National Insurance Contributions Bill

Debate between Ian Swales and Catherine McKinnell

Monday 8th September 2014 Commons Chamber

[Ian Swales]

I am following the hon. Lady’s argument with interest and she is making an excellent point. Does she believe that the annual assessment and payment of class 2 NICs will cause a big problem for people on universal credit? How does she think that could be dealt with? Clearly, it is part of their costs and deductions from income, which will not be known when they are claiming and receiving universal credit.

[Catherine McKinnell]

I think the hon. Gentleman very much agrees with the concerns raised by Labour Members, and I hope that the Minister will have some suggestions on how those potential pitfalls can be addressed. If not now, thought should certainly be given to that before the Committee stage to ensure that the most vulnerable self-employed workers, and those on lowest incomes, are not penalised by the change in processing national insurance contributions. We accept that there are clear benefits to reducing red tape and the administrative burden on self-employed people who would benefit from such a measure, but there are those in a more vulnerable position who could be forced into “misery”, as the Chartered Institute of Taxation puts it well.

There is also an increased administrative burden for those who are self-employed as a result of the introduction of universal credit. They will have to draw up two separate accounts—one for HMRC that they report yearly, and one for the DWP that they report monthly. Perhaps Ministers will provide some much-needed clarity about the provisions that they intend to put in place to support low-paid self-employed people, so that they are not disadvantaged by the Bill.

My hon. Friend the Member for Birmingham, Ladywood mentioned the 25,000 self-employed women who claim maternity allowance each year. Currently, class 2 contributions are the means by which a self-employed earner accesses entitlement to contributory benefits, including the standard rate of maternity allowance. In order to receive that, a self-employed woman must have paid 13 weeks’ of class 2 NICs within the previous 66 weeks. That shifting liability for class 2 NICs to an annual payment to cover the previous 12 months’ liability could mean that they fail to satisfy those criteria and are not able to access the standard rate of maternity allowance. HMRC’s consultation document from July 2013 flags those concerns. It states:

“The Government recognises that the proposals have implications for the way eligibility for”

maternity allowance

“is determined for pregnant self-employed women and will be considering how best to ensure the changes have no adverse impact for the small group who might otherwise be affected.”

Despite the promise of that wider review of maternity allowance eligibility for self-employed women, the Government have settled on what has been described as a “wholly impractical” solution, whereby women must pay their class 2 NICs throughout the year of their own accord before they file their self-assessment returns at the end of the year.

The Bill’s aim is to simplify NICs for the self-employed, but the proposed approach is anything but simple. In fact, it places a much greater burden on some 25,000 pregnant women each year who want to access their entitlement to the standard rate of maternity allowance. The Chartered Institute of Taxation has labelled that approach as “impractical”, and has suggested that a review should be carried out after two years to see what impact it has had on the claims of self-employed women for standard rate maternity allowance. Perhaps the Minister could respond to those concerns. Have the Government considered alternative approaches, and why have they settled on what has been described as an impractical approach for those women who could be affected?

My hon. Friend the Member for Birmingham, Ladywood spoke in depth about the anti-avoidance measures in the Bill, which were debated at some length in the Finance Bill Committee. However, I want to make the general point that the Opposition are committed to anti-tax avoidance measures. We believe strongly that everybody should pay their fair share. That is why we support the measures in the Bill, but what reassurances can the Minister provide for hon. Members that HMRC will be sufficiently resourced in order to implement the measures and the safeguards? My hon. Friend mentioned the demographic challenges that HMRC is likely to face in the coming years, and the challenge of the numbers of those available to ensure that the promised safeguards are put in place. Will the Minister provide reassurances on that? I am sure the matter will be debated at some length in Committee.

To conclude, we have only to look at the Government’s past record on tax avoidance to understand why the Opposition seek those reassurances. The Government have got it wrong in some respects, such as on the UK-Swiss tax deal, and have over-egged their tackling of tax avoidance and the tax gap, which the National Audit Office recently said is almost £2 billion lower than it should have been, and that the Government have mis-stated the situation. Ministers must provide reassurance for hon. Members and for those who are interested in the debate that they have learned those lessons, and that we will not experience tax avoidance in relation to measures in this Bill that the Government are similarly unable to deal with.

Finance Bill

Debate between Ian Swales and Catherine McKinnell

Wednesday 2nd July 2014 Commons Chamber

[Catherine McKinnell]

It is absolutely clear that the Government have tied themselves in knots over the annual investment allowance. They have tried at every turn during this debate to change the subject, and not to deal with the catastrophic decision taken in Budget 2010 to slash the investment allowance from £100,000 to £25,000. That was followed by a welcome U-turn that moved it back up to £250,000, and now they have promised to double it to £500,000. I accept that it is a temporary measure, but the point that I was trying to make, which the Minister seems to have missed, is that the very fact that it is a temporary measure perpetuates the uncertainty, and we know, because businesses have told us, that that uncertainty undermines their confidence to invest.

The hon. Member for Burnley (Gordon Birtwistle) made a speech that I know was sincere, as he is aware of the importance of the manufacturing industry and of certainty in the tax landscape, particularly regarding the annual investment allowance, in enabling businesses to make investment decisions, to invest in plant and machinery, and to expand to create jobs for the future. However, I might also say that he made a typical Liberal Democrat speech, in that he sat on the fence and would not acknowledge that the Government need to take stock of the impact on investment decisions of chopping and changing this policy.

[Ian Swales]

rose—

[Catherine McKinnell]

I give way to another fence-sitting Liberal Democrat.

[Ian Swales]

I thank the hon. Lady for giving way, and she will be pleased to know that I will not sit on the fence on this issue. Investment decisions about plant and machinery are one-off decisions, and the annual investment allowance is only needed once for each investment decision. What we need is certainty around a specific decision, not long-term certainty.

[Catherine McKinnell]

That flies in the face of the advice given by the EEF, the Chartered Institute of Taxation and the Institute of Chartered Accountants in England and Wales, which all feel that the Government’s chopping and changing on this policy has been damaging to investment. Someone might want to make a decision to invest this year, next year, or the year after, but obviously if they do not know what the Government’s policy will be in 12 or 24 months’ time, they might well not have that confidence and not take that decision. The hon. Member for Burnley acknowledged that, but the hon. Member for Redcar (Ian Swales) seems to be completely at odds with what industry has been saying.

--- Later in debate ---

[Catherine McKinnell]

That is an ambition that I believe the Chancellor has expressed himself. It is vital the Government get this right and that is why we are asking these questions today. I hope we will receive reassurance from the Minister.

Production fell by 38% between 2010 and 2013, which is the equivalent of 500 million fewer barrels of oil being produced. Critically low exploration has meant that 150 million fewer barrels of oil equivalent have been discovered in the past two years.

This clearly has wider implications for the UK’s oil and gas sector. As the hon. Gentleman points out, it also has serious implications for the Exchequer. Just yesterday, there was a report in the Financial Times highlighting the fact that North sea oil and gas tax receipts decreased by 60% in the past two years alone, and are now at their lowest level since 2004. Some of that can be accounted for by significant investment in the past few years—the fiscal regime was designed in such a way, under the previous Labour Government, to encourage such activity and therefore be less liable to tax—but these figures are still reflective of the wider issues facing our North sea oil and gas sector, as I outlined previously.

I want to draw the attention of the House to concerns, expressed by numerous tax specialists, that these measures represent the Government abandoning the application of the arm’s length principle in determining transfer pricing in the oil and gas sector. Just to explain the background, OECD member countries have agreed that to achieve a fair division of taxing profits, and to address international double taxation, transactions between connected parties—for example, intra-group companies—should be treated for tax purposes by reference to the amount of profit that would have arisen had the same transaction been executed by unconnected or independent parties. The arm’s length principle is enshrined in article 9 of the OECD model, treaty or convention.

The Government apparently support the arm’s length principle, but the Chartered Institute of Taxation has expressed concern that imposing such a cap, as new schedule 1 would provide for, calculated through a formula based on the original cost of the asset, effectively imposes a legislatively fixed benchmark price that overrides the arm’s length principle. An article for Tax Journal in February highlighted this issue and concluded:

“these measures are reflective of the Treasury’s willingness to introduce special measures where it perceives that the application of the arm’s length principle fails to determine an appropriate allocation of profits in cross-border transactions.”

Will the Minister say whether this reflects the Treasury’s willingness to intervene and override the arm’s length principle, where it deems the application of such to be inadequate? The main reason why the Government’s abandonment of the arm’s length principle is of such concern is the possibility that other countries may follow suit and introduce their own special measures; something that the OECD and its members, through the arm’s length principle, are at pains to prevent. It would be useful to hear from the Minister whether the Government have taken account of international reactions to these measures and their potential detrimental impact.

As the Minister well knows, and as we have put on the record in this House on countless occasions, the Opposition support the Government on any steps they take to tackle tax avoidance. However, a number of concerns remain as to how the Government have approached implementing these measures. We welcome the Government’s consultations with the industry, belated though they are, but I would be interested to hear from the Minister whether he and his officials believe that they have, in the final version of the Bill, fully addressed the concerns of industry. The feedback I have received from the industry suggests otherwise.

After the debacle of the autumn statement last year with regard to this unexpected announcement, it is important that Ministers finally, three years after they made the same mistake, learn the lessons of turning to the North sea oil and gas industry to plug holes in their books, and coming up with policy on the hoof. In 2011, we saw the detrimental impact such unilateral action can have, particularly in an increasingly marginal industry—that was, perhaps, reflected in the Financial Times report yesterday. We can only hope that the Government have fully considered the impact of the latest changes and properly accounted for them. Finally, the measures seem to diverge from the Government’s general approach to transfer pricing and the arm’s length principle, but I hope the Minister can provide clarification on that.

New clause 5 and new schedule 4 provide for further tax relief for the creative sector—based, of course, on the last Labour Government’s highly successful film tax relief. They introduce a tax relief for theatrical productions, and the relief will operate in almost exactly the same way as it does for high-end television and animation productions, but with one small difference. It allows qualifying companies engaged in theatrical productions to claim an additional deduction in computing their taxable profits. Where that additional deduction results in a loss, they have to surrender it for a payable tax credit. Both the additional deduction and payable credit are calculated on the basis of UK core expenditure capped at 80% of total core expenditure by the qualifying company.

The Minister set out the provisions in some detail, and they received some welcoming comments, particularly from Government Back Benchers, but I have a few queries about the new relief; I hope the Minister will be able to resolve any outstanding ones. The first relates to measures contained in new schedule 4, and it is important to ensure that the measure is not open to abuse. Such reliefs as these—or tax expenditures, to use Treasury-speak—well-intentioned though they are, have increasingly come in for criticism from the Public Accounts Committee and the National Audit Office. We have already discussed the number of both known and potentially unknown tax avoidance schemes generated around the reliefs and the subsequent criticism of them. I do not think it would be helpful to hold this discussion again here on the Floor of the House; Members will be able to read Hansard to see the extensive debates and discussions we had in the Public Bill Committee.

Following the consultation process, the Government appear to have taken on board the views of the Chartered Institute of Taxation, which suggested in its consultation submission that any evidence of abuse should be promptly identified and acted on by using the general anti-abuse rule. New schedule 4 provides for a general anti-abuse rule based on the GAAR, but the Chartered Institute of Taxation suggested that this tax relief should be properly monitored and reviewed by the Government. The Government’s consultation response suggests HMRC will “continue to monitor” for abuse, but can the Minister give a specific commitment in this respect?

[Ian Swales]

Does the hon. Lady join me in welcoming the fact that the arrangements in HMRC are to give specific permission on a production-by-production basis? I hope that HMRC will be staffed up accordingly, but that should avoid some of the abuses that took place under the previous film arrangements.

[Catherine McKinnell]

I hope that will happen and that HMRC will have the resources available to it, as we know that it has faced significant reductions in staffing. That does not necessarily mean that it will not be able to undertake the sort of monitoring we would like to see under the scheme, but it would be useful to hear from the Minister that HMRC has the resource, capacity and systems to ensure that this does not become just another vehicle for tax abuse.

Finance Bill

Debate between Ian Swales and Catherine McKinnell

Tuesday 1st July 2014 Commons Chamber

[Catherine McKinnell]

I, too, took great interest in what the Minister said, because he seemed to disown the figures that were published by the Office for Budget Responsibility on this policy, as though they were in some unknown ether in the future. He appeared to be saying, “It’s nothing to do with me, guv.” The figures that the OBR predicts are very clear. It will cost £1 billion and a quarter of that can be attributed to tax planning and, if the concerns of the hon. Member for Redcar (Ian Swales) are borne out, tax avoidance.

[Ian Swales]

I am sorry to have missed some of the erudite contributions to this debate, especially that of the hon. Member for Islwyn (Chris Evans), whom I always enjoy hearing. I do not know whether these points have been mentioned. Is the hon. Lady concerned about the effect on competition between businesses if one business uses this process and another does not? Secondly, is she aware that the Office for Budget Responsibility thinks that existing share schemes may be shoehorned into the new process, meaning that people who are already in share schemes and who have employee rights might suddenly find themselves forced into the new arrangements?

[Catherine McKinnell]

I share all those concerns and many more. Ultimately, it is for the Government to take on board what is being said to them so clearly, but they seem to be ignoring it. The hon. Gentleman will know that he has the opportunity to vote with the Opposition on new clause 11 and to get the Government to sit up and listen to the concerns that are being expressed. Perhaps the data will show that the scheme has had a fantastic take-up, that it is entirely fair and that it has created many new jobs. Perhaps it is the boost for growth and job creation that the Chancellor proclaimed it would be. Alternatively, they might show that it is just a tax avoidance opportunity that is unfair to the employees who are forced into it against their will.

The Conservative, Baroness Wheatcroft, said:

“Let us imagine a group of employees who have sold their rights—for a mess of pottage, as we have heard—and another group who have not. The company falls on hard times and has to declare redundancies. Who will be first in the line for redundancy? I would hazard a guess that it will be those who have shown the most commitment to the business by becoming employee shareholders under the new scheme. That is the sort of perverse effect that we are likely to see if the clause goes through.”—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 618.]

That is the sort of perverse effect that we want the Government to take action on by producing the data that will enable Members of this House to know the true impact of this employee shares for rights scheme.

I urge all hon. Members to vote for new clause 11.

Question put, That the clause be read a Second time.

Finance (No. 2) Bill

Debate between Ian Swales and Catherine McKinnell

Wednesday 9th April 2014 Commons Chamber

[Ian Swales (Redcar) (LD)]

I am following the hon. Lady’s speech with great interest. For completeness, so that we have the full picture, can she say what proportion of tax is paid by men and what proportion of benefits are paid to women?

[Catherine McKinnell]

I am pleased that the hon. Gentleman has entered the debate, because the Liberal Democrats are key to today’s measure, and I shall go on to explain why. I think we know that there is long-term inequality. The mere fact that 85% of those who benefit from the tax cut from 50p are men speaks volumes about how this country is weighted. The majority of wealth is held by men. I understand the hon. Gentleman’s point, but I urge caution as the Liberal Democrats are in an interesting position today when it comes to how they will vote not only on this measure in the Bill but on our proposed review.

Housing Benefit

Debate between Ian Swales and Catherine McKinnell

Tuesday 12th November 2013 Commons Chamber

[Ian Swales (Redcar) (LD)]

I previously opposed this policy not because I think we should necessarily pay money for spare bedrooms, but because the consequences that we have heard about today were highly predictable, and I shall speak about some of them. It is no wonder that we have a crisis in rents and social housing availability when 421,000 social houses were lost under the Labour Government—a truly shameful record.

We have also heard about the different effects of the policy in different parts of the country, and I find myself identifying most with the hon. Member for Liverpool, West Derby (Stephen Twigg), given the characteristics of my constituency. Social housing is in reasonably plentiful supply and regeneration is required in many areas, but we are now getting housing blight because of the availability of three-bedroom houses that people do not want to take. Previously, smaller family units were put into those houses, but people will not take them now.

As most hon. Members have said, there is a suitability of stock problem. My constituency made the front page of the newspapers after a calculation that said it would take 37 years to make available one-bedroom accommodation to all those who need it.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

The hon. Gentleman is making some interesting points. I recognise that situation in Newcastle. Given that Government policy is punishing people for a problem—the stock available—not of their making, will he vote with the Opposition?

[Ian Swales]

I worry that housing policy tends to be dictated from inside the M25. It becomes less appropriate the further away from the M25 that we go.

My constituency has a discretionary housing payments problem. The last figures that I have seen show that there were 1,307 applications, but that only 358 awards were made. That happened because the money ran out, not because the applications were inappropriate.

We also have a one-size-fits-all penalty in the calculation for the amount of the spare room subsidy. In my constituency, the cost of an extra bedroom is about £7, but people are penalised by about £11. Therefore, people who should move from a three-bedroom property to a two-bedroom property get less housing benefit than they would get if they were in a two-bedroom house, which is deeply immoral.

Like many hon. Members, I have campaigned on various issues. I am pleased to welcome the Government’s concessions on foster parents, serving military personnel and disabled children. I also welcome the trebling of discretionary housing payments, but there is a lot of unfinished business. The hon. Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, made some good points. I would make a plea for the exemption of disabled adults. Children are exempt when they need separate bedrooms for medical reasons. Let us do that for adults, instead of making people go through the demeaning process of applying. In my local council, people have to apply every quarter, and the application form is deeply intrusive.

As the hon. Member for South Derbyshire (Heather Wheeler) has said, many people are perfectly willing to move to right-size accommodation, but it simply does not exist anywhere in their area. In the north of England, we have a shortage of one-bedroom accommodation. In fact, some one-bedroom accommodation is being demolished in my constituency.

Finance Bill

Debate between Ian Swales and Catherine McKinnell

Tuesday 28th June 2011 Commons Chamber

[Catherine McKinnell]

Thank you, Mr Deputy Speaker. I will give way to one of my friends from the north-east, who I am sure has something relevant to say.

[Ian Swales]

As a fellow north-east Member, I congratulate the hon. Lady on her speech. I believe that the previous VAT cut cost £12 billion. She makes a persuasive case for the need to stimulate the economy. Does she think that borrowing £12 billion and then cutting VAT is the best option from all the choices available?

[Catherine McKinnell]

The fact is that the current rate of 20% is hurting, and it is not working. Growth has stalled. We need to return to growth, particularly in the north-east, and I would have thought that the hon. Gentleman would support such a move.

A sector that has faced particular difficulties over recent months and years is the construction industry. It is thought that one in five of the firms going into administration are from that sector, and research recently undertaken by the Financial Times has found that construction orders have fallen by 40% in the past 12 months. That is an alarming figure. It is really worrying, when we consider that construction makes up around 10% of the UK economy, and that some 80% of the materials used by the industry are procured from within the UK, creating an economic stimulus and jobs in other sectors.

The construction industry is one clear example of how public spending can support private sector growth and jobs. Indeed, it is estimated that every £1 spent on construction leads to an increase in gross domestic product of nearly £3 and stimulates growth elsewhere in the economy worth nearly £2. The maths is simple. It is widely accepted that coalition decisions to cancel projects such as Labour’s Building Schools for the Future programme, to cut the housing and regeneration budget by 70%, to end the HomeBuy Direct scheme, and to scrap regional spatial strategies, are having, and will continue to have, a seriously detrimental effect on the construction sector.

The coalition’s VAT rise is also having a considerable adverse impact on many small and medium-sized construction firms, particularly when combined with the draconian cuts that the Government are imposing on public spending. Indeed, at the time of the VAT rise the Federation of Master Builders—an organisation to be taken very seriously—expressed its concern that 11,400 jobs would be lost in the construction sector alone over the next decade as a direct result of the coalition’s decision to hike VAT to 20%. The impact of VAT must be kept under review.

Household income in the north-east is the lowest in England, and a temporary reduction in VAT would have a positive impact on the spending power of people living in my city and region, helping to support local businesses, local economic growth and local jobs. Such a reduction could not come at a more apposite time, given that my region is facing the policies of what Kevin Rowan, the regional secretary of the Northern TUC, has recently described as a “profoundly anti-Northern Government”.

That is a description I would agree with, in the light of the impact of some of the coalition’s policies highlighted by Mr Rowan. They include the abolition of One North East and the planned sale of its assets to finance national Government administration—something that is not happening in London. Furthermore, job creation is simply not keeping up with job losses, with up to 19 jobseekers applying for every vacancy in some areas of the region. The north has the highest unemployment rates in the UK, and it is seeing cuts in disability benefits that will have a disproportionate impact on former industrial heartlands, as well as cuts in tax credits, the abolition of area-based grants and local government cuts significantly higher than those in many councils in the south-east. It is for those reasons that I support the proposal for the Government to undertake an assessment of the impact on UK growth of the rise in the rate of VAT.