Finance Bill

Baroness Kramer Excerpts

2nd reading & Committee negatived & 3rd reading
Tuesday 8th June 2021 Lords Chamber

[Baroness Kramer (LD)]

My Lords, I pick up the point made earlier by the noble Lord, Lord Leigh, that there has been a relatively small number of speakers in this debate but my goodness they have been powerful speeches, and across a very wide range of issues. I hope the Government will take notice of the quality of this debate and the range of points made.

I start with a couple of general comments. I want to pick up the point made just now by the noble Baroness, Lady Bennett, that this Finance Bill is a very modest Bill. I think that we all know that, but it leads into the issue raised by the noble Lord, Lord Forsyth, the noble Baroness, Lady Neville-Rolfe, and others that we are in a very precarious economic period. I suspect that perhaps the noble Lord, Lord Forsyth, or the noble Baroness, Lady Neville-Rolfe, in fact many people, including the noble Baroness, Lady Bennett, would not agree on the same solutions to the problem, but we can at least agree that there really is a problem and bottom out the extent of it and look for the Government to come forward with a strategy. Can I impress upon the Minister the importance of a government strategy that is realistic and faces up to the grim realities—to use the phrase from the noble Baroness, Lady Neville-Rolfe? We have to have that to be able to go forward effectively and successfully. I do not think that we should pretend that that role is picked up in this Bill. Please can the Minister make sure that it is picked up—and soon, quite frankly?

I want also to pick up the issue raised by the noble Lord, Lord Butler, on the G7 and the global tax and to echo something that the noble Lord, Lord Forsyth, said. I am glad to see that the G7 is coming together to tackle this issue. To me, it is a real illustration of the might of the United States and the flexing of its muscles. Almost every country will take some benefit from the changes in the way that a global corporate tax will be raised as a consequence but, in fact, it will be quite modest for most countries. The United States Treasury is the very big winner, and it is a reminder that when you delve into the world of economics and power politics you have to recognise size and power. I continue to be worried that for the UK this means being essentially a stone that is grated between big regional economies and power bases. If ever it needed to be illustrated, I think it has been the quick acceptance of the US proposals by the British Government because, frankly, they absolutely had no choice.

We have discussed a lot of the Bill in various Budget speeches so I am not going to labour those points, but I have some real pleas to put before the Minister. I am very concerned that the VAT relief rate should not rise to 12.5% in September. When we look at the hospitality industry and the pressures that it is facing, we now recognise that there may even be delays to full opening on 21 June. We know that new variants can come through. Keeping this at 5% to the end of the fiscal year surely would be sensible and would reassure the industry at this moment in time.

The noble Lord, Lord Forsyth, raised the issue of individuals facing rent arrears, which will now come tumbling in on them. So many of our small business, again probably especially in the hospitality industry, are facing in excess of £3 billion in unsettled rent levies. I think the Government are going to have to step in on this and I hope they will look at providing some support specifically on rent issues. Small businesses and self-employed people are very far from being out of the woods. Again, that argues for flexibility on the furlough scheme. The noble Lord, Lord Empey, talked about it in the context of aerospace but, really, so many industries are going to need some ongoing support, or they will end up in a dire crisis. Looking at continuing furlough into the future, for at least some period, may be essential.

According to the Federation of Small Businesses, about 40% of small businesses are finding their debt levels completely unmanageable. We do not have a mechanism at the moment to convert that into a capital base. We need to be able to enable them and support them in converting debt. I think the noble Lord, Lord Bilimoria, has talked in previous speeches about a sort of variation on 3i, but there has to be some mechanism or else many of our small businesses are never going to be in a position to begin to grow; they will be overwhelmed by a debt burden that continues to drain them for a series of years to come.

I make one final plea again on behalf of the 3 million excluded, mainly contractors and freelancers. The Government could, at this very last minute, step in to support that group, and I ask them once again to do so. The noble Lords, Lord Bridges and Lord Forsyth, talked about wrapping this in with following through on the recommendations of the Taylor report. The environment for those businesses—and they are our future—has to be shaped by recognising the risks they face, looking at the rights and the benefits that they do without, and helping to structure the tax environment that they sit in within that overall context. The Taylor report should not be left on the shelf any longer.

I agree with the noble Lord, Lord Sikka, that we have a problem with freezes on income tax thresholds. It really is a mechanism to raise income tax, which is slightly ironic when the Government have basically decided not to raise capital gains tax. Some of the poorest people will now be stepping in to fill that gap. It is also ironic given that the increases in corporation tax are delayed to 2023, so income tax rises will, in effect, hit first.

While I tend not to spend a lot of my time thinking about the best paid, can I get some assurance from the Minister on the freezing of the pensions lifetime allowance? Last time, this created a real crisis for us in the NHS, with consultants realising that one hour of additional work meant that they would get a tax bill that was larger than the associated income. In fact, they could not even ask not to be paid and do the work voluntarily because of the way the system works. A large number of our senior military just got up and left because they were caught in the same conundrum—people who did additional hours on the battlefield were whacked then by the tax system. Can the Minister give me assurances that the way this is designed now will not repeat that particular set of problems? Again, with the super-deduction, I have never understood why it is analogue and not digital. Surely we want people to be investing in the technologies of the future and not just in plant and machinery. That one is completely beyond me.

I was privileged to be a member of the Finance Bill Sub-Committee, chaired brilliantly by the noble Lord, Lord Bridges, and with the noble Lord, Lord Forsyth, also there. I am quite humble when I speak about this report, because it was driven by people of extraordinary capability—it was a very powerful sub-committee. I just want to make some quick remarks, and I will try not to be repetitive, on the three key sections that the report addressed.

I am very worried that powers are being extended before a proper evaluation of how HMRC uses its existing powers. The noble Lord, Lord Bridges, made most of the comments that are relevant in this area, but it struck me—and I am making a personal comment here—that when we heard the Treasury, whether it was officials or the Minister, talk about the review of powers, it seemed more about identifying where powers could be increased and not about looking at how existing powers could be used far more effectively. We seem to have complete miscommunication around that issue.

As I remember it, that recommendation was embedded in real concerns about the loan charge and IR35—others have mentioned this—particularly because of the focus on the little people who got caught up in all kinds of schemes that they were completely unaware of and suffered very significantly as a consequence. Like others, I am delighted if HMRC is now determined to use powers, and extended powers are fine, to deal with promoters. But I am very frustrated that the retro-effective philosophy which is being used against individuals caught up in the loan charge, going back as far as 2010, is not being applied to the promoters who have accumulated huge profits in giving advice which, frankly, was from day one exceedingly questionable.

I join others in being worried about HMRC’s increasing instinct to outsource its compliance responsibilities. We are not talking about IR35 today, but the extension of the use of private companies to make the call on whether contractors they hire are caught by IR35 or not struck me as an overreach. We know that those companies, anxious not to have a fight with the tax authorities, are using quasi blanket determinations. Although an individual company can challenge a determination, it knows that at that point it gets labelled as a troublemaker and probably blacklisted for any future business. These are real problems we have with outsourcing, and they carry on into the issue of licensing taxi drivers and scrap metal dealers. At the moment, it is just an information exchange, but we can all be concerned that it is potentially the thin end of the wedge.

I join the noble Baroness, Lady Neville-Rolfe, in being very afraid—I think the noble Lord, Lord Forsyth, said the same thing—that individuals will simply disappear from the system altogether. That could mean unsafe vehicles on the road because we have lost people from the licensing system, or real abuse of scrap metal arrangements, which can descend into the criminal underworld. I do not want to put a bad label on scrap metal merchants, who are decent, honourable people, but we can see where the pressures will come. I am desperately concerned about the issue raised by the noble Lord, Lord Bridges, on the use of digital platforms as essentially HMRC’s information-gathering mechanism, because it takes us even further into that area, which is one we absolutely must examine.

I shall make just one last remark—I realise the time is going fast and I should stop, but this is something we should draw to the attention of the House. The third area of concern that the report raises is the oversight and scrutiny of HMRC and the powers to circumvent the safeguards of the tax tribunal. The noble Lord, Lord Bridges, discussed that in some detail. The House may not recognise how necessary it is always to have such outside scrutiny.

Many of us received a copy of an email that the Loan Charge Action Group accessed through a freedom of information request. It dates to 31 January 2019, and is from Jim Harra, who is chief executive of HMRC, to a staff member. It follows a witness evidence session to a Treasury Select Committee, and refers to those to the House of Lords. It is about the loan charge. One must understand that the treatment of loan contractors depends entirely on a case brought before the tax tribunal called the Rangers case, which concerns Rangers Football Club. A decision came in 2017 which, I think, everybody who read it thought would be the weapon to use to go after companies that hire contractors and use disguised remuneration, but nobody was under the impression this could be used as the legal basis to go after individual contractors. The chief executive of HMRC wrote:

“In recent months I have repeatedly tried to obtain legal analysis to understand the strength of our claim”—


that is, the claim that there is a legal basis for going after individual contractors—“with very little success.”

I challenge anyone to show me where, in any of its evidence given to the Treasury Select Committee or the Finance Bill Sub-Committee, HMRC reflected that level of uncertainty. It demonstrates that the temptation to be parsimonious with the truth, to press on to achieve the target of maximum revenue-gathering, means that HMRC, like every other organisation, needs outside scrutiny. The importance of tax tribunals is paramount, and we must stop the constant whittling away of that power.