HM Treasury Consultation
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The Exchequer Secretary to the Treasury (Mr David Gauke)
At Budget 2012 the Government announced that, following consultation on design, they will introduce corporation tax reliefs for the animation, high-end television and video games industries from April 2013, subject to state aid approval from the European Commission.
HM Treasury has today published a consultation document titled “Consultation on creative sector tax reliefs”, which outlines the proposed design characteristics of the animation, high-end television and video games tax reliefs. This document is available on the HM Treasury website.
The Government welcome views on the proposed policy design of the new reliefs and any comments on the summary of impacts. The document also issues a request for supporting evidence.
The consultation will close on 10 September 2012.
Anti-Avoidance
David Gauke Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
HM Revenue and Customs (HMRC) are today publishing a consultation setting out detailed proposals for the introduction of a general anti-abuse rule (GAAR).
This follows the Government’s announcement at the Budget that they intend to introduce a general anti-abuse rule targeted at artificial and abusive tax avoidance schemes. This announcement was in response to the Aaronson Study Group report, published in November 2011.
The consultation asks for views from interested parties on the proposals and their expected impact by 14 September 2012.
The consultation document is available on HMRC’s website and copies have been placed in the Libraries of both Houses.
Tax Information Exchange Agreement (UK and Marshall Islands)
David Gauke Excerpts(11 years, 11 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
A tax information exchange agreement (TIEA) with the Republic of the Marshall Islands was signed on 20 March 2012. The text of the TIEA has been deposited in the Libraries of both Houses and will be made available on the 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.
Changes to the Budget
David Gauke Excerpts(11 years, 11 months ago)
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Urgent Questions are proposed each morning by backbench MPs, and up to two may be selected each day by the Speaker. Chosen Urgent Questions are announced 30 minutes before Parliament sits each day.
Each Urgent Question requires a Government Minister to give a response on the debate topic.
This information is provided by Parallel Parliament and does not comprise part of the offical record
Mr Speaker
Order. The Ministers who appear are chosen by the Government, and it is not for me to explain that choice. Members ask, “Where’s the Chancellor?” The Chancellor is appearing before the Leveson inquiry, as Members know perfectly well. We welcome Minister Gauke.
The Exchequer Secretary to the Treasury (Mr David Gauke)
The Budget supports working families and re-establishes the UK’s reputation as a leading place to do business. It continues to deal with the record peacetime deficit that we inherited, so that the state no longer borrows £1 in £4 it spends, as it did when we came to office.
The Budget contained 282 measures. Having said that we would consult on some of its measures, we have made changes to three. On VAT for hot food, it is right to end anomalies and ensure that VAT is applied fairly between businesses. Where fish and chip shops had to charge VAT, supermarkets selling the same products did not. Having consulted, we have revised the relevant tests to ensure that, for example, bakers cooking hot savoury food that is left to cool are not caught in the changes.
On VAT for static holiday caravans, we have listened to hon. Members, who argued that static caravans should be treated more akin to second homes and not like touring caravans. Given that static holiday vans fall in a grey area between residential properties and temporary holiday accommodation, and given the relevant tax regimes that apply to them, a 5% rate of VAT is a fair compromise.
On tax reliefs, we continue to think that the system we inherited—which allows the wealthiest to pay the least tax, meaning that cleaners can pay a higher rate than their bosses—is unfair. We will therefore move to cap reliefs to ensure that this is addressed. However, having engaged with the sector, we will exclude reliefs relating to charitable giving from the cap.
These changes are small in the context of a Budget that lowered tax by £170 for 24 million people. The amounts concerned are tiny compared with the total tax changes announced in the Budget—in monetary terms, less than 2% of the Budget changes and 0.0002% of total receipts. The Budget continues to have a neutral impact on the public finances, and we remain on track to tackle the unprecedented debt and deficit we inherited. This is a Budget that improves the country’s competitiveness by cutting the top rate of tax, reduces corporation tax to give the UK the most competitive rate in the G20, and rewards and supports hard-working families by helping to take 2 million people out of income tax altogether.
Rachel Reeves
Given the number of U-turns that the Government have made in the past two weeks, it is difficult to know where to start. Will they now change course on the biggest mistakes in the Budget—cutting tax credits for working families, the granny tax and cutting tax for millionaires while asking ordinary people to pay more? The country is crying out for the Government to change course and to get a grip on their policies, which dug us into this hole and this recession.
Mr Gauke
The hon. Lady says that the Government were desperate for money-making measures. Why does she think we needed such measures? She might have noticed that her party left the biggest peacetime deficit we have ever faced. The extraordinary thing about the Labour party is that it always believes that there is a magic money tree that we can get money from. I am afraid, however, that we have to take steps to reduce the deficit. Even with these changes, we remain on the course that we set out. This was a fiscally neutral Budget, and we are not taking risks with the public finances, which is the U-turn that the Opposition want us to take.
The hon. Lady asked how a Budget could be changed and why we had departed from what it set out to do. I should like to remind the House what happened four years ago. In 2007, the then Chancellor of the Exchequer announced the doubling of the 10p rate. A year later, his successor had to come to the House—not in a Budget, but weeks later—and set out additional tax cuts of over £3 billion. They had got their policy wrong and they had destroyed their credibility by doubling the income tax rate for the poorest earners in this country. That is an example of a Budget shambles.
Mr Peter Bone (Wellingborough) (Con)
The Government should not apologise for making these U-turns. This is parliamentary democracy at work. It is because Members of this House argued strongly for changes in the Budget that such changes have occurred. Let us contrast that with what happened under the last Government. When their own Back Benchers asked for changes, the Government would not agree to them. This Government should be proud of these changes; they should not apologise.
Stephen Timms (East Ham) (Lab)
The Minister is now telling us that the Government do not need the money that would have been raised by the measures that he has scrapped, so why were they announced in the first place?
Mr Gauke
Let us put this into context. In the last year of the forecast period, the Budget measures that we announced in March would have resulted in an additional £1.14 billion for the Exchequer. As a consequence of these changes, that figure will now be £1 billion. These are relatively small items, but we have listened to the specific cases that have been made on the three elements. We had already made it clear that we wanted to consult carefully with charities and philanthropists on one of them. We have listened to the arguments and we have made changes. In the overall scope of the public finances, however, they will not make a significant difference.
Jacob Rees-Mogg (North East Somerset) (Con)
Does the Minister agree that the real things that must not be changed are a tight fiscal policy and a loose money policy? There is no alternative.
Helen Goodman (Bishop Auckland) (Lab)
The Minister did not mention the reverse on VAT for listed places of worship. My constituency has the oldest Baptist church and the oldest Methodist church, so do the changes announced by the Government on listed places of worship apply only to the Church of England or to all denominations?
Mr Gauke
They apply to all denominations, but to provide further clarity we made it clear that we would change the level of grant available under the listed places of worship scheme to reflect the need; after consultation with the Churches, we have increased that number, but there is no change to the tax law relating to VAT for listed places of worship.
Simon Hughes (Bermondsey and Old Southwark) (LD)
Let me reassure the Minister that Liberal Democrats welcome the change both to the pasty tax and the caravan tax. [Interruption.] We would also have liked a third change—to keep the top rate of income tax, but we did not win that argument. Will the Minister join me and make sure that all Ministers turn up the volume—[Interruption.]
Simon Hughes
Will the Minister ensure that all Ministers turn up the volume to get over the central message of the Budget, which is that over 20 million pay less tax and millions pay no tax at all? Clearly, some people have not heard it yet.
Mel Stride (Central Devon) (Con)
May I pass on a huge thank you to the Chancellor and to the Minister from Pathfinder Park Homes, a manufacturer of static caravans in my constituency, which is delighted with the reversal on VAT? In its view, it has saved its business.
Simon Danczuk (Rochdale) (Lab)
What estimate has the Minister made of the damage done to the bakery industry as a result of announcing a policy that has now been reversed?
Harriett Baldwin (West Worcestershire) (Con)
Evidently, the most urgent question relating to the Budget changes are those to VAT on static caravans and hot pastries, while across the channel we literally have financial Armageddon happening. What would the Minister contrast between the management of this country’s finances and the management of those of Europe?
Mr Speaker
I am grateful for the Minister’s diplomacy, but let me say gently to the hon. Lady that the question was not quite as wide as the channel—but it was not far short of it!
Seema Malhotra (Feltham and Heston) (Lab/Co-op)
Will the Minister confirm what extra information came to light during the recess that led to the U-turn on the charity tax?
Mr Gauke
In respect of all the measures we are discussing today, this Government have been listening to the arguments. As far as charities are concerned, once we had reached the conclusion that we would not proceed with a cap on relief for charitable giving, we felt it only fair to make the announcement as soon as we could—and we did so.
Alec Shelbrooke (Elmet and Rothwell) (Con)
Before I feel tempted to congratulate the Minister on the changes he has made, I should perhaps declare a personal prejudice and a personal interest in the reduction in VAT on pasties.
Welcome as the Minister’s consultation with Back Benchers has been, may I ask him to continue to focus on the main aim of the Budget, which is to ensure that we do not go down the same road as the rest of Europe?
Tom Blenkinsop (Middlesbrough South and East Cleveland) (Lab)
Given that other applications of VAT are being U-turned, why is its application to sports nutrition products not being U-turned as well?
Tony Baldry (Banbury) (Con)
We had almost a full day’s debate on these measures, initiated by the Opposition, and the changes made by my hon. Friend are almost exactly the changes for which the Opposition asked. Given that my hon. Friend and his colleagues have listened to Opposition Members, would it not be rather better for them simply to say “Thank you” and sit down—as I say “Thank you” to the Chancellor and his colleagues for the changes in respect of VAT on listed places of worship?
Mr Wayne David (Caerphilly) (Lab)
There is only one word to describe the Budget, and that is “omnishambles”, but will the Minister tell us what changes have been made to VAT on skips?
Claire Perry (Devizes) (Con)
Marshall’s Bakery in Pewsey, which is in my constituency, will be delighted by the news, as the Minister will know because he received a large petition from its customers. I am proud to be part of a Government who listen to people, but will the Minister please assure me that he will never, ever listen to any economic advice from the Labour party, whose view is that the way to get out of a borrowing crisis is simply to borrow more?
Andrew Gwynne (Denton and Reddish) (Lab)
So much has been changed in this disastrous Budget that one wonders what will be next. Will the Minister now start to rethink his tax cut of £40,000 a year for 14,000 millionaires, which is, quite frankly, outrageous?
Mr Gauke
Let me point out to the hon. Gentleman that three changes have been made in the 282 measures announced in the Budget. As for the 50p rate, the problem was that it did not raise any money. The measures that we have announced will raise five times more money from the rich than the policy pursued by the Labour party.
Stephen Gilbert (St Austell and Newquay) (LD)
On behalf of the thousands of people who supply, make and sell the £180 million of Cornish pasties produced each year, and the millions of people throughout the country—including my hon. Friend the Member for Elmet and Rothwell (Alec Shelbrooke)—who enjoy eating them, may I say “Thank you” to the Minister? It is great that we finally have a Government who listen and do not plough on regardless.
Helen Jones (Warrington North) (Lab)
Will the Minister explain why he chose to listen to representations on pasties, caravans and charities, but not to representations on the granny tax? Was it because pensioners do not have loud enough voices, or because he does not care about them?
Michael Ellis (Northampton North) (Con)
Will the Minister join me in welcoming the comments of the chief executive officer of Greggs that the Government should be “applauded” for the way in which they have “conducted themselves”, and for listening to the views of the industry? Will he also acknowledge, as Sir Terence Leahy has, that the Government should maintain their course and— unlike the Labour party—keep the British economy sound?
Mr Gauke
Again, I am grateful to my hon. Friend for his comments. We have listened to strong arguments and responded accordingly. That is what a sensible Government do—and I really must contrast that with the approach taken by the previous Government, in particular with regard to the 10p rate of income tax.
Mr David Hanson (Delyn) (Lab)
Does the Minister agree that business stability is important and that, for example, a caravan tax rate of 0%, 20% and 5% in six weeks is not good for business planning? Has he written to his hon. Friends who voted for those measures to apologise for hanging them out to dry?
Richard Graham (Gloucester) (Con)
Most of my constituents want their Government, regardless of political hue, to be a Government who listen and appreciate their views. In this case, the changes made by my hon. Friend and the Treasury team have hugely benefited listed places of worship, which are an important part of our regeneration campaign, and an important local company, Janes Pantry, which makes pasties. They have also been much appreciated by all of us who donate to charities. We cannot have it both ways: we cannot have a Government who listen and then criticise them when they do. I am grateful to the Government.
Nic Dakin (Scunthorpe) (Lab)
Unfortunately, the Exchequer Secretary’s attempt to clarify the skip tax appears to have added to the confusion. Will he engage with the industry in the same spirit as he has engaged with others, and consider the eligibility of fines residue from trommel equipment being eligible for the lower rate of duty?
Jason McCartney (Colne Valley) (Con)
I greatly welcome the consultations, but will the Minister confirm that the Government will stand firm on the main facets of the Budget, which have resulted in tax cuts for 25 million people, council tax frozen for the second year running and fuel duty being 10p lower than it would have been under the other lot?
Sheila Gilmore (Edinburgh East) (Lab)
The Minister started by saying that this was a Budget for families, so will he now consider another U-turn and restore the tax credits to working couples on low wages and low working hours?
Mr Speaker
Order. I am sorry if I did not explain the position sufficiently clearly—although I must say I thought I did. Some Members are making speculative bids for extending the U-turns. They may wish to do so, but the terms of the urgent question relate specifically to the announced changes. I am sure that understanding that point will not be beyond the ingenuity of the hon. Member for Wansbeck (Ian Lavery).
Karl Turner (Kingston upon Hull East) (Lab)
I welcome the Government’s U-turn on the caravan tax, which would have adversely affected many thousands of people throughout the country. However, will the Minister take this opportunity to apologise to the 350 employees of Willerby Holiday Homes in my constituency who were told that they would potentially be made redundant as a result of the Government’s barmy idea, and will he describe the effect on the industry of the introduction of the 5% tax on caravans?
Mr Gauke
First, let me say that I am grateful to have an opportunity to return to the Dispatch Box. On the point the hon. Gentleman raises, I really do not think that the changes, which in our original proposals would not have come into effect until October and which now will not come in until April, can be the source of some of the current difficulties within the caravan industry. We think we have the right policy now and that a 5% rate is fair.
Taxation of Unauthorised Unit Trusts
David Gauke Excerpts(11 years, 12 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
HM Revenue and Customs (HMRC) are today publishing a second consultation setting out detailed proposals for changes to the taxation of unauthorised unit trusts and their investors.
This follows an initial consultation document published in June 2011 that set out options for change and asked for stakeholders’ views. HMRC have also subsequently met with interested parties. The initial consultation was issued following publication of the “Tackling Tax Avoidance” document at Budget 2011, which announced a number of tax policy areas that would be subject to consultation with the aim of preventing tax avoidance before it occurs to protect the Exchequer and increase certainty for taxpayers.
The second consultation includes a summary of responses to the first consultation. It asks for interested parties’ views on the new detailed proposals and their expected impact by 20 August. HMRC welcome further direct engagement with interested parties on the proposals, in particular during the period of the consultation. The consultation will be available on the HMRC website.
Hot Takeaway Food (VAT)
David Gauke Excerpts(11 years, 12 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to serve under your chairmanship, Mr Scott. I congratulate my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing this debate and on his thoughtful and constructive speech. I thank all those who have contributed to the debate, including my hon. Friend the Member for North Cornwall (Dan Rogerson) and my hon. Friend the Member for South East Cornwall (Sheryll Murray), whom I congratulate in particular on her expertise on the matter. I am also grateful to my hon. Friend the Member for Amber Valley (Nigel Mills) for providing his expertise on tax, rather than on pasties. I also thank the hon. Member for Rochdale (Simon Danczuk) and the hon. Member for Bassetlaw (John Mann), who gave a characteristically passionate and, at times, entertaining speech.
Since the Budget, Her Majesty’s Revenue and Customs has been running a consultation on addressing a range of VAT anomalies, including the treatment of hot takeaway food. I am well aware that the changes that we have announced to the VAT treatment of hot food have attracted a considerable amount of attention. Indeed, I have had meetings with my hon. Friends the Members for St Austell and Newquay and for Camborne and Redruth (George Eustice) and representatives of the Cornish pasty industry.
Mr Rob Wilson (Reading East) (Con)
The definition of hot food has caused much uncertainty, not least for Auntie Anne’s pretzel company in my constituency, which I visited last week. The company has put on hold quite big expansion plans because having to charge VAT would put it in competition with a whole new set of fast food outlets. The pretzels are baked on the premises from a dough mixture, and the company needs some clear guidance from Her Majesty’s Treasury that it will not be liable to VAT so that it can get on with its growth plans and with creating jobs in the local area.
Mr Gauke
I am grateful for that intervention. There is a carve-out in this measure that relates to bread. My hon. Friend refers to pretzels made from a dough mixture. HMRC will provide guidance on the definition of bread, so that matter will be covered once final decisions have been made.
Before I turn to some of the arguments against the proposal, I should like to step back and remind hon. Members of why we have proposed this change. As I announced to the House on 18 April, we extended the consultation period until last Friday in the light of the responses received and I have, of course, been listening to the contributions to this debate and will ensure that they are taken into account in the Chancellor’s decisions.
Ensuring that VAT will apply to the sale of all hot food—to the extent that it does not already do so—is one of a series of VAT measures announced in the Budget designed to make the VAT system fairer to all traders, and to make it easier to administer and comply with.
The current rules on the VATability of hot takeaway food have been made particularly complex and unfair by a patchwork of different legal decisions over the decades, as my hon. Friend the Member for St Austell and Newquay pointed out. VAT has always applied to food consumed on the supplier’s premises, notably in restaurants and cafes, and was extended to hot takeaway food in 1984. The definition of hot takeaway food in the 1984 legislation is that the food
“has been heated for the purposes of enabling it to be consumed at a temperature above ambient air temperature”
and that it
“is above that temperature at the time it is provided to the customer.”
There have been repeated efforts since the 1980s to chip away at this boundary. A number of businesses have argued in litigation that, although the food they provide to their customers is hot and is taken away, it should not be taxed as “hot takeaway food”, but it should instead be zero rated.
Some have argued that, in heating the food, their intention was not to provide their customers with food to be eaten hot, but to follow rules of hygiene, to finish the cooking process, to provide evidence of freshness, to create an aroma, or to improve appearance, crispiness or texture of the product. Such arguments have not always been successful, but where they have been, they have allowed some businesses to secure VAT-free treatment for a range of hot food products such as hot rotisserie chickens, meat pies, pasties and panini. However, other businesses have continued to apply VAT to the similar hot food products that they sell. They have accepted, or the courts have ruled, that their intention is to heat their food products so that their customer can eat them hot. Under the current rules, the VAT rate applied to hot takeaway food depends on the particular supplier’s purpose in heating the food.
In reference to a point made by my hon. Friend the Member for Montgomeryshire (Glyn Davies), a small independent fish and chip shop will have to charge 20% VAT on its hot chicken, but a major supermarket will argue that its rotisserie chickens are zero rated. One baker who keeps his sausage rolls in a hot cabinet to provide his customers with a hot snack will charge tax, but the baker next door who also keeps them hot and argues that this is to maintain an appealing aroma will claim that they are zero rated.
The current situation is unfair, and it is right that we seek to change it. There was some agreement on that point from at least some hon. Members. That is why we are introducing new rules to ensure a level playing field. We have proposed the removal of the subjective element of the zero-rate definition, which has led to these anomalies, to provide more consistency in the taxation of hot food. As I mentioned earlier, we are adding a simple carve-out that bread, irrespective of its temperature, will not be liable.
Simon Danczuk
Will the Minister address the point that I made about the samosa tax issue?
Mr Gauke
On that point, our proposal is that if food is sold at above ambient temperature, it is standard-rated, which is the same as takeaway food from Indian restaurants.
We have heard a number of arguments about why businesses will find it difficult to apply the test on ambient temperature. The test to determine whether takeaway food is hot is not new; it has been in place since 1984. However, I accept that, in many cases, suppliers do not need to ask themselves that question because they accept that their takeaway food is meant to be eaten hot and thus they pay tax even if, on a handful of occasions, the food may not actually be hot. They may make use of one of the other arguments about the purpose of the heating, and thus do not pay tax, even if the food is hot. However, the test is reasonably straightforward and will be policed in a pragmatic way.
Some hot food will have been kept hot or provided straight from the oven and will obviously be standard-rated under our proposals. In most other cases, people know when something is hotter than the air around it. A leading high street bakery chain, which has campaigned against these changes, said on its own website that customers who want a hot sausage roll should test whether the sausage roll is hot enough by feeling the temperature through the bag.
It is important to inject some common sense into this potentially trivial debate about food that at one moment is hot and at another is at ambient air temperature. We are not expecting staff to take detailed temperature readings every time they sell a pasty. HMRC will take a pragmatic approach and provide businesses with guidance, taking into account businesses’ responses on how to implement the change.
Dan Rogerson
I am grateful to the Minister for giving way as he sets out the Government’s thinking behind this matter. I hope there is room, following the consultation, for that thinking to develop. On the specific point of temperature, we have heard that many pasties are sold outside or through hatches and so on. Will the Minister tell us what would happen if the outside temperature is freezing or below freezing? That is the sort of issue that our constituents are raising with us.
Mr Gauke
I can assure my hon. Friend that we shall not start taxing food as hot if the outside temperature is 40°C and the item is warm only because of the air around it, or hot because the temperature is freezing. Existing simplification schemes are already available that allow businesses to calculate their VAT liability by reference to a fixed percentage of their turnover, without requiring staff to consider the temperature of every product sold. Pragmatic approaches to apportionment are, and have always been, a common feature in VAT.
Let me turn now to the proposal by my hon. Friend the Member for St Austell and Newquay. I am aware of the strength of opinion on this question, and I hear the proposal that he has made. The consultation was genuine. As it is also complicated, it would be premature of me to make a knee-jerk response to it within a few days of it closing. However, we are considering his and other constructive suggestions closely, and we are aware of the difficulties in operating a test based on ambient temperatures. As I said earlier, such a test has been in place since 1984, and it is no more than a legal definition of “hot food”. At present, it is rarely applied because businesses that accept that their food is heated in order to be eaten hot accept that it is taxable hot food, and those that argue that their food is heated for other reasons can escape VAT, even if the food is hot.
There are problems with my hon. Friend’s proposal, which potentially risks bringing hot pizza into the zero rate—I suspect that is an unintended consequence. However, it is one of many suggestions that we are considering, and we hope to be able to respond in the near future.
It has been suggested that this change could lead to business closures in the baking industry, and would disproportionately affect businesses in Cornwall, and that it should be delayed until there is stronger growth. However, it does ensure that businesses of all sizes and in all locations receive the same tax treatment for similar products and that that preferential tax treatment does not go to those with the most ingenious arguments, or the best lawyers, to support zero rating.
I accept that all taxes have an effect on growth and jobs, but VAT as a whole is less damaging than many other taxes. I hope that my comments today have provided more information on why the Government have made this proposal. The changes are designed to introduce new sensible objective tests that are less open to abuse and provide a level playing field for all businesses supplying their customers with hot food. I also hope that I have explained that we have undertaken a genuine consultation and will respond as soon as possible, and that we are listening closely to all the arguments.
Enterprise Management Incentives
David Gauke Excerpts(11 years, 12 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
The Government announced in the Budget that the individual limit on qualifying EMI options will be increased from £120,000 to £250,000.
The Income Tax (Limits for Enterprise Management Incentives) Order 2012 (SI 2012 No. 1360), giving effect to the increase was laid before the House of Commons earlier today. The order will come into force on 16 June 2012 and apply to qualifying EMI options granted on or after that date.
Tax Policy Consultation
David Gauke Excerpts(11 years, 12 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
Budget 2012 announced that we would consult on requiring controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source by the organisation by which they are engaged. As referred to in the Chief Secretary’s oral statement earlier today and his review into “The Review of the tax arrangements of public sector appointees”; we are today publishing this in the form of a consultation document on the taxation of controlling persons.
The consultation document is available on HMRC’s website and copies have been placed in the Libraries of both Houses.
Child Benefit
David Gauke Excerpts(11 years, 12 months ago)
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Helen Goodman
My hon. Friend is absolutely right. The permutations and problems are too numerous to mention.
We raised our questions with the Minister during the debate in Committee on clause 8 on 19 April. I asked him specifically whether independent taxation for men and women could be maintained. He responded:
“Independent taxation will still apply, each partner will still have their own personal allowance and tax rate bands, and the amount of child benefit, even if it is received by the taxpayer’s partner, will not increase the amount of income liable to tax.”
That is absurd, because it is not what independent taxation means. He continued:
“Where there are two high earners in a household and they do not want to tell each other their incomes, there will be a mechanism whereby they can find out whether they have a higher or lower income but without the full details.”––[Official Report, Finance Public Bill Committee, 19 April 2012; c. 617.]
He then said, “my time is up”; he could not explain in any more detail, and we were dismissed. Since then, tax experts at the Chartered Institute of Taxation and the Institute of Chartered Accountants have examined the matter and identified exactly the same problem. The Minister should take account of what hon. Members say. Now that tax experts are saying the same thing, I hope that he has asked his officials to re-examine the matter and can tell us today that he has changed his mind.
When I was first elected in 2005, I had the great pleasure of serving on the Finance Bill Committee with the Minister. He was always telling us what Mrs Gauke thought about things; she is an accountant.
The Exchequer Secretary to the Treasury (Mr David Gauke)
It is a pleasure to serve under your chairmanship, Mr Streeter. I congratulate the hon. Member for City of Durham (Roberta Blackman-Woods) on securing the debate, and thank all the hon. Members who have contributed. A number of factual questions have been asked about the operation of the policy on child benefit, and I shall deal with as many as possible.
The changes that we announced at Budget 2012 ensure a balance between reducing the cost to the Exchequer of child benefit and ensuring that those on low incomes will not be affected. I must put the measure in context; it is the consequence of the state of the public finances that the Government inherited. We have to make decisions because of the Budget deficit that we inherited—the largest in our modern history. It is, unfortunately, the British people who will have to pay for the debt left to us by the previous Administration.
Fiona O'Donnell
I follow the Minister’s argument about the need to reduce the deficit, but will he acknowledge that that is no excuse for a bad policy that even Members on his own side acknowledge is intrinsically unfair?
Mr Gauke
It is because of the state of the public finances that we must take difficult decisions. I will strongly defend the policy, but I must make the point to hon. Members who oppose it that it is helping us to reduce the deficit by £1.8 billion. If we do not find that sum in the way in question, we will need to find it somewhere else, or borrow more. That is the decision that we all face.
Kate Green
I understand, although I do not agree with, the point that the Minister makes, but why is he singling out to bear the burden those families in higher-rate tax brackets who have children, rather than equivalent-income families with no children?
Mr Gauke
My hon. Friend the Member for Christchurch (Mr Chope) made that point. The reason is that child benefit is essentially the only item of welfare spending that goes to households with individuals who earn more than £60,000 a year. I understand the argument that the hon. Lady and my hon. Friend are making: let us keep on spending and raise taxes. That is a tax and spend approach. I do not know whether the hon. Member for Stretford and Urmston (Kate Green) speaks for her party on that; I know that my hon. Friend the Member for Christchurch does not for ours.
Kate Green
I am confident of speaking for my party when I assert our absolute commitment to the universal payment of child benefit.
Cathy Jamieson
It is just a brief point. The Minister correctly referred to the ONS. When will that assessment be made, and when will we be told what it decides?
Mr Gauke
If memory serves, the ONS will make that assessment after the policy has come into effect, in January 2013.
As I said, we face a large deficit and seek to reduce it in a way that is both fair and reasonable. It is only right and proper to ask those with the broadest shoulders to bear the greatest burden; because of this measure and others announced by my right hon. Friend the Chancellor in the Budget, that will be the case. Considering the universality of child benefit was never our first choice, but that is the position in which we have been left.
I recognise that many are concerned about the change. Some argue that child benefit must be sacrosanct. However, it is not fair that an individual who earns £15,000, £20,000 or £30,000 should be paying for benefits for those earning £80,000, £90,000 or £100,000. When Government need to raise revenue, it makes sense for them to turn to a measure with a broad base because significant numbers of recipients will not be reliant on the additional payment they receive. Child benefit is just that sort of payment.
The steps that we are taking will raise £1.8 billion for the Exchequer by 2014-15. That is why my right hon. Friend the Chancellor announced in 2010 that we would seek to withdraw child benefit from higher-rate taxpayers. We have always said that we would consider the ways in which to implement the measure, but we made it clear that a new complicated means test is not a sensible way forward. Instead, we should look to the existing systems and processes to ensure that we can achieve our goal.
Let me turn to the changes that we are introducing.
Kate Green
The Minister thinks that we do not have a new complicated means test, but does he not accept that we have a new complicated tax test—and that from a Government who want to simplify the tax system?
Mr Gauke
The alternative method, which would have been to do this on household income, would mean applying the tax credit system to all 8 million child benefit recipients. That would widely expand the tax credit system and impose a burden on a far greater number of people.
We propose to withdraw the financial gain from child benefit from those families where one partner has income of more than £60,000, and reduce the gains where one partner has income of more than £50,000. By applying a tax charge on those on high incomes using existing processes, we are doing it in the most efficient and pragmatic way. The charge will apply to an individual in receipt of child benefit, or their partner, where they are married or in a civil partnership, or living as if they are married or in a civil partnership. I hope that that answers the point about what a household is. It uses the current definitions of partners within social security legislation, and means that other adults living within the household do not affect the liability.
It will remain the case that two earners just below the threshold will not have their child benefit withdrawn. To introduce a new means test for family income would be complicated, costly and confusing—the very things that we wish to avoid. We would need to assess all of the 8 million households receiving child benefit, and we would need to do so each year.
Let me turn to the mechanics behind the changes that we are introducing. First, the changes will not affect those receiving child benefit who have income under £50,000, or whose partner does. That will mean that 85% of families receiving child benefit need not be troubled by the changes—85% means more than 7 million families. Where an individual or their partner has income of more than £50,000, the charge will be tapered depending on their income. The equivalent of 1% of the child benefit award will be charged for every £100 increase over £50,000 in adjusted net income. That means that child benefit is fully withdrawn at an income of £60,000. Furthermore, the thresholds between which the taper operates are not dependent on the number of children.
Those affected—around 1.2 million taxpayers—will declare their liability through the income tax self-assessment process, though just over half are already within the SA system. Although we recognise that the charge will bring some taxpayers into self-assessment for the first time, using self-assessment means that the tax can be calculated on the basis of the amount of child benefit received, and the taxpayer’s actual income. That is preferable to including an estimate in a taxpayer’s PAYE code, only to discover an underpayment or overpayment of tax at the year end as actual income proves to be different from estimated income. Even as small a change as £100 will change the amount of tax due for an individual on the taper. As a third of taxpayers affected will benefit from a reduced liability as they are on the taper, using PAYE rather than self-assessment would generate large numbers of under and overpayments.
The changes will take effect from 7 January 2013, with individuals affected including information relating to the charge for the first time in their self-assessment returns for the tax year 2012-13. The first payments of the charge will be due by 31 January 2014 if a taxpayer chooses to pay in a lump sum. Otherwise, the amount due for 2012-13 will be collected through the tax code in 2014-15.
Cathy Jamieson
I have a quick point. The Association of Chartered Certified Accountants is concerned that there will be further confusion over the fact that although the new scheme starts in January, the tax year does not start until April. How does the Minister answer that criticism?
Mr Gauke
Initially, we said that the scheme would be introduced from 1 January 2013—actually, it is from 7 January because that is the first day on which child benefit is payable. Such a time scale is perfectly operational, and there is no reason why we cannot run it from that particular point. Obviously, were we to delay the introduction of the scheme until April, there would be a cost to the Exchequer.
The introduction of the taper means that the vast majority of taxpayers with income between £50,000 and £60,000 will still gain from taking on extra work or getting a pay increase, even if it does take them over the £50,000 threshold.
A taxpayer or their partner would need to receive child benefit for at least eight children before the tax due on their additional income equalled the amount of income itself. Equally, an individual’s income may reduce so that they are no longer liable to the charge. That may also mean that tax due in respect of previous years can no longer be collected through the tax code. In such cases, HMRC will use its usual debt management processes.
Let me address the issue of opting out, which has been raised by a number of hon. Members. We are enabling individuals to opt out of receiving child benefit. Understandably, the point has been raised about state pensions and so on. Let me be clear. National insurance credits, which protect a person’s future entitlement to basic state pension and the state second pension, will remain available to all those who take time out of work to bring up children. The protection is given to anyone claiming child benefit for a child under the age of 12, even if they do not receive any payment or if they or their partner has to pay the new tax charge. The introduction of the tax charge will not affect a person’s right to claim child benefit. Child benefit will remain available to be claimed by anyone responsible for the child.
Parents and carers will have two options to safeguard their state pension, and they will be made clear on the child benefit claim form. First, they can claim child benefit and receive the payments. If liable, they or their partner can pay the new charge. Alternatively, they can submit a claim form for child benefit to establish their entitlement for state pension purposes, but choose not to receive the actual payments. That means that neither they nor their partner will be liable to pay the new charge, but the national insurance credits will still be received.
As for compliance, our approach means that we can use the current HMRC systems. That reduces the cost of implementation both for HMRC and the individuals affected. HMRC will use existing penalty regimes for those who choose not to tell it that they are liable to the new charge or who declare the wrong amount on their self-assessment return.
In the interests of time, let me turn to the issue of taxpayer confidentiality that the hon. Member for Bishop Auckland (Helen Goodman) raised. We have some disagreement over the meaning of independent taxation. It is about individual allowances and assessment of own income. In the 1980s, it replaced the system whereby a husband declared his wife’s income on his return, which increased his income. I understand the concern over taxpayer confidentiality. Information that should be shared between partners relates to whether child benefit is being claimed and which of the partners should have the tax charge—in other words, which tax partner is earning the most income.
The mechanisms in place will provide the minimum of information. Partners who may not be talking to each other can discover who is earning the most, but not the full details and whether or not child benefit is being claimed and for how many children. That is the extent of the information that needs to be shared, and HMRC is developing a process that enables it to share limited information with an ex-partner.
As I have already said, the Government have had to make difficult decisions. To continue to provide child benefit, we must do so in a sustainable manner. The current cost to the Exchequer for those recipients less in need is too high. To pay almost £2 billion to higher-rate taxpayers does not represent good value for money in these challenging times. We also recognise that we must withdraw child benefit to higher earners in a fair manner. The increase of the threshold to £50,000 and the introduction of the taper ensure that we are taking this action only in relation to those who can most afford it.
Anti-avoidance
David Gauke Excerpts(12 years ago)
Written StatementsRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Exchequer Secretary to the Treasury (Mr David Gauke)
I am announcing a change in legislation to protect public finances and prevent tax avoidance. This follows a decision of the Court Justice of the EU which affects the way in which the UK treats certain face value vouchers for VAT.
It is the Government’s intention to introduce legislation as part of the Finance Bill 2012 that will have effect from the date of the announcement. This will align domestic legislation with the relevant EU directive and, additionally, protect revenue and guard against potential artificial avoidance of VAT through the use of face value vouchers.
Although the legislation will apply from 10 May, any VAT due arising from its operation will not become payable until after Royal Assent of the Finance Bill 2012. Until then, suppliers may continue to account for VAT under the current rules.
HMRC have today published a statement on their website explaining the change, together with a technical document containing draft legislation which the Government intend to include in the current Finance Bill by way of amendment. Copies of the documents will be deposited in the Libraries of both Houses.