2019 Loan Charge

Ed Davey Excerpts

Tuesday 20th November 2018 Westminster Hall

[Mr Baker]

It is my intention in my concluding remarks to stridently condemn the promoters of these schemes, who have ended up luring people into misery through what they have done.

Before closing with this letter, I want to mention that the Chancellor also wrote:

“It is not normal, or indeed reasonable, to be paid in loans that are not repaid in practice. It is not fair to the vast majority of taxpayers who pay their taxes in full and on time for anyone to benefit from contrived avoidance of this sort and that is why this government has legislated the charge on DR loans.”

I agree with the Chancellor that it is not normal or reasonable, but I make it very clear that I place the blame on the promoters of these schemes.

HMRC initially expected 40,000 people to be affected, although in a recent parliamentary question, my right hon. Friend the Financial Secretary to the Treasury gave a new figure of 50,000. HMRC’s impact note stated:

“The government anticipates that some of these individuals will become insolvent as a result.”

The Loan Charge Action Group suggests that the loan charge will end up affecting probably upwards of 100,000 people and their families.

The hon. Member for Eastbourne (Stephen Lloyd) has tabled an EDM criticising the measure, arguing that

“retrospectively taxing something that was technically allowed at the time, is unfair”.

Of course, I would agree. HMRC has argued that the loan charge is a new tax on a new source, and described it as retroactive rather than retrospective. I would like the Minister, if he can, to explain both terms and any difference that the Treasury is implying.

[Sir Edward Davey (Kingston and Surbiton) (LD)]

The hon. Gentleman deserves a lot of credit for bringing this issue to the House. Does he agree that we should be working cross-party ahead of the Report stage of this year’s Finance Bill to put together a new clause that deals with the problem, under which any loan charge would come into effect only after Royal Assent of the Finance (No. 2) Act 2017?

[Mr Baker]

I certainly agree with the right hon. Gentleman that there is a job of work to be done across parties to uphold the rule of law, in particular the principle that legislation should not apply retrospectively. That is a subject on which I have made speeches over the years. We end up in a hideous cycle of undesired action, in particular to avoid taxation, followed by the injustice of retrospective action to protect other taxpayers and the misery that causes to large numbers of people. It must be brought to an end, but underpinning that we must be committed to the rule of law.

--- Later in debate ---

[Sir Edward Davey (Kingston and Surbiton) (LD)]

This House has the chance and the opportunity to put this wrong right. As the hon. Member for Poplar and Limehouse (Jim Fitzpatrick) said at the end of his speech, there will be a Report stage to the current Finance Bill. It will come to the Floor of the House and we—every Member here today of whatever party, whoever signed the early-day motion—have the power to come together, cross-party, and pass a new clause to right this wrong. Frankly, words in a Westminster Hall debate and signatures on an EDM mean nothing unless we are prepared to go through the Lobby to vote this tyrannous legislation down. Constituents, the Loan Charge Action Group and all the people affected will expect their Members of Parliament to vote and act and not simply talk. Today gives us a platform to make sure we send a powerful message to Treasury Ministers that this is a catalyst for the action that was not taken two years ago, but will be taken, I believe, when we get to the Report stage of the Finance Bill.

As has been said by the hon. Member for Wycombe (Mr Baker), there is a fundamental principle here that he and I can agree on: the rule of law. When we talk about British values, about which he and I agree, the rule of law is something the Department for Education says should be taught in every school up and down our country. Well, this is the test. Either Members of Parliament believe in the rule of law and what our children are taught, or they do not. When we vote on the new clause in the Finance Bill, as I am sure we will be asked to, we will see whether we really do believe in the rule of law.

[Mr Baker]

As one liberal to another, it is a delight to agree with the right hon. Gentleman. I hope members of the public will not think I am engaging in too much levity if I say that some of us are engaged in enough rebellion already. I should be very grateful indeed if the Government tabled their own amendment to deal with this matter, so that we do not find ourselves engaged in any sort of rebellion on the Finance Bill.

[Sir Edward Davey]

It was a pleasure to allow that intervention. I have no objection to the way in which the wrong is righted, as long as it is righted properly. If we stick to the principle of the rule of law, as I said in my intervention on the hon. Gentleman, ending retrospection in this tax change means that any charge prior to Royal Assent of the Finance (No. 2) Act 2017 must end. There can be no charges before Royal Assent of that Act; otherwise we are in the area of retrospection.

Like other colleagues, I have had constituents contacting me. Sixteen have contacted me directly, and in my experience that means there are many more out there who have not contacted me. I will read from just one, from Mr Garry Taylor, who talks about the “devastating consequences” that will destroy the finances of “me and my family”. I do not know about other colleagues, but I have had people almost in tears in my surgery over a tax matter, which has never happened before in 20 years.

[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

Does the right hon. Gentleman agree that people are living in genuine fear of bankruptcy and losing their homes, and it is not acceptable that the Government have handled the matter in that way?

[Sir Edward Davey]

I could not agree more. I have never seen people so distressed and distraught by one particular measure, which appears to target pain on just a few people. Those people work hard in our NHS, our industry, our schools and our civil service. Why do the Government want to target so much pain on so relatively few people? The charges involved are massive: hundreds of thousands of pounds. It is completely iniquitous. I believe the Minister knows that and I hope he will therefore put it right. Everyone in this House is clearly against tax scams; we want to close them down, but as other hon. and right hon. Gentlemen have said, people were advised by professional accountants and HMRC appeared to be happy. It was notified of the tax schemes and did nothing. Yes, let us crack down on tax avoidance, but let us not go after victims, the people simply trying to earn a living for themselves and their families.

[Tommy Sheppard (Edinburgh East) (SNP)]

Will the right hon. Gentleman give way?

[Sir Edward Davey]

I will in a second.

I might be the only veteran of the 1999 Finance Bill Standing Committee. I am happy for colleagues to correct me, but in those early days of my parliamentary career, I had the pleasure of sitting on nine consecutive Finance Bills that dealt with the early history of IR35. We had huge arguments then that that was wrong. There is an inherent issue that needs to be tackled, but what is proposed is absolutely not the way. HMRC has got to learn from history. It appears to me to be acting vindictively because it did not get its way a few years ago on IR35. Because people found legitimate ways around it, it is coming back and acting in an outrageously draconian way, and this House has to say no.