Finance (No.2) Bill (First sitting)
James Murray Excerpts(3 years ago)
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The Exchequer Secretary to the Treasury (Kemi Badenoch)
It is a pleasure to serve under your chairmanship, Sir Gary. The clause makes changes to ensure that decommissioning expenditure incurred by oil and gas companies in anticipation of the approval of an abandonment programme, a condition imposed by the Secretary of State or an agreement made with the Secretary of State qualifies for decommissioning tax relief.
Companies operating oilfields in the UK and the UK continental shelf have always been required to decommission the wells and infrastructure at the end of a field’s life. The tax relief for decommissioning expenditure is an important part of the UK’s overall oil and gas fiscal regime, which is balanced to maximise economic recovery of the nation’s national resources while ensuring that the nation receives a fair return for those natural resources. The changes made by the clause will clarify that appropriate expenditure on decommissioning incurred in anticipation of the approval of an abandonment programme, a condition imposed by the Secretary of State or an agreement made with the Secretary of State qualifies for decommissioning tax relief.
The clause does not have any Exchequer costs and does not alter the original policy intent of decommissioning tax relief. It will provide certainty for the UK oil and gas sector, which supports approximately 260,000 jobs, around 40% of which are in Scotland, and which has paid approximately £350 billion in production taxes to date. The clause will provide certainty that all appropriate decommissioning expenditure qualifies for decommissioning tax relief.
James Murray (Ealing North) (Lab/Co-op)
It is a pleasure to be back in Parliament physically and to lead on a Public Bill Committee for the first time under your chairmanship, Sir Gary.
James Murray
You will not be saying that by the end, Sir Gary.
We recognise that this clause makes a largely technical amendment to the Capital Allowances Act 2001, meaning that certain types of expenditure incurred by oil and gas companies on decommissioning plant and machinery before the formal approval of an abandonment programme will qualify for decommissioning expenditure relief. We will not oppose the clause. However, I want to ask the Minister about subsection (9), which introduces a clawback mechanism. It seems to apply when the anticipated abandonment programme has not been approved and the anticipated condition has not been imposed by the Secretary of State, or an anticipated approval has not been given by the Secretary of State within a specified period—namely, five years from the last day of the accounting period during which the expenditure was incurred.
In such cases, there is an obligation on the beneficiary of the relief to notify Her Majesty’s Revenue and Customs of the situation and to set out how any relevant returns are to be amended. Clearly, as with all tax reliefs, there is a risk that some companies might seek to exploit or use them inappropriately. I would therefore welcome the Exchequer Secretary setting out whether she thinks there is any potential risk of the relief being misused. If so, what actions will HMRC take to reduce the risk? What proactive investigations will HMRC make to verify that those taking advantage of the relief are doing so legitimately, and what penalties or other enforcement action will be taken if instances are uncovered where that is not the case?
Kemi Badenoch
I thank the hon. Gentleman for his questions. He raises an interesting point. We have been discussing industry’s concerns for some time over the lack of clarity on decommissioning expenses incurred prior to the approval of an abandonment programme. Industry already supports the measure. We consulted it on the draft legislation, and the clause takes account of comments received, particularly on the clawback mechanism that the hon. Gentleman refers to. We have now excluded the ongoing maintenance costs of assets waiting to be decommissioned from the clawback.
On clawbacks specifically, where expenditure is claimed on decommissioning in anticipation of an approval, the legislation allows five years for that approval to be in place before the clawback is triggered. We listened to industry’s comments during our consultation, and adjustments have been made to the clawback to exclude maintenance costs from the mechanism. The Department for Business, Energy and Industrial Strategy is responsible for overseeing decommissioning work on the UKCS. Where the anticipated approval condition or agreement is not approved by BEIS in the five-year period, it is appropriate for any relief to be clawed back. The legislation ensures that only legitimate decommissioning expenses qualify, and the clawback provides an important protection for the Exchequer.
Question put and agreed to.
Clause 16 accordingly ordered to stand part of the Bill.
Clause 17
Extensions of plant or machinery leases for reasons related to coronavirus
Question proposed, That the clause stand part of the Bill.
Jesse Norman
The clause makes provision for an easement for plant and machinery leases caught by anti-avoidance legislation when extended due to coronavirus. The easement has the effect of turning off the anti-avoidance legislation under specific circumstances. The reason for that is that HMRC has identified an issue where some plant or machinery leases could be adversely affected by the Government’s anti-avoidance legislation. This relates to specific circumstances where a lease is extended due to covid-19, and creates unexpected and unwelcome outcomes for many lessors and lessees. Therefore, at the Budget, the Government announced changes to ensure that the anti-avoidance mechanism is not unnecessarily triggered by legitimate commercial activity.
The measure will affect leases where a relevant change in consideration is implemented between 1 January 2020 and 30 June 2021. It is an easement, restoring eligibility to claim capital allowances to the position as originally intended immediately prior to the date of the change in consideration due under the lease. If not deemed appropriate, either party may choose not to apply this treatment, ensuring that no one will be left worse off by the change. The Government expect that the services, construction, manufacturing and agricultural sectors, in particular, will be positively affected by the changes.
The measure is important in assisting businesses that have been badly hit in their legitimate activity by the effects of the pandemic and in ensuring that they are not struck by unexpected tax charges. I therefore move that the clause stand part of the Bill.
James Murray
We recognise that the clause relates to the leasing of plant or machinery, and specifically to a situation where a lease of such machinery is extended due to coronavirus. Without this provision, such an extension could trigger anti-avoidance legislation, and we understand that the clause therefore amends relevant subsections relating to long and short leases in the Capital Allowances Act 2001, with the effect of switching of the anti-avoidance provision and returning the situation to what it would have been without coronavirus.
We understand that the need for the clause was raised by the Finance and Leasing Association, which represents 40% of relevant lessors in the UK, and that after consideration the Treasury agreed that the change for which the clause provides was needed. It will cover only covid-19-related lease extensions where anti-avoidance legislation is triggered from 1 January 2020 to 30 June 2021, as the Minister said.
Alison Thewliss
Amendment 2 has the opposite aim, I suppose, to Government amendment 16. We proposed to update the Income Tax Act 2007 so that the extended loss carry-back rules in the Bill, in relation to furnished holiday lettings businesses, would have effect, whereas the Government clearly intend that the measure will no longer apply to those businesses.
In tabling our amendment we assumed that the Government had drafted their measure incorrectly and had accidentally excluded the people in question, but clearly we were wrong. They have not excluded them as much as they had hoped to, and are coming back to double down on that exclusion by means of amendment 16. Our technical amendment would help the sector, and we are keen for the Government to take it on board.
The Low Incomes Tax Reform Group has also raised the wider implications of clause 18 and the potential for unintended consequences and pitfalls resulting from the interaction between any tax refund and universal credit. Has the Minister given that any consideration? The group feels that there has been a significant increase in claims for universal credit during the pandemic—it is clearly evidenced—including from self-employed individuals and limited company directors who may never have needed to claim such support before the pandemic.
Under the universal credit legislation, self-employed income for a universal credit monthly assessment period is calculated by taking actual receipts in the assessment period and deducting any amounts allowed as expenses, tax, national insurance and any relievable pension contributions in that period. The group points out that receipts specifically include any refund or repayment of income tax, VAT or national insurance contributions related to a trade, profession or vocation, so any tax refund made as a result of the provision may therefore fall to be treated as income for universal credit purposes in the assessment period in which it is received, which in most cases will lead to a reduction of universal credit of 63p for every £1 of refund. In addition, further to that, if the refund is large enough, it might trigger the surplus earnings rules, meaning that any excess income in one assessment period can be carried forward and treated as income in the next assessment period, up to a maximum of six months.
It would be helpful if the Minister said whether the Government are aware of the issue and what plans they have to raise new universal credit claimants’ awareness of it, so that they can understand that if they receive the refund while they are in receipt of universal credit, they will need to report it as income for universal credit purposes. They will have to understand the implications fully.
This is an unintended issue arising from the pandemic. People who have never claimed universal credit before, who may have recourse to the provisions that the Government are making, will not understand how the two things interact. They might not have access to appropriate financial advice, and I would not want the Treasury or HMRC to be doing something on one hand that the Department for Work and Pensions did not understand on the other. What discussions has the Minister had with DWP Ministers, and what information does he intend to give out to people? As the Low Incomes Tax Reform Group points out, there could be implications that have not been considered.
James Murray
We note that clause 18 and schedule 2 provide a temporary extension to the carry-back trading losses provisions from one year to three years, for losses of up to £2 million for a 12-month period, both for companies and for unincorporated businesses. Those extensions to trade loss carry-back rules for both corporation and income tax have been introduced in response to covid-19 to help businesses that have suffered economic harm as a result of the restrictions placed on them.
We understand that the intention is to provide cash-flow benefit to affected businesses by providing additional relief for trading losses. As we have heard, the Chartered Institute of Taxation has said that it welcomes this measure for giving a cash injection to businesses with a track record of making profits and paying tax, but which have suffered during the pandemic. The Chartered Institute of Taxation points out that, in many cases, this measure will represent a cash-flow, rather than an absolute, cost to Government. The cost will reverse as the business, having used up its losses by carrying them back, makes profits and pays taxes sooner in the future.
Although we recognise the broad support for the measure from the Chartered Institute of Taxation and the wider importance of helping businesses with cash flow when they have suffered as a result of covid restrictions, we have tabled new clause 10, which relates to tax avoidance and evasion. We do not doubt that most businesses benefiting from the measure will do so legitimately. Given the importance of making sure public money is spent effectively and as intended, however, we believe the Government should identify any risk and take action to mitigate those risks as necessary.
Furthermore, we would also like to raise the issue identified by the Chartered Institute of Taxation’s Low Incomes Tax Reform Group—namely, the potential interaction of any tax refund with universal credit, as set out by the hon. Member for Glasgow Central. I would therefore like to reiterate her call to the Minister to ask whether he is aware of this issue. If so, what plans do the Government have to raise awareness of this issue with universal credit claimants to make sure they understand that, if the refund is received when they are in receipt of universal credit, they will need report this income for UC purposes?
Jesse Norman
I am grateful to the hon. Members for Glasgow Central and for Ealing North for their questions; let me speak to the points they have raised.
The hon. Member for Glasgow Central suggested—in fact, she averred—that she had tabled her amendment based on what I fear is a misunderstanding of the legislation, without her being aware that this was actually an incorrect feature of the legislation that the Government were seeking to correct. I apologise if she has been misled. It is certainly not part of any intention of the Government to change what is a long-standing arrangement for the taxation of furnished holiday lettings, and there was no intention to extend the relief to businesses that do not currently qualify for loss carry-back relief. I apologise if the legislation has inadvertently misled her, and I hope on that basis that she will not press her amendment.
On the interaction with universal credit, the key point I would make is that this is a change designed to provide businesses with flexibility. Universal credit is a cash flow-based benefit, and rightly so, because it intends to track people’s cash flow as it rises and falls in receipt of the benefit. Of course, my officials consider all these matters in the round. If there are further technical points that the hon. Members for Glasgow Central and for Ealing North would like to put forward, based on the specific feedback of the Low Incomes Tax Reform Group, we would be happy to listen to them and respond accordingly.
Question put and agreed to.
Clause 18 accordingly ordered to stand part of the Bill.
Schedule 2
Temporary extension of periods to which trade losses may be carried back
Amendment made: 16, in schedule 2, page 101, line 34, leave out sub-paragraph (5).—(Jesse Norman.)
This amendment clarifies that relief under Part 1 of Schedule 2 to the Bill is not available to a furnished holiday lettings business that is treated as a trade under section 127 of the Income Tax Act 2007.
Schedule 2, as amended, agreed to.
Clause 19
R&D tax credits for SMEs
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 19 and schedules 3 and 4 make changes to deter abuse in the payable credit element of the research and development tax relief for small or medium-sized enterprises, or SMEs. R&D tax reliefs, including the SME scheme, support businesses to invest and are a core part of the Government’s support for innovation. In 2017-18 alone, there were over 54,000 claims to the SME scheme, providing relief of £2.7 billion, which supported over £10 billion of R&D investment.
The SME scheme has two parts. First, the relief functions as a corporation tax additional deduction, reducing the profits on which a company pays corporation tax by 130% of qualifying expenditures, on top of the standard 100% deduction. Secondly, if a company is loss making, or if the deduction creates a loss, they may be entitled under the law as it stands to surrender losses in exchange for a payable credit up to 14.5% of 230% of qualifying expenditures.
However, the Government have been concerned about abuse in the payable credit element of the scheme. In particular, some loss-making companies that do little R&D themselves pay another person, such as a company based abroad, for a lot of R&D simply to have access to the payable credit element of the relief. They are thus benefiting themselves, but the benefit of the R&D is not accruing to the UK economy. To prevent abuse of the SME scheme, Budget 2018 announced a cap on the amount of payable credit that a company will be able to receive.
The change will limit the amount of payable credit available to some companies, and it will be set at £20,000 plus three times the company’s pay-as-you-earn and national insurance liability. The liability acts as a proxy for actual R&D activity happening in the UK to ensure that claimants have an actual employment footprint here in order to benefit from the payable credit.
The measure has been carefully designed to ensure that non-abusive companies are unaffected, and it achieves that through three important features. First, the threshold of £20,000 means that the smallest claims will be uncapped. Secondly, this is based on the total liability for all employees, not just the liability for employees working on R&D. Where companies subcontract R&D to connected persons, or use agency workers supplied by connected persons, they will be able to include costs attributable to that as well. Thirdly, companies that can show they are creating or preparing to create intellectual property, or are managing intellectual property that they have created, and where less than 15% of the R&D expenditure is with other connected companies, may be exempt from the cap.
Compared with the draft legislation published last year, the definition of intellectual property has been expanded, based on comments made, so that it will include both know-how and trade secrets in order to cover cases in which a company does not wish to or cannot seek a patent. We have worked closely with the industries involved on this design. The changes will take effect for accounting periods beginning on or after 1 April 2021. Up to 25,000 companies will be affected by the measure, although not all will see their payable credit reduced. The measure is expected to yield £455 million across the scorecard period.
The measure is an important step to protect the integrity of the SME scheme. The Government have extensively consulted in order to ensure that legitimate businesses are not caught, and the new rules will ensure that the reliefs remain sustainable, enabling them to continue to support innovation into the future.
James Murray
Clause 19 and schedules 3 and 4 introduce a new restriction, or cap, on the payable element of the R&D tax credit for SMEs. Tax reliefs that seek to incentivise firms to invest in R&D form an important part of the Government’s approach to innovation. However, as the Government admit, the SME tax credit has become a target for fraud and abuse. We welcome any Government efforts to counter fraudulent attempts to claim the SME R&D tax credit. Will the Minister set out figures explaining the extent of the fraud and abuse, including how much it has, or is estimated to have, cost the Exchequer in each of the financial years 2018-19 through 2020-21?
We note that this change has been a few years in the making. It was first announced at the 2018 Budget, the Government consulted on its detailed design in 2019, and there was a further consultation in spring and summer 2020. The opinion of the Chartered Institute of Taxation is that the outcomes of these two consultations have fed into the design of this measure in a way that it welcomes, as it considers that these changes will minimise the impact and deterrence effect on businesses undertaking genuine R&D.
The process of consultation continues, and at the March Budget, the Government announced a new review of R&D tax relief, supported by a consultation with stakeholders. Without, of course, pre-judging the outcome of that review or consultation, we would like to ask the Minister to set out any early thoughts he has about where this process may lead, both in relation to R&D tax credit and tax relief generally, and specifically as they apply to SMEs. We would welcome the Minister setting out his response to this point, as well as—as I mentioned—the figures or estimates he has on the impact on the Exchequer of fraud involving, and abuse of, the SME tax credit in each of the three past financial years.
Jesse Norman
I am grateful to the hon. Member for his questions. Of course, it is in the nature of avoidance that it is not possible to estimate: it is avoidance or potential avoidance, so it is not possible to give accurate figures as to the exact levels of avoidance that has taken place. However, it is noticeable that this measure has an estimated positive revenue effect of over £400 million, which is an interesting fact in and of itself, and quite an interesting potential indicator of the importance of the measure.
On the wider issue of progress in this area, the hon. Member will be aware that we have a review underway. It would not be appropriate for me to pre-judge the scope of this, or indeed the outcome of a review that has only relatively recently been initiated, but I assure him that it will be thorough and effective.
Question put and agreed to.
Clause 19 accordingly ordered to stand part of the Bill.
Schedules 3 and 4 agreed to.
Clause 20
Extension of social investment tax relief for further two years
James Murray
I beg to move amendment 23, in clause 20, page 13, line 20, leave out “6 April 2023” and insert “6 April 2026”.
James Murray
Clause 20 and our amendment 23 relate to the social investment tax relief, which was introduced in 2014 to encourage investment in qualifying social enterprises and trading charities. It offers investors a range of tax reliefs, including income tax relief and CGT holdover relief, on gains reinvested in qualifying enterprises. This relief originally contained sunset provisions that would have terminated it on 26 April 2019. The sunset was extended in 2017 to 6 April 2021, and now clause 20 is extending the operation of the scheme further, to investments made in enterprises on or before 5 April 2023.
We support the decision to extend the life of this relief, which has been called for by the social investment sector, stakeholders such as the Co-operative party, and the shadow Chief Secretary to the Treasury, my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson), during consideration of the Finance Bill 2020. However, we remain concerned that the Government need to be doing more to increase its take-up, which we note has been lower than expected. HMRC’s last statistics, released in May 2020, set out that since 2014—when the relief was launched— 110 social enterprises have raised funds of £11.2 billion through it. Indeed, the results of the Government’s 2019 call for evidence on the relief say:
“Around three-quarters of respondents reported difficulty in using SITR. Reasons given varied and included a lack of capital supply (even with the offer of tax relief) for the levels of demand; a lack of or unclear guidance; complex eligibility restrictions; and limited resources within social enterprises to manage SITR processes and investments.”
Concerns about low take-up are shared by the Chartered Institute of Taxation, which recognises that although some obstacles to using the social investment tax relief to invest in social enterprises have been removed, the effect is yet to bed in, and significant other barriers to take-up remain. I would therefore be grateful if the Minister set out what the Government are doing to improve take-up of the social investment tax relief, and whether they would consider consulting more widely on how investment in social enterprises can be facilitated. Alongside concerns that the relief is overly complex for the smaller organisations it is designed to support, analysis by the Chartered Institute of Taxation also raises concern that this relief is less well suited to investments made by way of loans, even though, anecdotally, loans to social enterprises are more common than equity investment. To understand the situation in relation to loans better, I would be grateful if the Minister informed us what proportion of the £11.2 million raised through the social investment tax relief since 2014 have been in the form of loans.
More widely, the Chartered Institute raised concerns that a two-year period to address the current barriers is unlikely to be sufficient and might put off some long-term investors. We therefore tabled amendment 23 to encourage the Government to consider and set out their view on amending the Bill to include a longer extension to the relief. I would be grateful for the Minister’s views on how long the relief should be extended.
Jesse Norman
I thank the hon. Gentleman for his questions, to which I shall respond when I have described how the clause works.
Clause 20 extends the operation of social investment tax relief for two years, until 5 April 2023. This will continue the availability of income tax relief and capital gains tax reliefs for investors who make investments in qualifying social enterprises. This measure ensures that the Government will continue to support social enterprises in the UK that are seeking patient capital for growth.
SITR encourages investment in social enterprises by offering income tax and capital gains tax reliefs to individual investors who subscribe for new shares, or make a new debt investment, in qualifying enterprises. Between 2014 and 2018-19, 110 social enterprises used SITR to raise £11.2 million in investment—a much lower engagement than originally anticipated. In line with commitments made when SITR was expanded in 2016, the Government conducted a review of the scheme last year, including through a call for evidence. Following the review, the Government now propose to extend SITR’s sunset clause from April 2021 to April 2023.
James Murray
I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 20 ordered to stand part of the Bill.
Clause 21
Workers’ services provided through intermediaries
Question proposed, That the clause stand part of the Bill.
Jesse Norman
The clause relates to workers’ services provided through intermediaries and makes technical changes to the off-payroll working legislation. The off-payroll working rules exist to ensure that a contractor who works like an employee, but through a personal service company, pays broadly the same amount of tax as those who are directly employed. The rules ensure fairness between individuals who work in similar ways but through different structures.
This is not a new tax. The changes legislated for last year improve compliance with existing rules by transferring the responsibility for determining whether the rules apply from the contractor’s personal service company to their client and have taken effect from April 2021 in the private and voluntary sectors. The changes were implemented in the public sector in 2017. Reform was legislated for in the Finance Act 2020 and came into effect on 6 April this year, as planned.
The main change we are making in this clause is to address an issue raised late last year by stakeholders. A small section of the legislation introduced in the Finance Act 2020 and intended to prevent people from avoiding the rules through the use of artificial structures applied more broadly than was intended. This had the effect that some workers who were not intended to be within the scope of the rules would be caught. This would have placed obligations under the off-payroll working rules on a wider range of clients and engagements than was intended from 6 April 2021. The Government announced on 12 November 2020 that they would make a technical change in this Finance Bill to ensure that the legislation reflected the policy intent.
HMRC has worked closely with stakeholders to find a solution that both prevents avoidance and ensures that the legislation does not apply beyond the scope of the policy intent. The main technical change that we are making in this clause will ensure that the rules do not apply when the worker has no interest in the intermediary company or, when they have a less than material interest in the intermediary, their fee is already taxed wholly as employment income.
The clause also proactively introduces a targeted anti-avoidance rule, or TAAR, to future-proof the rules and further minimise any risk of contractors being drawn into avoidance arrangements. This will ensure that unscrupulous parties cannot exploit these conditions in order to avoid the rules.
The Government are also making two minor related technical changes, which were requested by stakeholders, to make it easier for businesses to operate the rules and to ensure that parties who provide fraudulent information are held responsible. Currently, workers are asked to inform their client whether their intermediary meets the conditions that mean the rules need to be considered. If the worker does not provide this information, clients must assume that the intermediary is in scope. This change will make it easier for parties to share information by allowing the intermediary, as well as the worker, to confirm to the client whether the off-payroll working rules need to be considered.
The second change amends the provisions related to fraudulent information. This will allow HMRC to take action against any UK-based party in the labour supply chain that provides fraudulent information, for example by claiming that an intermediary is out of the scope of the rules when they are not. Currently, the liability would rest with the worker if they, or someone connected to them, provided fraudulent information. This change ensures that the liability rests with any UK-based party in the labour supply chain that provided the fraudulent information. This protects others in the supply chain from being liable for underpaid tax and national insurance contributions when they have acted on this fraudulent information in good faith.
The clause ensures that the off-payroll working reform works as intended from 6 April, and it introduces minor, but helpful, technical changes that were recommended by stakeholders. These changes had effect from 6 April, when the off-payroll working reform took effect.
James Murray
As we have heard, clause 21 introduces a series of changes that relate to workers’ services provided through intermediaries, the provisions of which we support.
First, the clause makes amendments to the off-payroll working legislation in chapter 10 part 2 of the Income Tax (Earnings and Pensions) Act 2003, to address the unintended widening of the conditions that determine when a company is an intermediary and is subject to chapter 10. The off-payroll working rules were amended by the Finance Act 2020, including an amendment that sought to prevent potential avoidance of the rules by workers diluting their shares in these intermediaries, so they did not have a material interest. However, this amendment widened the determining conditions applicable to companies beyond policy intent. The clause limits the scope of these conditions by removing those engagements that would be unintentionally caused by the rules, restoring the original policy intent.
The clause further introduces a targeted anti-avoidance rule that seeks to prevent avoidance arrangements trying to circumvent the conditions for a company or partnership to use intermediaries for the purposes of chapter 10. As the Minister will know, we support measures that seek to address avoidance.
The clause introduces two further technical amendments. The first makes it easier for parties in a contractual chain to share information relating to the off-payroll working rules. The second places the loss liability for the tax on the party in the labour supply chain that provided the fraudulent information. It is right that those in a supply chain should be held responsible for providing fraudulent information.
As the Minister will know, other hon. Members raised concerns relating to clause 21 in Committee of the whole House earlier this week. My hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who is co-chair of the all-party parliamentary loan charge group, asked whether the Government would consider amending the clause
“to allow only compliant umbrella companies to exist.”—[Official Report, 20 April 2021; Vol. 692, c. 912.]
In the interest of all views on this debate being fully considered, will the Minister set out his assessment of the impact that change would have?
Jesse Norman
I thank the hon. Gentleman for his question and for his support for this important legislation. Although not related to this clause, I thank him for the support the Labour party has given on the issue of the loan charge. These are important ways to curb forms of abuse of the rules that may mean people do not pay appropriate levels of tax, so I am grateful for that support.
On the last point that the hon. Gentleman raised, I am afraid that it was an unfortunate and slightly misinformed debate in Committee of the whole House, in part because there was a suggestion that somehow clause 21 benefited only umbrella companies and should be struck out, and that the effect of striking it out would somehow mean that workers would receive agency rights by working through agencies’ payrolls. In fact, that is not correct. Clause 21 has no bearing on workers receiving rights, and it also ensures that the rules apply correctly to agencies, and indeed to a wider group, such as employees on secondment. The effect of the amendment proposed in Committee of the whole House would have been to gut the legislation, which is why the Government opposed it.
Question put and agreed to.
Clause 21 accordingly ordered to stand part of the Bill.
Clause 22
Payments on termination of employment
Alison Thewliss
This technical amendment would ensure that, in new subsection 402D(6A) of the Income Tax (Earnings and Pensions) Act 2003, which is to be inserted by clause 22(7), the method of calculating post-employment notice pay for certain employees paid by equal monthly instalments whose post-employment notice period is not a whole number of months continues to be an alternative method that can be used if it benefits the employee, rather than being compulsory.
In common with the Institute of Chartered Accountants in England and Wales, we feel that the provisions do not match the intended policy. The institute has recommended that clause 22(7)(c), which inserts new subsection 402D(6A) into the Income Tax (Earnings and Pensions) Act 2003—I will be sending my notes to the Hansard people, given all the figures and facts—needs to make it clear that the method set out for calculating post-employment notice pay is an alternative that can be used, rather than something that must be used. That would make the legislation on termination payments align with the policy intent stated in the Bill’s explanatory notes, the “Notes on the Finance Bill resolutions 2021”, and HMRC’s existing guidance.
Clause 22 amends the income treatment of termination payments. As explained in paragraph 11 of the explanatory notes, clause 22(7)(c) provides for the new subsection to be inserted into the Income Tax (Earnings and Pensions) Act 2003. The clause will apply to individuals who have their employment terminated and receive a termination payment on or after 6 April 2021. We understand that the Institute of Chartered Accountants in England and Wales has identified some technical difficulties with the proposals. It believes that the intention of legislating this point is to put into law the ability to choose to adopt the alternative method, which is in line with HMRC’s policy of enacting extra statutory concessions and other easements following the Wilkinson case. If enacted, however, the Finance Bill will make it compulsory, so we recommend our amendment, and we ask the Government to give greater consideration to it. It is a very technical and detailed amendment, as I have said already, but I urge the Minister, if he cannot accept it today, to bring it back at a later stage.
James Murray
As we know, clause 22 focuses on post-employment notice pay, which is the part of a termination payment that is treated as being a payment in respect of the employee’s notice period, and that is subject to income tax and to employees’ and employers’ national insurance contributions. The clause amends the income tax treatment of termination payments in two ways. First, it provides a new calculation for the post-employment notice pay for employees who are paid by equal monthly instalments and whose post-employment notice period is not a whole number of months. That will help avoid excessive tax charges, and we support it.
Secondly, the clause aligns the tax treatment of post-employment notice pay for individuals who are non-resident in the year of termination of their UK employment with the treatment for all UK residents. Currently, post-employment notice pay is not chargeable to UK tax if an employee is non-resident for the tax year in which their employment terminates. This measure will ensure that non-residents are charged tax and national insurance contributions on post-employment notice pay to the extent that they have worked in the UK during their notice period. The change affects only individuals who physically performed the duties of their employment in the UK. That non-residents should make tax contributions on post-employment notice pay for the time that they worked in the UK during their notice period is a fair change, so we support the measure.
Kemi Badenoch
Clause 23 makes changes to reduce the van benefit charge—the VBC—to zero for employees who are provided with a company van that produces zero carbon emissions. The van benefit charge applies where an employee is provided with a company van by their employer that they use privately, other than for ordinary home-to-work commuting.
At Budget 2014, the Government announced that the van benefit charge for zero-emission vans would be a percentage of the flat-rate van benefit charge for conventionally fuelled vehicles until April 2020. Those changes were legislated for in the Finance Act 2015. At Budget 2015, the Government announced that the planned increases to the percentages for 2016-17 and 2017-18 would be deferred to 2018-19, and the percentages would increase by 20% for each subsequent tax year, rising to 100% in 2021-22. Those changes were legislated for in the Finance Act 2016.
The changes made by clause 23 will reduce the van benefit charge to zero from 6 April 2021 for all company vans that emit zero carbon emissions, giving those vehicles preferential tax treatment over conventionally fuelled vehicles. The Government announced the measure at Budget 2020 to incentivise the uptake of zero-emission vans and to help the UK to meet its legally binding climate change targets.
Transport is now the largest sector for domestic UK greenhouse gas emissions, and a significant proportion of that is accounted for by road transport. Moreover, vans tend to do more mileage and are more polluting than cars. By reducing the level of the tax charge that would otherwise be applicable, the change outlined in the clause will incentivise the uptake of zero-emission vans and support the Government’s environmental commitments.
James Murray
As we have heard, clause 23 seeks to amend the law in relation to the van benefit charge, a taxable benefit that arises when an employee is provided with a company van that is also used at times for personal journeys. We know that from 2021-22 the cash equivalent of the van benefit charge for zero-emission vans is nil. This applies only to those vans that cannot emit carbon dioxide under any circumstances when being driven.
The Government announced their intention to introduce the policy change in the 2020 spring Budget. As the measure seeks to incentivise the uptake of zero-emission vans, we support it standing part of the Bill.
Question put and agreed to.
Clause 23 accordingly ordered to stand part of the Bill.
Clause 27
Optional remuneration arrangements: statutory parental bereavement pay
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss new clause 2—Optional remuneration arrangements: statutory parental bereavement pay (review)—
“(1) The Secretary of State shall, before 1 April 2022, publish a report on the impact of section 27.
(2) The report in subsection (1) shall include consideration of the impact on—
(a) the take-up of statutory parental bereavement pay,
(b) revenues lost or gained due to tax avoidance, and
(c) productivity levels within the UK economy.”
This new clause would require the Secretary of State to publish a report about the impact of the measures in section 27, including take-up of statutory parental bereavement pay.
Alison Thewliss
We of course welcome all moves to support parents through the difficult time of bereavement. Our new clause would require the Secretary of State to publish reports on the uptake of statutory bereavement pay. It is important that we encourage people to take it up and that we let people know it is available to them. If the Government are not monitoring that, it is difficult to tell how effective the policy is.
Bereaved parents must be given the space and the time to grieve at a time of unimaginable tragedy. A lot will not know that they are entitled to this provision should the worst happen. We welcome the Government’s move to introduce a statutory requirement for people in the event of the death of a child, and we welcome the provisions more generally. Our aim is to increase the uptake of the payment and public knowledge of it.
In Scotland, we are certainly doing everything we can, within the constitutional and financial constraints placed on us, to support parents. We are increasing funeral support payments to reflect the cost of living. The 2020-21 Budget includes £1.3 million for funeral support payments in Scotland, increasing the standard rate from £700 to £1,000. The UK Government have not built the cost of inflation into their awards, but we will certainly be doing that for ours. It is important to take that cost into account when considering the whole package of support that can be delivered for bereaved parents.
Finally, my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) has been pushing for an increase in bereavement leave for everybody in all circumstances, particularly given this last year, during which things have been so difficult for so many people across the country. Many employers still do not give the bereavement leave that they should when people are in such circumstances. I urge the Government to consider expanding bereavement leave to everybody in all circumstances. While it is incredibly important for parents, it is important that everybody has the time, space and financial backing to grieve. Sadly, many people do not have that vital support.
James Murray
As we have heard, statutory parental bereavement pay was introduced in April 2020. The measure in clause 27 has been proposed to ensure that a payment will not be treated as a variation in contract for certain long-term salary sacrifice arrangements, so that recipients of such payments are not disadvantaged. The clause will bring statutory parental bereavement pay into line with other benefits.
Without the change, if a parent takes such leave, the time they have taken off will factor into the calculation of a salary sacrifice arrangement. In effect, taking statutory parental bereavement pay would lessen their entitlement to salary sacrifice arrangements.
Exemptions for other benefits exist, but they were made before the introduction of statutory parental bereavement pay, so the latter is not included. Clause 27 will include it, bringing it into line with other benefits. That is sensible, and Labour supports the clause.
Jesse Norman
I am not sure there is a need to respond. I thank the hon. Member for Glasgow Central for her comments and the shadow Minister for the Opposition’s support.
Question put and agreed to.
Clause 27 accordingly ordered to stand part of the Bill.
Clause 29
Collective money purchase benefits
Question proposed, That the clause stand part of the Bill.
James Murray
Clause 29 relates to the tax treatment of collective defined contribution schemes as introduced by the Pension Schemes Act 2021. We support the introduction of CDC schemes, and schedule 5 sets out in detail how they will be treated for tax purposes.
As the House of Commons Library explains, in CDC schemes both the employer and the employee contribute to a collective fund from which retirement incomes are drawn. The funding risk is borne collectively by the individuals whose investments make up the fund. In a similar way to a defined contribution scheme, the employer carries no ongoing risk.
The Opposition played a crucial role alongside trade unions to allow the Royal Mail to set up a CDC pension agreement with the Communication Workers Union in November 2018. We also warned, during the passage of the Pension Schemes Act, that we need CDC schemes to avoid the same pitfalls as defined benefit schemes as they relate to intergenerational fairness. CDC was first identified as a possible solution for Royal Mail workers being transferred to a less generous defined contribution scheme in 2017, which might not have provided sufficient income in retirement. The principle of a CDC scheme was agreed, and a specific Royal Mail CDC scheme was designed and modelled.
Work by Willis Towers Watson actuaries suggests that the CDC scheme will on average produce 70% more for an individual than a defined contribution scheme, and 40% more, currently, than a defined benefit scheme, according to the CWU. The scheme would replicate the old defined benefit scheme in design, producing a wage for retirement generated by a CDC and a guaranteed lump sum.
Although the CDC in different forms is used in other countries, such as Canada, Denmark and the Netherlands, no scheme of its type has previously existed in the UK. Legislation was therefore required. The first CDC scheme, in Royal Mail, is expected to be launched later this year, now that the Pension Schemes Act has been passed. Employers in the UK will now have an option to offer three, rather than two, types of scheme: defined contribution, defined benefit and collective defined contribution.
Given that the design of the CDC scheme is entirely new, we recognise that the clause will ensure that they may function in the same way as other schemes in relation to existing pensions tax treatment such as the annual allowance. Our new clause 9 simply asks that the Treasury lays before the House within 24 months of the commencement of the first collective money purchase pension scheme a review of the impact of clause 29 and schedule of 5, including on the distribution of benefits within collective money purchase schemes according to the age of members of the scheme.
CDC schemes are new. As the Minister has agreed, it is important that we ensure intergenerational fairness. I would therefore welcome his ongoing consideration as regards carrying out such a review.
Jesse Norman
I thank the hon. Gentleman for his comments. I anticipated them in my remarks. I would say that, as he has indicated, the issue was carefully discussed and reviewed—rightly so—in the passage of the Pension Schemes Act 2021. The importance of there being no difference in treatment between different cohorts and age groups of scheme lenders was made clear, and it was made clear that the regulations would cover that. That will be required by law, and it will fall not to HMRC or the Government, but to the independent Pensions Regulator to adjudicate on the effectiveness of the scheme.
Question put and agreed to.
Clause 29 accordingly ordered to stand part of the Bill.
Schedule 5
Pension schemes: collective money purchase benefits
Amendments made: 17, to schedule 5, page 116, line 25, after “36(7)(b)” insert “or 87(7)(b)”.
This amendment ensures that the new paragraph 2(9) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.
Amendment 18, to schedule 5, page 116, line 32, after “36(7)(b)” insert “or 87(7)(b)”.—(Jesse Norman.)
This amendment ensures that the new paragraph 2(10) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.
Schedule 5, as amended, agreed to.
Clause 34
Repeal of provisions relating to the Interest and Royalties Directive
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is a small technical clause and I will not spend long on it. The clause repeals legislation that gave effect to the EU interest and royalties directive in UK law. The change will mean that the taxation of EU companies will be aligned with the way in which the UK taxes companies in the rest of the world, meaning that the taxation of intra-group payments of interest and royalties will be governed solely by the reciprocal obligations in our double taxation agreements. The clause removes from our law an obligation that we are no longer bound to apply and ensures that all foreign companies are subject to the same rules regardless of where they are resident.
James Murray
We do not oppose the clause, which repeals legislation that gave effect to the EU interest and royalties directive in UK law, and which will ensure that companies resident in EU member states will cease to benefit from UK withholding tax exemption now that the UK no longer has an obligation to provide relief. As a result, EU companies will no longer receive more favourable treatment than companies based elsewhere in the world and the UK’s ability to withhold tax and cross-border payments of annual interest and royalties will be governed solely by the reciprocal obligations in double taxation arrangements. We understand what the clause sets out to do and do not oppose its standing part of the Bill.
Question put and agreed to.
Clause 34 accordingly ordered to stand part of the Bill.
Clause 35
Payments made to victims of modern slavery etc
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is an important clause. It exempts financial support payments made to potential victims of modern slavery and human trafficking from income tax. The UK has a legal obligation, under the Council of Europe convention on action against trafficking in human beings, to assist victims of modern slavery and human trafficking. Financial support payments have been made to victims of modern slavery and human trafficking since 1 April 2009, when the trafficking convention came into force in the UK.
When a potential victim of modern slavery and human trafficking is identified, they are considered under the national referral mechanism. This is a framework for identifying victims of modern slavery and human trafficking and it ensures that they receive appropriate financial support. In the absence of a specific exemption, the payments made by the UK Government and the devolved Administrations to potential victims while they are assessed under the national referral mechanism are charge- able to income tax. The changes made by clause 35 mean that payments made from 1 April 2009 to potential victims of modern slavery and human trafficking are exempt from income tax. It is important to note that HMRC has not made any income tax deductions from payments already made to potential victims.
These changes confirm the Government’s commitment to assist potential victims of modern slavery and human trafficking under the trafficking convention. The clause provides clarity that financial support payments made to potential victims are exempt from income tax. I commend the clause to the Committee.
James Murray
We are pleased to support this important clause, which, as we have heard, introduces an income tax exemption for payments made to victims of modern slavery and human trafficking. As we also heard, the UK has an obligation under the Council of Europe convention on action against trafficking in human beings to assist victims of modern slavery and human trafficking in their physical, psychological and social recovery, including material assistance. The exemption from income tax will have effect from 1 April 2009, when financial support payments started. We welcome this measure, being wholly relieving and with retrospective effect, and are pleased to support its standing part of the Bill.
Alison Thewliss
I rise to support the clause; I think it is absolutely the right thing to do. May we have more information on how many people have received such payments since 2009? It would be useful to have a picture of how many people have benefited from this.
Jesse Norman
Clause 37 makes technical amendments to the corporate loss relief rules introduced in 2017. These ensure that the rules function as originally intended. They protect revenue by preventing companies from claiming excessive loss relief.
When a company makes a loss, it can carry forward that loss and use it to offset its taxable profits in future years. The Finance (No. 2) Act 2017 reformed the UK’s loss relief regime. There were two main effects of that reform. First, the amount of profit that can be relieved by carried-forward losses is restricted to 50%, subject to a £5 million deductions allowance. Secondly, losses arising after 1 April 2017 can be carried forward and relieved more flexibly as they can be set against different types of income and against profits of other members of the same group. The loss restriction ensures that companies cannot use carried-forward losses to reduce their tax bill to nothing when they are making substantial profits.
Legislation for the new loss relief rules needed to be sufficiently detailed to ensure that they were robust in relation to the complex arrangements of large companies operating across a diverse set of activities. The Government have since identified limited circumstances where the rules are not functioning as intended.
The clause ensures that groups can still have access to the £5 million allowance following a corporate acquisition or demerger. This will allow those groups access to the correct amount of loss relief to which they are entitled and as was originally intended. The clause also makes several minor technical amendments to the loss reform rules. It ensures: first, that anti-avoidance rules that apply following a “change of ownership” operate correctly; secondly, that the technical calculations that determine the amount of losses that can be set against profits apply as intended; and thirdly, that the rules governing how the £5 million allowance is allocated across corporate groups applies as originally intended and in a way that will reduce the administrative burdens on groups.
Due to the £5 million allowance, some 99% of companies are not financially affected by the carried-forward loss restriction. That will not change as a result of these amendments. Some companies will also benefit from the simpler rules for calculating their loss relief restriction and, in some cases, companies will benefit from a reduced administrative burden.
James Murray
We do not oppose clause 37, which amends the loss relief legislation and ensures that the relevant part of the Corporation Tax Act 2010 meets the policy objective of restricting relief for certain carried-forward losses. Schedule 8 allows certain groups to access an allowance to which they are entitled following acquisition or demerger. The schedule also makes further amendments to the transfer of trade provisions where there has been a change of ownership, group relief for calculation of loss restriction and allocation of the deductions allowance and group allocation statement submission requirements. As these amendments have been made to ensure that the legislation works as intended and to reduce administrative burdens, we do not oppose them.
Question put and agreed to.
Clause 37 accordingly ordered to stand part of the Bill.
Schedule 8 agreed to.
Clause 38
Corporate interest restriction: minor amendments
Question proposed, That the clause stand part of the Bill.
Jesse Norman
Clause 38 makes two changes to ensure that the corporate interest restriction rules work as intended. The Government introduced these rules in 2017 to counter base erosion and profit shifting by multinational groups. The rules restrict the ability of large businesses to reduce their UK taxable profits through excessive interest and other financing costs.
The first change applies from 1 July 2020 and clarifies the interaction between the rules governing the interest restriction, real estate investment trusts and the territorial scope of corporation tax. From 6 April 2020, the UK property rental business of non-resident companies within a UK real estate investment trust group comes within the charge to corporation tax rather than income tax. The proposed change ensures that such a non-resident company will still face the consequences of any interest disallowance, even if it decides to allocate its interest disallowance to a residual business rather than to its UK property rental business.
The second change applies from 1 April 2017 and deals with an administrative matter. As part of the application of the interest restriction rules, a group reporting company is required to file an interest restriction return. The proposed change ensures that no penalties will arise for the late filing of a return where there is a “reasonable excuse” for the failure. This exclusion is included within the corporation tax self-assessment regime and should apply in the same way to the interest restriction regime.
James Murray
We do not oppose clause 38, which makes technical amendments to the corporate interest restriction rules in part 10 of schedule 7A to the Taxation (International and Other Provisions) Act 2010 to ensure that the regime works as intended. We recognise that the amendments are minor, have come about as a result of engagement with the affected businesses and are necessary for the regime to work as intended.
Question put and agreed to.
Clause 38 accordingly ordered to stand part of the Bill.
Clause 39
Northern Ireland Housing Executive
Question proposed, That the clause stand part of the Bill.
Jesse Norman
This is a small but important measure. Clause 39 exempts the Northern Ireland Housing Executive from corporation tax, bringing it into line with state-funded housing providers and local authorities elsewhere in the UK. It will save the Northern Ireland Housing Executive millions of pounds in corporation tax payments. It is necessary to ensure that it is subject to the same tax treatment as other housing authorities elsewhere in the UK.
James Murray
The Whips will be relieved to hear that I have a very short contribution to make on this clause. The providers of state-funded housing in England, Wales and Scotland are exempt from corporation tax as they are considered to be local authorities for corporation tax purposes. However, the Northern Ireland Housing Executive was established in such a way that it did not meet the definition of local authority for corporation tax purposes. The clause introduces a new corporation tax exemption for the Executive and it brings the situation in Northern Ireland into line with the other nations of the UK. We support the clause standing part of the Bill.
Question put and agreed to.
Clause 39 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(David Rutley.)
Finance (No. 2) Bill
James Murray ExcerptsTuesday 20th April 2021
(3 years ago)
Commons ChamberRead Full debate Finance Act 2021 View all Finance Act 2021 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 20 April 2021 - large print - (20 Apr 2021)
James Murray (Ealing North) (Lab/Co-op)
I will speak to new clause 29, tabled in my name and the names of the Leader of the Opposition and other right hon. and hon. Friends. It is timely to consider what the Government are doing to tackle tax avoidance and tax evasion today, with this month marking five years since the publication of the Panama papers. Those papers revealed the true global scale of tax avoidance and tax evasion and the need for comprehensive and effective action to tackle them. Of course, the clauses we are considering are far more limited in scope.
The Minister set out that clause 30 relates to the abuse of the construction industry scheme rules, clause 36 makes amendments to the corporation tax rules for hybrids and other mismatches and clause 41 amends the anti-avoidance rule when claiming relief for gifts of business assets. More widely, clauses 115 and 117 to 121 relate to other measures, including penalties for the promoters of tax avoidance and giving HMRC new powers to obtain information. We will not oppose those measures today.
However, our concern about the Government’s approach is centred not so much on what those clauses cover but what the Bill, and the Government’s approach more widely, fail to do. Our concern is that, faced with the challenges of tax avoidance and tax evasion, and with the public clearly wanting to see definitive action from the Government, Ministers have presented a Bill of measures that are relatively minor and technical. Indeed, as the House of Commons Library analysis of the Bill concluded, it would seem that the Exchequer impact of these changes will be minimal as they are not included in the Budget report costings.
The truth is that three Conservative Prime Ministers and five Conservative Chancellors have failed to tackle tax evasion and aggressive tax avoidance. The Government have repeatedly promised to act, but their proposals in the Bill fall far short of the change we need. That is why our new clause would require the Government to review the impact of provisions in the Bill relating to the levels of tax avoidance and tax evasion and the size of the tax gap, and to publish regular reports setting out their findings. The Government must not be allowed to hide behind warm words on this matter. They need to be transparent about the impact, or lack thereof, that their proposals will have.
We also welcome the amendment in the name of my right hon. Friend the Member for Barking (Dame Margaret Hodge), which seeks to treat promoters of tax avoidance schemes which are abusive as acting dishonestly for the purposes of criminal prosecution of tax offences. This kind of change is crucial if we are to shift towards more criminal prosecutions for the promoters of tax avoidance schemes, and to shift the gear of the Government’s approach.
At the moment, where tax avoidance has occurred, the system lands liabilities on the tax payers, who are usually not tax experts and may have been falsely told that a tax avoidance scheme is lawful. In contrast, the promoters of tax avoidance schemes are allowed far too often to get away with it. We therefore welcome any efforts to strengthen penalties for the promoters of failed tax avoidance schemes. But we have seen nothing from the Government today to raise the stakes and to make greater use of the powers HMRC already has to bring criminal prosecutions against the promoters of fraudulent tax schemes.
We know that HMRC recognises its power to use criminal investigation approaches to tackle the promotion and enabling of tax avoidance schemes, but in a letter the Financial Secretary sent me in January this year, he admitted that, since the formation of HMRC’s fraud investigation service in 2016, only 20 individuals have been convicted for offences relating to arrangements that have been promoted as tax avoidance. An average of around four people a year does not feel like a concerted effort.
Catherine West (Hornsey and Wood Green) (Lab)
My hon. Friend is making a great speech. Does he agree that it seems disproportionate that more people, in an adjusted sense, tackle benefit fraud than tackle big business or dodgy individuals who are taking money from the public purse?
James Murray
I very much agree. My hon. Friend makes an important point about the Government’s priorities, and about the lack of priority they give to going after the promoters of tax avoidance schemes and those who evade paying tax, in comparison to other actions in Government. We are seeking to put pressure on them today to address that imbalance.
HMRC’s criminal investigation policy states:
“Criminal investigation will be reserved for cases where HMRC needs to send a strong deterrent message”.
However, we know that fraud through the promotion of tax avoidance continues at scale, involving at least an estimated £20 billion in 2018-19, so it is hard to imagine why Ministers would not support a stronger deterrent message being sent by the greater use of criminal prosecutions.
Part of the answer may be the understaffing of HMRC. In a response on 11 January this year to a parliamentary question, the Financial Secretary admitted that the number of full-time equivalent employees at HMRC had fallen since 2010 from 67,553 to 58,467. That is a reduction of more than one in seven. The question of capacity in HMRC and the impact that that may have on its ability to tackle tax abuse must not be ignored. The Tax Justice Network refers to the fact that a member of staff in the compliance business stream at HMRC brings in on average over £900,000 a year on a £30,000 salary. It has pointed out that the Chancellor’s additional investment in HMRC staffing is directed towards tackling fraud related to covid spending, while previous funding increases have supported HMRC’s Brexit capacity. Its view is that the Chancellor must invest further in HMRC’s core compliance capacity.
Furthermore, beyond the questions around tackling the promoters of tax avoidance, the Bill is also silent on other important areas that need to be pursued, such as efforts to set up a register of overseas entities. Legislation is needed to establish a register that would show exactly who owns the foreign companies buying up British property. This would serve as a key part of any clampdown on money laundering.
The then Prime Minister, David Cameron, first announced plans for this in 2015, yet more than five years later, the legislation is nowhere to be seen. I bet he has not been in touch with Ministers for action over that. I would welcome the Minister using his speech at the end of this debate as an opportunity to explain whether the promised deadline of introducing legislation to set up a register of overseas entities by 2021 will be missed. If he is silent on this matter, we will take that as a yes.
I would like to use the opportunity of a discussion on tax avoidance to ask the Treasury ministerial team again to confirm whether the Chancellor backs plans for a global minimum corporate tax rate, as proposed by the US President. When I asked the Minister’s colleague, the Exchequer Secretary, to address this point during the Bill’s Second Reading last Tuesday, she did not respond, which I am sure was an oversight. I would therefore welcome the Financial Secretary addressing this question directly in his closing speech, to avoid any misperception that he and his colleagues are deliberately avoiding the question.
Our criticism of the Government in relation to tax avoidance and evasion centres not so much on what the measures in the Bill would achieve but rather on the ways in which the Bill and the Government’s wider approach fall short. The Government lack a tough and comprehensive approach to prosecuting the promoters of tax avoidance, to going after international money launderers and to pursuing those who seek to evade tax. We know that the impact of the measures in the Bill will be relatively minor and technical. The public deserve to have the Government present clearly and transparently what effect the measures in the Bill will have, and our new clause simply requires that their impact on tax avoidance, tax evasion and the size of the tax gap should be reviewed and laid in public before this House.
Throughout the Minister’s statements and comments, there is a clear pattern that the Government favour minor technical amendments to legislation on this matter, rather than upping their game and truly calling time on the practices that the public clearly want to see ended. Today they have an opportunity, by supporting our new clause, to show that they understand the need to be clear with the public, to recognise the need to strengthen their approach on this matter, and to commit to coming back with the resources and legislation that are needed to truly make a difference.
Mr Andrew Mitchell (Sutton Coldfield) (Con)
I want to make a few points, principally on amendment 77. Perhaps I can start by saying that I do not agree with the Opposition spokesman, who has just addressed the House so eloquently, that the Government have been slow to tackle tax abuse and tax fraud. I should, at the outset, draw the House’s attention to my entry in the Register of Members’ Financial Interests. I think the Government have been very good at tackling tax fraud, starting in 2010 when this Conservative Government first came into office. The reforms that were introduced by George Osborne, the Chancellor of the Exchequer, deliberately targeted tax abuse and set up a number of measures to try to ensure that we clamp down on it, as it is common cause on both sides of the House for us to do.
Where I do agree with the Opposition spokesman is in his reference to the Panama and paradise papers. That excellent work by journalists from, I think, The Guardian and the BBC exposed the fact that money laundering, dirty money and abuse in that sector were far more rampant than we realised. That is one of the reasons why the right hon. Member for Barking (Dame Margaret Hodge) and I have made so much of an effort in this House, along with colleagues on both sides of the House, to try to clamp down on money laundering and dirty money and ensure that we have sunlight as the best disinfectant on all of this. That is why we introduced the open public registers of beneficial ownership for the British overseas territories, and why we strove so hard to persuade the Crown dependencies—successfully, now—to introduce those same open registers. That is the way in which we stop kleptocrats, bent politicians, warlords and corrupt businesspeople from stealing from the Exchequer but also, of course, from Africa and Africans. That was the great benefit of the paradise and Panama papers: they showed so clearly the extent of what was going on.
I thought that the Financial Secretary made some very good points about amendment 77. In general, I do think that the Revenue has enough power over the private citizen in the laws of the land as they stand at the moment. However, the point I would make to the Financial Secretary—he has been most receptive in listening to the right hon. Member for Barking and me about this—is that eternal vigilance is required. As we have seen, and as amendment 77 draws attention to, there is an inequality of arms in this matter. Advisers who set up these schemes often have an aura of authority, because they are lawyers, accountants and professional people, which those whom they advise may not be.
I want more to be done to ensure that, where these bad schemes of tax evasion are put together by professional advisers, they do not get off scot-free while the people they put into these devices, or talk into going into them, take the rap. It is not right that they should just lose the fees that they earn, which I think is currently the position: we should toughen the financial penalties. The Minister handles these matters very well, and I know that he wants this to be more than a senior common room debate. I know that he is conscious of the balance between the rights of the individual and making sure that people are not able to evade tax. I know that he does think seriously about that, so I would just urge him to always keep an open mind on this issue.
This is a familiar theme. In this year of Britain’s presidency of the G7, we should remember the work that was done by George Osborne for the last G8, at which he championed the open registers that were introduced in Britain in 2016. It is a proud achievement of this Conservative Government that, at the last G8, they moved the world towards focusing on these illicit flows of money, and this year with the G7, I hope that the Minister will consider it important as well. I completely accept that we are not going to divide the Committee on amendment 77. What the Minister said about the amendment was extremely constructive and I hope he will feel it right for the House to return to this matter on very regular occasions, in pursuit of what unites us all: that people should pay their fair levels of tax.
Finance (No. 2) Bill
James Murray ExcerptsMonday 19th April 2021
(3 years ago)
Commons ChamberRead Full debate Finance Act 2021 View all Finance Act 2021 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 19 April 2021 - large print - (19 Apr 2021)
Jesse Norman
The hon. Gentleman will be pleased to know that I maintain a strong dialogue, through officials, and from time to time in person, with the LITRG and I have no doubt that the input it has given has been carefully considered in this regard. If he would care to write to me with his specific concern, I would be happy to pick that up as well.
It is right that HMRC has powers to tackle fraud and abuse of the self-employment income support scheme and that the Government provide legal clarity that SEISS grants are liable for income tax in the year of receipt. Clauses 31 and 32 will allow payments made in support of individuals and businesses by the Government to meet their objectives as far as is possible. Opposition amendments 15 and 92 are already comprehensively addressed by existing policy, and I ask that Members do not press them to a vote. Clause 33 makes changes to ensure that the repayments of business rates relief are deductible for corporation tax and income tax purposes. This ensures that any repayments of support are dealt with appropriately.
Taken together, these measures will help the Government to continue to support individuals and businesses through the coronavirus pandemic, and they will also begin to put the public finances on a sustainable footing as we continue to move out of the pandemic. I therefore ask that clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 stand part of the Bill.
James Murray (Ealing North) (Lab/Co-op)
I rise to speak to the provisions standing in my name and those of the Leader of the Opposition and my right hon. and hon. Friends. On behalf of the Opposition, I will begin our detailed scrutiny of this Bill today by considering the impact it will have most immediately and most widely on people across the UK through its cuts to the money that families, in all their many forms, have in their pockets.
The opening clauses, 1 to 5, focus on income tax, with clause 5 freezing the personal allowance from 2022-23 through to 2025-26. That is no small change; the effect of the clause will be to make half of all people in the UK pay more tax from next year, and that is not the only measure the Government are taking that raids their pockets. We know that this Bill will make families pay more through the income tax changes next year, but it also does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now, it supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need help most, and of course it comes as the Government are choosing, in this year of all years, to take money from the pockets of NHS workers.
Sammy Wilson (East Antrim) (DUP)
Does the shadow Minister accept that the total take in income tax from individuals across the United Kingdom as a result of that one measure in one year will be £10 billion, and the total take over the next five years will increase by 25%? On the basis of the tax paid now, 25% more income tax will be paid collectively by individuals as a result of simply freezing thresholds.
James Murray
I thank the hon. Member for setting out some of the figures about the impacts of the Bill. I can add to that by saying that if we take the freezes to the personal allowances, along with the cuts to NHS workers’ pay, the council tax hike and the cut to universal credit, the real scale of the impact of the Government’s decisions becomes clear. A newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. It is plain wrong to hit families across the country in that way, but that sense of injustice is made all the more acute by the fact that that increase of costs to families comes years before any rise in corporation tax. At the same time, through the Bill the Government are letting tech giants stop paying tax altogether.
Last week, we voted against the Bill on Second Reading. Our reasoned amendment made it clear that key to the decision was its effect on family finances, through what it does and what it does nothing to stop. Today, we have the chance to stop the measure in the Bill that will make every income tax payer in the country pay more next year. We will seek a vote on clause 5, and I urge Conservative Members to join us in knocking this attack on families out of the Bill. By doing so, we would allow the Government to come back in their next Finance Bill with a fairer approach—one that does not put a misguided tax break for big business ahead of the money that families have in their pockets.
The other clauses that are being debated concern a range of other matters. Clauses 24 to 26 relate to the impact of covid on those benefiting from enterprise management incentives, cycle-to-work schemes and employer-provided coronavirus tests. Meanwhile, clause 31 exempts those receiving tax credits from paying income tax on the one-off covid-19 support scheme payment. Clause 32 clarifies the tax treatment of payments made under the self-employed income support scheme. Clause 33 provides for a relief where businesses repay covid support payments that are no longer required. Finally, clause 28 freezes the standard lifetime allowances for pensions immediately until 2025-26, while clause 40 does the same for the capital gains tax annual exempt amount and clause 86 does the same for inheritance tax thresholds.
Through our new clause 23, we ask that all the measures being considered today are considered for their effects on the finances of different households across the UK. We want to see a fair, progressive tax system in this country, so we want the Government to be transparent about the effect that their changes will have on people’s lives. The question of how changes affect the people of this country should always be the Government’s overriding concern when introducing changes to the tax system.
That is why our new clause would require that the Government analyse, review and be transparent about how their changes will affect households at different levels of income. It would further require Ministers to set out how the changes would affect people on the basis of age, disability, race, sex and other protected characteristics, and how they would affect people living in different nations and regions of the UK. There is significant evidence that women, those from black, Asian and ethnic minority communities, young people and disabled people have been disproportionately affected throughout the pandemic. The Budget report itself says:
“The economic impact of restrictions has not been felt equally. Staff in the hardest hit, largely consumer-facing sectors, such as hospitality, are more likely to be young, female, from an ethnic minority, and lower paid.”
It is therefore indefensible that not one of many supporting documents to last month’s Budget statement, nor the Bill, was an equality impact assessment.
Our new clause gives the Government a chance to right that wrong, but while that analysis is vital in setting out how different people will be affected by the Government’s choices, we know already that the biggest and most immediate impact of the changes in the Bill—and of the Government’s wider policy choices, on which the Bill is silent—will be to take money from the pockets of people across the country this month, this autumn and next year.
Andrew Griffith (Arundel and South Downs) (Con)
We hear from the hon. Gentleman that his party seeks to strike out the single largest intervention that will help the recovery, in the form of the super-deduction, which businesses have already told me is mobilising incremental investment. I would be fascinated to hear his view of new clause 7, which was put forward by many of his recent colleagues, including many of those who were on the Front Bench, to increase the rate of income tax to 55%. What does he think of that?
James Murray
The hon. Gentleman spoke about the super-deduction, but as that will be picked up in the next debate, I will focus now on the changes that are the subject of this debate.
Although we know that the Government will be making changes that affect different communities differently, the crucial point is that we know already what impact the Government’s policies will have this month, this autumn and next year. This month, households will feel the hit as the Government force local authorities to raise council tax in the middle of a pandemic, having broken their promise to give councils whatever was needed to help support people through the covid crisis.
This autumn, some of those families who need help will see the Government cut £20 a week off their universal credit, hitting them just as other covid support schemes are due to be winding down. This hit will come just when the Office for Budget Responsibility has predicted that unemployment will peak at 6.5%—2.2 million people—and this cut takes out-of-work support to its lowest level since the 1990s.
Next year, more than 30 million people in this country, including those earning only just enough to pay tax at all, will be forced to pay more as the freeze to income tax and personal allowances kick in. It tells us all we need to know about this Chancellor’s priorities that families will feel the impact of the Government’s choices years before businesses face an increase in corporation tax and at the very same time that some of the biggest firms in this country are offered a tax break that the Chancellor himself has boasted represents the biggest tax cut in modern British history.
We on the Labour Benches believe that our country needs a fair progressive tax system. We want to see greater investment in jobs, growth and addressing the long-term challenges that we face. We want to see families protected, not forced by this Government to shoulder the burden while tech giants see their tax bills reduced to nil. It is not just the Opposition who oppose the Government’s approach. Major international economic bodies such as the International Monetary Fund and the OECD agree that these tax rises on families are wrong. The hit to household finance is not only unfair but economically illiterate. Taking money out of people’s pockets now means that they will not spend it in small businesses or in local high streets, damaging the prospect of a recovery.
We will be voting for the Government to be clear and transparent about the effects of the measures in this Bill on all the different families and households across this country. While Conservative Members may not want to support all of our points, I would not be surprised if some did not feel deeply uncomfortable at the prospect of making families pay more through this Bill. We therefore hope to offer them a chance to join us in rejecting clause 5, halting this Bill’s plans to make all income tax payers pay more from next year and forcing the Government to think again about the fairer tax system our country needs.
Andrew Jones (Harrogate and Knaresborough) (Con)
I am aware that time is short, so I will keep my remarks brief.
All of us will have been dealing with constituents facing real financial challenges over the past year. The past months have been unprecedented in their impact on family finances. People have lost jobs, been on furlough, and faced great uncertainty. It has been genuinely hard. Yet some sectors have done very well and seen growth, so the economic impact of the pandemic has fallen very unevenly. The economic consequences have also landed very quickly, but the response from the Treasury was equally quick. We are now facing the next stages of the crisis. Over the months ahead, we will be getting the economy moving again as quickly as possible, safely, so that we can get people back into work, and considering how the Government will pay for all the extra costs they have incurred.
As my right hon. Friend the Financial Secretary to the Treasury said, economists have predicted that the economy will have fully restarted by April next year. I think that that is right, based on my own business experience and on conversations with businesses in my constituency and beyond. It therefore makes sense to start the recovery of the public finances then, and that is what some of the measures in this Bill do. The question for me, though, is how to do this fairly and without choking off the recovery.
Let me focus on one measure: personal allowances. The increases that we have seen in personal allowances over the past decade have been a key ingredient in helping some of the least well-off in our society. The allowance has nearly doubled and is one of the most generous in the world. It has been part of the broader initiative, which has been a hallmark of the past 10 years, about making work pay. It is with some caution that we should consider changes, but I will be backing these changes and urge Members to reject the Opposition amendment on this measure. It is worth remembering that nobody’s take-home pay will be less than it is now, and that this is a measure that builds over time, as will the pace of the recovery. I note that the right hon. Member for Wolverhampton South East (Mr McFadden), who is not in his place, commented that it is a fairer way to raise revenue than some others, and I agree with his analysis.
The crisis support packages have been necessary and welcome, but they come with a huge cost. There is no compassion in letting debts build up for future generations to pay off. There is no stability for Governments in failing to tackle deficits.
James Murray
I rise to speak to the amendments and the new clause in my name, that of the Leader of the Opposition and those of my other right hon. and hon. Friends.
In the preceding debate, we saw how this Finance Bill will hit families, in all their many forms across the country, by making half of all people in the UK pay more tax from next year. As I made clear, the sense of injustice is made all the more acute by the fact that that increase in costs for families comes before any rise in corporation tax and that at the same time, through this Bill, the Government are letting tech giants stop paying tax altogether.
Clauses 6 to 8 make it clear that the proposed changes to corporation tax will come after increases to the income tax personal allowances, while clauses 9 to 14 centre on the so-called super deduction, a £25 billion tax break targeted at big corporations that the Chancellor has said represents
“the biggest two-year business tax cut in modern British history”.
That tax break forms the centre of the Chancellor’s strategy set out at the Budget, and it comes with a huge cost attached to it. We need to be absolutely clear who will benefit from it.
One thing is clear: that tax break is not targeted at small and medium-sized businesses. The truth is that such businesses can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which clause 15 extends to the end of this year. The Financial Secretary was very clear in his written statement of 12 November 2020, which announced the extension, that it:
“Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.”
Indeed, the Treasury Committee concluded in its report published in February, “Tax after coronavirus”, that the annual investment allowance
“appears well targeted to promote growth in small and medium-sized enterprises.”
The existing allowance is said to be well targeted at the growth of small and medium-sized businesses and, by the Financial Secretary’s own admission, it already benefits 99% of businesses, which will benefit only marginally from the new super deduction. Who does that leave? It is very clear who will be the main beneficiaries of the Chancellor’s new scheme. It will be a tax break for the 1%.
Sammy Wilson
Does the shadow Minister not accept, first, that large businesses are an important component of our economy and we need to increase productivity in those businesses as well as in small businesses, and secondly, that many large industries, such as the aviation industry, have been badly hit by the pandemic and would benefit from the kind of tax allowances proposed in the Bill?
James Murray
I thank the right hon. Gentleman for his comments, but as I have set out, the annual investment allowance already appears to serve small and medium-sized enterprises well. The super deduction that we are debating now is designed to help companies such as Amazon, which do not need any help with their investment. It is important that we see this in the context of those companies that have done well throughout the outbreak and are already avoiding much of the tax they should be paying. It is no wonder that Tax Watch has nicknamed this the “Amazon Tax Cut”. This giveaway from the Chancellor could wipe out Amazon’s UK tax bill entirely.
Analysis of Amazon’s accounts from 2019 shows that the corporation’s UK operations made pre-tax profits of £102 million. In the same year, it spent £67 million on plant and machinery, £80 million on office equipment, and £15 million on computer equipment. The super deduction would have enabled Amazon to deduct £211 million from the calculation of its taxable profits— more than enough to wipe out its entire tax liability twice over. It is truly astonishing that, faced with all the challenges of this outbreak, the Government see their priority as giving Amazon a tax break.
Here and around the world, people agree with us that investment in jobs and growth is what is needed. A tax break for tech giants that already fail to pay what they should is not the answer. That is why our amendment 79 would explicitly prevent the biggest tech firms from taking advantage of the Chancellor’s tax break, as well as other big firms that do not support workers’ rights and the living wage.
The Government should be improving the lives of Amazon workers, who have helped so many people with deliveries throughout the pandemic, not giving a huge tax break to their bosses. Amendment 79 would prevent Amazon and other tech giants from accessing the super deduction by preventing firms from doing so if they are liable for the digital services tax. When the Government set out their plans for the digital services tax, they made it clear that it would apply to businesses that provide social media platforms, search engines, or online marketplaces to UK users. The detail of that tax means that businesses will be liable when the group’s worldwide revenues from these digital activities are more than £500 million, and when more than £25 million of these revenues are derived from UK users.
We are clear that those big corporations that should be caught by the digital services tax are among those that absolutely should not be benefiting from the Government proclaim as the biggest business tax cut in modern British history. We know that Amazon has brazenly made it clear that it will dodge the bill from the digital services tax by passing the cost on to its marketplace sellers. The fact that it is not even paying the tax that was designed for it to pay makes the prospect of a further massive tax cut from the Chancellor even more galling.
Furthermore, as well as excluding big corporations on the basis of their being liable for the digital services tax, we are seeking to use our amendment to stop those big businesses that do not support workers’ rights and the living wage from accessing the tax break. Both conditions would also catch Amazon and would also require other big businesses—those that are not liable for the digital services tax—to respect the right to organise and collective bargaining, and to be certified, or be in the process of being certified, by the Living Wage Foundation as a living wage employer.
When firms stand to benefit from what the Chancellor has called the biggest business tax cut in modern British history, the very least the Government should require of them is that they pay their workers the living wage and respect workers’ basic rights to organise. Alongside this, we propose in amendment 80 that the Government require big firms benefiting from the Chancellor’s tax break to make a climate-related financial disclosure, in line with the recommendations of the Task Force on Climate-related Financial Disclosures.
Beyond the specific issue of how the biggest corporations are set to benefit from this tax break the most, we have also tabled new clause 24 to reflect the widely-held concerns about the impact of the super deduction on levels of tax avoidance and evasion. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse.
As I mentioned on Second Reading, economists from the Institute for Fiscal Studies have said that the super deduction will
“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”.
Minsters were unable to reassure us on this point when I raised it last week, so we are asking for the levels of tax avoidance and evasion arising from the super deduction to be reviewed and put transparently before this House.
It tells us everything about the Conservatives’ priorities that they are taking money from people’s pockets at the very same time as letting tech giants off paying tax altogether. This Government are proposing to wipe out some of the biggest corporations’ tax bills through a £25 billion boon, aimed at the biggest corporations, that the Chancellor has called
“the biggest two-year business tax cut in modern British history.”
In the face of a struggling economy, a tax break for tech giants that already do not pay enough tax should be the last thing on the Government’s mind. Instead, it is top of their list. They are wrong.
Richard Fuller (North East Bedfordshire) (Con)
Will the hon. Gentleman give way?
James Murray
No, let me make some progress.
The Government are wrong, and that is why we will be voting to stop the Chancellor’s tax break going to the biggest tech firms or other big corporations that do not support workers’ rights and the living wage. We need a fairer tax system and we need investment in jobs and growth. This Government’s Finance Bill fails on both fronts. I urge Conservative Members to show that they understand this, support our amendments today and take a stand against the Amazon tax cut.
Felicity Buchan (Kensington) (Con)
I speak in support of clauses 6 to 14 and against the amendments. This Finance Bill needs to be a delicate balancing act. It needs to give immediate support to businesses and individuals while setting a path to rebalance our books in the medium to long term. In my view, these provisions on corporate taxation and the super deduction get that balance exactly right. The Bill defers the increase in corporation tax for two years and applies to only one in 10 businesses at 25%, but at the same time it turbocharges the incentives to invest in business now.
This country has had a perennial problem with productivity. We need to incentivise and encourage business investment. That business investment will help productivity, growth and innovation, and that is exactly what we need. The OBR has said that it anticipates that business investment will go up by a massive 10% as a result of this measure and, as my right hon. Friend the Minister mentioned in his introductory remarks, we will go from No. 30 in the OECD rankings for attractiveness for business investment to No. 1. That is what we need over the course of the next two years as we turbocharge this economic recovery. We need the economic recovery to be strong.
Finance (No. 2) Bill
James Murray ExcerptsTuesday 13th April 2021
(3 years ago)
Commons ChamberRead Full debate Finance Act 2021 View all Finance Act 2021 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts
James Murray (Ealing North) (Lab/Co-op)
I beg to move,
That this House declines to give a Second Reading to the Finance (No. 2) Bill because it derives from a Budget that failed to guarantee a pay rise for NHS workers after their unparalleled service over the last year; because it undermines the country’s economic recovery, targeting household finances by freezing income tax allowances before increasing the rate of corporation tax; because it does nothing to mitigate the effect on family finances of the sharp council tax rise in April; because it contains measures connected with a cut to social security later in the year; and because it fails to set out the ambitious plan for jobs and growth that is needed to help the country emerge strongly from the worst economic crisis of any major economy.
May I start by extending my deepest sympathies to Her Majesty the Queen and the royal family at this sad time? His Royal Highness the Duke of Edinburgh devoted his life to public service and, crucially, to his role as a supportive husband. My thoughts are particularly with the Queen as she mourns the loss of someone who has been at her side, or just behind her, for 73 years.
As this is my first time physically in the Chamber for well over a year, I would also like to put on record my thanks to Mr Speaker, the Deputy Speakers and the Speaker’s Office for doing so much to help all Members, particularly those of us like me with relevant medical circumstances, to take part virtually throughout the pandemic. Now, having recently had my second jab and having spoken to my doctor, I am glad to be here in person to speak today to this important Bill.
Like millions of others in this country, I feel so grateful to be benefiting from the brilliance of our NHS and GP staff, scientists, lab technicians, nurses and volunteers, but we know that the health crisis of covid-19 is very far from over and that the harm to jobs and the economy resulting from the outbreak is even further from being over. On the Chancellor’s watch, our country is enduring the worst economic crisis of any major economy, yet in his and the Government’s plan we lack the ambitious, confident modern approach we need to emerge from this crisis stronger.
The Budget in March and this Finance Bill should have been an opportunity to pull out all the stops to get the economy going. The Chancellor should have focused resolutely on supporting families, securing jobs and backing small businesses. The Government should have used this opportunity to make sure we invest in solutions to the problems that we have struggled with as a country for so long, from social care to the climate emergency and the housing crisis.
There are many missed opportunities in this Bill and the recent Budget to take on some of the big challenges to which our country is begging for a solution. Take high streets, for example. We are all acutely aware of the severe difficulties that high streets are facing because of covid and how well online delivery-based businesses have done during lockdown. We know that for years, high street businesses have struggled with business rates, while tech giants have paid very little tax by comparison, and we know that the outbreak has made that imbalance far worse. Now should have been the time to at the very least level the tax playing field for high street businesses and online firms, yet there was nothing on that in this Budget, no decisions were taken on the Government’s new tax day, and the Finance Bill is silent on this crucially important issue. That is just one example of how the Government have missed opportunities to support and shape our country for the better.
Instead, so much of what the Government have done will make the problems we face worse. This Government have the wrong priorities and the wrong values, and their Ministers are following failed approaches from the past that now lack much, if any, of the wider support they may once have claimed for them.
Kevin Hollinrake (Thirsk and Malton) (Con)
I agree with the hon. Gentleman that we need to level the playing field between high street businesses and online businesses. That is a very tricky thing to do, particularly when talking about business rates. What is his solution to that?
James Murray
I am very glad to have the hon. Gentleman’s support for our push for a solution. As he knows, the Government have been promising for some time to come forward with proposals on business rates, but we have nothing. We had the new tax day, when we were supposed to hear lots of announcements—nothing. We want to see something to help high streets, and we have not had anything. We need the Government to step up and offer a solution to the problem, which has bedevilled high streets for so long.
James Murray
I will make a bit of progress.
High streets are just one example of how the Government have missed those opportunities. Ministers have shown that they simply do not have it within themselves to offer solutions to the challenge we face.
First and most immediately, the Government are taking money from people’s pockets. Families in all their many forms are the target of tax rises from this Government. People will suffer and our economy will stall if families see money taken from them when they need it most. It is unfair and economically illiterate, yet it is exactly what this Government are doing. Half the country will pay more next year, thanks to the provisions in this Bill to freeze income tax personal allowances.
At the same time, the Bill does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now. It supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need that help most. It tells us everything we need to know about the Government’s priorities: they raise taxes and cut help for families immediately and without a second thought, years before an increase in corporation tax. At the same time, they are letting some of the world’s biggest companies stop paying tax altogether.
If that was not bad enough, the Government are also choosing in this year of all years to take money from the pockets of NHS workers. We now know how hollow those claps on the doorsteps of No. 10 and No. 11 must have echoed around Downing Street. The Government are cutting NHS workers’ pay. Ministers are breaking their promises, and the Conservatives are showing how little they have learned from the awful experience of the last year.
If we add that NHS workers’ pay cut to the personal allowance freeze, the council tax hike and the cut to universal credit, the scale of the impact of the Government’s decisions becomes clear. To give an example, a newly qualified nurse living with their partner and two children in rented accommodation will lose more than £1,100 a year. Rather than supporting families out of this crisis, the Government are prioritising tax breaks for tech giants.
That tax break is being handed to big businesses through the so-called super deduction—the £25 billion tax break for companies that the Chancellor and the Minister say represents
“the biggest two-year business tax cut in modern British history”,
and that forms our second key concern about this Bill. As the chief executive of the Resolution Foundation has made clear, investment incentives have been abused for tax avoidance purposes in the past, yet the Government have failed to say or do anything to address widespread concerns that the super deduction is open to fraud and abuse. Economists from the Institute for Fiscal Studies have said that the super deduction will
“create a risk of tax avoidance and even potentially fraud as companies essentially try to find ways to dress things up as plant and machinery investment”,
yet the Chancellor has done nothing to counter suggestions from industry consultants that the deduction could be used for luxury items, including jacuzzis.
The Government have also failed to address environmental concerns. With the deduction giving firms an incentive to buy new rather than existing assets, the Exchequer Secretary to the Treasury was recently unable to guarantee that the super deduction would be used to support green development. The Chancellor himself has seemed confused about the overall impact of the deduction, recently claiming that, as well as bringing investment forward,
“it will also increase the amount of investment”.—[Official Report, 9 March 2021; Vol. 690, c. 641.]
That claim comes despite the Office for Budget Responsibility revealing a week earlier that cumulative business investment over the next five years will be £8 billion lower following the Chancellor’s announcement of his new scheme than had been projected before.
Particularly with a tax cut of this size, it is crucial that we understand who it is helping and what it will achieve. The truth is, as we know, that companies can already benefit from the annual investment allowance, a 100% tax break on investment up to £1 million, which the Bill extends to the end of this year. The Treasury Committee concluded in its report “Tax after coronavirus” that the annual investment allowance
“appears well targeted to promote growth in small and medium-sized enterprises.”
With the existing allowance apparently well targeted at the growth of small and medium-sized businesses, and with such businesses standing to benefit only marginally from the new super deduction, we are left with an inescapable conclusion: the main beneficiaries of the Chancellor’s new scheme will be the big firms that need help least. No wonder TaxWatch has nicknamed this the “Amazon tax cut”—a giveaway from the Chancellor that could wipe out Amazon UK’s tax bill entirely.
Christian Matheson (City of Chester) (Lab)
I am grateful to my hon. Friend for talking about what has been identified as an Amazon tax cut. Has he noticed—and I get the impression from his contribution that he has—that most of the firms that will benefit from this are foreign-owned large tech firms that are not British, and most of the firms that will not benefit are the smaller British firms that will feel the wrong end of the Government’s policies? Does he not find it rather ironic that the Conservatives, who wrap themselves in the flag, are actually being entirely un-British and damaging British interests? They claim to be patriotic, but they are doing exactly the opposite.
James Murray
My hon. Friend makes a very important point and exposes again the hypocrisy in the Government’s approach. The fact is that, rather than helping families get through the tough times ahead, this Government are delivering a tax break for tech giants.
We know that Amazon workers have provided vital deliveries to millions of people across the country during lockdown. They need their rights at work to be protected and strengthened, and we all want that company to pay its fair share of tax. I see no one calling for a tax break for Amazon, yet that is exactly what this Government are providing. The Government would do well to learn from the new Biden Administration’s approach. The US Secretary of State has said that, rather than compete on lowering tax rates for corporations, the United States will focus on its
“ability to produce talented workers, cutting-edge research and state-of-the-art infrastructure”.
The new President has also been leading a drive to put in place a global minimum corporate tax rate. A spokesperson for the Treasury here has indicated that the UK might back those plans. Taken along with the Chancellor’s decision to raise corporation tax to 25%, this seems to be an admission by the Government that the last decade of Conservative corporate tax policy making has been totally wrong-headed. If that is the case, we welcome the Government’s admission, and it is vital that the UK plays a leading role in developing and implementing the proposals that President Biden is backing. We have not yet heard from Ministers on this matter in Parliament, however, so I urge the Exchequer Secretary to use her closing speech today as an opportunity to confirm to the House that she and the Chancellor back plans for a global minimum corporate tax rate and that they will do all they can to make this a reality.
While the initiative on international tax is being led by those overseas, closer to home the offer from this Chancellor of such a large tax break to companies will, of course, make people wonder what processes will be in place to prevent Ministers from intervening improperly on behalf of commercial interests in how decisions are made. The Chancellor is still refusing to properly account for his role in the Greensill scandal. To ensure public confidence in who will benefit from this £25 billion tax break, we strongly urge the Exchequer Secretary to today set out what new safeguards will be put in place to make sure that public money is not misused.
Jim Shannon (Strangford) (DUP)
Before the debate, I spoke to the shadow Minister about insurance companies. It has come to my attention that some insurance companies are unfairly using business interruption insurance premiums to punish businesses that had the foresight to take out said insurance before the pandemic. Insurance premiums are being increased dramatically. Does the shadow Minister agree that when it comes to supporting small and medium-sized businesses, we need to close the loopholes that insurance companies are notorious for using and ensure that the spirit is legislated for? Perhaps—just perhaps—this Bill might be the way to do that.
James Murray
The hon. Gentleman is right to draw attention to the fact that the Bill does everything for the big businesses that need the help most but does not do what is necessary to protect small and medium-sized businesses. I am sure that the Ministers present heard his points, and I hope that the Exchequer Secretary will respond to them in her closing speech.
Aside from all the concerns about the super deduction—from its potential for fraud, abuse and misuse to the fact that it offers to wipe out Amazon’s UK tax bill—the fact that the Government’s only national policy for growth and investment relies almost entirely on this tax break brings us to our third key concern about the Bill and the profound lack of ambition in the Government’s approach. There is simply no plan from the Government to make sure that we invest in what is needed for the future. The Bill follows a Budget of cuts. The OBR has confirmed that the Government will cut departmental resource spending plans by £15 billion a year from 2022-23 onward, and rather than bringing forward capital spending to invest in the green recovery that we need now, the Government have cut capital plans for this year by half a billion pounds.
Far from charting a course for the future, the Bill lacks any mention of a plan to tackle the big problems that we have faced in this country for a decade or more and that have in so many cases been brought into sharp focus by the covid outbreak. It is clear that over the past decade under this Government, our country’s social care system has been underfunded, with its workers chronically underpaid. Our country’s response to climate change has stubbornly lacked the urgency, ambition and scale that it needs. Our country’s answer to the housing crisis has been left to developers and speculators, leaving an entire generation let down and left behind. Investing in better social care, new green infrastructure and the council housing that we need would create jobs, improve lives and finally start to tackle the problems that our country needs to resolve.
The Conservatives have had more than 10 years to stand up to the challenges I have outlined, yet they have failed to do so. With the recent Budget and this Bill, they have proved themselves again unable or unwilling to do so. The Government’s whole approach is being exposed as one of failure rooted in the past and an inability to rise to the future. In fact, Conservative Ministers are continuing on the course that began in 2010—one that brought us a decade in which UK growth was below the average of all major economies and business investment fell to the lowest rate in the G7.
Our country’s economy will be £300 billion smaller in 2026 than was forecast at the start of the previous decade. At times during that decade, Ministers may have benefited from some international cover for their misguided and harmful choice of cuts rather than investing in growth in response to the financial crisis, but no more: a new international consensus has rapidly been gaining strength. As the International Monetary Fund’s head of fiscal policy said, our Government and others should use fiscal policy to beat covid and to stimulate our economies by reducing unemployment and restoring economic growth. That focus on growth, investment and jobs is at the heart of the approach set out by the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds). Our framework will meet the challenges of our times—it is a responsible approach in which a balanced current budget over the economic cycle would never prevent us from protecting people and businesses during a crisis or making critical investments in our future.
As the Bill progresses through the House, we will look at the detail in respect of the points I have outlined so far, as well as on other measures in the Bill such as those relating to freeports. We want to see good jobs and economic growth in every part of the country, irrespective of whether an area has a freeport. We need long-term, locally led investment in every region and nation, and freeports will in no way compensate for Ministers’ inexplicable decision to scrap their industrial strategy and disband their industrial council just when we need a long-term plan to support our critical industries. Furthermore, with freeports elsewhere in the world having become magnets for organised crime, tax evasion and smuggling, we fear that at a time when HMRC is already overstretched Britain is not well placed to manage such risks.
In Committee, we will challenge the Government over their approach to tax avoidance and tax evasion more widely, following up our long-standing concerns that Treasury Ministers continue to drag their feet on tackling these problems. Although the Bill contains measures to tackle the promoters of tax avoidance and change the system of penalties, there is a clear sense that those measures are extremely limited in scope, rather than the comprehensive action that we need. Indeed, those changes are not even included in the Budget report costings, suggesting that their financial impact must be minimal.
We will use the next stage of consideration of the Bill to go through the detail of the measures it contains that seek to address the problem of plastic pollution and to increase the use of recycled content. The principle of a plastic packaging tax is one that we support, and because we want it to be as effective as possible we will ask Ministers to consider the detail of its operation in Committee. Overall, however, we cannot support this Finance Bill. The Bill, and the Budget that it follows, should have seized the opportunity to help people who are struggling now; to invest in good new jobs in every part of the country; and to be ambitious in finally getting to grips with social care, housing and other challenges that our country has faced for so long without solving. In fact, rather than supporting families out of this crisis and setting an ambitious plan for the future, the Government are prioritising tax breaks for tech giants.
If this Bill had been presented by Conservative Ministers 10 years ago, it would have been the wrong solution then; a decade later, their approach has not changed but the rest of the world has moved on. No longer will they find allies for their approach in international institutions, and the politics of the United States shows that the consensus around the world is shifting. The Government are out of step with economic reality. They are taking decisions that will push up taxes for people across our country while helping Amazon to reduce its tax bill. They are choosing to cut NHS workers’ pay while failing to fix our system of social care, and they are deciding to continue a decade of cuts to public services when we urgently need to invest in the future.
James Murray
I have only a few moments. The hon. Gentleman may speak later.
We will vote for our amendment and against the Bill, to make it clear to people in our country that we understand that people need to be spared the Bill’s tax rises; that Amazon does not need any favours; that NHS workers deserve our support, that we need good new jobs in every region in the nation; that the economy will grow only through responsible investment; and that we need to fix social care, the climate emergency and the housing crisis. Above all, people in our country need a Government who are on their side, and it is absolutely clear from the choices that the Bill and their Budget make, and the problems that they choose to ignore, that this Government fail that test.
Madam Deputy Speaker (Dame Rosie Winterton)
We now go to the Chair of the Treasury Committee, Mel Stride.
Contingencies Fund (No. 2) Bill
James Murray ExcerptsThursday 11th March 2021
(3 years, 2 months ago)
Commons ChamberRead Full debate Contingencies Fund Act 2021 View all Contingencies Fund Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 11 March 2021 - (11 Mar 2021)
James Murray (Ealing North) (Lab/Co-op) [V]
I thank the Financial Secretary for setting out the case for the Bill so clearly. The Bill seeks to amend the Contingencies Fund Act 1974, which is one of the monuments of a previous Labour Government. The 1974 Act embodies principles that are central to the accountability of Government, so its amendment should not be taken lightly.
This time last year, the Opposition fully accepted that the conditions of the pandemic made it necessary, expedient and right for there to be provision for the Government to act swiftly. We accepted that, in the rush of the early response to the outbreak, there could be times when it would not be possible to follow normal procurement processes. We accepted that, at certain points, the spot price paid for particular goods facing global shortages might be higher than it would otherwise have been, and we accepted that, on occasion, at a time when the Government were taking on entirely new responsibilities, some mistakes would be made. But we do not accept, and the British people will not accept, that what may have been excused in the early days of the outbreak has turned into a succession of failures and scandals, which it seems Ministers can no longer even see as wrong.
Last year, the Opposition agreed to a rise in the provision of the Contingencies Fund to some 50% of annual expenditure. While we accept that a higher than usual level for the Contingencies Fund is again in order and we will not be opposing the Bill, Ministers would do well to remember that the fund was created as a fall-back and that its extension is an emergency response, not an opportunity for unaccountability. Ministers seem to have forgotten that public money needs to be spent effectively, in a way that achieves value for money and commands public confidence.
The starkest example of failure by this Government must surely be their flagship Test and Trace scheme, a programme outsourced at great expense and the subject of a report published yesterday by the Public Accounts Committee, which was truly damning. The Government should be embarrassed and deeply apologetic over Test and Trace, which Lord Macpherson, who led the Treasury civil service from 2005 to 2016, described as
“the most wasteful and inept public spending programme of all time.”
What makes it even worse is that everyone in the country desperately wanted Test and Trace to work. Everyone was willing the programme and its team to succeed. We all wanted and needed that money to be spent on a programme that would achieve its stated goal, and we have all witnessed the profound consequences of incompetence on such a scale. I lost count of the number of times that my right hon. and learned Friend the Member for Holborn and St Pancras (Keir Starmer), my right hon. Friend the Member for Leicester South (Jonathan Ashworth) and my hon. Friends the Members for Oxford East (Anneliese Dodds) and for Houghton and Sunderland South (Bridget Phillipson) called for the Government simply to focus on getting Test and Trace working, yet Ministers did not.
The opening summary of the Public Accounts Committee’s report contains the following telling sentences:
“The Department of Health & Social Care justified the scale of investment, in part, on the basis that an effective test and trace system would help avoid a second national lockdown; but since its creation we have had two more lockdowns. There is still no…evidence to judge”
Test and Trace’s “overall effectiveness”.
Only people who have no real understanding of the value of money or the importance of public investment in changing lives for the better could be so reckless about how it is spent. We believe that the Government really need to learn from the last year, not only by accepting that the outbreak exposed the weakness of our rights at work and the impact of a decade of cuts to our public services, or by recognising that they repeatedly did too little, too late to protect the public’s health and our economy, but by making serious structural reforms to how they initiate and examine spending.
The shadow Chancellor, my hon. Friend the Member for Oxford East, has set out how the next Labour Government would do things differently, by taking a robust and determined approach to ensuring that public money improves the lives of those we serve. She has explained how we would invite the Comptroller and Auditor General to submit an annual report to Parliament, bringing together the National Audit Office’s findings throughout the year into a single assessment of the effectiveness of public spending in those areas that it has examined. As my hon. Friend has said, we must hard-wire value for money into the budgetary process.
But the value for money aspect is not the only part of this extraordinary year for public spending that commands our attention. It would be possible to achieve value for money and yet still fall far short of other standards we expect. That is why the new clause that the Opposition will move in Committee seeks to improve the transparency of Government spending.
We know only too well, as my hon. Friend the Member for Leeds West (Rachel Reeves) has set out, that the way in which procurement is conducted also matters very much. Put simply, the time to end emergency procurement is overdue. Covid, as she rightly observed, is no longer a surprise. Supply chains have been established and, while there are of course still significant challenges and responding quickly remains essential, there is no longer a case for the continued widespread use of emergency measures of procurement for items that the Government now know how and where to find.
Contract publication should now follow the normal rules, and when contracts fail to deliver, the Government should get money back. That is public money. “Deliver or you won’t get paid” is what contractors expect from every other organisation and company they supply. The Government must not be the softest touch in the market.
We must drive a culture of transparency throughout public spending. The new clause that we will move today seeks to improve the transparency of the Contingencies Fund, because that is what the Bill before us concerns, but it is time for every part of public spending to achieve better value for money and for the Government to use their spending power to improve standards in the way the public would expect. The Opposition believe that achieving these changes need not be difficult or controversial.
We recognise the power of public investment to transform people’s lives for the better. That is fundamentally why we, like the British public, cannot bear to see Ministers casually and carelessly waste public money on deals that do not deliver, on contracts that do not work and on outsourcing that should never have taken place. Every pound that this Government misspend makes it that bit harder for nurses to accept the Chancellor’s pleading that a 1% pay rise is all he can afford. Every penny that this Government waste could have gone towards building a fairer, more secure future for our country. We will not be opposing the Second Reading of this Bill, but our new clause in Committee will set out a new standard of transparency that would pull Ministers up, force them to sharpen their focus on value for money and make sure we have more money to spend on the things that matter to us all.
Mr Deputy Speaker (Mr Nigel Evans)
Before I call Andrew Jones, I want to point out that although what we are dealing with is very important, we also have the Committee of the whole House and Third Reading, and then we have 70 contributions in the International Women’s Day debate. If people could keep that in mind as they consider the length of their contributions, I would be extremely grateful.
James Murray [V]
With the leave of the House, I would like to respond briefly to the debate and pick up on some of the contributions. First, I would like to address a comment by the hon. Member for Thirsk and Malton (Kevin Hollinrake), who seemed to claim that I was not in my place during his speech. I would like to reassure him that I have been listening carefully throughout in the virtual Chamber, but perhaps he was not here earlier when I began my contribution virtually.
My hon. Friend the Member for Brent Central (Dawn Butler) made a powerful and important case about the link between trust and transparency and how important it is for us to take action in this place to reassert that link. She also set out how insulting the 1% pay rise—a real-terms pay cut—is to the nurses in our country. My hon. Friend the Member for Sefton Central (Bill Esterson) mentioned the huge waste that has happened through Test and Trace and the private outsourcing giants that have benefited from that money. It is telling that no Conservative Members today addressed Test and Trace and the spending on that programme, as far as I could tell. I found it curious, however, that the hon. Member for South Cambridgeshire (Anthony Browne), when trying to make a case around value for money, chose to focus on the time that the right hon. Member for Uxbridge and South Ruislip (Boris Johnson) spent in City Hall, given that one of the most notable achievements of that right hon. Member in that office was to oversee £46 million of public money being spent on a garden bridge that was never built.
As I made clear in my opening remarks, we will not be opposing the Bill’s Second Reading, but in the Committee debate that follows, I will set out how our new clause aims to introduce a new standard of transparency, which we believe is urgently needed after the Government’s approach over the last year.
Contingencies Fund (No. 2) Bill
James Murray ExcerptsThursday 11th March 2021
(3 years, 2 months ago)
Commons ChamberRead Full debate Contingencies Fund Act 2021 View all Contingencies Fund Act 2021 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Committee of the whole House Amendments as at 11 March 2021 - (11 Mar 2021)
James Murray (Ealing North) (Lab/Co-op) [V]
The new clause is intended to ensure that the Government learn from the past year and, as I set out in my earlier contribution, not only recognise that they have repeatedly done too little, too late to protect the public’s health and the economy through the outbreak, but make serious and structural reforms to how they initiate and examine the spending of public money. The new clause would ensure that the extra financial freedoms that Parliament grants in the Bill are used in a manner that reflects the importance of transparency with public money.
I shall not repeat the arguments that I and other hon. Members made on Second Reading, but address the substance of the new clause. Our new clause is simple. Subsection (1) sets out that, in respect of each plausible category of unforeseen Government spending—urgent cash requirements for existing services; urgent cash requirements for new services, whether yet approved in principle or not; increased cash requirements; and short-term cash flow issues—the Treasury must lay before the House a report of all the advances made that month.
Subsection (2) sets out that each payment from the fund should be explicitly associated with ministerial statements, which explain the purpose of such expenditure. Subsections (3) sets out that where such payments have been carried out only on the basis of ministerial direction, the fact and nature of that direction should also be disclosed. We fully accept that on occasion ministerial directions are a vital part of how our country and political system responds quickly and effectively to unforeseen circumstances. There are occasions when the accounting officer will not be able to align urgent needs with normal accounting procedures. What matters is not the fact of the direction, but its nature.
Subsection (4) ensures that where rapid procurement decisions are taken, they provide an opportunity for the Government to improve and are assessed as such. The role of the Comptroller and Auditor General is crucial in our system of parliamentary control over public finances. There are lessons to be learned from the specific practice of emergency procurement. It is wrong to see each instance of rapid procurement as a special case.
Subsection (5) reflects the premise of subsection (4) and ensures that there is no conflict with the wider role of the National Audit Office. I very much hope that the Government will feel able to accept the new clause in the spirit in which we propose it.
The Financial Secretary will be aware of the many extraordinary and frankly irregular arrangements, which have been explored in the court and in the media recently, for the disbursement of public money in the past year. I will not take the Committee through the full annotated catalogue as time is so limited, but I will mention just two of the most egregious examples to emphasise our concerns.
First, there was the contract given to Randox Laboratories for £133 million in respect of tests. Randox is a company that we understand is advised by a Conservative Member. The Department of Health and Social Care ordered that 750,000 of those tests be withdrawn from use for safety reasons. Secondly, at least £150 million of a £252 million face mask contract with Ayanda Capital seems to have been wasted owing to the unsuitability of one type of mask in the order. We understand that the contract included FFP2 masks, which did not meet requirements for use by frontline healthcare workers because they had ear loops instead of head loops. The sum of £150 million pays the salaries of some 4,000 nurses. That fact alone should make clear why it is so important for public money to be spent on improving the lives of those we serve.
The new clause sets out a new standard of transparency that would pull Ministers up, force them to sharpen their focus on value for money, and ensure that we have more money to spend on the things that matter to us all. With such concerns in mind, I ask the Committee to support the new clause.
The Second Deputy Chairman of Ways and Means
Before I call Andrew Jones, let me just say that I am grateful for the restraint that people demonstrated on Second Reading. We have a rather extensive call list for the International Women’s Day debate that follows, so if people could show the same restraint in Committee, whether they are remote or in the Chamber, I would be grateful. A number of people withdrew from the Second Reading debate; if anyone wishes to withdraw from Committee stage, please will they do so in the normal manner, through the Speaker’s Office?
The Financial Secretary to the Treasury (Jesse Norman)
As you will be aware, Mr Evans, clause 1 provides for an increase in capital for the Contingencies Fund. It raises the limit from the standard 2% to 12%, providing a sum of approximately £105 billion for the financial year 2021-22 only.
We are all agreed across the House on the central importance of accountability to Parliament, but it is the Government’s very firm view that new clause 1 is not needed in order to achieve accountability. It is important to say again that supply processes continue to be used in the usual way with expenditure still subject to parliamentary scrutiny and a vote. This Bill simply permits an advance on expenditure that will be included in the main or supply estimates.
Let me set out four points that make this quite clear. First, the Contingencies Fund is about ensuring cash flow, restricting it to urgent services in anticipation of parliamentary provision becoming available and temporary funds required for necessary working balances. It is not additional spending; it is simply a cash advance to be repaid. It does not in any way preclude the scrutiny by Parliament of additional provision sought by a Department through the supply estimates, nor does it preclude the Comptroller and Auditor General from expressing his view on the regularity of departmental expenditure.
Secondly, each and every departmental accounting officer remains fully accountable for expenditure; and, of course, that expenditure will be audited by the NAO in the usual way as part of the annual reports and accounts of each Department. Transparency arrangements for ministerial directions—where they are sought under the requirements of the doctrine of “Managing Public Money”—will also continue in the usual way. Accounting officers are already required to publish any direction that they receive as soon as possible, unless there is a broader public interest in keeping it confidential.
Thirdly, the House has seen throughout 2021 that Departments must notify Parliament by way of a ministerial statement agreed with the Treasury where a commitment will be or has been entered into in advance of supply. I would like to make it clear that the mandatory WMS wording agreed with Parliament and the NAO already distinguishes whether this advance is a new service, new expenditure or simply a cash requirement ahead of a supply estimate.
I remind hon. Members that the Contingencies Fund is not a tool—some hon. Members have made this point—that Ministers can choose to use; it is not discretionary. It is managed entirely by the Treasury, and the accounting officer must ensure that advances are given in line with strict rules agreed between Parliament, the NAO and the Treasury. These rules are set out clearly in the published estimates manual. Every Department makes an application outlining the urgency of their case and how they plan to meet the listed requirement. It is worth mentioning that the NAO also audits the Contingencies Fund accounts, and that includes a full list of advances.
Let me turn to a couple of the points raised by Members in the debate. I did ask for questions on the Bill, but the hon. Member for Luton North (Sarah Owen) somehow found that difficult. She raised another irrelevant issue about public spending. She asked me about my own link. I assure her that I had nothing to do with the awarding of any contracts. As my hon. Friend the Member for South Cambridgeshire (Anthony Browne) pointed out, this is true for Ministers across the Government, according to the NAO.
The hon. Member for Hackney South and Shoreditch (Meg Hillier), who chairs the Public Accounts Committee, made a speech, wonderfully—and I thank her for it—on the Bill. I am very grateful. She asked whether the Bill is rushed through. The answer to that question is no, it is not. It is important to do it, we think, before the beginning of the new financial year. The same Bill was put through in March last year, and so it is here. She asked about Treasury controls. We fully, strongly believe in them. She recommends Ghanaian principles of public finance, but I am not sure I can follow her in that direction.
James Murray [V]
With the leave of the Committee, I will respond briefly to the debate and pick up on some contributions that hon. Members have made. My hon. Friend the Member for Luton North (Sarah Owen) made powerful remarks and drew our attention to how hollow the phrase of the former Prime Minister—that “sunlight is the best disinfectant”—now rings, given how the current Government have behaved. My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) spoke from great experience about the weakness of Parliament in scrutinising Government spending. She set out how the claims of bureaucracy from Government Members are misplaced and that, in fact, new clause 1 is about transparency and accountability. My hon. Friend the Member for Warrington North (Charlotte Nichols) set out clearly the consequences of vast sums being given to companies with no track record of delivery, underscoring why this really matters to people’s lives.
My hon. Friend the Member for Newport West (Ruth Jones) made it clear that the Government should listen and learn from the events of the past year and regain the trust of the public, while my hon. Friend the Member for Bradford West (Naz Shah) highlighted the Government’s shameful record on transparency, value for money and, crucially, the outcome of what is actually delivered. Finally, my hon. Friend the Member for Luton South (Rachel Hopkins) made some critical points on scrutiny leading to better government. She spoke from great experience of why it is so vital that the reporting of written ministerial directions is taken into account so that they can take responsibility for their decisions.
I thank the Minister for his comments, but I was disappointed that he did not use the opportunity to refute or respond to any of the comments about the Public Accounts Committee’s report on Test and Trace. I noted that despite some Government Members having spoken for a second time today, they still did not find time to justify and explain how the spending on Test and Trace has been value for money. The Minister fundamentally failed to address the inadequacy of current scrutiny arrangements, given what has happened over the past year.
As I made clear in my opening remarks, our new clause aims to introduce a new standard of transparency. We believe that it is urgently needed after the Government’s approach over the last year. I am not convinced by the Minister’s argument. I welcome the SNP group’s support for new clause 1 and we will seek a Division on it.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Question put, That new clause 1 be read a Second time.
Oral Answers to Questions
James Murray Excerpts(3 years, 2 months ago)
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Steve Barclay
The hon. Lady is right about the importance of Test and Trace; it is key to our unlocking the economy and to addressing the much more substantive costs in terms of the non-pharmaceutical interventions. As she will know as Chair of the PAC, while I as Chief Secretary and my right hon. Friend the Chancellor will always look at the cost of Test and Trace, the bigger prize is getting our economy opened. On the substantive point the hon. Lady raises on the self-isolation payments, again I point to the fact that at the Budget my right hon. Friend the Chancellor increased the funding for discretionary support; that sits alongside the £500 itself, and is in addition to the wider support that the majority of employers provide.
James Murray (Ealing North) (Lab/Co-op) [V]
The Government’s road map out lockdown says that self-isolation is critically important to halting the spread of disease, yet Baroness Harding has recently admitted that financial difficulties prevent people from self-isolating and a year ago the Health Secretary admitted he could not live on statutory sick pay of £94.25 a week. It is now £95.85 a week, so can the Minister explain why the Chancellor refuses simply to guarantee that anyone who has to rely on statutory sick pay or is unable to access even that should be eligible for the £500 payment?
Steve Barclay
I do not think the hon. Gentleman has actually read the Budget announcement made last week, because the discretionary element of the Test and Trace support payments applies even if people are not in receipt of means-tested benefits. So it does recognise the point raised by Members that it is important that there is an incentive for people to be tested; that is what the £500 payment through the Test and Trace system addresses. But in addition Members raised cases which were just outside the means-tested element of Test and Trace; that is the issue that the discretionary fund addresses, and it was dealt with in the Budget last week.
Income Tax
James Murray Excerpts(3 years, 2 months ago)
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James Murray (Ealing North) (Lab/Co-op) [V]
Thank you, Mr Deputy Speaker, for giving me the opportunity to speak on behalf of the Opposition on these regulations. As we have heard, this statutory instrument relates to the Euro 2020 football championships, which were delayed by covid-19 into 2021. Although I am speaking as a shadow Minister, this subject is literally close to home for people in my constituency; from many places near where I live, including the top of Horsenden Hill, people get a full view of Wembley’s arch, under which several of the games are set to be played, including the semi-finals and the final.
As we have heard from the Minister, the purpose of these regulations is to create an exemption from income tax for income earned in the UK by certain non-resident individuals in connection with football matches held in the UK as part of the tournament. The Opposition recognise that this income tax exemption was a condition of the bidding process for all countries wishing to host matches in the UEFA Euro 2020 finals tournament. We also recognise that the formal requirement to grant an income tax exemption in hosting the Euro 2020 finals is consistent with the approach taken in comparable events hosted in the UK in the past, such as the World Athletics championships 2017, the UEFA Champions League final 2017 and the London anniversary games in 2016. We will therefore not oppose this statutory instrument, and we look forward to enjoying the matches this summer.
Government's Management of the Economy
James Murray Excerpts(3 years, 2 months ago)
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James Murray (Ealing North) (Lab/Co-op) [V]
Across this country, we have all felt the pain of missing our family and friends, and we have all longed to go about our lives as we could before, but we have also seen the pain of this crisis fall unevenly, with some people facing greater difficulties and hardship than others. The virus has exposed weakness and unfairness in the foundations of our economy, and what unites so many people now is a determination to learn from what covid has exposed and make the UK a fairer place to live.
Going into this crisis, as the shadow Chancellor, my hon. Friend the Member for Oxford East (Anneliese Dodds) pointed out, one in four UK households had less than £100 in the bank, while 3.6 million people were trapped in insecure work. A decade ago, the Conservative Chancellor stopped investing in new social housing, and now we see families told to stay at home in overcrowded flats.
Social care workers, delivery drivers, shop workers and others have all been on the frontline, but many are on such low incomes that if they are asked to self-isolate, they have a choice they should never be forced to make: doing the right thing or putting food on the table. We were on shaky foundations going into the crisis, and once it hit, the Government have been too slow to give people the support they need, with millions falling through the gaps altogether. Business closures are up by more than a third, yet the self-employed are left in the dark over what help might be on offer from one month to the next. Parents are struggling with the difficult job of home schooling, yet the Treasury refuses to heed our call to give working parents the legal right to request paid flexible furlough.
As many of my hon. Friends have set out today, the UK Government have left people exposed throughout this crisis. My hon. Friends the Members for Jarrow (Kate Osborne), for City of Durham (Mary Kelly Foy) and for Warwick and Leamington (Matt Western) set out how the Government’s choices over the past 10 years left us ill-prepared. My hon. Friend the Member for Gower (Tonia Antoniazzi) spoke of the struggle that so many people face making ends meet, while my hon. Friend the Member for Coventry South (Zarah Sultana) spoke about children going hungry and having to rely on food banks. My hon. Friend the Member for Neath (Christina Rees) set out the different, fairer choices that the Welsh Government have taken.
The truth is that the state of the economy we had coming into covid, and the Chancellor’s irresponsible choices throughout the crisis—both to wind down support and to lift restrictions too soon—have undermined efforts to protect people’s health and left us suffering the worst economic crisis of any major economy. Time and again, businesses, workers and the self-employed have anxiously faced the looming end of support schemes, only for new grants to be introduced in a last-minute scramble as the public pressure to avoid the next cliff edge becomes overwhelming. People might have forgiven this early on in the outbreak, as the Government adjusted to the new challenge we all faced, but a year later that argument holds no water. What we have seen instead is a pattern of the Chancellor’s behaviour, and we should continue to question his judgment as our thoughts turn to what comes next. Ten years of the Conservatives has undermined the foundations of our economy and hollowed out our public services. We must not let the country suffer the same mistakes again.
We heard from many of my hon. Friends today about the damage to our economy and our public services over the past decade. My hon. Friends the Members for Liverpool, Wavertree (Paula Barker), for Vauxhall (Florence Eshalomi) and for Sheffield, Hallam (Olivia Blake) spoke about the rise of insecure working while wages have been falling. My hon. Friends the Members for Enfield North (Feryal Clark) and for Easington (Grahame Morris) spoke about the impact of cuts on local government, while my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) spoke of cuts to social security.
My hon. Friends the Members for Slough (Mr Dhesi), for Wallasey (Dame Angela Eagle), for Luton South (Rachel Hopkins) and for Liverpool, Riverside (Kim Johnson) all reminded us of the ideological drive and dogma—not economic necessity—behind the cuts of the past 10 years, while my hon. Friend the Member for Aberavon (Stephen Kinnock) spoke of the importance of an active state working in partnership with enterprise and business. My hon. Friend the Member for Nottingham East (Nadia Whittome) spoke of the need to rebuild our country with secure housing and secure jobs at its heart.
My hon. Friends are not alone in warning the Government to take a different path. In fact, the IMF’s head of fiscal policy has said that Governments should now use fiscal policy to not just beat the virus but stimulate the economy by reducing unemployment and restoring economic growth. As the shadow Chancellor set out, the path the Government should take is one that puts jobs and investment at the heart of rebuilding our economy. That is why we want to see start-up loans for 100,000 new businesses employing people across the country. It is why our approach would view public finances over the next 20 years, so that we can finally get on top of the long-term challenges our country faces. People are tired of the Government ducking big decisions, from social care to the housing crisis to climate change, and they want to see a fair, modern, robust approach to the future. Our responsible approach to the public finances—an approach in line with the IMF’s and OECD’s recommendations—would make sure that we could always protect people and businesses during a crisis and make crucial investments in our future.
We know that the impact of this crisis has played out very differently for people in different situations. Many families have had to take on worrying levels of debt, while other households have been able to work from home and save. That will result in highly concentrated household savings, forecast to reach £250 billion by the end of June, and what happens with those savings will have a big impact on the economic recovery. The Chancellor is betting everything on people spending those savings, but the Bank of England evidence suggests that only around 5% of the money will be used in that way. The rest will remain in bank accounts or be invested in assets, which we know, among other things, will push up house prices. That is why we are proposing a new British recovery bond, which would give millions of people security for their savings while raising billions to invest in businesses, jobs and infrastructure for the future. That approach would bring people together, united around a common determination for us all to feel more secure and to live in a fairer country.
Today we have heard a string of tired claims from the Chief Secretary to the Treasury that the record simply does not reflect. He said that the economy was not growing when Labour left office, but as my hon. Friend the Member for Chesterfield (Mr Perkins) made clear, the truth is that it was. Government Members make claims about unemployment when Labour is in power, but if they looked at the last 40 years of unemployment data, they would find that unemployment was lower on average in the years when we were in power compared with those when they were.
Over the coming months, we may well hear the Chancellor repeat his flawed economic ideology around the need to cut people’s livelihoods, to cut support for businesses and to cut investment in the public services and infrastructure that we need. Will we hear him apologise for mismanaging hundreds of millions of pounds throughout the crisis and outsourcing projects that should have been delivered by public servants? Will we hear him explain how people with no income or savings can spend money in the economy or how a country with businesses closing, public services run down and infrastructure lacking is expected to grow? I doubt it. If he will not listen to us, he should listen to the fears of people in the country. He should use this Budget to reverse the planned £20 cut in universal credit, to reverse the key worker pay freeze and to provide councils with the funding they need to prevent huge increases in council tax. Then, he has the chance to listen to economic institutions around the world and follow their urging of him to invest in jobs and growth.
After a decade of the Conservatives, our economy was already weak when covid hit, and their irresponsible decisions since then have weakened it further. That is why we have had the worst economic crisis of any major economy. It does not have to be this way. We should come out of this crisis determined not to go back but to build an economy with fairer, more secure foundations. We should focus relentlessly on jobs and growth across the UK and on the long-term investment we need to meet the challenges we face. We need to change our economy for the better, and this is a chance to do so.
Exiting the European Union (Value Added Tax)
James Murray Excerpts(3 years, 3 months ago)
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James Murray (Ealing North) (Lab/Co-op) [V]
I am grateful for the opportunity to respond on behalf of the Opposition to these two statutory instruments. Our priority, as the Opposition, is to ensure that the UK economy functions as smoothly as possible and that the Northern Ireland protocol operates effectively following the end EU exit transition period. We will therefore not oppose the Government on these two statutory instruments.
As we have heard, the first of these sets of regulations includes changes to replicate in domestic law the measures that currently exist in EU law. They make provision in UK law for a VAT zero rate for the handling of qualifying aircraft at non-customs and excise airports, as businesses can no longer rely on EU law to provide that measure. Other measures in this set of regulations make more substantive changes. The introduction of a VAT zero rate for the handling of international trains is new, although in practice it is similar to the relief for aircraft. The removal of a VAT exemption for suppliers of pension fund management services for funds established in the EU is also substantive, although it was predicted when the VAT exemption for pension fund management services was introduced in UK law last year.
As those two points represent substantial changes, will the Minister say what assessment the Treasury has made of the impact on the tax base of these regulations? On the one hand, there will presumably be a loss of revenue as a result of the zero rating for handling of international trains, while on the other, the removal of the exemption for EU-established pension fund management services will presumably generate income for the Exchequer. Will he therefore set out what impact, separately and net, these changes are expected to have on the tax base?
The second set of regulations makes changes to the Value Added Tax Act 1994 needed following the end of the EU exit transition period in the context of the Northern Ireland protocol. As we have heard, the measures in this instrument will ensure that VAT can be recovered by DIY house builders in Northern Ireland on goods used in construction purchased in the EU. It will also remove VAT relief for goods moved from Northern Ireland to Great Britain for avoidance purposes and ensure that recovery is possible if VAT is incurred when a business moves its own goods from Great Britain to Northern Ireland.
As I made clear, the Opposition want to see the Northern Ireland protocol operating effectively and we want people in Northern Ireland to be protected from disruption to their lives and their businesses. While these changes are therefore welcome, it is vital that businesses are supported in understanding and being able to follow the new arrangements they face. The Minister will know that my Opposition colleagues have been calling on the Government to support a major and effective information campaign for British businesses about the new rules on trade with Northern Ireland and to increase capacity at the Trader Support Service to help businesses to complete new customs declarations. In the light of the disruption we have seen since the end of the transition period, will the Minister set out what extra support the Government have decided to put in place since the beginning of this year? Can he confirm specifically whether, since 1 January, there have been any substantive changes to the Government’s communication strategy for British businesses about the new rules on trade with Northern Ireland or increases in capacity at the Trader Support Service? These are important questions to ensure that the protocol operates effectively, and I would welcome the Minister’s addressing them directly.