Finance Bill (Fifth sitting)

Debate between David Gauke and Roger Mullin

Thursday 7th July 2016 Public Bill Committees

[Mr Gauke]

Clause 118 to 120 and clauses 123 to 124 extend the reliefs available from the annual tax on enveloped dwellings—ATED—and the 15% higher rate of stamp duty land tax. Clause 125 corrects a minor technical amendment. ATED and the 15% rate of SDLT were introduced as part of a package of measures to tackle tax avoidance. They will ensure that individuals who envelope residential properties by owning or purchasing them through corporate structures without a commercial purpose pay a fair share of tax. The intention is to discourage future enveloping and encourage those who have enveloped to take the properties they own out of those structures. The 15% higher rate is charged on the enveloping of the property, and ATED is charged annually for as long as the property remains within the envelope.

There are a series of reliefs from ATED and the 15% rate, aimed at genuine commercial use of the property. If the conditions for any particular relief are met, the 15% rate is reduced to the rate of SDLT that would ordinarily apply, and the ATED charge can be reduced to nil. Initially, when these taxes were introduced, they applied to properties valued at more than £2 million. However, legislative changes introduced in the Finance Act 2014 reduced that threshold to £500,000 from 1 April 2016. Following that reduction in the threshold, certain legitimate business activities have been identified where these taxes can apply. The clauses intend to provide relief for those cases.

Clause 118 resolves a problem that arose only in relation to the 15% rate of SDLT. Currently, where a residential property is acquired with the intention of using it for business premises—for example, as offices from which to run the trade or business—or for conversion or demolition or use for one or more relievable purposes, the 15% rate applies. The clause will relieve those types of business activity from the 15% rate to guard against abuse. If, within a three-year period, the property is no longer held exclusively for a relievable purpose, relief is withdrawn.

Clauses 119 and 123 provide relief from both the 15% rate and ATED in situations where a residential property is acquired or held exclusively for the purposes of an equity release scheme, referred to as a regulated home reversion plan. Those plans are typically offered by insurance companies to older people. The company buys all or part of their property in exchange for an annuity and a lifetime tenancy. The result of that can be that by having an interest in a residential property, the insurance company can become liable to the 15% rate and ATED where the value exceeds £500,000. Clauses 119 and 123 relieve home reversion plans from the charges. However, in order to protect against abuse, where the conditions are no longer met, relief will not be available.

In relation to clauses 120 and 124, relief is currently given where a property is made available to an employee of a trade, or where a property is rented out. However, no relief is available where a property is used by an employee of a property rental business or where a tenant-run flat management company permits one of the flats to be occupied by a caretaker. These clauses extend the current reliefs to remove those gaps. Similarly, where the conditions are no longer met, relief will no longer be available. For the 15% rate, it will be withdrawn if the property is no longer held exclusively for a relievable purpose. Those changes came into effect on 1 April 2016.

Clause 125 ensures that the ATED regime continues to function effectively following the introduction of the land buildings transaction tax in Scotland.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

Very briefly, I want to commend the Minister. We fully support clause 125.

[Mr Gauke]

I am grateful to the hon. Gentleman for putting that on the record.

These reliefs ensure that the 15% rate of SDLT and ATED work together effectively as intended to tackle avoidance, while supporting genuine businesses. I hope that these clauses can stand part of the Bill.

Question put and agreed to.

Clause 118 accordingly ordered to stand part of the Bill.

Clauses 119 to 121 ordered to stand part of the Bill.

Clause 122

SDLT: property authorised investment funds and co-ownership authorised contractual schemes

Question proposed, That the clause stand part of the Bill.

Finance Bill (Fourth sitting)

Debate between David Gauke and Roger Mullin

Tuesday 5th July 2016 Public Bill Committees

[Mr Gauke]

I am grateful to the hon. Lady for raising that issue. Our discussions this afternoon are focused on the raising of expenditure, and the Department for Business, Innovation and Skills is leading on how that money can be spent. However, it is perfectly reasonable for her to make that point. I encourage businesses to engage with BIS on how the apprenticeship levy can be spent to ensure that it goes to the right places and creates a more highly skilled workforce. The Minister for Skills, my hon. Friend the Member for Grantham and Stamford (Nick Boles), is engaging with businesses in many sectors up and down the country to ensure that we have the right set of rules in place. I hope that hon. Members will recognise that the Government amendments are sensible revisions, and that they will accept that the SNP amendment is not needed, as we have already published detailed guidance on how the levy will operate for employers across the UK.

I want to reiterate the importance of investing in apprenticeships, which are a powerful tool for enabling social mobility and driving productivity growth. They equip people with the skills they need to compete in the labour market, and enable employers to grow their businesses. The apprenticeship levy will put employers in control and give them an even greater say in the quality, value for money and relevance of the training that their apprentices receive.

[Roger Mullin]

I rise to speak to new clause 2. I commend the Minister for mentioning the importance of productivity and of generating much more investment. I am sure everyone in the Committee agrees wholeheartedly. However, the problem of productivity relates to particular strata of apprenticeships—for example, higher-skilled apprentices are needed. Fundamental questions are being asked in the different jurisdictions of the UK about how best to address that. Although one levy system is being imposed in the UK, different forms of apprenticeships are being created. There is some anxiety among employers and different Government agencies about whether the Government should be moving at this pace before these matters are clarified.

This is a probing new clause. I simply ask the Minister to address a few short questions to assist our further thinking. First, in the designing of the levy system, was account taken of the fact that different apprenticeship systems operate with different funding levels in different parts of the United Kingdom?

Secondly, we know that some of the systems and administrative arrangements that are being put in place vary considerably from one part of the UK to another. To what extent does the Minister accept that the levy may be top-sliced to fund some of those systems? For example, as he is aware, the digital voucher system that is planned for England will not operate in Scotland. Is it to be funded separately, or will the funding come out of the levy costs?

Thirdly, who has to pay this levy? It makes a lot of sense, and the Minister talked eloquently about businesses, but it is not merely traditional businesses that are expected to pay the levy. In Scotland, further education colleges are the biggest provider of the education that supports the apprenticeship system. On the latest calculation, they will collectively have to pay approximately £1.9 million for the apprenticeship levy, when we expect them to be the main providers of education training. I would like to hear the Government explain why colleges and some large training providers are expected to pay the levy. Will that not dilute their resources for investment in quality apprenticeships?

With those questions, I would like to hear some of the Government’s further reasoning. I think that there is a case, which has been made to us by many employers and agencies, for the Government to take their time and be careful about implementing the levy.

Finance Bill (Second sitting)

Debate between David Gauke and Roger Mullin

Thursday 30th June 2016 Public Bill Committees

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

It is a pleasure to serve under your chairmanship again, Mr Howarth. I will be brief. We on the Scottish National party Benches support the amendment. The issue of carried interest has also been of interest to us, as the Minister knows only too well. I commend the amendment, and if the Labour party wishes to press it to a vote, we will certainly support it.

[Mr Gauke]

Let me address the issue of complexity; I hope I can be helpful to the Committee on that. The new rules replace the badges of trade that previously outlined the tax treatment of carried interest. The badges of trade are based on complex case law, which means that the law was determined by a wide range of varied and outdated judicial decisions. Bringing these new rules into legislation removes ambiguity and makes the tax code easier to follow. Furthermore, much of the detail of the legislation comprises bespoke rules that apply to specific types of funds. Those specialised rules will help reduce the compliance burden for funds in practice. Asset managers are sophisticated taxpayers who often have personal advisers; we therefore anticipate it being easy for those individuals to follow these rules.

Very often, the measure of tax complexity is taken to be the length of the tax code. I confess that I have sat where the hon. Member for Wolverhampton South West is sitting and made that point myself; he has heard me make it. In this example, there are additional pages of legislation; however, they are replacing legislation that took up fewer pages but was based on case law, which can be very complicated. It is worth pointing out the limitations of pages as a measurement of complexity.

On the OECD recommendations, treating carried interest as a capital gain rather than income is the right approach. It keeps the UK in step with other countries and, as I said, it is the approach adopted consistently by previous Governments in this country over a long time. There is nothing particularly unusual about the way in which we treat carried interest in this country. I am conscious that this is a matter that we debate on a fairly regular basis; it is the second time we have debated it in a week. We are being consistent with what we have done in this country for some time and with what other countries do. I hope those points are helpful, but if the hon. Gentleman presses amendment 8, I will urge my colleagues to oppose it.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Clause 37

Income-based carried interest

Amendments made: 43, in clause 37, page 67, line 45, leave out “value” and insert “amount”.

Amendment 44, in clause 37, page 68, line 41, leave out “company” and insert “underlying scheme”.

Amendment 45, in clause 37, page 68, line 43, leave out “a company” and insert “an underlying scheme”.

Amendment 46, in clause 37, page 68, line 47, leave out “value” and insert “amount”.

Amendment 47, in clause 37, page 70, line 15, leave out “company” and insert “underlying scheme”.

Amendment 48, in clause 37, page 70, line 21, leave out “value” and insert “amount”.

Amendment 49, in clause 37, page 70, line 34, at end insert

“, or the acquisition of portfolios of investments from,”.— (Mr Gauke.)

Finance Bill (First sitting)

Debate between David Gauke and Roger Mullin

Thursday 30th June 2016 Public Bill Committees

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

I beg to move amendment 3, in clause 2, page 2, line 4, at end add—

“(3) The Chancellor shall assess the effect on taxation revenue of increasing the basic rate limit in line with the Consumer Prices Index for 2017-18 and by no more than increases in that index until 2021-22.”

It is a great pleasure, Sir Roger, to be with you again in this Public Bill Committee. Last year I served on this very same Committee, and it led to one of the great interventions, which was of great assistance to me at the time. I hope that there is not the same occurrence this time. I can see that some hon. Members are rather confused; I will explain it to them later.

Some hon. Members will be aware that I raised a point of order in the House about whether, in the current circumstances—after the referendum—we should be proceeding as we are with the Bill. To my mind, more important things have occurred that need debating. None the less, we are here. I intend to adopt the rather rare, for me, practice of speaking in this Committee only when I have something to say. Our contributions may be slightly fewer than they were in the past, but they will be no less worthy—[Interruption.] How helpful I am.

This is a rather simple amendment, which we will not press to a Division, probing the Government on the proposed increase in the basic rate limit. Particularly at a time of austerity, when people are having to make such great sacrifices, the decision to give this boost to those with significantly above-average earnings strikes us as worthy of further explanation from the Government. The amendment is a sensible proposal that the Government report on and model what would happen if the rise in the basic rate limit was restricted to consumer prices index levels year after year. It is so self-explanatory that I need not detain the Committee any longer.

[Mr Gauke]

It is a great pleasure to respond to the hon. Gentleman. I note that he will speak only when he has something to say—an approach that he contrasted with that of the previous year. I feel that that is a little harsh on his contributions last year, which were always valuable and welcomed by the Committee. No flies on him; that is the recollection of one or two of us.

Before turning to the amendment, let me say a word about clause 2, which sets the income tax basic rate for 2017-18. The change takes a significant step towards meeting my party’s manifesto commitment to increase the threshold at which people pay the higher rate of tax. It will ensure that the Government continue to encourage those who want to progress, while lifting over half a million people out of the higher tax band altogether. This Government have already made significant progress on cutting taxes for working people and ensuring that those on the very lowest incomes pay no income tax at all.

In addition to supporting the low-paid, the Government are committed to supporting those on middle incomes who want to progress. The number of families who have to pay the higher rate of income tax has grown almost without fail over the past three decades. Upon its introduction in 1988, it was paid by around one in 18 taxpayers. Without the action taken at Budget 2016, it was projected to rise to one in six—that is more than 5 million individuals paying income tax at 40%. That is why we committed to increasing the point at which the higher rate of income tax is applied to £50,000 by the end of this Parliament. Summer Budget 2015 took the first steps to meeting that commitment, increasing the higher rate threshold from £42,385 in 2015-16 to £43,000 from April this year.

This Finance Bill goes further. Clause 2 will increase the basic rate limit from £32,000 in 2016-17 to £33,500 in 2017-18. That is the amount of income on which the 20% tax is due. The income tax higher rate threshold, which is the sum of the personal allowance and the basic rate limit, will therefore increase from £43,000 in 2016-17 to £45,000 in 2017-18. Above that level, 40% tax is due. That increase to the higher rate threshold will be the biggest above-inflation cash increase since it was introduced by Lord Lawson in 1988-89. By 2017-18, some 585,000 fewer individuals will be paying the higher rate of tax than did in 2015-16—a reduction of more than 10%. As a result, a higher number of taxpayers on modest incomes will benefit from a lower rate of tax, including our most highly qualified and experienced nurses and teachers.

The amendment requests that the Government report on the impact of increasing the basic rate limit in line with inflation, rather than increasing the basic rate limit as set out in clause 2. I can confirm that the cost to the Exchequer of increasing the basic rate limit to £33,500 was published in the 2016 Budget. As such, the relevant information is already freely available to the hon. Gentleman and to members of the public. I can also confirm, however, that not implementing the clause would mean increasing the income tax paid by some families by £220 in 2017-18, dragging more middle earners into paying the higher rate of tax and breaking an important manifesto commitment that the British people elected the Conservative party to deliver. I urge the Committee to reject the amendment.

The clause will allow the Government to make progress on our commitment to increasing the threshold at which people pay the higher rate of tax, while supporting those on middle incomes who want to progress. It will ensure that there are more than half a million fewer higher rate taxpayers in 2017-18, compared with 2015-16, and will cut the income tax bill of millions of taxpayers on modest incomes. I commend the clause to the Committee.

--- Later in debate ---

[Roger Mullin]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3

Personal allowance for 2017-18

Question proposed, That the clause stand part of the Bill.

[Mr Gauke]

Clause 3 sets the income tax personal allowances for 2017-18. The change will help working people to keep more of what they earn, and it is a big step towards keeping our manifesto commitment to a £12,500 tax-free personal allowance by the end of the Parliament. The Government’s record on personal allowances is already strong. Over the previous Parliament, the personal allowance increased by more than 60%, from £6,475 in 2010-11 to £10,600 in 2015-16. Our reforms have already taken 4 million people out of paying income tax altogether.

The Government want to go further by increasing the personal allowance to £12,500 by the end of the Parliament and by ensuring that no one working 30 hours a week on the national minimum wage pays any income tax at all. Clause 3 marks another significant step towards our meeting those commitments by raising the personal allowance from £11,000 in 2016-17 to £11,500 in 2017-18 —an increase of £500. The change made by the clause will ensure that 30 million people pay less tax in 2017-18 than at the start of this Parliament, with 1.3 million taken out of paying income tax altogether. Therefore, by April 2017, a typical basic rate taxpayer will pay over £1,000 less income tax than when we took office six years ago.

Clause 3 builds on the Government’s determination to support those in work by ensuring that people can keep even more of the money they earn. It takes a significant step towards meeting our commitment to raise the personal allowance to £12,500 and means that more of the lowest-paid are taken out of paying income tax altogether. I commend the clause to the Committee.

--- Later in debate ---

[Roger Mullin]

This is a very important move by the Government, and we broadly welcome it for two main reasons. First, as the Minister has already rightly indicated from comments by people such as Professor Mirrlees and others, ordinary savings have been overtaxed for many years. Ordinary savings are increasingly important for a lot of people who have lived their working lives on modest incomes. For example, there was a demonstration yesterday by Women Against State Pension Inequality—the so-called WASPI women, many of whom have very modest savings. The measure is of some assistance, albeit small, to many of the people who are in the most vulnerable of circumstances. That must be welcomed.

Secondly, there is always the dilemma of simplification. When moving towards something that is relatively sophisticated, trying to simplify it normally introduces some hazards, so I am particularly interested in the Minister’s response to the questions posed by Labour Front Benchers in that regard. On the whole, we think the right thing is being done, so we will support it.

[Mr Gauke]

I am grateful to both hon. Gentlemen for the points raised on these measures, and I am grateful to the hon. Member for Kirkcaldy and Cowdenbeath for his strong support. He is absolutely right on the concerns of the overtaxing of ordinary savings. The hon. Member for Wolverhampton South West essentially raised two concerns—one about cliff edges and one about circumstances that could involve a substantial amount of income on which no tax is paid. My first point is that both circumstances are likely to be pretty unusual.

First, the allowance has been set at a level at which 95% of savers will not have tax to pay on their savings income, so the question of a cliff edge simply does not apply for the majority of savers. Had we not designed it in such a way, and had there been a differential treatment in terms of the size of allowance for higher rate taxpayers versus basic rate taxpayers, I suspect the Committee would criticise us for the fact that the largest beneficiaries, in terms of the cash benefit, would be higher rate taxpayers and not basic rate taxpayers.

The design of the personal savings allowance means that no one can gain by more than £200 a year, regardless of their circumstances, which is an important means to ensuring that there is no disproportionate benefit to higher rate taxpayers. That is why there is a difference. Our concern is that trying to address the cliff-edge problem would add a degree of complexity to the tax system that would be unfortunate and disproportionate, given the nature of the issue that has been identified.

Secondly, I certainly do not deny that someone could have £22,000 of tax-free income with a combination of all the various policies in this area. That is absolutely true if we take into account the tax-free personal allowance, the starting rate for savings, the personal savings allowance and the dividend allowance. However, in reality that is an uncommon set of circumstances that we believe will be extremely rare. Again, it is not apparent to me how we could try to address that problem without adding considerable further complexity—for example, a system in which, if someone made use of one allowance, they could not use another allowance—and we would be rightly open to criticism for adding that unnecessary complexity to the system.

We are trying to end the distortive effects that we have had up to now, to come back to the comments of Professor Mirrlees and others on the effect of the existing taxation system on savings. That is why we have taken these decisions. I hope that that helps the Committee and that, notwithstanding the perfectly fair points made by the hon. Member for Wolverhampton South West, it will support these clauses.

Clause 4 ordered to stand part of the Bill.

Clause 5

Rates of tax on dividend income, and abolition of dividend tax credits etc

--- Later in debate ---

[Mr Gauke]

I am grateful for the hon. Lady’s concern about my back, which is appreciated.

I want to reiterate a point I made earlier, which is that one behavioural impact of the current tax system is that it tends to encourage people to incorporate. The tax system tends to favour incorporated microbusinesses over those that are unincorporated. It is not obvious that that should happen.

The other point, of course, is that we continue to be engaged with organisations such as the FSB, and the Government have done a lot to support microbusinesses. However, one behavioural effect in the light of what has happened with corporation tax reductions, which I strongly defend, is that people who otherwise would not incorporate have been doing so. Often they face burdens and form-filling that they probably do not want, but they incorporate for an understandable reason: to take advantage of a more beneficial tax regime. However, I think that we should seek to rebalance that, if I may put it that way.

I, too, have met Jason Kitcat of Crunch Accounting. We have looked at his analysis and there are some complicated issues with regard to the impact of the changes. However, I reiterate that the dividend tax remains progressive overall. Those with higher incomes will pay more tax on their dividends than those on lower incomes. Achieving a perfectly smooth result would require a more complex system, and that is why we have not gone down that route. However, we continue to be engaged. I hope that I have provided the Committee with some reassurance.

[Roger Mullin]

I thank the Minister for his comments, some of which have been helpful, although they have not fully persuaded me that the Government have fully thought through the impact on microbusinesses. There are many reasons why very small business operators might choose to move from being unincorporated to being incorporated. For example, if such businesses have wide seasonal fluctuations in income, it is one way of adapting their way of taking income out of the business—without having to take out a regular income in the traditional way. That is only one of many reasons why a company might make that decision.

I am grateful to the Minister for his explanation. Although I shall withdraw the amendment, I intend to return to the matter on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

Schedule 1

Abolition of dividend tax credits etc

Amendments made: 127, in schedule 1, page 259, line 20, at end insert—

In section 651 (meaning of “UK estate” and “foreign estate”)—

(a) in subsection (4), for “680(3) or (4) (sums” substitute “664(2)(c) or (d) or 680(4) (sums not liable to tax and sums”, and

(b) in subsection (5), for “680(3) or (4)” substitute “664(2)(c) or (d) or 680(4)”.

In section 657 (tax charged on estate income from foreign estates), for “680(3) or (4)”, in both places, substitute “680(4)”.

In section 663 (applicable rate for purposes of grossing-up under sections 656 and 657), after subsection (4) insert—

(5) The aggregate income of the estate, so far as it consists of income within section 664(2)(c) or (d), is treated for the purposes of this section as bearing income tax at 0%.”

In section 670 (applicable rate for purposes of Step 2 in section 665(1)), after subsection (4) insert—

“(4A) The aggregate income of the estate, so far as it consists of income within section 664(2)(c) or (d), is treated for the purposes of this section as bearing income tax at 0%.”

In section 680 (income of an estate that is treated as bearing income tax)—

(a) in subsection (2) omit “(3) or”, and

(b) omit subsection (3) (sums treated as bearing tax at the dividend ordinary rate).

In section 680A (estate income treated as dividend income), in each of subsections (1)(a) and (4)(a), after “at the dividend ordinary rate” insert “or as bearing tax at 0% because of section 663(5)”.”

Amendment 128, in schedule 1, page 259, line 20, at end insert—

In section 854(6) (carrying on by partner of notional business: meaning of “untaxed income”)—

(a) omit the “or” at the end of paragraph (b), and

(b) after paragraph (c) insert—

“(d) income chargeable under Chapter 5 of Part 4 (stock dividends from UK resident companies), or

(e) income chargeable under Chapter 6 of Part 4 (release of loan to participator in closed company).””

Amendment 129, in schedule 1, page 265, line 31, at end insert—

( ) in paragraph (b), for “680(3)(b) or (4)” substitute “680(4)”, and”

Amendment 130, in schedule 1, page 265, line 39, at end insert—

‘( ) In section 498 (discretionary payments by trustees: types of tax to be included in trustees’ tax pool)—

(a) in subsection (1)—

(i) in Type 1 (tax at special rates for trustees on income not attracting tax credits), omit “2, 3 or”, and

(ii) omit Types 2 and 3 (tax at dividend trust rate on income attracting dividend tax credits), and

(b) omit subsection (2) (interpretation of Types 2 and 3).”

Amendment 131, in schedule 1, page 269, line 8, at end insert—

( ) the amendments in section 854(6) of ITTOIA 2005,”

Amendment 132, in schedule 1, page 269, line 9, leave out “sections 425,” and insert “section 425 except the amendment in section 425(5)(b), and the amendments in sections 498,”

Amendment 133, in schedule 1, page 269, line 33, at end insert—

‘( ) The amendments in sections 651 to 680A of ITTOIA 2005 (but not the repeal of section 680(3)(a) of that Act) and the amendment in section 425(5)(b) of ITA 2007—

(a) so far as they relate to income within section 664(2)(c) of ITTOIA 2005 (stock dividends), have effect in relation to stock dividend income treated as arising in the tax year 2016-17 or at any later time, and

(b) so far as they relate to income within section 664(2)(d) of ITTOIA 2005 (release of loans), have effect in relation to amounts released or written off in the tax year 2016-17 or at any later time.”—(Mr Gauke.)

Schedule 1, as amended, agreed to.

Clause 6

Structure of income tax rates

Question proposed, That the clause stand part of the Bill.

[Mr Gauke]

Clause 6 separates the rates of income tax that apply to savings income from the main rates of income tax. These changes ensure that the Government meet their commitment to guaranteeing that MPs representing constituencies in England, Wales and Northern Ireland are given the decisive say on any income tax rates that affect only their constituents. As hon. and right hon. Members are aware, earlier this year the Scotland Act 2016 received Royal Assent. It provides the Scottish Parliament with unprecedented powers over income tax, including the ability to determine the rates of income tax on earned income at the points at which those apply to Scottish taxpayers.

The fiscal framework agreed by the UK and Scottish Governments confirms that the powers will take effect in 2017-18. This means that from April 2017 Members of the Scottish Parliament will have the final say on Scottish income tax. As a matter of fairness, it is only right that, once these powers come into force, MPs in England, Wales and Northern Ireland are given the decisive say over rates of income tax that affect only their constituents.

The clause separates out the main rates of income tax into three distinct groups in order to meet this objective. The main rates will continue to apply to non-savings, non-dividends income, such as employment, pensions and property income, for taxpayers in England, Wales and Northern Ireland. The savings rates will apply to savings income of all UK taxpayers. The default rates will apply to a limited category of income tax payers who will not fall into either of these two categories; the category is made up primarily of non-residents and some trustee income. This will mean that, from April 2017, changes to the main rates of income tax will no longer affect Scottish taxpayers. Changes to the savings rates or default rates will continue to remain a reserved matter for the UK Government, in line with the recommendations of the Smith commission.

The clause will meet the Government’s commitment to ensuring that English votes for English laws applies to income tax. As a result, following the Finance Bill 2017, MPs representing constituencies in England, Wales and Northern Ireland will have a decisive say on the main rates of income tax that affect only their constituents.

Finance Bill

Debate between David Gauke and Roger Mullin

Tuesday 28th June 2016 Commons Chamber

[Roger Mullin]

It is not quite as short as that.

I want to speak to new clause 2, which is in my name, and I will begin with a quote that I have used before in this House:

“I was shocked to see that some of the very wealthiest people in the country have organised their tax affairs, and to be fair it’s within the tax laws, so that they were regularly paying virtually no income tax. And I don’t think that’s right.”

I entirely agreed with the Chancellor of the Exchequer when he said that in April 2012. That is precisely why we are bringing this new clause to the Floor of the House today. Many people in remunerated employment, working hard every day of the week, will be surprised to learn that the managing director of an average European firm can expect to receive around £8 million in remuneration. Private equity fund managers are able to shrink their bills by paying, as we have heard, only 28% in capital gains, rather than 45% in income tax simply because it is classified as carried interest. In effect, they are getting a remuneration for managing other people’s money, and therefore they should be taxed in the same way that other people are taxed—through income tax.

A fund manager’s ability to pay capital gains instead of income tax allows them to avoid paying national insurance on part of their income. I am well aware of the Minister’s technical explanations about why we are dealing with a different form of gain. However, that does not wash with people in society who are undertaking their work in most other occupations in life. The Government yesterday indicated that they were content to squeeze yet more money out of the contractor sector, affecting teachers, nurses, people in rural communities and the like. These are not the people who are aggressively avoiding tax. The people who are aggressively avoiding tax are people working in the City of London. They are avoiding paying the income tax that the rest of the people in society are quite happy to comply with.

The loopholes that continue are simply an example of the over-complication of our tax system, a matter that has been referred to by hon. Members on both sides of the House. As we look at the thousands upon thousands of pieces of paper in the tax code, it is clear that the bigger we make it the more we create the possibility of loopholes. Surely the time has come for a more fundamental review of all forms of business taxation, a matter that I know the hon. Member for East Antrim (Sammy Wilson) has raised in the past.

Indeed, some of the people gaining considerable sums of money have great sympathy with this. I would like to quote not some of the campaigners but one of the highest-paid people in the country, the head of the private equity firm Cerberus, Stephen Feinberg. He said in 2011, tellingly:

“In general, I think that all of us are way overpaid in this business. It is almost embarrassing.”

I do not think that we should allow this gentleman, the head of an investment fund, and others to be embarrassed any more. I think we should end their embarrassment by making sure that in the future they pay appropriate levels of income tax.

We also find ourselves in agreement with the OECD, which in May 2014 recommended in its position on tax

“taxing as ordinary income all remuneration, including fringe benefits, carried interest arrangements, and stock options”,

and that this should be paid as income tax.

We have evidence not just from campaigners but from people in the City who admit that this is an anomaly that needs closing, so I ask the Minister to give further consideration to this important move. I would also say in general that we welcome quite a lot of the technical changes that have been made on investment, entrepreneurs relief and the like. We want to encourage an entrepreneurial economy, but not at the cost of heightening income inequality and of further division in society.

[Mr Gauke]

I shall be relatively brief in responding to the debate. I addressed one of the issues that we have debated in my fairly lengthy remarks earlier and there is also a certain sense that these are issues we have debated in the past. I certainly remember debating the issue of carried interest with the hon. Member for Kirkcaldy and Cowdenbeath (Roger Mullin) in last year’s Finance Bill. He made very similar points and I am inclined to make very similar points in response, so I will not necessarily run through all that once again. I remind the hon. Gentleman that where we are talking about remuneration that is income, we are determined to ensure that it is taxed as income. As a Government we have shown a willingness to make changes in this area.

Let me turn to the wider issues of capital gains tax and yet again welcome the hon. Member for Salford and Eccles (Rebecca Long Bailey) to her position. I wish her a long and distinguished period as shadow Chief Secretary, given that I understand that there might be uncertainty more generally on the Labour Front Bench. It is extremely important that our tax system is competitive and encourages investment, which will drive our economy forward in the future. A number of external bodies have welcomed the steps that we have taken in reducing CGT rates. The CBI and the Institute of Economic Affairs have welcomed these cuts as means to encouraging entrepreneurship and growth. A number of internal studies indicate that lower rates of CGT support equity investment in firms and promote higher-quality investment in start-ups. That is an important source of innovation and growth.

Finance Bill

Debate between David Gauke and Roger Mullin

Monday 27th June 2016 Commons Chamber

[Mr Gauke]

This Government are committed to a very substantial investment in our railways—the biggest rail building programme since Victorian times. As a Government, we have great ambitions; we intend to spend £60 billion on transport infrastructure over the course of this Parliament.

Turning to supporting testimonials, a point was raised about the definition of “customary”. To reassure the hon. Member for Wolverhampton South West, I point out that HMRC is committed to working with external bodies in the production of guidance on this, which will cover issues such as the definition of “customary”. He also asked about the numbers of testimonials that fall within the contractual or customary categories, or fall outside that. No figures are available, as employers have not had to report this to HMRC. It is worth pointing out that contractual and customary payments are treated as earnings and it is therefore not possible to disaggregate them from the PAYE system.

A number of points were raised on clause 14. It was asked whether this change would disadvantage rural communities. Workers in rural communities who are contracted directly cannot claim travel and subsistence on their ordinary home to work commute. This change equalises the tax treatment of workers employed through employment intermediaries with that of other workers. It addresses an imbalance in our tax system, ensuring that it is fair. It is a long-standing principle of the tax system that tax relief is not allowable for the expense of ordinary commuting—travelling from home to a permanent workplace. I made that point earlier.

In terms of whether it would reduce contractors’ ability to travel, creating a skills shortage or reducing flexibility and preventing growth, where businesses wish or need to recruit workers living some distance away, the Government expect businesses to pay a wage sufficient to attract workers without any special tax subsidy being necessary. This forms part of the Government’s plan to move to a high-wage economy with businesses meeting the costs of paying their workers a wage which does not require a top-up from the state. I should also make the point in this context that this change puts supply teachers —an example that I think was used in the course of the debate—who are engaged through an intermediary on the same terms as other supply teachers who are contracted directly or through an agency. Like other workers, supply teachers not engaged in this way would not receive tax relief on their travel and subsistence expenses on regular home to work travel.

Prior to the last general election, the Labour party said that it would stop umbrella companies exploiting tax relief. It stated this both in its published plan to tackle tax avoidance and subsequently in Parliament, and that is exactly what this change does, so I hope our measures in this area will have cross-party support.

The hon. Member for Aberdeen North (Kirsty Blackman) made a point about the impact on the Scottish oil industry. Employees with a permanent workplace at an offshore oil or gas installation are already exempt from income tax where they are provided with transfer transport, related accommodation, subsistence or local transport. These changes will not affect that exemption.

[Roger Mullin]

The only time in my life I had to operate through an umbrella company and would have been caught by these changes was when it was at the requirement of the Government because of the way in which they had constructed a contract. Do they intend going through every Department of the UK Government to ensure they no longer contract in this way?

[Mr Gauke]

The Government have done considerable work in recent years to ensure that Departments do not engage in arrangements that drive down the tax bill in a way that is not the intention of Parliament.

On clauses 16 and 17 and the issue of the withdrawal of the valuation check service, the Government believe that the impact will be negligible on employee share ownership. The Government do not expect the withdrawal of these services to have an impact on the take-up of employee ownership schemes. The valuation service has not been withdrawn for the most relevant two employee ownership schemes, including enterprise management incentives, company share option plans, savers who earn share option schemes, share incentive plans and the employee shareholder status.

This rather raises the question raised by the hon. Member for Wolverhampton South West as to why we have so many different schemes. Well, each of the tax advantage share schemes has a specific policy objective, reflected in the specific qualifying conditions. Share reward schemes are greatly valued by both companies and employees, and the Government believe that these schemes can have a positive impact on productivity.

Finally, on clause 18 and the concerns that this is retrospective legislation and that it is too complex, let me be clear that the changes introduced here are relatively straightforward. More complex proposals that were announced at the Budget will instead be legislated for in Finance Bill 2017, after the Government have consulted on the technical detail over the summer. One of the main purposes of the consultation will be to ensure that genuinely innocent arrangements are not affected. On the suggestion that the legislation is retrospective, the Government expect those who have avoided tax to pay their fair share. The Government intend to legislate for the new charge in Finance Bill 2017, following the consultation that I have just mentioned. The public and tax practitioners will be able to comment on that consultation.

Normal hard-working people do pay their taxes. They are paid a salary; they are not paid in loans. It is not right that those who use these schemes receive remuneration without paying tax on it. All affected scheme users will have the opportunity to repay their loans or to pay tax on them before the changes come into effect. This is in addition to the previous settled opportunities which closed in 2015.

I hope those points of clarification are helpful to the House. I hope, therefore, that the Government clauses and amendments can be supported, and I urge hon. Members proposing their own new clauses or amendments not to press them. If not, I urge my hon. Friends to oppose them.

Amendment 22 agreed to.

Amendments made: 23, page 14, line 10, at end insert—

“( ) In section 109 (priority of Chapter 5 over Chapter 1), after subsection (3) insert—

“(4) In a case where the cash equivalent of the benefit of the living accommodation is nil—

(a) subsections (2) and (3) do not apply, and

(b) the full amount mentioned in subsection (1)(b) constitutes earnings from the employment for the year under Chapter 1.””

Amendment 24, page 14, leave out lines 13 to 16 and insert —

““(1A) Where this Chapter applies to a car or van, the car or van is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms on which it is made available to the employee or member constitute a fair bargain).””

Amendment 25, page 14, line 35, at end insert—

“( ) In section 120 (benefit of car treated as earnings)—

(a) in subsection (2) after “case” insert “(including a case where the cash equivalent of the benefit of the car is nil)”, and

(b) after subsection (2) insert—

“(3) Any reference in this Act to a case where the cash equivalent of the benefit of a car is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.”

( ) In section 154 (benefit of van treated as earnings)—

(a) the existing text becomes subsection (1) of that section, and

(b) after that subsection insert—

“(2) In such a case (including a case where the cash equivalent of the benefit of the van is nil) the employee is referred to in this Chapter as being chargeable to tax in respect of the van for that year.

(3) Any reference in this Act to a case where the cash equivalent of the benefit of a van is treated as the employee’s earnings for a year by virtue of this section includes a case where the cash equivalent is nil.””

Amendment 26, page 14, leave out lines 37 to 39 and insert—

““(1A) Where this Chapter applies to a loan—

(a) the loan is a benefit for the purposes of this Chapter (and accordingly it is immaterial whether the terms of the loan constitute a fair bargain), and

(b) sections 175 to 183 provide for the cash equivalent of the benefit of the loan (where it is a taxable cheap loan) to be treated as earnings in certain circumstances.”” —(Mr Gauke.)

Clause 7, as amended, ordered to stand part of the Bill.

Clauses 8 and 9 ordered to stand part of the Bill.

Clause 10

Diesel cars: appropriate percentage

Amendment proposed: 2, page 15, line 29, after “omit”, insert

“, except in the case of a low emissions vehicle,”.—(Rob Marris.)

Question put, That the amendment be made.

UK Economy: Post-Referendum Assessment

Debate between David Gauke and Roger Mullin

Monday 23rd May 2016 Commons Chamber

[Mr Gauke]

As I understand it, the leave campaign have made it clear that they would not want to go down the Norway route and be members of the EEA, because that would require continued contributions to the EU budget, continued compliance with EU regulations, and continuing to be signed up to free movement of labour. Given that the leave campaign is now focused almost exclusively on immigration, it would be strange to suggest that one option to take would be one that has been dismissed by the campaign to leave the European Union.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

Here we go again. The Government seem determined to recycle “Project Fear”, based on Treasury projections invented on the back of its now famous neo-classical fag packet. If all the Government have to offer is fear, they do the cause of the EU no favours. There are many positive reasons for staying in the EU. Why is there no analysis of the emerging trading opportunities for business; why is there no analysis of the value of appropriate immigration to the labour market; and why is there not more respect for those of us who want to make a positive case for the EU?

[Mr Gauke]

I must admit that I am slightly confused by that contribution—my understanding was that the position of the Scottish National party was to favour remaining part of the European Union.

[Roger Mullin]

We want a positive case.

[Mr Gauke]

If the hon. Gentleman wants a positive case, let us put it this way: according to the shock scenario we have set out, in two years’ time, the UK economy will be 3.6% bigger if we stay in the EU than it will be if we leave. He criticises and wants to re-fight the Scottish independence referendum. May I just remind him—I suspect it will not be for the last time—that the Unionists won that referendum?

Protection of the EU’s Financial Interests

Debate between David Gauke and Roger Mullin

Monday 8th February 2016 General Committees

[Mr Gauke]

In terms of the UK’s action in this area, we have in place comprehensive procedures to ensure that EU funds comply with UK and EU rules, including a role in programme audits and preventive anti-fraud measures. The hon. Gentleman raises concerns about particular areas. Structural funds, for example, which are a sizeable part of the EU budget, have to be focused upon. The Commission set up a high level group on European structural investment funds simplification last year, whose work is ongoing. Although the agenda is in its early stages, the UK continues to engage actively by advising on simplified costs and financial instruments.

In agreeing the terms of the 2014 to 2020 structural funds regulations, the UK actively pushed for and achieved greater use of simplified costs, reductions in document retention periods, and lighter and more automated annual reporting. In terms of good practices, DCLG’s work in improving public procurement procedures was highlighted in an ECA special report last year. The Department has set up an internal network to review public procurement issues, including the issue of guidance, case studies and reviews of public procurement checks and audits.

As I have said, the UK takes this matter very seriously. Although the Commission has ultimate responsibility for implementation and management of the EU budget, we have a role in taking responsibility to push for reforms.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

It is a pleasure to serve under your chairmanship, Sir Edward. May I say I admire how you have generated such a beautiful gender balance on the bench beside you?

I have two questions, if I may. My first is for the Minister of State. I am interested in this issue because I have spent much of my life in parts of the developing world and on aid projects. I have a very precise question, but, by way of a short preamble, I have a lot of sympathy with those who are at times critical of agencies that operate internationally. At one stage in my life I was in Yemen to look at a college built with World Bank money and with United Nations Food and Agriculture Organisation development. My terms of reference were simple: we have built this building, now tell us what to do with it. It was not necessarily the best project that had been set up. The Minister mentioned the recent report, published on the EU website, on the amount of money wasted. He said that in his and the Government’s view, the report was “very good”. Will he explain precisely what “very good” is?

[Roger Mullin]

My supplementary to the Financial Secretary is also about the international aspects of fraud. Many projects funded through the European Union require multinational partnerships. I am aware that some fraud has occurred in more than one member state. Does he have a general view of how the UK compares with other EU member states on multinational projects?

[Mr Gauke]

There is a general view that the UK is strongly determined to address fraud. We have a strong record of budgetary discipline in the EU and with multinational projects, and we have demonstrated that we take fraud very seriously.

From the documents before us, it is hard to draw comparisons between the UK and other member states. There is no directly comparable error rate for the UK’s management of EU funds against which the ECA’s error rate for the EU budget can be measured. To our knowledge, there are no national accounts of major economies, including the UK’s, that can be meaningfully compared with the ECA’s audit of EU accounts. Only a few countries—the UK is one—produce whole of Government accounts. It is hard to compare precisely our record with those of other member states or countries outside the EU. The UK remains determined to root out fraud, wherever it might be.

HMRC and Google (Settlement)

Debate between David Gauke and Roger Mullin

Monday 25th January 2016 Commons Chamber

[Mr Gauke]

It is the action that we have taken that has enabled this achievement by HMRC.

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

Mr Speaker:

“O wad some Pow’r the giftie gie us/

To see oursels as ithers see us!”

I agree with the hon. Member for East Antrim (Sammy Wilson) that this will be seen by many small businesses the length and breadth of the country as unfair and not understandable. Surely, part of the problem, as a number of Members have said, is the sheer complexity of the system. Will the Government commit themselves to addressing that matter?

[Mr Gauke]

We always look to try to find ways to simplify the tax system. I would make the point that if a company operates in many jurisdictions, its tax affairs are inherently more complex than if it existed in just one country, but the Government are determined to ensure that where the economic activity occurs in the United Kingdom, we tax it in the United Kingdom.

Finance Bill (Fifth sitting)

Debate between David Gauke and Roger Mullin

Thursday 15th October 2015 Public Bill Committees

[Mr Gauke]

Again, I think we can find some consensus. I will not dwell on this, Sir Roger, because we will depart from the business before us if we start to discuss the failures of the regulatory system in the run-up to the financial crash in 2008. However, that is why we have undertaken substantial reform of financial regulation in the UK.

We should want a competitive and thriving financial sector in this country, but we must ensure that it does not pose systemic risks for the UK economy as a whole. That is the challenge that the Chancellor has referred to as the British dilemma in having a major financial centre, with many benefits to us. It is important that the City thrives. Some of my ministerial colleagues and I have visited the City—I do not know whether everyone can say that. However, we must ensure that we have a regulatory system that does not impose greater risks on the overall taxpayer. There is a question of judgment here, and ensuring that we have a thriving private equity industry is something we should welcome.

[Roger Mullin]

To clarify, we do not intend to press the new clause or any of our earlier measures to a vote at this stage, but we will return to them on Report, when we will also take account of the remarks the Minister just made, which I will want to challenge.

Finance Bill (Second sitting)

Debate between David Gauke and Roger Mullin

Thursday 17th September 2015 Public Bill Committees

[Daniel Zeichner]

rose—

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

rose—

[Mr Gauke]

I was about to conclude, but I will quickly take the two inventions.

[Mr Gauke]

That is our intention, yes; £200,000 will be the level for this Parliament.

[Roger Mullin]

I would be interested to hear the Financial Secretary’s reflections on the Chancellor’s speech, which my hon. Friend the Member for Edinburgh West has cited. Does the Minister accept that there is a fundamental problem of investment in the UK economy and that we need to do more to try to stimulate investment? One way of doing that would have been to retain the investment allowance at a higher level.