little doubt that the Minister is itching to mention the case of Rangers football club when he responds to the debate—I am well aware of the case that was taken against Rangers—but I think we need to contrast what has occurred in our country with developments in Spain, for example, where firm action has been taken against the extremely well-paid players who sought to artificially avoid tax. We have not seen similar action taken here. For example, the problem around image rights companies was known about for quite a long time before action was firmly taken. It is an insult to the thousands of volunteers at clubs across the UK—who scrimp and save to ensure that the players are paid, the grounds and stands are properly maintained, and records are properly kept—to see some of those at the very top get away with sharp practices.

Ministers must be aware that testimonials are actually becoming less common as a means of ensuring financial security for players and that the funds from testimonials are very often donated to charity, as many hon. Members have mentioned. I would like some more detail from the Minister about the perceived impact of this legislation on funds being donated to charity. Yes, in some cases funds may pass straight to a charity, but in other situations they go to charity eventually—via a player. In fact, if one looks at the charities that have benefited from the most recent testimonials, many have been foundations associated with particular players. The Minister said that, of the previous 220 testimonials that have been examined in relation to coverage by such measures, most would not have been covered because the testimonial was contractual or because its value was less than £100,000, but he did not talk about testimonials where charitable donations were concerned. I am a little bit worried that this quite important source of funds for charities might not be getting the consideration it requires as part of the Bill. I hope that the Minister will reflect on that in his closing remarks or provide more detail in Committee.

I turn to the impact of the Bill on termination awards. The Bill would introduce a new 13.8% class 1A employer NICs charge to any part of a termination award that is already income tax liable. The Minister has stated his contention that abuse exists in this field, with the claim that some employers might be disguising final payments as termination payments. Again, we really need to see concrete evidence. We have probed on this issue in previous discussions on Finance Bills, but we have not been provided with evidence of abuse. Actually, from memory, consultations carried out in this area did not suggest that there was widespread evidence of abuse. Surely, we need that evidence before considering these measures in detail.

In fact, as my hon. Friend the Member for Bootle (Peter Dowd) explained very clearly, this measure on employers’ national insurance contributions on termination awards is likely to lead to employers being much less generous with non-statutory termination awards and to leave people worse off at a time when many of them are most vulnerable. That could have severe implications for the individuals concerned, but it could also have wider economic implications. I was interested to learn that around 30% of all small businesses founded in the UK in recent times have been started in response to redundancy, with many people only having the resources to pursue their entrepreneurial ambitions because of their termination award. It is necessary to think about those wider impacts.

The Government maintain—indeed, we heard it again this afternoon—that this measure does not affect individuals, as it is paid by the employer, but that surely is not the case. In fact, the Government themselves predict in the material presented alongside the Bill that the measure would reduce wages overall by 0.1% over the year 2020-21. It is crucial that the Government undertake more detailed consideration of the likely impact of this measure.

As has been discussed, this is not the first time that this Government have sought to narrow the scope of tax relief on redundancy and termination payments. In the 2017 Finance Bill, they removed any exemption for payments in lieu of notice from the tax-free scope of payments for injuries. As Members will remember, that was very concerning with regard to workers’ rights, which are one of the main aspects of compensation in discrimination cases. The Opposition rightly contested that change.

Again in the 2017 Finance Bill, the Treasury provided itself with the power to vary the tax-free amount for other termination payments. Trade unions raised their concerns about that measure, as they believed that if the Treasury further lowered the tax-free threshold, it would incentivise employers to lower non-statutory termination awards even further. Indeed, the TUC has suggested that the tax-free element should be increased rather than decreased. I was interested by the comments made by the hon. Member for South Thanet, who noted that the value of the £30,000 threshold has been eroded significantly over time and would be worth more than double the amount if it had kept pace with current prices.

The Opposition remain concerned that the Bill still includes the power to potentially vary the NICs threshold upwards or downwards without proper scrutiny in this place, and I hope the Minister will be able to rule that out today. I also hope he will return to this in legislative form, to make it crystal clear that the Government do not intend to reduce the threshold.

I note that the guidance published alongside the legislation emphasises that

“no statutory redundancy pay on its own will be affected”.

That implies that non-statutory redundancy pay could find itself affected, exactly as the Opposition have warned. Can we have a clear statement that we will not see, via secondary legislation, tax and NICs being applied to voluntary redundancy payments for individuals with two years, or more or less than two years, of continuous service?

The Minister will be aware that this kind of application of class 1A NICs to cash earnings is highly unusual, to put it mildly. That point has been underlined by the Chartered Institute of Taxation and was made eloquently by the hon. Member for Aberdeen North. This appears to be a set of rather ad hoc changes. The hon. Member for South Suffolk, in a wide-ranging and interesting speech, suggested that the Bill is part of a general push to simplify the tax landscape, particularly when it comes to the relationship between payment as an employee and other forms of payment. In reality, we have seen an increasing complication of that landscape. We have not seen an alignment between the tax treatment of individuals and their employment treatment. Instead, we see an increasing bricolage of measures to try to deal with the disjuncture, with what is happening around IR35 being a good example. One would hope that the Government will start to try to get a grip of this issue in a more determined and less ad hoc fashion in months to come—if, indeed, they have months to come.

There is one last administrative issue that I want to mention. We have had referred to us by experts in this area the fact that HMRC has suggested that the charge will arise and be paid in real time, rather than at the end of the tax year, as is the case with other class 1A charges. That seems to require a new process—again, additional complication—for submitting information through the pay-as-you-earn real-time information submission and for HMRC to have to adopt a different process for allocating the different elements of that payment. There are already many issues with it allocating real-time information payments into the wrong pots. This seems to suggest additional complication, and we need the Government to rethink this and consider an annual payment, rather than a real-time one. This change potentially comes at the same time as other significant forms of upheaval within the tax system, from making tax digital to preparations for Brexit.

As my hon. Friend the Member for Bootle stated very clearly at the end of his remarks, we will not oppose the Bill at this stage, but we hope that it will be possible to make some substantial changes in Committee, because they are very much needed, as has been reflected by the tenor of this debate.

Oral Answers to Questions

Anneliese Dodds Excerpts

Tuesday 9th April 2019 Commons Chamber

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

A recent survey by the Centre for Labour and Social Studies showed that a third of workers struggle with the cost of living and two thirds of workers expect to get poorer this year, yet FTSE 100 CEOs have been seeing their wages rise six times as fast as those of the average worker. To me, that sounds like a laser-like focus on increasing inequality.

[Mr Hammond]

The Government are responsible for the productivity agenda and the setting of targets for the national living wage. As I have already set out, working in those two tracks is the way to deal with the challenge of low pay. I can tell the hon. Lady what will not help workers on low pay: having their personal allowance taken away from them.

IR35 Tax Reforms

Anneliese Dodds Excerpts

Thursday 4th April 2019 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Sir David. I congratulate my hon. Friend the Member for Rutherglen and Hamilton West (Ged Killen) on securing this debate. It is also a pleasure to sit opposite the Minister. I had withdrawal symptoms after the end of the no-deal statutory instruments. I am afraid this subject has a similar level of complexity as the subjects we discussed in relation to no-deal preparations.

As many hon. Friends and Members have mentioned, IR35 arrangements are designed to operate in relation to workers involved in so-called off-payroll working. They cover situations where people work for a client through their own intermediary, often a personal service company. We have heard many examples in the debate. If people were providing their services directly, they would be classified as an employee. However, as a result of the arrangements, IR35 workers pay income tax and national insurance contributions in a different way to an employee. Individuals who work in such a manner benefit from increased flexibility and reduced tax liability, but the IR35 rules are intended to ensure that they pay broadly the same tax and national insurance contributions as an employee.

As we have discussed, the rules have applied to public sector bodies since 2017, and the Government confirmed at the 2018 Budget that they would extend the change to the private sector. The Government have just launched a technical consultation about the new arrangements.

Self-employment and contractual arrangements are a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported, while also ensuring that everyone pays the right amount of tax. However, there are real concerns that workers are being forced into self-employment by unscrupulous employers to avoid costs and their duties to workers. Both the law and the Exchequer are struggling to keep up on this issue—a point that has been made by various speakers today. HMRC estimates that it loses about £3 billion a year because of self-employment in name only.

There is a problem, but at the root of it is the gap between how work is characterised for tax purposes and how it is characterised for the purposes of employment legislation. The Taylor review was meant to clarify at least the latter, as was mentioned by my hon. Friend the Member for Clwyd South (Susan Elan Jones) in a speech that was characteristic of all the speeches today when she spelled out the experiences of her constituents, and appropriately so. The Taylor review had many flaws. I will not go into all of them now, but it suggested that, for example, sick pay could be traded for a weakening of minimum wage rules—certainly not something that I would support—and that came at the same time as the courts were recognising that many alleged self-employed workers were anything but.

However, the review did offer a number of recommendations that the Government have sadly been extremely slow to consider. The lack of clarity over the implementation of Taylor where it is warranted is leading to a huge number of problems, including the ones we have talked about, for genuinely self-employed contractors and for what we might call bogusly self-employed contractors, as well as for their employers, as they adapt to coverage by IR35, knowing that even the IR35 rules may be subject to change because of future alterations to employment law in the wake of the Taylor review.

It looks as though we will not see an immediate change, so HMRC is engaging in a process of what I call bricolage to try to bridge the gap, and the consequences are complicated and very confusing. The confusion was described appropriately by my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who talked about a constituency case. She was kind enough to share the details of the case with me before the debate. She was absolutely right to raise the concerns of her constituent.

[Ruth Cadbury]

May I clarify that it was not a constituency case? The case was raised with me as a result of the work that I did on the loan charge.

[Anneliese Dodds]

I am grateful for that clarification. Regardless of where the individual was based in the country, the case was revelatory. In theory, with a levelling of the playing field upwards when the private sector is covered by IR35, some of the concerns about the leakage of highly skilled contractor staff from the public sector could be removed by the extension. However, the other problems that hon. Friends and Members have rightly referred to are still there, not least the problems that arise for small, often one-man or one-woman-band contractor companies that are trying to provide specialist skills on this basis, who may well end up being disadvantaged in relation to much larger providers of those specialist services. Surely we do not want that; surely we want to continue to have the innovation that exists in the complex ecology of different firms and freelancers offering such services.

We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment. In the absence of that, we have the issues that we have been talking about today, and employers themselves are trying to find a third way through all of this, as we have seen with the GMB-Hermes deal recently, where a new employment classification has been created in the absence of any other way to improve the situation.

We do not have a coherent approach. It is unfortunate that, as Members have mentioned, the lessons have not been learned from the roll-out of IR35 to the public sector before it is rolled out to the private sector. I will not go through all of them now, as they were appropriately described by my hon. Friends, but one that I want to underline again is the concern about the finance and time that has to be spent by the self-employed who face uncertainty because of the new rules.

The kind of experience that individuals have had with the HMRC online tool, which has already been explained, is a common one. The tool is not based on all of the case law, and the case law itself is not very clear in how it directs us to determining the status of many different contractors, so it does not resolve the situation for many users. It puts an additional strain on contractors, including many individuals who, as has been mentioned, might be on quite low incomes and cannot absorb additional costs. The Government need to look at the issue at a legislative level, rather than the onus being on HMRC to try to deal with it in a technical and procedural manner. It simply cannot. A different approach needs to be taken. As we established in our previous general election manifesto, the burden of proof should be with the employer, so that the law assumes a worker is an employee unless the employer can prove otherwise. We need to be clear on that.

Concerns about the appeals process have been mentioned. I will not go into them in detail, but I will underline the questions asked by hon. Members. How can we be sure that the process will be fair when it is led by those who employ contractors effectively marking their own homework, in the memorable words of one hon. Friend?

The Institute of Chartered Accountants has stated that tax and benefit differentials between different types of work need to be addressed. There needs to be further consultation on what, if any, tax incentives are offered to the self-employed. That is one view from industry and it coincides with what was outlined in the Taylor report:

“Over the long term, in the interests of innovation, fair competition and sound public finances we need to make the taxation of labour more consistent across employment forms while at the same time improving the rights and entitlements of self-employed people.”

That brings me back to the fundamental issue that I will close with, Sir David.

It is a fact that the tax and legal status of work is not aligned, not certain and not comprehensible. It is impossible for many of those caught up in it to understand the right way forward. My party has said that we need a proper commission to look at it in detail, to modernise the law around employment status and to look at how it interrelates with tax status. We have presented a 20-point plan for security and equality at work. We need to build on that through a consultation that includes the voices of the people affected. We have heard so many of them in the short time that we have had today.

[Mr Sweeney]

My hon. Friend is making important points about the flaws in current thinking. With the consultation on expansion due to start in the next month or so, there is an urgent risk. Does she think we need to pause and reassess the roll-out before we blunder into it and cause much damage?

[Anneliese Dodds]

I am very concerned that the consultation is going ahead and that the whole process is continuing, because the consultation does not focus on the problems with the public sector roll-out. I would have anticipated that any consultation to expand the approach would take those issues on board. I hope the Minister will address that in his response, specifically why there has not been the necessary change of direction.

We may need legislative change, as I suggested, because of the lack of clarity, but we should not treat individual contractors as guinea pigs while it all gets sorted out, given the impact it could have on them. I look forward to the Minister’s response.

Beer Taxation and Pubs

Anneliese Dodds Excerpts

Thursday 28th March 2019 Commons Chamber

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

I congratulate the hon. Member for Dudley South (Mike Wood) on securing the debate. As my hon. Friend the Member for Coventry South (Mr Cunningham) said, this is not the first time that we have debated many of these issues, but I very much agree with the hon. Member for Aberdeen North (Kirsty Blackman) that this has been a good-humoured debate, albeit one with rather too many puns. This debate is also important, as so many Members from right across the country have said, because the UK pub is renowned around the world—the oldest one was established right back in the 11th century—and an essential feature of our national life.

We have already gone through many of the statistics, so I will not do that now, but I very much agree with the hon. Member for Ribble Valley (Mr Evans) that much of the economic impact of the pub and brewery sector is indirect as well as direct. We have talked a lot about the impact on employment. It was very interesting, in particular, to hear about the experience of my hon. Friend the Member for Heywood and Middleton (Liz McInnes) and about her working life. It was also the first taste that I had of working life. Working in a pub and restaurant I was paid the princely sum of £2 an hour before Labour’s minimum wage was introduced.

This sector is very important, supporting around 1 million jobs in the UK. Those who work in it contribute many payroll taxes as well. However, pubs are really also community hubs, as so many hon. Members have said. My hon. Friend the Member for Ealing Central and Acton (Dr Huq) referred to the role that they can play in combating loneliness. We have heard about how pubs can help older gentlemen—I do not know why I am gesturing in the direction of the hon. Member for Beckenham (Bob Stewart)—and how they are open to mothers in the run-up to Mothers’ Day.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

We recently had a consultation in the west of Wales on the reconfiguration of health services. Dr Rhys Thomas, one of the lead consultants, informed us that one of the biggest public health challenges that we face is loneliness, so there is a public health aspect to this as well.

[Anneliese Dodds]

I absolutely agree with that point. There is now evidence of that. Work has been undertaken, commissioned by CAMRA, which set out clearly that there is a positive impact of people using pubs in the kinds of ways that we have been talking about during this debate. The point has also been made that many people who use pubs are not necessarily drinking alcohol. They use them in a whole variety of ways. I would also mention the fact that many pubs—particularly community pubs, and I will come back to that point later—are setting up special sessions for people with different conditions, such as dementia, so they are very important institutions from that point of view.

We have seen some worrying developments, which many Members have referred to. We have seen pubs closing at an alarming rate. Last summer, we saw figures showing that 18 pubs a week are closing. Those closures are occurring at the same time as the closures of libraries, post offices, banks and many local shops. They are happening in rural areas, as has been mentioned, but in urban areas as well. My hon. Friend the Member for Chesterfield (Toby Perkins) noted very movingly what happens when the last pub leaves an estate, and my hon. Friend the Member for Barnsley East (Stephanie Peacock) raised the same issue.

Members on both sides of the House rightly referred to the importance of local pubs, but also drew attention to the challenges they face. The first of those challenges relates to the tax system, and involves beer tax, small brewer’s relief and business rates.

We are in a peculiar position when it comes to beer tax. I agree with the Institute for Fiscal Studies, which has said that

“The UK’s current system of alcohol excise duties is a mess”,

and that the way in which we tax our alcohol does not necessarily

“fully correct for the social costs of alcohol.”

I hope that the Minister will spell out what the Government intend to do in the longer term, because a longer-term approach is needed, given the developments at EU level that were mentioned earlier and given the development of the low-alcohol beer sector, which was mentioned by the hon. Member for Faversham and Mid Kent (Helen Whately) and many others. Those developments are significant, but the tax system has not yet responded to them.

Many Members, including the hon. Member for Caithness, Sutherland and Easter Ross (Jamie Stone), my hon. Friend the Member for North Tyneside (Mary Glindon) and the hon. Member for Strangford (Jim Shannon), referred to the corrosive impact of low-quality, high-alcohol products which are drunk at home and are cheaper to drink at home.

We had an interesting discussion about small brewer’s relief. My hon. Friend the Member for Stoke-on-Trent North (Ruth Smeeth) spoke of its importance to small breweries, but I think we should also look carefully at its calibration in the light of the unintended consequences that were mentioned. My hon. Friend the Member for Keighley (John Grogan) made some good suggestions, and I hope that they will be noted in the review that is currently being undertaken. Despite those pressures, however, we are seeing incredible innovations, especially in the craft brewery sector. I want to plug the micro-pub movement which is taking place in my constituency, and our amazing covered market as well.

Many Members referred to business rates, which have been extremely damaging to pubs and to many other businesses that are based on bricks rather than clicks. My hon. Friend the Member for Stoke-on-Trent North, and many other Members, talked about the imbalance in that regard. A business pays corporation tax only when it has become profitable, but the Government appear to have focused on reducing the corporation tax rate. My party would not take that approach, because we value the high streets and we value bricks-and-mortar-based businesses. Of course, that does not just apply to pubs. My hon. Friend the Member for Cardiff West (Kevin Brennan) mentioned the impact on music venues, many of which are, in practice, in the same place as the local pub. We need to look at these issues in the round, and, in fact, we should look at them in relation to council tax as well. That is why we have committed ourselves to a proper review of local taxation, which we think is well overdue.

However, pubs face many other impediments that are not related to tax. That point was made very forcefully by my hon. Friend the Member for West Bromwich West (Mr Bailey). The pubs code, which was intended to level the playing field for small pub tenants, has not operated in the way in which many of us hoped that it would. It appears that the situation is being manipulated, which is immensely problematic, because, as was pointed out by my hon. Friend the Member for Leeds North West (Alex Sobel), tenants are still subservient to pub companies. That is also a big problem for the social mobility referred to by my hon. Friend the Member for Coatbridge, Chryston and Bellshill (Hugh Gaffney), because it means that people who start off pulling pints cannot end up as pub owners.

I should like to hear from the Minister when the compulsory review of the pubs code will be announced. I thought that it was to be announced this month. Can we also be assured that the process will be open and accountable? We need to restore trust and accountability to the process. We also, as was mentioned by my hon. Friend the Member for Stroud (Dr Drew), need to make sure communities are aware of that social value process so they can take over those community assets when they want to; many communities are not aware of it.

Many of us have said this debate is a refuge from Brexit, but, sadly, it is not entirely of course. That is first because the workforce is very important to the pub sector and we are all aware of many of the concerns about what will happen if in particular we have a threshold of £30,000 to get workers into the UK. UK Hospitality has said the current proposals are illogical. We need to deal with this challenge. Also, the hon. Member for Waveney (Peter Aldous) rightly referred to the importance of exports from our brewery industry in particular; we must not impose any additional bureaucracy on those exporters, particularly in growth fields and innovative parts of our brewing industry.

I hope the Minister will respond to my points in his remarks, particularly on the beer tax, small brewer’s relief, business rates and some of the legal issues.

Draft Cash Controls (Amendment) (EU Exit) Regulations 2019 Draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Monday 25th March 2019 General Committees

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

It is a pleasure to serve with you in the Chair, Mr McCabe, and to hear the explanatory remarks from the Minister. A huge volume of such legislation has obviously been passing through Parliament. When my shadow Treasury colleagues and I have been considering it, we have been determined to spell out our objections to the Government’s approach to EU exit secondary legislation, the volume of which has been deeply concerning in respect of accountability and proper scrutiny.

The Government have assured the Opposition that no policy decisions are being taken, but establishing a regulatory framework inevitably involves matters of judgment and raises questions about resourcing and capacity. Intrinsic decisions are being made about supervisory arrangements, and we are worried that mission creep is happening, which goes beyond what was outlined in the European Union (Withdrawal) Act 2018.

Secondary legislation should be used only for technical, non-partisan and non-controversial changes, because of the limited accountability it allows. Instead, the Government continue to push through far-reaching legislation via these vehicles. As legislators, we have to get them right. They could represent real and substantive changes to the statute book, so they need proper in-depth scrutiny.

We are only four days away from our original EU exit date. The legislation still stands, at least in the UK’s case, but it is unclear whether much of it will be used. Obviously, we are considering two instruments that amend our customs regulations to account for our exit from the EU, but there is a lack of clarity about whether they are no-deal SIs.

The impact assessment that relates to both instruments is entitled “HMRC impact assessment for the movement of goods if the UK leaves the EU without a deal”, but some of the associated explanatory notes suggest that they are not no-deal instruments, but pertain to all kinds of exit. In my opinion, the second set of regulations would be needed only if we shifted away from the EU’s customs code, as the Minister mentioned, which is not a condition of leaving the EU per se. It is therefore peculiar that we have information not about the impact that the instruments would have in all possible scenarios, but only about a no-deal scenario.

On the cash controls regulations, I want to probe why the Treasury has decided to make the threshold £10,000. That is higher than the previous €10,000 threshold, which converts to about £8,500. I hope that the Minister can explain why it is set at £10,000, apart from the fact that that is a nice round number—that may well be the reason, but surely we need more information if that is the case. I find it peculiar given that, as I understand it, the cash controls system currently applies to €10,000-worth of other currencies brought in or out of the country, rather than a different value being set—it does not refer to 10,000 rupees or $10,000 or whatever. Perhaps the Minister can enlighten us about that and whether I have the wrong end of the stick.

On the issues relating to the Irish border in the cash controls regulations, I hope the Minister can give us more information than is provided in the papers we have been given. The Irish border is mentioned only fleetingly in the instrument. The citation, commencement and effect section states:

“The amendments made by these Regulations do not have effect in relation to any person entering Northern Ireland from the Republic of Ireland or exiting Northern Ireland to the Republic of Ireland.”

The instrument omits articles 6 and 7 of regulation (EC) No. 1889/2005, which relate to information sharing. Some might say that that is understandable, given that the obligations will not stand after exit day, but surely we as parliamentarians need to know a lot more about what controls will be maintained than we are provided with. What discussions, for example, have the UK Government had with the Irish Government to ensure that there will be proper scrutiny of individuals who might try to exploit this situation to launder or otherwise hide cash?

I appreciate that the Government might respond by saying that we have the Proceeds of Crime Act 2002, which means that police or border officials are able to seize cash if they have reasonable grounds for suspecting that it is either itself stolen or laundered, or is intended to be used in illegal ways in unlawful conduct, and that that applies from £1,000 upwards. However, I find it a bit strange that the Government suggest that we have to have a separate approach to cash controls as a condition of leaving the EU, yet that seems to be no issue at all when it applies between Northern Ireland and Ireland. Maybe they are just saying that security considerations trump that, which they may well do, but surely we need more meat on the bones here.

That is particularly true given that the impact assessment states:

“Compliance with the SI…gives HMRC information on the movement of cash, which feeds into the risk profiles of individuals and their associates where they are acting on behalf of others.”

That suggests that it is pretty important information, so we need more detail on why the Government are saying that we will not seek it here. It may well be justified in the overall cost-benefit analysis, but we really do not have that information.

Moving on to the economic operators registration and identification SI, again we are informed:

“The amendments to the retained EU law contained in this instrument will not have effect in relation to economic operators whose only customs activities consist of the trade of goods between Northern Ireland and Ireland.”

That seems a reasonable measure to prevent a hard border while maintaining existing regulations, but it would be interesting to hear from the Minister whether the Treasury has calculated how many operators of this type only trade in goods across the Irish border. That would be useful to know.

Generally, the context of this SI is a worrying lack of certainty for Northern Irish companies provided by the current situation. We did not have any indication until 13 March that the Government would take a temporary approach to avoid new checks and controls on goods at the Northern Ireland land border if the UK leaves the EU without a deal, and we do not yet have those arrangements set out in detail—we have the aspiration, but we do not have the detail. The Government’s own “EU Exit” paper from last year said that,

“WTO terms would not meet the Government’s commitments to ensure no hard border between Northern Ireland and Ireland.”

This surely needs much more work.

Finally, the EORI SI sets up the requirements, as the Minister mentioned, for a UK-run economic operator and registration identification system. I am grateful to the Minister for being willing to confer with me about the extent of use of that system before this Committee sitting. I wrote to him about this matter in February, because as at the end of that month, HMRC itself admitted that less than one fifth of the businesses that were estimated to need an EORI number had one, meaning that four fifths did not. HMRC said at that stage that it takes up to three days for an EORI number to be sent out, and longer than three days if there are “high volumes” of applications.

HMRC maintained that it had the capacity to process 11,000 EORI applications a day. Perhaps it is a strange coincidence that when we multiply that by the number of working days that were left when HMRC’s press release was issued, it sums perfectly to 29 March—it is quite amazing that its systems mapped on so precisely. However—and I am sure the Minister will talk about this—it appears that in practice perhaps only about a quarter of the companies that will need an EORI number have one. If companies do not have one, what are they going to do? Will they literally not be able to trade if they are not provided with one of these numbers? That is surely quite concerning for them.

I asked at the time for the Treasury to provide more information on what it was doing to promote the need for people to get an EORI number. I also highlighted the fact that there are con merchants—perhaps I need to be careful legally what I say here, and I would not describe them as doing anything illegal, but there are certain companies that advertise themselves as enabling other companies to get such numbers and apply a charge for doing so, when it is actually free to get one. They seem to be trying to profit from this situation. As I said, there is potentially nothing illegal about that, but surely it is unfortunate, at the very least, if companies believe as a result that they have to pay to get an EORI number. It would be helpful to have an update on that.

Finally, what proportion of eligible businesses have signed up for the new transitional simplified procedures? HMRC acknowledges that there has been an underspend on training funds for that scheme. It would be helpful to have an update on that too, because it is meant to speed up some of the processes related to the EORI SI.

[Mel Stride]

I thank the hon. Lady for her questions, which, as usual, were very thorough and detailed. I will do my best to answer them all. The first related to the whole issue of why we are using secondary legislation. In general terms, I hope the hon. Lady recognises that, given the kind of detail involved in some of this secondary legislation, the sheer practicalities of setting all that out in advance in primary legislation would have been prohibitive, not least because the relevant Bill went through some time ago and we are now considering these matters nearer to the event of our potential departure from the EU without a deal—although that is certainly not our desired departure. She will also have noticed that both instruments were considered by the European Statutory Instruments Committee and, on its recommendation, turned from negative instruments into affirmative instruments.

The hon. Lady asked very specifically whether these instruments relate to a no-deal scenario. Indeed they do. Of course, if we have a deal—the current deal, which has been negotiated with the European Union—we will go into an implementation period until the end of 2020. Under those terms, we would continue to trade with the EU27 on broadly the same basis as we do today.

The hon. Lady asked specifically why £10,000 was used, rather than the sterling equivalent of €10,000, that being—I will take her figure at face value—about £8,500. She suggested that it might be because it is a nice round number, and I guess perhaps it is. It certainly maintains the figure 10,000, albeit there is a relatively marginal change in value at today’s exchange rate; as we know, that may change over time.

The hon. Lady made some very important points about the Northern Ireland border and, with regard to the cash controls instrument, the level of security that may or may not be in place as a result of no deal. In the case of the border between Northern Ireland and Ireland, the instrument really would maintain the status quo. Of course, as a member of the European Union at the moment, we do not have cash controls between ourselves and other member states, including between Northern Ireland and the Republic of Ireland. We have a variety of intelligence-based arrangements in place to track down those who may be moving cash for the wrong reasons across any of our borders with any member state, and we have always had very close co-operation with the Irish Government and the Garda in respect of such matters.

I turn to EORI. The hon. Lady asked how many operators trade only across the Northern Ireland-Republic of Ireland border and, because they do not already trade with a country outside the EU27, have not already been registered for an EORI number. I do not have a precise figure, but we estimate that about 245,000 businesses in the UK as a whole—145,000 that we can identify as being above the £85,000 VAT registration threshold, and an estimated 100,000 further that are below that threshold—trade solely intra-EU, so it will be a fraction of that number.

The hon. Lady touched on whether the arrangements relating to Northern Ireland in both statutory instruments would be compliant under WTO arrangements. Our belief is that they would be, albeit that they would be exceptional arrangements. In the case of both instruments, we would hope to be in constructive discussions with the Irish Government about how to move forward if we end up in a no-deal situation.

The hon. Lady asked some specific questions about EORI registration and referred to her letter. I am grateful to her for having raised that with me before this Committee. The answer to her question is that approximately 60,000 EORI registrations have now been made in the group we are targeting. That is 24.8% of those that we believe are in the scope of requiring an EORI. She asked what happens if a business turns up in the UK without the relevant EORI registration, and I point her to the transitional simplified procedures that we have set out.

The hon. Lady’s final point was about businesses that might provide a service to facilitate EORI registration. Quite rightly, she pointed out that is a free-of-charge service that can be completed very quickly, and it is not that complicated to do it online. If she has any specific examples that she would like to bring to my attention, where she believes that anybody is in any way misrepresenting the complexity of this process simply in order to profit from the interaction with the business concerned, I will look at them very closely.

[Anneliese Dodds]

I am grateful to the Minister for those clarifications, which are enormously helpful. I mentioned in my letter the name of one outfit that operates in that direction, but I will have another look and send it on. On his penultimate point about how companies would cope with not having an EORI, it was my understanding that, in order to participate in the new transitional simplified procedures scheme, businesses had to have signed up for that, and we do not know how many have. They could be in a double bind if they are not in either scheme. I know that the Government say they will completely suspend many of the normal reporting requirements, which opens up many concerning questions, but unless I am misunderstanding the transitional simplified procedures scheme, it is not clear that those who do not have an EORI would drop into that other scheme. Perhaps he can explain that further.

[Mel Stride]

The hon. Lady poses a fair question. Although what happens going the other way will be in the control of the EU27, in the event that a business came into the United Kingdom, arrived without an EORI number, was not in the TSP arrangements and was not in transit with the various suspensions that go with that, we would take a proportioned, flexible approach at the border under those circumstances. We would make sure, as we have always said, that we prioritise flow over other aspects, while in no way compromising on security.

Question put and agreed to.

Draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019

Resolved,

That the Committee has considered the draft Customs (Economic Operators Registration and Identification) (Amendment) (EU Exit) Regulations 2019.—(Mel Stride.)

Draft Electronic Commerce and Solvency 2 (amendment etc.) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Wednesday 20th March 2019 General Committees

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

It is a pleasure to serve on this Committee with you in the Chair, Mr Bailey.

I am very grateful to the Minister, as always, for all his explanatory remarks. Once again, he and I are discussing a statutory instrument that makes provision for a regulatory framework after Brexit in the event of our crashing out of the EU without a deal. On each occasion, my Front-Bench colleagues and I have spelt out our objections to the Government’s approach of using secondary legislation to fulfil that process.

We are finally reaching the end of the process. I echo the remarks made by my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds) on Monday. I thank him for his hard work, as well as those staff who have ably assisted with this Herculean task for the shadow Treasury team, not least Hana Al Izzi, Mary Partington, Max Harris, Suha Abdul and Sophia Morrell.

Yet again we are debating technical legislation that may not be needed, in a context where a major plank of that legislation has not been retabled, due to what appears to be Government reluctance to accept a vote on an amendment relating to tax transparency in Crown dependencies and overseas territories. Although the Financial Services Bill has been postponed, it appears—inevitably—that the long, slow and painful no-deal financial services legislation caravan continues to limp along in other forms, including this SI.

As with previous pieces of no-deal legislation, this SI makes changes that could prove to have a substantial impact. It has simply not been possible to engage with the regulations as proactively and in as detailed a fashion as would have been possible with a more normal timetable. In that context, it is highly possible that mistakes will be made, and the Opposition are very much aware of and concerned about that.

I have three specific questions about this SI. The first concerns naming decisions. It might appear to be a pedantic point but it is a germane one. Anyone trying to find information about this regulation through frequently-used search engines is likely to be provided instead with details for the confusingly virtually identically named electronic commerce no-deal regulation, which came from the Department for Business, Energy and Industrial Strategy. As the Minister mentioned, this SI deals instead with how the securitisation regulation and the electronic commerce directive provisions, once onshored, will interact with the onshored elements of Solvency 2, as well as establishing a new regime for electronic commerce provisions for information society services financial services firms.

As with other SIs, not least the one that we considered on Monday, this process is rather rag-bag and convoluted. Indeed, according to paragraph 2.7 of the explanatory memorandum, it seems that the securitisation element is due to an omission—in fact, the Minister said that it was just now—from the onshoring regulation for the securitisation regulation, which was passed just a few weeks ago. A large element of this SI seems to be just rectifying a previous lacuna, if I have grasped its purpose correctly. I see that the Minister is shaking his head—I am pleased if I have got that wrong and perhaps he can explain it.

Secondly, I want to probe the powers provided to the FCA via this instrument. Presumably these powers, provided during the run-off period, are identical to those provided to domestic EEA regulators for the regulation of information society service financial services firms—sorry for using that phrase again, but I do not think there is any other way to describe them. I want to check that, because regulations 15 to 17 enable the FCA to disapply or vary the exclusion from the need for FCA authorisation for firms in the electronic commerce directive run-off—that is, during the period of a contract being finished off, which could last for up to five years, according to the regulations.

In addition, according to the regulations, the FCA can determine fees for firms that are within the run-off period, so it would be helpful to understand whether those fees will mirror those for registration. I am not an expert in the area, and it is unclear to me whether registration is one shot or continuing. If the former, has thought been given to how the FCA will ensure that firms will not, in practice, be charged twice for registering—once in the EEA and once again during the run-off period? That may be unavoidable, but it would be helpful to understand the Treasury’s thinking.

As before, the impact assessment for the SI does not cover the impacts on EEA firms. I understand that the Government have taken that decision, and I respect that, but if it looked as if it would be too expensive for EEA firms to continue to honour those contracts, there would be a big issue for UK consumers.

Finally, as with so many other SIs, the question arises of how the arrangements will be applied in the opposite direction in the event of no deal. In particular, it would be helpful to understand the extent to which the Government understand it is likely that UK electronic commerce firms will still be able to operate in the EU27 in the event of no deal. Given this country’s strength in FinTech, I suspect there is a large number of such firms, so it would be helpful to understand whether the Minister anticipates that other EU countries are likely to adopt a similar run-off approach for servicing existing contracts, or a more drastic approach that could obviously lead to major legal difficulties for UK firms if they can no longer legally operate contracts that have already been signed with customers.

--- Later in debate ---

[John Glen]

I thank the hon. Member for Oxford East and the right hon. Member for North Durham for their questions, which I will endeavour to answer.

As has been the norm, we have exchanged an analysis of the nature of this process, and the desirability of it. I think it was back in October that the hon. Member for Glasgow Central (Alison Thewliss) asked what the point of it was. I must admit, I have had some reflections on that myself. However, we are getting to the end, with the 54th statutory instrument and the 33rd Committee today. We have systematically brought SIs to Committee under the powers of the European Union (Withdrawal) Act 2018 and, as the hon. Member for Oxford East has shown, we have constructively scrutinised them. We have not agreed on every occasion, but I have sought to do that in as professional a way as possible in the circumstances. I will now examine the points that she has made.

On how the SI is named, I recognise the issues with Google but, as is the case with other pieces of legislation under this programme, it is necessary to group certain provisions together. I am not familiar with precisely how they are named. It is not a process that I have been involved in personally, but I imagine that there is a certain set of protocols, and I recognise that it is rooted in legal language. I cannot say more than that.

On the impact of no deal on e-commerce providers, those established in the UK will lose their exemption from other EEA countries’ laws that fall within the co-ordinated field as defined in the e-commerce directive. UK e-commerce firms will therefore want to prepare by checking for any compliance issues or additional legal requirement that they need to comply with in each EEA country in which they operate. UK providers of online services to EEA countries will need to continue to comply with a range of EEA countries’ individual legal requirements relating to online activities that already fall outside the scope of the directive.

The purpose of the directive was broadly—I think this touches on another point that the hon. Lady raised—around the alignment between different regulators. The purpose was to say that the domestic national competent authority regulator in an EEA country was sufficient in order to conduct financial services trade online with a UK consumer. That has been the broad understanding to this point. Obviously, if we entered into the undesirable no-deal situation, further legislation will be needed to safeguard UK consumers.

The hon. Lady asked why the changes to the Commission delegated regulation were not introduced in the securitisation regulations. The changes that needed to be made to the delegated regulation required further analysis which, due to timing constraints, the Government were unable to complete by the time those regulations were put before Parliament. To ensure that all relevant amendments were captured the Government therefore decided to spend more time on that analysis, and to introduce the changes through a further SI.

I have never said that this is a perfect process. We always envisaged, when we timetabled the SIs, that there would be a few at the end that would allow us to make provision where there would be some degree of aggregation. I recognise the hon. Lady’s point that the neatness, suitability and desirability of it at this stage is not as clear as it could have been, but that was an inevitable consequence of laying 1,000 pages of SIs in this condensed period.

[Anneliese Dodds]

I am sorry to rewind the Minister a bit, but I was not sure when he had finished his previous point. Just to be absolutely clear, we have been able to get some agreement, as I understand it, from the EU-level regulators that there would be reciprocal provisions on some other areas of financial services. Is the Minister suggesting that in this area we do not yet have that kind of agreement, and therefore that there could be problems with the continuation of contracts unless agreement is reached with those other regulators?

[John Glen]

In terms of reciprocity in a no-deal situation, actions taken in recent days and weeks give us that equivalence assessment. The scope and effectiveness of those going forward would not be fully compliant. We would then be in a situation, in the case of no deal, where we would need to undertake considerable examination and further legislation in that context.

On registration, EEA firms will need to notify the FCA but they will not need to register. That will not incur a fee. The right hon. Member for North Durham raised a number of points about evaluation and the time of the run-off. The maximum length of the run-off is five years. It is that long because of the scope of the contracts that could be involved.

The hon. Member for Oxford East asked about the assessment the Treasury had done of the number of contracts between UK consumers and EEA firms. It is very small because most UK consumers would not be comfortable entering into that sort of contract with an online-only company in the EEA. Our assessment and that of the FCA is that that number is, therefore, very small.

The right hon. Member for North Durham mentioned the territorial application of the legislation with respect to overseas territories. The SI does not affect the law in Gibraltar or the Crown dependencies, being Jersey, Guernsey and the Isle of Man. I do not know about the overseas territories. I do not know whether Gibraltar is a proxy for all of the overseas territories—I imagine so. I will write to clarify that matter because I do not wish to mislead the right hon. Gentleman.

We had a de minimis impact assessment because we anticipated very few contracts due to the limitations of the online activity and online-only business that exists. We expect EEA firms to use passporting instead of the e-commerce exclusion. I am happy to examine the matter in more detail. I will write to the right hon. Gentleman on that point and acknowledge that my answer is not adequate.

I hope I have answered hon. Members’ questions. I recognise this has been a long and arduous process. I would like to put on record my respect and thanks to the hon. Member for Oxford East for the constructive and thorough way in which she has taken the matter on and how we have engaged in these Committees.

I would also like to acknowledge the considerable support I have had from hon. Members on the Government side of the Committee, in particular the Lord Commissioner of Her Majesty’s Treasury, my hon. Friend the Member for Calder Valley, who has been with me on every single one, and the various Parliamentary Private Secretaries who have supported me.

I am not taking for granted that the Committee will agree the SI this afternoon but, in conclusion, I would say that we do need it to ensure that EEA firms providing e-commerce of a financial services nature can continue legally to service their contracts, and that the legislation functions appropriately if the UK leaves the EU without a deal or an implementation period. The SI also ensures that retained EU law remains accurate if the UK leaves the EU without a deal. I hope the Committee found my answers and explanation satisfactory and will agree the regulations.

Question put and agreed to.

Draft Investment Exchanges, Clearing Houses and Central Securities Depositories (Amendment) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Monday 11th March 2019 General Committees

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

It is a pleasure to serve on this Committee with you in the Chair, Mr Davies. I am grateful, as always, for the Minister’s explanation of the SI.

Once again, I want to put on the record the context in which this instrument comes before us. Parliament is currently dealing with an unprecedented number of statutory instruments. The volume and flow of secondary legislation on our exiting the EU, particularly if we leave without a deal, is deeply concerning when it comes to accountability and proper scrutiny. In the light of that, the Opposition want to place on the record our deepest concerns that the regulatory process is not as transparent as it should be.

As with previous instruments, the regulations allow for a major transfer of power to British institutions, in this case to the Bank of England. The instrument gives the Bank the power to determine whether third-country CCPs and CSDs can provide services in the UK post-exit, rather than their being undertaking by ESMA. The Government have maintained, as the Minister has said, that this is a simple transfer of power. However, our job in these Committees is to consider carefully whether the existing infrastructure of those organisations makes them best placed to take on the additional powers and responsibilities.

Will the Minister outline the analysis undertaken by the Treasury in deciding that the powers should be placed with the Bank rather than, for example, the Treasury? Will he also inform us of the work that is being done with the Bank to prepare it to take on these additional responsibilities, and what funding, if any, has been set aside to deal with the increased workload? He described the technical legal changes made by the instrument to facilitate that, but it would be helpful to know what resources have been made available.

In addition, will the Government be offering advice and assistance to EEA operators regarding their transition to becoming categorised as third-country entities? Do the Government feel that the Bank of England is adequately prepared to facilitate that transition? On that note, ESMA has, as I understand it, already recognised London Metal Exchange Clear, London Clearing House and now Intercontinental Exchange Clear Europe as third-country operators in order to avoid any Brexit no-deal cliff edge. I am, therefore, rather unclear as to why the UK Government have not undertaken a similar process for EU clearing houses. It seems that they have tried to pre-empt any cliff-edge chaos by doing that recognition now, rather than waiting for the cut-off to occur.

The arrangements place on the Bank a requirement of co-operation. Will the Minister clarify whether that duty applies to non-UK entities as well? As he has said, several SIs, including that under discussion, remove from UK bodies the duty of co-operation. Some SIs arguably go beyond the scope provided for in the EU (Withdrawal) Act. I know that the Minister disagrees with that argument, but it is a matter for discussion. It would be helpful to understand exactly whether the Bank will have a duty to co-operate only with UK regulatory bodies or with other EU27 actors. If it is the latter, why are we removing the duty of co-operation from the FCA but giving it to the Bank?

Further to those substantive queries, I am also a little surprised by the impact assessment provided to the Committee. I am aware of all the Minister’s work to make sure that we receive such assessments on time, so it was good to get one. However, it clarifies that, in seeking recognition as a registered overseas investment exchange, EEA market operators

“would incur costs by way of the application process—for example, firms will need to use their internal resources to submit the application details required by the FCA, and pay a fee…These costs arise a result of their decision to continue operating in the UK, under the existing regime, once the UK has left the EU. This is an impact of the UK leaving the EU, and not this SI, and so is outside the scope of this Impact Assessment.”

It seems a little strange to suggest that an operator continuing to do what it was previously doing somehow does not need to have the impact of such a change assessed. While those costs may not technically fall within the scope of the assessment, we surely need to know about them; they are both relevant and necessary in deciding whether the current strategy towards equivalence and passporting after exit day is adequate.

[John Glen]

I thank the hon. Member for Oxford East for her questions. She opened in familiar fashion, with respect to the challenge of volume, flow and transparency. I am sympathetic, to a point, about the volume, which we have both had to tolerate. However, this process was set out in earlier legislation. I accept that there is a dispute over the appropriateness of this mechanism, but these SIs are scrutinised prior to being laid. She made several points on the powers of transfer; the resourcing, preparation and workload of the Bank of England; advice and assistance regarding the EEA; and the requirement for co-operation. I shall endeavour to answer them thoroughly.

On whether the Bank of England will have adequate resourcing to take on the new responsibilities granted to it by the draft instrument, I am confident that it is making adequate preparations and effectively allocating resources ahead of 29 March 2019. It has considerable experience and technical expertise in regulating financial services to high standards, has actively participated in a wide range of groups to develop technical policy and regulatory rules, and has chaired several committees and taskforces. My officials have expressed no doubts with respect to that process. Although I accept that these changes are a burden on the Bank, it is very qualified to deal with them. On resourcing, the transfer of functions from ESMA to the Bank is provided for in separate SIs. I have been in regular contact with the Bank and am satisfied that its resourcing issues are resolved through its budgeting process. It has mechanisms to increase that when necessary.

The hon. Lady said that the impact assessments do not take account of the wider impact of no deal, but the impact assessments for these SIs focus narrowly on the changes they make and how businesses will need to respond. It is perfectly reasonable for the hon. Lady to assert that the wider impact of leaving the EU without a deal has not been assessed as part of this impact assessment, and I recognise that that impact is a contested space. However, an impact assessment for the EU (Withdrawal) Act deals with the impact of the parent Act, and the Government also published in November 2018 an analysis of the potential economic impact of that range of scenarios. I must stress that these SIs mitigate the impact of leaving the EU without a deal. If they were not in place, industry would face substantially greater disruption and greater cost if we left without a deal.

[Anneliese Dodds]

I am grateful to the Minister for his explanation, but the point I was trying to get at was not about the scope of the impact assessment in terms of different types of no-deal scenarios. I was asking why it is believed that this SI would not impact on an overseas investment exchange. The impact assessment states that any cost would be triggered by that overseas operator’s deciding that it still wants to operate in the UK, rather than by the requirements of this SI. That strikes me as a little bit peculiar.

[John Glen]

The issue of hypothecating the cost of a decision made by an entity in another jurisdiction as a consequence of this SI is arguably stretching the range of what would be appropriate and in scope. I think we have assessed that the cost of making this application is £50,000, if I am not mistaken, but I will look into that further and write to the hon. Lady if I can provide further clarification.

It is worth my exploring two further points regarding the co-operation requirements. The PRA has an existing duty under FSMA to co-operate with other authorities, whether in the UK or elsewhere. The SI applies that duty so that the Bank of England is subject to a duty to co-operate with other bodies that undertake similar functions in connection with the Bank’s functions under the European market infrastructure regulation, the central securities depositories regulation and the securities financing transactions regulation. The Bank has discretion in how it carries out that duty. Clearly, the Treasury cannot bind how other countries co-operate with UK regulators, but the duty did not exist previously, so we have put that in for those three dimensions.

On the application process, the hon. Lady cited what the European regulators have done. As I think I have said, the FCA published on 14 September 2018 a direction clarifying the way in which an application to become an ROIE would be made. That direction states that the application should be made as soon as possible and not later than six months before the applicant wishes an ROIE recognition order to take effect. The length of the application process varies on a case-by-case basis and depends to a large extent on the quality and timeliness of the information that each applicant provides. There is no mandated application form; the FCA looks to firms to provide written evidence that they are held to requirements in their home jurisdiction that have equivalent effect in the UK regime.

[Anneliese Dodds]

That is enormously helpful. Can the Minister clarify whether any of them have actually applied in this case? If they need that designation before they can operate and we are in theory leaving on 29 March, surely they need to have started by now.

[John Glen]

From memory, I think 55 could have applied and I believe 10 have successfully applied in the previous three or four months. If I have made an error, I shall correct it promptly. Regarding why we have not recognised EEA CCPs, this SI does not deal with recognition of overseas CCPs, but I will write to the hon. Lady to clarify the situation.

I hope that deals with the points raised. The Government believe that this legislation is necessary, and I hope the Committee has found my points of clarification sufficiently illuminating to allow us to pass these regulations.

Question put and agreed to.

Draft Financial Services (Gibraltar) (Amendment) (EU Exit) Regulations 2019 Draft Gibraltar (Miscellaneous Amendments) (EU Exit) Regulations 2019

Anneliese Dodds Excerpts

Thursday 7th March 2019 General Committees

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

It is a pleasure to serve on this Committee with you in the chair, Mr Gray. As always, I am grateful to the Minister for his explanation of the statutory instruments.

Once again, the Minister and I are here to discuss statutory instruments that make provision for a regulatory framework after Brexit in the event that we crash out without a deal. On each such occasion, I and my Labour Front-Bench colleagues have spelled out our objections to the Government’s approach to secondary legislation. The volume of EU exit secondary legislation is concerning in terms of accountability and proper scrutiny. The Government have assured the Opposition that no policy decisions are being taken. However, establishing a regulatory framework inevitably involves matters of judgment, and raises questions about resourcing and capacity.

Secondary legislation ought to be used only for technical, non-partisan, non-controversial changes, because it allows for limited accountability. Instead, the Government continue to push through far-reaching financial legislation via this vehicle. As legislators, we have to get things right. These regulations could represent real and substantive changes to the statute book, and they need proper, in-depth scrutiny. In the light of that, the Opposition would like to put on the record our deepest concerns that the process is not as accessible and transparent as it should be.

On 18 February, I asked the Minister why Gibraltar was excluded from some previous SIs. The SIs we are considering today are presumably intended to fill that gap. It is of course essential that they do so appropriately. As colleagues will know—the Minister referred to this—Gibraltar is part of the EU as a so-called special member state territory, but it does not follow all elements of the EU’s policy approach. It is exempt from the common agricultural policy, the common external tariff and the VAT rules. Obviously, recent months have been very worrying for many people living in Gibraltar, given the potential for the Brexit negotiations to open up other constitutional questions and, of course, the fact that 96% of its population voted to stay in the EU.

I understand that, in March last year, at the Joint Ministerial Council with the Government of Gibraltar, the UK Government announced that, in a no-deal scenario, Gibraltar’s authorised financial services firms would continue to be able to access the UK as now until 2020 and, vice versa, that UK firms would continue to be able to access Gibraltar as now. The two SIs set out to enact that. It has taken some time for them to be laid—a point I will return to later. It would be helpful to know whether that rather delayed process has caused any problems for those in Gibraltar or elsewhere. Clearly, we have had many months since last March.

Surely it is more important than ever that we ensure that the arrangements the House makes for Gibraltar take account of its specificities and needs, at the same time as recognising the need for sound and thorough financial regulation. The latter is particularly important given the unique nature of economic activity on the Rock. As Committee members are probably aware, there are two businesses per head of population in Gibraltar. Despite its tiny population, there are more than a dozen registered banks there. The Rock’s self-description suggests that at least some activities on the Rock reflect differences rather than similarities with the UK’s regulatory and tax systems.

For example, the Gibraltarian Government website refers to the fact that those using Gibraltar can conduct

“business in a quality low-tax jurisdiction with a profit oriented capital base at low levels of corporate tax, all in a stable currency with few restrictions in moving capital or repatriating dividends”

and distribute

“competitively priced VAT-free goods and services to the markets of the EU and Africa.”

The Gibraltarian Government also note that there is a

“variety of interesting fiscal products ranging from lucrative”—

their word, not mine—

“funds development and administration to customized financial solutions, ranging from international tax planning strategies to monthly tax-free registered debentures”.

Finally, the Gibraltarian Government inform us that legislation is in place there

“to encourage High Net Worth Individuals…and High Executives Possessing Specialist Skills…to establish tax residency in Gibraltar, affording them the opportunity to have the tax payable on their income restricted to a capped amount.”

All that occurs, of course, at the same time as Gibraltar has EU membership and, again in the words of the Gibraltarian Government, a

“highly-developed business services infrastructure where it is possible to passport an EU licence in financial services such as insurance and re-insurance, EU-wide pensions, banking and funds administration, amongst others”.

I am aware that Gibraltar was taken off the OECD’s tax haven list after making progress in concluding double tax agreements, and I am also aware that its representatives would strongly reject such a characterisation, although all I have done is quote the Gibraltarian Government’s own words. Indeed, I recently met representatives from the Rock, and I am grateful to them for enabling me to discuss their jurisdiction’s situation. I know they would maintain that they have strong procedures in the area of financial regulation, and against money laundering in particular, and they feel their current status enables them to have financial independence from the UK. I am also aware of their genuine concerns about unfair criticism from Spain.

In that regard, I was encouraged to read earlier this week that Gibraltar, with the support of the UK Government—as I understand it, the UK Government have to negotiate these matters for Gibraltar—has just signed a tax treaty with Spain that provides

“for Gibraltar to keep legislation equivalent with EU law on matters related to transparency, administrative cooperation, harmful tax practices and Anti-Money Laundering once EU law ceases to apply in Gibraltar”.

That is a positive commitment, which will also pave the way for the removal of Gibraltar from Spain’s tax haven blacklist and enable it to sign up to the OECD’s base erosion and profit shifting process.

That is the context of these two SIs, both of which are obviously focused on no-deal planning. As the Minister stated, in the longer term, it is envisaged that the UK Government will work closely with the Government of Gibraltar to design a long-term framework for market access beyond 2020, which will be based on these regulations. The approach that is represented here, to use an overused word, appears to be a form of passporting of services between the UK and Gibraltar; instead of the previous context, in which Gibraltar and the UK were viewed by the EU as one jurisdiction, they will have to operate as two jurisdictions outside of the EU.

However, the existing passporting measures for Gibraltar are provided for within a plethora of different bits of legislation. Some are focused on just Gibraltar, including the 2001 Gibraltar order, which the Minister mentioned. Others are much more wide-ranging and cover UK financial services as well. Why was the no-deal SI dealing with some of the regulations that cover both the UK and Gibraltar—specifically, those on payment systems and electronic money—passed back in November, while a different approach has been taken here? That is particularly the case for regulations around insurance, which are directly amended by the amendment SI that we are considering. I beg your pardon, Chair—these are convoluted matters.

The Minister mentioned the need to preserve stability, particularly in the area of insurance, and that it was necessary to empower the PRA to do so. However, that surely applies to other areas of financial services as well. I am rather confused about this. Given that the amendment SI amends a number of no-deal SIs as well, one rather receives the impression that arrangements for Gibraltar have been considered quite late on in the process, rather than as an integrated part of it. [Interruption.] I am pleased to see the Minister shaking his head; I hope he can expand on that in his remarks.

Finally, it would be helpful to understand how the Gibraltarian Government are responding to this—whether they are happy with the approach that has been taken, and whether they feel it is going to be sufficient to remedy any potential gaps or inconsistencies. I urge the Minister to ensure that the door remains open to discussions with them as time goes on, to make sure that any potential glitches or problems can be quickly dealt with.