The Economy

Bridget Phillipson Excerpts

Wednesday 8th July 2020 Commons Chamber

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

I think we can recognise from all the contributions today that the pandemic is the biggest crisis we have faced in our lifetime. My hon. Friend the Member for Bristol South (Karin Smyth) talked about the need for the health of our country and our economy to be taken together, as well as about the contribution of women to our economy. That was a point also picked up by the right hon. Member for Romsey and Southampton North (Caroline Nokes), the Chair of the Women and Equalities Committee.

My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) also drew our attention to the fact that Government measures are having a real impact on the north-east of England and called for infrastructure investment in our region, to which I am naturally and understandably sympathetic. My hon. Friend the Member for Sheffield, Hallam (Olivia Blake) drew our attention to the incredibly challenging situation facing our universities. We also heard from my hon. Friends the Members for Warwick and Leamington (Matt Western), for Luton South (Rachel Hopkins) and for Coventry South (Zarah Sultana) on the need to secure a green transition. My hon. Friends the Members for Luton South and for Warwick and Leamington talked about the need to invest in electric vehicles, in the charging infrastructure and to see greater support for the automotive sector and manufacturing.

My hon. Friend the Member for Kingston upon Hull West and Hessle (Emma Hardy), who is a doughty champion of the caravan industry, drew our attention repeatedly to the need for Ministers to respond to the challenges facing that sector and to do more to support business through this crisis. My hon. Friends the Members for Merthyr Tydfil and Rhymney (Gerald Jones) and for Blaenau Gwent (Nick Smith) drew our attention to the fact that the shared prosperity fund is vital and that we urgently need clarity from Ministers on this issue. My hon. Friend the Member for Merthyr Tydfil and Rhymney also rightly drew our attention to the positive action being taken by the Labour Government in Wales.

The British public have the expectation, quite rightly, that politicians will be working responsibly to overcome this crisis. That is why we have supported the Government where possible and remain committed to working constructively to find solutions to the challenges that we face. We do acknowledge that some of the steps taken by the Government earlier in the crisis, such as the job retention scheme and the self-employment income support scheme, were the right thing to do. We called for those measures and we were proud to support them. Where we criticise—where we offer constructive criticism—it is because we know that, for Britain to succeed, the Government have to do better. Our priorities are those of the British people: protecting health and protecting the economy.

We know that we are facing a sharp and deep downturn and that the UK faces one of the largest hits to output of all industrialised countries. We also know the impact that this crisis has had on working families and on communities that have paid the price of Tory Government since 2010. I am talking about the poorest families who have seen their earnings plummet and household debt rise and the parts of the country, such as the area that I represent, that have been neglected by Governments since 2010 and are projected to face greater unemployment and competition for jobs in the coming months. There are 17 jobseekers for every single vacancy, and that is before we see additional unemployment. The young and the low paid, who are far more likely to work in sectors that have been shut down, face the toughest job market in a generation, and women, particularly mothers, are more likely to have quit or lost their jobs or been furloughed since the start of the lockdown. We can all recognise the disproportionate impact that this crisis has had on black, Asian and minority ethnic women who have been hit even harder. That is why, for weeks, we have been calling for a back-to-work Budget that supports those at the sharp end of this crisis, so that we can build a fair recovery, one of which we can all be proud.

Already, the Chancellor’s counterparts around the world have laid out broad and ambitious packages to boost their economies and support vital sectors in facing the challenges that are yet to come. As usual, since the crisis, Ministers have been slow off the mark. They have had plenty of time to plan for a sustainable green recovery that benefits communities up and down our country. Labour called for many of the measures that were announced today and, as a constructive Opposition, we welcome them, but no one can ignore the major blind spots in this statement. It is part of a running trend. Throughout the crisis, the Government have consistently been too slow, putting off the tough calls. This has made lockdown longer and the economic harm greater. It is why we must get our response right now. We need Britain to move on from the crisis not be scarred by it for generations.

We have set out tests for what we expected from the Government today: a back-to-work Budget that focused on retaining jobs, sustaining jobs and supporting new jobs. For weeks, we have been calling for an effective scheme that ensures that people are able to find decent work, even in the challenging labour market ahead. That is why we called on Ministers to learn from the example of Labour’s future jobs fund, which supported hundreds of thousands of young people into training and employment opportunities. We are glad that the Government have finally heeded our call for such a programme, but the fund does not address the scale of the youth unemployment challenge. More than 400,000 young people were already out of work pre-crisis, and a further 800,000 are set to enter the labour market. There is one specific point on the detail that I hope the Minister can address: will companies be able to use kick-start funding to support apprenticeships? I hope he will be able to answer that question when he responds. Welcome as it is for younger workers who will benefit, it does not address the concerns of many workers, especially older workers, whose jobs are now at risk and who face a very uncertain economic future.

A plan on job creation should have moved in lockstep with our commitment to tackling the climate emergency, but again, Ministers have fallen short. The recent Committee on Climate Change report laid bare how badly the UK is falling behind, and with this package, we continue to do so. The French Government have promised €15 billion for a green recovery. The German Government—€40 billion. The UK Government—£3 billion so far. Tackling the climate emergency should have been at the heart of the Government’s economic response. Decisive action to drive towards net zero goes hand in hand with job creation, providing upskilling, training and new opportunities, yet the Government approach in this area is sadly lacking.

While we have heard a great deal today about supporting job creation, which is urgent and vital, the Government’s No. 1 goal must also be to prevent people from becoming unemployed in the first place. We have seen a wave of job losses right across a number of sectors, including retail, food service, aerospace and hospitality in the last week alone, with every job lost a tragedy. We know that unemployment does lasting damage not just to individuals, their livelihoods and families, but to whole communities, and the best way to keep unemployment down is to keep people in work.

That is why the Chancellor should have abandoned his one-size-fits-all wind-down of the furlough. We want British business back on its feet, but the Government’s failure to adopt a strategic approach will hamper this. We should have had a more targeted strategy that addresses the fact that some sectors that are not at full capacity should not be treated in the same way as those that are. We need ongoing, targeted support. This is not about picking winners. It is about protecting those who have lost through no fault of their own, and the job retention bonus scheme risks a transfer of money into the hands of companies that would have brought their staff back anyway.

We have been too slow into lockdown, too slow on PPE and too slow on testing, and it is failures on public health that risk a repeat of the local lockdown we have seen in Leicester. Such further occurrences will be a hammer blow to businesses that are just scraping by. We have said we will be a constructive Opposition and part of that is making the Government aware of where this response is falling short. This crisis has highlighted the chronic underfunding of our public services, where our older citizens have been denied the care that they need and where precarious low-paid work is the norm for too many people. But out of this crisis, there is a chance to build a better country.

Oral Answers to Questions

Bridget Phillipson Excerpts

Tuesday 7th July 2020 Commons Chamber

[Rishi Sunak]

The hon. Lady talks about scale of ambition. I am proud of what this Government have put in place and the speed at which we have done so. The jobs of 9 million people have been protected through our furlough scheme; 2.7 million self-employed people have had their income supported; and millions of companies have received access to loans, grants, tax deferrals. In sum, this represents £130 billion of support—one of the most comprehensive and generous support packages available of any country anywhere in the world.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The Chancellor knows that different sectors of our economy face very different challenges in the months ahead, so will he listen to the businesses right across our country that have called again and again for the job retention scheme to have the flexibility to meet those different challenges?

[Rishi Sunak]

On the job retention scheme, our policy is clear. We have extended the scheme all the way through to the autumn, at which point it winds down gradually and in a way that asks for very modest contributions from employers. None the less, I do recognise that different sectors have faced a different circumstances during this crisis, particularly those in the hospitality, leisure and retail sector, which is why we cut business rates for the entire year for those sectors and, indeed, provided cash grants of £10,000 or £25,000 to almost 1 million businesses up and down the country.

Finance Bill

Bridget Phillipson Excerpts

Report stage & Report: 2nd sitting & Report: 2nd sitting: House of Commons
Thursday 2nd July 2020 Commons Chamber

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

New clause 2—Review of changes to entrepreneurs’ relief—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to entrepreneur’s relief by section 23 and Schedule 3 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment of the changes made to entrepreneurs’ relief.

New clause 4—Structures and buildings allowances: review—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 30 and Schedule 5 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) energy efficiency.

(3) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment of the changes made to structures and buildings allowances in Schedule 5.

New clause 17—Review of geographical effects of provisions of Sections 28 to 31—

“The Chancellor of the Exchequer must within twelve months of the passing of this Act lay before both Houses of Parliament a report assessing the differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections 28 to 31 of this Act.”

This new clause would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.

Amendment 1, in clause 36, page 34, line 29, at end insert—

“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—

(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland;

(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland;

(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”

This amendment would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 36 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.

[Bridget Phillipson]

New clause 27 calls on the Government to lay a review before Parliament considering all the tax reliefs within this Act, their effect on taxation revenue and the effectiveness of systems to evaluate these reliefs and to ensure value for money. We know that there are real problems with how the Government monitor tax reliefs. Thanks to the outstanding work of the National Audit Office and its report from February this year, we can see how unwieldy the system has become over the past decade and how much this is costing the public purse. It shows that there are currently 362 tax reliefs, which support Government economic and social objectives. This is a huge financial undertaking. The cost of tax reliefs for 2018-19 is estimated to be £155 billion.

The National Audit Office notes that this is not money that would simply be recouped in tax if these reliefs were abolished, but that is not the point that we are seeking to make. We on the Opposition Benches do not doubt that sometimes the outcomes from tax reliefs can be positive and that they can drive positive social and economic behaviour. The problem, as the NAO’s report makes plainly clear, is that we simply do not know enough about this, because the Government are failing to properly monitor and evaluate their effectiveness.

Of the 362 tax reliefs, only 111 have been costed by Her Majesty’s Revenue and Customs, and only 15 have had published evaluations since 2015. At the same time, on the Government’s watch, their cost has been rising since 2010. In normal times, such an enormous cost, without corresponding effective oversight, would be an area of real concern. As the Office for Budget Responsibility identified in July 2019, tax reliefs are considered to be a new fiscal risk to public finances, due to the Government’s not knowing their full cost and the lack of transparency built into the system. But of course we are not in normal times; we are living through an incredible economic crisis. The lack of effective monitoring and evaluation is hard to justify when our public services are under such enormous strain. The inattention shown by Ministers over the past decade must change and we need a much greater focus on ensuring value for money.

In Committee, we touched on one area where I ask the Minister to respond further today, namely the social investment tax relief, an area also pressed by my hon. Friend the Member for Ilford North (Wes Streeting) and my Front-Bench colleague my hon. Friend the Member for Liverpool, Walton (Dan Carden). What further consideration has the Minister given to extending this relief from April 2021 to April 2023? Will he update us on what further consideration the Treasury has given to this arising from discussions we held in Committee? This important aspect has been raised by many charities. I know that the Minister is sympathetic to the concerns they raise and I am sure they will be grateful for any further updates he might be able to provide in this area.

Our new clause paves the way for a greater focus on value for money, by establishing a more systematic and transparent way for the Government to evaluate the cost of tax reliefs and to empower Parliament to scrutinise this more effectively. The limiting scope for amendments to the Finance Bill set by the Government means that we have been able to opt only for a review of the tax reliefs contained in the Bill. Many changes to tax reliefs—for instance, on the entrepreneurs’ relief and the annual allowance—will potentially have a significant impact on tax revenues. In other areas, there are concerns about whether tax reliefs are being abused.

TaxWatch UK has highlighted particular concerns about the future of research and development tax credits, given the evidence of abuse in recent years. It is therefore right that there is greater transparency and that Parliament can properly scrutinise whether the measures proposed by Government are having their intended effect. The Minister attempted to address some of these concerns in Committee, saying that the Government kept all these reliefs under review and that he has proposed a more systematic evaluation programme for tax reliefs. We would welcome any progress towards such a system. However, if the picture was so rosy, I doubt whether the National Audit Office would have painted such a concerning picture in its report. I also look forward to the Public Accounts Committee’s report on this issue to find out whether it agrees with his assessment or what further insight it might be able to offer.

None the less, this amendment attempts to get to a wider point, which is that Parliament currently has few proper and meaningful opportunities to scrutinise tax reliefs on an ongoing basis. The Minister will know of the 2017 joint report by the Institute for Fiscal Studies, the Institute for Government and the Chartered Institute of Taxation entitled “Better Budgets: Making tax policy better”. It states that the information publicly available to Parliament on the costs and benefits of tax expenditure is not sufficient for it to assess their value for money, pointing out:

“Although taxes constitute almost 40% of national income, Parliament has little standing support to help look at tax legislation, support general inquiries on tax issues or help with post-implementation reviews.”

The report had a clear recommendation:

“Increase support to Parliament on tax issues”.

That means going beyond the support currently available and the opportunities that exist, in Finance Bill Committees, through the Treasury Committee, through Public Accounts Committee and through other work in this House, and instead embedding a proper system so we can assess the value for money of past tax measures. That is hardly controversial. As the Resolution Foundation points out, the Governments of Canada, Australia and New Zealand produce annual tax expenditure statements, which can be accompanied by parliamentary debate.

We want to see improved scrutiny of whether money is being well spent, to ensure that the system is fair and helps those who need it most. When all the benefits and tax reliefs are taken into consideration, the Government provide more support to the richest fifth of non-retired households than to the poorest fifth, and that gap has grown since 2010. This is in part due to the system of tax reliefs that has flourished under this Government and previous Conservative Governments and is clearly not based on any genuine notion of fairness.

Today, as we grapple with the looming jobs crisis, the question of fairness is paramount. We need to create a recovery from coronavirus that benefits everyone in our society, from young to old and right across every region and nation. The Opposition do not doubt the scale of the challenge. Our public finances are enormously stretched, our public services have been pushed to the brink by the pandemic, and there is a risk of unemployment on a scale not seen since the 1980s. We have yet to hear anything about the economic support package that we need: a back-to-work Budget to help those at the sharp end of the looming jobs crisis—a Budget that creates jobs, supports people back into work and properly invests in our young people so that they have the opportunities they deserve at this challenging time.

--- Later in debate ---

[Jesse Norman]

If my hon. Friend is asking questions, he ought to stay for the next debate, because he is abusing the privilege of this debate. I thank him for his suggestion of a revenue-raising possibility for the Government; we take all those in great heart.

[Bridget Phillipson]

Could the Minister say a little more about the social investment tax relief? I am not aware that he responded on that point.

[Jesse Norman]

The hon. Lady is absolutely right. Let me address that. As she knows, the relief remains in place until next year. Even its doughtiest supporters would agree that so far it has not been anything like as effective as anyone would have liked or as had been projected or anticipated. Only £11.2 million has been raised under it in the period 2014 to 2018-19.

We are looking at it closely. As I mentioned in Committee, I am in discussions with leading figures across the social investment world about whether we can get some more visibility on the sources of funds that would use such a relief and the sources of projects that those funds would support. If we do not get that and we cannot have that in a slightly more concrete form, it looks like quite an empty request, but there may be other things that we can do to support social investment. As the hon. Lady knows, I have written a book on the big society. It is an area that I care deeply about, so I am happy to respond and I am grateful for her question.

[Bridget Phillipson]

We do not intend to divide the House on the new clause, but I will make a few brief points in response to what the Minister has said. I am glad that he shares our assessment that the current situation and system are unwieldy, and therefore we look forward to seeing real progress in that area. Frankly, it is not good enough that of those 362 tax reliefs, only 15 have had published evaluations since 2015, at a time when costs have risen.

During these extraordinary times, we need to see much more from the Government, not just on tackling tax avoidance, as we discussed at some length yesterday. There needs to be a renewed focus on taxpayer value for money, with greater opportunities for scrutiny of tax reliefs in this place and from external experts. Although we are not seeking to divide the House, I hope that we will see progress in that area. It is an issue to which we intend to return. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

[Madam Deputy Speaker (Dame Rosie Winterton)]

We will have a three-minute suspension.

--- Later in debate ---

[Bridget Phillipson]

I begin by thanking my colleagues in the shadow Treasury team for their work throughout the journey of the Bill and the Minister and his colleagues for their responses to many of the questions and concerns that we have raised. I also put on record our thanks to the Clerks for all their work. They have helped us so much during the progress of the Bill in difficult and dangerous times for them. The House of Commons Library staff have, as ever, been incredibly helpful and professional and I record our thanks to them as well.

I am grateful to all hon. Members who have contributed to our discussions about the Bill. I am delighted that we have heard such a range of contributions, not least from hon. Members on the Opposition Benches. It is rather disappointing, however, that we have not heard from a single woman from the Government Benches today. I do not know whether it is men-only Thursday on the Tory side when it comes to the Finance Bill, but given that we know the impact of the coronavirus pandemic on women in particular will be profound, I hope that we might be able to set that straight when we continue our discussions of this nature on Wednesday. Women are more likely to have lost their jobs or to have been furloughed during the crisis and, sadly, despite many of the changes that we have seen in our society, they often shoulder the burden of childcare.

As I have repeated throughout the progress of the Bill, it does not recognise the scale of the challenge we face. I appreciate what the Minister said, but it is a Finance Bill for a different age. We have consistently warned of the looming threat of mass unemployment since the beginning of the pandemic. As the days go by, that is becoming a reality. This month, the OECD reported that the UK is set to face a slump in its GDP that will outstrip the falls of France, Italy, Germany and the US.

Young people are about to enter the worst jobs market in more than a decade. Those who entered the jobs market in 2008 will know what a challenge that is, but this will be worse still. The class of 2020 have no part-time retail and hospitality jobs to fall back on while they look for their first job. For young people, completing their education is supposed to be a step on the ladder, but for many this year, it will involve falling down a snake.

Airbus, TM Lewin, easyJet and SSP Group are all large employers that have announced that they will be making thousands of redundancies. At least 12,000 jobs have been lost in the last three days alone; the real number is doubtless higher still. In every case it is a tragedy for those affected, because it means thousands more jobseekers having to rely on meagre social security payments to provide for their families and thousands more jobseekers needing to sign on when demand at jobcentres will already be very high and when recruitment in many sectors has already frozen indefinitely. It is not just young people, however, who will be affected. I think especially of older workers who will need additional support to retrain and reskill during this time.

We recall the devastation of mass unemployment in the 1980s that scarred communities like mine for far too long. The pain was acute and the social and economic damage was lasting and real. I have long believed that Government can and must be a force for good, but this is a political choice. While the lockdown restrictions are slowly easing, the threat of coronavirus is far from gone. It will take much longer for businesses to operate at their usual capacity. We recognise that protecting our economy would be an immense challenge for any Government, but to meet the challenge, we will need ambitious, decisive and swift action.

When we hear that update from the Chancellor next Wednesday, we will need a full back-to-work Budget with a resolute focus on jobs. It is more important than ever that those with broadest shoulders pay their fair share, so that we can raise revenues to fund the schemes and the vital frontline workers we need to get us on the road to recovery and revive our public services.

The Finance Bill is a series of tweaks and corrections. Rather than raising revenue, it extends and expands tax reliefs and tinkers with, rather than ends the entrepreneurs’ relief. Netflix, Amazon Prime and other high-grossing streaming services will be unaffected by the digital services tax, for all we welcome its introduction in its limited scope. As it stands, the digital services tax will create up to £440 million in annual revenue, when the UK in fact loses £1.3 billion in corporation tax to five of the biggest UK tech firms each year. That is £1.3 billion that could go towards helping schools to enable children to return safely in September, towards more nurses and more doctors, towards creating new jobs, towards decarbonising our economy and towards funding more public health research, which this pandemic has shown we desperately need.

We have sought to improve the Bill in Committee and on Report, introducing amendments so that the Government could review their policies against their effects on job creation, on poverty, on a green recovery and on measuring the cost of tax reliefs. We have sought to entrench greater scrutiny of policies that may well need to be revised in what is becoming an unprecedented economic downturn. Again, the Government have defeated our amendments. We fear that their approach highlights that they have not yet recognised that they will need to go much further in protecting our economy. The Prime Minister’s plans for economic revival are mere repetitions of existing spending, announced wearing a different hard hat in a different tractor. They are a Government who run the economy by repetition, not innovation.

Labour has consistently approached this crisis constructively, and we will try to keep doing so. In this time of crisis, I urge the Government to rethink their approach and to show meaningful dedication to economic recovery next week. We know that the furlough scheme has provided a lifeline to thousands of workers, but that work is not yet done. There can be no room for a sense of pride or complacency. If the Government fail to provide a full stimulus package before October, the 1 million people who lost their jobs in March and April will have been unemployed for six months, and not enough will have been done to support demand and create new jobs.

We again call for a back-to-work Budget that is rigorous, takes into account the differing needs of sectors and regions and gives the right level of support to workers old and young, rather than taking a one-size-fits-all approach. We need a full Budget that supports viable businesses—a Budget that is future-facing in promoting green jobs, reskilling older workers and investing in our young people, because infrastructure is more than just bricks and mortar. We need a Budget that honours the sacrifices the British people have made during this crisis. The future success of our country depends on it.

Finance Bill

Bridget Phillipson Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

I beg to move amendment 18, page 53, line 28, leave out “before the end of 2025” and insert—

“within a year of Royal Assent and annually thereafter”

This amendment would require the Government to report on the DST annually.

[Madam Deputy Speaker (Dame Eleanor Laing)]

With this it will be convenient to discuss the following:

Amendment 19, page 53, line 29, at end insert—

“(2) Any review made under (1) must include an assessment of the effect of the DST on tax revenues.”

This amendment would require any report on the DST to include an assessment of the effect of the DST on tax revenues.

New clause 5—Digital Services Tax: review of effect on tax revenues—

“(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.

2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.”

This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.

New clause 33—Requirement on groups to publish a group tax strategy including a country-by-country report—

“(1) A group which is not required to publish a tax strategy in compliance with Schedule 19 of the Finance Act 2016 shall be deemed to be so required.

(2) Any tax strategy published by a group in compliance with that Schedule must include any relevant country-by-country report.

(3) “Country-by-country report” has the meaning given by the Taxes (Base Erosion and Profit Shifting) (Country-by-Country Reporting) Regulations 2016.

(4) A country-by-country report is relevant if it—

(a) was filed or required to be filed by the group in compliance with those Regulations on or before the date of publication of the tax strategy, or would have been so required if the head of the group were resident in the United Kingdom for tax purposes, and

(b) has not already been included in a tax strategy published by the group.”

(5) The Treasury must make regulations to bring this section into operation no later than 1 April 2021.

This new clause would require all groups subject to the DST to publish a group tax strategy, including a country-by-country report. Such a report would include information about the group’s global activities, profits and taxes.

I should draw the attention of the House to the fact that a corrected text of new clause 33 has been published this morning. The version that was initially published inadvertently omitted the concluding subsection.

--- Later in debate ---

[Bridget Phillipson]

Amendments 18 and 19 would require the Treasury to conduct a review of the digital services tax within a year of Royal Assent and to report to Parliament on the tax annually thereafter with a specific consideration of the effect of this measure on taxation revenue.

We welcome the introduction of the digital services tax, although this support is qualified. The Minister will be well aware that we like to be thorough even with proposals that we broadly welcome. It is deeply disappointing that it has not been possible to reach multinational international agreement, hence the need for this unilateral approach. This Government should demonstrate much more leadership in pressing for international efforts to tackle this scourge. Ensuring that companies that operate across national borders pay the tax that they should requires us to co-operate, to lead, to persuade, to negotiate and to set an example.

More troubling is the fact that, in the crisis we are living through today, when ambitious and decisive action is demanded of Government, Ministers have only managed to put forward such a modest measure, when other countries are willing to go further. Many of the companies that will be affected by this tax are the same ones that will have benefited from the impact of covid-19. Before the pandemic struck, they were the beneficiaries of an uneven playing field, while much loved high street businesses struggled.

Local firms and UK chains have faced a real battle competing with companies that base themselves overseas, do not have the same overheads as physical shops and go to great lengths to minimise their tax liabilities. The impact of lockdown has only exacerbated this tension. It has provided an unexpected boon to tech giants, which have managed to rake it in as demand soars and business is directed online. Meanwhile, our high street businesses, which were already struggling, have only seen their worries increase as footfall has understandably plummeted.

Even with the easing of lockdown, there is a real challenge ahead in ensuring the continued success of our bricks-and-mortar retail sector. If shoppers will not venture on to our high streets and the Government fail to provide an effective test, track and isolate system, many businesses that are just starting to open up will soon be forced to close their doors again, perhaps even permanently. These businesses are the bedrock of our communities. They help create a sense of place, and are often a lifeline for older and vulnerable residents and for those in more isolated communities. Government must do more to ensure that there is a level playing field, and that those who have benefited the most from this situation—as I have noted, those that have not exactly paid their fair share in the past—make more of a contribution to the national effort.

[Sammy Wilson (East Antrim) (DUP)]

Does the hon. Member accept that not only is it right that the Government intervene to ensure that taxes are paid on a level playing field, but that, at a time when public finances are under pressure, we should not be allowing large firms to escape paying the tax revenue that is due and should be paid?

[Bridget Phillipson]

The right hon. Gentleman is absolutely right, and I sincerely hope that the Minister will respond to that point, because we have seen this unfairness built into our system. We recognise that this measure takes some steps towards levelling the playing field, but we need to see much more from Government in clamping down on the kind of tax avoidance that we have seen far too often in recent years, because it is not right.

[Sir Edward Davey (Kingston and Surbiton) (LD)]

Can I say how much I support the argument the hon. Lady is making? Does she agree with me that the Government’s digital services tax measure is actually a mouse of a measure compared with the huge profits made by American big tech? Does she also agree with me that the Government need to co-operate very closely with the European Union, which is devising an international tax with much greater teeth, so that these big tech companies do pay their fair share of tax?

[Bridget Phillipson]

Yes, I support the point the right hon. Gentleman makes, and I will come on to say more in my contribution both about how those companies need to contribute more and how it is essential that we see international consensus on this issue. The measure the Government have put forward today is necessarily time-limited, and we will need to see a much more sustainable, long-term solution with a broader international base.

It is not right that British bookstores and other businesses face a higher tax rate than Amazon. Unfortunately, this measure does not go far enough to address this fundamental unfairness, nor does it really get to the heart of the tax avoidance strategies some of these tech companies have used in recent years. As the Chartered Institute of Taxation points out, this measure is not aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens. However, for far too long the companies that make the modern economy work have got away with complex ways of moving and hiding the money we pay them.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I agree with many of the points the hon. Member makes, and certainly about making sure that we have a fair and level playing field for small businesses. I am certainly a supporter of new clause 33 in principle, which is trying to see these multinationals disclose profits on a country-by-country basis. However, to be fair, does she accept that the Government have gone further than previous Governments, with measures such as the diverted profits tax and now the digital services tax?

[Bridget Phillipson]

We welcome all measures and will support any proposals to tackle tax avoidance, whether it is in terms of tech giants or more broadly, but we still face a big gap in this country, and we are urging the Government to do much more. I am sure the hon. Member would agree that it is vital that we see greater action, because we have seen this unfairness, particularly during the pandemic. He, like me, will have many wonderful local businesses in his constituency that pay their taxes and are trying to come through this crisis, and they want to ensure that there is a level playing field between the bricks-and-mortar businesses and online businesses. I am sure that we all want to get behind that endeavour.

For too long, companies have moved and hidden the money we pay them. Research by TaxWatch UK estimates that we are losing £1.3 billion in corporation tax from five of the biggest firms each year. In comparison, the Government’s own estimate is that the digital services tax is only set to produce £280 million this financial year. The modest nature of this measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. I will highlight again for the benefit of the House, as I did in Committee, research by TaxWatch UK which predicts that Facebook would face an increased tax bill of £39 million, despite estimated UK revenues of almost £2.3 billion. Google would pay slightly more—around £168 million—based on estimated UK tax revenues of £9.3 billion. Many businesses, such as Amazon, that blend their activities will be unaffected by the measure.

The Government will be aware of our concerns that streaming services are not included at all, which we discussed in Committee. The Financial Secretary to the Treasury said then that

“it would not be appropriate to implement a temporary tax on a broader basis.”––[Official Report, Finance Public Bill Committee, 11 June 2020; c. 126.]

He will doubtless be aware that taxes introduced on a temporary basis have ended up becoming permanent fixtures, including income tax, introduced to fund war with Napoleon. With little evidence that the Government are working to secure international agreement on a replacement for this tax, temporary could end up being for a very long time. Her Majesty’s Revenue and Customs employs many extremely capable people, and I am sure that it is not beyond their wit to develop a way of taxing streaming services too.

New clause 33, which was tabled by my right hon. Friend the Member for Barking (Dame Margaret Hodge) and has many cross-party supporters, would require those liable for the digital services tax to publish a country-by-country tax report. My right hon. Friend has campaigned tirelessly and incredibly effectively on this issue, and I wish it were possible for us to hear from her directly today. Sadly, the way in which we now conduct our proceedings makes it impossible for her to contribute, which is a real shame, given the expertise and insight she brings, but I am aware that the cross-party support of the new clause will allow other speakers to raise the points that she might have sought to make.

For years, the Opposition have urged the Government to commit to country-by-country reporting on a public basis. Their reticence to do so, and the way in which they have held up progress at an international level, has been a source of deep frustration to those of us who want to see far greater transparency around the taxation of multinational companies. This new clause would not only be of practical use, so that we can see whether those liable to the digital services tax are paying an appropriate amount. It would also help to address the concerns I have outlined that the measure as it stands does little to address the tax avoidance practices by digital multinational companies. It would end the secrecy around such practices and pave the way for public country-by-country reporting at a wider level. The Government have been fond in recent months of saying that they wish to be a world leader—well, here is the opportunity to become a world leader in tax transparency, and I urge the Minister to listen to the arguments being made and take urgent action to address them.

The pressure on our public finances and vital frontline services means that we should be doing far more to ensure that those tech companies that have benefited from the lockdown are contributing more. We need a level playing field between our high streets and the tech giants. We need to build a society where everyone—individuals and businesses alike—pays their fair share. A digital services tax must be part of that, but the Government simply are not going far enough. A bolder approach on a digital services tax would not only help to address this unfairness; it would help to deliver a sustainable recovery from the economic crisis we are facing.

Labour has called for a back-to-work Budget—one that focuses on retaining jobs, sustaining jobs and creating jobs; a full Budget that invests in our young people, who are facing the worst employment prospects for a generation, and helps to secure a future that they can look to with hope. An effective digital services tax would go some way to supporting that goal. As I have indicated, this measure is expected to generate a fairly limited amount when compared with the extent of the tax avoidance practices we have seen from some of these companies in recent years and the profits they have made in recent months. Therein lies the principal reason for our amendments: we need to understand as soon as possible how effectively the measure is working and what more can be done to ensure that such companies are paying an appropriate amount of tax.

The Government’s unwillingness to conduct a review earlier than 2025 means that the opportunity for Parliament to properly scrutinise the measure will be hugely limited. I know that the Minister hopes that a multilateral approach will be in place by then; we on the Opposition Benches hope that that will be the case, too. A comprehensive multilateral agreement, based on a lasting international settlement, is the only long-term solution, but until that happens, the Opposition will continue to push for a more ambitious approach, to which our European neighbours are looking as well. The times that we are living through demand such an approach.

--- Later in debate ---

[Jesse Norman]

My right hon. Friend is absolutely right. My point was a slightly different one. I have not yet come to the thrust of what he is suggesting about mandation, but in the first instance Government should be seeking to support, promote, energise and activate more voluntary compliance, precisely in order to increase a public norm of voluntary reporting, which then does a lot of the job and perhaps isolates the groups that decide not to do it. There are plenty of other contexts in which that approach of voluntary, then moving to mandatory, has been quite successful, including in tax.

[Bridget Phillipson]

The Minister talks about the voluntary nature of compliance, but it is my understanding that EU rules require some element to be reported. Could he clarify? Is that the position, or is reporting entirely voluntary?

[Jesse Norman]

The answer is that what I am talking about is a voluntary disclosure by those companies. I am not aware of a separate EU requirement for them to do so. Certainly, it is the voluntary disclosure that is the thrust of what I am talking about. Many other companies have the capacity to make voluntary declarations, and I am indicating in response to my right hon. Friend the Member for Sutton Coldfield my support for more of those companies doing that. I am only doing that, however, as a preliminary to coming to his point about mandation. We have taken the view that for the time being this approach should remain voluntary and that further legislation will not be needed until and unless we can get public country-by-country reporting agreed on a multilateral basis.

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[Jesse Norman]

I am sorry, but I have been really generous in giving way. I have to allow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) time to speak, and I have an awful lot of material remaining, including on new clauses and amendments and contributions made by colleagues. I do not know how many minutes she wants, but perhaps she could give me a bit more time.

[Bridget Phillipson]

indicated assent.

[Jesse Norman]

In that case, I will indulge the hon. Lady.

[Jesse Norman]

We know that the incentive exists for all the reasons why we get voluntary compliance in a whole variety of areas—that is to say, groups with particular concerns, press organisations and companies. We know that there has been a revolution in corporate social responsibility, although it has not in many ways been an adequate revolution, because it does not extend in some respects to paying tax, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) highlighted. There is a role that Government can play, in terms of improving the norms and setting a bar. This is a reasonable, staged approach.

It is important to have a level playing field for the reasons that I have described, and that applies to tax transparency as it does elsewhere. If a multinational group exceeding the country-by-country reporting threshold operates in the UK, HMRC will, in the vast majority of cases, already receive the report and is already using it for risk assessment purposes. Given that, we do not believe that it is appropriate to introduce these new requirements at this stage, but I understand the principles set out by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking, and the debate has shown that those are widely shared. The argument we are having is over the nature of the approach and the implementation of a broad set of principles with which Members across the House generally concur.

I will turn to the comments made by Members in the debate. The hon. Member for Houghton and Sunderland South has been very generous with her time, and I have covered most of her remarks. The debate rightly touched on the issue of business rates. My hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) will know that we are publishing a business rates review, which will specifically include online forms of taxation and invite public discussion on those. That is another part of the same process of trying to engage more widely and not just recruit information and knowledge but set expectations and norms about the way in which firms should be paying tax.

The hon. Member for Ealing Central and Acton (Dr Huq) talked about sunlight being the best disinfectant. She is right, but she was quoting Louis Brandeis from 1914, who was dealing with forms of corporate thuggery that make what we see today modest by comparison.

The hon. Member for Wirral South talked about the distinction between justice in principle and justice in fact. Of course, she is absolutely right. There is a view at the moment of the nature of the corporation, and it is very widespread—more in America than in this country even—that companies are run in the exclusive interest of their shareholders. That is not true in the UK. That is not, as a matter of legal fact, true in this country. The shareholders are entitled to the residual proceeds but companies are run—it is in the Companies Act 2006—in the interest of their members.

Finally, the hon. Member for Strangford (Jim Shannon) made a very good point. I think I am right in saying that “nation of shopkeepers” was coined by Adam Smith—but then I would say that, wouldn’t I?

[Bridget Phillipson]

Having listened to the debate, we are keen to see greater scrutiny and transparency in this area, so I seek to press the amendment to a Division.

Question put, That the amendment be made.

The House proceeded to a Division.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I ask all hon. Members, other than Front Benchers and Tellers, to leave the Chamber by the doors behind me. Members should join the queues to vote in Westminster Hall. To vote, Members should enter the Lobby and swipe their pass on one of the pass readers. I remind Members that the Lobby doors will be locked after 12 minutes.

Finance Bill (Tenth sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

Brought up, and read the First time.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss new clause 22—Review of effect of Act on tax revenues—

“(1) The Chancellor of the Exchequer must review the effects on tax revenues of the Act and lay a report of that review before the House of Commons within six months of Royal Assent.

(2) The review under (1) must contain an estimate of any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.

(3) The estimate under (2) must report separately on taxes payable by the owners and employees of Scottish Limited Partnerships.”

This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the Bill; and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.

--- Later in debate ---

[Bridget Phillipson]

It is a pleasure to take over from my hon. Friend the Member for Ilford North, and to see you back in the Chair this afternoon, Mr Rosindell.

Throughout proceedings in Committee we have repeatedly touched on the changes that the Government wish to make to tax reliefs. The regularity with which we have discussed such matters is not surprising when we consider that the UK had 1,190 tax reliefs as of October 2019, including 362 so-called tax expenditures—in other words, reliefs that support specific Government objectives.

HMRC has identified that the cost of policy-motivated tax expenditures is large both in absolute terms—approaching 8% of GDP—and by international standards. That is the reason behind this new clause. As I argued earlier in Committee, we on the Opposition Benches would like to see a broad review of tax reliefs, to determine exactly who is benefiting from the hundreds that exist, whether they are fair, whether they represent good value for money and whether they are securing the policy outcomes originally intended.

We believe the Government could start improving the scrutiny of tax reliefs by supporting the new clause to ensure that those contained in the Bill are monitored properly and transparently and that Parliament can debate whether they are having the desired effect and represent value for money for the taxpayer. Points raised earlier in our debates demonstrate the merits of embedding such a practice.

On clause 21, we highlighted how changes to pensions tax relief around the tapered annual allowance will affect all pensions, not just those of the senior clinicians and other public sector workers who have been adversely affected by recent changes. We should therefore be reviewing the impact of that measure, not only to ensure that it reverses the worrying trend we have seen in the retention of senior medical staff, but to consider the overall impact on taxation revenue.

On clause 22, relating to entrepreneurs’ relief, I raised concerns that the measure had benefited a small number of wealthier claimants and had a negligible effect as an incentive for investment decision making. The Minister responded that the Government had conducted an internal review that had influenced the reform and that he would review and monitor the effects of the change as standard.

It is reassuring to know that there are reviews of some of these reliefs, but as the Minister will know from the National Audit Office’s report, the Government’s monitoring of tax reliefs is just not what it could be. Indeed, the Government are not reporting costs on more than two thirds of tax reliefs, and HMRC does not know whether most tax reliefs offer value for money. Furthermore, internal reviews, where they occur, do not go far enough and do not lead to an adequate level of debate or scrutiny.

I know that we have all enjoyed delving into the finer details of Government tax policy in recent weeks. Although we might return to this soon, we should accept that such opportunities are fleeting, and little is done to facilitate ongoing scrutiny of tax reliefs. Other countries do this much more regularly, and I will return to that point. No doubt the intention behind tax reliefs is often positive—namely, to incentivise a certain type of social or economic behaviour that is of some benefit to the country—yet the lack of adequate monitoring and oversight makes determining whether they are having the desired effect more difficult. In many instances, we have seen costs spiral out of control, differing substantially from initial projections.

Of course, cost is not the only metric by which we might want to measure the success or otherwise of a tax relief. There are other—particularly behavioural—impacts that we may want to consider. That is why proper parliamentary scrutiny of these policies, which takes into account the full picture, is so important. This new clause would enable that to happen. In addition, it would help to embed the processes being undertaken by HMRC and the Treasury, which have been noted by the National Audit Office.

Our concerns about the adequate scrutiny of tax reliefs go beyond those included in the Bill, and I would like to draw the Minister’s attention to the concerns raised in the NAO report. It notes that the estimated cost of tax expenditures was £155 billion in 2018-19. Some of that will obviously go to achieve worthwhile social or economic objectives, but the NAO says that

“it does not reflect the amount of tax that would be generated if tax expenditures were removed”

due to any corresponding behavioural change and the economic impact that would result.

There remains a concern that, for something that is such a cost to the Government, there is little in the way of evaluation to ensure value for money. Of the 362 tax expenditures that exist, 111 have been costed by HMRC, 63 have been assessed by the Treasury, and only 15 have had published evaluations since 2015. That is despite their cost having grown in recent years. In July 2019, the OBR reported that the known cost of tax expenditures had risen in the past decade. That is a 5% real increase in the summed estimated cost of tax expenditures from 2014-15 to 2018-19.

The mounting number and cost of tax reliefs adds complexity to our tax system and to evaluating fairness and value for money. Despite warnings, we have not seen enough progress on this front. The NAO stated in 2014 that there was little in the way of “a framework or principles” to guide the administration of tax reliefs. In 2018, the Public Accounts Committee concluded that HMRC did not know whether a large number of tax reliefs were delivering value for money. It should be acknowledged that both HMRC and the Treasury have since taken steps to increase their oversight of tax expenditures and actively consider their value for money, but that has not allayed concerns. In July 2019, the OBR identified the costs of tax reliefs as one of four new fiscal risks to the public finances. It stated:

“The Government does not seem to have a systematic way of evaluating the effectiveness of those tax reliefs and expenditures with a stated policy objective.”

The International Monetary Fund has also stated that tax expenditures require the same amount of Government oversight as public spending.

Despite those warnings and recommendations, we have simply not seen the necessary progress from Government in implementing the measures that would allow for the proper scrutiny of tax reliefs. This new clause would help us to turn a page on this, by establishing the principle that Parliament should play an ongoing role in this process. As I mentioned earlier, in relation to the annual allowance and entrepreneurs’ relief, we should be able to assess whether these reforms are having the right effect and debate this in Parliament.

Other measures in the Bill demand similar levels of ongoing scrutiny. As we heard in the debate on clause 27, many businesses are set to benefit from increases to the rate of relief for investing in research and development. In that debate, my hon. Friend the Member for Ilford North noted:

“We have to ensure that any uplift in innovation investment also ensures value for money, and that we are more ruthless about returns for the taxpayer and our economy.”––[Official Report, Finance Public Bill Committee, 9 June 2020; c. 90.]

Such a warning is pertinent, given the NAO’s observation that R&D tax credits have been subject to increased levels of abuse, including by companies with a limited UK tax presence. As the OBR states, when a tax credit becomes more generous,

“it increases incentives to re-badge existing expenditure as qualifying R&D or to engage in fraudulent claims.”

It is welcome that the NAO has found that HMRC has been working to better understand factors affecting the cost of R&D reliefs and others, including entrepreneurs’ relief. Rigorous parliamentary oversight would ensure that any abuse of tax relief measures is properly investigated.



The wider point about the potential abuse of tax reliefs is worth exploring further. I am grateful to the research of TaxWatch UK, which highlights the troubling extent of these practices. For example, it points out, in relation to the video games tax relief, that some companies claiming significant amounts in tax credits were not even paying corporation tax. The relief was initially estimated by the Government to cost £35 million a year. Ministers committed to reviewing the relief after three years of operation to determine whether it had been effective. However, it is not clear whether a review has taken place, and in the meanwhile the cost of the relief has substantially exceeded what was forecast, reaching £108 million in 2017-18.

--- Later in debate ---

The hon. Member for Glasgow Central seems not to be aware that the tax gap remains the object of our very, very careful scrutiny, and that it has reduced very significantly in regard to avoidance over the past few years. The avoidance tax gap fell from about £5 billion in 2005-06 to an estimated £1.8 billion in 2017-18, and the tax gap as a whole has fallen, from memory, by about 1% over the last 10, 13 or 14 years—from the time under the last Government to the present one. We remain closely focused on that issue. With that in mind, I encourage the Committee to reject new clauses 6 and 22.

[Bridget Phillipson]

I welcome the Minister’s suggestion that the Government will look more systematically at the whole range of tax reliefs that are available, but it is not clear to me that, without the sterling work of the National Audit Office, we would have seen much progress at all in this area. The Government must seek to do a lot more. We believe that there is a strong case for additional parliamentary scrutiny in this area, so I would like to test the will of the Committee on new clause 6.

Question put, That the clause be read a Second time.

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[Jesse Norman]

On a point of order, Mr Rosindell. On behalf of the Exchequer Secretary and myself, I thank you and your co-Chair, the excellent folks at Hansard, our Whips, our Parliamentary Private Secretaries and the officials who have supported us throughout the Committee. Of course, they wrote this note, so I hope they will be aware of the generous terms in which I single out, in particular, Edward Ferguson and Charlie Grainger; our Bill team at the Treasury, consisting of Kate O’Donoghue, the Bill manager, as well as Helena Forrest, Nye Williams-Renouf and Samuel Fenn; and a host of other people. The Opposition do not have access to the same level of resources; it would be astonishing if they could replicate the expertise to which we have access, and I am profoundly grateful for that expertise.

I thank all the members of Committees, on both sides of the Chamber, for making this such an energised and productive Committee, especially considering the great difficulties under which it has had to operate.

[Bridget Phillipson]

Further to that point of order, Mr Rosindell. I would also like to put on record my thanks to you and Ms McDonagh for being so fair and generous in allowing us to speak at some length about our concerns on the Finance Bill. You were exceptionally generous—at times, and arguably today, a little too generous—when it came to some of the wider conversations we had around interesting and irrelevant matters around Scottish separatism. Doubtless we will return to that at a later stage.

I put on record our thanks to the Clerks for all the help that they have offered us, particularly around amendments and the order of proceedings—their expertise at this time is particularly appreciated by us—and to the Hansard reporters.

This is the first opportunity I have had to lead on the Finance Bill in Committee. It has been made much easier thanks to the wonderful support of Members on the Opposition side, not least our wonderful Whip, my hon. Friend the Member for Manchester, Withington.

I thank all members of the Committee for their contributions. I am sure the Financial Secretary has enjoyed talking to more technical aspects of the Bill, although he did particularly relish opportunities to elucidate on Adam Smith and Edmund Burke, and on the transcendental nature of what might be regarded as temporary, or otherwise, when pressed by my hon. Friend the Member for Streatham.

I also thank those individuals and stakeholders who have been very generous in providing advice and information to the Opposition, and, of course, the House of Commons Library, whose staff are, as ever, very prompt and professional in their response to all research requests.

Although this is a small Finance Bill, compared with some recent efforts, I thank my staff and those in the office of my hon. Friend the Member for Ilford North for their dedication and hard work, and for allowing us to hold the Government to account. We have had a wide-ranging debate, and I look forward to returning to some of these issues on Report.

[Alison Thewliss]

Further to that point of order, Mr Rosindell. I echo others in thanking you and Ms McDonagh for your excellent chairing; the Clerks for all they have done to keep things moving smoothly; my hon. Friend the Member for Aberdeen South for signing up to come and do the Finance Bill with me, which was much appreciated; and our small research team, Scott Taylor and Jonathan Kiehlmann, who have worked incredibly hard to bring a range of amendments and new clauses to the Committee, and who have had even more pressure than the other parties and the Government have had. I am incredibly grateful to them.

Finally, on independence, as long as we are here in this House—hopefully it will not be too much longer—we will press our cause if we can. I am sure all hon. Members will miss us once we have independence.

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[The Chair]

Does the hon. Member for Houghton and Sunderland South wish to move new clause 23?

[Bridget Phillipson]

No, Mr Rosindell.

New Schedule 1

“Workers’ services provided through intermediaries

Part 1

Amendments to Chapter 8 of Part 2 of ITEPA 2003

1 Chapter 8 of Part 2 of ITEPA 2003 (application of provisions to workers under arrangements made by intermediaries) is amended as follows.

2 For the heading of the Chapter substitute “Workers’ services provided through intermediaries to small clients”.

3 (1) Section 48 (scope of Chapter) is amended as follows.

(2) In subsection (1) for the words from “, but” to the end substitute “in a case where the services are provided to a person who is not a public authority and who either—

(a) qualifies as small for a tax year, or

(b) does not have a UK connection for a tax year.”

(3) After subsection (3) insert—

(4) For provisions determining when a person qualifies as small for a tax year, see sections 60A to 60G.

(5) For provision determining when a person has a UK connection for a tax year, see section 60I.”

4 (1) Section 50 (worker treated as receiving earnings from employment) is amended as follows.

(2) In subsection (1) before paragraph (a) insert—

“(za) the client qualifies as small or does not have a UK connection,”.

(3) After subsection (4) insert—

(5) The condition in paragraph (za) of subsection (1) is to be ignored if—

(a) the client concerned is an individual, and

(b) the services concerned are performed otherwise than for the purposes of the client’s business.

(6) For the purposes of paragraph (za) of subsection (1) the client is to be treated as not qualifying as small for the tax year concerned if the client is treated as medium or large for that tax year by reason of section 61TA(3)(a).”

5 After section 60 insert—

“When a person qualifies as small for a tax year

60A When a company qualifies as small for a tax year

(1) For the purposes of this Chapter, a company qualifies as small for a tax year if one of the following conditions is met (but this is subject to section 60C).

(2) The first condition is that the company’s first financial year is not relevant to the tax year.

(3) The second condition is that the small companies regime applies to the company for its last financial year that is relevant to the tax year.

(4) For the purposes of this section, a financial year of a company is “relevant to” a tax year if the period for filing the company’s accounts and reports for the financial year ends before the beginning of the tax year.

(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60B When a company qualifies as small for a tax year: joint ventures

(1) This section applies when determining for the purposes of section 60A(3) whether the small companies regime applies to a company for a financial year in a case where—

(a) at the end of the financial year the company is jointly controlled by two or more other persons, and

(b) one or more of those other persons are undertakings (“the joint venturer undertakings”).

(2) If the company is a parent company, the joint venturer undertakings are to be treated as members of the group headed by the company.

(3) If the company is not a parent company, the company and the joint venturer undertakings are to be treated as constituting a group of which the company is the parent company.

(4) In this section the expression “jointly controlled” is to be read in accordance with those provisions of international accounting standards which relate to joint ventures.

(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60C When a company qualifies as small for a tax year: subsidiaries

(1) A company does not qualify as small for a tax year by reason of the condition in section 60A(3) being met if—

(a) the company is a member of a group at the end of its last financial year that is relevant to the tax year,

(b) the company is not the parent undertaking of that group at the end of that financial year, and

(c) the undertaking that is the parent undertaking of that group at that time does not qualify as small in relation to its last financial year that is relevant to the tax year.

(2) Where the parent undertaking mentioned in subsection (1)(c) is not a company, sections 382 and 383 of the Companies Act 2006 have effect for determining whether the parent undertaking qualifies as small in relation to its last financial year that is relevant to the tax year as if references in those sections to a company and a parent company included references to an undertaking and a parent undertaking.

(3) For the purposes of subsections (1)(c) and (2) a financial year of an undertaking that is not a company is “relevant to” a tax year if it ends at least 9 months before the beginning of the tax year.

(4) For the purposes of this section, a financial year of a company is “relevant to” a tax year if the period for filing the company’s accounts and reports for the financial year ends before the beginning of the tax year.

(5) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60D When a relevant undertaking qualifies as small for a tax year

(1) Sections 60A to 60C apply in relation to a relevant undertaking as they apply in relation to a company, subject to any necessary modifications.

(2) In this section “relevant undertaking” means an undertaking in respect of which regulations have effect under—

(a) section 15(a) of the Limited Liability Partnerships Act 2000,

(b) section 1043 of the Companies Act 2006 (unregistered companies), or

(c) section 1049 of the Companies Act 2006 (overseas companies).

(3) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60E When other undertakings qualify as small for a tax year

(1) An undertaking that is not a company or a relevant undertaking qualifies as small for a tax year if one of the following conditions is met.

(2) The first condition is that the undertaking’s first financial year is not relevant to the tax year.

(3) The second condition is that the undertaking’s turnover for its last financial year that is relevant to the tax year is not more than the amount for the time being specified in the second column of item 1 of the Table in section 382(3) of the Companies Act 2006.

(4) For the purposes of this section a financial year of an undertaking is “relevant to” a tax year if it ends at least 9 months before the beginning of the tax year.

(5) In this section—

“relevant undertaking” has the meaning given by section 60D, and

“turnover”, in relation to an undertaking, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived.

(6) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60F When other persons qualify as small for a tax year

(1) For the purposes of this Chapter, a person who is not a company, relevant undertaking or other undertaking qualifies as small for a tax year if the person’s turnover for the last calendar year before the tax year is not more than the amount for the time being specified in the second column of item 1 of the Table in section 382(3) of the Companies Act 2006.

(2) In this section—

“company” and “undertaking” have the same meaning as in the Companies Act 2006,

“relevant undertaking” has the meaning given by section 60D, and

“turnover”, in relation to a person, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived.

60G Sections 60A to 60F: connected persons

(1) This section applies where—

(a) it is necessary for the purposes of determining whether a person qualifies as small for a tax year (“the tax year concerned”) to first determine the person’s turnover for a financial year or calendar year (“the assessment year”), and

(b) at the end of the assessment year the person is connected with one or more other persons (“the connected persons”).

(2) For the purposes of determining whether the person qualifies as small for the tax year concerned the person’s turnover for the assessment year is to be taken to be the sum of—

(a) the person’s turnover for the assessment year, and

(b) the relevant turnover of each of the connected persons.

(3) In subsection (2)(b) “the relevant turnover” of a connected person means—

(a) in a case where the connected person is a company, relevant undertaking or other undertaking, its turnover for its last financial year that is relevant to the tax year concerned, and

(b) in a case where the connected person is not a company, relevant undertaking or other undertaking, the turnover of the connected person for the last calendar year ending before the tax year concerned.

(4) For the purposes of subsection (3)(a)—

(a) a financial year of a company or relevant undertaking is relevant to the tax year concerned if the period for filing accounts and reports for the financial year ends before the beginning of the tax year concerned, and

(b) a financial year of any other undertaking is relevant to the tax year concerned if it ends more than 9 months before the beginning of the tax year concerned.

(5) In a case where—

(a) the person mentioned in subsection (1)(a) is a company or relevant undertaking, and

(b) at the end of the assessment period the person is a member of a group,

the person is to be treated for the purposes of this section as not being connected with any person that is a member of that group.

(6) In this section—

“turnover”, in relation to a person, means the amounts derived from the provision of goods or services after the deduction of trade discounts, value added tax and any other taxes based on the amounts so derived, and

“relevant undertaking” has the meaning given by section 60D.

(7) For provision determining whether one person is connected with another, see section 718 (connected persons).

(8) Expressions used in this section and in the Companies Act 2006 have the same meaning in this section as in that Act.

60H Duty on client to state whether it qualifies as small for a tax year

(1) This section applies if, in the case of an engagement that meets conditions (a) to (b) in section 49(1), the client receives from the client’s agent or the worker a request to state whether in the client’s opinion the client qualifies as small for a tax year specified in the request.

(2) The client must provide to the person who made the request a statement as to whether in the client’s opinion the client qualifies as small for the tax year specified in the request.

(3) If the client fails to provide the statement by the time mentioned in subsection (4) the duty to do so is enforceable by an injunction or, in Scotland, by an order for specific performance under section 45 of the Court of Session Act 1988.

(4) The time is whichever is the later of—

(a) the end of the period of 45 days beginning with the date the client receives the request, and

(b) the beginning of the period of 45 days ending with the start of the tax year specified in the request.

(5) In this section “the client’s agent” means a person with whom the client entered into a contract as part of the arrangements mentioned in paragraph (b) of section 49(1).

When a person has a UK connection

60I When a person has a UK connection for a tax year

(1) For the purposes of this Chapter, a person has a UK connection for a tax year if (and only if) immediately before the beginning of that tax year the person—

(a) is resident in the United Kingdom, or

(b) has a permanent establishment in the United Kingdom.

(2) In this section “permanent establishment”—

(a) in relation to a company, is to be read (by virtue of section 1007A of ITA 2007) in accordance with Chapter 2 of Part 24 of CTA 2010, and

(b) in relation to any other person, is to be read in accordance with that Chapter but as if references in that Chapter to a company were references to that person.

Interpretation

6 In section 61(1) (interpretation), in the definition of company, before “means” insert “(except in sections 60A to 60G)”.

Part 2

Amendments to Chapter 10 of Part 2 of ITEPA 2003

7 Chapter 10 of Part 2 of ITEPA 2003 (workers’ services provided to public sector through intermediaries) is amended as follows.

8 For the heading of the Chapter substitute “Workers’ services provided through intermediaries to public authorities or medium or large clients”.

9 (1) Section 61K (scope of Chapter) is amended as follows.

(2) In subsection (1) for the words “to a public authority through an intermediary” substitute “through an intermediary in a case where the services are provided to a person who—

(a) is a public authority, or

(b) qualifies as medium or large and has a UK connection for a tax year”.

(3) After subsection (2) insert—

(3) For the purposes of this Chapter a person qualifies as medium or large for a tax year if the person does not qualify as small for the tax year for the purposes of Chapter 8 of this Part (see sections 60A to 60G).

(4) Section 60I (when a person has a UK connection for a tax year) applies for the purposes of this Chapter.”

10 In section 61L (meaning of “public authority”) in subsection (1)—

(a) after paragraph (a) insert—

“(aa) a body specified in section 23(3) of the Freedom of Information Act 2000,”,

(b) omit the “or” at the end of paragraph (e), and

(c) after paragraph (f) insert “, or

(g) a company connected with any person mentioned in paragraphs (a) to (f)”.

11 (1) Section 61M (engagements to which the Chapter applies) is amended as follows.

(2) In subsection (1)—

(a) omit paragraph (b),

(b) omit the “and” at the end of paragraph (c), and

(c) after paragraph (c) insert—

“(ca) the client—

(i) is a public authority, or

(ii) is a person who qualifies as medium or large and has a UK connection for one or more tax years during which the arrangements mentioned in paragraph (c) have effect, and”.

(3) After subsection (1) insert—

(1A) But sections 61N to 61R do not apply if —

(a) the client is an individual, and

(b) the services are provided otherwise than for the purposes of the client’s trade or business.”

12 (1) Section 61N (worker treated as receiving earnings from employment) is amended as follows.

(2) In subsection (3)—

(a) after “subsections (5) to (7)” insert “and (8A)”, and

(b) after “61T” insert “, 61TA”.

(3) For subsection (5) substitute—

(5) Unless and until the client gives a status determination statement to the worker (see section 61NA), subsections (3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to section 61V.

(5A) Subsections (6) and (7) apply, subject to sections 61T, 61TA and 61V, if—

(a) the client has given a status determination statement to the worker,

(b) the client is not the fee-payer, and

(c) the fee-payer is not a qualifying person.”

(4) In subsection (8) (meaning of “qualifying person”) before paragraph (a) insert—

“(za) has been given by the person immediately above them in the chain the status determination statement given by the client to the worker,”.

(5) After subsection (8) insert—

(8A) If the client is not a public authority, a person is to be treated by subsection (3) as making a deemed direct payment to the worker only if the chain payment made by the person is made in a tax year for which the client qualifies as medium or large and has a UK connection.”

13 After section 61N insert—

“61NA Meaning of status determination statement

(1) For the purposes of section 61N “status determination statement” means a statement by the client that—

(a) states that the client has concluded that the condition in section 61M(1)(d) is met in the case of the engagement and explains the reasons for that conclusion, or

(b) states (albeit incorrectly) that the client has concluded that the condition in section 61M(1)(d) is not met in the case of the engagement and explains the reasons for that conclusion.

(2) But a statement is not a status determination statement if the client fails to take reasonable care in coming to the conclusion mentioned in it.

(3) For further provisions concerning status determination statements, see section 61T (client-led status disagreement process) and section 61TA (duty for client to withdraw status determination statement if it ceases to be medium or large).”

14 In section 61O(1) (conditions where intermediary is a company) for paragraph (b) substitute—

“(b) it is the case that—

(i) the worker has a material interest in the intermediary,

(ii) the worker has received a chain payment from the intermediary, or

(iii) the worker has rights which entitle, or which in any circumstances would entitle, the worker to receive a chain payment from the intermediary.”

15 In section 61R (application of Income Tax Acts in relation to deemed employment) omit subsection (7).

16 For section 61T substitute—

“61T Client-led status disagreement process

(1) This section applies if, before the final chain payment is made in the case of an engagement to which this Chapter applies, the worker or the deemed employer makes representations to the client that the conclusion contained in a status determination statement is incorrect.

(2) The client must either—

(a) give a statement to the worker or (as the case may be) the deemed employer that—

(i) states that the client has considered the representations and has decided that the conclusion contained in the status determination statement is correct, and

(ii) states the reasons for that decision, or

(b) give a new status determination statement to the worker and the deemed employer that—

(i) contains a different conclusion from the conclusion contained in the previous status determination statement,

(ii) states the date from which the client considers that the conclusion contained in the new status determination statement became correct, and

(iii) states that the previous status determination statement is withdrawn.

(3) If the client fails to comply with the duty in subsection (2) before the end of the period of 45 days beginning with the date the client receives the representations, section 61N(3) and (4) has effect from the end of that period until the duty is complied with as if for any reference to the fee-payer there were substituted a reference to the client; but this is subject to section 61V.

(4) A new status determination statement given to the deemed employer under subsection (2)(b) is to be treated for the purposes of section 61N(8)(za) as having been given to the deemed employer by the person immediately above the deemed employer in the chain.

(5) In this section—

“the deemed employer” means the person who, assuming one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3) on the making of a chain payment;

“status determination statement” has the meaning given by section 61NA.

61TA Duty for client to withdraw status determination statement if it ceases to be medium or large

(1) This section applies if in the case of an engagement to which this Chapter applies—

(a) the client is not a public authority,

(b) the client gives a status determination statement to the worker, the client’s agent or both, and

(c) the client does not (but for this section) qualify as medium or large for a tax year beginning after the status determination statement is given.

(2) Before the beginning of the tax year the client must give a statement to the relevant person, or (as the case may be) to both of the relevant persons, stating—

(a) that the client does not qualify as medium or large for the tax year, and

(b) that the status determination statement is withdrawn with effect from the beginning of the tax year.

(3) If the client fails to comply with that duty the following rules apply in relation to the engagement for the tax year—

(a) the client is to be treated as medium or large for the tax year, and

(b) section 61N(3) and (4) have effect as if for any reference to the fee-payer there were substituted a reference to the client.

(4) For the purposes of subsection (2)—

(a) the worker is a relevant person if the status determination statement was given to the worker, and

(b) the deemed employer is a relevant person if the status determination statement was given to the client’s agent.

(5) In this section—

“client’s agent” means a person with whom the client entered into a contract as part of the arrangements mentioned in section 61M(1)(c);

“the deemed employer” means the person who, assuming one of conditions A to C in section 61N were met, would be treated as making a deemed direct payment to the worker under section 61N(3) on the making of a chain payment;

“status determination statement” has the meaning given by section 61NA.”

17 (1) Section 61W (prevention of double charge to tax and allowance of certain deductions) is amended as follows.

(2) In subsection (1)—

(a) in paragraph (b) for “a public authority” substitute “another person (“the client”)”, and

(b) in paragraph (d) for “that public authority” substitute “the client”.

(3) In subsection (2)(b) for “public authority” substitute “client”.

Part 3

Consequential and miscellaneous amendments

18 In section 61D of ITEPA 2003 (managed service companies: worker treated as receiving earnings from employment) for subsection (4A) substitute—

(4A) This section does not apply where the provision of the relevant services gives rise (directly or indirectly) to an engagement to which Chapter 10 applies and either—

(a) the client for the purposes of section 61M(1) is a public authority, or

(b) the client for the purposes of section 61M(1)—

(i) qualifies as medium or large for the tax year in which the payment or benefit mentioned in subsection (1)(b) is received, and

(ii) has a UK connection for the tax year in which the payment or benefit mentioned in subsection (1)(b) is received.

(4B) Sections 60I (when a person has a UK connection for a tax year), 61K(3) (when a person qualifies as medium or large for a tax year) and 61L (meaning of public authority) apply for the purposes of subsection (4A).

(4C) It does not matter for the purposes of subsection (4A) whether the client for the purposes of this Chapter is also “the client” for the purposes of section 61M(1).”

19 After section 688A of ITEPA 2003 insert—

“688AA Workers’ services provided through intermediaries: recovery of PAYE

(1) PAYE Regulations may make provision for, or in connection with, the recovery of a deemed employer PAYE debt from a relevant person.

(2) “A deemed employer PAYE debt” means an amount—

(a) that a person (“the deemed employer”) is liable to pay under PAYE regulations in consequence of being treated under section 61N(3) as having made a deemed direct payment to a worker, and

(b) that an officer of Revenue and Customs considers there is no realistic prospect of recovering from the deemed employer within a reasonable period.

(3) “Relevant person”, in relation to a deemed employer PAYE debt, means a person who is not the deemed employer and who—

(a) is the highest person in the chain identified under section 61N(1) in determining that the deemed employer is to be treated as having made the deemed direct payment, or

(b) is the second highest person in that chain and is a qualifying person (within the meaning given by section 61N(8)) at the time the deemed employer is treated as having made that deemed direct payment.”

20 In section 60 of FA 2004 (construction industry scheme: meaning of contract payments) after subsection (3) insert—

(3A) This exception applies in so far as—

(a) the payment can reasonably be taken to be for the services of an individual, and

(b) the provision of those services gives rise to an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies (workers’ services provided through intermediaries to public authorities or medium or large clients).

(3B) But the exception in subsection (3A) does not apply if, in the case of the engagement mentioned in paragraph (b) of that subsection, the client for the purposes of section 61M(1) of ITEPA 2003—

(a) is not a public authority, and

(b) either—

(i) does not qualify as medium or large for the tax year in which the payment concerned is made, or

(ii) does not have a UK connection for the tax year in which the payment concerned is made.

(3C) Sections 60I (when a person has a UK connection for a tax year), 61K(3) (when a person qualifies as medium or large for a tax year) and 61L (meaning of public authority) of ITEPA 2003 apply for the purposes of subsection (3B).”

21 For the italic heading before section 141A of CTA 2009 substitute “Worker’s services provided through intermediary to public authority or medium or large client”.

22 In the heading of section 141A of CTA 2009 for “public sector” substitute “public authority or medium or large client”.

23 (1) Part 13 of CTA 2009 (additional relief for expenditure on research and development) is amended as follows.

(2) In section 1129 (qualifying expenditure on externally provided workers: connected persons) after subsection (4) insert—

(4A) In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—

(a) section 61S of ITEPA 2003,

(b) regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or

(c) regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”

(3) In section 1131 (qualifying expenditure on externally provided workers: other cases) after subsection (2) insert—

(3) In subsection (2) the reference to the staff provision payment is to that payment before any deduction is made from the payment under—

(a) section 61S of ITEPA 2003,

(b) regulation 19 of the Social Security Contributions (Intermediaries) Regulations 2000, or

(c) regulation 19 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”

(4) After section 1131 insert—

“1131A Sections 1129 and 1131: secondary Class 1 NICS paid by company

(1) This section applies if—

(a) a company makes a staff provision payment,

(b) the company is treated as making a payment of deemed direct earnings the amount of which is calculated by reference to the amount of the staff provision payment, and

(c) the company pays a secondary Class 1 national insurance contribution in respect of the payment of deemed direct earnings.

(2) In determining the company’s qualifying expenditure on externally provided workers in accordance with section 1129(2) or section 1131(2) the amount of the staff payment provision is to be treated as increased by the amount of the contribution.

(3) In determining the company’s qualifying expenditure on externally provided workers in accordance with section 1129(2) the aggregate of the relevant expenditure of each staff controller is to be treated as increased by the amount of the contribution.

(4) But subsection (2) does not apply to the extent that the expenditure incurred by the company in paying the contribution is met directly or indirectly by a staff controller.

(5) “A payment of deemed direct earning” means a payment the company is treated as making by reason of regulation 14 of the Social Security Contributions (Intermediaries) Regulations 2000 or regulation 14 of the Social Security Contributions (Intermediaries) (Northern Ireland) Regulations 2000.”

Part 4

Commencement and transitional provisions

Commencement

24 The amendments made by Part 1 of this Schedule have effect for the tax year 2021-22 and subsequent tax years.

25 The amendments made by Part 2 of this Schedule have effect in relation to deemed direct payments treated as made on or after 6 April 2021.

26 The amendment made by paragraph 18 of this Schedule has effect for the purposes of determining whether section 61D of ITEPA 2003 applies in a case where the payment or benefit mentioned in subsection (1)(b) of that section is received on or after 6 April 2021.

27 The amendment made by paragraph 20 of this Schedule has effect in relation to payments made under a construction contract on or after 6 April 2021.

28 The amendments made by paragraph 23 of this Schedule have effect in relation to expenditure incurred on or after 6 April 2021.

29 Sections 101 to 103 of FA 2009 (interest) come into force on 6 April 2021 in relation to amounts payable or paid to Her Majesty’s Revenue and Customs under regulations made by virtue of section 688AA of ITEPA 2003 (as inserted by paragraph 19 of this Schedule).

Transitional provisions

30 (1) This paragraph applies where—

(a) the client in the case of an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies is not a public authority within the meaning given by section 61L of ITEPA 2003 (as that section had effect before the amendments made by paragraph 10 of this Schedule), and

(b) a chain payment is made on or after 6 April 2021 that can reasonably be taken to be for services performed by the worker before 6 April 2021.

(2) The chain payment is to be disregarded for the purposes of Chapter 10 of Part 2 of ITEPA 2003.

31 (1) This paragraph applies where—

(a) the client in the case of an engagement to which Chapter 10 of Part 2 of ITEPA 2003 applies is not a public authority within the meaning given by section 61L of ITEPA 2003 (as that section had effect before the amendments made by paragraph 10 of this Schedule), and

(b) one or more qualifying chain payments are made in the tax year 2021-22 or a subsequent tax year (“the tax year concerned”) to the intermediary.

(2) A chain payment made to the intermediary is a qualifying chain payment if it can reasonably be taken to be for services performed by the worker before 6 April 2021.

(3) A chain payment made to the intermediary is also a qualifying chain payment if—

(a) another chain payment (“the earlier payment”) was made before 6 April 2021 to a person other than the intermediary,

(b) the earlier payment can reasonably be taken to be for the same services as the chain payment made to the intermediary, and

(c) the person who made the earlier payment would, but for paragraph 25 of this Schedule, have been treated by section 61N(3) and (4) of ITEPA 2003 as making a deemed direct payment to the worker at the same time as they made the earlier payment.

(4) Chapter 8 of Part 2 of ITEPA 2003 applies in relation to the engagement for the tax year concerned (in addition to Chapter 10 of Part 2 of ITEPA 2003), but as if—

(a) the amendments made by Part 1 of this Schedule had not been made, and

(b) the qualifying chain payments received by the intermediary in the tax year concerned are the only payments and benefits received by the intermediary in that year in respect of the engagement.

32 (1) This paragraph applies for the purposes of paragraphs 30 and 31 where a chain payment (“the actual payment”) is made that can reasonably be taken to be for services of the worker performed during a period that begins before and ends on or after 6 April 2021.

(2) The actual payment is to be treated as two separate chain payments—

(a) one consisting of so much of the amount or value of the actual payment as can on a just and reasonable apportionment be taken to be for services performed before 6 April 2021, and

(b) another consisting of so much of the amount or value of the actual payment as can on a just and reasonable apportionment be taken to be for services performed on or after 6 April 2021.

33 For the purposes of section 61N(5), (5A)(a) and (8)(za) of ITEPA 2003 it does not matter whether the status determination statement concerned is given before 6 April 2021 or on or after that date.

34 For the purposes of section 61T of ITEPA 2003—

(a) it does not matter whether the representations to the client mentioned in subsection (1) of that section were made before 6 April 2021 or on or after that date, but

(b) in a case where the representations were made before 6 April 2021 that section has effect as if the reference in subsection (3) to the date the client receives the representations were to 6 April 2021.”—(Jesse Norman.)

This new schedule alters the tax treatment of certain engagements under which a worker provides services to a client through an intermediary.

Brought up, read the First and Second time, and added to the Bill.

Bill, as amended, to be reported.

[The Chair]

That concludes our sitting. I thank all Members and wish you a good weekend.

Finance Bill (Eighth sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 8th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[Alison Thewliss]

This is a small clause in the Bill, but hidden within it is the Government’s intention to set the conditions under which they would consider it appropriate to vary the rates of import duty in an international trade dispute. With amendments 14 to 16, we seek to amend clause 94 because we are concerned that it gives the Government a huge amount of additional power, with which they will avoid scrutiny. The explanatory notes state that the clause

“replaces the requirement for ‘authorisation’ with a requirement to have regard to international obligations.”

The Government need to explain why they feel they need the additional power, what the safeguards to it will be and why they think it is appropriate at this time.

Trade wars are damaging and should be very much a last resort. If the Government intend to take such actions, they deserve the scrutiny of the House. It should not just be about what the Secretary of State deems to be appropriate. I remind Members of the dispute affecting the Scotch whisky industry in Scotland, which is facing a 25% tariff because of US actions regarding Airbus and Boeing. Disputes have spillover effects that affect other parts of the economy, so we need a good understanding of why the Government are seeking these powers.

Amendment 14 would force the Government, by 9 September 2020, to set out the conditions under which they would breach international law to engage in a trade war. If none exist, they can surely remove the clause from the Bill. If there are conditions under which they would jeopardise our economic prosperity, the House deserves to know. Amendment 15 would require Commons approval before Ministers could follow such an irresponsible course of action. Brexit campaigners said they wanted to restore parliamentary sovereignty. If that is the case, the Government should accept that Parliament must have a say in such important matters.

Amendment 16 would force UK Ministers, no later than a month before any exercise of power, to make an economic assessment of the implications of the power and compare it with the economic health that the UK would be enjoying within the EU customs union. Ensuring that the public are informed of the impact of such an act of economic vandalism should not be controversial. We were promised a veritable land of milk and honey during the EU referendum campaign, so we certainly deserve to see the truth about these kinds of actions. The Government must explain why they think it is important to remove that authorisation and allow the Secretary of State to do what they want without the check and balance of this House.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The Opposition have considerable sympathy with the hon. Lady’s arguments and the amendments tabled by the SNP. We have many concerns about clause 94, which seems buried, given that it is of such considerable importance for the years ahead.

The change to the language in section 15 of the Taxation (Cross-border Trade) Act 2018 has worrying implications for the Government’s adherence to the World Trade Organisation’s dispute settlement system. Replacing the requirement for authorisation under international law with the more nebulous consideration of appropriateness is extremely concerning, and implies that the Government may seek to sidestep international law regarding trade disputes. The matters set out in section 28 of the 2018 Act already give the Government considerable flexibility over what they consider to be appropriate action in the light of international law. It is effectively up to the Secretary of State to decide which international agreements are relevant to the exercise of the function. Loosening up the language even further in this clause is thus highly questionable.

The proposed changes seemingly downgrade the Secretary of State’s responsibilities when it comes to their international obligations. Having regard is nowhere near as onerous as having authorisation. That would allow the Secretary of State to operate at a much lower standard of requirement, and move away from recognised EU standards. We therefore seek to understand the reasoning behind the change. What is wrong with the current provisions regarding the variation of import duties in trade disputes?

There are further questions to which we seek answers from the Government. What will they use the clause for? It does not detail what kind of dispute is in question. How might the Trade Remedies Authority be involved in the decision-making process? Could this be an upshot of the digital services tax? The US has already found similar measures by France to be trade-restrictive, leaving the office of the United States trade representative to authorise retaliatory tariffs, as we discussed last week in Committee with reference to the digital services tax. While both parties are in the process of reaching a deal over the matter, it is possible that the Government wish to introduce this clause in preparation for a similar confrontation with the US. I hope the Minister can assure us that that is not the case, but why do the Government wish to reduce their responsibilities in adhering to international law?

The amendments tabled by the hon. Member for Glasgow Central and her colleagues go some way towards responding to that. The production of a report by the Chancellor no later than a month before any exercise of the power regarding the economic impact of such an action might enable Parliament to better scrutinise the actions taken through the clause. As it stands, other than through the scrutiny of primary legislation, Parliament has little say over international trade. I welcome the amendment to seek approval of any regulations deriving from the clause by resolution of the House of Commons, in the spirit of parliamentary scrutiny. However, the Government hold a considerable majority, and therefore I question how far the amendment would go in practice towards ensuring that the Government act in accordance with international law.

I welcome the amendment regarding the requirement for the Government to detail the conditions under which they would consider it appropriate to vary the rates of import duty under the clause. However, I believe that the implications of the wider clause are of significance and that the Government ought to provide these details during debate, rather than by September, although we are sympathetic to the intention behind the amendment. I stress that I would like the Minister, when he responds to the hon. Lady’s concerns, to explain the reasoning behind this change, what kinds of disputes the clause would cover, and whether the Trade Remedies Authority will be involved.

If the changes in the clause are in anticipation of a dispute with the US over the digital services tax, does this not involve giving the Government permission to ignore international trade rules when disputes arise, undermining the authority of the WTO in the process? I hope that the Minister will provide assurances on the issue of appropriateness and respond to the concerns that the hon. Lady and I have, because this is a significant change. We have reservations about the measure that the Government are putting forward, and we would like to understand much more about their intentions.

[Jesse Norman]

I thank hon. Members for their comments, and pay tribute to my colleague the Exchequer Secretary for rattling through the clauses we debated earlier with such effectiveness. The hon. Member for Glasgow Central has raised important questions, which I want to address properly, so I will give this issue quite a considerable amount of discussion because it is an important aspect of the Bill.

Clause 94 makes a change to the criteria in section 15 of the Taxation (Cross-border Trade) Act 2018 to ensure that the UK can vary the amount of import duty in the context of an international trade dispute. Provisions in various international trade agreements allow for the UK to vary the amount of import duty applied to goods in the context of an international trade dispute. There is existing provision in section 15 of the 2018 Act that gives the Secretary of State the power to

“make regulations varying the amount of import duty”

where

“a dispute or other issue has arisen between Her Majesty’s government…and the government of a country or territory”.

Currently, section 15 of the 2018 Act is worded in a way that could be interpreted to mean that a binding ruling of the World Trade Organisation is needed before the UK can impose a duty, which would be restrictive. In certain circumstances, countries are within their WTO rights to impose additional tariffs quickly in relation to the actions of other WTO members and, where necessary, outside of WTO dispute proceedings.

In addition, since section 15 of the 2018 Act was enacted, there have been developments in the wider sphere of trade policy, including increasing trade protectionism and problems with the WTO dispute settlement system. The WTO appellate body has stopped functioning, and it has now become possible for final and binding resolution of a WTO dispute to be blocked by a party to the dispute by appealing a panel report. That means it may not be possible to apply retaliatory duties, even where a panel report has found in the complaining body’s favour and the respondent has failed to bring itself into compliance.

Against this background, it is essential to ensure that the UK has the appropriate tools to respond to any unilateral measure or action taken by a WTO member that is not compatible with its obligations to the UK and that harms UK interests. Clause 94 therefore amends the original provision to ensure that, after having regard to relevant international arrangements, the Government may deal with such an issue by varying the amount of import duty. The EU is seeking similar powers, it should be noted, through amendments to its enforcement regulation, because it too recognises the importance of being able to respond quickly in the event of illegal measures being taken against it. What we are talking about is therefore in parallel to a process seeking similar powers within the EU.

At present, section 15 of the 2018 Act permits variation of import duty only where the UK is authorised under international law to deal with the issue. Clause 94 will amend section 15 to allow the Government to vary import duty where they consider it appropriate, having regard to relevant matters, including the UK’s international obligations, as set out in section 28 of the 2018 Act. That amendment will allow the UK to respond more effectively to developments in the international trading system, in line with international laws and our rights as an independent WTO member.

To come to the question asked by the hon. Member for Glasgow Central, there are a number of situations in which it would be appropriate to vary rates of import duty. The most likely situation is that in which the UK has successfully challenged another WTO member’s measures in the WTO dispute settlement system, and the other member has failed to bring itself into compliance. The UK could then impose retaliatory measures, including higher import duty against the other member. That is not contrary to and does not undermine the international rule of law; it insists on the international rule of law, in the face of measures that could disable it.

Import duty variations might also be imposed following a dispute brought under a free trade agreement or in the context of a WTO member applying a safeguard measure but failing to agree an adequate level of trade compensation for the adverse effects caused by the measure. It is also possible that the UK could lose a dispute under a free trade agreement and could agree compensation with another country. The compensation could take the form of lower import duty on certain goods.

In each of those circumstances, the Government are still required by the 2018 Act to have regard to our international arrangements that are relevant to the exercise of this power. It need hardly be said that the UK strongly supports the rules-based international trading system and appropriate enforcement of WTO agreements. It is because appropriate enforcement would be otherwise lacking that this clause is being brought into effect.

Amendment 14 would require the Government to state the conditions in which they would consider it appropriate to vary rates of import duty. As you will know, Ms McDonagh, international trade disputes are broad and varied, depending on the nature of the international agreement under which they are conducted and on the subject matter of the dispute. It would limit the Government’s ability to respond effectively in a particular dispute if they were required to list in advance conditions for varying import duty in a dispute. I have already set out several situations in which it would be appropriate to vary rates of import duty. Examples have also been provided in the explanatory notes to both the Taxation (Cross-border Trade) Act 2018 and the Finance Bill.

Amendment 15 would require the Government to seek the approval of the House of Commons before making regulations varying rates of import duty in an international trade dispute. It is important to say that clause 94 is not an unchecked power. Any specific tariff measure introduced under section 15 of the 2018 Act would require secondary legislation, as is prescribed in that Act. The requirements set out in amendment 15 are therefore not necessary. Secondary legislation will involve the public passage of a piece of legislation. The Government need flexibility to respond effectively to state-to-state disputes, but with the understanding that they must have regard to the international arrangements to which the UK is party.

Amendment 16 would require the Chancellor of the Exchequer to lay before the House of Commons a report containing an assessment of the economic and fiscal effects of the exercise of the powers in clause 94, including a comparison of those fiscal and economic impacts with the effect of the UK being within the EU customs union, and an assessment of any differences in the exercise or effects of those powers in respect of England, Wales, Scotland and Northern Ireland.

Information on the expected impacts of import duty variations will be provided in the documentation accompanying any and each statutory instrument. However, it would not be appropriate to publish extensive detail, because doing so could undermine the effectiveness of the UK’s response. It would also not be appropriate to compare the economic and fiscal impact of the use of the powers in clause 94 with EU customs union membership. First, the EU may not itself have a dispute with the WTO member against which the UK has brought an action. Secondly, even if the EU were applying retaliatory measures against that WTO member, the EU’s retaliatory tariffs would be based on the impact on the EU27 and would not take into account impacts on UK industries and sectors. The amendment would therefore invite the Governments and others to compare apples with oranges.

Finance Bill (Seventh sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. My hon. Friend and I are sharing the duties on the Front Bench today, and it is I who rises to speak to clauses 72 and 73. The clauses make changes to ensure that additions of assets made by UK domiciled or deemed-domiciled individuals to trusts made when they were non-domiciled cannot be treated as excluded property. As that explanation indicates, it is a somewhat technical measure, which means that such additions are within the scope of inheritance tax.

The clauses have been introduced following a decision by the Court of Appeal. To give some background, the inheritance tax treatment of trusts depends on the domicile status of the person setting up the trust when it was made, known as the settlor, and the location of the assets. If the settlor is UK domiciled, inheritance tax is chargeable on their worldwide assets. By contrast, non-domiciled individuals do not pay inheritance tax on assets in trusts situated outside the UK.

The long-established position of Her Majesty’s Revenue and Customs has been that a settlement is made when a trust is created, and that a settlement is also made when assets are added to that trust. That means that assets would be within the scope of inheritance tax if they were added to a trust by an individual who is currently UK domiciled, even if the trust was set up when the same individual was non-UK domiciled. The Court of Appeal decision created uncertainty by ruling that a settlement was made only when assets were first added to the trust. That ruling meant that the domicile of the settlor for later additions to the trust would not matter. In turn, all subsequent settlements of assets into the trust would not be liable for inheritance tax in the UK. The measure was announced in the autumn Budget 2018, and stakeholders have had nearly two years’ notice of the change.

In July 2019, the draft legislation was published, which provided an opportunity to give feedback to Her Majesty’s Revenue and Customs. HMRC received feedback from a range of bodies including the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Institute of Chartered Accountants in England and Wales, the Tax Faculty and PricewaterhouseCoopers by the deadline for responses. HMRC then made a number of amendments based on the feedback provided, and stakeholders have since provided further feedback regarding the legislation.

Together, the measures will confirm that additions of non-UK assets by UK domiciled or deemed-domiciled individuals to trusts are chargeable for inheritance tax, even when the trust was originally set up while that individual was non-domiciled. The measures will also ensure that transfers between trusts made by a UK-domiciled individual are chargeable for inheritance tax. That will affect UK-domiciled or deemed-domiciled individuals who created an offshore trust when they were previously non-UK domiciled and have subsequently made additions of assets to that trust.

Although the measure will apply only to a small number of individuals, the tax saving for them could have been significant, and there have been claims for tax repayments as a result of the case. The clauses will ensure that the legislation is applied as intended and all tax is collected as expected. The changes introduced by the clauses will add clarity and remove any doubt from the legislation by confirming HMRC’s published and widely accepted views. I commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to see you back in the Chair, Mr Rosindell. We regard the measure as a welcome imposition to provide for a fairer tax system. HMRC figures indicate that the number of individuals who live in the UK but pay no tax on their offshore income has fallen, with the number of UK-based individuals with non-domiciled tax status falling by 13% on the previous year. HMRC believes that that is explained by individuals switching to domiciled status and other individuals leaving the UK tax system. Thus the clauses reflect that particular change. However, there are some issues reported by stakeholders.

Responding to clauses 72 and 73, the Chartered Institute of Taxation states that among its members transfers between trusts are most commonly undertaken for family or related reasons, and without any intention to avoid inheritance tax or to circumvent the excluded property rules. It argues that the main thrust of the legislation should be to limit additions by the settlor after they become deemed or actually UK domiciled.

The institute expresses concern about some scenarios in which property could inadvertently be brought into the scope of inheritance tax because a change is made to a trust, not an addition of assets, that could be treated as a resettlement, or trustees make a transfer between two settlements, both set up when the settlor was non-domiciled. In neither case is inheritance tax avoidance being attempted. There are some situations where trustees, not the settlor, are involved in transferring between two settlements, both set up when the settler is foreign domiciled, or when the second is set up by the trustees of the first. We believe that there should be no loss of excluded property status because of the changing status of the settlor. I would be interested to hear the Minister’s assessment of those concerns.

Secondly, both the Institute of Chartered Accountants in England and Wales and the London Society of Chartered Accountants were critical of the potential for retrospection. The former argued that if clause 72 is

“to be treated as always having been in force, this will result in unexpected IHT charges arising as a result of past events.”

The institute says:

“Given that the clause is not countering avoidance but is changing long-standing rules that are familiar to trustees and are clearly stated in the existing law…new legislation on this point should not affect events that happened earlier than the measure is enacted, ie Royal Assent.”

Similarly, the London Society of Chartered Accountants believes that this

“clause changes the IHT status of trusts to which assets are added. This change will have effect from the time that the trust was set up, so is retrospective. However, as the clause is not an anti-avoidance measure but is just a change to the law, retrospection is not appropriate and the clause therefore does not follow Parliamentary convention.”

I understand that these comments presume that the individuals in question do not seek to avoid tax when transferring assets between trusts, but I would be grateful if the Minister responded to these concerns.

Last, I heard the Minister’s comments, but the Institute of Chartered Accountants in England and Wales has raised the lack of a consultation period or of any follow-up, despite being led to believe that that would happen after a meeting with HMRC in November 2018. It reported that

“trustees of offshore trusts are unlikely to have considered these changes in the necessary detail”

and had concerns that there would be

“insufficient time for trustees to take advice to help them understand the full implications and…whether they want to take any action to unwind structures.”

In working with the intention of the measures the Government have introduced, I would be grateful if the Minister responded to those concerns and addressed the lack of a consultation period.

[Jesse Norman]

I am grateful to the hon. Lady for her questions and for her support on this technical but important measure.

The hon. Lady asks about unanticipated negative effects. I am happy to put on the record that HMRC has given reassurance that it will adopt a cautious approach if there is a case in which a taxpayer may accidently taint a trust that contains a mixture of excluded and non-excluded property. Hopefully, that will address many of the concerns about unexpected consequences that she touched on.

The hon. Lady asks whether this measure is retrospective. As she will be aware, we do not believe that it is retrospective. The key point is that HMRC’s application of the legislation, and therefore the legal position, was widely accepted in practice before the Court of Appeal decision put that position in doubt. The effect of it is going to be that individuals have been liable to the tax owed in the spirit of the legislation. Formally, clause 72 is not retrospective because it does not create any new changes pre-Royal Assent, but we recognise the concern that is raised. It is true that in some cases there may be what I would describe retroactable, and not retrospective, effects. That is precisely because HMRC and the Government are seeking to restore what might be referred to as the position as it had always been understood previously. That is the intended effect of the legislation.

The hon. Lady asks whether there should have been more consultation. As I outlined in my speech, the Government have had this in the public domain for a considerable period and discussed it, with plenty of occasion for people to conform their tax affairs to what is, after all, only a reaffirmation of existing tax law through legislation. There is also the counterpart problem, which the hon. Lady will understand: if the clause is not introduced now, it may allow opportunities for individuals to avoid paying inheritance tax on assets they put into trust or on properties transferred between trusts. I am sure she would not wish to abet or support those opportunities and that she would wish, overall, to join us in protecting revenue and providing certainty to taxpayers.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73 ordered to stand part of the Bill.

Clause 74

Relief for payments to victims of persecution during Second World War era

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

--- Later in debate ---

[Bridget Phillipson]

The Opposition welcome the provision. As the Minister says, it is a very important measure. Exempting from inheritance tax compensation payments made to the survivors of the Kindertransport is a just measure for those who had to face the devastating experience of being torn from their families as children in order to escape persecution. The House of Commons Library states that around 100,000 children were brought to the UK under the Kindertransport scheme, but of course many of those survivors have since passed away. It is only right that in the spirit of the Kindertransport fund all survivors receive their compensation payment in its fullest form and that that remains the case if the compensation is inherited.

According to the claims conference, to be eligible for payment survivors have to have been under 21 when the Kindertransport took place, between November 1938 and September 1939. However, the UK set an age limit of 17 for those transported. The oldest would therefore be born around 1921 or 1922, suggesting that they would be nearly 100 if they were alive today. The average age of the children who were transported was nine, so many would be in their mid-nineties today. Given those figures, we know that many people claiming compensation from the compensation fund will be survivors’ inheritors, so it is welcome that the payment is not subject to inheritance tax. However, I gently urge the Government to consider the issues that child refugees face today, and I urge Ministers to show the same level of commitment and dedication today that our country demonstrated in the past.

The Kindertransport survivor and incredible campaigner Lord Dubs worked tirelessly to protect child refugees following our withdrawal from the European Union, but the Government’s amendment of clause 37 watered down the UK’s commitment to protect unaccompanied child refugees in Europe who seek to reunite with their families in the UK. I hope that the Government will review their approach to child refugees and take seriously their commitment to protect child refugees fleeing violence and persecution in our present, just as they have taken seriously compensating child refugees of the past. Meaningful dedication to supporting child refugees requires both.

[Jesse Norman]

I thank the hon. Lady for her comments. She spoke very well about the Kindertransport scheme. As the Committee knows, the Government stand by our position on child refugees, and this country has a proud record in that area.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Stamp duty: transfers of unlisted securities and connected persons

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

--- Later in debate ---

[Bridget Phillipson]

The Opposition welcome the measures implemented by these clauses to minimise the scope of continuing avoidance of stamp duties by extending the stamp duty and stamp duty reserve tax market value rule to the transfer of unlisted securities to connected companies. However, I raise a point regarding the impact of the clauses.

HMRC’s impact assessment of the policy notes that there will be a negligible impact on 250 to 350 businesses in the first year, disproportionately affecting small and microbusinesses. It estimates that the arrangements are most likely to affect private companies with a small number of stakeholders, such as owner-manager businesses, with an average value of £2.5 million. These may include family businesses, many of which we understand to be struggling in the face of the current pandemic. What assessment has the Minister made of this, and who is really the intended target of these clauses?

The Chartered Institute of Taxation expressed concern that unintended consequences could arise from clause 76 due to significant additional costs that are disproportionate to the tax at stake in many cases. It goes on to say that this

“may in some situations prevent commercially advantageous transactions, with no avoidance motive, from going ahead. The…vague description of policy rationale and the contrived arrangements being targeted has prevented stakeholders from assisting in designing a targeted rule so as to reduce the unintended consequences.”

Similarly, legal firm Cleary Gottlieb notes that

“the new rule is not limited to cases of stamp duty or SDRT avoidance, and it should not be assumed that transactions driven entirely by commercial considerations will fall outside its scope.”

I will be grateful if the Minister explains how the Government will seek to minimise unintended consequences of this measure being the targeting of businesses that are not seeking to avoid stamp duties.

Respondents to the consultation suggested that it would be preferable to introduce a targeted anti-avoidance rule into the legislation, or to extend the general anti-abuse rule or the disclosure of tax avoidance scheme provisions. What consideration have the Government given to inserting a targeted anti-avoidance rule into the legislation?

Last, the Chartered Institute of Taxation points out that, in relation to clause 77, there are a number of circumstances in which a shareholding of 25%—required for this exception to section 77A of the Finance Act 1986 to apply—will be an excessive hurdle, reasoning that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding is at least 10% would be more appropriate to cover a wide range of commercial scenarios. I will grateful if the Minister will address those concerns.

[Jesse Norman]

I am very grateful to the hon. Lady for the questions she raises. Let me take them in order.

On whether these measures will affect most small businesses or organisations, as the hon. Lady highlights, a relatively small number of organisations will be affected. The measures were subject to consultation, and interestingly the respondents were satisfied that there would be little impact on commercial activity as the measures were suitably targeted, and expressed some pleasure that the concerns they raised during the policy consultation about the impact of a more wide-ranging measure had been heard. This is, of itself, a tightly focused measure. It falls—where it falls—on a relatively small number of organisations, as I said.

However, it is important to pick out the logic of what I think the hon. Lady is saying. We all recognise the importance of combating the pandemic. She will be aware that the Government have spent many tens of billions of pounds on supporting businesses, families and jobs during this process. This measure is about something else: avoid a form of tax avoidance, or rather heading off a form of tax avoidance; curbing and preventing it. I do not think people’s concerns about the pandemic should be allowed to obtrude on that.

The hon. Lady asked a question about unintended effects. Our analysis is that precisely because of the targeting that was noted during the consultation phase, unexpected effects, while they can never be ruled out, should be limited and minimal. It is also important to say that there will be a modest additional administrative burden that will decline over time as people become accustomed to the new rules.

The hon. Lady asked whether it would be better to address this with a more targeted anti-avoidance rule, but this is quite a targeted anti-avoidance rule. It picks out particular forms and is restricted to company reorganisations of a certain kind, and it builds on the existing approach for listed shares. I therefore think that it addresses her concerns.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clause 76 ordered to stand part of the Bill.

Clause 77

Stamp duty: acquisition of target company’s share capital

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

--- Later in debate ---

[Bridget Phillipson]

I raised these points in an earlier debate, but I will do so again so that the Minister can respond.

On clause 77, the Chartered Institute of Taxation points out that there are a number of circumstances in which a shareholding of 25%, which is required for the exception to section 77A of the Financial Act 1986 to apply, will be an excessive hurdle. Its reasoning is that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding be at least 10% would be more appropriate to cover a wide range of commercial scenarios. I would be grateful to hear the Minister’s response on that issue.

[Jesse Norman]

The hon. Lady raises a very specific circumstance. It would be appropriate for me to write to her about the specifics of the decision about percentages, rather than try to go through the argument here.

The discussion has already been had between HMRC and stakeholders, and therefore it has to some extent already been addressed through the consultation process, but I am happy to revisit the issue.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.

Clause 78

Call-off stock arrangements

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

Finance Bill (Fifth sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 5th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. I am grateful to all members of the Committee for joining us this morning; I am also grateful it is not too hot outside. It is a rare moment in Parliament when one gets to introduce a new tax—the digital services tax—on to the statute book. With the clauses grouped together, it is appropriate to spend some time in my opening remarks outlining the overall architecture of the tax and how it is designed to work; then we can pick up specific details in the clauses as we come to them.

Clauses 38 to 44 introduce legislation to enact the digital services tax, and they set the scope of this legislation. DST will levy a 2% charge on the revenues that groups receive from providing specific digital services to UK users. The specific services in scope of the charge are search engines, social media, and online marketplaces. I will explain later why those three services are in scope of the new tax. DST will apply only to groups with annual global revenues from services of more than £500 million. It will then be charged on the revenues only where they are attributable to UK users, and only on amounts above £25 million.

An exemption will exclude online financial services marketplaces from the definition of an online marketplace. Businesses making low profit margins on their in-scope activity will be able to pay the tax at a reduced rate, while loss makers will pay nothing; that will minimise the distortions that a tax on revenues can create. To further reduce those distortions, a relief for certain cross-border transactions is also included. It will reduce by half the revenues subject to DST where those revenues are derived from an online marketplace transaction between a UK user and a user from a jurisdiction that also levies a DST. As this is a new tax, there are also extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax concepts to reduce the burden of implementing the new tax for what we hope will be a limited time.

The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy. That economy brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under current rules, digital businesses can derive significant value from UK users, but in many cases they pay little UK tax because international corporate tax rules do not recognise the user-generated value when allocating the right to tax profits between jurisdictions, so undermining the fairness and sustainability of our tax system. It is therefore now widely accepted that the rules require updating.

The Government remain at the forefront of international efforts to secure a comprehensive long-term solution to the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a fair and proportionate manner. DST is a temporary measure, until appropriate global reform is in place.

As a temporary measure, DST is targeted at those business models that rely most significantly on user-generated value and that place the greatest strain on current corporate tax rules. It is the Government’s judgement that these services are search engines, social media platforms and online marketplaces. Of course I recognise that a broad range of digital services could be said to derive value from their users, and I am aware that some hon. Members have called for the scope of DST to be extended to include services such as media streaming. However, the services in scope of this tax are those that rely most significantly on user participation in the creation of value: for example, while media streaming platforms may utilise user contributions in the form of reviews or recommendations, users of a social media platform often create the content that is shared across the platform, and users of an online marketplace provide the market liquidity required for the marketplace to function. Also, while we are engaged in OECD discussions about finding a long-term global solution and exploring the case for broader reform, we judge that it would not be appropriate to implement a temporary tax on a broader basis.

DST follows the recommendations of the OECD’s 2018 interim report. Targeting DST at those services that derive the greatest value from their users minimises the distortive consequences of a tax on revenues and minimises the risks of introducing a temporary measure before global reform is agreed. That will ensure that DST is proportionate, while still raising up to £2 billion over the next five years. That in addition to the UK taxes that digital businesses already pay and, as I have said, reflects the value they derive from UK users.

I will now summarise the clauses that form this part of the Bill—clauses 39 to 44. Clause 39 sets out that DST will apply to all revenues that arise in connection with in-scope digital service activity. That is deliberately a very broad test; it ensures that however these businesses make money from their in-scope activity, that revenue will be subject to the tax. The clause also sets out that revenues should be apportioned on a just and reasonable basis when they are not wholly in connection with an in-scope activity.

Once a group’s digital services revenues have been established, the next step is to determine how much of those revenues is attributable to UK users. Clauses 40 and 41 set out the five cases where revenues are attributable to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. The first case concerns the revenues that a marketplace earns from facilitating transactions between users; this will include a marketplace’s commission, for example. These revenues are attributable to UK users whenever a UK user is a party to the transaction. It does not matter whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border transaction between a UK user and a non-UK user, all of the marketplace’s revenue from that transaction is regarded as attributable to UK users, although this may be subject to cross-border relief.

The second case concerns revenues that arise in connection with accommodation and land in the UK—for example when a user books a holiday let on a marketplace. These revenues are attributable to UK users when the property is in the UK. Where the property is overseas, the revenue will only be UK digital services revenue when the purchaser is a UK user. Some marketplaces charge users to list individual items for sale; under the third case, those revenues will be treated as attributable to UK users whenever the user listing the item is a UK user.

The last two cases apply to social media services and internet search engines, as well as to online marketplaces. The fourth case deals with online advertising revenues. These revenues are attributable to UK users when the advertising was viewed by a UK user; the focus is on the viewer of the advertising, not on who paid for it. The fifth and final case is a catch-all, to include revenue that is not trapped by any of the other rules but that is received in connection with UK users. This will cover any other type of revenue earned by social media services and search engines—for example, subscription fees.

Clause 42 defines each of the services in scope of DST. The tax will be charged on the revenues that businesses earn from providing a social media platform, search engine or online marketplace to UK users. The definitions are designed to be targeted and as clear as possible. They have been carefully drafted after extensive consultation periods with business to ensure that they apply as intended. Alongside the three named services, some businesses facilitate online advertising on other websites. The clause ensures that revenues from that source would also be subject to DST when the advertising service derives a significant benefit from operating one of the three named services.

Clause 43 clarifies the meaning of “user” and “UK user” for the purposes of DST legislation. Clause 44 sets out the exclusion of online financial marketplaces from the definition of online marketplaces. The highly regulated nature of financial services limits their ability to engage with users in the ways that other marketplaces do. As such, the clause ensures that they are not subject to DST.

Together, clauses 38 to 44 set out the scope of DST. The digital services tax is a clear signal of the Government’s commitment to ensuring that tax rules reflect the development of our modern economy. Ultimately, as I have said, our strong preference is for a global solution, which will be the most comprehensive and enduring way to address concerns about the current corporate tax rules. Until such a solution is in place, however, DST will ensure that digital businesses pay UK tax that reflects the value they derive from UK users. I therefore commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It a pleasure to see you in the Chair, Mr Rosindell. Like the Minister, I will use this opportunity to lay out our broad views and concerns about the operation of the digital services tax. We will pick up some of the technical issues with the clauses as they emerge later.

We welcome the principle behind the introduction of a digital services tax. It is regrettable, if not unsurprising, that it has taken the Government so long to get to such a measure, given the wider inertia when it comes to making sure that multinational companies pay their fair share of tax. The gap between the profits that digital companies derive from UK users and how much they pay in tax is stark. That fact has been evident for some time and is recognised by Labour Members, which is why for years we have consistently pressed for a far more ambitious approach.

It is not right that, at a time when high street shops are struggling in an unprecedented way, the likes of Amazon have been allowed to pay a much lower tax rate than British bookstores and other businesses of a comparable nature. Our local high streets are incredibly important; they are the backbone of our local economies. Many family-run businesses have found this time incredibly difficult, but they also have many long-standing problems because of the way they have been undercut by some of these big players, which do not have the same overheads or level of corporate responsibility and do not make the same impact in our communities. During this crisis, many of our local businesses—our small businesses on the high street—have adapted to do all they can to make sure that vulnerable people receive deliveries and support, and that they are open as much as they can be within the guidelines. It is only right that we make sure that the bigger players with large profits make a contribution too.

There is still much unfairness built into the system. As constituency MPs, we only have to visit the businesses on our high streets that have been operating for many decades to appreciate the scale of disillusionment that many of those family-run firms feel about the lack of fairness in the system and the need for change. The economic crisis we are facing only strengthens the call for action because it has compounded the impact on our high streets, which have struggled and will continue to struggle. It is such a shame that, in many of our communities, affluent and perhaps less affluent, there are clothes shops that had their shutters down even before we felt the impact of the lockdown.

Vibrant local high streets are central to a sense of pride in the community and to making sure that we can support local jobs and businesses. We want to do everything we can to support that, but hand in hand with the pressures facing many small businesses during this time, there has been an unexpected boon for digital and tech giants, as we have all had to adapt to life in different and difficult circumstances during the lockdown. It is only right that we ensure that those with the broadest shoulders help to bear the cost of the recovery that we must now achieve as a country. It is more important than ever to make sure that those big players are taxed properly, reasonably and fairly.

--- Later in debate ---

[Abena Oppong-Asare (Erith and Thamesmead) (Lab)]

I completely agree with my hon. Friend’s comments. Does she agree that large companies such as Amazon are unlikely to be substantially affected? The Bill aims to support start-up companies, but it does not go to the heart of addressing big digital companies that get away with not paying enough tax.

[Bridget Phillipson]

My hon. Friend makes an important point. That is one of many concerns raised by stakeholders, and an issue that I will be raising further with the Financial Secretary during the course of my contribution. As the he outlined, the measure does not capture media streaming services either, and I intend to say a bit more about that in due course.

The broad campaigning support that we have seen right across the House on issues of tax transparency, led primarily by my right hon. Friend the Member for Barking but with considerable support from Government Back Benchers, demonstrates the appetite both within this House and outside for greater transparency in this area. Tremendous work has been done by the all-party parliamentary group and by the Public Accounts Committee, led previously by my right hon. Friend the Member for Barking and subsequently by my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), which has continued to press the need for greater transparency in this area. It wants the Government to act, but it also recognises the need for greater multilateral action. I know the Financial Secretary touched on that point and I will come back to it later.

The Opposition understand the difficulties with multilateral action, but we think that the Government should provide a greater degree of leadership in seeking to resolve the problem. Another reason why the yield as outlined might be so low is the rate at which it is being set: it is among the lowest in Europe. I invite the Financial Secretary to explain why the Government have adopted such a cautious approach when other countries are going further. How did he arrive at the figure? How did he and the Government determine the level of the tax? What assessment was made not just of the yield and the difficulties with determining it, but of whether it is an appropriate level? Have other stakeholders and groups made representations on the level at which the tax has been set?

The modest nature of the measure becomes clear when we consider what some of the tech giants might actually have to pay under the tax. The Minister may well be aware of the research by TaxWatch UK, which estimates that Facebook would face an increased tax bill of £39 million despite estimated UK venues of almost £2.3 billion. Google would pay slightly more: around £168 million, based on estimated UK revenues of £9.3 billion.

Beyond the small impact on the companies to which the tax applies, there is the question of which companies will not be affected by the tax. That comes to the point made by my hon. Friend the Member for Erith and Thamesmead. Many digital businesses such as Amazon, which blend their activities, will be unaffected by the measure outlined by the Minister; nor, as TaxWatch UK has illustrated, will it apply to Apple’s hardware business, Microsoft or Cisco Systems, none of which involve social media platforms, search engines or online market places.

As I said earlier, my right hon. Friend the Member for Barking has done so much work in this area. I am aware that she pressed the Financial Secretary earlier this year to extend the scope of the digital services tax to include streaming services such as Netflix, which are not included in the measure, and he set out some of the Government’s concerns about broadening its scope. I want to provide a bit of background on the operations of Netflix, on which many of us have come to rely in a much greater way during the lockdown period. Many online streaming services have no doubt seen a real boost at a time when we are all trying to find ways to spend many an hour and entertain our children in the absence of any form of proper childcare.

Netflix’s estimated revenues from UK subscribers was £860 million in 2018, based on analysis from TaxWatch UK, which provides an analysis of Netflix’s corporate structure showing that the company has implemented a similar tax avoidance structure to those used by many other multinational companies operating in the digital sphere. Revenues are not collected in the country where they are made; instead, customers are charged from an offshore company, and profits are then moved from the hub company to a tax haven through the use of an intra-company transaction. Netflix’s historically low profit margins mean that the scale of any tax avoidance will be much lower than that of many other well-known companies that employ similar tactics. TaxWatch UK has argued that it is relatively easy to calculate the revenue of Netflix in the UK: there are surveys of TV usage that tell us how many subscribers it has in the UK, and Netflix publishes data on average revenue per subscriber, which is something that I imagine has grown considerably during this time.

That returns us to the issue of fairness. Despite receiving support from Government, many high street businesses have struggled and will continue to struggle for a prolonged period, while other companies have potentially seen a big increase in their revenues during the crisis. The Opposition urge the Government to consider whether the measure is adequate. As argued by my right hon. Friend the Member for Barking, extending the scope of the tax could feasibly bring other streaming platforms, such as video game streaming platforms, under the ambit of the tax. That would improve its takings and ensure that all companies pay their fair share.

The pattern of profit shifting displayed by Netflix, which I just outlined, reflects practices adopted by others. It is clear that the current system for taxing streaming services is not working. The proposed measure would go at least some way to resolving this, but it is not adequate.

I am aware of the Financial Secretary’s response earlier this year to my right hon. Friend the Member for Barking, disputing the practicability of widening the scope of the tax, but I urge him to look again at the issue, or at the very least to consider other means at the Government’s disposal to ensure that all companies pay an appropriate amount of tax. We will discuss the scope and the yield later when debating Opposition amendments, but I urge him to consider how we can be confident that this measure is working as intended—not only whether it is deriving the income that we need in order to provide support for our frontline services at this difficult time for the country, but whether the digital services tax is operating as it should.

I will also highlight some of the technical issues relating to clauses 38 to 44. Clause 39 indicates that revenue should be apportioned on a just and reasonable basis when not wholly attributable to a digital services activity. Does the Minister accept that there may be a risk in taking businesses at their word here? There may well be some issues in how that is applied, and I would be grateful if he could offer some reassurance in this area. Asking businesses to apportion revenue on a just and reasonable basis may lead them to structure their operations or disaggregate their costs in a certain way to avoid higher liabilities. In the absence of public country-by-country reporting measures to create full transparency, oversight of this will be essential. Can the Minister confirm what will be done to ensure that this has been calculated in a fair and open manner?

A related point is capacity within HMRC. As we have all acknowledged in earlier discussions on the Bill, HMRC and Treasury staff are doing tremendous work at this difficult time for our country, and we all commend them for their dedication and hard work. I imagine it must be a challenging environment in which to work, responding quickly to changes in policy and with the need to support businesses and taxpayers alike, but given the challenges faced, can the Minister assure us that HMRC will have the resources and staffing it needs to make sure that this tax is being applied properly and that revenues are being secured? Some stakeholders have suggested putting in place a dedicated digital services tax team, and I wonder what consideration the Minister and officials have given to that.

Since the legislation was first announced and consulted on, several stakeholders expressed throughout the consultation period concerns around whether the definitions the Government use in these clauses are clear enough and watertight. For instance, there is uncertainty around whether online gambling platforms will fall under the scope of this tax, as set out by the Chartered Institute of Taxation. I appreciate that the legislation has been modified since it was first announced, but I would be grateful if the Minister could clarify the position.

On Clause 43, concerns have been expressed about the difficulty in identifying a “UK user”. The use of virtual private networks presents an obvious difficulty in this regard. The process of monitoring users may also raise concerns around GDPR compliance. I will be grateful if the Minister could set out whether that is the case, and whether there may be difficulties in this area.

I will now touch on the international context in which this measure has been put forward, drawing in part on the Minister’s remarks on the need for both UK action but also global action, as companies work across country boundaries and jurisdictions. The international tax system is fundamentally not fit for purpose: it has not kept pace with the changing nature of technology and many of the changes that we have seen in our economy and the global economy. It was modelled on the trade in goods, rather than services. The challenge of how we respond to the digitisation of the global economy continues, and goes far beyond this measure and other measures that the Government are considering, but the OECD has been pressing on the issue for years, as the Minister acknowledged.

--- Later in debate ---

Having said that, I return to the wide-ranging speech made by the shadow Chief Secretary. All I can say is that, if this is what she does to legislation she likes, goodness knows what she does to legislation she does not like.

[Bridget Phillipson]

We like to be thorough.

--- Later in debate ---

[Jesse Norman]

We now come to clauses 45 to 50. The last discussion was quite a long one, but hopefully it was helpful in framing the overall legislation within which we can now discuss the more specific elements, so we may not need to dwell as long on these parts.

Clauses 45 to 50 set out how the digital services tax charge will be calculated. The Government have sought to ensure that the DST is proportionate and charged only to those businesses that are best able to generate significant value from their users. As such, it will apply only to groups with annual global revenues from the named services of over £500 million. DST will be charged only on those revenues where they are attributable to UK users and only on amounts above £25 million.

Clauses 45 and 46 set out the thresholds and the allowance, and they set the rate of the charge at 2%. A DST tax rate of 2%, as we have discussed, ensures that digital businesses will make a fair and proportionate contribution to our public finances. Clause 46 also sets out how each member of a group should calculate their DST liability.

The Government recognise that some businesses have concerns about levying a tax on revenues rather than profits. That is why our strong preference is for a long-term profits-based global solution. That can be implemented only following an international agreement, however, so although the DST applies to revenues, the alternative basis of charge will reduce the charge for businesses with low profit margins or losses on their chargeable UK activity. Clauses 47 and 48 therefore set out the alternative basis of the DST charge and how DST liability should be calculated on that basis.

Online marketplace transactions will occur between two users, and those users may be based in different jurisdictions. Where one of those users is a UK user, revenues attributable to the transaction will be subject to the UK DST. Where the other relevant jurisdiction also levies a DST, however, there is a risk that the revenues could be taxed twice. Clause 49 sets out the relief for certain cross-border transactions, minimising that risk by ensuring that, in such cases, only 50% of the relevant revenues will be subject to the UK DST. Finally, clause 50 sets out when DST payments are due and payable.

Together, the clauses mean that the DST charge is proportionate while ensuring that digital businesses pay a UK tax that reflects the value they derive from UK users. Overall, as I have noted, the tax is expected to raise up to £2 billion over the next five years in a proportionate and responsible way.

[Bridget Phillipson]

As the Minister said, we have discussed at length the broader implications and the necessary measures set out in the clauses, but I have some technical issues relating to them.

On clause 46, the Institute of Chartered Accountants in England and Wales has said that,

“given the potential compliance burdens imposed by the DST, it is important to ensure that smaller digital businesses are not burdened by DST, so the inclusion of a £25m allowance looks reasonable but should be kept under review.”

On a similar but more general note, the Chartered Institute of Taxation has warned that some businesses will be undertaxed while others may be overtaxed. As we have said before, it is our position on the Opposition Benches that in these challenging times, those with the broadest shoulders should bear more of the load. Can the Minister confirm that he will keep the measure under review to ensure that companies, particularly smaller companies, do not pay more than their larger counterparts, to avoid the distortions that he talked about emerging all the time?

There are perhaps more substantial concerns around clauses 47 and 48 on the so-called safe harbour provision. As HMRC has stated, that is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a lower operating margin from providing in-scope activities to UK users. Its inclusion is obviously well-intentioned, but some assurances will be welcome. It is clear that multinational companies are often adept at structuring their operations in a way that reduces their tax liabilities. Are there safeguards in place to ensure that the safe harbour provision is not used for such a purpose?

Clause 48, for instance, contains a list of excluded expenses that cannot be deducted from a company’s net profit, which goes on to form the basis of the alternative charge. The list, however, does not include royalties, and I am grateful to TaxWatch UK for drawing attention, through the research that it has done, to the implications that that might have, because royalties are at the heart of tax avoidance practices perpetrated by some digital tech companies. It describes how most of those companies’ profits are attributable to various types of intellectual property that they have developed.

By artificially locating the intermediate and ultimate legal ownership of the intellectual property in avoidance-facilitating jurisdictions and tax havens, those companies can avoid tax on UK royalties, and ultimately reduce their taxable profits in the UK. Why, therefore, are royalties not included on the list of excluded expenses? Surely the Minister would accept that that is a potential failure to adequately tackle the use of royalties to reduce tax liabilities, and might further incentivise the use of the safe harbour provision by larger tech companies, which will in turn be able to reduce their taxable profits through their practices with regard to royalties.

More broadly on the safe harbour provisions, the Institute of Chartered Accountants in England and Wales has also said that in spite of those, it is still concerned that low-margin businesses could face a very high rate of tax on UK-allocated profits. Will the Minister address those concerns?

On clause 49, the Chartered Institute of Taxation has highlighted that the interaction with other national tax regimes, including broadly similar but subtly different unilateral taxes in other countries, will still mean some double taxation, which the Minister talked about in our earlier debate. It describes this as a rough and ready way of reducing such instances by reducing the revenue chargeable by 50% if it arises from a transaction where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. Does the Minister agree with its assessment? What analysis has been done in that area? Has consideration been given to other possible approaches to reduce the risk of double taxation?

[Jesse Norman]

I thank the hon. Lady for her questions. She asks whether the £25 million threshold has the effect of clobbering small businesses. Our view is that the purpose and effect of the thresholds is to levy the tax on the businesses that are best able to afford it, and that to have a global revenue base of £500 million and revenue attributable to UK users above the £25 million threshold is in itself a basis that excludes a vast number of small start-ups—which might turn out to be wildly successful and effective unicorns. We do not believe that the threshold will inhibit growth. If this is a direction in which tax will be going over time, as I rather think it is and as colleagues have suggested, an awareness of how tax will bear on future revenues and profitability is in itself an important part of any business’s market development.

The hon. Lady raised a concern about the safe harbour alternative charge arrangements. That is designed to ensure that the DST is not punitive for businesses with low profit margins or losses, and I think that is appropriate. At the margin, there is a risk that some businesses might try to reconfigure their activities to qualify for that, but I think it will be relatively clear to the Revenue from self-assessment when a business that is intrinsically high-margin is disguising that or is, essentially, seeking to utilise the alternative charge unfairly. It is worth saying that the alternative calculation applies only to in-scope UK activity, so businesses will not be able to reduce profit margins by using out-of-scope or non-UK activity. That is an important safeguard.

The hon. Lady asked about royalties. The tax is designed to work based on the consolidated figures of groups as groups. The concern about royalty payments is that, typically, royalties are used within groups to move revenues around, so, from a gross standpoint, they tend not to fall within the scope of the revenue charge, and they should not. Of course, from a tax-principle perspective, there are perfectly legitimate royalty uses and payments that one would want to continue to allow in any case. The alternative charge takes into account only expenses in the consolidated accounts, and is not therefore principally touched by the concern about intra-group royalties, for the reasons that I have described.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Clauses 46 to 50 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Sixth sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 6th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Financial Secretary to the Treasury (Jesse Norman)]

Clauses 51 to 55 come under the broad heading of a duty to submit returns in relation to the digital services tax. Having established that a group has DST revenues above the thresholds, it is appropriate for a group member, the responsible member, to provide Her Majesty’s Revenue and Customs with the necessary information to assess the tax. That is a sensible way of requiring groups to administer the tax. They need to submit a return to Her Majesty’s Revenue and Customs only when there is a potential liability, and they can stop doing so when it is clear that there will not be a future liability.

The group will be required to continue to submit a single return for each accounting period until an officer of HMRC provides a direction for the group to stop. The direction to stop will be given only when it appears that the threshold conditions will not be met. Put simply, the responsible member will be the point of contact between HMRC and the rest of the group. The effect is to make administering the new tax easier for the groups that will be liable for DST and for HMRC. It means that only a single return for HMRC will need to be produced when a group assesses its DST liability.

Clause 51 sets out which members of the group can be the responsible member and what can prevent a company from being a responsible member. Those are sensible precautions to reduce the burden of the tax as much as possible, recognising that it is intended to be a temporary tax. As we have already noted in Committee, groups are dynamic with members joining and leaving all the time. The best choice as the responsible member for a group at one stage may no longer be the best choice later. It is therefore necessary for groups to have the ability to change the responsible member, but where that happens, it is important that nothing is lost by the change of company, which is achieved by clause 52.

Clause 53 sets out the duty for a group to notify HMRC when it has met the DST threshold conditions set out in clause 45. Groups will have 90 days from the end of the accounting period in which they meet the threshold conditions to make the notification. It is important to say that we have listened to businesses in requiring notification after the period to which the notification relates, which gives groups the opportunity to collect the fullest information possible before making contact with HMRC to notify it of any liability.

As I have mentioned, groups are organic and details will change. Clause 54 sets out the duty for a group to notify HMRC when there is a change to the details registered under clause 53. Finally, clause 55 sets out the obligation of the responsible member to submit a return of information to HMRC.

The clause also introduces schedule 7, which provides further details about the obligations of the group and HMRC in relation to the return and ensures by that means that the figures and the return are complete and accurate. As the tax is new, a new set of rules is required to ensure that HMRC has the powers necessary to ensure that the correct amount of tax is paid by those from whom it is due. The new rules borrow and draw from existing concepts that will be familiar to many tax practitioners. The schedule does not grant HMRC any further powers in relation to the tax that do not already apply to other existing taxes. It grants companies the protections from those powers that they would expect from a fair and balanced tax administration. With that in mind, I commend the clauses and the schedule to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

We have no real issue with the clauses, as they are understandable in the context of the overall measures proposed.

I will draw the Minister’s attention to some technical concerns raised by the Institute of Chartered Accountants in England and Wales, which I hope he can address. In September 2019, it wrote:

“Given the complexities which a business could encounter in identifying and quantifying DST revenues, we are concerned that notification within 90 days of the accounting period is unhelpful. It would make sense to tie this notification into the deadline for filing accounts—6 months for a plc or 9 months otherwise”.

The institute also states that there should not be a need to notify HMRC in advance of the payment deadline, as

“businesses will require more time to review their accounting records, analyse and quantify revenues to decide whether they are”

required to pay under the tax. It recognises that such obligations would not pose a problem for larger digital companies, but would be more problematic for marginal cases requiring “advice and review”, so

“the notification deadline should be aligned with the payment date.”

Regardless of whether we believe that the measures go far enough, or whether the tax is set at an appropriate rate, we believe that its implementation and administration should be fair, to give businesses—in particular those that fall on the margins of the scope of the measure—adequate time to provide accurate calculations of what they should be paying. I invite the Minister to respond to those points to provide some clarification.

[Robin Millar (Aberconwy) (Con)]

As much as we have heard excellent contributions on matters of delivery and on technical matters, which are far beyond my knowledge of accounting and such, it strikes me that, as we are talking about the introduction of a new tax, this is the moment at which we should reflect on its meaning and on the purposes behind it.

The phrase that caught my eye is in clauses 53 and 54 —“Duty to”. My sense is that tax should not be, or should not only be, a catch-up exercise—chasing after developments in industry and the disruption brought to different sectors. Nor should it be about how much money we gather, although that is clearly of keen and close interest to us. It is also about the privilege of membership of a community and of participation in the UK economy. I find it interesting that it falls to a Conservative Government to introduce a tax such as this, which I consider to be progressive in its nature and intent.

In support of that, I pray in aid consideration of the principle of permanent residence, for example. Permanent residence was traditionally attached to the ability to trade in a nation, and tax therefore followed. If not trading in—that is, without that permanent residence—someone would be trading with, so coming under a different regime. Now, we have disruption in the digital economy, which means that we are trading in even though there is no permanent residence.

I also point to the development in the understanding of value over the years. At one point, value was measured in amounts of gold, so the question was one of setting a price, or offering gold in return for something; that was in essence a measurement of weight. The free trade argument slugged that one out with the mercantilist over many years, but the free trade argument won because it made the case effectively that the value of gold could be expressed in terms of the labour required to extract it. Discussions of value therefore moved from a physical object to the notion of labour.

As the Financial Secretary to the Treasury mentioned earlier, we are now talking about user-generated value. The notion of value itself has changed, and there are many debates about what value is and how it is best measured and captured. I suggest that they are extremely relevant to a discussion of tax, especially the introduction of a new one.

To look at tax solely in terms of being punitive, a “fair share” or a certain quantum, is to miss the point. Returning to the issue of leadership that was mentioned this morning, tax properly administered is surely more than a statement of how much money we can collect. It is more a statement of what we are trying to become—tax used as an instrument of government. What kind of society do we wish to become? It is not even, as might be suggested, a statement of how well we can co-ordinate with other nations. For this Government—I am interested in whether the Minister agrees with me—it is a statement of leadership, of what we are trying to become as a nation and, in particular, how we are trying to capture value through the proper encouragement of those industries as they participate in our economy.

--- Later in debate ---

[Jesse Norman]

This group of clauses is again of a rather technical character and deals with some of the more detailed technical requirements of the new tax.

Clause 56 sets out the definitions of the terms “group” and “parent”, which are used to define the companies and revenues that will be taxable for the purposes of the digital services tax. It should be read along with clause 57, which makes it clear that the definition of “group” will be the same as that used for accountancy purposes. The choice of using accountancy definitions to define the group is, again, to reduce the burden of this new tax and to make it as straightforward and comprehensible as possible. Wherever possible, the Government are seeking to minimise the burden of administering the tax by using concepts that already exist and are in common use, if for other purposes.

Clause 58 sets out the conditions that determine if a group has remained the same in different time periods. That will be relevant when members of a group change through acquisition, disposal or otherwise over time. Like the changes to the responsible member, these everyday business transactions of companies joining and leaving groups should not prevent the tax operating correctly and this clause ensures that these changes do not prevent the tax from applying.

Finally, clause 59 sets out the treatment of two or more entities that are treated as stapled to each other and are subsidiaries of a “deemed parent”. This is a technical measure designed to enable the tax to work as intended in the widest possible circumstances. I therefore commend these clauses to the Committee.

[Bridget Phillipson]

These clauses are technical in nature and we have no questions to ask of the Minister.

[The Chair]

I cannot imagine that the Minister wants to sum up.

--- Later in debate ---

[Jesse Norman]

These clauses, which are again of a thoroughly technical nature, provide more details on some of the aspects we have been discussing already in relation to the digital services tax.

Clause 60 sets the time period over which a group will account for revenues from relevant business activities for DST. This will usually be the period of account of the parent company of the group, which reduces the administrative burden as far as possible for these groups. They will be able to use figures they collect for other purposes wherever possible.



Clause 61 sets out how revenues and expenditure will be apportioned when a group’s period of account does not coincide with an accounting period. For example, many groups make up their accounts to 31 December each year. For 2020, their accounts will be for the 12 months to 31 December. However, for DST, their accounting period will only be nine months, from 1 April 2020 to 31 December. There is a mismatch in periods, and this clause enables the accounting figures to be used for DST by taking the correct proportion of those accounting figures.

Clause 62 sets out what is meant by

“revenues arising, or expenses recognised, in a period”

for the purposes of the DST legislation. Both of those terms mean the figures recognised in accordance with the applicable accounting standards for that period. Again, this demonstrates that the Government are seeking to minimise the burden of administration as much as possible by using figures that already exist for other purposes. Finally for this group, clause 63 sets out the definition of various terms relating to accounting standards for the purposes of the legislation. I commend these clauses to the Committee.

[Bridget Phillipson]

Once again, these clauses are technical in nature, and we have no further comments for the Minister in this area.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.

Clauses 61 to 63 ordered to stand part of the Bill.

Clause 64

Anti-avoidance

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 65 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Clauses 66 to 69 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clause 71 stand part.

[Jesse Norman]

These clauses and schedules, again technical in nature, are also essential to the effective working of the digital services tax. Clause 64 sets out anti-avoidance provisions for the tax, and I make clear that the digital services tax has not been introduced to counteract avoidance of other taxes by digital groups. It is not about targeting particular businesses; it is a temporary measure designed to address failings in international tax rules. This clause provides HMRC with the power to counteract arrangements that may be designed or used to reduce the amount of DST that a group may have to pay. There are also safeguards within the clause that ensure the counteraction provisions do not apply when the tax advantage obtained was within the spirit of the rules.

Clause 65 sets out the process by which HMRC can collect unpaid DST liabilities from other members of the same group. This is particularly relevant to DST, as the companies liable to the tax may not be resident in the UK. Therefore, to assist HMRC in collecting unpaid debts, it will be possible for it to issue a notice to other members within a group it intends to collect the debt from.

Schedule 8 is introduced by clause 65, and provides further detail about how the notices operate. The combined effect of clause 65 and schedule 8 is to ensure that unpaid debts are collected wherever possible.

Clauses 66 and 67 set out at which rate, and when, interest will be due or required on DST payments that are made early or late, as the case may be. This will mirror the rates and timings found in corporation tax, and will therefore be familiar to many practitioners.

Clause 68 sets out that any DST liability is recoverable as a debt due to the Crown, the effect of which is to ensure that HMRC can collect any amount of DST that goes unpaid.

Clause 69 simply introduces schedule 9, which sets out provisions for minor consequential amendments in other enactments that are required as a result of the introduction of the DST. Primarily, these relate to interest rates, penalties and other tax administration processes.

Clause 71 sets out the meaning of various key terms used in the Bill relating to DST, and I commend the clauses and schedules to the Committee.

[Bridget Phillipson]

We have no substantial issue with these clauses, and obviously we welcome the inclusion of an anti-avoidance provision. As has been evident throughout the course of the discussions in Committee on this section of the Bill, it is a complex area, and we know that many large digital companies use intricate methods with considerable skill in order to reduce their tax liability. I mentioned earlier that some stakeholders have referred to the need for extra capacity at HMRC to make sure that this tax is properly administered and its impact properly accounted for. How confident is the Minister that anti-avoidance strategies will be adequately detected when the overall difficulties in administering the tax are taken into consideration?

Moreover, the Government’s website states that HMRC must counteract such arrangements by making such adjustments as are just and reasonable. The Minister touched on this in some of our earlier discussions, but I would be grateful if he could elaborate on exactly what a just and reasonable adjustment for tax avoidance arrangements entails. As I have already set out earlier today and in other debates we have had, the scale of tax avoidance practices by digital multinational enterprises is large and the methods that they adopt are intricate. The Government’s record so far in this area does not inspire a great deal of confidence on the Opposition Benches, and I would be grateful if the Minister could allay some of our concerns in this area.

[Jesse Norman]

I am grateful to the hon. Lady for raising those questions.

The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.

It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.

HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.

The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.

--- Later in debate ---

Review of DST

[Bridget Phillipson]

I beg to move amendment 7, in clause 70, page 53, line 8, leave out “before the end of 2025” and insert “within a year of Royal Assent and annually thereafter”

This amendment would require the Government to report on the DST annually.

[The Chair]

With this it will be convenient to discuss new clause 11—Digital Services Tax: review of effect on tax revenues—

(1) The Chancellor of the Exchequer must make an assessment of the net effect on tax revenues of the introduction of the Digital Services Tax and lay a report of that assessment before the House of Commons within six months of the passing of this Act.

(2) This review must also include an assessment of the revenue effect of the Digital Services Tax on tax payable by the owners and employees of Scottish Limited Partnerships.

This new clause would require a Government assessment of the effect on tax revenues of the DST, and in particular the change in revenues associated with Scottish Limited Partnerships.

[Bridget Phillipson]

Clause 70 would require the Treasury to conduct a review of the digital services tax before the end of 2025. Our amendment 7 would require a report to be provided annually. It has become clear from our debates in Committee today that the tax poses a number of different challenges to businesses and Government alike. That is why we have tabled an amendment that calls for a yearly report on the tax.

Earlier in our discussions, I highlighted that there is a substantial gap between the revenues of multinational digital companies and their tax liabilities, and that they are ultimately estimated to be underpaying on what is required. Even the Government’s modest predictions of what the tax will generate are in question. I appreciate that, as we discussed earlier and this morning, it can be difficult to arrive at such estimates with any degree of certainty. That said, the figures for the amounts that the Government intend the digital services tax to generate are quite modest.

I refer again to the OBR’s assessment of the Government’s costings methodology in 2018. It said:

“Every stage of this costing is uncertain. We have assigned uncertainty around data as ‘high’, uncertainty around behaviour as ‘medium-high’ and, given the complex multi-stage costing methodology, uncertainty around modelling as ‘very high’.”

Part of that is due, the OBR states, to behavioural responses, which could include

“reclassifying revenue currently in scope as being out of scope, particularly for groups with mixed business models; altering business models to generate new revenue streams that are out of scope; and profit shifting. The costing allows for attrition rising to 30 per cent by 2023-24.”

It is clear that the already limited takings of this tax could be reduced further by the practices of digital companies to reduce their liabilities. Yearly reporting would confirm whether such concerns are justified and would highlight what more the Government need to do to ensure that such companies pay a fair and appropriate amount of tax. A detailed yearly report would also help us to understand the distributional impact of this tax—whether, as the Chartered Institute of Taxation notes, it under-taxes businesses with high profit margins and over-taxes those with low profit margins.

The merits for regular reporting are also made clear in the Government’s response to their consultation in July of last year. They noted that respondents to the consultation believed that thresholds for the tax should be reviewed and potentially increased over time, given that the digital sector is characterised by rapid growth. Again, as we heard from Government Members, the pace of change in technology requires us to be fleet of foot in our response. Does the Minister not agree that the arguments put forward in his own Government’s consultation make the case for more regular reporting, and even a review of these measures?

Despite the strong justification for regular and transparent reporting, the Government have committed only to a review by 2025. We find it strange that they are unwilling to consider a more regular review of what is, to put it quite lightly, a contentious tax, even if one accepts the principles underlying it, as Opposition Members do.

As I have said throughout the debate, the times we are living through demand much more ambitious action. It is imperative that those with the broadest shoulders—including the digital giants, who are doing pretty well out of this crisis—bear a responsible amount of the burden. I am sure that the Minister would acknowledge that that reflects public sentiment on this issue, which has shifted over time; that is why the Government felt capable and confident about bringing forward this tax in the first place.

Perhaps the Government’s unwillingness to report regularly on the tax is a case of managing expectations, as highlighted by the Chartered Institute of Taxation, which says that the measure is not

“aimed at stopping profits arising in the UK being shifted by multinationals out of the UK to tax havens”,

adding that

“it is unlikely to raise amounts that materially affect the country’s finances, particularly in the context of the amounts being spent on COVID-19 measures.”

Therein lies the importance of yearly reporting, so that we can see how much these companies pay in tax, and whether more needs to be done.

That brings us to some wider issues around tax transparency and the Government’s approach to supporting companies during this crisis. We appreciate that the Government had to respond with real speed in making sure that people stayed in work and that our companies remained afloat in order to emerge from this period. However, at the same time, there can be no excuse for the level of tax avoidance in the UK in recent years. The vast majority of businesses do the right thing, including the many on our high streets that are so well respected and are very much regarded as part of the community, providing a much broader service to the public. I think there will be a growing public expectation that businesses should see that there is fairness within the system.

That is why we have also been urging the Government, in the measures brought forward both here and more broadly, to consider issues around fair tax practices, environmental standards and preventing share buy-backs where pandemic-specific Government and public support is offered to particular industries. One need only look at the action taken by the Labour Government in Wales to understand that it is possible for the Government to bring forward additional measures to safeguard public money, so that we do not see abuse in this area and that we see fair and just tax practices.

We discussed international co-operation and the need for a multilateral response. The Minister will be aware that my hon. Friend the Member for Liverpool, Walton (Dan Carden), who is also a member of our Front-Bench team, has raised with him in parliamentary questions some issues around building support at an international level for comprehensive and effective reform of the taxation of multinationals, instead of advocating partial patch-up measures targeting only the very large, highly digitalised companies, while continuing to adopt unilateral measures such as the diverted profits tax.

The issue around tax transparency specifically is that the UK will not allow the OECD to publish aggregate country-by-country data. I am aware that the Minister said in response to my hon. Friend that that was because of technical deficiencies within the system. I would be grateful if he said more about that. We all want to understand any efforts being made by some of these multinationals to avoid paying their fair share, and we all want to make sure, at this time of national crisis, that our public services can rely on the funding they need to get through this time.

If the takings of the tax turn out to be as limited as some might fear, it would of course further the argument that we need to implement more wholesale and ambitious measures to tax multinational digital enterprises. That is the approach that the Opposition will continue to call for.

I also want to highlight a concern raised by many stakeholders, including the Chartered Institute of Taxation, that there is no sunset clause in the legislation. Does the lack of such a clause suggest that the Government are willing to maintain this measure indefinitely, despite its imperfections; or will they continue to keep it under review? If the latter is the case, it strengthens the argument for annual reporting.

Finally, the new clause tabled by the SNP appears constructive. In many ways, it is similar to our amendment on assessing the effect of the tax, although perhaps within a timeframe within which its impact will not have been fully felt. Although we are sympathetic to the proposal, I should be grateful to hear a bit more about the aspect of the new clause that relates to Scottish limited partnerships.

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[Jesse Norman]

There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.

Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.

The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.

In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.

We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.

[Bridget Phillipson]

I would like to press amendment 7 to a vote.

Question put, That the amendment be made.

Finance Bill (Fourth sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[Jesse Norman]

Again, this is a minor and technical amendment that makes a change to the Finance Act 2019 to remove a potential ambiguity in the spreading rules for businesses adopting the latest lease accounting standards.

The Finance Act 2019 made changes to the income and corporation tax rules for businesses leasing assets in order to allow rules to work following the introduction of international financial reporting standards 16. That legislation was designed to ensure equitable treatment for businesses by spreading the tax effects of adopting IFRS 16 over the average remaining terms of asset leases. Consequently, the Exchequer impact of those changes would also be spread out.

It was subsequently brought to the Treasury’s attention that minor aspects of the legislation did not work as originally intended. To address that, this clause makes minor amendments to the legislation, clarifying how the rules ought to be implemented. The Government published the amendments in draft on 11 July 2019, and they were well received by stakeholders.

The changes made by clause 34 clarify that firms ought to spread the tax effect of changes in adopting IFRS 16 over the average remaining term of asset leases. The changes are to be treated as having always had effect from 1 January 2019. They will affect only businesses, and they will have no novel impacts. They provide for only modest amendments to deliver on the policy intent agreed by hon. Members in the Finance Act 2019.

Making these clarificatory amendments will ensure that the legislation introduced in the Finance Act 2019 operates as intended, and therefore that there is fairness, certainty and stability for all businesses when applying the relevant accounting rules. I therefore commend the clause to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to welcome you to the Chair, Ms McDonagh, and to take up the case for the Opposition on what my hon. Friend the Member for Ilford North described as the more technical aspects of the Bill. I am sure we will continue to enjoy debating these clauses none the less.

The Opposition do not object to the principle behind this clause, which appears straightforward and achieves its aim. Bringing leases on to the balance sheet is a welcome step in achieving greater transparency in our system. The Opposition believe that there is a very important need for the Government to continue to do more in this area. I simply ask the Minister why this was not done sooner.

I am keen to raise the broader issue of tax transparency and tax fairness in our system as a whole. Our small and family-run businesses are operating in a very difficult climate due to the ongoing pandemic, and they want to have confidence that everyone is playing by the rules and that there is fairness across the system. We know from various documents that we continue to have an ongoing problem with tax avoidance and the broader tax gap in our country.

I am always grateful to the House of Commons Library for providing additional material in this area. It is a wonderful source of useful information, research and analysis, especially for Opposition Members; our ability to undertake some of this research ourselves is a bit more limited, as we do not have access to the fine officials who the Minister has the privilege of working with on a daily basis. The Library has put to us that the wider tax gap for income tax, national insurance contributions and capital gains tax was estimated at £12.9 billion in 2017-18, based on HMRC documents; there are other assessments, of course.

I am sure that the Minister will want to make sure that we do everything in our power to ensure that there is fairness right across the system, particularly at this time. We believe that income must be more tightly tied to tax treatment, with tax liability going up with income, so that the Government can fund, and can ensure that we have revenue available to fund, our vital public services—not least now, at this very trying time for our country.

We hope that this change and the future legislation that the Government might seek to bring forward will be developed in the same spirit of creating greater transparency within our system. We also hope that the pressures that Ministers and officials are under at this time will not divert them from the necessary action that they must continue to take, to ensure that we have greater transparency and that everyone pays their fair share. We also want to make sure that HMRC has all the resources and staffing it needs to do this work to the best of its ability.

[Jesse Norman]

I am very grateful to the hon. Lady—what an effortless tag team she and the hon. Member for Ilford North make! It is good to see them in action.

The hon. Lady’s points are very well made, and I hope she recognises that the Government take these issues seriously—not just avoidance and evasion, and, in a separate category, fraud, but the wider question of fairness. It is absolutely right that we should do so. In an environment where the vast majority of taxpayers pay tax as due, in good time and do not become subject to any enforcement proceedings, it is all the more vital to maintain that consent and recognition of the public fairness of the system. She is absolutely right about that.

I hope that the hon. Lady will see that some of the issues that we have been facing in this Finance Bill and its predecessors, be they the loan charge or IR35, have reflected a persistent desire of the Government to see fairness through, despite some pretty strong headwinds. Also important is the ability to strike a fair balance within each of those schemes; we have discussed the loan charge and the Amyas Morse review, which is designed to ensure the right balance, even within that area.

However, I also draw attention to other important aspects. As the hon. Lady will be aware, we have announced a consultation on a strategy that takes a much more vigorous approach towards tackling the promoters and enablers of tax avoidance. I hope she will note that there continues to be a robust enforcement process within HMRC—one that has been carefully modulated and restrained in the context of coronavirus, but has not been in any sense left off thereby.

I will also say a couple of other things of which the hon. Lady may be less aware. One is that because of the concern about the balance of powers, which has been raised in part by the Lords Economic Affairs Committee and others, we now have a customer experience committee within HMRC. It has also brought in a series of experts who understand what might be called effective and successful customer and taxpayer treatment, bringing them in from other sources across the private sector to make sure that people do feel well treated and well handled, and that it is not a bruising process to have an interaction with HMRC. That sense of the importance of maintaining consent, and of Revenue and Customs not being oppressive while remaining highly effective in ensuring that people pay the right tax due, is a balance that both HMRC and the Government are constantly seeking to strike.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Enterprise investment scheme: approved investment fund as nominee

[Stephen Flynn]

I beg to move amendment 4, in clause 35, page 34, line 3, at end insert—

“(13) The Chancellor of the Exchequer must, no later than 5 April 2021, lay before the House of Commons a report—

(a) analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme, and the changes in those effects which it estimates will occur as a result of the provisions of this Section, in respect of;

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland;

(b) assessing how the Enterprise Investment Scheme is furthering efforts to mitigate climate change, and any differences in the benefit of this funding in respect of—

(i) each NUTS 1 statistical region of England and England as a whole,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland; and

(c) evaluating the lessons that can be drawn from the effects of the Enterprise Investment Scheme with respect to the encouragement of both private and UK Government-backed venture capital funds in the devolved nations of the UK.”.

This clause would require the Chancellor of the Exchequer to analyse the impact of the existing EIS and the changes proposed in Clause 35 in terms of impact on the economy and geographical reach; to assess the EIS’s support for efforts to mitigate climate change; and to evaluate the Scheme’s lessons for the encouragement of UK Government-backed venture capital funds in the devolved nations.

The amendment is, hopefully, straightforward and one on which Members can agree. As things stand, as we all know, the enterprise investment scheme facilitates investment firms by offering a tax relief to individual investors of up to £5 million a year, and £12 million over a company’s lifetime. Scotland has an extremely strong financial services sector: a recent EY survey showed that we attract more foreign direct investment than any part of the UK outside London. Indeed, my own city of Aberdeen is well known for securing investment, and regularly battles ahead of cities of a far greater scale.

However, with little financial services power, we are unable to fulfil Scotland’s potential in respect of domestic venture capital. Venture capital in the UK is highly concentrated in the golden triangle—London, the south-east of England and the east of England—which received 73% of all venture capital between 2016 and 2018, according to the British Venture Capital Association. That disparity is also reflected in the EIS. Between 2015 and 2018, only 210 Welsh firms benefited from the EIS, receiving only 1.3% of the total investment. In contrast, the golden triangle received 67% of all investment, with the average UK angel investment per firm being 40% higher than in Wales.

We support Plaid Cymru’s attempts to get Westminster to own up to its failure to get investment into Wales. The amendment would force the UK Government to officially consider the unsustainable concentration of private investment in one region of the UK at the expense of all devolved nations. As the UK Government narrow the applicability of the EIS, they need to consider how that will affect the ability of firms in other areas of the UK economy; how EIS—a tax really funded by taxpayers—could benefit us all by addressing climate change; and how they can encourage the establishment of venture capital funds, and therefore private investment, in the devolved nations.

I will focus briefly on climate change once again. As I said, we cannot escape the climate crisis in front of us. If we have the opportunity to do more, and if we have the ability to leverage investment in a way that allows us to combat the climate crisis, that is surely something that we should all seek to achieve. With that, I bring my remarks to a close. I hope that Members will be minded to support the amendment.

[Bridget Phillipson]

We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.

The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.

We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.

I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.

The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.

The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.

In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.

Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.

The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.

I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.

[Jesse Norman]

I am glad to be able to address clause 35 and the questions the hon. Members for Aberdeen South and for Houghton and Sunderland South have raised.

Clause 35 changes the approved enterprise investment scheme fund rules to focus investments made through such funds on knowledge-intensive companies. It provides additional flexibility for fund managers to make subscriptions in shares and for investors to claim relief. Fund managers will have more time to deploy capital raised, and investors will be able to claim relief one tax year earlier than previously when using an approved fund.  The EIS encourages investment in smaller, higher risk trading companies by offering tax reliefs to individual investors who subscribe for new shares in qualifying companies.

A knowledge-intensive company is defined as a company that has spent a defined proportion of its operating costs on innovation and/or R&D and either creates intellectual property or has a defined proportion of its employees with advanced degrees. The intention to change the existing approved fund structures to focus on knowledge-intensive companies was announced at autumn Budget 2017 as part of the Government’s response to the patient capital review.

The Government consulted on new rules and outlined its response at Budget 2018, which set out planned additional flexibilities for fund managers and investors using this structure. The changes made by clause 35 set out the requirements that must be met for investments to be considered as made via an approved knowledge-intensive fund. They include investing at least 80% of capital raised into knowledge-intensive companies and deploying the majority of capital raised within two years.

Amendment 4 would require the Government to review the economic and geographical impacts of the existing EIS and the changes to approved fund structure, and how far they support wider efforts to mitigate climate change. I understand and appreciate the intention of hon. Members to use EIS more strategically to help with mitigating climate change and to ensure that the benefits of EIS are spread more widely across the country, but I put it to the Committee that the amendment is not necessary.

It is worth reminding ourselves of the principal purpose of EIS. It is designed to address a specific market failure, which is that younger, innovative companies across the UK struggle to get access to patient and long-term equity finance to grow their businesses and to develop the innovative products that consumers may want in future. It is not designed specifically to help certain types of companies—for example those that operate in certain parts of the country or certain sectors. The scheme operates on a neutral market basis, and there is no requirement for that companies use EIS funds in specific ways, such as to develop products linked to the fight against climate change.

I completely understand that Opposition Members would like us to collect more information about how attractive EIS is to companies in different parts of the country. HMRC already publishes statistics about where fundraising companies have their registered offices and where EIS investors have their main household. However, it is also worth reiterating the limits of what we know.

Her Majesty’s Revenue and Customs knows where a company’s registered office is, but companies that benefit from the scheme are free to place their registered offices and places of establishment for EI purposes wherever they please in the UK. A registered office in the south-east may not mean that that investment is going into the south-east, because a registered office does not need to be in the same place as where the bulk of the staff are employed.

The hon. Member for Houghton and Sunderland South is concerned that there might be a lack of clarity in the structure, so let me shed some light on that. The measure limits approved fund status to companies that invest 80% of their capital into knowledge-intensive companies and extends the period in which approved knowledge-intensive fund managers must subscribe for shares in those companies from 12 months to 24 months, provided that 50% of the qualifying individual investment is invested within the first 12 months and 90% within 24 months. It allows the investor to carry back the claim for income tax relief to the tax year preceding the tax year of the fund closure. I would suggest that, within the limits of a description within legislation, that is relatively clear.

The hon. Lady also raised a question about regional investment. Again, I fully share her concern, and the Government’s levelling-up agenda is designed to address that very issue. I must say that across my different ministerial jobs, I seem to spend most of my life investing in the north-east of England, one way or another—the massive pivot towards offshore wind has been nothing but good to that area, and I remember making a substantial investment in the Tyne and Wear Metro and the A19 when I was at the Department for Transport—so I hope that the hon. Lady does not feel that there is any lack of love for or investment in that part of the world from this quarter.

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[Jesse Norman]

The clause introduces the gripping topic of top-slicing relief on life insurance policy gains. It makes changes to ensure that the calculation of top-slicing relief on life insurance policy gains operates fairly and prevents excessive relief from being claimed. This measure supports the Government’s objective, already discussed in the Committee today, of promoting fairness in the tax system by ensuring that the relief is calculated in a fair and consistent way.

Life insurance policy gains arise, for example, when an investment bond is surrendered or matures. In this case, the gain accrues over the lifetime of the policy but is taxed in one year, which can result in gains being taxed at the higher rate. Top-slicing relief, or TSR, was introduced in 1968 as a mechanism to mitigate the impact of that higher tax charge. The principle behind TSR is simple: a taxpayer should not pay a higher rate of tax on their life insurance gain just because all of that gain falls to be taxed in a single year. Instead, the rate of tax on the gain should reflect the fact that it was accrued over the lifetime of the policy, assuming it rose in even amounts over the years during which the policy was held.

The calculation for TSR was intended to be straight- forward. However, changes to the personal allowance from 2010 have led to unintended complexity. A recent first-tier tribunal case brought into question how TSR interacts with the restriction to the personal allowance for higher rate taxpayers, creating uncertainty for taxpayers and a significant administrative burden for HMRC. It is for those reasons that we are making a change and a clarification to TSR in the Bill. I turn to both of those things.

The change made by the clause will permit personal allowances that have been reduced because the gain arises in one year to be reinstated in the TSR calculation. The gain will now be treated as if it arose in even amounts over the years during which the policy was held when determining the availability of the personal allowance in the TSR calculation. The change comes at an estimated cost to the Exchequer of £15 million per annum, but it provides a fairer result for those taxpayers who would otherwise have been taxed on their gain only because that gain has fallen in one year and reduced their personal allowance.

The clause will also put beyond doubt the principle that taxpayers cannot set their gain against their personal allowance first, in preference to their other income, in the TSR calculation. That will ensure that higher-rate taxpayers cannot get the benefit of the relief by effectively taking the benefit of the personal allowance more than once when calculating TSR. That will prevent excessive relief from being claimed and, in turn, protect £240 million of revenue.

The measure is estimated to affect around 2,000 of the 45,000 taxpayers who are entitled to top-slicing relief every year. The clause ensures that the taxpayers receive all the relief that they are entitled to and makes clear that taxpayers who seek to claim excessive relief will no longer be able to do so. It will ensure that top-slicing relief continues to operate in line with its original policy intent, and will therefore provide a fair and consistent outcome for those taxpayers who are entitled to claim the relief. I commend the clause to the Committee.

[Bridget Phillipson]

Before I turn to the substance of clause 36, and without dwelling on it too much, I will take slight exception to the Minister’s comments around the so-called levelling up agenda and the last 10 years. First, though, I must commend him—he is one of the few Ministers I have come across who understands how to pronounce my constituency name properly. He has great north-east knowledge, which will stand us in wonderful stead for the years ahead, when we can make sure that Sunderland and the wider north-east get their fair share of Government investment.

On clause 36, we note the Government’s stated objective of creating fairness in the UK tax system, ensuring that top-slicing relief is calculated in a fair and consistent way, and of seeking to provide legislative clarity. However, there are some issues that still remain around the language of the clause, regarding the treatment of gains before 11 March 2020.

In response to the clause, the Chartered Institute of Taxation noted:

“The amendments made by clause 36 have effect…from the tax year 2019/20. It is not clear why the amendments, which are clarificatory in nature and in accordance with the original policy intent, should not be extended to years prior to 2019/20 to provide the same clarity for taxpayers in respect of earlier gains.”

It also comments that,

“as clause 36 is not retrospective, an individual who is liable to tax in respect of gains from chargeable events before 2019/20 and who wishes to reinstate the personal allowance within the calculation for TSR will instead need to rely on the basis agreed in Silver v HMRC. Decisions of the First-tier Tribunal do not create a legally binding precedent.”

It argues that it is

“not clear whether or not HMRC will accept claims for repayment from taxpayers with gains in years prior to 2019/20.”

The Minister touched on this point in introducing the clause, but I would be grateful if he could clarify whether he intends for HMRC to accept repayment from taxpayers with gains in years before 2019-20. If he does not, as the language stands, do the provisions of the clause still affect taxpayers fairly?

The Chartered Institute of Taxation also notes that the approach is different from the approach in clauses 100 and 101, which we will come to later, which put

“beyond doubt that the relevant rules work as designed and intended but apply both prospectively and retrospectively.”

What assessment does the Minister make of that point?

The institute also draws attention to the fact that clause 36 specifies how reliefs and allowances are set against life assurance policy gains:

“The personal savings allowance does not operate as a typical allowance. It is a nil rate band of tax that does not extend the basic or higher rate bands. The draft legislation should specify that the personal savings allowance is not an allowance for this or any other purpose.”

It regards the term “allowance” as “an unhelpful misnomer”. I would be grateful if the Minister would address that point.

HMRC also notes that the clause will only really affect those with above-average earnings. We have considered that point more broadly in other aspects of the Bill; it points to something of a pattern in the measures that the Government are bringing forward. Over a significant period—over the last decade—we have seen that the impact of changes, whether that is spending reductions or the broader impact of Government policy, has fallen more sharply on those with less ability to make a contribution. Earlier in proceedings, we discussed the distributional impact of Government measures after 2010. We have seen a disproportionate impact on those from lower and middle-earning backgrounds. That cannot be sustained, not least in the current situation.

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[Jesse Norman]

Again, this is a small and technical clause. It widens the scope of share loss relief for income tax and corporation tax so that it applies to shares in companies carrying on a business anywhere in the world and not just in the UK.

Share loss relief is available where an investor or investment company makes an investment in qualifying shares that are later disposed of at a loss. The relief enables the loss to be set against taxable income, rather than against capital gains under the normal rules. Qualifying shares are shares to which the enterprise investment scheme, EIS, or the seed enterprise investment scheme, SEIS, are attributable, or in a qualifying training company, as defined in statute, which can be summarised as a small or medium unlisted trading company that carries on its business wholly or mainly in the UK.

The measure will change the existing statute so that investors can claim relief no matter where the business is based, providing added protection for those investing in high-risk enterprises. It will be backdated to proposals made after 21 January 2019. A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.

The UK has now left the EU and has agreed to follow its rules for the duration of the transition period. On 24 January 2019—hence the date—the European Commission issued a reasoned opinion arguing that applying SLR to shares only in UK companies contravened the free movement of capital principle. The Government accepted that the legislation as drafted was too narrow and agreed to introduce legislation to expand the rules and, thereby, comply with the principle.

The change made by clause 37 widens the relief so that it applies to shares in qualifying businesses worldwide, not just in the UK. The proposed changes are expected to increase the cost of the relief to the Exchequer by £5 million in 2020-21, increasing to £15 million per year thereafter.

The Government consider that this legislation strikes the right balance between supporting overseas investment opportunities for UK-based investors and meeting our residual obligations to the European Union for the free movement of capital. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The Opposition welcome the intention behind this clause, and the statement of the Minister seems straightforward in terms of what the Government are seeking to achieve in this area. For future trading to be as streamlined as possible, it is important that the Government introduce this measure to ensure compliance with article 63 of the treaty on the functioning of the European Union after the end of the transition period.

However, on the transition period—we touched on this this morning, and my hon. Friend the Member for Ilford North raised this issue—we have, sadly, not had the kind of regular updates we would like in the House around ongoing negotiations. We all want the Government to succeed, and we want to secure a great deal for our country, but we want to be confident that the Government are making progress and are on the right track.

Some of the reporting we have seen lately suggests that—for a number of reasons, some of which are entirely fair, given the unprecedented crisis in which we find ourselves—Ministers and officials have found things hard. I understand how difficult it must be to operate during this time, but the pandemic has highlighted how important it is that we ensure everything is properly aligned at the end of the transition period and that we secure an excellent deal, because so much depends on it—workers’ rights, businesses and our ability to export.

We want to avoid any further disruption to our economy. We have been through a very difficult time—we are still going through a very difficult time—for businesses large and small, and not least for our manufacturing sector and our world-class exporters. We want to avoid any further disruption to the economy, at the border or in people’s lives.

The Government have variously described the deal they will secure as

“a great new deal that is ready to go”,

“ambitious”, “broad”, “deep”, “flexible”, “a balanced economic partnership” and “oven ready”—that is one I recall particularly well from the recent general election campaign. Given all of that, I am sure that we will have no difficulty at all, notwithstanding the big challenges we face around the pandemic, and that we can ensure we do not have tariffs, fees or charges, so that our world-leading industries can continue to do well.

On clause 37, especially, businesses will, according to HMRC, need to familiarise themselves with tax changes, make the decision on whether to claim for the loss, determine the tax residency of the company that issued that shares and inform HMRC of this information. I would be grateful if the Minister could assure us that there is no prospect of exploitation in this area and that the Government will do all they can to ensure fairness across the system, so that we do not end up with companies potentially claiming this relief in a way that was perhaps not intended in the scope of the legislation and in the measures that Ministers are quite sensibly seeking to set out here.

[Jesse Norman]

I feel almost sad to be winding up on the final clause of this very good day. I thank the hon. Lady very much for her questions. Regarding the transition period, she has said she is sure the deal will be smooth and tariff-free. In that, she shares the Government’s high hopes and expectations for a deal with the EU. There is not much more I can add to that.

On the prospect of exploitation, I cannot give her, I am afraid, the guarantee she seeks, because if there is anything that my five years on the Treasury Committee and one year as Financial Secretary have taught me it is that there are no limits to human ingenuity in exploiting aspects of the tax code contrary to expectation, so there is some possibility of exploitation. The comfort I can give her is that, as this change is mandated as a result of compliance with an EU procedure, once we are free from the transition period, we will have the ability to make a sovereign change to our own legislation that remedies any concerns that are raised and any risks to the Exchequer that thereby arise.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)