Finance Bill
David Gauke Excerpts(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Speaker
With this it will be convenient to discuss the following:
New clause 9—Pension flexibility: Treasury analysis—
‘(1) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons any analysis prepared by the Treasury prior to the publication of Budget 2014 relating to the impact of changes made by sections 39 to 43 of this Act to schedules 28 and 29 to the Finance Act 2004.
(2) The information published under subsection (1) must include—
(a) any assessment made of the impact of the provision for independent face to face guidance on the 2004 Act;
(b) the distributional impact, by income decile of the population, of changes made by sections 39 to 43 of this Act;
(c) a behavioural analysis; and
(d) the financial risk assessment.”
Government new schedule 5—Pension flexibility: further amendments.
Mr Gauke
New clause 13 and new schedule 5 make provision to ensure that individuals who wish to make use of the new pension flexibilities announced by the Government do not face detrimental tax consequences if they take their tax-free lump sum and then defer a decision on how to access the remainder of their pension savings.
On Budget day, the Government announced radical reforms that will enable people with defined contribution pension savings to have more choice and control over their pension wealth from next April. The greater choice and flexibility that these reforms will give pension savers have been widely welcomed. There has been broad consensus that individuals who have been responsible and saved for their future should be trusted to access their pension savings in the way that most suits them.
We announced a consultation on the detail of these longer-term proposals, which has now closed. We will publish a response in the near future, and legislation will be brought forward later this year to implement the necessary changes, but the Government wanted to make sure that people who are approaching retirement now would not miss out. As a first step, we introduced clauses 39 and 40 to ensure that individuals nearing retirement this year can benefit from a wider range of options before next April. We expect that this will enable around an extra 85,000 people to access their pension wealth as a lump sum this tax year. In addition, 400,000 people will have the option of receiving significantly greater withdrawals from their pension savings, but we did not want to stop there.
Usually people lose the advantages of a tax-free lump sum if they do not decide what to do with the rest of their pension savings within six months of taking the lump sum. On 27 March, the Government announced that those who had already taken a tax-free lump sum from their defined contribution pension savings, but had not yet secured their pension, would be given more time to decide what they wished to do with the rest of their retirement savings. We also did not think it would be fair to prevent people from taking their tax-free lump sum now simply because they wished to wait to access their pension savings more flexibly from next April, so the Government promised to introduce new provisions in the Bill to ensure that people do not lose their right to a tax-free lump sum if they would rather use the new flexibility this year or next.
The provisions are technically quite detailed, but their purpose is not. Full pension flexibility for defined contribution savings will be introduced in April 2015, and until that happens we want people to be able to take their tax-free lump sum and to have until October 2015 to make their pension choices without tax consequences. The changes made in new clause 13 and new schedule 5 will enable people to take a tax-free lump sum and to wait until April 2015 to decide how they want to access their pension savings: by transferring the rest of their pension savings to another pension provider to enable them to access them more flexibly; by repaying the lump sum when the scheme that paid it will accept it in order to access the whole of their savings more flexibly; or by receiving the rest of the pension savings as a lump sum under the higher limits that clause 40 provides. Those changes also ensure that people who have the right to receive a tax-free lump sum at an earlier age, or of a larger amount than is normally allowed, can use the new flexibility and keep those rights.
New clause 13 and new schedule 5 help people who have worked hard to save into a pension, enabling them to take some of those savings tax-free now, and to take advantage of the new flexibilities for the rest of their pension savings.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
I understand that the Minister is trying to introduce an element of fairness into the new arrangements while avoiding unintended consequences. Can he give us some assurances about the time scale for the rules being brought in, and tell us whether he has done additional work to ensure that there are no unintended consequences?
Mr Gauke
We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.
Ian Swales (Redcar) (LD)
The Minister rightly says that on such policy matters, assessments are a normal part of Government practice. Will he confirm that the reviews will take account of any potential future cost to the public purse? For example, what if people have inadequate funds to cover their future care costs, as they have already spent their accumulated pensions, or if they have other recourse to the state because they have inadequate resources later in life?
Mr Gauke
During the assessment of the policy announced in the Budget, we considered all the various issues, including the consequences for the Exchequer in both the short and long term. We will say more about the specific interaction with social care and so on in the near future. I would make the point that the very people restricted by the old regime were the people who, over the course of their working lives, saved responsibly and ended up with a pension sum that demonstrated their prudent approach to saving. It is not unreasonable to believe that the vast majority of those people will continue to act prudently when given greater flexibility. As a matter of philosophy, both parties in the coalition Government share the view that when we can give more power and responsibility to people, we should do so.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
The Minister referred to the Budget and the documents published about this policy, but what was published was merely the estimated tax take for the Treasury. Nothing was published about the behavioural impact, the prospect of mis-selling or the interaction with social care. When I asked the Government via a freedom of information request to reveal the basis on which the policy was made, they refused to do so. Will we get more information as quickly possible about the basis on which the Government reached this policy position? The Minister is right, of course, that annuities need to be reformed, but the question is about the basis on which the policy was made.
Mr Gauke
On the question of social care, let me repeat the point that I just made: we will respond to the consultation in due course and set out our thinking on that point. As for the issue of mis-selling, we made it very clear on Budget day that it was important to have a guidance guarantee in place. We will set out details of how that will work in the near future, as the consultation period closed only relatively recently. It is important that we get that guidance guarantee right. That brings me to new clause 9.
New clause 9 would require the Chancellor to publish any analysis of the impact of changes made by clauses 39 to 43 of the Bill to schedules 28 and 29 of the Finance Act 2004. However, as I said in Committee, only clauses 39 and 40, which increase the amount that can be taken as a tax-free lump sum as a draw-down pension from 27 March 2014, make changes to schedules 28 and 29 of the 2004 Act.
Dr Eilidh Whiteford (Banff and Buchan) (SNP)
Before the Minister fully leaves the point about how people might spend the lump sums, one concern that I have had is that people might be tempted to invest in property, for example, which could have the unintended consequence of boosting an already overheating housing market for the next generation. That is still prudent spending from those people’s point of view, but there could be unintended consequences for everyone else. I wonder to what extent that consideration featured in the Government’s thinking.
Mr Gauke
There are two points to make. First, we believe that individuals should be able to make their own choices. Of course, they should be provided with guidance, but essentially a system that relies on the state telling people precisely what their investment portfolio, as it were, should be is too restrictive, and does not perform the role that we should be performing. As for the systemic effect on the housing market, which was, I think, the hon. Lady’s central point, I do not think that our changes will have any such effect. Both the Governor of the Bank of England and the Chancellor of the Exchequer have made it clear that we need to ensure that we do not return to the bad old days and to the unsustainable housing market boom we saw some years ago. There are measures in place to reflect that, and we have the institutions in place to ensure that if there are problems they can be addressed quickly.
Gregg McClymont
I thank the Minister for giving way once again. Opposition Members become concerned—well, I certainly do—when Ministers refer to the state telling people what kind of investment portfolio to have. Most people have never invested in the way that that comment suggests. He is a well-intentioned and good Minister, but I become concerned when we think about investment for the majority of people in those terms. The fact is that on the day of the Budget the Chancellor said that there would be guaranteed advice, but that turned out not to be the case. It is now guidance, which is a very different thing. Unless we get that guidance absolutely right, there is a danger of the kind of mis-selling that Members on both sides will remember from the 1980s. It is crucial that we understand the way in which people tend to make decisions about these kinds of issues.
Mr Gauke
I agree that it is vital that we get the guidance right. I am sure the hon. Gentleman will understand that now is not the occasion for the Government to set out the details of how this will operate, but there will come a point when we will do that. There will be plenty of opportunity for the House to debate those matters. I have no doubt that he is looking forward to that opportunity and will scrutinise our policies on this matter with his customary vigour—[Interruption]—as indeed will the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson). While it is very important to get the guidance right, we instinctively support giving people greater flexibility and freedom. Given the tone of the hon. Gentleman’s intervention, I am not sure that he is entirely comfortable with that.
Cathy Jamieson
I understand the point about the timing of the guidance, and I will discuss that in my speech. The Pensions Minister has said:
“Face-to-face, the Chancellor used that phrase, and we will honour that, of course. But if face-to-face means individuals sitting down for an hour with someone every-where in the country, that would be very, very expensive. Face-to-face could involve groups, for example; a lot of the conversation’s generic.”
Some people may have concerns about what is being referred to in terms of guidance. Will the Minister give us some further information at this stage?
Mr Gauke
The hon. Lady, perfectly understandably, is seeking more information at this point. I do not think I am being in any way unreasonable in saying that we will set out the details of this in the near future. We are working very closely with interested parties, whether the industry or consumer groups, to ensure that we get this right. We have set out the broad principles behind our guidance guarantee, and we believe that we can deliver something that provides the protection that all Members want.
James Duddridge (Rochford and Southend East) (Con)
I understand the need for a professional to offer guidance face to face and on a quality end-product. However, may I urge my hon. Friend to consider the use of the internet and technology to collect the basic information? It makes no sense for a qualified financial consultant to take one and a half to two hours to do a basic fact-find that is actually about data collection. It is much more efficient to do that on the internet and use the time spent face to face for guidance right at the end of the process.
Mr Gauke
I am grateful for my hon. Friend’s observation. Without getting too much into the details of what we will announce in due course, it is important to point out that there are various means and methods of delivering guidance and that different people will want different things. We have made it clear that face-to-face guidance will be available for those who want it.
Stewart Hosie (Dundee East) (SNP)
The Minister said that he is discussing this with the industry and other interested parties. I welcome that because, as he will be aware, on the announcement of this plan, the share price of many businesses in the life and pensions field dipped quite sharply with the market discounting what might happen in future. Will he confirm that he is paying attention to ensuring that the life and pensions sector is protected while offering flexibility to people who have saved?
Mr Gauke
The purpose of the reforms is to ensure that there is a savings and pensions environment that is good for those saving for their pension and those claiming on their pension. We believe that the reforms that we have set out will result in greater innovation in this area. We do not think that the purpose of the rules is to protect particular businesses. Nevertheless, the industry has responded well to our proposals. Many see this as an opportunity to improve the culture of saving and have engaged very constructively with the Government. I hope that that addresses the hon. Gentleman’s concerns.
Ian Swales
I recently met representatives of a major financial institution who rightly see the potential for new products following these changes. I am sure that innovative companies will come up with products that meet people’s needs. On advice, will the Minister assure us that the system will be transparent as regards how advisers are rewarded and that we will not get into a situation where overt or covert kick-backs from product providers are the main source of income for those providing the advice?
Gregg McClymont
I will not try to draw the Minister into the details. He rightly refers to the instinct to give people more control over their own lives, and that is something we would all agree with. However, I urge him to read the debates involving a Tory Minister in his position in the 1980s who talked about the revolution in personal pensions using language very similar to that used by the Minister and, more exuberantly, by his colleagues about these reforms. He should compare that with what was said in the 1980s, which led to the mis-selling scandals and some of the loss of confidence in pensions. Greater control, yes, but let us also be aware of the lessons of history.
Mr Gauke
I take that point in the spirit in which it was offered. I maintain that it is right that we give people greater control and flexibility. This is about ensuring that individuals are in the best position to make the best decisions for them. Guidance is an important part of that, and, from day one, the Government have been very clear that that was the approach we wanted to take. I suspect that there is, at least at some level, a philosophical difference between Members on either side of the Chamber on this point. I do not think that a Labour Government would have brought forward these reforms, but I welcome any extent to which we can have a consensus.
Mr Campbell
The Minister will be aware that many people are glad that this Government have introduced greater control and flexibility, particularly in pensions. Given that the new individual savings account regime came into force yesterday, will he consider, at a very early stage, introducing flexibility to give people who are saving for their long-term future into retirement—whether through the new ISA or a pension—greater control, particularly as regards spouse-to-spouse transfers?
Mr Gauke
The hon. Gentleman raises an interesting point. Indeed, I have just signed off a parliamentary answer to one of his questions about this. If I recall correctly, I said that these regimes, in essence, work on an individual basis but matters can be kept under review. I will certainly take his comments as a representation for future reform in this area.
The clauses I have been talking about increase the amount that can be taken as a tax-free lump sum and as a drawdown pension from 27 March 2014. In addition, the Government’s new clauses and new schedule make changes to schedule 29. As I have explained before, on Budget day the Government published a tax information impact note entitled “Increasing pension flexibility”, which covered the impact of the changes set out in clauses 39 and 40. That impact note has been updated to reflect the changes made by new clause 13 and new schedule 5.
As I have previously said, the changes made by clauses 39 and 40 are likely to be of particular benefit to individuals with smaller pension wealth, including women. The same applies to the changes that would be made by new clause 13 and new schedule 5. That is set out in the tax information impact note that was published on 27 June.
I have already mentioned that the Government published a consultation, “Freedom and choice in pensions”, on the broader measures announced in the Budget. That document set out the rationale and the relevant analysis behind the Government’s proposals and invited comments on the expected impacts. The consultation will inform the final shape of the Government’s proposals, including the guidance guarantee. The Government will set out further details in their response to this consultation, which will be published shortly.
James Duddridge
I always find terms like “shortly” confusing. Is “shortly” in the next few weeks, in the next the few months or before the next general election? Perhaps, while not giving an exact date, my hon. Friend might hone it down a little finer than the very broad term “shortly.”
Mr Gauke
I used the word “shortly;” I could have said “in due course,” but I hope that my hon. Friend is more encouraged by “shortly.” He will just have to be a little more patient, but I can assure him that it will not be very long before he will be satisfied on those details.
Let me say a brief word about guidance, which I have touched on already. The Government believe that, as people have greater choice over retirement, they will need the right support and guidance to make the choice that is right for them, so we are working to ensure that everyone approaching retirement with a defined-contribution pension can receive impartial, face-to-face guidance on the choices available to them. However, the guidance guarantee is not a tax rule, so I hope that hon. Members will understand that although it is a very important part of the radical reforms that we are introducing from April 2015, it does not form part of the changes being discussed today.
The Government have already published information on the impact of clauses 39 and 40, as well as on new clause 13 and new schedule 5, and have consulted further on their broader proposals. New clause 9 is therefore unnecessary. Whether that is enough to persuade the hon. Member for Kilmarnock and Loudoun not to press her case, I somewhat doubt, and no doubt she will put it very reasonably, but I hope that she considers my response reasonable as well. Whether she considers it reasonable or not, that is my response.
The overall purpose of the changes that the Government are making today is to enable people who had recently taken the tax-free lump sum from their defined-contribution pension savings to use the new flexibility, while remaining in broadly the same tax position. I therefore hope that new clause 13 and new schedule 5 will be added to the Bill, and I request that new clause 9 is not pressed to a vote.
Cathy Jamieson
I want first to put something on the record. Earlier, the hon. Member for Redcar (Ian Swales) suggested that when the Labour Government left office the tax gap was £42 billion, but the most recent HMRC figures show that in 2009-10 it was £32 billion. I think that addresses the point that he raised yesterday with my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood).
To return to issues from today’s debate, as I observed in Committee, the amendment that we moved then and the discussion on it addressed some of the most important clauses in the Bill. The Minister suggested yesterday that I could make the most unreasonable things sound reasonable. I think that today he has done a reasonably good job of putting across the Government’s view. However, I would have to say at the outset that he has not said enough to convince me not to press our amendment—he still has time to say something during the debate—and I will explain why.
As I have said, the reforms provided for in these clauses are very important. Our primary concern in tabling new clause 9 and in pressing it is to ensure that those affected have the information that they need to make an informed choice, because that is very important indeed.
James Duddridge
I do not believe they are contradictory, because some people want to hand over that level of responsibility.
I know that other Members want to speak. I wanted to make a number of other points, but I will sit down and leave it at that in order to give the Minister a chance to respond.
Mr Gauke
Let me quickly try to address some of the points that have been raised, many of which related to guidance. As I said earlier, the issue features in Labour’s new clause 9, but it is not directly related to the Finance Bill. I will be as helpful as I can. On the question of whether guidance will only be face to face, the face-to-face offer will be available to those who need and want it. However, that is not to say that it will be the exclusive delivery channel. Not everyone will want face-to-face guidance, as my hon. Friend the Member for Rochford and Southend East (James Duddridge) has made clear. For many people, both now and in the future, other channels will better suit their needs. We are currently considering the appropriate range of options for delivery channels, to ensure that consumer needs are properly understood and met, building on the views and evidence received during the consultation. We have asked the Financial Conduct Authority, working closely with the Pensions Regulator, the Pensions Advisory Service, the Money Advice Service and consumer groups, to co-ordinate a set of clear and robust standards that the guidance will have to meet.
The point was made about costs and, in particular, the £20 million funding. It is important to realise that that is a development fund for the purpose of getting the initiative up and running; it is not to pay for the ongoing costs of the scheme. We will talk more about that later.
Sheila Gilmore (Edinburgh East) (Lab)
Does not that illustrate the need for gathering and publishing the information, as proposed by our new clause 9? We are constantly hearing new things, such as, “There will be more costs for guidance, but we don’t know what they are or what will happen.” If the information is going to be gathered anyway, as the Exchequer Secretary constantly assures us, why not publish it to make sure we get this right?
Mr Gauke
I do not know whether the hon. Lady was present earlier—[Interruption.] I am pleased that she was. She will have heard me say that we have consulted on this matter and will respond shortly. If I may provide a little more clarity, that will happen before the summer recess, so it is at that point that we will set out our proposals and, obviously, there will be an opportunity over the months ahead for the House to give them considerable scrutiny.
To address the particular point made by the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) about whether the numbers in the tax information and impact note have been changed, the answer is no. The TIIN has been amended to take account of the Government new clause and new schedule, but the impacts remain the same, so there is no fiscal cost. I hope that that clarification is helpful.
Lastly, to be clear about the guidance—we will get the full details on it—as we have said throughout, it will be impartial and will not include recommendations for specific products or providers. It will not be a sales process; it is important that the sales process is separate.
I hope that that information is helpful to the House. I hope that new clause 13 can be added to the Bill, and I advise my hon. Friends to oppose the Opposition’s new clause 9.
Question put and agreed to.
New clause 13 accordingly read a Second time, and added to the Bill.
Catherine McKinnell
We can only speculate on what on earth was going through the Chancellor’s mind when he slashed an incentive that was clearly supporting those businesses in the very manufacturing industries that he claims to champion in making long-term investments, and creating and safeguarding the jobs that we need so desperately.
Mr Gauke
This policy was part of a package that included a significant reduction in corporation tax rates, which more than offset any impact on investment from the changes to the annual investment allowance. The Labour party has made it clear that it would increase corporation tax. This week, it has set out its test, which is to have the lowest corporation tax rate in the G7. That would enable a future Labour Government to increase corporation tax to 26%. Will she rule out a Labour Government increasing corporation tax to 26%?
Catherine McKinnell
Once again, Conservative Members, and indeed the Minister, want to brush over this inconvenient part of their so-called plan. They clearly made a bad decision in 2010. The purpose of the new clause is to show that. If the reduction in the annual investment allowance was offset by the reduction in corporation tax, as the Minister argues, why did they revisit the decision and increase the allowance again? That would not have been necessary if their only plan for supporting business up and down the country, which was to reduce corporation tax, had been successful. We supported that plan, but it was not enough on its own to offset the damaging uncertainty created by slashing the annual investment allowance from £100,000 to £25,000 in one fell swoop.
Catherine McKinnell
That is very much the point that I was making and that we have made all along. We had a financial crisis in 2008, and the Labour Government did everything that could be done in those difficult times to support businesses in order to maintain investment levels, safeguard jobs and lay the foundations for the jobs of the future. That is why Labour decided to bring in the investment allowance, and then to double it in the Budget in March 2010. We knew that businesses needed certainty at that difficult time in the economic cycle to make investment decisions. That proved successful.
The U-turn by this Government was not quick enough. We called for it in every Finance Bill. Their eventual U-turn proved that the annual investment allowance was a successful policy, because they recognised that it needed to be reinstated. We have had these debates many times. We have supported the reductions in the corporation tax rate as part of a package of measures to support investment, jobs and growth. Unfortunately, the Government thought that corporation tax rates would do the job on their own. That is why they decided to slash the investment allowance, and to put all their eggs in one basket—the corporation tax basket. We have made it clear that we support a competitive rate within the G7 and the current rate, in order to provide the competitiveness that will create jobs and growth. The hon. Member for Burnley (Gordon Birtwistle) is right that that has to be part of a package of measures.
One key issue that businesses always raise is certainty. In chopping and changing this policy, the Government have undermined the certainty that is needed to give businesses the confidence to invest for the future.
Catherine McKinnell
I will give way again, but I hope that it is in order for the Minister to confirm that the Tory party will rule out any further chopping and changing on the annual investment allowance.
Mr Gauke
Our plans on the annual investment allowance are clear: this is a temporary increase until December 2015. If the hon. Lady disagrees with that and has a different policy, I would be grateful to hear what it is. She talks about certainty. She has repeated the position that her party has taken this week, which is that this country should have the lowest corporation tax rate in the G7. The second lowest corporation tax rate in the G7 is 26.5% in Canada. That would allow a future Labour Government to increase corporation tax not just from 20% to 21%, but up to 26%. Is that the policy of the Labour party?
Madam Deputy Speaker (Dame Dawn Primarolo)
Order. As interesting as some Members might find the debate on corporation tax and the future policy, that is not the subject of the new clause that we are discussing. Although the subject is linked to the question of allowances, it is not the substantive point. I would be grateful if Members addressed their remarks mainly to the new clause. They may use supporting arguments, but they must not allow those supporting arguments to become the only things that are debated.
Gordon Birtwistle
My hon. Friend is right. We must remember that claiming a capital allowance on a profit is time-lagged, because companies will have worked for a full year and will have produced products at, it is to be hoped, a profit, and it then takes a full year for the accountants to go through the profits, so that is two years from the start, and at the end of the second year the company knows from its audited accounts how much profit it has made and how much it can invest. This does not all happen on day one or even at the end of the trading year, because they do not know just how much can be offset against tax in respect of purchases using capital allowances.
My constituency has a high proportion of manufacturing, and unemployment has gone down from more than 10% to 4.7%. That is because we are manufacturers. We make things. We create the wealth for the country. One company in my constituency, Lupton and Place, was contemplating buying a new injection moulding machine—it makes aluminium castings for the automotive industry—and it thought about that for quite a long time. I had meetings with it to discuss various schemes that might assist it to do that, but no such scheme was available. However, as soon as we announced the new capital allowances, it immediately ordered the machine. It cost €400,000. It did not get the capital allowance against the whole lot, but it did get the capital allowance against £250,000, as the sum was at the time. Although there was some money that it did not get a capital allowance against, under our strategy it was able to write the rest of it off against depreciation of the machine over the next few years.
I accept the need for capital allowances, therefore, and I hope the Minister takes that back to the Chancellor, as I have done on many occasions, to ensure that companies keep investing in this country. However, the main factor before people invest in anything is confidence—confidence that the country is going forward, and that there is growth and companies can see profits coming. People are not going to invest anything in anything unless they get a return. Returns are important for shareholders, business owners and partners in business, and if there is not going to be a return on the investment, they are not going to invest. If the confidence to invest is there and the cash is there to support the purchase, either from their own resources or from banks to ensure that the investment is made, capital allowances will be a major player in the investments that take place. On their own, they are not enough; they need to go with an overall industrial strategy. I am pleased to say that I believe that is happening.
Mr Gauke
It is a pleasure to respond to this debate, and in particular to follow my hon. Friend the Member for Burnley (Gordon Birtwistle), who has been a great advocate for manufacturing industry over the years he has been in Parliament. He has provided a strong voice on the issue of capital allowances.
Labour’s new clause asks that the Chancellor review the impact on business investment of changes to the Capital Allowances Act 2001 made by the Finance Act 2011. The new clause is identical to the new clause 5 we opposed in Committee and we will be opposing this new clause for the same reasons. As set out in our corporate tax reform road map, the Government’s central objective is to secure a low corporation tax rate, with fewer reliefs and allowances. We remain of the view that that strategy provides the best incentives for business investment. As part of that approach we reduced the annual investment allowance to £25,000 a year in the Finance Act 2011, at the same time as we were setting out our plans to reduce corporation tax—we have extended those plans and as of next April our corporation tax rate will be 20%, the lowest in the G20.
Chris Williamson
The Minister is trying to set out the Government’s position, which he would assert is one of success. If their policies are really so effective, how does he explain the fact that we are living through the slowest economic recovery for more than 100 years?
Mr Gauke
If the hon. Gentleman wants to debate that, I am happy to do so. We faced a crisis in the eurozone and we had to deal with the impact of the financial crisis that occurred on the last Government’s watch. Clearly that had a considerable impact on the growth of the UK economy and the economies of other developed countries, but the reality is that our economy is now growing strongly, and we need to ensure that that continues to be the case. There are risks to a recovery, but if we are to compete and succeed, we need to ensure that we have a competitive tax system, the conditions for growth and credible fiscal plans, all of which this Government are delivering as part of our long-term economic plan.
Chris Williamson
The Minister has just asserted that the economy is growing strongly, but I am surprised by that. Will he help the House by comparing that “strong growth” with the growth that took place in the 1950s, 1960s, 1970s and even in the 1980s, at a time, before the regrettable election of Margaret Thatcher, when regulation was significantly greater than it is today and when trade unions were more numerous than they are now? How does this “strong growth” compare with what happened in the period I have just outlined?
Mr Gauke
It is a little difficult to compare a period in the 1980s before the election of Margaret Thatcher, given that she was elected in 1979. What I say to the hon. Gentleman is that we are forecast to have the fastest growth in the G7 this year. Clearly, Members on both sides of the House should welcome that, but we must not be complacent because we have further to go and we need to ensure that we stick to the plan to deliver that growth on a sustainable basis.
Stewart Hosie
The Minister has said he has plans for low corporation tax, and fewer reliefs and allowances—I understand the strategy. He will be aware that the argument is that it helps to establish profitable businesses but is less helpful to growing, investing businesses. Even if he was right, that would rather argue against the Government increasing the annual investment allowance to £250,000. Therefore, is the report envisaged in the new clause not precisely what is required to identify whether that allowance is at the correct level?
Mr Gauke
I am grateful to the hon. Gentleman for returning me to the subject matter before us, and no doubt you are, too, Madam Deputy Speaker.
The Office for Budget Responsibility forecast in the June 2010 Budget stated that the cuts in the corporation tax rate would more than offset the reduction in investment allowances such that the
“cost of capital for new investment is lower for all non-financial companies, and the rate of return from the existing capital stock is higher”.
That very important point could easily be missed from this debate. However, we also recognise that in the current economic climate, businesses face particular challenges. Having got the corporation tax rate down significantly, making a temporary boost to support and encourage increased investment was both appropriate and desirable. That is why we introduced a temporary generous increase in the annual investment allowance at the 2013 Budget, and we have gone on to double its generosity a year later.
Bob Stewart (Beckenham) (Con)
Would the Minister like corporation tax to come down below 20%, if possible? Is that ever envisaged?
Mr Gauke
My hon. Friend raises an interesting point, which I could spend some time discussing. Some challenges are involved in reducing corporation tax below 20% in terms of ensuring that such a tax cut is well focused in encouraging increased investment. He will be aware of some of the difficulties that occurred when the previous Government temporarily introduced a 0% corporation tax rate for smaller businesses; that resulted in quite a lot of tax-motivated incorporation. I will not detain the House for long on this point, so I will just say that some issues would need to be addressed in respect of that.
What would certainly be damaging would be to reverse the considerable progress we have made on reducing corporation tax. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) placed great emphasis on providing certainty for businesses, and I would agree on that, but what we have done in reducing the corporation tax rate from 28% to 21%, and then to 20% as of next April, has undoubtedly helped the UK’s competitiveness position. One could quote survey after survey demonstrating that the UK is now viewed much more favourably as a place in which to do business because of our corporate tax regime, and it would be damaging were we to reverse this. Labour is on the record as wanting to put corporation tax back up to 21%. That would be the first increase, as a revenue raiser, in corporation tax since the 1960s, and we have heard a significant hint this week that Labour may even increase it to 26%.
Catherine McKinnell
Once again, the Minister is trying to change the subject from the annual investment allowance to corporation tax. Given that he acknowledges the importance of certainty in this area and that a reduction of the AIA back down to £25,000 is already on the horizon, does he accept that it would be beneficial for the Government, for Members of this House and for members of the public to have an assessment of the impact of that slashing to £25,000 in 2010, in order to inform the Government’s decision making in the future?
Mr Gauke
That is the fourth opportunity the hon. Lady has had to provide some reassurance to businesses and investors looking to the UK as a place in which to do business that a future Labour Government, should that misfortune occur, would not increase corporation tax to 26%. That is the fourth time she has ducked that opportunity. Corporation tax is linked very heavily with the annual investment allowance; they are not separate issues. If our debate is about ensuring that we have certainty for investment in the UK, it is a very salient point.
Mr Gauke
As always, the hon. Gentleman’s questions are interesting and could take me in a number of directions. Let me just say this: it is important that the United Kingdom has a competitive tax system. It is the case that corporation tax will continue to play an important part in our tax system, and it is important that it is properly enforced. Indeed, the UK is leading the way on international reform to ensure that we have an international tax system that takes a contribution from companies. In the end, however, it is always individuals who pay tax—whether it is the shareholder, consumer or employee. All tax is paid by people even if the cheque is written by the company.
Let me return to the measures that we have set out. The Office for Budget Responsibility has said that the measure to extend the AIA is expected to bring forward another £1 billion of business investment in the short and medium term. Although the Government rightly keep all tax policy under review, there is limited merit in conducting an evaluation in the way that the amendment suggests, and there are also a number of obstacles that make it impossible. Her Majesty’s Revenue and Customs will not have the relevant data to conduct such an evaluation for another year, and as the hon. Member for Coventry North West (Mr Robinson) said, it would be extremely difficult to isolate the impact of this change from the other factors influencing business investment, and from subsequent changes, in the ex-post data.
An important point was made by my hon. Friend the Member for Burnley (Gordon Birtwistle), who said that a number of factors are involved in business investment, not least confidence. As my hon. Friend the Member for Dover (Charlie Elphicke) pointed out, the AIA has been set at various levels over this period; identifying a direct link between the level of AIA and business investment is extremely difficult.
Dr Whiteford
The Minister is quite right to point out that there have been dramatic fluctuations in these types of allowances over a long period, but surely that emphasises the point about trying to get better at assessing their impact. If these allowances are a good thing at the moment, the Government might be well advised to consider bringing some stability to the system and committing to them over a slightly longer period.
Mr Gauke
The point I was making is that it was this Government who introduced a corporate tax road map in 2010. That road map has provided a great deal of certainty to businesses and set out our plans for corporation tax. Given that we have been able to make progress with corporation tax rates in the current circumstances, although businesses feel uncertain about the challenges that lie ahead, including the referendum in Scotland and the possibility that an anti-business Government might be elected at the next general election, it would be helpful to have an annual investment allowance in place.
Catherine McKinnell
The Minister seems to be completely obsessed with corporation tax. Whatever question is put to him about annual investment allowances, he responds with an answer on corporation tax. I wonder whether that reinforces our call for the Government to be forced to look at the issue of annual investment allowances—the chopping and changing of them, and the lack of certainty—so that they address AIA as a serious issue that concerns businesses up and down the country.
Mr Gauke
The hon. Lady does not seem to recognise that there is a link between the annual investment allowance and corporation tax; it is an allowance set off against corporation tax. The two are not separate subjects. Of course, if we are discussing certainty within our tax system, one has to look at the bigger picture, and this Government, through the corporate tax road map, have provided much greater certainty for businesses in this country. The biggest threat to the certainty of our tax system at the moment appears to be a Labour party that is at least considering increasing corporation tax to 26%, which would be a huge increase and deeply damaging for the UK’s competitiveness.
Chris Williamson
Let me return the Minister to the historical context. He keeps implying that a Labour Government would be anti-business, but I challenge him to compare the economic growth record of previous Labour Governments with that of this Conservative Government. I think he will find that the Labour record compares extremely favourably. The truth is that Labour Governments have invested in our economy; what we should be concerned with in this place is improving the living standards for the British people, and they have always achieved that.
Chris Williamson
The Minister seems to imply that the worldwide downturn—the economic recession that was a consequence of the banking crash—was the responsibility of the previous Labour Government. It is a ludicrous assertion. Surely he will accept that there was an international banking crash that led to the economic difficulties with which the Labour Government were faced in 2007.
Mr Gauke
Let me summarise the hon. Gentleman’s position: when the economy grows under a Labour Government, the Labour Government get the credit, but when it shrinks under a Labour Government, that is to do with international factors. At least we know where he stands.
We have heard a lot of criticism of the reduction in the annual investment allowance, and I have attempted to try to put that in the context of what we have generally done within our tax system. The impression given by the hon. Member for Newcastle upon Tyne North at all times was that it was a disastrous decision that resulted in business investment being slashed. I do not accept that position at all, and I have made it clear, by putting this in the context of what we are doing with corporation tax, that we are encouraging investment.
Just this week, the Labour party set out its plans for business tax. As far as I am aware, nothing was said in those plans about the annual investment allowance, or about extending the increase to £500,000 beyond December 2015. We heard a lot about an allowance for corporate equity, but I do not think that I heard anything at all from the Opposition on this subject. If it is so important to them, why do they not have a policy in this area? Indeed, at one point, it seemed to come as a surprise to the hon. Member for Newcastle upon Tyne North that this was a temporary measure, although subsequently in her speech it became clear that she was aware of that. What is Labour’s position? If Labour Members feel so strongly about this issue and it is a priority for them, why have they said nothing on the subject? On that point, I urge the House to reject new clause 10 if it is put to a vote.
Catherine McKinnell
It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.
The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.
Mr Gauke
The hon. Lady says that her concern is that business will not know where it stands on the annual investment allowance when making decisions, but, much more importantly, if a business does not know whether the corporation tax rate will be 20%, 21% or 26%, that will surely have a much bigger effect on investment in this country. Can she provide some clarity on that?
Catherine McKinnell
I agree that business needs certainty about taxation to make investment decisions, and that is why we have committed to maintaining one of the most competitive tax rates in the G7, but today’s theme seems to be that the Government wish to talk only about corporation tax, and to airbrush out their catastrophic mistakes with the annual investment allowance. The hon. Member for Dover (Charlie Elphicke) made a valiant speech, but I felt it was dreadfully misguided. He was in quite a bit of trouble trying to defend the Government’s record in this respect, but frankly the decision making has been erratic and completely indefensible.
I pay tribute to my hon. Friend the Member for Coventry North West (Mr Robinson), who made a very thoughtful and considered speech in which he set in the historical pre-2010 context some of the rationale behind the Government’s decision making in this regard, but he also highlighted the irrational aspects.
Madam Deputy Speaker
Order. I have already reminded the House that the content of Ministers’ speeches is not a matter for the Chair, and that is not a point of order.
New Clause 1
Oil contractor activities: ring-fence trade etc
‘Schedule (Oil contractors: ring-fence trade etc) contains provision about the corporation tax treatment of oil contractor activities.’—(Mr Gauke.)
Brought up, and read the First time.
Madam Deputy Speaker (Mrs Eleanor Laing)
With this it will be convenient to discuss the following:
Government new clause 2—Determination of beneficial entitlement for purposes of group relief.
Government new clause 3—General Block Exemption Regulation.
Government new clause 4—Co-operative societies etc.
Government new clause 5—Tax relief for theatrical production.
Government new clause 6—Exclusion of incentivised electricity or heat generation activities.
Government new schedule 1—Oil contractors: ring-fence trade etc.
Government new schedule 2—General Block Exemption Regulation.
Government new schedule 3—Taxation of co-operative societies etc.
Government new schedule 4—Tax relief for theatrical production.
Government amendments 42, 43, 5, 6, 1, 2, 4, 11 to 14, 7 to 10, 15 to 41, 3 and 44 to 66.
Mr Gauke
I will attempt to speak briefly to this long list of Government new clauses, new schedules and amendments, although I will respond later in the debate if any questions are raised.
New clause 1 and new schedule 1 make changes to provide a fair amount of taxation for activities carried out on the UK continental shelf in connection with the UK’s oil and gas resources. The Government are committed to maximising the benefits that the North sea can bring to the UK economy while ensuring that all companies benefiting from the UK’s natural resources, either directly or indirectly, pay their fair share of tax.
The UK is not currently receiving a fair amount of tax from companies that provide drilling rigs and accommodation vessels to the oil and gas industry. Many of those companies own their assets in lower tax jurisdictions overseas. Those assets are then leased to associated entities operating on the UK continental shelf through specialised leasing arrangements known as bareboat charters, giving rise to a large deductible leasing expense in the UK. That results in up to 90% of operating profit made in the UK being moved overseas.
This measure will cap the amount the UK base contractor can claim as a deductible expense for those leasing payments. It will ensure that companies pay a fair amount of tax for the activities they carry out in connection with the UK’s valuable natural resources.
New clause 2 makes changes to corporation tax group relief rules to remove an unintended restriction that has been identified in current anti-avoidance legislation. That legislation is well targeted and limits the opportunities for avoidance, for example through artificial groupings. However, the rules are triggered in limited circumstances where conditions are agreed or imposed on a group by the Government or a statutory body. That is clearly unintended.
The clause proposes a restricted amendment to section 169(2) of the Corporation Tax Act 2010 to exclude from the definition of “arrangements” situations where conditions are agreed or imposed by the Government. That will ensure that the anti-avoidance rules are more effectively targeted for the future and that companies involved in these specific commercial arrangements will have improved access to group relief. The amended rules will continue to ensure that they prevent manipulation of company control and group status and will continue to restrict access to group relief where appropriate. That will maintain the fairness and consistency of the tax system.
Government new clause 3 and amendments 42 and 43 make a number of changes to three capital allowances: enhanced capital allowances for zero-emission goods vehicles; enhanced capital allowances for enterprise zones; and business premises renovation allowances. All are state aids designed to comply with the general block exemption regulation. The existing regulation ended on 30 June and a new one took effect from 1 July. Although it is similar to its predecessor, the new regulation contains a number of differences that need to be reflected in those reliefs. The new clause and the amendments do that. Broadly, they ensure that various definitions found in those reliefs refer to the new general block exemption regulation.
In the case of enterprise zone allowances, it also excludes expenditure on energy generation, distribution or infrastructure, and broadband networks; restricts qualifying expenditure incurred by large companies in certain enterprise zones to new economic activities; and requires companies that make a production process more efficient to ensure that the qualifying expenditure exceeds by value at least three years’ depreciation of the machines being replaced.
New clause 4 and new schedule 3 make technical changes to the tax legislation applying to co-operative and community benefit societies, industrial and provident societies, European co-operative societies and credit unions to ensure that the definitions used in the legislation are clear, up to date and work as intended. There has been no policy change on the taxation of the various societies or the reliefs available to them, or indeed their members. There will be no effect on their tax position, but the changes we are making will ensure that the legislation is accurate and fully in accordance with the policy intention.
New clause 5 will introduce an additional corporate tax deduction and payable tax credit for theatre production costs. Production companies will be eligible for a payable tax credit worth up to 25% of qualifying expenditure for touring productions and 20% for all other productions. These provisions will be available from September for producers of a wide range of theatre and performance, supporting plays, musicals, dance, ballet, opera and circus.
Andrew Bingham (High Peak) (Con)
I welcome this particular measure, because the very well known Buxton opera house is in my constituency of High Peak and it hosts lots of touring theatrical companies. Offering different types of performances to the area engages people in going to the theatre and promotes the local economy, so the measure’s benefits will be broader than we may have thought at first.
Sir Peter Luff (Mid Worcestershire) (Con)
Circus is a performing art invented in the United Kingdom and it provides many children with their introduction to the performing arts and leads them to a love of theatre. May I therefore welcome my hon. Friend’s decision to include circuses in those areas covered by the tax relief in new clause 5? The travelling circus industry welcomes that decision, which is already leading directly to new investment in travelling circuses.
Mr Gauke
Again, I am delighted to hear that. My hon. Friend lobbied us and made representations on behalf of his constituents for the inclusion of circuses. As a consequence of the consultation process and listening to the points raised by my hon. Friend and others, I am delighted that circuses will benefit from this tax relief.
Debbie Abrahams
It is important to support this area, but would the Exchequer Secretary like to comment on the National Audit Office and Public Accounts Committee’s recent reports criticising the Government and Her Majesty’s Revenue and Customs for not properly monitoring the tax reliefs in this area?
Mr Gauke
The Government will respond formally to that, but I believe that well-designed, well-focused and targeted tax relief, which is what we have, can help the economy grow and help particular sectors. Indeed, I am delighted that two examples have just been provided to us. This Government have successfully lowered rates, including corporation tax, which we have debated this afternoon, and, if particular sectors can be supported by a well-targeted tax relief, we should do that. We believe that, overall, our tax system is working to enhance the UK’s competitiveness. This Government have a good record in the creative sector in particular, and I am delighted that, through new clause 5 and new schedule 4, that will continue.
New clause 6 amends the list of excluded activities in the tax-advantaged venture capital schemes—the seed enterprise investment scheme, the enterprise investment scheme and venture capital trust schemes—so that a company whose trade consists substantially of the generation of electricity or heat that attracts renewable obligation certificates or payments under the renewable heat incentive will no longer qualify for investment under those schemes, with limited exceptions.
As in the case with the feed-in-tariff exclusion, community interest companies, community benefit societies, co-operative societies and Northern Irish industrial and provident societies will not be affected by the restrictions. The exceptions for co-ops will also apply to European co-operative societies, in line with the changes being introduced as part of the “taxation of co-operative societies” amendment, which aims to align and update all references to industrial and provident societies across the Taxes Acts. The restriction will also not apply where the electricity is generated by anaerobic digestion or by hydropower, nor where heat is generated, or gas or fuel produced, by anaerobic digestion. The measure will apply in respect of both UK ROC and RHI schemes and overseas equivalents. It will make the tax-advantaged venture capital scheme better targeted and effective in supporting small and growing, higher-risk businesses.
Amendments 5 and 6 make technical changes to clause 73, which will restore sense and fairness to air passenger duty by reforming the destination banding and introducing a simple to understand two-band system. As the House will know, we have devolved the power to set rates on direct long-haul flights from Northern Ireland to the Northern Ireland Assembly, which set the rates at £0 in the Air Passenger Duty (Setting of Rate) Act (Northern Ireland) 2012. As the structure of the tax, including the number and composition of the destination bands, remains a matter for the UK—the Northern Ireland legislation refers to the UK legislation—the Northern Ireland Executive have asked us to make the consequential amendments needed to their legislation so that it aligns with the UK legislation.
Mr Aidan Burley (Cannock Chase) (Con)
I have a couple of questions for the Minister about the accelerated payment of tax and avoidance cases. I have written to him about this and received a letter from him, and also met him subsequently. Others have mentioned this issue, which has caused a lot of concern, especially within the accounting community. Many of my constituents who are accountants and who run businesses have written to me and met me to voice their concern about what they believe is retrospective legislation, with no right of independent appeal. I hope the Minister will be able to reassure my constituents and those of other Members.
The first question is about the oft-quoted 80% success rate in tax avoidance cases tried at court. The Minister has quoted that statistic, and HMRC has quoted similar figures, but we have yet to discover the source of that statistic, nor do we have a list of the cases on which it is based. Many of those who have contacted me feel that the figure is unsubstantiated. Will the Minister tell us the source of that 80% success rate statistic?
Secondly, there is a strong view that this law is being implemented retrospectively, with no right of independent appeal. I know the Minister has said it is not retrospective legislation, but he knows that that opinion is not shared by the accountancy profession, the legal profession, the CBI or even the Treasury Select Committee. Will he comment on that?
It is predicted that the legislation will result in some 150,000 redundancies, and the loss of future tax revenues from companies going to the wall, including some in my constituency, is estimated to be £50 billion, all to collect a mere £4 billion in unpaid revenues over the next five years. That seems to me to be a very bad bang for your buck. Does the Minister believe it is worth such loss and unemployment?
Mr Gauke
We have had, unsurprisingly, a wide ranging debate. I shall try to respond to the points raised by hon. Members in our debate, starting with those relating to new clause 1 and new schedule 1 on oil and gas. I outlined the measure in my opening remarks, and a number of questions have been raised. The question that gets to the heart of the matter concerns the impact on drilling activity and how that affects the UK’s competitiveness.
The Government’s support for the sector over the past few years through field allowances and decommissioning relief certainly has helped to encourage record levels of investment—£14.4 billion in 2013 alone—and supported the market for rigs in the UK continental shelf, where rates are driven by demand. Rig rates in the UK are among the highest globally, so we are not convinced that this measure will drive rigs from the UK continental shelf. In fact, recent press coverage indicates that rigs continue to be attracted to the UK continental shelf after the measure’s introduction.
In addition, the Government do not accept that they should seek to address the issue of rising costs by accepting an unfair tax system where a small group of companies are able to pay almost no UK tax. The new oil and gas authority which the Government announced as part of their implementation of Sir Ian Wood’s recommendations will aim to identify ways to ensure that Government and industry can work together to address cost escalation.
Stewart Hosie
That is a valid point to make, but having had the chartering regime in place in the North sea for 40 years, why introduce change now and why restrict it to rigs and accommodation vessels, affecting only one industry?
Mr Gauke
On the question why now, it is worth pointing out that following a refocusing of the UK corporation tax regime to a more territorial basis over recent years, and in view of increasing recognition, through the base erosion and profit shifting OECD initiative, that transfer pricing and other international rules do not always provide a fair or consistent outcome, the Government have decided that the need to protect the tax take from those who benefit indirectly from the exploitation of the UK’s natural resources requires domestic action now.
In addition, recent Government incentives have resulted in record investment in the UK continental shelf. It is right that action is taken to ensure a fair amount of tax from activities carried out in connection with the exploitation of the UK’s natural resources, and HMRC ensures that all businesses pay the tax due in accordance with the tax law.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
I have a constituent who is on a ship that serves the North sea. He is the only member of the crew who has had his national insurance contributions changed in the last round. He is an electrical engineer. The mechanical engineer, the captain and the bosun are still on the old rate, but the electrical engineer is not. Can the Minister explain to me why an electrical engineer is being discriminated against on a North sea supply vessel?
Mr Gauke
The hon. Gentleman raises a somewhat different point from the one that I am addressing, but if he writes to me in respect of the individual case—[Interruption.] If he has already written to me, I am delighted to hear that. HMRC may be better placed to respond to the particular case, but we are taking action in respect of intermediaries to ensure that the national insurance contribution system works fairly. This is another area where we are making sure that businesses that benefit from our natural resources make a fair contribution in tax.
Simon Kirby
Is the Exchequer Secretary any clearer than I am about whether the Labour party will reverse the cuts to the Department for Media, Culture and Sport, because I am still not sure whether it intends to or not?
Mr Gauke
I am grateful to my hon. Friend for another example of Labour opposing yet another measure that this Government have taken to try to reduce the deficit. At least Labour Members did not make another spending pledge on this occasion, but we will, of course, continue to monitor their remarks very closely because they frequently do make spending pledges. [Interruption.] Perhaps the presence of the shadow Chief Secretary, the hon. Member for Nottingham East (Chris Leslie), has instilled some uncharacteristic discipline in Labour Front Benchers.
Let me turn to the question of why some circuses are excluded and some points of definition. With the exception of the named exclusions, other types of performing arts can benefit, provided that those giving the performance can demonstrate that they are wholly or mainly playing a role and that each performance is live and that the presentation of live performance is the main object, or one of the main objects, of the theatre production company’s activities. The Government believe that using that definition, which considers the nature of the performance, is more appropriate than listing types of performing arts. In cases where further clarity may be required, companies should seek professional advice or contact HMRC. On the subject of HMRC, I was asked about its resources. The House may be pleased to know that a specialist unit has been provided to assist businesses with making claims under this relief.
The definition of “touring” has been raised and whether more should be done in terms of relating it to geographical location. A production can qualify as “touring” if there is an intention to perform at six or more separate premises or to present 14 performances in two or more premises. The hon. Member for Bishop Auckland (Helen Goodman) is right to say that we considered alternative definitions of “touring,” including the use of geographical restrictions, but we believe that our definition provides a simple and effective way to support the range of types and sizes of tours that take place. That is why we have gone with that definition.
On the question whether this will cause a significant administrative burden for charities or not-for-profit theatre companies, minimising complexity and ensuring straightforward compliance was one of the central considerations in designing the relief. That is why we are basing it on the film tax relief model, which is also used successfully for other creative industry tax reliefs. We have worked closely with industry in determining the design of the relief, to ensure that it works for the industry, particularly the not-for-profit sector. Officials continue to engage with industry, including by attending events to help and advise in the run-up to companies starting to make claims in September. Ultimately, detailed guidance will be published on the HMRC website to ensure that companies and charities get the support they need.
Mark Field (Cities of London and Westminster) (Con)
Is it the Treasury’s intention, for the sake of simplicity and certainty, to ensure that the definition of “touring” is a nationwide one? In central London, which has a lot of theatres, it would be very easy to suggest that performing in only two or three theatres would not be a tour.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. It is not good for Members just to walk in and intervene, in fairness to those who have been here throughout. I know that the hon. Gentleman has a great interest in this issue, but may I ask Members to please not just walk in and intervene? I am sure, however, that the Exchequer Secretary would like to take the question on board, because it is such a good intervention.
Mr Gauke
I will do so, Mr Deputy Speaker, because my hon. Friend makes an interesting point. I have set out the definition of touring. We think that the right approach is to use that definition, for the sake of simplicity, rather than to try to come up with something more complicated.
A question was asked about how a business not subject to corporation tax can qualify for relief. The new relief is available only to companies subject to corporation tax: it is a corporation tax relief. As I have said, it is modelled on the successful reliefs that already exist for the creative sector, and it is designed to give the relief to producers while minimising the scope for abuse. The Government recognise that not-for-profit companies make up a valuable and substantial part of the theatre industry, and we are confident that the sector will be able to access the relief without significant additional administrative burdens. A concern was expressed about whether setting up a trading subsidiary is complicated for charities. As I have said, we have tried to minimise complexity, and we have based the relief on what is already in place. We believe that charities will get the support they need.
David Mowat
I have, indeed, been here all the time, Mr Deputy Speaker.
The hon. Member for Bishop Auckland (Helen Goodman) asked whether the relief will apply to blockbuster successes, such as “Les Misérables”, on which massive amounts of money are made. Indeed, the return on capital for such ventures is far higher than that for contractors in the North sea. Can the Minister give us any assurance that the relief will not be disproportionately skewed towards such companies?
Mr Gauke
The point is that the relief is designed to support the range of theatre productions across the UK, in both the subsidised and commercial sectors. We worked closely with the subsidised sector when developing the policy, and we are confident that it will benefit from the relief.
Let me turn to the points made about measures to deal with tax avoidance schemes, including the accelerated payments regime and follower notices. My hon. Friend the Member for Tamworth (Christopher Pincher) asked whether taxpayers who have not used a true tax avoidance scheme will be caught, perhaps with a precautionary notification having been made under the DOTAS regime. Any unintended consequences for compliant taxpayers will be minimal. Where the taxpayer has used a relief correctly, but a DOTAS disclosure has been triggered, there would not normally be any tax in dispute, and there will therefore be no accelerated payment. If a taxpayer has used a relief largely as intended, but some elements are disputed, then an accelerated payment—if one is required—would be confined to the disputed elements. Let me be clear that the accelerated payment is the amount of tax that the taxpayer can expect to pay if their avoidance fails, taking account of their overall tax position. It is not some arbitrary amount, as has been alleged by those who have tried to discredit the measure.
My hon. Friend asked whether the measure will be retrospective in effect, as did my hon. Friend the Member for Cannock Chase (Mr Burley). We had an extensive debate on that point in Committee, and the Committee reached a sensible conclusion, but let me set out the issue again. The measure is not retrospective. The rules about whether the taxpayer’s scheme does or does not work and about the amount of any tax liability will not be changed. The taxpayer would have already paid the money had they not entered an avoidance scheme. The taxpayer can continue to dispute the case, and will be paid back with interest should they win. We are not restricting people’s rights. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and that the tax might become payable, so they should make plans for such an outcome.
Christopher Pincher
My hon. Friend is being very generous with his time. I am pleased that he has made the position clear. Will he also make it clear that he will continue the dialogue with the tax advice industry and with taxpayers who are concerned about the issue? The Treasury Committee has described the measure as a retrospective piece of legislation. I know that he has received representations from the noble Lord Flight, and I trust that he will also take those on board.
Mr Gauke
I have received a number of representations on the matter, but I have been clear as to why the Government do not consider the measure to be retrospective. It is right that in these circumstances the disputed tax should be held by the Revenue.
The hon. Member for Newcastle upon Tyne North asked about the grounds for a penalty appeal. We have introduced amendments to provide extra clarity on that. They separate cases in which the penalty is cancelled because the notice should not have been issued from those cases in which the notice was appropriate but the taxpayer has reasonable grounds to continue the dispute—for example, because they could reasonably argue that different grounds are relevant. Then it will be for the tribunal to decide. HMRC is on course to publish the guidance and the DOTAS list in time for Royal Assent.
To answer the question from my hon. Friend the Member for Cannock Chase about the follower notices, there is no appeal against the requirement to pay the accelerated payment. That would simply substitute one dispute over the substance of the scheme for another. HMRC is not making a decision about whether the avoidance scheme works, which would have full rights of appeal, and the rules do not change that situation; rather, the requirement imposed on the taxpayer relates solely to the timing of the payment. If payment of the tax is a problem because the taxpayer cannot afford the full amount immediately, HMRC will use its normal approaches, including appropriate payment arrangements.
The source for the HMRC success rate of 80% is the list of tribunal and court decisions. Those decisions are all published and people can read for themselves HMRC’s continued success in these cases.
The hon. Member for Newcastle upon Tyne North asked whether we are withdrawing support for investment in renewables. The change we are making is not an attack on renewables. It will simply end double subsidy of companies that are at lower risk because they will benefit from Department of Energy and Climate Change support, and will ensure that the venture capital schemes remain well targeted and operate in a fair and sustainable way. The Government continue to support the renewables sector more generally and have set out the amount of support we will allocate to low-carbon generation up to 2020-21, when it will reach £7.6 billion. The Government continue to offer generous incentives to the sector.
The hon. Lady asked whether funds already invested in renewable energy schemes will have to be returned to investors. I can reassure her that new clause 6 will have effect only for shares issued by companies on or after Royal Assent to the Bill. Existing schemes and investors will not be affected by the changes.
With those points of clarification, I hope the House will support the proposals.
Question put, That the clause be read a Second time.
Mr Gauke
I beg to move, That the Bill be now read a Third time.
I will keep my remarks brief, but I would like to remind the House once more of the important provisions before us. Finance Bill 2014 delivers measures that will help British businesses invest and create jobs, help British households work and save, and help to ensure that everyone in Britain pays their fair share of tax. The Bill builds on the strong foundations that we have secured in the past four years, safeguarding our economic stability, creating a fairer more efficient and simpler tax system, and driving through reforms to unleash the private sector enterprise and ambition that is critical to our recovery.
Let me focus first on growth and competitiveness. When this Government took office, we inherited an economy in crisis. We have had to make some tough choices, but we have delivered our economic plan. As a result, the UK economy is finally getting back on track. The deficit is shrinking, employment is at record levels and the our economy grew faster than that of any other advanced economy over the past year. To support the recovery, it is vital that the UK tax system attracts investment to this country and does everything possible to ensure that UK businesses can compete in the global race. That is why, in the corporate tax road map in 2010, we set out our ambition to give the UK the most competitive tax regime in the G20.
In my conversations with financial directors and tax advisers I am told again and again of the importance of a low headline rate and the signal it sends. I am proud to say that, as a result of this Government’s actions, the main rate of corporation tax will fall to 20% by 2015-16—not only significantly lower than the uncompetitive rate of 28% we inherited from Labour, but the lowest of any major economy in the world. It is vital for our national interest that we continue to have that low competitive rate. Altogether, by 2016, our corporation tax cuts for small and large businesses will be saving businesses £9.5 billion every year. These reforms have been a central plank of the Government’s economic strategy, and that strategy is working.
Competitiveness is not just about the rate of corporation tax. That is why this Bill will raise the annual investment allowance to £500,000 with effect from April 2014 to December 2015. This doubles the amount of investment on which firms can get up-front tax relief. More than 4.9 million firms will benefit, the vast majority of which will be small and medium-sized enterprises.
The Bill will also reduce business and household energy costs by freezing the carbon price support rate to £18 in 2016-17. The Government have also committed to maintain the freeze until the end of the decade, which will save businesses £4 billion by 2018-19. The Bill includes measures to give targeted support to the innovative sectors that will drive growth in the 21st century. We will legislate further to increase the generosity of the research and development tax relief for small businesses, with an increased rate of support for loss makers of 14.5%. This demonstrates the Government’s commitment to supporting research-intensive SMEs and start-ups and could support up to £1 billion of investment over the next five years. We will support social enterprise with a 30% tax relief, unlocking up to £500 million in additional investment over the next five years, and we are making permanent our successful seed enterprise investment scheme to support investment in start-ups and early-stage firms. Let me mention again the new theatre tax relief, which we have just debated, that recognises the unique cultural value that the theatre sector brings to the whole of the UK.
With low corporation tax rates, support for innovation and help for small business, Finance Bill 2014 sends the clearest possible message that Britain is open to multinational companies, open to entrepreneurs, open to investors: Britain is open for business.
Let me deal with fairness. While the Bill supports businesses, it also provides for individuals and helps families with the cost of living. We are delivering our coalition commitment to raise the income tax personal allowance to £10,000 and we are going further to increase it to £10,500 in 2015-16. By April 2015, a typical basic rate taxpayer will be more than £500 better off than under the previous Government’s plans. Taken with previous increases, the Government will have lifted over 3.2 million people out of income tax altogether. That is real help for hard-working people.
The Finance Bill rewards those who want to save for the future. We recognise that people who rely on their savings income have seen low returns in recent years. From April 2015, the 10% starting rate of tax on savings will be abolished, and a 0% rate will be extended to the first £5,000 of savings income above the personal allowance. This will benefit 1.5 million people, over 1 million of whose total incomes will be below £15,500 a year. They will pay no tax on their savings income at all.
We are delivering our promise to recognise marriage in the tax system by introducing a new transferable tax allowance for married couples and civil partners, allowing spouses in households where neither partner is a higher or additional rate taxpayer and where one partner has not used up the full allowance, to pay tax on up to £1,050 less of their income from 2015-16.
Let me deal with some of the measures we are taking to tackle avoidance. The vast majority of individuals and businesses pay the tax that they owe, but there are some who continue to pursue unacceptable ways of reducing and delaying their tax bill. This Government are determined radically to reduce both the incentives and the opportunities for individuals and businesses to engage in abusive behaviour. This Government have taken unprecedented steps to tackle avoidance and abuse. Since 2010 we have legislated to close more than 40 tax avoidance loopholes, and we have made major strategic reforms such as introducing the United Kingdom’s first anti-abuse rule. As a result, the market for tax avoidance schemes is shrinking. The number of disclosures of tax avoidance schemes fell by nearly 50% between 2011-12 and 2012-13.
However, we are not complacent. That is why the Bill introduces a new requirement for users of avoidance schemes which have already been struck down by the courts, which fall within the scope of the DOTAS rules, or which are being counteracted by the general anti-abuse rule to pay the disputed tax up front. That will generate nearly £5 billion of revenue over the next five years, and ensures that those who knowingly enter avoidance schemes will not be able to hold on to the disputed tax. They will have to pay up front like most other taxpayers. We are also cracking down on high-risk promoters of tax avoidance schemes by imposing minimum standards of behaviour, supported by onerous information powers and stiff penalties for those who do not comply. Those measures demonstrate the Government’s continued commitment to swift, effective and targeted action to tackle avoidance and aggressive tax planning.
The Bill may be substantial, but it contains a number of provisions to clarify or simplify the tax system. It contains proposals to simplify the tax rules and administrative procedures for employee share schemes, and to merge the main and small-profits rates of corporation tax. Those changes will make it easier for small businesses to meet their tax obligations, and will give them greater certainty that their tax affairs are in order. The Bill also follows a longer, more thorough process of policy development. In December 2013 we published more than 300 pages in draft legislation for comment, and we received more than 300 responses, which have improved the final legislation.
The Bill once again delivers on the Government’s commitment to unprecedented levels of consultation and scrutiny in the development of new tax proposals. It has also undergone 31 hours of scrutiny in the Public Bill Committee. Let me take this opportunity to thank and pay tribute to the Members on both sides of the House who served tirelessly on the Committee, as I did not have a chance to put all my thanks on record at the end of the Committee stage.
I particularly thank the Whips: my hon. Friend the Member for Hastings and Rye (Amber Rudd) provided invaluable help, and I also thank the hon. Member for Scunthorpe (Nic Dakin). I thank my hon. Friend the Member for Gosport (Caroline Dinenage) for her assistance in ensuring that inspiration flowed readily. I thank the members of the Opposition Front-Bench team, who probed diligently. We did not necessarily agree, and Ministers certainly did not accede to any of their endless requests for reports and reviews, but they put their case in, for the most part, reasonable terms.
I thank the hon. Members for Birmingham, Ladywood (Shabana Mahmood), for Kilmarnock and Loudoun (Cathy Jamieson) and for Newcastle upon Tyne North (Catherine McKinnell)—not forgetting, of course, the hon. Member for Nottingham East (Chris Leslie), who at least was there at the beginning and is here at the end. That is half the skill of dealing with a Finance Bill, as far as I can see.
I thank the Financial Secretary to the Treasury and the Economic Secretary to the Treasury for their help in setting out the Government’s case. I also thank my hon. Friends on the Back Benches, whose contributions were generally both valuable and brief: I am grateful for that.
I fear that my time is almost up, Mr Deputy Speaker, so I shall draw my remarks to a close. The 2014 Finance Bill rewards hard work, and restores our private sector’s competitiveness. It encourages investment, tackles avoidance, and helps those on low incomes. This is a Bill that takes difficult steps but delivers real change, and I commend it to the House.
Chris Leslie
That is already on the record. Our view is that the proposed change in corporation tax from next April—from 21p to 20p—should not proceed. That help, instead of going to 2% of companies, should go to 98% of businesses, including the small and medium-sized companies that are the backbone of our economy and that form the bedrock of enterprise in this country. Funnelling that resource through business rates is our preferred choice, but we will set out all our plans in a manifesto, as I suspect the Minister will do as well. We had a debate on this matter earlier, in which we focused on annual investment allowances—the capital allowances for businesses. As we all know, the Minister cut that allowance to a very small level straight after the general election, causing great chaos for very many businesses. Amazingly, it is going up again, in time, coincidently, for the next general election. He revealed in the small print today that it is a temporary change, so the allowance will presumably go back down again.
Chris Leslie
I will give way to the Minister if he will tell us what that investment allowance will fall back down to in 2015. Will he tell us?
Mr Gauke
It is hardly in the small print. It was in the announcement that was made when we extended and increased the annual investment allowance until December 2015. After that, it is a rate of £25,000. That rate is in the public domain, and, presumably, it is the rate that the Opposition have as well.
As the hon. Gentleman did not quite respond to the question from my hon. Friend the Member for Braintree (Mr Newmark), let me ask it again. The Labour party has given a heavy hint this week that it could increase corporation tax up to 26%, as that would still be the lowest rate in the G7—that is the test that it has set itself. Will he provide some reassurance today that a Labour Government would not increase corporation tax to 26%?
Chris Leslie
We know the Minister’s game. He is again trying to scare firms and businesses with various suggestions on tax. We have made it very clear that we need to ensure that corporation tax levels remain at their most competitive among the G7. We will set out our tax plans in a manifesto, as the Minister will be required to do as well. If my hon. Friends think that VAT is due to stay at 20% under a Conservative Government, they should think again. I have heard that the Conservatives may wish to increase VAT to 21% or 22%. I will give way to the Minister if he can rule it out for us right now, here in the Chamber, that he does not have any plans to increase VAT in the next Parliament. Will he rule that out?
Mr Gauke
I will tell the hon. Gentleman what we can do: we can continue to reduce the deficit without increasing taxes. That is more than he can offer. Unlike his party, we have not given a heavy hint that the test based on the most competitive rate in the G7. Canada has a rate of 26.5%. If the Labour party imposed a rate of 26%, it raises the question of whether it would be complying with that commitment.
Chris Leslie
Let the record show that the Conservative Minister did not rule out increasing VAT to above 20%. It is telling that he gave a heavy hint that that remains open as an option. We can have these discussions and examine these particular issues, but I am looking at the missed opportunities—the things that should have been in the Finance Bill. We are now on its Third Reading, and it is time that Ministers realised that people from across the country are crying out for significant changes and improvements that will affect their lives.
I am thinking, for example, of the 5 million people in low pay and the incentives to deliver a living wage. That could have been part of the Finance Bill, but it is not. I am thinking of those families who are struggling with the high cost of child care, which is increasing at a rate higher than inflation. If only the Minister had designed his bank levy properly in the first place and collected the £2.5 billion that he promised the country, we could afford to move from 15 hours of free child care for working parents of three and four-year-olds to 25 hours. That is the sort of reform that could make a big and appreciable difference to the lives of working people up and down the country.
Chris Leslie
I do not know what evidence the hon. Lady has for that spurious assertion.
We will see what happens in the coming months. We will make sure that mortgage customers in the hon. Lady’s constituency know that the increases in interest rates are partly related to the condition of the housing market, which is causing significant risk. The Governor of the Bank of England is trying to deal with this very lopsided situation. Of course, it is a matter for him to decide on. Government Members need to speak to the Chancellor to get him to pull his finger out on the housing market and make sure that this is pursued correctly. They do not understand why it is important for the recovery to be fair for all—to be something that everybody in every part of the country benefits from. The richest 1% having been doing especially well in the past year.
Mark Field
I am glad that I am looking more youthful and Conservative this afternoon, Mr Deputy Speaker.
This is a very good Bill containing much that I agree with. The Minister has rightly pointed out that it does some important things, particularly on something close to my heart—the theatre industry in my constituency—but also on technology, which is one of the big growth areas for the future prosperity of this country.
I want to talk about an ongoing concern of mine. The Minister will be aware of what I am about to say. Barely a fortnight ago, Her Majesty’s Revenue and Customs began writing to some 5.5 million taxpayers to confess that it had got things wrong. Errors in the pay-as-you-earn calculation had led the taxman to charge some 2 million fellow citizens too much tax and a further 3.5 million Britons had been assessed too leniently. That latter group now faces the prospect of several years of repayments. All this is in spite of expensive IT and personnel reforms that were meant to improve the system’s accuracy.
That news came at a time when the House was scrutinising this Finance Bill, which proposes bestowing ever more powers upon that organisation—in my view, an unjust reward for yet another year of error-strewn performance. Meanwhile, a consultation is now under way as to whether HMRC should be given direct access to UK citizens’ bank accounts so that it can claim from source any tax that it believes it is owed. I share the view of many people on the Government Benches who are concerned that this coalition Government are overseeing the transfer of very considerable powers to the state. I fear that a precedent will be set for a future Labour Government, which we all hope will not come any time soon. However, such a Government might well be minded to expand further the taxman’s remit.
Will the Minister reconsider the new accelerated payments regime that is proposed in the Bill—other Members have spoken on that in the past couple of days—about which I raised my own concerns at Second Reading? It is vital that the Treasury considers carefully the impact of granting such powers to an organisation that, I am afraid, has proven itself time and again to have incorrectly calculated tax on a grand scale.
Mr Gauke
Since 1944, there has been an end-of-year reconciliation under the PAYE system, because not all the information necessary to calculate the PAYE amount is available to HMRC during the year. To some extent, the PAYE amount is a provisional one, which is corrected at the end of the year. Notifying people at the end of the year quickly is not the system failing; that is how the PAYE system operates. It is not errors; that is the system.
Mark Field
I do appreciate that, but the Minister will also appreciate that trust in many institutions, whether Government, banks or this House, has been at an all-time low in recent decades. If we are going to pass on more powers to such institutions we—
Double Taxation Agreement (Tajikistan)
David Gauke Excerpts(9 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
A double taxation agreement and protocol with Tajikistan was signed on 1 July 2014. The text of the agreement and protocol has been deposited in the Libraries of both Houses and made available on HM Revenue and Customs’ website. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.
Finance Bill
David Gauke Excerpts(9 years, 10 months ago)
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Shabana Mahmood
My hon. Friend is absolutely right. We will debate later the issues in relation to tax avoidance and shares for rights.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The hon. Lady accuses the Government of being ideological here. For the avoidance of doubt, were there to be yet another study that showed that the 50p rate failed to raise any substantial sums of money, would the Labour party still go ahead with an increase in the additional rate of income tax from 45p to 50p?
Shabana Mahmood
Let us see the report. The Minister has had many opportunities in Finance Bill debates where the Opposition have tabled amendments and new clauses calling for such a report. He has not produced one. I have no confidence that he will go away today and ask his officials at HMRC suddenly to produce a report. If he has such a report in mind, he should accept our new clause, and we can then have that debate. We have said that we will increase the rate to 50p. We believe that that can raise money and will be a good part of a much fairer deficit reduction policy.
The truth is that there was no justification for giving a huge tax cut to the richest in our country. We now know that bonuses are up by 83% for those in the financial sector, while ordinary working people are worse off now and will be worse off in 2015 compared with 2010. Wages will be 5.6% down at the end of this Parliament from what they were at the beginning.
The Government have not ruled out cutting the additional rate back down to 40p. We know that this is the ardent desire of many of their Back Benchers. Perhaps when the Minister replies he could tell the House whether the Government are planning any further cuts. They have ducked the opportunity on previous occasions to confirm that they will not go down from 45p to 40p. It will be good to hear from the Minister whether that is the case. The Government’s priorities are all wrong. Ordinary working people continue to struggle with their finances, and the link between the wealth of the nation and the money in people’s pockets and in their household budgets is broken. This Finance Bill does nothing to change the reality of the lives of millions in our country, yet Government Members want to cut taxes for the richest.
Frank Dobson
No, I will not give way—[Interruption.] Well, I have sat here throughout the whole debate and listened to what other people had to say, so I am going to get a little further in.
One thing that is particularly irksome for badly off people in this country is hearing apologists for the City talking about bankers’ compensation packages—compensation apparently for the horrid requirement that they turn up at work. The dictionary definition of compensation is,
“recompense for loss, suffering or injury”.
Those bankers—how they suffer when they are helping people to swindle their tax liabilities; laundering money for gun runners or drug runners; or fiddling money to help people evade sanctions and then having to pay up. We clearly need to ensure that those rich people pay more tax, and the only way to do that is by increasing the rate to at least 50p.
Mr Gauke
It is always a great pleasure to follow the right hon. Member for Holborn and St Pancras (Frank Dobson). He suggested that the motto of the Treasury was “Ignorance is strength”. If that is the case, let me say that his was a very strong speech.
New clause 14 calls for the Chancellor to—
Frank Dobson
Can the Minister identify anything I said that was factually incorrect? [Interruption.]
Mr Gauke
Someone says most of it, but in the time available, I ought to turn to the new clause.
The new clause calls for the Chancellor to publish a report within three months of passing the Act to set out the impact of setting the additional rate at 50% for the tax year 2015-16. In addition, it asks for an assessment of the impact of reducing the additional rate to 45% for 2013-14 on the amount of income tax paid by those with a taxable income of more than £250,000 a year and those with a taxable income of more than £1 million a year, as well as on all those who are liable for the additional rate. It also proposes that the report set out the impact of reducing the additional rate on the level of bonuses awarded in April 2013 to employees in the financial sector. I hope that there will be no controversy when I say that, in order to be credible, any such analysis would need to take into account behavioural impacts, as did the HMRC report on the additional rate that was published at Budget 2012. It is clearly inadequate to look simply at theoretical income tax liabilities when increasing taxes.
Let me use this opportunity to assure hon. Members once more that the Government already consider the impact of any policy decisions taken. The HMRC report on the additional rate concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast, due to large behavioural effects.
Mr Gauke
I want to make this point, then I will give way.
Let me address the matter of behavioural effects. The hon. Member for Birmingham, Ladywood (Shabana Mahmood) conflated the issue of behavioural effects with tax avoidance, and seemed to suggest that the two were synonymous. That is simply not the case. What does the term “behavioural effects” include? If someone decides to retire earlier than they would otherwise do, that is a behavioural effect. If someone decides to leave the country and go to work elsewhere, that is a behavioural effect. If a multinational company, when deciding where to locate a new team, decides to go to another country rather than the UK, that too is a behavioural effect. If someone decides to put more money into their pension—making use of pension tax relief as Parliament has intended—that is also a behavioural effect.
In the eyes of the Opposition, all of that constitutes tax avoidance, and we have been asked why we do nothing about it. I do not know whether they are suggesting that we should take away people’s passports so that they cannot emigrate, or that we should somehow force companies to locate their staff here. Those decisions are behavioural effects over which we have no control, and we have to respond to the reality of the world as it is, rather than as some people might like it to be.
David Wright
Does the Minister accept that the Office for National Statistics and the Office for Budget Responsibility have said that, after the Chancellor made his Budget announcement about the tax rate, people delayed and deferred bonuses and shuffled their cash around to avoid the system? Is this not actually about very rich people shuffling their money around in order to avoid tax? We need a simple system with a 50p rate, and we need to study it over a long time to determine its impact.
Mr Gauke
The important point here is that the HMRC analysis explicitly dealt with that issue. Yes, there will be instances in which sums are shifted from one year to another, just as happened when the previous Government announced the introduction of the 50p rate. People brought forward income at that point. The analysis took those behavioural changes into account and excluded them, and still concluded that the 50p rate was ineffective in raising money. Given that HMRC has already carried out that analysis and reached that conclusion, which is consistent with the academic research in this area, and given that the IFS has said that no substantial sums were involved, would the Opposition be determined to go ahead with a 50p rate even though the evidence suggested that it would not raise money? That seems to be their ideological position. It would be illogical and unfair to reintroduce a tax rate that was ineffective at raising revenue from high earners, that made ordinary taxpayers pay more and that risked damaging growth.
Shabana Mahmood
The Minister will acknowledge that the IFS has said that this whole area would benefit from greater research. Now that HMRC has more data, that research would perhaps produce more accurate results. Will he take that point on board and support our new clause?
Mr Gauke
There is no evidence that HMRC’s original analysis was wrong. When the Opposition announced earlier this year that Labour would introduce a 50p rate, they claimed that a new £10 billion had emerged that had previously not been taken into account. That turned out not to be the case, however; they got that completely wrong. The data still point in the direction that HMRC’s conclusions are as I have suggested, and there is no reason to believe that the analysis was wrong. The fact is that the 50p rate is an ineffective way of raising money from the wealthiest.
Richard Fuller
Is the Minister as concerned as I am that Labour Members are not simply calling for a 50p rate? We have also heard calls for a 60p and a 70p rate. Are they not trying to set the tone for what has already been introduced in France—namely, a rate that is much higher than 50%?
Mr Gauke
I note the fact that the right hon. Member for Holborn and St Pancras referred to a rate of “at least 50p”, and I suspect that he speaks for many of his colleagues in that regard. The fact is that there is an ideological divide involved here, in that the Opposition want the higher rate, regardless of the practicalities.
The reality is that, if we want to raise money from the wealthiest, a high rate of income tax is ineffective. My right hon. Friend the Member for Wokingham (Mr Redwood) made it clear that the changes in the 1980s resulted in more income being raised from the wealthiest. If we want to raise money from the wealthiest, there are much better ways of doing it, as my hon. Friend the Member for Redcar (Ian Swales) said. For example, we have taken a number of steps to deal with avoidance and disguised remuneration—those measures were opposed by Labour, by the way—and to deal with stamp duty avoidance. We have increased stamp duty rates. We have also introduced measures relating to capital gains tax and restricted the cost of the pensions tax relief. Those measures have raised far more than the revenue forgone from the 50p rate.
We talk about priorities. Let me set out one fact for the House. Even if we put aside the additional sums raised from the wealthiest, and even if we put aside the damage to competitiveness from the 50p rate, for every £1 forgone as a result of our measures on the 50p rate, we have forgone £160 as a consequence of the increase in the personal allowance. That is where our priorities lie, and I am proud of that record.
Mr Redwood
Will my hon. Friend confirm that the Treasury publishes figures every month on tax collection, and that they show that the rich are paying more?
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss amendment 67, in clause 107, page 90, line 33, at end insert—
‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.
(5B) The report referred to in subsection (5A) must in particular consider—
(a) the impact on tax revenues;
(b) the expected beneficiaries; and
(c) a distributional analysis of the beneficiaries.”
Mr Gauke
New clause 7 rectifies a minor omission from clause 105 by applying the reduction of the threshold to £500,000 for the 15% stamp duty land tax higher rate charge to the SDLT relief for the exercise of collective rights by tenants of flats.
Clause 105 reduces the starting threshold for the 15% higher rate SDLT charge from £2 million to £500,000 for transactions where the effective date is on, or after, 20 March 2014. This is part of a package of measures including changes to the annual tax on envelope dwellings and the ATED-related capital gains tax charge. The purpose of these measures is to tackle tax avoidance and to ensure that those who wrap residential property in corporate and other envelopes, and do not use them for a genuine commercial purpose, pay a fair share of tax. However, clause 105 omitted to apply the reduction to the SDLT relief in section 74 of the Finance Act 2003.
This relief benefits lessees of flats who collectively acquire freehold of their block under rights afforded by the Landlord and Tenant Act 1987 and the Leasehold, Reform, Housing and Urban Development Act 1993. The relief sets the rate of SDLT according to the consideration given for the freehold divided by the number of flats. This brings the amount of SDLT paid by lessees more into line with what they might have paid had they been able to acquire the freehold of their flat separately. These acquisitions are commonly undertaken by a company in which the lessees are shareholders. In these circumstances, the 15% higher rate of SDLT will apply if the average consideration exceeds the higher rate threshold.
The changes made by new clause 7 mean that where lessees of flats purchase the freehold of their block through a company and claim relief, SDLT will be charged on the purchase price at 15% if that price divided by the number of flats comes to more than £500,000. The new £500,000 threshold applies to the relief where the effective date of the purchase, usually the date of completion, is on or after 1 July 2014. Transitional provisions will, in the great majority of cases, preserve the existing £2 million threshold where contracts were entered into before 20 March 2014. We estimate that the impact of this minor change will be negligible. In practice, very few transactions of this kind are likely to attract SDLT at 15%. I understand that no tax has been put at risk by delaying the implementation of this change.
On stamp duty reserve tax, amendment 67, tabled by Opposition Members, asks for the Government to lay before Parliament, within six months of the Bill receiving Royal Assent, a report setting out the impact of clause 107 on tax revenues and who benefits from it. The Government announced at Budget 2013 that they would abolish the schedule 19 charge as part of their investment management strategy to improve the UK’s competitiveness as a domicile for collective investment schemes.
Schedule 19 is a special stamp duty reserve tax charge levied on UK collective investment schemes, or “funds”. A charge arises when investors surrender back to the fund manager firm either their units in UK unit trust schemes, or shares in UK open-ended investment companies. It is paid by the fund management firm, but the cost is ultimately borne by the investors in schemes. The investors are largely pension schemes, life companies and individual savers. It is worth stressing that this charge is payable only by UK schemes. An identical scheme established outside the UK would not be subject to the charge, placing the UK at a competitive disadvantage as a domicile for collective investment schemes. Investors who do not wish to pay the schedule 19 charge already have the option of investing in funds domiciled offshore.
The schedule 19 regime is regarded as complex and burdensome, requiring frequent tax calculations and returns to be sent to HMRC. Additionally, because of how the tax operates, its headline rate implies a much greater tax burden than the annual cost actually suffered. This is difficult to explain to investors and gives rise to presentational complications when trying to market UK funds, especially overseas. It is for these reasons that schedule 19 was identified as a major deterrent to domiciling funds in the UK, with a particularly damaging effect on the ability of UK funds to attract non-UK investors. Clause 107 repeals part 2 of schedule 19 to the Finance Act 1999, thereby abolishing the schedule 19 charge. This levels the playing field between the UK and other countries as domiciles for collective investment schemes. The abolition has effect from 30 March 2014.
The Government rightly keep all tax policy under review, but there would be little merit in producing a report in the way suggested by the amendment. We have already had the impact of this measure independently assessed by the Government Actuary’s Department. It has calculated that a typical 22-year-old currently earning average weekly earnings and investing the equivalent of 10% of gross income each year over a 45-year period would see a fund value £11,200 greater at retirement as a result of this change—equivalent to approximately 1.3% uplift in total fund at retirement. In current money terms, that is equivalent to an additional £4,600.
I stress again that the schedule 19 charge is borne by investors and not by fund managers. Data from the Investment Management Association suggest about 85% of the charge is borne by pension and insurance companies together with retail and public-sector investors. Therefore, these underlying investors are beneficiaries of the change. Furthermore, as the new auto-enrolment of workers into pension schemes changes the pensions landscape, even more ordinary hard-working people will benefit from the change in future. Further detail on the distributional impact of the measure has already been included in the tax information and impact note produced in December alongside the draft legislation.
As for the benefits due to the improved competitiveness of the UK as a fund domicile location, the time taken to authorise and launch new funds means that any positive effects of the change would not have had time to become established. Therefore, such a report would be premature. For the avoidance of doubt, let me also reiterate the point—which the Government have made on many occasions—that abolishing schedule 19 to the Finance Act 1999 is not a tax cut for hedge fund managers or hedge funds, which have in fact never paid tax under the schedule 19 charge. I noticed that the hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) was very careful in Committee not to say that it was a tax cut for hedge funds or hedge fund managers, and I would be grateful if she confirmed that that is the case.
James Duddridge (Rochford and Southend East) (Con)
I sense from the mood of the House that the Opposition are thinking of opposing new clause 7. If they are, will my hon. Friend make it clear how many hard-working savers will be hit by not receiving this benefit?
Mr Gauke
My hon. Friend makes an important point. It is investors in pension schemes who will bear the cost. The UK investment management industry, which exists up and down the country—we had a debate about the regional nature of that industry—will also be damaged. The cost makes it hard for UK-domiciled funds to compete. We want UK-domiciled funds to compete. [Interruption.] Maybe that is not Labour’s position, although I note that the shadow Chief Secretary seems to be accepting from a sedentary position that this is not a tax cut for hedge funds.
Mr Gauke
Again—I hope the record will pick that up—this is for investment managers, not hedge fund managers. That is the argument the hon. Gentleman is making, which is different from the argument we have heard from the Opposition on occasions. For example, in July last year, the Leader of the Opposition accused us of making a tax cut for hedge funds. In the shadow Chancellor’s response to the autumn statement in December last year—he gave a speech that many of us will remember for a long time—he called on the Government to reverse the tax cut for hedge funds. It appears that the Labour Front-Bench position is to accept that there is no tax cut for hedge funds. That, I suppose, is progress. [Interruption.] As the hon. Member for Kilmarnock and Loudoun says, it is for investment managers, not hedge funds. She is still wrong, but she is perhaps less awry than she was. That is progress, and I hope that the Leader of the Opposition and the shadow Chancellor will withdraw any suggestion of a tax cut for hedge funds. We will be looking out to see whether that features in any Labour party promotional material over the months ahead, but I am glad we have made progress on that front at least.
In conclusion, clause 107 supports the Government’s objective to create a more competitive tax system and will increase the attractiveness of the UK as a location for fund domicile. Amendment 67 would serve no useful purpose, given the information already made available about this measure. New clause 7 rectifies a minor omission from clause 105 and ensures that the reduction in the SDLT higher rate threshold to £500,000 operates as intended. I therefore move that new clause 7 be accepted and request that amendment 67 not be pressed.
Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)
Let me begin where the Minister left off, on new clause 7. It is worth noting that section 74 of the Finance Act 2003 provides SDLT relief for lessees of flats who collectively acquire the freehold of their block under rights afforded by the Landlord and Tenant Act 1987 and the Leasehold Reform, Housing and Urban Development Act 1993. The relief sets the rate of SDLT according to the consideration for the freehold divided by the number of flats, which brings the amount of SDLT paid by lessees more into line with what they might have paid had they been able to acquire the freehold of their flats separately. As the Minister said, such acquisitions are commonly undertaken by a company in which the lessees are shareholders. Under such circumstances, the 15%, higher rate SDLT charge in schedule 4A to the Finance Act 2003 will apply if the main consideration exceeds the higher rate threshold.
The Minister pointed out that clause 105 reduces the higher rate threshold from £2 million to £500,000 for transactions where the effective date is on or after 20 March 2014. However, clause 105 omitted to apply the reduction to the relief in schedule 74 to the Finance Act 2003, an omission that new clause 7 rectifies. It is welcome that the Minister has brought forward something to deal with that earlier omission and I will therefore not take issue with him on that at present.
Let me turn to amendment 67 and stamp duty reserve tax. I hope hon. Members will forgive me if I confess to having a sense of déjà vu, because it is not the first time we have debated this issue. Not only did we debate it in Committee, as the Minister acknowledged; we also debated it in last year’s Finance Bill. In fact, it is almost a year ago to the day that my esteemed colleague the hon. Member for Nottingham East (Chris Leslie) was standing at this Dispatch Box trying, as I will be, to make the Government see sense and accept our call for a report to be published. [Interruption.] I think my hon. Friend is indicating that he failed on that occasion.
Cathy Jamieson
I thank my hon. Friend for that intervention. I can only hazard a guess as to why the Government consistently refuse to look at producing any report or to accept any of the requests—quite reasonable requests—that we have brought forward, seeking further information, further transparency and these particular pieces of information. I am forced to conclude either that the work has not been done or that the Government, for whatever reason, do not wish to share those facts and figures with us. That is a pity because it would help hon. Members of all parties if this information were put forward. I shall come on to deal in a few moments with some of my hon. Friend’s other points, particularly regarding how his and my constituents will be affected.
As the Minister said, the Government new clause removes the stamp duty reserve tax charge for which fund managers are liable when investors sell or surrender their units in UK unit trust schemes or shares in UK open-ended investment companies. Some people have argued that SDRT could essentially be considered as some form of transaction tax—not a term that everybody would use, but it has certainly been argued in that context—currently levied at what seems to be a not unreasonable rate of 0.5%. This is the element that the Government propose to remove.
As I have indicated, our amendment would require the Chancellor to publish a report—I always try to be reasonable, fair minded and mild mannered in my requests to the Minister, as he knows from our many discussions in Committee—to show exactly who benefits and who would be left worse off through the abolition of SDRT on investments in those units trusts and OEICs. As I said in Committee, in these straitened times, hon. Members—as my hon. Friend the Member for Inverclyde (Mr McKenzie) suggested—could be forgiven for assuming that such a generous tax break would fall to those who really need it, such as the millions of hard-working taxpayers who are £1,600 a year worse off under this Government than they were in 2010.
Cathy Jamieson
I will give way to the Minister, who I am sure will want to tell me what he is doing for those hard-working taxpayers.
Cathy Jamieson
As I said in Committee and as we have seen in some of the to-ing and fro-ing this afternoon, this tax cut relates to investment fund managers. I hope the Minister will listen very carefully to my points. As my hon. Friend the Member for Inverclyde and I have said, the families that, according to the Institute for Fiscal Studies, will be £978 a year worse off by the next election thanks to the Government’s tax and benefits changes will want to know exactly who benefits from this particular tax cut. I am sure that the Minister is now going to tell us how giving investment fund managers that tax cut will provide support and assistance for the hard-working families in my and my hon. Friend’s constituencies.
Mr Gauke
I have already set out how this tax cut will benefit those contributing towards their pension. I take it from the hon. Lady’s earlier answer to my intervention that she accepts that this is not a tax cut for hedge funds. Will she explain precisely what the Leader of the Opposition was on about when on 10 July 2013 he told the Prime Minister in Prime Minister’s Question Time that there was a £145 million tax cut for “hedge funds”? The Leader of the Opposition was wrong, was he not?
Cathy Jamieson
I am going to come on to the issue of who benefits, but I noticed that, once again, the Minister was not able to say how this particular tax cut proposed by the Government is going to benefit our constituents.
Let me deal with the Government’s tax impact note, which provides some information, saying that the chief beneficiaries of this particular initiative will be the 100 UK fund managers who control 2,500 investment schemes. Hon. Members would doubtless be very concerned if they thought that the overall health of the UK’s investment industry was somehow at risk, which is why the initiative was brought forward. One might think that it was somewhat ailing if it was deserving of a tax cut amounting to, as my hon. Friend the Member for Inverclyde said, £160 million a year. However, if we look at the reality of the industry, we could readily say that it is in pretty good health, raising the question of whether the industry really needs the Government’s help, which could more usefully be put to assisting those hard-working families feeling the squeeze as a result of Government policy.
According to the Investment Management Association, as of January 2014, its members managed over £4.8 billion in the UK on the basis of OEIC funds alone and around £4.5 trillion overall. The association also tells us:
“UK assets under management and funds under management are at record levels, and the UK retains its position as the second largest asset management centre in the world after the US.”
It could well be argued, therefore, that the UK’s investment industry is doing okay— without the intervention or assistance of the Government.
Cathy Jamieson
If the Government, of course, were to produce the report requested in this mild-mannered, sensible and reasonable amendment, we would perhaps have more information on who would benefit—exactly what amendment 67 calls for.
Mr Gauke
The hon. Lady always puts forward her proposals very reasonably, but I have to tell her that there is no need for a report on this issue. Schedule 19 stamp duty reserve tax is not paid by hedge funds, so abolishing schedule 19 SDRT does not benefit hedge funds. Does she accept the point that this has nothing to do with hedge funds?
Cathy Jamieson
I want to move on to discuss further who exactly it does benefit, which is the crucial point. We sometimes hear from the industry that there is some kind of existential threat presented by people moving to Luxembourg, Switzerland or wherever else, but it seems that despite all that, the industry is, as I said, in pretty good health.
One of the things that worry Opposition Members is that the only people about whom the Government seem to be genuinely concerned are those who are already wealthy and privileged. They have cut the top rate of income tax for those earning more than £150,000 per annum—we discussed that earlier, so I shall not say more about it at this stage—and, as bank bonuses rise again, they continue to oppose our proposal for a bank bonus tax to help young people back into work. They have failed to balance the books, as they promised to do, yet it seems that they can still find £160 million a year for those who may not need it as much as others.
Cathy Jamieson
As I said earlier, one thing that the Government could do and have consistently refused to do would help thousands of people throughout the country: they could abolish the hated bedroom tax. They could also accept our proposal for a tax on bankers’ bonuses, and adopt our properly designed programme to get young people back into work and give them the start that they want. Until we get young people into work, ensure that they have adequate housing and ensure that they can have a decent quality of life, the majority will not have an opportunity to think about saving from one year to the next, let alone trying to invest for the longer term. In Committee, I asked whether it was only me—or only Opposition Members—who held this view. My hon. Friend the Member for Gateshead (Ian Mearns) made a powerful speech in which, like my hon. Friend the Member for Inverclyde, he described the reality of what was happening to young people in his constituency.
I have looked at the tax information impact note again, in search of further details of that 22-year-old’s story, but I can find nothing that explains how such people will benefit. The only reference to benefits for investors was this rather disappointing revelation:
“This measure could improve returns on investments (including pensions) but would otherwise have no impacts on individuals or households.”
I do not yet see how the measure can benefit the people we are trying to represent.
I am sure that we would all like to hear the next chapter in the 22-year-old’s life story, and if the Minister has any more information to illustrate the fact that he is just the kind of person who stands to benefit from this measure, I am genuinely willing to hear it. However, in the absence of any such information, I shall return to the subject of amendment 67.
Our amendment invites the Government to lay out clearly and transparently exactly who will benefit from this policy and by how much. In Committee my hon. Friends expressed on a number of occasions the view that this is just another tax break for the Government’s friends in the City. While it does look like that, we are open to giving the Government the chance to prove otherwise. That is why our amendment asks the Treasury to publish the costs to the Exchequer in order to ensure that a list of beneficiaries and a distributional analysis for the abolition of stamp duty reserve tax are put into the public domain. That way we will be able to see all the facts as to who the Government are really concerned about.
Of course, if the Government do not agree to our amendment, we will be forced to conclude that this is just another tax cut for the wealthy, just as we suspected all along. We would also have to conclude, in the absence of any information to the contrary, that any claims of jobs created in regional economies are about as robust as the Prime Minister’s stance on Europe has been, and we would have to look a lot harder to try and find something in this which would create jobs, as seems to have been suggested on previous occasions, because I cannot for the life of me see how that stacks up. If we really want to tackle some of the regional imbalances, let us look at some of the announcements that have been made today, in terms of the reports put forward by the Opposition, about how we can create more wealth and look to ensure that power and resources are devolved to some of our cities and we tackle the issues around infrastructure in the regions.
In the light of the response when we tabled this amendment in Committee, I have to say that I am not at all confident that the Government are going to agree to provide us with the transparency we so urgently need. Again, if we look back to what was said in Committee, we find that the Government were not particularly transparent in terms of the information we were given, because, along with the story of the 22-year-old, speakers on the Government side were keen to stress that, because it is fund investors as opposed to fund managers who will benefit from the removal of SDRT, it would greatly boost investment. Again we have to question whether any increased investment would directly benefit those investment fund managers. Hon. Members were also very helpful in trying to enumerate how many people are currently employed by the industry, but try as they might, they failed, as did the tax information and impact note, to detail that important point about how many jobs would be created by the abolition of SDRT.
We also heard that the tax as it currently operates is
“an uncompetitive charge that puts UK-domiciled funds at a disadvantage to funds domiciled elsewhere”.––[Official Report, Finance Public Bill Committee, 10 June 2014; c. 412.]
That does not square with the idea that the UK investment management industry is doing so well that it is the second largest in the world, beaten only by the US.
I want to draw to a conclusion soon because I put quite a number of questions to the Minister in Committee and it would be useful for us to give him some time to respond to them, as he was not necessarily able to do so in Committee. It is important that we give him the chance again today, therefore. Unsurprisingly perhaps, the Minister is continuing to steadfastly—albeit politely—refuse to countenance our amendment for two reasons. First, he seems to be suggesting that the information requested has already been covered by the tax information and impact note, which, as I hope I have outlined, it does not seem to me to do in any clear and transparent way. The other argument that came up in Committee is that it would be difficult and it would perhaps take longer than six months to do. I am sure—and I am sure the Minister will understand this—that should he wish it to be so, he would be able to utilise all the capacity of the Government to overcome any difficulties, and indeed to ensure more information and a report were brought forward, and I am sure he would also be able to use his good offices to have his Government provide us with considerably more information than is currently contained in the tax information and impact note. It would also be helpful if the Minister could give us more information in his winding-up speech as to why he thinks it would not be possible to do this within a six-month deadline, as we have asked in our amendment.
In conclusion, this is all about priorities. The Government’s measures will reduce Exchequer revenues by more than £800 million over the course of the next five years if this particular measure goes ahead. That funding could be used in a variety of ways, and the Government have to be held responsible for the choices they make. Our amendment simply asks them to undertake that assessment and put the information in the public domain, so that we can see who benefits from this initiative and how it would benefit the wider public. The Government have not made that case; they have not shown how the measure would have an impact on our constituents—for the most part they seem to suggest it would not have any impact on them—and they have not answered the questions put previously about job creation and the impact on the regional economies.
Let me therefore remind the Minister of some of the questions we posed in Committee—I am sure other Members will wish to contribute, but he will also want to answer these in his summing up. The Investment Management Association is saying that the industry is doing very well, so why are the Government handing this tax break to the industry? What evidence can the Minister provide to us, even at this late stage, to suggest that the measure will have a positive impact on the UK economy and, in particular, the jobs market? Unless my memory fails me, he has not so far been able to give me a concrete number on the jobs he expects to be created or any more information about the regional benefits that have been referred to. Can he do that now? It would be helpful if he could do that and if he could set out all that information today. In those circumstances, perhaps I would consider whether our amendment was necessary. I suspect that he will not be able to give that information and will not be able to provide the clarity and transparency we seek, so I strongly suspect that when the time comes, I will seek to press my amendment to a vote.
Mr Gauke
It is a pleasure to respond to this short debate. The hon. Lady has an admirable ability to make unreasonable requests in a very reasonable way, and it falls to me once again to decline her offer, as Treasury Ministers have done in the past when a review or report is sought from them during a Finance Bill debate.
Let me quickly try to address some of the points raised, the first of which relates to the impact on the industry, the competitiveness argument and what we can do to assess that. It is worth pointing out that this measure came into effect only on 30 March, and it will take longer than six months for evidence of how the benefits of the change are accruing to investors to become available. So the report requested in amendment 67 will not adequately be able to do justice to that question.
Another area we have debated on a number of occasions is who benefits from this measure, and I will return to our little engagement on hedge funds. It is worth pointing out that the National Association of Pension Funds, the Association of British Insurers and the Investment Management Association stated their disagreement with the Labour party’s position and its policy proposal last year to reintroduce the schedule 19 charge. They say it would
“impose a £145 million annual cost on the ordinary savers, investors and pensioners, who are the beneficiaries of its abolition.”
That would weaken the UK’s competitiveness as a place for funds to be domiciled. If we are competitive in this sector, we will have more growth and more jobs. Let us be clear that this is not about jobs in the City of London—not that there is anything wrong with jobs in the City of London. The fund management industry directly employs 30,000 people throughout the United Kingdom, and about a half of those jobs are linked to fund domiciles. The jobs are located in many, if not all, the regions and nations of the United Kingdom.
Cathy Jamieson
Of course I recognise the value and the range of those jobs. Will the Minister tell us exactly what assessment the Government have done on the risk of reintroducing the measure, or indeed on the risk associated with producing a report? Surely he will want to investigate fully the number of jobs that he seems to think might be lost if our measure went ahead.
Mr Gauke
The hon. Lady puts her finger on an important word, which is “risk”. Yes, a number of jobs are involved. Some 30,000 people are employed in this industry in the UK. About 10,000 jobs are located in regions and nations such as Scotland, the north-west of England and the west midlands. If we have an uncompetitive tax system in the UK, that sector will suffer. There will be a threat to those jobs. We want to see an expanding and thriving sector, but there is a lot of competition from other jurisdictions in which funds can be domiciled. If we do not compete in the sector, we run the risk of losing those jobs.
There is not only the issue of the industry itself and the jobs that can be encouraged and protected in this country if we have a competitive tax regime, but the underlying point that it is the investors who indirectly bear the burden of this tax. That means that contributors to pension schemes—people in auto-enrolment schemes—will receive less in their pension if this tax remains in place. That is something that we should all seek to address. If we want policies that will be good for jobs and good for savers, then abolishing schedule 19 is a good policy. But what do we get from Labour? We get it embarking on a process to reinstate the policy because it misunderstands it. It thought that it was something to do with hedge funds. After it was explained to Labour Members—I have to say that it has been explained to them time and again—they refused to abandon it. I do not know whether it is still their policy to reverse this, or whether they are calling for a report. As I understand it, it is still the policy of the Opposition to reintroduce this tax.
Simon Kirby
Does the Minister agree that it seems incredibly naive to give away these jobs and reduce these pensions for nothing? Surely the Opposition should better understand the proposed legislation.
Mr Gauke
It is striking that time and again senior figures in the Labour party went around describing this as a tax cut for hedge funds. It is to the credit of the hon. Member for Kilmarnock and Loudoun that she refused to repeat that accusation. Although she did not quite go as far as she might have done towards putting the record straight, at least she did not repeat the accusation despite being given multiple opportunities to do so. I do worry about the understanding of some issues within the Labour party. Just today, we have seen the example of the confusion about how many jobs have been created inside and outside London. I understand that the Leader of the Opposition is standing by his position this morning, although he did not quote that in his speech—but there we go. I am afraid that this is an example of somewhat shoddy thinking from the Opposition.
Ian Swales
On the same theme, did the Minister share my concern about the number of speeches made in Committee by Opposition Members that appeared to suggest that the benefits of the policy would accrue to the managers of the funds rather than the funds themselves?
Mr Gauke
Yes, I did. There was a complete absence of any understanding of tax incidence and of who ultimately bears a tax, but that, I am afraid, is all too typical.
The removal of schedule 19 is a welcome measure that will ensure that we have a competitive investment funds management set-up in the UK. It will help savers and those investing in their pensions and remove a distortive and uncompetitive tax. It is a great pity, although not a great surprise, that this further measure to improve our competitiveness and to help savers is opposed by the Opposition, and I certainly urge my colleagues to vote against amendment 67, assuming that it is pressed to a vote.
Question put and agreed to.
New clause 7 accordingly read a Second time, and added to the Bill.
Clause 107
Abolition of SDRT on certain dealings in collective investment schemes
Amendment proposed: 67, page 90, line 33, at end insert—
‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.
(5B) The report referred to in subsection (5A) must in particular consider—
(a) the impact on tax revenues;
(b) the expected beneficiaries; and
(c) a distributional analysis of the beneficiaries.”—(Cathy Jamieson.)
Question put, That the amendment be made.
Ian Murray
I apologise to the House for not being present at the beginning of the debate. The previous debate finished slightly earlier so there was a clash with something else that I had in my diary. However, I want to make a few comments on this because it harks back to new clause 14, which we debated earlier. All we are looking for in new clause 11 is some transparency on this policy. We know it was introduced with great fanfare by the Chancellor at the Conservative party conference last October when he said:
“Workers of the world unite.”
The conclusion to the workers of the world uniting was that everyone united against this policy.
This is incredibly relevant to the Finance Bill because it has created a significant tax loophole. On new clause 14 on the 50p tax rate and the need for transparency on how much tax that takes, the Government said clearly that 45p brings in more tax at the top rate than 50p, which brings in less because of tax avoidance. In this case, we are looking at the biggest tax avoidance measure we can get. It has been described by the Institute of Fiscal Studies as a billion-pound tax lollipop on the table. If we are serious about tackling such tax avoidance, it would be great for transparency, not just for the House but for the country, if a report were produced showing take up and the consequences of that.
Because it is such an important prospect, we need to look at what the Chancellor tried to do in his conference speech. We will end up in the situation where people are able to sell their rights for a few pounds that might be worth nothing. That is not the kind of working society that we want. It is not the kind of partnership that we want between employers and employees and trade unions, whereby people can sell their rights for maternity pay, unfair dismissal, and all those rights referred to by Beecroft in his report for the Prime Minister. We now have a fire-at-will culture, which does nothing to dispel the Government’s move towards a hire-and-fire culture with this proposal. There are the hallmarks of another tax avoidance scheme. Why on earth would we want to produce a scheme that not only allows people to sell their rights and not be covered by any employment rights, but to be in a situation whereby those at the top end of businesses can use these mechanisms to avoid paying tax? I hope that the Minister can address some of those serious concerns when he replies.
I cannot understand why the Government would not accept new clause 11 if they are so confident that this measure will be well used, resulting in a transformation in entrepreneurship, with people hiring more and more employees because they do not have what the Government would call the burden of employee relations. Why would they not want to produce a report showing how many people are using the measure? I do not understand why they do not want to produce a report showing the impact on the Treasury coffers, through capital gains tax and any other tax receipts that might be lost.
It is important for the Government to have confidence in their proposals. The Chancellor was confident when he announced it with great fanfare. I am not sure whether it will have any take-up, because of the way it has been presented and the message it sends out. Justin King, the former chief executive of Sainsbury’s, said that it sends out a poor message. Many chief executives and business owners say that it sends out such a poor message on the partnership we want in the workplace.
Therefore, if the Government wish to have confidence in their own policies, it is only right that they agree to new clause 11, bring forward the report setting out the take-up and the data collected on the scheme and publish further reports every year. If the scheme is denying people their rights at work at the same time as denying the Treasury valuable income, this House should know about it and be able to debate it so that it can hold the Government properly to account.
Mr Gauke
As we have heard, new clause 11 would require the Chancellor to review the impact of the new employee shareholder status on tax revenues and to publish a report setting out the impact on capital gains tax receipts, the estimated value of shares owned by employees with employee shareholder agreements and the number of such employees. Let me set out why I believe the new clause is unnecessary—a word the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) rightly predicted would come up, although, to be fair, we have had this debate before.
It is far too early for any detailed information on the employee shareholder status to be available. It has been available only since 1 September 2013, and we have not yet reached the deadline by which companies must submit their annual share scheme returns covering that period. Therefore, the Government do not yet have full information about the use of the new employment status. Once received, it will take time to process and analyse those data. The Government set out the potential impact on tax revenues in our tax information and impact note for the employee shareholder tax reliefs, and there are currently no additional data available that would allow that to be updated.
In addition, it is not necessary for a requirement to publish information to be placed in legislation. HMRC publishes a wide range of information about employee share schemes with no such statutory obligation. For example, only last week it published a wealth of data on the use of the tax advantaged employee share schemes during the year ending 2012-13.
We will consider whether that type of publication is appropriate for employee shareholder status or whether a different approach might better enable an evaluation of the employee shareholder status. As the Government have made clear, the employee shareholder scheme is different from the existing tax advantaged employee share schemes. It is primarily designed as an employment measure to encourage choice, growth and flexibility over the long term, rather than being focused on tax advantages. We will want to take those broader factors into account when evaluating the policy. However, given that employee shareholder legislation has been in operation for less than a year, it is simply too early to be finalising any details in that area.
Ian Swales
I certainly accept the Minister’s point about the timing for reporting back on the scheme. However, we are starting to see examples of the very few companies that are taking it up, and they seem to be focused on high earners in industries such as private equity, who arguably are not very worried about their employee rights anyway. For example, eight managers at European Capital each received the maximum £50,000 recently when they sold one of their businesses. Can the Minister say what kinds of companies are registering and how the scheme is working so far?
Mr Gauke
We have been consistent throughout. No one argues that the arrangement is right for everybody; it will be suitable only in particular circumstances. It is more likely to be relevant for fast-growing areas involving a relatively small number of highly valued individuals who benefit from arrangements that incentivise performance but who are not necessarily looking for extensive employment rights.
It has been said before in the context of this debate that there are employees who benefit in full from employment rights; there are the self-employed, who have essentially no rights in this area; and there is a gap in the middle. Part of the thinking behind the arrangement is about ensuring that something appropriate falls in between—something useful for fast-growing small and medium-sized companies that want to create a flexible work force.
Ian Murray
I appreciate the intervention just made by the hon. Member for Redcar (Ian Swales). The issue is surely not one of employment flexibility; it is about maximising tax advantages. The policy has been announced on the basis of allowing companies—particularly high-growth technology companies—to employ people on a more flexible basis, but the example just given by the hon. Gentleman goes completely against that. That shows that the scheme is being used for tax-avoidance purposes.
Mr Gauke
I do not accept that. As far as avoidance is concerned, the tax reliefs are intended to encourage the take-up of employee shareholder status by individuals when that is offered to them. However, those reliefs are not an end in themselves. A number of rules in the legislation will prevent abuse of the new status while keeping it as simple as possible for employers and employees to use. For example, there are rules that will stop people with a material interest in the relevant business exploiting the tax reliefs for their or their families’ benefit. We will always keep the matter under review. As I said, if we see any abuse, we will act. However, we believe that we have put in place rules that protect the Exchequer from such tax avoidance.
I want to say a little more about take-up. My hon. Friend the Member for Rochford and Southend East (James Duddridge) made a good point: the argument is simultaneously that no one is making use of the scheme and that the scheme will cost a lot in tax avoidance. There is something of a tension between those two positions.
We decided not to introduce a pre-registration or pre-approval system for those wishing to make an employee shareholder agreement. The Office of Tax Simplification has told us that HMRC pre-approval of share schemes is outdated and time consuming for businesses. Data on employee shareholder status will therefore be picked up from companies’ annual share scheme returns to HMRC. As I said, the scheme has been in place only since the beginning of September 2013, so we have not even reached the deadline by which companies must submit their returns to HMRC for that period. It is far too early to finalise any details of publication.
Catherine McKinnell
Given the widespread concern expressed about the scheme, is the Minister’s position—that the Government will just wait and see—not incredibly complacent? When the returns come in, the scheme may prove to have been one big tax avoidance opportunity, but the Government seem perfectly relaxed about that.
Mr Gauke
No, that is not the case. As I said, when the original legislation was passed, protections were put in place; a moment ago, I gave an example of one designed to prevent abuse. We will continue to monitor the issue. As with all activities, if evidence of avoidance emerges, the Government will be determined to act, as we have time and again.
On the data on employee shareholders and on take-up, a question raised by a number of hon. Members, I am simply seeking to explain that I am not in a position to give the information that the hon. Lady and others have asked for because we have not required pre-approval or pre-registration for the scheme. That point is also relevant to the FT figures on take-up that have been mentioned. As there is no need for companies making use of the employee shareholding scheme to contact BIS in advance and there is no registration or approval system, we do not expect BIS to have a definitive list of all those companies that have made use of the scheme. That is why I am not in a position to give that information to the House and why the figures that were used by the Financial Times should not necessarily attract a huge amount of excitement.
The scheme is a new facet of our employment practices. It is probably unfair to judge a scheme such as this in its first few months because it will need time to bed in before there is wider knowledge about it and it is more widely used. As I have said, I am not in a position to provide information at this point.
Ian Murray
I am grateful to my favourite Treasury Minister for allowing me to intervene again. What the Minister is missing is that, according to his Government’s own figures in the Red Book, £1 billion has been allocated to this proposal. Why will he not agree to the new clause, which would allow the House to scrutinise what that £1 billion of public money is being used for? That way we could avoid the situation raised by the hon. Member for Redcar in which people use the scheme to avoid tax rather than as a proposal to create growth and to get more people into employment by denying them their workers’ rights.
Mr Gauke
It is always a great pleasure to give way to my favourite Member of Parliament for Edinburgh South. In quoting the figure of £1 billion he is somewhat conflating two things. One is the OBR’s estimate of the potential cost of the scheme some years into the future, if a whole set of circumstances apply and we do not take action to deal with any concerns that might emerge. As far as the Red Book is concerned, the published estimates of the annual cost of the measures are £10 million in 2016-17 and £45 million in 2017-18. Those are the numbers and we have no reason to believe that they will prove inaccurate, so to correct the hon. Gentleman for the record, we are not talking about a cost of £1 billion.
New clause 11 would impose an obligation on the Government that is not only unnecessary but, as I have set out in some detail, could not be met given the current availability of data on take-up of the employee shareholder status. Given that the new clause is unnecessary and would be unworkable, I ask the Opposition not to press it.
Catherine McKinnell
It will be no surprise that I find the Minister’s response extremely disappointing and a little concerning in its complacency towards a policy about which widespread concern has been expressed. Taking away the rights of working people across the UK is no substitute for a proper strategy for economic growth. The policy makes it easier to reduce rights at work and fire people, rather than making it easier to hire people. That shows just how out of touch the Government are.
I commend the hon. Member for Bedford (Richard Fuller) on his thoughtful speech. I also commend my hon. Friend the Member for Islwyn (Chris Evans) on his mammoth and excellent speech, and my hon. Friends the Members for Wythenshawe and Sale East (Mike Kane) and for Edinburgh South (Ian Murray). Opposition Members have put forward a powerful argument for the reasonable new clause that we have tabled. It simply asks the Government to make a proper assessment of who is taking up the shares for rights offer and what the cost to the Exchequer will be, including any loss from tax avoidance or abuse. As far as we can see, this is just another way in which the Government are trying to water down the rights of people at work.
Frankly, to Opposition Members and the many business organisations that have expressed their concerns, this policy stinks. The House and members of the public deserve to know exactly what the implications of the policy will be before the horse has bolted. The Government say that they will only shut the gate once that has happened. [Interruption.] I hear hon. Members groan at that, but I quote Lord Deben:
“I cannot imagine any circumstances whatever in which this would be of any use to any business that I have ever come across in my entire life.”—[Official Report, House of Lords, 6 February 2013; Vol. 743, c. 293.]
I think that he puts it very well.
Shabana Mahmood
I think the hon. Gentleman and other Government Members should apologise for the fact that their Government have delivered a huge tax cut for millionaires while households are on average £974 a year worse off. That is a deplorable record and the Government should apologise for it.
We have already discussed at length today the fact that ordinary working people in our country are worse off as a result of this Government’s economic plan. As I have said, households are £974 a year worse off as a result of tax and benefit changes, and wages will be 5.6% lower in 2015 than they were in 2010. We also know that it is the richest 1% of the country who have benefited most from the recovery. With working people facing a cost of living crisis, it is vital that everyone pays their fair share and that we restore public trust. When ordinary people are struggling with their household budgets, which are stretched ever thinner, it is understandable that there will be increasing anger if they feel that others are successfully avoiding tax and the Government are failing to do enough about it.
The same goes for businesses, too. We know that small and medium-sized enterprises are struggling with business rates, for example, which have gone up since 2010. Many businesses are now paying more in rates than they do in rent. Businesses that do the right thing when it comes to tax are understandably frustrated and angry when they see others that do not play by the rules, and they are right to think that there should be a level playing field, so that those who do the right thing are not penalised because others get away with not paying their fair share. High-profile cases of tax avoidances have therefore undermined public trust in company taxation and hit businesses that play by the rules.
Our best measure of how well the system is working is the tax gap—which is effectively the amount of uncollected tax in the economy—which has risen under this Government by £1 billion to a total of £35 billion.
Shabana Mahmood
I know the Minister will say that it has gone down in percentage terms, but only by 0.1%. I assume that that was the intention behind the intervention he was about to make.
Shabana Mahmood
Focusing on the actual figure is important. It concentrates the mind when assessing the scale of the task both for this Government and the successor Government in 2015. By anyone’s analysis, £35 billion is a huge sum, which, if collected, would make a very significant difference to the nation’s finances.
Shabana Mahmood
Given the cuts at HMRC, this Government’s record on HMRC resources, which is a topic I regularly debate with the Minister, is not one for Members on the Government Benches to show off about.
First, let me take the issue of the quoted eurobonds exemption. That was originally implemented to make it easier for companies to obtain finance from the international bond markets by excluding corporate debt listed on recognised stock exchanges from UK withholding tax. Making it easier for companies to obtain finance on the international bond markets is a legitimate objective that we support. However, as covered in a spate of high-profile media stories last year, the exemption can also be used for tax avoidance purposes, allowing companies to shift profits out of the UK in the form of interest payments, without making any tax payment. As HMRC has noted:
“In recent years a number of groups have issued Eurobonds between companies in the same group, and listed them on stock exchanges in territories such as the Channel Islands and Cayman Islands, where they are not actually traded. In effect, the conversion of existing inter-company debt into quoted Eurobonds enables a company to make gross payments of interest out of the UK to a fellow group company, where otherwise deduction of tax would be required.”
The Government consulted on the issue in 2012, with HMRC proposing to amend the eurobond exemption so it would not apply where the eurobond is issued to a fellow group company and listed on a stock exchange on which there is no substantial or regular trading in the eurobond. HMRC stated:
“The effect of the amended rule would be to leave untouched the quoted Eurobond exemption for the overwhelming majority of Eurobond issues. It would deny the exemption only in the case of intra-group Eurobond issues that appear to be undertaken for the purpose of circumventing the requirement to deduct tax at source rather than being directed at the raising of third party finance.”
Despite HMRC estimating that the proposed restriction could have an extra impact of £200 million a year, in their response, the Government stated that they did not intend to proceed with it. Why not? Well, the Government said they made that decision in the “light of the responses” they received around a number of technical issues and after respondents questioned the positive Exchequer effect set out in the impact assessment.
That is simply not good enough. We say that abuse of the exemption can be shut down and must be shut down. Our proposals will explore removing the exemption where bonds are issued to connected persons, such as where a subsidiary issues a bond to a corporate parent or its private equity fund owners. To minimise disruption to private equity funds using the mechanism to simplify investor rebate claims under double taxation treaties, we would explore either offering an exemption for private equity partnerships where all, or the vast majority of, the ultimate beneficiaries would qualify for double taxation relief, or streamlining the withholding tax rebate process in consultation with the industry. So there is a mechanism to shut down the abuse of the exemption. It could and should have been taken up by the Government.
The estimates of the Exchequer impact of closing the loophole range from £1 billion to the Government’s estimate of about £200 million, with many more commentators saying that they would place it at about £500 million. In a letter to me dated 4 March 2014, the Minister said:
“Some newspapers quoted a figure of £500m for the tax at risk. This appears to be based on the unrealistic assumption that the interest paid out of the UK had not been restricted for tax purposes and that the beneficial recipient would not be entitled to gross payment. You will appreciate that I cannot discuss individual cases, but HMRC has confirmed to me that computational adjustments are frequently made. Consequently, the £500m sum is very wide of the mark. Any change here will not raise any significant yield.”
I was interested in that response, for which I was grateful and which I received after I had tabled a number of questions about the quoted eurobond exemption, because it displayed a concerning lack of clarity. The Minister says that the numbers quoted are “wide of the mark” but he does not say where the mark actually is. That is surprising, given that HRMC and the Minister have examined this in detail and have consulted on it, and given that they tell us that “computational adjustments” are regularly made for it. Despite that, still no figure has been given.
Mr Gauke
In my letter, I also offered the hon. Lady a meeting, attended by officials, to discuss the matter and explain some of these points to her further. I will try not to be personally slighted, but she has not responded to that offer. Why has she not done so? Is it because of the fear that when confronted with some of the challenges in this area she might find that this is all slightly more complicated than she has been led to believe by one or two newspaper articles?
Shabana Mahmood
I am grateful to the Minister for his intervention and I hope he does not take it as a personal slight that I did not, on that occasion, take him up on the offer of a meeting. I will try not to be patronised by the suggestion that these matters are far too complicated for me to understand and that I am getting my information only from newspaper articles.
Mr Gauke
It is quite the opposite: I have absolute confidence that the hon. Lady would have the capacity to understand that this matter is somewhat difficult, but it is often advantageous to speak to the officials who deal with it on a day-to-day basis in order to have a better understanding of it. It would be of benefit to her, and to the House as a whole, to ensure that this debate could take place on the basis of as good an understanding of the matter as possible. By the way, the invitation still stands.
Shabana Mahmood
I may yet take the Minister up on it. But it would be a mistake for him to think that our proposal has been made without consulting experts who are very much engaged on the issue of eurobonds. I am confident that the information we have put out as a result of our business taxation paper, launched yesterday, is accurate and that we have considered the different legal and other ramifications of limiting the abuse of the exemption as it currently stands.
Shabana Mahmood
I am going to make a bit more progress.
Let us say for the sake of argument that the figure is close to the £200 million or so set out in the original HMRC consultation. I was surprised that the Minister did not think that sum would merit action. The tone of his comments to me suggested that he considered that to be a small sum and so it was not worth going ahead with the attempt to close down the abuse of the exemption. I am afraid that, as an argument, that is not something that I am prepared to buy. Why? Well, in this year’s Finance Bill Committee, we have debated and supported a measure in clause 61 on business premises renovation allowances.
Mr Gauke
I would hate it if the hon. Lady inadvertently gave the impression that it was my view that the £200 million was not something that we would seek to address; we certainly would. In my letter to her of 4 March, I said:
“In the small number of cases in which a restriction might be considered appropriate, it was also clear from the consultation responses that the proposal would not be effective in addressing the concerns.”
In other words, the proposal that was consulted on would not have got the £200 million. That is why we did not proceed with it. I want to make that clear, and I am sure that she would not want to give a misleading impression.
Mike Kane
In the few moments that I have, I want to point out that self-employment is being used by far too many employers to engage workers in the construction industry, as my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) pointed out. According to the Union of Construction, Allied Trades and Technicians report “The Evasion Economy”, 400,000 workers are being engaged in that way. Those workers miss out on the rights that normal workers get. According to another UCATT report, “The Great Payroll Scandal”, this practice is costing the Exchequer up to £1.9 billion per annum.
When I talked to construction workers on Friday night, they spoke of the scandal of payroll companies making millions of pounds. This is a legitimised dodgy practice. The companies get workers to sign a contract to say that they are self-employed, but they work for a single employer. In any legal sense, their status would be defined as a direct employee, yet they lose all the rights that we have spoken about. It should no longer be possible for companies to instruct such construction workers to turn up on site when they want them. Construction workers need the security of employment rights and full national insurance contributions should be paid.
Mr Gauke
We have had a lively debate, and I will try to address as many of the points raised as possible in the time available.
New clause 12 seeks to have the Government produce a report on how to reduce the tax advantages arising from tax arrangements that are abusive. I agree that tax avoidance is a key issue, and the Government have made it abundantly clear that we will not stand for a minority of taxpayers continuing to seek unacceptable ways to reduce the amount of tax they pay through contrived and artificial means. That increases the tax burden on the rest of society and creates an unfair playing field for businesses.
Let me explain why I do not think that a report would be beneficial. The Government have taken strong and robust action to tackle avoidance. Since 2010 we have introduced 42 changes to tax law to close avoidance loopholes and make strategic changes to prevent and deter tax avoidance. Those measures include the introduction of a general anti-abuse rule, strengthening the disclosure of tax avoidance schemes regime, clamping down on stamp duty land tax avoidance with a new range of measures —including an annual tax on envelope dwellings—and numerous changes to business tax rules and reliefs to tackle bad behaviour, including misuse of the partnership structure and corporate loss buying.
We are going further. In the Finance Bill we are introducing new measures to put in place tougher monitoring regimes and penalties for high-risk promoters of tax avoidance schemes, and we are introducing accelerated payments and follower notice measures that will give HMRC the power to collect disputed tax bills up front, putting those who try to avoid tax on the same footing as the vast majority who pay all their tax up front.
Let me address the concerns raised by my hon. Friend the Member for Aldershot (Sir Gerald Howarth) and the hon. Member for Linlithgow and East Falkirk (Michael Connarty). The vast majority of people pay their tax up front, but it is possible for people working through self-assessment to make use of a tax avoidance scheme and hold on to the money during the—often lengthy—period where there is a dispute. The law is the law, however, and it is the law that existed when the arrangements were made that continues to apply. We are making a change, however, to say that while there is a dispute, the money should be held by the Exchequer and not the taxpayer, just as happens in many other circumstances where there is a dispute in our tax system. This is money that the individual would have already paid if they had not entered into an avoidance scheme. When completing their self-assessment return, they would have notified HMRC that they were taking part in a tax avoidance scheme under the disclosure of tax avoidance schemes regime, and as I said, the taxpayer can continue to dispute the case and will be paid interest should they win. The rights of the individual are therefore not being restricted. Prudent taxpayers should recognise that tax avoidance carries a significant risk of not working and the tax becoming payable, and they should make plans for such an outcome.
In addition to changes in law, we have invested £1 billion in increasing HMRC’s compliance resource, which has reaped huge benefits. HMRC is ever more successful at tackling the avoidance it sees, and it has an excellent record in litigating the avoidance schemes that taxpayers choose to take to tribunal. It wins about 80% of cases, and persuades many more taxpayers to settle before the case gets that far. Between April 2010 and March 2014, it won 94 avoidances cases in tribunals and courts, and in 2013-14 alone, its 30 wins protected £2.7 billion of tax.
The Government will continue to close loopholes in tax law and introduce strategic responses to tax avoidance across the tax system. We will act robustly to respond to abuses that we see. We consult on those measures where we can, although hon. Members will understand that in certain circumstances we must act quickly to close down abuse, so consultation is not possible. A report will add nothing to the progress that we have made and continue to make. Action is more important. We have proved we are taking action to tackle tax avoidance across the board, and we will continue to do so.
In the time available I do not think I can do justice to the fairly lengthy speech on eurobonds by the hon. Member for Birmingham, Ladywood (Shabana Mahmood), but the £500 million figure that she quoted, which is somehow supposed to be at risk, seems to be based on an article in a newspaper. It is not a figure we recognise. It wrongly assumes that the recipient of the interest would not be entitled to gross payment of interest and fails to take into account the fact that under the UK’s double tax treaties the tax would often be repaid anyway.
I extend again the offer that I made in March to the hon. Lady. I have been a shadow Treasury Minister and I recognise the challenges in developing policy in these areas without access to officials. I would be more than happy to meet her, with officials, to talk through some of the practical points of this issue. I think she will find that that £500 million is something of an illusion. In terms of the practical points that she raised about changing the withholding tax system, I ask her to bear in mind the double taxation treaties. Her proposals might not be as easy as she believes.
The alleged abuse of disguised employment in the construction sector is an important point. Some labour providers have created structures specifically designed to avoid tax and national insurance and gain a commercial advantage over those who play by the rules. The Government aim to put a stop to those practices in the construction sector and elsewhere through the new measures introduced in this Bill to tackle false self-employment intermediaries. They will provide a level playing field for compliant labour providers who help to facilitate the UK’s flexible labour market.
The new measures that we are introducing target structures set up to present workers as self-employed when they are really employees. This has been a growing problem in recent years and has spread from the construction industry to other sectors. That is not acceptable. Workers lose out on their rights, it creates competitive disadvantages for compliant businesses, and ultimately the taxpayer foots the bill. That is why we are acting now to stop the abuse. Intermediaries are the biggest mechanism for delivering false self-employment within the construction industry, and as I have said, the practice is spreading. Tackling employment intermediaries used to facilitate false self-employment will not only more effectively target a sizeable section of the false self-employment in construction—a point raised by the hon. Member for Wythenshawe and Sale East (Mike Kane)—but will stop the spread of the problem to the wider economy.
We believe our proposals are the best way to tackle avoidance in that area. The previous Government consulted on proposals to tackle false self-employment in construction in 2009, which deemed all construction workers to be employed unless they fulfilled one of three criteria. In practice, that would have meant that bricklayers would need to provide their own bricks and roofers would have had to supply their own tiles to be categorised as self-employed. As set out in the consultation response document, analysis suggested that the proposals could undermine legitimate commercial practice and run the risk of capturing genuinely self-employed individuals.
A dormant company is one that is not within the charge to corporation tax at all, whereas the new clause appears to relate to companies that are within the charge but fail to file returns. That is not avoidance but evasion. HMRC uses risk-based procedures and extensive data-matching analysis to identify companies that should have filed returns but have not done so. All such companies are risk-assessed to establish whether they come within the charge to tax. Research suggests that the risk of tax loss is small. HMRC’s activity is carefully targeted, ensuring administrative burdens for compliant customers are minimised while focusing on the non-compliant.
I draw the House’s attention once more to the Government’s strong response to the threat of tax avoidance, including our unprecedented action to close loopholes and provide new tools for HMRC to tackle avoidance. The report proposed by the Opposition is unnecessary and would distract HMRC from delivering on its important work tackling avoidance. I call on the hon. Lady to withdraw the new clause.
Shabana Mahmood
I am disappointed that the Minister will not engage with the practical measures envisaged in the new clause. We have had an interesting debate, but I wish to press the new clause to a Division.
Question put, That the clause be read a Second time.
Office for Budget Responsibility (Manifesto Audits)
David Gauke Excerpts(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
We have had a lively debate this afternoon, with a number of contributions. The hon. Member for Coventry North West (Mr Robinson) made a forthright speech. My hon. Friend the Member for South West Devon (Mr Streeter) made an important point regarding concerns about subcontracting all matters to outside bodies. He also drew a comparison between the shadow Chancellor as a consensus-builder and King Herod as a babysitter. To be fair, my hon. Friend did say he thought he might have been a little unfair, although it was not entirely clear to whom.
The hon. Member for Eltham (Clive Efford) reminded me to use the expression “long-term economic plan” in my speech, which I had not originally intended to do, but I am grateful for that reminder. My hon. Friend the Member for North East Somerset (Jacob Rees-Mogg) described this as a power grab by the shadow Chancellor, and he drew out what I think is an important point about the shadow Chancellor trying to instil some discipline into the Labour party. My hon. Friend also mulled over the prospect of the shadow Chancellor becoming leader of the Labour party. I think that is an unlikely career move—but the Labour party could certainly do worse.
The hon. Member for Leeds East (Mr Mudie) highlighted the fact that the OBR is an important institution. He objected to members of the Treasury Committee quoting Robert Chote, and then quoted Robert Chote. My hon. Friend the Member for Eastleigh (Mike Thornton) said there is a case for doing what is proposed but that we should wait until after the election, by contrast with the hon. Member for Edinburgh East (Sheila Gilmore) who said we should get on with it.
My hon. Friend the Member for Hereford and South Herefordshire (Jesse Norman) made a thoughtful speech, drawing on his knowledge and experience of the Treasury Committee, Edmund Burke and polling data, and argued that the reason for this motion is Labour’s lack of economic credibility. The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) made an impassioned speech, which I have to say I did not agree with—but it was impassioned.
My hon. Friend the Member for Poole (Mr Syms) set out some of the practical difficulties of the proposal in the motion. The hon. Member for Derby North (Chris Williamson) referred to hysterical outpourings. I think he used that phrase, and certainly the expression “hysterical outpourings” springs to mind when thinking of his speech. He spent four minutes accusing the Conservative party of all sorts of things, and then said the advantage of this policy is that it would end negative campaigning. We shall see.
In an excellent and short speech, my hon. Friend the Member for East Hampshire (Damian Hinds) raised concerns about politicisation of the OBR. My hon. Friend the Member for Wyre Forest (Mark Garnier) also made an excellent speech setting out some practical questions.
I think it is worth just taking a few moments to remind the House of why the OBR was set up in the first place. The best evidence for this is the book published after the last election by the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), and in particular his chapter describing the events of the 2009 Budget, which was very clearly a negotiation on the position that the Treasury and the then Prime Minister took on economic growth. This was not about searching hard for the truth, therefore; it was a negotiation. That is worth bearing in mind when we hear about the shadow Chancellor being a builder of consensus and a zealot in the cause of independent oversight of fiscal forecasts, because what is also clear is that the shadow Chancellor was part of those negotiations.
Mr Gauke
The shadow Chancellor says that is not true, but let me quote from page 226 of the previous Chancellor of the Exchequer’s book. He talked about discussions “rarely” reaching conclusions, and said:
“Sometimes there would be just two of us”,
meaning just him and the Prime Minister. He refers to the current shadow Chancellor being
“there on a few occasions”.
Mr Gauke
I again refer to page 226. The right hon. Member for Edinburgh South West refers to the negotiations on the growth numbers. He says that the shadow Chancellor was “there”.
We have had a thoughtful debate, and arguments have been made on both sides about whether it is right that the OBR should be able to oversee Opposition party policies. However, there is a question about timing. The shadow Chancellor explained why the position of his party when the relevant legislation was taken through was to oppose that. He said earlier today that in the early days it was cautious about protecting impartiality; now, he appears to be incautious. There is an issue here, and Lord Eatwell made the point on 8 November 2010 about embroiling the OBR in “political controversy”.
The next point to make is a practical one. The shadow Chancellor has long experience of involvement in policy matters and Budget matters. He will also have read the letter from Robert Chote of 15 January 2014 setting out the process. It involves a “preliminary ‘scorecard’ of measures”, and there is a detailed costing to note. It is an “iterative” process and during it, policies are refined and in some cases significantly amended. The important point is that this is
“a time consuming and resource intensive exercise, both for the OBR and for the analysts in the responsible departments”—
the likes of Her Majesty’s Revenue and Customs, and the Department for Work and Pensions. This is not a minor change. It is not about recruiting just a few more OBR staff; it is a fundamental change in the way the civil service operates with the Opposition.
The question we have to ask ourselves is why Labour is proposing this. As some Members made clear today, it is essentially about Labour’s lack of credibility on the economy. As Lord Prescott has said, Labour gets “smashed on the economy”. As the Leader of the Opposition’s former speech writer said, he fell out with the shadow Chancellor because
“Labour’s economic policy is nonsense.”
And as the shadow Chancellor’s old friend Charles Clarke has said:
“We rested a great deal on assuming…that plan A would not work, and that proved to be an unwise judgement.”
Ed Balls
The head of the OBR told the Treasury Committee in March that if this was agreed in a cross-party way by early summer, by which he meant the end of June, we could proceed. If the head of the OBR is willing to proceed and there is agreement today, why will the Government not agree?
Mr Gauke
The head of the OBR also made it clear that there were risks involved, and that those advocating this step would find it better not to rush into it, but to do it after the next election, and that is the position we take. This issue should be looked at again after the next election.
The reality is that Labour does not have economic credibility. It borrowed too much in the good times when it was in office, and opposed our measures to reduce the deficit in recent years. Only a year ago, the shadow Chancellor said:
“The problem with austerity is that it chokes off jobs and growth”.—[Official Report, 17 May 2012; Vol. 545, c. 717.]
Well, we are getting new jobs and we are getting the growth. The truth is that Labour is making a long list of unfunded spending pledges. Today the shadow Chancellor said, “We have been exemplary.” I could give him a long list to show that they have not. I will give Labour one answer: if they want to restore fiscal credibility, their first step—change their shadow Chancellor.
Question put (Standing Order No. 31(2)), That the original words stand part of the Question.
Wales Bill
David Gauke Excerpts(9 years, 10 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move, That the clause be read a Second time.
Mr Deputy Speaker (Mr Lindsay Hoyle)
With this it will be convenient to discuss the following:
Government amendment 1.
Amendment 9, in clause 9, page 13, line 33, leave out “10” and insert “100”.
This amendment would make the Welsh Government responsible for 100 per cent of income tax revenue gathered in Wales.
Amendment 10, in line 33, leave out “10” and insert “15”.
Government amendments 2, 3 and 4.
Amendment 11, in clause 28, page 30, line 20, after “except”, insert “sections 8 and 9”.
Amendment 12, in line 22, at end insert—
‘(2A) Sections 8 and 9 shall not come into force until a Welsh Government Minister has laid a report before the National Assembly for Wales containing a statement to the effect that the Welsh Government, with regard to the Statement of Funding Policy, is content with the fairness of the arrangements for allocating funding from the UK Government to Wales.
(2B) Sections 8 and 9 shall be suspended following any substantive reform, amendment or other alteration of the arrangements mentioned in subsection (2A), until the process under subsection (2A) has been repeated.”
Government amendment 5.
Mr Gauke
It is a pleasure to return to the Bill. I will start with new clause 1 and amendments 2 to 5. These are principally technical changes that, taken together, are intended to address two possible scenarios that could occur if a portion of income tax is devolved to the National Assembly for Wales following a referendum. The first issue relates to the tax status of an individual. This is directly relevant to the calculation of certain social security benefits, state pensions and child maintenance payments, and could be affected by the introduction of a Welsh rate of income tax.
An issue could arise where information regarding the tax status of an individual has not yet been established or is not available—for example, if a person has newly become self-employed and it is not yet clear what rate of tax will apply. The new clause resolves the issue by allowing the Secretary of State by order, subject to an affirmative resolution, to deem a person a Welsh taxpayer for the purposes of calculating their benefits.
The second issue relates to a situation where the Welsh rate of income tax has not been set for the coming year at the time when certain social security benefits need to be calculated. New section 116D of the Government of Wales Act 2006 requires the National Assembly to pass a Welsh rate resolution before the start of the tax year, but this could be set late in the preceding tax year, thus not allowing the Government sufficient time to make the calculations that need to be made. In such cases it would be important for the Secretary of State to be able to deem a Welsh rate. This mirrors the position in the Scotland Act 1998, which includes a similar power in respect of the Scottish rate of income tax. The Bill needs to provide for the same contingencies in respect of the Welsh rate.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
In Committee, there was some confusion as to whether Kay Swinburne, the Conservative Member of the European Parliament who represents Wales but lives in England, would be eligible for the Welsh tax rate. Can the Minister clarify that?
Mr Gauke
I fear that the hon. Gentleman may not recall that debate correctly. There is no confusion about the definition of a Welsh taxpayer. A Welsh taxpayer includes anybody who represents Wales or a Welsh constituency. I hope that repetition will provide some clarity for him, but the position was already clear.
Owen Smith (Pontypridd) (Lab)
The Minister is right: there is no confusion. He clarified the position in Committee. Does he agree, though, that the people of Wales might think it slightly peculiar that a Tory Member of the European Parliament who lives in England should be deemed a Welsh taxpayer?
Mr Gauke
All I can say is that Wales has a very good MEP in Kay Swinburne and I am delighted that she has been re-elected—[Interruption.] Indeed: by the people of Wales.
I return to the new clauses and amendments before us. However rare the circumstances that I set out a moment ago might be, the potential hardship that a delay in the calculation of entitlements would cause to individuals makes it essential that we make these amendments to cater for such circumstances.
Amendments 2 to 5 are consequential and relate primarily to the commencement of the new clause. As I said, these amendments are minor and technical, but they address an important set of circumstances that could have a serious impact on some of the most vulnerable in society. I urge all hon. Members to support them.
On Government amendment 1, clause 6 gives effect to the Silk Commission’s recommendation that the Welsh Government should be funded from a combination of a block grant and some devolved taxes, with the clause conferring the required competence on the Assembly to legislate for these devolved taxes. Amendment 1 slightly alters new section 116A of GOWA, inserted by clause 6, to correct the possibly misleading impression that those taxes listed in chapters 3 and 4 of part 4A are the only taxes for which the Assembly has competence. The Assembly already has competence for local taxation, which includes council tax and business rates, and this minor amendment clarifies the position.
On amendments 11 and 12, we have been working closely with the Welsh Government in relation to Welsh funding. In particular, the Government recognise that there has been convergence between the levels of funding in Wales and England since devolution, and that this is a significant concern in Wales. As a result, in October 2012 we agreed to implement a joint process to review the levels of funding in Wales and England in advance of each spending review. If convergence is forecast to occur during a spending review period, options will be discussed to address the issue in a fair and affordable manner, based on a shared understanding of all the available evidence.
In advance of the 2013 spending round, a joint review was therefore undertaken by the two Governments and the outcome set out in a written ministerial statement. The review determined that funding levels are not expected to converge during the period to 2015-16. In fact, an element of divergence is forecast to occur. The review also determined that relative funding levels in Wales are within the range recommended by the Holtham Commission. These arrangements ensure that we have a shared understanding of funding levels in Wales, and that a process is in place to consider options if convergence is forecast to resume. There is therefore a firm basis for proceeding with the new financial powers in the Bill, and I hope that when the opportunity arises, hon. Members will withdraw amendments 11 and 12, but I look forward to hearing them make their case.
I turn now to amendments 9 and 10. When it comes to the extent of income tax devolution in Wales, there is a careful judgment to make. Devolving an element of income tax would increase the financial accountability of the Assembly and the Welsh Government in three important ways. First, it would enable the Assembly to fund more of the spending for which it is responsible. Secondly, the Welsh Government’s budget would be directly linked to their economic decisions in areas such as education, skills, housing and planning. Thirdly, the Welsh Government would be able to vary the levels of tax and spending in Wales. However, creating the link between the Welsh Government’s decisions and their budget involves transferring some risk to the Welsh Government. Specifically, the Welsh Government’s budget would benefit if the income tax base grew faster in Wales than the UK average, but would be adversely affected if growth in Wales was slower.
The larger the proportion of income tax we devolve, the greater the potential impact on the Welsh Government’s budget. Devolving 15p of income tax would increase the size of these impacts by 50%, compared to devolving 10p. Devolving all income tax to Wales, which is the stated aim of amendment 9, would increase the potential impacts even further.
Jonathan Edwards
In the light of what the Minister has just said, why has the Prime Minister made a manifesto pledge, should there be a no vote in Scotland, to devolve 100% in the case of Scotland?
Mr Gauke
No, my right hon. Friend the Prime Minister has not made a manifesto pledge. The Strathclyde Commission has put forward recommendations, which will be considered in due course by my party for the next Parliament. I should point out with regard to the amendment tabled by the hon. Gentleman and his colleagues, which suggests replacing 10 percentage points with 100, that the effect would be to produce negative tax rates—a minus 60% tax, a minus 55% tax and a minus 80% tax. I am not sure that that was quite what the hon. Gentleman sought to do, but I appreciate that he was trying to devolve all income tax to Wales. I take the opportunity to point out that there is a technical problem with amendment 9.
There is a balance to be struck between risks and rewards. At this stage we see no evidence that suggests we should move away from the Silk Commission’s recommendation to devolve l0p of income tax.
Wayne David (Caerphilly) (Lab)
Will the Minister give the House an assurance that what the Government propose today has the full support of all the Conservative Members of the Welsh Assembly?
Mr Gauke
It is for this Parliament to determine what we should put in place in the Bill. We believe that our proposals strike the right balance. We support the powers. In the time that I have been involved with the Bill, it has not yet been made clear to me whether the hon. Gentleman’s party supports or opposes these measures, but perhaps we will find out today. This Government believe that the powers should be in place and that there should be an option, following a referendum, for devolution of an element of income tax to the Welsh Government. I hope, therefore, that hon. Members will accept the balance contained in the Bill and recommended by the Silk Commission, and that they will withdraw amendments 9 and 10.
Owen Smith
I suspect that that reveals why the Secretary of State cannot speak to his own Bill and instead relies on the Exchequer Secretary. The Secretary of State will know, of course, that irrespective of whether there is a referendum in future, the volume of income tax powers to be extended to Wales has a direct link to the amount of borrowing, because the Government have chosen to introduce a different rationale for affording Wales borrowing powers from that which they used for Scotland. The Scotland Act 1998 draws a connection between the amount of capital expenditure—the budget for capital—and the amount of borrowing. In this Bill, for some reason, the Government have chosen to pursue a different rationale, whereby the ratio of borrowing is to be equal to the ratio of income tax devolution. It is very important that the Government consider amendment 10, because it would increase the volume of income tax that could potentially be exercised by the Welsh Government, and should therefore, under the logic employed by the Government, increase the amount of borrowing above the £500 million that is currently envisaged.
Mr Gauke
In moving on to borrowing, the shadow Secretary of State is finding whole new areas in which he is confusing the House. Does he not appreciate that there is a link between the revenue streams that the Welsh Government will have independently, including income tax, and the maximum borrowing levels that they will have? If an element of income tax is devolved, the borrowing cap will be higher than if it is not devolved. Does he understand that, and, if so, will he attempt to reconcile it with his earlier comments?
Owen Smith
I will forgive the Exchequer Secretary’s slightly patronising tone and simply say that I absolutely understand it. Perhaps he has not understood my point. Why does this Bill draw a causal connection between the quantum of income tax and other taxes to be devolved to Wales on the one hand, and the amount of borrowing that can be afforded to the Welsh Government on the other, when that rationale was not employed explicitly in the Scotland Act? Would he like to come to the Dispatch Box and tell us why that is different? Obviously there is no explanation—none whatsoever. Clearly, the Government have chosen to employ a totally different rationale in order to justify the lower level of borrowing that they will give to the Welsh.
The shift from 10p to 15p would not only increase the amount of borrowing that Carwyn Jones’ Government could undertake to fill the £1.6 billion gap left by this Government, but afford greater symmetry between what Labour is proposing in Scotland and what we are proposing in Wales. That shift is another positive thing about the Bill, although it will be superseded by the next Labour Government introducing even greater tax devolution in Scotland.
Jonathan Edwards
I am grateful to the hon. Gentleman for that second attempt, but I think I answered his question when he first intervened on me.
It is interesting that Labour Front Benchers have only now tabled amendments to the Bill to give Wales control over 15% of income tax revenue gathered in Wales. That proposal is in amendment 10. Admittedly it is better than the 10% on offer in the Bill as it stands, but it is still meagre and shows a lack of ambition and vision for Wales. That is symptomatic of the Labour Government in Cardiff and their puppet-masters here in Westminster. Of course, 15% is better than 10% and we shall be supporting the amendment if it is pressed to a vote, especially as it does not include the lockstep-plus mechanism I referred to in Committee. However, it still reflects Labour’s lack of dynamism. Why only 15%? That figure seems to have been chosen simply because it is ever so slightly better than the Tory and Lib Dem offering.
I see that Labour’s other amendments are more concerned with delay, obfuscation and preserving its own positions than with trying to get the best deal for Wales and its economy. On the vote in Committee to remove the lockstep restriction, Labour abstained, despite the Labour First Minister and Finance Minister having said that it should be removed. Where is Labour’s consistency? Again Labour Members say one thing in Wales and do another at Westminster. They are now saying that Wales should have control over 15% of income tax revenue, yet their amendment says nothing about the removal of the lockstep.
When the Westminster Government announced in November last year that Wales would be getting new powers, they stated that the powers would make Wales an “equal partner” in the UK. Nothing could be further from the truth. The Secretary of State for Wales has previously argued that Wales must be given “equal respect with Scotland”, yet his actions run completely against that. His party is effectively offering Scotland full income tax devolution, yet he is maintaining the lockstep in the Bill for Wales and proposing that we should have control of only 10% of the income tax revenues raised in our country.
In conclusion, I want the same powers for Wales as the other nations of the British state either have or are being offered. If the main party of Government here at Westminster has full income tax devolution for Scotland as its party policy, why on earth should Wales not have those same powers? The changing context of the Scottish independence referendum debate vindicates what I have said all along—namely, that its rapid development will ensure that the powers on offer in the Bill will not be the settlement for a generation that the Government are suggesting.
The Welsh economy needs those powers now, never mind in three years’ time—the earliest point at which they would come on stream. Ultimately, the powers on offer in the Bill pale into insignificance in the context of how the constitution of the British state will alter in the coming years. That should be noted by this Government and all the parties, and we should begin with full devolution of income tax, so that the Welsh Government can determine their own bands and rates.
Mr Gauke
I shall briefly respond to a number of the points raised in the debate. The first related to the cost of implementing the Welsh rate of income tax. HMRC is looking to develop a specific estimate for that cost but, because the timing of the introduction of a Welsh rate is uncertain and because it would depend on the outcome of a referendum in Wales, it is difficult to do so at this time.
I want to make two comments in regard to the comparisons with Scotland. First, the Scottish population is obviously larger than the Welsh population, so that will reduce some of the costs. Secondly, however, a counteracting element is that the number of people living close to the border might result in an increase in the number of people contacting HMRC to seek clarification. The hon. Member for Pontypridd (Owen Smith) mentioned the concern about the number of people working in Wales but living in England, and vice versa. We must remember that the definition of a Welsh taxpayer is based on where they live, not where they work. For the vast majority of people, it will be clear where they are, so we should not overstate those costs. As I have said, however, it is difficult to come up with a precise number at this point.
On the Strathclyde commission, I have made it clear that that will relate to what happens in the next Parliament. We certainly welcome Lord Strathclyde’s recommendations; there is much to take from them.
Jonathan Edwards
Given the comments of the Prime Minister and, especially, of the leader of the Conservative party in Scotland, does the Minister think that Ruth Davidson was being rather exuberant—for want of a better word—in proclaiming that those measures would definitely be in the manifesto?
Mr Gauke
I would say to the hon. Gentleman that what the Prime Minister says will be in the manifesto tends to be in the manifesto. That is a fairly wise approach.
The Opposition have set out their views and I think we have finally got some clarity. I think that Labour’s position is that we should not devolve any element of income tax to Wales, but that devolving 10p is not high enough and it should be 15p. In other words, it is saying that 15p is better than 10p, but nothing is better than anything. Labour also supports the Bill because it wants the Welsh Government to have access to borrowing powers that come as a consequence of having independent revenue streams, but it does not support the Welsh Government having access to the biggest independent revenue stream that might be available, which is income tax. I hope I have characterised Labour’s position correctly. It is simultaneously both for and against, on at least two different grounds.
With those points of clarification, I hope that the Government new clause and amendments will be accepted and that the Opposition amendments will not be pressed to a Division.
Question put and agreed to.
New clause 1 accordingly read a Second time, and added to the Bill.
New Clause 2
Infrastructure guarantees in Wales
‘Her Majesty may by Order in Council provide for the transfer of responsibility for providing infrastructure guarantees in Wales to the Welsh Ministers.’—(Jonathan Edwards.)
Brought up, and read the First time.
Oral Answers to Questions
David Gauke Excerpts(9 years, 10 months ago)
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Dr Julian Huppert (Cambridge) (LD)
5. What steps he is taking to ensure that people pay the taxes for which they are liable.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Since 2010, the Government have been determined to support HMRC in improving overall compliance levels, tackling tax avoidance, evasion and fraud, and punishing those who break the rules. Overall we are investing about £1 billion in HMRC’s compliance activities, and HMRC achieved record levels of compliance revenues last year, securing £23.9 billion.
Dr Huppert
It is a huge frustration to people to see wealthy individuals and large companies avoid paying the taxes that they ought to be paying. I thank the Minister for his comments, but will he go further to make sure that our rules are fit for purpose? Will he tackle, for example, transfer pricing, and ensure that there is an international agreement that benefits Britain and means that people pay the correct amount of tax in this country?
Mr Gauke
As the Chancellor made clear a moment ago, it is right that we address these issues, and that we do so at an international level. The Organisation for Economic Co-operation and Development’s important work on base erosion and profit shifting is a consequence of the leadership shown by the Prime Minister and the Chancellor, and we hope that we will see the fruits of that progress beginning this autumn.
Shabana Mahmood (Birmingham, Ladywood) (Lab)
With the amount of uncollected tax rising, the Swiss deal raising less than a third of what the Chancellor predicted and Ministers refusing to close the eurobonds loophole, is not the truth that the Government are totally failing to tackle tax avoidance and to close the tax gap?
Mr Gauke
No, it is not the truth. The truth is that there are record levels of compliance yield, as I mentioned: £23.9 billion as a consequence of HMRC’s activity. The UK is leading the way in international reform. There has never been a Government so committed to, nor a revenue authority so successful in, closing loopholes, getting the tax in and making sure that people pay what is required under the law.
Shabana Mahmood
While the Minister fails to tackle tax avoidance, overseas buyers are snapping up property in London but not making a proper tax contribution in this country. Is it not time that the Government introduced a fair tax on properties worth more than £2 million, and used the money to cut taxes for 24 million working people, with a lower 10p starting rate of income tax?
Mr Gauke
If the hon. Lady wants to cut taxes for 24 million people, she might want to consider increasing a personal allowance to £10,500, which is exactly what the Government have done, rather than doubling the 10p rate of income tax as the previous Government did. As for taxes on property, it was this Government who introduced the annual tax on envelope dwellings, ensuring that there is a contribution to the Revenue from owners and occupiers of properties held in a corporate envelope. Again, I really do not think that on this issue the Labour party has a leg to stand on.
Nick de Bois (Enfield North) (Con)
6. What recent assessment he has made of the effectiveness of his long-term economic plan.
Ian Lucas (Wrexham) (Lab)
9. What steps he is taking to promote private sector investment in the construction industry.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government published the Construction 2025 industrial strategy in July last year, setting out a clear vision of how the Government will work with the industry to maximise the opportunities for growth. The Construction Leadership Council, chaired by my right hon. Friend the Business Secretary and Sir David Higgins, is overseeing delivery of that strategy. In addition, efforts to drive improved delivery are being co-ordinated through Infrastructure UK’s cost review programme.
Ian Lucas
But Wrexham construction companies continue to tell me that banks fail to offer loans to support house building projects. Non-financial private sector investment has fallen from £43 billion in 2008 to £14 billion in 2013. Is this not just another aspect of the failure of the Chancellor’s short-term economic scam?
Mr Gauke
As a Government we are trying to do everything we can to help the construction industry, whether that is through the beneficial effect of Help to Buy, the local infrastructure fund, or the changes to planning. It is worth pointing out that construction output, according to the Office for National Statistics, is 4.6% up from where it was 12 months ago. The purchasing managers index also shows significant increases in construction. We are moving in the right direction.
Nadhim Zahawi (Stratford-on-Avon) (Con)
The construction industry has benefited from the business-friendly policies of this Government. Does my hon. Friend agree with my constituent, the former Trade Minister, Lord Digby Jones, when he says that the Leader of the Opposition is the “least business-friendly” leader of any political party in years?
Mr Speaker
On the subject of private sector investment in the construction industry, rather than the characteristics of an individual, a brief reply, Minister Gauke. We are grateful.
Mr Geoffrey Robinson (Coventry North West) (Lab)
But 2025 is a long way away for a plan. Is the Minister not aware that on this Government’s watch infrastructure output in the whole economy, public and private, is 13% down? Is it not about time they got their finger out and did something about it?
Mr Gauke
I am not sure whether the hon. Gentleman is criticising the long-term approach of our economic plan, but it is important that we think about the long term. Infrastructure spending, both private and public, will on average be higher in this Parliament than it was in the previous Parliament.
Andrew Selous (South West Bedfordshire) (Con)
Is the Exchequer Secretary aware that a partnership between the Government, Central Bedfordshire council and developers is leading to the construction of 5,200 houses north of Houghton Regis and the provision of a bypass, for which we have waited 60 years, as a result of a £45 million contribution from the developers? Is not that the way to get construction going?
Nick Smith (Blaenau Gwent) (Lab)
11. What recent assessment he has made of the difference between the rate of inflation and the rate of growth in average earnings since May 2010.
The Exchequer Secretary to the Treasury (Mr David Gauke)
Times have been tough for hard-working people. As Paul Johnson of the Institute for Fiscal Studies said on 6 December:
“There have been very significant falls in real earnings as a direct but delayed result of the 2008 recession, essentially.”
As the Bank of England and the IFS have said, the best way to support living standards is to improve productivity and by sticking to the Government’s long-term plan to build a stronger economy.
Nick Smith
Real wages have fallen in Blaenau Gwent, partly due to poor access to labour markets. What progress is being made to speed up rail electrification for the valleys, which would boost earnings? The Chief Secretary said that he would look into the matter six months ago. What has happened?
Mr Gauke
There is an agreement with the Welsh Government on that, but as I said a moment ago, this Government have an infrastructure plan. Up and down the country progress is being made to improve our transport infrastructure. That is part of our long-term economic plan. The hon. Gentleman will also be aware that in his constituency the number of jobseeker’s allowance claimants is down 20% over the past year.
George Freeman (Mid Norfolk) (Con)
Does the Minister agree that all the evidence suggests that the biggest impact on the rate of earnings is the competitiveness and productivity of industry? Does he also agree that the single biggest threat to increases in average earnings is Labour’s plan for a stealth corporation tax and a jobs tax?
Sheila Gilmore (Edinburgh East) (Lab)
13. What plans he has to review the effects of the Help to Buy scheme.
John Cryer (Leyton and Wanstead) (Lab)
The number of tax compliance inspections of companies by Her Majesty’s Revenue and Customs is falling, rather than rising. Why is that the case?
The Exchequer Secretary to the Treasury (Mr David Gauke)
HMRC is increasingly successful in bringing in its yield. It has to develop the most effective ways of working, and if it can find more efficient ways of doing so, that is fine. The important point is that HMRC is bringing in more money than it has ever done before.
Angie Bray (Ealing Central and Acton) (Con)
The Chancellor of the Exchequer will recall that we met a group of McDonald’s apprentices and an Ealing McDonald’s franchise owner, Atul Pathak, last week to celebrate the announcement by McDonald’s of 8,000 new apprenticeships across the UK. Does my right hon. Friend agree that the Government’s initiative on supporting apprenticeships has been one of our great success stories—good for the economy and good for youth unemployment?
Wales Bill
David Gauke Excerpts(10 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
The hon. Gentleman said a moment ago that he did not believe that Wales should undercut England. In other words, he does not believe that Wales should have a lower level of income tax than England. Does he also believe that Wales should not have a higher level of income tax than England?
Owen Smith
No. That is why I said what I said and why we have tabled amendment 40. In the event of further cuts by a Tory Government to the taxes of the wealthiest people in Wales and England, we would afford the Welsh people the ability to set a more progressive rate and to reintroduce the 50p rate in Wales, just as we propose to do across the rest of the UK.
We are, of course, discussing a hypothetical point to an extent, because in the event of there being a Labour Government in Westminster—which is the only way Wales would enjoy these additional powers, unless the Secretary of State intends to amend the Bill—we would reintroduce the 50p rate right across the UK. The issue would then be a moot point in Wales.
Mr Gauke
This might be a hypothetical point, but it is interesting and revealing that, while the shadow Secretary of State is ruling out ever using income tax powers in Wales to reduce taxes, he is certainly not ruling out using them to increase taxes. As he is well aware, under the powers in the Bill, if he increased taxes at the additional rate, he would also increase the basic rate.
Owen Smith
Indeed. That should come as no surprise to anyone. The Exchequer Secretary, in his rather tortuous remarks, is attempting to put words into my mouth. I said in my speech in Llandudno—I say it again today—that in the event of a Labour Government in Westminster, we would afford the Welsh people the ability to put up the top rate of tax and reinstate the 50p rate in Wales. That is very simple.
Owen Smith
I will give way in a moment. We are not talking about increasing the basic rate or the top rate; we are talking about increasing the additional rate of tax. [Interruption.] No, it is called the additional rate.
Owen Smith
From a sedentary position, the Exchequer Secretary draws a distinction between the higher rate and the top rate. I fully accept that what I mean is the higher rate, by which I mean the 40% rate, as opposed to the additional rate of 45%.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Sir Roger, and to respond to the debate.
Part 2 of the Bill introduces a provision to devolve taxes to the Welsh Assembly. Clause 6 introduces a new part 4 to the Government of Wales Act 2006 and confers the required competence on the Assembly to legislate on devolved taxes, including their collection and management. Clause 6 also allows for further taxes to be devolved to the Assembly via an Order in Council and makes it clear that officials working in any body set up by the Assembly to administer the devolved taxes can be designated as civil servants if the Assembly so chooses. This applies whether the body only collects and manages devolved taxes, or is additionally responsible for the existing devolved subject of local government finance, including council tax and business rates.
Clause 7 makes amendments to the commissioners for revenue and customs Acts to allow Her Majesty’s Revenue and Customs to administer devolved taxes on behalf of the Assembly. The clause also amends HMRC’s information powers to allow it to share information with the Welsh Government in relation to devolved taxes.
Clauses 14 to 16 and schedule 2 provide for a devolved tax to replace stamp duty land tax on land transactions in Wales, in line with the recommendation of the Silk commission. Clauses 17 and 18 provide for a devolved tax to replace the existing tax on disposals of waste to landfill sites in Wales, again as recommended by the Silk commission.
Let me address Government amendment 20. In devolving tax powers, our intention is that the Assembly should have a free hand in choosing how it wants its devolved taxes to be administered and by whom. We do, however, recognise that HMRC has many years—indeed, if one includes its predecessor organisations many centuries—of experience in administering taxes within the UK, so we want the Assembly to be able to use HMRC’s services for these purposes if it wishes to do so. The proposed legislation in clause 7 provides for this.
As set out in the Command Paper, though, we believe that this should be on the basis of mutual agreement. The Assembly should not be compelled to use HMRC to administer its devolved taxes, but neither should the commissioners for HMRC be compelled to take on this role. At present, the 2006 Act would allow an Act of the Assembly to modify an existing function of HMRC or confer a new function on HMRC without the consent of the UK Government.
Amendment 20, therefore, amends parts 2 and 3 of schedule 7 to the 2006 Act to make it clear that the Assembly can only confer functions on HMRC and, once conferred, modify those functions if they relate to a devolved tax and the Treasury consents to it. The amendment ensures that the Assembly has the option of using HMRC to administer its devolved taxes, but puts appropriate safeguards in place for the UK Government in recognition of the vital role HMRC plays in collecting tax throughout the UK. I therefore hope that hon. Members will support the amendment.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Will the Minister give us any idea of how long he expects the process of seeking the Treasury’s consent to take, and how long it will be before the Welsh Government can use whatever powers it decides to confer?
Mr Gauke
All I can say at this stage is that we would consider any such request in good faith. We want to work in a constructive manner, and I believe that the UK Government have a record of doing that when dealing with the Welsh Government. Our amendment certainly does not constitute an attempt to delay matters. The Assembly has the option of using HMRC, but it is not compelled to do so. We think it reasonable, if the Welsh Government wish to use HMRC, for its commissioners and the UK Government to make a proper assessment of the overall impact on the UK.
Jonathan Evans (Cardiff North) (Con)
I hear what my hon. Friend says about the use of HMRC, but I think that my constituents would be keen to know whether the tax office in Llanishen in Cardiff in my constituency is likely to be the location where its work is done.
Mr Gauke
I am sure that my hon. Friend is right. As I have said, our intention is to work constructively. It will be for the Assembly to choose whether to make use of HMRC’s expertise, which is obviously considerable, but should it wish to do so, I think it reasonable for the UK Government to reserve the right to ensure that no demands are placed on HMRC that could disrupt the important work that it does throughout the United Kingdom, including in Wales.
Amendment 40, tabled by the hon. Member for Pontypridd (Owen Smith), seeks to place a duty on the Chancellor of the Exchequer to review
“the benefits of symmetry in the devolution of taxes between Wales and Scotland”
whenever a tax is devolved to either. It requires the Government to assess whether a tax that is being devolved to Wales should also be devolved to Scotland, and vice versa. I understand the intention of the amendment, but it fails to take into account the fact that key principles of tax devolution already exist. The UK Government have adhered to those principles, and we would expect future Governments to do so. They state that any changes should be evidence-based, and should be considered in a UK context. An assessment of the UK context would include an assessment of whether symmetry with the other devolved Administrations was desirable.
The amendment seeks to impose an unnecessary statutory basis on a process that the Government would undertake as a matter of course when considering the case for devolving further taxes to either Scotland or Wales. It could, indeed, lengthen the process of devolving new taxes in the future by placing a superfluous statutory requirement on the Government. I do not believe that it is necessary, or would improve the procedure for adding new taxes that is set out in the Bill. It may well be that the hon. Gentleman simply wants to probe Ministers to establish whether this or a future Government would take the issue of symmetry into account, but I do not find the argument for a statutory basis persuasive.
Owen Smith
We are indeed keen to ensure that the Chancellor has a statutory obligation to consider the benefits of symmetry across the piece on a statutory footing, but let me take up the Minister’s reference to the need for an evidence base to support taxation policy. Does he agree that it would have been wise of the Treasury to undertake some form of detailed behavioural analysis of the impact of tax competition in respect of income tax, or indeed any analysis of the impact that stamp duty land tax or landfill tax might have on behaviour?
Mr Gauke
I shall deal with stamp duty land tax and landfill tax later in my speech. As for income tax, I am tempted to explain to the hon. Gentleman yet again about the lockstep attributes of our reforms. He has expressed concern about tax competition, but it seems to me from his earlier remarks that he does not believe in it, and that, if he had a chance to seek greater tax competitiveness for any part of the United Kingdom, including Wales, he would not do so. Indeed, he seems to be advocating a policy of “tax uncompetitiveness” for Wales. However, I must not detain the Committee too long on that subject.
Wayne David
I realise that the Minister wants to make progress, and I know that he has rejected the suggestion that there should be an analysis of what might happen as a consequence of the Bill, but it would be helpful to have a clear articulation of the Government’s position on tax competition. Does he want tax competition, yes or no?
Mr Gauke
What we want is greater devolution in terms of income tax. When we debated the subject last week, I explained in some detail why we thought that it was a good thing, primarily because it would increase the accountability of the Welsh Government to the Welsh people, which I would expect Members in all parts of the Committee to want.
Amendments 32 and 33 were tabled by members of Plaid Cymru. Clause 6 introduces an important new power to devolve further tax powers to the Assembly via an Order in Council. The power has a broad scope, and can apply to brand-new taxes and to existing UK-wide taxes. The clause sets out the process for making such an order, which would need to be approved by both the House of Commons and the other place, as well as by the Assembly. Amendment 33 would remove Parliament from the process, so that the order would need to be passed only by the Assembly.
We recognise that it is important to give the Assembly and the Welsh Government the economic levers that are needed to generate growth in the Welsh economy, including the ability to introduce new taxes. We also recognise that—although this would depend on the proposal under consideration—if we are to proceed in a timely manner, it would be advantageous to be able to devolve further taxes without requiring primary legislation. However, a balance needs to be struck. Tax devolution should not be at the expense of reducing the overall tax receipts or competitiveness of the United Kingdom as a whole.
That last point is particularly important. As we stated in the Command Paper that accompanied the Bill, we would assess any proposals for further tax devolution against a number of criteria. For example, we would consider whether any new tax would affect the UK’s wider economic policy, impose disproportionate burdens on businesses or individuals, or create new tax avoidance opportunities. In short, the criteria would ensure that any new tax would not be to the detriment of the UK as a whole.
It is important for the devolution of further tax powers to take place in the constructive and collaborative manner that led to the Bill. It is therefore right for the resulting legislative process similarly to involve both the Assembly and Parliament, so that the proposal can be considered from the perspectives of both Wales and the wider UK. It would not be right for either to be able to legislate to devolve further taxes without the agreement of the other.
Owen Smith
I am grateful to the Minister for giving way to me for the second time. He said a moment ago that the Treasury would be concerned if any reductions in taxes in Wales led to reduced receipts for the Exchequer. Does he not agree with the Secretary of State that a Conservative Government in Wales should cut taxes, or does he think that that would necessarily always lead to higher receipts?
Mr Gauke
That is a matter for the devolved Administration, but the design of the income tax powers is such that we believe that we are striking the right balance.
Amendment 32 seeks to extend the power to tax credits. I know there was a little debate earlier as to whether this was about extending powers over the social security system as such, which is not the intention behind amendment 32. That was made clear by the hon. Member for Arfon (Hywel Williams).
Paul Murphy
That is good to hear.
I come back to the issue of how this has been calculated. I was Finance Minister in Northern Ireland, where there is a stream of income from the rates. The household and the business rates go to the Northern Ireland Executive. But I do not believe that the way in which the borrowing powers were calculated for the Northern Ireland Executive were based on the fact that they had an income from rates. I certainly do not believe that the Scotland Act, which allowed Scottish Ministers to borrow 10% of the Scottish capital budget in order to fund additional capital projects, had anything at all to do with funding streams. I am not saying that funding streams are unimportant, but why should Scotland and Northern Ireland have separate calculations in order to determine what they can have, while Wales has to go by a different methodology? That is wrong. It is unfair. There should be fairness and equality in determining the capital budgets for Wales, Scotland and Northern Ireland.
The reason is probably that these things were done over a period of years in different ways. But it is not done with any consistency based on revenue streams. I wish that the Government could rethink that. Amendments have not been tabled because the Opposition support the issue of borrowing. The First Minister and other Ministers in Wales have been saying for at least two to three years now that to have borrowing and to increase their capital spending was the single most important thing they wanted. We welcome that, but we question the method by which the £500 million has been arrived at.
Mr Gauke
It is a pleasure to respond to the debate, and I thank all right hon. and hon. Members for their contributions. Clause 19 amends the Government of Wales Act 2006 to extend existing borrowing powers in relation to current spending and give Welsh Ministers new capital borrowing powers, and clause 20 repeals the existing borrowing powers that the Welsh Government inherited from the Welsh Development Agency.
Amendments 5 and 34 relate to the capital borrowing limit set in clause 19. Through the Bill, Welsh Ministers will be given new capital borrowing powers that will enable them to borrow up to £500 million. A non-legislative annual limit of £125 million has also been agreed with the Welsh Government. The Government have been consistently clear that borrowing powers must be commensurate with the level of independent revenue that is available to support the costs of borrowing, and a capital borrowing limit of £500 million is substantial relative to the tax powers that are initially being devolved. As hon. Members have already pointed out, if the same ratio between revenue and the borrowing limit had applied in Wales as in Scotland, the overall capital borrowing limit for Wales would have been closer to £100 million. The limit has been increased to £500 million to enable the Welsh Government to start improvements to the M4, should they choose to do so, in advance of a referendum on income tax devolution, and I hope that that flexibility will have the support of Members on both sides of the House. The Government recognise that the £500 million will not be appropriate for ever, but we believe that the arrangements we are implementing provide a more robust mechanism for reviewing and changing the limit than would be the case under the amendments. Specifically, the Command Paper published alongside the Wales Bill sets out the review process that we will undertake at each spending review, and the Bill makes provision for the limit to be changed through secondary legislation.
The UK and Welsh Governments have previously agreed a joint process to review convergence between Welsh and English funding at each spending review. That process will now be extended to ensure that the capital borrowing limit remains appropriate.
The Command Paper committed to consider not only the impact of inflation, but the economic and fiscal circumstances at the time of each spending review and the size of the independent revenue stream available to the Welsh Government. That means we will be considering a much broader range of factors than proposed by amendment 5. For example, if an element of income tax is devolved in Wales, applying the same ratio as in Scotland could suggest an increased limit for Welsh Ministers of around £1 billion.
Following the joint review process, the Bill contains the power for the UK Government to set out a new limit through secondary legislation. Although we have legislated that the limit cannot be reduced below £500 million, legislating that the limit can only be increased in future is not the right answer and could have unintended consequences. For example, consider the scenario in which the UK and Welsh Governments agree that the borrowing limit should be increased substantially. Under our proposals, the limit could be increased accordingly and, if necessary, reduced in future if fiscal conditions deteriorate.
The problem with amendment 34 is that it would act as a disincentive for future UK Governments to agree to increase the limit when fiscal conditions allow, because they would know that the limit could never subsequently be reduced. The UK Government would understandably be cautious about ever increasing it. We do not think that that is the best outcome for Wales, as it might result in unintended consequences.
The Bill provides a capital borrowing limit of £500 million, robust arrangements for jointly considering the limit with the Welsh Government and the appropriate flexibility for changing the limit in future. I hope that the whole Committee can agree with that approach and urge right hon. and hon. Members not to press amendments 5 and 34.
Amendments 35 to 37 cover the sources of borrowing available to Welsh Ministers to fund capital investment and the related powers and responsibilities that should be devolved. As a result of the Bill, Welsh Ministers will be able to borrow from the national loans fund or from banks to fund additional capital investment. The national loans fund is almost certainly the cheapest way for them to borrow, while borrowing from banks provides flexibility.
However, in the Command Paper published alongside the Bill, the Government explained that if a case for Welsh bonds was made, we are willing to consider it. That remains our position. But it is right that the UK Parliament retains the competence over the sources of borrowing available to the Welsh Government so that the UK Government can properly execute their macro-economic responsibilities. For example, it should be for the UK Parliament, rather than the Welsh Assembly, to decide whether it is appropriate for there to be another entrant into the sterling bonds market. As is consistent with that, although we are providing Welsh Ministers with these important new borrowing powers, it is right that the Treasury retains sufficient control over aggregate levels of public borrowing. I hope that this further explanation of our position will allow hon. Members not to press their amendments.
Let me explain the changes we are making in relation to current borrowing. Welsh Ministers can already borrow for in-year cash management purposes. That enables them to borrow up to £500 million from the national loans fund to manage the flow of funding in and out of the Welsh Consolidated Fund while maintaining a working balance. Clause 19 extends those powers by additionally allowing Welsh Ministers to borrow across years to deal with differences between the full-year forecast and out-turn receipts for devolved taxes. A non-legislative limit of £200 million a year has been agreed with the Welsh Government, within the continuing £500 million overall limit.
Wales Bill
David Gauke Excerpts(10 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
I beg to move amendment 21, page 8, leave out line 23 and insert—
‘(1) Part 4A of GOWA 2006 (as inserted by section 6) is amended as follows.
(2) In section 116A(1) (overview), after “Part” insert “—
(a) Chapter 2 confers on the Assembly power to set a rate of income tax to be paid by Welsh taxpayers, and
(b) ”.
(3) After Chapter 1 insert—’.
This amendment and amendment 19 ensure that the overview provision in new section 116A(1) of GOWA 2006 relating to the Assembly power to set a rate of income tax can only come into force, like the other provisions relating to that power, following a yes vote in a referendum.
The Temporary Chair (Mr Christopher Chope)
With this it will be convenient to discuss the following:
Amendment 2, page 8, line 36, leave out ‘only’ and insert ‘more than’.
Amendment 3, page 8, line 36, leave out ‘only one rate’ and insert ‘up to three rates’.
This amendment is proposed to implement the recommendations of the Silk Commission that the Welsh Government have the power to set different rates of tax for different income bands.
Government amendments 22 to 28.
Amendment 16, page 12, line 34, after ‘Assembly’, insert
‘and each House of Parliament’.
Amendment 6, page 12, line 37, at end add—
‘(2) The Secretary of State shall review the impact on the Exchequer effects of the provisions in this section on residents who live within 50 miles of the Wales/England border and the impact on the prospects for tax competition within the UK, and place a copy of the review in the Library of the House of Commons.’.
Clause stand part.
Amendment 41, in clause 9, page 13, line 8, leave out ‘10’ and insert ‘15’.
Clause 9 stand part.
Amendment 1, in clause 11, page 16, line 20, leave out from ‘Wales’ to end and add
‘where a Welsh rate resolution specifies more than one rate of income tax.’.
Government amendment 19.
Amendment 38, in clause 28, page 29, line 34, after ‘except’, insert
‘sections 8 and 9 and’.
Amendment 39, page 29, line 36, at end insert—
‘(2A) Sections 8 and 9 shall not come into force until a Welsh Government Minister has laid a report before the National Assembly for Wales containing a statement to the effect that the Welsh Government, with regard to the Statement of Funding Policy, is content with the fairness of the arrangements for allocating funding from the UK Government to Wales.
(2B) Sections 8 and 9 shall be suspended following any substantive reform, amendment or other alteration of the arrangements mentioned in subsection (2A), until the process under subsection (2A) has been repeated.’.
Amendment 4, in title, line 3, leave out ‘a rate’ and insert ‘rates’.
Sir Greg Knight (East Yorkshire) (Con)
On a point of order, Mr Chope. If the four people who voted in favour of new clause 4 want to express an opinion on one side of the argument or the other later this evening, is there not a case that you should weigh the voices?
The Temporary Chair
That could be considered. I have always been keen that we should allow the minority to express their opinion in the Chamber without having it suppressed.
Mr Gauke
It is a great pleasure to serve under your chairmanship this evening, Mr Chope, and to set out the Government’s position on clauses 8 and 9 and the Government amendments. I will also take the opportunity to comment on the amendments tabled by others and will have the chance to debate taxation powers with the shadow Secretary of State for Wales, which I am sure will bring back many happy memories for him of serving on Finance Bills.
Subject to the outcome of a referendum, clause 8 amends the Government of Wales Act 2006 to introduce a Welsh rate of income tax to be paid by those defined as Welsh taxpayers. Clause 9 amends the Income Tax Act 2007 to set out how the Welsh rate of income tax determines the Welsh basic, higher and additional rates of income tax. It also defines the income that will be taxed at those rates.
I shall start with Government amendments 19 and 21. The income tax provisions in clause 8 form part of a new part 4A of the 2006 Act, which is introduced by clause 6. Part 4A’s introductory section includes a reference to the income tax provisions in chapter 2. The provisions in clause 6 will come into force two months after this Bill receives Royal Assent. However, the income tax provisions in clause 8 and 9 can of course be brought into force only following a yes vote in a referendum. Amendment 19 therefore removes the reference to chapter 2 from clause 6, and amendment 21 reinserts the reference into clause 8, bringing the commencement of the reference into line with the rest of the income tax provisions. That will ensure that the amended Act accurately reflects the legislative competence of the Assembly at a given point.
The provisions in clause 9 concerning the Welsh rate have been revised since the draft Bill. That necessitated changes to the power to allow for further consequential changes to be made under secondary legislation introduced by clause 8 in new section 116I of the 2006 Act to ensure that it continued to work as intended. Government amendments 22, 27 and 28 make further technical changes to that power in order to clarify that proposed new section 11B does not impose a charge to income tax. Rather, the effect of the new section 11B is to apply the Welsh rates of income tax to a Welsh taxpayer’s non-savings income.
On Government amendments 23 to 26, the power in new section 116I also allows an order to be made to ensure that HMRC can continue to operate the PAYE system effectively in the event that the Assembly passes a Welsh rate resolution at a late stage in the preceding tax year. Such an order would require employers to continue to operate PAYE on the basis of the information issued by HMRC, rather than the correct tax position for a specified period. The tax position of employees would ultimately be correct over the course of the tax year.
The scenario I have set out would also apply if, for whatever reason, the Assembly did not pass a rate-setting resolution at all, assuming that that had not previously been announced by the Welsh Government. Although I accept that that is unlikely to arise in practice, it is important to recognise that the Assembly has the option not to pass a rate if it so chooses. Amendments 23 to 26 therefore extend the order-making power to cover that scenario. I hope that hon. Members will support those amendments and Government amendments 19, 21, 27 and 28.
In amendment 41, I was pleased to see an amendment from the hon. Members for Pontypridd (Owen Smith) and for Llanelli (Nia Griffith) that supports the principle of income tax devolution, although I note that their latest approach would not provide Wales with quite the same outcome that they have now proposed for Scotland. None the less, it is progress. Although I confess to not having previously studied the issue very closely, I was not sure whether the Labour party opposed income tax devolution or thought that there was not enough of it. No doubt we will receive an explanation later.
Owen Smith
I am grateful to the Exchequer Secretary, and this of course brings back warm memories of time spent debating Finance Bills. He failed to mention our amendments 38 and 39—I presume he will do so in due course—which seek to give symmetry between Scotland and Wales in relation to tax powers. While I am on my feet, may I ask him to return to what he said earlier about Welsh taxpayers under this legislation? Will he confirm for the House that that would designate all MEPs in Wales as Welsh taxpayers, including Kay Swinburne, a Conservative, who does not live in Wales?
Mr Gauke
All Welsh MEPs will be Welsh taxpayers. I will deal with the amendments the hon. Gentleman mentions, although I do not think that they would achieve symmetry. I note that he was not very clear in responding to my point that only a little while ago he said that devolution of income tax to Wales was a Tory trap, or something of the sort. Now he proposes that devolving 10p is insufficient and that it should be 15p. I do not know whether he holds both views at the moment, or just one. I will certainly give way if he can provide some clarity on that point.
Owen Smith
Of course, they are entirely reconcilable, as I shall explain later. However, I did not hear an answer from the Exchequer Secretary on whether Kay Swinburne, the Conservative MEP for Wales, who still lives in Ledbury in England, would be designated as a Welsh taxpayer under the terms of the Bill. That strikes me as an extraordinary oversight by a Conservative Minister.
Mr Gauke
I will repeat what I said: Welsh MEPs will be Welsh taxpayers. I am not sure that I can be any clearer.
On the extent of income tax devolution, there is a careful judgment to be made. Devolving an element of income tax increases the financial accountability of the Assembly and the Welsh Government in three important ways. First, it will enable the Assembly to fund more of the spending for which it is responsible. Secondly, the Welsh Government will be able to vary the levels of tax and spending in Wales. Thirdly, while the Welsh Government currently control many key levers to generate economic growth in Wales such as education, skills, housing and planning, the resulting economic performance currently has no impact on their budget. Devolving an element of income tax will directly link the Welsh Government’s budget to their economic decisions.
Mr Hanson
What will happen to the people residing in England who, as the Minister’s hon. Friends have said, already use services in Wales such as the health service? Many people on the border who live in England use health and education services in Wales. Is it equitable that they do not pay the level of tax that might be levied by the Welsh Assembly in future?
Mr Gauke
As the right hon. Gentleman knows, the question of who is a Welsh taxpayer is dependent on who resides in Wales. I take it from what he says that he is opposed in principle to the devolution of income tax. He is nodding his head as if to say yes. He will be aware that his party has tabled an amendment suggesting that 15p, not 10p, should be devolved to the Welsh Government. I do not know how he reconciles his view with that of his Front Benchers.
Mr Hanson
I support my hon. Friends’ amendment to look at how this impacts across the board. The Exchequer Secretary must accept that there are people in Shrewsbury, Herefordshire and Worcestershire who use services in Wales. Would he support—I am not saying that I support this—a Welsh Assembly Government charging for services used in Wales and paid for by Welsh taxpayers but also used by English people who do not contribute to the Welsh tax burden for those services?
Mr Gauke
This is not about charging for public services. We have devolution of income tax in Scotland, where the issues that the right hon. Gentleman has mentioned may arise. I am surprised that, as a distinguished shadow Minister, he appears to be taking a position at odds with his own Front Benchers.
Owen Smith
There is absolutely no contradiction on our part. The Minister has come very late to the debate; I do not know why the Secretary of State does not feel able to answer these questions, but that is for him to respond to. We have said throughout that we have never thought that income tax devolution to Wales was a priority. We do not think there is a significant appetite for it in Wales, and we consider that it creates a Tory trap in two respects. The Conservative party is committed, in Wales and across the rest of the UK, to cutting taxes further for the wealthiest people. The Secretary of State has said that he wants to do that. He has further said that he favours tax competition, with Wales able to undercut England. We are not in favour of that. However, given that in the Bill the Secretary of State has drawn a clear line between the quantum of income tax that is nominally to be devolved to Wales and the amount of borrowing that will be afforded to the Welsh Government, and given that £1.7 billion has been cut out of the Welsh budget, particularly in capital, we are in favour of increasing the amount of money that they might borrow. Our 10p to 15p change would achieve that, if the Welsh people agreed to it in a referendum.
Mr Gauke
I am grateful for that lengthy speech. I may have come late to the debate, but it is perfectly clear that Labour has been all over the place on this matter. I come back to what I said about the advantages of devolving income tax. One of those, very significantly, is that there is much greater accountability for the Welsh Government, because if they are able effectively to use the powers that they currently have to get the Welsh economy to grow, they will benefit from that as a consequence of increased revenues.
Mr Harper
Perhaps I can help to answer the question asked by the right hon. Member for Delyn (Mr Hanson). First, my constituents who have to use the NHS in Wales do not want to, would love not to and would like to use the NHS in England. Working with the Secretary of State for Health, I hope we will be able to put that in place by the end of this year, as he has pledged in the House.
Secondly, all UK taxpayers make a contribution to the Exchequer, which supplies the block grant to Wales that, of course, part-funds public services. Given that we are talking about a partial devolution, there is still quite a lot of money coming from the block grant and any of my constituents who are using public services will, of course, have paid their fair share.
Geraint Davies
The Minister has made the case that, if the Welsh economy expands relative to the English economy, the new regime—the Welsh Exchequer, as it were—would gain. However, the corollary of that, of course, is that if the English economy grows faster than the Welsh economy as a result of the current Government generating growth through a London housing bubble, Wales will lose out. Why is the Minister putting only one half of the argument when this could in fact be a hidden trap?
Mr Gauke
One of the attributes of devolving an element of income tax is that it will ensure that the Welsh Government have the incentives to grow the economy as strongly as possible. I am rather surprised that the hon. Gentleman has so little faith in the Welsh Government that he does not want to encourage this opportunity and that he does not have the confidence that, by pursuing the right policies, the Welsh economy can grow significantly. I would have thought that that is what he wanted.
Geraint Davies
The Minister knows that investment and economic development in Wales would deliver jobs and that that would reduce social security costs and increase income tax. There is no proposition for social security to be devolved, so a lot of the benefits will be in England. What is more, with this new manifestation of the policy—this half-cocked version—there is a real danger that, if a London-centric recovery occurs, Wales will lose out.
The Temporary Chair (Mr Christopher Chope)
Order. Only one person can speak at a time.
Mr Gauke
I continue to touch a nerve with the hon. Gentleman. If tax receipts grow in Wales as a consequence of greater economic growth—after all, the Welsh Government have powers over education, skills, housing and planning—it will be to the advantage of Wales and the Welsh Government. I have no doubt that it is the desire of the Welsh Government to do the best for the Welsh economy. This is an opportunity to benefit from growth and increased tax receipts.
Owen Smith
I am grateful to the Minister for giving way; he is being very generous with his time. This is like all our yesterdays, in that we are debating, by implication at least, the Laffer curve. He said a moment ago that if Wales were to pursue the right policies, it would see economic growth by deploying these new powers. Does he mean by that that taxes in Wales should be cut, as the Secretary of State has said he would do? If so, which taxes does the Exchequer Secretary propose to cut and by how much?
Mr Gauke
That is a matter for the Welsh Government. They might want to pursue tax policies, but I repeat that policies on education, skills, housing and planning all contribute towards economic growth. The situation at the moment is that the Welsh Government control many of the key levers to generate economic growth, but do not currently benefit from any resulting economic performance through the impact on its budget. This devolution of tax will address that situation. Equally, to go back to the point made by the hon. Member for Swansea West (Geraint Davies), it means that if bad policies are pursued and they damage growth, that will have a consequence for the Welsh economy. I am sure that he is not suggesting that the Welsh Government will pursue growth-damaging policies.
Geraint Davies
Does the Minister accept that although some powers to effect economic performance are in Wales, the mass of powers are in this place in terms of the Exchequer, our relationship with the Bank of England and macro-economic policies across the United Kingdom? With the budget that it has, Wales alone cannot determine its economic future. To say so is simply misleading, and he should withdraw it. It is a disgrace.
Mr Gauke
The hon. Gentleman may say that the mass of powers are here, but we are talking about a relative test involving Wales versus the rest of the United Kingdom. United Kingdom policies apply across the United Kingdom; the specific policy of the Welsh Government may result in changes in growth in the economy and the impact of that on the budget.
The Temporary Chair (Mr Christopher Chope)
Order. The Minister is not giving way to the hon. Member for Swansea West (Geraint Davies). We must have some order. There are not many Members in the Chamber, but they seem to be making a mockery of the rules of order. I think that the Minister is giving way to the hon. Member for Pontypridd (Owen Smith).
Owen Smith
I merely wanted to ask whether, while talking about good and bad policies, the Minister would care to congratulate the Welsh Government on the good policy of Jobs Growth Wales. The policy has been seven times more effective than the Work programme in Wales, and has resulted in Wales having higher growth and, indeed, better unemployment figures than anywhere else in the UK.
Mr Gauke
It is worth pointing out that 12,000 new jobs, as I understand it, have been created under the Work programme in Wales, but I think that I should make a little progress, Mr Chope.
The change involves creating incentives for the Welsh Government, which of course means transferring some risks to them. Specifically, the Welsh Government’s budget will benefit if the income tax base grows faster in Wales than the UK average, but it will be adversely affected if growth in Wales is slower. Crucially, the larger the proportion of income tax that we devolve, the greater the potential impact on the Welsh Government’s budget. Devolving 15p of income tax would increase the size of the impacts by 50% compared with devolving 10p. There is a balance to be found between risks and rewards, and at this stage we see no evidence to suggest that we should move away from the Silk commission’s assessment, which resulted in the recommendation to devolve 10p of income tax. That recommendation is now reflected in the Bill.
Owen Smith
I aim to entertain and to scrutinise legislation properly. Simply on the question of risk, will the Exchequer Secretary tell us what risk the Welsh Government will bear in relation to the potential costs of the change? We know that it will cost between £40 million and £42 million to do it in Scotland. Will it be more or less for Wales? How much will it be?
Mr Gauke
At this point, it is not possible to say what the cost will be. I must say that, with the gain in greater accountability and the greater devolution of powers, hon. Members should welcome the change. The hon. Gentleman is aware that the issue is one for a future referendum. Whether the Welsh people want to go down such a route is a question for them, and such matters will clearly be relevant to that debate. However, on having a 10p rate rather than a 15p rate, I hear the arguments in favour of essentially no devolution whatsoever and those for having a larger sum, but we believe that we have got the balance right. I hope that hon. Members will accept the balance achieved by the Silk commission recommendation, and that the hon. Gentleman will not persist with amendment 41.
Mr Gauke
I am grateful to my hon. Friend because he takes me neatly on to the next line of my speech.
Amendments 1 to 4, which were tabled by Plaid Cymru, relate to the single Welsh rate of income tax—the so-called lockstep system. Fundamentally, income tax devolution must work within the integrated UK-wide income tax system. It must work for Wales by increasing the accountability of the Assembly and the Welsh Government, and it must work for the UK by maintaining the stability of the tax system.
Following a thorough and robust assessment of the Silk commission recommendations, we have determined that that would be most effectively achieved through a single Welsh rate of income tax that applied to all bands. There are two main reasons for that. First, the pooling and redistribution of tax revenues is a key feature of our fiscal model and ensures that wealth is shared among the regions and countries of the UK. The income tax structure is a key mechanism for achieving wealth redistribution. It is surely right, therefore, that UK-wide redistribution is decided at the UK level. The lockstep ensures that that will continue to be the case.
Secondly, although there are many benefits of tax devolution, it is not without risk. Specifically, we need to minimise the potential for harmful tax competition, increased opportunities for tax avoidance and evasion, and higher administrative burdens. It is therefore crucial that when we devolve taxes, we do so in a way that minimises those risks. In particular, the Government have consistently been clear that tax devolution should not benefit one part of the UK to the detriment of another. Tax devolution is not about moving economic activity from one area to another, but about empowering the devolved Administrations to generate additional growth and increasing their accountability by linking their budgets to their decisions. That incentivises the devolved Administrations and increases their accountability to the people, in this case in Wales.
Without the lockstep, the Welsh Government could substantially lower the rates of tax for the upper bands in Wales without making any change to the basic rate. That would be a considerable incentive for high earners to move across the border, which would benefit Wales, but would be to the detriment of the UK as a whole. Instead, the lockstep system will enable the Welsh Government to vary the levels of tax and spending in Wales, but the size of any differences will be unlikely to lead to tax competition. For example, they would be similar to the existing differences between the levels of council tax in neighbouring local authorities in Wales.
Devolving an element of income tax is therefore best achieved using the lockstep system. That will enable us to deliver substantial benefits to Wales, while continuing to redistribute wealth throughout the income tax system and minimise the risk of tax competition. I hope that I have helped hon. Members to understand our rationale for the lockstep system. I therefore ask them not to press amendments 1 to 4.
Jonathan Edwards
Does the hon. Gentleman not understand that he has contradicted himself? Indeed, the whole Wales Bill is contradictory. He is arguing that the powers are needed to incentivise the Welsh Government to develop economic growth, but he is placing a lockstep on those powers, making it impossible to use them. It is essentially a handcuff on those powers. There is a huge contradiction in what he is saying.
Mr Gauke
I do not accept that the powers are impossible to use. One can debate whether the rates should be varied, but the fact that there will be greater accountability will benefit Wales as a whole. We must balance the improvement in accountability in Wales with the difficulties that might arise with tax competition in the higher rates, which would be likely to damage the tax base in the UK as a whole. That is why we proceeded with a lockstep.
On amendment 6, tabled by the hon. Member for Pontypridd, I assure the Committee that the Government always consider the impacts of potential policy options and keep policies under review. An assessment of the potential impacts of devolving elements of income tax to the Welsh Assembly is summarised in the documents accompanying the introduction of the Wales Bill, in particular the Command Paper and the impact assessment. That assessment explains how the proposed system of income tax devolution achieves the key benefits identified by the Silk commission, increasing the accountability of the Assembly and Welsh Government and providing flexibility over the levels of tax and spending in Wales, while also minimising the risks of tax competition in the UK whereby significantly different tax rates could affect the behaviour of people living close to the border.
The Government’s assessment of the Silk commission’s proposals look closely at the potential for harmful tax competition in the UK, particularly given the populous border between England and Wales. As a result of that work, the Government rejected a system of three independent Welsh rates of income tax, instead proposing the lockstep system. As I have previously explained, that system specifically helps to minimise the risk of harmful tax competition in the UK. I hope hon. Members agree that the assessment we have undertaken is suitably robust, and that they are reassured by our commitment to keep the policy under review. Clause 22 requires the Government to report annually on the implementation and operation of the finance provisions of the Bill, so we will keep Parliament informed in that regard. On that basis I hope that hon. Members will not press amendment 6.
Amendment 16 was tabled by my hon. Friend the Member for Forest of Dean (Mr Harper) as recommended in the Silk commission’s report of November 2012, and clause 8 provides for the Comptroller and Auditor General to report directly to the National Assembly for Wales on HMRC’s administration of the Welsh rate of income tax. That will provide independent assurance to the Assembly on HMRC’s performance in administering this tax. The Comptroller and Auditor General currently reports to Parliament on HMRC’s administration of its business, including the operation of the UK’s income tax system. Should the Welsh rate of income tax be introduced, it will be operated as part of the UK income tax system. The NAO would therefore be able to report to Parliament in relation to the Welsh rate as part of its existing remit, and clause 8 ensures that reporting to the Welsh Assembly on the Welsh rate will additionally fall within the NAO’s remit.
Mr Harper
My hon. Friend will know from Second Reading that my concern is about companies based in my constituency that employ people, some of whom are resident in England and some in Wales, because there would be an administrative burden on those companies should there be a Welsh rate of income tax. I think the Minister has addressed this point, but will he confirm whether that burden—to the extent that it exists—will effectively be reported not just to the Welsh Assembly but also to this House? Members who represent English residents have a legitimate interest in how that complexity will hit local firms. If the Minister could be absolutely clear on that, there will be no need to press the amendment to a vote.
Mr Gauke
I am grateful to my hon. Friend for that point and I hope I can reassure him. There already exist mechanisms for scrutiny in relation to the Welsh rate by Parliament through existing vires. HMRC’s accounts would contain specific information on the Welsh rate, and they will continue to be laid before Parliament. Hon. Members will be presented with the levels of spending incurred by HMRC in administering the Welsh rate and the amounts of revenue collected. I believe that those existing channels provide an appropriate level of scrutiny for hon. Members in relation to the Welsh rate, and I hope that addresses my hon. Friend’s point.
I also think it right for additional insurance to be provided to the Assembly via the Comptroller and Auditor General’s report, and we anticipate that that report would be produced to a timetable similar to that of the wider report to Parliament on HMRC’s accounts. No doubt my hon. Friend will shortly contribute to the debate, but I have set out the existing mechanisms for scrutiny that will be available to Members of this Parliament, and I hope he is reassured.
On amendments 38 and 39, we have been working closely with the Welsh Government on Welsh funding. In particular, the Government recognise there has been convergence between the levels of funding in Wales and England since devolution, and that this is a significant concern in Wales. As a result, in October 2012 we agreed to implement a joint process to review the levels of funding in Wales and England in advance of the spending review. If convergence is forecast to occur over the course of the spending review period, options will be discussed to address the issue in a fair and affordable manner, based on a shared understanding of all the available evidence.
In advance of the 2013 spending round, a joint review was therefore undertaken by the two Governments and the outcome set out in a written ministerial statement. The review determined that funding levels are not expected to converge during the period to 2015-16, and in fact an element of divergence is forecast to occur. The review also determined that relative funding levels in Wales are within the range recommended by the Holtham commission.
These arrangements assure that we have a shared understanding of funding levels in Wales and a process is in place to consider options should convergence be forecast to resume. In no way would the devolution of income tax have any impact on these arrangements, and it is certainly not the case that income tax devolution would lock in the current level of funding. These arrangements therefore provide a firm basis for proceeding with the new financial powers in the Bill, and I hope that hon. Members will therefore not press amendments 38 and 39. I hope that my comments have been of assistance to the Committee, and that clauses 8 and 9 and the Government amendments will be added to the Bill this evening.
Jonathan Edwards
I wish to speak to amendments 1, 2, 3 and 4, in my name and the names of my colleagues in Plaid Cymru. We intend to press amendment 1 to a Division at the appropriate time.
The lockstep income tax power that is on offer in this Bill is not the one recommended by the Silk commission. We see two ways forward to preserve the integrity of the original Silk proposals. Either the lockstep income tax power should proceed without a referendum, which amendment 1 would achieve, or the Bill should be amended as per the Silk commission recommendation on income tax, which amendments 2, 3 and 4 seek to do, thereby restoring the need for a referendum, as Silk envisaged, on an income tax sharing arrangement without a lockstep.
I remind hon. Members that their parties, through their representatives on the commission, agreed to the Silk recommendations. Indeed, the Labour party’s representative on the commission was the esteemed former Assembly Member, Sue Essex, who is of course a former Finance Minister in the Welsh Government. The purpose of amendment 1 is to ensure that the referendum is on the ability of Wales to vary each income tax band individually, rather than the lockstep that is proposed in the Bill.
I believe that we should not have a referendum on these powers. The borrowing powers that will accompany the income tax powers would be essential to move the economy forward. Capacity will increase with the income tax powers. However, I accept the position of my party that a referendum should be held on the original Silk recommendations. In my view, the principle of fiscal devolution has already been conceded in this Bill—we will discuss the minor taxes next week—so the case for a referendum is not very strong.
Amendments 2, 3 and 4 would alter the Bill so that the lockstep is removed from the income tax power, giving Wales the ability to vary income tax band rates independently of each other, subject to a referendum, as per the original recommendation of the Silk commission. As the Bill stands, the lockstep on the ability to vary income tax in Wales means that all three bands can be moved up or down only in tandem, as is the case in Scotland. I hesitate to point out that those powers have never been used in Scotland, even though they have been available since devolution in 1999. Of course, the Silk recommendation was for the power to vary income tax band rates independently of each other. In reality the lockstep kills the ability to vary income tax at all, which strengthens the argument that I put to the Minister in an intervention—the lockstep hinders what the Government claim to be trying to achieve in the Bill, which is to incentivise the Welsh Government to develop their economy. Without the ability to introduce innovative income tax policy, how are they meant to achieve that?
Owen Smith
I entirely understand that point, absolutely, completely and utterly. I also understand that the leader of the Conservative party in Wales has placed on the record his desire to cut solely the top rate of tax—[Interruption.] The Secretary of State is muttering from a sedentary position. I presume that he is referring to his colleague, the leader of the Tory party in Wales, because it was he who called for a cut to the top rate of tax. We understand perfectly well how this legislation will work in Wales, but we are not in favour of any one part of Britain undercutting another through tax competition, which is unfortunately the position of the Secretary of State for Wales—[Interruption.] He keeps chuntering from a sedentary position that I do not understand it, but, dare I say, if he had greater faith in his own understanding of his own Bill, introduced in this House with amendments tabled in his name, he would stand at the Dispatch Box to explain the Treasury position and the tax amendments. Unfortunately, he clearly does not understand it sufficiently not to have to rely on his colleague the Exchequer Secretary. We are extremely grateful to the Exchequer Secretary for turning up to act as a human shield for the Secretary of State for Wales, but it is a crying shame that the Secretary of State and the Minister require his support.
Mr Gauke
There is no doubt that the Secretary of State understands the measure but, given what we have heard so far from the shadow Secretary of State, perhaps it would have been better if one of the shadow Treasury team had been making the speech instead. They might have understood it.
Owen Smith
The Exchequer Secretary can continue to attempt to suggest that I do not understand the Bill, but I understand it perfectly. I understand perfectly how lockstep works, but equally understand that this Government have cut taxes for the wealthiest in Britain. They have exclusively cut the additional 50p rate to 45p. I also know that his party in Wales has proposed that it would like to go further with Wales, so he will forgive us if we are suspicious of the “tax cuts for the wealthy” motives of the Conservative party. I think we will continue to be suspicious. Unless he would like to get to his feet and tell us that he does not intend that his colleagues in Wales should cut taxes for the wealthiest, I suspect that he will not wish to intervene further.
On the subject of the complexity and cost of the Bill, the Exchequer Secretary left us entirely without answers about how it will work. In order to illustrate its complexity, I highlighted that he has today moved a poorly drafted clause that will see a Welsh Tory Member of the European Parliament who does not live in Wales and who does not have a residence of any description in Wales, but who lives in England, designated as a Welsh taxpayer. The logic of that is entirely lost on me, but I should have thought that he would want to check who his European Members are in Wales and where they lived before he determined that they would get a tax break—in her case, a £700 tax break—were his Government to do what the Secretary of State for Wales has suggested and cut all the tax bands in lockstep by 1%. That is the tax cut that she would get in Wales, despite the fact that she does not actually live in Wales.
Owen Smith
I intend to answer. I fully anticipate that my friend, Mr Kinnock, were he to be so lucky as to win the forthcoming general election and be returned as the hon. Member for Aberavon, a great and noble seat in the Welsh Labour tradition, intends, as he has stated on the record, to live in Aberavon. The irony of this poorly drafted legislation that has been brought before us by those on the Treasury Bench today is that it would not matter where he lived. He could live in Copenhagen or in England and he would still, for the purposes of this half-cocked Bill, be considered a Welsh taxpayer. I do not think that the people of Aberavon would understand that and I suspect that the people of Wales will not understand why an English Tory MEP living in Ledbury will be deemed a Welsh taxpayer.
Let me return to the point about the complexity, if I may, and read a small section of the Bill to the Minister for the delectation of the House. It is entitled “Close connection with Wales or another part of the UK” and can be found in proposed new section 116G in clause 8. It says in subsections (3) and (4):
“T”—
the Welsh taxpayer—
“has a close connection with a part of the UK if in that year—
(a) T has 2 or more places of residence in the UK,
(b) for at least part of the year, T’s main place of residence in the UK is in that part of the UK,
(c) the times in the year when T’s main place of residence is in that part of the UK comprise (in aggregate) more of the year than the times when T’s main place of residence is in each other part of the UK (considered separately), and
(d) for at least part of the year, T lives at a place of residence in that part of the UK.
(4) In this section ‘place’ includes a place on board a vessel or other means of transport.”
I read those subsections for the enjoyment of the Leader of the House, who I am delighted to say has joined us, to point out what a ludicrously complex piece of drafting that is, and what a ludicrously complex Bill it is. We point that out because attending that complexity is cost—enormous cost.
The Secretary of State, or rather the Exchequer Secretary—the Secretary of State did not answer because he was not at the Dispatch Box—could not tell us how much it would cost to implement these measures in Wales. That is a surprise. He also talked about accountability. He might have been a little more accountable for his own Department, because it is today that the Government and his Department should have published the second annual report on the implementation of part 3 of the Scotland Act, inwhich we were anticipating, as outlined in the Secretary of State’s impact assessment to this Bill, a renewedand updated view on the costs associated with the implementation of these measures in Scotland. That has not been published today. It was not published in April as Ministers promised.
That is a dereliction of duty, not least because it leaves us in Wales with no idea as to how much these measures will cost. But we have reason to believe and to fear that it will be a significant amount of money, because we know from the first report on the implementation of the Scotland Act that it will cost more than £40 million to implement such measures in Scotland, and we know from the Government’s own impact assessment that it is likely to cost more in Wales. The reason is the porosity and populous nature of the border between England and Wales: 48% of the Welsh population and 10% of the English population live within 25 miles of that border, which means that fully 6.3 million people live along that border. In contrast, just 4% of the Scottish population and just 0.5% of the English population live within 25 miles of the border between England and Scotland, which means that just 450,000 people live along that border.
If it has taken so far, as the Government have conceded, £1.7 million to start the analysis of how these measures will work in Scotland, how Scottish taxpayers will be identified, how a pay-as-you-earn system will work, how employers will deal with it, and what the nature of the information to be provided to newly designated Scottish taxpayers will be—it is already £2 million-ish and counting, and soon to be £40 million for Scotland—do we not need to have some idea in Wales, as a part of prudent management of Treasury finances, and eventually Welsh Government—finances, of how much money it will cost the Welsh? If the Minister wants to offer us some indication, I should be grateful, but at the moment we are in the dark, and in the dark we remain concerned that the costs will be greater for Wales, and the disbenefits for Wales, therefore, potentially also greater.
In the light of the fact that there is such a long period before the measure comes into force, we will not press the amendments that we have tabled to the clause, but we will maintain our concerns about the motivations that lie behind it. We will continue to push for fair funding for Wales, not to the detriment of Scotland but in the interests of the people of Wales, and we will continue to ask the Minister to clarify what exactly this measure will mean for the Welsh people, and whether they will be better or worse off if the Bill were ever to be enacted.
Mr Gauke
After what is a relatively short speech from the hon. Member for Pontypridd (Owen Smith), I am still not entirely sure whether he is for or against it, but we are certainly for the devolution of income tax in the way set out in the clauses. I hope that the clauses and the Government amendments will have the support of the whole House, and that all other amendments will not be pressed.
Amendment 21 agreed to.
Oral Answers to Questions
David Gauke Excerpts(10 years ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Bill Esterson (Sefton Central) (Lab)
9. What recent estimate he has made of how much the reduction in the additional rate of income tax to 45% will be worth each year for a person earning £1 million a year.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The cost of reducing the additional rate of income tax to 45% is estimated to be around £110 million a year, as set out in table 2.2 of Budget 2013. We have not broken down the impact by income ranges. That is because there is a significant behavioural response associated with the additional rate of income tax. The behavioural response is estimated in aggregate and reflected in the costing.
Bill Esterson
Ordinary people are £1,600 a year worse off under this Government. More than 15,000 working people in my constituency alone are paid less than the living wage. Is not the reality that a tax cut for millionaires is totally the wrong priority when so many ordinary people face a cost of living crisis?
Mr Gauke
It should be pointed out that unemployment in the hon. Gentleman’s constituency has fallen by nearly 30% in the last 12 months. The challenge with the 50p rate is that it is not very effective at reducing the deficit, but it is effective at driving jobs and growth out of the UK. Maybe that is why Labour supports it.
Jacob Rees-Mogg (North East Somerset) (Con)
Is not Her Majesty’s Government right to consider the overall effect on the economy when setting income tax rates and not to use them as a means of squeezing the rich out of Britain? Is it not also sensible to consider the extra revenue that comes from lower rates?
Ian Murray (Edinburgh South) (Lab)
Will the Minister tell the House and the country today that his Government rule out any more substantial tax cuts for the richest before the next general election?
Guy Opperman (Hexham) (Con)
Cutting taxes surely promotes growth and investment and produces the jobs that we see in the north-east, where manufacturing is up and fuel duty is frozen. More specifically, last week I went on to the banks of the Tyne and saw 1,000 people working on shipbuilding for the first time in a very long time.
Simon Wright (Norwich South) (LD)
10. What steps he has taken to reduce the cost of living for people on low incomes.
Mark Menzies (Fylde) (Con)
12. What fiscal steps he is taking to help businesses to invest and export.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government are actively supporting the export investment aspirations of British businesses to ensure that companies have access to world-leading export finance. Budget 2014 announced that UK export finance’s direct lending facility will be doubled to £3 billion and the rate of interest cut by a third to the lowest level allowed by international agreements. UK Trade & Investment’s programme budget has been doubled during this Parliament and the organisation is on track to help 50,000 companies export by 2015—double the number supported in 2010. In addition, our corporation tax reforms are helping investment.
Mark Menzies
I recently hosted a UKTI exporting event at BAE Systems in Warton in my constituency and I was asked about what funding streams could be available for businesses wishing to access foreign export markets. What is the Minister doing to ensure that the funding is available for Fylde small and small and medium-sized enterprises to expand their businesses into export markets?
Mr Gauke
My hon. Friend has asked a very good question. As I have said, the Budget doubled UK Export Finance’s direct lending programme. Moreover, earlier this month we announced a £100 million extension of the advanced manufacturing supply chain initiative, and a £1 billion package to support the Aerospace Technology Institute was announced in the 2013 Budget. The Government are working hard to ensure that we secure the growth that is required by small and medium-sized enterprises in my hon. Friend’s constituency.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
The coalition Government promised to rebalance the economy on both a geographical and a sectoral basis, but little progress has been made in increasing business investment and exports as a percentage of GDP. Does not the low level of business investment—which is among the worst in the world—indicate that the business community is not entirely convinced by the UK Government’s economic policy?
Mr Gauke
The reality is that business investment is increasing, by 8% this year and by 9% next year. We have also just seen some very good figures relating to manufacturing growth over the last year. The Government continue to work to secure a balanced recovery, with the support of a number of measures in the Budget, but we are already making very good progress.
Alison McGovern (Wirral South) (Lab)
13. What recent representations he has received on reform of the Office for Budget Responsibility.
Finance (No. 2) Bill
David Gauke Excerpts(10 years, 1 month ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to respond to the debate. I shall make some remarks on clause 11 and on amendment 3 and address some of the arguments that we have heard in this interesting and passionate debate on a subject in which many right hon. and hon. Members have taken a long-standing interest.
Clause 11 introduces a transferable tax allowance for married couples and civil partners. We have targeted the benefit of the measure on married couples and civil partners with the lowest incomes, when one member of the couple has an income below their personal allowance of £10,500. The clause allows individuals to transfer 10% of their income tax personal allowance to their spouse or civil partner, providing that neither partner is liable for income tax above the basic rate. For the year 2015-16, when the measure comes into effect, the amount of personal allowance that can be transferred will be £1,050, significantly higher than the £750 included in the Conservative party manifesto at the last general election. It is also higher than the £1,000 allowance announced at the autumn statement as a result of the Budget announcement that the personal allowance would be increased even further in 2015-16. That means that more people will now be able to gain from the measure and by a higher amount.
Let me remind the Committee of the purpose of the policy. Marriage is an important institution in this country and I have been struck by the contributions from both sides recognising that point. The hon. Member for Newcastle upon Tyne North (Catherine McKinnell) described marriage as a force for good. We have also recently had a debate about marriage in the context of single-sex relationships and, indeed, the first gay and lesbian marriages took place just over a week ago. In that debate, a variety of views were expressed but it was striking how those on both sides of the argument recognised the importance of marriage. Indeed, the hon. Lady made a powerful and persuasive speech on that very issue in the course of those debates. Whether or not one agrees with the decision that the House reached, the strength of views expressed in those debates makes it clear that people believe in the importance of marriage as a building block of our society. The policy we are debating today is about recognising it in the tax system.
That recognition in itself is not a new idea. People born before 6 April 1935 can still claim the income tax married couple’s allowance, which the previous Government abolished for everyone else from 2000, and marriage is already recognised in the tax system in inheritance tax and capital gains tax. I shall come back to inheritance tax a little later. Marriage is also recognised in the income tax system in most other developed countries, a point that has been made repeatedly this afternoon. In fact, the United Kingdom is the only G7 country not to recognise marriage in the income tax system in some form. Now we want to recognise it more widely in the UK income tax system. That formed part of the Conservative manifesto in 2010 and I am pleased that we have now introduced legislation for that policy.
Let me remind the Committee that that is not the only reason for the policy. It also provides a way of allowing lower income married couples and civil partners to feel more of the benefit from our increases to the personal allowance. As discussed in Committee yesterday, by 2015-16 our successive increases to the personal allowance will mean that a typical basic rate taxpayer will be more than £570 better off than under the previous Government’s plans. That could mean a tax cut of more than £1,000 for a couple, but that is the case only if both partners use all of their personal allowance. If one spouse is a low or non-earner, the couple will be able to benefit only from one personal allowance increase. Let me give an example. By April 2015, one couple with each spouse earning £15,000 will see more than £800 more benefit from the personal allowance increases this Parliament than a couple with one spouse earning £30,000 and the second earning nothing. The policy allows us to change that. It gives married couples and civil partners the opportunity to benefit from the £1,050 of the second unused personal allowance, and thus benefit from the increases to the personal allowance, providing further support to some households with a low or non-earner. That will help just over 4 million married couples and civil partnerships, with each couple gaining up to £210 a year.
Amendment 3, which was tabled by the Opposition, commits the Government to publishing a report on the impacts of the policy within six months of the Finance Bill receiving Royal Assent. I do not believe that such a report is necessary, as there are comprehensive arrangements to report on the impacts of Government policy. First, we have reported the impacts of the clause in the tax information and impact note, which was published on the Government website on 27 March. Secondly, as the Committee will know, the Government believe that the impacts of policies should be considered in the round. The Government regularly produce an analysis of the cumulative impact of changes on households across the whole income distribution. That analysis is published by the Treasury at every major fiscal event, and the analysis at autumn statement ’13 and at Budget ’14 will have included that policy. Thirdly, it is worth pointing out that the amendment requires a report on the impacts of the policy within six months of Royal Assent, but the policy will not be in effect then, so we will not have any additional information or data to analyse. For that reason alone, I hope that the Opposition will not press their amendment.
Let me deal in a little more detail with what the amendment would do. It requires a calculation of the proportion of married couples and civil partners eligible under the policy. We have said that we expect just over 4 million couples to benefit, which means that about 300,000 more couples are in a position to benefit than if we had just increased the personal allowance in line with the retail prices index, which was the approach taken by the previous Government. The 4 million couples who will benefit represent just over a third of married couples. The heart of the Opposition’s case seemed to be that two thirds of married couples will not gain from the policy, so what was the point of it? It is worth explaining how the policy is targeted. First, in 3 million couples, one or both partners are higher or additional-rate taxpayers. Some of them can benefit from the changes to the personal allowance, but if we had a policy that extended the transferable tax allowance to higher and additional rate taxpayers, the Opposition would complain that it was not well targeted and that it should be directed at low-earning households. I think that my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) made the point that the logic of the Opposition’s argument was that we should extend the policy. I know that he takes that view, but it would be rather strange for the Opposition to make that argument.
The second group that does not benefit is the 1.8 million couples in which both partners are non-taxpayers. It is worth pointing out that since 2010 about 350,000 couples have become non-taxpayers because we have taken them out of income tax. It is impossible to provide an income tax cut for people who do not pay income tax. The Opposition argue that what we should do instead is have a 10p rate of income tax, but a 10p rate would not help those married couples either.
Alison Seabeck
I have a genuine question for the Minister. Has his Department looked at the question of whether the change would stand up to a challenge in the European courts on the grounds that it is discriminatory?
Mr Gauke
There is no reason to believe that the measure is discriminatory. I will address that point in slightly more detail in a moment.
The third category of people who will not benefit is couples where both members are basic rate taxpayers, but those are the households that have benefited most from the very significant increases in the personal allowance that this Government have been able to deliver. One has to look at the overall package and what this Government have done in terms of cutting taxes. I come back to the point that couples with two earners have benefited significantly, more so than couples with one earner, as a consequence of the personal allowance increase.
I mentioned that the Opposition want to use the money to fund a 10p rate of income tax. They have complained in the course of the debate that the benefit is worth only £3.85 a week. This is about sending a signal. The benefit from the new 10p rate, assuming that it were funded from this, would be in the region of 50p a week, and I am not sure that that would change things significantly.
Mr Gauke
I am short of time so, if the hon. Lady will forgive me, I will not give way.
Let me deal with a couple more points. On support for women, it is worth bearing in mind that of the 3.2 million people who have been taken out of income tax, 56% of the beneficiaries are women, and we have done a lot to help with child care. On the practical points raised by the hon. Member for Newcastle upon Tyne North, only the transferor will need to make an election, which will make it administratively easier for couples. We also want to implement the measure through a digital process, but we recognise the need for support for those unable or unwilling to use that method. HMRC will be properly funded to deliver this policy.
Let me conclude by reiterating the purpose of the clause. It is to reinforce the important institution which is marriage—whether gay, straight or civil partnerships—while also providing support for many households that have not been able to benefit fully from our changes to the personal allowance. I therefore request that amendment 3 be withdrawn, and move that clause 11 stand part of the Bill.
Catherine McKinnell
We have had some sincere but variously aspirational speeches from Government Members today, dreaming of a world where marriages are stable and children thrive. Nobody can take issue with the aspiration, but we need to deal with the real world and what the Government’s policy will deliver. It purports to support marriage, but only certain marriages will qualify. Two out of three marriages will get no recognition at all. The policy purports to support children, but five out of six families with children will get no help whatever. It is a dud. It adds complexity to the tax system. Its implementation will add cost both for HMRC and for the employers who will have to deal with the complexity for highly questionable gain.
We will therefore oppose the clause, and we urge hon. Members on both sides of the House, particularly Liberal Democrat Members, whom we know are on our side of the argument on this issue, to vote against the Government’s proposals and for our sensible amendment.
Question put, That the amendment be made.
Cathy Jamieson
Yes, I hear what the Minister is saying and I shall deal with some of that in a moment, because I am concerned to ensure that we get all the sums right and reach figures that everyone would agree on. Again, that is one reason we want this report brought forward, because we are now being told that the levy will generate £2.3 billion in 2013-14, £2.7 billion in 2014-15 and £2.9 billion in each of the following three years. I would give way to him again if he were able to give the details, but perhaps it would be more appropriate if he did so his response later, as it may take time to get them. We do not have the detailed figures, the evidence or the workings to show how those figures are arrived at and whether things are on course to deliver them. That is why it is important to get the report we are calling for today.
Let me say something about the problems with the levy as we see them. As I have said and as my hon. Friend the Member for Nottingham East has in previous contributions, the Government’s levy lacks ambition. The argument is that the initial levy was set at a relatively low rate, both by international standards and when measured against the scale of the taxpayer subsidies received by the sector during the financial crisis and thereafter. In discussion of the Finance Bill in May 2011, he said:
“The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards”.—[Official Report, 3 May 2011; Vol. 527, c. 482.]
I will happily give way to the Minister if he wants to comment on the international standards, but again, perhaps he will do so when he winds up.
One other problem with the levy is that its two objectives can be seen as a bit of a paradox or even somewhat contradictory. By setting the levy as a tax on bank liabilities in excess of £20 billion and charging a lower rate for more secure long-term liabilities, the Chancellor was actively encouraging the banks to reduce their exposure by moving towards more stable forms of funding.
Alison McGovern
I want to discuss the relationship between how the banks and bank bonuses are taxed and young people. I think that anyone who has just listened to the speech by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) would agree that the two issues are intimately connected, even if they did not believe that to be the case in the past.
Levels of inequality in our global economy are unsustainable, but Members need not take just my word for that. It is not just me who thinks that inequality is a significant problem: no less than Christine Lagarde of the IMF has said that inequality is a huge challenge and a risk for the world’s future. If even the IMF, which is not known for taking lefty positions, is able to conclude that we must tackle inequality, I think that this House should be able to accept the challenge and seek to find ways to address the significant inequality in our own country.
The top of the economy in the financial services sector is fragile in terms of income distribution. Let me make a few remarks about the banks. The hon. Member for Warrington South (David Mowat), who, unfortunately, is no longer in his place, commented earlier on the issue of fixed versus variable income, which I will turn to later. Surely anybody who is trying to learn the lessons of 2008 would say that the financial services sector still has an unsustainable bonus culture and perhaps that is true of other parts of the economy as well.
Would not anybody who worries about that risk conclude that banks and the financial services sector rely on an implicit state guarantee, given what had to be done to ensure the economy kept working and people could still take cash out of ATMs? Would not anybody conclude that we must take very seriously the contribution to taxation that banks are expected to make, given the Government’s reliance on the financial services sector? I certainly think that that is the only obvious conclusion to draw from the global financial meltdown and the serious failures of the past. Banks cannot be allowed just to make their own decisions; we must take very seriously both the regulatory framework around the financial services sector and the contribution that the sector is expected to make to the Exchequer.
The corporation tax cut benefited a whole range of companies in the financial services sector, but small and medium-sized enterprises—especially those in my constituency that are struggling with, and wanting action on, business rates—find it hard to take or to understand why the Government have not looked more seriously at what banks are expected to pay to the Exchequer. I think the Exchequer Secretary said earlier that, by his calculation, the bank levy has brought in a net £2.3 billion.
Alison McGovern
For the purposes of Hansard, I thank the Minister for correcting me from a sedentary position. In any event, it is really evident that the bank levy is not good enough. We heard repeated claims about how much it would bring in, but it has failed to reach those levels. The public do not understand why that is, and they want us to take very seriously the position of the financial services sector, given the impact that we all felt and that people are still feeling from the events post-2008.
Bank bonuses are the best representation of the culture that led to the economic meltdown in 2008. A great deal of work on the culture has been done by Members of this House—I am thinking of my right hon. Friend the Member for Wolverhampton South East (Mr McFadden) and others who served on the Banking Commission—and we do that work no service if we give up the idea of a bank bonus tax.
The problem with bank bonuses is the clear connection between the fact that compensation balloons so greatly, and depends on a big bonus at a certain point in the year, and extraordinary risk-taking. A kind of groupthink develops in an organisation, with people forgetting their responsibilities to those outside it. The insider culture accepts reimbursements that are far and away above anything that people in society ordinarily expect. We in this House, if nowhere else in our community, should understand the danger of such groupthink. Have we not all seen it at times, and do we not all want to end it? Therefore, we should not give up the idea of a bank bonus tax.
I remind hon. Members of Martin Wheatley’s recent comments:
“Incentives are used ideally to reward ‘good’ performance. However, as we saw with the mis-selling scandals which have had such a profound impact on financial services…a poorly designed inducement can result in consumers ultimately being worse off.”
Even if we were not worried about the impact on the Exchequer of the bank bonus culture—given the responsibility to ensure that the financial system can continue to do business no matter what—we should absolutely be concerned about the impact on consumers. In the past, consumers of financial services often had a poor deal. The mis-selling of endowments and, more recently, payment protection insurance caused massive problems for families in our country. We cannot allow a culture to persist in which there are incentives that, as Martin Wheatley said, may result in consumers ultimately being worse off, as that would be very dangerous. That is why our amendment probes the issue and seeks to find a way to consider whether more could be done, which is important.
Although I am the first to say that simply bashing one part of our economy—financial services—is not the approach we should take, far from it, it does not mean that inequality is not a serious issue. I do not think that the inequalities in the financial services sector will pass by the people who earn the minimum wage cleaning a local bank branch and who are worried about whether that branch will be there for much longer or those who, if they are lucky, earn the London living wage from working in security or in other ways supporting banks in the City of London. We must address that inequality for people who work in banking and in the financial services sector.
Finally, I will follow up on the remarks on young people made so ably by my hon. Friend the Member for Oldham East and Saddleworth. We cannot lose sight of the difference between a jobs guarantee and work experience. We learned that lesson in the 1980s, when youth training scheme-style programmes were a revolving door for young people, who went in and out of businesses with no proper jobs. That was not fair then, and it certainly is not fair now. The future jobs fund worked with organisations such as Age Concern and other good third-sector organisations in my constituency to provide work opportunities that often led not only to growth in a young person’s skills, talents, self-esteem and self-respect but to growth in the organisations themselves.
I point Members in the direction of a report by the International Labour Organisation from as long ago as 2010 that compared a range of interventions for young people without work. The report said that the last Labour Government had a huge amount of which to be proud, such as the new deal for young people, the future jobs fund and the efforts to get people into work. I believe absolutely that we cannot offer young people only interminable work experience in which they turn up to the jobcentre week after week to be sent on CV writing courses or to gain work experience that does not get them a proper foot in the door. We need a true jobs guarantee so that people know that, however difficult the circumstances in which they find themselves, the situation will come to an end. We need to offer young people that guarantee, and of course we would expect them to take it up without much choice—[Interruption.] If Members wish to intervene, they are welcome to do so.
We still have insufficient numbers of apprenticeships, and we have genuine worries about the quality of some apprenticeship programmes. I am sorry if I repeat this so often that I bore Members—I try not to bore Members—but the issue is vastly important. The prevalence of zero-hours contracts in our society affects young people more than anyone else. Young people are much more likely to have less experience, which means that they cannot get a proper full-time, permanent job with the hours that they want. Of course students might want flexible hours that they can take up when they want, but that is not the case for many young people across the country who feel that they have no alternative but to accept a zero-hours contract.
I am afraid that Conservative Members have swallowed the Treasury’s rhetoric about the number of jobs that have been created and the claimant count, without learning the lessons of their economic policies of the past. Of course the claimant count will fall if there is a sanctions regime that makes going to the jobcentre so difficult and unhelpful that people will do anything not to claim.
Mr Gauke
It is a great pleasure to serve under your chairmanship, Mr Bone, and to respond to this debate. It is always a pleasure to hear the hon. Member for Wirral South (Alison McGovern) speak. I am tempted to respond to her characterisation of the labour market, which almost suggested that we had lost 1.3 million people from employment over the past four years, rather than increased employment by 1.3 million people, but in the interests of time, I will focus on the bank levy.
Clause 112 increases the rate of the bank levy that was set for 1 January 2014 to 0.156%, which will help to ensure that future bank levy receipts meet the Government targets. I also want to highlight the changes that we are making to the bank levy’s design following an operational review in 2013, which we will cover when we debate clause 113 and schedule 22 later in Committee. The changes will help to simplify the bank levy’s design and ensure that it continues to complement improvements in the regulatory regime.
I wish briefly to provide hon. Members with some background. In the June 2010 Budget, the Government introduced a permanent tax on banks’ balance sheet equity and liabilities, which took effect from 1 January 2011. It is designed to ensure that the banking sector makes a fair contribution that reflects its risks to the UK financial system and the wider economy. Alongside wider regulatory reform, the bank levy also provides incentives for banks to move towards more stable funding profiles, reducing the likelihood of liquidity shocks, which can trigger and propagate systemic banking crises. The Government believe that those overarching policy objectives remain appropriate, and the changes being made in clauses 112 and 113 and schedule 22 are in line with that.
In 2010, the Government set a target of £2.5 billion for annual bank levy receipts. We have since increased that target to offset the benefit of corporation tax cuts to the banking sector since the levy’s introduction. Bank levy receipts have fallen short of the targets to date, largely as a consequence of greater than anticipated deleveraging in the sector in response to regulation and the bank levy’s behavioural incentives. However, the Government have remained clear that the target for bank levy receipts is unchanged.
The banking sector needs to make a fair contribution that appropriately reflects its historical costs and future risks to the UK taxpayer. That is why the rate of the bank levy has increased from 0.075% in 2011 to 0.142% in January 2014, and why the changes being made in clause 112, which were announced in the 2013 autumn statement, will further increase the rate to 0.156%, which will be treated as having applied from January 2014. Based on those changes, the independent Office for Budget Responsibility forecasts that the bank levy will raise £2.9 billion a year from 2015-16, more than £8 billion in total over the Parliament and close to £20 billion in total by 2018-19.
When the bank levy was introduced, the Government announced that they would review its design in 2013 to ensure that it was operating efficiently. In line with that commitment, a formal consultation was published in July 2013. It considered changes to the levy’s detailed design to make it simpler, fairer and more aligned with recent regulatory developments. The consultation ran for 12 weeks and the views put forward helped to inform a number of changes to the bank levy’s design, which the Government announced in the autumn statement. They included the exclusion from the bank levy charge of protected deposits, which we limited to amounts insured under a deposit protection scheme, with effect from January 2015.
Also from January 2015, all derivative contracts will be treated as having a short-term maturity, the relief that banks receive for their high-quality liquid assets will be restricted to the rate applicable to long-term liabilities, and the bank levy definition of tier 1 capital will be aligned with the new capital requirements directive. Specific liabilities arising from the central clearing of derivatives will be excluded from the bank levy charge, which will be treated as having applied from January 2014. Those changes will simplify the levy’s application and help to ensure that it continues to apply consistently to banks of different size, activity and domicile. They will also strengthen the behavioural incentives for banks to move towards more stable funding profiles and more closely align the bank levy with recent developments in the regulatory regime.
The hon. Member for Kilmarnock and Loudoun (Cathy Jamieson) touched upon the redesign of the bank levy. There is no intention to reduce the revenue raised by the bank levy. We are considering allocating banks to different bands on the basis of their balance sheet, equity and liabilities. Each band would correspond with a unique and predetermined charge for the year, paid by every bank falling within that band. We consider that that might provide a more predictable and sustainable model for the bank levy, but we are welcoming views on that as part of our consultation. The changes being considered would have no impact on the forecast yield from the bank levy, and the underlying tax base would remain unchanged and continue to provide incentives for banks to move towards more stable funding.
Cathy Jamieson
I thank the Minister for giving way—I appreciate it given the limit on his time. Will he confirm that his proposal will mean that some of the bigger banks will pay less in bank levy than they have paid previously?
Mr Gauke
The Government are consulting on how the measure will operate. The intention is for it to be revenue neutral. Assuming it has some effect, revenue neutral will mean that some banks will pay more and some will pay less. Which ones those will be depends on the precise design, which depends on the consultation.
Amendment 1 was described with customary reasonableness by the hon. Member for Kilmarnock and Loudoun but I will give the customary response, which is that the Government do not consider that there is much to be achieved by accepting it. It would add little to the Bill. HMRC already publishes each year statistics on PAYE, the bank levy, corporation tax and bank payroll tax receipts from the banking sector, although they are not broken down by different groups of banks. The most recent publication—from August 2013—showed that the relevant tax receipts from the banking sector were £21.7 billion in 2012-13.
In the time available, I want to make a point about the bankers payroll tax. In September 2010, the right hon. Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, said
“it will be a one-off thing because, frankly, the very people you are after here are very good at getting out of these things and…will find all sorts of imaginative ways of avoiding it in the future”.
An attempt to repeat that tax would be a mistake.
I fear that, because of the time available, I do not have time to do justice to Opposition new clause 5. I have set out the reasons why the Government believe it is right to introduce a balance sheet tax as opposed to a tax on bankers bonuses. We see no reason to change that approach. The future jobs fund failed to create sustainable employment. Almost 50% of participants claimed benefits again within eight months of starting a future jobs fund job. This Government are doing much more. We have delivered more than 1.6 million apprenticeship starts so far this Parliament and are making it cheaper to employ young people.
In order to give the hon. Member for Kilmarnock and Loudoun a moment or so to speak at the end, I shall conclude. The changes made by clauses 112 and 113, and schedule 22, will help to ensure that future bank levy receipts meet Government targets while providing a simpler and fairer basis on which the tax applies. I therefore hope that clause 112 stands part of the Bill and urge the hon. Lady not to press amendment 1 and new clause 5 to a Division.
Cathy Jamieson
It was a pleasure to hear the valuable contributions of my hon. Friends the Members for Wirral South (Alison McGovern) and for Oldham East and Saddleworth (Debbie Abrahams) on the impact of the Government’s policies on ordinary people.
The Minister referred to my characteristic reasonableness and gave a characteristic response. I will give him the characteristic response from the Opposition—despite his best efforts, I will press the new clause and the amendment to a Division. Both reports are reasonable requests and would be important. I realise that he had a relatively short period in which to respond, but it is disappointing that he does not see fit to produce such reports. He referred to a number of statistics and figures produced by HMRC, and we know of other places where statistics are produced, such as the Office for Budget Responsibility. It would be useful to have all those reports put together in a report for the House to consider.
As I have said, I intend to press new clause 5 and amendment 1 to a Division. I hope that, even at this late stage, the Minister will reconsider his opinion, but I doubt it. I am sure that the Government will give their characteristic response once again.
Question put, That the clause be read a Second time.
Catherine McKinnell
As I said, the Wales Bill, which is currently going through Parliament, contains a number of devolved tax powers for Wales and is the appropriate place to debate these issues. That is why Labour will abstain on the issue of APD devolution tonight, but we look forward to the Exchequer Secretary providing clarity on the various queries that have been raised today, particularly about the regional air connectivity fund, which is clearly linked to the issues of certainty for investment, growth, which all Members are focused on, and the role that aviation plays in our economy.
Mr Gauke
In 2010, the Government inherited an air passenger duty system that needed to be fixed. The changes that the previous Government made in late 2009 caused aggravation to the UK’s overseas friends and frustrated diaspora communities. Clauses 72 to 74 will fix the system by implementing air passenger duty rates for this year and by reform of the rates for next year.
I will address new clause 2 and new schedule 1, tabled by Plaid Cymru Members, and new clauses 6 and 7, tabled by Scottish National party Members. The Plaid Cymru proposal broadly follows the form that was taken to devolve the duty on direct long-haul flights from Northern Ireland, and requests a similar devolution for direct long-haul flights from Wales. The SNP proposals seek the devolution of duty on flights to all destinations.
I remind hon. Members that the devolution of duty for Northern Ireland was in specific response to Northern Ireland’s unique circumstances. It shares a land border with Ireland, leading to a risk of flights relocating from one part of the shared land mass to another. We recognised that risk and acted to ensure that Northern Ireland was not disadvantaged.
The current situation is that airports on the Great Britain mainland face the same APD rates, but the SNP and Plaid Cymru proposals could well lead to the introduction of the same market distortions that our devolution to Northern Ireland sought to prevent, namely the reallocation of flights from one part of the UK to another, leading to distortion in competition, and winners and losers across the UK.
Regional airports are doing well: 2013 was the third consecutive year of passenger growth and our APD banding reform is another confidence boost for the air travel market. Relevant examples include Cardiff airport, which in 2013 saw a 4% increase, equating to around 44,000 extra passengers, with new routes announced to Germany and the Caribbean. In Scotland, there has been 3% growth at Glasgow airport, with almost 206,000 additional passengers. New routes have been announced for this summer to Croatia and Greece. Edinburgh airport has grown 6%, equating to more than 580,000 additional passengers. In the past six months, new routes to Qatar, the USA and Norway have been announced.
Mr MacNeil
Is the Minister happy, or does he agree with industry figures in Scotland, particularly the managing directors of airports, who believe that that growth has been constrained by APD?
Mr Gauke
My point to the hon. Gentleman is that the Government must reduce the deficit and APD is a valuable source of revenue. One cannot look at the effects of APD in isolation; one must look at the overall effects on the economy. We have taken measures in the Bill to reduce the burden of APD, but it is worth noting that airports in Scotland and Wales, and regional airports elsewhere in the UK, have been doing well in recent months.
Guy Opperman
I wish to praise Newcastle airport, which has welcomed the changes to APD. It is pleased that officials are indicating that the regional air connectivity fund will extend to airports beyond the 3 million passenger mark to those with upwards of 5 million passengers in certain circumstances. Does the Minister agree that that is a further example of the Government assisting regional airports and allowing them to grow as we know they can?
Mr Gauke
I am grateful to my hon. Friend because he brings me to my next point. I agree with him. The Government recognise the importance of aviation connectivity for all parts of the UK—for example, domestic flights are not subject to VAT. As he says, we are extending the scope of the regional air connectivity fund to include start-up aid for new routes from regional airports, and increasing funding to £20 million a year. Clearly, exactly how that works is a matter for the Department for Transport, but I welcome the fact that the Government are consulting the regional airports to see whether those that have more than 3 million passengers per year can receive extra support. That includes Newcastle airport, which has 4.4 million passengers. One could also mention East Midlands International, Liverpool John Lennon, Belfast International, Aberdeen, London City and Leeds Bradford, all of which have more than 3 million passengers a year. We are trying to do what we can to ensure that those airports can gain support from the connectivity fund.
Catherine McKinnell
Obviously, we broadly welcome any support for expansion and new routes from regional airports, but would the Minister accept that making an announcement without any details about the type of activity that will be covered by the funding can add uncertainty to the already difficult environment for the industry at present? It is imperative to bring some clarity to the issue as soon as possible. Will he tell us when he will be able to clarify what might qualify for the funding?
Mr Gauke
The hon. Lady is being uncharacteristically glass half empty. We have announced an expansion of the connectivity fund. We have said that we are seeking to take that beyond airports that have more than 3 million passengers per annum. As it happens, the Department for Transport is consulting on and developing guidelines for accessing support, and the results will be published in the summer. I am sure that the hon. Lady is as keen as my hon. Friend the Member for Hexham (Guy Opperman) to ensure that the best happens for Newcastle airport.
Guy Opperman
It is surely a relevant factor that the Budget was only a few weeks ago and the guidance on which we are consulting was published by the European Commission only at the end of February. One could hardly have done it any earlier.
Catherine McKinnell
Newcastle international airport is in my constituency—[Interruption.] However, I speak on behalf of all the regional airports. I am not being churlish about the potential funding that has been announced, but I hoped that the Minister would realise the increased commercial uncertainty that can be created by making announcements that lack clarity about what may or may not be included. The Government need to move as fast as possible to create—
The Temporary Chair (Mr Peter Bone)
Order. Interventions are getting longer than some of the speeches.
Mr Gauke
I am not sure that I can add much, other than to say that if the hon. Lady is concerned about uncertainty she might want to look at some of the anti-business policies pursued by her party.
We also recognise that air services in some of the more remote parts of the UK represent a vital connection to the rest of the country. That is why there is an air passenger duty exemption for flights from the highlands and islands of Scotland.
Mr MacNeil
I am grateful for the exemptions for the highlands and islands of Scotland, but does the Minister think that the devolution of APD to Scotland and Wales would result in an increase in the number of routes, flights, passengers, commerce, tourism and eventually revenue to the public purse? Does he see any advantage to the devolution of APD?
Mr Gauke
I wish to avoid running the risk of repeating myself, but I make the point that I made earlier: the devolution of APD within Great Britain would create unfortunate market distortions. As we said in our November 2013 response to the Silk commission, we are not convinced of the case for devolving air passenger duty to Wales, given the potential effects across the country as a whole. In the case of Scotland, the distortive effects across the country as a whole are harder to diagnose, given that it has more major airports with significant route connectivity. Our opinion remains that this requires careful evaluation if we are to be confident of its potential effects, so I ask hon. Members to withdraw their amendments.
Bob Stewart
Is it the Government’s intention to continue the trend of reducing air passenger duty across the country?
Mr Gauke
What I would say to my hon. Friend is that we have set out in the Budget and in the Bill significant changes that we think fix the problem we inherited from the previous Government.
My hon. Friend gives me the opportunity to turn to clauses 72 to 74. Ahead of our rates reform, clause 72 fulfils the commitment given in Budget 2013 on the rates of duty for 2014-15. This respects the air travel industry’s point that tickets are often sold a considerable time in advance of travel. The industry needs up to a year’s forward rates certainty to have sufficient time to prepare its accounting systems and set pricing ahead of advance ticket sales. The rates contained in clause 72 have therefore been anticipated by the industry.