Loan Charge 2019: Sir Amyas Morse Review
David Davis Excerpts(4 years, 7 months ago)
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Mr David Davis (Haltemprice and Howden) (Con)
I beg to move,
That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.
The motion is in my name and those of the hon. Member for Brentford and Isleworth (Ruth Cadbury) and my right hon. Friend the Member for New Forest East (Dr Lewis), and is supported by some 40 other Members of the House.
I start by commending my right hon. Friend the Member for New Forest West (Sir Desmond Swayne) for having the courage to beat me to the punch in this particular debate. It may seem strange to outside observers that in the midst of a global pandemic and a huge national crisis that we are talking about a tax technicality—at least, that is how it might appear. But actually it is one of the great virtues of our country that no matter what the crisis, whether it is a pandemic or warfare, the House always pays attention to issues of natural justice. We never ignore issues of natural justice, even in times of crisis. As a matter of justice, which this is, it is not a party political issue. In politics and our business, justice is a matter of honour that we deliver to the British people, and that is what we intend to do today.
The loan charge is an injustice with very large consequences. We have all met and listened to constituents who are facing utter financial ruin as a result of this policy. It is ruining people’s lives. There have been at least seven suicides caused by the stress, anxiety and financial hardship of this policy. To give the House a flavour of that—because it does not apply just to those who have committed suicide but to those who are under stress—here is what the family of one loan charge victim told the all-party group about his suicide note:
“He wrote about being at the end of his tether with the Loan Charge matter. He wrote such awful things about himself things that just weren’t true, that he clearly thought about himself at the time. He wrote that he did not set out to do such wrongdoings; he wrote about being unable to speak to his GP about his anxiety as he was ashamed, his fear of going to prison, his disgust in himself for getting mixed up in the Loan Charge and his belief that he would now go to hell.”
In the case of this individual, the loan charge policy took not just his money, but his self-respect and eventually his life. And there could be more. According to the loan charge all-party group, 39% of those affected have had suicidal thoughts. I think the Minister will be hard pushed to think of another Government policy that has caused more than a third of those affected to consider suicide. It is no surprise that it is having that effect on people. Some 68% have suffered depression, 71% face bankruptcy, and 49% could lose their homes. I said in the previous debate on this issue that the power to tax has the power to destroy, and that has never been more clearly demonstrated than here.
Sir Edward Davey (Kingston and Surbiton) (LD)
I congratulate the right hon. Gentleman on bringing this debate to the House. In the all-party loan charge group, we took evidence from a number of family members of people who had committed suicide as a result of the loan charge, and I can underline the point that he is making. The impact on people who had been law-abiding and hard-working throughout their lives has been quite traumatic. In a particular case that I remember—I am sure that the hon. Member for Brentford and Isleworth (Ruth Cadbury) will remember this—the person who took his own life did not owe a huge amount of money. It was the fact that he had been made to feel like a criminal when he was anything but a criminal.
Mr Davis
The right hon. Gentleman makes an extraordinarily powerful point in his own skilful way. I say this back to him: his group took that evidence before the added economic stress of the coronavirus. Many of the individuals affected will be contractors. They will be people who perhaps have no rights at the moment and certainly no way of finding the money to meet the demands on them. Even small sums of money will bring enormous pressure to bear on the individual. So he is right: this is not some vague and abstract tax issue. This is about people’s lives. That is why I was pleased when the Government launched the Amyas Morse review into the policy, and in December, he published a detailed report. I commend him for his heroic attempt to find a compromise, because that is really what he did. The facts and the conclusions are a little different, and that is because he was trying to find a compromise. However, when it comes to matters of natural justice, I am afraid that a compromise is nowhere near enough. Such a detailed review deserves detailed scrutiny, and I am going to spend a small amount of time looking at his central findings.
Sir Amyas recommended a December 2010 cut-off date for the loan charge. All loans before that date will be out of the loan charge scope. In a piece for The House magazine some time ago I referred to that as arbitrary, and Sir Amyas responded. He said:
“It is not an ‘arbitrary’ date. It is the date from which the Finance Act 2011 ensured that tax was charged on income paid through loan schemes.”
But that simply did not make sense, even in its own terms. The Finance Act was not law in December 2010; it was simply draft legislation. It was not passed for another eight months—until July 2011. HMRC does not, or certainly should not, take its instruction from draft legislation. It certainly should not take it from press releases, which was what actually went out on that day. It takes its instruction from settled law—and the words “settled law” matter.
Sir Amyas went on to argue in his piece that, once the 2011 Act was passed,
“tax should have been understood as being due from that point.”
But even in 2011 the law was far from clear after the Government suffered a series of defeats in the courts.
Bob Stewart (Beckenham) (Con)
My constituents just do not have any extra money—they have used it all up each year. After 2010, they were continually told by financial experts and the companies they were contracted to, “All is well—carry on.” Suddenly in 2017, they faced a massive bill, and they just cannot cope.
Mr Davis
I am talking about how we got to that position. I will come on to talk about the financial status of these people, but my hon. Friend is right: these are not rich people.
HMRC, which has claimed that this is clear law, lost the Dextra Accessories Ltd and Sempra Metals Ltd cases in 2002 and 2008 respectively, when the courts specifically rejected the idea that the loans could be subject to income tax. HMRC then lost a case in 2012 and again in 2014, demonstrating that the 2011 legislation had not clarified the law to the satisfaction of the courts. That is a key point—it was not a question of it not being to our satisfaction or our constituents’ satisfaction, but it was not to the satisfaction of the courts. The fact that HMRC lost twice and then won twice tells us that even experienced, highly informed judges spending a great deal of time studying these cases found it a difficult issue to resolve.
Sir Desmond Swayne
Is not the proof of the pudding in the fact that the 2017 legislation was introduced? The loan charge itself is standing proof that previous legislation was not sufficient to tax the people involved, otherwise that would have been done.
Mr Davis
As usual, my right hon. Friend trumps my argument in advance, but I will come back to that in a second.
What that demonstrates—and what my right hon. Friend’s point demonstrates—is a failure of the Treasury and HMRC to write clear and comprehensible legislation. If the judges cannot understand it, what chance is there for ordinary laymen—people who cannot afford to employ an accountant? We are not talking about city slickers or international bankers; we are talking about locum nurses, social workers, careworkers and hospital cleaners.
Dr Rupa Huq (Ealing Central and Acton) (Lab)
The right hon. Gentleman’s point that these are not city slickers and tax-avoiding, money-grabbing sorts reminds me of my constituent, Caroline Cheasty. She was a social worker in the public sector, with 24 years’ experience in local authorities. She had a career break, and when she wanted to go back as a locum, she was advised to either form a plc or go with an umbrella company—that is what she did. She came to my surgery in tears. Does he agree that the Government should go after the promoters of these schemes, not the little people?
Mr Davis
I do. The hon. Lady tempts me into a political point, because the Blair Government were the most active promoter of these schemes, but she is right in general.
When something is as unclear as this tax law obviously was, we do not take the date of resolution from the first date that HMRC wins—we do not keep going until we get the answer that the Government want. We take it from the day it is finally resolved in the Supreme Court. The case was not finally and definitively settled by the Supreme Court until 2017, when it found in HMRC’s favour on the Rangers, Dextra and Sempra cases. The Government—this relates to the point made by my right hon. Friend the Member for New Forest West—then passed further legislation to clarify the law. Even after the court case, they passed legislation to clarify the law. If it was so clear, why did we need a new law in 2017? That is the fundamental point.
Dr Julian Lewis (New Forest East) (Con)
My right hon. Friend is making an unanswerable case in logic, but I would like to put another political point to him. The cause of tax avoidance is not normally associated with such parties as the Labour party or the Liberal Democrats, but I am sure he would acknowledge that Members from both those parties have played a leading role in trying to put this injustice right.
Sir Edward Davey
The intervention from the right hon. Member for New Forest East (Dr Lewis) was spot on: this has brought the House together. The issue is not about tax avoidance. I think everyone on both sides of the House agrees that tax avoidance should be clamped down on, and there is no disagreement that the loan charge could apply in the future. What has deeply concerned many of us is that this is an offence against the rule of law, which is supposed to be a basic British tradition—one of our core values, which is taught in our schools. I therefore totally agree with the points made by the right hon. Gentleman.
Mr Davis
I thank the right hon. Gentleman—I nearly called him my right hon. Friend, from my days on the Public Accounts Committee.
When financial advisers and accountants could not understand the law, when employers could not understand the law, and when the courts could not agree on the law until 2017, how could an ordinary layperson possibly have understood the law?
The Supreme Court’s eventual decision, overturning three decisions before it, reflects changing national attitudes on the responsibility of the taxpayer—the point the right hon. Gentleman has just lighted on. As a result, one organisation representing the professions involved explicitly changed its guidance to its members. It said:
“Members must not create, encourage or promote tax planning arrangements or structures that…set out to achieve results that are contrary to the clear intention of Parliament in enacting relevant legislation and/or…are highly artificial or highly contrived and seek to exploit shortcomings within the relevant legislation.”
In what year was that changed guidance handed out by the professions? 2017.
Kevin Hollinrake (Thirsk and Malton) (Con)
My right hon. Friend is making some very good points, which I agree with. However, does he not agree that if something looks too good to be true, it usually is? In my business, we have been brought this kind of scheme a number of times by our advisers over the last 30 years, maybe with a barrister’s letter saying, “Don’t worry. It’ll be fine. You can reduce your tax bill hugely by adopting this scheme.” We have always rejected them because we knew the risk. Does my right hon. Friend agree that there is a requirement on the individual who subscribes to one of these schemes to make sure they understand the risks and that there is no guarantee the scheme will actually reduce their tax burden?
Mr Davis
My hon. Friend is, of course, a skilled businessman; he knows what he is doing, and he is across this sort of thing—it is his job to be across it—but I am not so sure we could say that about a locum nurse or a social worker. This issue was actually at the centre of Sir Amyas Morse’s arguments. He took the view that the attitude from 2017 should apply back to 2010, even though the law was not clear. He took the view that the principle of a taxpayer’s responsibility for their own tax affairs must be upheld. That is the point my hon. Friend is making, and it is right—but only when the law is clear. That means that the Government have a responsibility to make the law clear and not to punish ordinary, hard-working taxpayers when Ministers fail to live up to that responsibility.
HMRC itself seems to disagree on the importance of the taxpayer’s responsibility. Why do I say that? Because until 2014, it did not approach the individual taxpayers; it approached the advisers. It approached the companies that insisted—they did not ask, but they insisted—that these locums and social workers took up this option. HMRC went to the advisers until 2014—until the issue suddenly started to become quite controversial.
Last year, the Prime Minister himself commented on this issue. He said:
“The real culprits in this matter, if I may say so, are not so much the individuals themselves who have decided to use the loan charge as a way of minimising their tax exposure. It’s the people who advised them that it was a sensible thing to do. In my view, we should find a way of going after them.”
That is the Prime Minister’s view, and I happen to agree, unusually.
Mr Davis
If the hon. Lady will forgive me, I am trying to constrain my speech to 15 minutes, and it is beginning to be a struggle with so many interventions.
In summary, these people are now suffering because of a history of poorly drafted regulation and legislation and poor management by HMRC, targeted on the wrong people.
On many occasions, the Minister and his predecessor have told me and the House that the loan charge is not retrospective. In his report, Sir Amyas Morse states:
“The Loan Charge can look back 20 years…This design has been described by HMT as ‘retroactive’.”
The report describes the loan charge throughout as backward looking. HMRC denies that it is retrospective; it says it is retroactive. If I may say so, that is a distinction without a difference. When I looked up “retrospective” in a thesaurus, guess what it said? It defined the word as “retroactive or backward looking”.
Mr Davis
Yes, I will send HMRC a copy of Microsoft’s thesaurus. Not only that, but in paragraph 3.8 of his report, Sir Amyas states:
“The Review’s legal advisers found that there was no precedent for that element of the design.”
That is the retroactive, retrospective or backward-looking element. There was no legal precedent for that design. I hope, frankly, that the Government will now stop playing with words and finally concede that this is indeed a retrospective measure—an unprecedented retrospective measure.
The only just, fair and rational resolution is to remove the retrospective nature of the loan charge and set the cut-off date when the law became clear—when the Supreme Court finally settled the matter in 2017 and when the Government felt it necessary to legislate to make clear what they meant in the first place. That is why, as I made clear, if the Government do not act to address this issue, Parliament—all of us who take this very seriously—will have to act for them and make clear that, in the future, HMRC can under no circumstances act retrospectively. If we cannot solve this, here comes a Finance Bill. I suggest that the Minister should make one simple adjustment to his plans before they are published: change December 2010 to July 2017. That would resolve the issue. It would lift enormous pressure off 50,000 of our constituents, and it would put the Government in a morally defensible, justifiable and decent position.
Tax law is the only part of English law where “innocent until proven guilty” does not apply. If HMRC tells us we owe it money, then, until we prove otherwise, we owe it money. It is therefore very important that the law is clear—that it is not subject to reinterpretation by subsequent Governments and it does not move with social mores or whatever; it is simply clear. That is what we have to do. In the interests of natural justice and the financial and mental wellbeing of thousands of our constituents, it is time for the Government to change their mind and remove this harrowing burden from the 50,000 people who have been caught by it.
Peter Dowd (Bootle) (Lab)
It is a long time since I read Adam Smith, but as I recall, the fourth maxim goes along the lines of, “Take from the taxpayer only that which is needed for the public realm.” Of course, the converse of that is that the more people do not pay their taxes, the more the rest have to pay to balance up, so Adam Smith’s statement is not absolutely unambiguous.
As almost everyone has said today, tax avoidance should not be allowed. It should not be encouraged. It should be discouraged in any way possible, because the rest of us who do pay our taxes have to support those who do not, so I do not have a problem with the concept of clamping down on tax avoidance. Retrospection has been used since the second world war, but it has always been commensurate with the needs of the nation. I do not want to get into a big argument about retrospection, but the issue is there. An excellent document from the House of Commons Library sets it out perfectly reasonably, and people have to take their own view.
I completely accept that many people took advice from a variety of organisations and that advice was wrong. I do not dispute that. These enablers ripped people off. Their scams were like other scams we have had, whether it is the recent leasehold scam, the payment protection insurance scam, or the endowment mortgage scam. These scams have existed for a long time, as the south sea bubble scam shows. They go back an awfully long time—
Peter Dowd
Precisely—before the right hon. Gentleman was a Member, although not much before, I imagine.
Mr David Davis
These occasions often show the House at its best, and that is certainly true today.
I start by paying tribute to the Loan Charge Action Group, the all-party group—particularly its chairman—and all who have contributed in the debate, which has been excellent, albeit slightly one way in terms of its emphasis. Why is that? Because this is a matter of justice, not technicalities. It is a story of unclear law not very competently clarified in 2011 and then rewritten in 2017. It is a story of HMRC allowing the real villains—the employers and advisers who forced people into this position—to carry on getting away with that, and of HMRC failing to intervene during that period to stop them.
I am afraid the Morse review is wrong. That was brilliantly exposed by the chairman of the all-party group. There is, in truth, only one answer, but before I come to it, I have 40 seconds, so I will say one other thing to those on the Treasury Bench and the Opposition Front Bench. All of us in this House believe in fair taxation. We all believe that we should pay our dues. When you are doing deals with Vodafone and Google, where they pay from 10% down to 4%, do not turn round to an ordinary locum nurse and say, “It’s too good to be true. You should have known.”
Mr Davis
No, I will not. I only have seconds.
There is only one answer in this debate. I am afraid that Amyas Morse is wrong. The answer is laid out in our motion. HMRC should cease action on all cases before July 2017, and then justice will be done.
Question put and agreed to.
Resolved,
That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.
Economic Update
David Davis Excerpts(4 years, 7 months ago)
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Rishi Sunak
I thank the hon. Member for her comments. I can reassure her that I am listening. I welcome all the suggestions that she has made, and indeed all those that other hon. Members will make. We are listening intently to hon. Members, and to businesses and others, to ensure that we provide the support required.
Let me answer the hon. Member’s specific questions. The Barnett consequentials resulting from today’s package will be about £3.5 billion. I understand that my right hon. Friend the Chief Secretary to the Treasury will be speaking to the Scottish Finance Secretary tomorrow to explain in more detail how that will work. Earlier this week we released the Barnett consequentials to the devolved authorities before the money has been drawn down in England, as would be typical, in order to provide advance on the Barnett consequentials to all devolved authorities in recognition of the circumstances that everyone is grappling with, so that they can plan appropriately. I hope that will be welcomed.
Obviously, it would not be appropriate for me to comment on specific interventions in any particular company, whether an airline or anything else, but I agree with the hon. Member that in general we are interested in protecting people’s jobs. When I stand here and talk about supporting businesses, I am keen to support businesses because that is the best way to protect jobs, and ultimately that is the best way to protect people.
The hon. Member asked about cash grants. In thinking about the scale of the grants and how significant they might be, let us take the £10,000 grant available for anyone currently in receipt of small business rate relief. The typical rateable value on one of those properties would be approximately £7,000. That is a good proxy for a year’s worth of rent. A £10,000 cash grant is therefore reasonably significant in covering what is probably a business’s biggest fixed cost. When we look at what the average income of one of those smaller businesses might be, again we see that it will be significant.
The hon. Member talked about pubs and the leisure sector. Not only will there be a business rates holiday for the sector for the next 12 months, but for all businesses in the sector, regardless of their rateable value, there will be a £25,000 cash grant for businesses up to £51,000.
The hon. Member asked about insurance. The statement is welcome on insurance. With regard to retrospectively changing insurance policies, she rightly identified that that would most likely cause solvency issues with insurance companies, so it is perhaps not the most appropriate course of action, which is why we have several other measures for providing support directly to businesses in those circumstances. She will probably be aware that very few businesses actually have the requisite insurance in any case, so although the steps set out today are welcome, it is important that we think more broadly about direct support.
I welcome the hon. Member’s question on maternity pay, which I will discuss with my right hon. Friend the Secretary of State for Work and Pensions and reflect on. With regard to renters, as I said in my earlier answer, my right hon. Friend the Secretary of State for Housing, Communities and Local Government will shortly announce further measures to protect renters.
The hon. Lady talked about other countries, and about fiscal responses and individual measures. Every country is doing this slightly differently, but, broadly, are trying to do the same things through different means. I think that the best way to judge us is by the total scale of our fiscal response, and on that metric, as a percentage of GDP benchmarked to nearly all developed countries, we have what is to date one of the most comprehensive and significant packages of scale—which, as I have said, underlies our commitment to doing what it takes to get the country through this.
Mr David Davis (Haltemprice and Howden) (Con)
I strongly welcome the Chancellor’s enormous loan and guarantee package, but he himself recognised that he is supporting the liquidity of businesses rather than their long-term viability. We want to see employment protected, so may I ask him to fund business not just in ways that enable the maintenance of employment, but in ways that actively incentivise it? It is not the same thing. Block grants will not do it. May I also ask him, when he does that, to do more than just taking the route of sectoral support packages? If he takes that route, tens of thousands of small businesses will fall through the cracks.
That, unfortunately, means an incredibly tailored system. The Chancellor will have to design rather intricate mechanisms to ensure that we pay people properly, which may involve small claims courts, the insurance business and British chambers of commerce and the like. I ask him to consider doing that, however. What he has done today is important in terms of maintaining liquidity, but his main aim must be to maintain the viability of the British economy.
Rishi Sunak
My right hon. Friend has made a good point. I believe that providing liquidity now ensures sustainability for the future, but he is right to identify the further steps that are needed to provide support on fixed costs such as employment, and preserving and incentivising that employment. This is work that we are undertaking as a matter of urgency.
Motorhomes and Vehicle Excise Duty
David Davis Excerpts(4 years, 9 months ago)
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Ruth Jones
The hon. Gentleman makes a powerful point. As I said earlier, these vehicles are not designed to be used as cars because they are not used to transport goods and people as cars are. He is quite correct in that.
I urge the Minister to listen to the industry, to Members from all parts of the House and to the thousands who enjoy using their motorhomes, and to get this mess sorted out.
Mr Clarke
That is a typically passionate intervention from my hon. Friend. I take his points to heart, and the Government are listening. Clearly in this context, we can only make announcements at fiscal events. It is important to note that we are hearing the strong messages that people are sending out.
Mr David Davis
The Minister has my sympathy. I have a sense of déjà vu from the omnishambles Budget, when the last attempt was made to attack pasties and caravans. At the time, I spoke to a predecessor in his post. I said, “You will lose taxes as a result of the impact on jobs, trade and so on.” He said, “Well, we don’t do calculations that way in the Treasury”, to which my response was, “You ought to.” This policy is masquerading as a green policy. It is destroying jobs in my constituency in Haltemprice already. It is hurting the poorest in our society in terms of their natural holidays travelling around the country. As we have heard, it is replacing staycations with trips to Cyprus and so on, which will use more in one trip than these vehicles use in one year. I look forward not to the Minister solving the issue today—I know that that is not within his reach—but to it being solved in the Budget.
Mr Clarke
I thank my right hon. Friend for his remarks. Everyone who bears the scars of taking on him and his colleagues in the context of the 2012 Budget changes will well remember that. The Government are certainly resolute that it is sensible to have a system in place that discriminates on the basis of emissions. How we calibrate that, and the way in which we operate the system, is kept under constant review. It is worth, in that context, pointing out that the current VED system applies to all light passenger vehicles, not just motorhomes, with a recorded CO2 figure registered from 1 April 2017. That includes all vehicles that fall within the category M1.
I imagine that all Members spend their time reading up on category M1, which covers those vehicles defined as designed and constructed for the carriage of passengers and comprising eight seats or less, in addition to the driver’s seat. In addition, regulations relating to the worldwide harmonised light vehicle test procedure include a requirement for any multi-stage build vehicle, including motorhomes, to record their CO2 emissions and fuel consumption on their type approval certificate.
Mr Clarke
I thank my hon. Friend for his remarks. He, like many others, has been assiduous in drawing attention to companies in his constituency that stand to be affected. Clearly, we planned to have a fiscal event in the autumn. Events supervened, and I am very glad that they did, but the March Budget gives us the opportunity to assess the tax, as we do all taxes, in the round.
To defend the Government’s record on this matter, we were explicit that motorhomes with a CO2 figure would be part of the graduated VED system introduced in 2017, and my officials are in constant dialogue with the automotive sector. I have held productive talks with the National Caravan Council, accompanied by you, Sir David. Talk about having a partial Chair.
Mr Clarke
The right hon. Gentleman raised the issue with me in the House at Treasury questions. He is obviously very committed to ensuring that we look at it again. Of course, VED is a one-off expense that is paid at the point of purchase; it does not accrue to the running costs per se. The way in which we tax that is through fuel duty. If someone drives more miles, they will pay more fuel duty. That is the real correlation and link. However, I recognise that, if people do not use the vehicles a great deal during the course of any given year, VED represents a substantial one-off cost in the first year of operation.
Mr Davis
I thank the Minister for being so generous in giving way. On that exact point, perhaps the best thing to compare, if he wants to look at more than one-off costs, is the first six years, which can be reasonably compared. A light commercial vehicle doing 8,000 miles a year will have to meet £3,325; for a motorhome doing 3,000 miles a year, it is £4,460. It is a ridiculous comparison.
Mr Clarke
We are trying to standardise the way in which we deal with VED. There is a particular grievance at the moment that it applies to motorhomes but not to vans, for example, as the hon. Member for Newport West mentioned. In the 2018 Budget, the Government confirmed that vans would move to a CO2-based emissions system, which will apply from April 2021. At that point we will have at least ended the imbalance between the treatment of one sector and another. Clearly, we need to look very closely at how we move forward, in order to ensure that the operation of VED does not penalise people who use such vehicles relatively infrequently. I understand the distinction between vehicles that are on the road every day or every week and those that may be on the road for only a month or two in any given year.