Loan Charge
Debate between George Eustice and David Davis
Mr Davis
My hon. Friend is absolutely right, and I will come back to that point in a second.
This also rests on this point of judgment: how does an ordinary lay person forecast what HMRC will decide in 10 or 20 years’ time? We see this—unlike others, I am not going to butter up the Treasury Bench today—even in the responses of Ministers in previous debates and even in the letter we received from the Financial Secretary this morning. He talked about the reason for the definition of this scheme, and said it was for the
“sole purpose of avoiding tax”.
Well, I have news for the House: I have at least a couple of ISAs—individual savings accounts—which are there for the sole purpose of avoiding tax. Are they now illegal? Is that the criterion we should apply? Well, plainly not.
There is a real issue about the approach of HMRC, and I am going to be rather harder than the all-party group in my recommendations. I think it is being just a little bit too reasonable, and I will come back to that in a second. [Interruption.] I think a number of Conservative colleagues are threatening to sue me for calling the right hon. Member for Kingston and Surbiton (Sir Edward Davey) reasonable.
Before I come to my main point, I want to go back to the report on this subject carried out by the House of Lords Economic Affairs Committee. We all have very emotional cases impacting on our judgment, but we cannot say that about the House of Lords. The House of Lords looked at this incredibly dispassionately. Its Members do not have constituents, so they can in a way be viewed as much more dispassionate than us. Let me remind the House of a few of the Committee’s findings.
The Committee found that the Public Bill Committee for the Finance (No. 2) Bill in 2017
“did not adequately scrutinise the loan charge.”
That is incredibly important for something that will be retrospective, but it did not properly scrutinise the loan charge. I think it was spoken about only by the Minister and the Opposition spokesman, and by nobody else.
The Committee said that many witnesses told it that they had joined these schemes—this is the point made by my hon. Friend the Member for East Surrey (Mr Gyimah)—without being aware of HMRC’s attitude towards them. Many were assured by employers or promoters that these schemes were above board and, indeed, as he said, they could not have had the jobs if they had not accepted the terms.
Mr Davis
No, I am afraid not.
That is why we find not city slickers, bankers or finance specialists, but nurses, doctors, locums and careworkers caught up in this. All those people will never have the resources to pay back this money. It does not matter whether it is over two, five, seven or 10 years, they will just never have it.
Many witnesses said they had declared the schemes to HMRC. This really is the criminal aspect of this: someone declares a scheme, and then 20 years later or 10 years later, HMRC comes back and says, “Sorry, we haven’t closed your year, and you can pay now”. They are being asked to pay not a small amount, but £20,000 or £30,000 in the case of some my constituents.
What the Committee found is very important because, again, where does the blame lie? I think part of the blame lies with HMRC, but part of the blame lies with the employers. Many people have said that that is where HMRC should focus its effort, but the House of Lords Committee found
“little evidence of action taken against those who promote disguised remuneration schemes.”
It went on to say that
“HMRC appears to be prioritising recovery of tax revenue over justice”.
That point is central to today.
The Committee noted that the people involved were unusual subjects of this sort of recovery, because of the nature of their employment and so on. It said that of course these disguised remuneration schemes are “unacceptable tax avoidance”, but it also said:
“The loan charge is, however, retrospective in its effect.”
This House was formed in order to challenge the King, in his day, on the justice of the taxes he was demanding, and to put their own concerns back to the King to get them corrected before we paid the taxes. We should not forget the fundamental reason for this House’s existence, which is to look after our constituents in the face of demands from the state.
The Committee made a recommendation that HMRC should in future make clear public statements when it is looking at avoidance schemes. Because of the fact that so much of the burden of the decision falls on HMRC, it should make it clear to the public at large and anybody in those schemes when it is investigating them.