Finance Bill
David Gauke Excerpts(9 years, 1 month ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
The Government are today publishing Finance Bill 2015.
In December 2014, the Government published over 250 pages of draft Finance Bill 2015 legislation for technical consultation, meeting their commitment to publish the majority of Finance Bill clauses in draft at least three months ahead of introduction. The final legislation reflects comments received during the consultation process.
The Government have subsequently decided to defer a number of measures previously announced for Finance Bill 2015 to a future Finance Bill, in recognition of the accelerated parliamentary process that the Bill will be subject to. At the same time, a number of priority measures announced at Budget 2015 will be included in the Bill. The detail of these changes is set out in the “Overview of Tax Legislation and Rates”, published on 18 March:
https://www.gov.uk/government/publications/finance-bill-2015-overview-documents-at-budget-2015
In addition, a number of clauses which had been intended for Finance Bill 2015 have been deferred as a result of discussions with the Opposition in the context of the end-of-Parliament wash up process. These clauses concern:
A new tax exemption for travel expenses of members of local authorities (announced July 2014);
A new statutory exemption from income tax for trivial benefits in kind, implementing a recommendation of the Office of Tax Simplification’s review of employee benefits and expenses (announced at Budget 2014);
Simplifying link company requirements for consortium claims under corporation tax (announced autumn statement 2014);
Changes to scheme rules for the Enterprise Investment Scheme and Venture Capital Trusts (announced at Budget 2015)—on which draft legislation is being published today and which are subject to EU State aid approval; and
A separate rate of excise duty for aqua methanol (announced at Budget 2014).
The Government intend that measures deferred to a future Bill will be legislated at the earliest opportunity in the new Parliament.
[HCWS467]
Section 5 of the European Communities (Amendment) Act 1993
David Gauke Excerpts(9 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I beg to move,
That this House approves, for the purposes of section 5 of the European Communities (Amendment) Act 1993, the Government’s assessment as set out in Budget 2015 and Autumn Statement 2014, combined with the Office for Budget Responsibility’s Economic and Fiscal Outlook (2015) and Fiscal Sustainability Report (2014), which forms the basis of the United Kingdom’s Convergence Programme.
As in previous years, the Government inform the Commission of the UK’s economic and budgetary position in line with our commitments under the EU’s stability and growth pact. The Government plan to submit their convergence programme, with the approval of both Houses. The convergence programme explains the Government’s medium-term fiscal policies, as set out in the 2014 autumn statement and Budget 2015, and also includes the Office for Budget Responsibility forecasts. As such, it is based entirely on previously published documents that have been presented to Parliament.
With the Budget on 18 March this year, and the debate much earlier than normal because of the electoral timetable, I appreciate that the time to prepare for this debate has been particularly tight. Against that backdrop the Treasury has made every effort to provide early copies of the convergence programme document in advance of the debate today. The document makes it clear that since 2010 the Government’s long-term economic plan has delivered the stability and security needed to build a resilient economy: the UK had the fastest growth among G7 economies in 2014; employment has reached its highest ever level; and inflation—the consumer prices index—is at a record low. Debt as a share of GDP is now forecast to start falling in 2015-16, meeting the debt target set out in 2010.
There are differing views on the value of submitting that information to the Commission. To be clear, as a result of the UK’s opt out from the single currency, no sanctions can be imposed on the UK as part of this process. The UK’s record is a good one, and there is some value in sharing the UK experience across Europe and demonstrating that there is no conflict between central fiscal consolidation on the one hand and robust economic growth on the other.
Last week’s Budget set out the Government’s assessment of the UK’s medium-term economic and budgetary position. GDP grew 2.6% in 2014, which is the strongest annual growth since 2007 and the fastest in the G7. Debt is forecast to fall as a share of GDP in 2015-16, meeting the debt target set out by the Government in 2010. Borrowing is forecast to be lower in every year to 2018-19 than at autumn statement 2014, and the public finances are forecast to achieve a larger surplus in 2018-19. Falling debt and improving borrowing mean that consolidation can end a year earlier than planned, and that spending will grow in line with GDP in 2019-20. Budget 2015 builds on existing reforms to create a dynamic, regionally balanced and stronger economy. Latest data show that employment is at its highest ever level, with 1.9 million more people in work since the current Government came to power. Business investment has increased by 25.6% since the first quarter of 2010, and the UK will have the joint lowest rate of corporation tax in the G20 from April 2015.
Budget 2015 sets out a significant package of measures for a truly national recovery by investing in infrastructure, housing, and science and innovation across the whole of the UK, and building a northern powerhouse. Fuel duty will be frozen for another year. The Government will substantially reduce oil and gas taxes to improve competitiveness in the North sea. Further support for energy-intensive industries will begin in 2015-16. A comprehensive review of business rates has been launched, and there will be a radical simplification of the tax system by abolishing the annual tax return.
Restoring growth and competitiveness across the EU is critical. The euro area outlook is for slow, but positive growth, supported by lower oil prices and European Central Bank sovereign quantitative easing. The European Commission’s own forecasts from February this year predict growth in 2015 of just 1.7% in the EU as a whole, and 1.3% in the euro area. Some 45% of our exports are destined for the EU and seven of the UK’s top 10 trading partners are EU member states.
The UK recovery has been based on a number of policy responses: supportive monetary policy, clear and credible fiscal consolidation, and structural reform, all of which must mutually reinforce each other. Although the challenges across member states differ, countries across the EU need to consider a similar response, and these processes of European co-ordination, including the sharing of information through the shared reporting of fiscal and reform progress, can play a part in making that happen.
Much of the answer lies in national level reforms such as creating flexible labour markets. Clearly, the European semester has a key role to play in encouraging member states to make ambitious reform commitments, and the UK has an interest in making those reforms happen. However, an ambitious EU-level reform agenda is also a key part of the equation and an essential counterpart to national level reforms.
In conclusion, the Government are committed to ensuring that, in line with section 5 of the European Communities (Amendment) Act 1993, this House approves the economic and budgetary assessment that forms the basis of the convergence programme. Following the House’s approval of that assessment, the Government will submit the convergence programme to the European Commission, which is expected to make its recommendations to all EU member states in late May. Those recommendations will then be considered by ECOFIN council and agreed by Heads of State or Governments at the European Council.
The convergence programme explains the Government’s medium-term fiscal policies as set out in the 2014 autumn statement and Budget 2015, and also includes the Office for Budget Responsibility forecasts. As such it is based entirely on previously published documents that have been presented to Parliament. Unlike other member states, the UK does not submit its Budget to the Commission for approval, and cannot be subject to any action or sanctions as a result of its commitments under the stability and growth pact. I look forward to the debate.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I am grateful for the opportunity to respond to the motion on behalf of the Opposition. Looking back over the corresponding debate last year, I was interested to see that the Minister’s predecessor, the right hon. Member for Loughborough (Nicky Morgan), told the House that, due to the tight timetable,
“the Treasury has made every effort to provide early copies of the convergence programme document in advance of today’s debate.”—[Official Report, 30 April 2014; Vol. 579, c. 851.]
I acknowledge that today the Financial Secretary indicated the difficulties in providing the document in a timely fashion. I received a copy only on Friday. At more than 250 pages long, it was perhaps not ideal, but it certainly made for interesting weekend reading.
Cathy Jamieson
I was just about to say that I know the Minister is courteous and accommodating, so I understand that the delay might have been unavoidable. As he quite often does, he has anticipated a number of the questions and points I intended to raise—indeed, the whole thrust of my remarks is just how familiar some of the documents and the issues they cover are, given that they have been discussed already and are likely to be debated again tomorrow. I hope to be able to do the subject justice this afternoon.
Some things have changed since last year. Looking across the Chamber, I see that, unlike last time, the hon. Member for North East Somerset (Jacob Rees-Mogg) is not in his customary place. I know what a keen interest he normally takes in European matters, having had the pleasure of his company in many European Committees, including one only this morning. As the Minister last year observed, the hon. Gentleman
“could go on for hours and hours on that particular subject.” —[Official Report, 30 April 2014; Vol. 579, c. 854.]
Given his absence from the Chamber this afternoon, the debate might be shorter than was anticipated.
As the Financial Secretary observed, once again we have been provided with a barrage of figures, accompanied by bouts of backslapping, boasts and congratulations from the Government to themselves. The overarching theme of the document is to show just how well the Government have done—and, no doubt, the Government would say that is entirely in order from their perspective. However, the document—and to some extent this debate—is something of an exercise in repackaging. Bits of the Red Book and bits of the Office for Budget Responsibility’s “Economic and fiscal outlook” are spliced together with a new binding—a theme and variations on the Budget, except there is little theme and scant variation. Although the Government can try to repackage the Budget, I would argue that they cannot mask some of the problems we have already raised and the reality of the failure.
Part of me thinks that the Minister’s tune, like the Chancellor’s last week, strikes a pretty discordant note, because the truth is that, under even the mildest scrutiny, the Government’s economic credibility behaves like a sand castle in the waves, melting away before our eyes. Attempts have been made, through choice language and careful presentation, to obscure the impact that this Government have had, and continue to have, on the people and public services of this country. The theme that runs through the Red Book and the report we are discussing today is that everyone can put away their umbrella, because the sun is shining, people across the country are better off, and we should all be very grateful as we walk hand in hand into the sunlit uplands of peace and prosperity. [Hon. Members: “Hear, hear!”]
I hear the cheers from the Government Benches. Hon. Members may wish to wait for the next part of my speech before further congratulating the Government. The picture is very different for the millions of people across the country who are still firmly mired in the slough of despond because of what has happened to their lives. For example, there are those who are £1,600 a year worse off since this Government took office, or those who are £1,100 a year worse off as a result of the tax and benefit changes made by this Government, including the rise in VAT. The hundreds and thousands of people across the country, including many in my constituency, who are forced to rely on food banks—a persistent and pernicious feature of Tory Britain—are not feeling the benefits of the recovery. For them the sun is not shining. They can see through the smoke and mirrors that the Government use to try to paint a glowing picture.
To judge only by the language and tone of the document in which the Government claim to have laid the foundations for a strong economy and a fairer society, one might be forgiven for thinking that the worst was over. In some ways that is the most troubling aspect, because we know that the worst is yet to come. The Chancellor may have shuffled the numbers around, but no shuffling can conceal the truth about the Government’s economic plans. As the OBR said, the Budget will mean
“a much sharper squeeze on real spending in 2016-17 and 2017-18 than anything seen over the past five years”,
and a
“sharp acceleration in the pace of implied real cuts to day-to-day spending on public services”.
Perhaps I do not share the Chancellor’s or the Minister’s sunny disposition, or perhaps I am more in touch with the reality of the lives of people across the country. I do not see much fairness in the document before us or in the Government’s approach. The cuts of more than 5% planned for 2016-17 and 2017-18 are twice the size of any annual cuts in this Parliament. That has resulted in a somewhat erratic trajectory, described by the OBR as a “rollercoaster ride” of public spending. Remarkably, for all the cuts yet to come, the Government continue to repeat the tired mantra that “we are all in this together.”
That is not borne out by the evidence. Wage growth has been stagnant over the course of the Parliament. Energy bills, on the other hand, have gone up by around £300 over the past five years. Although the Government boast of more jobs and high rates of employment, we have to consider what kind of jobs these are. Many are low paid. For evidence of that, one need look no further than the state of the nation’s tax receipts. Income tax receipts and national insurance contributions are £97 billion lower over the course of the Parliament than was forecast in 2010. Jobs are often insecure and uncertain, typified by the over-reliance on zero-hours contracts. Alongside the proliferation of insecure, low-paid jobs, the wealthiest have been handed a £3 billion tax cut, while the poorest have lost out disproportionately from the cuts to tax receipts and the increase in VAT.
Mr Gauke
We seem to have entered day five of the Budget debate. Let me make one or two brief points in response to the hon. Lady. First, let us remember what the state of the economy was in 2010, and the state of the public finances. Our borrowing levels were over 10% of GDP, which is a peacetime record, and we were forecast to have the highest level of borrowing in the G20. Over half of that amount has now been dealt with, but we have further to go and further steps are needed to deal with borrowing. That is why this House overwhelmingly voted for the charter for fiscal responsibility, which means that the cyclical current budget will be balanced by 2017-18. That is a target that those in all parts of the House signed up to, including Labour Members, but we heard nothing from them during the Budget debates, or today, about how they would meet that ambition. Whereas my party has set out our plans for finding £12 billion from welfare cuts, £13 billion from departmental spending and £5 billion from tax evasion, tax avoidance and aggressive tax planning, we have had no such indications from Labour. There is a huge hole where there should be an Opposition party policy.
Kelvin Hopkins (Luton North) (Lab)
The hon. Gentleman constantly talks about cuts—very unpleasant cuts that are going to affect a lot of poor people—but the real problem is an income problem, because we have a tax gap of £120 billion through evasion and avoidance that the Government refuse to recognise to its full extent. If we looked at the income side and made sure we collected the tax that should be paid, then we could address the problems with the deficit—if they are serious problems—and, at the same time, not inflict cuts on poor people.
Mr Gauke
The Government do not recognise the £120 billion figure, nor did the previous Government or, as far as I am aware, does any statistician. One individual has put that methodology forward, but Her Majesty’s Revenue and Customs has set out in some detail the numerous flaws within it. As for tax, I agree that it is important that we get the money in. It is worth pointing out that the yield from HMRC’s activities has gone up from £17 billion a year to £26 billion a year under this Government. We have a proud record of collecting more in tax, and we will maintain it.
I do not intend to detain the House for long on this occasion. The fact is that this Government are getting the deficit down, while living standards are going up, employment is going up, and we are fixing the mess that we inherited. Is there more to do? Yes, of course there is, and we hope to have the opportunity to address that over the next five years.
Question put.
Convergence Programme
David Gauke Excerpts(9 years, 1 month ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
Article 121 of the Treaty on the Functioning of the European Union (TFEU) requires the UK to send an annual Convergence Programme to the European Commission reporting upon its fiscal situation and policies. The UK’s Convergence Programme will be sent to the European Commission by 30 April. This deadline was set in accordance with the European semester timetable for both convergence and national reform programmes. The Government support the European semester which plays an important role in EU surveillance of economic and fiscal policy.
Section 5 of the European Communities (Amendment) Act 1993 requires that the content of the Convergence Programme must be drawn from an assessment of the UK’s economic and budgetary position which has been presented to Parliament by the Government for their approval. This assessment is based on the Budget 2015 report and the most recent Office for Budget Responsibility’s Economic and Fiscal Outlook and it is this content, not the Convergence Programme itself, which requires the approval of the House for the purposes of the Act.
Article 121, along with Article 126 of the TFEU, is the legal basis for the stability and growth pact, which is the co-ordination mechanism for EU fiscal policies and requires member states to avoid excessive Government deficits. Although the UK is bound by the stability and growth pact, by virtue of its protocol to the treaty opting out of the euro, it is only required to “endeavour to avoid” excessive deficits. Unlike the euro area member states, the UK is not subject to sanctions at any stage of the European semester process.
Subject to the progress of parliamentary business, debates will be held on 24 March for the House of Commons and on 25 March for the House of Lords in order for both Houses to approve this assessment before the Convergence Programme is sent to the Commission. While the Convergence Programme itself is not subject to parliamentary approval or amendment, I have deposited advanced copies of the document in the Libraries of both Houses and copies will be available through the Vote Office and Printed Paper Office.
The UK’s Convergence Programme will be available electronically via HM Treasury’s website after it is sent to the European Commission.
[HCWS447]
Tourism Industry and VAT
David Gauke Excerpts(9 years, 2 months ago)
Westminster HallRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Westminster Hall is an alternative Chamber for MPs to hold debates, named after the adjoining Westminster Hall.
Each debate is chaired by an MP from the Panel of Chairs, rather than the Speaker or Deputy Speaker. A Government Minister will give the final speech, and no votes may be called on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship this afternoon, Ms Dorries, and to respond to this debate. This is not the first time that I have had the privilege to respond to such a debate. I start by congratulating the hon. Member for Ceredigion (Mr Williams) on securing this debate, and for giving hon. Members an opportunity to discuss this important issue. I also congratulate him on the manner in which he set out his case. His constituency is well-known for being one of the most beautiful in Wales, and indeed in the entire country. I make that point with a degree of concern because I appreciate that, having made it about his constituency, there is a very strong case to make it for many of the other constituencies that are represented here in Westminster Hall today.
Let me reassure the hon. Gentleman and indeed other hon. Members that the Government value the importance of the tourism sector, not only in the hon. Gentleman’s constituency but across the United Kingdom. I will say more about that later, but Ministers from both the Treasury and the Department for Culture, Media and Sport have been working closely with the industry to increase both in-bound and domestic tourism.
On the specific issue of VAT, I should briefly explain that VAT is, of course, governed by EU law and that reliefs from VAT are therefore strictly limited. However, EU VAT law allows member states to implement certain reduced rates of VAT, which are listed in annex 3 of the VAT directive, at the discretion of individual member states. Three of these reliefs are of particular interest today: first, accommodation provided in hotels and similar establishments, including the provision of holiday accommodation and the letting of places on camping or caravan sites; secondly, restaurant and catering services, excluding alcoholic drinks; and, thirdly, admission to leisure attractions, including shows, theatres, amusement parks, concerts, museums, and similar cultural events and facilities.
I know that the hon. Gentleman is aware that a number of other member states have chosen to implement a reduced rate of VAT on tourism and related activity. However, this Government are yet to find any conclusive evidence of a causal link between VAT rates and tourism activity. Comparisons with other countries tend not to take into account the significant VAT reliefs that the UK already provides for cultural attractions and public transport, nor the other tourist taxes that other member states choose to levy.
Mr Mike Hancock
I am very interested in the statement the Minister has just made that there is no conclusive evidence to support the argument that a cut in VAT would generate more activity. So, what is the evidence that he is using to say that there would be no improvement, and who produced it?
Mr Gauke
I will say a little about that. For example, the case has been made that in the Republic of Ireland there has been an increase in the number of tourists in recent years, since there was a reduction of VAT on the tourism sector there. However, we have seen a very similar increase in the number of tourists in the United Kingdom. So, we should not jump to the conclusion that there is necessarily a causal link.
David Simpson
Earlier, I raised the issue of the distortion of VAT payments between certain golf clubs—the disparity between the proprietary clubs and the member-run clubs. Surely that disparity should not exist. If it is a golf club, it is a golf club, and there should be a level playing field. Golf clubs create tourism, food and accommodation.
Mr Gauke
The hon. Gentleman leads me to a different debate on the VAT treatment of golf clubs, which I am sure he will understand is a matter of some complexity and indeed of some litigation, too. So, Ms Dorries, I hope you will forgive me, but I will not be too diverted by the particular point that he has put on the record.
In the UK, we apply a zero rate of VAT to food, newspapers and books, and passenger transport. The UK also refunds VAT incurred by many world-famous museums and galleries, making them free to visit for all. In addition to the sector-specific reliefs, the UK’s VAT registration threshold is the highest in the EU, meaning that much tourist accommodation and many attractions do not have to charge any VAT to their customers.
As I have said, Ministers from both the Treasury and DCMS have discussed the Cut Tourism VAT campaign, and recently I have both met and engaged in correspondence with campaigners. VAT raises more than £100 billion a year, which has been critical in enabling us to manage the UK economy through tough economic times, and the latest figures from the Office for National Statistics suggest that reducing the rate of VAT to 5% for catering services, such as the supply of meals, snacks and drinks sold by restaurants, pubs, cafés and canteens, would cost the Exchequer £10 billion per year. Similarly, a cut in VAT to 5% for accommodation would have an estimated cost of around £2 billion a year to the Exchequer. I do not have to remind hon. Members that those costs would have to be met either by increasing other taxes, which may well have an adverse effect on growth and jobs elsewhere in the economy, or by increasing borrowing. That would risk raising interest rates, which would undermine our hard-won recovery and would have an adverse impact on families and small businesses.
Albert Owen
The Minister made the comparison with the Republic of Ireland, saying that we have had a comparable increase in the number of people visiting this country. Does he have any comparable figures from the Republic of Ireland that show the boost to the tourism sector there, and if so, is he taking them into account when he talks about the extra revenue that has come into the Irish Exchequer?
Mr Gauke
The point that I am making is that the number of tourists in both countries has increased at largely the same rate, at a time when one of them has reduced VAT and the other has not. Of course, these matters can be somewhat complex and there are many factors to consider, and when it comes to tourism matters, and particularly matters affecting in-bound tourists, we should not forget the importance of the exchange rate. It is very significant and, of course, recently the exchange rate has gone in different directions.
Jim Shannon
If the Minister wants a comparison, he should compare the Republic of Ireland and Northern Ireland. Clearly, the number of visitors to the Republic of Ireland has grown enormously above the number visiting Northern Ireland. That is a clear example of the advantage of a reduced VAT rate. We could all take advantage of that if it happened across the whole of the United Kingdom, and particularly in Northern Ireland.
Mr Gauke
As I say, a comparison of the Republic of Ireland with the UK as a whole suggests that there is not a big difference. Indeed, I understand that there has been a pretty positive increase in the number of tourists to Northern Ireland specifically in recent years.
All hon. Members will be aware that this Government’s priority is to tackle our budget deficit decisively but fairly and to restore confidence in our economy. The Government have concluded that a VAT cut would not produce sufficient economic growth to outweigh the revenue shortfall. I have not seen any new conclusive evidence that has led me to revisit that conclusion. So at present the Government have no plans to introduce a VAT cut for this sector.
I reassure hon. Members that the Government recognise the importance of the tourism industry and we remain committed to a wide range of other measures to support the sector. For example, to date we have invested more than £129 million through VisitBritain and VisitEngland, to market great British holiday destinations at home and abroad. This has already leveraged significant private sector investment of more than £84 million. We have announced a £10 million tourism in the north fund in the next financial year. We have announced £2 million in the next financial year, to help promote our cities and regions overseas as part of the GREAT campaign, through VisitEngland.
The tourist industry has benefited from other policies introduced by this Government. I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for making this point. For example, capping business rates and doubling business rates relief benefits the retail and hospitality sector by a considerable sum. Those sectors have benefited from the introduction of the employment allowance and will benefit from the abolition of employer's national insurance contributions for under-21s and for apprentices under 25.
John Pugh
I hope that this intervention will help. The Minister is saying clearly to the industry and to hon. Members that he has seen no conclusive evidence. If that is not to be a fob-off, should not he sketch out what conclusive evidence would look like to the Treasury? What is the Treasury actually looking for in evidence that would convince it that this case was valid? If he cannot say that, it will simply look like a stalling move.
Mr Gauke
A considerable amount of evidence has been produced. The essence of the case is that we would want to see evidence suggesting that the benefits to the economy outweigh the costs. The costs to the Exchequer are, as I have outlined, considerable. The Cut Tourism VAT campaign acknowledges in the numbers that it has produced—I can go into a little bit more detail on issues that we have with its methodology—that there would be an immediate shortfall. Its argument is that, over time, much if not all of that shortfall would be recovered. However, that immediate shortfall has to be dealt with. There is not the opportunity for us to say, “We can borrow extra billions of pounds to fund this, in the hope that that money will be recovered in future years.” If we undertook such a measure, we would need to replace that shortfall with additional taxes or reduced spending, and that in itself would have an impact upon the economy.
The actions we have taken in support of VisitBritain and VisitEngland and the tax reforms that I outlined, are delivering positive results for the UK tourist sector. Provisional figures for 2014 show that the UK welcomed 6% more visitors than in 2013: a total of 34.8 million. In total, UK tourist spend is also up by 3%, which is a total of some £21.73 billion. Provisional figures for tourism in Wales for 2014—the hon. Member for Ceredigion will be interested—show that more people are holidaying in Wales than ever before, with Wales now accounting for over 12% of holidays in Great Britain, leading to an increase on holiday spend in Wales. I am certain that, on top of the increase in numbers, all the successful events that the UK hosts year on year will only serve to make more people aware of the UK’s desirability as a tourist location.
Wherever we can, the Government will of course continue to invest in tourism and provide support for tourism across the UK. Although the hon. Gentleman, and other hon. Members who spoke in this debate, may be disappointed with my answer on VAT, I hope he and other hon. Members will be reassured that we support the sector; that, wherever we can, we will continue to support it; and that we are confident that both inbound and domestic tourism numbers will continue to rise.
Terrorism Asset-freezing etc. Act 2010 (Annual Report)
David Gauke Excerpts(9 years, 2 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
My noble Friend the Commercial Secretary to the Treasury (Lord Deighton) has today made the following written ministerial statement:
Mr David Anderson QC has completed his fourth annual report as independent reviewer of terrorist asset-freezing legislation. The report covers a 12 month period of the operation of the Terrorist Asset-Freezing etc. Act 2010 and will be laid before Parliament today.
The Government are grateful to Mr Anderson for his thorough report and will consider carefully the recommendation he has made. The Government’s response to this report will be placed in the Libraries of both Houses in due course.
[HCWS411]
Ark Pension Schemes
David Gauke Excerpts(9 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
I congratulate the right hon. Member for Blackburn (Mr Straw) on securing the debate and on setting out his case so clearly and with such forensic skill, which has been a characteristic of his role as a Member of Parliament for some 36 years.
As the right hon. Gentleman outlined, the Ark pension schemes are a number of schemes that were administered by Ark Business Consulting. The schemes operated a pensions reciprocation plan that involved loans being paid between schemes and their respective members. That was on the basis that members could access a proportion of their pension savings without breaching tax rules intended to ensure that members access their tax-relieved pension savings only from age 55, under a practice known as pension liberation.
The right hon. Gentleman raised a number of concerns about the tax implications for individuals involved in the schemes. It might help if I set out the tax rules in a little more detail before turning to the particular points he raised. Tax relief is provided on pensions savings with the expectation that the funds are used by the member to provide benefits later in life. The tax rules therefore set out the various payments that a pension scheme is authorised to make to, or on behalf of, a member. They include payments of authorised benefits—pensions and lump sums—as well as such payments as transfers to another registered pension scheme. To be an authorised payment, these benefits cannot be paid before the minimum pension age, currently 55.
Where payments are made that are not authorised, they are classed as “unauthorised payments” and are subject to certain tax charges. These charges are intended to recover the tax relief previously given on the savings, as they have not been used as intended by the tax rules. Where savings are taken before age 55, this is an “unauthorised payment” and tax charges will apply. A loan made to a member from a registered pension in connection with their pension savings is also an “unauthorised payment”. This guarantees fairness to the taxpayer and ensures that pensions are not simply used as a tax-efficient savings tool. HMRC is looking into whether the payments made to the members of the Ark schemes are authorised by the tax rules.
The tax position in relation to the Ark pension schemes is by no means straightforward. The right hon. Gentleman asked whether, if the loans are repaid, they can be treated for tax purposes as though they had never happened. That is not the case, as loans are “payments” for the purposes of the tax legislation under consideration, whether or not they are repaid. He asked why we cannot return to the status quo ante. To do otherwise than treat loans as “payments” would enable people to withdraw funds early from their pension pots without any tax implications, and then return them to their pension pots at some point in the future if they so wished, with no consequences. Clearly, we do not want to encourage that type of speculative behaviour. The rules essentially comply with the principles that have been in place since tax relief was introduced many years ago.
Mr Straw
Of course I accept, as does, I think, everyone in this House, that if we are going to have arrangements by which people are able to save up for their retirement and to gain tax advantages in doing so, we cannot, in principle, have a situation where, in advance of their retirement age, they can simply pick and choose what they take out of the scheme, or not. However, does the Minister recognise the inequity of the fact that my constituent, who has acted in good faith, has been the victim of circumstances where he believed that what was happening was lawful—as indeed, at the time, it was—and accept that, in the special circumstances in which he finds himself, arrangements ought to be made by which he can return to the status quo ante, because otherwise he will suffer a huge penalty for no benefit?
Mr Gauke
The right hon. Gentleman puts his constituent’s case very well. In the situation as he describes it, it is hard not to be sympathetic to an individual placed in that position. However, the law is very clear that a loan payment of this sort constitutes a “payment”, and certain consequences follow. I take his point, and this may well be a hard case. The challenge arises if we have a situation whereby people are able at least to attempt to access some of their pension pot, and then subsequently find, for one reason or another, that that was not the right thing to do. However, simply putting them in the position they were in to begin with is, to use a snooker term, a bit of a shot to nothing. Although this might be unfair—I am sure that it is—on the right hon. Gentleman’s constituent, others who are acting in not quite such a degree of good faith might attempt to liberate, as it were, their pension in the hope that it does not get picked up, and in the knowledge that if it does, they are in no worse a situation. That is one of the challenges that a Government of any description would face, and that is why the law in this area has been tightly drawn for many years.
In the right hon. Gentleman’s second question, he asked when the matter might be settled so that he could provide some certainty for his constituent. I fear that I cannot provide such certainty about when the tax position will be settled. This is a complex case, and it may ultimately be for the tax tribunal to determine the correct tax position. Until that has been determined, it will not be possible for HMRC to settle the specific case, and that timetable is not within the control of HMRC. I have asked HMRC when it anticipates dealing with this case, but given that it will have to go to a tribunal, HMRC is not willing to provide a precise date.
The Government have a duty, not least to the taxpayer, to apply the legislation fairly and consistently in line with statutory provisions. Where a liability to tax arises, the normal rules in relation to interest accruing on any outstanding tax charge apply. Existing arrangements that allow individuals to get more time to pay or to pay their tax bill in instalments will be available to help those who want to use them.
On the specific case, in May 2011, the Pensions Regulator decided to appoint Dalriada Trustees Ltd as the independent trustee of the Ark pension schemes. It did so because it was satisfied that the interests of scheme members were at risk due to the schemes being used for pension liberation. Under trust law, Dalriada has a duty to act in the best interests of the members. I am sure that it will seek to locate as much of the scheme’s funds as possible, and to recover assets wherever it is reasonable and proportionate to do so, bearing in mind that the standard practice is for the costs of investigating and recovering assets to be met from member funds.
On the right hon. Gentleman’s third question, there are responsibilities on Dalriada as the trustee to ensure that its actions are proportionate and that the pension funds of Ark members are not frittered away. None the less, it faces a challenge in recovering the assets. I suspect that Dalriada as the trustee is better placed to give an estimate of the risks of legal costs substantially diminishing the pension pot in the Ark scheme.
The right hon. Gentleman has raised the concern that Ark scheme members entered the arrangements in good faith. As I have mentioned, Dalriada was appointed because the schemes were suspected of being involved in pension liberation. He will doubtless be aware that pension liberation is a threat to individuals’ hard-earned pensions savings. It occurs where a scheme is set up to enable someone to access their pensions savings early—usually before age 55. Scheme promoters often fail to tell people about the tax consequences of accessing their pension savings early, and promoters often charge high fees. In some cases, people are promised cash if they invest their pension funds in esoteric investments, on which a high return is promised, and people unfortunately often lose all their pension savings in those cases.
Some products claim to unlock, liberate or provide early access to pension savings without giving rise to tax charges. That is not true: anyone receiving money from their pension scheme before the age of 55 will normally be subject to tax charges aimed at recovering tax reliefs. It is therefore vital for individuals to recognise the danger of entering into such schemes. If they choose to access their pensions savings early, they need to be aware of the tax charges and risks. HMRC is continuing to take action in pursuit of those who deliberately bend or break the rules by offering schemes to liberate pensions savings. That is part of a continuous strategy to combat pension liberation, as is the ongoing review of pension tax legislation. The Government will not hesitate to make further changes if necessary.
Mr Straw
It may be that the Minister is coming to my fourth question, but I would be grateful to know whether it is correct, as my constituent claims, that Ark held out that it was regulated by HMRC and the Pensions Regulator. If that is correct, does he believe that any responsibility for the fact that the scheme was advertised in that way rests with those two regulators?
Mr Gauke
I reassure the right hon. Gentleman that I will turn to his fourth question in a moment, but before I do I hope it will be helpful if I first say a little more about what HMRC is doing in this area, and then I will deal with his question directly.
In addition to the measures I have mentioned, HMRC has been working extremely closely with partner agencies—the Pensions Regulator, the Financial Services Authority and the Serious Fraud Office—to detect, disrupt and deter promoters, and to warn people of the dangers of entering into these schemes. Although HMRC and its partners are taking action to raise awareness of potential threats, the Ark case highlights the need for people to be on their guard against promises of tax loopholes, offers of unrealistic investment returns, or other dubious advice linked to their pension pot or cash lump sums. If it sounds too good to be true, it probably is. Individuals need to consider carefully what is on offer and whether it is appropriate to their circumstances, and ensure they have carried out sufficient due diligence, taking professional advice as they deem necessary.
The right hon. Gentleman asks whether the Ark pension schemes were registered with HMRC, and I confirm that they were. As he will appreciate, it is difficult to know at the point an application for registration is received whether any particular pension scheme will ultimately be misused, but that is not to say that the Government should be complacent. Changes have recently been made to the process for registering a new pension scheme with HMRC to make the system more robust and disrupt any fraudulent intentions.
Legislation in last year’s Finance Act provided greater powers to check that pension schemes are being set up for the genuine provision of retirement benefits, and to impose penalties where wrongdoing is identified. That includes a “fit and proper person” test for those running the pension schemes applying for registration. Essentially, these changes provide stronger powers for existing pension schemes to be deregistered, or for new schemes to be refused registration where there are concerns.
HMRC’s role is to ensure that the tax system is being complied with. It is not there to perform a role of consumer protection, but to ensure that pensions are not liberated, and we have made a number of changes in recent months to strengthen its powers in that area. As the right hon. Gentleman will appreciate I cannot discuss individual cases, but I assure him that HMRC continues to ensure that the tax rules are applied fairly and consistently, that it will continue to pursue those behind pension liberation schemes, and that the British taxpayer continues to get a fair deal.
Question put and agreed to.
Finance Bill 2015
David Gauke Excerpts(9 years, 2 months ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
The Finance Bill will be published on Tuesday 24 March.
Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both Houses on that day. Copies of the explanatory notes will be available online at: http://www.gov.uk.
[HCWS361]
Oral Answers to Questions
David Gauke Excerpts(9 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mrs Mary Glindon (North Tyneside) (Lab)
4. What recent estimate Her Majesty’s Revenue and Customs has made of the amount of uncollected tax in the UK.
The Financial Secretary to the Treasury (Mr David Gauke)
HMRC published its latest tax gap estimates on 16 October 2014. In 2012-13, the tax gap was estimated at £34 billion, 6.8% of total tax due.
Rosie Cooper
I thank the Minister for those figures. Will he confirm that HMRC’s own figures show that under this Government the amount of uncollected tax has risen by £3 billion?
Mrs Glindon
There has been speculation that the Chancellor’s Budget next week will deal with tax avoidance and evasion, but there has also been speculation that by 2016 the number of staff working in HMRC will drop from 50,000 to just over 40,000. How do the Government expect to deal with evasion and avoidance if they are unwilling to properly resource HMRC?
Mr Gauke
Over the course of this Parliament, HMRC has brought in more yield year after year. If the measure is just on the number of staff, the hon. Lady will be aware that, when HMRC was formed in 2005, it had something like 92,000 members of staff and that by the end of the previous Parliament it had below 70,000. It is not about the number of staff. We are seeing a huge improvement in HMRC’s performance.
Andrew Bridgen (North West Leicestershire) (Con)
Will the Minister confirm that HMRC’s compliance yield target has actually been revised up this year to £26 billion, which is £9 billion more than when this Government came to office?
Paul Blomfield (Sheffield Central) (Lab)
17. A young man in my constituency had his jobseeker’s allowance taken away because he missed an early morning appointment, despite having notified the jobcentre of the illness that prevented him from attending. He is just one of many vulnerable people affected by the sanctioning regime imposed by this Government. According to the House of Commons Library, the amount lost in tax evasion and tax avoidance exceeds the entire spend on JSA by £2 billion. Does the contrast between the persecution of the most vulnerable and the Government’s failure on tax avoidance not say everything about their priorities?
Mr Gauke
Over the course of this Parliament, the number of prosecutions for tax evasion has gone up fivefold. The reality is that the Government are taking more measures to deal with tax avoidance and tax evasion. We have done that consistently at every Budget. Ever since the 2010 spending review, there has been a greater focus on HMRC being able to bring in the yield. The numbers, as my hon. Friend the Member for North West Leicestershire (Andrew Bridgen) pointed out, speak for themselves.
Sammy Wilson (East Antrim) (DUP)
Hundreds of millions of pounds are lost in revenue, criminal gangs are financed and untold damage is done to the environment in Northern Ireland as a result of fuel laundering. Why have the Government resisted putting effective trace measures into fuel, which would stamp this out? Is the Minister concerned that despite numerous raids nobody is ever caught for fuel laundering in Northern Ireland?
Mr Gauke
Our record across the piece shows that we take tax evasion and criminal activity in this area very seriously. This is a complex matter, but the hon. Gentleman will know that considerable efforts have been undertaken to address fuel laundering. This is a matter we take very seriously.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
The Minister must acknowledge the significant damage that the recent HSBC tax avoidance and evasion scandal has done to the public’s confidence in the Government’s willingness to pursue tax avoiders and evaders, thereby reducing the amount of uncollected tax in the UK. In the Chancellor’s absence, will the Minister now answer the question that the Chancellor failed to answer six times on the “Today” programme? Did the Chancellor ever discuss tax evasion at HSBC with Lord Green—yes or no?
Mr Gauke
As I have pointed out, the Government’s efforts and success in dealing with tax avoidance and tax evasion are a huge step forward from what we inherited. On the appointment of Lord Green, the proper processes, as put in place by the previous Government, were undertaken. The Cabinet Secretary looked at Lord Green’s tax affairs, and just as the previous Government appointed him to their business advisory council, so he was appointed as a Minister—an appointment that was welcomed by the Labour party.
Shabana Mahmood
Still we have no answer to the simplest and clearest of questions. If we cannot get a straight answer from the Chancellor or his Ministers, we should at least hear from Lord Green—the man who was in charge of the bank and was then made a Conservative Minister—either in front of a parliamentary Committee or through a statement in the other place. Why are the Government parties so desperate to silence Lord Green? What are they so afraid he will reveal?
Jessica Morden (Newport East) (Lab)
2. What proportion of recipients of tax credits are in employment.
Tim Loughton (East Worthing and Shoreham) (Con)
6. If he will make a comparative assessment of the level of duty on wine paid in the UK and in other EU member states.
The Financial Secretary to the Treasury (Mr David Gauke)
Industry estimates show that there are 135 wineries in England and Wales, producing 4.5 million bottles of wine. The UK’s growing and award-winning wine industry benefited from the Government ending the wine duty escalator at Budget 2014.
Tim Loughton
There will be much responsible dancing in the streets if the Chancellor completes a hat-trick of beer duty cuts in his Budget and there will be much responsible celebration if he cuts the duty on spirits. But there will be much wailing and irrepressible disappointment if he does not reduce the duty on wine, which has gone up by 54% since 2008 alone and accounts for 67% of all the duty on all wine in the whole of the EU. Will he complete a fantastic treble-whammy by dropping the duty on wine, too, which it has been estimated would generate some £3 billion in extra revenue—and 20,000 jobs!
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
If this Government do indeed have a long-term economic plan, which most of my constituents do not believe, will the Financial Secretary stop worrying about the older generation of wine drinkers and start concentrating his mind on the young people of this country who are underprivileged and overtaxed and have more problems in getting a good job? It is about time that the 18 to 35-year-olds, rather than the older wine drinkers of this country, were taken into account by this Chancellor.
Mr David Heath (Somerton and Frome) (LD)
While the Financial Secretary is looking carefully at the duty on English wine, will he redouble his efforts to support artisan and small-scale cider makers, who risk being put out of business as a consequence of a disastrous recent EU decision?
Mr Gauke
I appreciate the point made by my hon. Friend. The Government’s support for small cider makers across the piece has helped to create a diverse and vibrant market in this area, and we will continue to study the Commission’s arguments carefully because we want to support this industry.
Charlie Elphicke (Dover) (Con)
8. What plans he has to introduce penalties for financial advisers who promote aggressive tax avoidance and tax evasion schemes.
Sir Edward Leigh (Gainsborough) (Con)
13. What his policy is on the future of tax allowances related to marriage.
The Financial Secretary to the Treasury (Mr David Gauke)
The Government have introduced the marriage allowance for married couples and civil partners, which takes effect from 6 April 2015. The transferable amount has been fixed at 10% and will rise in proportion to the personal allowance.
Sir Edward Leigh
More than 4 million people could benefit from the marriage allowance, for which they have been able to register since 20 February. Does my hon. Friend agree that this is about much more than just pounds or pence—it is about valuing commitment and marriage as a bedrock of society?
Mr Gauke
As the Prime Minister made very clear in the 2010 general election, it is right that we recognise marriage in the tax system, and that is precisely what we have done. As my hon. Friend rightly points out, it is now possible for people to register to be able to benefit from the transferable tax allowance.
Kate Green (Stretford and Urmston) (Lab)
Does the Minister consider it either fair or socially useful that money is being spent in this way when only one in four of the couples who benefit are raising children?
Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)
14. What steps he is taking to support jobs in the north-east of Scotland by maximising the economic recovery of North sea oil and gas. [R]
Andy McDonald (Middlesbrough) (Lab)
T5. Is it not the case that those earning more than £1 million a year have benefited from an average tax cut of up to £100,000 a year in this Parliament? Does that not illustrate that, as ever under the Tories, the mega-rich get richer and the poor get poorer—and that this time they have been aided and abetted by the Liberal Democrats?
The Financial Secretary to the Treasury (Mr David Gauke)
It is this Government who have dealt with disguised remuneration by which loans were never repaid, benefiting the highest earners. It is this Government who have increased the rates of stamp duty land tax on high-end properties and ensured that they are properly enforced. It is under this Government that capital gains tax has gone up so that cleaners do not pay a higher rate of tax than hedge fund managers. It is this Government who have ensured that those with the broadest shoulders bear the greatest burden, as the Institute for Fiscal Studies confirmed last week.
Alistair Burt (North East Bedfordshire) (Con)
T6. Is my hon. Friend the Economic Secretary aware that in my rural constituency, businesses regard the words “long-term economic plan” with the same degree of comfort and familiarity as evensong in an Anglican church? Will she be good enough to give an assurance that, following the election, those words and the benefits that they bring will continue, not least through the expansion of broadband which is so important for rural business?
Nia Griffith (Llanelli) (Lab)
We all want to see an end to big companies wriggling out of tax by offshoring profits, but what assessment has the Minister made of the impact on kitchen table digital industries, such as the sale of knitting patterns, of the way in which HMRC has implemented the new EU rules on VAT being collected in the country of sale, and what can he do about it?
Mr Gauke
Those are EU rules. It was the previous Government who signed up to the principle of changing the way in which the VAT system worked, and they were right to do so. This Government have taken two measures to try to mitigate the impact on some smaller businesses. None the less, without the support of other member states, we are still faced with a change in the rules.
Sarah Newton (Truro and Falmouth) (Con)
T7. Under this Government, food and drink manufacturing is a great British success story. However, our dairy farmers are being badly affected by volatile global markets. Will the Financial Secretary look favourably on proposals to implement tax averaging reforms, such as those in Ireland, to help these essential producers who contribute so much to our rural economies?
Mr William Bain (Glasgow North East) (Lab)
For hard-pressed taxpayers, the real test of whether the Government are committed to cracking down on tax evasion and avoidance will be whether this month’s Finance Bill contains legal penalties for breach of the general anti-abuse rule. Will the Financial Secretary tell us whether those will feature in the Finance Bill—yes or no?
Sir Oliver Heald (North East Hertfordshire) (Con)
The Financial Secretary to the Treasury will be aware that Hertfordshire is a prosperous and successful county. However, it had reached the point at which growth was being compromised because the A1M was not being widened between Stevenage and Welwyn. That work has now been announced but, for the future, are the Government satisfied that they are planning such infrastructure projects far enough ahead to enable us to maintain the kind of strong economic growth that we have at the moment as a result of the long-term economic plan?
Mr Gauke
I am grateful to my hon. and learned Friend and fellow Hertfordshire Member of Parliament. He is absolutely right to highlight that issue. As my right hon. Friend the Chief Secretary to the Treasury said earlier, we have in place a pipeline of road building and train improvements, the like of which we have not seen for many years. All of that will benefit Hertfordshire in particular and the United Kingdom as a whole.
Future Government Spending
David Gauke Excerpts(9 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Financial Secretary to the Treasury (Mr David Gauke)
Well, here is another opportunity to tell the House about the successes of our long-term economic plan. I must say that I am impressed by the Labour party’s courage in selecting the economic recovery for the last Opposition day debate of this Parliament, but not by its judgment. Given the catastrophic situation in which Labour left the country after 13 years in charge, Members might have thought that it would have the good grace to accept that our economic plan is putting Britain back on track, delivering growth, jobs and prosperity for hard-working households up and down the country.
Sir Edward Leigh (Gainsborough) (Con)
It is right that we focus on spending totals, but there is an even better argument. A careful academic study of National Audit Office and Public Accounts Committee reports over Labour’s time in government recently found that a staggering £230 billion was wasted on incompetence, inefficiency and undelivered programmes. That is a real legacy of 13 years of wasted Labour government.
Mr Gauke
My hon. Friend is absolutely right. Indeed, as a distinguished Chair of the Public Accounts Committee, he was heavily involved in identifying that wasteful spending. One of this Government’s achievements is the measures we have introduced to reduce such wasteful spending. In particular, the efforts of the Minister for the Cabinet Office in pushing forward reform and identifying efficiency savings have reduced the cost of Whitehall strikingly.
Mr Stewart Jackson (Peterborough) (Con)
Is not it disingenuous—some might even say slightly dishonest—to pray in aid references to 35.2% of public expenditure, as opposed to GDP, as ideological extremism when we need look back only 12 years to the Blair-Brown Government to find a time when the percentage was 35.9%, which is almost indistinguishable? Is not that trying to hoodwink and fool the voters, and is not that pretty dishonest?
Mr Gauke
My hon. Friend makes an important point. The statistics he uses are absolutely right. With regard to public spending on services—I will turn to the detail in a moment—we are talking about returning to the levels of 2002-03, before the previous Government lost control of public spending.
Charlie Elphicke
The tenor of the Opposition’s argument is that public spending ought to be higher. Given that they are disagreeing with our plans, should they not specify how much higher they would want it to be?
Mr Gauke
My hon. Friend is absolutely right. I was struck that when it came to the substance of the shadow Chief Secretary’s speech, he rather rushed through that process. He tells us that he does not like our spending plans—I will come to the details of that in a few moments—but he does not tell us how much extra he would spend, or, if he is going to spend extra, how he is going to pay for it. Will it be through higher taxes or through more borrowing? We did not get any indication.
Chris Leslie
If the Minister wants to clear all these things up and make sure that we have an independent appraisal, does he back the hon. Member for Wyre Forest (Mark Garnier) in supporting the idea that the Office for Budget Responsibility should be allowed to report on the proposals of all the parties? What is so wrong with that?
Mr Gauke
I am afraid that that is a bit of a red herring. If the shadow Chief Secretary wants to set out what his plans are, and if he believes that spending needs to be higher than it would be under a Conservative Government, he can tell us how much higher—he does not need the OBR to look at his numbers. Does he believe that spending should be financed through more borrowing or more tax? What is it to be—a tax bombshell, a borrowing bombshell, or both? I will happily give way to him. He does not want to answer.
Mark Hendrick
The Minister will recall that prior to the 2010 general election, the then Conservative Opposition promised to get rid of the deficit by the end of this Parliament. We have already seen that the Government are planning to borrow £200 billion more than was originally estimated, which is clearly way off track. If they could not get their promises right before the last election, why should we believe them, in government, about what they will do after the next election?
Mr Gauke
So there we have it—that is the complaint from the Opposition. Their big problem is that we have not cleared up their mess fast enough. That is the essence of their argument. They have opposed every difficult decision we took on the path towards recovery—every spending cut and every welfare change. As for the deficit, they usually forget to mention it. All the rhetoric we are hearing from them is about how they would reverse the decisions that we have taken and presumably turn the clock back to 2010—the time when we had the worst deficit in peacetime history, when we were borrowing £1 for every £4 spent, when we had an economy whose ability to pay its way was questioned internationally, and when the outlook of the Labour Government could be summed up by the note left by the then Chief Secretary to the Treasury, the right hon. Member for Birmingham, Hodge Hill (Mr Byrne):
“I’m afraid there is no money.”
This Government have made great steps forward to get us out of that mess. In 2014, our growth rate was 2.6%—the highest of any major advanced economy. Our deficit is down by half as a percentage of GDP. Thanks to the stability that we have put in place, businesses have created 2.16 million private sector jobs since the first quarter of 2010, each and every one representing someone in the UK who is now standing on their own two feet. Some 2.1 million more entrepreneurships have been set up, with over 750,000 more businesses than in 2010. That has all happened under this Government.
Helen Goodman
Can the Minister explain why the real Chief Secretary is not responding to this debate? Is it because when the OBR finally audited the Government’s future plans and found that they would take us back to the 1930s, the other coalition partner peeled off and left the Tories isolated?
Henry Smith (Crawley) (Con)
I am glad that my hon. Friend has brought this back to jobs and what that means for our constituents. In Crawley, we now see record employment levels. That is not an accident; it is a direct result of the long-term economic plan.
Chris Bryant
May I ask the Minister about cuts to the Arts Council budget? So far, this Govt have cut it by 30%, but on 5 January, the Tory party produced a report saying that £83 million more would be cut from Arts Council, and that this
“cost is based on the real terms decrease in the Grant in Aid for the Arts Council from 2014/15 to 2015/16”.
Does he stand by the figure that the Arts Council will be cut by £83 million this year?
Mr Gauke
I recall the debate on arts spending at the beginning of the year. If I remember correctly, the note that was published showing the Labour party’s areas of spending commitments included a commitment on the arts, but the shadow Chancellor very quickly ruled it out. He said it was not correct, and the deputy leader of the Labour party had to withdraw what she had previously said on that subject. That is my memory of it.
Chris Bryant
This is a serious matter, and if the Minister cannot give a precise answer now, I would be very grateful if he wrote to me. Does he think that the Arts Council budget will or will not be cut from this year to next year by £83 million?
Mr Gauke
If we have any future announcements about the Arts Council budget, we will make them in the usual way.
As we have seen only today from the report of the Institute for Fiscal Studies, average household incomes are back to the levels they were at before the recession began and they are expected to grow by well above inflation this year, while income inequality is down and pensioner poverty is at record lows under this Government: our plan is working.
The Labour party claims that we are taking public spending back to the level of the 1930s, but let us look at the facts. Even on the assumption that 100% of our future consolidation comes from cuts to departmental expenditure, which is not the Conservative party’s approach, the Government’s plans will, as my hon. Friend the Member for Peterborough (Mr Jackson) has pointed out, put spending on public services at their lowest real-terms level since 2002-03, so instead of the late 1930s, we are talking about the early 2000s—only 65 years out.
Andrew Bridgen
Throughout the debate, the Opposition have attacked our long-term economic plan, which is delivering the highest economic growth of any developed economy, and has created more jobs in this country than in the whole of Europe added together. Will the Minister remind the House whose economic policies the Labour party was exalting? I seem to remember something about “What Hollande is doing in France I want to do in Britain.”
Mr Gauke
My hon. Friend makes a very important point, to which I will return in a moment.
Although we have made considerable progress, the reality is that we face further difficult decisions. On that basis, the House signed up to the “Charter for Budget Responsibility” last month. It enshrines in law that the Government elected in May, whatever their colour, must have a plan to tackle the deficit and to bring our national debt under control. Pretty well all of us, with one or two exceptions, committed to achieving falling national debt as a share of GDP by 2016-17, and to balance the cyclically adjusted current budget by the end of the third year of the rolling forecast period, which is 2017-18.
On the latest forecasts, the charter requires about £30 billion of consolidation in the first two years of the next Parliament. Under the plans set out by the Chancellor, it will be achieved by bearing down on spending, the welfare budget, and tax avoidance and evasion. To break the figure down, that is at least £13 billion of savings from Departments’ spending, at least £12 billion from welfare and more than £5 billion from tax avoidance and evasion.
The Labour party agreed to the charter: the motion was passed by 515 votes to 18. Perhaps it believes that a fiscal consolidation of £30 billion is too much. After all, that is the position of the Greens and the nationalist parties, who have explicitly said that they would borrow more over the next three years. That position is irresponsible, but I accept that it is coherent with everything else that those parties are saying. Labour, however, has voted to accept that a fiscal consolidation of £30 billion is necessary, so where is it coming from?
Mr Gauke
In a moment. If the Labour party does not believe in making savings from departmental budgets or welfare, where is the money coming from? To quote its leader,
“if we just try and cut our way to getting rid of this deficit, it won’t work.”
That is the Labour party’s position. Out come the old answers, but where is the money coming from?
Chris Leslie
The Minister must have the charter for budget responsibility with him. I will give him a moment if he wants to pick it out of his file. Where does it say in the charter for budget responsibility—perhaps he could give us a page or line reference—that the figure is £30 billion? Can he quote the OBR on that figure either? Is it not the case that the charter for budget responsibility was about agreeing to focus on current budget plans, and not about the absolute budget surplus that his party was apparently committed to? What on earth was going on?
Mr Gauke
That position is supported by the IFS. The figure is £30 billion. Where is it coming from? The Labour party simply does not have an answer. If it is not prepared to accept the £30 billion figure, it will be borrowing more. If it does accept the £30 billion figure, where is it coming from? If it is not coming from spending, it must be coming from tax.
Mr Raab
Does the Minister recognise the figure given by Paul Johnson of the IFS in The Times on 13 January, when he said that Labour’s plans amounted to £170 billion more on the national debt by 2020, which is about a third higher than the entire NHS budget? That is what we are talking about.
Julian Smith (Skipton and Ripon) (Con)
Small businesses across north Yorkshire are really worried about the fact that Labour has not yet ruled out a jobs tax, should it be elected. Are they missing something?
Mr Gauke
That is the key to the matter. The truth is that there will be either a tax bombshell or a borrowing bombshell if the Labour party is in office. It fought the last general election campaigning for an increase in the jobs tax. I have a strong suspicion that a future Labour Government will look at precisely that to fill the gap.
Simon Kirby
Perhaps I can help Labour Members. Has not the shadow Chancellor outlined £3.3 billion of cuts to local councils up and down the country? Today there is total chaos, contradiction and confusion. Where is their policy? What is their plan?
Mr Anderson
In the unlikely event that the Minister is in charge after 7 May, is he as confident that he will reach the target in 2017 as he was in 2010 that he would get rid of the deficit in four years, at which he completely and utterly failed?
Mr Gauke
We stand by the OBR’s projections. We have made considerable progress at a time when other economies have struggled and when there has been a eurozone crisis. But for the steps that we have taken, our debts would have risen much more quickly.
Let us return to the position of the Labour party. Where are its answers on deficit reduction? We get the old answers, which are that it would squeeze the rich and reintroduce the 50p top rate of tax. It conveniently forgets that the previous Government had a top rate of 40p for all but 36 of their 4,758 days in office.
The House will want to be aware that our move to the 45p rate cost only around £100 million—a small price to pay for making the international message loud and clear that we are open for business. How much does Labour think that reversing that policy would raise? I am happy to give way to the shadow Minister on that. To say that a return to the 50p rate would bring in an extra £3 billion a year, which is what he implied, is frankly ludicrous, and I challenge him to identify one reputable economist between now and 7 May who will support such a position.
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
The Minister has probably forgotten that when it came to the millionaires’ tax cut, the Labour party abstained and did not vote against it. More importantly, the National Institute of Economic and Social Research said that if it were not for austerity, UK GDP would be 5% higher. The tax take with 5% more GDP is about £32 billion, or equivalent to 30% of the current deficit. Does the Minister accept that austerity has been a mistake and that we should have gone for growth through investment?
Mr Gauke
I am not persuaded by the argument that if we borrow more we ultimately borrow less—I am afraid that is far too easy an answer.
The Government believe that those with the broadest shoulders should bear the biggest burden, and as the Institute for Fiscal Studies confirmed today, that is exactly what is happening. That is why the richest in our society now pay more in tax than at any point under the previous Government. The Labour party can lecture us all it likes about taxing the rich, but it was not on our watch that private equity managers paid a lower rate of tax than their cleaners. It was not on our watch that the wealthy could sidestep stamp duty, or that higher earners could disguise their remuneration as loans that were never repaid. Under our watch, however, every single Budget that we introduced raised revenues from the most well off in society.
Mr Raab
Will the Minister confirm that, although the motion talks about reversing our changes to income tax, the latest HMRC data show that someone who earns £10,000 to £15,000 a year will pay 54% less income tax than they did under Labour, while someone who earns £1 million to £2 million pays 14% more?
Stephen Hammond
The Minister is right to point out those things, and, as my hon. Friend the Member for Esher and Walton (Mr Raab) pointed out, we have taken many people out of tax altogether. On Labour’s watch, if it were ever to be in government, the deputy leader of the Labour party has already said:
“Yes I think people on middle incomes should contribute more through their taxes”.
Therefore anyone earning more than £26,000 will have a tax rise under the next Labour Government. That is what the deputy leader of the Labour party has committed to.
Mr Gauke
As I said, the money has to come from somewhere, and middle-income earners are probably pretty high up the list. To be fair, it is not just the 50p rate, although that is the only policy mentioned in the motion. In television interviews, the shadow Chief Secretary to the Treasury has proclaimed one other policy to reduce the deficit. This is the key to deficit reduction and the policy that will restore public finances to health: a future Labour Government will put up fees for gun licences. How much will that raise? A whopping £17 million—except, to be fair, the shadow Home Secretary has already pledged to spend that money elsewhere.
Chris Leslie
The hon. Gentleman urged me to give the Minister both barrels, but I will try to resist. It is all very good banter trying to claim that that is the only way we would deal with the deficit, but of course that is absolute nonsense—when asked for examples, we give examples. The Minister raises an important point about gun licences. It is a small amount of money but it is still worth doing. Is he saying that we should not raise gun licence fees? Is he ruling that out because he thinks it is the wrong idea?
Mr Gauke
It was an attempt to show how ridiculous the Labour party’s economic policy is when the only example it puts forward, apart from the 50p rate, which is likely to cost money, is increasing the cost of gun licences. I did not really expect the shadow Chief Secretary to take it seriously that that was the big policy. Does he disagree that the shadow Home Secretary has already claimed that that money will be spent on policing? It is going to be spent on policing, is it not? There was a time in debating these matters when the big argument from Labour Members, their big macro-economic analysis, was that we were going too far, too fast. Now it has come down to this. What have they got a few days away from a general election? They have a policy on gun licences—that is it. What has the great Labour party come to? Gun licences!
Mr Stewart Jackson
Perhaps the Minister can help me out. The Labour party had a top tax rate of 40% for 155 of its 156 weeks in office, which apparently was the epitome of social justice. Why does he think Labour is attacking us for having a 45% rate, which brings in more money but is suddenly seen as feathering the nest for the rich?
Mr Gauke
My hon. Friend is absolutely right. The problem with the 50p policy is that it is not an effective way to raise revenue. Our record is very clear: we have been very effective at getting more money out of the wealthy. As we see from the IFS analysis today, the wealthiest have made the biggest contribution. What we are left with is a symbolic gesture, not a tax policy.
Mark Garnier
Does my hon. Friend not agree that it is quite remarkable that the Labour party has not yet come out categorically and refused to raise taxes through a jobs tax? Is it not worth remembering while we are debating a possible jobs tax—or not, depending on what they want to do—that there has never been a Labour Government who have not failed to increase unemployment?
Mr Gauke
My hon. Friend is absolutely right. It is right that we highlight that point. They do not like our spending plans, but what are they going to do? Are they willing to borrow more? Are they willing to tax more? It must be one or the other or both. Which is it to be: a borrowing bombshell or a tax bombshell?
Helen Goodman
I want to bring the Minister back to the point he was making about five minutes ago, when he said that there should be £12 billion of cuts to the welfare budget. Would he like to spell out for the House and the nation what those £12 billion of cuts will be?
Mr Gauke
We will set out the full details in due course, but we have already said that £3 billion of that will come from freezing benefits. If the Labour party is ruling out touching the welfare budget, which is a considerable part of public spending, where else is the money coming from?
David Rutley (Macclesfield) (Con)
One of the reasons the Opposition are focusing on the gun licence is that they have got it wrong on just about everything else. Will my hon. Friend remind us who said it was not possible to cut spending and create jobs?
Mr Bain
I am most grateful to the hon. Gentleman for giving way at last.
The “Charter for Budget Responsibility” states that the Treasury will balance the current budget
“by the end of the third year of the rolling, 5-year forecast period.”
Can the Minister point out the reference to 2017-18? If he cannot, his figure of £30 billion of cuts is entirely bogus.
Mr Gauke
It is by looking at where we are and then adding three years. It is really not that difficult.
In the motion, the Opposition attempt to evade the hard choice between more tax or more borrowing facing those who oppose spending cuts by saying they will grow the economy faster so that wages go up and the problem is solved, despite this being a structural issue. Every Government want the economy to grow faster. When François Hollande came to power, with a new economic model praised by the Leader of the Opposition, I have no doubt that he wanted the French economy to grow faster, but it did not, and I have no doubt that in 2008 the Labour Government also wanted the economy to grow faster, but that did not prevent it from shrinking by 6%. Wanting an economy to grow is not the same as achieving economic growth, and nor is it an excuse for not making the hard decisions necessary to reduce the deficit.
Where is Labour’s plan for growth? If we examine the motion, do we find a single policy that would help economic growth? One specific policy is mentioned, about punishing high earners, but that is hardly a policy for growth. After five years, where are these policies for growth? They could mention increasing the number of apprenticeships, reforming banking regulation and increasing infrastructure investment, except that those are policies delivered by this Government. Or they could set out how they would encourage business investment by putting in place competitive business taxes and reducing regulatory burdens, except those are policies they intend to reverse. Or they could mention improving education standards or securing the future of universities, except that they would abandon the progress we have made, not least with their shambolic policy on tuition fees.
Labour’s policies have three characteristics: they are not long term, they are not economic, and they do not constitute a plan. The motion reveals a vacuous Opposition horribly ill-prepared for government. The motion, like the Opposition, has little to say on macro-economic policy and nothing to say on supply-side policy. It is evasive on the deficit and incoherent on economic growth. The motion, like the Opposition, is destined for a heavy defeat.
Corporation Tax (Northern Ireland) Bill
David Gauke Excerpts(9 years, 2 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mark Durkan
I would be absolutely delighted. I would gladly accommodate that intervention, and not just in one instalment—I am prepared to take it 5% at a time if the Minister is willing.
The Financial Secretary to the Treasury (Mr David Gauke)
Such is the invitation, I cannot refuse. This is a somewhat complex matter. I can assure hon. Members that I will set out the thinking behind the Bill’s provisions on financial services in terms of its principles and, in particular, the application of the 5% test relating to back-office functions. Hon. Members are making perfectly reasonable points, but rather than attempt to summarise a complex issue that needs to be put into context, may I ask them to be a little patient, and I will be keen to give a proper answer towards the end of the debate?
Mark Durkan
We await with bated breath the Minister’s great revelations and technical epiphanies.
Whatever the Financial Secretary says about the complex dimensions of this, there is nothing complex about the simple logic and justice of the proposition that wholly and solely-owned mutuals and credit unions should be able to benefit from a devolved tax rate.
Mark Durkan
It was a bit of an enigma to some of us on the Committee. Although we asked the Minister about it, not much light was cast on the limbo status of credit unions whereby they are neither included nor excluded. Subsequently, I asked him about the power in clause 1, page 66, to amend the definitions of “excluded trade” or “excluded activity” or to make provision about the meaning of “back office activities”. That gives the Treasury a fair degree of leeway in making subsequent adjustments. I asked him whether that implied that some accommodation could be made regarding the particular sensitivities around credit unions—and now I add Northern Ireland-based mutuals, as we are all joined in making that case. I hope that he will be able to shed some light on that. If he can assure us that we are all working under a misapprehension and that our concerns can be allayed, then so much the better, but people want to see it clearly in the Bill and do not know why it should not be there.
The Northern Ireland credit unions fall within the legislative remit of the Assembly in respect of their registration and some of their activities, so it would be bizarre if it was denied the specific power to set their corporation tax rate in the same way that it would for SMEs, for example.
As credit unions are well embedded into the communities in which they are based, it just does not seem fair that they should be subjected to a corporation tax rate that is very different from the rate for the businesses they work alongside in those communities and neighbourhoods.
As we identify in the amendment, we want to extend the same consideration to the Progressive building society, for instance. Ministers may suggest that designing the clause to suit the particular circumstances of the Progressive building society would create the danger that we might somehow admit all sorts of others to the benefits of doing such activities. However, just as the details of regulations specify a threshold of business for small and medium-sized enterprises, the amount of employment, and the percentage of work time and expenses in Northern Ireland as opposed to elsewhere in the UK, so other measures could easily be built in to protect building societies and mutuals that wholly, solely or at least very largely base or centre their activities in Northern Ireland, rather than organisations that operate more widely and might artificially skew some operations to the north of Ireland to benefit from the corporation tax rates. If that is a concern or issue for Ministers, it could easily be accommodated.
It is clear that there is broad support on this issue from the parties in this House and from the wider range of parties in the Northern Ireland Assembly. Nobody intended, assumed or understood that credit unions and legitimate, bona fide locally based mutuals, such as the Progressive, would be caught in the Bill’s preclusions. We are seeking targeted and focused exceptions with the aim of ensuring that credit unions in Northern Ireland do not unduly pay corporation tax.
The amendment is an attempt by the parties to recognise that, unlike credit unions in Great Britain, which have been able to benefit from Government finance in the form of growth, development and modernisation funds over the years, credit unions in Northern Ireland have not benefited from direct funding. Credit unions in Northern Ireland are adjusting to the new regulatory obligations under the Financial Conduct Authority and the Prudential Regulation Authority, which have created issues of corporate governance, training and IT standards, but none of that has been funded or supported in any way. One compensation that we might, with due diligence, seek to extend to them would be to make sure that they are at least exempted from the higher rate of corporation tax that is meant to apply to big corporates and businesses in financial services. That is the salient point of the amendment.
I hope that the Financial Secretary will acknowledge that amendment 1 would not trigger any of the difficulties that he said would have arisen from the original amendment in Committee. The scope of this amendment extends beyond credit unions to take in other legitimate mutual organisations, such as the Progressive building society—in fact, that is the only one I can distinctly identify—and that is included for a purpose. I hope that the Financial Secretary and the Secretary of State, who has received representations from Committees of the Assembly, will show some understanding. I look forward to hearing any explanation but also, more importantly, any assurances about how the Government intend to respond to such issues as the Bill is taken forward and as its various rule-making powers are operated in future.
Mr Gauke
As we have heard, the amendment tabled by the hon. Members for Foyle (Mark Durkan) and for Belfast East (Naomi Long) aims to bring otherwise excluded trading profits of building societies and credit unions within the scope of the Northern Ireland rate of corporation tax. As it covers two different areas, I will respond to each in turn.
It may be helpful to remind the House that the design of the Northern Ireland regime has been guided by a set of principles agreed between the Northern Ireland Executive and the UK Government. The principles were agreed in the joint ministerial working group process in 2012. Once again, I am grateful to colleagues in the Executive for their co-operation and their constructive approach in those discussions.
Lady Hermon
Many people save with credit unions in Northern Ireland and the credit unions are assisted valiantly by many teams of volunteers. Will the Financial Secretary kindly give a reassurance—a guarantee, in fact—that if the Bill goes through unamended and the amendment tabled by the hon. Member for Foyle (Mark Durkan), which we all support, not just the parties, but even Independent Members, is not agreed to, credit unions and the Progressive mutual society will not be adversely affected when it becomes legislation?
Mr Gauke
I can give that reassurance. They will not be affected by the legislation. Credit unions have two types of income on which corporation tax could be charged. There is no corporation tax charge on their trading income, as I have set out, and their investment income will fall outside the Northern Ireland regime, as does investment income for every other business. In that sense, credit unions will be unaffected. I hope that the hon. Lady is reassured. If building societies carry out excluded trades, they will be treated as they are currently and the Northern Ireland regime will not apply. That is based on the principles that were agreed with the Northern Ireland Executive. The Northern Ireland corporation tax regime is about trading profits. If something is not a trading profit, it will not fall within the Northern Ireland regime. We are applying that consistently. As it happens, credit unions do not pay corporation tax on their trading profits anyway, so they will not be adversely affected.
Lady Hermon
I am genuinely very grateful to the Financial Secretary. He has categorically assured the House and all those who will read the Hansard report of this debate that credit unions and the Progressive mutual society will not be adversely affected by the Bill if it goes through unamended. Will he sum up how they will benefit from the legislation? It is nice to know that they will not be negatively affected, but how will they benefit from the legislation? There is an unfairness. Northern Ireland is a very small jurisdiction. It is ridiculous that banks down the road will benefit from the Bill, but that credit unions that have served all sides of the community for years and years will not benefit from it. Let him stand up and assure credit unions that they will benefit. That would be very helpful.
Mr Gauke
The first point to make is that there are certain excluded activities. Lending and investment are excluded. Whether the entity concerned is a bank or a building society, if the activity is excluded, it is excluded. There is therefore a level playing field. Secondly, we are making provision for back-office services. It will be possible for a calculation to be made on the profit that is attributable to back-office functions by applying a 5% mark-up to the cost of those back-office functions. The lower corporation tax rate in Northern Ireland—assuming that it is lower—will apply to that. That will be of benefit to institutions, including building societies, in Northern Ireland.
I would also make the wider point, which has been made by the Northern Ireland Executive on many occasions, that the ability to set corporation tax rates will be good for the Northern Ireland economy. That is why the Northern Ireland Executive want the power. What is good for the Northern Ireland economy will presumably benefit institutions based in Northern Ireland, whether they be credit unions or building societies. That is the case that the Northern Ireland Executive have made to us.
When the Northern Ireland regime was designed, it was focused on trading income for very good reasons. Over the course of the debates in Committee, there has been a wide consensus that it is correct that it is focused on trading income. It would not be consistent with that approach for me to accept the amendment. I therefore urge the hon. Gentleman to withdraw it. If he presses it to the vote, I will advise Government Members to oppose it. I understand the widespread view, which has been articulated strongly this afternoon, on the importance of the credit union sector in Northern Ireland, but accepting the amendment would be a mistaken approach.
Mark Durkan
Will the Minister indicate whether the powers in proposed new sections 357XH and 357XI of the Corporation Tax Act 2010, which appear on page 66 of the Bill, might in any way address in practice some of the concerns that we have voiced, as he seemed to hint in Committee?
Mr Gauke
I return to the point that I have made about the fundamental structure or principles behind the devolution of corporation tax rate-setting powers to Northern Ireland. I have given a fairly lengthy response, because I thought that it was appropriate to put in context the 5% computation in respect of back-office functions. There is the ability to come back to that. As hon. Members are aware, the OECD is looking, as part of the base erosion and profit-shifting process, at how much profit can be attributed to back-office functions. If memory serves, it is looking at a range of 2% to 5%, so we are at the upper end of that. There is the ability to make adjustments if there is evidence that there should be a higher mark-up for back-office functions. There is flexibility on that point if the evidence is presented to us and a strong case is made. However, we believe that 5% is the right level.
With that explanation, I hope that the hon. Gentleman can be persuaded to withdraw his amendment. If not, we will oppose it and I will advise my colleagues to vote against it.
Mark Durkan
I am disappointed by the tone struck by the Minister, because Members present—from all parties and none—have made it clear that we are not here to beat up the Government about this issue but are here in a spirit of understanding from parties across the Executive and Assembly. The Minister has called the Executive in aid several times, and he said that negotiations between the Treasury and the Executive have been clear about focusing on trading activities. Nobody—officials or Ministers—who conducted those negotiations on the part of the Executive intended to characterise credit unions and the like of the Progressive building society as trading operations, because they do not trade for profit—they are not conventional commercial trading entities in that sense. One, as a mutual building society, is clearly putting all its money back into its operations, and it all goes into Northern Ireland—none of it is speculatively streamed elsewhere. None of it has been lost, and no cost has fallen on the Government purse in any way.
Similarly, credit unions are not in the business of trading as such, and there is no way that they would allow the provision in the Bill to be abused by anybody else to shift activities or profits. Under credit union legislation, credit unions in Northern Ireland must show a common bond that must be wholly within Northern Ireland. There will therefore be no question of abuse or of stuff being shifted or anything else. The argument that the Minister tried to make for building society considerations would not apply to credit unions—certainly not to those that operate under the Credit Unions (Northern Ireland) Order 1985 or any other Northern Ireland-specific legislation that might come through the Assembly in future.
The Minister made a number of points about definitional standards that have been used. He portrayed the Treasury’s understanding of those terms, but as I have indicated, I have no sense that that was the working understanding or definitive intent of the Executive. After all, letters that have come from two cross-party Assembly Committees do not seem to have met with any cautionary advice from their respective Departments, or by Ministers saying, “Oh no, don’t upset this; there is an understanding and you will upset a delicate arrangement. You’ll open the floodgates and there will be all sorts of unintended consequences.” Everybody seems to be on board with the spirit of the amendment, just as they are largely on board with the spirit of devolving corporation tax for certain businesses. Nobody has an issue with the concept that the Assembly will have control over the rates of corporation tax for qualifying businesses, and that the Treasury will remain in control over all the rules on that and other things such as allowances. People seem to broadly agree with that architecture.
Where parties are concerned about the detail it is because we want credit unions and Northern Ireland-based mutuals not to be treated in the same way as the corporate and possibly multinational financial services conglomerate that the Minister seems to have in mind—the kind of people he thinks might suspiciously or dubiously shift activities. That does not apply to wholly grown indigenous entities that are rooted in the community.
The investment activities of credit unions are not for any speculative purposes but are to ensure that credit unions—on the basis of the same thrift that they encourage for their members—are able to show thrift and due diligence at a corporate level, and ensure that they are in a strong position to assist their members. Credit unions in Northern Ireland do not assist their members just to save; they also have a good working track record in assisting people with problems such as debt. That is currently an issue, perhaps because regulators do not want credit unions to assist people with debt in the way they have sometimes done. Unlike advisers who perhaps assist people in debt by creating circumstances in which they walk away from the debt and get discharged under various agreements, credit unions help people to repay that debt. They are in a stronger position to do that when they rely not just on the savings of their members but on sound investments. Those sound investments go back into the workings of the credit unions, and ensure that they are able to meet the new obligations and regulatory standards for which they are not getting any financial support, unlike their counterparts in Great Britain. It seems only fair and sensible to allow them that consideration in terms of corporation tax.
The Minister talks about credit unions as trading activities, but let us compare them with activities of a similar size—with small and medium-sized enterprises—in Northern Ireland that operate in the same neighbourhoods and district centres. Why should credit unions be in a different category from neighbouring trading businesses? They do not regard themselves as trading in that conventional sense, so why should they be penalised and treated differently?
If the Minister does not want us to put the amendment to the vote, will he at least indicate that he is prepared to listen not just to what we are saying in the House, but to future conversations in the Executive? After this debate and discussions in Assembly Committees, I think the Executive will make it clear that they do not like being called in aid in the way the Minister did when he lined them up behind his arguments, which I do not believe Executive Ministers endorse.
Will the Minister look at the provision on powers on page 66 of the Bill? It states:
“The Treasury may by regulations amend this Chapter so as to alter the meaning of ‘excluded trade’ or ‘excluded activity’ for the purposes of this Part.
(2) Regulations under this section may only be made if a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, the House of Commons.
(3) Regulations under this section—
(a )may make different provision for different purposes;—”
that is essentially what we are saying—
“(b) may make incidental, supplemental, consequential and transitional provision and savings.”
New section 357XI continues:
“(1) The Treasury may by regulations make provision about the meaning of ‘back-office activities’ for the purposes of this Part.
(2) Regulations under this section may, in particular—
(a) specify activities that are, or are not, back-office activities, or
(b) specify circumstances in which activities are, or are not, to be regarded as back-office activities.
(3)Regulations under this section—
(a) may make different provision for different purposes;
(b) may make incidental, supplemental, consequential and transitional provision and savings.”
If the Treasury is accruing to itself the power to make adjustments, and to interpret and respond to behavioural issues and practices to anticipate possible interpretative challenges in the future, it must show that it is willing to listen to one sensible and compelling interpretive issue that has arisen.
We have identified a clear wrinkle in the Bill that is not intended by parties in the Executive or the Assembly at large, or by independent Members from Northern Ireland in this House. Understandably, given the way that the Bill was scrambled forward—we know the issue was there, hung around and went forward and back, and we are legislating in relatively short order—it takes time to give the issue more consideration. If the Government say that because some concerns about interpretive openings might arise they are not minded to accept the amendment, perhaps they will assure us that they will listen to the points that have been made.
The Secretary of State has heard from the Assembly Committees. I do not know what she intends to write to them, but if she writes in the same terms as those in which the Minister addressed the House, by quoting the Executive, she will find that a strong argument comes back. The parties will be saying, “How dare you quote us against our own representations? We have no part of it, and that was not what we understood or intended when we negotiated”
Mr Gauke
The Bill is based on the principle of separating trading activities from investment activities, and for a very good reason to do with profit-shifting risks and so on. The hon. Gentleman rightly points out that there is the capability to make amendments in future to regulatory powers and so on. It is not for me to bind the next Parliament, but those powers do exist so there is the ability to look at arguments. I hope he finds that reassuring. The only point I would make, and it is the point I made both in Committee and today, is that there is a very good reason, accepted by all, for a divide between trading profits and investment profits. If we were to break that rule—a principle that runs through all legislation here—it would raise a number of important questions on where to draw the line. I am sure he recognises that, but I had to make that point.
Mark Durkan
I take that point from the Minister; nevertheless, the provisions in the Bill that I just quoted allow the Treasury to draw and redraw that line in future. There is no argument in principle with that, even though we know that it may be arbitrary and capricious as well. It may well be the subject of representations when it happens, but we are asking for the spirit of that power to be used and even reflected in the Bill, if possible.
The point we need to go back to is that the Minister relies on the definition of trading activity. People will find it hard to see that the Government can, for a good and understandable reason, make sure—and want to declare on Second Reading—that something like the operations of Citigroup in the Titanic Quarter in Belfast are catered for. In spite of the fact that we are talking about international financial services activity, that will come under the devolved corporation tax rate, but somehow, under this handcuff the Minister is creating in the definition of trading activities, credit unions and mutual building societies such as the Progressive cannot be. That is what people see as disproportionate, artificial and unfair. The Assembly clearly wants to know that, when it has the power to set a corporation tax rate for small and medium-sized enterprises and has legislative power over credit unions, credit unions will pay the devolved rate of corporation tax on their investment income. That seems fair and reasonable in the overall scheme of things.
I hope the credit unions in Northern Ireland will continue to thrive and grow, and no doubt they will. However, at no point is the amount of money they will be paying in corporation tax or the amount of relief they will receive from the corporation tax rate going to bust the Assembly’s or the Exchequer’s budget. We are talking about clear, definable, workable and absorbable margins here. The money would be used for good and understandable purposes, and never sold for profit or given away in gross bonuses or anything else like that. The same applies in respect of the Progressive building society.
The Minister said that if I pressed the amendment to a Division he would vote against it. I do not want to create a complete lock-in on the issue. I do not want the Government to find themselves locked in on an argument they cannot climb down from. I just encourage the Secretary of State and the Financial Secretary, who are both here listening to the debate, to stay open not just to the arguments they have heard from me and other hon. Members today, but to listen very closely to the arguments they will be hearing from the Executive, the Assembly and the credit union sector in Northern Ireland—not just the credit unions that are members of the Irish League of Credit Unions, but the Ulster Federation of Credit Unions and other credit unions too.
The Minister has heard the arguments, although he has perhaps not listened to them as well as I would have wanted him to. I do not accept the points he has made in supposed rebuttal, because I do not think they stand up to the facts. I also do not think they stand up to some of the terminology used in the Bill. After all, the Minister on a previous occasion, as quoted by the right hon. Member for Belfast North (Mr Dodds), said that in the Bill as drafted they are neither included nor excluded from the devolved corporation tax rate. It seems very clear from what the Minister is saying today that for the purposes of the corporation tax they do pay on their investment income, they will definitely be excluded from the devolved corporation tax rate. The Minister seems to have left us in very little doubt about that, unless he wants to indicate that, under the powers outlined on page 66, that may be subject to other interpretation in the future. That is something I would certainly encourage if the Government are not prepared to accept my amendment, or any other amendment that I hope will be tabled in another place.
That said, I have no wish to press my amendment to a Division at this point, because I do not want to put people in that sort of difficulty. I want the Government to move on this, and I will not give the Government an excuse to embed their position. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Third Reading
Mr Gauke
I beg to move, That the Bill be now read the Third time.
I would like to start by noting the immense amount of hard work done by my right hon. Friend the Secretary of State for Northern Ireland and, before her, my right hon. Friend the Member for North Shropshire (Mr Paterson) in getting this policy to where it is today. The parties of Northern Ireland are united in calling for this measure, saying that
“Securing the power to lower corporation tax is a key priority for the Executive to promote the growth of the local community.”
I welcome the ongoing co-operation of colleagues in the Northern Ireland Executive. I thank all hon. Members who have contributed constructively and positively to the scrutiny of the Bill, even if we have not managed to reach complete agreement this afternoon. We have now reached the final stage of this House’s consideration of the Corporation Tax (Northern Ireland) Bill. I have been pleased by the wide-ranging and informed debate we have had.
This measure will allow the Northern Ireland Executive and the Northern Ireland Assembly to set a different rate of corporation tax from the rest of the UK for most types of trading profits arising in Northern Ireland. The tax base, including reliefs and exemptions, will remain under the control of the UK Government. The earliest financial year for which Northern Ireland could have its own rate is 2017. This allows time for businesses and agents to become familiar with the new rules. The power will enable the Executive to encourage genuine investment that will create jobs and growth, meeting the shared goal of the UK Government and the Executive of rebalancing the Northern Ireland economy away from our dependence on the public sector.
I would like briefly to remind hon. Members of the aim of this policy and the key measures within the Bill. As my right hon. Friend the Chancellor said in the autumn statement:
“we recognise the strongly held arguments for devolving corporation tax-setting powers to Northern Ireland.”—[Official Report, 3 December 2014; Vol. 589, c. 314.]
These include: its land border with the very low corporation tax environment in the Republic of Ireland; the fact that Northern Ireland is more dependent on the public sector than most other parts of the UK—estimates of the extent of this dependence vary, but it is generally accepted that about 30% work in the public sector, compared with about 20% in the rest of the UK; the claimant count in Northern Ireland in October 2014 was 5.9% compared to 2.8% in the UK as a whole, and the unemployment rates are reducing more slowly than the rest of the UK; and economic prosperity—GVA per capita—is persistently some 20% below the UK average and has been for a number of decades. To a large degree, many of these issues are the legacy of the troubles.
Devolving corporation tax recognises these unique challenges. The Northern Ireland regime has been carefully designed to enable the Executive to encourage genuine investment that will create jobs and growth, while minimising opportunities for avoidance and profit shifting. It balances this with the need to keep the costs of a reduced rate proportionate, both for the Executive and in relation to any additional administrative burdens for businesses. The design of the regime builds on the principles agreed in 2012 by the joint ministerial working group, which included Ministers from the Treasury, the Northern Ireland Office and the Northern Ireland Executive. In essence, companies trading in Northern Ireland will attract a Northern Ireland rate on their qualifying trading profits but continue to pay the UK rate on profits from non-trading activities, which do not generate jobs or economic growth in the same way.
Similarly, the regime does not extend to financial trades such as lending, leasing and reinsurance, as they offer significant scope for profit shifting without the benefits of substantial new jobs. The regime does not provide opportunities for brass plating, but the policy recognises the genuine growth and employment potential for Northern Ireland offered by back-office operations. Companies with financial trades not covered by the Northern Ireland regime may make a one-off election in respect of profits, determined by mark-up, on the back-office functions of those trades to qualify for the Northern Ireland regime.
David Rutley (Macclesfield) (Con)
I thank my hon. Friend for his hard work in taking the Bill through the House. It is important for Northern Ireland and its unique circumstances, but does he agree that there will probably be lessons for the rest of the UK to learn from Northern Ireland about further reducing corporation tax to make our country even more competitive?
Mr Gauke
My hon. Friend raises an important point. We are in an era when countries are generally reducing corporation tax rates. In this Parliament, we have reduced our rate from 28% to 21% and are about to reduce it further to 20%, although some advocate that we reverse some of that progress. I also note that the Indian Government set out a plan at the weekend to reduce their corporation tax rates. Certainly, I think that the whole UK will be watching the experience in Northern Ireland very closely to see what economic benefits arise as a consequence of a reduced rate.
Lady Hermon
In case we are building up false hope, I would be grateful if the Minister made it clear that reducing the rate of corporation tax—if that is what the Northern Ireland Executive decides to do in 2017 or thereafter—on its own will not rebalance the Northern Ireland economy or guarantee the creation of one extra job. We need a range of measures that combine to rebalance the economy.
Mr Gauke
The hon. Lady makes an important point, although it is for the Northern Ireland Executive to judge how to proceed. In the UK, our reductions in corporation tax have been an important part of our long-term economic plan, but they have not been the only part, and I know that the Northern Ireland Executive will want to do everything possible, in addition to this power, to put in place the conditions for economic growth. One should not pretend that this in isolation solves every problem. None the less it will be a very useful additional power for the Northern Ireland Executive, and, as my hon. Friend the Member for Macclesfield (David Rutley) said, there will be considerable interest elsewhere in how the policy develops and the benefits that accrue as a consequence.
To reduce the administrative burdens on SMEs, a special regime will be put in place. A simple in/out test will mean that the majority of companies will be spared the burden and cost of proportioning profits. More than 97% of SMEs operating in Northern Ireland meet the 75% employment test threshold and will benefit from the Northern Ireland regime.
I would like to take this opportunity to thank KPMG Belfast, the Association of Chartered Certified Accountants and PricewaterhouseCoopers for their written submissions to the Public Bill Committee and the other businesses that sent representations directly to HMRC, and I welcome the continued support shown by the Northern Ireland business community and businesses elsewhere in the UK for this measure. In January, 80% of firms polled at an Ernst & Young Ulster Hall seminar on the Bill believed that a cut in corporation tax would have a positive impact on their businesses.
As my right hon. Friend the Secretary of State for Northern Ireland made clear on Second Reading, the Bill’s progress through Parliament is dependent on the Executive parties delivering on their commitments in the Stormont House agreement, so I am pleased that the Executive has so far met their obligations. They agreed their budget for 2015-16, passing their Budget Bill last week, while the Welfare Reform Bill passed its Further Consideration stage in the Assembly at the end of February. The Government will continue to assess progress as the Bill moves forward, and in future years as decisions on implementing the powers are to be taken.
Mr John Redwood (Wokingham) (Con)
As we have recently seen, a cut in the higher rate of income tax leads to increased revenues—from the dynamic effects—so has the Treasury done any modelling on the optimum rate of corporation tax, if the aim is to maximise revenue?
Mr Gauke
My right hon. Friend will be aware of the Treasury’s study into the effects of our reductions in UK corporation tax, and it was clear that they would result in increased investment and growth in the UK. The Treasury’s assessment was that about half of the forgone revenue consequent on the reduction in corporation tax would be recovered over time. As the OECD has set out on numerous occasions, there is a strong case for saying that corporation tax is one of the more growth-damaging of taxes—it is economically very inefficient, being a tax on investment—and therefore making progress on that front is to be welcomed. Come April, the UK will have the lowest rate of corporation tax in the G20, and we on the Government Benches would want to maintain that position, despite the calls from others to abandon such an approach.
The Stormont House agreement also outlined the approach to adjusting the Executive’s block grant, alongside devolution of the power to set the rate of corporation tax. I recognise the interest of right hon. and hon. Members in the issue and have therefore set out further details in a letter to the Public Bill Committee. I would like to reassure Members that the UK Government and the Northern Ireland Executive continue to work closely to finalise the arrangements.
A minor and technical amendment was agreed in Committee to ensure that clause 5 was drafted in line with normal practice for commencement powers and to remove the scope for misinterpretation. It gives the Government the power to turn on the legislation by regulations made by statutory instrument.
The Bill is vital in allowing the Northern Ireland Executive greater power to rebalance the economy towards a stronger private sector, boosting employment, growth and the standard of living in Northern Ireland, with benefits for the wider UK. The unique challenges faced by Northern Ireland have been recognised by Members on both sides of the House, and I welcome the efficient and effective debate we have had so far. I am grateful for the Opposition’s commitment to co-operate with the Government to ensure that the Bill can be scrutinised appropriately and dealt with speedily in this Parliament, and I hope that hon. Members will see fit to read it the Third time.