Oral Answers to Questions
Debate between David Gauke and Baroness Keeley(8 years, 5 months ago)
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Mr Gauke
As I outlined a moment ago, the purpose of the tax measures is to encourage people to invest in businesses. The changes are specifically targeted at companies—the cut in CGT does not apply to residential property—and put in place an environment in which businesses can grow and prosper. That is absolutely the right approach to follow. I remind the hon. Gentleman that there are other countries that have taken different approaches, of which he has been full of praise. It is not quite working out in Venezuela, is it?
Barbara Keeley (Worsley and Eccles South) (Lab)
11. What steps he is taking to ensure that disabled people are not disproportionately affected by reductions in government expenditure.
Finance Bill (Second sitting)
Debate between David Gauke and Baroness Keeley(9 years, 1 month ago)
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Mr Gauke
My hon. Friend is absolutely right. The best way to ensure that we have rising living standards is to have strong economy, which ensures that we encourage businesses, attract investment to the UK and reward entrepreneurship. That is the Government’s approach, but whether it is that of the official Opposition remains to be seen.
As we are talking about income tax, it is worth pointing out that 3.8 million individuals have been removed from income tax altogether since 2010 as a consequence of increases in the personal allowance. The Government are committed to continuing to make work pay and have pledged to raise the personal allowance to £12,500 and the higher rate threshold to £50,000 by the end of this Parliament. The Government also believe that people working 30 hours a week on the national minimum wage should not pay income tax. That is why we are introducing a change so that the personal allowance will automatically increase to ensure that it does not fall below the equivalent of 30 hours a week on the national minimum wage.
This will be the first time in history that the personal allowance has not been indexed on the basis of price inflation, instead ensuring that individuals who earn up to 30 hours on the national minimum wage will not pay income tax in the future. Clause 3 changes the basis of indexation for the income tax personal allowance from the consumer prices index to ensure that it is always set at a level at least equivalent to 30 hours a week on the national minimum wage. The change will take effect once the personal allowance reaches £12,500. Individuals working 30 hours a week or fewer on the national minimum wage will therefore be taken out of income tax altogether.
Clause 4 sets out that, until the personal allowance reaches £12,500, the Chancellor will have a legal duty to consider the impact of any proposed increase to the personal allowance on an individual working 30 hours a week on the national minimum wage. The clause also sets out the requirement for the Chancellor to make a statement on the impact that this will have on those individuals when an increase to the personal allowance is made at a future fiscal event.
The changes to income tax thresholds in the Bill will mean that an individual can work at least 30 hours a week without paying income tax both in 2015-16 and next year. In 2010, an individual could work only 21 hours on the national minimum wage without paying income tax. In time, an individual working 30 hours on the national minimum wage will be brought back into income tax.
On clause 5, it is worth pointing out how much the personal allowance has increased in recent years. In 2010-11, it was just £6,475; now, it is £10,600. Following on from that record, in this Parliament, we have committed to delivering a high wage, low tax, low welfare society. That includes reducing taxes for the lower paid, and that is why we have committed to increasing the personal allowance from its current level of £10,600 to £12,500 by the end of the Parliament. Clause 5 increases the personal allowance from £10,600 in 2015-16 to £11,000 in 2016-17 and to £11,200 in 2017-18.
In total, 570,000 individuals will be taken out of income tax altogether by 2016-17. That will increase to more than 660,000 by 2017-18. The changes represent a tax cut for 29 million taxpayers who will see their typical income tax bill reduced by £905 by 2016-17. Taxpayers who are over 65 will also benefit. From 2016-17 onwards, the tax system will be simplified so that all taxpayers will be entitled to the same personal allowance; the remaining age-related allowance of £10,660 will be merged with the higher personal allowance of £11,000.
The clauses allow us to support those in work by enabling people to keep more of the money they earn by paying less income tax. We are helping the lowest paid by taking them out of income tax altogether and we are moving towards a high wage, low tax and low welfare society.
Barbara Keeley (Worsley and Eccles South) (Lab)
Welcome to the Chair, Mr Howarth. It is a very long time since I did a Finance Bill––it was in my very first year as an MP. We have had a lot of guidance this morning, because apart from me going back to 2006, many Members have not done one before.
Clause 3 changes the basis of indexation for the income tax personal allowance from the consumer prices index to a link to an annual equivalent of an individual working 30 hours per week at the national minimum wage adult rate, when the personal allowance reaches £12,500. Clause 5 outlines future increases in the personal allowance that will work towards the Government’s stated aim of a personal allowance threshold of £12,500. The personal allowance is currently £10,600 and is set to rise to £11,000 in 2016-17, followed by a further increase to £11,200 in 2017-18.
Labour supports measures to improve the living standards of families across the UK. Every worker should be entitled to a fair wage and we welcome the increase in the personal allowance. We understand the reasoning behind changing the indexation for the income tax personal allowance. Linking the allowance to the annual equivalent of an individual working 30 hours per week at the adult rate of the national minimum wage when the personal allowance reaches £12,500 should help to increase a worker’s take-home pay when they work full time on the national minimum wage.
Currently, a person working on the minimum wage for 48 weeks a year earns £9,360 and so is already below the personal allowance threshold. Indexing the personal allowance to the national minimum wage rather than inflation will help to protect the earnings of minimum wage workers as the minimum wage rises above inflation. If the indexation of the personal allowance were to remain aligned to the consumer prices index measure of inflation, many workers on the national minimum wage could find themselves dragged into the personal allowance as their wages increase, as has certainly been the case in the past.
It is welcome that the Government are moving towards a wage and tax system that acknowledges people’s right to make a decent living, but it must be noted that the change in indexation may also have unintended consequences, particularly in the long term. In future, if the national minimum wage fails to rise in line with inflation, families could be hit by stagnant wages and a personal allowance that fails to reflect a squeeze on living standards. I hope that is borne in mind and that any future Government faced with this problem will act to protect family incomes.
Although the measure means that people working 30 hours a week on the national minimum wage do not have to pay any income tax, many people are excluded from the additional benefits that brings because they do not earn enough to qualify. In particular, it will make little difference to someone who works part time on the national minimum wage. There are 8.27 million part-time employees in the UK. People work part time for a wide variety of reasons. For example, they may have caring responsibilities or be unable to find any other suitable work. We know that the majority of low-paid part-time workers are women, and we must bear in mind that an increase in the personal allowance is unlikely to have any effect on that group. If the Government are serious about helping those on low pay to achieve a decent standard of living, we must also look towards other areas of income taxation.
The Institute for Fiscal Studies has suggested that reform of national insurance contributions could help those on low incomes. Many people earning below the income tax personal allowance threshold still pay national insurance contributions. I question the Government’s priorities in increasing the income tax personal allowance, because I feel that there could be more targeted assistance for those on the lowest incomes through changes to national insurance contributions.
That is a symptom of a wider problem within our tax system. The lack of alignment between income tax and national insurance causes additional complications for employers, Her Majesty’s Revenue and Customs and the public. We welcome the Chancellor’s asking the Office of Tax Simplification to look at the possibility of merging income tax and national insurance. As national insurance and income tax have become less distinct in their purpose and what they are used to fund, it is important that we review how we can address the lack of alignment between the two.
Although the personal allowance for income tax has consistently been raised to take more people out of tax, the tax people pay through national insurance has lagged behind. We must consider whether any future increases in the personal allowance could be targeted at national insurance, reducing distortions in our tax system and simultaneously helping those on low pay.
Although the use of the adult national minimum wage as a benchmark for the personal allowance is welcome, we must note that it will not be equivalent to the real living wage or even the apparent living wage announced by the Chancellor in the summer Budget. As the Bill stands, the national minimum wage appears to be the rate for those aged 21 and over. The personal allowance is therefore no guarantee of a living wage for people who work more than 30 hours a week. Will the Minister say whether the Government will seek to increase the personal allowance in future to the level of the new national living wage for the over-25s, once it is introduced?
There is great confusion about the Chancellor’s use of the term “living wage” in the Budget. Even if the new so-called living wage of £9 per hour were used in this calculation, it is unlikely to provide a real living wage for full-time workers. The current UK living wage, as calculated by the Living Wage Foundation, is £7.85 an hour throughout the UK, with the exception of London, where it is £9.15 an hour. The current real living wage, however, takes into account the tax credits that many families will lose under the Budget. When the Chancellor’s living wage reaches £9 an hour in 2020, it is likely that that will not reflect a real living wage as calculated by the Living Wage Foundation.
Mr Gauke
From what the hon. Lady said, I take it that she welcomes the significant further increases in the personal allowance. We have come a long way from the days when it was just £6,475, and I am glad we have made that progress. I am pleased that she appears to accept the principle of linking the personal allowance to the national minimum wage. I hope she recognises that the reforms we are making are helping the country to move towards the low-tax economy we need.
The hon. Lady asked a number of questions, for which I am grateful. She stated her support for the introduction of the national living wage, but then raised concerns about the jobs that will be lost and the care sector. We have to remember that this country is successfully creating a lot of jobs. Large numbers of jobs have been created in the past year or so, so we believe that the time is right for us to introduce the national living wage. We are locking in a more generous floor for the lowest paid across the economy, which obviously applies to the social care sector. Clearly, the costs of social care will be taken into account as part of the local government settlement in the spending review later this year. I cannot add much more to that at the moment, but I hear the hon. Lady’s point.
Barbara Keeley
It is instructive to listen to care providers and the people around them—the national provider associations. Privately paying residents of care homes now subsidise the residents who are paid for through local authorities to a substantial extent. I was given a case of somebody who, at the end of their life, was moved to a much smaller, cheaper room. That can happen in people’s last months, as they are approaching death. Care home providers do not want to do that, but they are in an awful situation in which there is a great disparity between the cost of supporting people as they need more and more care and the money available. We have to recognise that that is happening. I want to emphasise how important this is. The Minister and his colleagues should listen to the people who are worried about this. Although more jobs are being created and people can transfer between jobs, we cannot live without care homes.
Mr Gauke
The point I am making is that as we increase the personal allowance, people who earn under that amount do not pay income tax. If we still had a personal allowance of £6,475, such a person would clearly be paying income tax. If the hon. Gentleman is saying that we have already made an awful lot of progress, I would entirely agree with him. That does not mean that we should stop.
The hon. Member for Worsley and Eccles South raised the issue of the national living wage, which we will introduce. It is based on the national minimum wage, which we believe should continue in its current form, applying recommendations from the Low Pay Commission to the Government. That has an important role to play.
The Government want to protect younger workers’ employment prospects as well as see as many people as possible benefiting from a higher wage. Given that younger workers tend to have less experience in the labour market than older workers, there is a risk that too high a wage rate might make them relatively less attractive to employers. That is why we will have both the national living wage and the national minimum wage.
Barbara Keeley
I talked at some length about national insurance and the fact that those with very low earnings may not reach the personal allowance but still pay national insurance contributions. Will the Minister comment on possible steps to remedy that drift? What are the Government’s plans?
Mr Gauke
I understand the hon. Lady’s point. In the coalition agreement in 2010, the coalition Government made it clear that our objective was to increase the personal allowance. Again, in my party’s manifesto for the 2015 general election, we made it clear that we wanted to increase the personal allowance, and of course we will. Our priority is to honour our manifesto commitments and that is what we will do.
It is worth pointing out that the income tax rate is higher than the rate of national insurance contributions. The increases in the personal allowance have been effective in sending a clear signal that we are making work pay and I think they have contributed to the strong recovery we see in jobs. That is to be welcomed, because it incentivises people to work.
Barbara Keeley
I understand that we want to ensure that people on the lowest incomes who may not work a lot of hours, and certainly those on the national minimum wage or zero-hours contracts, do not reach the personal allowance. However, the point remains that they are paying national insurance contributions and that is an alternative route to help people on very low pay.
Mr Gauke
That is an alternative route; it is hard to argue against that point. What I would say is that we had a manifesto commitment to increase the personal allowance to £12,500. Given that that was our manifesto commitment, it is right that we fulfil it—I am sure the hon. Lady does not disagree with that—and that is precisely what this measure will do. I hope that the Committee will support the clause.
Question put and agreed to.
Clause 3 accordingly ordered to stand part of the Bill.
Clauses 4 and 5 ordered to stand part of the Bill.
Clause 6
Basic rate limit from 2016
Question proposed, That the clause stand part of the Bill.
Mr Gauke
The clause sets the income tax basic rate limit for 2016-17 and 2017-18. The changes deliver the Government’s commitment to support and reward those in work. In the last debate I set out the Government’s record on cutting taxes. On top of that, we also want to support middle-income households and to reward individuals who want to work hard and progress. That is why we have committed to increasing the higher rate threshold—the point at which the higher rate of income tax is applied—to £50,000 by the end of the Parliament. The clause takes the first step in delivering that commitment.
Clause 6 increases the basic rate limit from £31,785 in 2015-16 to £32,000 in 2016-17 and £32,400 in 2017-18. That is the income on which 20% tax is due. The income tax higher rate threshold, which is the sum of the personal allowance and the basic rate limit, will therefore increase from £42,385 in 2015-16 to £43,000 in 2016-17 and to £43,600 in 2017-18. Above that level, 40% tax is due. This is the first above-real-terms increase in the higher rate threshold since 2010, taking 130,000 people out of the higher rate of tax by 2016-17. By 2017-18, that will rise to more than 160,000 individuals. Since 2010, a typical higher rate taxpayer will have gained £818 by 2016-17 and £918 by 2017-18.
As in previous years, the national insurance upper earnings and upper profits limits will remain aligned with the higher rate threshold in 2016-17 and 2017-18. I noted on Second Reading of the National Insurance Contributions (Rate Ceilings) Bill earlier this week that a number of Labour MPs suggested that the link should be broken and that national insurance contributions should be charged at 12% above the higher rate threshold. Clause 6 allows the Government to support those in work, enabling people to keep more of the money they earn by paying less income tax. That helps us to move towards a high wage, low tax and low welfare society.
Barbara Keeley
I note the Minister’s point about the comments of Back-Bench MPs, but as I said earlier, all parties in the House have Members who do not share the views of those on the Front Bench. That is the way it is, and I could certainly quote all kinds of thing that have been said by Conservative Members on matters dear to my heart.
Clause 6 sets the income tax basic rate limit for the 2016-17 and 2017-18 tax years. It will rise to £32,000 in 2016-17 and £32,400 in 2017-18. We are in favour of tax cuts for those on middle incomes and we support the increases in both the personal allowance and the basic rate limit for 2016-17. However, as inflation, pay and living costs increase, we need to ensure that the basic rate limit for income tax reflects that change. That will prevent families and individuals from being dragged into a higher tax bracket and paying a higher proportion of their income in taxes, despite them seeing no real-terms increase in their living standards or disposable income. Many people feel that is the situation they are in today.
We must also bear in mind how many people will benefit from the increase in the basic rate. In the most recent annual survey of hours and earnings, which used 2013 data, the median gross annual earnings for an individual was just over £22,000. The majority of basic rate taxpayers earn much less than the basic rate limit and are unlikely to benefit from the increase. It will only benefit people with earnings towards the top of the basic rate of tax and will disproportionally benefit people who earn much more than the average income of an individual in the United Kingdom.
As always, we must look at the package of measures outlined in the summer Budget to understand the true impact of the change for working people. Although the Government are altering the tax system to help to ensure that people are rewarded for work, this still does not help to tackle low-paid insecure work. On 2 September, the Office for National Statistics released its figures for zero-hours contracts, which we have already touched on today. Those figures showed that zero-hours work is on the rise, with the total number of contracts rising to 1.5 million and the number of people reporting zero-hours contracts as their main source of employment rising by almost 20% since last year.
At the same time, there are now more than 1.2 million people working part time because they could not find full-time work. That is 200,000 more people than when the Conservative party took office in 2010. John Philpott, director of the Jobs Economist, has raised concerns that the new national minimum wage will mean that employers could stop offering full-time permanent contracts to avoid paying the steep rise in the national living wage for the over-25s, which comes into force next April. He has stated:
“In an otherwise very lightly regulated UK labour market the forthcoming large hike in the minimum wage when the national living wage (NVL) is introduced next year might act as a further incentive to employers to increase their use of zero-hours contracts—which are already very prevalent in sectors where the NVL will bite hardest—in order to minimise the impact on total labour costs.”
We welcome the introduction of the higher limit for basic rate taxpayers. Although basic rate taxpayers will be protected from a rise in living costs, the Government’s freeze in working-age benefits will mean that benefit recipients will not receive the same assurances. In fact, taking into account inflation forecasts, the Institute for Fiscal Studies has estimated that the freeze in working-age benefits is equivalent to a 4.8% cut to working-age benefits over the four years. That will result in 13 million families losing £260 a year on average in benefits.
Although a basic rate rise will be welcomed by those who will benefit from the increase, we must bear in mind that many workers will not benefit from the rate rise. It will not help to solve the problem of insecure work nor will it make up for the other changes to welfare payments and tax credits that go to people who earn significantly less than the threshold.
Mr Gauke
I retract that. The hon. Lady is not dismissing the opinions of Back Benchers; she just does not like them being quoted. I can understand why she holds that position, given the circumstances in which she finds herself.
The hon. Lady makes the point that the changes will not help individuals who do not pay income tax, or those who do not pay higher rate income tax. Under the circumstances, however, we believe that it is right to increase the higher rate threshold. This is the first above-inflation increase for some years. We have set out our intention to have a higher rate threshold of £50,000 by the end of the Parliament, and I hope that the hon. Lady will support that.
It is right that we support work. I sat in similar debates during the previous Parliament and listened while Front-Bench Labour spokespeople made the point that some nurses, policeman and others would benefit from bigger increases in the higher rate threshold, but that we were not increasing it fast enough. I hope that she will welcome the fact that we are making that progress and that the Labour party will continue to support such measures, which are all part of our move towards a low tax, low welfare and high wage economy.
Question put and agreed to.
Clause 6 accordingly ordered to stand part of the Bill.
Clause 7
Rate of corporation tax for financial years 2017-2020
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Such greatness to fall on one so young.
In the face of global competition, the UK cannot afford to stand still, which is why we will go further in this Parliament, cutting the rate to 19% in 2017 and 18% in 2020. Those cuts will benefit more than 1 million businesses, saving them a further £6.6 billion by 2021, and will give the UK the lowest corporation tax rate in the G20, supporting investment, productivity and growth.
There is strong evidence of the economic benefits of lower corporation tax rates. Low rates increase the return that companies receive on investment, so encouraging the business investment that is vital to productivity growth. The University of Oxford estimates that the reduction in the corporate tax burden that we have delivered will increase business investment by £11 billion. The Treasury and HMRC have modelled the economic impact of the corporation tax cuts delivered since 2010, along with those announced at the summer Budget. The modelling suggests that the cuts could increase long-run GDP by more than 1%, or almost £20 billion in today’s prices.
[Mr George Howarth in the Chair]
As well as supporting businesses already operating in the UK, lower rates of corporation tax make the UK more attractive to international businesses. UK foreign direct investment stock has increased by almost 50% since 2010, reaching £1 trillion by the end of 2014. Last year, UK Trade & Investment reported almost 2,000 inward investment projects—the highest number ever—which have created almost 85,000 new jobs. The corporation tax cuts and other reforms, such as the introduction of the patent box, have completely changed perceptions of the UK tax regime. Five years ago, businesses were leaving the UK because of our tax regime; that regime has now become an asset that attracts firms to the UK, which is now regularly cited in surveys as having one of the most competitive regimes in the world.
In conclusion, cutting corporation tax has been a central part of the Government’s economic strategy, and it is working. The UK grew faster than any other G7 economy in 2014, and 2 million more people are in employment since 2010. Business investment is growing rapidly. Tax competition is dynamic. In the past few decades, we have seen countries throughout the world cut their corporation tax rates. We cannot afford to stand still while others rush ahead. The UK needs to be as competitive as possible.
There were those at the general election who advocated an increase in corporation tax to 21%. I am pleased that, months later, on Second Reading, those very same people were supportive of the measures in the clause. I am grateful to the hon. Member for Birmingham, Ladywood (Shabana Mahmood), who spoke for her party in that debate and supported the reduction in corporation tax to 19% and then 18%. A new 18% rate will send out the message around the world loud and clear that Britain is open for business. I hope that the Labour party will continue to support the policy, and I commend the clause to the Committee.
Barbara Keeley
I am glad to see you back in the Chair, Mr Howarth. I put my head down for a moment and then you were not there.
As we have heard, clause 7 sets the main corporation tax rate at 19% for the financial years beginning on 1 April in 2017, 2018 and 2019, and at 18% for the financial year beginning 1 April 2020. Labour is in favour of support for businesses, which is what we need to discuss as we consider the clause. We want to help British businesses to invest in the UK and to enable long-term investment. We will support the corporation tax measures, but we have questions about the future direction of policy on support for businesses. It perhaps is not appropriate to discuss it at this point, but that is why later in our consideration of the Bill we would like to introduce a new clause asking for a public consultation on the reforms to the system of tax relief for businesses.
Mr Gauke
I begin by welcoming the support of the hon. Member for Worsley and Eccles South for the reduction in corporation tax—although, if I may say so, she could have sounded a little more enthusiastic about the measure. I would be grateful to know whether the shadow Chancellor agrees with the reduction in the corporation tax rate first to 19% and then to 18%. He is on record suggesting that the rate should be considerably higher, but I appreciate that he made those comments when he was a Back Bencher, so perhaps we should not dwell on them for too long.
A few issues were raised, some of which relate to this clause. I will try to address as many as possible. First, on the issue of the UK’s reputation and the base erosion and profit shifting process, which was instigated by the UK Government and others, the UK believes in a tax system that is competitive and fair, and which properly reflects where economic activity takes place. We want a simple, competitive and fair tax system, which is why we instigated the BEPS initiative to ensure that companies are not able to make use of an outdated international tax system that does not properly reflect where economic activity takes place. Within that system it is perfectly reasonable to have low and competitive rates, and that is exactly what we have delivered.
As I set out earlier, we are seeing signs of increased business investment. The analysis undertaken by the Treasury and HMRC shows that much of the tax loss as a consequence of the reductions is recovered by increases in economic activity. A dynamic behavioural analysis shows that this is helping. Real business investment is growing as a proportion of GDP; business investment grew by 8% in 2014, and the Office for Budget Responsibility is forecasting that it will grow strongly over the next few years. It is also worth pointing out that the likes of the OECD make the case that corporation tax is perhaps one of the most economically damaging taxes and one of the most inefficient of our taxes. That is why it has been a priority for the Government to reduce it. We believe that if the UK is to prosper and to win the global race, it is important that we have that competitive tax system.
Our case as a country would be aided if there was consensus that we should have low rates of corporation tax, and that is why I genuinely welcome the fact that the Opposition parties apparently will not divide the Committee on that issue. I hope that that consensus can be maintained, because those who go around advocating very high rates for corporation tax do not aid those of us who are trying to advocate that businesses should invest in the UK when they have a number of international choices.
Barbara Keeley
I do not think it would be my place to confirm the shadow Chancellor’s support for the measure. If this is going to come up again in the debate, I should explain that we have a robust system of policy development and that decisions in the short to medium term are taken by the shadow Cabinet, which I think has met only once since we had the change of leadership at the weekend; then we have a substantial policy forum set up, which works nationally with our annual conference to take forward new developments and changes in policy direction and decisions. It is not sensible in this very short time into a new administration to ask a junior shadow Treasury Minister to make that point.
To bring the Minister back to my questions, I spent quite a lot of time talking about corporation tax versus business rates. We made our pledge on business rates and we are very concerned about small and medium-sized businesses, and about the high street. Can he answer my questions?
Mr Gauke
I will, although I do not want to hurry away from corporation tax, given that it is the essence of clause 7. I note that the hon. Lady said that although she is able to make a statement about party policy as the Labour party Front Bencher in this Committee, neither the leader of her party nor the shadow Chancellor are in a position to do so. If that is the way the Labour party operates, that is one for that party, curious though it might be to the rest of us.
Mr Gauke
My hon. Friend makes a very important point. Another point about corporation tax that can be lost in the debate is that, ultimately, the burden of all taxes falls on people. There is a lively debate on corporation tax about how much should it fall upon shareholders, in which case we are often talking about pension funds that pay pensions to ordinary people. Sometimes it could fall upon employees as a consequence of the fact that there is a reduction in investment as a consequence of corporation tax, which in turn means that productivity does not improve, and as productivity tends to drive salaries and wages, employees often suffer; or it could indeed be consumers who suffer from higher prices as a consequence of corporation tax.
Let us be clear that all taxes that we debate in this Committee are ultimately paid by people. They might not be writing the cheque or transferring the funds from their account, but ultimately all taxes are paid by people, and if one has an economically inefficient tax, the price that people pay for the benefit to the public finances becomes all the greater.
Barbara Keeley
I find the comment from the hon. Member for North Dorset about the prior experience of Members of this House rather patronising. I started my career in IBM, which is one of the biggest companies in the world. In fact, I worked at the large systems end of IBM with some of the largest organisations in the country, so I will not be patronised about my business experience. I have also been self-employed, which an awful lot of Members have not been.
I return to the point that this was a straightforward switch. I do not have many large corporations in my constituency in Salford, but I do have a lot of small and medium-sized businesses. Our straight switch from corporation tax was to support those small and medium-sized businesses. That was the essence of my contribution.
Mr Gauke
I am grateful to the hon. Lady for her intervention. To be fair to my hon. Friend the Member for North Dorset, he was saying that those who advocate corporation tax rises might not understand business. As she is not advocating corporation tax rises, I do not think she should take those remarks personally.
The coalition Government introduced a number of measures on business rates at autumn statements and in Budgets—for example, introducing a discount and extending the small business rate relief. We have announced a review of business rates, which will report by the end of the year. We set out details in the Budget of how we are paying for the rate cut, as part of a set of tax-reforming measures.
The Government have taken strong steps to deal with avoidance both domestically and internationally. I will not detain the Committee on that, but I am happy to do so if necessary.
On tax simplification and helping small and medium-sized enterprises, it is worth pointing out that the Office of Tax Simplification was set up in 2010 and has made more than 400 recommendations, of which half have already been implemented. The OTS will be established on a statutory basis with an expanded role and capacity.
The hon. Lady asked specifically about the late payments consultation. As we heard, that consultation was completed last month and the House will be updated on its results once responses have been reviewed. I am grateful for the Committee’s support for the measures, and I hope clause 7 will stand part of the Bill.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Clause 8
Annual investment allowance
Question proposed, That the clause stand part of the Bill.
Mr Gauke
I thank hon. Members for their questions. First, let me make it clear that £200,000 is the highest permanent level there has been for the allowance. If I recall correctly, it was £100,000 during the Labour party’s last year in office. We made some temporary increases in the AIA to support the recovery, and those increases were warmly welcomed by businesses, which believed that they allowed them to bring forward and realise their investment plans. We recognise the importance of providing certainty to businesses in the current economic climate, and we are committing to keeping the level of £200,000 for the entire Parliament. We believe that that will help to provide an environment of long-term support for businesses to invest.
The level of the allowance must be viewed in the context of cuts to corporation tax. We must remember that although the previous Government had an annual investment allowance of £100,000, the rate of corporation tax was 28%. The allowance of £200,000 when we have a corporation tax rate of 20%, falling to 18%, is significantly more generous.
On business reaction, let me read two quotations following the Budget announcement on 8 July. John Allan, the chairman of the Federation of Small Businesses, said:
“The Annual Investment Allowance has been an important incentive for people investing in the future growth and productivity of our small businesses. We have long called for the Allowance to be set permanently and at a reasonable level. Small firms will therefore welcome the move by the Chancellor to do just that by setting the Allowance permanently at £200,000.”
John Longworth, the director general of the British Chambers of Commerce, said on the same day:
“The Chancellor has confirmed that Britain is open for business. Firms across the UK will cheer not just the new permanent Annual Investment Allowance, further Corporation Tax reductions, and lower National Insurance for small businesses, but also commitments to childcare and higher education that help them employ Britain’s best.”
We must bear that in mind.
Barbara Keeley
The quotes give part of the message, and it is not surprising that those whom the Minister has quoted from business support permanence. As two Opposition Members have said, however, businesses have called for the allowance to be retained at £500,000. It is not surprising that they wanted permanence, but they also wanted a higher level.
Mr Gauke
The reaction to the announcement was that businesses were pleased. That is what we got from the Federation of Small Businesses and the director general of the British Chambers of Commerce. Would they have liked it to be higher? Of course they would, but the claim that the measure has disappointed business is certainly not supported by those two quotations.
Mr Gauke
I understand the hon. Gentleman’s point, but if he will bear with me, I will set out the rationale for the measure. We think there is a particular issue about family homes and the fact that more and more homes are caught by inheritance tax. That is why we have introduced these measures. When it comes to complexity, if one looks at the inheritance tax regimes of Germany, Italy or France, they all consist of a number of different bands or rates, depending upon the relationship between individuals. Germany also allows for an exemption in certain circumstances when the family home is left to children or stepchildren. Several countries, such as Australia, Sweden and Canada, do not have inheritance tax, but still charge capital gains tax on death, and those regimes have their own complexities. Complexity is inevitable because of the complexity of relationships and so on.
What we are considering today is in addition to the existing inheritance tax nil-rate band, which will remain at £325,000 until April 2021. That means that individuals will have an effective inheritance tax threshold of up to £500,000 by the end of this Parliament. In addition, a surviving spouse or civil partner will be able to claim up to £1 million.
From 6 April 2017, a surviving spouse or civil partner who dies will be able to benefit from the transferrable element of the new allowance even if their spouse or civil partner died several years ago. To ensure that the wealthiest make a fair contribution to the public finances through inheritance tax, the largest estates will not be able to benefit from this new allowance. They will have it gradually withdrawn by £1 for every £2 that the estate is worth over £2 million. We do not want to discourage downsizing, and I can confirm that legislation will be introduced in the Finance Bill of 2016 to ensure that those who downsized or ceased to own a home on or after 8 July 2015 are not penalised.
The Government have tabled six amendments to clause 9. Amendments 1 to 3 clarify that homes placed in some types of trust for the benefit of a surviving spouse during their lifetime, and where the home passes to a direct descendant on the spouse’s death, will benefit from the new main residence nil-rate band. Amendments 4 and 5 will ensure that the main residence nil-rate band will apply when an individual leaves their home to the current or surviving spouse or civil partner of anyone already defined as a direct descendant. Finally, amendment 6 is a minor change to the definition of a foster parent to include other similar terms, such as kinship carers in Scotland.
The Opposition’s amendment 7 would require the Chancellor of the Exchequer, three months after the passing of the Bill, to publish a report reviewing the impact of clause 9 on different regions of the UK and house prices. I recognise the importance of evaluating the impact of policy changes, but a formal report is not necessary in this case. HMRC already publishes annual statistics on the number of tax-paying estates and the amount of tax due in each region. I have also explained the steps taken to reduce any potential impact on house prices. The OBR has confirmed that it expects this measure to have only a small impact on the housing market. The Government will keep the impact of the policy under review in the normal way and at the appropriate time, but a report more than a year before it takes effect is not a sensible way forward.
The changes made by clause 9 will mean that around 93% of estates will be able to pass on all their assets without paying any inheritance tax. The number of estates facing an inheritance tax charge in 2020-21 will be almost halved in comparison with previous forecasts, and thousands more will pay less tax. This measure will also provide peace of mind to thousands of families who worry about the prospect of paying inheritance tax. Inheritance tax will, however, continue to make an important contribution to the public finances. The number of tax-paying estates will continue to be higher at the end of the decade than at any time between the introduction of inheritance tax in 1986 and 2014-15. Indeed, more estates will continue to make a contribution than at any time between 1979-80, when capital transfer tax was in operation, and the end of the last Parliament.
There are those who disagree with making it easier for hard-working individuals to pass on their family home to their children and grandchildren. They say that rewarding hard work and aspiration is not a priority, but they are out of touch with the British people. The Government listen to the British people and deliver on their promises.
Barbara Keeley
I am afraid I am not at all convinced, but perhaps that is no surprise. Clauses 9 and 10 bring into force the nil-rate band for inheritance tax, allowing parents to pass on a house to direct descendants, as defined by the Government’s amendments, worth up to £1 million free of inheritance tax. This legislation is extremely technical, running to more than 400 lines and representing six of the clauses we are considering today.
We have been clear that we believe that the focus of tax cuts should be on helping working people on middle and low incomes and on tackling tax avoidance. To answer the question from my hon. Friend the Member for Torfaen, the Treasury has admitted that 90% of households will not benefit from the Government’s inheritance tax policy, so we should be clear about the part of society we are talking about. The priority for the Government, we believe, should be helping the majority of families and first-time buyers struggling to get a home of their own. That is why Labour voted against the Government’s inheritance tax proposals in the July Budget debate.
The Treasury estimates that the changes to inheritance tax will cost the Exchequer £940 million by 2020-21—nearly £1 billion. We must think of priorities and the context of what we are talking about. This is a week when tax credits have been cut, so that two parents working full time on the minimum wage and raising two children will lose £2,200 from tax credits and be £660 worse off, even with the increase in the minimum wage that we talked about earlier.
I would like the Minister to clarify why exempting wealthy property owners from inheritance tax has been one of his Government’s policy priorities. That is the question that we keep coming back to. When this was proposed in the general election campaign, the IFS commented that
“The vast majority of estates (over 90%) are not liable to IHT at the moment and therefore would not benefit…With around 50,000 estates forecast to pay IHT over the next few years this gives an average (mean) gain per IHT paying estate of around £20,000. The maximum reduction in IHT on a couple’s estate is £140,000 which will go to married couples with estates worth between £1 million and £2 million. Since the children of those with very large estates are disproportionately towards the top of the income distribution the gains from this (and in fact any) IHT cut will also go disproportionately to those towards the top of the income distribution.”
The IFS has said:
“Inheritance tax is not very effective at achieving wealth redistribution. Were the threshold raised to £1 million it would also be much less effective in terms of raising money.”
We have to think about that.
Barbara Keeley
I was not in anything like my current role at the time; I am afraid that I cannot explain the thinking of the former Chancellor.
To bring us back to policy priorities, there is much to be said about the technical detail of this legislation. Inheritance tax is already a complex tax to navigate, and the Bill creates a new level of complexity. The tax faculty of the Institute of Chartered Accountants in England and Wales has set out 10 tenets for a better tax system, one of which states that
“the tax rules should…be simple, understandable and clear in their objectives.”
This tax has never been that. The institute says of the clause:
“The measure is excessively complex; it would be simpler to just increase the nil rate band to £500,000.”
Why has the Minister chosen to implement the policy in its current form? There seems to be a simpler way of administering the tax.
Chris Williams of the Chartered Institute of Taxation said:
“The proposals add further complexity to an already complex system. The government has recognised that the problem of downsizing”—
to which the Minister referred—
“must be addressed but proposes only to allow for downsizing that takes place on or after 8 July 2015. Other problem areas include the need to define a main residence consistently throughout the tax system, and to recognise the diverse patterns of the modern family when attempting to restrict the benefit to children and descendants.”
I will come on to that, because there is an important point about what a modern family consists of.
The Mirrlees review, led by the IFS and funded by the Nuffield Foundation and the Economic and Social Research Council, noted that inheritance tax was a
“somewhat half-hearted tax, with many loopholes and opportunities for avoidance through careful organization of affairs.”
That is well known. It went on to say:
“This leads to charges of unfairness and makes a principled defence of the current inheritance tax difficult.”
I grant it that the Minister tried. With such a generous increase in the nil-rate band and such low estimated returns to the Exchequer, the question now is whether we should start revising this to a quarter-hearted, rather than half-hearted, tax. Is this policy a priority at a time when families and first-time buyers are struggling to get a home of their own? The average house price outside London is just over £183,000. The current nil-rate band is £325,000. That would be enough to cover the average value and include a buffer. Why has the Chancellor decided to introduce that additional residence nil rate band?
Mr Gauke
I am disappointed that the Opposition parties will not support this measure, but let me try to respond to some of the points raised. Rising house prices mean that inheritance tax is hitting more families than previously. More estates are paying it than at any time since the system was introduced, and the numbers were forecast to double. This measure will simply return the number of estates paying IHT to the levels of 2014-15, which, at the end of the decade, will still be more than in any year between 1997 and 2010—that is any year of the last Labour Governments, including 2007, when the then Labour Chancellor stood up and announced a significant reform to take more estates out of inheritance tax. Receipts in cash terms will continue to be higher under this Government than at any time since the introduction of IHT.
It is worth pointing out that the taper for estates worth more than £2 million ensures that the largest estates do not benefit. This measure is being paid for by increasing taxes on the wealthy elsewhere in the tax system—for example, changes to the rules relating to non-doms—and by reducing the generosity of pension tax relief for those with incomes over £150,000 in particular.
The question of lineal descendants was raised. The Government have sought to focus on the passing of homes to the next generation in the immediate family, which ensures that parents know that they can pass on the family home they worked hard for without the worry of inheritance tax. The extension of that to homes left to others would carry an additional cost to the Exchequer, which would need to be financed by raising other taxes or reducing public expenditure. We sought to strike the appropriate balance, with a policy that allows the family home to pass on to the next generation, but which is also affordable. In terms of the impact on downsizing and the housing market, the OBR agreed that there will be only a small effect.
The hon. Member for Worsley and Eccles South touched on the cap delay. The Government remain fully committed to introducing a cap on social care costs and helping people to cope with the potentially high costs of social care, but a time of consolidation is not the right moment to implement such expensive new commitments. The decision to delay implementation has not been taken lightly: it follows concerns about timing expressed by stakeholders across the sector, including the Local Government Association and the National Audit Office.
We listened to those concerns and, by delaying implementation of the funding reforms until 2020-21, we will allow local authorities time to focus on delivering the important reforms to care and support introduced on 1 April, laying the groundwork to implement the funding reforms as successfully as possible in 2020. We will also use that time to work with the financial sector to explore what more can be done to support people to plan and prepare for later life and the risk of needing social care. I regret that the measure does not have cross-party support, but I hope that the Committee as a whole will support it.
Amendment 1 agreed to.
Amendments made: 2, in clause 9, page 9, line 18, leave out
“under the disposition the property becomes”
and insert
“the property becomes, on D’s death,”
Amendment 3, in clause 9, page 9, line 20, at end insert—
‘(3B) Where, immediately before D’s death, the property was settled property in which D was beneficially entitled to in an interest in possession, B inherits the property if B becomes beneficially entitled to it on D’s death.”
Amendment 4, in clause 9, page 9, line 27, leave out “a person’s death,” and insert
“the death of a person (“D”),”
Amendment 5, in clause 9, page 9, line 29, leave out
“a lineal descendant of the person”
and insert “—
(a) a lineal descendant of D,
(b) a person who, at the time of D’s death, is the spouse or civil partner of a lineal descendant of D, or
(c) a person who—
(i) at the time of the death of a lineal descendant of D who died no later than D, was the spouse or civil partner of the lineal descendant, and
(ii) has not, in the period beginning with the lineal descendant’s death and ending with D’s death, become anyone’s spouse or civil partner.”
Amendment 6, in clause 9, page 10, line 44, after first “parent” insert “(however styled)”—(Mr Gauke.)
Barbara Keeley
On a point of order, Mr Howarth. I need to check something with you. Sir Roger said this morning that if we are not sure of our process, we should ask. I understand that if we vote on the amendment and the clauses now we will not return to them on Report, but we want to return to them on Report.
Barbara Keeley
As I said earlier, we will return to inheritance tax on Report if we can. Clauses 11 to 14 address tax avoidance measures that have previously been allowed in the inheritance tax system and a number of anomalies that have created unintended consequences and loopholes in the inheritance tax regime.
The clauses illustrate the complexity of inheritance tax legislation. That complexity is compounded by the need to continually update and rectify the regime with additional legislation, making the legislation even more difficult to understand and apply. Although we welcome the moves in the Bill that seek to close loopholes, this raises a bigger question about the efficacy of inheritance tax legislation. In the light of that, will the Minister say whether the Government have any further plans to adopt a programme of reform to simplify this tax and make it easier to navigate?
We welcome the fact that clauses 11 to 14 address areas of the legislation that give an unfair advantage to some beneficiaries over others, because that will help to ensure that inheritance tax is applied in a fair manner. Previously, it has been relatively easy for people to avoid paying the correct amount of inheritance tax by placing property into a number of trusts or by increasing the value of property in a trust immediately after an initial amount of property was settled. The clauses and schedule aggregate the value of property in trusts that are not related, for the purpose of determining the rate at which inheritance tax is charged, when the value of property in those trusts is increased on the same day. The schedule also simplifies some of the rules for calculating the rate of tax for the purposes of the 10-year anniversary and exit charges.
The provisions are welcome as measures to prevent avoidance techniques through the use of multiple trusts settled on the same day. We also welcome the adoption of a system that aggregates property over multiple trusts, rather than splitting the nil rate band to take into account multiple trusts. That would have been an extremely complex system to administer, and aggregating property held in multiple trusts is a much simpler way to resolve the problem. The simplification of rules on exit charges and the 10-year anniversary charge is welcome, but I would like to know whether the Minister is considering any further changes.
We have had a good debate on inheritance tax today, but wider issues with it remain. In particular, it is still extremely complex. Although the Government have introduced many of the measures outlined in previous consultations to make inheritance tax policy more cohesive —for example, multiple trusts, the 10-year anniversary charge declarations, interest in possession and the implementation of an IT strategy to transfer inheritance tax administration online—the tax still lacks simplicity. Each of those issues has added another set of complexities to inheritance tax.
In 2010, the Office of Tax Simplification’s report identified 89 inheritance tax reliefs. It noted the need for a top-down review of inheritance tax in 2011, stating:
“We consider that a more appropriate approach to the inheritance tax reliefs is to consider the scope and operation of inheritance tax with reference to the original and desired policy rationale, and thus to consider individual reliefs in context. In addition, any review of inheritance tax needs to include a review of the taxation of trusts, which are often used to pass family assets between generations.”
Does the Minister have any further plans to enact new measures to simplify the rules and administration of inheritance tax?
At the heart of the clauses, an issue of tax avoidance is addressed. We should encourage planning for the future. Planning what happens to their finances after their death is something that most people should consider. For some people, that has been entwined with navigating the inheritance tax rules to minimise their contribution. People should pay no more and no less than their fair share. Will the Minister provide any details on the measures the Government are taking to ensure that everyone who is eligible pays their share of inheritance tax?
The Minister has taken us through the clauses and how they operate. The correction of the anomaly in clause 12 means that trustees will now have clear guidance about the timeline to submit an application for exemptions. That should make it easier for Her Majesty’s Revenue and Customs to administer the exemption.
Clause 13 corrects an anomaly whereby types of interest in possession escaped all inheritance tax charges because the property was neither part of the beneficiary’s estate nor included within a relevant property trust. That was an unintended effect of the 2006 legislation. Labour welcomes corrections of that type. We welcome the change, which will ensure that an interest in possession in settled property is treated the same, regardless of the date at which the settlement was created.
Clause 14 provides that where property is left in trust in which no interest in possession subsists and an appointment of that property is made within three months of the date of death, the appointment can be read back into the will. I do not think any of us is an expert in this, but I understand that that corrects an anomaly known as the Frankland trap. Labour welcomes the removal of the anomaly, as the tax will now be applied fairly. It will protect families who could unfairly suffer if they were unaware of the trap.
In view of what we said earlier about our overall views on inheritance tax and clauses 9 and 10, we think that it is right that the tax is applied in the fairest way possible and that anomalies are removed.
Mr Gauke
I thank the hon. Lady for her remarks. Many people would agree that we should take action where there is aggressive tax planning. The changes will ensure that there is no longer an advantage in creating multiple trusts. It is right that we take action. At the same time, existing trusts will benefit from the simplification aspects, such as the removal of the need to include non-relevant property in the calculation.
The main point made by the hon. Lady relates to a programme of reform to simplify IHT legislation. We will of course continue to simplify the tax system wherever possible. I should use the traditional response of a Treasury Minister in these circumstances, which is to say that all taxes are kept under review, and we will continue to look at inheritance tax. More generally, it is worth pointing out that we have established the Office of Tax Simplification. We are putting it on a statutory footing and strengthening its role and capacity. It has already achieved a great deal in the period it has existed, and I hope that will continue to be the case over the next few years. I am grateful for the support for the clauses.
Question put and agreed to.
Clause 11 accordingly ordered to stand part of the Bill.
Schedule 1 agreed to.
Clauses 12, 13 and 14 ordered to stand part of the Bill.
Clause 15
Inheritance tax: interest
Question proposed, That the clause stand part of the Bill.
Mr Gauke
Clause 15 makes minor changes to the rules for interest when inheritance tax is paid by instalments that will ensure that the interest is calculated correctly when the new inheritance tax online service becomes available.
The Government announced in the 2013 autumn statement that HMRC will provide a new online service for people to submit inheritance tax returns and settle the affairs of those who have died. The introduction of the new service requires various legislative changes to facilitate the new online processes, including aligning the treatment of interest for inheritance tax with that for other taxes. Rules that apply standard rates of interest across all taxes should also apply to inheritance tax. The new online service now provides the opportunity to make the necessary IT changes to apply the rules. To ensure that the standardised interest rules apply correctly, some minor changes are required to make consequential amendments to related provisions and to correct an error in the rules.
It might be helpful if I explain briefly to the Committee why the changes are being made. There are specific rules for charging interest when inheritance tax is paid by instalments and the estate includes shares in certain companies or financial institutions that deal in shares and securities on the stock exchange, which are known as market makers. The current inheritance tax rules were amended in regulations in 2012 to reflect a change in the definition of a market maker, using a power in the Finance Act 1986. The equivalent standardised interest rules also need to be amended in a similar way, but the power in the 1986 Act may be used only to amend the current inheritance tax interest rules, not the standardised ones. Clause 15 amends the relevant provisions in the 1986 Act to extend the power to the standardised rules to enable the definition of a market maker to be updated. That will enable the standardised interest rules to apply correctly to payments of tax instalments on shares in such companies and financial institutions.
The interest rules also need to be amended so that the period from which interest is charged is six months from the end of the month in which the death occurs. The changes made by the clause will come into effect on a date specified in regulations, which will be at the same time as the new online service for taxpaying estates becomes available, currently expected to be in April 2016. The changes are expected to affect only a very small number of estates that include shares in companies that are market makers and where the tax due is paid by instalments. The impacts on the Exchequer and on individuals and businesses are therefore expected to be negligible.
The changes are small but necessary. Clause 15 will enable the new interest rules for instalment payments to be applied correctly and consistently when the new inheritance tax online service becomes available for taxpaying estates. I commend the clause to the Committee.
Barbara Keeley
Labour welcomes any move to make the payment of tax simpler and more efficient. Many people already benefit from paying certain taxes online—I must say I am not one of them; I find it quite difficult, despite my IT background—and clause 15 will allow inheritance tax to follow that road map. In particular, relevant provisions relating to the late payment of interest will be updated and applied consistently when the new online service becomes available.
The only question remaining is when the new online service becomes available. The Government have reported that the service will become available. I wonder whether the Minister’s officials can get a note to him fast enough for him to answer. Can the Minister provide an update on the service’s progress or, indeed, tell us when he expects the service to be functioning? He has not answered many of my questions today—he has brushed his way past an awful lot of the questions he has been asked—so perhaps he can answer this last one if he has the answer in his notes.
Mr Gauke
As it so happens, let me say the following. The IHT online service will be implemented in phases, with increased functionality at each stage. Selected customers who have no inheritance tax to pay and are applying for probate in England and Wales will be invited to test the new online service during this month and next. It will become available to the public in November, and later phases will extend it to taxpaying customers, as well as agents and people in Scotland and Northern Ireland. Details of the timing of future releases will be given in due course.
I hope that, finally, at the end of a long day, I have been able to satisfy the hon. Member for Worsley and Eccles South with respect to one of her questions. I know that this is the end of her contribution to the Finance Bill Committee this year, so I thank her for her questions and constructive engagement. [Hon. Members: “Hear, hear.”] I also commend her for managing to brush past the various quotations from her leader and shadow Chancellor that were thrown at her, which she was happily able to ignore.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Mel Stride.)
Finance Bill (First sitting)
Debate between David Gauke and Baroness Keeley(9 years, 1 month ago)
Public Bill CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I shall briefly respond to the hon. Lady’s speech. Let me be clear that if one looks at the measures set out by the Chancellor of the Exchequer in his Budget speech this summer, one will see that we are ensuring that working families will benefit from a strong and growing economy. By 2017-18, eight out of 10 working households will be better off as a result of the changes we are making to the personal allowance, the introduction of the national living wage and the welfare changes set out in the Budget.
The concern has been raised that the clause is somehow just presentational, but I return to the point I was making earlier about underlining our commitment. It is consistent with the approach we have taken to the tax system, and I think families up and down the country will welcome that. In particular, in the current context, with the official Opposition apparently moving in the direction of wanting to increase taxes, the fact that Parliament is making it clear what the current majority feels can only be helpful.
Barbara Keeley
As I have said already in this debate and the other day in the Committee of the whole House, this is a tax-raising Budget and the Government are raising taxes. I touched on some of those taxes and we have talked about the insurance premium tax. This is a tax-raising Budget and a tax-raising set of measures.
Mr Gauke
The Government are committed to creating a low-tax economy and the clause marks clear progress towards that. We must remember that the Government inherited the biggest deficit in our peacetime history. We heard criticism from the hon. Member for Cambridge, who said it should—[Interruption.] If the Scottish National party’s position is that the deficit should be larger, I strongly disagree. The deficit fell significantly over the course of the previous Parliament, but there is still further work to do. In that context, we must make some difficult decisions.
Public spending is taking the greater share of the strain when it comes to fiscal consolidation, and we believe that is the right approach. I do not know whether the Opposition parties share that belief, but I very much doubt it. The clause demonstrates our commitment on income tax, just as in the next clause demonstrates it on VAT—to ensure that over the course of this Parliament we do not increase those tax rates. I think the British public will welcome those measures—after all, they were set out before the last general election. I hope that the clause has the Committee’s support.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2
VAT lock
Question proposed, That the clause stand part of the Bill.
Mr Gauke
I will say a word or two about the clause and then, if I may, I will respond to the new clauses that I assume will be set out by the hon. Member for Kirkcaldy and Cowdenbeath. The clause states that the standard and reduced rates of VAT will not rise for the duration of the Parliament. It also locks certain provisions in the Value Added Tax Act 1994 to prevent them from being used to change the scope of VAT by moving any goods or services out of the zero rate or reduced rate for the duration of the Parliament.
The Government believe in lower taxes and are committed to eliminating the deficit in a way that is fair to taxpayers. As part of our plan to move the UK to a lower tax economy, we made a manifesto commitment to rule out any increase in the main rates of income tax, national insurance contributions and VAT for the duration of this Parliament, as I have mentioned. Clause 2, following on from clause 1 on income tax, implements that commitment for VAT. This initiative will provide certainty to taxpayers and ensure that working people will not have to pay any additional VAT on their purchases for the duration of this Parliament.
Let me set out the changes made by the clause in a little more detail. Currently, the standard rate of VAT is 20% and the reduced rate is 5%. Clause 2 states that the standard and reduced rates of VAT will not rise, locking the rates for the duration of this Parliament. As the zero rate clearly cannot be more than 0%, it is not covered by the legislation. Supplies that are subject to the reduced rate, such as domestic fuel and power, are listed in schedule 7A, and those that are zero-rated, such as books, children’s clothes and most food, are listed in schedule 8. The supplies listed can be varied by means of a Treasury order. However, the legislation will prevent the use of Treasury orders to expand the scope of VAT by removing supplies from the zero and reduced rates.
While the 20% standard rate of VAT is among the lowest in the EU, the UK also has the lowest reduced rate of VAT permitted by EU law and is one of only eight EU member states to have successfully negotiated to apply a zero rate of VAT. The Government will not increase the reduced or standard rates of VAT and will retain the zero rate of VAT, in keeping with our commitment to creating a higher wage, lower tax and lower welfare country.
In summary, clause 2 provides the strongest possible backing for the Government’s commitment not to increase VAT for the duration of this Parliament. It delivers on our manifesto promise and is consistent with our policy to deliver a lower tax economy for hard-working taxpayers.
Barbara Keeley
Many of the points I raised about clause 1 on the principles of tax locks also apply to clause 2, which states that the standard and reduced rates of VAT will not rise for the duration of the VAT lock period. It also ensures that no goods and services can be removed from the zero and reduced rates of VAT for the duration of the VAT lock period.
The Labour party made a commitment not to raise VAT back in March and in our 2015 manifesto. Indeed, the Government’s tax lock was announced in response to our challenge about not repeating their broken promises on VAT. We are pleased the Government have agreed that VAT rates should not go up, because that will benefit people on lower and middle incomes. This legislation is perhaps a little more needed, given the Conservatives’ record on VAT. The Prime Minister made a similar commitment in 2010 not to raise VAT, only to raise it to 20% immediately after entering Downing Street. However, as with the income tax lock, we are concerned that there is nothing to prevent the Government from changing the VAT lock in future legislation.
How will the VAT lock stand up in the face of European Union intervention? The UK is subject to EU VAT law and European Court of Justice decisions on VAT will have an impact on VAT here. On 4 June this year, the European Court of Justice judged that the UK had failed to comply with the VAT directive by applying a reduced rate of VAT to the supply and installation of energy saving materials for housing, which the Court ruled will have to be charged at the standard UK VAT rate of 20%. Another recent example of EU involvement is the 2015 Court decision in the “Go Fair” case, in which the Court found that VAT should be chargeable on the supply of care workers provided by a temporary agency. Currently, UK agencies supplying nursing staff can benefit from a VAT exemption. Will the Minister indicate whether that will change as a result of the European ruling?
Mr Gauke
Let me say that I share your ambition for the timing of the Adjournment, Sir Roger.
I have addressed some of the points about the tax lock already. As for the application of EU law and ECJ judgments, which by the hon. Member for Worsley and Eccles South rightly raised, let me be clear: EU VAT law and Court decisions will have to apply to the UK, too. Legislation will have to be changed to reflect any changes or Court decisions, otherwise the UK would be breaking the law. I do not wish to evade that point in any way. None the less, that does not undermine the basis of the VAT tax lock, because the great bulk of VAT issues on rates and the boundaries between the zero rate, reduced rates and standard rate are unlikely to change. However, I acknowledge that point. VAT exemptions are set out in EU law and cannot be changed by the UK unilaterally. We are therefore not binding our hands on the exemptions because they are not determined by the UK alone. I hope that provides a little clarity.
Barbara Keeley
Before the Minister moves on, I want to clarify once more why Opposition Members believe that the tax lock is a gimmick. If things go really wrong, it will have to change and, having bound their hands, if the Government have to increase VAT or income tax, that will really destroy public confidence out there. That is the problem.
Mr Gauke
Let me respond to that quickly. I come back to the intervention made by my hon. Friend the Member for Croydon South. We did not hear those arguments from the hon. Lady or her colleagues when we were legislating for the 0.7% expenditure on overseas aid; these points were made in the context of the tax lock. One cannot help feeling that when the Opposition’s heart is really in the legislation, they think it is the right thing to do, and when their heart is not in it, they call it a gimmick. Very similar arguments apply to both items of legislation.
New clause 1 would require the Treasury to write a report on the VAT treatment of Police Scotland and the Scottish Fire and Rescue Service, including analysis of the change in their financial position since 2012 as a consequence of their ineligibility for section 33 VAT refunds. As we heard, in 2012 Scotland’s eight locally governed police and fire authorities consolidated to become two national bodies. As a result, they were no longer reliant on local taxation for funding, which is one of the two criteria for eligibility for the section 33 VAT refund scheme. Following the restructuring, the new national bodies were therefore no longer were eligible for VAT refunds.
The new clause asks the Treasury to write a report on the VAT treatment of those bodies, including an estimate of the change to their financial position since their restructuring if they had remained eligible for VAT refunds. However, it is important to remember that the Scottish Government were forewarned of that consequence well in advance of the decision they took. The Treasury was keen to ensure that the Scottish Government considered that consequence as part and parcel of their decision to restructure the services. Because the expected cost savings to the Scottish Government outweighed the loss of any VAT refunds, I perfectly understand why they went ahead with their restructuring programme.
As I have explained, as the Scottish Government restructured those services, they are no longer eligible for VAT refunds. That is plain and clear, and the eligibility is set out in legislation. There is no need to explain it further or for a report to be submitted to the House. If the Scottish Government are now reconsidering their position and wish to discuss how the services can become eligible once again for VAT refunds, the Treasury will happily engage with them to advise. In conclusion, there does not seem to be any justification for using Treasury resource to set out in a report something that is clearly set out in legislation. As things stand, the Scottish police and the Scottish Fire and Rescue Service are not eligible for VAT refunds. I therefore ask that new clause 1 not be moved.
New clause 3 would require the Treasury to write a report on a VAT exemption of women’s sanitary protection products, including a financial assessment and an assessment of the impact on the purchasing of these products, especially by those aged under 25. I am well aware of the ongoing campaign to zero-rate or exempt from VAT sanitary protection products, which has cross-party support. I very much sympathise with the aims of the new clause, but this is not simply a case of the Government taking action.
The new clause asks the Treasury to submit a report to the House on the impacts of exempting sanitary protection products from VAT. The plain facts of the matter are that the goods and supplies to which the UK Government can apply a VAT exemption are set out in EU law. Any change to EU VAT law would require a proposal from the European Commission and the support of all 28 member states, which is no easy task.
To put this into context, the UK applies a reduced rate of 5% to sanitary protection products—the lowest permissible rate of VAT under EU law. However, different countries have different priorities, setting their tax rates to meet the economic conditions prevalent in their own jurisdictions. Across the EU, the average rate of VAT applied to sanitary protection products is more than 17%. The hon. Member for Glasgow Central made reference to the Republic of Ireland. My understanding is that it is not correct that these products are zero-rated or exempt there. The UK applies the lowest rate across the whole EU.
In discussions in the EU, some member states may consider other reviews to be of more concern to them at this time. It is not that there is any lack of sympathy for the cause. When the previous Labour Government, under Gordon Brown, reduced the rate, he did not zero-rate these products because of the constraints of EU law. Any change would require the overall consent of the EU institutions.
Mr Gauke
Before I do so, I wish to correct something. I understand that the Republic of Ireland has a zero rate for sanitary products. I correct what I said: the hon. Member for Glasgow Central was correct, so I apologise. That zero rate was agreed before Ireland joined the European Union in the early 1970s. A zero rate on these products was not in place when the UK joined the EU, or the Common Market as it then was. I am sure we would all consider that regrettable, but that was the situation. Trying to extend zero rates across the board would be difficult.
Barbara Keeley
There is a recognition of the difficulty—that certainly came out in the speeches we heard on this element of the Bill. What other Members and I would like to hear from the Minister is whether he supports doing something about it. Does he want to have a push on it? Party leaders seem to say that they do, but it would helpful if we could hear him say that he wants to do something about this issue.
Mr Gauke
There are a number of ways in which the European Union and the rules that apply within it could be improved. A strong case is made from all parts of the House that greater flexibility in this context would be helpful, but the point I would make is that we see little indication that other member states, which by and large have higher rates—the average rate is 17%—share that objective. If there is a general move, we would support that.
Other than when an accession country joins the EU and negotiates a zero rate, there is no particular indication that the Commission or member states as a whole are prepared to introduce new zero rates. Indeed, quite a lot of the advice coming from organisations such as the OECD and the general position that the Commission takes tend to be against that, so I do not want to underestimate the difficulties.
Draft Scottish Rate of Income Tax (Consequential amendments) Order 2015
Debate between David Gauke and Baroness Keeley(9 years, 1 month ago)
General CommitteesRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
Let us not detain the Committee too long on that ancient history. However, it is great pleasure to respond once again to an intervention from the hon. Gentleman.
The Scottish rate of income will apply to Scottish residents. In the circumstances that the hon. Gentleman sets out, where somebody is not a Scottish resident, the UK rate of income tax will apply. I hope that provides clarity.
I should point out that there is no definitive list of Scottish residents, but HMRC has been and will continue checking its address data against third-party information, for example the Scottish electoral register, to check accuracy. HMRC expects to contact Scottish taxpayers later in 2015, well in advance of the introduction of the Scottish rate in April 2016.
Work on making changes ready for the Scottish rate of income tax is well advanced. It is on schedule and will support further devolution. While it is clearly vital that the public have all the information necessary to understand the Scottish rate of income tax before it comes into force, all the customer research that HMRC has commissioned shows that the timing of information is equally important. If guidance or information highlighting the changes is provided too early, it will not be at the forefront of busy people’s minds.
UK employers and pension providers are amending payroll software to take into account the introduction of the Scottish rate of income tax from next April. Technical guidance on Scottish taxpayer status was published for consultation in June and will be published in its final form, along with a raft of more general support and guidance, later this year. HMRC will write to those whose records show that they are a Scottish taxpayer later this year and tell employers and pension providers which of their employees or pensioners are Scottish taxpayers. I reassure the Committee that progress towards the introduction of the SRIT appears to be well in hand.
Barbara Keeley
We have talked in other debates about such things as insurance premium tax. There are considerable pressures and strains on the pension industry, and one of the serious concerns we came across was the higher cost to pension scheme providers. As I said earlier, Scottish Widows said that its systems were at breaking point. This change comes on top of others, and we are even changing insurance premium tax. I do not know whether he was going to respond to that point, but will he do so? Given that even insurance premium tax is being put up, there is concern that pension scheme providers will be suffering from extra administrative cost. What might that cost be?
Mr Gauke
If the SNP is suggesting that it has a plan to reduce taxes and reduce spending accordingly, I look forward to hearing it. In the absence of that, let me make the point that what is set out in the Scotland Bill—I appreciate that we are not debating the Scotland Bill today—will give the Scottish Government a huge amount of flexibility. I am sure the people of Scotland are looking forward to hearing, at some point, what the Scottish Government intend to do with it. I note that we hear no further information at the moment on that point.
Barbara Keeley
The Minister has not really answered all my questions, so I would like to make some key points again. Given that much more is to be done in future years—there is to be more devolution—the issues I have raised and the questions I have asked are important. If the Minister does not have the details of the higher costs that will hit pension scheme providers, he needs to write to me about them.
I really do take on board the point about the potential impact on individuals. The ABI believes that, because of all the difficulties and the time it is taking,
“employees in Scotland could receive different levels of pension income”
from others
“making the same contributions into the same scheme over the same period of time.”
I feel strongly that that is not acceptable. There is much more work to be done. We cannot have individuals losing out on their pension funds because the pension schemes are on their knees trying to cope with the changes that are being thrown at them. It is clearly not acceptable that individuals will be affected in that way. If the Minister is not able to assess that and tell us what he thinks the impact will be, perhaps he could write to me. He will have the note with all my questions.
Mr Gauke
As I said, we do not have the specific numbers for the costs of administration by pension providers, but I reassure the hon. Lady that individuals will not lose out. HMRC will ensure that all pensioners pay the correct tax—that is what the system is designed to do. There is an interim arrangement, so to speak, but there is also a reconciliation process, and the correct tax will be paid. I hope that the Committee will take note of those points and support the order.
Question put and agreed to.
Resolved,
That the Committee has considered the draft Scottish Rate of Income Tax (Consequential Amendments) Order 2015.
National Insurance Contributions (Rate Ceilings) Bill
Debate between David Gauke and Baroness Keeley(9 years, 1 month ago)
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The Financial Secretary to the Treasury (Mr David Gauke)
It is a great pleasure to respond to a lively debate. I thank all those who have contributed, not least the hon. Member for Worsley and Eccles South (Barbara Keeley), who contributed twice. She carries a heavy burden on behalf of her party and I hope that it is noted by the powers that be. I welcome the shadow Chancellor to the Chamber. No doubt he will have noticed the effort that she has put in.
I thank Government Back Benchers for their contributions. My hon. Friend the Member for North West Hampshire (Kit Malthouse) began his speech with the sensible point that, ultimately, it is not companies that pay tax. It is always families and individuals who bear the tax bill, regardless of who writes the cheque. Like a number of hon. Friends, he went on to speak about the importance of providing stability and certainty in the tax system both for individuals and for companies. The tax lock will provide much greater certainty and stability.
That point was also well made by my hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer), who highlighted the importance of low taxes to businesses in her constituency and to employees. She made the point that a number of those businesses compete with businesses in silicon valley, and that they need the certainty that the Bill and the Government’s other policies provide.
My hon. Friend the Member for Bexhill and Battle (Huw Merriman) made a similar point about the need for economic policy to support business. It is through the success of our businesses that we will see the economy grow and tax receipts come in, which will enable us to pay for high-quality public services. We must not forget the importance of an enterprising economy. It may well be that that point becomes more important in the debate in this country over the next few years, as the consensus appears to be breaking down.
My hon. Friend the Member for Spelthorne (Kwasi Kwarteng) rightly criticised the characterisation of the Bill as a gimmick. I will turn to that in a moment, but he was right to say that this is an important measure.
My hon. Friend the Member for Milton Keynes South (Iain Stewart) highlighted the fact that in 2001, a Labour Government were elected with a promise that they would not put up income tax, but shortly afterwards they put up national insurance contributions. We must not forget that national insurance contributions are paid by people in much the same way as a tax. It should not be open to Governments to use national insurance contributions as a stealth tax. That is why, as well as introducing legislation to provide a tax lock for income tax, it is important to have legislation on national insurance contributions. Given that national insurance contributions cannot be dealt with in a Finance Bill, such a measure is contained in this Bill.
Barbara Keeley
I am astonished that the Minister can talk about things that happened in the past and not reflect on the more recent pledge made and broken by his Government not to raise VAT. How can he stand there and talk about any issue when that is in recent memory? How hard did that hit many millions of families in this country? I think he would be better leaving that topic alone.
Mr Gauke
For those of us who were debating such matters at the time, the state of the public finances, and the deterioration identified by the Office for Budget Responsibility in the summer Budget of 2010, revealed that we needed to take steps to put the public finances back on track. We took those measures, and I remind the hon. Lady that the Labour party abstained on the increase in VAT. Labour Members did not oppose it at the time, presumably because they recognised that it was necessary. That was, I suppose, a time when the Labour party was flirting with fiscal responsibility. I am sure it would never repeat that now.
Barbara Keeley
My points are about the way the public feel about broken pledges. This gimmick of a tax lock means nothing if, whatever the circumstances, the Government are prepared to change their mind on things. I read the Minister a long list of pledges that his Prime Minister and Government have broken, and every time such things happen, the public get sick of it.
Mr Gauke
We are underlining our commitment not to increase the rate of class 1 NICs by introducing this Bill. The hon. Lady asks why we are legislating rather than making a pledge. She could apply exactly the same argument to the legislative commitment to spend 0.7% of gross national income on overseas aid, yet that was actively supported by the Labour party. If she feels that this Bill is a meaningless gimmick, why does she not oppose it today?
Let me finish thanking my hon. Friends. My hon. Friend the Member for Northampton North (Michael Ellis) described this as a short but important Bill, and may I say that he delivered a short but important speech? My hon. Friend the Member for Tamworth (Christopher Pincher) highlighted the need for greater certainty in the tax system and welcomed the Bill, as did my hon. Friend the Member for North Dorset (Simon Hoare), who also highlighted the importance of stability in the tax system. My hon. Friend the Member for Blackpool North and Cleveleys (Paul Maynard) supported that argument and suggested that the Bill would provide greater confidence to businesses in his constituency.
The hon. Member for Dundee East (Stewart Hosie) raised a number of questions and asked about the potential for integration between income tax and national insurance contributions, and the work being undertaken by the Office of Tax Simplification. As he said, it was announced in the summer Budget that the OTS will undertake a review of the closer alignment of income tax and national insurance. The overall aim of the project is to build on earlier work undertaken in that area, and to understand the steps needed to achieve closer alignment of the taxes, as well as the costs, benefits and impact of each step. The terms of reference were published on 21 July, and the OTS will publish a final report ahead of the 2016 Budget.
On the one hand we heard from the hon. Member for Worsley and Eccles South that this measure is a gimmick and unnecessary. On the other hand, I was also struck by the contribution from the hon. Member for Bishop Auckland (Helen Goodman), who made the argument that we—I do not know whether she was talking about the Government or the Labour party—should consider abolishing the upper earnings limit. In other words, the 12% rate of national insurance contributions should apply also to higher rate taxpayers. That policy was supported by the hon. Member for Luton North (Kelvin Hopkins).
Let us be clear about what is being proposed. It would mean an increase in the tax rate for higher rate taxpayers of 10%, from a combined rate of 42% to a combined rate of 52%. That is not the policy of the Opposition, as the hon. Member for Worsley and Eccles South made clear, but three days into the leadership of the right hon. Member for Islington North (Jeremy Corbyn) the Labour Front Bench appears to be being attacked from the left, something that I had not anticipated. I do not know whether the hon. Members for Bishop Auckland and for Luton North are making a late bid for inclusion in the shadow Cabinet, although I was surprised that neither was there in the first place. I am sure that the shadow Chancellor, who is in his place, will have listened carefully to that proposal, which would clobber a large chunk of middle earners.
The hon. Member for Worsley and Eccles South upbraided hon. Members for quoting remarks made by the right hon. Member for Islington North before he became leader of the party and said that she would not respond. That is a novel approach, although I have some sympathy with her and really cannot blame her.
Barbara Keeley
The Minister seems to forget that I read out to him a list of various pledges on policy that the Prime Minister made before he became Prime Minister. Will he now defend every one of those? Will he defend what the Prime Minister said about Sure Start, EMA and other things that have been changed or abolished? It appears that the Minister thinks it is all right for the Prime Minister to say what he said when he was Leader of the Opposition. The Minister cannot have his cake and eat it, but that is what he appears to be trying to do.
Mr Gauke
I understand why the shadow Minister does not want to defend the position of the current leader of the Labour party, but let me make this point clear. The Prime Minister came into office in 2010 with a mission to turn around the UK economy. He succeeded and was re-elected with a majority in 2015.
The hon. Member for Luton North always makes entertaining and thoughtful speeches. I noted that he praised the tax system of Denmark, but I would point out that its VAT rate is 25% and it does not have any lower rates. I can assure him that we will not follow Denmark’s example and put VAT up to 25%.
EU general budgets for 2015 and 2016
Debate between David Gauke and Baroness Keeley(9 years, 1 month ago)
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The Chair
We now have until 5.30 pm for questions to the Minister. May I remind Members that these should be brief? It is open to a Member, subject to my discretion, to ask related, supplementary questions.
Barbara Keeley (Worsley and Eccles South) (Lab)
Thank you, Mr Walker. It is a pleasure to speak in this Committee, the first time that I have done so with you in the Chair. May I thank you for chairing our proceedings today? I hope it is helpful if I group my questions.
First, on the draft decision about the use of the EU solidarity fund in 2016 for financial assistance to eligible states affected by major national disasters or extraordinary regional disasters, the terrible floods experienced by Romania, Bulgaria and Italy in 2014 caused extensive damage to the economic and productive sectors in many towns and cities in those countries. The UK was a beneficiary of the solidarity fund after the 2007 floods; I am sure Members remember those floods and the difficulties they caused for many constituents. We received £127 million to help with their aftermath.
I agree and have constantly said in debates on these matters that there is a need for budgetary restraint and reform in the EU budget. I spoke strongly about that in the debate on the European Union (Finance) Bill. Will the Minister make his position on the solidarity fund clearer? Will he accept the need to help countries that have experienced significant problems owing to flooding? Will he agree to such mechanisms being used in a similar way in the future, or does he think that, for us to achieve budgetary restraint, we have to reform the way those instruments work?
Secondly, what plans do the Government have to ensure that this annual budget and future EU budgets are controlled and that funding is prioritised on interventions to encourage jobs and growth throughout the EU and in the UK? Today’s documents raise again some of the issues that I raised in the European Union (Finance) Bill. Funding for the common agricultural policy is still high and not being diverted to more useful programmes such as the European fund for strategic investments. Other budget amendments have pushed the budgets further into the margins, which again raises my question of whether the gap between commitment and payment appropriations is manageable and whether it is the most efficient way to ensure budgetary restraint. We had quite a debate on that when discussing the Bill. What plans does the Minister have to ensure wider reform of the EU budget?
Finally, I would like to ask the Minister about the UK’s response to migratory pressures in Italy and Greece. In document 11, his follow-up letter to the Chair of the European Scrutiny Committee, the hon. Member for Stone (Sir William Cash), on draft amending budget 5, responding to those migratory pressures, he outlined more details and he has said more on that today. In the letter, he said that the funding provided for in this DAB supported a range of measures to support the management of migration flows, none of which directly funded the Commission’s proposed schemes for relocation to other member states of 40,000 migrants arriving in Italy and Greece or the resettlement of 20,000 refugees from those countries. Will he confirm whether, in line with the European announcement, the project will include resettlement to other European member states? Does he agree that, contrary to the comments he made in the letter, that does appear to constitute direct funding for the relocation of some of the migrants arriving in Italy and Greece?
Labour Members in the UK Parliament and European Parliament have called for a joint approach to help cope with the increasing number of refugees. The Government have stated that they will not participate in a proposed mandatory EU programme to resettle migrants rescued when trying to cross the Mediterranean to Europe. Now that European leaders have voted against a quota system for relocation, something with which the Government did not agree, are there plans to engage further in the European effort to solve the migrant crisis? What future financial support are the Government willing to mobilise to help the UK and other EU countries deal with those migratory pressures, which are the consequence of unrest in the middle east?
Mr Gauke
May I put it on record that I am grateful to see the hon. Member for Worsley and Eccles South in her place? I hope we can continue to debate this and other matters in future. I am also delighted to see the hon. Member for Scunthorpe in his place, and I hope we will continue to debate Treasury matters.
First, in terms of our position on the EU solidarity fund, the Government support the objectives and principles of the fund in providing assistance to member states affected by serious natural disasters. However, the Government also take the view that the Commission should always look first to reallocate funds from within existing agreed budgets to meet in-year pressures, rather than coming to member states to request additional money. Past examples show that the Commission is able to find reallocations—for example, when programmes are delayed or take-up is slower than expected.
In terms of the budget more widely and the need to prioritise areas relating to jobs and growth, the Government’s record is clear. As I made clear in my opening remarks, the best way to put pressure on inefficient spending is to cap the overall expenditure. The deal negotiated by the Prime Minister in February 2013 was the first real-terms reduction in the EU budget, and such budgetary restraint is very important. As the Prime Minister said at the time, EU spending reform is a long-term project, but the deal that he secured represents important progress, including on common agricultural policy expenditure. While spending on CAP was cut by 13%, spending on areas of pro-growth expenditure increased and now accounts for 13% rather than 9% of the overall budget.
It is also worth mentioning wider budgetary reform. The UK welcomes the objectives of Vice-President Georgieva’s “budget for results” initiative, which aims to develop a more performance-orientated budget that delivers tangible results for EU citizens. We are working closely with the Commission on that and see it as an important opportunity to help improve the value and efficiency of EU spending and to increase transparency about it for taxpayers. The Chancellor made our position clear at ECOFIN earlier in the year. We have held discussions with the Commission and offered technical assistance, and we are keen to drive this agenda forward.
On migration funding and our response to the crisis, the UK is of the view that a great impact can be made in conflict regions, which is why we are the second largest bilateral donor to the Syrian relief effort. We will continue with our significant efforts to ease the burden on front-line member states by providing practical, on-the-ground support. In line with the Prime Minister’s announcements, we will also take forward plans to resettle up to 20,000 Syrian refugees over the course of this Parliament.
With regard to funding of Frontex, to which we contribute not via the EU budget but through a separate bilateral contribution, we will match increased EU funding as proposed under draft amended budget 5. I hope those points are helpful to the Committee, and I will be happy to answer any further questions.
European Union (Finance) Bill
Debate between David Gauke and Baroness Keeley(9 years, 4 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Mr Gauke
I will certainly make that point. It was estimated by the European Commission to be of the value of €9 billion over the previous MFF period. In this MFF period, it would be in the region of £2 billion a year, which would be a considerable loss. The Government will not be repeating that.
Barbara Keeley (Worsley and Eccles South) (Lab)
I would like to take the Minister back to the intervention of the right hon. Member for Gordon (Alex Salmond), because the Minister did not really answer him. In an article in The Sunday Times this week, one Conservative MP said of the Prime Minister’s intentions that he was keeping things up his sleeve, and that:
“He’ll try to negotiate a lower net contribution to the budget.”
It is definitely being said that the Prime Minister is holding that in reserve. Will the Minister comment on that?
Mr Gauke
We have consistently argued the case for money being spent more wisely and for greater European Union public spending restraint. We have already made progress with that argument—we made progress in 2013 and the Bill relates to the negotiation, although it is on the revenue rather than the expenditure side. We will consistently argue that case.
Barbara Keeley
I invite the Minister to remind himself of a similar debate we had in January 2008, in which he and his hon. Friends on the then shadow Treasury team tabled a strikingly similar new clause that asked for a report on the review by the European Commission covering all aspects of EU spending. It was a very robust debate and he was a signatory to that new clause. He rejects my new clause, but it is very similar to the one he tabled in 2008.
Mr Gauke
I am tempted to point to the remarks made by the hon. Lady’s colleagues in setting out the reasons why that new clause should have been rejected. She might not have been persuaded, but I am tempted to say that six years on, after much reflection, I can see some value in them. The stronger argument I would perhaps make is that in contrast to what happened some years ago, when the previous Labour Government negotiated away part of our rebate, we have just had a successful negotiation in 2013. Let me set out the progress that is being made on that agenda. If I may, I will give a little detail on the substance, putting aside the point that the Bill focuses on the revenue, rather than the expenditure, side of things.
Mr Gauke
I am grateful to my hon. Friend for those remarks. Let me come straight to new clause 3, as he has raised that point.
Along with many across Europe, we share the concern that lies behind new clause 3 that the EU is not sufficiently accountable to EU citizens. Hon. Members will need no reminding that the Prime Minister has already made it clear that strengthening the role of national Parliaments is a central tenet of his reform programme. Within the existing legal framework, the Government already take the role of national Parliaments in scrutinising EU proposals very seriously. That is why, when the European Parliament requested the formation of a high-level group on own resources to review the EU financing system, we insisted that national Parliaments, as well as the European institutions, were given a voice as part of the consultation. We therefore amended the joint declaration on the formation of the group explicitly to take account of input from national Parliaments.
We do all we can to ensure the transparent and effective scrutiny of each year’s annual budget negotiations. An explanatory memorandum is deposited as soon as possible after the publication of the draft EU budget each year. That is followed by debates in both Houses and regular ministerial updates at significant stages of the negotiation process.
We are committed to working with both scrutiny Committees to make this process as efficient and effective as possible for all parties. However, we believe that requiring the Government to write to invited officials to appear before the scrutiny Committees would add little to the scrutiny process and would be a very peculiar precedent, for all the reasons set out by my hon. Friend the Member for Stone (Sir William Cash). It would add little because the Committees can, and have, invited officials to appear before them. For example, in June 2014, Nadia Calvino, the Director-General of the European Commission budget, gave evidence to the Lords EU Economic and Financial Affairs Sub-Committee.
It really should not be the place of Government to determine who the scrutiny Committees should see. It is for the Committees of both Houses to decide for themselves who should appear before them and when. It would be a peculiar precedent for the Executive to begin to interfere with that freedom, no matter how benign the initial intention.
Barbara Keeley
I appreciate the point made by the Chairman of the Select Committee, the hon. Member for Stone, but the Minister cannot have it both ways. In a debate in October 2012, the right hon. Member for Tunbridge Wells (Greg Clark), speaking for the Government, complained strongly—I referred to this in a previous debate—that Ministers had asked the Commission to model costs of €5 billion, €10 billion and €15 billion in relation to staffing. That very reasonable request was bounced back with the very insulting comment:
“We declined as it’s a lot of work and a waste of time for our staff who are busy with more urgent matters…we are better educated than national civil servants. We’re high fliers, not burger flippers”.
If the Minister is expecting us to believe him, when such a simple request on a staffing issue is not taken seriously, then we do have some points to make.
Mr Gauke
I will return to that point. My remarks, when the hon. Lady intervened, were in respect of new clause 3 and the European Scrutiny Committee. I have been very clear that it would be a curious thing to do to place this in legislation and for the Executive to take that role upon themselves. I very much echo the remarks made on that by my hon. Friend the Member for Stone.
Mr Gauke
In the case of new clause 2, which relates to how we deal with the way in which the Council of Ministers works, we are making progress and taking action, which includes cutting the budget. In the case of new clause 1, I do not need to undertake to write a letter calling for the Commission to do something that it is already doing. As for new clause 3. I have already made it clear that I do not think it would be appropriate for us to impose on members of the European Scrutiny Committee something that is a matter for them.
Barbara Keeley
I am slightly surprised that the Minister is unable to take on board what was actually a very sensible suggestion. He says that overall budget restraint is sufficient, and that there is no need for a focus on “waste and inefficiency”. As I mentioned earlier, back in 2012, the right hon. Member for Tunbridge Wells tried to introduce measures to reduce the staffing budget and asked for modelling, but that request was rejected. Commission representatives should not feel that they can bounce back to UK Ministers simple requests that really would help decision making.
Time and again, Members on both sides of the House raise issues relating to the Commission’s staffing costs. If that is the response that the Minister has been receiving—he is not admitting it today, but the right hon. Member for Tunbridge Wells mentioned it during another debate—we really must press the matter. It is not good enough simply to accept that everything is fine and we do not have a problem. We must push the case for enhanced scrutiny.
Mr Gauke
We care a great deal about eliminating waste and inefficiency in the EU budget. The question is how we should do that. Let me say first that, if we can reduce the MFF, that will place a much greater onus on the Commission to eliminate wasteful expenditure.
The hon. Lady made a perfectly fair point about what happened back in 2012. However, the Prime Minister’s negotiation triumph in 2013 has reduced the MFF, and we are now seeing signs—which we were not seeing three years ago—that the Commission is focusing much more on the issue. Vice-President Georgieva described the 2015 budget, which was agreed last December, as
“a budget of responsibility… a tight budget that reflects the tight fiscal conditions in our Member States.”
She said that it was
“a very focused budget, focused on the priorities that we have established in the new Commission.”
She added:
“It is directed towards investments in competitiveness, for instance supporting the innovative nature of our businesses. It is also a budget where tight controls on spending will allow us to achieve the best possible results.”
Vice-President Georgieva’s “budget for results” initiative, which focuses on better rather than more spending, has come about as a direct result of the imposition of restraint at the top. The United Kingdom is engaging constructively with the initiative, and is working actively with the Commission to ensure that momentum is maintained through regular meetings at political and technical levels. We are working with our allies to increase support for the initiative and to ensure that all member states are represented in discussions. We look forward to the first meeting of the inter-institutional working group in mid-July and to contributing to the “budget for results” conference in September.
Because of what we have achieved in reducing the budget, we are seeing a culture change, but we need to ensure that the momentum is maintained. If the Labour party supports that, I am delighted, but we must remember that it was Labour that surrendered part of our rebate and failed to impose the discipline that we needed.
Barbara Keeley
Again, I am surprised by the Minister’s response. Let me remind him of a point that I made on Second Reading. When Labour Members voted with rebels in the Conservative party, they strengthened the Prime Minister’s hand before he went into negotiations by insisting that the MFF be cut. The Minister really ought to acknowledge that. Surely it helps if, on every occasion, Members in all parts of the House can be strong in saying that we want enhanced scrutiny, and that is what we are trying to do through our new clauses today.
Mr Gauke
The hon. Lady has asked a good question. In the context of the review that the Commission is undertaking and the focus on a budget for results, transparency is certainly important. The Government’s record is clear: we want more transparency in relation to all expenditure, whether at UK or EU level, and I think that more can be done in that regard.
The hon. Member for Worsley made an important point about administrative expenditure. As part of the MFF deal, EU staff salaries were frozen in 2013-14, and EU institutions committed themselves to a 5% headcount reduction by 2017 and an increase in statutory pension age to 66 for officials who started work in or after 2014. I would be the first to accept that those reforms do not go far enough, but, working with like-minded member states, the Government will continue to press the EU institutions to show maximum restraint when it comes to administrative expenditure.
Barbara Keeley
Are this Minister and other Ministers having more success than their right hon. Friend the Member for Tunbridge Wells had back in 2012, when the European Commission dismissed his very reasonable request for some modelling on staffing costs? Are the Commissioners being any more helpful nowadays?
Mr Gauke
Some progress has been made since then. The Commission has improved its transparency record, partly thanks to the Government’s ongoing work. In particular, it released a payments plan containing much more detail on payment forecasts. I accept that we can go further, and that UK citizens expect more, but requiring the Government to write a letter inviting officials to attend Select Committee meetings will not really deliver that. What is required is constant vigilance and discipline. We have shown that, and it is delivering results.
Mr Gauke
The point about our position applies across the piece. To be fair to my right hon. Friend, certain eventualities that he predicted many years ago have come to pass. Because of the current situation in the eurozone, substantial reform could well be needed so that the members of the single currency are able to co-ordinate fiscal policy to a greater extent, with greater fiscal transfers and so on. That raises issues for the eurozone members which do not apply to other members of the European Union that have access to the single market but would not wish to partake in any such arrangement. We would need to ensure that if that is the direction the eurozone goes in, the position of the euro-outs is protected. Ensuring that access to the single market remains in place for all 28 member states is an important part of that, which is why I mentioned it. We need to ensure that our position is protected. That is the point I wish to make, and I fully understand the points that my right hon. Friend is making.
Finally, amendment 1 has been proposed in order that the conditions set out in new clauses 1, 2 and 3 are consistent with the terms of commencement in the Bill. I have explained to the Committee why we will not be supporting the new clauses, and we thus reject the amendment. While I have the opportunity to do so, I wish to identify a typographical error in the explanatory notes. The second line of paragraph 6 refers to a VAT-based rate of call of 15% for Germany, the Netherlands and Sweden, whereas it should have read 0.15%. I draw the Committee’s attention to that in case it caused consternation among right hon. and hon. Members.
In conclusion, let me assure the hon. Member for Worsley that, having made important progress in 2013, this Government are focused on ensuring maximum restraint, budgetary control, value for money and transparency in EU spending. I therefore welcome the spirit of her proposals, but requiring the Government to request that the Commission or the Council of Ministers review these issues adds little to the real work that has been done and continues to be done to improve the working of the EU budget. That work began with the Prime Minister’s historic deal, which cut the budget in real terms and protected the current system of financing—we should not forget that that is what this Bill is about. That work continues through the budget for results, through the Government’s continued engagement on the annual budget and through the discharge of the budget, and it will continue during the mid-term review of the MFF.
With those few, brief introductory remarks, I urge the hon. Lady not to press her proposals to a Division and I urge hon. Members to support the clauses set out in the Bill.
Barbara Keeley
Before we go any further, may I point out that my constituency is now called Worsley and Eccles South? The people of Eccles would rightly be very upset if we left them out of the equation; Eccles is a very important town in my constituency.
I rise to speak to the new clauses standing in my name and those of my hon. Friends. We are dealing with a slight complexity, in that the Bill is simple but drafted in such a way as to make it complex to amend. Amendment 1 is therefore a technical paving amendment which can bring in the new clauses, so it is that amendment that we will push to a vote, if necessary.
The Bill relates to agreement of the own resources decision that will be incorporated into UK law, based on the agreement reached at the February 2013 European Council. The Minister covered that at great length over the past hour and 20 or so minutes. Decisions on UK contributions reaching €14 billion are brought into sharper focus in a week when Ministers are discussing cuts to tax credits for the low-paid and have not been prepared to rule out cuts to financial support for disabled people. We find ourselves in a serious and austere financial context, so we must ensure that we look at every aspect of value for money, budgetary control and the reform of priorities within the EU budget.
When we debated the MFF in this House in October 2012, the Government’s motion talked about agreeing that we must see
“significant improvements in the financial management of EU resources by the Commission and by Member States and significant improvements in the value for money of spend”.—[Official Report, 31 October 2012; Vol. 552, c. 295.]
The last debate contained many examples, some of which I shall refer to, showing that we are not there yet. I am sure the Minister would agree, so what we are simply trying to do with the new clauses is find ways in which we can enhance value for money assessments, budgetary control and the reform of priorities. That is very important to many of the Members in the Committee today and to Members throughout the House.
The proposals standing in my name and those of my hon. Friends will assist greatly in ensuring that reports are made to this House on value for money and budgetary control, and on budget priorities and waste and inefficiency within the EU budget. Examples have been given in interventions that give us an understanding of the extent of concerns about this out in the country—which we explored on Second Reading—and those can only increase.
Barbara Keeley
Indeed, that is a very real fear. If we look down the list of commitments and compare it with the payments made, we will see the level of commitments that are still to roll forward, which is a very frightening prospect. I go back to the point that I have just made. This is a system designed to drive up budgets. We support what has taken place and recognise that the House voted for it back in 2012, but unless this system changes we will be in a situation in which commitments are being made in the period up to 2020 of €960 billion, which is €52 billion more. It is a serious matter. Clearly, it is serious if the Commission is taking on budgets and then not paying bills, but it is the upward pressure on the budget process that is the great concern.
In our last debate on this Bill, the hon. Members for Corby (Tom Pursglove), for North East Somerset (Mr Rees-Mogg), and for Daventry (Chris Heaton-Harris) and my hon. Friend the Member for Luton North (Kelvin Hopkins) referred to a range of concerns that their constituents had about EU finance, how the EU budget is spent and the need for control of the budget. That is a point to which we will keep returning.
In the debate of 15 January 2008 on the Committee stage of the European Communities (Finance) Bill—I have already mentioned this—the Financial Secretary, then shadow Treasury Minister, and his shadow Treasury colleagues called for a report on “all aspects of EU spending”. Clearly, both the Opposition then and the current Opposition have had concerns about this. The Minister and his colleagues called for that report in 2008. I hope that we still have time in the rest of this debate for him to repent his view that we do not need further reviews.
As I have mentioned, there were complications in the wording of the amendment in 2008. I have read through the debate. The difficulty that the hon. Gentleman and his hon. Friends on the shadow Treasury team at that time ran into was that the amendment called for Treasury certification that it
“considers the outcome of the review is satisfactory to the interests of the United Kingdom”.
That seemed to be the sticking point. We have avoided such complications in this Bill by tabling simpler amendments that ask for an analysis of the basis used for appropriations and the study of alternative arrangements.
The Minister has said that such a review is ongoing. Will he tell me at this point when we will see that review?
Barbara Keeley
Will he clarify at which point in 2016? [Interruption.] No, it is just some time in 2016.
Mr Gauke
We have had a wide-ranging debate over the past two and a half hours. The hon. Member for Glenrothes (Peter Grant) was not far off the substance of the matter before us: the disagreement is over whether there should be placed in statute a requirement to write a letter.
I recognise the spirit of the proposed changes before us, and the need for us to improve the value of expenditure in the European Union, to cut down on waste and to increase transparency. We strongly support and have advocated those points.
I have to say that writing to the Commission, asking it to review the issues, will not particularly achieve the objectives we have heard set out, but the Government have taken action and continue to do so to improve EU spending. That began with the Prime Minister’s historic deal, cutting the budget in real terms. It has forced the Commission to prioritise, which we very much welcome, and it has led to the Commission’s budget for results initiative. The UK is playing an active role in that process, and we continue to push the Commission to bear down on waste in its responses to the EU budget discharge process. The Government are contributing to the simplification proposals from the Commission, and the UK will continue to fight for restraint in the annual budget.
Those steps have led to concrete results: the Commission has become more transparent and has shifted more funding into pro-growth spending. We certainly make no apologies for that—although there appears to be some resistance to it in some parts of the House—and the UK’s contributions will be lower for every year in this seven-year deal period than in the final year of the last MFF deal. That is a saving of almost £8 billion over the forecast period compared with 2013-14.
Barbara Keeley
If the Minister is resisting the amendments, and it sounds as though he is, will he tell the Committee whether he is happy with the balance of priorities in the spending on competitiveness for jobs and growth, which was a key point that I spent time discussing? He seems to be resisting any attempt to put forward a review or report that would make it easier for the House to push for changes, so is he happy with the current balance?
Mr Gauke
In the 2013 negotiations, we achieved a shift towards a greater proportion of expenditure being on pro-growth measures, such as research and development, and away from other areas of expenditure that contribute less to growth. That includes the common agricultural policy. The hon. Lady says that it is a small amount. Actually, it was not; there was significant progress in terms of a reduction in the common agricultural policy, with more spending on those areas where we think there could be greater added value. That is the right direction. I again have to draw the contrast with the surrender of £2 billion a year in respect of our rebate for common agricultural policy reform that we did not see—I am afraid that that is the record of the last Labour Government with the 2005 deal. I therefore believe that we are moving in the right direction.
If the hon. Lady is asking, “Would we like to go further?”, then, yes, I very much support that view. We want to go further and see a greater emphasis on expenditure that provides better value for money for UK and EU taxpayers. That is very much what we want, but I question the idea that the letter she is calling for will make any difference, particularly when we are seeing progress with the Commission’s budget for results initiative. The working group will meet for the first time in July and there will be a major conference in September 2015. We want to continue that approach during the mid-term review, which, as I said, will occur in 2016.
Barbara Keeley
The Minister was unable to give a date. Mid-term reviews are one thing, but we are moving towards a referendum, as we all know. We are all going to have to build this case for our constituents and for the campaign out there, and we need the information sooner. The slow trundling-on of the EU Commission will not suit our need for that information in this country, in this year and the next. I invite the Minister to come to my constituency and try to explain that this is a really good deal—the split between competitiveness and growth, and the amount that is spent on research and development—when we really should be pushing for that for our economy. We need to explain that and we need the review to be done sooner. He cannot even say when it is going to be done in 2016—it may be too late.
Mr Gauke
The MFF will be in 2016, as I said. The reality is that trying to transfer expenditure in the way we certainly want to—and from what the hon. Lady is saying, she also wants to, although it does not seem to have support in all parts of the House—is a major task. We have made progress. If she is saying that the situation is frustrating and she would like to go faster, I am not disagreeing with her, but I am afraid that that is the way the European Union works. We have clearly made progress and I do not think it does her cause any good to downplay our progress.
Oral Answers to Questions
Debate between David Gauke and Baroness Keeley(9 years, 4 months ago)
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Mr Gauke
As my hon. Friend will be aware, Treasury Ministers do not discuss individual cases, but I can say that the Government are determined to ensure we have a competitive tax regime in which everyone plays by the rules and pays their fair share. We have been involved in a number of crackdowns on tax avoidance, both domestically and internationally, with the OECD base erosion and profit shifting projects, and we continue to work hard on that.
Barbara Keeley (Worsley and Eccles South) (Lab)
Well, it seems that the hon. Member for Monmouth (David T. C. Davies) does not have a lot of confidence in the measures being laid out by Ministers. Never mind percentages: the tax gap has increased to £34 billion. The US-Swiss tax deal raised £800 million in 2013, not the forecast £3.2 billion. Despite these failings, the Minister has just mentioned the manifesto promise to raise a further £5 billion. Will he start to tell us how he will do that? He has not even brought in tougher penalties on the general anti-avoidance rule.
European Union (Finance) Bill
Debate between David Gauke and Baroness Keeley(9 years, 5 months ago)
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Mr Gauke
My right hon. Friend has taken me in the direction of the wider issue of our EU membership. As became clear this week, the people of the United Kingdom will have an opportunity to vote on that, but this is the system that applies while we are members of the European Union. My right hon. Friend may wish to present his argument during a future debate, but what cannot be in doubt is that the Prime Minister’s achievement during the 2013 negotiations constituted a huge improvement on the record of the last Government. It protected the rebate, and it ensured, for the first time, that we were able to reduce the overall expenditure of the EU over the multi-annual financial framework period.
Barbara Keeley
The hon. Gentleman is very kind. I just wonder whether he intends to mention the debate in the House and the votes, particularly by Labour Members, that gave the Prime Minister such a strong negotiating position and played an important part in strengthening his hand at that time. Will the hon. Gentleman acknowledge that?
Mr Gauke
It would be a bit rich for the Labour party to claim this success as its own. We have a record of a Conservative Prime Minister who was able to protect the rebate in full as it stood, and also managed to reduce EU expenditure. That is in stark contrast to the record the previous time this process was undertaken in 2005, when part of our rebate was surrendered at significant cost, as I have already set out.
Oral Answers to Questions
Debate between David Gauke and Baroness Keeley(13 years, 9 months ago)
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Mr Gauke
My hon. Friend has a great deal of expertise in the business world. In the longer term, it is vital that we get the fundamentals right and have sustainable public finances, and the Government are pursuing policies that will favour growth. In the short term, obviously her constituents have our sympathy. Jobcentre Plus is able to provide a rapid response service in those areas, and I am sure that it will be acting closely with her constituents.
Barbara Keeley (Worsley and Eccles South) (Lab)
A firm in my constituency manufactures parts for motorbikes, and it plans to move into the full production of motorbikes, so why have the Government decided to cut investment allowance, which will hit firms that are trying to make such moves? How can there be growth with policies that undermine manufacturing?
Oral Answers to Questions
Debate between David Gauke and Baroness Keeley(13 years, 10 months ago)
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The Exchequer Secretary to the Treasury (Mr David Gauke)
It is for Departments to decide how best to prioritise resources within their departmental expenditure limits. The consequences in particular locations will become apparent only once these decisions have been made. However, the Secretary of State for Communities and Local Government announced the provisional local government finance settlement on Monday, and the balance of the settlement is more heavily weighted towards councils that are more dependent on central Government grants and have greater relative needs.
Barbara Keeley
Salford is ranked 15th in average scores for the 50 most deprived districts in England. The front-loaded grant cuts announced in the spending review mean that next year Salford council is faced with making budget cuts of 15%, or £40 million, which will have an impact on services such as social care for frail older or disabled people. How does the Minister square that reality with the Government’s pledge in the spending review to limit the impact of spending reductions on the most vulnerable in our society?
Mr Gauke
Had we proceeded with the spending formula that existed under the previous Government, some of the deprived areas that are most dependent on central Government grant would have faced a greater cut than the one in the proposals announced by my right hon. Friend the Secretary of State for Communities and Local Government.