Finance (No. 2) Bill

Debate between David Gauke and Ian Swales

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

Well, there we go: another pledge from a Labour Member that would increase borrowing levels. I should remind the House that when VAT was increased, Labour Members did not vote against it.

[Ian Swales (Redcar) (LD)]

Does the Minister share my surprise that a policy is being proposed whereby the biggest winners would be pop stars, premiership footballers and bankers, who spend the most?

[Mr Gauke]

My hon. Friend makes a good point. I will come back to that later.

Our long-term economic plan has delivered economic growth and record levels of employment, and it has put this country on a sustainable economic footing. Specifically on VAT, we have maintained the VAT registration threshold, which is now £82,000—the highest in the EU. That is of significant benefit to small businesses right across the country. While the bulk of the deficit reduction has come from spending, we chose to increase VAT from 2011. If it is necessary to raise large sums of money, as it clearly was in 2010 when we saw the structural deficit deteriorate—at least, the assessment made by the previous Government, and then by the independent OBR, showed a significant deterioration—then it is necessary to raise one of the bigger taxes.

Happily, we are no longer in that situation under the plans put forward by the Conservative party. I am afraid that Labour Members’ plans—not engaging in reducing the welfare budget and not committing themselves to controlling departmental spending in the way we would—mean that they will need to find a substantial tax increase. A Labour Government in 2010 would have put up the jobs tax—a different choice from ours. In those circumstances, it is hard to believe that we would have 1.9 million more people in work today than we had in 2010.

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[Mr Gauke]

None the less, under this Chancellor and this Government, we will stick to the long-term economic plan and avoid populist giveaways that could damage the public finances.

I could spend some time on these clauses—they are a significant achievement for the Government and I am delighted we are making further progress on increasing the personal allowance—but I shall deal with amendment 1, tabled by the Opposition. It is the annual debate we have on these matters; it is familiar to me and, I suspect, to you, Sir Roger. It proposes that the Government publish a report reviewing the impact of setting the additional rate at 50% within three months of passing the Bill. In addition, it asks for an assessment of

“the impact of setting the additional rate for 2015-16 at 45 per cent and 50 per cent on the amount of income tax currently paid by someone with a taxable income of…£150,000…and…£1,000,000 per year.”

To be credible, such an analysis would need to take behavioural impacts into account, like the HMRC report on the additional rate published at Budget 2012. Simply looking at theoretical income tax liabilities when increasing taxes is not enough. For perhaps the first time in a long time in these debates, we might have made a bit of progress in trying to understand Labour’s position. The HMRC report concluded that the underlying yield from the introduction of the 50p rate was much lower than originally forecast owing to large behavioural effects. It would be fair to say that when the 50p rate was introduced by the previous Government, they made allowances for behavioural effects. The question is whether it was sufficient.

When HMRC looked at this again, it was clear that the behavioural effect was greater than anticipated by the previous Government. Indeed, it is quite possible that it cost the Exchequer money. So let me take this opportunity to assure hon. Members once more that the Government already consider the impacts of any policy decisions taken, and they take the behavioural effects into account. The simple point is that the 50p rate was failing to raise the money anticipated.

[Ian Swales]

People find some of these behavioural effects hard to imagine. One of them, of course, was that under the previous Government somebody paying tax at that kind of rate could put £250,000 into a pension fund and save all the tax—£125,000. The maximum that can be saved now is £18,000.

[Mr Gauke]

My hon. Friend raises an important point. There are a number of behavioural effects. Sometimes when we have this debate, there is a tendency for Opposition Members to say, “Ah, behavioural effects. You are just talking about tax avoidance.” Tax avoidance can be an element, but it can also be behaviour that is clearly compliant both with the letter and the spirit of the tax system yet will reduce yield. Increasing contributions to pension schemes, for example, could result in a reduction in revenue. It could be that somebody decides to relocate out of the United Kingdom. It could be—an important point that gets to the heart of why we reduced the tax— that international businesses in deciding where to locate staff might conclude that the costs of doing so in the UK are greater than elsewhere, and that there are better climates and environments in which to locate highly paid staff.

Those are some of the behavioural impacts that are a consequence of having an uncompetitive rate of income tax. That is one of the challenges that Governments have to face. To be fair, the previous Labour Government, for the vast majority of their time in office—this point has already been made by my hon. Friend the Member for Redcar (Ian Swales)—did not increase the 40p income tax rate. Tony Blair was very clear that in his view increasing the rate above 40p would be a mistake. We have taken the view that it was right to reduce the rate down to 45p, but the important question remains of what is the purpose of having a high rate of income tax. Is it to raise revenue or is it simply about sending a signal? If it is to raise revenue, we have to ask ourselves how much it will raise.

This is why I return to the comments—I cited them accurately and in context earlier—made by the shadow Chief Secretary on 5 November:

“We have a choice about a tax rate”—

he is clearly talking about the 50p rate—

“that would raise £3 billion, and it is important that we take that opportunity to tackle our deficit, rather than giving that money away to those people who are already in an extremely privileged position.”—[Official Report, 5 November 2014; Vol. 587, c. 849.]

He is talking about raising £3 billion. I pressed the hon. Member for Birmingham, Ladywood (Shabana Mahmood) on two or three occasions because she was making a different argument. She was saying that the static cost is £3 billion, and then it is a question of working out what the dynamic and behavioural effect will be so that we have a true and accurate position on how much this tax will raise. That is a perfectly reasonable point—it is not possible to disagree with the fact that there is a static number, but that is not terribly helpful in guiding us towards a sensible policy, because we have to know the behavioural effects. Let me be clear. The hon. Lady is clearly stepping away from the suggestion that this will raise £3 billion—

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[Mr Gauke]

I accept that I can be carried away with party-political knockabout. I look to the hon. Gentleman as a statesman who rises above such lowly behaviour, and I shall always seek to emulate his balanced and considered approach to the House of Commons.

[Ian Swales]

I thank the Minister for giving way again. He is being very generous with his time.

As assessment has been made by an independent group, the Institute for Fiscal Studies, which came up with a figure of about £100 million. Labour Members have used the word “exact”. Does the Minister reject the idea that the amount can ever be estimated exactly, partly because of the behavioural factors to which he referred a few minutes ago?

[Mr Gauke]

That is a very good point, which leads me to the two quotations that I was about to give. Paul Johnson, the head of the IFS, said in a paper that was published on 27 January 2014:

“The best available estimate of what reversing the cut would raise is therefore about £100 million too.”

He also said that

“the best evidence we have still suggests that raising the top rate of tax would raise little revenue and make, at best, a marginal contribution to reducing the budget deficit an incoming government would face after the next election.”

Finance (No. 2) Bill

Debate between David Gauke and Ian Swales

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

My hon. Friend is absolutely right. Very often, the debate in this House is about the impact on individuals of the freeze on fuel duty, which has considerably reduced how much fuel costs. As a consequence of our measures, £10 is saved per tank full of petrol. He is also right to mention the impact on businesses, because many of them, particularly smaller ones, pay this tax. We can sometimes forget that in that debate. Fuel duty is now 16p per litre lower than it would have been under the previous Government’s plans.

Let me return to the provisions on oil and gas. The new cluster area allowance will support the development of one of the biggest fields in the UK continental shelf, which is expected to generate about 3,500 jobs and more than £3 billion in capital investment. As hon. Members can see, the Bill tackles some of the challenges facing our business community and our economy.

Now that I have set out such competitive tax rates, designed specifically to support our businesses, let me say that we expect those taxes to be paid. The Bill continues the Government’s firm action against the small minority who seek out unacceptable ways to reduce or delay paying the taxes they owe. Under the Bill, we will legislate to create a fairer tax system by clamping down on tax avoidance and ensuring that banks contribute their fair share. Taking effect from the start of next month, the Bill will introduce a new diverted profits tax of 25%, aimed at large multinationals that artificially shift their profits offshore to avoid paying UK tax. As part of the project, I can confirm that we are working with five other tax authorities to investigate and challenge how digital multinationals shift their profits to tax havens. For the first time, we are gathering a full global picture of the tax risks those companies pose that is invaluable in helping us take decisive action.

The Bill will also increase the bank levy to 0.21% and introduce new rules for banks on carried forward losses, to ensure that banking companies can use them only to relieve up to 50% of company profits. Combined, those measures will raise nearly £8 billion over the next five years. We have always been clear that banks should make an additional contribution that reflects the risks they pose to the UK economy, and now that banks are strengthening their balance sheets and returning to profitability, they should make a greater contribution to the economic recovery.

[Ian Swales (Redcar) (LD)]

I welcome the increase in the bank levy. Does the Minister agree that it is extremely difficult for a bank to avoid the levy, whereas the tax on bonuses, for example, would be very easy to avoid?

[Mr Gauke]

My hon. Friend makes a very good point. Indeed, that is why the previous Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), made it clear that the bank bonus levy could only really be effective for one year. It is important that we have something sustainable that can exist for much longer.

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[Mr Gauke]

My hon. Friend is absolutely right. I believe that oil revenues are something like a 10th of what the Scottish National party predicted, but I will happily stand corrected if I am wrong. The fact is that a united kingdom is better able to absorb volatility in the oil price than an independent Scotland would ever be. Given what has happened to the oil price, it is clearly to the benefit of Scotland that those calling for independence were roundly defeated last year.

[Ian Swales]

Will the Financial Secretary give way?

[Mr Gauke]

I will give way one last time, but I am conscious that many Members will want to speak.

[Ian Swales]

I thank the Financial Secretary. I am sure that he would accept, having looked at the business case for the changes in oil taxation, that the economic effects of the oil industry are much wider than simply the winning of oil. In particular, the engineering and manufacturing industries in the north-east of England are pleased by the moves that have been made.

[Mr Gauke]

My hon. Friend makes a good point. Particularly in the north-east of England, a number of businesses are ancillary to the oil industry, so I am grateful for his remarks.

The Bill takes further steps to deliver long-term, sustainable economic growth. It puts in place a more competitive environment for business, takes more people out of income tax, continues our reforms of the tax system and supports the continued success of our industries. I commend it to the House.

Stamp Duty Land Tax Bill

Debate between David Gauke and Ian Swales

Wednesday 10th December 2014 Commons Chamber

[Mr Gauke]

This is likely to have an impact, with more transactions for properties on which the stamp duty bill has fallen—some 98% or so—and slightly fewer transactions when a larger stamp duty bill will apply. Although there will be an element of behavioural change as a consequence of the measure, property transaction numbers and house prices will be affected by a whole range of factors, so it can be difficult to ascribe any particular changes to one particular reason. However, it is likely that there will be more transactions, and that has certain advantages, such as for labour market mobility, and if it means that people are living in the homes that they want to live in as opposed to feeling trapped in their property to a certain extent. I think that the measure will have a beneficial impact on the housing market.

Each new SDLT rate is now payable only on the portion of the property value that falls within each band. That is in contrast to the old system, under which tax was due at one rate for the entire property value. Moving from a slab to a slice arrangement is right in terms of fairness and economic efficiency. The new arrangement will cut SDLT for 98% of people who pay the tax, and no one who is buying a home worth up to £937,500 will pay more.

This Government believe in aspiration. The aspiration to own our own house is one of the elements of human nature. It is something that, for generations, has been totemic for people in this country. This is a Government who will help people to achieve that ambition, and do so in a fair and equitable way.

The previous stamp duty system was flawed. It had been criticised by hon. Members on both sides of the House, industry and think-tanks. It was

“one of the worst designed and most damaging of all taxes”,

according to the director of the Institute for Fiscal Studies, and “unfair” according to the Building Societies Association. According to the Royal Institution of Chartered Surveyors, it did not

“work as it stands and creates large distortions”.

The problem with the previous system was simple. The slab approach created an enormous hike in taxes at certain thresholds. If someone paid £250,000 for a house, they would pay £2,500 in stamp duty. If they paid £250,001, however, they would pay £7,500—three times as much. In reality, of course, nobody did; they would have been crazy to. What happened was that there were dead zones—in this case a little above £250,000—in which almost no transactions actually took place.

To return to the intervention made by my hon. Friend the Member for Reading West (Alok Sharma), this change is likely to result in a substantial increase in the number of transactions in those dead zones because of the ending of the bunching effect, which should help us to have a more efficient market. Let me again give an example that I cited in last week’s debate: in 2013-14, there were over 30 times as many sales between £245,000 and £250,000 as there were between £250,000 and £255,000. Given that the average UK house price is around £275,000, this was a big distortion affecting a significant number of properties.

What also happened was that people owning properties a little under the threshold were reluctant to improve them for fear that that would be money thrown away if they came to put the property on the market. Also, people wishing to move up the property ladder as their families grew, but who found themselves on the wrong side of the step upwards, had to find a significant—and arbitrarily imposed—lump sum precisely at a time when there are hundreds of other one-off expenses to worry about. We have got rid of the inefficient and distortive old system, and replaced it with a fairer new system that cuts SDLT for 98% of people who pay it.

Under the new structure, no buyer purchasing a property will pay anything at all up to the first £125,000. Buyers will be charged 2% for the portion from £125,000 to £250,000, and 3% for the portion from £250,000 to £925,000. Those individuals buying a house worth more than £925,000 will be charged 10% for the portion of the price between £925,000 and £1.5 million, and buyers will pay 12% tax for any portion of the price above the £1.5 million threshold.

I stress that the tax will be paid once, and once only, at the point when the purchaser has the cash to do so. Once it has been paid, that is it, because we do not believe in introducing a system that would require homes to be revalued every year, or in imposing a large liability on people who may be asset-rich but cash-poor.

[Ian Swales (Redcar) (LD)]

I welcome the rate profile that my hon. Friend has put into the Bill. Does he agree that the measure is another example of this Government increasing taxes for the wealthy and making those with the broadest shoulders bear the biggest burden?

[Mr Gauke]

It is an example of that. In yesterday’s Treasury questions, in the context of the reduction of the 50p rate of tax to 45p, I pointed out that the proportion of income tax paid by the top 1% has been higher—and is projected to be higher—in the years since that cut than it was when the 50p rate was in place. There is a similar point to be made here. For properties, we estimate that the top 1% will be paying just under 40% of all stamp duty yields, whereas in 2010, under the old system, the top 1% were paying only 19% of all yields. Stamp duty has become more progressive as a consequence of our changes.

Oral Answers to Questions

Debate between David Gauke and Ian Swales

Tuesday 9th December 2014 Commons Chamber

[Mr Gauke]

As it happens, the distributional analysis shows that our policies have narrowed the gap. The point is that we have made changes to our tax system to ensure a greater contribution from the wealthiest in terms of stamp duty land tax and capital gains tax. We have reduced some of the reliefs and exemptions that meant some high earners did not pay taxes. I am afraid that the idea that a 50p rate was effective in achieving such objectives—including raising revenue—is simply wrong.

[Ian Swales (Redcar) (LD)]

Further to the Minister’s answer on the diverted profits tax, will he confirm whether it will cover businesses that run substantial operations in the UK, but that invoice from Ireland or Luxembourg to avoid tax?

[Mr Gauke]

We are confident that the measure will be effective in targeting multinationals that use aggressive tax planning and contrived structures to avoid UK tax. The diverted profits tax will be charged at 25% and will raise more than £1 billion over the scorecard period.

Taxation of Pensions Bill

Debate between David Gauke and Ian Swales

Wednesday 3rd December 2014 Commons Chamber

[Ian Swales]

Does the Minister recognise that the point at which many people draw their pensions, particularly the lump sum element, is the very point at which they might wish to help their children get into the housing market, and that we should not do anything to prevent that?

[Mr Gauke]

My hon. Friend makes an important and relevant point. We are putting power in the hands of individuals to decide what they do with their retirement pension pot. We are also ensuring—I shall touch on this in a moment—that guidance is available. It may well be that after careful consideration, people conclude that they do want to assist a family member to get into the housing market. That is a choice for them, and I do not think that we here should necessarily condemn such a choice: it might be precisely the right thing for people to do for them and their family.

As part of the new regulatory framework for financial services, we have introduced the Financial Policy Committee, as I was saying, and we have given the FPC strong powers to tackle any threat to financial stability, including a broad power of recommendation, which it used in June 2014 to address risks stemming from mortgage lending and sectoral capital requirements that apply to residential mortgage lending. The Government have consulted on granting the FPC powers of direction over macro-prudential tools for the housing market and aim to legislate for these new powers next year. In line with the new regulatory framework, the FPC is best placed to monitor the housing market and take action, if required.

Let me pick some other points raised in the debate, most of which it would be fair to say were familiar. I was asked whether people would understand the tax consequences involved. The guidance will help consumers to understand the tax implications of their choice of pension, and in addition, the Financial Conduct Authority has published near final rules that will require providers to supply their customers with a description of the possible tax implications when they apply to access their pension funds.

On extortionate draw-down charges, the FCA’s retirement income market study will be published shortly. In June, the FCA expanded the scope of this study to include consideration of products in the new flexible landscape and to identify any competition risks and potential consumer detriment. The guidance guarantee will be relevant here.

It was suggested that people might be charged too much tax without realising it. As with all PAYE income, the tax position will be reconciled at the end of the tax year. All the income received by an individual that was taxed under PAYE will be brought together, and the correct tax will then be calculated. If there was an overpayment, the extra amount will be repaid, and if there was an underpayment, HMRC will contact the individual. People will not be subject to self-assessment solely because they have flexibly accessed their pensions, nor will they have to claim a refund in order to receive it.

I have already touched on the matter of how the new flexibilities will affect entitlements to benefits, but let me say now that the Government want to ensure that the choice that people make between taking their pensions as income—that is, purchasing an annuity and keeping more of their pension as capital—and drawing it down periodically, for example through a drawdown product, will not have a significant impact on how they are assessed for social care support and how their means are assessed for social security purposes. New regulations and statutory guidance on the Care Act 2014, which were published on 23 October, include details about the charging rules for care and support.

Today we announced a change in the rules for people above pension credit qualifying age who claim means-tested benefits. The notional income amount applied to pension pots that have not been used to purchase an annuity will be reduced from 150% to 100% of the income of an equivalent annuity—or the actual income taken, if that is higher—in line with the rules for care and support.

Let me now deal with an issue that was raised by the hon. Members for Kilmarnock and Loudoun and for Chesterfield (Toby Perkins). I shall not try to anticipate the response that my hon. Friend the Economic Secretary to the Treasury will make to the Adjournment debate that the hon. Gentleman will initiate later, but I can say that these matters are not being rushed. We have consulted extensively on the implementation of the policy, and there is widespread support for the changes. We are working closely with industry to ensure that it is ready for April 2015, and have been doing so since the announcement was made. We are making good progress in delivering the changes that are needed through both our Bills.

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[Mr Gauke]

Amendments 1 to 8 are all of a minor and technical nature, amending various definitions and removing unnecessary sections. I would be happy to explain those in more detail if hon. Members are interested, but if they are not, I will move on to amendments 9 to 39.

As hon. Members will recall, we had a very useful debate in Committee about the new information requirements for individuals that are set out in part 6 of schedule 1 to the Bill. I said at the time that the Government were keen to work with industry and consumer groups to ensure that the requirements are proportionate, and that we would consider the issue further. We have therefore continued to have constructive discussions with the pensions industry about the impacts of the Bill. As a result of this ongoing consultation, we have tabled a number of amendments that we believe are a proportionate response to the concerns raised. These changes will make the reporting requirements that individuals need to meet easier to comply with, while still ensuring that they have access to the right information to help them pay the right amount of tax. Government amendments 9 to 39 therefore make a number of changes to the information requirements in the Bill to provide that individuals have to tell schemes that they have flexibly accessed their pension savings only if they are an active member of that scheme, and to increase the time they have to comply from 31 days to 91 days.

It might be helpful if I start by setting out why these information requirements are required. As we have discussed many times during the course of this Bill’s passage through the House, when an individual accesses their pension flexibly, their annual allowance for tax-relieved defined contribution pension contributions will reduce from £40,000 to £10,000. That will protect the Exchequer and ensure that the new system cannot be exploited to achieve unintended tax advantages by individuals’ diverting their salary into their pension and withdrawing it immediately with tax relief. It is therefore important that individuals understand the tax consequences of saving into a pension after accessing their savings flexibly. For that reason, the Bill placed a new requirement on individuals to tell all their pension providers once they had flexibly accessed a pension. This was intended to ensure that individuals do not use the new system to gain a tax advantage that is not intended. However, the Government have always been clear that they are keen to ensure these requirements are proportionate. Having considered the issue carefully, we are amending the Bill to provide that people need to tell only the schemes to which they are contributing or that they contribute to in the future. They will also have an extended period of 91 days in which to do so. These changes will make the new system easier for individuals and schemes to comply with, while also ensuring that the new annual allowance is implemented effectively. Again, I would be happy to explain these amendments in more detail if hon. Members are interested.

[Ian Swales]

I am certainly not asking the Minister to explain all this in a lot more detail and detain the House in doing so. One specific point raised in Committee was that people contributing to a workplace defined benefit scheme will not know how much of their annual allowance is being used in that scheme at the time when they are able to make contributions to a defined contribution scheme. Has he considered the possibility that such people could be treated—I think the Bill tends to do this—as though they are deliberately trying to avoid tax, whereas they may just have a lack of knowledge at the time they do this?

[Mr Gauke]

My hon. Friend makes an important point. There will be particular issues with defined benefit schemes. It may be that individuals do not know when contributions are paid by their employer. Where the scheme provides defined benefits only, the information requirement does not apply, and individuals will never need to notify it. If the scheme also provides money purchase benefits—for example, if it has a separate AVC section—the requirement can only apply where contributions are made to the AVC section. Defined benefit schemes are excluded as they will not have to send pension saving statements to the individual based on the £10,000 money purchase annual allowance. I hope that helps my hon. Friend.

Finance Bill

Debate between David Gauke and Ian Swales

Wednesday 2nd July 2014 Commons Chamber

[Mr Gauke]

We have been engaged in a consultation process, which closed recently, and have engaged fully with all interested parties more generally on this policy. I will address some of these points when I respond to new clause 9, but we will respond shortly to the consultation, setting out the details of how the policy will be taken forward. This is an important matter, and it is important that we get things right. There are a number of aspects to it, and new clause 9 takes us into some of those aspects that, although perhaps not relevant to the Finance Bill, are of significance none the less. I can assure the House that there will be plenty of opportunities to debate the details, given that legislation on the subject will be introduced, as the hon. Lady knows full well.

[Ian Swales (Redcar) (LD)]

The Minister rightly says that on such policy matters, assessments are a normal part of Government practice. Will he confirm that the reviews will take account of any potential future cost to the public purse? For example, what if people have inadequate funds to cover their future care costs, as they have already spent their accumulated pensions, or if they have other recourse to the state because they have inadequate resources later in life?

[Mr Gauke]

During the assessment of the policy announced in the Budget, we considered all the various issues, including the consequences for the Exchequer in both the short and long term. We will say more about the specific interaction with social care and so on in the near future. I would make the point that the very people restricted by the old regime were the people who, over the course of their working lives, saved responsibly and ended up with a pension sum that demonstrated their prudent approach to saving. It is not unreasonable to believe that the vast majority of those people will continue to act prudently when given greater flexibility. As a matter of philosophy, both parties in the coalition Government share the view that when we can give more power and responsibility to people, we should do so.

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[Mr Gauke]

The purpose of the reforms is to ensure that there is a savings and pensions environment that is good for those saving for their pension and those claiming on their pension. We believe that the reforms that we have set out will result in greater innovation in this area. We do not think that the purpose of the rules is to protect particular businesses. Nevertheless, the industry has responded well to our proposals. Many see this as an opportunity to improve the culture of saving and have engaged very constructively with the Government. I hope that that addresses the hon. Gentleman’s concerns.

[Ian Swales]

I recently met representatives of a major financial institution who rightly see the potential for new products following these changes. I am sure that innovative companies will come up with products that meet people’s needs. On advice, will the Minister assure us that the system will be transparent as regards how advisers are rewarded and that we will not get into a situation where overt or covert kick-backs from product providers are the main source of income for those providing the advice?

[Mr Gauke]

My hon. Friend is trying to draw me into the details of what we will say about how the guidance will operate. It is important that we have a system that is transparent and maintains the confidence of the general public, and that is at the heart of what we are trying to do.

Finance Bill

Debate between David Gauke and Ian Swales

Tuesday 1st July 2014 Commons Chamber

[Mr Gauke]

It is striking that time and again senior figures in the Labour party went around describing this as a tax cut for hedge funds. It is to the credit of the hon. Member for Kilmarnock and Loudoun that she refused to repeat that accusation. Although she did not quite go as far as she might have done towards putting the record straight, at least she did not repeat the accusation despite being given multiple opportunities to do so. I do worry about the understanding of some issues within the Labour party. Just today, we have seen the example of the confusion about how many jobs have been created inside and outside London. I understand that the Leader of the Opposition is standing by his position this morning, although he did not quote that in his speech—but there we go. I am afraid that this is an example of somewhat shoddy thinking from the Opposition.

[Ian Swales]

On the same theme, did the Minister share my concern about the number of speeches made in Committee by Opposition Members that appeared to suggest that the benefits of the policy would accrue to the managers of the funds rather than the funds themselves?

[Mr Gauke]

Yes, I did. There was a complete absence of any understanding of tax incidence and of who ultimately bears a tax, but that, I am afraid, is all too typical.

The removal of schedule 19 is a welcome measure that will ensure that we have a competitive investment funds management set-up in the UK. It will help savers and those investing in their pensions and remove a distortive and uncompetitive tax. It is a great pity, although not a great surprise, that this further measure to improve our competitiveness and to help savers is opposed by the Opposition, and I certainly urge my colleagues to vote against amendment 67, assuming that it is pressed to a vote.

Question put and agreed to.

New clause 7 accordingly read a Second time, and added to the Bill.

Clause 107

Abolition of SDRT on certain dealings in collective investment schemes

Amendment proposed: 67, page 90, line 33, at end insert—

‘(5A) The Chancellor of the Exchequer shall, within six months of this Act receiving Royal Assent, publish and lay before the House of Commons a report setting out the impact of changes made to Schedule 19 of the Finance Act 1999 by this section.

(5B) The report referred to in subsection (5A) must in particular consider—

(a) the impact on tax revenues;

(b) the expected beneficiaries; and

(c) a distributional analysis of the beneficiaries.”—(Cathy Jamieson.)

Question put, That the amendment be made.

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[Ian Swales]

I certainly accept the Minister’s point about the timing for reporting back on the scheme. However, we are starting to see examples of the very few companies that are taking it up, and they seem to be focused on high earners in industries such as private equity, who arguably are not very worried about their employee rights anyway. For example, eight managers at European Capital each received the maximum £50,000 recently when they sold one of their businesses. Can the Minister say what kinds of companies are registering and how the scheme is working so far?

[Mr Gauke]

We have been consistent throughout. No one argues that the arrangement is right for everybody; it will be suitable only in particular circumstances. It is more likely to be relevant for fast-growing areas involving a relatively small number of highly valued individuals who benefit from arrangements that incentivise performance but who are not necessarily looking for extensive employment rights.

It has been said before in the context of this debate that there are employees who benefit in full from employment rights; there are the self-employed, who have essentially no rights in this area; and there is a gap in the middle. Part of the thinking behind the arrangement is about ensuring that something appropriate falls in between—something useful for fast-growing small and medium-sized companies that want to create a flexible work force.

Finance (No.2) Bill

Debate between David Gauke and Ian Swales

Tuesday 8th April 2014 Commons Chamber

[Mr Gauke]

The cuts in corporation tax were a central plank of the Government's economic strategy, a strategy that is working. Jobs are up and business confidence is increasing.

It may be helpful if I inform the House of the news that we have heard from the IMF this afternoon. The IMF has revised the UK’s growth forecast for 2014 and 2015 to 2.9% and 2.5% respectively, an upward revision of 0.4 percentage points in 2014 and 0.3 percentage points in 2015. Those are the largest increases for both years among major advanced economies and among the BRIC countries—Brazil, Russia, India and China—for both years. The UK is also forecast to be the fastest-growing major advanced economy in 2014. I make the point to the hon. Gentleman that the plan is working. Business investment has grown for four consecutive quarters for the first time since 2007. The OBR has forecast that investment will grow very strongly over the next two years—by 8% in 2014 and 9.2% in 2015.

More and more businesses are moving operations here, a point made by my hon. Friend the Member for Amber Valley (Nigel Mills). Just in the past two weeks, we have seen Hitachi Rail—referred to by my hon. Friend the Member for Redcar (Ian Swales)—and Brit Insurance announcing moves to the UK. Siemens has announced a £160 million investment in the Humber. Business surveys reflect the positive impact of the corporation tax reforms. For the past two years, the UK has ranked highest in the KPMG survey of international tax competitiveness, with business leaders putting us ahead of countries such as the USA, the Netherlands and Switzerland.

[Ian Swales]

As a champion of manufacturing, I would like to see more capital investment, but does the Minister accept that investment in people has clearly been going on during this period?

[Mr Gauke]

Indeed it has. I will say more about some of the other measures we are taking to make our tax system more competitive, but overall it is clear that our tax system—in terms of being open for business—has moved in the right direction over the last four years. It is important that we maintain that momentum and do not put it at risk by trying to reverse some of the progress we have made.

--- Later in debate ---

[Mr Gauke]

I am always grateful to the hon. Gentleman for his political advice. I cannot but notice that he talked about wanting to uphold the values of the British people and then quoted Karl Marx—but there we go. My point is that the wealthiest are making a bigger contribution in income tax, capital gains tax and stamp duty, and that this Government are taking further action to deal with avoidance and evasion more effectively than any previous Government have done.

[Ian Swales]

It is not for me to disagree with the mathematics of the hon. Member for Ogmore (Huw Irranca-Davies), but assuming that he is right, does his point not prove that 13,000 people were paying £100,000 less tax in the year up to April 2010?

[Mr Gauke]

I suspect that my hon. Friend may well be right, so I am grateful to him on that point.

Clause 1 will help the Government to achieve our aim of a tax system that is fair for everyone, while rewarding those who want to work hard and progress. We will achieve those goals by cutting income tax for the vast majority of income tax payers, including those in greatest need of support, while making sure that the tax system remains easy to understand. I again stress that the reports proposed in amendment 4 and new clause 4 are entirely unnecessary. The impact of reducing the additional rate of income tax has been examined in great detail. The 50p rate was ineffective and meant risking the recovery for which everyone in this country is working hard. I therefore commend clause 1 and urge the House to reject the amendment and the new clause.

National Insurance (Contributions) Bill

Debate between David Gauke and Ian Swales

Tuesday 10th December 2013 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for his question. The details of the costings can be seen in the autumn statement document published last week. The initial cost is £460 million and that then increases beyond that. All those working who are under the age of 21 will be able to benefit from it, although there is one caveat that I wish to make in a few moments.

This is a step in the right direction. It is striking that this Government came to office inheriting an increase in NICs and we have not only increased the thresholds for paying employers’ NICs, but we have introduced the employment allowance which gives £2,000 off for businesses in respect of employers’ NICs, and now we are exempting those under the age of 21. All this will help to create employment.

[Ian Swales (Redcar) (LD)]

Will the Minister clarify whether the years in which employers do not pay contributions for people under 21 will still qualify under the pension arrangements as years worked?

[Mr Gauke]

Yes; this will not make any change in that regard. It is worth bearing in mind that the changes relate to employers’ national insurance contributions, and that employees’ contributions will remain unchanged. There is no change in terms of contributory benefits.

The new clause contains regulation-making powers to vary the age group and the rate of secondary class 1 NICs for that group, and to reduce the rate of secondary class 1 contributions for a previously specified age group. For example, the Government could allow for an increase in the age bracket of employees falling into the zero-rate band of secondary class 1 contributions. I want to reassure hon. Members that that power is capable of placing an employee only in a lower percentage bracket, and that it is therefore a relieving power only.

There is also a regulation-making power to ensure that the benefit of the zero rate or reduced rate of secondary class 1 NICs will be enjoyed only in respect of earnings below a certain level. In other words, the power will provide a means of introducing an earnings limit. As the Chancellor announced in the autumn statement, this will be set initially at the level of the upper earnings limit, which is expected to be the equivalent of about £42,000 a year in 2015-16. I would be happy to take the House through the new clause, subsection by subsection, although all that information is provided in the explanatory notes. Perhaps, instead, I will respond to any questions on those subsections that arise during the debate.

Let me turn to the Opposition’s amendment (a) to the new clause. It proposes:

“The Treasury shall publish a review of the level of youth unemployment as at December 2013 and the effect on the level of youth unemployment if the amendments made in this section were required to be brought into force on 6 April 2014”—

rather than in April 2015. I hope that the hon. Member for Birmingham, Ladywood (Shabana Mahmood) will not mind my anticipating some of her remarks, but I want to take this opportunity to explain why the amendment is unnecessary.

The Government are committed to increasing employment levels for all, and employment is now at its highest ever level, while unemployment is lower than when we came to power. I recognise the challenges posed by youth unemployment, and dealing with them has long been a priority for the Government. For example, about 370,000 young people have been supported through the Work programme since June 2011. Furthermore, the Youth Contract provides almost £1 billion in funding to support up to 500,000 young people into employment and education opportunities. The autumn statement announcement on abolishing employer NICs for under-21s builds on those policies and has been widely welcomed by industry. Indeed, the director-general of the CBI, John Cridland, has said that the policy

“will make a real difference and help tackle the scourge of youth unemployment.”

--- Later in debate ---

[Mr Gauke]

My hon. Friend makes an important point. We have to set this in the context of a range of Government measures, including the introduction of the employment allowance and the measures on business rates that we announced last week, which I am sure he will be the first to acknowledge will help retailers and small businesses in particular. All those measures will help to put in place the conditions that will encourage firms to take people on and to increase employment and wages. This is all about achieving sustainable growth in living standards. There is no short-cut to achieving that, but measures such as these will help us to ensure that the economy is on a strong footing and that we are in a position to improve the living standards of the British public.

[Ian Swales]

This might be a trivial drafting point, but will the Minister explain exactly what age he is talking about? The new clause refers to people “under 21”, which suggests that it would apply to people before they reach their 21st birthday. Is that correct?

Oral Answers to Questions

Debate between David Gauke and Ian Swales

Tuesday 10th December 2013 Commons Chamber

[Mr Gauke]

I am not going to comment on individual cases, but as I have said, there are a number of protections in the UK system to stop abuse in this area. We have strengthened the capacity of Her Majesty’s Revenue and Customs, and it is also worth pointing out that the UK has led the way in the OECD’s work on base erosion and profit shifting, which is also looking at interest deductibility.

[Ian Swales (Redcar) (LD)]

The previous Government left a system that encourages offshore ownership of UK business, with highly geared structures and foreign interest rates as high as 16%. Many countries limit allowable foreign interest deductions; will the UK look at doing the same?

[Mr Gauke]

Of course, we keep all these matters under review, but as I mentioned a moment ago, there are a number of protections in the UK tax system. However, we continue to monitor this area.

Finance (No. 2) Bill

Debate between David Gauke and Ian Swales

Monday 15th April 2013 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend for putting that point on the record. He will be aware of the efforts made by the Government to strengthen our capacity in that respect, and I am sure his remarks will be noted carefully by my ministerial colleagues in the Department for Business, Innovation and Skills.

I turn to tax avoidance and evasion. Although we believe in a competitive tax landscape, we are not by any means a soft touch on tax. As a Government, we have made very clear our expectations of businesses. We expect businesses to pay tax in accordance with the law, but we also want to ensure that aggressive, artificial tax avoidance is dealt with, which brings me to the second key theme of the Bill.

The vast majority of individuals and businesses pay their fair share of tax, but the Bill takes determined action against those who choose not to do so, by introducing a further package of measures to tackle tax avoidance.

[Ian Swales (Redcar) (LD)]

When people engage in practices where assets are bought and sold for different prices—for example, film rights were headlined in a recent case—it is actually tax evasion, and prosecution should follow. Does the Minister agree with that analysis?

[Mr Gauke]

Where there is an element of dishonesty, it is clearly tax evasion, and Her Majesty’s Revenue and Customs has indeed been successful in bringing prosecutions in a number of high-profile cases. Under this Government we have seen the number of prosecutions by HMRC increase fivefold, which is a reflection of how seriously we consider tax evasion and of our determination to assist HMRC in addressing it as much as possible.

HM Revenue and Customs

Debate between David Gauke and Ian Swales

Tuesday 5th February 2013 Westminster Hall

[Mr Gauke]

I will indeed. I understand that the NAO will publish a report tomorrow on cost savings in HMRC and the way in which HMRC has proceeded. Time prevents me from running through in detail all the areas in which there have been savings, but it is worth pointing out that there have been significant savings of £74 million in the price paid for IT equipment and services, and savings in estate costs through vacating buildings. It is important that HMRC seeks savings, but it is also important that we raise the revenue. A number of hon. Members mentioned the tax gap.

[Ian Swales]

Will the Minister give way?

--- Later in debate ---

[Mr Gauke]

I will give way, but I have a lot of material and a very short time.

[Ian Swales]

It is a very important point. The Minister said that HMRC was required to lose 25% of staff. Was an assessment made of the tax that would be lost as a result, or was taking 25% of people out deemed to be tax neutral?

[Mr Gauke]

We ought to be clear about this and look at outputs rather than inputs. As it happens, the number of staff working in compliance and enforcement is going up under this Government—a reversal of what happened under the previous Government. Although we think that it is right to seek savings and efficiencies—if we can spend less on IT and less on estates, that is surely sensible—we also want to do more to raise revenue.

The reinvestment of efficiencies involves £917 million over the spending review period, and, in return, HMRC has agreed to bring in an extra £7 billion of tax every year to 2015. That means that, cumulatively, over the spending review period, HMRC will bring in about £20 billion of additional revenues, and an additional £7 billion every year thereafter. Additional revenues will come from a range of initiatives, including: increasing the number of criminal prosecutions fivefold; cracking down further on offshore evasion; and extending HMRC’s coverage of businesses, focused on providing resources to tackle high-risk areas.

HMRC results have shown that it can deliver the additional yield. As the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) noted, in 2011-12, it delivered £16.6 billion against its targeted increased yield of £15 billion, and is on course to deliver an additional £17 billion this year. In the light of that record of success, it was decided that we would exempt HMRC from cuts imposed on other Departments in the 2012 autumn statement. Instead, we made the decision to invest in HMRC in two separate ways.

First, we made a further, new £77 million of investment in HMRC to increase its efforts to tackle tax avoidance and evasion, through improving HMRC’s computerised risking systems; further strengthening the risk assessment capability across the large business sector; increasing the attention given to offshore evasion and avoidance, and—probably of most interest to hon. Members here—increasing the staff employed to target avoidance and evasion by the wealthy.

Secondly, in the autumn statement, we invested a further amount, totalling £77 million, to accelerate HMRC’s debt collection activities and bring in about £1 billion in tax over the period; to reduce tax credit error and fraud and reduce losses by about £0.5 billion; and to expand HMRC’s digital service to its customers, which will include help to small businesses as part of our initiatives to introduce growth into the small and medium-sized enterprise sector. My hon. Friend the Member for Cities of London and Westminster (Mark Field) is right when he says that we want to do everything we can to ensure that the burden on small businesses can be reduced and that it is easier to deal with HMRC.

Taken as a whole, the investment package will mean that HMRC will collect an additional £2 billion in 2014-15. That is over and above the £7 billion in additional revenue that HMRC will collect in that year as a result of the spending review settlement in 2010. On top of that, our investment in digital will allow HMRC to offer a modernised service to customers, while working more efficiently.

The Government have recognised the crucial role that HMRC has played, and will continue to play, in helping to manage the deficit we inherited. It is bringing in more additional revenues than ever before, and that is not the only area where HMRC is delivering well. The latest performance figures, from December 2012, show that post handling in local offices is the best it has been since HMRC was formed, with about 90% cleared within 15 days of receipt in recent months. The hon. Member for Newcastle upon Tyne North highlighted press reports saying that 100,000 items of post have not been dealt with, but that must be put in the context of HMRC’s receiving 200,000 items of post every week. We are talking about post that has by and large arrived in the past two or three days.

HMRC’s self-assessment filing system is a clear success: 92.9% of self-assessment tax returns for 2011-12 were filed on time this year—the best result since HMRC was created—and 82.5% of those returns were filed online, which is a new record. We are all aware of the difficulties that HMRC faced a few years ago in handling the fallout from the new computer system, but such difficulties are now behind it and it is on track to bring PAYE up to date by March 2013. We are also taking steps to improve automation.

I would like to say more, but it is sadly not possible to do so today in the time available. I apologise to hon. Members for not being able to address every question that has been asked. We appreciate what the taxpayer wants from HMRC. We want to raise revenue and reduce the tax gap. We are giving HMRC the resources to do precisely that. I will continue to work with HMRC to ensure that it continues to provide the best possible value for money for the taxpaying public.