Oral Answers to Questions

Debate between David Gauke and Mark Durkan

Tuesday 19th July 2016 Commons Chamber

[The Chief Secretary to the Treasury (Mr David Gauke)]

I am grateful to my hon. Friend for his question. On the particular proposal he sets out, he is a strong champion for his constituents. If he will forgive me, in my new position of trying to control the purse strings all such matters have to be looked at. As I have made very clear, however, the Government are committed to improving transport infrastructure throughout the country, including in Sussex.

[Mark Durkan (Foyle) (SDLP)]

T4. I voice my compliments to the new Front-Bench team and my acknowledgement of the old. The prospect of moving to an ultra-low corporation tax rate has already been aired. That, of course, has huge implications for the revenues of developing countries. Will the Chancellor undertake to carry out and publish a spill-over analysis of the effect of UK tax rates and rules on developing countries, as the Governments of Ireland and Netherlands have done?

[Mr Gauke]

The position of the UK Government on corporation tax and the impact on developing countries is very clear. We believe in taxing the profits of economic activity that occur here, and that is as far as it goes. Over the last six years, we have consistently helped to build up tax capacity in developing countries and provided support to their revenue authorities so that they might be better able to collect the taxes that are due. The international system is moving towards helping those countries as well.

Tax Avoidance and Evasion

Debate between David Gauke and Mark Durkan

Wednesday 13th April 2016 Commons Chamber

[Mr Gauke]

I say that I should make some progress, but I look around the House and everybody is standing up. I will give way to the hon. Member for Foyle (Mark Durkan).

[Mark Durkan (Foyle) (SDLP)]

I thank the Financial Secretary for giving way. He referred to the Government’s record, but that record also includes changes to the controlled foreign companies rules, which in effect cost Exchequers here and, more importantly, in developing countries.

[Mr Gauke]

I do not accept that. The hon. Gentleman and I have debated the issue on several occasions. When we came to office in 2010, the controlled foreign companies regime was outdated and was driving businesses out of this country. Since our reforms, more businesses have located in the United Kingdom and more businesses have located their European headquarters here. The change has added to the UK’s attractiveness as a place to do business. As for developing countries, I have said to the hon. Gentleman before that the UK has been at the forefront of building the capacity of tax authorities in developing countries to ensure that they are able to collect the tax that is due under their laws.

Budget Changes

Debate between David Gauke and Mark Durkan

Monday 21st March 2016 Commons Chamber

[Mr Gauke]

My hon. Friend brings much expertise to this issue, and I know that he is very pleased that one of the things we were able to do in the Budget was to finally remove class 2 national insurance contributions. That was a tax on the self-employed and it was also a significant administrative burden, so I am pleased that we have been able to remove it.

[Mark Durkan (Foyle) (SDLP)]

May I express the shock and sadness in my constituency at the loss of life of a family from Derry in Buncrana last night?

How can the Financial Secretary continue to talk about a long-term economic plan when he is describing what are increasingly ephemeral Budgets? Will the Government finally end the error of their ways in relation to the welfare cap and stop using it as a search engine for benefit cuts?

[Mr Gauke]

First, may I associate myself with the hon. Gentleman’s remarks and, through him, express the condolences of the whole House to the family who suffered so grievously last night?

On this Government’s approach, we believe that it is in the interest of the whole country that the public finances are on a sound footing. Reducing the deficit from a record level to surplus is a significant challenge, but it is one that we have to meet as a country, and we have to be willing to take the decisions that that involves. That is what this Government were elected to do in 2010 and what we were re-elected to do in 2015, and that is what we will do.

Tax Avoidance and Multinational Companies

Debate between David Gauke and Mark Durkan

Wednesday 3rd February 2016 Commons Chamber

[Mr Gauke]

The purpose of the diverted profits tax, which came into effect in April, is to ensure that companies stop diverting their profits and pay corporation tax like everybody else. I repeat that I cannot talk about the Google case beyond information that is in the public domain, but if this tax is effective in driving companies to stop diverting their profits, it is a success.

[Mark Durkan (Foyle) (SDLP)]

The Minister refers to the Government’s record over the past Parliament and this one, but he has not mentioned the changes to the controlled foreign companies rules, which favoured a number of companies at the expense of the Exchequer and, in net terms, at the much greater expense of exchequers in developing countries.

[Mr Gauke]

The controlled foreign companies regime was driving business out of the UK, whereas now businesses are looking to locate their headquarters in the UK, and I am pleased about that.

Finance Bill

Debate between David Gauke and Mark Durkan

Tuesday 21st July 2015 Commons Chamber

[Mr Gauke]

Essentially, it is to ensure that the banking sector, which poses particular risks and which benefits from implicit guarantees, makes a fair contribution to the public finances. I hope that provides some clarity to my hon. Friend.

[Mark Durkan (Foyle) (SDLP)]

The Financial Secretary seems to imply that the banking levy, which was developed at the start of the previous Parliament, was essentially an ephemeral need that has now been taken care of by subsequent regulation. Banks have been able to cope with the fact that they have, essentially, a too big to fail subsidy—the VAT exemption. They have been able, with the levy, to absorb record-breaking fines for their own misbehaviour. Now he is saying that that is all to the good and that we do not need that same system of taking from the banks. Surely we do, though. They need to make a contribution to the public purse.

[Mr Gauke]

There is no disagreement over the need for a contribution from the banking sector towards the public purse. We have concluded that the better way to make that contribution is through a corporation tax surcharge, and that is what we are introducing. There was also a particular argument in 2010 about trying to influence behaviour, but, to some extent, that has now been addressed by a new regulatory regime. I agree that there is a need for a contribution. What we have here is a new surcharge on the banking sector, which performs precisely that task.

Britain’s insurance premium tax is also well below rates in many other countries, such as Germany, so this Bill proposes an increase to 9.5%. but that applies to only one fifth of all premiums. The Government are also committed to meeting their climate change objectives in a cost-effective way. Over the next five years, the climate change levy exemption for renewable energy is due to cost £4 billion, one third of which would subsidise overseas projects that bring no benefit to the UK. This Finance Bill therefore takes urgent action to stabilise CCL revenue.

Finally, to make the tax system fairer, the Bill restricts the amount of tax relief landlords can claim on property finance costs to the basic rate of income tax. That will ensure that landlords with the largest incomes no longer receive the most generous tax treatment. We are tackling tax avoidance by wealthy individuals and corporates, addressing imbalances in the tax system and taking bold steps to ensure that it remains fair.

Corporation Tax (Northern Ireland) Bill

Debate between David Gauke and Mark Durkan

Wednesday 4th March 2015 Commons Chamber

[Mark Durkan]

I would be absolutely delighted. I would gladly accommodate that intervention, and not just in one instalment—I am prepared to take it 5% at a time if the Minister is willing.

[The Financial Secretary to the Treasury (Mr David Gauke)]

Such is the invitation, I cannot refuse. This is a somewhat complex matter. I can assure hon. Members that I will set out the thinking behind the Bill’s provisions on financial services in terms of its principles and, in particular, the application of the 5% test relating to back-office functions. Hon. Members are making perfectly reasonable points, but rather than attempt to summarise a complex issue that needs to be put into context, may I ask them to be a little patient, and I will be keen to give a proper answer towards the end of the debate?

[Mark Durkan]

We await with bated breath the Minister’s great revelations and technical epiphanies.

Whatever the Financial Secretary says about the complex dimensions of this, there is nothing complex about the simple logic and justice of the proposition that wholly and solely-owned mutuals and credit unions should be able to benefit from a devolved tax rate.

--- Later in debate ---

[Mark Durkan]

It was a bit of an enigma to some of us on the Committee. Although we asked the Minister about it, not much light was cast on the limbo status of credit unions whereby they are neither included nor excluded. Subsequently, I asked him about the power in clause 1, page 66, to amend the definitions of “excluded trade” or “excluded activity” or to make provision about the meaning of “back office activities”. That gives the Treasury a fair degree of leeway in making subsequent adjustments. I asked him whether that implied that some accommodation could be made regarding the particular sensitivities around credit unions—and now I add Northern Ireland-based mutuals, as we are all joined in making that case. I hope that he will be able to shed some light on that. If he can assure us that we are all working under a misapprehension and that our concerns can be allayed, then so much the better, but people want to see it clearly in the Bill and do not know why it should not be there.

The Northern Ireland credit unions fall within the legislative remit of the Assembly in respect of their registration and some of their activities, so it would be bizarre if it was denied the specific power to set their corporation tax rate in the same way that it would for SMEs, for example.

As credit unions are well embedded into the communities in which they are based, it just does not seem fair that they should be subjected to a corporation tax rate that is very different from the rate for the businesses they work alongside in those communities and neighbourhoods.

As we identify in the amendment, we want to extend the same consideration to the Progressive building society, for instance. Ministers may suggest that designing the clause to suit the particular circumstances of the Progressive building society would create the danger that we might somehow admit all sorts of others to the benefits of doing such activities. However, just as the details of regulations specify a threshold of business for small and medium-sized enterprises, the amount of employment, and the percentage of work time and expenses in Northern Ireland as opposed to elsewhere in the UK, so other measures could easily be built in to protect building societies and mutuals that wholly, solely or at least very largely base or centre their activities in Northern Ireland, rather than organisations that operate more widely and might artificially skew some operations to the north of Ireland to benefit from the corporation tax rates. If that is a concern or issue for Ministers, it could easily be accommodated.

It is clear that there is broad support on this issue from the parties in this House and from the wider range of parties in the Northern Ireland Assembly. Nobody intended, assumed or understood that credit unions and legitimate, bona fide locally based mutuals, such as the Progressive, would be caught in the Bill’s preclusions. We are seeking targeted and focused exceptions with the aim of ensuring that credit unions in Northern Ireland do not unduly pay corporation tax.

The amendment is an attempt by the parties to recognise that, unlike credit unions in Great Britain, which have been able to benefit from Government finance in the form of growth, development and modernisation funds over the years, credit unions in Northern Ireland have not benefited from direct funding. Credit unions in Northern Ireland are adjusting to the new regulatory obligations under the Financial Conduct Authority and the Prudential Regulation Authority, which have created issues of corporate governance, training and IT standards, but none of that has been funded or supported in any way. One compensation that we might, with due diligence, seek to extend to them would be to make sure that they are at least exempted from the higher rate of corporation tax that is meant to apply to big corporates and businesses in financial services. That is the salient point of the amendment.

I hope that the Financial Secretary will acknowledge that amendment 1 would not trigger any of the difficulties that he said would have arisen from the original amendment in Committee. The scope of this amendment extends beyond credit unions to take in other legitimate mutual organisations, such as the Progressive building society—in fact, that is the only one I can distinctly identify—and that is included for a purpose. I hope that the Financial Secretary and the Secretary of State, who has received representations from Committees of the Assembly, will show some understanding. I look forward to hearing any explanation but also, more importantly, any assurances about how the Government intend to respond to such issues as the Bill is taken forward and as its various rule-making powers are operated in future.

[Mr Gauke]

As we have heard, the amendment tabled by the hon. Members for Foyle (Mark Durkan) and for Belfast East (Naomi Long) aims to bring otherwise excluded trading profits of building societies and credit unions within the scope of the Northern Ireland rate of corporation tax. As it covers two different areas, I will respond to each in turn.

It may be helpful to remind the House that the design of the Northern Ireland regime has been guided by a set of principles agreed between the Northern Ireland Executive and the UK Government. The principles were agreed in the joint ministerial working group process in 2012. Once again, I am grateful to colleagues in the Executive for their co-operation and their constructive approach in those discussions.

--- Later in debate ---

[Mr Gauke]

The first point to make is that there are certain excluded activities. Lending and investment are excluded. Whether the entity concerned is a bank or a building society, if the activity is excluded, it is excluded. There is therefore a level playing field. Secondly, we are making provision for back-office services. It will be possible for a calculation to be made on the profit that is attributable to back-office functions by applying a 5% mark-up to the cost of those back-office functions. The lower corporation tax rate in Northern Ireland—assuming that it is lower—will apply to that. That will be of benefit to institutions, including building societies, in Northern Ireland.

I would also make the wider point, which has been made by the Northern Ireland Executive on many occasions, that the ability to set corporation tax rates will be good for the Northern Ireland economy. That is why the Northern Ireland Executive want the power. What is good for the Northern Ireland economy will presumably benefit institutions based in Northern Ireland, whether they be credit unions or building societies. That is the case that the Northern Ireland Executive have made to us.

When the Northern Ireland regime was designed, it was focused on trading income for very good reasons. Over the course of the debates in Committee, there has been a wide consensus that it is correct that it is focused on trading income. It would not be consistent with that approach for me to accept the amendment. I therefore urge the hon. Gentleman to withdraw it. If he presses it to the vote, I will advise Government Members to oppose it. I understand the widespread view, which has been articulated strongly this afternoon, on the importance of the credit union sector in Northern Ireland, but accepting the amendment would be a mistaken approach.

[Mark Durkan]

rose—

--- Later in debate ---

[Mr Gauke]

I will give way one last time if the hon. Gentleman wants me to, or perhaps he wishes to speak once I have sat down.

[Mark Durkan]

Maybe both.

[Mr Gauke]

I give way.

[Mark Durkan]

Will the Minister indicate whether the powers in proposed new sections 357XH and 357XI of the Corporation Tax Act 2010, which appear on page 66 of the Bill, might in any way address in practice some of the concerns that we have voiced, as he seemed to hint in Committee?

[Mr Gauke]

I return to the point that I have made about the fundamental structure or principles behind the devolution of corporation tax rate-setting powers to Northern Ireland. I have given a fairly lengthy response, because I thought that it was appropriate to put in context the 5% computation in respect of back-office functions. There is the ability to come back to that. As hon. Members are aware, the OECD is looking, as part of the base erosion and profit-shifting process, at how much profit can be attributed to back-office functions. If memory serves, it is looking at a range of 2% to 5%, so we are at the upper end of that. There is the ability to make adjustments if there is evidence that there should be a higher mark-up for back-office functions. There is flexibility on that point if the evidence is presented to us and a strong case is made. However, we believe that 5% is the right level.

With that explanation, I hope that the hon. Gentleman can be persuaded to withdraw his amendment. If not, we will oppose it and I will advise my colleagues to vote against it.

[Mark Durkan]

I am disappointed by the tone struck by the Minister, because Members present—from all parties and none—have made it clear that we are not here to beat up the Government about this issue but are here in a spirit of understanding from parties across the Executive and Assembly. The Minister has called the Executive in aid several times, and he said that negotiations between the Treasury and the Executive have been clear about focusing on trading activities. Nobody—officials or Ministers—who conducted those negotiations on the part of the Executive intended to characterise credit unions and the like of the Progressive building society as trading operations, because they do not trade for profit—they are not conventional commercial trading entities in that sense. One, as a mutual building society, is clearly putting all its money back into its operations, and it all goes into Northern Ireland—none of it is speculatively streamed elsewhere. None of it has been lost, and no cost has fallen on the Government purse in any way.

Similarly, credit unions are not in the business of trading as such, and there is no way that they would allow the provision in the Bill to be abused by anybody else to shift activities or profits. Under credit union legislation, credit unions in Northern Ireland must show a common bond that must be wholly within Northern Ireland. There will therefore be no question of abuse or of stuff being shifted or anything else. The argument that the Minister tried to make for building society considerations would not apply to credit unions—certainly not to those that operate under the Credit Unions (Northern Ireland) Order 1985 or any other Northern Ireland-specific legislation that might come through the Assembly in future.

The Minister made a number of points about definitional standards that have been used. He portrayed the Treasury’s understanding of those terms, but as I have indicated, I have no sense that that was the working understanding or definitive intent of the Executive. After all, letters that have come from two cross-party Assembly Committees do not seem to have met with any cautionary advice from their respective Departments, or by Ministers saying, “Oh no, don’t upset this; there is an understanding and you will upset a delicate arrangement. You’ll open the floodgates and there will be all sorts of unintended consequences.” Everybody seems to be on board with the spirit of the amendment, just as they are largely on board with the spirit of devolving corporation tax for certain businesses. Nobody has an issue with the concept that the Assembly will have control over the rates of corporation tax for qualifying businesses, and that the Treasury will remain in control over all the rules on that and other things such as allowances. People seem to broadly agree with that architecture.

Where parties are concerned about the detail it is because we want credit unions and Northern Ireland-based mutuals not to be treated in the same way as the corporate and possibly multinational financial services conglomerate that the Minister seems to have in mind—the kind of people he thinks might suspiciously or dubiously shift activities. That does not apply to wholly grown indigenous entities that are rooted in the community.

The investment activities of credit unions are not for any speculative purposes but are to ensure that credit unions—on the basis of the same thrift that they encourage for their members—are able to show thrift and due diligence at a corporate level, and ensure that they are in a strong position to assist their members. Credit unions in Northern Ireland do not assist their members just to save; they also have a good working track record in assisting people with problems such as debt. That is currently an issue, perhaps because regulators do not want credit unions to assist people with debt in the way they have sometimes done. Unlike advisers who perhaps assist people in debt by creating circumstances in which they walk away from the debt and get discharged under various agreements, credit unions help people to repay that debt. They are in a stronger position to do that when they rely not just on the savings of their members but on sound investments. Those sound investments go back into the workings of the credit unions, and ensure that they are able to meet the new obligations and regulatory standards for which they are not getting any financial support, unlike their counterparts in Great Britain. It seems only fair and sensible to allow them that consideration in terms of corporation tax.

The Minister talks about credit unions as trading activities, but let us compare them with activities of a similar size—with small and medium-sized enterprises—in Northern Ireland that operate in the same neighbourhoods and district centres. Why should credit unions be in a different category from neighbouring trading businesses? They do not regard themselves as trading in that conventional sense, so why should they be penalised and treated differently?

If the Minister does not want us to put the amendment to the vote, will he at least indicate that he is prepared to listen not just to what we are saying in the House, but to future conversations in the Executive? After this debate and discussions in Assembly Committees, I think the Executive will make it clear that they do not like being called in aid in the way the Minister did when he lined them up behind his arguments, which I do not believe Executive Ministers endorse.

Will the Minister look at the provision on powers on page 66 of the Bill? It states:

“The Treasury may by regulations amend this Chapter so as to alter the meaning of ‘excluded trade’ or ‘excluded activity’ for the purposes of this Part.

(2) Regulations under this section may only be made if a draft of the statutory instrument containing them has been laid before, and approved by a resolution of, the House of Commons.

(3) Regulations under this section—

(a )may make different provision for different purposes;—”

that is essentially what we are saying—

“(b) may make incidental, supplemental, consequential and transitional provision and savings.”

New section 357XI continues:

“(1) The Treasury may by regulations make provision about the meaning of ‘back-office activities’ for the purposes of this Part.

(2) Regulations under this section may, in particular—

(a) specify activities that are, or are not, back-office activities, or

(b) specify circumstances in which activities are, or are not, to be regarded as back-office activities.

(3)Regulations under this section—

(a) may make different provision for different purposes;

(b) may make incidental, supplemental, consequential and transitional provision and savings.”

If the Treasury is accruing to itself the power to make adjustments, and to interpret and respond to behavioural issues and practices to anticipate possible interpretative challenges in the future, it must show that it is willing to listen to one sensible and compelling interpretive issue that has arisen.

We have identified a clear wrinkle in the Bill that is not intended by parties in the Executive or the Assembly at large, or by independent Members from Northern Ireland in this House. Understandably, given the way that the Bill was scrambled forward—we know the issue was there, hung around and went forward and back, and we are legislating in relatively short order—it takes time to give the issue more consideration. If the Government say that because some concerns about interpretive openings might arise they are not minded to accept the amendment, perhaps they will assure us that they will listen to the points that have been made.

The Secretary of State has heard from the Assembly Committees. I do not know what she intends to write to them, but if she writes in the same terms as those in which the Minister addressed the House, by quoting the Executive, she will find that a strong argument comes back. The parties will be saying, “How dare you quote us against our own representations? We have no part of it, and that was not what we understood or intended when we negotiated”

[Mr Gauke]

The Bill is based on the principle of separating trading activities from investment activities, and for a very good reason to do with profit-shifting risks and so on. The hon. Gentleman rightly points out that there is the capability to make amendments in future to regulatory powers and so on. It is not for me to bind the next Parliament, but those powers do exist so there is the ability to look at arguments. I hope he finds that reassuring. The only point I would make, and it is the point I made both in Committee and today, is that there is a very good reason, accepted by all, for a divide between trading profits and investment profits. If we were to break that rule—a principle that runs through all legislation here—it would raise a number of important questions on where to draw the line. I am sure he recognises that, but I had to make that point.

[Mark Durkan]

I take that point from the Minister; nevertheless, the provisions in the Bill that I just quoted allow the Treasury to draw and redraw that line in future. There is no argument in principle with that, even though we know that it may be arbitrary and capricious as well. It may well be the subject of representations when it happens, but we are asking for the spirit of that power to be used and even reflected in the Bill, if possible.

The point we need to go back to is that the Minister relies on the definition of trading activity. People will find it hard to see that the Government can, for a good and understandable reason, make sure—and want to declare on Second Reading—that something like the operations of Citigroup in the Titanic Quarter in Belfast are catered for. In spite of the fact that we are talking about international financial services activity, that will come under the devolved corporation tax rate, but somehow, under this handcuff the Minister is creating in the definition of trading activities, credit unions and mutual building societies such as the Progressive cannot be. That is what people see as disproportionate, artificial and unfair. The Assembly clearly wants to know that, when it has the power to set a corporation tax rate for small and medium-sized enterprises and has legislative power over credit unions, credit unions will pay the devolved rate of corporation tax on their investment income. That seems fair and reasonable in the overall scheme of things.

I hope the credit unions in Northern Ireland will continue to thrive and grow, and no doubt they will. However, at no point is the amount of money they will be paying in corporation tax or the amount of relief they will receive from the corporation tax rate going to bust the Assembly’s or the Exchequer’s budget. We are talking about clear, definable, workable and absorbable margins here. The money would be used for good and understandable purposes, and never sold for profit or given away in gross bonuses or anything else like that. The same applies in respect of the Progressive building society.

The Minister said that if I pressed the amendment to a Division he would vote against it. I do not want to create a complete lock-in on the issue. I do not want the Government to find themselves locked in on an argument they cannot climb down from. I just encourage the Secretary of State and the Financial Secretary, who are both here listening to the debate, to stay open not just to the arguments they have heard from me and other hon. Members today, but to listen very closely to the arguments they will be hearing from the Executive, the Assembly and the credit union sector in Northern Ireland—not just the credit unions that are members of the Irish League of Credit Unions, but the Ulster Federation of Credit Unions and other credit unions too.

The Minister has heard the arguments, although he has perhaps not listened to them as well as I would have wanted him to. I do not accept the points he has made in supposed rebuttal, because I do not think they stand up to the facts. I also do not think they stand up to some of the terminology used in the Bill. After all, the Minister on a previous occasion, as quoted by the right hon. Member for Belfast North (Mr Dodds), said that in the Bill as drafted they are neither included nor excluded from the devolved corporation tax rate. It seems very clear from what the Minister is saying today that for the purposes of the corporation tax they do pay on their investment income, they will definitely be excluded from the devolved corporation tax rate. The Minister seems to have left us in very little doubt about that, unless he wants to indicate that, under the powers outlined on page 66, that may be subject to other interpretation in the future. That is something I would certainly encourage if the Government are not prepared to accept my amendment, or any other amendment that I hope will be tabled in another place.

That said, I have no wish to press my amendment to a Division at this point, because I do not want to put people in that sort of difficulty. I want the Government to move on this, and I will not give the Government an excuse to embed their position. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Third Reading

Tax Avoidance

Debate between David Gauke and Mark Durkan

Wednesday 11th February 2015 Commons Chamber

[Mr Gauke]

I will happily deal with that point. Indeed, if the hon. Gentleman will forgive me, I will turn to that very point in a moment or so. He raises a very fair question.

[Mark Durkan (Foyle) (SDLP)]

Will the hon. Gentleman also address the controlled foreign companies rules that were introduced by this Government? Those rules cost revenue here and in developing countries. Sir Martin Sorrell told “Newsnight” that they, and not the change in corporation tax, were the main reason why he was coming back from his business in Dublin.

[Mr Gauke]

The CFC regime is part of corporation tax. The hon. Gentleman makes my point for me. As a consequence of our changes to the controlled foreign companies regime, we are seeing businesses move operations back to the United Kingdom. It was not that long ago—2007 and 2008—when business after business was looking to move its head office out of the UK. That flow has not only been staunched but reversed. We are seeing businesses choosing to locate in the United Kingdom, which is good for business, a successful achievement for this country and something of which we should be proud.

The changes in accelerated payments will bring forward billions in tax revenue in the coming years to help us afford the public services on which the country depends. I am pleased to say that, since the introduction of accelerated payments only a few months ago, avoiders have already agreed to pay more than £185 million to the Exchequer’s coffers, and millions more is being collected from those who, having received their up-front bill, have conceded their tax position and settled.

As well as tackling the end users of tax avoidance, we have also introduced structural changes targeted at the small but persistent minority of promoters who peddle schemes that typically use concealment or misdescription. If those promoters do not change their behaviour voluntarily, HMRC now has powers to monitor, fine and publicly name them. All this has contributed to the fall in the use of tax avoidance schemes over this Parliament. The Opposition motion suggests several areas for further action—this Government will always give a fair hearing to measures that increase compliance and tackle evasion—but they have to be properly thought through and I am afraid that some of their suggestions simply do not pass that test.

Therefore, we will not be abolishing the intermediary relief in contract for difference trading. There is no way to raise sums of the kind mentioned by the Opposition without causing serious damage to London’s position as a global centre for listing companies, as was recognised back in 1997, when the measure was introduced, and again in 2007, when it was expanded. Yes, it is relevant that the Labour party was in government at the time.

Nor will we introduce a deeming test for self-employment in the construction industry. We considered that, but it was not practicable. Indeed, to be categorised as self-employed, a bricklayer would have had to supply their own bricks. Instead, we have addressed false self-employment in construction and other industries through the Finance Act 2014 measures on onshore intermediaries, raising £2.1 billion in the process.

The Opposition motion urges us to close the quoted eurobonds exemption loophole, but it is not a loophole. I have explained repeatedly to the hon. Member for Birmingham, Ladywood that that measure would create an administrative burden, but not raise money. I have even offered a meeting with officials to discuss that, which, once again, she has declined. She set out a new proposal, but it has been looked at and it is simply not practicable.

The Opposition might be trying to recover lost ground, given their failure to get on top of avoidance and evasion, but they have to do better than this. We have led the way not only domestically, but internationally. Let me deal with the point about multinational companies. We originated the base erosion and profit shifting, or BEPS, process and have set out our commitments to multilateral action through the G20 and the OECD. In last year’s autumn statement, my right hon. Friend the Chancellor announced UK action on two of the internationally agreed outputs of the BEPS project. We are introducing legislation to implement the G20-OECD agreed model for country-by-country reporting, which will require multinational companies to provide tax authorities with high-level information on profit, corporation tax paid and certain indicators of economic activity for risk assessment.

We are consulting on implementing the G20-OECD agreed rules for neutralising hybrid mismatch arrangements. We have gone further still to strengthen our defences against the erosion of the UK tax base. As a complement to the BEPS process, we have introduced the new diverted profits tax to counter the use of aggressive tax planning by large multinationals that seek to avoid paying tax in the UK on profits generated from economic activity here.

Corporation Tax (Northern Ireland) Bill

Debate between David Gauke and Mark Durkan

Tuesday 27th January 2015 Commons Chamber

[Mr Gauke]

The sense of direction in increasing corporation tax would be a mistake. I will not detain the House for long on this matter, but I also note that Labour’s pledge is to have the lowest corporation tax rate in the G7, which would allow it to increase corporation tax to 26%. That would be a major reversal of the progress made by this Government. However, I am sure you would like me to return to the issue of Northern Ireland, Madam Deputy Speaker.

Let me add my tribute to those that have made to my right hon. Friend the Member for North Shropshire (Mr Paterson). Having worked with him in opposition and in government on this policy, I can testify to the vision, tenacity and infectious enthusiasm he has shown. He demonstrates, as does this Bill, what can be achieved by a Minister with his determination and vision, and he deserves much of the credit for the progress that has been made. He also rightly paid tribute to the current Secretary of State, who has demonstrated great skill in making progress on this matter. He put a lot of the momentum into the process, but it has also required her talents to bring us to this point.

The hon. Member for East Antrim (Sammy Wilson) made an excellent speech about the history of this progress. He and I have had many conversations and meetings on this matter. He described the progress by saying that we would go forward a bit and then back a bit, and that at times it was frustrating. I can tell him that I shared that experience, but he made a good case for the progress we have made. He also made an important point about the Republic of Ireland’s resistance to raising corporation tax at times when it faced great financial difficulties. That point was also made by my hon. Friend the Member for Tewkesbury (Mr Robertson), the Chair of the Northern Ireland Affairs Committee, who described how important it was to the Republic of Ireland to maintain low rates of corporation tax and to grow the private sector.

My hon. Friend made a couple of other points that I wish to address. He mentioned timing and said it would take a couple of years before this measure comes into effect. As has been said by a number of hon. Members, it is important that we set a sense of direction so that businesses can see where things are going in future years, but it takes some time to implement a change of this sort. Therefore, the 2017 timetable is as fast as is realistic. He also asked whether we should have the Committee stage on the Floor of the House or upstairs. That is largely a matter for the usual channels, but given that we want to make progress as quickly as possible and that a limited amount of time is left in this Parliament, it is right that we take every opportunity to make progress on this as quickly as we can. The fastest and easiest way of doing that is by holding the Committee stage, which will involve detailed scrutiny of some 87 pages of legislation, upstairs.

The hon. Member for Foyle (Mark Durkan) rightly made the point, as did a number of other hon. Members, that other issues will drive growth and this measure should not been seen as a silver bullet. He also said we should not create a new twilight zone where businesses and individuals can play the tax system to their benefit, and I will deal with that briefly in a moment. My hon. Friend the Member for Redcar (Ian Swales) made similar points about tax avoidance and also mentioned the impact of this measure on the UK more widely, and I will deal with that in a moment also.

The hon. Member for Belfast East (Naomi Long) made an excellent speech. A couple of points worth highlighting are the need for Northern Ireland to get its financial house in order and to have sustainable public finances, something that is well recognised, and the fact that political stability is important for providing the environment for economic growth in Northern Ireland. I agree with her on that.

My hon. Friend the Member for Amber Valley (Nigel Mills) brought his technical expertise to this debate. He raised a number of points that are probably best addressed in Committee. I do not know whether he was making an application to serve on that Committee, but he certainly raised a number of important points.

The hon. Member for Upper Bann (David Simpson) talked about grasping the opportunity to help economic growth in Northern Ireland. The hon. Member for South Down (Ms Ritchie) made a similar point. She also highlighted other matters, and talked about how to help the Northern Ireland economy. She asked about our engagement with the Northern Ireland Executive. I can assure her that, over the course of many years, there has been significant engagement, that the Northern Ireland Executive have been involved in discussions on the joint ministerial working group and the subsequent design process, and that we have kept the Northern Ireland Executive informed of progress in the design of legislation and taken their views into account when agreeing the final design. There have also been regular discussions at official level between the Executive, Her Majesty’s Revenue and Customs and the Treasury. I am grateful to the Executive for their co-operative approach at ministerial and official level, and that engagement is continuing.

To conclude the debate, the hon. Member for Strangford (Jim Shannon) also highlighted additional challenges that Northern Ireland faces, including improving the planning system and ensuring that the skills base and education system is working for Northern Ireland, and all of those were good points.

Let me pick up on a few of the issues to emerge from the debate. The most significant point, which was raised on a number of occasions, was ensuring that this is about real economic activity. This is not about profit shifting or a brass plate. I can assure the House that we very much share that view. This is not about finding a way in which companies can reduce their tax base through contrived or artificial arrangements, but about encouraging jobs and growth in Northern Ireland. We will ensure that HMRC has the capacity to deal with these matters. For example, when dealing with transfer pricing matters, HMRC will have a risk-based approach to ensure that the system works, so that we do not see the type of activity that so concerns Members.

[Mark Durkan]

On the subject of HMRC capacity, I know the Minister is talking mainly about its powers and where it is sited, but has any thought been given to the regional capacity that it will need in relation to these new discrete considerations that will apply in Northern Ireland, because that might lead to a revision of HMRC’s projection for its staff needs in Northern Ireland?

[Mr Gauke]

The important issue here—it was also a point raised by my hon. Friend the Member for Redcar—is ensuring that there is the capacity to deal with the transfer pricing issues. Transfer pricing is a highly skilled and specialised discipline within HMRC. It is important that the transfer pricing team has the capacity to deal with those matters. That is best done on a centralised basis rather than having people dispersed around the United Kingdom. The hon. Gentleman and I have had many conversations over a number of years on the issue of HMRC’s presence in Northern Ireland. Let me stress that this is a matter of ensuring that we have the right skills, that the customer relationship managers work closely with businesses and that there is a good understanding of how this differential rate will work and be applied.

It is worth pointing out that it will not be possible for companies to set up a brass plate to benefit from a lower rate in Northern Ireland. The rules require a permanent physical presence in Northern Ireland and, more fundamentally, a calculation of Northern Ireland’s trading profits based on the profits that the Northern Ireland activity would have made as a stand-alone entity. That separate enterprise approach coupled with the exclusion of investment profits from the Northern Ireland regime should ensure that common international tax avoidance arrangements cannot be replicated within the Northern Ireland regime. As a Government we have a proud record of progressing the international debate on the issue, and we are not going to allow an opportunity for abuse in our system.

On the block grant adjustment, the Stormont House agreement sets out that the block grant will be reduced to reflect the tax revenues forgone by the UK Government as a result of devolving tax powers. We will continue to work with the Northern Ireland Executive on the detailed mechanics to ensure that the Northern Ireland block grant is reduced appropriately. The reduction will depend on the rate that is set by the Northern Ireland Executive. To answer a point made by my hon. Friend the Member for Redcar, there are no particular restrictions on that. Conceivably, it could be a 0% rate, but that would have to be paid for and it would be expensive. An estimate of the cost to the Northern Ireland Executive of a 12.5% rate is in the region of £300 million by 2019-20, which is when the steady state will be in place. That will depend on a number of factors, not least the growth of the economy.

I am conscious of time and the fact that there is another debate to be had, but let me conclude by saying that there is a strong case for action in this area. The Northern Ireland economy is significantly more dependent on the public sector than the rest of the UK, with about 30% of workers employed there, compared with about 20% in the rest of the UK. The Northern Ireland corporation tax rate of 21% has to compete with the rate in the Republic of Ireland of 12.5%. If corporation tax is lowered in Northern Ireland, about 34,000 businesses in Northern Ireland stand to benefit, including 26,500 small and medium-sized enterprises.

The Northern Ireland Executive will have greater power to rebalance the economy towards a stronger private sector, boosting employment and growth. Northern Ireland will attract more investment and become more competitive, boosting the entire UK economy and the standard of living of people across Northern Ireland. The Bill is conditional on the Northern Ireland Executive continuing to work to balance Northern Ireland’s budget to ensure that people across the UK can benefit from the stronger economy and fairer society that this Government have been building. I hope that the House will give the Bill a Second Reading, and that we have the support of the whole House.

Question put and agreed to.

Bill accordingly read a second time.

Corporation Tax (Northern Ireland) Bill (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Corporation Tax (Northern Ireland) Bill:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Thursday 12 February 2015.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Consideration and Third Reading

(4) Proceedings on Consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration and Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed. —(Dr Thérèse Coffey.)

Question agreed to.

Corporation Tax (Northern Ireland) Bill (Ways and Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Corporation Tax (Northern Ireland) Bill, it is expedient to authorise:

(1) any increase in charges to corporation tax by virtue of a resolution made by the Northern Ireland Assembly setting the Northern Ireland rate of corporation tax, and

(2) any increase in charges to corporation tax by virtue of the Act. —(Dr Thérèse Coffey.)

Question agreed to.

Newry HMRC Centre

Debate between David Gauke and Mark Durkan

Tuesday 3rd December 2013 Commons Chamber

[Mr Gauke]

I reiterate that HMRC will honour the commitment made earlier in this Parliament that Newry will be open at least until 2015. A final decision will be made only after consultation, as I have outlined. I do not wish in any way to hide from the point—indeed, HMRC has been very clear about this—that HMRC does not see Newry having a future in the long term. The final decision as to when any closure would take place will be made, as I have said, after consultation. The choice for HMRC in the circumstances is to try to conceal that and leave things to the last minute or to try to be as open as possible, engage with staff and provide opportunities at an early stage for those who might want to leave voluntarily with a severance package.

[Mark Durkan]

In the decisions that HMRC is making about its future pattern of business, has any account been taken of the possible changes in the distribution of taxation? The Government have recently indicated that there are shifts in relation to Wales, and who knows what is going to happen in Scotland? If other choices are being made on some taxation moving to a more devolution-weighted basis, surely having a revenue-collecting infrastructure available in a devolved area is hugely important?

[Mr Gauke]

The hon. Gentleman makes an interesting point. HMRC is going in the direction of concentration on larger urban offices that have the flexibility to operate. Included in those larger urban offices is Belfast. He tempts me to speculate on future policy matters in the devolution of tax, but I want to make it clear that this is not a proposal to withdraw from Northern Ireland. This is a proposal that applies across the United Kingdom, with a move to larger urban centres. That applies in Northern Ireland, as well as elsewhere.

May I deal quickly with the issue of the equality impact assessment, which is an important matter raised by the hon. Member for South Down? The equality position has been considered, and it has been concluded that there is unlikely to be a disproportionate impact on any of the protected equality groups as a result of the voluntary exit schemes. Consequently, completion of an equality impact assessment is unnecessary. A people impact assessment has been completed, however, and audiences likely to be affected have been identified and appropriate mitigating action will be taken to eliminate those impacts.

If HMRC does decide to close any offices in future it will identify all redeployment options for affected staff. However, because its estate and work force will become smaller, there will clearly be less chance of redeployment in HMRC, particularly in areas that are outside a reasonable daily commute.

Oral Answers to Questions

Debate between David Gauke and Mark Durkan

Tuesday 14th May 2013 Commons Chamber

[Mark Durkan (Foyle) (SDLP)]

Would a meaningful G8 outcome on tax evasion involve the Chancellor’s revisiting the controlled foreign company rules that he introduced? They incentivise the use of tax havens and deny revenue to the Exchequer here and, more so, to developing countries.

[Mr Gauke]

The CFC regime is designed to protect revenue for the UK, but we can do a great deal to help developing countries through exchange of information, new global standards and capacity building. The Government are doing a huge amount on those fronts.

Finance (No. 4) Bill

Debate between David Gauke and Mark Durkan

Wednesday 18th April 2012 Commons Chamber

[Mark Durkan]

The Minister has said that the Chancellor wants to work on an evidence basis. He has previously told us that the Chancellor wants to pursue tax avoidance. Will he therefore accept amendment 76, which focuses on ensuring that the House is given the evidence relating to both tax avoidance and the effects of the additional rate of tax?

[Mr Gauke]

We have a report that produces evidence. I can also assure the hon. Gentleman that the Government have made clear their determination to reduce tax avoidance, and have taken a number of steps to do just that.

Amendment 1 has created some confusion. The Opposition Members who tabled it propose that the additional rate for 2013-14 should be left out altogether. Unlike the 45p rate proposed by the Government, the higher rate of 40% would apply to income over the higher-rate threshold. I understand that Labour sources have been briefing this afternoon that the amendment deliberately leaves the top rate undecided. It does not leave it undecided; it abolishes it. The Labour party has found itself in an extraordinary position.

We have heard astonishing suggestions that we should accept the “static” argument, although, to be fair to the hon. Member for Pontypridd, he has been somewhat hesitant about simply quoting the static numbers as if they were acceptable. We must take account of the behavioural impact, and as we have seen more evidence, it has become clear that it has been greater than was anticipated.

The effect of the 50p rate has been damaging not just to the Exchequer in failing to raise the money that was anticipated, but to competitiveness. There has been a 29% increase in Britain’s—[Interruption.]

PAYE Contributions

Debate between David Gauke and Mark Durkan

Wednesday 8th September 2010 Commons Chamber

[Mr Speaker]

I apologise to the hon. Member for West Suffolk (Matthew Hancock); he is unmistakable.

[Mark Durkan (Foyle) (SDLP)]

May I ask the Minister whether these circumstances have given the Government any further thought about plans to cut the future capacity of the Revenue and Customs? If he is giving positive consideration to the very good suggestion that there be a helpline for MPs, may I suggest, since many of the people affected will not have accountants to hand or be able to go to them, that it be available also to citizens advice bureaux, which will get an awful lot of inquiries?

[Mr Gauke]

That is an operational matter that HMRC will need to consider, but I will discuss it with senior management. As far as staffing is concerned, there will be a spending review announcement on 20 October, and any announcements on HMRC’s budgets will be made at that time.

Office of Tax Simplification

Debate between David Gauke and Mark Durkan

Tuesday 20th July 2010 Commons Chamber

[Mr Gauke]

I am grateful to my hon. Friend. I know some of the tax accountants of Watford, and I suspect that they too will welcome this measure.

[Mark Durkan (Foyle) (SDLP)]

For how long will we have to watch this space to see an end to the quicksand of complexity that is IR35? Will the experts appointed to assist the OTS include people who understand the difficulties caused for families and firms who work and live on a cross-border basis in Northern Ireland? Those people are caught in an utter matrix of tax complications.

[Mr Gauke]

The hon. Gentleman makes a valuable point, and I hope that the OTS will bear it in mind. I am grateful to him for his comments.

Oral Answers to Questions

Debate between David Gauke and Mark Durkan

Tuesday 13th July 2010 Commons Chamber

[Mr Gauke]

I can tell my hon. Friend that he is right; this decision was necessary and unavoidable. The intention is to get the public finances under control over the course of this Parliament. We will debate what we do at the end of that process nearer the time, when we will work out what we will do with the proceeds of growth.

[Mark Durkan (Foyle) (SDLP)]

In a speech last night to the bankers, the Financial Secretary referred to the Government’s proposals on a financial activities tax. Is it the Government’s intention that that sort of proposed legislation is just in reserve in case the bankers are too generous with themselves with bonuses, or are the Government determined to introduce such a tax? Why not go further, with a full financial transactions tax?