Finance (No. 3) Bill (Second sitting)

Debate between Clive Lewis and Peter Dowd

Committee Debate: 2nd sitting: House of Commons
Tuesday 27th November 2018 Public Bill Committees

[Peter Dowd]

Yes. That links to others issues. For example, my hon. Friend the Member for Ellesmere Port and Neston (Justin Madders) is having issues with the car factory in his constituency, where 200 jobs are threatened. These issues are all linked. When the industry is under threat, or there is a potential threat, even if it is not actually visible, we must take steps to ensure it does not appear on the horizon. Our proposal would help that process.

For example, the west midlands has by far the largest number of motor vehicle manufacturing employees of any UK region or country. There are 54,000 employees in the industry working in the west midlands. That is about one third of all motor industry employees in Great Britain. We have to take into account the fact that if fewer companies offer optional remuneration arrangements, that could directly affect jobs in that region. The Government’s job is to plan and—they said this in their industrial strategy—to ensure we are prepared for all eventualities. Our proposal helps with that preparation.

The second-largest region for automotive manufacturing is the north-west, where my constituency is located. It employs 24,000 people and accounts for 7% of the total industry and 1% of all employment. I recognise that a slowdown in automotive sales could be related to a fall in the use of company cars and vans, and could cost workers their jobs. Members from Scotland, where the automotive industry accounts for around 4,000 jobs and 2% of the total UK manufacturing sector, and Members from Wales, where the automotive industry accounts for 9,000 jobs, feel the same. Similarly, any fall in the sale of rental cars and vans used in optional remuneration arrangements will have an impact on foreign direct investment into the UK, as there are now no British-owned mass car manufacturers operating in the United Kingdom. It comes back to the point made by an hon. Member about foreign direct investment. We do not want to put it off.

[Clive Lewis (Norwich South) (Lab)]

Given the sounds being made by the car makers Nissan over Brexit uncertainty, it would be a most foolish approach if those safeguards were not taken, and if there were no proper impact assessment or analysis of the industry.

[Peter Dowd]

My hon. Friend is right. To some extent, that is part of the concern we have had about impact assessments and financial reviews on industry generally in relation to Brexit. This is part of the tapestry or mosaic of issues that we always have to keep to the fore if we are to protect jobs. All parties have said that they want Brexit for jobs and the economy. We have said it time after time, and this completely fits in with our policy of trying to protect jobs and our economy. Let us look to the future of how this might impact on an important part of our industry, rather than leaving it to chance.

The domestic automotive market is home to foreign volume car manufacturers, with other companies specialising in commercial or luxury brands, including Honda, which has almost doubled production at the Swindon plant—£240 million of investment into the Burnaston site was announced in March 2017. Jaguar Land Rover invested £400 million in a new engine plant, equipment and the expansion of its design centre in 2015. In October 2016, Nissan announced that it would produce two new models in Sunderland. Members on both sides of the Committee understand that uncertainty in an industry such as the automotive industry, which plans 10 or 15 years in advance, can be disastrous and cost jobs. We need only to look at the current uncertainty around Brexit, as I have indicated, to see that this is clearly the case. Large automotive companies express concern on a daily basis. My colleague the hon. Member for Oxford East receives regular representations from companies in her area who are deeply concerned about the future of the industry in the UK, and any fall in use of company cars will not add further confidence.

I accept that Government Members may accuse me of scaremongering, but figures from Her Majesty’s Revenue and Customs showed that 940,000 employers paid benefits in kind—tax on a company car—in 2016-17. That was a 2% fall on the 960,000 recorded the previous financial year. The decline is not isolated—the number of company cars has decreased over the last 10 years.

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[Clive Lewis]

Will my hon. Friend give way?

[Peter Dowd]

Yes.

[Clive Lewis]

As I sit here listening to my hon. Friend describe the obscure way in which this tax is being implemented, I wonder whether it would it be fair to call it a stealth tax.

[Peter Dowd]

My hon. Friend makes a valid point. One could argue that it is a stealth tax, although I think what the Government have introduced is more like an incompetence tax. I am not sure they know the consequences of what they have unleashed, but I suspect my hon. Friend’s use of the term “stealth tax” is pretty apposite.

We all know that employers will have invested in vehicles in good faith on the basis of those calculations, together with the comment from HMRC that that was the correct way to calculate charges. It is therefore to be expected that they will feel let down and perhaps even blindsided by these changes. The more I think about it, the more I think they will consider what the Government are introducing as a bit of a stealth tax.

The ICAEW found that, where vehicles with allowed private use are provided to employees under OpRAs, the clause will impose unexpected increases in tax and national insurance charges on employees and employers respectively. The only way to avoid those charges will be for the employer to dispose of the vehicle. That is likely to result in the employer receiving lower than expected proceeds if the vehicle is owned outright, or suffering financial penalties if the vehicle was acquired under an ongoing contract. It may also upset the employer-employee relationship, which might ultimately lead to both employee and employer leaving the scheme entirely.

That concern led the Opposition to table amendment 18, which we will press to a vote. The amendment seeks to insert the following subsection:

“The Chancellor of the Exchequer must review the effect of the provisions in this section on the availability and uptake of optional remuneration arrangements relating to cars and vans and lay a report of that review before the House of Commons within six months of the passing of this Act.”

In effect, it would require the Chancellor to publish a review of the impact of these changes on the number of employees choosing to enter into optional remuneration arrangements. The amendment goes to the heart of the Opposition’s concern that the Government’s constant tinkering and fiddling deters people from taking up such schemes and, no doubt, other schemes.

That feeds into the wider criticism of the Treasury—and Ministers, I have to say—as backed up by the Chartered Institute of Taxation, regarding the constant need to rework and reform measures. The perception is that this is happening all the time. That takes us back to the point raised by the Scottish National party’s spokesperson about the need to tease out these issues in advance and put them into the domain. Let us tease them out and try to get a little bit of sense out of the mix. This amendment goes to the heart of our concerns, and this tinkering and fiddling about just confuses things more.

It is telling that the changes have come about not because of a new onus to reform optional remuneration schemes for the benefit of employees and employers, but rather to clean up the mistakes made in the previous Finance Act. In practical terms, that is what has happened. The Opposition have consistently called for the Government to take a more considered approach to taxation, including the introduction of Public Bill Committee witness sessions, as mentioned both previously and today. Were these concerns and those of the tax experts and advisers who have to implement the change taken seriously, Ministers would not have to come back to the House to redo their homework on every Finance Bill. This is my fourth Finance Bill—excluding the Taxation (Cross-border Trade) Bill—and that seems to be a regular occurrence. Instead, Ministers should be able to get it right first time, not just in relation to consultation but in enabling us to help them do their job.

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[Peter Dowd]

If the Government decided to listen to us and undertake such a review, they would have the ability to tease out—to use that phrase—to check, to put into the mix all these important issues. We do not claim to have absolute authority on how this should be done, which is why we think wider consultation and an extensive review are absolutely appropriate. We all want the £1 that someone gives to a charity to go to the charity, and not be siphoned off in some fashion.

What procedures does HMRC already have in place for instances in which a nominated beneficiary turns out not to be a registered charity, but the person who nominated it assumed that it was? It is an important question, and it surely presents ethical issues if someone chooses to donate their benefits on the basis of fraudulent information. That is not what we want. Clearly, in the event of their passing on that information, it would not be changeable. Does HMRC plan to apply tax in those circumstances?

This will be made all the more difficult by the Government’s repeated attacks on the Charity Commission, which has been attacked time and again. Six years of cuts have led it to repeatedly warn that its ability to properly regulate the charity sector is being limited. We must take that factor into account. As reported by Devex, the news website for the global development community:

“The commission has a staff of 290 and a budget of £21 million, and while budgets have declined, the number of charities it oversees has grown by around 5,000 since 2009. The charity income it regulates has jumped from £52 billion in 2010, to more than £74 billion in 2017.”

Former Charity Commission board chair William Shawcross wrote in a 2014 report that,

“our funding position remains unstable, a matter which has been recognised by many in the charitable world and which I have raised with Government. We cannot absorb unending cuts to our budget and may have to consider alternative sources of funding.”

What assessment has the Treasury made of the impact of this measure on the struggling, underfunded commission? I hope that this matter was discussed with the Chancellor when the clause was prepared. I do not expect so, but I hope that it was.

Finally, it is clear that the measure could represent yet another injection into some private schools that operate as charities under Charity Commission guidelines. That has been recently confirmed by the House of Commons Library, which stated:

“The Government has stated that there are about 1,300 independent schools which are registered as charities and that there is a great variation in size of school across the sector: There are approximately 2,300 independent schools in England, ranging in size from the very small…Many of them are very small…The fees range from £20k per year in a prestigious day school…to far smaller amounts…Similarly, quality varies from world-leading education to some small, poorly-resourced schools”.

What assessment has the Treasury made of the amount of tax that will be forgone owing to the nomination of those particular schools?

[Clive Lewis]

I thank my hon. Friend for his scintillating speech, which is so full of detail and which I think everybody appreciates. Far be it from me to be a class warrior, but given yet another tax giveaway to the independent schools, which he mentioned, many Opposition Members would say that it is high time that those independent schools had their charitable tax status ended, and that omitting them from this measure would be a good start to that process.

Finance (No. 3) Bill (First sitting)

Debate between Clive Lewis and Peter Dowd

Tuesday 27th November 2018 Public Bill Committees

[Clive Lewis (Norwich South) (Lab)]

Thank you for that.

[Peter Dowd]

People will thank me for it—I am sure that is the case—but I exhort people to read that detail, which will give them an insight into a way forward.

The question that a review would fundamentally seek to ask is whether the section of the GAAR that I referred to but will not quote from is strong enough in providing HMRC tax officials with the basis for pursuing corporation tax avoidance. The review would also look at its relationship to the other sections of the guidance in meeting that aim.

A related matter is whether the hollowing out of HMRC has had an impact on its effectiveness in preventing avoidance and evasion, and we cannot ignore that. My constituency, as you are well aware, Ms Dorries, is home to a significant number of HMRC staff, and they have been impacted, as everywhere has, by the Government’s hollowing out of HMRC. This matter should be considered as part of the review proposed by our amendment. The effective resourcing of HMRC needs to be reviewed as well.