Finance Bill (Third sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

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

Thank you very much indeed, Mr Rosindell; it is a delight to see you in the Chair.

I start by saying that we are at the point in “The Pilgrim’s Progress” where we are about to enter the slough of despond, and I apologise to all colleagues that the slough is a rather extended period of technical amendments. I can promise them that in due course we will enter the place of deliverance, although possibly not for some time.

Clause 21 raises both pensions tapered annual allowance thresholds by £90,000 each and also lowers the minimum annual allowance to £4,000. The Government provide tax relief on pension contributions. To give some background, in 2017-18 income tax and employer national insurance contributions relief cost £54 billion, of which 60% went to higher and additional-rate taxpayers.

The Government therefore impose limits on pensions tax relief. One of these limits—the tapered annual allowance—has affected some senior clinicians in the national health service and also some individuals in other public service workforces. This measure is the outcome of the Government’s manifesto commitment to carry out a review of the impact of the tapered annual allowance on the NHS. That review built on another review of the effect on public service delivery more widely, which was announced last August. Roundtable discussions with public service stakeholders, including representatives of the health professions, were held as part of these reviews. These reviews concluded at the Budget on 11 March.

In the last tax year, in recognition of the impact that the tapered annual allowance was having on some doctors, NHS England announced a special arrangement, for 2019-20 only, in which doctors in England could use that arrangement to ensure that they would not be worse off as a result of taking on extra shifts. As health is a devolved matter, that special arrangement applied only to England, but we are aware that the Welsh and Scottish Governments also put similar arrangements in place during 2019-20 for NHS staff.

Raising the two thresholds at which the tapered annual allowance applies by £90,000 each is the quickest and most effective way to solve this issue for senior doctors and other clinicians. It delivers a tax solution, which has been the British Medical Association’s primary request, and it comes into effect from 6 April, which is the beginning of the current tax year.

The changes made by clause 21 mean that no one with income below £200,000 will now be caught by the tapered annual allowance. The annual allowance will only begin to taper down for individuals who also have total income, including pension accrual, above £240,000. We estimate that this will take up to 96% of GPs and up to 98% of NHS consultants outside the scope of the tapered tax allowance, based on NHS earnings alone.

As this is a tax change, these measures will apply both to clinical and non-clinical staff across the whole UK, and they will apply in the same way to all workforces. These measures will also apply equally across public and private sector registered pension schemes. However, to ensure that the very highest earners pay their fair share of pension tax, the minimum level to which the annual allowance can taper down is reducing from £10,000 to £4,000 from the beginning of this tax year. This will affect only those with a total income, including pension accrual, of over £300,000. These measures will cost over £2 billion over the next five years.

The changes demonstrate that the Government are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments as a result of the interaction of their pay, their pension and the tapered annual allowance tax regime. This meets the Government’s commitment to allow doctors to spend as much time as possible treating patients, and supports vital public services while ensuring that the very highest earners pay their fair share of tax. I commend the clause to the Committee.

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

It is a pleasure to welcome you back to the Chair this morning, Mr Rosindell.

The Opposition welcome the Government’s efforts to resolve the issue. Hon. Members will know that the primary function of introducing the tapered reduction of the annual allowance in 2016 was to prevent tax avoidance in the private sector, but whatever the original intention of the tapered annual allowance threshold, its impact was not properly considered. The result has been damaging to our NHS: as the Financial Secretary says, it has led to a situation in which senior practitioners have refused to undertake extra shifts because of the tax impact, and in many cases have taken early retirement.

According to a British Medical Association survey, just under a third of doctors have reduced the number of hours they spend caring for patients because of actual or potential pension taxation changes, while 37% of those who have not yet reduced them plan to do so in the next year. That is perhaps unsurprising considering the nature of the tapered annual allowance: as the BMA sets out, it creates a tax cliff edge whereby doctors effectively pay to work. Although the Treasury and HMRC have repeatedly stated that tapering affects only people with earnings over £150,000, in defined benefit schemes it has created a tax cliff at the income threshold of £110,000, which means that those in defined benefit schemes may face additional tax charges of up to £13,500 if they exceed the tax threshold income by just £1, while some could face effective tax charges greater than 100%.

Of course, we should recognise that that is not the only factor contributing to the real problem of staff retention in the NHS. Aside from the impact of coronavirus, hospitals and A&Es have been overstretched for years, increasing numbers of people are waiting too long for operations, and key performance targets are being missed month after month. We also face a chronic lack of family doctors; as the Nuffield Trust has highlighted, we have seen the first sustained drop in GP numbers in 50 years, which adds to the pressures on remaining staff. The problem is particularly acute in certain parts of the country: in Sunderland and the wider north-east, we can see the same picture at a much bigger level, where we face a real challenge to recruit and retain family doctors.

The doctors I speak to are always striving to do the best they possibly can in challenging circumstances, but we must acknowledge that the stress they have been placed under, due to the underfunding and neglect of our NHS by this Government, has made the situation even worse. The pension situation that many have faced since 2016 has no doubt proved to be the final straw, as doctors have opted not to take shifts, or to retire early. As we have seen, that is complicating efforts to retain such important NHS staff.

The situation would be unsustainable even if we were not facing the impact of coronavirus, but the additional pressures on doctors, many of whom will have taken on extra shifts, make resolving the issue more pressing than ever. All of us owe a debt of gratitude to those NHS staff who have put themselves on the frontline, in harm’s way, to do all they can in the national interest at this very difficult time for our country.

It is important to note that the problem is not exclusive to staff within the NHS; the annual allowance is a problem in other defined benefit schemes, including for the armed forces. As the Forces Pension Society states,

“in 2018 almost 4,000 serving military personnel, including those in non-commissioned ranks, received notification that they might have exceeded their annual allowance limit and for many a significant tax charge followed—well ahead of receiving any of the future benefit on which the tax is levied.”

The society argues that

“unless action is taken, there is a real risk to retention and operational effectiveness”—

a concern also highlighted by the Ministry of Defence.

We all owe it to those in our public services and our armed forces, who do so much to care for us, protect us and keep our country safe, to make sure that they are treated fairly and can plan effectively for their pension and later life. It is clear that that has not happened as a result of the changes implemented by the Government in 2016. The proposed measure does at least promise to address the issue in part and in the short term and the BMA has stated that the vast majority of doctors are now removed from the effect of the taper. However, there are still concerns, and I hope the Minister will be able to respond to them.

The proposed tax change would take effect only from 6 April 2020; as the Minister will know, the additional pressures created by covid-19 began before that point. As the Chartered Institute of Taxation has identified, that means that doctors who took on extra shifts during this period face the risk of being hit by higher tax bills later. What consideration has been given to the issue of medical staff who have made extra efforts during this crisis, but before 6 April 2020? Has any analysis been undertaken of the scale of the problem and will any measures be necessary to address it?

Given that the purpose of the clause is to reduce and reverse the trends with doctors not taking shifts and retiring early, I would also welcome confirmation from the Minister that the Government intend to monitor the impact of the clause on an ongoing basis, to ensure that it is having its intended effect.

We have concerns more broadly because, as the Minister said, the proposed change would benefit all high earners, not just NHS staff and those in our armed forces that the clause ostensibly targets. Monitoring the effect on taxation revenue will also be critical, because the Opposition want to see fairness right across the system. Although the measure seems to address the issue in the short term, the Minister will be aware of the wider concerns about whether the tapered annual allowance is appropriate in general.

The Office of Tax Simplification has suggested removing the annual allowance from defined benefit pension schemes, and that move was supported by the BMA. As it said in its response to the 2020 Budget, although it welcomed the Government’s proposal in part, problems remained, given that many doctors with incomes far below the new threshold will face tax bills as a result of exceeding the standard annual allowance, which remains at £40,000. That can happen simply following a modest rise in pensionable pay—for example, when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. The BMA has added that there is no change to the lifetime allowance and many doctors will still need to consider taking early retirement.

The Minister will no doubt be aware that the former Pensions Minister, Baroness Altmann, has similarly warned that just raising the threshold of earnings at which the tapered annual allowance starts will certainly not solve the underlying problem. She has called for fundamental reform to provide those in defined benefit schemes with greater certainty into the future. The Opposition support that call for broader consideration of the issue.

All that brings us to wider considerations around pension tax relief and whether the system as it operates works as well as it could. The Chartered Institute of Taxation, among others, has said that a review of how tax relief applies to pension savings should be considered, given that the solution that the Government have presented here has only been achieved at significant cost to the Exchequer and to the benefit of many higher-earning people, beyond our medical and armed forces staff. Will the Government consider such a review and think more widely about creating a simpler, fairer and more sustainable pensions system?

[Jesse Norman]

I thank the hon. Lady for her remarks and for welcoming these measures. She expresses what I know will be the universal sentiment in this Committee: a sense of profound gratitude to the NHS for the astonishing way in which it and all the public services around them have responded to the crisis posed by coronavirus. I certainly echo that.

The hon. Lady talked about underfunding of the NHS. I really do not recognise that at all: the NHS has been very well funded, with continuous above-inflation funding settlements. In relation to coronavirus alone, public services have received over £16 billion, the NHS central among them. However, that only underlines the point that extraordinary work was being done by the NHS before, and it throws into greater relief how flexibly, energetically and effectively it has responded to the coronavirus pandemic. I think that shows the inner resilience of the organisation.

The hon. Lady asked about people somehow being deterred from taking extra shifts in the NHS. She will be aware that NHS England put in place its own measures for last year, and we understand that parallel measures were implemented in Scotland and Wales.

The effect of the change, which begins in April, is to give a sufficiently generous increase in the annual allowance thresholds so that up to 96% of GPs and up to 98% of senior medical staff will be out of scope of the tapered annual allowance as regards their NHS earnings. It is interesting to note that, as the hon. Lady rightly acknowledges, that has been widely recognised by the key institutions. The BMA said:

“The vast majority of doctors are now removed from the effect of the taper and will no longer be in a situation where they are ‘paying to go to work’”

as they see it. NHS Employers said:

“Employers across the NHS will welcome this significant step in reforming pensions taxation.”

That is all to the good.

The hon. Lady asked whether we will monitor the clause’s impact. The Treasury will of course monitor it as we do the effects of taxation across the piece. This reform will retain a certain political currency and therefore, I think, support and enthusiasm across the Committee. She also asked about fairness across public services. She will be aware that one of the benefits of a tax reform is that it offers fair treatment across those public services, irrespective of how people work.

The question of whether the allowance taper should be removed has been scouted by some. Of course, unless it was replaced by some other approach, it would have the effect of there being no corresponding reduction in the capacity to add pensions relief. The absence of a taper would therefore create precisely the cliff edge that the hon. Lady warned against.

The hon. Lady mentioned the idea of a review. She will be aware that the Treasury had a review only a short number of years ago, which was inconclusive. We continue to reflect on this complex and difficult area of taxation and will do so as we ponder the future fiscal effects. With that in mind, I hope the Committee will agree that the clause should stand part of the Bill.

Question put and agreed to

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Entrepreneurs’ relief

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

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Furthermore, the effects of the changes to the relief will not be visible within six months’ time. As with all tax reliefs, we will continue to review and monitor the effects of this change as standard. I therefore encourage the Committee not to accept the new clause. The Government believe in supporting entrepreneurs and small-business people. Despite calls to abolish the relief, we are introducing sensible reforms designed to ensure that the Government can continue sustainably to encourage the majority of small-business owners. I commend the clause and schedule to the Committee.

[Bridget Phillipson]

I begin by acknowledging that the action on the relief is welcome, even if we believe it is overdue and could go further. The Minister might be familiar with the Resolution Foundation’s description of the entrepreneurs’ relief as “the worst tax break” that is, “expensive, ineffective, and regressive”. According to HMRC, it cost an estimated £2.1 billion in 2019-20 alone. Before responsibility is laid at the door of the previous Labour Government for introducing the measure, I should argue that many of the undesirable effects have followed changes made post-2010. I thank the House of Commons Library for providing me with a timeline of the changes made to entrepreneurs’ relief since its introduction in 2008, which has allowed me to illustrate that point.

The relief was introduced by the then Chancellor, Alistair Darling, in 2008 with the goal of promoting entrepreneurship in the UK and making us a world leader in the field by encouraging business owners selling up to reinvest the money into new businesses. The 2008 Budget established that the relief would set an effective tax rate of 10% for up to the first £1 million of gains made over a lifetime, which was increased to £2 million from April 2010.

In the coalition Government’s first Budget on 22 June, the then Chancellor, George Osborne, announced that the lifetime limit for entrepreneurs’ relief would be set at £5 million, while the single flat rate of capital gains tax would be replaced with the higher 28% rate paid by higher rate taxpayers. As part of the Government’s second Budget in March 2011, it was announced that the lifetime limit for entrepreneurs’ relief would be increased to £10 million from 6 April 2011.

When the relief was introduced by the Labour Government, the estimated cost was £200 million a year: the generous uprating of the lifetime limit under the coalition Government has undoubtedly contributed to its ballooning cost. Perhaps the cost would be justifiable if it had been shown to have a positive impact in boosting investment in jobs across our country, but there is no evidence to suggest that that has been the case.

The Institute for Fiscal Studies has calculated that, in 2017-18, three quarters of the £2.3 billion cost of entrepreneurs’ relief benefited only 5,000 individuals, with an average tax saving among that group of £350,000. The Resolution Foundation highlights HMRC data that shows that 82% of those who benefited have been male and in their late 50s, and that the majority of capital gains tax revenue is concentrated in London and the south-east. The 2017 HMRC evaluation found that only 8% of people claiming entrepreneurs’ relief in the previous five years had said that it influenced their investment decision making. That demonstrates the extent to which the relief was not working as intended, and the necessity of Government action.

Putting aside whether the approach taken by the Government is the right one, there are some technical issues that I hope the Minister can clarify. The Chartered Institute of Taxation has expressed a degree of surprise at the lack of transitional provisions, given that the capital gains tax changes are retroactive, affecting gains that have already accrued but not yet been realised and investment decisions that have already been made. The institute has also expressed concerns about the strength of the anti-forestalling measures for what is a change of policy rather than anti-avoidance legislation, saying it regards one aspect of the measures as open to challenge as retrospective taxation because the Government are changing the tax effect of an action after the right to take that action has arisen. Having sought legal consultation, it fears that may even be a breach of human rights. It has suggested changing the clause to allow a shareholder whose shareholding no longer qualified for entrepreneurs’ relief immediately after an exchange of shares to elect to retain the £10 million limit. Will the Minister tell us what consideration the Treasury has given to the issue?

What consideration have the Government given to going further than the measures contained in this clause? As I have sought to set out to the Committee, entrepreneurs’ relief is costly and is failing to achieve its objective. The Minister is aware, no doubt, that any number of organisations are critical of maintaining it in any form, although the criticism is not unanimous. The Federation of Small Businesses has voiced its concerns and believes that removing entrepreneurs’ relief would disincentivise employee ownership by reducing the value of businesses as they are handed over. Can the Minister say anything by way of reassurance to the Federation of Small Businesses, and does he agree with its assessment?

Many others remain critical and that is where the majority of opinion rests. The Institute for Fiscal Studies has stated that the £1 million relief in the clause is still too generous. The Association of Accounting Technicians says it is disappointing that the Government have failed to scrap it altogether, highlighting an overwhelming body of evidence from focus groups, HMRC-commissioned research, the Office of Tax Simplification, the National Audit Office and others,

“which indicates that the relief does not achieve its policy objectives, that it’s extremely expensive, poorly targeted and ultimately ineffective.”

In the light of that, will the Minister set out for the Committee why the Government have not gone further in this area?

On the new clause, which was tabled by the Scottish National party, we understand the rationale for a review of the measure’s impact on business and on different parts of the UK, but as I have sought to set out to the Committee, there is a strong body of evidence of the entrepreneurs’ relief not working effectively. I would appreciate a better understanding of the impact the amendment seeks to achieve. We do not oppose the new clause; we just think it could go further.

Let me make it clear that a more progressive approach to entrepreneurs’ relief should not be confused with being anti-business. As my hon. Friend the Member for Ilford North set out last week in Committee, Labour Members support measures to promote investment and entrepreneurialism and to support the small businesses that are the backbone of our community and that are doing so much at a difficult time to try and keep people in work, to support our communities and to contribute to our country. The Government need to bring forward measures to ensure that tax reliefs work effectively. The evidence suggests that the entrepreneurs’ relief, as conceived and delivered over the past decade, does not work.

There is a wider issue here that I hope we can revisit in later stages of the debate regarding the Government’s efforts to monitor the effect of tax reliefs such as entrepreneurs’ relief. The National Audit Office’s excellent recent report on tax reliefs shows that the Government are not reporting costs on over two thirds of them and that HMRC did not know whether most tax reliefs offered value for money. I believe the Public Accounts Committee will be taking evidence on this very shortly and publishing its report on the work of the National Audit Office in considering this important issue. We on the Opposition Benches will be following that discussion carefully, because it seems incredible that the Government do not have a proper grip on that area, where there is a real problem around value for money and whether the information provided to Parliament is sufficient, so we can understand whether tax reliefs are having the outcome intended by Government and whether fairness is built into the system.

We will continue to argue for a broad review of tax reliefs and continue to encourage Ministers to adopt the policy to determine exactly who is benefiting from the hundreds of tax reliefs that exist, whether they are fair, whether they represent good value for money, whether we can be confident that they are securing the policy outcomes as originally intended, and that the Government should legislate to make the system fairer as a whole.

[Stephen Flynn (Aberdeen South) (SNP)]

This is my first experience of a Finance Bill Committee—indeed, I think it is the first time we have met, Mr Rosindell, and I look forward to serving under your chairmanship. Dare I say that our new clause is constructive? That is the manner I am starting in. I would like the Government to change their stance a bit and look at the wider picture.

Before the Budget, it was well known to all of us in the public sphere that the Government were considering entirely scrapping entrepreneurs’ relief. We read a number of comments in the press and the public domain about Conservative Back Benchers being unhappy with that move because they felt it would stifle investment. Ultimately, the Chancellor did not scrap entrepreneurs’ relief but simply took it back to the level it was at when the Labour party introduced it in 2008, reducing it from £10 million to £1 million. We need to know what the Government’s long-term direction of travel is. We cannot be driven by a rebellion on the Government Back Benches. If the Government do not feel that entrepreneurs’ relief is beneficial, they should make that clear.

The Minister said that the Government have conducted a review, and indeed they have, but it was an internal review; as far as I am aware, it is not in the public domain. They are more than welcome to put it into the public domain, or they could agree to our new clause. The hon. Member for Houghton and Sunderland South talked about what we are could achieve. It is important that we have that review so that we all know where entrepreneurs’ relief is going to be in the coming years.

As I say, this is a constructive suggestion. It is based not just on our interpretation of the situation, but on the evidence. The IFS believes that entrepreneurs’ relief is poorly targeted; the FSB, on the other hand, is broadly supportive; and the Chartered Institute of Taxation believes that a public consultation on objectives and efficacy is necessary. There is a broad range of views about this policy, so the time has come for the Government to undertake a review in the public domain so that we all understand the direction of travel and know where they seek to go. Hopefully, that will inform us all a bit more about the position. As I say, this is a constructive suggestion, and I hope the Government will change their stance.

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[Jesse Norman]

We continue to stride boldly through the slough of despond. Here we come to the reform of the capital gains tax private residence relief ancillary reliefs. The clause makes changes to capital gains tax private residence relief where individuals have more than one residence, reducing the final period exemption from 18 months to nine months and reforming lettings relief so that that relief only applies where the owner shares occupancy with a tenant.

The clause also makes several other minor changes to make the private residence relief rules fairer. The Government are committed to keeping family homes out of capital gains tax, and private residence relief will still be available for the entire time a property is lived in. However, ancillary reliefs mean that in some circumstances people can accrue relief on two or more properties simultaneously. The reforms make private residence relief fairer by better targeting relief at owner-occupiers.

The final period exemption currently relieves the last 18 months of ownership of a main residence or former main residence from capital gains tax. This provides relief as people go through the process of selling their home, but it allows people to accrue relief on two properties simultaneously. From April 2020, the exemption will be reduced to nine months. The 36-month exemption for those who are disabled or are in a care home will remain.

Lettings relief is available when a property that was someone’s previous main residence is wholly or partly let out. This can extend the benefit of relief by up to £40,000 for an individual and £80,000 for a couple, while they are also accruing relief on their current main residence. In order to better target the relief at owner-occupiers, from April 2020 lettings relief will only be available in cases of shared occupancy. The armed forces future accommodation model is also a source of concern. We want to be sure that the clause will extend the benefit of employer-provided accommodation relief to those service personnel who live in privately rented accommodation under that new model.

The Government are also legislating on two extra existing statutory concessions. The first applies when an individual has more than one residence, but only one has any real capital value. This concession extends the time period for nominating the individual’s main residence. The second allows 24 months of relief where, for specific reasons, a person is unable to occupy a new home for use as their main residence. There is also a change to ensure that, when spouses or civil partners agree to transfer shares in a residential property between themselves, the receiving spouse or civil partner will inherit the transferring spouse’s past use of the property, no matter the use of the property at the time of transfer. This prevents unfair outcomes arising in certain cases.

The Government are committed to keeping family homes out of capital gains tax, through private residence relief. However, the current availability of lettings relief, and the 18-month final period exemption, can mean that people accrue relief on two or more properties simultaneously. These reforms address those concerns and make private residence relief fairer, by better targeting it at owner-occupiers. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The objectives behind the clause seem well intentioned, but the Minister will no doubt be aware of the severe impact of covid-19 on the housing market, as referenced by many stakeholders—a point which I should be grateful if he would address. According to the Chartered Institute of Taxation, the evidential basis for the reduction in the final period exemption was based on an average selling time—before the current pandemic—of approximately four and a half months, and it is concerned that this evidence base may be undermined by the effects of covid-19.

The Minister will be aware of his Government’s own advice, which lasted until 13 May, that physical viewings of homes were not permitted, and as such, that the home-buying process would take longer, with people advised to delay moving into a new house. While there is updated advice, there are still clearly restrictions that will slow down the process of buying a new home, and wider practical difficulties in this area when it comes to estate agents, banks processing payments and the wider conveyancing system.

The Chartered Institute of Taxation referred to research by Zoopla, conducted between 12 and 19 May, which found that 41% of would-be home movers across Britain had put their property plans on hold in light of market uncertainty, loss of income and lower confidence in their future finances, with property inquiries reported to be more than 50% down on pre-lockdown levels. Given that ongoing uncertainty, it is increasingly likely that it may take longer than nine months for some of those affected by this provision to sell their property, given the deterrent impact of covid-19 and the lockdown on potential buyers, as well as all the practical difficulties for buyers, which I am sure we appreciate. That could leave sellers with an unexpected tax liability when a property takes longer than nine months to sell. Many stakeholders consulted on this legislation believe that the fairest way to resolve the issue is to defer the introduction of the final period exemption, so as not to burden some sellers with an unprecedented tax liability.

In their consultation with stakeholders from July 2019, the Government responded to worries about the nine-month period exemption being too short by saying that

“a 9 month final period exemption strikes the right balance between being long enough to provide relief whilst they go through the process of selling their home, but not so long that they are able to accrue large amounts of relief on two properties simultaneously, or on homes that are no longer used as their main residence.”

I will not seek to blame the Government for not predicting at that point the impact of a global pandemic, but we are living through some very difficult times. Has any further consideration been given to the timing of the measures contained in the clause? Given the pressures on the housing market, does he still regard them as appropriate and realistic? Is the Treasury considering the impact more broadly?

Putting the coronavirus aside, concerns have been raised that the clause runs in contradiction to the parliamentary convention on retrospective taxation, whereby retrospection is permissible only when dealing with unacceptable avoidance schemes. The clause is about changing long-standing reliefs rather than countering avoidance, and the Institute of Chartered Accountants in England and Wales has highlighted that the clause is retrospective. It also argues that it would be simpler for taxpayers if the measures were delayed until the start of the next tax year. I am sure the Minister has given consideration to that point, and I am keen to hear his views on the topic.

Another point raised by the Chartered Institute of Taxation is that the new rules must be well communicated. Their introduction coincides with the new 30-day time limit running from the date of completion to the reporting and payment of capital gains tax, meaning that there is now much less time to establish capital gains tax liability. What are the Government doing to communicate such changes, so that they are well understood?

The changes as a whole are projected to raise £50 million for the Government in this tax year and £120 million next year. Given the current situation in the housing market, I shall be interested to hear the Minister’s views on whether any change has been made to any projections in this area. It is vital that the Government can raise funding for our vital public services, but in the grand scheme of things, those seem like relatively modest sums. Although I want to ensure that our public services have the funding they need to get through this crisis, I am sure the Government would not seek to disadvantage those who, through no fault of their own, find themselves in a very difficult situation owing to the pandemic.

Those are the only comments that I seek to offer on the clause. I shall be grateful for a response from the Minister.

[Jesse Norman]

I thank the hon. Lady for her comments. She raises the question of retrospectivity. We do not regard the changes as retrospective. Capital gains tax is due only when a disposal is made, and taxpayers have 18 months’ notice of the changes. They have therefore had plenty of time to rearrange their affairs—for example, by selling property under the old rules if they had wished to do so. It is important to remember that any private residence relief accrued from periods when the property was lived in as a main home is retained.

I am glad that the hon. Lady does not blame the Government for failing to predict the pandemic. That would be a very widespread source of blame; few people across the world could be exculpated from that. She also raised the question of the effect of covid-19. It is worth saying that, as she highlights, the nine-month exemption is based on evidence that the average selling time was four and a half months, and the suggestion is therefore that nine months is not long enough. I note her point and will take it away with me from this sitting; I thank her for that. It still leaves the average significantly short of nine months. It is worth pointing out that, if people are taken over that level, they will still likely pay very little, if any, capital gains tax, because the annual exempt amount, which has just been increased to £12,300, keeps small gains out of CGT. If someone was running over by a month, it would have to be an enormous gain in order to breach the annual limit.

As I said, there are no changes to the wider 36-month exemption that is available to disabled people and to those in care homes. The Government think the CGT allowance provides an additional safeguard in case there are circumstances in which people might inadvertently run over time.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Corporate capital losses

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

Finance Bill (Second sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

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

What a delight it is to see you in the Chair, Mr Rosindell. As I touched on earlier, this is one of those clauses that I do not think elicits any spirit of contention on the different sides of the room.

Clause 13 creates a statutory income tax exemption for payments and reimbursements of reasonable private expenses incurred by voluntary office holders in carrying out the duties of their offices. Individuals undertaking voluntary work for an organisation such as a charity or local benevolent society are not generally classed as office holders or employees, so the payment or reimbursement of any reasonable expenses incurred by those individuals when doing the work of that organisation is not liable for tax. However, in some circumstances, an individual who does unpaid work for an organisation may also be an office holder. That is because they are appointed to a role that exists regardless of who occupies the position at any one time. They are referred to as a “voluntary office holder” in tax legislation. People in that position include, for example, magistrates and special constables.

An office holder, including a voluntary office holder, is chargeable to tax on any earnings from their position and subject to the tax rules for expenses and deductions on the same basis as employees. Her Majesty’s Revenue and Customs’ long-standing practice is that no tax arises on private expenses paid or reimbursed to voluntary office holders so long as they receive no reward for carrying out the duties of their office and any payments or expenses do no more than meet the expenses incurred. That treats voluntary office holders in the same way as volunteers in relation to expenses paid or reimbursed by their organisation, but the treatment is at the moment only concessionary.

This measure therefore places the current concessionary treatment on a statutory tax footing. That ensures that reasonable out-of-pocket private expenses paid or reimbursed to voluntary office holders in relation to their duties of office remain tax-exempt. The exemption recognises the role of voluntary office holders and the services that they provide. It ensures that the tax treatment of their private expenses continues to be comparable to that of volunteers, and it provides certainty by placing that treatment on a statutory footing.

Those who hold voluntary offices often—in fact, almost invariably—give valuable service in our communities. It is right that we legislate to provide certainty for people in such roles and bring the tax treatment of their expenses in line with that for others who volunteer their time. This is a simple and sensible technical change, and I therefore urge that the clause stand part of the Bill.

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

It is a pleasure to serve under your chairmanship this afternoon, Mr Rosindell, and I welcome you to the Chair.

Opposition Members have no issue with the intention behind clause 13. It is right that the tax treatment of those carrying out valuable work on a voluntary basis is put on a statutory footing so that it is the same for all voluntary office holders, across the board.

Of course, most individuals who do unpaid voluntary work for an organisation are not office holders or employees, and I would like to take this opportunity, at this time, to express my gratitude for the amazing work that volunteers are doing right across our country in responding to the crisis we are experiencing. The work they are doing includes running food banks. Amazing volunteers in my constituency are providing that kind of support to vulnerable people and, frankly, to too many families. I yearn for the day when they will be able to be redeployed in other areas of activity because the support provided by the Government—the state—is adequate for all families to put food on the table. Many other volunteers at this time have been delivering meals or supporting people with prescriptions. There is a whole range of help and support being provided, which just demonstrates how important a role volunteers play in our society. That is of course no substitute for the necessary action we expect from Government, which has sadly been too lacking in recent years, and after a decade of big changes. That has meant that volunteers have filled the gap that should be filled by the state itself.

As for the scope of the clause, the Chartered Institute of Taxation has identified some technical issues, and I hope the Minister will be able to respond to some points about them. The first is about the lack of a definition of a volunteer office holder in this legislation and the fact that that may lead to some confusion as to whether charitable or other unpaid trustees would be regarded as office holders for the purpose of this exemption. The Minister was right to point to office holders such as special constables and magistrates—and perhaps those who are office holders in community amateur sports associations—but I would be grateful if he could clarify the scope of the clause.

The second concern that the Chartered Institute of Taxation has identified is whether this legislation will achieve its intended purpose, given that the clause covers expenses incurred in carrying out the duties of the office, but not explicitly those expenses that enable such duties to be carried out—for example, childcare costs. I would be grateful if the Minister could clarify the position and put on record that such costs would be tax-exempt for voluntary office holders under the legislation.

[Jesse Norman]

I thank the hon. Lady for her questions. These are two technical issues that she is right to cover. The position of Revenue and Customs, and of the Government, is that there is adequate clarity about the scope of the clause. It passes into law only a considerable body of accumulated practice in dealing with expenses of the kind that we have described. As I have mentioned, commissioners have discretionary powers—those collection management powers—to manage these taxes and duties, and are able to exercise those powers in particular circumstances. So if there is a concern that, somehow, the scope of the clause is inadequately defined, there remains extra statutory power for the commissioners to exercise those collection management powers in so far as they wish.

The hon. Lady is also absolutely right to raise the secondary issue of what counts as an allowable expense. The answer is that a definition of reasonableness exists in general in people’s minds and in law—of course, it reflects the facts of a case and is context-dependent. The core idea is that the payment or reimbursement should do no more than meet the actual expenditure that has been incurred by volunteers.

To give an example, someone may be volunteering for a charity, perhaps as a treasurer, which is an office holder, and doing most of their work from home. If the charity offers them a small weekly payment to cover the additional cost of using their home, that is a reasonable expense. To take a different example, if someone is volunteering as a magistrate at their local magistrates court for one day a week and seeks reimbursement for their childcare costs for the week, even if the court agrees to that, the full week will not be considered a reasonable reimbursement for private expenses, because it does not relate to the actual expenditure that has been incurred.

I can clarify, to that extent, the point the hon. Lady made. I think that tracks relatively clearly our normal intuitions about working, as well as working practice elsewhere in the voluntary sector. With that said, I would like to move that the clause stand part of the Bill.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Loan charge not to apply to loans or quasi-loans made before 9 December 2010

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

Finance Bill (First sitting)

Bridget Phillipson Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

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

I am delighted to see you in the Chair, Ms McDonagh. I welcome all colleagues and thank them very much for their commitment to this important Bill and this important process. Ms McDonagh, you and our colleagues will be aware that we are scheduled to have seven sets of sittings to give every aspect of the Bill thorough examination. It will be a pleasure to serve on this Bill Committee with colleagues under your chairmanship. It is my first Bill as Financial Secretary to the Treasury, and I hope it will not be my last.

Let me begin by speaking to clauses 1 to 4, which legislate for income tax—the main default and savings rates of income tax, and the starting rate for savings for 2020-21. I shall also speak to amendment 5 to clause 2, tabled by the Labour party.

Clause 1 legislates for the income tax charge for this year, 2020-21. Income tax, as the Committee knows, is one of the most important streams of revenue for the Government, raising more than £190 billion in 2018-19. The clause is put into legislation annually in the Finance Bill. It is essential, because it allows income tax to be collected, so that it can fund the vital public services on which we all rely.

Clauses 2 and 3 set the main default and savings rates of income tax for 2020-21. These clauses, too, are put into legislation annually in the Finance Bill. Clause 2 ensures that for England and Northern Ireland, the main rates of income tax continue to be 20% for the basic rate, 40% for the higher rate and 45% for the additional rate. Clause 3 sets the basic, higher and additional rates of default and savings rates of income tax at 20%, 40% and 45% respectively for the whole of the UK.

I want to consider Labour’s amendment 5 to clause 2, which is in the name of the hon. Member for Houghton and Sunderland South. It would require the Government to review the impact of 2020-21 income tax rates on tax revenues, and both on households with below average incomes, and on high net worth individuals, as defined by Her Majesty’s Revenue and Customs. As the Committee will be aware, the Government already publish comprehensive assessments of income tax rates. In our judgment, the proposed additional review is therefore not necessary.

On revenue impacts, the Office for Budget Responsibility publishes tax revenue forecasts at every fiscal event, and did so most recently at Budget 2020. The Government’s tax information and impact note published in October 2018 provides a clear explanation of the tax impact on the Exchequer and the economy of maintaining the personal allowance and higher rate threshold for 2020-21. On distributional impacts, the Government publish a distributional analysis of the cumulative impact of Government policy at each fiscal event, and did so most recently at Budget 2020. HMRC’s annual income tax liabilities statistics publication provides breakdowns of the number of income tax payers and income tax liabilities across multiple characteristics, including by income source and by tax band. All those publications are in the public domain on gov.uk. Amendment 5 would do little to provide meaningful additional analysis that goes beyond the Government’s existing comprehensive publications, and I ask the Committee to reject it if it is brought to a vote.

Clause 4 maintains the starting rate limit for savings income at its current level of £5,000 for the 2020-21 tax year. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, and also extended the band to which the rate applies from £2,880 to £5,000. The changes made by clause 4 will maintain the starting rate limit for savings at its current level of £5,000 for the 2020-21 tax year. The limit is being maintained at that level to reflect the significant reforms made to support savers over the last few years. That support is provided by the Government across the UK, for those at all stages of life and at all income levels. As a result of the support, about 95% of savers pay no tax at all on their savings income.

The decision in 2015 to increase the starting rate for savings by more than 75% has done much to support savers on low incomes. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income for basic rate taxpayers. This will remove an estimated 18 million taxpayers from paying tax on their savings income in 2020-21. In April 2017, the annual ISA—individual savings account—allowance was increased by the largest ever amount, to £20,000.

As a result of the combination of the personal savings allowance and the starting rate for savings, some savers can receive up to £6,000 of savings income outside an ISA completely tax-free. Most savers will of course also benefit from the tax-free personal allowance, which is set at £12,500.

The Government also support our nation’s youngest savers. To encourage those with children and grandchildren to save, the junior ISA and child trust fund allowance increased by more than double, to £9,000, from April 2020. Child trust funds will start to mature from September of this year, and the increase will provide an opportunity to boost the amount that children will have when their accounts mature.

Finally, I should mention the support that the Government offer those on the lowest incomes who wish to save through the Help to Save scheme. Help to Save provides savers with a 50% bonus on their savings—a perfect example of what the Government’s commitment to levelling up opportunity across the whole country can offer. I encourage Committee members to do what they can to promote the scheme to their constituents.

The Government remain committed to supporting savers of all incomes at all stages of life. Recent reforms, coupled with a significant increase in the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous. Around 95% of people with savings income, as I have mentioned, will continue to pay no tax on that income next year. The Government therefore do not believe that a further increase in the starting rate for savings is appropriate at this time.

Clauses 1 to 3 ensure that the Government can collect income tax, and set the main default and savings rates for the tax year 2020-21. Clause 4 maintains the starting rate for savings income at its current level of £5,000 for this tax year. I commend the clauses to the Committee, and ask it to reject amendment 5.

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

It is a pleasure to serve under your chairmanship, Ms McDonagh, and to welcome other Members to the Committee. I thank the Clerk and all the team in the Public Bill Office for the support that they have provided in recent weeks and will continue to provide as we debate the Bill. Circumstances have been very challenging for staff who have adapted to working remotely. I am grateful for all the discussions and advice that they have been able to offer us. I also extend, via the Minister, our thanks to all the officials in the Treasury who have been working very hard to respond to the crisis that we face. I want to put on the record our thanks for their work, which is often not recognised. Our country’s response to the crisis depends on the work that they undertake on behalf of us all.

I am sure we all accept the importance and necessity of scrutinising the Bill. However, the Opposition find it regrettable that it was not possible to find an alternative arrangement for the Committee stage of the Bill. We hope that the House can resolve the wider issues around protecting those who have shielding responsibilities and making sure that we can all be kept safe at this time. Our proceedings obviously place a great deal of pressure on the staff who are vital to the House’s functioning. Again, I reiterate my thanks to them. We will want to consider certain aspects of the Bill in much greater detail over the coming weeks. I can assure the Minister that we appreciate the pressure that officials are under in responding to the crisis, and that we intend to be responsible in our approach, and will remain focused on our key priorities in the Bill.

Our amendment 5 would require the Government to assess the impact of income taxes in the Bill on tax revenues, and on households and individuals of different income levels. The Government like to tell us that we live in unprecedented times, which is of course true. As such, we need greater scrutiny of policies that may need to be revised in what is clearly becoming an unprecedented economic downturn. The Resolution Foundation estimates that GDP will contract between 10% and 24% owing to the outbreak of covid-19: an economic shock of a kind that has not been seen since the 18th century. Very much is at stake. It is crucial that the Government assess the means by which they generate revenue, given the huge demands facing our public services and economy.

First, we need to know how much revenue we are generating from maintaining income tax rates, in order to determine whether it is enough to meet the demands on our economy and the pressures on public services, as well as the Chancellor’s income support packages. Secondly, we need to better understand its distributional income. Over the past 10 years we have seen large cuts to working age benefits against reductions in direct tax, including a large rise in the tax-free personal allowance. Unsurprisingly, the winners in all this have not been low-income households. According to the Institute for Fiscal Studies, the poor have been disproportionately hit by tax and benefit changes since the Conservatives came to power 10 years ago. The worst-off 10% of households have lost 11% of their income since 2010. When we factor in households with children, that rises to 20%. In contrast, the highest-earning 10% of the population have seen their incomes fall by only 2% in the same period.

In its 2020 Budget analysis, the Resolution Foundation makes it clear that nothing has been done to offset the considerable welfare cuts made by previous Chancellors since 2015. Households in the second net income decile, for example, will eventually be £2,900 a year worse off on average, thanks to the tax and benefit changes announced since 2015, and £900 of that is yet to come; it will result from welfare policies that are still being rolled out. These cuts mean that the incomes of the poorest families have fallen over the last two years, and there is a real risk that child poverty rates will reach record highs by 2024.

--- Later in debate ---

[Bridget Phillipson]

When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.

[Jesse Norman]

The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.

The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.

The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.

Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.

Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.

We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.

--- Later in debate ---

[Jesse Norman]

I had hoped that we might be able to debate clauses 11 and 12 together, because in some respects they sit better together, but let me pick up clause 11 in its own right and we can then take clause 12 separately. The clause confirms that three new specifically Scottish social security benefits are not subject to income tax. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003. That Act provides certainty on existing benefits and needs to be updated when new benefits are introduced.

The Scottish Government are introducing three new benefit payments: the job start payment, disability assistance for children and young people, and the Scottish child payment. The tax treatment of those benefits is governed by the fiscal framework agreement between the Scottish Government and the UK Government, which sets out that any new benefits introduced by the Scottish Government will not be deemed to be income for tax purposes unless they top up or replace benefits deemed to be taxable already. The UK Government currently choose to clarify the treatment agreed in the fiscal framework through Finance Bill legislation, which is why we have the clause before us today.

The changes made by the clause ensure that these three new benefits are not liable to income tax, in line with the fiscal framework agreement between the UK Government and the Scottish Government. The clause is straightforward, clarifying and confirming the tax treatment of several welfare payments and introducing a new power to ensure that a simpler process may be used to effect future changes as may be needed. I commend the clause to the Committee.

[Bridget Phillipson]

The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.

[Alison Thewliss]

I am happy to support the clause and the actions of the Scottish Government in bringing in these new social security measures, which will be of great benefit to the people of Scotland. My only regret is that we have to come asking the UK Government to put these measures into force—we would rather take care of all these things ourselves.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Power to exempt social security benefits from income tax

--- Later in debate ---

[Alison Thewliss]

I am happy to move the amendment and speak to amendment 9, which The Scottish National party tabled just as a query. When we were looking at the Scottish social security system and the opportunity not to have income tax levied on social security benefits, it got us thinking about what the logic is of taxation on social security, because it is the Government giving with one hand and clawing back with another, resulting in an incredibly complex system where some benefits—indeed, some parts of benefits, some types of benefits and some subsets of benefits—end up liable for income tax whereas others are not. We end up with a cumbersome system that is difficult to navigate.

Our thought process in looking at the benefits was to ask why it should be that bereavement allowance, carer’s allowance, contributory and youth ESA, income-based ESA, some but not all incapacity benefit, industrial death benefit pensions, state pension, widowed mother’s allowance, widowed parent’s allowance and the widow’s pension are all taxable, whereas others such as personal independence payment, war widow’s pension and universal credit are not.

The young carer grant is not, but carer’s allowance is. There are a huge number of inconsistencies in the social security and income tax system, and our amendment seeks to ask: why should that be? Should we not look for a much simpler system, which would give people the money in their own hands without having to negotiate backwards and forwards with the Government? That would save the Government a job in clawing back that taxation and allow people to get on with their lives, rather than having to worry about what the taxman will take from their benefits. The SNP thought it was worthwhile exploring this issue with the Committee.

[Bridget Phillipson]

As with clause 11, the Opposition have no objection to what the Government seek to achieve in this clause. On the substance of the amendments put forward by the hon. Member for Glasgow Central, there are a few issues that I hope she will be able to clarify. She will be aware that the general principle is that a benefit is taxable if it is an earnings replacement benefit. As the Treasury’s tax benefit reference manual notes, the reason behind that is to avoid creating an incentive whereby an individual receiving social security benefits is better off than someone on a comparable income whose earnings are liable to tax. What consideration has she given to that potential outcome of her amendments?

My second observation is about the cost of the measure. I am grateful to the House of Commons Library, which has sought to estimate the cost. The cost of exempting all taxable social security benefits from income tax would be around £5.9 billion in 2020-21. Of that amount, 95%, or £5.6 billion, is attributable to the state pension. The Library’s analysis identifies that those in the top decile of income distribution would benefit the most, while those in the lowest would gain the least. I know that the hon. Lady cares very much about those issues, and I would be grateful if she addressed that point, because it strikes me that such an approach would usually be regressive, and I would like to understand a bit more about the assessment of the distributional impact of such a policy.

[Alison Thewliss]

I thank the hon. Lady for her comments, which she is quite right to make—the Library analysis is really important. I am moving the amendments to point out just how complex the system is that there is of course a cost to having and administrating such a system. People have difficulty navigating that system, because it makes it more difficult to claim what they are entitled to, particularly if they are moving from one benefit to another. Although I appreciate the points that she has made and understand why she made them, these are probing amendments to see what the point is and what the Government are doing to make an ongoing assessment of the logic of that complexity, for which there is a cost and a difficulty. Although I in no way deny the cost—I know the amendments have no prospect of being passed by the Committee—I would like the Government to consider carefully the impact of that complexity on individuals, and whether they can simplify the system, which is ludicrously complicated.

Finance Bill

Bridget Phillipson Excerpts

2nd reading & 2nd reading: House of Commons & Programme motion & Programme motion: House of Commons & Ways and Means resolution
Monday 27th April 2020 Commons Chamber

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

I would like to begin by thanking all the staff who have worked so hard to put arrangements in place so that parliamentary scrutiny can continue. I would also like to extend my thanks for the efforts made by key workers across the country, for which all of us in this House are grateful.

We have had a good debate today in what are difficult and unusual circumstances. My hon. Friend the Member for Bethnal Green and Bow (Rushanara Ali) made a passionate appeal for the Government to avoid the mistakes of the last decade, highlighting the pressures faced by local councils, as did my hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier), who underlined the real challenges we face around housing, with far too many families forced to live in overcrowded and cramped conditions.

My right hon. Friend the Member for Warley (John Spellar) was right to emphasise the importance of businesses and trade unions working closely together at this time and the tremendous work of the TUC, particularly in recent weeks. I hope the Minister will take heed of the point my right hon. Friend made about the role for Government in stimulating demand as we emerge from this crisis.

My hon. Friend the Member for Huddersfield (Mr Sheerman) is a tireless campaigner for children and young people, and he used his speech to press for greater opportunities for them, following this difficult time for so many families. My hon. Friends the Members for Nottingham South (Lilian Greenwood) and for Leeds East (Richard Burgon) called on the Government to look carefully at gaps in existing provision and the urgent need for a social security system that properly supports families through this crisis and beyond. My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) also picked up that point, reminding us that far too many children—including those in working families—are already growing up in poverty.

We heard a great number of speeches from Members on both sides of the House highlighting the acute pressures faced by businesses. My hon. Friends the Members for Cardiff South and Penarth (Stephen Doughty), for Gower (Tonia Antoniazzi) and for Islwyn (Chris Evans) emphasised the real difficulties in accessing lending for business, but they were also clear about the additional support that the Labour Government in Wales are providing at this time of crisis.

My hon. Friends the Members for Birmingham, Ladywood (Shabana Mahmood) and for Liverpool, Riverside (Kim Johnson) stressed just how difficult it is for many firms—especially small businesses—to access the cash that they need to stay afloat. In Committee, I hope we will be able to discuss in more detail the concerns that my hon. Friend the Member for Birmingham, Ladywood rightly raised about the inadequacies of the proposed digital services tax.

My hon. Friend the Member for Poplar and Limehouse (Apsana Begum) drew our attention to the disproportionate impact of coronavirus on black and minority ethnic communities, which will only serve to exacerbate the existing social and economic injustice that those communities face. We heard from my hon. Friend the Member for Jarrow (Kate Osborne) about pre-existing regional inequality and the fact that the Government must do all they can to limit unemployment in areas such as the north-east, where the current level is already too high. Finally, the speech that we just heard from my hon. Friend the Member for Liverpool, West Derby (Ian Byrne) reminded us all of the debt that we owe to our incredible key workers.

Those contributions highlighted the scale of the challenge that our country faces today and the responsibility that the Government have to ensure that we as a country can overcome them. That is why the Opposition have sought to take a constructive approach at this time of national crisis, encouraging the best possible response from Government and pressing for the support announced to work effectively.

That brings us to the context of the Bill—whether it does enough to help those at the sharp end of the current crisis, to put our tax system on a fairer and more progressive footing and to shape our economy for the rather different world of the future. The changed circumstances and the new personnel on the Government Front Bench should not fool any of us about where this Budget comes from or which party is responsible for the underlying weaknesses in the shape and nature of the economy going into this crisis. The Conservative party has now been in power for 10 years. The inadequacies of our tax system and of our society, and the structural weaknesses in our economy, are its responsibility.

Labour’s economic priorities for the current crisis are straightforward, as the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds), set out again today. We want to keep people in work, and the schemes that the Government have laid out are welcome but need improvement, especially as circumstances change in the months ahead. We want to get cash to struggling businesses, and we are concerned that, as we have heard today, too many firms are not getting the support that they need. We want to make our social security system sufficient to provide proper support to families, because we know that for too many it simply is not enough—and the current crisis is making things worse, not better.

The Budget focuses on maintaining the status quo and delivering limited reforms, rather than the ambitious reforms that we need. The Institute for Fiscal Studies has said that the tax measures announced in last month’s Budget look

“piecemeal…it is not clear they are part of any long term thought through strategy.”

The dire forecasts made by the Office for Budget Responsibility about the state of public finances owing to the covid-19 outbreak show how grave the challenge is likely to be, and they have already rendered the predictions included in the Budget out of date.

Our concern is that the Bill, even in a time of national crisis, is not enough. It is not enough to solve the immediate financial and economic problems that the covid-19 outbreak presents. It is not enough to solve the searing inequalities in our country, inflicted by 10 years of Conservative government. We need a more ambitious approach to making our tax system fairer and building a society and economy fit for the future—an approach that recognises that the consequences of covid-19 and the lockdown are being felt most by those who can ill afford it: those on low pay, those with insecure employment and those who face additional costs to access public services.

Too many of the people on whom our country’s response to the virus depends have seen their true worth to our society ignored for far too long. Too many are today among the poorest in our society and risk being the worst-affected by the coming recession. Others, such as those joining the labour market for the first time and lower earners, are likely to feel the impact for years to come.

We accept that much of the Bill was drawn up before the current pandemic, and we know that Ministers do not have a crystal ball with which to make policy, but they must know, as the country knows, that the Bill was an inadequate starting point even when it was drafted and that it fails to respond to the deep-seated problems of our country. Far more needs to be done to clamp down on tax avoidance, individual and corporate, which deprives our public services of the funding that they need, but there is little in the Bill to suggest that the Government have the appetite for pursuing that at the scale that is needed.

It is welcome that the Government maintain corporation tax at 19%, rather than cutting it to 17% as initially planned. Perhaps that suggests that Ministers have accepted the arguments made by many Opposition Members for many years that whittling down the rate, which is already among the lowest in the G20, is not the best approach. It has not given us a productivity miracle. It has not tempted companies to set up shop here on a scale adequate to balance the flow of companies moving away as a result of Brexit. What it has given us is overstretched public finances and underfunded public services. Instead, we should be asking that profitable companies, especially those for which the current situation has provided an unexpected windfall, contribute more to help to provide our public services with the funding that they need.

The digital services tax is a long-overdue step to make the tech giants pay their fair share. We welcome the intent behind it, but like so much of the Bill, it does not go nearly far enough. The tax and spend trade-offs that have been forced on us by the covid-19 pandemic cannot be put off for long, and when Ministers come to these decisions, they should learn from the mistakes of the past. The Labour Government’s immediate response to the 2008 financial crisis showed the good that Government can do, but since 2010, a decade of Conservative cuts has made the economic damage from that crisis fester.

Too many in our country have seen little improvement in living standards for a decade now. The Bill, and the further fiscal measures that the Government are likely to have to bring to the House in the months to come, should be about ensuring that the burden of current costs and the benefits of the recovery to come are fairly shared across our society. This Bill is not that. It is very far from being the basis on which our country can draw a social contract fit for the future. From these Benches, we will continue to call for a better settlement for today and a better plan for tomorrow.

Small Charitable Donations and Childcare Payments Bill

Bridget Phillipson Excerpts

Committee Debate: House of Commons
Tuesday 18th October 2016 Public Bill Committees

[Jane Ellison]

I note my hon. Friend’s point and will ensure that it is looked at. It relates to a different aspect of the childcare provision that the Government provides, but he neatly illustrates the point that we do not want the process for getting support for childcare to be onerous. Tax-child childcare, which is designed to be digital by default, is a move forward.

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

Will the Minister set out what conversations she is having with colleagues in the Department for Education about ensuring adequate places for children? She may be aware that the Public Accounts Committee has raised concerns about the number of childcare places available to parents. It is all good and well to put schemes in place to help parents, but we need to make sure that there are places for children to take up.

Oral Answers to Questions

Bridget Phillipson Excerpts

Tuesday 27th October 2015 Commons Chamber

[Mr Osborne]

I can absolutely give that assurance to my hon. Friend, who represents his constituents in Bolton so well. We will go on delivering lower taxes to help the working people in his constituency. We will also ensure that we go on supporting savings in his constituency. We are introducing a new savings allowance and a help-to-buy ISA to help the people he represents to get on the housing ladder.

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

T5. The Chancellor seems to have taken issue with being told to think again by the other place last night. Will he now reflect on how thousands of my constituents—people who work hard and do the right thing—must feel at the prospect of losing thousands of pounds every year as a result of his actions?

[Mr Osborne]

As I have said, the people who suffer the most when the economy fails and when the country fails to control its public finances are precisely the people the hon. Lady is talking about: the low paid. They are the people who lose their jobs. They are the victims of economic insecurity. We are determined to deliver economic security and a controlled welfare bill—which, after all, the people she represents have to pay for through their taxes—and we will set out how we will ease the transition to that lower welfare, higher wage economy.

Budget Resolutions and Economic Situation

Bridget Phillipson Excerpts

Monday 13th July 2015 Commons Chamber

[Greg Clark]

I served my apprenticeship with my hon. Friend on the Public Accounts Committee, and partly as a result of the rigour that he imparted to the Committee’s members, I believe that the key to driving productivity is to invest in education and skills. One of the most important announcements in the Budget was the transformation of our apprenticeship system. There is a serious commitment on the Government’s part to ensure that all regions have the ability to invest in the skills that will drive productivity and justify the new wages.

In the proposals that places across the country have started to draft in response to my invitation to have more local arrangements, the common denominators are greater local involvement in skills and engagement with local employers. That is absolutely right, and I will back it in devolution deals.

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

I have listened carefully to what the Secretary of State has said about giving local people a say and not forcing areas to do things against their will. Why will the Government not devolve further powers to the north-east without a directly elected mayor, and why do they refuse to give local people a say on whether they even want a mayor in the first place? Will the Secretary of State listen to the north-east?

[Greg Clark]

I listen to the north-east all the time, and I have met its civic leaders in recent days and will no doubt have further conversations with them. I have always had a strong and fruitful dialogue with them. In fact, I have a letter from the leader of the hon. Lady’s own council, Sunderland City Council, who said: “The support you provided to Sunderland was crucial to us securing the deal which is so vital in helping boost the economy of our area. Your thorough understanding of the issues in our region should be commended and demonstrates this Government’s commitment to putting the north of England at the heart of its plans to strengthen the economy of the whole country.” I have good dialogue with city leaders across the country, and the hon. Lady should talk to them.

I am conscious that many hon. Members want to speak, so I will move on and say a word about housing. I am convinced that our communities will rise to the challenge of devolution, but I have made it clear to authorities across the country that in doing so, they must deliver the homes that their people need for this generation and the next. Much progress was made during the last Parliament, which began with the lowest level of peacetime house building since the 1920s and first-time buyers locked out of the housing market. Housing starts and the number of first-time buyers have doubled since 2009 and are continuing to rise. Last year alone, the number of first-time buyers rose by 20%, but we must go further. That is why the Government are committed to encouraging home ownership and building homes that people can afford to buy.

Finance (No. 2) Bill

Bridget Phillipson Excerpts

Wednesday 25th March 2015 Commons Chamber

[Chris Leslie]

That sounds as though the hon. Gentleman was in favour of the 50p rate and regrets that it was not implemented earlier. That is the usual argument: why did the previous Government only put it up towards the end of the Parliament? The global banking crisis hit in 2008, when we were already a long way through that Parliament. [Interruption.] The hon. Gentleman seems to be a banking crisis denier. He seems to think that it had nothing to do with the fiscal situation. He must admit in his heart of hearts that the banking crisis created great pressures on our public finances. It reduced a number of revenues and caused the deficit we have had to tackle. As a consequence, the tax changes that followed the banking crisis were bound to come in 2009, and that was the period in which we chose to introduce the 50p top rate. He should not be surprised that it came in towards the end of that Parliament, because the banking crisis and all the ripples that flowed from it also happened at the end of the Parliament. Let us nail that one for a start.

The cut in the rate of income tax was the wrong thing for the hon. Gentleman and the Conservative party to have prioritised. I think many people in our country regard it as a real obscenity. It is a perverse set of priorities and we would reverse them because the public finances need the extra support. The public finances need those with the broadest shoulders to contribute a fairer share.

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

My hon. Friend will know the excellent work of the Union of Shop, Distributive and Allied Workers in raising the profile of issues affecting workers in the retail sector, who are sometimes at the sharp end when it comes to serving the public. They do a very important job. I recently met members from across the north-east who raised exactly the points he is making about insecurity at work and the need to tackle zero-hours contracts. This is a major area of concern, and retail workers in particular feel that the Government are failing to act.

[Chris Leslie]

The retail sector is edging towards greater and greater insecurity, as companies feel that the only way to make that extra margin is by eroding standards of contract security for many of their work force. In that context, I have to reiterate the position of those of us on the Opposition Benches: someone who works regular hours deserves a regular contract. That is why we intend to abolish exploitative zero-hours contracts.

Oral Answers to Questions

Bridget Phillipson Excerpts

Tuesday 4th November 2014 Commons Chamber

[Mr Osborne]

My hon. Friend is absolutely right. I have been lucky enough to visit successful manufacturing businesses in his constituency with him and, indeed, to see the investment that as a result we are able to make in new hospitals in the west midlands. He of course makes the very strong point that if you increase business taxes—that is the official policy of the Labour party—in such a competitive world, you will destroy jobs, reduce revenues and not be able to fund good public services.

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

T5. Will the Chancellor, as the self-styled champion of the north, now look again at his early decisions and their impact, and will he commit to a fairer funding settlement for north-east councils?

[Mr Osborne]

The whole United Kingdom has had to make difficult decisions because we inherited a record budget deficit, but I am willing to work with councils in the north-east to see whether we can build on what we have achieved in Greater Manchester. There is real potential to do that and to make key investments in the infrastructure of the north-east. For example, I think there is a strong case for the A1 north of Newcastle to be dualled.

Childcare Payments Bill

Bridget Phillipson Excerpts

Monday 14th July 2014 Commons Chamber

[Nicky Morgan]

I want to make some progress.

On flexibility, parents and families will be able to build up balances in their accounts, to meet the cost pressures of expensive times of the year. The scheme will also provide rigidity where parents need it. Once eligible for the scheme, parents can rest assured that they will continue to be entitled to support for three months, regardless of any changes in circumstances they may experience.

Hon. Members with further questions about the scheme’s practicalities may wish to note that we have today published the draft regulations for consultation. They contain the detailed rules concerning eligibility for the scheme—for example, what qualifying paid work means—and its operation, such as how and when a declaration of eligibility might be made.

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

In relation to the transparency of the regulations and the clarity of the scheme, will the Treasury publish a distributional analysis so that we can understand how families will benefit? How much will the average family benefit per year from the new scheme?

[Nicky Morgan]

We already have figures showing that for the 1 million families who will gain from the introduction of the scheme, the average additional support will be £600 a year. Obviously, the Government top-up very much depends on how much families put into the accounts for themselves. For example, a working single parent with one child who has child care costs of £5,000 will receive £1,000 of support from the scheme. I will certainly take away the hon. Lady’s suggestion, but the figures are already fairly clear. The level depends on families’ contributions, which will then be matched by the Government.

As hon. Members will be aware, when the tax-free child care scheme is introduced, employer-supported child care will be closed to new entrants. Parents who already receive support through that scheme can continue to receive it in exactly the same way as long as they continue to work for their current employer and the employer continues to offer the scheme. Workplace nurseries will not be affected by the changes.

Those who favour the current arrangements need to remember that under the present system less than 5% of employers offer employer-supported child care, leaving more than half of all employees—as well as all self-employed parents, and most employees on the minimum wage—without support. In contrast, tax-free child care will be available to all working families provided that they meet the eligibility criteria. As such, we expect the scheme to be open to at least twice as many families as the current one.

We expect the new scheme to be much fairer. One of the main failings of existing employer-supported child care is that it disadvantages lone parents by providing twice as much support to couples in which both partners work for employers offering the scheme than it does to single parents. To be completely frank, that does not seem right, so the Bill addresses that unfairness. It will ensure that the level of support provided is determined not by the number of parents in work, but by the number of children in the household. That means that for a family with two children, the maximum level of child care costs supported by tax-free child care will be three times the maximum level supported by employer-supported child care.

It is worth reminding the House that the existing scheme is an inefficient one. At present, employers receive a national insurance contributions disregard of up to 13.8% for operating an employer-supported child care scheme, despite the fact that it generally costs them significantly less than that to run their scheme. We should remember that that taxpayer money is not actually spent on child care support. There will therefore be no employer’s national insurance contributions breaks in tax-free child care once the new scheme becomes available.

We know that many employers value the role they can play in supporting their employees, including by helping them with their child care costs. We hope that such employers will continue to take an active, voluntary role in the new scheme. In fact, many have told us that they intend to do so. Although it may disappoint some hon. Members that the Government have no intention of making any form of employer role mandatory, they should remember that that is because we want to minimise the burdens on small businesses. We also want to maximise the scheme’s fairness so that it is the same whether people are self-employed, employed by a small shop or employed by a huge multinational.

We want to increase the support available to hard-working families with their child care costs as soon as possible. We especially need to support the women of the United Kingdom, who are disproportionately impacted by the complexity and unfairness of the current child care arrangements. The more women we can help back to work—if they want and need to work—then the more people we can get back to work, the more we can drive growth in our economy, the more we can reduce some of the inequalities that still blight our workplaces and the more we can raise the quality of life not only for millions of parents but, crucially, for their children.

I was tempted to say that the Bill represents a baby step in the right direction, but it represents so much more. This is a hugely important change for mothers, fathers, children, families and employers. As such, I am incredibly proud to stand at the Dispatch Box and to commend the Bill to the House.

--- Later in debate ---

[Catherine McKinnell]

Of course child care costs will rise with inflation, but we have seen a spiralling increase. Child care costs have risen much faster than wages, and the increase has been much faster than previous increases in terms of the natural economic cycle. When I talk about lost ground, I am talking about the support that is available to families across the board, which we know has been reduced on a range of fronts—not to mention the reduction in the working tax credits and child care tax credits that are available to working parents. I think that, in introducing the Bill, the Government have recognised that they have a problem, namely that there is not enough support out there for working families. We need to ensure that this Government support, although welcome, goes further. We need to ensure that it goes far enough, and is implemented properly. That is the basis of the questions that I now wish to put to the Minister.

[Bridget Phillipson]

Is it not right that before 1997 child care was simply not regarded as an issue worthy of debate in the way that it is now? The action that the Labour Government took over 13 years brought this issue to the fore for the very first time. Previously people who raised this as a matter for Government to deal with were simply laughed at. For the first time, the Labour Government brought this issue to the fore and regarded it as a matter for Government action, not just for families to deal with on their own.

[Catherine McKinnell]

My hon. Friend makes a powerful and important point, and I think we should celebrate on a cross-party basis the fact that we now have consensus that the Government need to take on board this issue and that addressing it can improve the life chances of families, in particular children. That is a huge credit to the last Labour Government who pushed this issue forward and raised it up in terms of political acceptance and cross-party agreement and as an issue that Government cannot simply turn their back on.

None the less we have seen soaring costs, falling numbers of places and cuts in tax credits for thousands of families and, as a result, in 2015 families will be worse off than they were in 2010. Even when the help arrives, it is unclear who exactly will benefit from this scheme, and even then it is unclear how much better off some people will be and many might legitimately ask whether they will actually be better off. In the Government’s original consultation last August, they estimated that 2.5 million working families would be eligible for support under this scheme, but in their revised consultation, set out in the subsequent consultation response in March, that number was reduced to 1.9 million families, and therefore around 2.6 million children. However, the Government estimate that only two thirds of those 1.9 million working families—so, about 1.25 million—will have qualifying child care costs. As far as I can tell, however, Ministers have never properly explained what that crucial difference is, because clauses 1 and 2 of the Bill define qualifying child care based on two criteria—first, whether the child care is provided by a registered and accredited provider, and, secondly, where one of the main reasons for the child care is to enable parents to go to work—but that does not explain why 1.9 million families are eligible, yet only 1.25 million such families have eligible child care costs. In fact, as far as I can tell, the Bill does not specifically refer to qualifying child care costs anywhere. I see the Minister shaking her head and I am sure she would like to clarify this point.