Finance Bill

Jesse Norman Excerpts

2nd reading & 2nd reading: House of Commons & Programme motion & Programme motion: House of Commons & Ways and Means resolution
Monday 27th April 2020 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move, That the Bill be now read a Second time.

I congratulate the new shadow Chancellor and her shadow Treasury team on their appointments. Six weeks ago, on 11 March, this House assembled to hear my right hon. Friend the Chancellor deliver his Budget speech. How long ago that seems now when every day feels like a decade. A Budget statement is a central part of our democracy; indeed, it is at the very heart of a parliamentary tradition of accountability for taxation that goes back to the 13th century. It is deeply sobering to reflect that that 11 March moment might be the last great parliamentary occasion we have in this Chamber for some time to come.

Truly, we know better now. We live in a disenchanted world, a world of self-isolation, of social distancing, of shielding, of lockdown. In the Treasury and across Government as a whole we have worked around the clock since then to respond to the extraordinary challenges posed by the coronavirus to people’s lives and livelihoods. The same has been true in this Palace of Westminster. I know that I speak for all my colleagues in saying that I have the greatest respect for the work that you, Mr Speaker, and so many others, including parliamentarians across this House, have done to prevent covid-19 from becoming a threat to our democracy itself. I pay special tribute to all the Clerks and staff of this House of Commons and of the Palace of Westminster for working so quickly and creatively to adapt to this new reality and for their skill in drawing on the flexibility and resilience of our uncodified constitution to create a virtual Parliament.

When this Chamber was bombed and destroyed on the night of Saturday 10 May 1941, with the fires raging, the roof fallen in and the Lobbies and corridors gutted, it was decided that the Commons should sit immediately in Church House. Extraordinary measures were undertaken at great speed to transfer proceedings to the new location. The Commons rarely sat on Mondays, so it duly reconvened in the normal way on Tuesday 13 May, but it did so in Church House. There were oral questions to the Secretary of State for War, including on officers’ outfits and the collection of swill and vegetable waste from military units, followed by a full Order Paper of business and, at the end, a short statement from the Prime Minister in which he reported that the old Chamber was damaged beyond immediate repair and that preparations were already under way for a move to a further location, if that should be necessary. Thus the biggest and the worst raid of the blitz resulted in the loss of not one single day—indeed, not one single minute—of sitting time for Parliament. It is a moment of which this country can be intensely proud.

Why so much determination and so much speed? It was so that, as Churchill said:

“hon. Members may be reassured that the work of our Parliamentary institutions will not be interrupted by enemy action”.—[Official Report, 13 May 1941; Vol. 371, c. 1086.]

It was so British democracy should not be thought to have been destroyed amid the burning ruins of the Commons Chamber, and so that the great thread of public scrutiny and parliamentary accountability that gives legitimacy and authority to our Government should not be broken. So it is again today, Mr Speaker. For that, we are, and we will always be, profoundly grateful. I hope that we shall soon return to the close combat of political business, whether that be the intimate interrogation of the Chamber, the camaraderie of the Lobbies or the noise and clamour of a full House packed to the rafters with MPs, press and public looking on, all fully intent on our national political business; the House of Commons as the cockpit of the nation.

Here again, history can be our guide. When the Chamber was rebuilt, special care was taken to make it, as it had been, too small for the number of Members. That was at the specific insistence of Churchill. In his words, the essence of good House of Commons speaking is the “conversational style”. This requires a

“fairly small space, and there should be on great occasions a sense of crowd and urgency…a sense that great matters are being decided, there and then, by the House”.

Not for Churchill the vast, empty hall of Deputies, the amphitheatre, or what he called “Harangues from a rostrum”. Without that collective sense of crowd and urgency and the ever-shifting energy of the House in action, we lose something vital.

Mr Speaker, I ask you this: can we not also gain from this great virtual experiment? Through new forms of questioning and calmer, more dispassionate cross-examination of Government, may we not find glimmers of new possibility amid the present gloom? I believe that we can. The significance of today’s debate lies not just in this Finance Bill, important though it is; it marks a new legislative beginning for Parliament. As we go forward together, I hope that we in this House can restore not merely our old ways, but what was best in them, and use this moment to add, to develop, to reform and to make them better still.

When my right hon. Friend the Chancellor addressed the House on 11 March, he announced a Budget focused on delivering the Government’s manifesto commitments from the general election last year. He did not only that; he also set out and carefully explained the reasons for a very ambitious and wide-ranging set of measures designed to tackle the coronavirus head-on, to buttress our frontline services and to support people, families and businesses affected by the pandemic.

Since then the Government have gone much further still. Indeed, we have announced what we believe to be the most comprehensive and far-reaching economic response to covid-19 in the developed world, and Ministers and public servants across Government have worked to deliver it. Among its many different packages, that response includes a job retention scheme, which guarantees 80% of the wages of furloughed workers, and which has been conceived, developed and launched by Her Majesty’s Revenue and Customs in just a few weeks.

Alongside the job retention scheme is a similarly generous scheme aimed at supporting the self-employed for 80% of taxable trading profits up to £50,000. This covers some 95% of those who are mainly self-employed, including cleaners, taxi drivers, plumbers, musicians, journalists, electricians, childminders and many others. Businesses can also benefit from more than £300 billion-worth of Government-backed loans, numerous tax cuts and grants, with a business rates holiday for the worst-affected sectors of the economy. There has also been a further package of measures aimed at the charitable sector.

These are unprecedented measures for unprecedented times. The impact of the coronavirus falls not only on businesses, but directly on the well-being of some of the most vulnerable people in our society, whom the Government are determined to protect. For that reason, the Government have raised by £1,000 the universal credit standard allowance and working tax credit basic element for a year. Almost a billion pounds has been allocated so that the local housing allowance can cover at least 30% of market rent, and the Government have offered vouchers or meals at home for children who would otherwise be eligible for free school meals.

This Bill goes beyond the immediate response to covid-19 by delivering the Government’s manifesto commitment to make the tax system fairer and more proportionate. For example, care leavers who start apprenticeships will pay no income tax on bursary payments that they receive. I am delighted to say to recipients of payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme that those payments will be exempt from income, inheritance and capital gains tax, and inheritance tax will not be collected on Kindertransport fund payments.

Taxes are rarely popular or straightforward, but they are necessary to support our public services. Now, more than ever, the Government have a duty to ensure that the rules are applied correctly. Last month, my right hon. Friend the Chief Secretary to the Treasury announced that, in the light of covid-19, the Government will delay the introduction of reforms to the off-payroll working rules in order to give businesses more time to adapt. However, he was clear that the Government remain fully committed to introducing these reforms to ensure that people working like employees but through their own limited companies pay broadly the same tax as individuals who are employed directly. That has not changed, and the Government will introduce an amendment to the Bill in due course to legislate for a new commencement date of 6 April 2021. The Government will use the additional time to commission further external research into the long-term effects of the reforms in the public sector, with the intention that that research will be available before the reforms come into effect in the private sector in April 2021.

Meanwhile, this Bill implements the recommendations of Sir Amyas Morse’s independent review of the loan charge. It will mean that the loan charge no longer applies to loans entered into before 9 December 2010, which is the point at which Sir Amyas found that the law put beyond doubt the fact that disguised remuneration schemes were a form of tax avoidance. The Bill also brings forward legislation to repay taxpayers who voluntarily settled for years that are no longer in scope, while those still able to pay will be able to spread their loan balance over three tax years to suit their finances.

The Budget also included changes to help businesses to prosper for years to come. This Bill will implement the Government’s manifesto commitment to increase the research and development expenditure credit rates from 12% to 13% in order to help drive growth and productivity across the UK, and to continue to support this country’s proud history of innovation. It also raises the structures and buildings allowance rate from 2% to 3%, which should help to stimulate long-term capital investment in the United Kingdom by strengthening the business case for investment in shops, factories and agricultural buildings. Those changes apply nationwide, underlining the fact that, even in these times of uncertainty, the Government are seeking to level up investment and opportunity right across the whole United Kingdom.

The Government have made successive cuts to the rate of corporation tax since 2010 and we now have the lowest headline rate in the G20. That has helped to create a corporate tax system that supports British businesses, boosts economic growth and strengthens the UK’s pull for inward investment.

However, the extra benefits of lowering corporation tax rates still further must be balanced against other objectives, such as funding the NHS and the public services on which we all rely. That is why the Chancellor announced that the Government will not cut the corporation tax rate further this year, but instead will maintain it at 19%, in line with their manifesto commitment.

Likewise, while the Government are committed to encouraging entrepreneurial activity, the evidence indicates that entrepreneurs’ relief in its current form is neither effective in stimulating new business growth nor good value for money. By reducing the lifetime limit from £10 million to £1 million, we are returning the relief to its original purpose while continuing to promote and reward enterprise.

Finally, following an extensive period of consultation, the Bill will implement the digital services tax. Digital businesses providing search engines, social media platforms and online marketplaces derive significant value from their UK users, but current international corporate tax rules mean that that value is not reflected in the level of UK tax they pay. Setting a tax on revenues from those digital services at a rate of 2% will make the system fairer and should raise up to £2 billion over the next five years, but the Government’s ultimate goal is to secure a long-term global solution. We are working with international partners through the Organisation for Economic Co-operation and Development to agree a way forward.

Covid-19 is the most pressing challenge for the country—and, indeed, the world—at the moment, but it is by no means the only one. Notwithstanding our intense focus on tackling the pandemic, the Government have not lost sight of longer-term public concerns, notably the need for the UK to move to a greener and more sustainable economy in the years ahead. Now that we have left the European Union and as we prepare to leave the EU emissions trading system, this Bill introduces legislation for both a charging power to create a UK emissions trading system, and a carbon emissions tax.

This twin-track approach is designed to ensure that, whatever the circumstances, the UK will have an effective carbon pricing regime in place. In the Budget, the Chancellor also revealed key elements of the plastic packaging tax, which should significantly increase the use of recycled materials in packaging. This Bill allows preparatory spending ahead of its introduction.

The Bill will also encourage the uptake of zero-emission vehicles by removing them from the vehicle excise duty expensive car supplement, which will mean that employers and employees pay no tax on zero-emission company cars in 2020-21. The United Kingdom has led the world in introducing legally binding carbon emissions reduction targets; these measures underline once again how serious the Government are about meeting those targets.

My right hon. Friend the Prime Minister has made it quite clear that we will do what it takes to support our public services and key workers as they respond to this pandemic, and to safeguard jobs and businesses so that our economy can bounce back as quickly as possible. Yet we must also look to the future. The advent of a virtual Parliament is a chance to chart new territory, and this Bill is a first step on that journey.

The Bill also redeems the manifesto promises of the last election. It points the way to a fairer tax system and a greener and more sustainable future. With the support of Members from across the House, and as we look beyond lockdown, it gives us all an opportunity to cement the United Kingdom’s place as one of the most innovative, exciting and enterprising nations in the world. For all those reasons, I commend this Bill to the House.

[Mr Speaker]

I call Anneliese Dodds, who is asked to speak for no more than 15 minutes.

Finance Bill (Ways and Means)

Jesse Norman Excerpts

Ways and Means resolution & Ways and Means resolution: House of Commons
Tuesday 19th May 2020 Commons Chamber

[The Financial Secretary to the Treasury (Jesse Norman)]

I beg to move,

That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.

This ways and means motion enables the Government to amend the current Finance Bill in order to implement reforms to the existing off-payroll working rules. We are presenting it separately because we wanted to extend the date at which it comes into force by one year to April 2021 in recognition of the effects of the coronavirus pandemic. The off-payroll working rules have been in place for 20 years. They are designed to ensure that people working like employees but through their own companies pay broadly the same income tax and national insurance contributions as people who are directly employed.

In April 2017, the Government reformed the way in which the rules operate in the public sector by transferring the responsibility for determining whether the rules apply from individual contractors to the public bodies that engage them. Unfortunately, in the private sector, non-compliance with these rules remains widespread, and it is forecast to cost the Exchequer over £1.3 billion a year by 2023-24 if not addressed. This is not a sustainable position. It costs the taxpayer a great deal of revenue that is needed for our public services, it perpetuates an unfairness between individuals working in the same way but paying different levels of tax, and it prolongs the disparity with the public sector, where the rules have been in place now for three years.

At Budget 2018, the Government announced that the reform would be extended to medium and large-sized organisations in the private and voluntary sectors, but it would not apply to engagements with the 1.5 million smallest businesses. It is important to be clear that this is not a new tax. The off-payroll working rules have been on the statute book since 2000. This reform is focused on improving on improving compliance with the rules that are already in place.

Let me turn to the amendment tabled by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis) the hon. Member for Haltemprice and Howden. I understand that it will not be moved today, but it is important to be clear about the Government’s position on it. To help businesses and individuals deal with the economic impacts of the coronavirus, on 17 March the Government announced that the reform to the off-payroll working rules would be delayed by one year from 6 April 2020 until 6 April 2021. The amendment would delay the introduction of reform by a further two years to April 2023, but it is hard to see any genuine rationale for this further delay.

The current measure was first introduced at Budget 2018. Since then, the Government have carried out two consultations on the detail of the reform. Her Majesty’s Revenue and Customs has worked extensively to support businesses in preparing for the change. Draft legislation and guidance has been published. There was a further review earlier this year that resulted in several additional improvements. By delaying until 2021, the Government have already ensured that businesses and contractors will not need to make final preparations for this reform until next year. There is therefore no need for further delay. Moreover, such a delay would have very significant drawbacks. It would not address the intrinsic unfairness of taxing two people differently for the same work, it would extend the disparity between the private and public sectors, and it would come at a significant fiscal cost that other taxpayers up and down the country would have to make up.

I turn now to the substance of the measure. I want to address a number of further concerns that have been pressed by colleagues, including, in particular, my hon. Friends the Members for North East Bedfordshire (Richard Fuller), for Barrow and Furness (Simon Fell), for Workington (Mark Jenkinson) and for Watford (Dean Russell). The first of these is that organisations will no longer engage with personal service companies as a result of this reform, reducing the number of contracts available in the labour market. It is important to recognise that the Government are fully aware of the importance of the flexibility for individuals and businesses to agree working arrangements that suit their needs. We know that that has been one of the pillars of the success of the UK labour market in recent years.

In 2017, soon after the implementation of the public sector off-payroll working reform, the Government commissioned independent research to assess its effect on the labour market. It found that the Government and independent researchers had not seen any evidence of an overall change in the demand for the services and skills of contractors.

Some organisations have clearly decided to change the balance of their employees and their contractors. That can be for many reasons—for example, where that better suits the evolving business model of that organisation—but many organisations will still choose to engage contractors using personal service companies where that is appropriate to their business.

Nevertheless, the Government remain keen to ensure the long-term flexibility and success of the labour market. We will therefore use the additional time given by this one-year delay to commission further independent and robust research into the long-term effects of the 2017 reform on the public sector. We want that research to be available before the reform comes into effect in other sectors in April 2021, and I can tell the House that the Government will give careful consideration to the results of that further research and thereafter will continue to monitor the effect of the reform on the labour markets of those sectors, including by commissioning independent research six months after this private and voluntary sector reform has taken effect.

Secondly, colleagues have concerns that organisations might take a blanket approach to status determinations, categorising all engagements as employment, regardless of the facts. The Government have been very clear that determinations must be based on an individual’s contractual terms and actual working arrangements. Many businesses and public sector organisations have described processes that they have put in place to ensure that determinations are correct, based on the actual working practices of the individuals concerned. There is a vigorous contractor lobby, which has also shown itself willing and able to highlight cases where it feels that the rules are not being followed. The reforms themselves include a client-led status disagreement process, where contractors can lodge a complaint if they disagree with how they have been categorised.

Thirdly, HMRC is continuing to help businesses to get their employment status determinations right by ensuring that they have access to a wide programme of education and support. The independent research that we are announcing post-implementation next year will also evaluate from an external perspective whether decisions are being made properly.

Finally, HMRC has committed to a light-touch approach to penalties in the first year of the reform and has stated in terms that the reform will not result in new compliance checks being opened into previous tax years unless there is reason to suppose or suspect fraud or criminal behaviour, and the same is true for penalties for inaccuracies.

The Government very much value the important role that contractors play in the labour market and want businesses to be able to design their workforces in a way that makes sense for them. That should not mean, however, that contractors pay less tax than employees where their engagement meets the test of an employment relationship. The legislation is designed to remedy that unfairness and to support the tax base needed to fund our public services, and I commend it to the House.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I now call Dan Carden, shadow Minister, who is asked to speak for no more than five minutes.

--- Later in debate ---

[Jesse Norman]

I thank all Members who have contributed to this brief but very lively debate. I thank the hon. Member for Liverpool, Walton (Dan Carden) and the Labour party for their support for this measure and their agreement not merely to the substance of the proposal but to the need for a delay. I think that is absolutely right. They should be congratulated on their bipartisan approach to this important public issue. The hon. Gentleman mentioned the Taylor review, which was picked up by several other Members. The Government whole- heartedly agree: the Taylor review made 53 recommendations, the vast majority of which we accepted, and several have already been put in place.

I covered the question of a delay in my speech. I encourage all Members who would like a further delay to reflect on the points that I made about the intrinsic unfairness of taxing two people differently for the same work, the disparity that it would continue between the private and public sectors, and the significant fiscal cost that would be involved in doing so.

The hon. Member for Glasgow Central (Alison Thewliss) spoke of a review. She should be perfectly clear that I have at no point discussed a further review. We had a review earlier this year, contrary to what the right hon. Member for Kingston and Surbiton (Sir Edward Davey) said. It was a perfectly good-faith discharge of a commitment made during the general election. It involved a wide range of parties discussing how the reforms could be effectively implemented, and several important changes were made as a result of it. Of course, it followed two processes of consultation, draft legislation and a full pre-legislative history.

We are not talking about a further review. We are talking about two pieces of research. The first, later in the year to come before April 2021, will look at the long-term effects on the public sector. It is entirely appropriate to look at the public sector reform, because that is the major case in which the reform has been put in place, and it has led to a significant improvement in the fiscal position relative to those involved and that is all to the good from the taxpayer standpoint. The second piece of research, which I mentioned earlier, will come at the end, after the reform has been introduced. It will be an early take on the effects on the private sector in the first six to 12 months of its introduction.

The hon. Member for Bethnal Green and Bow (Rushanara Ali) raised the issue of whether we could not go further. The Government have gone much, much further. We have essentially had three Budgets already this year, given the astonishing measures that have been taken by the Treasury and across Government to support businesses, people and families during the coronavirus crisis. This resolution and the Finance Bill are designed to bring into law the Budget that we had in March, and that is what they do.

Finally, I remind the House that the measure will not merely improve the fairness and equity of the system, but allow us to fund our public services better—the services on which all of us, across parties and across the country, deeply rely.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I announced to the House earlier this afternoon the provisional determination that a remote Division would not take place on the Question now before the House. That is also Mr Speaker’s final determination.

Question put and agreed to.

Resolved,

That (notwithstanding anything to the contrary in the practice of the House relating to the matters that may be included in Finance Bills) provision taking effect in a future year may be made amending Chapters 8 and 10 of Part 2 of the Income Tax (Earnings and Pensions) Act 2003.

Finance Bill (First sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 1st sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

Amendment 5, in clause 2, page 1, line 10, at end insert—

“(2) The Government must lay before Parliament a review of the impact of the rates of income tax for 2020-21 within six months of Royal Assent, which must consider the following issues—

(a) the effect on taxation revenue of maintaining income tax rates for 2020-2021; and

(b) the effect of income tax rates for 2020-2021 on annual income for the following:

(i) Households below average income, and

(ii) High-net worth individuals as defined by HMRC.”

This amendment would require the Government to assess the impact of the income tax rates in the Bill on tax revenues and on households and individuals of different income levels.

Clauses 2 to 4 stand part.

[The Financial Secretary to the Treasury (Jesse Norman)]

I am delighted to see you in the Chair, Ms McDonagh. I welcome all colleagues and thank them very much for their commitment to this important Bill and this important process. Ms McDonagh, you and our colleagues will be aware that we are scheduled to have seven sets of sittings to give every aspect of the Bill thorough examination. It will be a pleasure to serve on this Bill Committee with colleagues under your chairmanship. It is my first Bill as Financial Secretary to the Treasury, and I hope it will not be my last.

Let me begin by speaking to clauses 1 to 4, which legislate for income tax—the main default and savings rates of income tax, and the starting rate for savings for 2020-21. I shall also speak to amendment 5 to clause 2, tabled by the Labour party.

Clause 1 legislates for the income tax charge for this year, 2020-21. Income tax, as the Committee knows, is one of the most important streams of revenue for the Government, raising more than £190 billion in 2018-19. The clause is put into legislation annually in the Finance Bill. It is essential, because it allows income tax to be collected, so that it can fund the vital public services on which we all rely.

Clauses 2 and 3 set the main default and savings rates of income tax for 2020-21. These clauses, too, are put into legislation annually in the Finance Bill. Clause 2 ensures that for England and Northern Ireland, the main rates of income tax continue to be 20% for the basic rate, 40% for the higher rate and 45% for the additional rate. Clause 3 sets the basic, higher and additional rates of default and savings rates of income tax at 20%, 40% and 45% respectively for the whole of the UK.

I want to consider Labour’s amendment 5 to clause 2, which is in the name of the hon. Member for Houghton and Sunderland South. It would require the Government to review the impact of 2020-21 income tax rates on tax revenues, and both on households with below average incomes, and on high net worth individuals, as defined by Her Majesty’s Revenue and Customs. As the Committee will be aware, the Government already publish comprehensive assessments of income tax rates. In our judgment, the proposed additional review is therefore not necessary.

On revenue impacts, the Office for Budget Responsibility publishes tax revenue forecasts at every fiscal event, and did so most recently at Budget 2020. The Government’s tax information and impact note published in October 2018 provides a clear explanation of the tax impact on the Exchequer and the economy of maintaining the personal allowance and higher rate threshold for 2020-21. On distributional impacts, the Government publish a distributional analysis of the cumulative impact of Government policy at each fiscal event, and did so most recently at Budget 2020. HMRC’s annual income tax liabilities statistics publication provides breakdowns of the number of income tax payers and income tax liabilities across multiple characteristics, including by income source and by tax band. All those publications are in the public domain on gov.uk. Amendment 5 would do little to provide meaningful additional analysis that goes beyond the Government’s existing comprehensive publications, and I ask the Committee to reject it if it is brought to a vote.

Clause 4 maintains the starting rate limit for savings income at its current level of £5,000 for the 2020-21 tax year. As members of the Committee will be aware, the starting rate for savings applies to the taxable savings income of individuals with low earned incomes. The Government made significant changes to the starting rate for savings in 2015, lowering the rate from 10% to 0%, and also extended the band to which the rate applies from £2,880 to £5,000. The changes made by clause 4 will maintain the starting rate limit for savings at its current level of £5,000 for the 2020-21 tax year. The limit is being maintained at that level to reflect the significant reforms made to support savers over the last few years. That support is provided by the Government across the UK, for those at all stages of life and at all income levels. As a result of the support, about 95% of savers pay no tax at all on their savings income.

The decision in 2015 to increase the starting rate for savings by more than 75% has done much to support savers on low incomes. Since then, savers have been further supported by the introduction of the personal savings allowance, which offers up to £1,000 of tax-free savings income for basic rate taxpayers. This will remove an estimated 18 million taxpayers from paying tax on their savings income in 2020-21. In April 2017, the annual ISA—individual savings account—allowance was increased by the largest ever amount, to £20,000.

As a result of the combination of the personal savings allowance and the starting rate for savings, some savers can receive up to £6,000 of savings income outside an ISA completely tax-free. Most savers will of course also benefit from the tax-free personal allowance, which is set at £12,500.

The Government also support our nation’s youngest savers. To encourage those with children and grandchildren to save, the junior ISA and child trust fund allowance increased by more than double, to £9,000, from April 2020. Child trust funds will start to mature from September of this year, and the increase will provide an opportunity to boost the amount that children will have when their accounts mature.

Finally, I should mention the support that the Government offer those on the lowest incomes who wish to save through the Help to Save scheme. Help to Save provides savers with a 50% bonus on their savings—a perfect example of what the Government’s commitment to levelling up opportunity across the whole country can offer. I encourage Committee members to do what they can to promote the scheme to their constituents.

The Government remain committed to supporting savers of all incomes at all stages of life. Recent reforms, coupled with a significant increase in the starting rate limit in 2015, mean that the taxation arrangements for savings income are very generous. Around 95% of people with savings income, as I have mentioned, will continue to pay no tax on that income next year. The Government therefore do not believe that a further increase in the starting rate for savings is appropriate at this time.

Clauses 1 to 3 ensure that the Government can collect income tax, and set the main default and savings rates for the tax year 2020-21. Clause 4 maintains the starting rate for savings income at its current level of £5,000 for this tax year. I commend the clauses to the Committee, and ask it to reject amendment 5.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to serve under your chairmanship, Ms McDonagh, and to welcome other Members to the Committee. I thank the Clerk and all the team in the Public Bill Office for the support that they have provided in recent weeks and will continue to provide as we debate the Bill. Circumstances have been very challenging for staff who have adapted to working remotely. I am grateful for all the discussions and advice that they have been able to offer us. I also extend, via the Minister, our thanks to all the officials in the Treasury who have been working very hard to respond to the crisis that we face. I want to put on the record our thanks for their work, which is often not recognised. Our country’s response to the crisis depends on the work that they undertake on behalf of us all.

I am sure we all accept the importance and necessity of scrutinising the Bill. However, the Opposition find it regrettable that it was not possible to find an alternative arrangement for the Committee stage of the Bill. We hope that the House can resolve the wider issues around protecting those who have shielding responsibilities and making sure that we can all be kept safe at this time. Our proceedings obviously place a great deal of pressure on the staff who are vital to the House’s functioning. Again, I reiterate my thanks to them. We will want to consider certain aspects of the Bill in much greater detail over the coming weeks. I can assure the Minister that we appreciate the pressure that officials are under in responding to the crisis, and that we intend to be responsible in our approach, and will remain focused on our key priorities in the Bill.

Our amendment 5 would require the Government to assess the impact of income taxes in the Bill on tax revenues, and on households and individuals of different income levels. The Government like to tell us that we live in unprecedented times, which is of course true. As such, we need greater scrutiny of policies that may need to be revised in what is clearly becoming an unprecedented economic downturn. The Resolution Foundation estimates that GDP will contract between 10% and 24% owing to the outbreak of covid-19: an economic shock of a kind that has not been seen since the 18th century. Very much is at stake. It is crucial that the Government assess the means by which they generate revenue, given the huge demands facing our public services and economy.

First, we need to know how much revenue we are generating from maintaining income tax rates, in order to determine whether it is enough to meet the demands on our economy and the pressures on public services, as well as the Chancellor’s income support packages. Secondly, we need to better understand its distributional income. Over the past 10 years we have seen large cuts to working age benefits against reductions in direct tax, including a large rise in the tax-free personal allowance. Unsurprisingly, the winners in all this have not been low-income households. According to the Institute for Fiscal Studies, the poor have been disproportionately hit by tax and benefit changes since the Conservatives came to power 10 years ago. The worst-off 10% of households have lost 11% of their income since 2010. When we factor in households with children, that rises to 20%. In contrast, the highest-earning 10% of the population have seen their incomes fall by only 2% in the same period.

In its 2020 Budget analysis, the Resolution Foundation makes it clear that nothing has been done to offset the considerable welfare cuts made by previous Chancellors since 2015. Households in the second net income decile, for example, will eventually be £2,900 a year worse off on average, thanks to the tax and benefit changes announced since 2015, and £900 of that is yet to come; it will result from welfare policies that are still being rolled out. These cuts mean that the incomes of the poorest families have fallen over the last two years, and there is a real risk that child poverty rates will reach record highs by 2024.

--- Later in debate ---

[Jesse Norman]

I will speak to the amendment and the clause. I would also like to touch on some of the themes raised by the Opposition Front Bench team and by the Scottish National Party, because those important issues need a proper interrogation.

Clause 5 sets the corporation tax main rate for this financial year beginning on 1 April 2020. Clause 6 sets the corporation tax main rate and the annual power to charge corporation tax for the financial year beginning on 1 April 2021. The Government support a competitive corporate tax system that allows UK businesses to flourish, boosts the economy and supports further inward investment in the country. For that reason, the Government have made successive cuts to the headline rate of corporation tax, with the main rate falling from 28% in 2010 to its current rate of 19% in April 2017.

At Spring Budget 2016, the Government announced that they were going to cut the rate further to 17% in April 2020 and legislated to deliver that in the Finance Act 2016. It is important that cuts to the corporation tax rate, and the benefits that they can provide to business growth and investment, are balanced against wider objectives. The Government’s commitment to sustainability in public finances reflects that.

With that balance in mind, the Government announced at the Budget that the corporation tax main rate would remain at 19% in April 2020, rather than being reduced to 17%, and clauses 5 and 6 legislate for that change in rate for this tax year and the next. At the Budget, the Office for Budget Responsibility forecast that that would raise about £33 billion in additional tax receipts across the forecast period. That will enable the Government to further support the vital public services on which we all rely, including the NHS.

The Government remain committed to supporting investment in innovation through the business tax system. While the corporation tax main rate remains at 19%, the UK continues to offer the lowest headline rate of corporation tax in the G20. The Government also announced a series of generous capital release for business at the Budget, which are being legislated for in the Bill, including an increase in the R&D expenditure credit from 12% to 13% and an increase in the rate of relief for business investment in non-residential structures and buildings from 2% to 3%. The Government have also provided an unprecedented package of support for businesses in response to covid-19, as has been recognised.

Before I turn to amendment 6, I will pick up some of the helpful and interesting themes that the Opposition Front-Bench spokespeople have raised. The hon. Member for Houghton and Sunderland South thanked Treasury officials and the hon. Member for Glasgow Central thanked the Clerks. I echo those thanks. I am sure that they would also join me in thanking the officials at Her Majesty’s Revenue and Customs, who have done an astonishing job in the last few months, especially in response to covid-19.

The hon. Member for Houghton and Sunderland South said that her key priority will be a focus on accountability with an emphasis on responsibility. The hon. Member for Ilford North highlighted that the Labour party is pro-business in a more generous and inclusive sense than had perhaps been understood by regarding business as merely a source of revenue to support public services, which I welcome. I encourage the scrutiny, which I think increases the authority of the power that is being scrutinised, so it is a good thing in general. I welcome them both to what is an evidently responsible and highly competent shadow Front-Bench team.

I have a couple of further points. In relation to equity, hon. Members on both sides of the Committee know that many of those distribution analyses do not include the full welfare and benefit changes but focus on tax changes, which is one reason why it is hard to model them. It is important to be aware, however, that spending on public services was significantly increased in the spending round last summer. On the tax side, something like 29% of income tax is paid by the top 1% of earners.

On the question raised by the hon. Member for Glasgow Central about the status of women and equalities, which is an issue extremely near the hearts of Government Ministers—[Interruption.] I am delighted to hear the Exchequer Secretary behind me, fresh from her triumph in the urgent question, echo that. I am sure that hon. Members on both sides of the Committee know that 15.8 million women are in work at the moment, which is a record high that I am delighted about. The wages of the lowest earners have risen by 11% more than inflation over the four years from 2015 to 2019. The poorest 60% of households receive more in public spending than they pay in tax, and the lowest income decile will get more than £4 in benefits and public services for every £1 they pay in tax. It is important to see that those norms of equity and fairness that the Opposition rightly highlight are reflected in policy and shared by Government.

[Bridget Phillipson]

When Ministers are considering these issues in response to the pandemic, may I ask that they look at evidence as it emerges? While the Opposition welcome and have supported the creation of, for example, the furlough scheme, our concern is that we know women are more likely to be furloughed than men and women risk losing their jobs in bigger numbers during the crisis. I welcome the Minister’s comments about understanding the impact on the economy and within different groups, but I urge him to consider this issue as a Treasury priority.

[Jesse Norman]

The hon. Lady is absolutely right that as we work through this crisis and, as we all hope, come out the other side, there will need to be a more detailed understanding of the implications in data terms, how it has affected different groups and its distributional impacts. We have well-established procedures within existing frameworks, as she will know.

The question was touched on more generally by the hon. Member for Ilford North in relation to corporation tax, but we have a whole procedure of making updates to Parliament and a procedure for forecasting that is now independent, thanks to the decision taken in 2010 to create the Office for Budget Responsibility. That includes a fiscal sustainability report on the overall benefit of measures, which goes to his question about corporation tax revenues. Needless to say, the Government’s support for the NHS is not contingent on the revenues from corporation tax; it goes much deeper than that.

The hon. Member for Glasgow Central raised many of these issues. She touched on a question in relation to the Scottish tax system. Of course, it is for the Scottish Government to review the effects of their decisions on income tax and the benefits for which they are responsible. At the same time, they can review their own progress on equality and inequality.

Turning to the hon. Member for Ilford North, I noted with support his inclusive approach towards business. That is very important. He asked about the impact of maintaining the tax rate at 19%. I have indicated that that is estimated to raise several tens of billions over the course of the spending round. What the effect of covid-19 will be on that we do not know, but, as I say, we have processes for evaluating and forecasting on that basis.

Amendment 6 would require the Government to conduct a review of current corporation tax rates, including the effect on tax revenue and the impact of the corporation tax rate structure on businesses of different sizes within six months of the Bill receiving Royal Assent. As I have mentioned, the OBR-certified Exchequer impact for this measure was published in table 2.1 of the Budget Red Book.

We recognise that the economic disruption created by the pandemic will have an effect on the tax revenue forecast at Budget. That will be monitored and changes will be made through the OBR principle and process to the forecast and reflected at the next Budget. HMRC also publishes corporation tax statistics annually, alongside a report that includes a breakdown of the amount and proportion of total corporation tax receipts paid by businesses at different levels of profitability. Therefore, the Government already publish the information called for in the amendment and the separate review legislated for in amendment 6 is, in our judgment, not necessary. I ask the Committee to reject amendment 6 and move separately that clauses 5 and 6 stand part of the Bill.

[Alison Thewliss]

Corporate taxation is not within the power of the Scottish Parliament. We have to live with the decisions that Westminster makes on this, but I am glad the Government have realised the error their ways in originally aiming to cut corporation tax. Given the money that would have been lost to the economy, that is wise.

The Minister mentioned the impact on women in work. Findings from various women’s organisations suggest that coronavirus will have an impact on women’s employment, and that employment will not recover unless there is significant investment in childcare to redress that as we come out of this crisis. If we were to take evidence from groups such as the Women’s Budget Group, we would have a lot more detailed evidence on the impact of the proposed measures on women. I encourage him to look at that evidence and engage with the Women’s Budget Group to consider how better we can have evidence brought from groups who have expertise in this area. Such groups have pointed out that women are more likely to be furloughed and more likely to lose their jobs. As the furlough scheme is wound up, they will face unemployment sooner than they would have anticipated as employers look at the scheme and say, “I can’t afford to pay these wages. I’m just going to sack my staff.” None of that necessarily relates to the amendment on corporation tax, but I want to make sure those points are on the record.

--- Later in debate ---

[Jesse Norman]

May I respond briefly, Ms McDonagh? The hon. Lady talks about the Government recognising the error of their ways, but there is a misunderstanding encoded in that view. The Government’s goal had always been to set out a direction of travel because forward guidance has economic value in guiding private investment decisions, but of course all tax rates are constantly kept under review by the Treasury. As has been recognised and discussed in Committee, many considerations go into the decisions on what rate to charge, so I do not think it is fair to describe it as she has done.

[Wes Streeting]

We may well return to this issue in later stages of the Bill, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 5 ordered to stand part of the Bill.

Clause 6 ordered to stand part of the Bill.

Clause 7

Determining the appropriate percentage for a car: tax year 2020-21 onwards

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

--- Later in debate ---

[Kemi Badenoch]

I thank both hon. Members for the points that they have made and the good questions they asked. I reiterate that tackling climate change and improving the environment are top priorities of the Government. The UK is a world leader on climate change. The reason why we are doing this is to address several things at once.

Let us remind ourselves what the WLTP is. It is designed to ensure that we are reflecting real world driving conditions more accurately by including a longer test time. The aim is to reduce the 40% gap between lab tests and real world driving. We have put many other levers in place to address the broader issue of climate change.

I accept the point about complexity—I recognise the need to ensure that this does not have an overall impact on the consumer. One of the reasons why we are phasing it in this way is to better protect the automotive sector. I thank both Members for the points they made.

Question put and agreed to.

Clause 7 accordingly ordered to stand part of the Bill.

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

Clause 10

Apprenticeship bursaries paid to persons leaving local authority care

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

[Jesse Norman]

Clause 10 exempts care leavers’ apprenticeship bursary payments from income tax. This Bill contains areas on which there will be disagreements across the Committee, and areas that the Opposition Front-Bench team has noted that it wants to prioritise in scrutinising the Government, but there are other clauses that are essentially technical in nature on which I doubt there is any serious disagreement about their importance or intent. This, I suggest, is one of those clauses.

Young people who are in care or have left care who choose to start an apprenticeship receive a £1,000 bursary to help them to make the transition to the workplace for their practical studies. The extra financial support is for those aged 16 to 24 and living in England. Payments such as the care leavers’ apprenticeship bursary would normally be subject to income tax, as such payments relate to employment. Changes made by clause 10 mean that bursary payments made to care leavers who start an apprenticeship are exempt from income tax.

The changes affirm the Government’s commitment to support care leavers and ensure that those in receipt of the bursary can benefit by the full amount. The clause ensures that care leavers starting an apprenticeship will benefit from 100% of the bursary value. It is the right thing to do and I commend the clause to the Committee.

[Wes Streeting]

The Financial Secretary is right that he will not get much by way of argument from us. The bursary is obviously a laudable policy designed to support people in our society who lived in care as children and who far too often face serious disadvantages in terms of educational outcomes, employment opportunities and life chances.

It is a source of deep regret to me, as the son of a parent who spent time in care—care leavers are a big part of my family—that we have not done more as a country to narrow the attainment and opportunity gap for care leavers. Of course it is right that individuals who are in or have left local authority care who subsequently join an apprenticeship scheme should not be subject to income tax and national insurance contributions. We will certainly not oppose a clause designed to give effect to that.

I have some questions for the Financial Secretary about how the Bill deals with that, as much out of curiosity as anything else. There is an existing exemption in section 776 of the Income Tax (Trading and Other Income) Act 2005 for income from scholarships, which includes bursaries held by an individual in full-time education. Section 776 could have been amended to include the bursary payment, instead of introducing a new section to the Income Tax (Earnings and Pensions) Act 2003. I would be grateful if he could clarify why the Government have chosen to enact the provision by amending legislation in that way, rather than using section 776 of the 2005 Act.

I understand that it is the Government’s view that the bursary is employment income rather than other income, but other bursaries are classed as other income, and care leavers could be entitled to bursaries outside an apprenticeship. I would be grateful if the Minister explained why the Government consider this bursary to be employment income. If it is employment income, legislation will be required to exempt the payment from national insurance contributions; if it is not, additional legislation might not be needed. Some understanding of that, for our interest and the interest of all those who follow proceedings such as these closely, would be welcome.

[Alison Thewliss]

Again, I am not looking to oppose the clause. The aim is laudable, but I want to highlight a couple of things about apprenticeships. Coronavirus could significantly affect the number of apprenticeships that will be available to young people this year and perhaps even into next year as well. What do the Government intend to do to make sure that those opportunities are not lost to a generation of young people who are leaving school as well as leaving care?

As you will appreciate, Ms McDonagh, if those young people do not have the opportunities that they should, the impact on them will be devastating—as it will be on society as a whole if their skills and talents do not go into the workplace. I implore Ministers to look carefully at that, to make sure that they do not miss those young people, and that those concerns are high on their agenda. Apprenticeships can be transformational for young people. They can give them new opportunities and a chance to do something that they would never have anticipated through their family background or their ambitions growing up. It is vital to protect them in the months ahead.

I would also highlight the fact that the minimum wage rate for apprenticeships remains staggeringly low. The Government should look carefully at apprentices more generally. The bursary in the clause is fine and laudable, but apprenticeships for all young people need to be properly remunerated. Some of those young people will have families themselves and will be unable to take up those opportunities if they cannot afford to put food on the table because the apprenticeship rate is so low.

Not all young people live with their families, as the bursary recognises; but all young people who want them should have access to apprenticeships. I urge the Government to reconsider minimum wage rates more generally. There should be a living wage for everyone, but apprenticeship rates in particular are incredibly low in this country and they need to be addressed urgently so that all young people who want to can take up those places.

The Government could also look at the work done in the care review in Scotland. We appreciate that not all the things that could have been done to help young people have been done. The care review took an in-depth look at that. I urge the Minister to look at that and at what more can be done to support young carers in society.

[Jesse Norman]

Those were two useful, helpful contributions from the Opposition. The broad answer to the technical question raised by the hon. Member for Ilford North is that this is a cleaner and more direct way of addressing the problem; but I should be delighted to write to him and set out the reasoning in more detail.

The hon. Gentleman raised the question of other exemptions. As he will be aware, we are absolutely amenable to considering these things on a case-by-case basis, and if there are others that he thinks deserve further consideration, he is again welcome to write to me and we will give that a review.

The hon. Member for Glasgow Central raised a point about apprenticeship opportunities more widely, and she is absolutely right. The Government have already been leaning into the issue of apprenticeships, as she will know, through the levy. There is much more work to be done in this area, and it is well understood, certainly from the Prime Minister down, that the response to the coronavirus may well cause the Government to want to look at the whole area in more detail.

I cannot pass from this topic without drawing the hon. Lady’s attention to a personal interest that I have, which is the New Model Institute for Technology and Engineering, in Hereford. That is the new university we are setting up precisely to integrate the academic and the vocational in a way that gives scope for very high value-added learning, using apprenticeships but also actual project work, in a way that is integrated into the engineering curriculum in many ways.

Question put and agreed to.

Clause 10 accordingly ordered to stand part of the Bill.

Clause 11

Tax treatment of certain Scottish social security benefits

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

[Jesse Norman]

I had hoped that we might be able to debate clauses 11 and 12 together, because in some respects they sit better together, but let me pick up clause 11 in its own right and we can then take clause 12 separately. The clause confirms that three new specifically Scottish social security benefits are not subject to income tax. The income tax treatment of social security benefits is legislated for in part 10 of the Income Tax (Earnings and Pensions) Act 2003. That Act provides certainty on existing benefits and needs to be updated when new benefits are introduced.

The Scottish Government are introducing three new benefit payments: the job start payment, disability assistance for children and young people, and the Scottish child payment. The tax treatment of those benefits is governed by the fiscal framework agreement between the Scottish Government and the UK Government, which sets out that any new benefits introduced by the Scottish Government will not be deemed to be income for tax purposes unless they top up or replace benefits deemed to be taxable already. The UK Government currently choose to clarify the treatment agreed in the fiscal framework through Finance Bill legislation, which is why we have the clause before us today.

The changes made by the clause ensure that these three new benefits are not liable to income tax, in line with the fiscal framework agreement between the UK Government and the Scottish Government. The clause is straightforward, clarifying and confirming the tax treatment of several welfare payments and introducing a new power to ensure that a simpler process may be used to effect future changes as may be needed. I commend the clause to the Committee.

[Bridget Phillipson]

The Minister made reference to the discussions we will have on clause 12, but the Opposition do not object to the principle behind this clause, which appears straightforward and to achieve its aim.

--- Later in debate ---

[Alison Thewliss]

I thank the hon. Lady for her comments, which she is quite right to make—the Library analysis is really important. I am moving the amendments to point out just how complex the system is that there is of course a cost to having and administrating such a system. People have difficulty navigating that system, because it makes it more difficult to claim what they are entitled to, particularly if they are moving from one benefit to another. Although I appreciate the points that she has made and understand why she made them, these are probing amendments to see what the point is and what the Government are doing to make an ongoing assessment of the logic of that complexity, for which there is a cost and a difficulty. Although I in no way deny the cost—I know the amendments have no prospect of being passed by the Committee—I would like the Government to consider carefully the impact of that complexity on individuals, and whether they can simplify the system, which is ludicrously complicated.

[Jesse Norman]

I thank colleagues for their contributions. As they have recognised, the amendments are very technical in nature. I will keep my remarks brief because, if we can, I would like to discuss clause 13 before we break, which will leave us a clear run at the afternoon. Clause 12 introduces a power that commits the Government to clarifying tax exempt status for future new social security benefits introduced by the UK Government or devolved Administrations using a statutory instrument. That power has a more general applicability and creates an additional flexibility that will be of value to Government in making changes to address needs more rapidly than at the moment.

The hon. Member for Glasgow Central tabled her amendments in an interrogatory—or probing—spirit, for which I thank her. My response has been very well articulated by the hon. Member for Houghton and Sunderland South. Scottish benefits are treated in line with the fiscal framework and, under that framework, which exists between the UK Government and the Scottish Government, only new benefits that top up or replace an existing taxable benefit will be liable to tax. That is an established principle of taxation exactly to avoid the perverse incentives that might otherwise be created.

In addition to the questions raised by the shadow Minister about cost and equity, it is worth mentioning that the effect of entertaining the amendments would be to undermine the fiscal framework agreement and that longstanding principle of taxation. I ask the hon. Member for Glasgow Central, in a rhetorical spirit, whether she really means to overturn the fiscal framework that was hammered out over a number of years between those two sides. If she does, is it her intention to throw out other settled agreements between the Scottish Government and the UK Government within that framework? I suggest that that is not her intent and, because the meaning and purpose of the clause is clear, I commend it to the Committee and invite her to withdraw the amendment.

[Alison Thewliss]

I am indeed content to withdraw the amendment, but the point stands that there is an inconsistency within the system, in which a war widow’s pension is not taxable but a widow’s pension is. There are huge inconsistencies about which I have questions. The Minister is being mischievous when he suggests that I would want to undermine the fiscal framework, but he knows fine well that I long for the day when the fiscal framework is not necessary because Scotland is an independent country that makes for ourselves the full range of decisions about what is best for our people. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 12 ordered to stand part of the Bill.

Finance Bill (Second sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Thursday 4th June 2020 Public Bill Committees

[The Chair]

Good afternoon, colleagues. Consideration of the Finance Bill recommences. I remind everyone that Hansard reporters would be grateful if hon. Members could email electronic copies of their speaking notes to [e-mail]. If everyone could remember to do that, that would greatly assist those recording the proceedings. We now return to line-by-line consideration of the Bill.

Clause 13

Voluntary office-holders: payments in respect of expenses

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

[The Financial Secretary to the Treasury (Jesse Norman)]

What a delight it is to see you in the Chair, Mr Rosindell. As I touched on earlier, this is one of those clauses that I do not think elicits any spirit of contention on the different sides of the room.

Clause 13 creates a statutory income tax exemption for payments and reimbursements of reasonable private expenses incurred by voluntary office holders in carrying out the duties of their offices. Individuals undertaking voluntary work for an organisation such as a charity or local benevolent society are not generally classed as office holders or employees, so the payment or reimbursement of any reasonable expenses incurred by those individuals when doing the work of that organisation is not liable for tax. However, in some circumstances, an individual who does unpaid work for an organisation may also be an office holder. That is because they are appointed to a role that exists regardless of who occupies the position at any one time. They are referred to as a “voluntary office holder” in tax legislation. People in that position include, for example, magistrates and special constables.

An office holder, including a voluntary office holder, is chargeable to tax on any earnings from their position and subject to the tax rules for expenses and deductions on the same basis as employees. Her Majesty’s Revenue and Customs’ long-standing practice is that no tax arises on private expenses paid or reimbursed to voluntary office holders so long as they receive no reward for carrying out the duties of their office and any payments or expenses do no more than meet the expenses incurred. That treats voluntary office holders in the same way as volunteers in relation to expenses paid or reimbursed by their organisation, but the treatment is at the moment only concessionary.

This measure therefore places the current concessionary treatment on a statutory tax footing. That ensures that reasonable out-of-pocket private expenses paid or reimbursed to voluntary office holders in relation to their duties of office remain tax-exempt. The exemption recognises the role of voluntary office holders and the services that they provide. It ensures that the tax treatment of their private expenses continues to be comparable to that of volunteers, and it provides certainty by placing that treatment on a statutory footing.

Those who hold voluntary offices often—in fact, almost invariably—give valuable service in our communities. It is right that we legislate to provide certainty for people in such roles and bring the tax treatment of their expenses in line with that for others who volunteer their time. This is a simple and sensible technical change, and I therefore urge that the clause stand part of the Bill.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to serve under your chairmanship this afternoon, Mr Rosindell, and I welcome you to the Chair.

Opposition Members have no issue with the intention behind clause 13. It is right that the tax treatment of those carrying out valuable work on a voluntary basis is put on a statutory footing so that it is the same for all voluntary office holders, across the board.

Of course, most individuals who do unpaid voluntary work for an organisation are not office holders or employees, and I would like to take this opportunity, at this time, to express my gratitude for the amazing work that volunteers are doing right across our country in responding to the crisis we are experiencing. The work they are doing includes running food banks. Amazing volunteers in my constituency are providing that kind of support to vulnerable people and, frankly, to too many families. I yearn for the day when they will be able to be redeployed in other areas of activity because the support provided by the Government—the state—is adequate for all families to put food on the table. Many other volunteers at this time have been delivering meals or supporting people with prescriptions. There is a whole range of help and support being provided, which just demonstrates how important a role volunteers play in our society. That is of course no substitute for the necessary action we expect from Government, which has sadly been too lacking in recent years, and after a decade of big changes. That has meant that volunteers have filled the gap that should be filled by the state itself.

As for the scope of the clause, the Chartered Institute of Taxation has identified some technical issues, and I hope the Minister will be able to respond to some points about them. The first is about the lack of a definition of a volunteer office holder in this legislation and the fact that that may lead to some confusion as to whether charitable or other unpaid trustees would be regarded as office holders for the purpose of this exemption. The Minister was right to point to office holders such as special constables and magistrates—and perhaps those who are office holders in community amateur sports associations—but I would be grateful if he could clarify the scope of the clause.

The second concern that the Chartered Institute of Taxation has identified is whether this legislation will achieve its intended purpose, given that the clause covers expenses incurred in carrying out the duties of the office, but not explicitly those expenses that enable such duties to be carried out—for example, childcare costs. I would be grateful if the Minister could clarify the position and put on record that such costs would be tax-exempt for voluntary office holders under the legislation.

[Jesse Norman]

I thank the hon. Lady for her questions. These are two technical issues that she is right to cover. The position of Revenue and Customs, and of the Government, is that there is adequate clarity about the scope of the clause. It passes into law only a considerable body of accumulated practice in dealing with expenses of the kind that we have described. As I have mentioned, commissioners have discretionary powers—those collection management powers—to manage these taxes and duties, and are able to exercise those powers in particular circumstances. So if there is a concern that, somehow, the scope of the clause is inadequately defined, there remains extra statutory power for the commissioners to exercise those collection management powers in so far as they wish.

The hon. Lady is also absolutely right to raise the secondary issue of what counts as an allowable expense. The answer is that a definition of reasonableness exists in general in people’s minds and in law—of course, it reflects the facts of a case and is context-dependent. The core idea is that the payment or reimbursement should do no more than meet the actual expenditure that has been incurred by volunteers.

To give an example, someone may be volunteering for a charity, perhaps as a treasurer, which is an office holder, and doing most of their work from home. If the charity offers them a small weekly payment to cover the additional cost of using their home, that is a reasonable expense. To take a different example, if someone is volunteering as a magistrate at their local magistrates court for one day a week and seeks reimbursement for their childcare costs for the week, even if the court agrees to that, the full week will not be considered a reasonable reimbursement for private expenses, because it does not relate to the actual expenditure that has been incurred.

I can clarify, to that extent, the point the hon. Lady made. I think that tracks relatively clearly our normal intuitions about working, as well as working practice elsewhere in the voluntary sector. With that said, I would like to move that the clause stand part of the Bill.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14

Loan charge not to apply to loans or quasi-loans made before 9 December 2010

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

[Jesse Norman]

This is the first of seven clauses— clauses 14 to 20—that bear on the loan charge. I do not need to tell any Member of the House of Commons that the loan charge has elicited a degree of controversy in some quarters. It might be helpful if I remind the Committee of the nature of the loan charge and what it actually is.

The clause amends the date from which disguised remuneration loans are subject to the loan charge specifically from 6 April 1999 to 9 December 2010. That has the effect of removing loans entered into before 9 December 2010 from the scope of the loan charge.

Disguised remuneration, as it is described, is a form of abusive tax avoidance, where individuals seek to avoid paying income tax and national insurance contributions by receiving payment through a loan that is itself never repaid—a remuneration practice that costs the Exchequer hundreds of millions of pounds a year. In many cases, the loans are paid over and above a smaller payment that goes through the pay-as-you-earn system, and the payment is made, perhaps on a monthly basis, in the form of an accumulation of a loan. The loan never, in my experience, has interest charged to it. The expectation is that it will never be repaid. It is typically administered through an offshore vehicle, which highlights how contrived this approach is to the avoidance of tax.

The loan charge was designed to combat that form of tax avoidance. It was introduced as a new measure in 2017. In September 2019, the Chancellor commissioned Sir Amyas Morse to conduct an independent review into whether the loan charge was an appropriate policy response to the use of such disguised remuneration schemes. Sir Amyas had full control over the review’s management and recommendations. He received evidence from a very wide range of individuals affected. He spoke to interest groups, Members of Parliament, tax specialists, legal experts and many other stakeholders.

Sir Amyas’s report, which is 76 pages in length, is a thorough and exacting review document, which painstakingly worked through the issues and recommended notable changes to the policy, including substantial carve-outs regarding who was affected. The Government accepted all but one of Sir Amyas’s recommendations, and more than 30,000 people will benefit from the changes. This clause, along with others in the Bill, make changes to bring about those recommendations in so far as they require statutory change. Work is under way by the Government to implement the recommendations that do not require legislation.

Sir Amyas’s careful and considered report examined the question of the date from which the loan charge should apply. He concluded that the law regarding the tax treatment of disguised remuneration loan schemes was clear from 9 December 2010, when draft legislation was published setting out that income provided through schemes using third parties, such as loan schemes, would be subject to income tax and national insurance.

Clause 14 amends the date from which disguised remuneration loans can be subject to the loan charge and removes those loans entered into before 9 December 2010 from the scope of the loan charge. The clause, along with clauses 15 to 20, legislates for several recommendations from the independent review on the loan charge. It takes about 11,000 people out of the loan charge entirely, and it reduces the tax charge of around 21,000 individuals. I therefore commend the clause to the Committee.

--- Later in debate ---

My hon. Friend the Member for Aberdeen North (Kirsty Blackman) wrote to the then Treasury Minister, the right hon. Member for Central Devon (Mel Stride), seeking assurances that evidence would be provided to parliamentary hearings. This goes to my earlier point that we need evidence, and that we need to be able to interrogate and ask questions of that evidence. Somebody sending a briefing is useful, but being able to have some back and forth with people who know more about this than we perhaps do would allow us to make the right decisions. Evidence from the likes of the all-party parliamentary loan charge group or other experts in the field might have been incredibly useful to the Committee.

[Jesse Norman]

I thank the hon. Members for Ilford North and for Glasgow Central for their speeches. The hon. Member for Ilford North started by setting out the principles of, as it were, a Labour approach to tax avoidance and evasion, and described how, in the Labour view of things, tax avoiders were in fact guilty of robbery, which I thought was a very big claim. Robbery is not a word I would ever use in this context, but there is a serious problem of avoidance and evasion, and—as I will come on to, and as the hon. Member for Glasgow Central mentioned—there is a serious problem with the promotion or enabling of tax avoidance and evasion schemes.

I thank the hon. Member for Ilford North for his comments in support of Revenue and Customs, with which I fully concur, as I am sure does everyone in this Committee and the more than 10 million people who now have their livelihoods or jobs supported by schemes that HMRC has put in place in a very short period. He also rightly praised Sir Amyas Morse, saying that the Labour party accepted the Morse review as a piece of work. He is absolutely right about that. Sir Amyas, on his retirement, elicited unimpeachable measures of approval and statements of support from across the House.

Where I think the hon. Gentleman is wrong is on the question of retrospection. He will be aware that the loan charge is a new charge and is therefore not retrospective legislation. The common understanding of retrospection is that it somehow changes the law as it was at the time when people operated, but the whole point is that, as Sir Amyas found, from at least 9 December 2009, the law was as indicated. One can dispute the period before that, and HMRC retains the ability in the case of certain years to pursue people for tax due before that period. But the review made clear—this is very important—that Sir Amyas Morse accepted the principle of the loan charge. The review made significant changes to the application of a principle that Sir Amyas accepted.

We are bound to return to these themes later on in our discussions, but it is worth touching on them now. The hon. Member for Ilford North raised the provision that the Government did not accept in the Morse review, which was the idea that arrears in tax should be written off after 10 years. The reasons that the Government did not accept that were twofold. The first was that it would have had the effect of treating people who had engaged in these disguised remuneration schemes and benefited from this approach more favourably than other people who might be in arrears in tax with the Revenue, which the Government felt was not appropriate.

The second reason was that the Revenue and Customs has highly effective time-to-pay arrangements, which have been further extended in the case of the loan charge, to allow people on lower incomes an additional seven years of time to pay as a minimum. Those arrangements are very flexibly and intelligently administered by the Revenue and Customs, and they are already being utilised by people in significant numbers before the coronavirus pandemic and undoubtedly as a result of it. There is no need for a statutory change, and such a change would have had the effect of treating scheme users more favourably than others.

The hon. Member for Ilford North raised the all-party parliamentary loan charge group and the Loan Charge Action Group, which has been very vigorous on social media and elsewhere. Colleagues’ input is always valuable, but we should take this one with a little pinch of salt, because it is the product of an enormous amount of concerted political lobbying of an extremely intense kind on Members who are members of that group. In that sense, it does not exercise what I would consider the kind of independent judgment that we would want an all-party parliamentary group to exercise.

The contrast is with the Morse review itself, which was an admirably independent-minded piece of work. It by no means took a Government line in any of its recommendations and showed itself all the more valuable for that. It was itself a comprehensive response to the concerns that had been raised. If people have concerns about, for example, the choice that Sir Amyas made to locate the point of cut-off for the application of the loan charge to 9 December 2009, they have merely to read the relevant chapter, which is an extremely thorough and careful reconstruction of the legal process and the enforcement process up to and after that date.

I am struck by the fact that many of the themes that came through in the Morse review were picked up by a rather important recent case which related to the loan charge—Zeeman and Murphy v. HMRC—in which the judge said:

“This is not a tax on fictitious income or benefits, but on genuine remuneration received for work done or services rendered, paid in the form of a loan. The recipients of the money have had the advantage of its use for some time…over many years.”

That is true. The judge went on to say that

“it was well within the generous margin of appreciation for Parliament to decide that it would tackle the matter in the way that it did, and impose a present tax liability in respect of money whose use, tax-free, had been enjoyed by the recipient over a number of years.”

I do not want to comment on that, because I do not think that proceedings in a law court should be commented on by Members of Parliament, but I draw it to the Committee’s attention.

Question put and agreed to.

Clause 14 accordingly ordered to stand part of the Bill.

Clause 15

Election for loan charge to be split over three tax years

[Jesse Norman]

I beg to move amendment 1, in clause 15, page 9, line 8, at end insert—

‘(11) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (7)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.

(12) In sub-paragraph (11) “specified” means specified in the regulations.’.

This amendment will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 11 to the Finance (No.2) Act 2017.

[The Chair]

With this it will be convenient to discuss Government amendments 2 and 3.

[Jesse Norman]

The clause allows taxpayers to make an election to spread their outstanding disguised remuneration loan balance evenly across three tax years. The effect is to give to taxpayers greater flexibility on when the outstanding loan balance is subject to tax. In some circumstances, that will mean that the loan balance is subject to lower rates of tax than if taxed only in the 2018-19 tax year.

As I described, the Government accepted all but one of Sir Amyas Morse’s recommendations, which included that taxpayers should be able to choose not to stack their outstanding loan balances into a single year. In deciding to allow individuals to elect to spread the loan charge over three years, the Government balanced the aim of reducing the number of people affected by higher marginal rates of tax against the administrative burden on individuals, employers and HMRC.

The Government wanted to ensure that people have a choice about whether to make an election. Some taxpayers may prefer to settle their loan charge liability in one year, providing certainty for them going forward. For many individuals, however, the option to spread the loan charge balance over a three-year period will allow for the amounts to be repaid over a longer time than otherwise required, and potentially with a tax advantage, had they paid the loans in the years received

Part 1 of schedule 1 provides consequential amendments to schedules 11 and 12 to the Finance (No. 2) Act 2017 to give effect to clause 14 of the Bill. The changes amend further references to the date of 6 April 1999 to remove references to approved fixed-term loans, which related only to loans made before 9 December 2010 and so are no longer affected by the loan charge—they have essentially been taken out of scope. Those consequential amendments are necessary to give effect to the legislative changes introduced following the recommendations by the independent review into the loan charge.

Part 2 of schedule 1 makes the consequential amendments to the Income Tax (Earnings and Pensions) Act 2003 necessary to give effect to clause 15 of the Bill, which allows an individual to make an election to spread their loan charge balance over three consecutive years: specifically, the years 2018-19, 2019-20 and 2020-21. Furthermore, part 2 sets out consequential amendments to the Social Security (Contributions) Regulations 2001— S.I. 2001, No. 1004—to ensure that the liability to national insurance contributions can also be spread over three years. Part 2 also introduces amendments to ITEPA to ensure that where a person dies before 5 April 2019, the schedule 11 loan charge will not apply.

Government amendments 1 and 2 to clause 15, and Government amendment 3 to clause 17, seek to achieve the same aim of giving Her Majesty’s Revenue and Customs the flexibility to defer the dates set out in those clauses. Clause 15 deals with the date by which an election must be made by an individual subject to the loan charge where that person wishes to split their tax liability over three years. Clause 17 deals with the date by which an individual subject to the loan charge must submit a complete and accurate 2018-19 self-assessment tax return and pay the balance of their 2018-19 tax liabilities if they are to avoid paying interest.

Recognising the impact of the coronavirus pandemic on the potential ability of some loan charge taxpayers to finalise their affairs in time to meet those dates, as raised by the hon. Member for Glasgow Central, the Government think it prudent to enable HMRC to defer those dates for particular classes of loan charge taxpayers, should that prove necessary. Accordingly, the amendments will enable HMRC by laying regulations to defer the dates for a specific class of loan charge taxpayers. For many individuals, clause 15 will reduce the amount they need to pay. It will also reduce the administrative burden on individuals, employers and HM Revenue and Customs.

--- Later in debate ---

[Wes Streeting]

As the Financial Secretary has outlined, these relatively straightforward Government amendments allow for flexibility in making the election to spread the loan charge possible. I have some questions for the Minister about that, but I also want to raise several issues about his earlier remarks, which are relevant to this clause and the Government’s amendments, as well as some of the other issues that we will consider this afternoon.

First, in relation to the all-party parliamentary loan charge group, of course we are aware that the secretariat is the Loan Charge Action Group and that it contains lots of people who are subject to action by HMRC and have a direct personal interest in changing the law and affecting the course of Government policy. The Minister has done a real disservice to Members on both sides of the House, however, by suggesting that the all-party parliamentary group is not independent and does not exercise independent judgment.

It is common practice in this place for external organisations to provide the secretariat for all-party parliamentary groups, but if it were the case that any of those secretariats, whose work is funded to support the work of parliamentarians, were in any way directing the work of Parliament or of Members, that would be an issue for the Committee on Standards. No Member should be exercising their voice or their vote because of outside financial pressure or well-funded lobby groups. We are always expected to exercise our independent judgment.

The co-chairs of the all-party parliamentary group are the right hon. Member for Kingston and Surbiton (Sir Edward Davey), with whom the Minister previously served in Government, albeit he was a yellow Tory, rather than a blue one; my hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who I would never suggest was anything other than independent, otherwise I would feel the physical force of her independence around the back of my ear; and the right hon. Member for Hemel Hempstead (Sir Mike Penning), who is widely respected on the Conservative Benches and was respected across the House as a Minister. The group also has widespread support from more than 200 MPs on both sides of the House, including the former leader of the Conservative party, the right hon. Member for Chingford and Woodford Green (Sir Iain Duncan Smith). It is important to distinguish between that and the lobby group, which is perfectly entitled to its views, and is not always wrong, by the way.

That brings me to my second point. The Minister would have more of a leg to stand on in robustly criticising the all-party parliamentary group or the Loan Charge Action Group if they had not found the Government banged to rights. I did not labour the point during our previous exchange, but it is embarrassing for the Government and HMRC to have been landed with a report such as the report by Sir Amyas. We were told several times by Ministers at the Dispatch Box, and by HMRC in Select Committee hearings, that, “There is nothing to see here. There is no problem. HMRC is exercising its functions and discharging its responsibilities appropriately.” Yet, through Sir Amyas’s report, we have found that that was not the case.

We are now having to legislate for changes, and the Government are making changes that do not require changes to primary legislation, because the Government and HMRC were found not to have their affairs properly in order in relation to the application of the loan charge and the way the policy has panned out. The Government ought to be a bit more humble about some of those issues.

On the Government amendments, the Chartered Institute of Taxation thinks that the 30 September 2020 deadline for making an election to spread the loan charge should be amended. It considers that an extended deadline of 31 January 2021, which is the normal deadline for amending 2019 self-assessment tax returns, should apply. We are all aware of the impact of the current covid-19 pandemic, and the chartered institute recently pointed out that some taxpayers will require additional time in some cases because the records and documents that taxpayers need to access are not currently or readily available to them. With businesses in lockdown, it might not even be possible for them to access offices, particularly shared offices, even if they wish to do so. Will the Minister address that point, and might the Government consider a change along the lines requested by the chartered institute at a later stage? Also, why is it not possible to revoke an election to spread the loan charge or to be able to amend the election up until 30 September 2020 by submitting an amended return? Will the Minister address that point, too?

[Jesse Norman]

I thank the hon. Member for Ilford North for his remarks. To be clear, I am not suggesting for a second that the APPG’s members are in any sense dependent. Let me put that on the record. There is no impeachment or attempt of any such kind from me in relation to individual Members of Parliament. I was making a different point, which is that the APPG itself has come under an enormous body of concentrated and often extremely forceful pressure from people affected by the measure. There is therefore a contrast between their position and the position of Sir Amyas Morse, who is able to take a view that is independent in the sense that it is not aggressively constrained by one side or the other, but with the capacity to make a decision based on expert guidance and advice.

On whether the Government are always right, I would not suggest that for a second. We commissioned the review because the Government recognised that there was widespread public concern. Far from seeking to ignore that or brush it under the carpet, they retained a very high quality person and fully supported an independent process, thoroughly influenced and infused with both consultation and expert advice, to address the concerns. They were also suitably humble in accepting all but one of the recommendations, with the exception that I have indicated. It is absolutely not the case that it has been the view of the Government that any party to the dispute has a monopoly on correctness or rightness, and certainly the Government do not see themselves in those terms.

On the core thrust of the policy, Sir Amyas was clear. He accepted the principle of the policy and the validity of the loan charge as an approach to the concern about disguised remuneration, which takes enormous amounts of money out of the potential support of our public services. It is important to recognise that that was his position.

The hon. Member for Ilford North mentioned the Chartered Institute of Taxation and its call for an extended deadline. The deadline at the moment is the end of September and there is a period still to run before that. We understand the concern and of course we continue to reflect on the position, but that is the deadline and there is no overwhelming case at the moment for moving it. Therefore, it is important to give certainty to people who are in this position that that is the deadline for the submission of information and settlement of the loan charge. There can be no movement on that front, and it is important to be clear about what the status is at the moment. With that said, I commend the clause to the Committee.

Amendment 1 agreed to.

Amendment made: 2, in clause 15, page 10, line 14, at end insert—

‘(3F) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (3B)(a) applies to a specified class of persons as if the reference to 1 October 2020 were to such later date as is specified.

(3G) In sub-paragraph (3F) “specified” means specified in the regulations.’ —(Jesse Norman.)

This amendment will allow HMRC to extend the deadline for making an election to split the loan charge over three years for particular classes of person liable to the loan charge by virtue of Schedule 12 to the Finance (No.2) Act 2017.

Clause 15, as amended, ordered to stand part of the Bill.

Schedule 1 agreed to.

Clause 16

Loan charge reduced where underlying liability disclosed but unenforceable

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

[Jesse Norman]

The clause implements recommendations 3, 4 and 5 of Sir Amyas Morse’s independent review. It sets out that the loan charge will not apply to loans outstanding at 5 April 2019 and made in the tax year 2015-16 or earlier, whwwen the avoidance scheme was disclosed to HM Revenue and Customs, and HMRC had not taken action by 6 April 2019 to protect the year, for example, by opening an inquiry. The clause sets out how a reasonable disclosure is made, when a loan charge reduction applies and how that reduction is calculated. It also sets out what is meant by a qualifying tax year and a qualifying tax return.

Reasonable disclosure is defined as a disclosure made in either an income tax self-assessment return or a corporation tax self-assessment return, where a person is chargeable to tax on employment income, or an income tax self-assessment return where a person is chargeable to tax on trading income. The term “return” includes any accompanying accounts, statements or documents. Reasonable disclosure may be made in one or more returns of the same type relating to qualifying tax years either by an individual or, in the case of employment income, an employer. That builds on HMRC’s existing compliance approach.

A qualifying tax year is the tax year 2015-16 or earlier, or for corporation tax accounting periods commencing before 6 April 2016. Information must be included to identify the loan, the person the loan was made to, if not the taxpayer, the arrangements the loan was made under and other information to make it clear that the loan should be chargeable to income tax. In the case of employment income, this does not include the declaration that a loan was taxed as a benefit of a “cheap loan” where the benefit declared is the loan paid at a reduced interest rate, or indeed a zero interest rate.

The clause does not apply where there was no reasonable disclosure made for years 2015-16 and earlier, nor does it apply for 2016-17 onwards, regardless of whether a reasonable disclosure has been made or HMRC has taken steps to recover the tax. The clause thus ensures that the Government can implement three of Sir Amyas Morse’s recommendations from his independent review of the loan charge. I commend it to the Committee.

[Wes Streeting]

There is not much for me to add to what the Financial Secretary set out. Will he confirm that HMRC will be able to adopt a practical approach to interpreting what is a reasonable disclosure? For example, in some cases a taxpayer will not have had to file a self-assessment tax return for a tax year, but their employer or their business will have disclosed the loans and so on in a return of their own, in which case we consider that that would be an adequate disclosure by the taxpayer. Is that the Minister’s understanding? It was pointed out to us by the Chartered Institute of Taxation that

“amendments to paragraphs 1B…of Schedule 11 to F(No.2)A 2017 included in the Finance Bill legislation, as compared to the original draft legislation, appears to permit disclosures in tax returns other than the taxpayer’s to be taken into account.”

I would be grateful if the Minister confirmed whether that is indeed the case.

[Jesse Norman]

I thank the hon. Gentleman for his question. The principle is as laid out in the legislation and it should be recognised as wider than might originally have been contemplated, as concerns were raised during the consultation process on the draft legislation about the definition of reasonable disclosure, and the Government responded to those. The definition of reasonable disclosure in the legislation introduced in the Finance Bill has thus been widened to include disclosure in either an income tax self-assessment return or a corporation tax self-assessment return. The effect of that is to enable disclosure by either an individual or an employer to meet the definition of reasonable disclosure.

Disclosure can be made in more than one tax return of the same type and, as I have said, a tax return includes any accompanying accounts, statements or documents and has therefore been widely specified. How that is to apply in a specific context is, of course, a limitlessly varied matter, and limitless ingenuity will doubtless be deployed in showing that it can be applied to whatever the circumstances are, but that is the standard that the legislation lays down.

Question put and agreed to.

Clause 16 accordingly ordered to stand part of the Bill.

Clause 17

Relief from interest on tax payable by a person subject to the loan charge

Amendment made: 3, in clause 17, page 13, line 36, at end insert—

“(5) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that this section applies to a specified class of persons as if—

(a) the references in this section to the end of September 2020 were to such later time as is specified, and

(b) the reference in subsection (3)(b) to 1 October 2020 were to such later date as is specified.

(6) In subsection (5) “specified” means specified in the regulations.”—(Jesse Norman.)

This amendment will allow HMRC to extend, for particular classes of person subject to the loan charge, the period within which liability to income tax and capital gains tax for the tax year 2018-19 may be discharged without incurring interest on those liabilities.

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

[Jesse Norman]

Clause 17 makes a technical amendment to remove the charge of late payment interest for customers and taxpayers who are liable to the loan charge for the period 1 February 2020 to 30 September 2020 on any self-assessment liability. The effect of that is that taxpayers will not be disadvantaged by the extension to the deadline given to them to submit their 2018-19 self-assessment return and to pay the tax due. Late payment interest will accrue from 1 February 2020, if this revised deadline of 30 September 2020 is not met.

The clause also provides that no late payment interest will be due on payments on account for 2019-20, where the payments are made by 31 January 2021 or are included in a payment arrangement by that date. Again, if the payment deadline of 31 January 2021 is not met or there is no payment arrangement in place by that date, the changes will not apply. Interest would then accrue from the statutory due dates for the relevant payments on account, which are 1 February 2020 and 1 August 2020.

While the clause will operate prospectively for the vast majority of affected payments, it will have limited but, I should emphasise, wholly positive retrospective application. There are cases where the Government are minded or have to act retrospectively, in part to do justice, and this is one of those. Any affected payments made before the date this Bill receives Royal Assent will be included, so that taxpayers who made their returns and payments before Royal Assent are no worse off than others who make their returns and payments later, but before the extended deadline.

[Wes Streeting]

As the Minister outlined, the measure is a technical one, so I do not have much to say about it, except to say as I did on clause 15 that I wonder whether he could outline, particularly for people who follow our proceedings closely, the reason for setting the deadline for filing the 2019 self-assessment return as 19 September 2021. The same issues that I raised previously may present themselves to taxpayers in the light of the lockdown measures that are currently in effect.

[Jesse Norman]

I must say that I am not quite sure I understand the question, but what has happened so far is that the loan charge deadline has been extended to 30 September this year. The clause allows relief from interest payable by those who are subject to the loan charge in that context; but if the hon. Gentleman would like to clarify his question I will try to answer it.

[Wes Streeting]

It is simply the case that some people who may need to access relevant documentation to provide to the tax authorities might struggle to do so in light of the lockdown measures that are in place. So, just as I raised in the previous discussion on clause 15, I am asking what flexibility can be made available. That is what I am getting at.

[Jesse Norman]

I understand. I think the hon. Gentleman said the date is 19 September 2021, and that is what threw me, because I do not think that that date applies to the issue that he has raised. As I have described, Revenue and Customs is, in the middle of the covid pandemic, exercising an extraordinarily careful sensitivity to personal circumstances. If there are personal circumstances that, because of the coronavirus, may have made it impossible to make a payment of the kind in question, I have no doubt that Revenue and Customs will take account of that in its consideration, before reaching a judgment.

Question put and agreed to.

Clause 17, as amended, accordingly ordered to stand part of the Bill.

Clause 18

Minor amendments relating to the loan charge

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

[Jesse Norman]

Again, this is a minor and technical measure that makes minor legislative adjustments to implement changes to the loan charge, including changing the date by which loan charge information must be provided to HMRC from 1 October 2019 to 1 October 2020.

When the loan charge was introduced in the Finance (No. 2) Act 2017 there was a legal requirement that those who had an outstanding disguised remuneration liability on 5 April 2019 would be required to submit information on their disguised remuneration loans before 1 October 2019 through an e-form. When the Government accepted Sir Amyas’s recommendation that there should be an option to spread the loan charge balance over three tax years, through an election, it was decided that the best way to do this was via an online form. The Government also used this opportunity to encourage those who had not already submitted information on their disguised remuneration loans to do so, by changing the statutory date from 1 October 2019 to 1 October 2020. I should say that clause 18 also corrects a minor drafting error in the original legislation.

[Wes Streeting]

It would take a wit beyond my imagination to find something interesting to say about this provision, so I shall resume my place.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Clause 19

Repaying sums paid to HMRC under agreements relating to certain loans etc

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 20 stand part.

New clause 7—Loan charge: report on effect of the scheme—

‘(1) The Chancellor of the Exchequer must commission a review, to be carried out by an independent panel, of the impact in parts of the United Kingdom and regions of England of the scheme established under sections 19 and 20 and lay the report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) company solvency.

(3) A review under this section must consider the fairness with which HMRC has implemented the policy, including whether HMRC has provided reasonable flexibility around repayment plans with the aim of avoiding business failures and individual bankruptcies.

In this section “parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require a review of the impact of the scheme to be established under Clauses 19 and 20.

[Jesse Norman]

It must be a tedious amendment indeed that has not excited the imagination or genius of the hon. Member for Ilford North, so I am grateful to him for clarifying that.

Clauses 19 to 20 implement recommendation 6 of Sir Amyas Morse’s independent review, ensuring that Her Majesty’s Revenue and Customs can refund the elements of settlements that were made since 2016, paid to settle unprotected years either before 9 December 2010 or between 9 December 2010 and the start of the 2016-17 tax year, where the taxpayer had made a reasonable disclosure of their scheme usage in their tax return.



Clause 19 requires HMRC to set up a scheme under which it may refund qualifying amounts of certain voluntary payments. Such refunds can be made only where the qualifying amount was paid under a settlement agreement made with HMRC on or after 16 March 2016 and before Budget day on the 11 March 2020. Additionally, the qualifying amount must have been paid in relation to a loan made before 9 December 2010 where HMRC did not have power to recover the amount due at the time the agreement was made, or it must have been paid in relation to a loan made after 9 December 2010 and before 6 April 2016 where a reasonable disclosure of the use of the loan scheme was made to HMRC at a time when HMRC had the power to recover the amount due, but did not take any action.

Clause 20 sets out the details that may be contained in the refund scheme. This may include who is eligible to apply for a refund, how an application should be made and the factors that will be taken into account by HMRC in calculating the refund due.

I now move to new clause 7, an SNP new clause, which would require the Chancellor of the Exchequer to commission an independent review of the impacts of the repayment scheme established under sections 19 and 20, and to lay the report of that review before the House of Commons within six months of the passing of this Act. Of course, it is very important that we should consider the impact of all tax policy on individuals and, in this case, of the repayment scheme on the approximately 2,000 taxpayers, including companies, the self-employed and employees, who may be entitled to claim a refund under the scheme.

Although that is the case, the Government do not think there is any cause to undertake an additional report. The Government have already accepted Sir Amyas Morse’s recommendation in his independent, thorough and expert report that the Government should report to Parliament on all aspects of our implementation of the loan charge changes before the end of 2020. This was recommendation 14 of the independent review into the loan charge. It was accepted by the Government at the time, and it already adequately fulfils the requirement put forward in new clause 7. For that reason, I commend clauses 19 and 20 to the Committee, but I ask that the Committee reject new clause 7 if it is put to a vote.

--- Later in debate ---

This situation just gets messier and messier, but it seems that some of those people, who are now locked into doing what they think is the right thing for HMRC, are being chased to repay their loans by debt collectors. I would be interested to know what representations the Treasury has had on that issue and whether the Government are planning further action on it.

[Jesse Norman]

I thank the hon. Gentleman for his thorough and wide-ranging remarks. He is right that it is a kind of principle of tax policy in a way, or the typical reaction of an individual, and one wishes that the general instinct shared by 98% or 99% of the tax-paying population that he articulated well —namely, that if it looks too good to be true, it almost certainly is too good to be true—was shared by the whole of the population. However, for different reasons, that is not the case. The hon. Gentleman is right to articulate the principle that if it looks too good to be true, it is, and I thank him for doing so. I also thank him and his colleagues for the nuanced interrogation they have given this policy, but not diverging from us on its core thrust.

I want to make it clear that I am not remotely downplaying, undervaluing or minimising the personal feelings of people, or the impact or hardship that they have experienced as a result of this situation. Clearly, there have been cases that have been felt across the House and raised by different MPs, and Revenue and Customs understands that as well. It has made it very clear that it will not force people to sell their main home; that it will not, except in the most unusual circumstances, put people into bankruptcy; and that it will exercise, by adhering to a series of principles, a judicious approach to people’s settlement processes. That includes a principle that no more than half of someone’s disposable income should go to settle a tax dispute, so that families have not only their non-disposable income but at least half of their disposable income to support themselves.

Those principles also include, as I have indicated, a set of basic time periods to make a settlement—of five years in the case of someone earning under £50,000 a year, and of seven years in the case of someone earning under £30,000 a year—and that is part of the practice of Revenue and Customs, and a well-embedded principle.

Furthermore, if people have concerns that they are being badly handled in this process—this also relates to the point that the hon. Gentleman made about an independent review—they can appeal to tax commissioners for, as it were, an investigation and review. Of course, they also have the ability to go to their MP, and Members are very effective in raising tax-related issues on behalf of their constituents.

[Alison Thewliss]

On the point about MPs intervening on constituents’ issues, I would challenge the question around disposable income. A constituent of mine had been asked to pay money back, and the definition that HMRC gave of his disposable income was incredibly tight compared with the definition of it that he had, which included his finding difficulty in giving his children money for school meals. That seemed to be treated as part of his disposable income. His children have to eat; that is not disposable income as such. I ask the Minister to be very careful about how that is described and how HMRC acts on those kinds of things, because it takes a very strict line on disposable income.

[Jesse Norman]

Of course, the approach taken needs to have foundational principles aligned to it, and those can be questioned in specific contexts and by the mechanisms that I have described.

The distributional impact of the way the loan charge disguised remuneration population breaks down has been put into the public domain and analysed by HM Revenue and Customs. For example, a relatively small number of people work in caring professions, contrary to the impression that colleagues may have been given. That is the context in which the final recommendation by Sir Amyas Morse, which is that these debts should be written off after 10 years, has been rejected by the Government. It is a recognition of Sir Amyas’s expertise and independence that 19 of his recommendations were accepted, and the Government have given a full account of the reason why they have rejected the 20th.

In line with Sir Amyas’s recommendations on voluntary restitution, HMRC will refund voluntary restitution already paid for years now out of scope of the loan charge, but will not refund settlements for the underlying tax liability where HMRC had protected its position. That is so that the treatment remains in line with the existing legal framework for HMRC to recover tax. Sir Amyas also recommended that for disguised remuneration loans taken out on or after 9 December 2010, HMRC should only refund voluntary restitution where the scheme user had reasonably disclosed their scheme use. We have discussed that already at some length.

Regarding some of the impact of the different pressures that may be on taxpayers, HMRC will not as a matter of course meet professional costs incurred by taxpayers in reaching their original settlement or claiming refunds, but it may meet professional costs where they have been incurred as a direct result of a mistake or an unreasonable delay in its own dealings with a taxpayer’s affairs. That was not the position when HMRC was applying legislation in place at the time.

Refunding fees to those who have used avoidance schemes would send the thoroughly troubling message that taxpayers who had not used those schemes might not do as well as those who had, which is not one that this House should be particularly encouraging. Of course, if a taxpayer feels they have grounds for making a complaint, the usual mechanisms are available for them to do so.

In his recommendation 14, Sir Amyas called for the Government to report to Parliament on all aspects of their implementation of the loan charge changes,

“before the end of 2020”.

We will do that. I am grateful to the hon. Lady for laying out her concerns in that regard in this debate, and I will ensure that the officials understand and reflect on them when they start to frame this report.

As per Sir Amyas’s recommendations, the report will draw on input from the HMRC customer experience committee. It is very important to realise that the committee includes not only the non-executive directors of Revenue and Customs, but highly experienced independent people in positions of authority and expertise who are specifically customer experience experts in the private sector. The effect of the committee is to support but also challenge the HMRC executive on customer experience-related issues, and to help the Department deliver on its strategic objectives. In other words, part of its point is to ensure that HMRC treats taxpayers with a proper degree of courtesy and service levels, but in no sense becomes oppressive to them.

Let me pick up another important point, which I meant to mention earlier but have not yet: the very strong approach that HMRC is taking on promoters and enablers of tax avoidance. Certainly since I have been Financial Secretary to the Treasury, we have significantly enhanced the already substantial work being done in that area. That includes work that builds collaboration across Government, including with bodies such as the Advertising Standards Authority or the Insolvency Service. It involves proactive communications to help taxpayers to steer clear of avoidance.

HMRC has launched a consultation on ways to combat the promotion and enabling of tax avoidance; colleagues from different parties are welcome to make contributions to that if they wish. The areas it is looking at include tackling promoters and their supply chains, looking at the economics of tax avoidance, disrupting business models and improving compliance and enforcement in other ways. I would like the Committee to understand that HMRC is in no sense minimising the importance of going after promoters and enablers where it can—subject to law, and with new powers if it should be so decided after the process of consultation.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Clause 20 ordered to stand part of the Bill.

Finance Bill (Third sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 3rd sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

[The Chair]

Good morning. I remind Members that tea and coffee are not permitted in Committee meetings. Please would all Members ensure that mobile phones are turned off and switched to silent mode during Committee meetings?

The selection list for today’s sitting is available in this Committee Room and written evidence received since the last sitting of the Committee, on Thursday, has been circulated by email to all members of the Committee.

The Hansard reporters would be most grateful if Members emailed any electronic copies of their speaking notes to [e-mail]. Members should be aware that at 11 o’clock I will invite the Committee to observe a minute’s silence in remembrance of George Floyd.

Clause 21

Annual allowance: tapered reduction

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

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you very much indeed, Mr Rosindell; it is a delight to see you in the Chair.

I start by saying that we are at the point in “The Pilgrim’s Progress” where we are about to enter the slough of despond, and I apologise to all colleagues that the slough is a rather extended period of technical amendments. I can promise them that in due course we will enter the place of deliverance, although possibly not for some time.

Clause 21 raises both pensions tapered annual allowance thresholds by £90,000 each and also lowers the minimum annual allowance to £4,000. The Government provide tax relief on pension contributions. To give some background, in 2017-18 income tax and employer national insurance contributions relief cost £54 billion, of which 60% went to higher and additional-rate taxpayers.

The Government therefore impose limits on pensions tax relief. One of these limits—the tapered annual allowance—has affected some senior clinicians in the national health service and also some individuals in other public service workforces. This measure is the outcome of the Government’s manifesto commitment to carry out a review of the impact of the tapered annual allowance on the NHS. That review built on another review of the effect on public service delivery more widely, which was announced last August. Roundtable discussions with public service stakeholders, including representatives of the health professions, were held as part of these reviews. These reviews concluded at the Budget on 11 March.

In the last tax year, in recognition of the impact that the tapered annual allowance was having on some doctors, NHS England announced a special arrangement, for 2019-20 only, in which doctors in England could use that arrangement to ensure that they would not be worse off as a result of taking on extra shifts. As health is a devolved matter, that special arrangement applied only to England, but we are aware that the Welsh and Scottish Governments also put similar arrangements in place during 2019-20 for NHS staff.

Raising the two thresholds at which the tapered annual allowance applies by £90,000 each is the quickest and most effective way to solve this issue for senior doctors and other clinicians. It delivers a tax solution, which has been the British Medical Association’s primary request, and it comes into effect from 6 April, which is the beginning of the current tax year.

The changes made by clause 21 mean that no one with income below £200,000 will now be caught by the tapered annual allowance. The annual allowance will only begin to taper down for individuals who also have total income, including pension accrual, above £240,000. We estimate that this will take up to 96% of GPs and up to 98% of NHS consultants outside the scope of the tapered tax allowance, based on NHS earnings alone.

As this is a tax change, these measures will apply both to clinical and non-clinical staff across the whole UK, and they will apply in the same way to all workforces. These measures will also apply equally across public and private sector registered pension schemes. However, to ensure that the very highest earners pay their fair share of pension tax, the minimum level to which the annual allowance can taper down is reducing from £10,000 to £4,000 from the beginning of this tax year. This will affect only those with a total income, including pension accrual, of over £300,000. These measures will cost over £2 billion over the next five years.

The changes demonstrate that the Government are committed to ensuring that hard-working NHS staff do not find themselves reducing their work commitments as a result of the interaction of their pay, their pension and the tapered annual allowance tax regime. This meets the Government’s commitment to allow doctors to spend as much time as possible treating patients, and supports vital public services while ensuring that the very highest earners pay their fair share of tax. I commend the clause to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to welcome you back to the Chair this morning, Mr Rosindell.

The Opposition welcome the Government’s efforts to resolve the issue. Hon. Members will know that the primary function of introducing the tapered reduction of the annual allowance in 2016 was to prevent tax avoidance in the private sector, but whatever the original intention of the tapered annual allowance threshold, its impact was not properly considered. The result has been damaging to our NHS: as the Financial Secretary says, it has led to a situation in which senior practitioners have refused to undertake extra shifts because of the tax impact, and in many cases have taken early retirement.

According to a British Medical Association survey, just under a third of doctors have reduced the number of hours they spend caring for patients because of actual or potential pension taxation changes, while 37% of those who have not yet reduced them plan to do so in the next year. That is perhaps unsurprising considering the nature of the tapered annual allowance: as the BMA sets out, it creates a tax cliff edge whereby doctors effectively pay to work. Although the Treasury and HMRC have repeatedly stated that tapering affects only people with earnings over £150,000, in defined benefit schemes it has created a tax cliff at the income threshold of £110,000, which means that those in defined benefit schemes may face additional tax charges of up to £13,500 if they exceed the tax threshold income by just £1, while some could face effective tax charges greater than 100%.

Of course, we should recognise that that is not the only factor contributing to the real problem of staff retention in the NHS. Aside from the impact of coronavirus, hospitals and A&Es have been overstretched for years, increasing numbers of people are waiting too long for operations, and key performance targets are being missed month after month. We also face a chronic lack of family doctors; as the Nuffield Trust has highlighted, we have seen the first sustained drop in GP numbers in 50 years, which adds to the pressures on remaining staff. The problem is particularly acute in certain parts of the country: in Sunderland and the wider north-east, we can see the same picture at a much bigger level, where we face a real challenge to recruit and retain family doctors.

The doctors I speak to are always striving to do the best they possibly can in challenging circumstances, but we must acknowledge that the stress they have been placed under, due to the underfunding and neglect of our NHS by this Government, has made the situation even worse. The pension situation that many have faced since 2016 has no doubt proved to be the final straw, as doctors have opted not to take shifts, or to retire early. As we have seen, that is complicating efforts to retain such important NHS staff.

The situation would be unsustainable even if we were not facing the impact of coronavirus, but the additional pressures on doctors, many of whom will have taken on extra shifts, make resolving the issue more pressing than ever. All of us owe a debt of gratitude to those NHS staff who have put themselves on the frontline, in harm’s way, to do all they can in the national interest at this very difficult time for our country.

It is important to note that the problem is not exclusive to staff within the NHS; the annual allowance is a problem in other defined benefit schemes, including for the armed forces. As the Forces Pension Society states,

“in 2018 almost 4,000 serving military personnel, including those in non-commissioned ranks, received notification that they might have exceeded their annual allowance limit and for many a significant tax charge followed—well ahead of receiving any of the future benefit on which the tax is levied.”

The society argues that

“unless action is taken, there is a real risk to retention and operational effectiveness”—

a concern also highlighted by the Ministry of Defence.

We all owe it to those in our public services and our armed forces, who do so much to care for us, protect us and keep our country safe, to make sure that they are treated fairly and can plan effectively for their pension and later life. It is clear that that has not happened as a result of the changes implemented by the Government in 2016. The proposed measure does at least promise to address the issue in part and in the short term and the BMA has stated that the vast majority of doctors are now removed from the effect of the taper. However, there are still concerns, and I hope the Minister will be able to respond to them.

The proposed tax change would take effect only from 6 April 2020; as the Minister will know, the additional pressures created by covid-19 began before that point. As the Chartered Institute of Taxation has identified, that means that doctors who took on extra shifts during this period face the risk of being hit by higher tax bills later. What consideration has been given to the issue of medical staff who have made extra efforts during this crisis, but before 6 April 2020? Has any analysis been undertaken of the scale of the problem and will any measures be necessary to address it?

Given that the purpose of the clause is to reduce and reverse the trends with doctors not taking shifts and retiring early, I would also welcome confirmation from the Minister that the Government intend to monitor the impact of the clause on an ongoing basis, to ensure that it is having its intended effect.

We have concerns more broadly because, as the Minister said, the proposed change would benefit all high earners, not just NHS staff and those in our armed forces that the clause ostensibly targets. Monitoring the effect on taxation revenue will also be critical, because the Opposition want to see fairness right across the system. Although the measure seems to address the issue in the short term, the Minister will be aware of the wider concerns about whether the tapered annual allowance is appropriate in general.

The Office of Tax Simplification has suggested removing the annual allowance from defined benefit pension schemes, and that move was supported by the BMA. As it said in its response to the 2020 Budget, although it welcomed the Government’s proposal in part, problems remained, given that many doctors with incomes far below the new threshold will face tax bills as a result of exceeding the standard annual allowance, which remains at £40,000. That can happen simply following a modest rise in pensionable pay—for example, when receiving a pay increment, taking on a leadership role or being recognised for clinical excellence. The BMA has added that there is no change to the lifetime allowance and many doctors will still need to consider taking early retirement.

The Minister will no doubt be aware that the former Pensions Minister, Baroness Altmann, has similarly warned that just raising the threshold of earnings at which the tapered annual allowance starts will certainly not solve the underlying problem. She has called for fundamental reform to provide those in defined benefit schemes with greater certainty into the future. The Opposition support that call for broader consideration of the issue.

All that brings us to wider considerations around pension tax relief and whether the system as it operates works as well as it could. The Chartered Institute of Taxation, among others, has said that a review of how tax relief applies to pension savings should be considered, given that the solution that the Government have presented here has only been achieved at significant cost to the Exchequer and to the benefit of many higher-earning people, beyond our medical and armed forces staff. Will the Government consider such a review and think more widely about creating a simpler, fairer and more sustainable pensions system?

[Jesse Norman]

I thank the hon. Lady for her remarks and for welcoming these measures. She expresses what I know will be the universal sentiment in this Committee: a sense of profound gratitude to the NHS for the astonishing way in which it and all the public services around them have responded to the crisis posed by coronavirus. I certainly echo that.

The hon. Lady talked about underfunding of the NHS. I really do not recognise that at all: the NHS has been very well funded, with continuous above-inflation funding settlements. In relation to coronavirus alone, public services have received over £16 billion, the NHS central among them. However, that only underlines the point that extraordinary work was being done by the NHS before, and it throws into greater relief how flexibly, energetically and effectively it has responded to the coronavirus pandemic. I think that shows the inner resilience of the organisation.

The hon. Lady asked about people somehow being deterred from taking extra shifts in the NHS. She will be aware that NHS England put in place its own measures for last year, and we understand that parallel measures were implemented in Scotland and Wales.

The effect of the change, which begins in April, is to give a sufficiently generous increase in the annual allowance thresholds so that up to 96% of GPs and up to 98% of senior medical staff will be out of scope of the tapered annual allowance as regards their NHS earnings. It is interesting to note that, as the hon. Lady rightly acknowledges, that has been widely recognised by the key institutions. The BMA said:

“The vast majority of doctors are now removed from the effect of the taper and will no longer be in a situation where they are ‘paying to go to work’”

as they see it. NHS Employers said:

“Employers across the NHS will welcome this significant step in reforming pensions taxation.”

That is all to the good.

The hon. Lady asked whether we will monitor the clause’s impact. The Treasury will of course monitor it as we do the effects of taxation across the piece. This reform will retain a certain political currency and therefore, I think, support and enthusiasm across the Committee. She also asked about fairness across public services. She will be aware that one of the benefits of a tax reform is that it offers fair treatment across those public services, irrespective of how people work.

The question of whether the allowance taper should be removed has been scouted by some. Of course, unless it was replaced by some other approach, it would have the effect of there being no corresponding reduction in the capacity to add pensions relief. The absence of a taper would therefore create precisely the cliff edge that the hon. Lady warned against.

The hon. Lady mentioned the idea of a review. She will be aware that the Treasury had a review only a short number of years ago, which was inconclusive. We continue to reflect on this complex and difficult area of taxation and will do so as we ponder the future fiscal effects. With that in mind, I hope the Committee will agree that the clause should stand part of the Bill.

Question put and agreed to

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Entrepreneurs’ relief

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

[The Chair]

With this it will be convenient to discuss the following:

That schedule 2 be the Second schedule to the Bill.

New clause 8—Review of changes to entrepreneurs’ relief—

‘(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made to entrepreneur’s relief by section 22 and Schedule 2 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment, and

(c) productivity.

(3) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’.

This new clause would require a review of the impact on investment of the changes made to entrepreneurs’ relief.

[Jesse Norman]

The clause and schedule 22 rename entrepreneurs’ relief as “business asset disposal relief” and reduce the lifetime limit for gains eligible for relief so that from 11 March 2020 the relief can be claimed on gains of up to £1 million. The purpose of renaming the relief is simply to reflect its function and purpose more accurately.

The relief offers a reduced rate of 10% capital gains tax on disposal of eligible business assets. Evidence shows that for some people—indeed, quite a few people—the relief has been a tax planning tool, helping some of the richest people in society to pay less tax rather than discharging its purpose of incentivising entrepreneurship and enterprising business activity. Last year, three quarters of the relief’s cost was for claims made by just 6,000 people disposing of assets with gains of over £1 million. The reform ensures that the Government can more sustainably support small businesspeople with up to £100,000 capital gains tax relief available over their lifetime.

The clause also makes special provisions for disposals entered into before 11 March 2020—that is to say, Budget day—that have not yet been completed. The provisions ensure that such people can still use the previous lifetime limit, but only where the disposal has not been artificially structured for the purpose of securing a tax advantage. It is therefore an anti-forestalling rule, with the rules ensuring that everyone pays their fair share of tax.

The previous lifetime limit of £10 million was an unsustainable degree of support for those less in need of it, and, as I have said, did not discharge the purpose of supporting entrepreneurship as it should have done. The new £1 million lifetime limit is far more sustainable and better targets the people who it was intended should benefit from the relief.

--- Later in debate ---

[Stephen Flynn (Aberdeen South) (SNP)]

This is my first experience of a Finance Bill Committee—indeed, I think it is the first time we have met, Mr Rosindell, and I look forward to serving under your chairmanship. Dare I say that our new clause is constructive? That is the manner I am starting in. I would like the Government to change their stance a bit and look at the wider picture.

Before the Budget, it was well known to all of us in the public sphere that the Government were considering entirely scrapping entrepreneurs’ relief. We read a number of comments in the press and the public domain about Conservative Back Benchers being unhappy with that move because they felt it would stifle investment. Ultimately, the Chancellor did not scrap entrepreneurs’ relief but simply took it back to the level it was at when the Labour party introduced it in 2008, reducing it from £10 million to £1 million. We need to know what the Government’s long-term direction of travel is. We cannot be driven by a rebellion on the Government Back Benches. If the Government do not feel that entrepreneurs’ relief is beneficial, they should make that clear.

The Minister said that the Government have conducted a review, and indeed they have, but it was an internal review; as far as I am aware, it is not in the public domain. They are more than welcome to put it into the public domain, or they could agree to our new clause. The hon. Member for Houghton and Sunderland South talked about what we are could achieve. It is important that we have that review so that we all know where entrepreneurs’ relief is going to be in the coming years.

As I say, this is a constructive suggestion. It is based not just on our interpretation of the situation, but on the evidence. The IFS believes that entrepreneurs’ relief is poorly targeted; the FSB, on the other hand, is broadly supportive; and the Chartered Institute of Taxation believes that a public consultation on objectives and efficacy is necessary. There is a broad range of views about this policy, so the time has come for the Government to undertake a review in the public domain so that we all understand the direction of travel and know where they seek to go. Hopefully, that will inform us all a bit more about the position. As I say, this is a constructive suggestion, and I hope the Government will change their stance.

[Jesse Norman]

I thank the hon. Members for Houghton and Sunderland South and for Aberdeen South very much for their comments. They raise a number of important points.

It is certainly true that this relief has attracted widespread criticism from different interested and expert bodies; the hon. Lady is absolutely right to point that out. It is important to note that the Government have tried to strike a balance. An outright abolition might have had the effect of penalising a lot of entrepreneurial activity, undertaken in good faith up to the level that has been determined. That would have been, in the Government’s view, an overreaction to the situation. Therefore, we have tried to strike a balance by trying to keep the vast majority of entrepreneurial activity that is protected in place while cutting back on aspects that are ineffective or regressive.

It is interesting, as has been noted by Opposition Members, that alongside widespread concern there has also been notable recognition of the importance of that aspect of the relief that I have highlighted from the Federation of Small Businesses. I note that the national chairman described this as a

“sensible compromise on Entrepreneurs’ Relief”,

in which

“everyday entrepreneurs will be pleased to hear the Chancellor say that he has listened to FSB”.

--- Later in debate ---

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

[Jesse Norman]

We continue to stride boldly through the slough of despond. Here we come to the reform of the capital gains tax private residence relief ancillary reliefs. The clause makes changes to capital gains tax private residence relief where individuals have more than one residence, reducing the final period exemption from 18 months to nine months and reforming lettings relief so that that relief only applies where the owner shares occupancy with a tenant.

The clause also makes several other minor changes to make the private residence relief rules fairer. The Government are committed to keeping family homes out of capital gains tax, and private residence relief will still be available for the entire time a property is lived in. However, ancillary reliefs mean that in some circumstances people can accrue relief on two or more properties simultaneously. The reforms make private residence relief fairer by better targeting relief at owner-occupiers.

The final period exemption currently relieves the last 18 months of ownership of a main residence or former main residence from capital gains tax. This provides relief as people go through the process of selling their home, but it allows people to accrue relief on two properties simultaneously. From April 2020, the exemption will be reduced to nine months. The 36-month exemption for those who are disabled or are in a care home will remain.

Lettings relief is available when a property that was someone’s previous main residence is wholly or partly let out. This can extend the benefit of relief by up to £40,000 for an individual and £80,000 for a couple, while they are also accruing relief on their current main residence. In order to better target the relief at owner-occupiers, from April 2020 lettings relief will only be available in cases of shared occupancy. The armed forces future accommodation model is also a source of concern. We want to be sure that the clause will extend the benefit of employer-provided accommodation relief to those service personnel who live in privately rented accommodation under that new model.

The Government are also legislating on two extra existing statutory concessions. The first applies when an individual has more than one residence, but only one has any real capital value. This concession extends the time period for nominating the individual’s main residence. The second allows 24 months of relief where, for specific reasons, a person is unable to occupy a new home for use as their main residence. There is also a change to ensure that, when spouses or civil partners agree to transfer shares in a residential property between themselves, the receiving spouse or civil partner will inherit the transferring spouse’s past use of the property, no matter the use of the property at the time of transfer. This prevents unfair outcomes arising in certain cases.

The Government are committed to keeping family homes out of capital gains tax, through private residence relief. However, the current availability of lettings relief, and the 18-month final period exemption, can mean that people accrue relief on two or more properties simultaneously. These reforms address those concerns and make private residence relief fairer, by better targeting it at owner-occupiers. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The objectives behind the clause seem well intentioned, but the Minister will no doubt be aware of the severe impact of covid-19 on the housing market, as referenced by many stakeholders—a point which I should be grateful if he would address. According to the Chartered Institute of Taxation, the evidential basis for the reduction in the final period exemption was based on an average selling time—before the current pandemic—of approximately four and a half months, and it is concerned that this evidence base may be undermined by the effects of covid-19.

The Minister will be aware of his Government’s own advice, which lasted until 13 May, that physical viewings of homes were not permitted, and as such, that the home-buying process would take longer, with people advised to delay moving into a new house. While there is updated advice, there are still clearly restrictions that will slow down the process of buying a new home, and wider practical difficulties in this area when it comes to estate agents, banks processing payments and the wider conveyancing system.

The Chartered Institute of Taxation referred to research by Zoopla, conducted between 12 and 19 May, which found that 41% of would-be home movers across Britain had put their property plans on hold in light of market uncertainty, loss of income and lower confidence in their future finances, with property inquiries reported to be more than 50% down on pre-lockdown levels. Given that ongoing uncertainty, it is increasingly likely that it may take longer than nine months for some of those affected by this provision to sell their property, given the deterrent impact of covid-19 and the lockdown on potential buyers, as well as all the practical difficulties for buyers, which I am sure we appreciate. That could leave sellers with an unexpected tax liability when a property takes longer than nine months to sell. Many stakeholders consulted on this legislation believe that the fairest way to resolve the issue is to defer the introduction of the final period exemption, so as not to burden some sellers with an unprecedented tax liability.

In their consultation with stakeholders from July 2019, the Government responded to worries about the nine-month period exemption being too short by saying that

“a 9 month final period exemption strikes the right balance between being long enough to provide relief whilst they go through the process of selling their home, but not so long that they are able to accrue large amounts of relief on two properties simultaneously, or on homes that are no longer used as their main residence.”

I will not seek to blame the Government for not predicting at that point the impact of a global pandemic, but we are living through some very difficult times. Has any further consideration been given to the timing of the measures contained in the clause? Given the pressures on the housing market, does he still regard them as appropriate and realistic? Is the Treasury considering the impact more broadly?

Putting the coronavirus aside, concerns have been raised that the clause runs in contradiction to the parliamentary convention on retrospective taxation, whereby retrospection is permissible only when dealing with unacceptable avoidance schemes. The clause is about changing long-standing reliefs rather than countering avoidance, and the Institute of Chartered Accountants in England and Wales has highlighted that the clause is retrospective. It also argues that it would be simpler for taxpayers if the measures were delayed until the start of the next tax year. I am sure the Minister has given consideration to that point, and I am keen to hear his views on the topic.

Another point raised by the Chartered Institute of Taxation is that the new rules must be well communicated. Their introduction coincides with the new 30-day time limit running from the date of completion to the reporting and payment of capital gains tax, meaning that there is now much less time to establish capital gains tax liability. What are the Government doing to communicate such changes, so that they are well understood?

The changes as a whole are projected to raise £50 million for the Government in this tax year and £120 million next year. Given the current situation in the housing market, I shall be interested to hear the Minister’s views on whether any change has been made to any projections in this area. It is vital that the Government can raise funding for our vital public services, but in the grand scheme of things, those seem like relatively modest sums. Although I want to ensure that our public services have the funding they need to get through this crisis, I am sure the Government would not seek to disadvantage those who, through no fault of their own, find themselves in a very difficult situation owing to the pandemic.

Those are the only comments that I seek to offer on the clause. I shall be grateful for a response from the Minister.

[Jesse Norman]

I thank the hon. Lady for her comments. She raises the question of retrospectivity. We do not regard the changes as retrospective. Capital gains tax is due only when a disposal is made, and taxpayers have 18 months’ notice of the changes. They have therefore had plenty of time to rearrange their affairs—for example, by selling property under the old rules if they had wished to do so. It is important to remember that any private residence relief accrued from periods when the property was lived in as a main home is retained.

I am glad that the hon. Lady does not blame the Government for failing to predict the pandemic. That would be a very widespread source of blame; few people across the world could be exculpated from that. She also raised the question of the effect of covid-19. It is worth saying that, as she highlights, the nine-month exemption is based on evidence that the average selling time was four and a half months, and the suggestion is therefore that nine months is not long enough. I note her point and will take it away with me from this sitting; I thank her for that. It still leaves the average significantly short of nine months. It is worth pointing out that, if people are taken over that level, they will still likely pay very little, if any, capital gains tax, because the annual exempt amount, which has just been increased to £12,300, keeps small gains out of CGT. If someone was running over by a month, it would have to be an enormous gain in order to breach the annual limit.

As I said, there are no changes to the wider 36-month exemption that is available to disabled people and to those in care homes. The Government think the CGT allowance provides an additional safeguard in case there are circumstances in which people might inadvertently run over time.

Question put and agreed to.

Clause 23 accordingly ordered to stand part of the Bill.

Clause 24

Corporate capital losses

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

[The Chair]

With this it will be convenient to discuss the following:

That schedule 3 be the Third schedule to the Bill.

Clause 25 stand part.

New clause 9—Review of changes to capital allowances—

“(1) The Chancellor of the Exchequer must review the effect of the changes to chargeable gains with respect to corporate capital losses in section 24 and Schedule 3 of this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment

(b) employment, and

(c) productivity.

(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.

(4) The review must also estimate the effects on the changes in the event of each of the following—

(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,

(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or

(c) the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.

(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.

(6) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and ‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause requires a review of the impact on investment, employment and productivity of the changes to capital allowance over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.

[Jesse Norman]

We are 50 minutes in and making very good progress, so thank you for your leadership from the Chair, Mr Rosindell.

Clauses 24 and 25 and schedule 3 make changes to UK corporation tax loss relief rules to introduce the corporate capital loss restriction that was announced at Budget 2018. At that Budget, the Government announced changes to the treatment of capital losses for corporation tax purposes. Currently, if an asset is sold at a loss, that capital loss can be carried forward and offset against up to 100% of the capital gains in future periods. In order to ensure that large companies pay corporation tax when they make significant capital gains, the Government will restrict the use of companies’ historical capital losses to 50% of the amount of annual capital gains from 1 April 2020. This policy builds on previous reforms to corporation tax loss relief, and brings the treatment of capital losses into line with the treatment of income losses.

The changes made by clause 24 will apply a 50% reduction to the amount of carried-forward capital losses that a company can set against chargeable gains that arise in a later accounting period. Various other changes that are required to deliver or support that loss restriction are also included. They include provisions to ensure that the restriction is proportionate for companies entering into liquidation, and that it operates effectively for companies in sectors that are subject to unique tax regimes, such as oil and gas, life insurance and real estate investment trusts.

This loss restriction will raise approximately £765 million in additional revenue over the next five years. An annual allowance of £5 million will apply across both income and capital losses to ensure that small and medium-sized companies are not affected. We estimate that less than 1% of companies will have to pay additional tax as a result of these changes. The change made by clause 25 is to amend the quarterly instalment payment treatment for certain companies with no source of chargeable income, which have a short accounting period resulting from a chargeable gain accruing.

New clause 9, tabled by the SNP, requires a review of the effect of the change to chargeable gains introduced by clause 24 and schedule 3 within two months of the Bill’s receiving Royal Assent. The review would focus on the effects of changes on business investment, employment and productivity across different regions of the UK, as well as the effects of various scenarios following the end of the EU transition period, and under circumstances in which the UK signs a free trade agreement with the United States.

The Government’s view is that such a review is not necessary. We set out detailed information on the Exchequer macroeconomic and business impacts in 2018, when this policy was first announced, and provided a further update at Budget 2020. Those estimates, which have been certified by the independent Office for Budget Responsibility, confirm that the changes made by the clause are not expected to have any significant macroeconomic impacts. The changes will affect very few companies—about 200 every year, which are likely to be dispersed across the UK. That estimate is not expected to change in any of the EU transitional free trade agreement scenarios set out in the amendment. A further review of the clause would not provide any additional useful information.

This restriction is a proportionate way of ensuring that large companies pay some tax when making substantial capital gains. The review that the new clause would legislate is unnecessary. I therefore urge the Committee to reject new clause 9, and I commend the clauses and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to be here again on such a fine day in the Committee Room, going through some of the more technical elements of the Finance Bill.

We have heard from the Financial Secretary why clause 24 and schedule 3 appear in the Bill. As Members can see for themselves, part 1 of schedule 3—paragraphs 1 to 38—deals with changes required to introduce the corporate capital loss restriction; part 2—paragraphs 39 to 41—introduces changes in the treatment of allowable losses for companies without a source of chargeable income and makes other required minor amendments; and part 3—paragraphs 42 to 46—contains commencement and anti-forestalling provisions for the CCLR.

All in all, schedule 3 comes to 18 pages. I am sure that the Treasury deems them essential, or they would not be in the Bill, but it does seem to run somewhat contrary to the Government’s stated aim of simplifying the tax system. In case anyone wanted to reach for the explanatory notes for some salvation and solace, even they extend to 10 pages. I do wonder whether it was really necessary, with such a lengthy schedule and explanatory notes, to go into such detail; I guess my question to the Financial Secretary is whether anything can be done to simplify it. As I said, the Government’s stated aim is to simplify taxes—they even created the Office of Tax Simplification —but the OTS’s job is made much more difficult if, while it is trying to simplify the existing tax code, we are adding reams and reams of clauses to it.

The measure set out in clause 24 and schedule 3 is expected to raise significant revenues in corporation tax from large corporations. That is not something that I will complain about too much—in fact, I am not complaining at all—but a common concern among respondents to the Government consultation was about the timing in relation to our exit from the European Union and in the context of concerns about the impact on UK competitiveness. Although we do not oppose what the Government seek to do, it is important that they address those concerns up front—not least so that when people reply to Government consultations, they know that someone is reading and listening, and that the Government will at least address their concerns even if they do not share them.

Turning to clause 25, I am sure the Financial Secretary will recall that the London Society of Chartered Accountants wrote to the Chancellor on 19 April, copying him in, to raise issues about several clauses of the Bill. Paragraph 13 of that letter states:

“We note that this proposes that a company that would otherwise be ‘very large’ would be ‘large’ in the context of the regulations requiring payment of corporation tax in instalments if it is chargeable only because of a chargeable gain on disposal of an asset, but only for APs beginning on or after 11 March 2020. It is obviously aimed at non-resident companies that only come within corporation tax as a result of their new exposure to corporation tax on disposals of UK land and interests in entities that are ‘UK land-rich’. A single such disposal would result in the due date being on that one day that the company disposed of the property, so this is a welcome change for any but the largest organisations. However, it is unfortunate that this is not to apply to events before 11 March 2020, where companies have had to rely on a concession by HMRC. In such circumstances, HMRC propose that tax should be paid within 3 months and 14 days after contracts are exchanged unconditionally.”

It would be good if the Financial Secretary addressed those concerns in his reply.

We have already heard the Financial Secretary’s account of why he thinks the review required by new clause 9—tabled by our colleagues in the SNP, led here by the hon. Member for Glasgow Central—is not necessary. The proposed review of changes to capital allowances

“must consider the effects of the changes on…business investment…employment, and…productivity…The review must also estimate the effects on the changes in the event of each of the following…the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement…the UK leaves the EU withdrawal transition period with a negotiated agreement and remains in the single market or customs union”—

I will not hold my breath on that one—

“or…the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.”

I understand why the Financial Secretary may not consider such a review necessary in the context of changes to capital allowances, but I would say two things in response. First, clear, widely available and readily understood analysis of the wider context and the wider pressures on the economy, covering issues such as business investment, employment and productivity is absolutely essential. Secondly, the headlines are obviously dominated by the coronavirus and, more recently, by events in the United States, with the murder of George Floyd, and the Black Lives Matter movement protests we have seen on the streets of the UK. However, in the background, as we know, there is the ongoing issue of Brexit, which has almost been forgotten in the national conversation, but which remains one of the single biggest challenges facing our country. The Committee on the Future Relationship with the European Union is hearing from Michel Barnier this week.

Whether Brexit is viewed by Members of the House as an opportunity or a threat, or perhaps a combination of the two, I do not think anyone would dispute that unravelling ourselves from the most sophisticated political and economic alliance in the history of the world is simple or straightforward, or without consequences. We have reached a settled position—to be clear, the official Opposition recognise that settled position—with a referendum and two general elections that have given the Government a mandate to implement the referendum. The question of whether Brexit takes place has been settled by those three democratic events; the question now is how it happens. At the same time, we are in the middle of a global pandemic that, as well as being a public health crisis, threatens to be an economic crisis. We are already in a recession, and the choices the Government make in the coming days, weeks and months, along with the choices they have already made, will shape and determine whether the recession is as short and shallow as we would hope.

I do have a concern when I listen to statements made by Ministers—not so much Treasury Ministers, but certainly Ministers in other parts of the Government, including the Prime Minister and the people around him—that the economic issues and priorities of the country are playing second order to political considerations. That is a terrible mistake. I hope that the Government will take a more stable and orderly approach—if I may borrow a phrase from our former Prime Minister—to some of these choices and issues, and that the Treasury flexes its muscles at all points in conversations with other Departments about the considerations that must be made about our future relationship with the European Union and, indeed, about free trade agreements with other countries, including the United States.

The Financial Secretary may not have a great deal of sympathy for the case made for a review in the context of changes to capital allowances, but I am glad we are having this conversation, because debate in this place is moving too often away from some of the really serious economic challenges that are presenting themselves. We cannot wish those challenges away; we need to make active, sensible and wise choices to ensure that our country emerges from this period of our history with a stronger economy and with greater and more widely shared prosperity than we have today. I hope that that cause is shared by Members right across the House.

Finally on new clause 9, the reason why we table such amendments and new clauses calling for reviews is that that is one of the few ways in which Opposition parties can debate issues on the Finance Bill. In recent years, it seems Ministers—to their shame, actually—have been too frightened and cowardly to allow Finance Bills to be subject to amendments in the way they were traditionally. We no longer have the same freedom and flexibility to propose practical, concrete changes that we might like to see, which strengthen democratic and political debate in Parliament, with Oppositions not just criticising Government, but laying down alternatives so that we can debate their merits versus the Government’s approach. So, instead, we call for reviews.

--- Later in debate ---

[The Chair]

I call the Minister to respond.

[Jesse Norman]

I would not have dreamt of not responding to the concerns raised by Members of the Opposition, and I am grateful to you, Mr Rosindell, for allowing me to do so.

The hon. Member for Ilford North mentioned the simplification of the tax system and asked whether the measures before us could be regarded as a simplification. He is absolutely right that simplification of the tax system is a highly desirable thing. In this case, without getting too far removed from political business, it seems there is a parallel to some of the work done by Thomas Kuhn on how science proceeds, where he distinguishes between times in which normal science proceeds, as it were, in a normal fashion and times when there is a paradigm shift and everything changes. Often, the effect of a paradigm shift is to create a moment of radical simplification to a system that was becoming overly complex in its theoretical analysis before. That was the effect of Copernicus on the Ptolemaic system, and of Newton on pre-Newtonian physics. There may well come a case, as in the past, where this Government or their successor decide on a radical tax simplification, but while we are in the world of existing tax, that is not the world we are talking about.

The hon. Gentleman should be pleased to know that these measures have been regarded within the profession as the model of how to achieve effective tax legislation— that is not always the case with Government legislation. There is a nice quote in the Tax Journal for 5 December 2018:

“The corporate capital loss restriction is a good example of how to produce effective legislation. The consultation will enable draft legislation to be produced for publication in December 2019. This will be subject to technical consultation ahead of its inclusion in the Finance Bill 2020. This allows time for the profession to work with HMRC to iron out the inevitable teething troubles.”

That is right. As I have identified, there were essentially two periods of consultation: one on policy design and, in due course, more technical consultation on draft legislation. That work is what is reflected in this piece of legislation. I hope I have reassured the hon. Gentleman on that front.

The hon. Gentleman raised a question about competitiveness. He will know that the components of competitiveness are many and various. It is not immediately obvious why the treatment of capital for capital losses should have any huge or certainly immediate competitive effect. We are talking, lest it be forgotten, about a measure that is likely to have an effect on some 200 companies. Some of them may be large, but this is a very small proportion of the overall corporate world in which we live. It is also worth saying that, even after this change, the system that remains is significantly more generous in some crucial respects than the system in many other countries that are our notional international competitors.

The hon. Gentleman raised the question of whether the Government are disallowing adequate challenge to the Bill. I would say that one man’s meat is another man’s poison, one woman’s meat is another woman’s poison and so on. The effect of having this structure to the Bill is that, as we grind through these clauses—I apologise to colleagues if it is a grind—and give them the detailed consideration that this Parliament would expect with its history of scrutinising tax, that is now being done under a system in which non-charging measures are covered by individual resolutions. That is an increase in clarity and, I think, very much to be welcomed.

The hon. Member for Aberdeen South talked vigorously about what he sees as the democratic views of the people of Scotland. May I remind him of a few facts? Scotland had a referendum in 2014 in which, I am pleased to say, a substantial majority was in favour of remaining part of the Union. In so doing, Scots reflected the wisdom of arguably one of Scotland’s greatest thinkers, Adam Smith, when he said that the Union with England was a measure from which infinite good had derived to Scotland. How right Smith was. Of course, it would overturn the settled convention that referendums take place once in a generation, and, to that extent, it would be a denial of the democratic basis of referendums, to have another in a shorter time period.

May I also remind the hon. Gentleman that it was extraordinarily lucky in many ways that the Scots were, as I trust they will always be, wise enough to see their future within the Union, because when crisis struck, and the oil and gas industry were completely clobbered and the oil price fell, that would have cut an enormous hole in the GDP of an independent Scotland, which disastrous economic outcome was avoided by Scotland’s ability to work with and benefit from its position within the Union? The same will be true under coronavirus, given the different exposures that the Scottish economy has to sectors affected by the economic downturn.

--- Later in debate ---

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

[Jesse Norman]

This is a very small and technical measure that widens the scope of capital gains tax relief in respect of loans to traders, so that from 24 January 2019 it applies to loans made to traders located anywhere in the world and not just in the United Kingdom.

Relief for loans to traders is available where a loan is made to a UK company, sole trader or partnership, for the purposes of a continuing trade, profession or vocation, or for the setting up of trade, but then the loan subsequently becomes irrecoverable. The relief allows a person to write off the loss against chargeable gains.

The UK has now left the EU and has agreed to follow its rules for the duration of the transition period. On 24 January 2019, the European Commission issued a reasoned opinion, arguing that the existing legislation for relief of loans to traders contravened the free movement of capital principle. The Government accepted that the legislation, as drafted, was too narrow, and agreed to introduce legislation to expand the rules and to comply with that principle.

The change made by clause 26 widens the relief, so that it applies to qualifying loans made to businesses worldwide and not just in the UK. The proposed changes are not expected to have any significant impact on the Exchequer, due to the small number of people making these loans. Loans of the type covered by this relief are often risky, making them unattractive to many investors. Widening the geographical scope of the relief will not make such loans less risky, but it will give UK-based investors a remedy should an overseas investment be lost. Draft legislation setting out this change was published during the summer and no comments were received.

The Government consider that this legislation is appropriate for supporting overseas investment opportunities for UK-based investors and for meeting our residual obligations to the European Union. I therefore commend the clause to the Committee.

[Wes Streeting]

Earlier, the Financial Secretary described our proceedings as “a grind for some”. How could it possibly be a grind when we were treated to such a fascinating history lesson as the one he gave at the end of the debate on the last group? However, I am not sure that invoking the economic lessons of Adam Smith will be enough to persuade the hon. Member for Aberdeen South of the case for the Union. Indeed, I am not sure that it would persuade me of the case for the Union. I will return to reading the books by our esteemed former Prime Minister, Gordon Brown, and I will leave it to my hon. Friend the Member for Edinburgh South (Ian Murray) to lead the charge in making the case for the Union. That might be more persuasive to the people of Scotland than the history lesson given to us by the Financial Secretary.

We are all learning new things this morning. In fact, the hon. Member for Aberdeen South has learned that, in this place, the words “and finally” are generally a statement of intent rather than a binding commitment. I am sure that on many occasions I have used the words “and finally” more often than once.

The Financial Secretary described clause 26 as very small and technical, and I suppose that is true to an extent. As we have heard, relief for loans to traders is a capital gains tax relief; it gives relief where a loan is made to a UK company, sole trader or partnership for the purposes of an ongoing trade, profession or vocation or the setting up of trade, and the loan subsequently becomes irrecoverable. To qualify for the relief, the loan must be to a borrower who is resident in the UK and who uses the money wholly for the purposes of a trade, profession or vocation or to set up trade, as long as they start trading. Relief is due only if there is no reasonable prospect of the loan ever being repaid.

Who can argue with any of that? The clause is technical and straightforward, and the Financial Secretary has made the case for it. Only towards the end of his speech did we hear that the purpose of the clause—please shut your ears, Mr Rosindell—is to extend the relief to borrowers outside the UK, which will ensure that the relief complies with article 63 of the treaty on the functioning of the European Union, and with the rules on the free movement of capital.

I thought we might have a bit of fun dwelling on that for a moment, because we are locked in negotiations on our exit from the European Union. I am sure it was not meant to be sneaky—Ministers would never be sneaky—but at the end of the Financial Secretary’s speech on the clause, he briefly mentioned that it was about bringing ourselves into alignment with European Union law. It is curious that we are trying to negotiate our exit from the European Union at the same time that we are passing domestic law to bring ourselves into alignment. The Government have begun their fourth round of trade negotiations with the European Union; the process is far from complete. With the Government’s self-imposed December deadline looming, it appears there is nothing that the Government are not willing to sacrifice for their ambition to get Brexit done.

In the light of that, I am curious about whether the Government intend for the alignment to be permanent, or whether it will be a measure from which they wish to diverge in the future. I wonder what other rules we are planning to align with at the same time as we are planning divergence, and I wonder how the Government are weighing up the case for alignment and the case for divergence. The clause is designed to align the UK with EU trade regulations and EU laws, which reveals an uncomfortable reality at the heart of the Government’s strategy: no matter how much they might claim that Brexit means Brexit and that we can shirk our obligations, we know that the continuing harmonisation of laws and rules will continue within the European Union, and that, over the course of our future relationship with the European Union and with any future trade agreement with any third party, there will always be compromise, choices, trade-offs, harmonisation, agreement to abide by the same rules, and a mechanism for dispute regulation.

I certainly do not wish to re-fight the battles of the past. As I have already said, we accept that this question is settled. We have left the European Union. The only question now is about our future relationship. However, in the same way that the Government have recognised, through the clause, that we have obligations to meet, and that doing so is in the interests of businesses here in the UK—as a principle, it does not apply only to businesses, but in this case we are talking about the capital gains tax relief that will benefit different types of businesses—it is important that we acknowledge that, in our future relationship, there may well be instances in which it is in our national interest to align with the European Union, or to persuade the European Union to align with us.

Going back to my previous remarks, it seems to me that there has been far too much dogma in the debate, and far too much emphasis on demonstrating, in a robust and visible way, that we have left, almost as though divergence is a point of principle and a good in and of itself. There may be opportunities and occasions on which my Opposition colleagues and I might see divergence from a particular approach taken by the European Union as an opportunity presented by Brexit, and there may be occasions, particularly in the context of debating our domestic tax affairs and economic policies, in which opportunities might present themselves, and we might propose courses of action that otherwise might not have been possible as members of the European Union. However, there will be occasions when alignment with the European Union and its approach is in our national interest, and the Government should be brave enough to say so.

I think that most people in this country, whether they voted leave or remain, would accept that there are lots of occasions when a deep partnership with the European Union would be in our interest. Indeed, reflecting on the conversations that we had during the referendum and since, it seems to me that one of the least concerns that people had about the European Union was the notion that we had an economic partnership. My constituency split pretty much down the middle on Brexit, so I have the opportunity to speak to people who voted leave and remain all the time, which I find insightful, instructive and enriching. I find that, when people reflect back on our membership of the European Union, one of their least concerns was about the economic relationship and the notion that it was a free-trade bloc and a trading partnership. In fact, one complaint that I got from lots of leave voters who were voting leave because of concerns about sovereignty is that it had become too much of a political project and not so much an economic one.

I hope that, as the Government scope out their policies, and as the Treasury seeks to influence other Departments and to restore some sense of reality and grounding in some of the economic considerations of our future relationship, people right across Government bear that in mind, and that we do not end up cutting off our nose to spite our face. This country already had a number of underlying structural problems with our economy that we needed to address—slow growth over the last decade, weak productivity and the extent to which our country is divided, not only in the economic gap between the wealthiest and poorest but in the regional, place-based economic inequalities across our country.

There are lots of issues for us to deal with, but I fear that our job is being made even harder by the covid-19 crisis and its obvious impact, and I fear that the job of tackling those problems will be made harder still if we make unwise decisions about our future relationship based on political and ideological dogma, rather than on the economic considerations. I hope that message will be taken back to the Treasury.

[Jesse Norman]

I am keenly aware of the 11 o’clock minute’s silence, and I wish to respect that, so I will keep my remarks short. The hon. Gentleman will be aware that my consideration of the EU in my speech was probably 40% to 45%, rather than a concluding thought. I am glad he recognises that opportunities will emerge after we have left the EU, and I am sure he is right that there will be cases in which we should wish to align with it on a sovereign basis.

[The Chair]

Order. At 11 o’clock, I will suspend the sitting for a minute’s silence. The bell will ring at that point. I propose we do not proceed with any further discussions until after the minute’s silence. Please be upstanding.

Finance Bill (Fourth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 4th sitting: House of Commons
Tuesday 9th June 2020 Public Bill Committees

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

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to see you in the Chair this afternoon, Ms McDonagh.

Clause 27 increases the rate of relief for businesses investing in research in development and supports the Government’s ambition to drive up R&D investment across the economy to 2.4% of GDP. R&D tax credits are a key element of that support for innovation and growth. To assist businesses further, the Government will increase the rate of the R&D expenditure credit from 12% to 13%. In the interests of disclosure, I should mention that my wife, Kate Bingham, is the chair of the vaccines taskforce and is engaged in the R&D sector.

Investment in R&D is vital for increasing productivity and promoting growth. There are two schemes for claiming R&D task credits: the research and development expenditure credit—RDEC—and the small and medium-sized enterprise scheme. Businesses can benefit from R&D tax relief regardless of whether they make a profit in that year. As R&D is often risky or pays back years after the investment, this is a well-targeted and much-valued incentive. In 2016-17, the Government provided over £2.2 billion to businesses through RDEC, supporting almost £25 billion-worth of R&D activity.

The changes made by clause 27 will provide an additional £1 billion of support over the next five years. Increasing the RDEC rate will make the UK even more competitive for R&D investment and drive growth across all the UK’s regions. I believe that the changes made by the Bill will give innovative businesses additional support and encourage further investment in R&D. I commend the clause to the Committee.

[Wes Streeting (Ilford North) (Lab)]

Welcome back to the Chair, Ms McDonagh.

The Financial Secretary has outlined the impact that clause 27 will have on the generosity of RDEC by increasing it from 12% to 13%. The Opposition certainly have no qualms about that; it is estimated to benefit approximately 7,000 businesses, which is to be welcomed, and the incentives that he outlined are laudable. If I may, however, I will raise a couple of concerns.

The Financial Secretary mentioned the RDEC provision and the SME R&D scheme. As other stakeholders have said, it is disappointing that while the RDEC rate of credit is being increased from 12% to 13%, we are not seeing an increase in the generosity of the SME R&D scheme. Will the Minister address that in his reply? I think it is a big missed opportunity: SMEs are an important part of our economy, and their R&D potential should not be overlooked. That is why there is a provision specifically for them, after all, so it is disappointing that they seem to have been overlooked.

While we are debating clause 27, I will make a few points about research and innovation more generally. The UK is a global centre of excellence in R&I, but we should be even more ambitious, and the Treasury ought to be driving ambition in that respect. The latest figures from the Library put the UK’s research and development spending at 1.7% of GDP—behind the USA, France and Germany. While I absolutely acknowledge that the Government intend to be more ambitious and increase the percentage of GDP spend on R&D, I do not think that there is any room for complacency, so it is disappointing that they have overlooked the SME dimension.

We have to ensure that any uplift in innovation investment also ensures value for money, and that we are more ruthless about returns for the taxpayer and our economy. It is the research that costs money and the development that brings in the financial and, crucially, industrial payback.

As I said only on Monday to a group of university leaders, we have world-class universities in this country. I am very proud of the UK’s higher education sector and the contribution it makes. I hope that the plight of our universities is well understood by the Treasury and that, as the Chancellor is considering what more needs to be done to support different sectors of our economy through the crisis, he will look very carefully at what is happening in our higher education sector. It is the result not just of luck but of strong leadership from our universities that we have a world-class higher education sector in the UK, and we want it to go on being world-class. That applies not only to the teaching and the reputation of universities as a destination for students and academics, but to the world-class research output of our universities.

We still need to do much more as a country to bridge the so-called valley of death—to take academic ideas on to commercial success. It is a constant source of frustration to me, and I think more broadly, that our universities are places of outstanding research and innovation that is then capitalised on elsewhere. We end up paying double: we pay for the research up front and then we pay to buy back the benefits of that research, which has often been applied and commercialised by others.

Industrial researchers know that the cost of scale-up and commercialisation is an order of magnitude more than the cost of fundamental research, and they allocate their resources accordingly. The public sector in the UK has that ratio almost entirely reversed, spending 10 times more on research than on scale-up and development. While I absolutely celebrate and champion the research base of our universities and the importance of research and scientific discovery, and the arts and humanities as public goods in and of themselves, it is disappointing that the UK taxpayer often find themselves a benevolent funder of research for the world, hamstrung by a funding regime that has insufficient capacity to absorb and commercialise UK-funded research in the UK. I believe there is an opportunity for the Government to think about what more they can do to ensure that future growth in the science and innovation budget is targeted on development as well as research, ensuring that research carried out in the UK is commercialised in the UK, and that the economic benefits are captured in the UK.

We can also do much more around our research and technology organisations, which are an under-utilised and undervalued part of our science and innovation base. Funding development rather than research, using RTOs, would also support the Government’s objectives, which I believe are shared cross-party, of levelling up and investing in those parts of the UK that too often in the past have felt overlooked or left behind. By ensuring that funding is targeted at development as well as research, we can ensure that a greater proportion of funding goes towards some of our industrial heartlands, particularly in the north of England, where many RTOs are located, rather than continuing to concentrate funding in the so-called golden triangle of universities in the south of England.

I hope that the Financial Secretary will take those points on board, and that when he has the opportunity to do so, with the Treasury, he will focus R&D investment appropriately. It would be particularly helpful if, this afternoon, he enabled us to understand why the Government have overlooked the importance of SMEs when thinking about our research and development tax incentives.

[Jesse Norman]

I thank the hon. Gentleman for his thoughtful comments and questions. Let me discuss the SME scheme first. It is worth reminding the Committee that the SME scheme is extremely generous as it stands. It has a 230%—2.3 times—corporation tax deduction on R&D spend and a 14.5% payable credit where losses are made; some £2.2 billion of support was claimed through the SME scheme in 2016-17. It is also true that some SMEs claim RDEC, and will therefore benefit from the increase of the expenditure credit we are discussing. In 2016-17, just under 3,500 small and medium-sized enterprises claimed a little over £200 million in support through RDEC.

I understand why the hon. Gentleman says we need more ambition, but it is important to realise that the increase now under way represents the largest increase in support for R&D for 40 years across all Governments, Labour, Conservative and coalition. It is an enormous investment that increases public investment in science, innovation and technology to £22 billion by 2024-5, so there is no absence of ambition from the present plans. Of course, it is always important to balance that ambition against cost-effectiveness and value for money.

The hon. Gentleman mentioned the situation of universities in the context of covid-19. I understand that point: I used to teach at University College London and at Birkbeck, and have been associated with several universities in my life. It is also true that an enormous body of work remains to be done within universities, which may in turn be stimulated by the present situation to address the third point he made, which is the importance of the “D” in R&D—improving commercialisation and development. That is often the part of the picture that is missing, and it is hard for Government to create the development side on their own; we need active, vigorous, energetic partners. When one looks at other countries that have been highly effective at the development side of R&D, one finds in many cases that it has been not just corporate-led, but led and supported by universities as well. The hon. Gentleman’s points are therefore well made.

I remind the Committee that the ambition of this measure has been recognised by the Confederation of British Industry, which noted that these were

“powerful incentives to get businesses investing”.

It has also been specifically supported by the Association of the British Pharmaceutical Industry, which has recognised that despite the difficult circumstances in which the Budget was delivered, there is a commitment to this sector and this kind of investment. With that in mind, I recommend that the clause stand part of the Bill.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 28

Structures and buildings allowances: rate of relief

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 29 stand part.

That schedule 4 be the Fourth schedule to the Bill.

New clause 10—Structures and buildings allowances: review—

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by section 29 and Schedule 4 of this Act and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the effects of the provisions on—

(a) business investment,

(b) employment,

(c) productivity, and

(d) energy efficiency.

(3) In this section—

‘parts of the United Kingdom’ means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

‘regions of England’ has the same meaning as that used by the Office for National Statistics.”

This new clause would require a review of the impact on investment of the changes made to structures and buildings allowances in Schedule 4.

[Jesse Norman]

Clause 28 makes changes that increase the rate of relief provided by the structures and buildings allowance. It is interesting that this allowance was also singled out by the CBI when referring to the economic incentives for investment that the Government provided in the Budget. From 1 and 6 April, for those businesses chargeable to income tax and corporation tax respectively, the rate of SBA will increase from 2% to 3% per annum. Clause 29 and schedule 4 ensure that SBA operates as intended through six minor and miscellaneous amendments.

The Government remain committed to incentivising businesses to invest in capital assets that will drive and support future prosperity. By increasing the SBA rate from 2% to 3%, we are levelling up the international competitiveness of the UK’s capital allowance regime. With a corporation tax rate of 19%, this country already boasts the lowest headline rate in the G20. Increasing the SBA rate helps us to go further, thereby reinforcing the UK’s attractiveness as a place to invest and do business, and addressing concerns about competitiveness—indeed, more than addressing them—that have already been raised in this Committee.

--- Later in debate ---

[Jesse Norman]

I thank the two hon. Gentlemen for their questions and comments on the clause. The hon. Member for Ilford North raises the question of what he calls tinkering, and I of course recognise the concern. I think it is fair to say that Governments of all kinds were given a masterclass in the dangers of tinkering by the Labour Government that was in power between 1997 and 2010. I will not bore the Chamber by rehearsing the highlights, but some would give anyone cause for concern. It is an inveterate potential risk, and the difficulty, in this case as in others, is in trying to balance the desire not to make change with the positive good that can be made by a particular change.

In the case of the SBA, on which there has been considerable discussion with stakeholders in different ways, the effect of increasing the generosity of the relief is that a business investing in a £10 million building will be able to deduct an extra £100,000 a year. That is not a trivial amount of money; any such business would surely welcome that amount. That illustrates the difficulty with a general worry about that tinkering. It is noticeable that, again, this has received a lot of support.

I mentioned the CBI. The National Farmers Union says that the increase will

“deliver more effective tax relief for farm buildings.”

Interestingly, it also goes to the point raised by the hon. Member for Aberdeen South, by saying that this change

“will go some way to supporting farms investing in modern, efficient infrastructure which could help to improve productivity and deliver our net zero ambition.”

That is a worthwhile and a good thing.

There are a variety of amendments in the clause. The difficulty is that these are minor but necessary technical changes to ensure that the SBA legislation is fair and equitable. As the hon. Member for Ilford North said, there is a general problem with forestalling on much new tax legislation. In the case of this measure, it is inevitable that, when there is change in a complex environment, different consequential changes will occasionally have to be made in order to improve the functioning of the legislation, to ensure that it works as anticipated. That is what these changes do.

We have already discussed the amendment of the law and I pointed out that, in some respects, proceeding directly with an income tax resolution has the effect of increasing overall transparency. It does not constrain debate in any degree. If the Labour party or any other party wishes to come forward and say that it wishes, on balance, to have SBA at 2%, 4% or 10%, it is fully entitled to say that in Committee now. That can then be evaluated and used to interrogate the position of the Government, and when we come to vote on it, the Government and colleagues can consider what an alternative might look like when they consider how to vote. That debate is not constrained—formal processes of amendment are not the same thing as the possibility of debating.

The hon. Member for Ilford North mentions his desire to avoid the dry and technical subject matter found in a Finance Bill Committee. He has chosen the wrong Bill about which to have that worry, because this is a dry and technical subject, and it is of its nature that it is like that and will always be like that. The idea that, before these procedures were in place, Finance Bills had wildly exciting and disco-like sessions in which Members of Parliament were able to propose exotic new ideas and debate was thereby enlivened is, I think, quite far from the mark.

The hon. Member for Aberdeen South raised a question about energy efficiency. He is aware that a vast array of measures have been put in place that are designed to bolster and improve the way in which we use energy. In due course, the Government will come forward with our own plans for net zero, which will do more in that regard. I think he called—or if he did not, he came close to it—for VAT to be, as it were, nationalised within Scotland. However, as I pointed out to the hon. Member for Glasgow North, I wonder whether the hon. Gentleman really wishes to overturn the fiscal framework that has been so carefully agreed over such a significant period and so much consultation between the then Government and the Scottish Government. If he really wishes to overturn the fiscal framework by demanding new powers, let him do so, but of course that upsets a much larger potential apple cart. On that basis, I commend clause 28 and urge the Committee to reject new clause 10.

Question put and agreed to.

Clause 28 accordingly ordered to stand part of the Bill.

Clause 29 ordered to stand part of the Bill.

Schedule 4 agreed to.

Clause 30

Intangible fixed assets: pre-FA 2002 assets etc

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

[Jesse Norman]

Almost as if it had been perfectly choreographed to illustrate the underlying nature of a Public Bill Committee on a Finance Bill, clause 30 concerns corporation tax intangible fixed assets relief for pre-Finance Act 2002 assets, thereby supporting UK investment in intangible assets.

Intangible assets include intellectual property rights such as trademarks, patents and design rights. The intangible fixed assets regime provides tax relief to companies for the cost of acquiring intangible assets. Relief is given either as the cost is written off in a company’s accounts or at a fixed rate. Not all intangible fixed assets are in the regime; there is a restriction, known as the pre-FA 2002 rule, that excludes certain older assets so that relief for the cost of such pre-FA 2002 assets is usually deferred until they are sold and the capital gains rules apply. This deferral, along with the administrative cost to companies in identifying whether an asset is within the regime, reduces the UK’s attractiveness, compared with other jurisdictions, as a location in which to hold intangible assets.

The changes made by clause 30 will make it more attractive for businesses to develop, manage and exploit intellectual property in the UK. They will simplify the taxation of such assets by bringing all intangible assets into the single regime where they are acquired on or after 1 July 2020. The clause will amend the commencement rules in part 8 of the Corporation Tax Act 2009, which prior to 1 July 2020 would have prevented pre-FA 2002 assets acquired by a company from a related party from coming into the regime. Intangible assets held by a company that is not within the charge to corporation tax as at 1 July 2020 will all be brought within the intangibles regime without distinction, should that company subsequently come into charge. The tax treatment for pre-FA 2002 assets already within the charge to corporation tax prior to 1 July 2020 will be preserved to protect those companies that already benefit from the existing rules.

There are further rules to apply the restriction to transactions that stop short of an outright acquisition of a pre-FA 2002 asset, but that nevertheless transfer its substance and value to a related party, such as in the form of a licence or some other new asset. The costs that can initially be relieved on such an acquisition will be restricted by reference to the market value of the asset; the company will not obtain full relief for the cost until it disposes of the asset. There are further rules to prevent arrangements between related parties that are intended to sidestep this restriction by creating or transferring what are notionally new assets instead of pre-FA 2002 assets.

The most immediate impact of this measure is likely to be on international businesses importing valuable intangible assets to the UK from overseas. These businesses will no longer have to perform the complex task of identifying excluded pre-FA 2002 assets, and will instead receive tax relief on all the assets that they acquire. Domestic companies, however, will also stand to benefit over the longer term from the reduced administrative burdens brought about by this measure. An estimated 1,000 companies a year acquire pre-FA 2002 assets. There will now be less need to distinguish between these pre-FA 2002 intangible assets and new intangible assets when companies enter into transactions involving such assets.

The clause enhances the availability of UK tax relief for the costs of acquiring intangible assets. It brings those acquired assets into a single tax code. That reduces the effects of an arbitrary distinction between older and newer intangible assets, and in so doing increases the attractiveness of the UK to innovative, IP-intensive businesses. I commend the clause to the Committee.

[Wes Streeting]

The Financial Secretary said that Finance Bills cannot be exciting and fun, but I am riveted by this particular clause—I have been looking forward to it all afternoon. I rise not to take umbrage at what the Financial Secretary said but to give voice to the concerns expressed by the London Society of Chartered Accountants and to ask the Minister to address those concerns.

As the society has acknowledged, this change will benefit many taxpayers. However, there will also be taxpayers who have capital losses or non-trading deficits and would have anticipated using them against any gain on pre-2002 intangible assets. There will be taxpayers who, having been through the transition to the new rules in 2002, are now quite happily running the two regimes side by side. For them, a compulsory change to the system would be more disruptive than maintaining the status quo, and as a result they might be disadvantaged. I wondered whether the Minister, speaking directly to that point, could clarify how those taxpayers will be impacted.

By way of slight digression, Ms McDonagh, and in response to the point that the Financial Secretary made during our discussion of the previous clause, I should say that I do not remember the Labour Government doing a great deal of tinkering between 1997 and 2007.

--- Later in debate ---

[Wes Streeting]

The word that the Financial Secretary was looking for was “transformation”.

[Jesse Norman]

That was an unexpected intervention from the Chair, Ms McDonagh, but no less welcome for that. I thank the hon. Member for Ilford North for his question. He slightly galloped through the particular concern, and I am afraid I did not fully catch it.

[Wes Streeting]

Sorry!

[Jesse Norman]

That is absolutely fine. What I will do is ask the hon. Gentleman to give me the letter; I will write to him separately with a response that addresses the detail of the concern.

I can say to the hon. Gentleman that we do not believe that companies will be worse off because of these changes, which will not affect IP already held by any company. If a company does dispose of its IP, it will be taxed on the same basis as it would have been before the changes. The company will still be able to make use of reliefs that they may have been expecting to use. Any tax change can have an impact in some particular cases, of course, but overall we do not expect companies to be worse off. I am very happy to take up and respond to the specific question that the hon. Gentleman raised, but I will do that outside this Committee Room, if I may.

Question put and agreed to.

Clause 30 accordingly ordered to stand part of the Bill.

Clause 31

Non-UK resident companies carrying on UK property businesses etc

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

[The Chair]

With this it will be convenient to discuss that schedule 5 be the Fifth schedule to the Bill.

[Jesse Norman]

This is another kaleidoscopically exciting measure alongside some of those that have already got the hon. Member for Ilford North so excited. I am happy to be able to titillate him further by discussing further changes to the non-UK-resident companies that carry on UK property businesses. Clause 31 and schedule five make amendments to legislation that provides that non-UK-resident companies carrying on a UK property business will be charged corporation tax from 6 April 2020.

In the Finance Act 2019, the Government legislated to bring non-resident companies that carry on a UK property business or who received other income from UK land within the charge to corporation tax from 6 April 2020. Until then, they are within the charge to income tax.

These changes make four minor amendments to the legislation that took effect in April 2020. They maintain the treatment of non-trading interest income of non-resident companies. They provide relief for interest expenses paid prior to the commencement of the non-resident companies’ UK property business—a UK resident company can already obtain relief for this type of expense. The time limits for making certain elections in respect of derivative contracts will only start to run for a non-resident company from 6 April 2020. Finally, for all companies, there is an exception from the obligation to notify chargeability to corporation tax if the taxable incomes have an amount on account of tax withheld from it. The changes clarify that the amount withheld on account of tax must meet the tax due on that income before the exception can apply.

These changes will ensure that there is a smooth transition for non-UK-resident company landlords from the income tax regime into the corporation tax regime. I therefore commend the clause and schedule to the Committee.

[Wes Streeting]

As the Financial Secretary has outlined, the clause and schedule make minor amendments that have arisen as a consequence of the provision made by schedules 1 and 5 to the Finance Act 2019. There is not much for me to add, as it is very much a consequential and technical adjustment.

Question put and agreed to.

Clause 31 accordingly ordered to stand part of the Bill.

Schedule 5 agreed to.

Clause 32

Surcharge on banking companies: transferred-in losses

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

[Jesse Norman]

We now enter the lush hinterlands of the banking surcharge regime. Clause 32 makes changes to the regime that ensures that the surcharge operates as intended when it was introduced.

The Government believe that even as reliefs are provided to support the economy in response to the coronavirus, the tax rules should continue to operate fairly and consistently for all businesses within their scope. Previously, the Government have legislated so that banks make a fair tax contribution, which reflects the risks they pose to the UK economy. That is why the Government introduced the bank levy in 2011—a tax on banks and building societies’ balance sheet equity and liabilities. It is also why banks have been subject to additional taxes above and beyond general business taxation ever since then.

In 2015, the Government made changes to the bank tax regime to ensure the sustainability of the tax base. They introduced the new bank levy rate, but offset that with the introduction of a new 8% surcharge on banks’ profits over £25 million, on top of corporation tax. The surcharge applies to corporation tax profits of banking companies within a banking group.

For corporation tax purposes, companies are able to make a number of adjustments when arriving at their profits. That might include transferring losses from one group company to another or carrying forward losses to the next accounting period. However, to ensure that banks are paying tax on all their banking profits, some of these are disallowed when arriving at the profits subject to the surcharge.

One such disallowed adjustment is for capital losses that are transferred from a non-banking company to a banking company and set against the capital gains of that banking company. That transfer should be disregarded when calculating the surcharge profit for the banking company. Currently, where these capital losses are carried forward to a future accounting period, that transfer is disregarded.

However, under the legislation as it stands, such transferred-in capital losses are not disregarded when they are set against the capital gains of the banking company in the same accounting period. That could, counter to the original intention, mean banks using losses from non-banking companies in their group to reduce their surcharge profits. That cannot be right, and the changes that we are making in the Finance Bill will ensure that it cannot happen. The changes made by clause 32 will stop surcharge profits being reduced by all capital losses transferred in from non-banking companies, whenever they are utilised against capital gains.

The changes made by clause 32 will ensure that the surcharge operates in the way that was intended when it was introduced. They will ensure that banks cannot reduce their profits subject to surcharge by using losses from non-banking companies in their groups. Above all, they will ensure that banks pay the additional tax on all their banking profits.

[Wes Streeting]

We welcome clause 32 and the Financial Secretary’s explanation of why the measure is necessary. It is important to emphasise, particularly for those in the banks who pay close attention to proceedings in Parliament, a couple of points that they should bear in mind, even a decade on from the financial crisis.

Across the House, we recognise and welcome—certainly this is true of Her Majesty’s official Opposition—the fact that the UK is a global financial centre and that the financial services industry is an asset to our country. It generates jobs and employment, and provides the oil to grease the wheels of the economy. We can see now, in response to the present crisis, the importance of getting finance to where it is needed.

Whether we are talking about business or personal customers, business loans and lending, mortgages, pensions, savings or bank accounts, people in their day-to-day lives understand the importance of a strong financial services industry. Across the House we recognise the importance of the financial services industry to the economy as a whole. As we saw, painfully, back in the midst of the global financial crisis, when the financial services industry fails and suffers, the whole economy suffers, too. It is important to acknowledge the value that we place on it.

However, it is also important that the banks should continue to reflect on the fact that the financial crisis—which came about as the result of irresponsible and reckless actions, and greed—demanded a significant price that fell on the heads of taxpayers and citizens of this country and around the world, who had no part in the making of that crisis. For the past decade of cuts to public services and pain that has been felt by businesses and households across the country—although part of the blame rests with Government for policy decisions that were taken, which we have rehearsed many times in those 10 years—it is a fact that the decisions and choices faced by successive Governments were made all the more difficult because of the irresponsibility of the spivs and speculators in financial centres, who did not understand their responsibility to society as much as they understood their own reckless greed.

In that context it is right that over the past 10 years Governments have asked banks, through the bank levy and other provisions, to pay back the debt they owe to society, so it is disappointing when new ways are found to try to lessen their tax liabilities. It is important that when the Government identify gaps and loopholes in legislation that have unintended consequences, they act to close them.

I hope that my remarks will achieve two things, the first of which is to reassure the financial services industry that we value its contribution and see it as an important part of our economic success and national life. However, I also want to remind financial services of the responsibilities that they have to the society they serve. The clause goes some way to ensuring that the debt they owe to society is properly repaid.

[Jesse Norman]

I thank the hon. Gentleman for his remarks. I share his view: it is of enormous value to the UK to have a global financial sector between the City of London, Birmingham, Leeds and Edinburgh. The UK is a country with astonishing heft in global markets, which is a very good thing in many ways. As he said, however, it is also important that those institutions pay the full burden of taxation that is due. There is very little concern that they have not done so in this case, and the concern has now been addressed because a potential loophole has been removed.

If I have understood him correctly, the hon. Gentleman attributes the crash of 2007-08 to spivs and speculators in the financial markets. There was a lot of that, but it is important to recognise that it was also a function of incentives, law and culture. Those things were all, in some respects, out of control before 2007-08. We talked banteringly about the level to which the Government have attempted to tinker with the legislation. In that case, however, it is perfectly clear that there was a failure not of regulation, but of supervision. It was a failure that was extraordinarily costly to this country.

In the spirit of putting things on the record, it is important to remember that, as the Vickers report found, the level of aggregate bank leverage in the financial sector in this country remained roughly steady for 40 years between 1960 and 2000 at 20 times capital. Between 2000 and 2007, it increased to 50 times capital. The effect of that was that, when the financial crisis hit, the UK banking sector was vastly over-leveraged. I am thrilled that this Government, as I suspect other Governments would have done if they were in place, have taken steps to extract a proper level of taxation from the banking sector and thereby set incentives that restrain the tendencies to growth and periodic explosion in the banking sector, because such tendencies are often absolutely ruinous for the wider economy.

[Wes Streeting]

It is, of course, right to say, especially with the benefit of hindsight, that the supervisory arrangements governing financial services in this country and other countries were insufficient. That is why we have a much more robust supervisory regime in place, which has been implemented to a large degree with cross-party consensus over the course of the past 10 years. I would gently point out two things. The first is the global context, and the second is that, although the Financial Secretary may point to the apparent failure of the last Labour Government to put in place a greater degree of regulation, I would challenge him—he can write to me if he cannot answer immediately—to cite a single example of a Conservative shadow Chancellor or shadow Treasury Minister calling for greater financial regulation by the last Labour Government. In fact, I remember the charge against the Government being that we were too prone to regulation rather than too hands-off, but I stand to be corrected.

[Jesse Norman]

I do not think there is any doubt at all that MPs and politicians across the political spectrum were taken by surprise and were not as alert as they should have been to the expansion in bank leverage that took place. I was merely putting those facts on the record. Inevitably, the responsibility lies with the Government in power at the time, as it would do in other crises, and it is for posterity to decide how it wishes to judge. I just mean that this is a proper response to a crisis that is much worse than it should have been; if those in charge at the time had taken the measures and spotted the crisis in advance, it would not have happened, notwithstanding all the ameliorative points that the hon. Gentleman has made in opposition to that.

Having said that, let me move on to points of greater overlap and agreement, and recommend to the Committee that the clause stand part of the Bill.

Question put and agreed to.

Clause 32 accordingly ordered to stand part of the Bill.

Clause 33

CT payment plans for tax on certain transactions with EEA residents

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

[The Chair]

With this it will be convenient to discuss that schedule 6 be the Sixth schedule to the Bill.

[Jesse Norman]

Clause 33 and schedule 6 would make changes to UK corporation tax payment plan rules so as to provide a deferred payment option for tax on certain transactions with EEA residents. Again, this is a small and technical matter.

A recent decision of the tax tribunal found that the requirement for a taxpayer to pay tax immediately following certain transfers of assets from a UK company to an EEA company within the same group did not conform with EU law. UK rules provide for tax-neutral transfers of assets between two group companies within the charge to UK tax, meaning that there is no immediate tax charge. If assets are sold or transferred otherwise, tax is payable immediately based on a disposal of the assets at market value.

The risk to the Exchequer arises from the fact that the tax tribunal decided that these rules could only be justified if transfers to group companies in the EU did not give rise to an immediate tax charge. In the absence of any mechanism for deferral, the tribunal decided that tax-neutral treatment must be applied to such transfers. Effectively, that would mean that the UK would completely lose its right to tax any profits on such assets. The case is under appeal, but resolution could be some years away. In response to that decision, the Government are acting to provide taxpayers with the option to pay tax on such transfers in instalments, which the judgment says would ensure compatibility with EU law. The effect of this is to remove the uncertainty caused by the decision and provide protection to the Exchequer.

This new facility to defer payment of part of a company’s corporation tax bill for an accounting period is modelled on an existing scheme for so-called exit taxes. Schedule 6 provides that corporation tax due on transfers of assets from a company in the UK to an EU company in the same group can be paid in instalments over five years, subject to interest at the usual rate for late-paid tax. We are making this change not to comply with European law, but to provide certainty to UK businesses and ensure that there is no risk to the Exchequer while the case before the UK courts remains unresolved. Once the risks and the uncertainty are resolved, this deferred tax payment facility will no longer be required.

Certainty could come either through a successful conclusion to the litigation in favour of Her Majesty’s Revenue and Customs, or at such time as the EU treaty freedom of establishment rules no longer apply to the UK. To that end, schedule 6 includes a power for the Treasury to repeal this facility by regulation; the Government intend that this power should be used once there is no need for the facility. These changes will provide greater flexibility for UK businesses, remove uncertainty and protect Exchequer revenues. I therefore commend both the clause and the schedule to the Committee.

[Wes Streeting]

Clause 33 and schedule 6 represent a welcome and sensible response to the decision taken by the first-tier tribunal in the case of Gallaher v. HMRC. The only question I have for the Financial Secretary is about the fact that the Treasury can withdraw the facility to enter into CT payment plans by statutory instrument, as he alluded to at the end of his remarks. The explanatory notes to the Bill state that the power of repeal

“is intended to be used if the Government determines that CT payment plans are no longer required.”

Could the Financial Secretary give us some sense of the circumstances in which the Government may determine that CT payment plans are no longer required?

[Jesse Norman]

I am grateful for the question. If we get certainty in the legislation, the effect would be that the provision was no longer required. Certainty could come, as I said, at the successful conclusion to litigation in favour of Revenue and Customs, or when the EU treaty freedom of establishment rules no longer apply to the UK. Those are the circumstances under which we would expect the Treasury to repeal the facility. It is done by regulation simply because it is completely uncontroversial and would be much better handled that way, rather than through the primary legislative process.

Question put and agreed to.

Clause 33 accordingly ordered to stand part of the Bill.

Schedule 6 agreed to.

Clause 34

Changes to accounting standards affecting leases

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

[Jesse Norman]

Again, this is a minor and technical amendment that makes a change to the Finance Act 2019 to remove a potential ambiguity in the spreading rules for businesses adopting the latest lease accounting standards.

The Finance Act 2019 made changes to the income and corporation tax rules for businesses leasing assets in order to allow rules to work following the introduction of international financial reporting standards 16. That legislation was designed to ensure equitable treatment for businesses by spreading the tax effects of adopting IFRS 16 over the average remaining terms of asset leases. Consequently, the Exchequer impact of those changes would also be spread out.

It was subsequently brought to the Treasury’s attention that minor aspects of the legislation did not work as originally intended. To address that, this clause makes minor amendments to the legislation, clarifying how the rules ought to be implemented. The Government published the amendments in draft on 11 July 2019, and they were well received by stakeholders.

The changes made by clause 34 clarify that firms ought to spread the tax effect of changes in adopting IFRS 16 over the average remaining term of asset leases. The changes are to be treated as having always had effect from 1 January 2019. They will affect only businesses, and they will have no novel impacts. They provide for only modest amendments to deliver on the policy intent agreed by hon. Members in the Finance Act 2019.

Making these clarificatory amendments will ensure that the legislation introduced in the Finance Act 2019 operates as intended, and therefore that there is fairness, certainty and stability for all businesses when applying the relevant accounting rules. I therefore commend the clause to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to welcome you to the Chair, Ms McDonagh, and to take up the case for the Opposition on what my hon. Friend the Member for Ilford North described as the more technical aspects of the Bill. I am sure we will continue to enjoy debating these clauses none the less.

The Opposition do not object to the principle behind this clause, which appears straightforward and achieves its aim. Bringing leases on to the balance sheet is a welcome step in achieving greater transparency in our system. The Opposition believe that there is a very important need for the Government to continue to do more in this area. I simply ask the Minister why this was not done sooner.

I am keen to raise the broader issue of tax transparency and tax fairness in our system as a whole. Our small and family-run businesses are operating in a very difficult climate due to the ongoing pandemic, and they want to have confidence that everyone is playing by the rules and that there is fairness across the system. We know from various documents that we continue to have an ongoing problem with tax avoidance and the broader tax gap in our country.

I am always grateful to the House of Commons Library for providing additional material in this area. It is a wonderful source of useful information, research and analysis, especially for Opposition Members; our ability to undertake some of this research ourselves is a bit more limited, as we do not have access to the fine officials who the Minister has the privilege of working with on a daily basis. The Library has put to us that the wider tax gap for income tax, national insurance contributions and capital gains tax was estimated at £12.9 billion in 2017-18, based on HMRC documents; there are other assessments, of course.

I am sure that the Minister will want to make sure that we do everything in our power to ensure that there is fairness right across the system, particularly at this time. We believe that income must be more tightly tied to tax treatment, with tax liability going up with income, so that the Government can fund, and can ensure that we have revenue available to fund, our vital public services—not least now, at this very trying time for our country.

We hope that this change and the future legislation that the Government might seek to bring forward will be developed in the same spirit of creating greater transparency within our system. We also hope that the pressures that Ministers and officials are under at this time will not divert them from the necessary action that they must continue to take, to ensure that we have greater transparency and that everyone pays their fair share. We also want to make sure that HMRC has all the resources and staffing it needs to do this work to the best of its ability.

[Jesse Norman]

I am very grateful to the hon. Lady—what an effortless tag team she and the hon. Member for Ilford North make! It is good to see them in action.

The hon. Lady’s points are very well made, and I hope she recognises that the Government take these issues seriously—not just avoidance and evasion, and, in a separate category, fraud, but the wider question of fairness. It is absolutely right that we should do so. In an environment where the vast majority of taxpayers pay tax as due, in good time and do not become subject to any enforcement proceedings, it is all the more vital to maintain that consent and recognition of the public fairness of the system. She is absolutely right about that.

I hope that the hon. Lady will see that some of the issues that we have been facing in this Finance Bill and its predecessors, be they the loan charge or IR35, have reflected a persistent desire of the Government to see fairness through, despite some pretty strong headwinds. Also important is the ability to strike a fair balance within each of those schemes; we have discussed the loan charge and the Amyas Morse review, which is designed to ensure the right balance, even within that area.

However, I also draw attention to other important aspects. As the hon. Lady will be aware, we have announced a consultation on a strategy that takes a much more vigorous approach towards tackling the promoters and enablers of tax avoidance. I hope she will note that there continues to be a robust enforcement process within HMRC—one that has been carefully modulated and restrained in the context of coronavirus, but has not been in any sense left off thereby.

I will also say a couple of other things of which the hon. Lady may be less aware. One is that because of the concern about the balance of powers, which has been raised in part by the Lords Economic Affairs Committee and others, we now have a customer experience committee within HMRC. It has also brought in a series of experts who understand what might be called effective and successful customer and taxpayer treatment, bringing them in from other sources across the private sector to make sure that people do feel well treated and well handled, and that it is not a bruising process to have an interaction with HMRC. That sense of the importance of maintaining consent, and of Revenue and Customs not being oppressive while remaining highly effective in ensuring that people pay the right tax due, is a balance that both HMRC and the Government are constantly seeking to strike.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Enterprise investment scheme: approved investment fund as nominee

--- Later in debate ---

[Bridget Phillipson]

We welcome the Government’s attempt to draw from their capital review with industry lenders on the enterprise investment scheme. I will come on to our response to amendment 4.

The Government have listened and are not offering further tax relief, instead providing additional flexibility for fund managers to make subscriptions in shares for investors over the years in which the relief is given. However, the difference between adding further tax relief and additional flexibility in this policy is not clear.

We are sympathetic to the position that the hon. Member for Aberdeen South has outlined. We know that there is a big imbalance across the nations and regions of the United Kingdom. The Government talk a lot about the need to level up; we hear about it all the time. It has not always been entirely clear to me what that means—not least because, over the past 10 years, what we have seen has involved precisely the opposite.

I look forward to the days when the Government will provide investment in parts of the country such as the north-east of England, which will enable us to contribute our fair share and play our full role in economic recovery more broadly. We are therefore sympathetic to the amendment proposed by the hon. Member for Aberdeen South.

The requirement to release a report on the effects of the enterprise investment scheme will enhance scrutiny of this policy and ensure that its results are fruitful and target the right causes. It is important to ensure that it starts benefiting regions that need it the most. I am sure the Minister will understand why I put in a particular plug for the north east of England, but we want to see this right across the country and the nations of the UK as well.

The amendment also raises the important issue of the climate emergency, which has not simply vanished because we are currently focused on the pandemic. The climate emergency is still with us and the longer we take to tackle it, the faster we will start to feel the effects of global warming. Research and investment must go towards tackling the climate emergency and we need to encourage the responsible and relevant use of Government funds for knowledge-intensive companies to benefit from them.

In the broader sense of the clause, it is not quite clear to the Opposition what the outcome of adjustments to the enterprise investment scheme detailed in the clause would be. The clause lacks some detail and clarity. We worry that it may be open and liable to exploitation, so I would like the Minister to say a little more when he responds. We have seen problems in recent years in this area and we do not want to see them repeated here.

Research conducted by Ipsos MORI for HMRC in 2016 showed that income tax relief was the main driver for investors to use the enterprise investment scheme: eight in 10 considered the income tax relief element of the scheme to be very important, and 32% essential, to their decision to invest; more than half also considered capital gains tax exemption to be either very important or essential. While many investors decide to invest in the enterprise investment scheme for philanthropic reasons, the financial incentive remains important none the less. The concern is reflected in the scepticism of some universities reported in the Government’s consultation back in March 2018. It is in all of our interests that academic institutions, entrepreneurs and fund managers are aligned, but it is clear there are some issues around greater cohesion between them as part of this scheme.

The hon. Member for Aberdeen South referred to the disparity. The Government’s own figures show that London and the south-east accounted for the largest proportion of investment, with companies registered in those regions receiving 65% of all enterprise investment scheme investment in 2018-19. London and the south-east of England does not have a monopoly on talent, innovation or research. If the Government’s levelling-up agenda is to mean anything in practice, we have to see much more support targeted to those regions so they are able to take part in the wealth of our nation and they can contribute more. We have wonderful universities, pioneering companies both large and small, and a wonderful and flourishing supply chain.

I put it to the Minister that the hon. Gentleman is quite right. We require greater scrutiny to be confident that we are pushing in the right direction and that the Government are making sure that where measures are introduced, they are targeted on the areas of the country where additional Government support could lead to much better outcomes for residents of those communities, who want the opportunity to contribute more broadly to the economic health of our nation. Especially as we start to emerge from this crisis, we will need targeted support that allows every nation and region to contribute to our economy, both in terms of skills and broader investment. For that reason, we are sympathetic to the amendment.

[Jesse Norman]

I am glad to be able to address clause 35 and the questions the hon. Members for Aberdeen South and for Houghton and Sunderland South have raised.

Clause 35 changes the approved enterprise investment scheme fund rules to focus investments made through such funds on knowledge-intensive companies. It provides additional flexibility for fund managers to make subscriptions in shares and for investors to claim relief. Fund managers will have more time to deploy capital raised, and investors will be able to claim relief one tax year earlier than previously when using an approved fund.  The EIS encourages investment in smaller, higher risk trading companies by offering tax reliefs to individual investors who subscribe for new shares in qualifying companies.

A knowledge-intensive company is defined as a company that has spent a defined proportion of its operating costs on innovation and/or R&D and either creates intellectual property or has a defined proportion of its employees with advanced degrees. The intention to change the existing approved fund structures to focus on knowledge-intensive companies was announced at autumn Budget 2017 as part of the Government’s response to the patient capital review.

The Government consulted on new rules and outlined its response at Budget 2018, which set out planned additional flexibilities for fund managers and investors using this structure. The changes made by clause 35 set out the requirements that must be met for investments to be considered as made via an approved knowledge-intensive fund. They include investing at least 80% of capital raised into knowledge-intensive companies and deploying the majority of capital raised within two years.

Amendment 4 would require the Government to review the economic and geographical impacts of the existing EIS and the changes to approved fund structure, and how far they support wider efforts to mitigate climate change. I understand and appreciate the intention of hon. Members to use EIS more strategically to help with mitigating climate change and to ensure that the benefits of EIS are spread more widely across the country, but I put it to the Committee that the amendment is not necessary.

It is worth reminding ourselves of the principal purpose of EIS. It is designed to address a specific market failure, which is that younger, innovative companies across the UK struggle to get access to patient and long-term equity finance to grow their businesses and to develop the innovative products that consumers may want in future. It is not designed specifically to help certain types of companies—for example those that operate in certain parts of the country or certain sectors. The scheme operates on a neutral market basis, and there is no requirement for that companies use EIS funds in specific ways, such as to develop products linked to the fight against climate change.

I completely understand that Opposition Members would like us to collect more information about how attractive EIS is to companies in different parts of the country. HMRC already publishes statistics about where fundraising companies have their registered offices and where EIS investors have their main household. However, it is also worth reiterating the limits of what we know.

Her Majesty’s Revenue and Customs knows where a company’s registered office is, but companies that benefit from the scheme are free to place their registered offices and places of establishment for EI purposes wherever they please in the UK. A registered office in the south-east may not mean that that investment is going into the south-east, because a registered office does not need to be in the same place as where the bulk of the staff are employed.

The hon. Member for Houghton and Sunderland South is concerned that there might be a lack of clarity in the structure, so let me shed some light on that. The measure limits approved fund status to companies that invest 80% of their capital into knowledge-intensive companies and extends the period in which approved knowledge-intensive fund managers must subscribe for shares in those companies from 12 months to 24 months, provided that 50% of the qualifying individual investment is invested within the first 12 months and 90% within 24 months. It allows the investor to carry back the claim for income tax relief to the tax year preceding the tax year of the fund closure. I would suggest that, within the limits of a description within legislation, that is relatively clear.

The hon. Lady also raised a question about regional investment. Again, I fully share her concern, and the Government’s levelling-up agenda is designed to address that very issue. I must say that across my different ministerial jobs, I seem to spend most of my life investing in the north-east of England, one way or another—the massive pivot towards offshore wind has been nothing but good to that area, and I remember making a substantial investment in the Tyne and Wear Metro and the A19 when I was at the Department for Transport—so I hope that the hon. Lady does not feel that there is any lack of love for or investment in that part of the world from this quarter.

--- Later in debate ---

[Stephen Flynn]

There are a few points that I think are incredibly important to pick up on. The first relates to the Minister’s remark that the EIS is and needs to be a neutral fund. It does not need to be a neutral fund; that is a choice. If we seek to combat climate change and put our words into action, we can make those decisions and make them now—the gift to do that is in the Minister’s hands. It is incredibly important that we focus on that point: that it does not have to be how it is at the moment.

I respect the commitment to review before 2024, but that is a significant time away. I am not overly comfortable with the idea that we can allow that time to pass before we assess whether the scheme is working as we feel it should.

[Jesse Norman]

May I say what a joy it is to have the boot on the other foot and to be able to intervene on another member of the Committee? Of course the hon. Gentleman is right that legislation can be changed, subject to the will of Parliament, but this measure cannot be changed without distorting its essential character. Its purpose is to implement a reform that addresses, and hopefully cures, a market anomaly.

To address the real and important wider concern that the hon. Gentleman raises, the real question is therefore whether there are other measures outside the EIS that could achieve some of the aims he describes. The EIS cures the anomaly, which is about investment—as we know, we cannot deduce effectively where the investment goes from where the head offices are—but there may be other measures that the Government can take, and that the Scottish Government may want to take, to address more widely the concerns that he describes.

[Stephen Flynn]

I look forward to the UK Government coming forward with such proposals; that would certainly be of much interest to me and to colleagues across the UK.

I want to home in on the climate situation in Aberdeen. It would be remiss of me not to highlight the fact that Aberdeen is the oil and gas capital of these islands, and indeed of Europe, and has been so for a significant time. However, we are extremely conscious of the situation in Aberdeen due to the oil and gas sector downturn—we heard earlier about the support that the UK Government put in place during the downturn, although I was not quite sure which downturn was being referred to since we are currently in the midst of perhaps the sharpest downturn of the North sea basin—but we are very cognisant that we need to make a sustainable transition to a net zero future.

If we look to the possibilities of the north-east of Scotland—hydrogen technologies, carbon storage, alternative fuel gas turbines, subsea and offshore energy—there is a wealth of opportunity. We are blessed with unbelievable natural resources in Scotland. If we can have a fund that channels money into exploiting such research and talent, we should be willing to do so.

Ultimately, amendment 4 is very clear: it is about

“analysing the fiscal and economic effects of Government relief under the Enterprise Investment Scheme since the inception of the Scheme”.

We are talking about analysing the scheme and whether it is doing the job it should be doing. As I have said on a number of occasions, the Government should not be afraid of looking at whether their schemes are effective. We should all retain a firm commitment not just through our words but—I repeat—through our actions to combat the climate emergency and the amendment is one way in which we could do that.

--- Later in debate ---

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

[Jesse Norman]

The clause introduces the gripping topic of top-slicing relief on life insurance policy gains. It makes changes to ensure that the calculation of top-slicing relief on life insurance policy gains operates fairly and prevents excessive relief from being claimed. This measure supports the Government’s objective, already discussed in the Committee today, of promoting fairness in the tax system by ensuring that the relief is calculated in a fair and consistent way.

Life insurance policy gains arise, for example, when an investment bond is surrendered or matures. In this case, the gain accrues over the lifetime of the policy but is taxed in one year, which can result in gains being taxed at the higher rate. Top-slicing relief, or TSR, was introduced in 1968 as a mechanism to mitigate the impact of that higher tax charge. The principle behind TSR is simple: a taxpayer should not pay a higher rate of tax on their life insurance gain just because all of that gain falls to be taxed in a single year. Instead, the rate of tax on the gain should reflect the fact that it was accrued over the lifetime of the policy, assuming it rose in even amounts over the years during which the policy was held.

The calculation for TSR was intended to be straight- forward. However, changes to the personal allowance from 2010 have led to unintended complexity. A recent first-tier tribunal case brought into question how TSR interacts with the restriction to the personal allowance for higher rate taxpayers, creating uncertainty for taxpayers and a significant administrative burden for HMRC. It is for those reasons that we are making a change and a clarification to TSR in the Bill. I turn to both of those things.

The change made by the clause will permit personal allowances that have been reduced because the gain arises in one year to be reinstated in the TSR calculation. The gain will now be treated as if it arose in even amounts over the years during which the policy was held when determining the availability of the personal allowance in the TSR calculation. The change comes at an estimated cost to the Exchequer of £15 million per annum, but it provides a fairer result for those taxpayers who would otherwise have been taxed on their gain only because that gain has fallen in one year and reduced their personal allowance.

The clause will also put beyond doubt the principle that taxpayers cannot set their gain against their personal allowance first, in preference to their other income, in the TSR calculation. That will ensure that higher-rate taxpayers cannot get the benefit of the relief by effectively taking the benefit of the personal allowance more than once when calculating TSR. That will prevent excessive relief from being claimed and, in turn, protect £240 million of revenue.

The measure is estimated to affect around 2,000 of the 45,000 taxpayers who are entitled to top-slicing relief every year. The clause ensures that the taxpayers receive all the relief that they are entitled to and makes clear that taxpayers who seek to claim excessive relief will no longer be able to do so. It will ensure that top-slicing relief continues to operate in line with its original policy intent, and will therefore provide a fair and consistent outcome for those taxpayers who are entitled to claim the relief. I commend the clause to the Committee.

[Bridget Phillipson]

Before I turn to the substance of clause 36, and without dwelling on it too much, I will take slight exception to the Minister’s comments around the so-called levelling up agenda and the last 10 years. First, though, I must commend him—he is one of the few Ministers I have come across who understands how to pronounce my constituency name properly. He has great north-east knowledge, which will stand us in wonderful stead for the years ahead, when we can make sure that Sunderland and the wider north-east get their fair share of Government investment.

On clause 36, we note the Government’s stated objective of creating fairness in the UK tax system, ensuring that top-slicing relief is calculated in a fair and consistent way, and of seeking to provide legislative clarity. However, there are some issues that still remain around the language of the clause, regarding the treatment of gains before 11 March 2020.

In response to the clause, the Chartered Institute of Taxation noted:

“The amendments made by clause 36 have effect…from the tax year 2019/20. It is not clear why the amendments, which are clarificatory in nature and in accordance with the original policy intent, should not be extended to years prior to 2019/20 to provide the same clarity for taxpayers in respect of earlier gains.”

It also comments that,

“as clause 36 is not retrospective, an individual who is liable to tax in respect of gains from chargeable events before 2019/20 and who wishes to reinstate the personal allowance within the calculation for TSR will instead need to rely on the basis agreed in Silver v HMRC. Decisions of the First-tier Tribunal do not create a legally binding precedent.”

It argues that it is

“not clear whether or not HMRC will accept claims for repayment from taxpayers with gains in years prior to 2019/20.”

The Minister touched on this point in introducing the clause, but I would be grateful if he could clarify whether he intends for HMRC to accept repayment from taxpayers with gains in years before 2019-20. If he does not, as the language stands, do the provisions of the clause still affect taxpayers fairly?

The Chartered Institute of Taxation also notes that the approach is different from the approach in clauses 100 and 101, which we will come to later, which put

“beyond doubt that the relevant rules work as designed and intended but apply both prospectively and retrospectively.”

What assessment does the Minister make of that point?

The institute also draws attention to the fact that clause 36 specifies how reliefs and allowances are set against life assurance policy gains:

“The personal savings allowance does not operate as a typical allowance. It is a nil rate band of tax that does not extend the basic or higher rate bands. The draft legislation should specify that the personal savings allowance is not an allowance for this or any other purpose.”

It regards the term “allowance” as “an unhelpful misnomer”. I would be grateful if the Minister would address that point.

HMRC also notes that the clause will only really affect those with above-average earnings. We have considered that point more broadly in other aspects of the Bill; it points to something of a pattern in the measures that the Government are bringing forward. Over a significant period—over the last decade—we have seen that the impact of changes, whether that is spending reductions or the broader impact of Government policy, has fallen more sharply on those with less ability to make a contribution. Earlier in proceedings, we discussed the distributional impact of Government measures after 2010. We have seen a disproportionate impact on those from lower and middle-earning backgrounds. That cannot be sustained, not least in the current situation.

We hope the Government will continue to keep that under review, so that we can ensure that our public services have the funding they need, and that those who need additional support to make a contribution do not see themselves penalised as a result. However, we understand the intent behind the clause—the objective that the Government seek to promote—and I hope that the Minister will address the issues to provide some clarification on specific points.

[Jesse Norman]

I thank the hon. Lady for her questions. Let me respond. She will understand that top-slicing relief has been around for a long time. It is therefore something that we have come to for specific reasons. As she will be aware, a concern is arising that the judgment, coupled with challenges from taxpayers, suggests that more clarity is needed in the legislation and, therefore, that we need to review the relief.

The review highlighted that some payers were paying tax on their gain at the higher rate only because they lost the personal allowance due to a gain being included in their income. That is why the conclusion was for the reinstatement of the personal allowance, solely for purposes of the top-slicing relief calculation, to address that and to bring it back in line with the policy intent.

Of course, as the hon. Lady says, the changes work in both directions—there is a cost to the Exchequer, which comes from allowing the gain to be treated as though it arose in even amounts over the years, but, at the same time, there is also a return from the Treasury, which prevents excessive relief from being claimed. That points to the essential fairness of the approach, because it is designed to restore fairness in the spreading of gain, but also to ensure that there can be no funny business, if you like, in the way in which the gain is treated with regard to the personal allowance that might allow it to be manipulated to the detriment of the taxpayer or the system.

The hon. Lady also asked about timing. HMRC will calculate the relief for affected taxpayers and advise them of changes in the relief calculation. For self-assessment returns submitted for the 2019-20 tax year, that calculation will be performed manually. For subsequent tax years, the calculation will form part of the automatic self-assessment process. Detailed guidance has been put on gov.uk setting out the changes in full. I hope that will put the matter beyond doubt.

Question put and agreed to.

Clause 36 accordingly ordered to stand part of the Bill.

Clause 37

Losses on disposal of shares: abolition of requirement to be UK business

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

[Jesse Norman]

Again, this is a small and technical clause. It widens the scope of share loss relief for income tax and corporation tax so that it applies to shares in companies carrying on a business anywhere in the world and not just in the UK.

Share loss relief is available where an investor or investment company makes an investment in qualifying shares that are later disposed of at a loss. The relief enables the loss to be set against taxable income, rather than against capital gains under the normal rules. Qualifying shares are shares to which the enterprise investment scheme, EIS, or the seed enterprise investment scheme, SEIS, are attributable, or in a qualifying training company, as defined in statute, which can be summarised as a small or medium unlisted trading company that carries on its business wholly or mainly in the UK.

The measure will change the existing statute so that investors can claim relief no matter where the business is based, providing added protection for those investing in high-risk enterprises. It will be backdated to proposals made after 21 January 2019. A change will be made to the reporting requirements so that HMRC can identify the tax residency of the company that issued the shares.

The UK has now left the EU and has agreed to follow its rules for the duration of the transition period. On 24 January 2019—hence the date—the European Commission issued a reasoned opinion arguing that applying SLR to shares only in UK companies contravened the free movement of capital principle. The Government accepted that the legislation as drafted was too narrow and agreed to introduce legislation to expand the rules and, thereby, comply with the principle.

The change made by clause 37 widens the relief so that it applies to shares in qualifying businesses worldwide, not just in the UK. The proposed changes are expected to increase the cost of the relief to the Exchequer by £5 million in 2020-21, increasing to £15 million per year thereafter.

The Government consider that this legislation strikes the right balance between supporting overseas investment opportunities for UK-based investors and meeting our residual obligations to the European Union for the free movement of capital. I therefore commend the clause to the Committee.

[Bridget Phillipson]

The Opposition welcome the intention behind this clause, and the statement of the Minister seems straightforward in terms of what the Government are seeking to achieve in this area. For future trading to be as streamlined as possible, it is important that the Government introduce this measure to ensure compliance with article 63 of the treaty on the functioning of the European Union after the end of the transition period.

However, on the transition period—we touched on this this morning, and my hon. Friend the Member for Ilford North raised this issue—we have, sadly, not had the kind of regular updates we would like in the House around ongoing negotiations. We all want the Government to succeed, and we want to secure a great deal for our country, but we want to be confident that the Government are making progress and are on the right track.

Some of the reporting we have seen lately suggests that—for a number of reasons, some of which are entirely fair, given the unprecedented crisis in which we find ourselves—Ministers and officials have found things hard. I understand how difficult it must be to operate during this time, but the pandemic has highlighted how important it is that we ensure everything is properly aligned at the end of the transition period and that we secure an excellent deal, because so much depends on it—workers’ rights, businesses and our ability to export.

We want to avoid any further disruption to our economy. We have been through a very difficult time—we are still going through a very difficult time—for businesses large and small, and not least for our manufacturing sector and our world-class exporters. We want to avoid any further disruption to the economy, at the border or in people’s lives.

The Government have variously described the deal they will secure as

“a great new deal that is ready to go”,

“ambitious”, “broad”, “deep”, “flexible”, “a balanced economic partnership” and “oven ready”—that is one I recall particularly well from the recent general election campaign. Given all of that, I am sure that we will have no difficulty at all, notwithstanding the big challenges we face around the pandemic, and that we can ensure we do not have tariffs, fees or charges, so that our world-leading industries can continue to do well.

On clause 37, especially, businesses will, according to HMRC, need to familiarise themselves with tax changes, make the decision on whether to claim for the loss, determine the tax residency of the company that issued that shares and inform HMRC of this information. I would be grateful if the Minister could assure us that there is no prospect of exploitation in this area and that the Government will do all they can to ensure fairness across the system, so that we do not end up with companies potentially claiming this relief in a way that was perhaps not intended in the scope of the legislation and in the measures that Ministers are quite sensibly seeking to set out here.

[Jesse Norman]

I feel almost sad to be winding up on the final clause of this very good day. I thank the hon. Lady very much for her questions. Regarding the transition period, she has said she is sure the deal will be smooth and tariff-free. In that, she shares the Government’s high hopes and expectations for a deal with the EU. There is not much more I can add to that.

On the prospect of exploitation, I cannot give her, I am afraid, the guarantee she seeks, because if there is anything that my five years on the Treasury Committee and one year as Financial Secretary have taught me it is that there are no limits to human ingenuity in exploiting aspects of the tax code contrary to expectation, so there is some possibility of exploitation. The comfort I can give her is that, as this change is mandated as a result of compliance with an EU procedure, once we are free from the transition period, we will have the ability to make a sovereign change to our own legislation that remedies any concerns that are raised and any risks to the Exchequer that thereby arise.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Sixth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 6th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

Clauses 52 to 55 stand part.

That schedule 7 be the Seventh schedule to the Bill.

[The Financial Secretary to the Treasury (Jesse Norman)]

Clauses 51 to 55 come under the broad heading of a duty to submit returns in relation to the digital services tax. Having established that a group has DST revenues above the thresholds, it is appropriate for a group member, the responsible member, to provide Her Majesty’s Revenue and Customs with the necessary information to assess the tax. That is a sensible way of requiring groups to administer the tax. They need to submit a return to Her Majesty’s Revenue and Customs only when there is a potential liability, and they can stop doing so when it is clear that there will not be a future liability.

The group will be required to continue to submit a single return for each accounting period until an officer of HMRC provides a direction for the group to stop. The direction to stop will be given only when it appears that the threshold conditions will not be met. Put simply, the responsible member will be the point of contact between HMRC and the rest of the group. The effect is to make administering the new tax easier for the groups that will be liable for DST and for HMRC. It means that only a single return for HMRC will need to be produced when a group assesses its DST liability.

Clause 51 sets out which members of the group can be the responsible member and what can prevent a company from being a responsible member. Those are sensible precautions to reduce the burden of the tax as much as possible, recognising that it is intended to be a temporary tax. As we have already noted in Committee, groups are dynamic with members joining and leaving all the time. The best choice as the responsible member for a group at one stage may no longer be the best choice later. It is therefore necessary for groups to have the ability to change the responsible member, but where that happens, it is important that nothing is lost by the change of company, which is achieved by clause 52.

Clause 53 sets out the duty for a group to notify HMRC when it has met the DST threshold conditions set out in clause 45. Groups will have 90 days from the end of the accounting period in which they meet the threshold conditions to make the notification. It is important to say that we have listened to businesses in requiring notification after the period to which the notification relates, which gives groups the opportunity to collect the fullest information possible before making contact with HMRC to notify it of any liability.

As I have mentioned, groups are organic and details will change. Clause 54 sets out the duty for a group to notify HMRC when there is a change to the details registered under clause 53. Finally, clause 55 sets out the obligation of the responsible member to submit a return of information to HMRC.

The clause also introduces schedule 7, which provides further details about the obligations of the group and HMRC in relation to the return and ensures by that means that the figures and the return are complete and accurate. As the tax is new, a new set of rules is required to ensure that HMRC has the powers necessary to ensure that the correct amount of tax is paid by those from whom it is due. The new rules borrow and draw from existing concepts that will be familiar to many tax practitioners. The schedule does not grant HMRC any further powers in relation to the tax that do not already apply to other existing taxes. It grants companies the protections from those powers that they would expect from a fair and balanced tax administration. With that in mind, I commend the clauses and the schedule to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

We have no real issue with the clauses, as they are understandable in the context of the overall measures proposed.

I will draw the Minister’s attention to some technical concerns raised by the Institute of Chartered Accountants in England and Wales, which I hope he can address. In September 2019, it wrote:

“Given the complexities which a business could encounter in identifying and quantifying DST revenues, we are concerned that notification within 90 days of the accounting period is unhelpful. It would make sense to tie this notification into the deadline for filing accounts—6 months for a plc or 9 months otherwise”.

The institute also states that there should not be a need to notify HMRC in advance of the payment deadline, as

“businesses will require more time to review their accounting records, analyse and quantify revenues to decide whether they are”

required to pay under the tax. It recognises that such obligations would not pose a problem for larger digital companies, but would be more problematic for marginal cases requiring “advice and review”, so

“the notification deadline should be aligned with the payment date.”

Regardless of whether we believe that the measures go far enough, or whether the tax is set at an appropriate rate, we believe that its implementation and administration should be fair, to give businesses—in particular those that fall on the margins of the scope of the measure—adequate time to provide accurate calculations of what they should be paying. I invite the Minister to respond to those points to provide some clarification.

[Robin Millar (Aberconwy) (Con)]

As much as we have heard excellent contributions on matters of delivery and on technical matters, which are far beyond my knowledge of accounting and such, it strikes me that, as we are talking about the introduction of a new tax, this is the moment at which we should reflect on its meaning and on the purposes behind it.

The phrase that caught my eye is in clauses 53 and 54 —“Duty to”. My sense is that tax should not be, or should not only be, a catch-up exercise—chasing after developments in industry and the disruption brought to different sectors. Nor should it be about how much money we gather, although that is clearly of keen and close interest to us. It is also about the privilege of membership of a community and of participation in the UK economy. I find it interesting that it falls to a Conservative Government to introduce a tax such as this, which I consider to be progressive in its nature and intent.

In support of that, I pray in aid consideration of the principle of permanent residence, for example. Permanent residence was traditionally attached to the ability to trade in a nation, and tax therefore followed. If not trading in—that is, without that permanent residence—someone would be trading with, so coming under a different regime. Now, we have disruption in the digital economy, which means that we are trading in even though there is no permanent residence.

I also point to the development in the understanding of value over the years. At one point, value was measured in amounts of gold, so the question was one of setting a price, or offering gold in return for something; that was in essence a measurement of weight. The free trade argument slugged that one out with the mercantilist over many years, but the free trade argument won because it made the case effectively that the value of gold could be expressed in terms of the labour required to extract it. Discussions of value therefore moved from a physical object to the notion of labour.

As the Financial Secretary to the Treasury mentioned earlier, we are now talking about user-generated value. The notion of value itself has changed, and there are many debates about what value is and how it is best measured and captured. I suggest that they are extremely relevant to a discussion of tax, especially the introduction of a new one.

To look at tax solely in terms of being punitive, a “fair share” or a certain quantum, is to miss the point. Returning to the issue of leadership that was mentioned this morning, tax properly administered is surely more than a statement of how much money we can collect. It is more a statement of what we are trying to become—tax used as an instrument of government. What kind of society do we wish to become? It is not even, as might be suggested, a statement of how well we can co-ordinate with other nations. For this Government—I am interested in whether the Minister agrees with me—it is a statement of leadership, of what we are trying to become as a nation and, in particular, how we are trying to capture value through the proper encouragement of those industries as they participate in our economy.

[Jesse Norman]

Let me start with the interesting remarks made by my hon. Friend the Member for Aberconwy. I think he is absolutely right to notice and bring to public attention the question of the basis of tax. He is absolutely correct to call upon an idea of tax as a privilege and obligation associated with membership of a community, and to highlight that that notion of tax, which in some sense has always been implicit in the idea of tax, is being drawn upon in this wider sense of a UK user contribution. He is absolutely right about that.

All government derives from the consent of the governed, as the cliché goes; but in order to give that consent, the governed must feel not merely that the tax is fair and equitable in its own right, but that it springs from a conception of government that fundamentally puts the wellbeing of society at its heart. In that sense, it is about not just an economic or fiscal change, nor necessarily who we want to become, but, as my hon. Friend said, who we are. It will come to no surprise to members of the Committee that I think Edmund Burke—one of my great heroes—put this well when he spoke about a nation as a moral idea. That is why the nation has historically been the basis of taxation: the nation provides the consent and, therefore, the guarantee of future taxation, which can underlie effective long-term public spending.

Going slightly beyond that point, it is notable that when crisis hits a country, that country and its Government must draw on that moral capital in pulling the alarm cable and using the power of taxation to secure future borrowing or future public spending that may be required to address the crisis. There is a very deep way in which my hon. Friend is getting to the centre of a very important fact about human life in democratic society, so I thank him for that.

On the more mundane and practical, but none the less vital points that the hon. Member for Houghton and Sunderland South made about notification periods, I will simply say this: these are businesses that keep this data in real time. Of course, it is by no means only UK companies that are caught by this tax. The whole point of a UK user contribution is to capture companies’ revenue sources that might be derived from UK users and from that sense of community my hon. Friend the Member for Aberconwy mentioned, but without being resident as such in a formal tax sense in this country.

The data is immediate. The tax does not merely apply to UK companies. It does apply from the end of an accounting period—90 days after the end of an accounting period. We think that is a proportionate, appropriate and internationally recognised way of levying this tax.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Clauses 52 to 55 ordered to stand part of the Bill.

Schedule 7 agreed to.

Clause 56

Meaning of “group”, “parent” etc

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss clauses 57 to 59 stand part.

[Jesse Norman]

This group of clauses is again of a rather technical character and deals with some of the more detailed technical requirements of the new tax.

Clause 56 sets out the definitions of the terms “group” and “parent”, which are used to define the companies and revenues that will be taxable for the purposes of the digital services tax. It should be read along with clause 57, which makes it clear that the definition of “group” will be the same as that used for accountancy purposes. The choice of using accountancy definitions to define the group is, again, to reduce the burden of this new tax and to make it as straightforward and comprehensible as possible. Wherever possible, the Government are seeking to minimise the burden of administering the tax by using concepts that already exist and are in common use, if for other purposes.

Clause 58 sets out the conditions that determine if a group has remained the same in different time periods. That will be relevant when members of a group change through acquisition, disposal or otherwise over time. Like the changes to the responsible member, these everyday business transactions of companies joining and leaving groups should not prevent the tax operating correctly and this clause ensures that these changes do not prevent the tax from applying.

Finally, clause 59 sets out the treatment of two or more entities that are treated as stapled to each other and are subsidiaries of a “deemed parent”. This is a technical measure designed to enable the tax to work as intended in the widest possible circumstances. I therefore commend these clauses to the Committee.

[Bridget Phillipson]

These clauses are technical in nature and we have no questions to ask of the Minister.

[The Chair]

I cannot imagine that the Minister wants to sum up.

[Jesse Norman]

No, I am entirely content with the summary that has been given by the hon. Lady.

Question put and agreed to.

Clause 56 accordingly ordered to stand part of the Bill.

Clauses 57 to 59 ordered to stand part of the Bill.

Clause 60

Accounting periods and meaning of “a group’s accounts”

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

[The Chair]

With this it will be convenient to discuss clauses 61 to 63 stand part.

[Jesse Norman]

These clauses, which are again of a thoroughly technical nature, provide more details on some of the aspects we have been discussing already in relation to the digital services tax.

Clause 60 sets the time period over which a group will account for revenues from relevant business activities for DST. This will usually be the period of account of the parent company of the group, which reduces the administrative burden as far as possible for these groups. They will be able to use figures they collect for other purposes wherever possible.



Clause 61 sets out how revenues and expenditure will be apportioned when a group’s period of account does not coincide with an accounting period. For example, many groups make up their accounts to 31 December each year. For 2020, their accounts will be for the 12 months to 31 December. However, for DST, their accounting period will only be nine months, from 1 April 2020 to 31 December. There is a mismatch in periods, and this clause enables the accounting figures to be used for DST by taking the correct proportion of those accounting figures.

Clause 62 sets out what is meant by

“revenues arising, or expenses recognised, in a period”

for the purposes of the DST legislation. Both of those terms mean the figures recognised in accordance with the applicable accounting standards for that period. Again, this demonstrates that the Government are seeking to minimise the burden of administration as much as possible by using figures that already exist for other purposes. Finally for this group, clause 63 sets out the definition of various terms relating to accounting standards for the purposes of the legislation. I commend these clauses to the Committee.

[Bridget Phillipson]

Once again, these clauses are technical in nature, and we have no further comments for the Minister in this area.

Question put and agreed to.

Clause 60 accordingly ordered to stand part of the Bill.

Clauses 61 to 63 ordered to stand part of the Bill.

Clause 64

Anti-avoidance

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 65 stand part.

That schedule 8 be the Eighth schedule to the Bill.

Clauses 66 to 69 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clause 71 stand part.

[Jesse Norman]

These clauses and schedules, again technical in nature, are also essential to the effective working of the digital services tax. Clause 64 sets out anti-avoidance provisions for the tax, and I make clear that the digital services tax has not been introduced to counteract avoidance of other taxes by digital groups. It is not about targeting particular businesses; it is a temporary measure designed to address failings in international tax rules. This clause provides HMRC with the power to counteract arrangements that may be designed or used to reduce the amount of DST that a group may have to pay. There are also safeguards within the clause that ensure the counteraction provisions do not apply when the tax advantage obtained was within the spirit of the rules.

Clause 65 sets out the process by which HMRC can collect unpaid DST liabilities from other members of the same group. This is particularly relevant to DST, as the companies liable to the tax may not be resident in the UK. Therefore, to assist HMRC in collecting unpaid debts, it will be possible for it to issue a notice to other members within a group it intends to collect the debt from.

Schedule 8 is introduced by clause 65, and provides further detail about how the notices operate. The combined effect of clause 65 and schedule 8 is to ensure that unpaid debts are collected wherever possible.

Clauses 66 and 67 set out at which rate, and when, interest will be due or required on DST payments that are made early or late, as the case may be. This will mirror the rates and timings found in corporation tax, and will therefore be familiar to many practitioners.

Clause 68 sets out that any DST liability is recoverable as a debt due to the Crown, the effect of which is to ensure that HMRC can collect any amount of DST that goes unpaid.

Clause 69 simply introduces schedule 9, which sets out provisions for minor consequential amendments in other enactments that are required as a result of the introduction of the DST. Primarily, these relate to interest rates, penalties and other tax administration processes.

Clause 71 sets out the meaning of various key terms used in the Bill relating to DST, and I commend the clauses and schedules to the Committee.

[Bridget Phillipson]

We have no substantial issue with these clauses, and obviously we welcome the inclusion of an anti-avoidance provision. As has been evident throughout the course of the discussions in Committee on this section of the Bill, it is a complex area, and we know that many large digital companies use intricate methods with considerable skill in order to reduce their tax liability. I mentioned earlier that some stakeholders have referred to the need for extra capacity at HMRC to make sure that this tax is properly administered and its impact properly accounted for. How confident is the Minister that anti-avoidance strategies will be adequately detected when the overall difficulties in administering the tax are taken into consideration?

Moreover, the Government’s website states that HMRC must counteract such arrangements by making such adjustments as are just and reasonable. The Minister touched on this in some of our earlier discussions, but I would be grateful if he could elaborate on exactly what a just and reasonable adjustment for tax avoidance arrangements entails. As I have already set out earlier today and in other debates we have had, the scale of tax avoidance practices by digital multinational enterprises is large and the methods that they adopt are intricate. The Government’s record so far in this area does not inspire a great deal of confidence on the Opposition Benches, and I would be grateful if the Minister could allay some of our concerns in this area.

[Jesse Norman]

I am grateful to the hon. Lady for raising those questions.

The first question she raised was about extra capacity. I think we touched on this already, but it is worth just saying that HMRC already has a digital services team in place. The tax requires, in the first instance, companies to come forward with a process of self-assessment, which HMRC can then assess and view. From that point of view, this is a tax that is designed to minimise administrative burdens, not merely on the groups being taxed but on HMRC itself.

It is also worth saying that one of the extraordinary aspects of the past few months has been that HMRC has been able to show itself remarkably flexible in the way it has operated, and this might be a moment to pay due tribute in respect of that. Although it is an enormous organisation, it has been very flexible in several different areas. The first was in reconfiguring its business to be able to deal with staff absence in the face of coronavirus, which has been extremely effective. The second has been in being able to configure its services in order to match the evolving demand. A classic example would be that many services that were being handled by telephone interactions are increasingly being handled by text interactions or chats. Many services that were being handled through office phone interactions are being handled through phone interactions at home.

HMRC has been very flexible in that regard. Almost the most salient aspect is that it has been able to bring a succession of schemes into play, such as the furlough scheme, the self-employment scheme and the statutory sickness pay scheme. That flexibility of organisation has allowed it to move incredibly quickly to put those schemes in place and thereby support the lives and livelihoods of millions of people. If someone had asked me at the beginning of year whether I would be publicly accountable for an organisation that would end up supporting the lives and livelihoods of some 10 million to 11 million people, I would have been very surprised indeed, but that is what has happened. I pay great tribute to the officials and staff at HMRC, and of course the Treasury, for their public spirit and service.

The hon. Lady asked how confident I am about anti-avoidance. Of course, anti-avoidance is an ever shifting and evolving pattern, and it is right to raise that question. If the past is any guide to the future, there will prove to be aspects of avoidance that are not contemplated at the moment and against which we may have to take future care, but the Bill provides a very broad capacity for HMRC to counteract arrangements that are designed to reduce the amount of tax that the group may have to pay through the digital services tax.

--- Later in debate ---

[Jesse Norman]

I very much appreciate the hon. Lady’s comments. I will speak to the amendment and to clause 70, as well as to the SNP’s new clause 11.

Clause 70 requires the Government to review the DST and submit such a review to Parliament in 2025. It is a Government priority to secure an appropriate global solution to the corporate tax challenges posed by the digital economy, as we have discussed. As we have also said, once such a solution is in place, the DST will be removed.

Should the DST remain in place in 2025, the review will consider whether it continues to meet its objectives and whether international reform means that it is no longer required. However, it remains our strong preference to agree and implement an appropriate global solution, and to remove the DST as soon as possible.

The hon. Lady raised a point about the absence of a sunset clause. The 2025 review allows a context in which the Government can have an in-the-round consideration of whether this tax—were it, unexpectedly, still on the statute book—was doing its job and if it is, how it could be improved, and if it is not, where it could be tweaked to further advantage.

The amendment would require the Government to produce a review of DST annually rather than in 2025. It is not clear what the hon. Lady means by a review, but there are already very substantial processes in place. HMRC regularly reports on the taxes that it is responsible for collecting and DST will be no exception to that. It will be possible for parliamentarians and the public to scrutinise what tax has been collected by this measure. It is a new tax, so there may be some variety or it may come in higher or lower than expectation.

A review in 2025 as a backstop ensures that, should the DST remain in place at that point, its continuing relevance can be considered against the relevant circumstances at the time. However, the Government keep tax policy under continuous review through the annual budget process and, as I have said, it is our strong preference to agree and implement an appropriate global solution.

[Bell Ribeiro-Addy (Streatham) (Lab)]

The Minister said that tax policy was constantly under review and that if things changed, so would the legislation. What is the logic against an annual review? Is that not more flexible than waiting until 2025?

[Jesse Norman]

A review in the formal sense is a substantial undertaking. It is something that is done periodically to assess the viability or effectiveness of taxes. Given the amount of scrutiny that exists on existing tax, and given the fact that this is a new tax, that scrutiny will be carefully exercised. No doubt it will be scrutinised in Parliament as well, through the usual channels.

The case for a review comes when there has been a period of time in which one can establish and look at the track record and effectiveness of the tax. As I have said, however, we do not expect it to be on the statute book, because processes are under way internationally through the OECD that we expect to bring about a global solution that will be satisfactory to us and to the other countries involved.

[Bell Ribeiro-Addy]

I am trying to understand what the Government’s understanding of temporary is. How long is temporary—five years? The Minister has said that it is a temporary measure. I understand what he is saying about a review being a substantial undertaking, but if the measure is meant to be temporary, do the Government have set guidelines about what they think temporary is?

[Jesse Norman]

It is not often that I am invited to engage in philosophical speculation on the nature of time. Temporary, as far as I am aware, does not have a definition in law. We are framing the measure in the context of currently existing practices and discussions within the OECD. We expect those to come to fruition in the next five years.

As a long stop date, we have left a review in 2025 in place, but of course the Treasury may decide to vary that, or indeed the Government may decide to take it off the statute book, if such a process is forthcoming. The hon. Lady will be aware that taxes have a tendency to mutate. When the income tax was introduced by William Pitt, it was allegedly temporary, but it was temporary only for a while and then came back. It is a good point, however.

I will turn to a couple of wider points mentioned by the hon. Member for Houghton and Sunderland South. She talked about tax avoidance, and she will be aware that, as I have touched on, the Government have done a great deal to tackle and address tax avoidance; there are several such measures in the Bill, which I thank the Opposition Front-Bench team for supporting. Indeed, it is worth noting that the tax gap has continued to fall, which reflects the excellent work of successive Administrations. That is over and above the passage of a variety of measures designed to cut down on tax avoidance and evasion and, of course, an anti-promoters strategy, which is currently the subject of consultation with the public and which we hope to bring to fruition later this year. A series of initiatives is already under way, in addition to much previous work in that area.

On the issue of country-by-country reporting, the hon. Lady will be aware that we already, with the strong encouragement and support of the Government and our predecessors, have private country-by-country reporting, which was an important move forward. The difficulty is that public country-by-country reporting requires a measure of international consensus. If it does not have that, it runs the risk of setting all kinds of incentives that might actually have the effect of undermining the policy and the transparency that we move to, so it is an evolving position in this country, as in the OECD. We hope that the general move towards more integrated global solutions and greater transparency is one that we can reach in all those areas.

The SNP new clause 11, which would require the Government to report to the House within six months of the Act passing—

[The Chair]

Order. I am sorry to interrupt, but unfortunately I did not see Stephen Flynn indicate that he wanted to speak. Would the Minister mind if I brought him in first?

[Jesse Norman]

I am more than happy to bide my time, Ms McDonagh.

[Stephen Flynn (Aberdeen South) (SNP)]

Thank you, Ms McDonagh, and I thank the Minister for allowing me the opportunity to speak to new clause 11, of which there are two parts. The first relates directly to the digital services tax and the second relates to Scottish limited partnerships in relation to the DST. I shall come to that in due course, to address, I hope, the concerns of the hon. Member for Houghton and Sunderland South.

With direct reference to the new clause and DST, the Minister has taken great pains to stress that this is a new tax, and because of that we need to take things slowly. However, I feel there will still be a strong element of cynicism in the public domain about how effective the tax will be, which his why we have tabled new clause 11. Such cynicism would certainly be justified. Earlier we heard about Amazon as an example of a large multinational corporation that benefited from the lack of direct taxation. For instance, last year I believe it paid £220 million in direct taxation in the United Kingdom, despite revenues in excess of about £11 billion. That is neither sustainable nor fair.

As to fairness, we heard at great length earlier about online retail’s impact on high streets across the United Kingdom. We need not go far to see that many shop fronts are now derelict because of the change in consumer habits. I suggest that those habits are unlikely to change, particularly for people in the younger generations who have become accustomed to sitting in the comfort of their home ordering what they want, and getting it delivered in a day or two.

That being the case, we need to create an element of fairness, which will allow revenue to be gained and income put back into the system. I imagine Members can think of many avenues for spending that revenue, but perhaps it could be spent to provide local authorities with the finance they require to invest in city centres and transform them into something better. The issues relating to DST have perhaps never been as relevant as they are now, given the prevalence of online retailing.

We also need to be mindful during the pandemic of the fact that many companies in Scotland and the United Kingdom face an extremely bleak future, and will still have to pay their fair share, as they have always done. It is unacceptable for us to be in such a situation. That is why I welcome the measure, although it could perhaps have been dealt with in a way that sought to bring in more revenue. Many companies will be in extremely challenging circumstances, through no fault of their own, and we must have a system that provides fairness, as they would expect.

Netflix was discussed earlier. I understand, as do Members on both sides of the Committee, that it might not have the same financial burden of payment as Amazon. I did not ever think I would use this phrase in the Houses of Parliament, but rather than “Netflix and chill” the expression should surely be “Netflix pay your bill.” The reality is that it has coined it and has not had to pay back. No fair-minded person can support that.

I appreciate the Minister’s comments and understand his position: we need to see where the OECD is coming from in its approach. Ultimately we need a global, sustainable position on online taxation; everyone recognises that, but the Government have been slow in getting to the point where they are now, and they could have gone further. The new clause allows them to reflect on where they will be. As I have said, public cynicism will continue to be rife.

That brings me to the second element of the new clause, which relates to Scottish limited partnerships. As all those present are aware, the future of SLPs has been contentious. My colleagues in the Scottish National party have on numerous occasions suggested to the UK Government that changes need to be made, and that SLPs need to be brought under control. After all, they are not taxable in the UK if none of their members is resident there. There is a concern—a justifiable concern—that SLPs may be used to avoid DST. That is the crux of where we are coming from and it is an extremely reasonable concern, given the propensity of SLPs to be used for tax evasion in the past.

I do not wish to suggest that Amazon or the like will follow the pathways that many of the organised crime groups have in trying to funnel money through SLPs, because that is obviously not the same argument to be having, but the reality is that SLPs and the framework that they provide would allow for avoidance to take place, and we should all want to do everything that we possibly can to limit that.

Up to now, I think it was reasonable to say that the Government’s record on SLPs has not been good enough, to put it mildly and candidly. I hope that a recognition of our proposal in new clause 11 with regard to SLPs will be taken on board, out of a commitment to end the sorry practice of those partnerships.

[Jesse Norman]

I thank the hon. Gentleman for his contribution to the debate on this clause and for the points he has made.

It is worth pointing out a couple of things. First, I have talked a little about the Government’s record on issues of avoidance. The hon. Gentleman talked about cynicism. What is interesting is that the public are perhaps more discerning than he thinks, and I do not think that there is cynicism about this issue. In fact, although I have not looked at any polling on this issue, I think the public are generally highly supportive of this measure. It is not a tax on retail; it is a tax on user-generated content. However, the understanding that there was a problem in the application of international tax rules and that it needed to be addressed is widespread, and I think there is a recognition—for those who would get their heads around this tax—that this measure is part of a response to that problem, as indeed is the wider OECD programme.

[Stephen Flynn]

I perhaps did not convey it correctly, but I think the cynicism will derive from the fact that the public will not regard the levels that are being put in place as sufficient to bring in the revenue that they should. These companies have benefited exponentially in recent years, and the figures that the Government expect in terms of revenue pale into insignificance compared with the revenue that these companies ultimately bring in. I think that is where the cynicism will arise.

[Jesse Norman]

There are two points here. One is the question of what the right level is. As we have discussed, this tax is designed to raise what by any other standard would be a pretty substantial amount of revenue— £2 billion over five years—and at the same time to establish a category of taxation that, in and of itself, is an important category. We have talked about some of the wider philosophical implications of that with my hon. Friend the Member for Aberconwy as well, so I think there is recognition of it.

Of course, it is also worth saying that, in relation to Scottish limited partnerships, the Government have recognised the problem, we have consulted and considered, and we are framing a legislative response to it. So there is also recognition of that problem.

The effect of the new clause would be to require the Government to report to the House, within six months of the Bill’s passing into law, the effect of the DST on tax revenues, and in particular the effect on the tax payable by the owners and employees of Scottish limited partnerships. Of course, this is a tax on groups, not a tax on individuals, whether those individuals are employees or owners; therefore, that is where the tax will fall.

In addition, DST payments will not be required until after the end of the relevant accounting period for each liable group, and thus payments will not be required until 2021. So the report that the hon. Gentleman describes would not contain any useful information. The DST’s reporting deadlines mean that very few groups would have needed to register and no groups would have been required to send in their return by that point. The report would not provide useful information about DST receipts.

We have talked about the importance of reporting and reviewing, but the effect of the new clause would be to pass a requirement to report with very little information and with very little purpose to it. I therefore commend clause 70 to the Committee and urge it to reject amendment 7 and new clause 11.

[Bridget Phillipson]

I would like to press amendment 7 to a vote.

Question put, That the amendment be made.

Finance Bill (Fifth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 5th sitting: House of Commons
Thursday 11th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss clauses 39 to 44 stand part.

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. I am grateful to all members of the Committee for joining us this morning; I am also grateful it is not too hot outside. It is a rare moment in Parliament when one gets to introduce a new tax—the digital services tax—on to the statute book. With the clauses grouped together, it is appropriate to spend some time in my opening remarks outlining the overall architecture of the tax and how it is designed to work; then we can pick up specific details in the clauses as we come to them.

Clauses 38 to 44 introduce legislation to enact the digital services tax, and they set the scope of this legislation. DST will levy a 2% charge on the revenues that groups receive from providing specific digital services to UK users. The specific services in scope of the charge are search engines, social media, and online marketplaces. I will explain later why those three services are in scope of the new tax. DST will apply only to groups with annual global revenues from services of more than £500 million. It will then be charged on the revenues only where they are attributable to UK users, and only on amounts above £25 million.

An exemption will exclude online financial services marketplaces from the definition of an online marketplace. Businesses making low profit margins on their in-scope activity will be able to pay the tax at a reduced rate, while loss makers will pay nothing; that will minimise the distortions that a tax on revenues can create. To further reduce those distortions, a relief for certain cross-border transactions is also included. It will reduce by half the revenues subject to DST where those revenues are derived from an online marketplace transaction between a UK user and a user from a jurisdiction that also levies a DST. As this is a new tax, there are also extensive provisions to ensure the framework of the tax works as intended. These draw on many existing tax concepts to reduce the burden of implementing the new tax for what we hope will be a limited time.

The digital services tax was announced at Budget 2018 as a response to changes brought about by the rapid development of our digital economy. That economy brings many benefits, but it has posed a significant challenge for international corporate tax rules. Under current rules, digital businesses can derive significant value from UK users, but in many cases they pay little UK tax because international corporate tax rules do not recognise the user-generated value when allocating the right to tax profits between jurisdictions, so undermining the fairness and sustainability of our tax system. It is therefore now widely accepted that the rules require updating.

The Government remain at the forefront of international efforts to secure a comprehensive long-term solution to the issue, and we are fully engaged in discussions with OECD and G20 partners. Although we welcome recent progress towards a global solution, there remain important and difficult issues to resolve, so the Government are acting now to address those widely held concerns in a fair and proportionate manner. DST is a temporary measure, until appropriate global reform is in place.

As a temporary measure, DST is targeted at those business models that rely most significantly on user-generated value and that place the greatest strain on current corporate tax rules. It is the Government’s judgement that these services are search engines, social media platforms and online marketplaces. Of course I recognise that a broad range of digital services could be said to derive value from their users, and I am aware that some hon. Members have called for the scope of DST to be extended to include services such as media streaming. However, the services in scope of this tax are those that rely most significantly on user participation in the creation of value: for example, while media streaming platforms may utilise user contributions in the form of reviews or recommendations, users of a social media platform often create the content that is shared across the platform, and users of an online marketplace provide the market liquidity required for the marketplace to function. Also, while we are engaged in OECD discussions about finding a long-term global solution and exploring the case for broader reform, we judge that it would not be appropriate to implement a temporary tax on a broader basis.

DST follows the recommendations of the OECD’s 2018 interim report. Targeting DST at those services that derive the greatest value from their users minimises the distortive consequences of a tax on revenues and minimises the risks of introducing a temporary measure before global reform is agreed. That will ensure that DST is proportionate, while still raising up to £2 billion over the next five years. That in addition to the UK taxes that digital businesses already pay and, as I have said, reflects the value they derive from UK users.

I will now summarise the clauses that form this part of the Bill—clauses 39 to 44. Clause 39 sets out that DST will apply to all revenues that arise in connection with in-scope digital service activity. That is deliberately a very broad test; it ensures that however these businesses make money from their in-scope activity, that revenue will be subject to the tax. The clause also sets out that revenues should be apportioned on a just and reasonable basis when they are not wholly in connection with an in-scope activity.

Once a group’s digital services revenues have been established, the next step is to determine how much of those revenues is attributable to UK users. Clauses 40 and 41 set out the five cases where revenues are attributable to UK users. The first three cases deal with the specific types of revenue that online marketplaces may receive. The first case concerns the revenues that a marketplace earns from facilitating transactions between users; this will include a marketplace’s commission, for example. These revenues are attributable to UK users whenever a UK user is a party to the transaction. It does not matter whether the UK user is the buyer or the seller, or which user paid the revenue; where there is a cross-border transaction between a UK user and a non-UK user, all of the marketplace’s revenue from that transaction is regarded as attributable to UK users, although this may be subject to cross-border relief.

The second case concerns revenues that arise in connection with accommodation and land in the UK—for example when a user books a holiday let on a marketplace. These revenues are attributable to UK users when the property is in the UK. Where the property is overseas, the revenue will only be UK digital services revenue when the purchaser is a UK user. Some marketplaces charge users to list individual items for sale; under the third case, those revenues will be treated as attributable to UK users whenever the user listing the item is a UK user.

The last two cases apply to social media services and internet search engines, as well as to online marketplaces. The fourth case deals with online advertising revenues. These revenues are attributable to UK users when the advertising was viewed by a UK user; the focus is on the viewer of the advertising, not on who paid for it. The fifth and final case is a catch-all, to include revenue that is not trapped by any of the other rules but that is received in connection with UK users. This will cover any other type of revenue earned by social media services and search engines—for example, subscription fees.

Clause 42 defines each of the services in scope of DST. The tax will be charged on the revenues that businesses earn from providing a social media platform, search engine or online marketplace to UK users. The definitions are designed to be targeted and as clear as possible. They have been carefully drafted after extensive consultation periods with business to ensure that they apply as intended. Alongside the three named services, some businesses facilitate online advertising on other websites. The clause ensures that revenues from that source would also be subject to DST when the advertising service derives a significant benefit from operating one of the three named services.

Clause 43 clarifies the meaning of “user” and “UK user” for the purposes of DST legislation. Clause 44 sets out the exclusion of online financial marketplaces from the definition of online marketplaces. The highly regulated nature of financial services limits their ability to engage with users in the ways that other marketplaces do. As such, the clause ensures that they are not subject to DST.

Together, clauses 38 to 44 set out the scope of DST. The digital services tax is a clear signal of the Government’s commitment to ensuring that tax rules reflect the development of our modern economy. Ultimately, as I have said, our strong preference is for a global solution, which will be the most comprehensive and enduring way to address concerns about the current corporate tax rules. Until such a solution is in place, however, DST will ensure that digital businesses pay UK tax that reflects the value they derive from UK users. I therefore commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It a pleasure to see you in the Chair, Mr Rosindell. Like the Minister, I will use this opportunity to lay out our broad views and concerns about the operation of the digital services tax. We will pick up some of the technical issues with the clauses as they emerge later.

We welcome the principle behind the introduction of a digital services tax. It is regrettable, if not unsurprising, that it has taken the Government so long to get to such a measure, given the wider inertia when it comes to making sure that multinational companies pay their fair share of tax. The gap between the profits that digital companies derive from UK users and how much they pay in tax is stark. That fact has been evident for some time and is recognised by Labour Members, which is why for years we have consistently pressed for a far more ambitious approach.

It is not right that, at a time when high street shops are struggling in an unprecedented way, the likes of Amazon have been allowed to pay a much lower tax rate than British bookstores and other businesses of a comparable nature. Our local high streets are incredibly important; they are the backbone of our local economies. Many family-run businesses have found this time incredibly difficult, but they also have many long-standing problems because of the way they have been undercut by some of these big players, which do not have the same overheads or level of corporate responsibility and do not make the same impact in our communities. During this crisis, many of our local businesses—our small businesses on the high street—have adapted to do all they can to make sure that vulnerable people receive deliveries and support, and that they are open as much as they can be within the guidelines. It is only right that we make sure that the bigger players with large profits make a contribution too.

There is still much unfairness built into the system. As constituency MPs, we only have to visit the businesses on our high streets that have been operating for many decades to appreciate the scale of disillusionment that many of those family-run firms feel about the lack of fairness in the system and the need for change. The economic crisis we are facing only strengthens the call for action because it has compounded the impact on our high streets, which have struggled and will continue to struggle. It is such a shame that, in many of our communities, affluent and perhaps less affluent, there are clothes shops that had their shutters down even before we felt the impact of the lockdown.

Vibrant local high streets are central to a sense of pride in the community and to making sure that we can support local jobs and businesses. We want to do everything we can to support that, but hand in hand with the pressures facing many small businesses during this time, there has been an unexpected boon for digital and tech giants, as we have all had to adapt to life in different and difficult circumstances during the lockdown. It is only right that we ensure that those with the broadest shoulders help to bear the cost of the recovery that we must now achieve as a country. It is more important than ever to make sure that those big players are taxed properly, reasonably and fairly.

--- Later in debate ---

[Andrew Jones (Harrogate and Knaresborough) (Con)]

I am also not usually somebody who likes to find new ways to tax people in the UK. The digital services tax is totally new, but it is the right thing to do. The clauses detail the scope and the mechanisms for the tax and its collection. We even have a clause with an algebraic formula, which should certainly raise an eyebrow. [Laughter.]

The main thing to note is that the economy is changing fast and the tax is a part of that change. The Government’s response is to work internationally as we plot the course to a digital economy. Such economies are by definition international, so it is right to respond in a multinational way. I also know that it is very hard and takes a long time to achieve the objectives, so it is clearly right to proceed in the short term with this measure. Digital firms must pay their fair share.

It is increasingly hard for Governments to raise revenue from their traditional routes. The Government obviously have to raise revenue to fund the public services that we want. There is therefore an underlying, fundamental challenge for the Treasury. Work and consumption patterns change. I recognise that I possibly view this through the prism of somebody who has had responsibility for raising Government revenue—once a Treasury Minister, always a Treasury Minister—but this tax and the thinking behind it are the shape of things to come. Tax has to evolve to reflect the way the economy evolves.

The rise of the digital economy means different things for different companies. The opportunities for productivity and environmental gains are absolutely immense, so we must do all that we can to encourage the shift into a digital economy. Most people encounter it through social media search engines and online retail, which are the target areas for the tax. The growth of online retail has placed ever greater pressure on traditional high street retail businesses: a trend compounded, as colleagues have said, by the current crisis.

There have been concerns about the nature of competition and whether there has been a level playing field between online and offline: the argument between bricks and clicks. We should make every effort to level the playing field and the tax is a part of that. High streets have a role beyond their traditional economic role. They have a social role and bring people together. They create hubs for communities, but they also have to evolve to reflect the changing nature of competition, and a more level playing field in taxation will help give them the space to evolve.

I had some concerns that the tax may discourage digital start-ups; we have seen a good period for start-ups in the UK and I think that we have led Europe in this sector. However, I think those concerns have been dealt with by the threshold at which the tax becomes payable, which will only capture the very largest of businesses.

So, we have a very interesting new area for taxation, which I do not think any Government can enter into lightly. The Minister is an old friend—we have worked together for many years—and I commend him, because this is not easy stuff; it is pioneering for the UK and indeed for the world. But we have found a way forward that updates our taxation system and introduces more fairness to it, and through the operation of the new system we will learn how future taxation may work. So, as we go through further clauses in detail today, perhaps he could comment on how any learnings from this tax might influence and develop future taxation thinking.

[Jesse Norman]

All I can say to my colleagues on the Government Benches who have made their speeches is,

“soft, what light through yonder window breaks? It is the east”—

and my hon. Friends the Members for South Cambridgeshire, and for Harrogate and Knaresborough. What could be finer? I thank them very much for their interventions. If I may, I will start by responding to those interventions and then come on to the very detailed thrust of commentary from the shadow Chief Secretary.

My hon. Friend the Member for South Cambridgeshire rightly made the point that taxes are, of their nature, potentially distortive, and revenue taxes, of their nature, in particular. It is therefore appropriate to proceed with a degree of caution in considering how to introduce a tax, and to acknowledge that. He also made the point that many taxes start modestly. I could not possibly comment on the future direction of this tax, but I will say that I do not think that £2 billion is a trivial sum of money to raise from a new tax. I think the tax has been set at an appropriate level, and officials and the Government believe that, too.

My hon. Friend also asked whether businesses affected by the tax will have to collect a vast array of new information, and whether that may be burdensome to them. This is one area where, on reflection, he may be able to take a degree of comfort, because we are only talking about very large businesses, and about businesses for whom tracking users and extracting revenue from them is what they do for a living. So, it is not our expectation that there should be any enormous additional informational burden; there may be a selection process of pulling information out, but not an enormous informational burden.

I will also point out that the approach taken is one of self-assessment, which is to say that we expect businesses that have UK user-generated content revenue to come forward and self-assess. In a way, that relates to the question put by the hon. Member for Houghton and Sunderland South about whether HMRC has enough resources. I am pleased to tell her that it already has a digital team in place, whose job is to monitor this process of self-assessment. And as with other taxes, I have no doubt that they will become increasingly expert in doing that and evaluating the submissions that are made; of course, submissions will vary in their quality and I am sure that evaluating them will be, in turn, an educative process for tax officials at HMRC.

My hon. Friend the Member for Harrogate and Knaresborough, a beloved former Treasury Minister, made a couple of important points. Of course, he is absolutely right that we are talking about a dynamic market or sector. All markets are intrinsically dynamic and we are talking about an intrinsically highly dynamic sector of activity, perhaps never more so than at this particular moment in our history, when we are seeking—internationally and nationally—to find a whole range of new solutions to support people and maintain the economy. So, it is a very dynamic sector.

My hon. Friend is also right to highlight—in a way entirely unscripted and unprepared with me—the “pioneering” nature of this tax. It is a new form of tax, which seeks to tax UK user-generated content. Therefore, it is an important démarche in our history to consider whether this is an appropriate way in which to tax. I believe it is, and I believe that Parliament will think it is, but we will of course continue to review and take feedback on it. I point out that there have been two sets of consultations on this already—an original, principal set and then a more technical one.

--- Later in debate ---

[Jesse Norman]

I appreciate that, of course. I am grateful to the hon. Lady for welcoming the principles behind this, as she is right to do. For the same reasons I described to my hon. Friends, I do not think it appropriate to think of this as in any sense delayed. We are at the forefront of a developing area of tax law. We have not thought it appropriate to wait for international procedures. I am sure that, on reflection, she would prefer that we not have waited, both because of the revenue generated for public services but also because we deem it important—I have no doubt that the Labour party feels the same way—to try to make progress in this important area, removing what we see as ineffective rules or improving the working of the rules within the tax code.

I think it is fair to say, without blowing the Government’s trumpet too hard, that whether it is the diverted profits tax, work on base erosion and profit-shifting, corporate interest restriction rules or, indeed, on private country-by-country reporting rules, the Government have been at the forefront of much of the most progressive tax changes of the past few years, which is entirely appropriate.

The hon. Lady raises the question about the relationship with high streets. No Member of Parliament does not feel the concern about the high street, because they go back to their constituencies every week and see the effects of change. It is important to be aware that this tax is about addressing changes, or the way in which the tax rules are not fully capturing the value that is being generated. The high street is a rapidly evolving entity, as has been pointed out. Many high street businesses—even quite small ones—have online businesses of their own, which are effective supplements to what they do. They will not be caught by this tax, because in many cases their activity will be too small. However, it is in those hybrid models, which are evolving, where I think much of the future of the high street may lie.

It is not by any means obvious that the effect of the pandemic has been solely to privilege the online versus the offline. Plenty of online businesses have been clobbered by the pandemic in a way that many offline businesses have as well.

[Bell Ribeiro-Addy (Streatham) (Lab)]

The Minister raises a valid point about this tax generally creating more revenue. However, he mentions the pandemic, and I am clear that we are heading for one of the worst recessions in history. Does the Minister not think that we would do best to do what European countries are doing, with a much higher rate of tax? The £1.3 billion that we will potentially lose is no small fee. The public coffers need that money. Does he not agree?

[Jesse Norman]

I thank the hon. Lady very much for her question. As I said, the estimate by the independent OBR is of £2 billion over a five-year period. Our estimate is certainly £2 billion over a five-year period. I do not think that is a trivial amount. As has been discussed, we of course recognise the importance of generating revenue, but we also think it important to introduce a tax that is sustainable and that lays a framework that can be effective while it is in operation. There are countries that have had higher taxes, and we have offsetting rules regarding the interaction with those taxes in order to create equity as between the different jurisdictions, so it is a perfectly fair question, but we have taken the view that 2% is an appropriate level for a new tax. As I said, it is a tax that we will be very happy to take off the statute book as and when the OECD process starts to yield effective results, which it may well do before too long.

[Bell Ribeiro-Addy]

What I cannot seem to understand is why—the Minister mentioned sustainability—if other countries in Europe see it as sustainable and we have no evidence to the contrary, we have decided that it is not sustainable to have a higher rate.

[Jesse Norman]

That is, of course, a proper question to ask, but we have taken the view that this is a tax that we would like to take off the books in due course, when there is an OECD agreement. That agreement may take a variety of different forms; it may raise more tax or less. Different countries have different overall tax systems and seek to address different forms of corporate behaviour in deriving revenue. In the UK, there are plenty of businesses deriving revenue from user-generated content. Some of them will be over the thresholds that we are talking about, and those are the ones that are within the scope of the tax.

It is absolutely open to other parties to disagree about how they would put it, but the Government have taken the view that this is the appropriate level for a new tax—it is on revenue and, as I have said, is therefore potentially distortive. We have had feedback and consultations that reflect concerns on both sides of the issue.

[Andrew Jones]

My right hon. Friend makes a valuable point about the multi-channel operations of many retailers. I came to Parliament from a business background that had a mixture of high street and online retailers. From a business perspective, the key thing is to reach customers in the way that is right for them. By choosing either the high street or online, businesses miss out. Customers are open to trading in whichever way is convenient for them, as this crisis has shown.

I want to make a comment about the taxation. Higher taxation rates do not necessarily mean higher tax collected. We also have to recognise that having a tax environment that is conducive to creating a business-friendly environment is a critical part of the economic growth that we have seen over the past few years. We should certainly be looking around the world to see how other countries operate their tax systems, but drawing comparisons with countries that are not creating wealth or jobs might not be the way forward.

[Jesse Norman]

I thank my hon. Friend for that comment. In a way, he leads me on to my next remarks in response to the hon. Member for Streatham. He is right. The dynamic market that we are seeking to tax is one where revenues are not absolutely predictable; they may be higher or lower than estimated. The tax therefore stands in contrast to a well-established tax such as VAT, because we can be much more certain about how much that tax will raise.

It is also important to understand that this is not a tax designed to penalise certain companies. The strength of our online sector in the UK has been a very important part of the response to coronavirus, as I have mentioned. There is no attempt to pick out companies and target them with the tax. There is a concern about failings in the international tax rules, and that is what the Government seek to address.

The hon. Member for Houghton and Sunderland South raised the issue of multilateral action and asked whether adequate leadership had been exercised. It has been recognised that the OECD has made some good progress in this area recently, which has been achieved with a lot of urging and support from this country. Ultimately, we all agree that international and corporate tax needs to be addressed in a global and inclusive way. That would be the Government’s strong preference, but we have not waited—I do not think the hon. Lady would want us to wait—because we think it is important to take a lead.

It is also important to say that when we have done that, we have tried—as one might expect with a new tax—to target an area where there is a very clear rationale or justification for the tax that is being levied. UK user-generated content is a strong basis on which to levy a tax. There is a contrast with, for example, media streaming. The hon. Lady talks about how much she has enjoyed various media streaming services, and I welcome that, but we can all be relatively certain that she has not contributed a lot of UK user content to them—[Interruption.] Unless delight and shock are forms of UK-generated content.

I want to reassure the hon. Lady a bit about the apportionment of revenue. She is absolutely right that, as the history of base erosion and profit shifting around the world shows, many companies have found it only too easy to move the effective location where tax is generated. In part, this tax, by taxing revenue overall, is designed to sidestep a lot of the temptations that might exist to work round the edges. A very wide definition of revenue has been adopted, and we can go into that in more detail. As I said earlier, we require companies to do it. It is a self-assessment scheme, and we ask companies to designate, evidence and disclose the UK user-generated revenue of the different kinds that we have touched on.

On GDPR, which is the relative question, the legislation has been written so that businesses are expected to use information that they already have to make the determination. We believe that it is compatible with GDPR, and that it draws on data that is already collected. We are not inviting the groups to collect new information that might be in some sense at odds with people’s rights or in contravention of the law, and of course they will have their own GDPR processes to follow. As I have said, many of them collect a great deal of information, including IP addresses, delivery addresses, billing addresses and so on. To come to a point that the hon. Lady made earlier, that is another reason why the use of virtual private networks is more of an in-principle worry than an actual worry, because famously, so much other information is collected about the users of those services from multiple sources. That should help them to make those disclosures.

The hon. Lady asked about double taxation. It is true that some businesses will pay both UK corporation tax and the digital services tax. For reasons of international law, we are not capable in law of discriminating in favour of UK businesses, and we are not going to. The point, though, is to design a proportionate tax with a low rate, and another reason why we have chosen that rate is that we do not wish to be any more distortive or invoke any more double taxation than is absolutely necessary. As I said, our preference is to move to a global solution.

The hon. Lady talked about international leadership. We look forward to a day when the OECD will be able to pass an agreed set of rules with multinational support that give a proper basis for the levying of tax. As she is aware, a number of proposals are under discussion. They and the processes that generated them are well described in the House of Commons Library note, and I encourage any Members who want more detail to look at that. The Government are clear that we will maintain this tax until the OECD passage of agreement—there may be other supervening factors—causes us to remove it. I commend the clause to the Committee.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clauses 39 to 44 ordered to stand part of the Bill.

Clause 45

Meaning of “the threshold conditions”

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss clauses 46 to 50 stand part.

[Jesse Norman]

We now come to clauses 45 to 50. The last discussion was quite a long one, but hopefully it was helpful in framing the overall legislation within which we can now discuss the more specific elements, so we may not need to dwell as long on these parts.

Clauses 45 to 50 set out how the digital services tax charge will be calculated. The Government have sought to ensure that the DST is proportionate and charged only to those businesses that are best able to generate significant value from their users. As such, it will apply only to groups with annual global revenues from the named services of over £500 million. DST will be charged only on those revenues where they are attributable to UK users and only on amounts above £25 million.

Clauses 45 and 46 set out the thresholds and the allowance, and they set the rate of the charge at 2%. A DST tax rate of 2%, as we have discussed, ensures that digital businesses will make a fair and proportionate contribution to our public finances. Clause 46 also sets out how each member of a group should calculate their DST liability.

The Government recognise that some businesses have concerns about levying a tax on revenues rather than profits. That is why our strong preference is for a long-term profits-based global solution. That can be implemented only following an international agreement, however, so although the DST applies to revenues, the alternative basis of charge will reduce the charge for businesses with low profit margins or losses on their chargeable UK activity. Clauses 47 and 48 therefore set out the alternative basis of the DST charge and how DST liability should be calculated on that basis.

Online marketplace transactions will occur between two users, and those users may be based in different jurisdictions. Where one of those users is a UK user, revenues attributable to the transaction will be subject to the UK DST. Where the other relevant jurisdiction also levies a DST, however, there is a risk that the revenues could be taxed twice. Clause 49 sets out the relief for certain cross-border transactions, minimising that risk by ensuring that, in such cases, only 50% of the relevant revenues will be subject to the UK DST. Finally, clause 50 sets out when DST payments are due and payable.

Together, the clauses mean that the DST charge is proportionate while ensuring that digital businesses pay a UK tax that reflects the value they derive from UK users. Overall, as I have noted, the tax is expected to raise up to £2 billion over the next five years in a proportionate and responsible way.

[Bridget Phillipson]

As the Minister said, we have discussed at length the broader implications and the necessary measures set out in the clauses, but I have some technical issues relating to them.

On clause 46, the Institute of Chartered Accountants in England and Wales has said that,

“given the potential compliance burdens imposed by the DST, it is important to ensure that smaller digital businesses are not burdened by DST, so the inclusion of a £25m allowance looks reasonable but should be kept under review.”

On a similar but more general note, the Chartered Institute of Taxation has warned that some businesses will be undertaxed while others may be overtaxed. As we have said before, it is our position on the Opposition Benches that in these challenging times, those with the broadest shoulders should bear more of the load. Can the Minister confirm that he will keep the measure under review to ensure that companies, particularly smaller companies, do not pay more than their larger counterparts, to avoid the distortions that he talked about emerging all the time?

There are perhaps more substantial concerns around clauses 47 and 48 on the so-called safe harbour provision. As HMRC has stated, that is intended to ensure that the tax does not have a disproportionate effect on business sustainability in cases where a business has a lower operating margin from providing in-scope activities to UK users. Its inclusion is obviously well-intentioned, but some assurances will be welcome. It is clear that multinational companies are often adept at structuring their operations in a way that reduces their tax liabilities. Are there safeguards in place to ensure that the safe harbour provision is not used for such a purpose?

Clause 48, for instance, contains a list of excluded expenses that cannot be deducted from a company’s net profit, which goes on to form the basis of the alternative charge. The list, however, does not include royalties, and I am grateful to TaxWatch UK for drawing attention, through the research that it has done, to the implications that that might have, because royalties are at the heart of tax avoidance practices perpetrated by some digital tech companies. It describes how most of those companies’ profits are attributable to various types of intellectual property that they have developed.

By artificially locating the intermediate and ultimate legal ownership of the intellectual property in avoidance-facilitating jurisdictions and tax havens, those companies can avoid tax on UK royalties, and ultimately reduce their taxable profits in the UK. Why, therefore, are royalties not included on the list of excluded expenses? Surely the Minister would accept that that is a potential failure to adequately tackle the use of royalties to reduce tax liabilities, and might further incentivise the use of the safe harbour provision by larger tech companies, which will in turn be able to reduce their taxable profits through their practices with regard to royalties.

More broadly on the safe harbour provisions, the Institute of Chartered Accountants in England and Wales has also said that in spite of those, it is still concerned that low-margin businesses could face a very high rate of tax on UK-allocated profits. Will the Minister address those concerns?

On clause 49, the Chartered Institute of Taxation has highlighted that the interaction with other national tax regimes, including broadly similar but subtly different unilateral taxes in other countries, will still mean some double taxation, which the Minister talked about in our earlier debate. It describes this as a rough and ready way of reducing such instances by reducing the revenue chargeable by 50% if it arises from a transaction where a user in respect of a marketplace transaction is normally located in a country that operates a similar tax to the DST. Does the Minister agree with its assessment? What analysis has been done in that area? Has consideration been given to other possible approaches to reduce the risk of double taxation?

[Jesse Norman]

I thank the hon. Lady for her questions. She asks whether the £25 million threshold has the effect of clobbering small businesses. Our view is that the purpose and effect of the thresholds is to levy the tax on the businesses that are best able to afford it, and that to have a global revenue base of £500 million and revenue attributable to UK users above the £25 million threshold is in itself a basis that excludes a vast number of small start-ups—which might turn out to be wildly successful and effective unicorns. We do not believe that the threshold will inhibit growth. If this is a direction in which tax will be going over time, as I rather think it is and as colleagues have suggested, an awareness of how tax will bear on future revenues and profitability is in itself an important part of any business’s market development.

The hon. Lady raised a concern about the safe harbour alternative charge arrangements. That is designed to ensure that the DST is not punitive for businesses with low profit margins or losses, and I think that is appropriate. At the margin, there is a risk that some businesses might try to reconfigure their activities to qualify for that, but I think it will be relatively clear to the Revenue from self-assessment when a business that is intrinsically high-margin is disguising that or is, essentially, seeking to utilise the alternative charge unfairly. It is worth saying that the alternative calculation applies only to in-scope UK activity, so businesses will not be able to reduce profit margins by using out-of-scope or non-UK activity. That is an important safeguard.

The hon. Lady asked about royalties. The tax is designed to work based on the consolidated figures of groups as groups. The concern about royalty payments is that, typically, royalties are used within groups to move revenues around, so, from a gross standpoint, they tend not to fall within the scope of the revenue charge, and they should not. Of course, from a tax-principle perspective, there are perfectly legitimate royalty uses and payments that one would want to continue to allow in any case. The alternative charge takes into account only expenses in the consolidated accounts, and is not therefore principally touched by the concern about intra-group royalties, for the reasons that I have described.

Question put and agreed to.

Clause 45 accordingly ordered to stand part of the Bill.

Clauses 46 to 50 ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Seventh sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 7th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss clause 73 stand part. I call the Minister, Kemi Badenoch. [Interruption.] Sorry—Jesse Norman.

[The Financial Secretary to the Treasury (Jesse Norman)]

Thank you, Mr Rosindell. My hon. Friend and I are sharing the duties on the Front Bench today, and it is I who rises to speak to clauses 72 and 73. The clauses make changes to ensure that additions of assets made by UK domiciled or deemed-domiciled individuals to trusts made when they were non-domiciled cannot be treated as excluded property. As that explanation indicates, it is a somewhat technical measure, which means that such additions are within the scope of inheritance tax.

The clauses have been introduced following a decision by the Court of Appeal. To give some background, the inheritance tax treatment of trusts depends on the domicile status of the person setting up the trust when it was made, known as the settlor, and the location of the assets. If the settlor is UK domiciled, inheritance tax is chargeable on their worldwide assets. By contrast, non-domiciled individuals do not pay inheritance tax on assets in trusts situated outside the UK.

The long-established position of Her Majesty’s Revenue and Customs has been that a settlement is made when a trust is created, and that a settlement is also made when assets are added to that trust. That means that assets would be within the scope of inheritance tax if they were added to a trust by an individual who is currently UK domiciled, even if the trust was set up when the same individual was non-UK domiciled. The Court of Appeal decision created uncertainty by ruling that a settlement was made only when assets were first added to the trust. That ruling meant that the domicile of the settlor for later additions to the trust would not matter. In turn, all subsequent settlements of assets into the trust would not be liable for inheritance tax in the UK. The measure was announced in the autumn Budget 2018, and stakeholders have had nearly two years’ notice of the change.

In July 2019, the draft legislation was published, which provided an opportunity to give feedback to Her Majesty’s Revenue and Customs. HMRC received feedback from a range of bodies including the Chartered Institute of Taxation, the Society of Trust and Estate Practitioners, the Institute of Chartered Accountants in England and Wales, the Tax Faculty and PricewaterhouseCoopers by the deadline for responses. HMRC then made a number of amendments based on the feedback provided, and stakeholders have since provided further feedback regarding the legislation.

Together, the measures will confirm that additions of non-UK assets by UK domiciled or deemed-domiciled individuals to trusts are chargeable for inheritance tax, even when the trust was originally set up while that individual was non-domiciled. The measures will also ensure that transfers between trusts made by a UK-domiciled individual are chargeable for inheritance tax. That will affect UK-domiciled or deemed-domiciled individuals who created an offshore trust when they were previously non-UK domiciled and have subsequently made additions of assets to that trust.

Although the measure will apply only to a small number of individuals, the tax saving for them could have been significant, and there have been claims for tax repayments as a result of the case. The clauses will ensure that the legislation is applied as intended and all tax is collected as expected. The changes introduced by the clauses will add clarity and remove any doubt from the legislation by confirming HMRC’s published and widely accepted views. I commend the clauses to the Committee.

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

It is a pleasure to see you back in the Chair, Mr Rosindell. We regard the measure as a welcome imposition to provide for a fairer tax system. HMRC figures indicate that the number of individuals who live in the UK but pay no tax on their offshore income has fallen, with the number of UK-based individuals with non-domiciled tax status falling by 13% on the previous year. HMRC believes that that is explained by individuals switching to domiciled status and other individuals leaving the UK tax system. Thus the clauses reflect that particular change. However, there are some issues reported by stakeholders.

Responding to clauses 72 and 73, the Chartered Institute of Taxation states that among its members transfers between trusts are most commonly undertaken for family or related reasons, and without any intention to avoid inheritance tax or to circumvent the excluded property rules. It argues that the main thrust of the legislation should be to limit additions by the settlor after they become deemed or actually UK domiciled.

The institute expresses concern about some scenarios in which property could inadvertently be brought into the scope of inheritance tax because a change is made to a trust, not an addition of assets, that could be treated as a resettlement, or trustees make a transfer between two settlements, both set up when the settlor was non-domiciled. In neither case is inheritance tax avoidance being attempted. There are some situations where trustees, not the settlor, are involved in transferring between two settlements, both set up when the settler is foreign domiciled, or when the second is set up by the trustees of the first. We believe that there should be no loss of excluded property status because of the changing status of the settlor. I would be interested to hear the Minister’s assessment of those concerns.

Secondly, both the Institute of Chartered Accountants in England and Wales and the London Society of Chartered Accountants were critical of the potential for retrospection. The former argued that if clause 72 is

“to be treated as always having been in force, this will result in unexpected IHT charges arising as a result of past events.”

The institute says:

“Given that the clause is not countering avoidance but is changing long-standing rules that are familiar to trustees and are clearly stated in the existing law…new legislation on this point should not affect events that happened earlier than the measure is enacted, ie Royal Assent.”

Similarly, the London Society of Chartered Accountants believes that this

“clause changes the IHT status of trusts to which assets are added. This change will have effect from the time that the trust was set up, so is retrospective. However, as the clause is not an anti-avoidance measure but is just a change to the law, retrospection is not appropriate and the clause therefore does not follow Parliamentary convention.”

I understand that these comments presume that the individuals in question do not seek to avoid tax when transferring assets between trusts, but I would be grateful if the Minister responded to these concerns.

Last, I heard the Minister’s comments, but the Institute of Chartered Accountants in England and Wales has raised the lack of a consultation period or of any follow-up, despite being led to believe that that would happen after a meeting with HMRC in November 2018. It reported that

“trustees of offshore trusts are unlikely to have considered these changes in the necessary detail”

and had concerns that there would be

“insufficient time for trustees to take advice to help them understand the full implications and…whether they want to take any action to unwind structures.”

In working with the intention of the measures the Government have introduced, I would be grateful if the Minister responded to those concerns and addressed the lack of a consultation period.

[Jesse Norman]

I am grateful to the hon. Lady for her questions and for her support on this technical but important measure.

The hon. Lady asks about unanticipated negative effects. I am happy to put on the record that HMRC has given reassurance that it will adopt a cautious approach if there is a case in which a taxpayer may accidently taint a trust that contains a mixture of excluded and non-excluded property. Hopefully, that will address many of the concerns about unexpected consequences that she touched on.

The hon. Lady asks whether this measure is retrospective. As she will be aware, we do not believe that it is retrospective. The key point is that HMRC’s application of the legislation, and therefore the legal position, was widely accepted in practice before the Court of Appeal decision put that position in doubt. The effect of it is going to be that individuals have been liable to the tax owed in the spirit of the legislation. Formally, clause 72 is not retrospective because it does not create any new changes pre-Royal Assent, but we recognise the concern that is raised. It is true that in some cases there may be what I would describe retroactable, and not retrospective, effects. That is precisely because HMRC and the Government are seeking to restore what might be referred to as the position as it had always been understood previously. That is the intended effect of the legislation.

The hon. Lady asks whether there should have been more consultation. As I outlined in my speech, the Government have had this in the public domain for a considerable period and discussed it, with plenty of occasion for people to conform their tax affairs to what is, after all, only a reaffirmation of existing tax law through legislation. There is also the counterpart problem, which the hon. Lady will understand: if the clause is not introduced now, it may allow opportunities for individuals to avoid paying inheritance tax on assets they put into trust or on properties transferred between trusts. I am sure she would not wish to abet or support those opportunities and that she would wish, overall, to join us in protecting revenue and providing certainty to taxpayers.

Question put and agreed to.

Clause 72 accordingly ordered to stand part of the Bill.

Clause 73 ordered to stand part of the Bill.

Clause 74

Relief for payments to victims of persecution during Second World War era

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

[Jesse Norman]

This is a small measure, but a very important one. The clause exempts compensation payments received under the Kindertransport fund from an inheritance tax liability. In late 2018, the German Government agreed to provide compensation payments for child survivors of the Kindertransport. As you will know, Mr Rosindell, the Kindertransport was an organised rescue effort for Jewish children, who were transported unaccompanied from Germany to escape persecution from the Nazi regime. I must say, it is one of the most shining examples of effective humanitarian action in Germany’s history—and in our history—in a very difficult time.

The Kindertransport fund, launched in January 2019, awarding one-off payments of €2,500 to survivors is subject to specified criteria as set out by the German Government. The measure will ensure that Kindertransport payments are not subject to inheritance tax. Changes made by clause 74 will be backdated to take effect so that no inheritance tax is paid on payments from the scheme from its opening date on 1 January 2019.

The clause provides reassurance to the original survivors of the Kindertransport that any payment made in connection with or under this compensation scheme will not be subject to IHT. While no amount of money could ever remove the suffering those children and their families experienced, the Government remain committed to supporting survivors of Nazi persecution. I trust that all agree that it is fundamental that the clause stand part of the Bill.

[Bridget Phillipson]

The Opposition welcome the provision. As the Minister says, it is a very important measure. Exempting from inheritance tax compensation payments made to the survivors of the Kindertransport is a just measure for those who had to face the devastating experience of being torn from their families as children in order to escape persecution. The House of Commons Library states that around 100,000 children were brought to the UK under the Kindertransport scheme, but of course many of those survivors have since passed away. It is only right that in the spirit of the Kindertransport fund all survivors receive their compensation payment in its fullest form and that that remains the case if the compensation is inherited.

According to the claims conference, to be eligible for payment survivors have to have been under 21 when the Kindertransport took place, between November 1938 and September 1939. However, the UK set an age limit of 17 for those transported. The oldest would therefore be born around 1921 or 1922, suggesting that they would be nearly 100 if they were alive today. The average age of the children who were transported was nine, so many would be in their mid-nineties today. Given those figures, we know that many people claiming compensation from the compensation fund will be survivors’ inheritors, so it is welcome that the payment is not subject to inheritance tax. However, I gently urge the Government to consider the issues that child refugees face today, and I urge Ministers to show the same level of commitment and dedication today that our country demonstrated in the past.

The Kindertransport survivor and incredible campaigner Lord Dubs worked tirelessly to protect child refugees following our withdrawal from the European Union, but the Government’s amendment of clause 37 watered down the UK’s commitment to protect unaccompanied child refugees in Europe who seek to reunite with their families in the UK. I hope that the Government will review their approach to child refugees and take seriously their commitment to protect child refugees fleeing violence and persecution in our present, just as they have taken seriously compensating child refugees of the past. Meaningful dedication to supporting child refugees requires both.

[Jesse Norman]

I thank the hon. Lady for her comments. She spoke very well about the Kindertransport scheme. As the Committee knows, the Government stand by our position on child refugees, and this country has a proud record in that area.

Question put and agreed to.

Clause 74 accordingly ordered to stand part of the Bill.

Clause 75

Stamp duty: transfers of unlisted securities and connected persons

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

[The Chair]

With this it will be convenient to discuss clause 76 stand part.

[Jesse Norman]

In the spirit of proper scrutiny of legislation, we should chew carefully on clauses 75 and 76. They are quite technical clauses, which address the use of contrived arrangements involving the transfer of unlisted securities to connected companies for an artificially low consideration in order to minimise stamp duty and stamp duty reserve tax liability on company reorganisations.

In the Finance Act 2019, the Government introduced a targeted market value rule to prevent the artificial reduction of the stamp tax due when listed shares are transferred to a connected company. That was introduced with immediate effect to prevent forestalling. The Government consulted on extending the rule to unlisted shares, to ensure that we fully understood the potential effect of the change on small businesses. That is why draft legislation is narrowly targeted only at companies that enter into contrived arrangements that are used to minimise stamp tax on reorganisations.

The Finance Bill 2020 therefore extends the market value rule to the transfer of unlisted shares to connected companies. This form of avoidance seeks to exploit the way stamp duty and stamp duty reserve tax are currently charged: on the payment given as consideration, rather than on the value of what is received. Some taxpayers have been using contrived arrangements that reduce the value of the consideration paid when they transfer unlisted shares to a company with which they are connected as part of a company reorganisation.

The changes made by clauses 75 and 76 will mean that when unlisted shares are transferred to a company and the person transferring the shares is connected with the company, the tax charge is based on the value of the consideration for the transfer or the market value of the shares transferred, whichever is higher. The new rule will apply only when there is an issue with shares by way of consideration, narrowly targeting the measures to the circumstances where contrived arrangements are used to minimise the share of the tax on the transfer of unlisted shares. The measures will have effect for stamp duty in relation to instruments executed on or after Royal Assent of this Bill, and for stamp duty reserve tax in relation to agreements to transfer made on or after Royal Assent.

Clauses 75 and 76 prevent the artificial reduction of the stamp tax due on share acquisitions when unlisted shares are transferred to connected companies. It is expected to raise £25 million over the scorecard, and I commend the clauses to the Committee.

[Bridget Phillipson]

The Opposition welcome the measures implemented by these clauses to minimise the scope of continuing avoidance of stamp duties by extending the stamp duty and stamp duty reserve tax market value rule to the transfer of unlisted securities to connected companies. However, I raise a point regarding the impact of the clauses.

HMRC’s impact assessment of the policy notes that there will be a negligible impact on 250 to 350 businesses in the first year, disproportionately affecting small and microbusinesses. It estimates that the arrangements are most likely to affect private companies with a small number of stakeholders, such as owner-manager businesses, with an average value of £2.5 million. These may include family businesses, many of which we understand to be struggling in the face of the current pandemic. What assessment has the Minister made of this, and who is really the intended target of these clauses?

The Chartered Institute of Taxation expressed concern that unintended consequences could arise from clause 76 due to significant additional costs that are disproportionate to the tax at stake in many cases. It goes on to say that this

“may in some situations prevent commercially advantageous transactions, with no avoidance motive, from going ahead. The…vague description of policy rationale and the contrived arrangements being targeted has prevented stakeholders from assisting in designing a targeted rule so as to reduce the unintended consequences.”

Similarly, legal firm Cleary Gottlieb notes that

“the new rule is not limited to cases of stamp duty or SDRT avoidance, and it should not be assumed that transactions driven entirely by commercial considerations will fall outside its scope.”

I will be grateful if the Minister explains how the Government will seek to minimise unintended consequences of this measure being the targeting of businesses that are not seeking to avoid stamp duties.

Respondents to the consultation suggested that it would be preferable to introduce a targeted anti-avoidance rule into the legislation, or to extend the general anti-abuse rule or the disclosure of tax avoidance scheme provisions. What consideration have the Government given to inserting a targeted anti-avoidance rule into the legislation?

Last, the Chartered Institute of Taxation points out that, in relation to clause 77, there are a number of circumstances in which a shareholding of 25%—required for this exception to section 77A of the Finance Act 1986 to apply—will be an excessive hurdle, reasoning that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding is at least 10% would be more appropriate to cover a wide range of commercial scenarios. I will grateful if the Minister will address those concerns.

[Jesse Norman]

I am very grateful to the hon. Lady for the questions she raises. Let me take them in order.

On whether these measures will affect most small businesses or organisations, as the hon. Lady highlights, a relatively small number of organisations will be affected. The measures were subject to consultation, and interestingly the respondents were satisfied that there would be little impact on commercial activity as the measures were suitably targeted, and expressed some pleasure that the concerns they raised during the policy consultation about the impact of a more wide-ranging measure had been heard. This is, of itself, a tightly focused measure. It falls—where it falls—on a relatively small number of organisations, as I said.

However, it is important to pick out the logic of what I think the hon. Lady is saying. We all recognise the importance of combating the pandemic. She will be aware that the Government have spent many tens of billions of pounds on supporting businesses, families and jobs during this process. This measure is about something else: avoid a form of tax avoidance, or rather heading off a form of tax avoidance; curbing and preventing it. I do not think people’s concerns about the pandemic should be allowed to obtrude on that.

The hon. Lady asked a question about unintended effects. Our analysis is that precisely because of the targeting that was noted during the consultation phase, unexpected effects, while they can never be ruled out, should be limited and minimal. It is also important to say that there will be a modest additional administrative burden that will decline over time as people become accustomed to the new rules.

The hon. Lady asked whether it would be better to address this with a more targeted anti-avoidance rule, but this is quite a targeted anti-avoidance rule. It picks out particular forms and is restricted to company reorganisations of a certain kind, and it builds on the existing approach for listed shares. I therefore think that it addresses her concerns.

Question put and agreed to.

Clause 75 accordingly ordered to stand part of the Bill.

Clause 76 ordered to stand part of the Bill.

Clause 77

Stamp duty: acquisition of target company’s share capital

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

[Jesse Norman]

Clause 77 prevents a double stamp duty charge from arising on some company reorganisations, and follows on from clauses 75 and 76. During the consultation on extending the market value rule to unlisted securities, it was put to the Government that a double charge could arise on a type of company reorganisation known as a capital reduction partition demerger. We are very heavily in the long grass of tax intricacy. Such a demerger is where shares in a company are cancelled and shareholders are compensated with shares in a new company, rather than with cash. A corporate group may pursue this strategy where, for commercial reasons, it wants to split a group and ensure that the companies in that group are held separately by the original shareholders.

Currently, taxpayers who follow the rules can incur two stamp duty charges on such demergers, while other taxpayers use contrived arrangements to avoid paying any stamp duty on the same reorganisation. This clause, together with clause 75, ensures that one charge arises on most capital reduction partition demergers by more tightly targeting existing anti-avoidance provisions related to company reorganisations.

Stamp duty is a transaction tax. When a company is split using a demerger arrangement, there are a number of steps, two of which are potentially subject to stamp duty unless a relief applies. Usually relief applies on one step only, so that there is just one charge on the overall transaction. In some demergers, known as capital reduction partition demergers, relief is unavailable on both steps due to anti-avoidance provisions. Clause 77 will prevent a stamp duty double charge from arising, so that only one charge will arise on most capital reduction partition demergers. It does this by better targeting the existing anti-avoidance provisions. The measure applies to stamp duty instruments that are executed on or after Royal Assent.

Clause 77 works together with clause 75 to ensure that one charge will apply on most capital reduction partition demergers. This increases fairness and consistency. I therefore commend the clause to the Committee.

[Bridget Phillipson]

I raised these points in an earlier debate, but I will do so again so that the Minister can respond.

On clause 77, the Chartered Institute of Taxation points out that there are a number of circumstances in which a shareholding of 25%, which is required for the exception to section 77A of the Financial Act 1986 to apply, will be an excessive hurdle. Its reasoning is that it is not uncommon for a company to be owned equally by five or six entrepreneurs or a family group. It suggests that a requirement that the relevant shareholding be at least 10% would be more appropriate to cover a wide range of commercial scenarios. I would be grateful to hear the Minister’s response on that issue.

[Jesse Norman]

The hon. Lady raises a very specific circumstance. It would be appropriate for me to write to her about the specifics of the decision about percentages, rather than try to go through the argument here.

The discussion has already been had between HMRC and stakeholders, and therefore it has to some extent already been addressed through the consultation process, but I am happy to revisit the issue.

Question put and agreed to.

Clause 77 accordingly ordered to stand part of the Bill.

Clause 78

Call-off stock arrangements

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

[The Chair]

With this it will be convenient to discuss new clause 13—Call-off stock arrangements: sectoral review of impact—

‘(1) The Chancellor of the Exchequer must make an assessment of the impact of section 78 on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of the passing of this Act.

(2) The sectors to be assessed under (1) are—

(a) leisure,

(b) retail,

(c) hospitality,

(d) tourism,

(e) financial services,

(f) business services,

(g) health/life/medical services,

(h) haulage/logistics,

(i) aviation,

(j) transport,

(k) professional sport,

(l) oil and gas,

(m) universities, and

(n) fairs.”

This new clause would require the Government to report on the effect of Clause 78 on a number of business sectors.—(Alison Thewliss.)

[Jesse Norman]

Clause 78 simplifies the rules for accounting for VAT on goods moving from the UK to member states of the EU or vice versa in advance of goods being “called off”, as it is known, for delivery. This is known as “call-off stock”. These changes represent a simplification for businesses that use call-off stock arrangements and provide common rules across the EU. They apply to goods removed from or to the UK from 1 January 2020, and will apply for the remainder of the UK’s transition period with the EU. We expect the changes to have a negligible effect on businesses that adopt them.

The clause transcribes EU call-off stock law—new article 17A to the principal VAT directive—into UK legislation. It sets out the conditions for the rules to apply and provides sellers with statutory obligations to adhere to strict record keeping and reporting requirements. These changes are an administrative easement; the primary benefit is to UK businesses that will no longer have to register and account for VAT in the customer’s country, and vice versa. However, the quid pro quo is additional reporting requirements as well as EU regulations, which have direct effect, that set out new record keeping requirements, as I have indicated.

There is no obligation on a business to restructure transactions so as to meet the conditions and fall within the new rules. We expect that they would use the simplification only because they might derive a benefit for their business. Businesses that do not meet the conditions and so do not fall within the new rules should continue with the current VAT accounting mechanisms for EU cross-border transactions.

The Government published the draft legislation and guidance on the operation of the rules in December. The legislation was laid before the House in the Finance Bill at Budget earlier this year. A resolution under the Provisional Collection of Taxes Act 1968 means that the legislation currently has effect.

Call-off stock are goods that are bulk-shipped by a supplier across a border to a warehouse from where they will be supplied, or called off, as the customer requires. Different EU member states previously had different VAT accounting rules for call-off stock. Some required the seller of the goods to register and account for VAT in the country where the goods were to be called off. The UK avoided the need for the overseas supplier to register for VAT here. We allowed the customer to account for the VAT when the goods first arrived and in advance of being called off. The measure implements the changes adopted by ECOFIN on 4 December 2018, which were designed to simplify the rules and make them more consistent within the single market.

In normal circumstances the new rules, like the existing UK rules, do not require the seller to register and account for VAT in the country where the goods are called off. The new rules delay accounting for VAT until the goods are called off. To avoid VAT fraud, suppliers are required to report the initial movement of the goods to their tax authority, and both the supplier and the customer are required to keep additional records of the stock. When the goods are called off, normal VAT accounting and reporting procedures will apply and the customer will account for the acquisition of VAT. The Government had some concerns over the potential burden on business of keeping the new records required under the new rules and pushed for the right of business to continue using the existing rules if they so wished. A business is not required to arrange its affairs such that the new rules must be used. A supplier and their customer can agree to continue to use the existing UK rules for goods called off in the UK.

HMRC has produced guidance reflecting the introduction of the changes, and the measure is expected to be revenue neutral. It constitutes a simplification for UK businesses. The measure updates UK law to take account of the approach in the EU. It simplifies the VAT rules for call-off stock transactions and avoids the requirement for the supplier to register in the destination state.

New clause 13 would require the Government to conduct a review on the impact of the new call-off stock rules on a variety of different sectors within six months of the Bill receiving Royal Assent. The new legislation provides a simplification for businesses that choose to meet the conditions for it to apply. With that in mind, we expect it would have a negligible impact on businesses. I can inform the Committee that recent figures show that fewer than 200 UK businesses have reported that they are using the new rules, and we are not aware of any being in the sectors mentioned in the amendment. I therefore ask the Committee to reject the amendment and commend the clause to the Committee.

--- Later in debate ---

[Wes Streeting (Ilford North) (Lab)]

Let me begin by picking up on a point made by the Member for Glasgow Central about the provenance of clause 78. As we heard from the Financial Secretary, the clause transposes into UK law an EU directive that provides for simplified VAT treatment of call-off stock.

To begin, it is tempting to make the same point, and I know that repetition is not a novelty. Let me put it this way: it is very welcome to hear from the Treasury that divergence from EU rules and regulations is not considered by the Government to be an end in and of itself. I was curious last night, as I walked past the Annunciator in the Tea Room, to see the right hon. Member for Wokingham (John Redwood) making a lengthy speech on a fairly straightforward statutory instrument on electricity. I reviewed his speech this morning in Hansard, because it piqued my curiosity, and I received in passing from my hon. Friend the Member for Hove (Peter Kyle) a precis of the thrust of the right hon. Gentleman’s argument. It seems that a number of Conservative Members consider divergence from EU rules and regulations to be an aim in and of itself. Regardless of the merits of the case and the merits of continued co-operation, it is clear that, for a section of the House, there is a virtue in divergence.

I am glad that the Treasury does not share that view, although of course the Treasury looks at the numbers. We may not have had an impassioned exposition from the Financial Secretary of the arguments in favour of this particular alignment with EU rules and regulations, but what we did hear was a very clear argument from Her Majesty’s Treasury that, even having left the European Union, there are still benefits to be found for UK businesses from continued alignment, co-operation, simplification, axing bureaucracy and making things simpler.

I hope that that common-sense approach to our future relationship with the European Union prevails. As much as those of us who campaigned in a different direction in the referendum accept the result and the outcome, and accept that this is a settled political question, it is in all our interests and in our national interest that we maintain a future relationship with the European Union that is based on co-operation, where that is in the interest of our own country.

I turn to the specifics of clause 78. The Financial Secretary’s speech seemed to me to address some of the concerns expressed by businesses and chartered tax advisers, but I will raise them for the sake of clarity. Writing in Taxation, Angela Lang-Horgan, a German and British chartered tax adviser and lawyer, said:

“If businesses have continued to operate under the old simplification rule after 31 December 2019, VAT returns must be corrected once the new legislation is in place. This will add additional confusion to the situation. So far, HMRC has not indicated whether it would apply a soft-landing period. There is no transition period either because under EU law the UK was obliged to introduce the changes from the beginning of this year.”

Could I get some clarity from the Financial Secretary on those points? Will HMRC provide a soft landing period for the implementation of the new rules, or is a soft landing period not even necessary? If I understood him correctly—I may have misunderstood, in which case he will clarify—it seems that there is a degree of flexibility and choice on the part of businesses over whether to adopt this approach. Some clarity in direct response to the concern expressed by Angela Lang-Horgan would be welcome.

What efforts have the UK Government made to communicate with affected businesses in anticipation of the rules, which are effectively already in place? It is worth saying, although it is a mild digression from clause 78, that concern has been expressed—particularly by colleagues in the shadow Business team—that the Government are not communicating with businesses in a timely way with respect to changes in Government policy and their impact on businesses. I think that for some time there has been a cultural problem in government of not giving businesses long enough to anticipate and adjust to new rules; I wonder whether in this case that communication has been a bit more proactive.

The explanatory notes state that

“businesses could structure transactions to remain outside the scope of the new rules if businesses found them onerous.”

What proportion of businesses are expected to exercise that discretionary power?

[Jesse Norman]

I am grateful to hon. Members for their comments. The hon. Member for Glasgow Central regards it as an irony that the Government are bringing forward this rule. I would not describe it as an irony; it is a simplification for those companies that wish to use it, and it is optional. Some companies will prefer the current arrangements as more settled and simpler, while others may not—I do not think that there is anything more to it than that. So far, 200 companies have already taken it up; of course, we cannot say in advance how many may have chosen to do so by the end of the transition period, but it is a relatively small number of companies, as I have indicated.

[Alison Thewliss]

Can the Financial Secretary tell us how many companies are using the previous rules?

[Jesse Norman]

I certainly do not know the number of companies operating under the previous rules, but I would be happy to drop the hon. Lady a letter with any number that HMRC may have that can be publicly disclosed. The point is that there is a relatively small number of companies; they have seen this coming and it is an optional advantage for them. In reply to the point raised by the hon. Member for Ilford North, it applies only during the transition period, which will end at the end of this year.

We will be leaving the transition period on 1 January, which is not only stated by Government but is commonly understood. That goes to the question of divergence, which was raised by the hon. Member for Ilford North. We are bound by EU law while we are in the transition period. The Government certainly do not have any interest in divergence for the sake of divergence; the Government have an interest in the ability to set our own law, including our own tax law, as we as a sovereign nation see fit. That might or might not involve divergence, but this measure will not apply after the transition period.

The hon. Member for Ilford North also raises an important question about whether there is enough time for business to accommodate rules. I cannot comment on behalf of other Departments, but it certainly is a concern that has been raised in relation to the creation of tax law. Wherever possible, the Government try to abide by rules that we introduced after 2010 in order to have a more effective tax process. As he knows, it involves several stages and periods of consultation. We are coming up to an L day for legislation to be considered for the 2020 Budget, for the autumn Budget—if there is one—and for a Finance Bill next year. There is an orderly process, but I take his point about the importance of ensuring that it is as orderly and well structured as possible.

Question put and agreed to.

Clause 78 accordingly ordered to stand part of the Bill.

Clause 79

Post-duty point dilution of wine or made-wine

[Stephen Flynn (Aberdeen South) (SNP)]

I beg to move amendment 10, in clause 79, page 67, line 25, at end insert—

‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.”

This amendment would require the Government to review the impact of the proposed changes to alcohol liquor duties on public health.

It is a pleasure to serve under your chairmanship, Mr Rosindell. The amendment is quite simple and would require the Government to review the impact of alcohol duties on public health. It should come as no surprise, given that the SNP has long called for duty to reflect content, but we do not have the powers in Scotland to do that. Instead, we have to rely once again on the Westminster system in that regard. That is a real pity, because where we have powers in Scotland in relation to public health and alcohol, we have made great strides. For instance, we have seen the banning of irresponsible promotions and the lowering of the drink-drive limit. We ended multi-buy discounts, something that was certainly contentious at the time. As a young student, I was not overjoyed about the fact that I could not buy three crates of Tennent’s for £20. None the less, it was an important measure that no doubt changed the behaviour of many people, including myself at that time.

Of course, we have seen the overwhelming success of minimum unit pricing in Scotland. That was, again, an extremely contentious measure at the time, whereby we placed a 50p-per-unit charge on units of alcohol. The cumulative effect of all those measures has seen something that we all wanted to see in Scotland, where we have a difficult relationship with alcohol—one that was challenging to confirm but that we needed to confirm. We saw off-duty sales fall by 3.6% in the first year since minimum unit pricing was introduced. In England and Wales during the same period, off-duty sales increased by 3.2%. That is a very telling figure.

When I first came to Parliament, one of the very first debates that I took part in was in Westminster Hall. I cannot remember which hon. Member secured the debate, but it was about alcohol duty. I think the purpose of the debate was to galvanise hon. Members to stop the Government increasing alcohol duty and, hopefully, to reduce it. There was extreme passion in that Chamber and there were a lot of hon. Members present—more than are often seen debating any given matter in the main Chamber. There was a lot of passion about pints, but we cannot be passionate about pints without also having passion for public health and the consequences of the decisions being made. The stark reality is that the two are inextricably linked, and the UK Government need to be mindful of that fact. Supporting the amendment would be a good, positive first step on that journey to a more sensible approach that takes into account public health.

Finance Bill (Eighth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 8th sitting: House of Commons
Tuesday 16th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

That schedule 10 be the Tenth schedule to the Bill.

[The Financial Secretary to the Treasury (Jesse Norman)]

It is lovely to see you in the Chair, Ms McDonagh. I apologise to hon. Members who have had the pain of seeing me do the urgent question in between our two Public Bill Committee sittings; I can only admire their strength and resilience.

Clause 86 introduces schedule 10, which enables changes to be made to the Hydrocarbon Oil Duties Act 1979 to require white diesel to be used for filling private pleasure craft such as yachts and canal barges, to meet our international obligations under the EU withdrawal agreement. It is an enabling power, and it follows consultation with private pleasure craft users and fuel suppliers in 2019.

There is no current timetable for commencement of these changes. Details of implementation via future secondary legislation will be set out in due course, after the consultation that the Government are planning this summer on wider changes to red diesel that were announced at Budget 2020. Once commenced, the changes will affect only the type of fuel that private pleasure craft can use and not the amount of fuel duty users pay. They already pay the standard white diesel rate for propelling their craft, and they are entitled to use rebated red diesel for other, non-propulsion purposes, such as heating and cooking. The changes will not affect that. Where craft have a shared tank for propulsion and non-propulsion purposes, such as heating, the Government will explore options that prevent users from paying more duty for their non-propulsion use than they would otherwise have to pay.

In 2018, the Court of Justice of the European Union ruled that the use of red diesel to propel private pleasure craft breached the fuel marker directive, which is designed to ensure, given the variation in duty treatment in member states, that any misuse of diesel crossing EU internal borders can be detected. Over the summer of 2019, the Government consulted on how they intended to implement the Court judgment by requiring private pleasure craft to use white diesel for propulsion. More than 1,600 replies were received. At the present time, private pleasure craft use the lower-duty red diesel for both propulsion and non-propulsion, but pay a top-up to the white diesel rate on the proportion of fuel that they use to propel their craft.

Last year’s consultation saw evidence on the impact that requiring private pleasure craft to use white diesel propulsion would have on users of diesel-propelled craft operating in UK inland waterways and along the coast, and on the companies that supply diesel to them. The responses are informing implementation issues for suppliers, known as registered dealers in controlled oils, or RDCOs, and users of diesel fuel.

The changes made by schedule 10, once commenced by secondary legislation, will amend sections 12 and 14E of the Hydrocarbon Oil Duties Act 1979, to disallow the rebates that apply to diesel, biodiesel and bioblend not used for road vehicles on the fuel used for propelling private pleasure craft. In practice, such craft have not been benefiting from the rebated rate on fuel use for propulsion, as they have been paying the additional duty to ensure that they pay the full rate as required while we are in the transition period.

Schedule 10 creates new penalties for using marked fuel for propelling a private pleasure craft, similar to those that exist when marked fuel is used in road vehicles, and also gives Her Majesty’s Revenue and Customs powers to take samples. It also provides for secondary legislation to mitigate the impact of the measure on houseboats and permanently moored residential craft; as they do not use fuel to propel their houseboat, they should be entitled to continue to use red diesel.

Finally, the schedule amends schedule 7A to the Value Added Tax Act 1994, to provide for the removal, if necessary, of the reference to marked fuel used in private pleasure craft in respect of which a declaration has been received. It provides that the changes will be brought into force on the days and in the areas appointed in secondary legislation at a future date.

This clause and schedule will ensure that we respect our international commitments, by enabling us to make changes to legislation covering fuel use by a private pleasure craft to the extent required to meet those commitments. I therefore commend the clause and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

I should have said this morning that, although those on the Government Front Bench are doing a joint effort today to give each other a break, this is my penance for the shadow Chief Secretary, my hon. Friend the Member for Houghton and Sunderland South, handling the digital service tax single-handedly last week, so I am afraid that Members will be getting even more tired of my voice than the Financial Secretary’s voice.

I want to raise a few points on clause 86. First, as the Minister said, this clause and schedule are intended to enact the judgment of the European Court of Justice and to make sure we abide by our obligations under the withdrawal agreement. The challenge for various industry bodies is that this proposal effectively means that we are going to have to go through a number of changes, unless the Government intend this to be a permanent change in approach.

It is a significant disruption for the industry. British Marine, the main leisure boating industry body, said the change would present

“severe problems for boat users and the industry”,

and that was the position of all representative bodies. Given the issues raised by industry bodies and the strength of objections, why has the Minister sought to implement the judgment of the Court of Justice of the European Union when we will have left the European Union and, at some point in the not too distant future, these sorts of judgments will not have to be abided by?

Suppliers and industry bodies have deemed the switch as not viable due to its being uneconomical and impractical to change waterside fuelling locations from red to white diesel. What will the Minister do to support suppliers in this transition and to ensure that commercial users, such as fishing boats, are not negatively impacted by the switch?

[Jesse Norman]

I thank the hon. Gentleman for his questions. We fully appreciate the degree of concern that has been shown by the industry. As he will be aware, we are under an obligation to abide by EU judgments while we remain under the withdrawal agreement. The proposal underlines how seriously we take legal obligations that have been incurred in the EU withdrawal agreement, and that includes implementing the result of the European Court of Justice judgment.

It should be made clear that, during the transition period, if the Commission were not convinced that necessary steps had been taken to implement the judgement, it could, in principle, refer the case back to the European Court and ask it to levy fines for non-compliance. Those fines can be pretty substantial—up to €792,000 a day plus a potential one-off fine of at least €10 million—so we are very focused on communicating the seriousness of our intent in passing this enabling legislation. We do not believe that paying fines to the EU, especially as we have now left the EU, would be an effective or good use of taxpayers’ money, not least when we are making broader changes to reduce the entitlement to use red diesel more widely.

It is worth pointing out one other thing: we have not set an implementation date. The reason is that we recognise that it is important for Government to continue to work with users of private pleasure craft and with fuel suppliers to understand how they can implement the changes, precisely to make sure that those changes are as little onerous and as easy to enact as they can be. It is only once we have seen that consultation, gone through that process, reflected further on it and had a chance to consider how the legislation could be framed that we will be able to return to this issue.

Question put and agreed to.

Clause 86 accordingly ordered to stand part of the Bill.

Schedule 10 agreed to.

Clause 87

Rates of air passenger duty from 1 April 2021

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

[The Exchequer Secretary to the Treasury (Kemi Badenoch)]

Clause 87 makes changes to ensure that the long-haul rates of air passenger duty for the tax year 2021-22 increase in line with the retail price index. The change will make sure that the aviation sector continues to play its part in contributing towards funding our vital public services.

Aviation plays a crucial role in keeping Britain open for business, and the UK Government are keen to support its long-term success. Indeed, the UK has one of the highest direct connectivity scores in Europe, according to the latest Airports Council International Europe report. The Government appreciate the difficulties that the airline industry currently faces as a result of coronavirus. That is why the Chancellor provided a comprehensive package for all businesses affected by the virus on 20 March. However, as air passenger duty is paid on a per passenger basis, the recent decline in passenger demand will have resulted in a reduction in air passenger duty liabilities for airlines. As the industry returns to health, it is right that the revenue raised from air passenger duty should continue to remain in line.

The clause increases the long-haul reduced rate for economy class nominally by only £2 and the standard rate for all classes above economy by £4—a real-terms freeze. The rounding of air passenger duty raised to the nearest £1 means that short-haul rates will remain frozen in nominal terms for the eighth year in a row, which benefits about 80% of all airline passengers. More broadly, the Government will consult on aviation tax reform. As part of the consultation, we will consider the case for changing the air passenger duty treatment of domestic flights, such as reintroducing the return leg exemption, and for increasing the number of international distance bands.

The changes made by the clause will increase the long-haul APD rates for the tax year 2021-22 by the RPI. Air passenger duty is a fair and efficient tax, where the amount paid corresponds to the distance and class of travel of the passenger and is due only when airlines are flying passengers. The changes ensure that the aviation sector will continue to play its part in contributing towards funding our vital public services. I therefore commend the clause to the Committee.

--- Later in debate ---

[Bridget Phillipson (Houghton and Sunderland South) (Lab)]

The Opposition have considerable sympathy with the hon. Lady’s arguments and the amendments tabled by the SNP. We have many concerns about clause 94, which seems buried, given that it is of such considerable importance for the years ahead.

The change to the language in section 15 of the Taxation (Cross-border Trade) Act 2018 has worrying implications for the Government’s adherence to the World Trade Organisation’s dispute settlement system. Replacing the requirement for authorisation under international law with the more nebulous consideration of appropriateness is extremely concerning, and implies that the Government may seek to sidestep international law regarding trade disputes. The matters set out in section 28 of the 2018 Act already give the Government considerable flexibility over what they consider to be appropriate action in the light of international law. It is effectively up to the Secretary of State to decide which international agreements are relevant to the exercise of the function. Loosening up the language even further in this clause is thus highly questionable.

The proposed changes seemingly downgrade the Secretary of State’s responsibilities when it comes to their international obligations. Having regard is nowhere near as onerous as having authorisation. That would allow the Secretary of State to operate at a much lower standard of requirement, and move away from recognised EU standards. We therefore seek to understand the reasoning behind the change. What is wrong with the current provisions regarding the variation of import duties in trade disputes?

There are further questions to which we seek answers from the Government. What will they use the clause for? It does not detail what kind of dispute is in question. How might the Trade Remedies Authority be involved in the decision-making process? Could this be an upshot of the digital services tax? The US has already found similar measures by France to be trade-restrictive, leaving the office of the United States trade representative to authorise retaliatory tariffs, as we discussed last week in Committee with reference to the digital services tax. While both parties are in the process of reaching a deal over the matter, it is possible that the Government wish to introduce this clause in preparation for a similar confrontation with the US. I hope the Minister can assure us that that is not the case, but why do the Government wish to reduce their responsibilities in adhering to international law?

The amendments tabled by the hon. Member for Glasgow Central and her colleagues go some way towards responding to that. The production of a report by the Chancellor no later than a month before any exercise of the power regarding the economic impact of such an action might enable Parliament to better scrutinise the actions taken through the clause. As it stands, other than through the scrutiny of primary legislation, Parliament has little say over international trade. I welcome the amendment to seek approval of any regulations deriving from the clause by resolution of the House of Commons, in the spirit of parliamentary scrutiny. However, the Government hold a considerable majority, and therefore I question how far the amendment would go in practice towards ensuring that the Government act in accordance with international law.

I welcome the amendment regarding the requirement for the Government to detail the conditions under which they would consider it appropriate to vary the rates of import duty under the clause. However, I believe that the implications of the wider clause are of significance and that the Government ought to provide these details during debate, rather than by September, although we are sympathetic to the intention behind the amendment. I stress that I would like the Minister, when he responds to the hon. Lady’s concerns, to explain the reasoning behind this change, what kinds of disputes the clause would cover, and whether the Trade Remedies Authority will be involved.

If the changes in the clause are in anticipation of a dispute with the US over the digital services tax, does this not involve giving the Government permission to ignore international trade rules when disputes arise, undermining the authority of the WTO in the process? I hope that the Minister will provide assurances on the issue of appropriateness and respond to the concerns that the hon. Lady and I have, because this is a significant change. We have reservations about the measure that the Government are putting forward, and we would like to understand much more about their intentions.

[Jesse Norman]

I thank hon. Members for their comments, and pay tribute to my colleague the Exchequer Secretary for rattling through the clauses we debated earlier with such effectiveness. The hon. Member for Glasgow Central has raised important questions, which I want to address properly, so I will give this issue quite a considerable amount of discussion because it is an important aspect of the Bill.

Clause 94 makes a change to the criteria in section 15 of the Taxation (Cross-border Trade) Act 2018 to ensure that the UK can vary the amount of import duty in the context of an international trade dispute. Provisions in various international trade agreements allow for the UK to vary the amount of import duty applied to goods in the context of an international trade dispute. There is existing provision in section 15 of the 2018 Act that gives the Secretary of State the power to

“make regulations varying the amount of import duty”

where

“a dispute or other issue has arisen between Her Majesty’s government…and the government of a country or territory”.

Currently, section 15 of the 2018 Act is worded in a way that could be interpreted to mean that a binding ruling of the World Trade Organisation is needed before the UK can impose a duty, which would be restrictive. In certain circumstances, countries are within their WTO rights to impose additional tariffs quickly in relation to the actions of other WTO members and, where necessary, outside of WTO dispute proceedings.

In addition, since section 15 of the 2018 Act was enacted, there have been developments in the wider sphere of trade policy, including increasing trade protectionism and problems with the WTO dispute settlement system. The WTO appellate body has stopped functioning, and it has now become possible for final and binding resolution of a WTO dispute to be blocked by a party to the dispute by appealing a panel report. That means it may not be possible to apply retaliatory duties, even where a panel report has found in the complaining body’s favour and the respondent has failed to bring itself into compliance.

Against this background, it is essential to ensure that the UK has the appropriate tools to respond to any unilateral measure or action taken by a WTO member that is not compatible with its obligations to the UK and that harms UK interests. Clause 94 therefore amends the original provision to ensure that, after having regard to relevant international arrangements, the Government may deal with such an issue by varying the amount of import duty. The EU is seeking similar powers, it should be noted, through amendments to its enforcement regulation, because it too recognises the importance of being able to respond quickly in the event of illegal measures being taken against it. What we are talking about is therefore in parallel to a process seeking similar powers within the EU.

At present, section 15 of the 2018 Act permits variation of import duty only where the UK is authorised under international law to deal with the issue. Clause 94 will amend section 15 to allow the Government to vary import duty where they consider it appropriate, having regard to relevant matters, including the UK’s international obligations, as set out in section 28 of the 2018 Act. That amendment will allow the UK to respond more effectively to developments in the international trading system, in line with international laws and our rights as an independent WTO member.

To come to the question asked by the hon. Member for Glasgow Central, there are a number of situations in which it would be appropriate to vary rates of import duty. The most likely situation is that in which the UK has successfully challenged another WTO member’s measures in the WTO dispute settlement system, and the other member has failed to bring itself into compliance. The UK could then impose retaliatory measures, including higher import duty against the other member. That is not contrary to and does not undermine the international rule of law; it insists on the international rule of law, in the face of measures that could disable it.

Import duty variations might also be imposed following a dispute brought under a free trade agreement or in the context of a WTO member applying a safeguard measure but failing to agree an adequate level of trade compensation for the adverse effects caused by the measure. It is also possible that the UK could lose a dispute under a free trade agreement and could agree compensation with another country. The compensation could take the form of lower import duty on certain goods.

In each of those circumstances, the Government are still required by the 2018 Act to have regard to our international arrangements that are relevant to the exercise of this power. It need hardly be said that the UK strongly supports the rules-based international trading system and appropriate enforcement of WTO agreements. It is because appropriate enforcement would be otherwise lacking that this clause is being brought into effect.

Amendment 14 would require the Government to state the conditions in which they would consider it appropriate to vary rates of import duty. As you will know, Ms McDonagh, international trade disputes are broad and varied, depending on the nature of the international agreement under which they are conducted and on the subject matter of the dispute. It would limit the Government’s ability to respond effectively in a particular dispute if they were required to list in advance conditions for varying import duty in a dispute. I have already set out several situations in which it would be appropriate to vary rates of import duty. Examples have also been provided in the explanatory notes to both the Taxation (Cross-border Trade) Act 2018 and the Finance Bill.

Amendment 15 would require the Government to seek the approval of the House of Commons before making regulations varying rates of import duty in an international trade dispute. It is important to say that clause 94 is not an unchecked power. Any specific tariff measure introduced under section 15 of the 2018 Act would require secondary legislation, as is prescribed in that Act. The requirements set out in amendment 15 are therefore not necessary. Secondary legislation will involve the public passage of a piece of legislation. The Government need flexibility to respond effectively to state-to-state disputes, but with the understanding that they must have regard to the international arrangements to which the UK is party.

Amendment 16 would require the Chancellor of the Exchequer to lay before the House of Commons a report containing an assessment of the economic and fiscal effects of the exercise of the powers in clause 94, including a comparison of those fiscal and economic impacts with the effect of the UK being within the EU customs union, and an assessment of any differences in the exercise or effects of those powers in respect of England, Wales, Scotland and Northern Ireland.

Information on the expected impacts of import duty variations will be provided in the documentation accompanying any and each statutory instrument. However, it would not be appropriate to publish extensive detail, because doing so could undermine the effectiveness of the UK’s response. It would also not be appropriate to compare the economic and fiscal impact of the use of the powers in clause 94 with EU customs union membership. First, the EU may not itself have a dispute with the WTO member against which the UK has brought an action. Secondly, even if the EU were applying retaliatory measures against that WTO member, the EU’s retaliatory tariffs would be based on the impact on the EU27 and would not take into account impacts on UK industries and sectors. The amendment would therefore invite the Governments and others to compare apples with oranges.

--- Later in debate ---

[Anthony Browne]

As somebody who used to run the British Bankers Association, which turned into UK Finance, I was very involved in some of those earlier lobbying efforts. I must say that in this case, I simply do not believe it. I do not think this measure would have any impact on business lending; it is quite clear that the tax has already been paid by employers or customers, and it would have a very limited impact—virtually no impact—on the actual risk of a loan or the risk of default. I fully support the Government on this.

[Jesse Norman]

I am grateful to colleagues for their comments. I will talk about the clauses in a moment, but I will first enjoy this moment in Committee: a senior Opposition Member of Parliament says that he is resistant to financial sector lobbying, which I am thrilled about; and on the other side, someone who headed up the lobbying organisation says that, from an inside standpoint, we are talking about irrelevant minutiae. Let us enjoy for a second that rare moment of harmony and joy in Committee.

--- Later in debate ---

[The Chair]

With this it will be convenient to discuss, That schedule 12 be the Twelfth schedule to the Bill.

[Jesse Norman]

Clause 97 and schedule 12 introduce a new power to allow HMRC to tackle the behaviour of tax avoiders and evaders who seek to reduce their tax bill unfairly through the misuse of company insolvency. This measure tackles the small minority of people who use insolvency intentionally to sidestep tax liabilities. It does so by allowing HMRC to issue notices that make directors and other persons connected to the company jointly and severally liable for the company’s avoidance, evasion or phoenixism debts, as they are described, if insolvency is threatened. It is not linked to clauses 95 and 96, which make HMRC a secondary preferential creditor for certain tax debts.

The Government announced our intention to consult on tax abuse and insolvency at Budget 2017. The consultation ran from April to June in 2018, and the Government published a response document in November 2018. The Government also published draft finance Bill legislation for technical consultation in July 2019.

As I made clear when I discussed earlier clauses, it is the Government’s aim to support companies and help them to avoid insolvency, particularly at this very difficult and challenging time, and the measures recently announced to restructure the UK’s insolvency framework support this aim. This legislation will not impede those restructuring plans, and the measure focuses firmly on those who misuse insolvency in connection with tax avoidance or evasion, or who run up repeated liabilities that they then step away from.

In ordinary times, insolvency is a highly unfortunate but necessary part of commercial life. However, a small minority of people misuse insolvency for their own ends. They hide behind a company to engage in tax avoidance or evasion, or repeatedly build up tax debts, and then strip out the assets, liquidate the company and leave nothing to meet outstanding tax liabilities. Not only does this deprive the Exchequer of funds for important public services, but it undermines the insolvency process and adversely affects creditors and other businesses, and it casts the whole reputation of insolvency into disrepute. It is only right that we should act to discourage such misuse, and that is what this measure is designed to do.

Clause 97 introduces schedule 12, which contains details of the new regime and sets out conditions that must be met before the legislation will apply. First, paragraph 2 sets out the conditions that must apply before HMRC can issue a notice to an individual connected to a company that has engaged in tax avoidance or evasion. The conditions are: that the company has begun an insolvency procedure, or there is a serious risk that it will; and that the person was responsible for, facilitated or knowingly benefited from the avoidance or evasion.

Paragraph 3 sets out the conditions that must apply before HMRC can issue a notice to an individual who is connected to companies that repeatedly go insolvent with significant outstanding debts. Such companies are often referred to as phoenix companies, and it is widely agreed across the House that they are a blight on commercial life. The conditions are: that the person must have had a connection in the previous five years to at least two companies that began insolvency; that the person has a connection to a new company that carries out the same trade as the old ones; and that the amounts due to HMRC from the old companies total at least £10,000 and at least 50% of the amount due to unsecured creditors overall. That is an important safeguard to ensure that the measure focuses on catching those who play fast and loose with their tax. Paragraph 4 allows the amounts to be varied by a statutory instrument.

--- Later in debate ---

[Alison Thewliss]

I want to comment briefly on the huge gap that exists within Companies House as part of this process. If we go after companies and directors that are involved in phoenixing, why can that not be stopped at source when those companies are registered at Companies House? Why is there no link to the Government’s Verify scheme for those who wish to register companies there? Companies House is obliged only to register the information, not to check whether any of the information is accurate, correct or related to any other kind of activity. It is not involved in anti-money laundering obligations, but it really should be. Will the Minister look carefully at the question of Companies House? That could be a key part of preventing phoenixing in the first place. For example, I have a friend who employed a builder to do work on his house for his disabled son. The builder went bust and phoenixed, as he has done on several occasions. My friend is out of pocket, and that company continues to trade. It is employing sub-contractors who lost out last time because there is nobody else to hire them in that small community. There needs to be a stop on those types of people and behaviours, and I urge the Minister to consider ensuring that Companies House is a big part of that.

[Jesse Norman]

I thank both hon. Members for their comments. I draw from them strong support for the clause, although it was caveated in the way they described. Let me address the issues that they raised.

The hon. Member for Ilford North asked, “Why not do this earlier?” There is a long-standing principle in company law that the corporate veil should not be pierced, and limited liability should exist in place. As he will recall, there was a moment not so long ago when HMRC had Crown preference and was always the first, or close to the first, creditor to get paid out. It then got moved to the back of the queue.

As we think about the current insolvency and abuse regime, there has been a process of further reflection on all the different aspects of it, and that inevitably includes the phenomenon that we have seen. My impression—I do not know whether it is true—is that phoenixism is a better recognised phenomenon and a more widely understood problem than it has been. This is part of a much wider effort that has been made—particularly since I have been Financial Secretary to the Treasury, but before that, too—to really push on the issue of avoidance and evasion, and that is what we are doing.

The hon. Gentleman also asked about process. It is a perfectly good, important question, and I have been through it myself with HMRC officials. I will not read out the conditions in each case, but there are central cases for the issuance of avoidance and evasion notices, avoidance and evasion facilitation notices, and repeated insolvency notices. Each has some quite specific criteria sitting underneath it. For avoidance and evasion facilitation notices, a company must have begun an insolvency procedure or given assurance that it will; it must have incurred a penalty for facilitating tax avoidance or evasion; there must be a serious risk that some or all of that liability will not be paid; and the person must have a relevant connection to the company at the time that the behaviour leading to the penalty occurs. There are important threshold tests that must be met, and there are appeals processes against notices that have been filed, which are designed to provide safeguards, for all the reasons that one might imagine.

I have a degree of sympathy for the point that the hon. Member for Glasgow Central makes about Companies House. In the promoter strategy, which we published at the time of the Budget, we looked to create a more integrated approach to trying to crack down on abusive avoidance and evasion, and the promotion of avoidance and evasion. It has been in part about pulling together different entities, one of which might be Companies House and another of which might be the Advertising Standards Authority, if the two had been outside the purview of a more traditional approach. I take the hon. Lady’s point, and I thank both hon. Members for their support for this important clause and schedule.

Question put and agreed to.

Clause 97 accordingly ordered to stand part of the Bill

Schedule 12 agreed to.

[The Chair]

Do I take it that that was the last group?

[The Chair]

With this it will be convenient to discuss the following:

New clause 12—General anti-abuse rule: review of effect on tax revenues—

‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 98 and Schedule 13 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) The review under sub-paragraph (1) must consider—

(a) the expected change in corporation and income tax paid attributable to the provisions in this Schedule; and

(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.

(3) The review under subparagraph (2)(b) must consider taxes payable by the owners and employees of Scottish Limited Partnerships.

This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Clause 98 and Schedule 13, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.

That schedule 13 be the Thirteenth schedule to the Bill.

[Jesse Norman]

One more clause unto the breach, dear friends; or close the wall up with our English dead, and possibly our Scottish dead as well—our British dead. We will rephrase the bard.

Clause 98 makes minor procedural and technical changes to the general anti-abuse rule referred to as the GAAR to strengthen its procedural efficiency and ensure that it operates as originally intended. The clause tackles a small minority of taxpayers who deliberately avoid, in this case, providing information and thereby frustrate HMRC’s ability to pursue inquiries into abusive tax arrangements under the GAAR.

The clause also introduces some minor amendments to remove ambiguity and to ensure that, where HMRC decides not to pursue a case using the GAAR, inquiries can continue using other arguments. This measure was announced at Budget 2018 and the Government published draft legislation for technical consultation in July 2019. The changes will help to protect over £200 million in tax revenue by ensuring that the GAAR works effectively.

As I have often said, the Government take a firm line against those who seek to avoid tax and try to circumvent the rules. The GAAR was introduced in July 2013 and it has become an important part of the Government’s strategy to clamp down on tax avoidance; to deter individuals from engaging in it in the first place; and to prevent promoters from marketing and selling such arrangements.

The GAAR focuses on tackling abusive tax avoidance. By abusive, I mean the sort of arrangements that push the boundaries of the law and are clearly not within the spirit of what Parliament intended. The GAAR legislation asks whether a specific tax arrangement is abusive and applies what is known as the “double-reasonableness” test. Tax arrangements are considered abusive if they cannot reasonably be regarded as a reasonable course of action. An independent advisory panel provides an opinion to HMRC on whether a tax arrangement constitutes a reasonable course of action.

The clause will strengthen procedural changes made to the GAAR previously in 2016 which tackle mass-marketed tax avoidance schemes. The changes in 2016 introduced provisional counter-action notices, which allowed HMRC a 12-month window to gather information and consider whether to continue a GAAR challenge or pursue a different approach.

Some taxpayers and advisers, I am sorry to say, have deliberately refused to co-operate with HMRC during that window, deliberately withholding information to prevent HMRC from making an informed decision. In effect, those people are seeking to run down the clock and it is right the Government take action to prevent this. At the moment, HMRC has no recourse against such people. Once that window closes, no further GAAR action is possible and HMRC is unable to pursue any alternative non-GAAR approaches.

The clause replaces the provisional counter-action notices introduced in 2016 with a simpler protective GAAR notice. This will enable HMRC to carry on its investigations beyond 12 months and it mirrors the way normal tax inquiry notices work. The amendments will also confirm that where HMRC decides not to pursue the GAAR, cases can still be pursued using a technical non-GAAR argument. That has always been the intention of the legislation.

The changes remove the incentive not to co-operate with requests for information and ensure that appropriate safeguards, such as appeal rights and the oversight exercised by the independent GAAR advisory panel remain in place. Given that the GAAR targets the abusive end of the avoidance spectrum, the changes proposed here will only affect a small minority—those who persistently go to extreme lengths to sidestep the rules. These changes are needed now to ensure that HMRC can take action against those who are constantly looking for new ways to avoid paying their fair share of tax.

New clause 12 in the name of the SNP requires the Chancellor of the Exchequer to review the impact of clause 98 and schedule 13 within six months of the Bill receiving Royal Assent. Specifically, it would require the Chancellor to review the effect on public finances and on reducing the tax gap, particularly on taxes payable by earners and employees of Scottish limited partnerships.

In response, I highlight to hon. Members that amendments to the GAAR are minor procedural changes designed to ensure the policy operates as originally intended. The effects of these changes to the regime will not be visible within six months’ time. As with all tax measures, however, we will continue to review and monitor the effect of this change, as is standard.

HMRC already publishes the “Measuring the tax gap” report annually which shows how the tax gap has changed year on year for different forms of behaviour and different taxpayer groups. HMRC also publishes an annual report and accounts that provide specific information on the impacts of the GAAR, including the number of GAAR opinion notices issued. For that reason, I ask the Committee to reject new clause 12.

To sum up, these amendments ensure that the GAAR remains an effective tool in HMRC’s armoury for tackling abuse of tax avoidance. I therefore commend the clause and the schedule to the Committee.

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[Alison Thewliss]

In new clause 12, we mention the issue of Scottish limited partnerships. I make no apology for doing so, as they are still a problem. We only need to look at the ongoing campaign journalism by Richard Smith and David Leask on this issue to know that Scottish limited partnerships are being used in nefarious ways to move money and goods around the world. They have been involved in war crimes and all kinds of things. The loopholes existing in Scottish limited partnerships and Companies House must be closed by the Government. They are harming not only individuals who suffer the effects of these crimes, but Scotland’s reputation. They are called Scottish limited partnerships, but Scotland really has no part in it; they are an historic arrangement, but they are governed here.

There are still people not doing the simplest things such as registering persons of significant control. The answer to my recent parliamentary question suggested that 948 companies have still not registered a person of significant control. That is dramatically down from where it was, but it tells me that people are using other means to hide their money, rather than going through Scottish limited partnerships, and that no Government fines have been levied on the 948 companies that have not registered a person of significant control. That is money that the Government could have in their pocket. They are deciding that they do not want to pursue that for their own reasons. It really does stick in my craw that this is a continual issue: I have to raise it on the Finance Bill and the Scottish National party has to raise it in this House.

We are also concerned about the tax gap. The tweaks being made here are not really going to change that significant gap. In June 2019, HMRC published revised estimates, which put the tax gap at £35 billion for 2017-18, representing 5.6% of total tax liabilities. The Minister, no doubt, will say that the tax gap has fallen—it has—but that does not disguise the fact that it still exists, and that tax is money that could be coming into the revenues. It could be supporting businesses and individuals across the country and we could be abolishing policies such as the two-child limit, because the money would be there in the Government’s bank account. The Government could use that money rather than not collecting it. I could go into great detail, which I have here, about all the anti-avoidance mechanisms that have happened. I am sure other hon. Members are as warm as I am and would like to get some fresh air, so I will skip that in the interest of the patience of all colleagues.

We do need workable general anti-avoidance rules. They must tackle tax avoidance in all its forms. They must not exempt existing established abuse from action being taken. They must include international tax abuse within their scope. They must give the right to the tax authority to take action against tax avoidance, defined in an objective fashion capable of being numerically assessed, without the consent of the unelected authority. They must increase the burden of proof on this issue on to the taxpayer.

In 2014, the coalition Government announced the introduction of a system of follower notices and accelerated payment notices. In cases where someone is in dispute over their assessment, HMRC may issue a follower notice if this arises from the use of an avoidance scheme that is the same or similar to arrangements that HMRC has successfully challenged in court. In July 2017, HMRC reported that it issued over 75,000 such notices worth in excess of £7 billion and managed to collect nearly £4 billion. That is still a significant gap of £3 billion. HMRC must be able to collect the taxes it is due in real time instead of waiting for those judicial decisions.

With Scottish limited partnerships, the extent of the abuse of the current system is laid bare in the Global Witness report “Getting the UK’s house in order”, which highlights the deficiencies at Companies House that have been going on for many years. This needs to be dealt with soon. Reviews have been carried out, things have been talked about, but there has not really been any action. It makes no sense to me that we have such a system but do not allow it to catch the people it should be catching.

I sat on the pre-legislative Joint Committee for the Registration of Overseas Entities Bill in the last Parliament. That Bill seems to have disappeared completely. It would help to tackle some of the money laundering that goes on with property registered in the UK. People across the country, particularly in many London boroughs, see blocks of flats with nobody living in them. People could live in those flats. They are being used for money laundering and moving money about. We need to bring that Bill back and ensure those people are held to account. We should close these loopholes in the system and ensure that the tax that is due is collected for the benefit of all of us.

[Jesse Norman]

I am grateful to colleagues for their contributions. I want to take up some of the points made by the hon. Member for Ilford North. The delicacy and agility in his ability to pivot from detailed scrutiny to a swingeing extension of tax powers, and new taxes galore, is interesting to watch, but the fertility of his invention is great, and I will read his suggestions with some care, in the record. I am grateful to him for that.

The ugly truth of the matter is that tax avoidance and, in particular, the promotion of it, is an amoebic activity that tends to flow into empty spaces and to be parasitic, if amoebas can be parasitic—I am not sure whether they can—on good activity. So, right next to where we see good or lawful and legal activity, we can see some unpleasant, nasty and abusive tax avoidance.

The hon. Gentleman is right to focus on how we see new forms emerging. It means that the battle against tax avoidance and evasion is never fully won. I hope that he will take some comfort from all the work we are doing on the promoter strategy. It is designed not merely for potential new powers, but for a different way of thinking about disrupting the economics of the supply chain. To pick up on a point that he raised about effectiveness, the GAAR can lead to a fine of 60% of the counteracted advantage. It can be pretty substantial, and it has genuine teeth.

I hope what I say in responding to the point made by the hon. Member for Glasgow Central on Scottish limited partnerships falls within the framework of the Bill. The issue is well understood, and there is public concern about it, which is shared across the House. She will be aware that BEIS introduced some new reporting requirements for Scottish limited partnerships in June 2017. Since then, new registrations have declined sharply. Of course, there is a sump of existing partnerships and, as she will be aware, BEIS is consulting on wider reforms to prevent the criminal misuse of those partnerships but retain their core and, in many ways, effective and important other purpose. It announced reforms in that area as of December 2018, and the Government have made clear that they will legislate when parliamentary time admits. So although the matter does not, in its preponderance, fall directly within the clause, she is right to raise it and the Government are fully sighted in that regard, and fully seized of it.

Question put and agreed to.

Clause 98 accordingly ordered to stand part of the Bill.

Schedule 13 agreed to.

Ordered, That further consideration be now adjourned. —(David Rutley.)

Finance Bill (Ninth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 9th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[The Chair]

With this it will be convenient to discuss schedule 14.

[The Financial Secretary to the Treasury (Jesse Norman)]

It is a delight to see you in the Chair, Ms McDonagh. Welcome to day six of our deliberations—or is it day five? It feels like many more. At the start of the Committee, I said that we were like pilgrims in “The Pilgrim’s Progress”, and that hopefully we would get through the slough of despond. I venture to say that we have made it over the hill of difficulty, but perhaps not quite reached Calvary or the place of deliverance.

Clause 99 and schedule 14 exempt payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme from income tax, capital gains tax and inheritance tax. The Government deeply regret what happened to many members of the Windrush generation. The Windrush compensation scheme was launched in April 2019 and is a key part of the Government’s righting those wrongs. It compensates individuals who have suffered loss by being unable to demonstrate their lawful status in the United Kingdom. The compensation covers a number of areas, including loss of income, denial of access to social security benefits and incorrect detention. Similarly, the troubles permanent disablement payment scheme makes payments in acknowledgment that, during the troubles, many individuals suffered permanent injury through no fault of their own. It also aims to address the adverse financial impact that troubles-related disablement can have on individuals and families.

Payments made under schemes such as these are often made entirely free of income tax without the need for legislation, but there are circumstances where income tax may apply. Payments could be taxable if they were made to reinstate taxable social security benefits or in respect of a terminated employment. All types of payments could be subject to inheritance tax or capital gains tax if they exceed the relevant thresholds. Clause 99 and schedule 14 will ensure that payments made under the Windrush compensation scheme and the troubles permanent disablement payment scheme are exempt from income tax, capital gains tax and inheritance tax.

The changes reaffirm the Government’s commitment to the Windrush generation and to those who suffered as a result of the troubles, and give certainty about compensation to claimants. The clause also introduces a new power to allow the Government to extend the definition of “qualifying payment” to other compensation schemes, allowing the Government to act more quickly to clarify the tax treatment of any necessary future compensation schemes, including those set up by foreign Governments. As we have seen, payments from such schemes can begin before it is possible to pass legislation in a Finance Act to exempt them from those taxes. Exempting such payments from tax in the past has not been controversial, and I hope it will not be so today and in the future.

The clause provides tax exemptions and gives clarity to those eligible for payments under the Windrush compensation scheme and the troubles permanent disablement payment scheme. I therefore commend the clause and the schedule to the Committee.

[Wes Streeting (Ilford North) (Lab)]

It is a pleasure to be here for what is likely to be our final day of line-by-line scrutiny of the Bill. It is important to remember that the reason why we are discussing clause 99 is in no small part, as the Minister alluded to, due to the Windrush compensation scheme, which is the culmination and inevitable consequence of the appalling circumstances of the aggressive and deeply destructive hostile environment pursued by the Government over the course of the past 10 years. As Wendy Williams said in her review, the Windrush scandal, which saw so many people’s lives completely disrupted, and in many cases ruined, was the result of “foreseeable and avoidable” systematic operational failings, so it is right that the Windrush compensation scheme was established. The House has considered those issues many times.

It is a source of deep regret, to put it mildly, that fewer than one in 20 people who have made claims under the Windrush compensation scheme have been paid so far. I want to take the opportunity, as we are discussing clause 99, to restate again our view that the Government must act much more quickly. People are owed that compensation, although the financial compensation will never fully compensate for the emotional and mental trauma that British citizens suffered as a result of the Windrush scandal.

It is appalling that we have added insult to injury by moving so slowly on compensation claims, even where they have been made. Of course, as the Minister outlined, the clause improves conditions for people accessing such schemes, whether the Windrush compensation scheme or the troubles permanent disablement payment scheme, so we have no objection to the clause.

[Alison Thewliss (Glasgow Central) (SNP)]

It is regrettable that so many people are still waiting for their money through the Windrush compensation scheme. I urge the Minister to do everything he can to make sure that the money gets out the door.

It is useful that the clause allows for future schemes so that there will, hopefully, be fewer delays and less confusion for people in future about the impact of those schemes. We want to make sure that, where wrongs have been done, people can get the money that they are entitled to in compensation as swiftly as possible.

[Jesse Norman]

I thank both hon. Members for their comments. To pick up on the last point, the hon. Lady is absolutely right about the value of building in capacity to respond more quickly in future. It is noticeable that the Chartered Institute of Taxation, which is well respected across the Committee, commented that,

“This is a sensible move from the government to help… It is also encouraging to see that the bill…will make it easier in the future for payments…to be made tax-free, without the need for fresh legislation.”

That very much remakes the point she made, and I thank her for that.

On the point about the numbers paid out, I completely understand the concern and I know that other Ministers do as well. There is a balance between due process and speed. Of course, the compensation claims have to be agreed on both sides—the offers have to be accepted—for them to be payable. It is important that the hon. Members have put their concerns on the record, and I fully share them.

Question put and agreed to.

Clause 99 accordingly ordered to stand part of the Bill.

Schedule 14 agreed to.

Clause 100

HMRC: exercise of officer functions

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

[Jesse Norman]

Clause 100 is a technical measure that makes changes to put it beyond doubt that tasks that are being done by an individual officer of Her Majesty’s Revenue and Customs may be carried out by HMRC using a computer or other means. It ensures that the intention of Parliament is appropriately reflected in the legislation and confirms that the rules work as they have been widely understood and applied over many years. No new charges or obligations for taxpayers will result. The changes merely clarify legislation.

If I may explain the context for the introduction of the clause, the Government announced by written ministerial statement on 31 October 2019 that it would legislate retrospectively and prospectively to confirm notices to file tax returns and penalty notices issued by HMRC through automated processes as valid. That long-standing practice has been challenged in the courts on the basis that the legislation states that some tasks are to be carried out by

“an officer of the Board.”

The relevant legislation in the Taxes Management Act 1970 is 50 years old and was designed to support a paper-based manual tax system.

The way in which HMRC administers the tax system has evolved over time, in line with taxpayers’ expectations for a modern and digital system. Decisions made by HMRC officers are often given effect by computer-driven processes, so that HMRC can assess and collect taxes in the most efficient and cost-effective way.

[Harriett Baldwin (West Worcestershire) (Con)]

As he expatiates on the value of digital technology to tax collection, will my right hon. Friend share with the Committee his thoughts on making tax digital and how the recent opportunity to make furlough payments has shown the value of a digital tax system?

--- Later in debate ---

[Jesse Norman]

My hon. Friend makes an acute comment. The response to covid has undoubtedly highlighted the need for greater investment in digitisation within the tax system, and specifically put a greater emphasis on the ability to reach taxpayers quickly to respond to a national emergency and to improve resilience.

As my hon. Friend will be aware, we are introducing making tax digital for VAT, but it is widely thought that there is a case for taking it further. We have it under close consideration. As her question highlights, taxpayers—and people more generally—expect nothing less than to have a tax system that is digital, effective and integrated, and not one where the lack of digitisation can be exploited for the purposes of legal suit.

To avoid any doubt, the clause clarifies the legal basis for the existing policy, which has been in place for many years, allowing for the use of automated processes. It puts beyond doubt that the law operates in the way Parliament intend it to and as it has been widely understood to work to date. It does not introduce new or additional obligations, and will help to ensure the tax system applies fairly to all, while preventing loopholes opening up in tax law that could be exploited by people who do not wish to pay their proper share of taxes.

The changes made by the clause will clarify that tasks being done by an individual officer of HMRC may be carried out by HMRC using a computer or other means. The legislation is treated as always having been in force. The effect of that is to protect over £100 billion in tax revenue, already collected. Failure to legislate would result in enormous disruption and uncertainty for taxpayers and HMRC alike. For these reasons, I commend the clause to the Committee.

[Wes Streeting]

The Government have brought forward clause 100 for obvious reasons. As we have heard from the Minister, it is patently absurd that we would be in position where HMRC was dragged through legal processes simply because section 8 notices were issued used automated processes, for example.

There is obviously a good case to be made for applying ever-changing technology to improve the efficiency of processes within HMRC’s systems, to try to improve the customer experience of HMRC customers, which, as we know as constituency MPs, can sometimes be very good and sometimes be absolutely abysmal. Where HMRC can automate processes to free up people time, the focus should be on redeploying those people to try to give people and the state overall a better service. There is nothing to quibble about there.

It is important to lay down a cautionary note about how automated processes and algorithms are used, particularly when it comes to decision making that can have substantial impact on citizens, organisations and businesses. Writing in Tax Journal, Catherine Robins and Steven Porter of Pinsent Masons were critical of the Government’s announcements, arguing that:

“Some of HMRC’s powers can have very serious consequences for taxpayers and the fact that a human being has to decide to exercise them is an important safeguard, which should not be eroded.”

I share their concern, up to a point. I think it is important that there are safeguards, checks and balances and, ultimately, opportunities for people to appeal to human judgment, to account for technical error and to appeal technical error. As the capacity and scope of technological change continues to widen, it is even more important that Ministers and civil servants think very carefully about the application of technology and whether it is indeed right and proper for a decision to be made by an automated process rather than a human being.

Those are much bigger, wider principled and ethical considerations. For the reasons that the Minister has outlined, clause 100 is a perfectly reasonable and sensible provision, and it is one that we are happy to support.

[Alison Thewliss]

I want to raise some of the concerns expressed to us by the Institute for Fiscal Studies’ Tax Law Review Committee, which sent an extensive note earlier in the week. It is looking for ministerial reassurance that the powers will not be used without proper consultation and discussion of safeguards to replace the discretionary decisions, especially about penalties, currently made by human officers. It is the discretionary point that I am most worried about. We must not get to a situation where computer says no and that is the end of the story, because sometimes it can be quite difficult for businesses to get the decision pulled back and unpicked, and reconsidered.

I will highlight the case of uploading real-time information, because businesses in my constituency had serious issues with the technology for uploading RTI prior to coronavirus and now find themselves unable to claim under the job retention scheme, for example. That has been an issue with technology, and it has been very difficult to resolve it. Meanwhile, those businesses are on the brink, on the point of going bust, with employees whom they are struggling to pay. That is because in an emergency it is difficult to unwind a technical, computer-based decision, made months ago.

I ask for reassurance about the automating of discretionary decisions. What safeguards will be put in place to ensure sure that no businesses find themselves in a situation where they cannot unpick a decision made by a computer, and to ensure that they will be able to speak to a human who has discretion and is able to exercise it effectively?

[Jesse Norman]

Again, I thank Opposition colleagues. Let me pick up a couple of the points raised. The hon. Member for Glasgow Central asks for safeguards, and of course she makes a very important wider point. In a rule of law society we want as little discretion as possible to be exercised—and, in particular, personal discretion—so it is important that within HMRC there is baked in a culture of accountability for decisions. From that point of view, nothing is changing. This measure is ratifying an existing set of arrangements by putting them on a legal basis. However, I can reassure her that the issue of safeguards and the balance of powers between HMRC and taxpayers is taken very seriously, and I have specifically commissioned work within HMRC to ensure that that balance is appropriately maintained, not just at customer level but more generally.

The hon. Lady and the hon. Member for Ilford North raised the question of decision making more generally. I think I have, in a way, spoken to that, but I recognise that there is a distinction between the automated exercise of a decision and the capacity to make a decision itself. Of course, HMRC does increasingly rely on computerised systems, and it is absolutely right for our purposes as a nation that it should do so. It is, for example, inconceivable that we could have responded to coronavirus with either the self-employed scheme or the furlough scheme without heavy reliance on computing. It is to HMRC’s enormous credit that it was able to commission and bring into effect a platform and an approach to those schemes in a matter of weeks, using that computing expertise. I also agree with the hon. Gentleman when he points out that there are benefits not merely in terms of customer service, but in freeing up people and, we hope, improving the quality of work by taking HMRC staff away from the more routine operations and more towards higher quality work that can give more professional satisfaction.

Question put and agreed to.

Clause 100 accordingly ordered to stand part of the Bill.

Clause 101

Returns relating to LLP not carrying on business etc with view to profit

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

[Jesse Norman]

Again, this is a technical measure. Clause 101 makes changes to put beyond doubt that where an LLP is found not to trade for profit, HMRC can continue to amend LLP members’ tax returns using income tax rules as it has always done, in the same way that it does for general partnerships. It ensures that, as with the previous clause, the intention of Parliament is appropriately reflected in the legislation, and it confirms that the rules work in the way they are widely understood to work, and as they have been applied since they were introduced in 2001. To ensure that this is plainly and unequivocally understood, the measure is introduced with prospective and retrospective effect back to that date—2001—with the result that the changes simply clarify and support the legislation and continue to meet taxpayers’ expectations. Again, they do not result in any new charges or obligations for taxpayers.

By way of context, limited liability partnerships are a legitimate means of structuring business activity. They are used successfully by the vast majority of partnerships: for example, by many large law and accountancy firms that operate for profit. Since the LLP rules were introduced in 2001, HMRC has always treated LLPs and their members’ tax returns under income tax rules on the same basis as any other partnership. That is widely understood and accepted by the vast majority of taxpayers, but it has been challenged in the courts on the basis that where an LLP is found not to trade for profit in line with its partnership tax return, the law does not support its treatment under income tax rules. The upper tax tribunal recently confirmed that HMRC’s long-held tax treatment of LLPs is correct. This decision overturned an earlier decision of the first-tier tribunal that had judged it incorrect. However, as the matter is still in litigation, putting the matter beyond doubt in legislation will provide certainty for LLP taxpayers.

Such legal challenges come from a small minority who are intent on avoiding paying their tax and looking for technical loopholes to do so. They seek to use limited liability partnerships to create losses and to share and then offset them unfairly against their members’ personal income in their own tax returns. That is not fair either to the Exchequer or to the vast majority of honest limited liability partnerships. The Government are legislating to prevent such practice.

The measure introduces three conditions that clarify the position and apply where an LLP delivers a partnership return; where the basis of that return is trading with a view to profit; and where it is found that the LLP was not trading with a view to profit. This clarifies the legal basis relating to LLPs that submit partnership returns where they are subsequently found not to be trading for profit, allowing HMRC to amend LLP members’ tax returns in such circumstances, as it has always done, to remove any unfair tax advantage. The clarification does not introduce any new or additional obligations or liabilities for taxpayers and it prevents loopholes from opening up in tax law that could be exploited in future by those seeking to avoid paying their fair share.

The changes made by the clause clarify the treatment of LLP partnership returns where the LLP is found to be operating without a view to profit. It permits HMRC to amend such returns using income tax rules, as it has always done. The legislation is introduced with retrospective effect, treating it as always having been in force. This is necessary in order to maintain the status quo, provide certainty for taxpayers, and protect about £2 billion of tax revenue that has already been collected. It also ensures that people seeking to avoid tax do not secure unfair and advantageous treatment due to the exploitation of perceived loopholes in legislation.

The policy is not new and nothing will change for taxpayers. No new or additional liabilities will be created and HMRC’s policy and processes will continue to operate in the way that they have for many years. It provides clarity for taxpayers and ensures that there is a fair and level playing field for all. I therefore commend the clause to the Committee.

[Wes Streeting]

Limited liability partnerships are a legitimate way of structuring business activity that is used successfully by the vast majority of LLPs that operate for profit. There is no doubt about any of that, but as we heard from the Minister this morning, there have been too many examples of LLPs being used for the purposes of minimising people’s tax liabilities, effectively to avoid tax. Of course, Opposition Members take a very dim view of that.

Clause 101 seems to be a sensible provision, intended to help HMRC to close down tax-avoiding structures that use LLPs to generate and spread losses that the partners use to offset against their other personal income. Let the message go out that people ought to act within not just the letter but the spirit of the law, and if they cannot find in themselves the moral scruples to do that, this House will have no hesitation whatsoever in changing the letter of the law to make sure that people do the right thing and pay their fair share.

[Jesse Norman]

The hon. Gentleman has made the point extremely well, and with his support I hope the Committee will agree to the clause.

Question put and agreed to.

Clause 101 accordingly ordered to stand part of the Bill.

Clause 102

Preparing for a new tax in respect of certain plastic packaging

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

[Jesse Norman]

Clause 102 ensures that Her Majesty’s Revenue and Customs can make preparations to introduce a new tax in respect of certain plastic packaging. The new tax will apply to plastic packaging that is manufactured in or imported into the UK and that contains less than 30% recycled plastic.

Plastic waste is a very serious global issue. Often, it does not decompose. Indeed, it can last for centuries in landfill, or it ends up littering the streets or polluting the natural environment. More than 2.2 million tonnes of plastic packaging are produced in the UK each year. The vast majority is made from new plastic, rather than recycled material, because recycled plastic is often more expensive to use than new plastic.

To tackle this problem, the Conservative manifesto reaffirmed the commitment to introduce, from April 2022, a world-leading new tax on the manufacture and import of plastic packaging that does not contain at least 30% recycled plastic. The tax will provide a clear economic incentive for businesses to use recycled material in the production of plastic packaging, which will create greater demand for this material, and in turn stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.

This follows an initial announcement of the tax at Budget 2018 and consultation on the high-level design in 2019. In its response to the consultation framework, the Chartered Institute of Taxation welcomed the Government’s measured approach to the implementation of the tax. Many respondents agreed with the initial proposals on the tax design, although there were areas where some respondents disagreed.

The Government took this feedback into consideration, announcing in response that we would extend the scope of the tax to include imported filled plastic packaging that contains less than 30% recycled plastic, given concerns about the impact on UK competitiveness without that adjustment. The Government are currently holding a further consultation on the detailed design and implementation of this tax, to ensure that it works as intended and so that businesses have time to prepare for it.

Clause 102 is a technical provision to ensure that HMRC can make preparations for the introduction of the new tax, such as incurring expenditure on the development of an IT system. Alongside this, HMRC is developing the detailed legislation to introduce the tax. We expect that this will be published in draft for technical consultation later this year, before being implemented in a future finance Bill.

In conclusion, the clause forms the first part of the legislation needed to introduce the plastic packaging tax. I therefore commend it to the Committee.

--- Later in debate ---

[Jesse Norman]

I thank the hon. Gentleman for his comments. As he will know, the introduction of any new text requires great care and attention, which is why, as he rightly highlighted, we have taken such a deliberate approach to consultation. However, I thank him for his support and note his suggestion. With that, I commend clause 102 to the Committee.

Question put and agreed to.

Clause 102 accordingly ordered to stand part of the Bill.

Clause 103

Limits on local loans

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

[Jesse Norman]

This is another small, technical measure. Clause 103 makes changes to ensure that Public Works Loan Board lending is available to local authorities in order to support worthy capital endeavours that benefit their residents. There is a statutory limit on the total amount that may be lent to local government through the PWLB, a limit that is governed by section 4 of the National Loans Act 1968. That Act allows for two future levels of that limit to be specified in advance through primary legislation and activated through secondary legislation.

The legislation would be exercised through HM Treasury. A date to exercise these powers has not been, and would not usually be, set in advance. The Treasury considers this clause to be a high priority because of the central role the PWLB plays in the capital finance system, supporting local authorities to deliver public services and, still more urgently, supporting communities through the pandemic as the need may arise.

The changes made by clause 103 will amend the predetermined legislated figures in the 1968 Act. The limit is currently £95 billion, and the clause resets the two future amounts to £115 billion and £135 billion. Clause 103 thus ensures the continuity of PWLB lending, which is a key stream of funding for local authorities across the country.

[Harriett Baldwin]

I know that Worcestershire County Council finds the Public Works Loan Board very useful. Can the Minister update the Committee on the interest rate charged on that facility?

[Jesse Norman]

That is a very helpful question. I cannot update the Committee at the moment, because, as my hon. Friend will know, that is a matter for consideration within the Treasury. However, she has usefully put the issue on the record, and I thank her for doing so.

[Wes Streeting]

Clause 103 gives me an opportunity to speak to some of the challenges facing local authorities and the role that the Public Works Loan Board can play. I also want to knock on the head some of the assertions that have been made about local government finances and the sensible use of borrowing by local authorities across the country to invest in local infrastructure and works that benefit their residents. I speak not just as my party’s shadow Treasury spokesperson, but as a former deputy leader of the London Borough of Redbridge and a current vice-president of the Local Government Association.

Local authorities have done a remarkable job managing their finances sensibly and effectively during a very difficult decade. Not only was the public sector broadly hit by cuts, but local authorities felt the brunt because those cuts were both deep and front-loaded. The local authority response to those challenges over the course of the past decade has, to be frank, been remarkable. The same can be said for the ingenuity of many local authorities in making sensible and wise investments that not only improve the lives of their residents but generate income that can then be ploughed back into frontline services and mitigate the impact of central Government cuts. I think I speak for people right across the Local Government Association, regardless of their party, in saying that, as well as devolving power without resources, the Government have too often devolved blame. I hope that Ministers will consider that. I will address the issue this afternoon, when debate the new clauses.

There have been some rather unhelpful and misleading headlines about local authorities borrowing to invest in local projects. Of course, as with central Government, we will always be able to point to decisions that, though made with the best of intentions, do not work and incur a liability for the public purse. If public funds are not used widely, it is absolutely right that there should be scrutiny, lessons learned and accountability. It is fair to say, however, that in the vast majority of cases where local authorities have drawn on the Public Works Loan Board, their approach has been sensible, effective and well deployed. It is important that the facility continues to be made available to local authorities in the same way.

When Ministers consider not just this Bill but impending decisions by the Treasury, I urge them to recognise the awful impact of covid-19 on local authorities. In responding to the Secretary of State’s plea to do whatever it takes to get their communities through the crisis, not only have their costs risen; their income has also fallen significantly. I urge Ministers to think carefully about the demands they place on local authorities, particularly in terms of loan repayments during this period, and to consider whether more could be done.

[Wes Streeting]

I am grateful to the hon. Gentleman for his intervention. The Government have to look very carefully at the liabilities facing local authorities and how they are having to balance them against other demands and challenges. As I have said, in addition to creating cost pressures, the pandemic has had an impact on local authority income, too. In that respect, local authorities really are all in this together, whether they are Labour, Conservative or SNP. There are challenges for local authorities right across the United Kingdom. As we will discuss when we come to the new clauses, some communities have been affected more than others. None the less, the challenges are universal.

I hope that Ministers will take that on board and that they will listen very carefully to the representations from the Local Government Association, which is cross-party but Conservative controlled. We will do our best to remedy that in next May’s local elections. I hope that the representations Ministers receive from Conservative LGA leaders—and not just Opposition party representatives —will help them understand the challenges that local authorities are facing, particularly as they have been unable to collect around £1 billion in combined business rates and council tax income during the crisis so far.

I also impress upon Ministers the importance of Government keeping their word to local government. When local authorities were asked to do whatever it takes—and whatever it took—to get communities through the covid-19 pandemic, they took the Secretary of State for Housing, Communities and Local Government at his word and they delivered. Now, they expect to be reimbursed, as was promised. The Government have given some additional funding to local authorities, but it is a drop in the ocean when compared with the cost pressures they face and the fall in income.

With that, I am content to support the clause, and I hope that the wider points that it has enabled me to make have been heard and well understood by the Treasury, and not just the Ministry of Housing, Communities and Local Government.

[Jesse Norman]

I will just move the clause, if I may.

Question put and agreed to.

Clause 103 accordingly ordered to stand part of the Bill.

Clauses 104 and 105 ordered to stand part of the Bill.

New Clause 1

Workers’ services provided through intermediaries

“Schedule (Workers’ services provided through intermediaries) makes provision about workers’ services provided through intermediaries.”—(Jesse Norman.)

This new clause introduces the new Schedule inserted by NS1.

Brought up, and read the First time.

[Jesse Norman]

I beg to move, That the clause be read a Second time.

[The Chair]

With this it will be convenient to discuss Government new schedule 1—Workers’ services provided through intermediaries.

[Jesse Norman]

The new clause and new schedule 1 make changes to ensure that the off-payroll working reform is extended to medium and large-sized organisations in all sectors outside the public sector from April 2021.

The reform moves the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the client engaging them. It also requires the client, or the party paying the individual’s personal service company to account for and deduct employment taxes where they are due, rather than that responsibility resting with the individual’s personal service company. The change is not the imposition of a new tax, but is focussed on improving compliance with the already existing off-payroll working rules.

The off-payroll working rules have been in place for nearly two decades. They are designed to ensure that individuals who work like employees but through their own personal service company pay broadly the same income tax and national insurance contributions as those who are directly employed. Without those rules, nothing prevents individuals from being engaged off-payroll simply to reduce the tax and national insurance contributions rightfully due.

Personal service companies have traditionally had to self-assess whether the rules apply. Unfortunately, non-compliance with the off-payroll working rules outside the public sector is widespread. The public sector reform has demonstrated that organisations engaging individuals are better placed to assess the employment status for tax of that individual.

There have been several attempts to tackle non-compliance with the rules in recent years. In November 2015, the Government carried out a consultation on how to improve the effectiveness of the off-payroll working rules. Since then, the Government have carried out three further consultations on reforming the rules. During this period, several alternatives to the original off-payroll working rules were suggested. The Government fully considered alternative proposals as part of the extensive consultation process on the reform.

In general, the approaches suggested would create a group of people who are exempt from the employment status tests and subject to a separate and advantageous tax regime, which the Government did not consider to be fair to the majority of working individuals who are subject to the existing boundary between employment and self-employment. Options such as administrative changes and strengthening HMRC’s compliance response were also discussed, but the consultation found that those would not be sufficient to tackle the problem.

The off-payroll working rules were reformed in the public sector in April 2017, shifting the responsibility for determining whether the off-payroll working rules apply from an individual’s personal service company to the public sector client engaging them. That was because organisations are better equipped to make the correct employment status for tax assessments than are individual contractors, and HMRC is better able to monitor their compliance. This reform is effective in reducing non-compliance with rules: it raised an estimated £250 million in additional revenue in the first 12 months, with independent research showing that it did not damage the flexibility of the labour market.

--- Later in debate ---

[Alison Thewliss]

Will the Minister give way?

[Jesse Norman]

I am winding up, so perhaps I could let the hon. Lady introduce her point in her speech.

When their engagement meets the tests of an employment relationship, contractors should not pay less tax than those who are directly employed. I therefore move that new clause 1 and new schedule 1 stand part of the Bill.

[Wes Streeting]

Our position on IR35 has been well rehearsed in previous and recent debates on the Floor of the House, but let me revisit some of those points, because this debate is closely followed outside Parliament and matters to people across the country. Self-employment is a vital part of the UK economy. People who are genuinely self-employed deserve to be properly supported while also ensuring that everyone pays the right amount of tax. Historically, the tax arrangements for self-employed people have differed from those for people on payroll, reflecting the fact that self-employed people have lower levels of protection in areas such as holiday pay, sick pay and other rights and benefits that people would enjoy if they were employed on payroll. Clearly the system has also been subject to abuse, and it is right that we tackle that abuse.

Some of the anxiety arises from concerns that the Treasury, and the Government more broadly, sometimes have a tendency to think of the self-employed as if they fell into only two categories of people. The first is the very wealthy, who use self-employment status to avoid paying their fair share of tax, which should obviously be clamped down on. The second is the very low paid, who work in parts of the economy that are deemed unproductive—even to the extent that some people would think it desirable that such workers were not engaged in those forms of employment, as if that were the best way to tackle the UK’s poor productivity statistics. The true picture of self-employment in the country is a lot more complicated than that, and huge numbers of self-employed people make an enormous contribution to the economy and who provide a whole range of services that benefit citizens across the country and businesses more generally.

It is right that the Government have taken the decision to delay the implementation of the roll-out until April 2021 due to coronavirus. The Opposition would again impress on the Government the need to use the additional time ahead of implementation to provide an additional review and to learn from the mistakes of the public sector roll-out and the continuing anxieties about the planned private sector roll-out. Those concerns were expressed in the House of Lords report entitled, “Off-payroll working: treating people fairly”, which concluded that the Government must address IR35’s inherent flaws and unfairness, a point that was supported by the ICAEW.

The Opposition urge the Government to use this time wisely. We believe it is necessary for the Government to take a broader approach in order to modernise the law on employment status and to look at how it interrelates with tax status, so that we have a genuinely joined-up approach that brings together the issues of tax and employment law. Notwithstanding the planned roll-out of IR35, the Chancellor made it very clear, when he announced the self-employment income support scheme, that there will be consequences for future Treasury policy and future tax arrangements for Britain’s self-employed. That message was heard loud and clear by the self-employed, but if we are asking them to pay a greater contribution, we also have to address the inherent challenge and, in many cases, the injustice around their employment protections and the levels of social protection and social insurance that people enjoy if they are employed, as opposed to self-employed.

As the shadow Chancellor has said, having addressed this issue many times both in her current role and in her previous role:

“We really need a joined-up approach to the issues that brings together the consideration of tax and employment law and levels up protections for the self-employed, as well as dealing with the current implications of the tax system that boost bogus self-employment.”—[Official Report, 4 April 2019; Vol. 657, c. 489WH.]

She made those remarks back in April 2019; it is now June 2020. I am not sure that, in the year that has passed since she made those comments, the situation has changed particularly and that things have improved. The delayed roll-out is something that has been widely welcomed, but it is crucial that the Government use this time wisely. It is not clear from the year that has just passed that the Government will use the next year any better.

--- Later in debate ---

[Miriam Cates (Penistone and Stocksbridge) (Con)]

I refer hon. Members to my entry in the register of Members’ interests. This is clearly a contentious issue, but the majority of employers and contractors I have spoken to agree that some kind of reform is necessary.

Our tax system must be fair, but it should also support those who take risks to grow businesses and innovate in a way that benefits our whole economy. It should not offer advantages to those who are using PSCs to create wealth only for themselves. I am certainly not saying that it is wrong to create personal wealth, just that our tax system should not offer particular advantages in doing so and tax should not be avoided as a result. We must balance flexibility with fairness and it is not fair that two people doing the same job in broadly the same conditions pay different rates of tax. We must recognise that those who are genuine contractors do not have the same benefits as employees—they do not have the same job security—but where someone is to all intents and purposes an employee, they and their employer should pay their fair share of tax and national insurance.

I have personal experience of running a small business in the tech sector and I believe that current practices discourage people from becoming employees in some sectors. For example, in the tech industry, people with certain programming skills can command such high day rates as contractors that there is very little incentive to become an employee in a small company. That is a particular issue in a sector where there is a shortage of talent and a great demand for skills.

While there is and always will be a role for contractors, contracting costs can be prohibitively high for start-ups and scale-ups, and those businesses find it difficult to recruit employees with the right skills. Start-ups and scale-ups need employees—people who are committed to the company, who can help shape its culture and, importantly, who can pass on their knowledge and skills to new employees as the company grows. Labour market flexibility has to work for employers and employees. At the moment, the very businesses that we most need to grow and innovate are struggling to recruit skilled employees, especially in areas outside London and the south-east, such as Sheffield and Barnsley, which I represent.

I believe that the reforms will make employment and the benefit that it brings more attractive. As I said, we should be using the tax system to support those who create wealth not only for themselves, but for our whole economy. In that way, any tax saving to an individual or company is an investment for the taxpayer, not just lost revenue. A great example of that is the research and development tax reliefs, which I am delighted have been increased in the Bill and will encourage the kind of innovation that the UK really needs to boost growth and productivity. They are incentives that help to create wealth for us all.

In contrast, using a personal service company to reduce an individual’s tax burden does not benefit the taxpayer. The individual’s income tax and national insurance savings are not used to create other jobs or to invest in technology or create products, and so the taxpayer does not receive any return on the lost revenue. Where a worker is genuinely self-employed, facing additional risks, with none of the benefits of employment, there should be no change, but where someone is to all intents and purposes an employee, improving compliance should make sure the taxpayer does not lose out.

I understand that any changes bring risks and uncertainty and I am pleased that the changes to IR35 have been delayed for a year to give our economy some chance to stabilise after covid-19, but fairness should be the foundation of our tax system and properly applied, the regulations will help to achieve that aim.

[Jesse Norman]

I will respond to the many important points raised by hon. Members, who I thank for raising them.

My hon. Friend the Member for Penistone and Stocksbridge is absolutely right to highlight the importance of making employment attractive. It is vital that best practice be spread throughout the economy as rapidly as possible and if the effect of that is to create a more level playing field between two sides of a particular divide, that would be a very valuable thing. The Government’s concern is that there is an unfairness in that someone can be, as it were, latently employed, although working for a personal service company, and that is the concern that the Government seek to address.

My hon. Friend the Member for Harrogate and Knaresborough is absolutely right to emphasise the importance of having a flexible and nimble economy. He is right, and the hon. Member for Ilford North is right, to focus on the effect of the self-employment and self-employed contractors in making this happen. For reasons I will come on to, this reform does not tax the self-employed. It does not tax anyone. What it does is to change the determination for people who are not self-employed but who are in fact employed, and to determine whether they are or not.

The hon. Member for Aberdeen South made a series of comments that I am afraid are simply not true. He was very rude about the Government’s decision to introduce this via a separate resolution, but the details of the change were announced as part of the Budget resolutions. They were not moved. They could and may well have been discussed—I do not recall the details—during the Budget debates. Therefore, it was perfectly open to the House to scrutinise those details, although the resolution was not itself moved. If the resolution had been moved, it would not have been possible for us to legislate with anything like the same straightforwardness for the move to an April 2021 deadline. That was the purpose of delaying moving the resolution. The effect was that the resolution was debated on the Floor of the House of Commons in and of itself—given a separate debate to that resolution in order to discuss that. Therefore, the idea that there has been any short-circuiting of due process is entirely wrong.

Of course amendments can still be tabled on Report, and the hon. Gentleman may seek to do that. He was very rude about the reform, saying it would lead to zero-hours contractors, and calling it shocking, but is he planning to support it? Will he vote in favour of it or against it? That will be the true measure of his and the SNP’s position on this important reform.

Finally, the hon. Gentleman talks about the Lords Economic Affairs Committee, but of course he is entirely wrong about that. We have yet to respond to the Lords Committee—we will do so in due course—but we have engaged very closely with it on a whole variety of different areas. If he speaks to Lord Forsyth, he will know that I approached Lord Forsyth personally, having just become Financial Secretary, to reopen the relationship and make it flourish. Indeed, I volunteered to appear in front of the Lords Economic Affairs Committee last year precisely to hold myself and the Treasury accountable in this area.

[Stephen Flynn]

The Minister has gone through a number of the points I made, but one that he did not touch upon was the impact that the proposal will have upon contractors working in the oil and gas sector, given the huge challenges facing those workers at the moment. What message would he give those contractors, whose future is uncertain in any case, but who are facing this change on top of an already devastating situation?

[Jesse Norman]

We are obviously very concerned about the effects of coronavirus, which is precisely why we have delayed the implementation of the reform by a year. The message I would give is that we absolutely respect and support the work that those individuals are doing and understand the position they are in. The Government have rapidly made available very important sources of support for the economy across a whole range of different areas and sectors of work and, indeed, in the benefits system, both for businesses and families and the sustaining of jobs. Therefore, there is no absence of respect or support for the people the hon. Gentleman describes.

The hon. Member for Ilford North mentioned the diverse nature of these different forms of employment. He referred to the self-employed, but actually the self-employed are not taxed by this. The genuinely self-employed are not affected by the reform. The reform is designed merely to change the way in which the status of someone who is latently employed—actually employed, but perhaps unaware of it or not behaving on that basis—is determined. The hon. Member asks us to use the additional time appropriately. We have got before April 2021. I have said already, but let me say again that we are in the process of commissioning external research into the effect of the public sector reform. As he will be aware, the early research immediately after the public sector reform did not bear out the dire predictions regarding flexibility or reduction of income, but we will make sure that external research into the longer-term effects of the public sector reform is completed and placed in front of the House before April next year.

[Alison Thewliss]

Can I ask the Minister about the impact assessments that will be done? What monitoring is his Department doing of the chilling effect that this is having on contracts right now? What I am hearing from contractors in my constituency is that those contracts are not being renewed now and it is already having a chilling effect, regardless of when the measure is coming in. What monitoring is he doing of the situation?

[Jesse Norman]

As I have said, in relation to public sector reform, the external research did not detect any great chilling effect. We will be looking at the longer-term effects of public sector reform. On this reform, it is undoubtedly true that the measure is nudging some companies to consider whether people they had thought of as contractors are not, in fact, employees. In some cases, they are having to review the structure of their workforces. I do not think that is a chilling effect on the status of those contracts, because those people were always latently employed. It is then for the contractor and the company to work out what future arrangement they wish to have.

[Alison Thewliss]

The IT contractors from India who I mentioned earlier can choose to go anywhere in the world. They have chosen to locate in Glasgow because the work is there, the skills are there and they have a good community in my constituency. If the contracts are not there, they will take their skills and their money and go somewhere else. What is the Minister doing to mitigate against that?

[Jesse Norman]

That is a claim that the hon. Lady makes and we will be able to test it over time through external research. It is not a view that has been validated so far in the roll-out to the public sector. It is a diverse and vibrant area of our life and it may well have more resilience overall than she is giving it credit for, but we will not know until we have seen the effects of the reform.

The final point, raised by the hon. Member for Ilford North, is to do with rights. Of course, the measure is to do with the determination of tax due, but the Government have put in the Queen’s Speech a substantial commitment to bring forward a Bill in that area following the Taylor review. I know that my colleagues in the Department for Business, Energy and Industrial Strategy take that very seriously.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 2

Review of geographical effects of provisions of Sections 27 to 30

‘The Chancellor of the Exchequer must within twelve months of the passing of this Act lay before both Houses of Parliament a report assessing the differential geographical effects, broken down by nation and NUTS 1 statistical region, of the changes made by sections 27 to 30 of this Act.’—(Alison Thewliss.)

This new clause would require a geographical impact assessment of the clauses of the Bill relating to reliefs for business.

Brought up, and read the First time.

--- Later in debate ---

[Wes Streeting]

The hon. Member for Glasgow Central makes a reasonable case—that will be a running theme throughout a number of new clauses, not least when we turn to new clause 3 in the afternoon session. I will make the points I want to make about the importance of reviewing the geographical impact of measures in the Finance Bill at that point, but I concur with her remarks.

[Jesse Norman]

I thank colleagues who have spoken. New clause 2 would require the Government to assess and report on the geographical effects of changes to business tax reliefs made by clauses 27 to 30 within 12 months. That relates specifically to the research and development expenditure credit, the structures and buildings allowance, and the treatment of intangible fixed assets.

Her Majesty’s Revenue and Customs does not routinely require businesses to provide geographical information about where expenditure is incurred as part of their claims for RDEC, SBA or intangible fixed assets treatment. In order to do so, changes would need to be made to the CT600 form, which would create a burden for businesses. In addition, those claiming the reliefs would only provide information after the year-end. For that reason, it does not make sense. It is not possible for Her Majesty’s Revenue and Customs to have that information within the 12 months stipulated in the amendment. HMRC does in fact already publish annual statistics on many tax reliefs, including a detailed breakdown of R&D tax relief claims, which analyses, by region and sector, the number of claims and the amount of relief received. However, the regional analysis is based on the company’s registered office, not necessarily where expenditure is incurred.

Although the next set of annual R&D tax relief statistics will be published by HMRC in the autumn, companies can claim R&D tax relief up to two years after the end of their accounting period. For that reason, the 2020 statistical release will include claims only until 2018-19, and will therefore not include claims for the increased 13% RDEC rate. The Government do, of course, remain committed to levelling up every region and nation of the UK to spread opportunity and to ensure that everyone benefits from growth. For example, the spring Budget provided a £1.14 billion increase to block grants for devolved Administrations to spend on their own priorities. That is in addition to the £2.7 billion that the Government are investing in city deals across Scotland, Wales and Northern Ireland, with £800 million of funding being provided to support four deals in Wales alone, and a further £1.4 billion being provided across 10 deals in Scotland.

As we look to our economic recovery from the impact of covid-19, that levelling-up agenda will be more important than ever. Given that the Government already publish detailed analyses and that regional information is collected and held as part of HMRC’s tax returns, asking business to record further information would represent a significant additional business burden. I ask the Committee to reject the new clause.

[Alison Thewliss]

The Treasury Select Committee is also looking at regional imbalances. Part of the Committee’s work has identified that the data collected by the Government on a range of areas is not sufficient. It is not good enough for the Minister to say, “Oh, it’s difficult to do that.” I accept that money is not necessarily spent where an office is based, but it is a start in understanding where that money is going. If lots of organisations based in London are taking in the money and perhaps it is going somewhere else, the Government ought to be aware of that and ought to be looking at it to make sure that if somebody based in London is taking in the money but it is being spent somewhere else, then perhaps they should be based where the money is being spent. Perhaps they should be moving their offices to where the money is being spent. That puts it back on to those businesses, to add to that consideration, so I do not buy the Minister’s argument that it is awfully difficult and that we should not do it. It is a first step into looking at how it might be done, so I would like to press clause 2.

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

Finance Bill (Tenth sitting)

Jesse Norman Excerpts

Committee stage & Committee Debate: 10th sitting: House of Commons
Thursday 18th June 2020 Public Bill Committees

[Wes Streeting]

I am grateful for that intervention. I was very encouraged by the recent policy position published by the leader of the Scottish Labour party and excitedly relayed to the rest of us by the shadow Secretary of State for Scotland, my hon. Friend the Member for Edinburgh South (Ian Murray). Scottish Labour has come out with some really bold proposals for how devolution could go even further, extending to home rule in Scotland. I know that that is not a position shared by the separatists in the Scottish National party. We could spend the rest of the afternoon discussing the merits or otherwise of Scottish independence, but, to allow SNP Committee members to get back home at the end of the day, perhaps we should not dwell on that this afternoon.

[The Financial Secretary to the Treasury (Jesse Norman)]

It is too tempting for me not to ask the hon. Member to share a few of his views on Unionism in Scotland and whether he thinks that is a good idea.

--- Later in debate ---

[Alison Thewliss]

People can promise things in the never-never—perhaps that will happen, but we do not quite know. But how Scotland ends up getting governed should not be down to whether votes in England sway one way or the other. We would do a far better job of governing ourselves, as many small independent countries around the world do. Many small independent countries are also making a much better fist of dealing with the coronavirus crisis than the UK is—in fact, most countries in the world are, never mind small ones. Look at how well New Zealand has managed the crisis, and how well it has been able to come out of it, under the brilliant leadership of Jacinda Ardern. We have a lot to learn from other countries about how to do things better in so many ways.

We are very supportive of Labour’s new clause 3 and of the complementary new clauses 18 and 21, which I tabled. New clause 18 seeks assessments of the impact of the Bill within a month on various economic variables, comparing situations in which the Treasury ceases or continues its covid-19 support schemes for the next year.

The likely reality is that when the schemes are discontinued, as planned, the economy and people’s living standards will be sent reeling. We know that from the many studies that have been done of people who have taken up the coronavirus job retention scheme—the majority of uptake of the scheme in the hospitality and tourism industries is significant. YouGov polling out yesterday suggested that a huge number of people would lay off their staff if the schemes were withdrawn. The Government need to listen carefully to the experience of people in those sectors on the impact of withdrawing too early.

We feel it is important that that is looked at in the context of the Finance Bill. As everyone has seen, as the Finance Bill progressed from the Budget to where we are now, the world in which we are living changed—changed dramatically—for so many people and their living standards. For the Government to have such a review seems wise.

The schemes covered by new clause 18 are the job retention scheme, the business interruption loan scheme, the bounce-back loan scheme and the self-employed support scheme. We know that the Chancellor has said that he will do “whatever it takes” to protect jobs, but we also know—I am a member of the Treasury Committee, and we have found that from the evidence received from many—that more than 1 million people have fallen through the gaps in the schemes. We need to understand what impact that and the measures in the Finance Bill will have on those groups.

Earlier, the Office for National Statistics revealed that in April the UK’s economy suffered its biggest monthly slump in GDP on record—20.4%—due to the pandemic. We therefore think that it would be wise for the Government to expand the support schemes, rather than winding them down. That is also critical for the devolved nations, which are moving at a slightly different pace, due to the circumstances in which we find ourselves, hence why we want to look at the different nations as well.

In new clause 21, we ask the Government to report on the effects of the Bill in a number of different business sectors. Different sectors will be differently affected. The sectors mentioned in the new clause include leisure, retail, hospitality and tourism, all of which we know from our constituency experiences have been severely hit, with retailers having real problems and many in the leisure sector perhaps falling outwith some of the schemes and finding it very difficult to get started up again. As I mentioned earlier, some businesses in my constituency were unable to access the support for various technical reasons. Financial services, business services, health life/medical services, haulage and logistics and aviation have also been severely impacted. Many bus firms and tour firms are struggling to keep going, which will impact on schools as they return. Many are rural schools and so rely on the transport sector to move pupils around. Those factors need to be considered as well.

My hon. Friend the Member for Paisley and Renfrewshire South (Mhairi Black) has spoken a great deal about the impact on the aviation sector, which, in turn, will have a huge impact on the behaviour of BA. The way it is currently treating its staff is absolutely appalling.

We also want to talk about professional sport and oil and gas, which my hon. Friend the Member for Aberdeen South covered so well earlier. Universities will be hugely impacted by the number and ability of foreign students to come here to work, study and live. Those universities have been in contact with me—indeed, several are based in my constituency and several neighbour my constituency —saying that they are very concerned about their future, which the Government have not really talked about to any great extent. Fairs, too, face problems. I have many show people based in my constituency, and they are also very concerned about the loss of their season and their ability to continue trading, because they do rely on that public-facing role—opening up the funfair to people, taking money and exchanging cash. Without that, they have no income at all. They have very few alternatives. Many may operate things such as snack bar vans, which, again, have not been operating to the same extent as previously.

We are keen to press the Government on these things and to understand the impact of what has been proposed here and to see what schemes are running. I am very happy to move these new clauses in my name and the names of my hon. Friends.

[Jesse Norman]

I rise to urge the Committee to reject these new clauses. Let me say a few things about them and then I will turn to the comments that have been made.

New clause 1 would require the Chancellor to conduct an impact assessment on the effect of household incomes on GDP in each part of the United Kingdom and in each region of England. New clause 18 would require the Government to conduct a review within one month of Royal Assent, of the effect of the Bill on the nations and regions of the United Kingdom if the Government’s main coronavirus support schemes continue for the next year—a hypothetical case if that be so—or if they were ended or changed in any way by a Minister of the Crown. The SNP’s new clause 21 would require the Chancellor to make an assessment of the impact of the legislation on a large number of different sectors and to lay a report of that assessment before the House of Commons within six months of Royal Assent.

We do not think that any of those clauses are necessary. I should remind the Committee that, apart from the provisions relating to the main rates of income tax, provisions in this Bill will apply across the whole of the United Kingdom and will directly benefit households and businesses in every part of the country. They have been developed with careful consideration of their impact on all regions and sectors of the United Kingdom. It is worth just saying that Ministers assess individual measures as well as the package as a whole for the differential impacts that they may have on each part of the UK throughout the policy development process, and they are under a statutory duty to assess the equalities impact of the provisions contained in the Bill, and those have been analysed and published.

In addition, the Treasury publishes extensive distributional analysis of the impacts of this Bill, together with the impact of the Government’s decisions on welfare and public services. What that amounts to is a rigorous and detailed record of the impact of the Government’s policies on households. The Office for National Statistics also publishes monthly estimates of GDP, and analysis of the impact of Government decisions on GDP is also carried out by the Office for Budget Responsibility, which is itself independent.

Therefore, between those checks and balances and that degree of inbuilt institutional consideration and the packages of support that we have offered, I think that it should be fairly plain that these new clauses are not required. We continue to monitor the impact of the coronavirus crisis closely as well as the response to the schemes that have been put in place. It is right that we should do so alongside the general continuous review of tax and the economy in relation to policy.

Let me remind the Committee that the Government have a commitment to consult—and they do consult—regularly on new tax policy and tax legislation in order to make sure that as wide a range of views and impacts as possible are captured during the tax policy-making process. We have touched on that matter in a previous discussion.

Let me come quickly to the points raised by the hon. Members opposite. The hon. Member for Ilford North rightly highlighted the levelling-up agenda, and he was fully justified in doing so. He said that London was a global city and should be understood as such, but that the Government’s attention should properly be on all the regions and nations of the country, and of course I share that view.

The hon. Gentleman talked about centralisation within the Treasury. I have been a trenchant critic of centralisation in the Treasury historically and on the public record, and I think it reached a bit of an apogee under the last Labour Government—I would say that, wouldn’t I? But I still think it is true—there was a tendency to view every problem as potentially soluble by tweaking the marginal costs and benefits of a system. In some respects, we have had to counteract that tendency in order to give us more of an inclusive view of what ultimately are a set of devolved settlements as well as a UK picture.

The hon. Member for Glasgow Central said something that I thought was quite bold: that the Scottish Government would do a far better job of governing Scotland than the UK Government do within a UK national framework. Of course, the UK does not govern Scotland; it has areas that are reserved and areas that are devolved, and many areas, including higher education, are devolved in Scotland.

I must say that I share the high regard that the hon. Member for Ilford North has for the history of higher education in Scotland. He will know that for many hundreds of years there were two universities in England and five in Scotland, which represented and reflected a high-quality orientation and a commitment to higher education. Unfortunately, it is in the record that Scottish higher education has not made the same kind of progress under the Scottish National party Government, particularly in relation to minorities and equalities, which is a terrible, terrible shame. I wish it were otherwise. So I would not accept the suggestion made by the hon. Member for Glasgow Central, but I will invite the Committee to reject these clauses.

[The Chair]

Does the hon. Gentleman intend to press the new clause to a vote?

--- Later in debate ---

[Alison Thewliss]

I agree wholeheartedly with the hon. Member for Houghton and Sunderland South. She has gone into extensive detail, and I am sure everybody will be glad to know that I do not aim to repeat what she said, but the notion of the tax gap, and the fact that money is not coming in that our public services desperately need, particularly at this time, is very serious. The UK Government should be seized of the significance of this, and should do everything they can to eliminate the tax gap.

In many cases, the tax gap arises because of the complexity of our tax system. Those who are looking for loopholes—who are looking not to pay their taxes, and to divert and dodge—find ample opportunity to do so. It is not acceptable that this and successive Governments have played whack-a-mole with all these tax schemes as they have appeared. As soon as one appears, the Government shut it down, and then another one, or several more, emerge. A whole lot more needs to be done on anti-avoidance, rather than our being reactive to all this. A comprehensive anti-avoidance rule, and measures to make sure that the tax that is supposed to come in does so, ought to be a priority for the Government.

Our new clause—it is similar to Labour’s new clause, which we fully support—states:

“The Chancellor…must review the effects on tax revenues”

of the measures in the Act and bring that review before the House of Commons. It asks that

“any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid…and the amount paid”

be reported on.

However, I want to touch more on Scottish limited partnerships, because this issue is not going away. The Government have failed to deal with it comprehensively. There is a continuing problem, both in respect of Companies House and in respect of how the partnerships are dealt with; that includes fines not being enforced and collected. Again, that money should be in the Government’s bank account, but if they are not going to enforce the rules, they will not get the fines. The fines would have been quite substantial had they been enforced since the measures came into place a couple of years ago.

The system allows those with an intent to conceal or deceive to do so easily by registering in secret as an SLP. These vehicles have a legal personality that makes them quite different from English limited liability partnerships. It means that individuals can make agreements in the name of the financial product without ever having to name the person or the people who control it. They have been used for years to funnel millions of pounds of dirty money created by illicit business activities, and this is still ongoing.

I can quote headlines to the Committee. There is, “How a Scots council house was secret base for criminals busting Putin sanctions”. There is one about Scotland’s firms and bribes to Argentina and Uzbekistan. There is, “Russian gang leader jailed for faking metal exports to Scotland”, and “Ukrainian mercenaries are using Scottish ‘tax haven’ firm as front”. There are headlines about money coming through Baltic banks, the effect on issues in Peru and a private war in Libya funded by Scottish funds. These are all current or previous issues in which Scottish limited partnerships have been involved. As I said in a previous debate, this is having an impact on Scotland’s reputation in the world. Most recently, just last month, David Leask and Richard Smith, who have been brilliant campaigners on this issue, revealed that more than 700 British firms have been blacklisted in Ukraine for suspicious activity related to money laundering across the former Soviet Union, and all involve Scottish limited partnerships.

That is why we in the SNP keep pushing on this issue; that is why it is so important to us. There is dirty money going around the world, fuelled in part by SLPs and the way in which they work. Also, the Government are not collecting tax on any of this money, and that contributes to the tax gap—the money that is not going to the Exchequer—as well as to global criminality.

If the Minister will not accept the new clause—given all the new clauses that the Government have not accepted, I suspect that they will not accept this one either—I urge him, at the very least, to listen to my concerns and those of campaigners about SLPs, and to take action to close the loopholes, including by fining the companies that are still flouting the rules, which the Government are not doing, and making sure that the money collected goes to the Exchequer, where it can be spent for the benefit of all our constituents.

[Jesse Norman]

I thank the hon. Members for Houghton and Sunderland South, and for Glasgow Central, for their comments, which I will respond to in due course.

New clause 6 would require the Government to review all tax reliefs in the Bill within a year, while new clause 22 would require the Government to review the effect on tax revenue of the Bill within six months of it being passed into law. These amendments are not necessary. Let me deal first with new clause 6 and then turn to new clause 22.

As Members will know, the Government keep all tax reliefs under review, to ensure that they strike the right balance between simplicity, effective targeting and overall yield. When a new tax relief is announced at a fiscal event, the Government publish estimates of the Exchequer impacts of the policy change in the Budget document.

The Government also consult on new tax reliefs and proposed changes to tax reliefs, bringing in external expertise as part of the policy-making cycle. Officials are constantly working on ways to improve policy development and administration, and management of reliefs.

The Government also conduct evaluations, including of a number of quite significant reliefs, such as research and development expenditure credit, or R&D tax credits, and entrepreneurs’ relief. In 2015, Her Majesty’s Revenue and Customs published an evaluation of R&D tax credits. In 2017, it commissioned an evaluation of entrepreneurs’ relief that led to a series of reforms—most recently, in Budget 2020, a significant reduction in the lifetime limit. HMRC will continue to monitor and evaluate reliefs, and it will bring forward a pipeline of further evaluations in due course.

HMRC is also considering—very much at my insistence—a proposal for a more systematic evaluation programme for tax reliefs, which would respond to the concern raised by the hon. Member for Houghton and Sunderland South, and it already monitors the effect of tax reliefs on taxation revenue.

HMRC issues an annual tax reliefs statistics publication, which includes estimates of the costs of tax reliefs. It is also undertaking a project to expand its published cost information, and I am pleased to remind the Committee that in May HMRC published cost estimates for a further 47 previously uncosted tax reliefs.

New clause 22 would require the Government to review the impact of the Bill on tax revenues within six months of it receiving Royal Assent. As I have said, the Government keep all taxes under review, and will continue to measure and publish annual statistics on the tax gap.

HMRC’s annual “Measuring tax gaps” report estimates the difference between the amount of tax due to be paid to HMRC and what is actually paid. It provides a breakdown of different kinds of behaviour, taxpayer groups and changes over time. However, the tax gap report is retrospective, with some time lag, due to the dates on which data become available. For example, estimates for 2018-19 are due for publication in July 2020, with some components projected in this year.

In addition, data limitations mean the tax gap is not suitable for evaluation at a granular level. For this reason, it would not be possible to disaggregate the impact of the compliance, for example, of SLPs. Furthermore, the tax gap may rise or fall due to a number of external factors that are unrelated to the actions of the Government.

HMRC also publishes annual reports and accounts, which include detailed information on revenue collection and on additional yield from compliance activity. It is committed to providing transparency to taxpayers about its activities, and these publications are important in demonstrating that commitment.

I now come to some of the points made by the hon. Members for Houghton and Sunderland South, and for Glasgow Central. The hon. Member for Houghton and Sunderland South, who I welcome back to the Committee after her period of absence, is absolutely right that tax reliefs can play a valuable role. However, she is also right that there are reliefs that can and should be reduced. That is, as I have said, a matter on which the Government are closely focused.

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[Wes Streeting]

Based on how the pattern of voting is going this afternoon, we can guess how the discussion of this proposal will turn out, unless the Government Members have a Damascene conversion and decide to swing behind it.

I am conscious of the clock, but we have had plenty of opportunity recently to debate Government immigration policy; I think the Opposition’s views are very well known. The economic debate about immigration is an important one, and it is important to remind people not just in the House but across the country that it remains a positively good thing for this country that the UK remains a destination to attract talent from around the world to come and work and study on these shores. That is a national strength. Of course, it is also important that we have immigration rules that are widely understood and fairly applied, and enforced where necessary.

[Jesse Norman]

I will keep my remarks brief, in keeping with the spirit of Opposition Members’ comments. These clauses would require the Chancellor to review the effect of measures in the Finance Bill relating to changes in migration under several different EU exit scenarios.

I must emphasise that those scenarios are entirely hypothetical; that in itself is a highly questionable aspect of these new clauses. However, in any case, these new clauses are not necessary. I agree entirely with the hon. Member for Ilford North that immigration policy should be fair and seen to be fair. It is absolutely right that the Government have committed to ending free movement by January 2021; that will not change. The Immigration Bill delivers on that commitment but, in the spirit that the hon. Gentleman identified, it also lays the foundations for a firmer and fairer immigration system that welcomes people—the best and the brightest, to use the phrase in vogue—wherever they come from, and that is a good thing.

The Government commissioned the independent Migration Advisory Committee to advise on the role of the future immigration system and the appropriate salary thresholds for the policy, and the Migration Advisory Committee recommended against regional variation across the UK. As I have said, and given that recommendation, it would be disproportionately burdensome to create additional reporting requirements focused specifically on the migration impacts of policies in the Bill.

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[Wes Streeting]

I am grateful for that intervention because, having had our knockabout between the Labour party and the SNP, we can now unite in common cause against this terrible Tory Government in Westminster.

Turning briefly to the facts, we know that wealth and income inequalities in the UK are stark: the richest 10% of households own 45% of the nation’s wealth, while the poorest 50% own less than 10%. The average FTSE 100 chief executive is paid 145 times more than the average worker, and Britain’s top 1% have seen their share of household income triple in the past four years, while ordinary people have struggled. Over the past decade, when Governments have been led by the Conservatives, we have seen the slowest growth in living standards since the second world war.

Shockingly, hard work does not necessarily guarantee even a basic standard of living. Wages have failed to keep up with living costs, and 14 million people live on incomes below the poverty line, including 4 million children. It should never be the case that where people are going out to work, doing the right thing and earning money for themselves and their families, they should still find themselves living in conditions of poverty, and yet that is the situation we find in our country today.

Inequality and the poverty it creates have led to an increasing number of what economist Sir Angus Deaton called “Deaths of Despair”, caused by drug and alcohol abuse due to financial hardship and hopelessness. The rate of such deaths among men has more than doubled since the early 1990s, so the human consequences of economic inequality are clear in Government statistics. People are dying needlessly as a result of the inequality that blights our nation.

Earlier this week, I was struck by the exchange at Prime Minister’s Question Time between my right hon. and learned Friend the Leader of the Opposition and the man who tries to the give the impression that he is our Prime Minister. Extraordinarily, the Prime Minister did not seem to recognise the description offered to him of child poverty in our country. I do not expect the Prime Minister of the country to have instant recall of every piece of data held by his Government, but on something as fundamental as the number of children living in poverty—or the trends of those numbers, at least—I would have expected that the Prime Minister might have some understanding of what is going on.

When my right hon. and learned Friend described poverty in Britain, he was not talking about forecasts or future expectations of growth in child poverty; he was talking about the situation today, and he was citing the Government’s own Social Mobility Commission. On page 17 of its June 2020 report “Monitoring social mobility 2013 to 2020: Is the government delivering on our recommendations?”— a question that lends itself to quoting the title of John Rentoul’s book, “Questions to which the answer is ‘No!”—it says very clearly:

“In the UK today, 8.4 million working age adults live in relative poverty; an increase of 500,000 since 2011/12. Things are no better for children. Whilst relative child poverty rates have remained stable over recent years, there are now 4.2 million children living in poverty—600,000 more than in 2011/12. Child poverty rates are projected to increase to 5.2 million by 2022. This anticipated rise is not driven by

forces beyond our control”.

That is the significant point: this is not about population changes or even, until very recently, the conditions in the economy, but is a direct result of Government policy. The commission notes on page 8 of the report:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

Of the many great achievements of the last Labour Government, the thing I am most proud of is the number of children they lifted out of poverty. That was the result of a deliberate political choice—of public policy pulling in the right direction—and it is a stain on the conscience and character of this Government that their own Social Mobility Commission says:

“There is now mounting evidence that welfare changes over the past ten years have put many more children into poverty.”

On the same page, the commission says:

“Too often also there is little transparency concerning the impact spending decisions have on poverty. The Treasury has made some efforts in this direction, but has so far declined to give the Office for Budget Responsibility…a proper role to monitor this. There should be more independent scrutiny to help ensure policy interventions across Whitehall genuinely support the most disadvantaged groups.”

Because of the limitations on what we are able to do to amend the Finance Bill, new clause 23 does not go so far as to give the OBR formal responsibility for measuring the impact of fiscal events and policies on poverty and child poverty across the board, but at least it makes a start by asking the OBR to look at the impact of the Finance Bill. Regrettably, that is wholly necessary. When the Government’s own independent Social Mobility Commission point to the need for this, Government Members should take that seriously. When their own Prime Minister does not seem to have a clue about what is going on in terms of child poverty, it might be good to produce at least a fresh and independent set of numbers to wake him up.

Just in case Government Members are not alive to the challenges of child poverty in our country, let us look at the latest statistics from HMRC and DWP, via Stat-Xplore. In Saffron Walden, the number of children aged from zero to 15 who are in poverty is 2,261, which means the child poverty rate is 10%; in West Worcestershire, the figure is 2,176, which means a child poverty rate of 14%; in South Cambridgeshire, the figure is 2,051, which means a child poverty rate of 9%; in Kensington, the figure is 1,731, which means a child poverty rate of 9%—those children are not going to Harrods. In Penistone and Stocksbridge, 2,010 children live in poverty, which means a child poverty rate of 13%. In Harrogate and Knaresborough, 1,699 children live in poverty, which means a child poverty rate of 9%.

[Jesse Norman]

Could the hon. Gentleman tell the Committee what the rate is in Ilford, North?

[Wes Streeting]

The Minister asks a very good question; I do not have instant recall of that—[Laughter.] I will hold my hands up and say that he has got me there. However, I will tell him that in Aberconwy, the figure is 1,469, which means a child poverty rate of 16%. In Hereford and South Herefordshire, the figure is 3,054, which means a child poverty rate of 17%. In Macclesfield, it is 1,749, which means a child poverty rate of 11%. And in Montgomeryshire, it is 2,046, which means a child poverty rate of 20%.

I do not really need persuading of the need to act on child poverty in my constituency. It has been a campaigning issue that I have taken up since I was first elected to this House. However, it is a deep source of regret that, even when the Government’s own Social Mobility Commission highlights the impact of Government policies on child poverty, the Government still refuse to act.

I hope that, rather than dismissing it outright, Ministers will not only consider looking at the impact of the Bill on poverty in their constituencies, but take seriously and review again the recommendation made by the Social Mobility Commission for the remit of the Office for Budget Responsibility to be extended. That will concentrate minds across Government in the right way and ensure that we make child poverty, in particular, history.

[Jesse Norman]

I thank Opposition Members for their comments. This Government will always be committed to reducing poverty and child poverty. There is no difference in our view and the Opposition’s view of the importance of these issues: they are very, very important.

The hon. Member for Ilford North has been free with statistics. Let me give him a couple that he might find of interest regarding households with a below average income. The Department for Work and Pensions has shown that 200,000 fewer people were living in absolute poverty in 2018-19 than in 2009-10, including 100,000 children. The record also shows that Government policies continue to be highly redistributive. Distribution analysis of the most recent Budget shows that the poorest 60% of households receive more in public spending than they contribute in tax. In 2021, households in the lowest income decile will receive more than £4 in public spending for every £1 that they pay in tax, on average.

No one thinks that the present situation is such that a Government of any stamp could rest easy. We need to continue to press for lower poverty and greater equality in our society. That is an important theme for this Government. I remind the Committee that, in the past few months, the Government have been focusing on supporting lower income families through the pandemic outbreak—through the schemes that we have discussed and through increases to universal credit and working tax credit. Much of the information that the new clauses ask for is already in the public domain, including with regard to the distributional effects of tax, welfare and spending policy, and data on poverty rates, as the hon. Member for Ilford North highlighted.

I hope that the Committee enjoyed, as I did—how sharper than a serpent’s tooth—the moment when the hon. Member for Ilford North turned on his erstwhile partner and highlighted some of the weaknesses in the Scottish National party Government’s own activity. The hon. Member for Glasgow Central said that the Scottish Government will do everything they can to take action in this area. They now have a significant amount of devolved power, through the tax system and other means, and we will look at what impact they make on the issue. How they exercise that responsibility will be a very interesting matter for further scrutiny.

[Stephen Flynn]

The Scottish Government announced a £10 per week child benefit supplement for the poorest families in Scotland, which is expected to lift 30,000 children out of poverty by 2023-2024. Will the Minister’s Government do the same?

[Jesse Norman]

We will look at the effects of that and at whether it will be adequate to meet the challenge the Scottish Government have laid down for themselves.

We have now reached the end of this process. I have found it very exciting, and I thank all colleagues for the work that they have done. With that in mind, I reject the new clauses.

[Alison Thewliss]

I wish to press the new clause to a vote.

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

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Division 13

Ayes: 7

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Labour: 5
Scottish National Party: 2

Noes: 10

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Conservative: 10

[Jesse Norman]

On a point of order, Mr Rosindell. On behalf of the Exchequer Secretary and myself, I thank you and your co-Chair, the excellent folks at Hansard, our Whips, our Parliamentary Private Secretaries and the officials who have supported us throughout the Committee. Of course, they wrote this note, so I hope they will be aware of the generous terms in which I single out, in particular, Edward Ferguson and Charlie Grainger; our Bill team at the Treasury, consisting of Kate O’Donoghue, the Bill manager, as well as Helena Forrest, Nye Williams-Renouf and Samuel Fenn; and a host of other people. The Opposition do not have access to the same level of resources; it would be astonishing if they could replicate the expertise to which we have access, and I am profoundly grateful for that expertise.

I thank all the members of Committees, on both sides of the Chamber, for making this such an energised and productive Committee, especially considering the great difficulties under which it has had to operate.

[Bridget Phillipson]

Further to that point of order, Mr Rosindell. I would also like to put on record my thanks to you and Ms McDonagh for being so fair and generous in allowing us to speak at some length about our concerns on the Finance Bill. You were exceptionally generous—at times, and arguably today, a little too generous—when it came to some of the wider conversations we had around interesting and irrelevant matters around Scottish separatism. Doubtless we will return to that at a later stage.

I put on record our thanks to the Clerks for all the help that they have offered us, particularly around amendments and the order of proceedings—their expertise at this time is particularly appreciated by us—and to the Hansard reporters.

This is the first opportunity I have had to lead on the Finance Bill in Committee. It has been made much easier thanks to the wonderful support of Members on the Opposition side, not least our wonderful Whip, my hon. Friend the Member for Manchester, Withington.

I thank all members of the Committee for their contributions. I am sure the Financial Secretary has enjoyed talking to more technical aspects of the Bill, although he did particularly relish opportunities to elucidate on Adam Smith and Edmund Burke, and on the transcendental nature of what might be regarded as temporary, or otherwise, when pressed by my hon. Friend the Member for Streatham.

I also thank those individuals and stakeholders who have been very generous in providing advice and information to the Opposition, and, of course, the House of Commons Library, whose staff are, as ever, very prompt and professional in their response to all research requests.

Although this is a small Finance Bill, compared with some recent efforts, I thank my staff and those in the office of my hon. Friend the Member for Ilford North for their dedication and hard work, and for allowing us to hold the Government to account. We have had a wide-ranging debate, and I look forward to returning to some of these issues on Report.

Finance Bill

Jesse Norman Excerpts

Report stage & Report stage: House of Commons & Report: 1st sitting & Report: 1st sitting: House of Commons
Wednesday 1st July 2020 Commons Chamber

[Dr Huq]

Yes, I think we should be working closely with the EU, but we can even beat them to it. Already on the EU Council there are countries such as France—which was called “cheese-eating surrender monkeys” on “The Simpsons”—that have agreed to it. This could be a bit of a trick for our Government if they pipped them to the post—I think we abstained when it last came up in the European Council. Yes, I completely agree that we should be in harmony with those countries, but this is an opportunity to beat them. By the way, not that I endorse “The Simpsons”, obviously—I do not want to cause a scandal—but, for those who are insistent, this presents opportunities. We have now left, after all.

The measure has cross-party support, and Oxfam, Christian Aid, CAFOD, the Churches and a list of development charities as long as your arm are all for it. They are spurred on by the fact that, as has been said, developing countries lose three times as much as they gain from development aid due to tax avoidance.

Regaining the respect of the aid sector, after the cruel surprise of the DFID merger was sprung on it the other day; delivering progressive taxation to ensure that corporations pay their fair share; rebalancing towards ordinary people; levelling up, so that our high street traders are not undercut by online giants with lax morals; levelling the playing field with multinationals, which is good for British business; bringing in billions and leading the way to be genuinely world-beating, which sadly the track and trace app was not; and beating the EU to it, when we have got Brexit done, and reinforcing the role of our sovereign Parliament—what is not to like?

The Nobel prize-winning economist Professor Joseph Stiglitz has remarked:

“It is time for countries to take both unilateral and multilateral actions to tax multinationals.”

Let the UK not drag its feet any more, but be a leader. It was David Cameron who said that sunlight was “the best disinfectant”, and the Conservative West Midlands Metro Mayor said when he was managing director of John Lewis:

“If you think of two companies making the same profit, one of them pays corporation tax at the UK rate, one does not because it claims to be headquartered somewhere else—that is not fair.”

Anyway, that is enough Conservative quotes in a Rupa speech—this is quite unusual for me. The Government should now set a date.

[The Financial Secretary to the Treasury (Jesse Norman)]

May I say how much I am enjoying the thoroughly Conservative nature of much of what the hon. Lady is saying?

[Dr Huq]

I think that is the point. The Minister should recognise that this has cross-party support. I started by praising the right hon. Member for Sutton Coldfield; I am ending with the Metro Mayor, the John Lewis man. These are all reasons why the Minister should adopt this measure forthwith. It is time to act. The time is now.

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[Kevin Hollinrake]

It is a pleasure to follow my hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates), who made some very important points. She made the critical point that the digital services tax is a temporary, short-term measure, and we need something more encompassing to replace it. That is why I want to speak to new clause 33, which proposes a radical reshaping of how tax affairs would be disclosed. If we are going to tackle this fundamental problem, it is essential that we have country-by-country reporting. I therefore do not secretly support this new clause; I openly support it, even though it is not going to be pushed to a vote today. The principle behind the clause is absolutely right, and I pay tribute to my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell) and the right hon. Member for Barking (Dame Margaret Hodge) for their work on it and in many other areas to tackle tax avoidance and corruption.

The other key element of the digital services tax is that it tries to level the playing field in corporation tax, but it does not level the playing field for business rates. That is a completely different discussion and it is one that we definitely need to have.

When I first came to the House, I attended one of those breakfasts; I think it was run by the Industry and Parliament Trust, of which I am a trustee. The subject of that seminar was the values of business—I have been in business for 30 years, and in my view business is a force for good in the vast majority of cases—and it was addressed by a vice-president of Kellogg’s, who talked about the values of business to the economy and the inherent values of some businesses. As examples, he talked about the great values and corporate social responsibility of businesses such as Facebook, Google and Amazon.

While the speaker was addressing us I googled, “Do Kellogg’s pay corporation tax in the UK?” My search came up with a Daily Mail article saying that Kellogg’s turns over £650 million in the UK and does not pay any corporation tax. When he got to the end of his comments, I asked him, “How can you square the circle—saying that you have great corporate social responsibility policies and put money into good causes in the UK, which might cost you a few pence or percentage points in terms of cost and contribution, when you are not paying corporation tax? Your customers are taxpayers. You are trading and turning over a significant amount of money in the UK. And yet you are not contributing back to the bills and the vital public services that your customers rely on. I think it is a cynical approach.”

This Kellogg’s vice-president was clearly quite stunned by my question. I quoted to him that Kellogg’s is one of those companies that does not pay corporation tax. When pressed for an answer, the only one that he could come up with was, “Well, we’ve got a duty to shareholders to minimise our tax burden.” That is an old chestnut. I hear lots of big shareholders of big companies in the US—people such as Warren Buffett—absolutely reject that notion. In my mind it cannot be right that businesses seek to avoid fair taxation rates in this world and, as many hon. Members have said, we have a duty to stand up for small and medium-sized enterprises that cannot benefit from these kinds of devices. The vast majority of us pay tax through pay-as-you-earn anyway, so we pay our fair share of tax—and most people do so willingly.

[Jesse Norman]

My hon. Friend raises an interesting point. Does he share my view—I think it is also the view of the people who really know the law in this area—that in Britain a corporation exists to maximise the interests of all its members, rather than merely the shareholders, and that the shareholder entitlement is to the residual that is left after satisfying other claims on the company?

[Kevin Hollinrake]

I absolutely agree. Any businessperson starts off on the premise that they have responsibilities not just to their shareholders, but to their customers and other stakeholders.

Due to the scale of the problem and the lack of country-by-country reporting, it is difficult to establish exactly what some of these companies are making in the UK, but let us look at Google as an example. In 2018, Google turned over $137 billion and had net revenues— so a profit—of $31 billion. The whole organisation internationally works on a profit margin of about 22%. The company turned over around $10 billion in the UK in the same year, and makes about $2.2 billion of profit from UK activities each year. If we applied 19% corporation tax to that amount, we would come up with a figure of £420 million in corporation tax that Google should have paid. It actually paid £67 million that year. This is happening on a huge scale and is multiplied by many other companies.

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I welcome what the Government are putting in place to begin to ensure that international markets and our markets are paying what is due, and not using loopholes, while others throughout the UK slog their guts out, always paying their taxes and always paying their dues. There needs to be a balance. This Bill sends a message to the joiners, plumbers and carpenters who refuse to do cash-in-hand, tax-free jobs that the big corporations are paying what they should and that no one is exempt from reaping the benefit of this great nation, the United Kingdom of Great Britain and Northern Ireland—better, as always, together. Everyone needs to pay what is fair to build our economy back up to where it should be and where it needs to be.

[The Financial Secretary to the Treasury (Jesse Norman)]

It has been a fascinating and lively debate, and I am grateful to all Members who have taken part. As Members will be aware, this Finance Bill introduces legislation to enact the digital services tax and to set the scope of the tax.

I will talk about the various clauses and amendments in front of us, and then will turn to the contributions Members have made. I start with something that I think I caught the hon. Member for Houghton and Sunderland South (Bridget Phillipson), the shadow Chief Secretary to the Treasury, say: “We support any proposals to combat tax avoidance.” I thought that was an important statement of principle, and I look forward to her exemplifying that view when we get to the loan charge. It bore out what the hon. Member for Ilford North (Wes Streeting) said in Committee:

“the Labour party takes a dim view of tax avoidance. We believe that tax is the price we pay for a civilised society…and that when people contrive to avoid their tax, they rob and short-change all of us of the revenues needed for the state to do the essential things it needs to do”.––[Official Report, Finance Public Bill Committee, 4 June 2020; c. 33.]

[Wes Streeting]

Hear, hear! Well said!

[Jesse Norman]

The hon. Gentleman is congratulating himself heartily from a sedentary position. I wish I had his self-confidence. I noted those comments because they help to shape this conversation, but it is important to be clear that the digital services tax is not an anti-avoidance measure, although there is a tendency to think of it in those terms. It is a new tax aimed at a new revenue base. It will levy a 2% charge on revenues that groups receive from providing specific digital services to UK users.

The services that are in scope of the charge are search engines, social media and online marketplaces. DST will apply only to groups with annual global revenues from these services of over £500 million, and it will be charged only on those revenues attributable to UK users, and only on amounts above £25 million. Additionally, online financial services marketplaces will be excluded from the definition of an online marketplace.

By seeking to tax UK user contributions, the charge breaks new ground in what a tax is. I very much share the views uttered by many of my colleagues, notably my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake), who described it as a pioneering tax. The same was rightly said by others, including my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones).

The digital services tax was announced in Budget 2018 as a response to changes brought about by the rapid development of our digital economy, the many strengths and weaknesses of which have been noted in this debate. That digital economy brings many benefits, some of which we have seen on display during the covid crisis, but it has posed a significant challenge for international corporate tax rules. The hon. Member for Islwyn (Chris Evans) brought this out very well when he spoke about the contrast between the international bodies that we are seeking to tax through DST and what might be called the ordinary shopkeeper in his constituency.

Under current rules, digital businesses can derive significant value from UK users but pay little UK tax. That is because international corporate tax rules do not recognise this user-generated value when allocating the right to tax profits between jurisdictions. That undermines the fairness and sustainability of our tax system, and it is therefore widely accepted, certainly across this House, that the rules need to be updated.

As I have mentioned, the Government remain at the forefront of international efforts to secure a comprehensive, long-term solution to this issue, and we are absolutely serious about continued, detailed engagement with OECD and G20 partners, and of course the EU nations among them, on long-term solutions.

The hon. Member for Glasgow Central (Alison Thewliss) talked about the importance of international co-operation. She is absolutely right about that. As has been mentioned, we have been a leader on base erosion and profit shifting work. The same is true of diverted profits tax, and tax of intangible assets; it is important to recognise that, in the spirit of fairness that Members have shown in this debate. That is the basis for our saying that while we welcome recent progress towards global solutions, there are still a number of difficult and important issues that we need to resolve. That is what we are trying to do on UK user-generated value, but we are trying to do it in a fair and proportionate manner. We are introducing a new tax but we expect it to be only temporary, until appropriate global reform is in place.

Clause 71 already requires the Government to review the DST in 2025 and submit the review to Parliament. It is important to note that the review is intended to be broader than the narrow construction that would be placed on it by the proposed new clause. Should the DST remain in place in 2025, the review will consider whether it continues to meet all its objectives and whether international reform means that it is no longer required. Importantly, it will look not only at the net amount of cash brought in by the tax—although that is of course important—but at whether the tax continues to be necessary to ensure fairness across the UK tax system, in so far as it bears on that. As I have said, it is a Government priority to try to secure a global solution, but we do so not merely for the receipt of revenue but in the spirit of fairness. Once that solution is in place, the DST will be removed.

Amendment 18 would require the Government to produce a review of the DST annually rather than in 2025, and amendment 19 would require the review to include an assessment of the effect of the DST on tax revenues. A review in 2025 will ensure that, if the DST remains in place at that point, its continuing relevance will be given a full and proper consideration against the relevant circumstances at that time. It thereby underlines the fact that it is the Government’s strong preference to agree and implement an appropriate global solution—indeed, it places some impetus behind such an agreement—and, once that agreement is secured, to remove the DST as soon as possible, and certainly ideally before 2025.

As regards the need for amendment 19, it is important to note that Her Majesty’s Revenue and Customs already reports regularly on the taxes which it is responsible for collecting and the revenue they generate. The DST will be no exception to that. It goes without saying that, as with all taxes, the Government will keep the DST under review through the annual Budget processes and at other times. I suggest that the amendments are therefore not necessary.

New clause 5 would require the Government to report to the House, within six months of the Act’s passing, on the effect of the DST on tax revenues, and particularly on the effect on the tax payable by the owners and employees of Scottish limited partnerships. However—I think I am right in saying that my hon. Friend the Member for Penistone and Stocksbridge (Miriam Cates) picked this up very well—the report suggested by the new clause would not provide useful information, for several reasons. The first is that the DST is a tax on groups, not on individuals, whether those are individual employees or individual owners. Secondly, DST payments will not be required until after the end of the relevant accounting period of each liable group. For that reason, payments will not be required until 2021. Finally, the reporting deadlines in the legislation mean that very few groups will have needed to register, and no groups will have been required to send in their return, within six months, so such a report would not give useful information about DST receipts during the period.

I now come to the clause with which the House has been most preoccupied: new clause 33, tabled by the right hon. Member for Barking (Dame Margaret Hodge) and my right hon. Friend the Member for Sutton Coldfield (Mr Mitchell). It would require all groups subject to the digital services tax to publish an annual group tax strategy and, alongside that, their country-by-country report.

As I have said, the DST is not an anti-avoidance measure; it is intended as a temporary response to concerns that the international corporate tax system has not adequately responded to digitisation. In other ways, as the House will be aware, the Government have already championed tax transparency, both at home and abroad. Some of those ways were highlighted by my right hon. Friend in his speech and have been previously by the right hon. Member for Barking in many other contexts. They are illustrated by the requirement, introduced in 2016, for large businesses to publish their annual tax strategy, containing detail on the business’s approach to tax and on how it works with Her Majesty’s Revenue and Customs. That requirement applies to UK companies with a turnover of more than £200 million or a balance sheet of more than £2 billion, and it is not limited to automated digital services businesses or to groups with a UK headquarters. UK subsidiaries of foreign headquartered groups can also be required to produce such a report if that group has revenues exceeding €750 million and reports under the OECD country-by-country reporting framework.

The effect is that many large businesses subject to the digital services tax will already be compliant with the UK requirement to publish an annual tax strategy. Therefore, this new requirement would in practice have little or no impact on them, at least. While thresholds may mean that some are not required to publish a strategy, that is an existing easement and it is unaffected by the digital services tax.

Currently, as has been highlighted by many hon. Members across the Chamber, we do not require large businesses to publish their country-by-country report alongside their tax strategy, but of course they can provide additional information, such as country-by-country reports, alongside that strategy on a voluntary basis. Nothing prevents them from doing that, and some have chosen to do so. It is notable that in this country, UK headquartered groups such as Shell and Vodafone have taken an important lead in this area.

I always pay very careful attention to what my right hon. Friend the Member for Sutton Coldfield says and I always pay careful attention to what the right hon. Member for Barking says. I have a great deal of respect for the principles that he and she have outlined through this new clause, but regarding the voluntary strategy, at least, I am actively exploring ways in which the Government can encourage other businesses, over and above Shell, Vodafone and the like to follow suit.

[Kevin Hollinrake]

I am surprised that my right hon. Friend says that this is not a method to try to bring companies that are avoiding tax to the tax table. The previous Chancellor, Philip Hammond, said in a speech that these measures would effectively insist that,

“global internet giants…contribute fairly to funding our public services.”

Is that not reflective of a position where he felt those companies were avoiding tax?

[Jesse Norman]

I think one could put it a slightly different way, which is to say, “You do not have to take a position on avoiding tax to come to the view that this is a base of tax revenue that has not been adequately taxed and should be taxed, and if you do follow that approach,” —here I will defer to the hon. Member for Wirral South (Alison McGovern)—“ipso facto you are going to be levelling the playing field to a degree.” Anti-avoidance measures are measures used in separate contexts to level the playing field as well.

[Mr Mitchell]

The Minister is getting to the meat of the matter in what he is saying now, but while he rightly extols the virtues of some very good companies that he has named, which voluntarily publish whereabouts in the world their activity is taking place, where their profits are declared and where they are paying tax, by definition, if it is voluntary, those who are up to no good probably will not comply. That is one of the reasons why publishing that information in the way I set out in my earlier remarks is so important, because there is greater pressure on them if they do not comply, including the sanction of the law.

[Jesse Norman]

My right hon. Friend is absolutely right. My point was a slightly different one. I have not yet come to the thrust of what he is suggesting about mandation, but in the first instance Government should be seeking to support, promote, energise and activate more voluntary compliance, precisely in order to increase a public norm of voluntary reporting, which then does a lot of the job and perhaps isolates the groups that decide not to do it. There are plenty of other contexts in which that approach of voluntary, then moving to mandatory, has been quite successful, including in tax.

[Bridget Phillipson]

The Minister talks about the voluntary nature of compliance, but it is my understanding that EU rules require some element to be reported. Could he clarify? Is that the position, or is reporting entirely voluntary?

[Jesse Norman]

The answer is that what I am talking about is a voluntary disclosure by those companies. I am not aware of a separate EU requirement for them to do so. Certainly, it is the voluntary disclosure that is the thrust of what I am talking about. Many other companies have the capacity to make voluntary declarations, and I am indicating in response to my right hon. Friend the Member for Sutton Coldfield my support for more of those companies doing that. I am only doing that, however, as a preliminary to coming to his point about mandation. We have taken the view that for the time being this approach should remain voluntary and that further legislation will not be needed until and unless we can get public country-by-country reporting agreed on a multilateral basis.

--- Later in debate ---

[Steve Brine]

I have sat quietly listening to this whole debate and I understand what the Minister is saying. I actually think he is right. Could he then give us briefly a sense of what work Her Majesty’s Treasury is doing to achieve the unilateral position he says he wants?

[Jesse Norman]

If I have given that impression, I have been misunderstood. We are pushing for a multilateral approach, as I have indicated, through the OECD and the G20, and also in consultation and collaboration with the EU. The purpose is to achieve a sustainable approach that does not run the risk of creating incentives to restructure out of this country and thereby reducing tax transparency and effectiveness. It might also reduce the impetus for tax transparency, because the more countries there are that require it and so have firms relocating or restructuring to avoid it, the less impetus there could be to secure a multilateral solution.

[Alison McGovern]

Would the Minister be so kind as to give a rough deadline for the multilateral approach?

[Jesse Norman]

It is in the nature of these beasts that I cannot give a deadline, and I am not sure anyone can. It is a continuing debate. That does not mean, however, that progress cannot be made. As we have seen, for example in some of the work done with the OECD on minimum taxation levels, there has been clear evidence of progress in discussions within the OECD, which is a matter of public record.

[Steve Brine]

Clearly, I meant to say “multilateral” in my last question. I know from having attended G7 and G20 summits in a health context, when I was in the Health Department, that the agenda for those meetings is decided by who has the chair at the time. Could the Minister give us any sense of optimism that it is even on the agenda of those meetings to make the progress I know he wants to see?

[Jesse Norman]

My hon. Friend will be aware that the different organisations have different ways of working—the G20 tends to work towards summits, and the OECD often has a more continuous process. The most important work is always done in between, in the official interactions that then set the terms. Often one does not know exactly what will be on the agenda until the last minute, so it is hard to give a specific undertaking. I am not avoiding that; I simply do not think it is possible to give that undertaking. I can tell him that we are extremely keen to promote voluntary compliance, and we continue to press for a multilateral approach.

[Mr Mitchell]

I am most grateful to my right hon. Friend for giving way; he is being very generous. This is an ingenious argument that he is putting to the House about restructuring, and it might be helpful to flesh that out in correspondence. The argument about the unilateral and multilateral approach was clear in relation to open registers of beneficial ownership, when the House obliged the Government to accept that there was a case for going through the unilateral approach in order to get a multilateral approach. I understand what he is saying, but I think it would be helpful to flesh out the point about restructuring.

[Jesse Norman]

If my right hon. Friend wants to raise some specific questions, I would be delighted to respond to them. There is a slight tension in his argument, because it contains the following two claims: first, that these international organisations are shape-shifting amoebas that constantly mutate to avoid tax, and secondly, that that shape-shifting and amoebic quality will stop when it comes to thinking about how to react to a unilateral tax transparency initiative.

[Dr Huq]

Will the right hon. Gentleman give way?

[Jesse Norman]

I am sorry, but I have been really generous in giving way. I have to allow the hon. Member for Houghton and Sunderland South (Bridget Phillipson) time to speak, and I have an awful lot of material remaining, including on new clauses and amendments and contributions made by colleagues. I do not know how many minutes she wants, but perhaps she could give me a bit more time.

[Bridget Phillipson]

indicated assent.

[Jesse Norman]

In that case, I will indulge the hon. Lady.

[Dr Huq]

The information is already collected—this is just about making it transparent, open and public. As I said in my speech, we could give companies time to readjust if they wanted to move things around. What is the incentive for any multinational through the voluntary approach?

[Jesse Norman]

We know that the incentive exists for all the reasons why we get voluntary compliance in a whole variety of areas—that is to say, groups with particular concerns, press organisations and companies. We know that there has been a revolution in corporate social responsibility, although it has not in many ways been an adequate revolution, because it does not extend in some respects to paying tax, as my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) highlighted. There is a role that Government can play, in terms of improving the norms and setting a bar. This is a reasonable, staged approach.

It is important to have a level playing field for the reasons that I have described, and that applies to tax transparency as it does elsewhere. If a multinational group exceeding the country-by-country reporting threshold operates in the UK, HMRC will, in the vast majority of cases, already receive the report and is already using it for risk assessment purposes. Given that, we do not believe that it is appropriate to introduce these new requirements at this stage, but I understand the principles set out by my right hon. Friend the Member for Sutton Coldfield and the right hon. Member for Barking, and the debate has shown that those are widely shared. The argument we are having is over the nature of the approach and the implementation of a broad set of principles with which Members across the House generally concur.

I will turn to the comments made by Members in the debate. The hon. Member for Houghton and Sunderland South has been very generous with her time, and I have covered most of her remarks. The debate rightly touched on the issue of business rates. My hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) will know that we are publishing a business rates review, which will specifically include online forms of taxation and invite public discussion on those. That is another part of the same process of trying to engage more widely and not just recruit information and knowledge but set expectations and norms about the way in which firms should be paying tax.

The hon. Member for Ealing Central and Acton (Dr Huq) talked about sunlight being the best disinfectant. She is right, but she was quoting Louis Brandeis from 1914, who was dealing with forms of corporate thuggery that make what we see today modest by comparison.

The hon. Member for Wirral South talked about the distinction between justice in principle and justice in fact. Of course, she is absolutely right. There is a view at the moment of the nature of the corporation, and it is very widespread—more in America than in this country even—that companies are run in the exclusive interest of their shareholders. That is not true in the UK. That is not, as a matter of legal fact, true in this country. The shareholders are entitled to the residual proceeds but companies are run—it is in the Companies Act 2006—in the interest of their members.

Finally, the hon. Member for Strangford (Jim Shannon) made a very good point. I think I am right in saying that “nation of shopkeepers” was coined by Adam Smith—but then I would say that, wouldn’t I?

[Bridget Phillipson]

Having listened to the debate, we are keen to see greater scrutiny and transparency in this area, so I seek to press the amendment to a Division.

Question put, That the amendment be made.

The House proceeded to a Division.

--- Later in debate ---

I very much welcome the commitment of the National Farmers Union and, obviously, of its sister organisation, the Ulster Farmers Union, which I am a member of, to deliver their targets of zero carbon emissions over the next period of time. The Government can do things only if other bodies help and assist them. The National Farmers Union and the Ulster Farmers Union, across the whole United Kingdom of Great Britain and Northern Ireland, are committed to doing that. I believe that that is all part of the conversation around the environment and climate change to help us meet our target of zero carbon emissions, and, while I welcome the steps that have been taken, I do believe very strongly that we must again incentivise and invest more to reach our targets and the Government’s targets across all the four regions for the safety not just of my children, but of my precious grandchildren—I now have four after one more arrived last week, and I must say that, with each one of them, I feel my years.

[Jesse Norman]

It is a great pleasure to be able to speak to the very interesting debate that we have just had. It ranged very wide and far indeed, but I will speak now to the specifics of the clauses.

New clause 28 would require the Chancellor to assess the impact of the Bill on the environment, and new clause 34 would require the Chancellor to review its impact on human and ecological wellbeing, including that of future generations. New clause 13 would require the Chancellor to assess the impact of the Bill on the UK meeting the UN sustainable development goals. New clause 14 would require an assessment of the Bill’s impact on the UK meeting its Paris climate change commitments.

I could do no better than the hon. Member for Ilford North (Wes Streeting) in rehearsing many of the achievements of the Government set out in his speech, so I am very grateful to him for doing that. He rightly highlighted the achievements that we have made in terms of offshore wind, but it was left to my right hon. Friend the Member for South Northamptonshire (Andrea Leadsom) to mention the 42% reduction in emissions since 1990 while the economy grew by two thirds, so I do not need to dilate too much on that topic.

Let me merely speak to these amendments to the legislation. These amendments are not necessary and they should not stand part of the Bill. Tackling climate change is a top priority for the Government, with the UK becoming the first major economy to pass legislation committing to reach net zero emissions by 2050. The Government remain committed to meeting this milestone and have consistently demonstrated the UK’s world leadership in clean growth and development. For example, the 2019 spending round included additional funding for biodiversity measures to support the maintenance and restoration of vital habitats for wildlife and to deliver the 25-year environment plan. Following that, the spring Budget reinforced our track record in the area, announcing at least £800 million for carbon capture and storage—that should be of great interest to the hon. Member for Weaver Vale (Mike Amesbury), who is no longer in his seat—and more than £1 billion of further support for ultra low emission vehicles. That Budget also announced that we will at least double funding for energy innovation.

The Bill highlights the progress we are making towards our commitment to tackling climate change, as well as towards sustainable low-carbon development and meeting international agreements. The Bill provides significant incentives to support the continued decarbonisation of transport. Clause 83 establishes tax support for zero-emission vehicles, exempting them from the vehicle excise duty expensive car supplement.

The Bill also ensures that Her Majesty’s Revenue and Customs can prepare for the introduction of the plastic packaging tax. That was rightly highlighted by my hon. Friend the Member for Harrogate and Knaresborough (Andrew Jones) and will incentivise businesses to use 30% recycled plastic instead of new material in plastic packaging. The Government are also reopening and extending the climate change agreement scheme to support energy-intensive businesses to operate in a more environmentally friendly and sustainable way.

[Catherine West]

Will the Minister give way?

[Jesse Norman]

If I may, I will speak to the clauses and then take up the points made by Members in the debate.

New clause 28 would require the Chancellor to assess the impact of the Bill on the environment, specifically considering the impact on achieving net zero emissions by 2050, on meeting carbon budgets and on air quality standards and biodiversity. The Government are committed to meeting our net zero milestone. The net zero review continues to make progress, although, let us be clear, like everything else the capacity to consult a wider group of stakeholders has been affected by covid. Many resources have been devoted to covid-related matters given the position we are in, but the review continues to make progress and we will publish a call for evidence, which will allow businesses and stakeholders the chance to engage seriously ahead of publication.

Carbon pricing has already contributed to emissions reductions in the power sector, as the share of coal-based electricity fell from 40% in 2012 to 5% in 2018, which is something everyone should be proud about. Future climate strategies will be set out in due course, including as part of the national infrastructure strategy.

The Government have also created skills advisory panels to help local areas understand their current and future skills needs, including in low carbon industries, and to tailor provision accordingly. The Government will assess the impact of potential interventions against the contribution they make to our environmental goals, including on climate change and air quality targets.

New clause 13 would require an impact assessment of how the Bill is meeting the UN sustainable development goals within six months of Royal Assent. It is important to realise that it is already a requirement for UN member states to review their progress towards meeting the global goals at least once, and we as a country have been proactive in assessing that and reporting back to the UN.

New clause 14 would require a review of the Bill’s impact on the UK meeting its UN Paris climate change agreements. Under the Paris agreement, the Government must maintain and report on their emissions reduction commitments in the form of a nationally determined contribution. The UK’s legally binding commitment to reduce emissions to net zero by 2050 is among the most stringent in the world, and the system of governance that implements that commitment under the Climate Change Act 2008 is world-leading.

New clause 34 would require the Chancellor to review the impact of the Bill’s provisions on human and ecological wellbeing, including on future generations. The Environment Bill is designed to ensure that the environment is at the heart of all environmental policy making. This Government and future Governments are held to account if they fail to uphold their environmental duties through a newly established Office of Environmental Protection, including legally binding, long-term targets on biodiversity, air quality, water, resource efficiency and waste management on top of the net zero target.

Turning to some of the comments that I thought were of great interest, my right hon. Friend the Member for South Northamptonshire was absolutely right to highlight the Government’s record in this area. The hon. Member for Aberdeen South (Stephen Flynn) raised a challenge on top-ups. My view here, as elsewhere, is that we will look with great interest to see whether the policy is effective. If it is effective, we will look even more closely at whether our policy as the UK Government needs to be changed, but it is obviously far too early to be able to say that. If he believes, as we believe, that actions matter, not just words, I am sure he will agree. If the Scottish Government want to do more in that area, they have received an additional £3.8 billion through covid funding, and they can divert some of that if they wish.

[Stephen Flynn]

Will the Minister give way?

[Jesse Norman]

I am afraid I just do not have any time. I will come back to the hon. Gentleman at the end if I do.

I want to respond to the hon. Member for Hornsey and Wood Green (Catherine West), who rightly highlighted the importance of local authorities for cycling, walking and tree planting. I agree with her about that. She asked about the replacement strategy for the emissions trading system. I think she is aware that we have framed two alternatives. The first is a UK ETS, and the second is a carbon emissions tax. We are open to a negotiated agreement, but we have the resources, through either of those options, to implement a scheme that addresses the issues that she is concerned about.

Finally, the hon. Member for Cardiff North (Anna McMorrin) called for leadership not rhetoric. I wonder whether she was referring to the Welsh Government, whose tree planting plans have been disastrous. They seem to be way behind, according to their own tree planting estimates.

The hon. Lady specifically picked out the Swansea Bay tidal lagoon. As my right hon. Friend the Member for South Northamptonshire said, that project would not provide value for money. It would be a terrible waste of public money. That money could be spent much better.

[Sir Edward Davey]

Absolute nonsense.

[Jesse Norman]

I spent a lot of time looking at it when I was a Minister at the Department for Business, Energy and Industrial Strategy, and the right hon. Gentleman, who is chuntering from a sedentary position, is quite wrong about that. It would provide terrible value for money.

It is also fascinating that the project is not an environmentally wise idea. The hon. Member for Cardiff North may not be aware that the Wildlife Trust of South and West Wales specifically highlighted the major impact on biodiversity, the loss of intertidal habitat and the impact on local ecology, and National Resources Wales talked of a “major adverse impact”. I agree with the hon. Lady that actions matter, not words, and that leadership matters, not rhetoric, and we are seeing that by turning down this very bad project.

The Government are committed to tackling climate change and to being the first generation to leave the environment in a better condition than we inherited it. These measures go towards making that happen.

[Wes Streeting]

We have had an excellent debate, particularly Opposition Members’ contributions. May I congratulate, on behalf of all of us, the hon. Member for Strangford (Jim Shannon) on the birth of his latest grandchild? He will be a proud grandfather. My proud father wrote to me during the debate to say two things: first, that my hon. Friend the Member for Hove (Peter Kyle) needs a haircut, and secondly, that it is good to see the Government Benches full, taking social distancing to the nth degree. However, what they lacked in quantity they made up for with quality, although I must take up a point with the right hon. Member for South Northamptonshire (Andrea Leadsom), who said that all I did was criticise the Government. That is not true. As the Minister acknowledged, I listed all of their achievements. It is not my fault that the Committee on Climate Change has said that those achievements do not go far enough to help the country achieve its net zero ambition. They are going to have to do better.

I must say that it was a shame for the Minister to end what has otherwise been a rather consensual debate on the importance of tackling climate change with his outburst on the Swansea Bay tidal lagoon. That is a great missed opportunity and another reason why so many campaigners are right to say that the Green Book ought to be reformed so that when the Treasury makes spending decisions on major projects, it properly takes into account the net zero benefits; otherwise, we end up being penny-wise but, ultimately, planet-foolish.

[Jesse Norman]

The challenge for the hon. Gentleman is to explain how the money saved might not be better deployed on greener projects with better carbon performance. That is the question.

[Wes Streeting]

The Minister would be far more persuasive if the Government made any announcements about how they are investing more. In fact, what we got from the Prime Minister this week was a damp squib. I genuinely hoped and expected that the Prime Minister would announce major programmes. For example, retrofitting homes across the country would deliver environmental benefits and job creation, including jobs that would compensate those who will imminently find themselves out of work.

--- Later in debate ---

[Mr Deputy Speaker]

Order. It is now 8.39 pm. I call the Minister.

[Jesse Norman]

I take my hat off to the astonishing hon. Member for Bradford South (Judith Cummins), who brought so much content into such a short presentation, and I thank her for that. We have an enormous body of material to get through quickly, so I shall deal initially with the question relating to new clause 26 on job creation and related measures. The new clause would require the Government to conduct an assessment of the effect of the Act on job creation. As the House will know, the Government have announced unprecedented support through the coronavirus job retention scheme, the self-employed scheme and the like. The Office for Budget Responsibility has said that those actions will directly help to support the incomes of individuals. The Treasury does not produce economic forecasts and the OBR does, publishing them twice a year. For that reason, I ask Members to reject the new clause.

New clause 12 relates to a matter previously considered in the Public Bill Committee, the impact on regions and nations. The new clause would require the Chancellor, within one month, to review the impact of the Act. As I emphasised in Committee, the provisions in this Bill have already been developed with careful consideration. Analysis of Government decisions on GDP is also carried out by the independent OBR. Again, we will continue to monitor the impact of the crisis, but I ask Members to reject the new clause. SNP new clause 18 would require a review of the impact of the Act on investment, productivity and employment. Again, it would require the Government to look at hypothetical scenarios, whereas the OBR is required by law to produce its forecasts based on stated Government policy, so I ask Members to reject the measure.

I come now to IR35 and the off-payroll working rules. I have been pressed vigorously on this issue by my hon. Friends the Members for Milton Keynes North (Ben Everitt), for Guildford (Angela Richardson), for Workington (Mark Jenkinson) and for Barrow and Furness (Simon Fell). Amendments 16 and 17 seek to remove the reform of these rules from the Bill, which would be a serious mistake, costing the country many hundreds of millions of pounds. The level of non-compliance at the moment with the rules is scheduled to cost the country £1.3 billion in 2023-24 if not addressed. As I do not believe the SNP really wants that, I encourage Members to vote against it.

I come now to the cross-party amendments framed by my right hon. Friend the Member for Haltemprice and Howden (Mr Davis), as it is important to engage with several of the things he said. He said that contractors could be pushed into a state of no benefits employment. It is important to note the contractors already receive a number of benefits funded by the Government when they are employees of their own personal service companies. Such benefits include statutory maternity, paternity, adoption, parental bereavement and shared parental pay, and they are provided by PSCs, which are then able to claim 100% of those payments plus 3% compensation from the Government. My right hon. Friend said that at least seven people have taken their own lives as a result of the loan charge. It is important to put on the public record that of course every single death of an individual is a tragedy. The circumstances surrounding those deaths have been considered by the coroner, the Independent Office for Police Conduct and HMRC’s own internal independent investigations. None of them has suggested, in these four reports, that HMRC is to blame for these deaths; no conduct issues have identified either by the independent office or internal investigations that would warrant disciplinary actions.

[Ruth Cadbury]

Will the Minister give way?

[Jesse Norman]

I am afraid that I just have to press on, because I have no time. My right hon. Friend raised the issue of a review on the loan charge. These are some of the most egregious and clearest forms of tax avoidance in the tax system. In reaction to my right hon. Friend the Member for Gainsborough (Sir Edward Leigh), let me say that it is hard to see how simplification of the tax system would prevent the kind of abuse we have seen through the loan charge or indeed potentially through IR35. The all-party group on the loan charge published a report rubbishing the independence of the Morse review. I can do no better than refer its members to the remarks made by my right hon. Friend the Member for Haltemprice and Howden, who described Sir Amyas Morse as

“principled and highly respected”

That was true then and it is true now.

New clause 31 would drive a coach and horses through long-standing principles of taxation, because the tax system relies on people being responsible for their own tax and there being as little discretion as possible in the system. Both principles would be overturned, as my hon. Friend the Member for Wimbledon (Stephen Hammond) hinted. For that reason, I urge the House to reject the new clause, if it comes to a vote.

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

Finance Bill

Jesse Norman Excerpts

Report stage & Report: 2nd sitting & Report: 2nd sitting: House of Commons
Thursday 2nd July 2020 Commons Chamber

[Ben Lake (Ceredigion) (PC)]

Diolch, Madam Deputy Speaker, for calling me to contribute to this important debate, the importance of which is perhaps not reflected in the attendance in the Chamber today, but as the shadow Minister, the hon. Member for Houghton and Sunderland South (Bridget Phillipson) rightly said in her opening remarks, reviews of tax reliefs tend to be important not just for improving the transparency of their effectiveness but, as the hon. Member for Thirsk and Malton (Kevin Hollinrake) said in relation to the enterprise investment scheme and the future fund, for their transformative impacts on policy. I agree with him that one of the key things that we need to consider as we move ahead is how we can encourage greater investment, especially equity investment, in regions other than London. I hope to dwell a little on that point later in my remarks.

It is a pleasure to follow my hon. Friend the Member for Aberdeen South (Stephen Flynn), who not only laid out effectively the inefficiencies of the tax reliefs system but raised the important question, which I would like to address, of whether reliefs achieve their economic objectives in the current climate and context, as we try to rebuild or at least begin to consider how we can rebuild after covid-19. Tax reliefs will have an important part to play, and it will be vital that they are channelled to those who will rebuild the economy.

I wish to speak at greater length to amendment 1 and new clause 17, both of which are tabled in my name. Both are probing amendments. I seek to probe the Government’s commitment to levelling up every nation and region of the UK by requiring them to report on the differential territorial impacts of the changes that the Bill introduces to certain reliefs and tax incentives.

Most hon. Members will welcome the Conservatives’ efforts to see balanced economic growth throughout the UK and in particular to move away from what I consider to be a hub-and-spoke approach to economic development. Over the past decade, the Government have mainly concentrated on improving connectivity between rural areas and smaller towns and the supposed economic engines of the larger cities, as opposed to incentivising and supporting economic growth in those areas themselves.

Such a centralised model has inevitably concentrated economic activity in London and the south-east. As a consequence, Wales’ potential and that of other regions and nations of the UK has been overlooked. That is perhaps most apparent when we consider the way in which public funding for certain development has been allocated. Between 2001 and 2017, London R&D funding per head totalled almost twice the UK average— £3,900 per head compared with a national average of £2,300. What is more, the trend worsened in that time. The share of the core research budget spend across the three cities of Oxford, Cambridge and London—also known as the golden triangle—rose from 42.1% in 2002-03 to 46% in 2017-18.

Perhaps just as relevant to this debate is how public spending on transport infrastructure is allocated. I note that per-head spending in London in the past decade has averaged nearly three times that spent in the rest of the UK. During the same period, the city has received five times the average per-head spend on culture. It is perhaps unsurprising, therefore, given that disparity, that the golden triangle of London, the south-east of England and the east of England also attracts the lion’s share of venture capital. Indeed, the region received 73% of all venture capital between 2016 and 2018, according to the British Private Equity and Venture Capital Association. When we reflect on this concentration of venture capital in one region of the UK, as with R&D, not only are the failings of past economic development policy laid bare, but it is difficult to deny a popular saying in Ceredigion, “I’r pant y rhed y dŵr”—or in English, “To the hollow the water runs”.

It is clear that as the world moves increasingly to a knowledge-driven economy, expenditure on R&D will be vital not only as a source of innovation that can be commercialised to form the basis of the next generation of business, but as a means of equipping people with the requisite skills for the new economy and, as my hon. Friend the Member for Aberdeen South said, the post-covid economy. It follows, therefore, that the economy of any nation or region that does not receive the right level of support will be hindered in its attempt to adjust to the challenges of tomorrow. Government support for R&D is essential for Wales in particular, to address problems that range from a low-wage economy to a looming demographic time bomb, while also building an economic platform to take advantage of trends, including automation, that could otherwise cause quite a serious long-term social risk.

New clause 17 would require the Chancellor to report on the geographical impact of changes to several tax rules, including R&D expenditure credit. It would ensure that the UK Government consider how different geographic areas benefit from taxpayer-funded reliefs so that the financial incentives can be better tailored to overcome the UK’s chronic regional inequalities. I have previously drawn attention to the concentration of R&D funding in the golden triangle, but assessments might also provoke a debate within Government about how public spending on other priorities is allocated.

In a similar vein, my amendment 1 would require the Government to consider the unsustainable concentration of private investment in one region of the UK at the expense of the devolved nations and other regions of England. As the UK Government narrow the applicability of the enterprise investment scheme, they need to consider how that will affect firms in different areas of the UK. The EIS benefits us in a great many ways—the hon. Member for Thirsk and Malton outlined them effectively in his remarks. The ways in which the UK Government can encourage the establishment in the devolved nations of venture capital funds, and therefore private investment, is so important. The geographic disparities to which I have already referred are reflected in the EIS. To pick just one example, between 2015 and 2018, only 210 Welsh firms benefited from EIS, receiving just 1.3% of the total investment. By contrast, to pick on the golden triangle again, that area received 67% of all investment. The average UK business angel investment per firm has been some 40% greater than that in Wales.

Modern advanced economies such as Germany, the Netherlands and even the USA have ensured a better geographic spread of economic prosperity, so the Government’s intention to address this policy failure is to be welcomed. However, we must make sure that the rhetoric is backed up by the reality and that the measures designed to realise such lofty ambitions are fit for purpose. My amendment and new clause would require the Government to report on the effectiveness of some tax relief schemes in this regard, and I hope that the Minister can give them some serious consideration.

[The Financial Secretary to the Treasury (Jesse Norman)]

I am grateful to everyone who has contributed to this short but interesting debate. As colleagues have noted, when we think about tax transparency, we are in what might these days be referred to as a niche area of taxation—technical, but no less important. In some respects, it is more important that we do not get lost in the detail but can come back and talk about the issues more widely. If I may, I will address the different clauses and then come to the specific points raised in the debate.

New clause 27 would require the Government to review all

“tax reliefs contained in this Act”.

It states that the review must contain

“the number of tax reliefs…the effect on taxation revenue of each of the tax reliefs…and…an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of the tax reliefs.”

It asks the Government to publish the number of tax reliefs in the Bill and their effect on taxation revenue.

As the House may be aware, the Government already publish tax changes and estimates of the Exchequer impacts of policy changes in the Budget documents at each fiscal event. Moreover, Her Majesty’s Revenue and Customs monitors the effect on taxation revenue of tax reliefs after they are introduced and issues an annual tax relief statistics publication—I am sure that is closely scrutinised by all Members—which includes estimates of the costs of tax reliefs. Building on this, HMRC is also undertaking a project to expand its published costs information. I remind the House that in May HMRC published cost estimates for a further 47 previously uncosted reliefs.

New clause 27 also asks for an assessment of the efficacy of systems for designing, monitoring and evaluating the effect of a relief. As the House will know, the Government consult on new tax reliefs and proposed changes to tax reliefs, bringing in external expertise as part of the policy making cycle wherever possible. Officials are constantly working on ways to improve the policy on development, administration and continuing management of reliefs. As colleagues will know, the Government, and particularly the Treasury, keep all reliefs under review.

The Government also do evaluations of different forms. This work has included evaluations of a number of significant reliefs—some 15 since 2015. These include our R&D tax credits and entrepreneurs relief, on both of which I will say a few words later. In 2015, HMRC published an evaluation of R&D tax credits. In 2017, it commissioned an evaluation of entrepreneurs relief that led to a series of reforms, most recently the significant reduction of its lifetime at spring Budget 2020, which is legislated for in this Bill. The hon. Member for Aberdeen South (Stephen Flynn) picked up on the point about entrepreneurs relief, which he somehow regards as “the tail wagging the dog”. What he calls “the tail wagging the dog” other people would call consultation across Parliament and discussion with stakeholders. Since the measure resulted in a 90% reduction in the scope of the relief, I do not think he can claim that there is any lack of ambition in it.

HMRC will continue to monitor and evaluate reliefs and will bring forward a pipeline of further evaluations in due course. It will also consider a proposal to which I have already said I am quite sympathetic—I thank the hon. Member for Houghton and Sunderland South (Bridget Phillipson); we have discussed this before: a more systematic evaluation programme for reliefs. In the light of all this, the Government do not believe that the new clause is necessary.

New clause 2 would require the Chancellor of the Exchequer to review the impacts of the reduction in the lifetime of entrepreneurs relief that is being legislated for in this Bill within six months of Royal Assent, and specifically to review the impacts on business investment, employment and productivity in the constituent nations and English regions of the United Kingdom. I would first highlight to hon. Members that the Government have already conducted an internal review of this relief that built on the 2017 independent research commissioned by HMRC. That review considered the distributional effects and benefits of the relief against its cost in order to better understand the targeting of the relief. This, in turn, has been used to inform the reform that is being legislated for in this Bill. It ensures that the majority of entrepreneurs are unaffected. A lot of the concern about entrepreneurs relief historically has been that it is not well targeted, and this measure greatly improves the targeting. Unfortunately, the effects of the changes to the relief will not be visible in six months’ time, and for that reason I urge the House to reject new clause 2.

New clause 4 concerns the structures and buildings allowance. It would require the Chancellor to review the impacts of clause 30, which makes miscellaneous amendments to the SBA, within six months of the passing of the Finance Act. Specifically, it would require the Chancellor to review the impacts on business investment, employment, productivity and energy efficiency. Again, I reassure Members that both HMRC and the Treasury already monitor tax reliefs according to the level of risk that they are deemed to pose. It is in the nature of a structures and buildings allowance that it is configured to reflect the fact that it can take many years to erect new buildings. Claims under the SBA are ordinarily settled when businesses bring buildings into use and submit tax returns at year end. For that reason, it would be neither possible nor appropriate to try to draw conclusions on the productivity or energy efficiency impacts of these changes within such a short period.

New clause 17 would require the Government, within 12 months, to assess and report on the geographical effects of changes to business reliefs across a variety of areas. There is a concern, which I recognise, that there are geographical disparities that reflect the historical evolution of our economy in different areas. It is by no means a uniform picture, even outside London.

HMRC does not routinely require businesses to provide geographical information about where expenditure is incurred as part of claims for the R&D expenditure credit, structures and buildings allowance or intangible fixed assets. To do that, changes would be required that would create additional burdens on businesses. Those claiming the reliefs, of course, could only provide information after the year end. For that reason, it would not be possible for HMRC to have information within the 12 months stated in the amendment, even if the amendment were passed. It is not capable of being fulfilled.

--- Later in debate ---

[Jesse Norman]

With permission, Madam Deputy Speaker, I will give way to my hon. Friend.

[Kevin Hollinrake]

I declare an interest as somebody who has benefited from entrepreneurs’ relief in the past. Is the Minister considering extending the reduction in entrepreneurs’ relief, which I support, to investors’ relief, which currently stands at the same figure as entrepreneurs’ relief used to stand at—£10 million?

[Jesse Norman]

If my hon. Friend is asking questions, he ought to stay for the next debate, because he is abusing the privilege of this debate. I thank him for his suggestion of a revenue-raising possibility for the Government; we take all those in great heart.

[Bridget Phillipson]

Could the Minister say a little more about the social investment tax relief? I am not aware that he responded on that point.

[Jesse Norman]

The hon. Lady is absolutely right. Let me address that. As she knows, the relief remains in place until next year. Even its doughtiest supporters would agree that so far it has not been anything like as effective as anyone would have liked or as had been projected or anticipated. Only £11.2 million has been raised under it in the period 2014 to 2018-19.

We are looking at it closely. As I mentioned in Committee, I am in discussions with leading figures across the social investment world about whether we can get some more visibility on the sources of funds that would use such a relief and the sources of projects that those funds would support. If we do not get that and we cannot have that in a slightly more concrete form, it looks like quite an empty request, but there may be other things that we can do to support social investment. As the hon. Lady knows, I have written a book on the big society. It is an area that I care deeply about, so I am happy to respond and I am grateful for her question.

[Bridget Phillipson]

We do not intend to divide the House on the new clause, but I will make a few brief points in response to what the Minister has said. I am glad that he shares our assessment that the current situation and system are unwieldy, and therefore we look forward to seeing real progress in that area. Frankly, it is not good enough that of those 362 tax reliefs, only 15 have had published evaluations since 2015, at a time when costs have risen.

During these extraordinary times, we need to see much more from the Government, not just on tackling tax avoidance, as we discussed at some length yesterday. There needs to be a renewed focus on taxpayer value for money, with greater opportunities for scrutiny of tax reliefs in this place and from external experts. Although we are not seeking to divide the House, I hope that we will see progress in that area. It is an issue to which we intend to return. I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

--- Later in debate ---

[Jesse Norman]

I beg to move, That the clause be read a Second time.

[Madam Deputy Speaker (Dame Rosie Winterton)]

With this it will be convenient to discuss the following:

Government new clause 20—Protected pension age of members re-employed as a result of coronavirus.

Government new clause 21—Modifications of the statutory residence test in connection with coronavirus.

Government new clause 22—Future Fund: EIS and SEIS relief. Government new clause 23—Interest on unpaid tax in case of disaster etc of national significance.

Government new clause 24—Exceptional circumstances preventing disposal of interest in three year period.

Government new clause 25—HGV road user levy. Government new clause 32—Enterprise management incentives: disqualifying events. Government new schedule 1—Taxation of coronavirus support payments.

New clause 29—Review of impact of Act on poverty—

‘(1) The Chancellor of the Exchequer must conduct an assessment of the impact of this Act on poverty and lay this before the House of Commons within six months of Royal Assent.

(2) This assessment must consider—

(a) the impact on absolute poverty,

(b) the impact on relative poverty, and

(c) whether such a study should in future be a regular duty of the Office for Budget Responsibility.’

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on poverty and consider whether the OBR should conduct such assessments as a regular duty.

New clause 10—Impact of provisions of the Act on child poverty—

‘(1) The Chancellor of the Exchequer must review the impact of the provisions of this Act on child poverty and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must consider the impact on—

(a) households at different levels of income,

(b) the Treasury’s compliance with the public sector equality duty under section 149 of the Equality Act 2010,

(c) different parts of the United Kingdom and different regions of England, and

(d) levels of relative and absolute child poverty in the United Kingdom.

(3) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on child poverty.

New clause 3—Review of changes to capital allowances—

‘(1) The Chancellor of the Exchequer must review the effect of the changes to chargeable gains with respect to corporate capital losses in this Act in each part of the United Kingdom and each region of England and lay a report of that review before the House of Commons within two months of the passing of this Act.

(2) A review under this section must consider the effects of the changes on—

(a) business investment

(b) employment, and

(c) productivity.

(3) A review under this section must consider the effects in the current and each of the subsequent four financial years.

(4) The review must also estimate the effects on the changes in the event of each of the following—

(a) the UK leaves the EU withdrawal transition period without a negotiated comprehensive free trade agreement,

(b) the UK leaves the EU withdrawal transition period with a negotiated agreement, and remains in the single market and customs union, or

(c) the UK leaves the EU withdrawal transition period with a negotiated comprehensive free trade agreement, and does not remain in the single market and customs union.

(5) The review must also estimate the effects on the changes if the UK signs a free trade agreement with the United States.

(6) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause requires a review of the impact on investment, employment and productivity of the changes to chargeable gains with respect to corporate capital losses over time; in the event of a free trade agreement with the USA; and in the event of leaving the EU without a trade agreement, with an agreement to retain single market and customs union membership, or with a trade agreement that does not include single market and customs union membership.

New clause 6—General anti-abuse rule: review of effect on tax revenues—

‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of section 99 and Schedule 14 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) The review under sub-paragraph (1) must consider—

(a) the expected change in corporation and income tax paid attributable to the provisions in this Schedule; and

(b) an estimate of any change, attributable to the provisions in this Schedule, in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.

(3) The review under subparagraph (2)(b) must consider taxes payable by the owners and employees of Scottish Limited Partnerships.’

This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of Clause 99 and Schedule 14, and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.

New clause 7—Call-off stock arrangements: sectoral review of impact—

‘(1) The Chancellor of the Exchequer must make an assessment of the impact of section 79 on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of the passing of this Act.

(2) The sectors to be assessed under (1) are—

(a) leisure,

(b) retail,

(c) hospitality,

(d) tourism,

(e) financial services,

(f) business services,

(g) health/life/medical services,

(h) haulage/logistics,

(i) aviation,

(j) transport,

(k) professional sport,

(l) oil and gas,

(m) universities, and

(n) fairs.’

This new clause would require the Government to report on the effect of Clause 79 on a number of business sectors.

New clause 8—Review of effects on measures in Act of certain changes in migration levels—

‘(1) The Chancellor of the Exchequer must review the effects on the provisions of this Act of migration in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.

(2) Those scenarios are that—

(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement,

(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and

(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.

(3) In respect of each of those scenarios the review must consider separately the effects of—

(a) migration by EU nationals, and

(b) migration by non-EU nationals.

(4) In respect of each of those scenarios the review must consider separately the effects on the measures in each part of the United Kingdom and each region of England.

(5) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require a Government review of the effects on measures in the Bill of certain changes in migration levels.

New clause 9—Review of effects on migration of measures in Act—

‘(1) The Chancellor of the Exchequer must review the effects on migration of the provisions of this Act in each of the scenarios in subsection (2) and lay a report of that review before the House of Commons within one month of the passing of this Act.

(2) Those scenarios are that—

(a) the UK leaves the EU withdrawal transition period without a negotiated future trade agreement

(b) the UK leaves the EU withdrawal transition period following a negotiated future trade agreement, and remains in the single market and customs union, and

(c) the UK leaves the EU withdrawal transition period following a negotiated trade agreement, and does not remain in the single market and customs union.

(3) In respect of each of those scenarios the review must consider separately the effects on—

(a) migration by EU nationals, and

(b) migration by non-EU nationals.

(4) In respect of each of those scenarios the review must consider separately the effects in each part of the United Kingdom and each region of England.

(5) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

and “regions of England” has the same meaning as that used by the Office for National Statistics.”

This new clause would require a Government review of the effects of the measures in the Bill on migration levels.

New clause 11—Assessment of equality impact of measures in Act—

‘(1) The Chancellor of the Exchequer must lay before the House of Commons a report assessing the effects on equalities of the provisions of this Act within 12 months of the passing of this Act.

(2) The review must make a separate assessment with respect to each of the protected characteristics set out in section 4 of the Equality Act 2010.

(3) Each assessment under (2) must report separately on the effects in in each part of the United Kingdom and each region of England.

(4) In this section—

“parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland;

“regions of England” has the same meaning as that used by the Office for National Statistics.’

This new clause would require the Chancellor of the Exchequer to review the impact of the Bill on equalities.

New clause 15—Sectoral review of impact of Act—

‘(1) The Chancellor of the Exchequer must make an assessment of the impact of this Act on the sectors listed in (2) below and lay a report of that assessment before the House of Commons within six months of Royal Assent.

(2) The sectors to be assessed under (1) are—

(a) leisure,

(b) retail,

(c) hospitality,

(d) tourism,

(e) financial services,

(f) business services,

(g) health/life/medical services,

(h) haulage/logistics,

(i) aviation,

(j) transport,

(k) professional sport,

(l) oil and gas,

(m) universities, and

(n) fairs.’

This new clause would require the Government to report on the effect of the Bill on a number of business sectors.

New clause 16—Review of effect of Act on tax revenues—

‘(1) The Chancellor of the Exchequer must review the effects on tax revenues of the Act and lay a report of that review before the House of Commons within six months of Royal Assent.

(2) The review under (1) must contain an estimate of any change attributable to the provisions in this Act in the difference between the amount of tax required to be paid to the Commissioners and the amount paid.

(3) The estimate under (2) must report separately on taxes payable by the owners and employees of Scottish Limited Partnerships.’

This new clause would require the Chancellor of the Exchequer to review the effect on public finances, and on reducing the tax gap, of the Bill; and in particular on the taxes payable by owners and employees of Scottish Limited Partnerships.

New clause 30—Review of rates of air passenger duty—

‘(1) The provisions of section 88 shall not come into effect until the Treasury has carried out and published a review of the likely effect of changes to rates of air passenger duty on the aviation sector.

(2) The review must take into account the effects of Covid-19 on the sector.

(3) The review must be published no later than 1 October 2020.’

This new clause would require that the changes to APD in clause 88 not come into force until a review of the effect of changes to APD has been published by the Treasury.

Amendment 2, in clause 80, page 68, line 2, at end insert—

‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the Alcoholic Liquor Duties Act 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.’

This amendment would require the Government to review the impact of the proposed changes to alcohol liquor duties on public health.

Amendment 3, in clause 81, page 68, line 21, at end insert—

‘(3) The Chancellor of the Exchequer must review the expected effects on public health of the changes made to the TPDA 1979 by this Section and lay a report of that review before the House of Commons within one year of the passing of this Act.’

This amendment would require the Government to review the expected impact of the revised rates of duty on tobacco products on public health.

Amendment 4, in clause 86, page 73, line 20, after “supplies” insert “, including human breastmilk”

This amendment would ensure that vehicles carrying human breastmilk would benefit from the exemption from Vehicle Excise Duty.

Amendment 5, page 77, line 10, leave out Clause 95

Amendment 6, in clause 95, page 77, line 14, at end insert—

‘(2) The Government must lay before the House of Commons by 9 September 2020 a statement of the conditions under which it would consider it appropriate to vary rates of import duty under this Section.’

This amendment would require the Government to state the conditions under which it would consider it appropriate to vary rates of import duty in an international trade dispute.

Amendment 7, page 77, line 14, at end insert—

‘(2) No regulations under this section may be made unless a draft has been laid before and approved by a resolution of the House of Commons.’

This amendment would require the Government to seek the approval of the House before making regulations varying rates of import duty in an international trade dispute.

Amendment 8, page 77, line 14, at end insert—

‘(2) The Chancellor of the Exchequer must, no later than a month before any exercise of the power in subsection (1), lay before the House of Commons a report containing the following—

(a) an assessment of the fiscal and economic effects of the exercise of the powers in subsection (1);

(b) a comparison of those fiscal and economic effects with the effects of the UK being within the EU Customs Union;

(c) an assessment any differences in the exercise of those powers in respect of—

(i) England,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland; and

(d) an assessment of any differential effects in relation to the matters specified in paragraphs (a) and (b) between—

(i) England,

(ii) Scotland,

(iii) Wales, and

(iv) Northern Ireland.’

This would require a review of the economic and fiscal impact of the use of the powers in clause 95 including comparing those effects with EU Customs Union membership.

Amendment 9, in clause 96, page 77, line 26, after “tax” insert

‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 10, page 77, line 27, after “deduction”, insert

‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 11, page 78, line 11, after “tax”, insert

‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 12, page 78, line 12, after “deduction”, insert

‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 13, page 78, line 35, after “tax”, insert

‘which is due at the relevant date from the debtor and which became due in the 12 months immediately preceding that date, and/’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 14, page 78, line 36, after “deduction”, insert

‘from a payment made by the debtor in the period of 12 months immediately preceding the relevant date.’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

Amendment 15, page 79, line 10, at end insert—

‘(8) The amendments made by this section do not apply to any debt secured by a floating charge in respect of monies were advanced to the debtor before 1 December 2020.’

This amendment seeks to limit the extent of HMRC’s status as a preferential creditor in insolvencies by preventing the policy from being applied retrospectively and by limiting that preference to only those taxes which became due in the 12 months before the relevant date as given in the Bill (1st December 2020).

[Jesse Norman]

The Government have tabled eight new clauses to the Bill, the majority of which are in response to the covid-19 pandemic. I would like to start by offering Members an explanation for why these new clauses are being brought forward on Report. The Government have been working very hard to combat the pandemic, as the House will know, and these measures are just a small part of a much more extensive and wide-ranging response. I am sure that colleagues across the House will appreciate that Ministers and civil servants have been working in extraordinary circumstances in the past three months. As I often do, I again pay great tribute to officials at the Treasury and Her Majesty’s Revenue and Customs. Without their work, it would not have been possible to deliver many, if any, of these aspects of this extremely comprehensive response, let alone in such a rapid timeframe as, for example, with the coronavirus job retention scheme.

We have brought forward these new clauses at the earliest possible opportunity, and for technical reasons, it is on Report. We have also been slightly limited by the fact that to table each new clause requires a new Ways and Means resolution to be agreed by the House. Report was the first amendable stage of the Bill to take place after the Government had been able to agree the necessary Ways and Means resolution on the Floor of the House. I hope the House will agree that there is a clear need for each of these new clauses to stand part of the Bill.

I will touch on each new clause briefly. New clause 19 seeks to do two things. First, it confirms that grants made under covid-related schemes—for example, the furlough scheme, the self-employment scheme, the small business grant fund, the retail, hospitality and leisure grant fund, the local authority discretionary grant fund and schemes corresponding to those grants within the devolved Administrations—are subject to tax. The new clause also includes a delegated power to add or remove further grant schemes through a statutory instrument, which provides sensible flexibility, so that the Government can continue to support the economy in their response to the pandemic.

The second part of the new clause ensures that HMRC has appropriate and proportionate compliance and enforcement powers in relation to the furlough scheme and the self-employment income support scheme. To ensure that taxpayer money is going only to those who are eligible, the new clause gives HMRC powers to recover overpayments and to impose penalties where there is deliberate non-compliance. HMRC has given a clear undertaking that these powers will not be used to penalise taxpayers who may be going through difficult times but make honest mistakes in their applications. As previously stated, the powers are designed to be proportionate, and they balance the fact that we are in unprecedented and uncertain times with the need to ensure that HMRC has sufficient powers to enforce the schemes according to eligibility criteria set out and to protect the Exchequer.

New clause 20 seeks to mitigate potential pensions impacts for those with a protected pension age returning to work to help in the battle against the pandemic. Its purpose is to provide certainty for those people by temporarily suspending rules that would otherwise see the pension income of recently retired people reduced if they were to return to work in crucial workforces at this important time. These retirees have been and will remain critical to the Government’s response to covid, and this new clause temporarily removes restrictions that might impede a flexible response.

New clause 21 temporarily relaxes the statutory residence test so that highly-skilled individuals from across the world are not discouraged from coming to the UK and helping this country to respond to the unprecedented health emergency. The actions and presence of normally non-resident individuals in the UK could have inadvertently affected their tax residence status. The measure is to be restricted, however, to ensure that it applies only between 1 March and 1 June 2020 for time spent in the UK by individuals who worked specifically on coronavirus disease-related activities in specified sectors. That time will not count towards the residence test.

--- Later in debate ---

[Jesse Norman]

I am grateful to the hon. Gentleman for his question. As the House will be aware, HMRC is often responsive and generally extremely responsive to such issues. I will happily look at any correspondence he wants to send me, and I will ensure that there is a properly engaged response to the extent that my limited powers over HMRC permit me. I hope that will be effective.

New clause 23 enables the Treasury to specify in an order made under section 135 of the Finance Act 2008 which payments of tax and other liabilities will not attract late payment interest or surcharge as a result of being deferred by agreement during a period of national disaster or emergency. It also enables the Treasury to set specific relief periods for different deferred taxes or liabilities. As the House will know, the Government have announced an unprecedented package of economic support for businesses and individuals affected by covid. The new clause ensures that late payment interest that would normally accrue automatically where tax is paid late does not apply, supporting taxpayers further and in ways in which I am sure the whole House will support. The payment deferral for VAT that we have announced provides taxpayers with a much-needed cash flow boost. HMRC is using its existing powers as set out in the Commissioners for Revenue and Customs Act 2005 to defer those payments of tax.

New clause 24 allows a refund of the additional 3% higher rate of stamp duty where exceptional circumstances prevented the sale of the previous main residence in the three-year window within which a sale must ordinarily take place. The new clause applies to those whose refund window ended on or after 1 January 2020. It is to ensure that responsible actions taken by people do not lead to negative tax implications and that those who would otherwise have received a stamp duty land tax refund are still able to receive it, despite the pandemic.

New clause 25 suspends the heavy goods vehicle road user levy for a period of 12 months, cutting fixed operational costs to the logistics and haulage industries as the economy begins to recover from the pandemic. These industries support many other industries, and temporarily easing their financial burden will support the haulage sector, reducing fixed costs as the economy recovers over time.

I turn finally to new clause 32, which makes minor changes to the existing enterprise management incentives legislation, introducing a time-limited exception to the disqualifying event rule so that EMI option holders who can no longer meet the EMI working time requirement due only to the pandemic are not forced to forfeit their options or to exercise them earlier than planned. This has the effect of protecting employees furloughed under the coronavirus job retention scheme or who have taken unpaid leave and had their working hours reduced. The measure means that affected employees will not forfeit their options or be forced to exercise them within the statutory 90 days normally required.

Since the point of EMI schemes is to help high-growth small and medium-sized enterprises recruit and retain skilled employees by giving them tax-advantaged share options, I am sure the House will understand that the measure supports a very important sector that is also likely to be important to our recovery. The changes will be effective from 19 March to ensure that employees who were furloughed or had to reduce their hours do not lose out. I hope the House will accept the need for the new clauses in these highly uncertain and unusual times. I commend them to the House.

[Wes Streeting (Ilford North) (Lab)]

I thank the Financial Secretary for making the case for the Government’s new clauses this afternoon. Throughout the coronavirus pandemic, the Labour party has made clear as the official Opposition that we seek to work constructively with the Government in response to this unprecedented public health crisis which, as we have seen, has brought about an economic crisis to follow it. In that spirit, and to ensure the smooth passage of legislation, we have helped to expedite the progressive measures taken by the Government, and this afternoon will be no exception.

I wish to speak to new clause 29, which has been tabled in the name of my hon. Friend the Member for Oxford East (Anneliese Dodds), the shadow Chancellor, and other hon. and right hon. colleagues. Yesterday afternoon, I addressed the Government’s poverty of ambition on climate change. This afternoon, I want to address their poverty of ambition on tackling poverty itself.

The Conservative party has now been in government either alone or in coalition for a decade. Over the past 10 years, their record on poverty in this country and on tackling poverty in this country has been absolutely lamentable. According to the Government’s own Social Mobility Commission, 600,000 more children are now living in relative poverty than in 2012, and that is projected to increase further due to benefit changes and the obvious economic impact of covid-19. As of 20 February this year, some 14 million people were in poverty, according to the Joseph Rowntree Foundation, including 2 million pensioners and 4 million children. We know that the impacts of poverty are felt disproportion- ately among different communities. Children from black and minority ethnic groups, for example, are more likely to be in poverty, with 45% of BAME children living in poverty, as compared with 26% of children in white British families.

We believe that the Government are failing on something that should be the most basic of priorities for any Government. That is not just our view as the Opposition party; the Government’s own Social Mobility Commission has said:

“The government should be more proactive in addressing poverty overall.”

It is worth bearing in mind that behind every statistic is a child, and 30 years ago I was one of those children in the child poverty statistics, growing up on a council estate in London’s east end, sandwiched between the bright lights of the City of London and the glistening lights of what was then the blossoming London Docklands Development Corporation land, which has become Canary Wharf. Today, they are two global financial centres at the centre of our global city. In between is a vista of poverty that was bad then and remains bad now.

One of the things I find most frustrating about the experience I had growing up in a council flat in the east end in the 1980s is that I look back, and I think about the conditions of the council flat I lived in and the embarrassment of not wanting to bring friends home from school because the conditions were not ones that we were proud of. It was a source of shame and embarrassment. I think about the experience of relying on free school meals, and the stigma that arises from having to collect a dinner ticket while other children go and pay for their food quickly—and get the best food, I hasten to add, while handing over their cash. I think about the difficulties my mum had as a single mum, balancing the challenge of bringing up a child while relying on the benefits system, and having to make compromises in choosing how she spent the family budget: the choice between putting food in the fridge or some extra money in the electricity meter.

One of the things that makes me most angry is that, when I think about my experience, which I thought was bad in the 1980s, and compare it with that of children growing up in the same circumstances today, as seen in my own constituency casework, things have got worse for children in the decades following my childhood, when things ought to be getting better. Whereas I had the stability of a council flat—albeit not a nice one—and a roof over my head, children in my constituency today, and no doubt in those of so many others across the Chamber, are growing up in temporary bed-and-breakfast accommodation, being moved from pillar to post and living in substandard accommodation, with disruptive consequences for their education and their schooling, and the inability for them to form lasting friendships and for their families to build supportive networks and family relationships.

When I think about the enormous strides that were made, particularly by the last Labour Government, in tackling educational disadvantage, I think it is outrageous that, in this country in the 21st century, children still today arrive at school at the age of five with their life chances already limited and in many cases predetermined, because we failed to get early years right. Sure Start centres have closed, and the support for families is no longer there. As a result, children arrive at school, at five, less prepared than their peers from more affluent backgrounds. It makes me angry that, for all the difference made to my education through programmes under the last Labour Government and the impact they have had on children since—the London Challenge and Excellence in Cities—today children are leaving school at 16 at a time when the attainment gap between children from the most advantaged backgrounds and the least advantaged backgrounds is actually widening, and where the further education system in which many working-class young people go on to study has been described by the Government’s own Social Mobility Commission as “undervalued and underfunded”. This is at a time when the changing nature of our economy and the changing nature of the world of work make post-16 adult education delivered in further education settings more important, not less. We should be making progress, but we are in reverse gear.

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In 1999, Tony Blair promised to end child poverty within a generation, and the Government set ambitious targets to halve child poverty by 2010, and eliminate it by 2020. When that Labour Government left office, they left to the Conservative-led Government who followed an inheritance and track record that put them on course to achieve that target. The year 2020 will be remembered in the history books as the year of the covid-19 pandemic, but it should also be remembered as the year when this country, one of the richest in the world, ought to have achieved its target to end child poverty.

[Jesse Norman]

the hon. Gentleman is making a powerful speech, but he did not say whether the Blair Government hit their target of halving child poverty by 2010. Did they or not?

[Wes Streeting]

I am delighted that the Minister asked that question, because I am about to lay out, in full, the record of the previous Labour Government. According to the London School of Economics and its Centre for Analysis of Social Exclusion, by the end of the new Labour Government’s period in office, child poverty and pensioner poverty had fallen considerably, in circumstances where child poverty would have risen without those reforms, and pensioner poverty would have fallen less far. In terms of absolute poverty, child poverty fell by more than 2 million from 1997-98 to 2009-10, and pensioner poverty fell by almost 3 million in the same period. In terms of relative poverty, child poverty fell by 800,000 between 1997-98 and 2009-10, and the number of pensioners in relative poverty fell by more than 1 million in the same period.

That Labour Government oversaw an £18 billion annual increase in spending on social security for families with children, as well as an £11 billion rise in payments for pensioners by 2010. Those rises were supported by other anti-poverty policies, including Sure Start, the national minimum wage, increased childcare support, and increases in education spending, which rose from £56 billion in 1996-97, to £103 billion in 2009-10—a real-terms increase of 83%. The last Labour Government pretty much eradicated homelessness and made ending insecure housing a priority, reducing the number of households in priority need of housing from 135,000 in 2003-04 to just 40,000 in 2009. They pursued the decent homes standard to boot, ensuring that children were growing up in far better conditions than I did. That is a record to be proud of—a record of a Government who got their priorities right.

It took a celebrity footballer to get this Government to do the right thing on something as basic as ensuring that children who would otherwise have gone hungry were fed this summer. It is not just that the Government do not have their head in the right place; they do not have their heart in the right place either. Unfortunately, we cannot rely on Marcus Rashford being on speed dial to get the Prime Minister to do the right thing on every occasion, and we cannot rely on the Chancellor to do the right thing on every occasion either. That is why it is important, as we have laid out in new clause 29, that we ensure that what counts is what is measured.

New clause 29 would require the Chancellor to conduct a review of the impact of this Bill—no doubt, very soon, this Act—on poverty in the United Kingdom. As with the Government’s environmental ambitions, I doubt that this Bill will move the dial on poverty much, if at all.

The Government’s own Social Mobility Commission has asked for the Office for Budget Responsibility to conduct assessments of all the fiscal statements that it usually does, but this time to look at child poverty and anti-poverty measures in particular. I urge Ministers to look carefully at this issue again. We raised it in Committee and were not successful in persuading the Minister of the case then, but I hope that we can persuade him of the case now. If Treasury Ministers and officials know that the OBR will be looking at those numbers in the same way that it does the other numbers in its assessments of Government fiscal events, perhaps it will concentrate the minds of people in the Treasury to get their priorities right.

Next week, the Chancellor will be coming before the House to deliver an economic update. After the Prime Minister’s statement this week, I think he needs to do a lot better than his apparent boss did when making a speech that was trailed as a new deal. It was not a new deal. Its ambitions were modest and much of the content was re-announcement. It certainly was not a green new deal. Perhaps when the Chancellor here next week, he can do the opposite of the Prime Minister. The Prime Minister over-promised and under-delivered. Given the way in which the economic update has been trailed, perhaps the Chancellor can under-promise and over-deliver next week, because he has a golden opportunity in the wake of this crisis to think seriously and substantially about the way in which our economy works and whose interests it serves.

I hope that when he comes forward next week, he does so with the full Budget that the shadow Chancellor has called for—a back-to-work Budget that is focused on jobs, jobs, jobs, that can actually tackle the gross inequalities and injustices of our society, and that puts us back on track to eradicate child poverty within a generation and to eradicate poverty for everyone because, for all the challenges of the last decade and all the challenges that we are living through now, this remains one of the wealthiest countries in the world.

This also happens to be a great country that is full of opportunities for so many people—in education, industry, arts, science and imagination—but those opportunities are not available to everyone. That should keep Ministers awake at night. It keeps me awake at night. But having listened to our Prime Minister only weeks ago in this Chamber, when it comes to tackling child poverty in this country, I do wonder whether his heart is really in it at all.

--- Later in debate ---

The shocking and deadly events of recent weeks and months have shaken us to our collective core. Our families, communities and nations will never be the same again. Our economy and our United Kingdom will never be the same again. We must seize the opportunity to change our way of life for the better, and we must deliver a fairer, greener and more sustainable economy for all of us. That is my pledge to the people of Newport West, and I look forward to the Minister giving us more actions and fewer words.

[Jesse Norman]

As is customary at the conclusion of Report stage, I will speak to the issues that have been raised, rather than the full content of the Bill. Let me start by saying how much I enjoyed the splendidly generous and warm speech by my great and hon. Friend the Member for Workington (Mark Jenkinson). As Members across the House noted, Workington will have a fine voice in the Chamber for many years to come. I was impressed by his ability to smuggle some Cumbrian dialect into the Chamber—I do not know whether it counts as a foreign language, but it was certainly unintelligible to me, which may be true for other colleagues. I take my hat off not only to Mr Harris for identifying his prime ministerial potential but to my hon. Friend for his robust sense of self-confidence. Colleagues normally play down their prime ministerial potential early in their political careers, and I admire his chutzpah, to use a different piece of dialect, in bringing our attention to that. He also acknowledged his predecessor’s capacity to align himself with the Opposition rather than the Whip; I am grateful to him for that. He made some valuable points, and I congratulate him on his maiden speech.

Labour’s new clause 29 and the SNP’s new clause 10 would require the Chancellor to review the impact of provisions in the Bill on child poverty and total poverty and to lay a report before Parliament within six months of Royal Assent. We were treated to a moving and personal speech from the hon. Member for Ilford North (Wes Streeting). I congratulate him on his achievement in getting to Cambridge University on the back of that personal experience. Of course, he is right to focus on the importance of combating educational disadvantage—a cause that every Member of the House believes in. I found it surprising that he did not go on to acknowledge the achievement of this Government in raising the number of good or outstanding schools from 68% in 2010 to 86% today, or the fact that the proportion of 18-year-olds from disadvantaged backgrounds going to university went from only 13% in 2009-10 to 21% in 2019.

The hon. Member talked about pensioner poverty but neglected to mention that there are 100,000 fewer pensioners in poverty now than there were in 2010. He talked about jobs but without acknowledging that, at least until the pandemic, which has struck us all and will have had unfathomable effects, as we know, 3.9 million more people were in employment. Specifically, the employment of the poorest 20% was 9% higher under this Government than in 2009-10.

The hon. Member was right to say that the tragedy of an economic crisis is that it hits the least well off the hardest, and that is precisely the inheritance that this Government’s predecessors left to us in 2009-10. As I never cease to remind the House, the financial crisis of 2007-08 was brought about because bank leverage was allowed to rise from 20 times, where it had been for the previous 40 years, to 50 times in seven years under the Blair Government. If hon. Members do not believe me, they can look at the independent report on banking published under Professor Vickers.

I should, however, return to new clauses 29 and 10, some of which are not necessary because the information they seek is largely already in the public domain, including on the distributional effect of tax, welfare and spending policies, on the equalities impacts of tax measures and on poverty rates.

I thank my hon. Friend the Member for Altrincham and Sale West (Sir Graham Brady) for his probing new clause 30. I admire his range of references. I thought he was going to reference Stephen Colbert, the American talk show host, but tragically it was Jean-Baptiste Colbert, who produced the line about plucking the feathers from the goose. He is absolutely right. No one would describe him as a hisser, but we do pay careful attention to the points he has made, and I am very grateful to him for raising them. I would also single out my hon. Friend the Member for Arundel and South Downs (Andrew Griffith), who rightly pointed out that the configuration between APD and the environmental performance of flights is a very blunt relationship indeed, so I thank him for that.

Colleagues across the House will know that new clause 30 would ask the Treasury to review the effect of proposed rate changes on APD. We are working closely with the sector and are closely attuned to its concerns in the face of the pandemic, and of course we have paid close attention to the points my hon. Friend raised. I am sure colleagues will be aware that, even as it is, the current rate will only take effect in April 2021 and will rise by only £2 for a long-haul economy flight, which is the cost of a rather inexpensive coffee at airport prices. It may not be quite as urgent, but the point about the wider need to look at this is well made.

I turn quickly to amendment 4, which seeks to extend the exemption from vehicle excise duty for medical courier charities in clause 86 explicitly to include vehicles carrying human breast milk. The hon. Member for Glasgow Central (Alison Thewliss) will know that this amendment is not necessary because the clause already provides for the transportation of human breast milk. The purpose-built vehicles used by the medical courier charities, which are exempt from VED, do not merely transport blood; they transport a wide range of medical product, including X-rays, MRA scans, plasma and human breast milk.

There are many other things I could say in response to other comments, but I will leave it there.

Question put and agreed to.

New clause 19 accordingly read a Second time, and added to the Bill.

New Clause 20

Protected pension age of members re-employed as a result of coronavirus

“(1) In FA 2004, in Schedule 36 (pension schemes etc), paragraph 22 (rights to take benefit before normal minimum pension age) is amended as follows.

(2) In sub-paragraph (7F), at the end of paragraph (b) insert “, and

(c) that the member is or was employed as mentioned in sub-paragraph (7B)(a) where—

(i) the employment began at any time during the coronavirus period, and

(ii) the only or main reason that the member was taken into employment was to help the employer to respond to the public health, social, economic or other effects of coronavirus.”

(3) After sub-paragraph (7J) insert—

“(7K) In sub-paragraph (7F)(c)—

“coronavirus” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);

“the coronavirus period” means the period beginning with 1 March 2020 and ending with 1 November 2020.

(7L) The Treasury may by regulations amend the definition of “the coronavirus period” in sub-paragraph (7K) so as to replace the later of the dates specified in it with another date falling before 6 April 2021.

(7M) The power in sub-paragraph (7L) may be exercised on more than one occasion.”

(4) The amendments made by this section are treated as having come into force on 1 March 2020.”—(Jesse Norman.)

In certain circumstances, people who have a protected pension age under a pension scheme (i.e. a right to receive pension benefits at an age below the normal minimum pension age) can lose it on being re-employed. This new clause prevents that happening for people re-employed as part of the response to coronavirus.

Brought up, read the First and Second time, and added to the Bill.

New Clause 21

Modifications of the statutory residence test in connection with coronavirus

“(1) This section applies for the purposes of determining—

(a) whether an individual was or was not resident in the United Kingdom for the tax year 2019-20 for the purposes of relevant tax, and

(b) if an individual was not so resident in the United Kingdom for the tax year 2019-20 (including as a result of this section), whether the individual was or was not resident in the United Kingdom for the tax year 2020-21 for the purposes of relevant tax.

“Relevant tax” has the meaning given by paragraph 1(4) of Schedule 45 to FA 2013 (statutory residence test).

(2) That Schedule is modified in accordance with subsections (5) to (13).

(3) Paragraph 8 (second automatic UK test: days at overseas homes) has effect as if after sub-paragraph (5) there were inserted—

“(5A) For the purposes of sub-paragraphs (1)(b) and (4), a day does not count as a day when P is present at a home of P’s in the UK if it is a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”

(4) Paragraph 22 (key concepts: days spent) has effect as if—

(a) in sub-paragraph (2), for “two cases” there were substituted “three cases”;

(b) after sub-paragraph (6) there were inserted—

“(7) The third case is where—

(a) that day falls within the period beginning with 1 March 2020 and ending with 1 June 2020,

(b) on that day P is present in the UK for an applicable reason related to coronavirus disease, and

(c) in the tax year in question, P is resident in a territory outside the UK (“the overseas territory”).

(8) The following are applicable reasons related to coronavirus disease—

(a) that P is present in the UK as a medical or healthcare professional for purposes connected with the detection, treatment or prevention of coronavirus disease;

(b) that P is present in the UK for purposes connected with the development or production of medicinal products (including vaccines), devices, equipment or facilities related to the detection, treatment or prevention of coronavirus disease.

(9) For the purposes of paragraph (7)(c), P is resident in an overseas territory in the tax year in question if P is considered for tax purposes to be a resident of that territory in accordance with the laws of that territory.

(10) The Treasury may by regulations made by statutory instrument—

(a) amend sub-paragraph (7)(a) so as to replace the later of the dates specified in it with another date falling before 6 April 2021;

(b) amend this paragraph so as to add one or more applicable reasons related to coronavirus disease.

(11) The powers under sub-paragraph (10) may be exercised on more than one occasion.

(12) A statutory instrument containing regulations under sub-paragraph (10) is subject to annulment in pursuance of a resolution of the House of Commons.”

(5) Paragraph 23 (key concepts: days spent and the deeming rule) has effect as if after sub-paragraph (5) there were inserted—

“(5A) For the purposes of sub-paragraph (3)(b) and (4), a day does not count as a qualifying day if it is a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”

(6) Paragraph 28(2) (rules for calculating the reference period) has effect as if—

(a) in paragraph (b) the “and” at the end were omitted;

(b) after paragraph (b) there were inserted—

“(ba) absences from work at times during the period specified in an emergency volunteering certificate issued to P under Schedule 7 to the Coronavirus Act 2020 (emergency volunteering leave), and”;

(c) in paragraph (c), for “or (b)” there were substituted “, (b) or (ba)”.

(7) Paragraph 29 (significant breaks from UK or overseas work) has effect as if in sub-paragraphs (1)(b) and (2)(b), for “or parenting leave” there were substituted “, parenting leave or emergency volunteering leave under Schedule 7 to the Coronavirus Act 2020”.

(8) Paragraph 32 (family tie) has effect as if after sub-paragraph (4) there were inserted—

“(4A) But a day does not count as a day on which P sees the child if the day on which P sees the child would be a day falling within the third case in paragraph 22(7) (if P were present in the UK at the end of it).”

(9) Paragraph 34 (accommodation tie) has effect as if after sub-paragraph (1) there were inserted—

“(1A) For the purposes of sub-paragraph (1)—

(a) if the place is available to P on a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day), that day is to be disregarded for the purposes of sub-paragraph (b), and

(b) a night spent by P at the place immediately before or after a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day) is to be disregarded for the purposes of sub-paragraph (c).”

(10) Paragraph 35 (work tie) has effect as if after sub-paragraph (2) there were inserted—

“(3) But a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it) does not count as a day on which P works in the UK.”

(11) Paragraph 37 (90-day tie) has effect as if—

(a) the existing text were sub-paragraph (1);

(b) after that sub-paragraph, there were inserted—

“(2) For the purposes of sub-paragraph (1), a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of it) does not count as a day P has spent in the UK in the year in question.”

(12) Paragraph 38 (country tie) has effect as if after sub-paragraph (3) there were inserted—

“(4) For the purposes of sub-paragraph (3), P is to be treated as not being present in the UK at the end of a day that would fall within the third case in paragraph 22(7) (if P were present in the UK at the end of that day).”

(13) Paragraph 145 (interpretation) has effect as if at the appropriate place there were inserted—

““coronavirus disease” has the same meaning as in the Coronavirus Act 2020 (see section 1(1) of that Act);”.”—(Jesse Norman.)

This new clause modifies the statutory residence test in Schedule 45 to the Finance Act 2013 so that the presence of certain individuals in the UK for purposes connected with coronavirus is discounted for the purposes of determining whether they are resident in the UK in the tax years 2019-20 and 2020-21.

Brought up, read the First and Second time, and added to the Bill.

New Clause 22

Future Fund: EIS and SEIS relief

“(1) This section applies if an individual to whom shares in a company have been issued—

(a) enters into a convertible loan agreement with the company under the Future Fund on or after 20 May 2020, and

(b) subsequently receives value from the company under the terms of the agreement.

(2) If, as a result of the receipt of value, any EIS relief attributable to shares issued before the relevant time would (apart from this subsection) be withdrawn or reduced under section 213 of ITA 2007, the value received is to be ignored for the purposes of that section.

(3) If, as a result of the receipt of value, any SEIS relief attributable to shares issued before the relevant time would (apart from this subsection) be withdrawn or reduced under section 257FE of ITA 2007, the value received is to be ignored for the purposes of that section.

(4) If, as a result of the receipt of value, shares issued before the relevant time would (apart from this subsection) cease to be eligible shares by reason of paragraph 13(1)(b) of Schedule 5B to TCGA 1992, the value received is to be ignored for the purposes of that paragraph.

(5) In this section—

“the Future Fund” means the scheme of that name operated from 20 May 2020 by the British Business Bank plc on behalf of the Secretary of State;

“the relevant time” means the time when the individual enters into the convertible loan agreement.”—(Jesse Norman.)

This new clause prevents EIS and SEIS relief from being withdrawn or reduced for the purposes of income tax and capital gains tax in cases where an individual enters into a convertible loan agreement under the Future Fund with a company and subsequently receives value from the company under the agreement.

Brought up, read the First and Second time, and added to the Bill.

New Clause 23

Interest on unpaid tax in case of disaster etc of national significance

“(1) Section 135 of FA 2008 (interest on unpaid tax in case of disaster etc of national significance) is amended as follows.

(2) In subsection (2), for the words from “arising” to the end substitute “that—

(d) arises under or by virtue of an enactment or a contract settlement, and

(e) is of a description (if any) specified in the order.”

(3) In subsection (4)—

(a) after “relief period” insert “, in relation to a deferred amount,”;

(b) in paragraph (b), after “revoked” insert “or amended so that it ceases to have effect in relation to the deferred amount”.

(4) In subsection (10)—

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

(b) at the end of paragraph (b) insert “, and

(c) may specify different dates in relation to liabilities of different descriptions.”

(5) The amendments made by this section have effect from 20 March 2020.”—(Jesse Norman.)

This new clause amends section 135 of the Finance Act 2008 to enable the Treasury to specify in an order under that section which payments of tax and other liabilities that are deferred by agreement during a period of national disaster or emergency will not attract interest or surcharges.

Brought up, read the First and Second time, and added to the Bill.

New Clause 24

Exceptional circumstances preventing disposal of interest in three year period

“(1) In FA 2003, Schedule 4ZA (stamp duty land tax: higher rates for additional dwellings etc) is amended as follows.

(2) In paragraph 3 (single dwelling transactions)—

(a) in sub-paragraph (7)(b) for “the period of three years beginning with the day after the effective date of the transaction concerned” substitute “a permitted period”;

(b) after sub-paragraph (7) insert—

“(7A) For the purposes of sub-paragraph (7)(b), the permitted periods are—

(a) the period of three years beginning with the day after the effective date of the transaction concerned, or

(b) if HMRC are satisfied that the purchaser or the purchaser’s spouse or civil partner would have disposed of the major interest in the sold dwelling within that three year period but was prevented from doing so by exceptional circumstances that could not reasonably have been foreseen, such longer period as HMRC may allow in response to an application made in accordance with sub-paragraph (7B).

(7B) An application for the purposes of sub-paragraph (7A)(b) must—

(a) be made within the period of 12 months beginning with the effective date of the transaction disposing of the major interest in the sold dwelling, and

(b) be made in such form and manner, and contain such information, as may be specified by HMRC.

(7C) Schedule 11A (claims not included in returns) does not apply in relation to an application made in accordance with sub-paragraph (7B).”

(3) In paragraph 8 (further provision in connection with paragraph 3(6) and (7))—

(a) in sub-paragraph (3), after “paragraph 3(7)” insert “by virtue of paragraph 3(7A)(a)”;

(b) in sub-paragraph (4), after “paragraph 3(7)” insert “by virtue of paragraph 3(7A)(a)”;

(c) after sub-paragraph (4) insert—

“(5) Where HMRC grant an application made in accordance with paragraph 3(7B)—

(a) the land transaction return in respect of the transaction concerned is treated as having been amended to take account of the application of paragraph 3(7) by virtue of paragraph 3(7A)(b), and

(b) HMRC must notify the purchaser accordingly.”

(4) The amendments made by this section have effect in a case where the effective date of the transaction concerned is on or after 1 January 2017.”—(Jesse Norman.)

This new clause amends Schedule 4ZA to the Finance Act 2003 to provide that where a person purchases a dwelling intending it to be their only or main residence, the three-year period within which a major interest in the previous dwelling must be disposed of to be able to obtain a refund of the higher rate stamp duty land tax may be extended to a longer period if, because of exceptional circumstances, the interest was not disposed of in that three-year period.

Brought up, read the First and Second time, and added to the Bill.

New Clause 25

HGV road user levy

“(1) Section 5(2) of the HGV Road User Levy Act 2013 (HGV road user levy charged for all periods for which a UK heavy goods vehicle is charged to vehicle excise duty) does not apply where the period for which a UK heavy goods vehicle is charged to vehicle excise duty is a period that begins in the exempt period.

(2) Section 6(2) of the 2013 Act (HGV road user levy charged in respect of non-UK heavy goods vehicle for each day on which the vehicle is used or kept on a road to which the Act applies) does not apply in respect of any day in the exempt period.

(3) The exempt period is the period of 12 months beginning with 1 August 2020.

(4) Section 7 of the 2013 Act (rebate of levy) has effect as if, after subsection (2A), there were inserted—

“(2B) A rebate entitlement also arises where HGV road user levy has been paid in respect of a non-UK heavy goods vehicle in accordance with section 6(2) in respect of any part of the exempt period within the meaning of section (HGV road user levy)(3) of the Finance Act 2020.””—(Jesse Norman.)

This new clause provides that HGV road user levy is not chargeable in respect of the period of 12 months beginning with 1 August 2020. It provides that where the levy has been paid in respect of a non-UK heavy goods vehicle in respect of the exempt period a rebate can be claimed (no equivalent provision being required for UK heavy goods vehicles which will benefit from the exemption in respect of any period for which the levy would otherwise be paid that begins during the exempt period).

Brought up, read the First and Second time, and added to the Bill.

New Clause 32

Enterprise management incentives: disqualifying events

“(1) The modifications made by this section apply for the purposes of determining whether a disqualifying event occurs or is treated as occurring in relation to an employee in accordance with section 535 of ITEPA 2003 (enterprise management incentives: disqualifying events relating to employee).

(2) Paragraph 26 of Schedule 5 to ITEPA 2003 (requirement as to commitment of working time) has effect as if, in sub-paragraph (3)—

(a) the “or” at the end of paragraph (c) were omitted, and

(b) at the end of paragraph (d), there were inserted “, or

(e) not being required to work for reasons connected with coronavirus disease (within the meaning given by section 1(1) of the Coronavirus Act 2020).”

(3) Paragraph 27 of that Schedule (meaning of “working time”) has effect as if, in sub-paragraph (1)(b), for “(d)” there were substituted “(e)”.

(4) Section 535 of ITEPA 2003 has effect as if, in the closing words of subsection (3), for “(d)” there were substituted “(e)”.

(5) The modifications made by this section have effect in relation to the period—

(a) beginning with 19 March 2020, and

(b) ending with 5 April 2021.

(6) The Treasury may by regulations made in the tax year 2020-21 amend subsection (5)(b) by replacing “2021” with “2022”.”—(Jesse Norman.)

This new clause provides that a disqualifying event does not occur in relation to an individual as regards enterprise management incentives as a result of the individual taking leave, being furloughed or working reduced hours because of coronavirus disease.

Brought up, read the First and Second time, and added to the Bill.

New Schedule 1

Taxation of coronavirus support payments

Accounting for coronavirus support payments referable to a business

1 (1) This paragraph applies if a person carrying on, or who carried on, a business (whether alone or in partnership) receives a coronavirus support payment that is referable to the business.

(2) So much of the coronavirus support payment as is referable to the business is a receipt of a revenue nature for income tax or corporation tax purposes and is to be brought into account in calculating the profits of that business—

(a) under the applicable provisions of the Income Tax Acts, or

(b) under the applicable provisions of the Corporation Tax Acts.

(3) Subject to paragraph 2(5), sub-paragraph (2) does not apply to an amount of a coronavirus support payment if—

(a) the business to which the amount is referable is no longer carried on by the recipient of the amount, and

(b) the amount is not referable to activities of the business undertaken at a time when it was being carried on by the recipient of the amount.

(4) If an amount of the coronavirus support payment is referable to more than one business or business activity, the amount is to be allocated between those businesses or activities on a just and reasonable basis.

(5) Paragraph 3 contains provision about when, in certain cases, an amount of a coronavirus support payment is, or is not, referable to a business for the purposes of this paragraph and paragraph 2.

(6) In this Schedule “business” includes—

(a) a trade, profession or vocation;

(b) a UK property business or an overseas property business;

(c) a business consisting wholly or partly of making investments.

Amounts not referable to activities of a business which is being carried on

2 (1) This paragraph applies if a person who carried on a business (whether alone or in partnership) receives a coronavirus support payment that—

(a) is referable to the business, and

(b) is not wholly referable to activities of the business undertaken while the business was being carried on by the recipient of the payment.

(2) So much of the coronavirus support payment as is referable to the business but which is not referable to activities of the business undertaken while the business was being carried on by the recipient of the payment is to be treated as follows.

(3) An amount referable to a trade, profession or vocation is to be treated as a post-cessation receipt for the purposes of Chapter 18 of Part 2 of ITTOIA 2005 or Chapter 15 of Part 3 of CTA 2009 (trading income: post-cessation receipts), and—

(a) in the application of Chapter 18 of Part 2 of ITTOIA 2005 to that amount, section 243 (extent of charge to tax) is omitted, and

(b) in the application of Chapter 15 of Part 3 of CTA 2009 to that amount, section 189 (extent of charge to tax) is omitted.

(4) An amount referable to a UK property business or an overseas property business is to be treated (in either case) as a post-cessation receipt from a UK property business for the purposes of Chapter 10 of Part 3 of ITTOIA 2005 or Chapter 9 of Part 4 of CTA 2009 (property income: post- cessation receipts), and—

(a) in the application of Chapter 10 of Part 3 of ITTOIA 2005 to that amount, section 350 (extent of charge to tax) is omitted, and

(b) in the application of Chapter 9 of Part 4 of CTA 2009 to that amount, section 281 (extent of charge to tax) is omitted.

(5) In any other case, for the purposes of paragraph 1(3)—

(a) the recipient of the amount is to be treated as if carrying on the business to which the amount is referable to at the time of the receipt of the amount, and

(b) the amount is to be treated as if it were referable to activities undertaken by the business at that time.

(6) Where the recipient of the amount has incurred expenses that—

(a) are referable to the amount, and

(b) would be deductible in calculating the profits of the business if it were being carried on at the time of receipt of the amount,

the amount brought into account under paragraph 1(2) by virtue of sub-paragraph (5) is to be reduced by the amount of those expenses.

(7) But sub-paragraph (6) does not apply to expenses of a person that arise directly or indirectly from the person ceasing to carry on business.

Amounts referable to businesses in certain cases

3 (1) An amount of a coronavirus support payment made under an employment-related scheme—

(a) is referable to the business of the person entitled to the payment as an employer (even if the person is not for other purposes the employer of the employees to whom the payment relates), and

(b) is not referable to any other business (and no deduction for any expenses in respect of the same employment costs which are the subject of the payment is allowed in calculating the profits of any other business or in calculating the liability of any other person to tax charged under section 242 or 349 of ITTOIA 2005 or section 188 or 280 of CTA 2009 (post-cessation receipts)).

(2) A coronavirus support payment made under the self-employment income support scheme is referable to the business of the individual to whom the payment relates.

(3) Where an amount of a coronavirus support payment made under the self-employment income support scheme is brought into account under paragraph 1(2), the whole of the amount is to be treated as a receipt of a revenue nature of the tax year 2020-21 (irrespective of its treatment for accounting purposes).

(4) But sub-paragraph (3) does not apply to an amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of a firm where the amount is distributed amongst the partners (rather than being retained by the partner).

(5) An amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of a firm that is retained by the partner (rather than being distributed amongst the partners) is not to be treated as a receipt of the firm.

(6) Accordingly—

(a) the receipt is not to be included in the calculation of the firm’s profits for the purposes of determining the share of profits or losses for each partner of the firm (see sections 849 to 850E of ITTOIA 2005 and sections 1259 to 1265 of CTA 2009), and

(b) the receipt is then to be added to the partner’s share.

Exemptions, reliefs and deductions

4 (1) An amount of a coronavirus support payment that relates only to mutual activities of a business that carries on a mutual trade is to be treated as if it were income arising from those activities (and accordingly the amount is not taxable).

(2) A coronavirus support payment is to be ignored when carrying out the calculation—

(a) in section 528(1) of ITA 2007 (incoming resources limit for charitable exemptions);

(b) in section 482(1) of CTA 2010 (incoming resources limit for charitable companies);

(c) in section 661CA(1) of CTA 2010 (income condition for community amateur sports clubs).

(3) A coronavirus support payment made under an employment-related scheme is to be ignored when carrying out the calculation—

(a) in section 662(2) of CTA 2010 (exemption from corporation tax for UK trading income of community amateur sports clubs);

(b) in section 663(2) of that Act (exemption from corporation tax for UK property income community amateur sports clubs).

(4) No relief under Chapter 1 of Part 6A of ITTOIA 2005 (trading allowance) is given to an individual on an amount of a coronavirus support payment made under the self-employment income support scheme brought into account under paragraph 1(2) as profits of that tax year.

(5) For the purposes of that Part, such an amount is to be ignored when calculating the individual’s “relevant income” for that tax year under Chapter 1 of that Part.

(6) Neither section 57 of ITTOIA 2005 nor section 61 of CTA 2009 (deductions for pre-trading expenses) (including as they apply by virtue of sections 272 and 272ZA of ITTOIA 2005 and section 210 of CTA 2009) apply to employment costs where an amount of a coronavirus support payment made under an employment-related scheme relates to those costs.

Charge where employment costs deductible by another

5 (1) Income tax is charged on an amount of a coronavirus support payment made under an employment-related scheme if conditions A and B are met.

(2) Condition A is that the amount is neither brought into account under paragraph 1(2) in calculating the profits of a business carried on by the person entitled to the payment as an employer nor treated, by virtue of paragraph 2(3) or (4), as a post-cessation receipt arising from the carrying on of such a business.

(3) Condition B is that expenses incurred by another person in respect of the same employment costs which are the subject of the coronavirus support payment and to which the amount relates are deductible—

(a) in calculating the profits of a business carried on by that other person (for income or corporation tax purposes), or

(b) in calculating the liability of that other person to tax charged under section 242 or 349 of ITTOIA 2005 or section 188 or 280 of CTA 2009 (post-cessation receipts).

(4) Tax is charged under sub-paragraph (1) on the whole of the amount to which that sub-paragraph applies.

(5) The person liable for tax charged under sub-paragraph (1) is the person entitled to the coronavirus support payment as an employer.

(6) Section 3(1) of CTA 2009 (exclusion of charge to income tax) does not apply to an amount of a coronavirus support payment that is charged under this paragraph.

Charge where no business carried on

6 (1) Tax is charged on an amount of a coronavirus support payment, other than a payment made under an employment-related scheme or the self-employment income support scheme, if—

(a) the amount is neither brought into account under paragraph 1(2) in calculating the profits of a business nor treated as a post-cessation receipt by virtue of paragraph 2(3) or (4), and

(b) at the time the coronavirus support payment was received, the recipient did not carry on a business whose profits are charged to tax and to which the payment could be referable.

(2) In this paragraph “tax” means—

(a) corporation tax, in the case of a company that (apart from this paragraph) is chargeable to corporation tax, or to any amount chargeable as if it was corporation tax, or

(b) income tax, in any other case.

(3) Tax is charged under sub-paragraph (1) on the whole of the amount to which that sub-paragraph applies.

(4) The person liable for tax charged under sub-paragraph (1) is the recipient of that amount.

(5) Where income tax is charged under sub-paragraph (1), sections 527 and 528 of ITA 2007 (exemption and income condition for charitable trusts) have effect as if sub-paragraph (1) were a provision to which section 1016 of that Act applies.

(6) Where corporation tax is charged under sub-paragraph (1), sections 481 and 482 of CTA 2010 (exemption and income condition for charitable companies) have effect as if sub-paragraph (1) were a provision to which section 1173 of that Act applies.

Modification of the Tax Acts

7 The Treasury may by regulations modify the application of any provision of the Tax Acts that affects (or that otherwise would affect) the treatment of—

(a) receipts brought into account under paragraph 1(2),

(b) amounts treated as post-cessation receipts under paragraph 2(3) or (4), or

(c) amounts charged under paragraph 5(1) or 6(1).

Charge if person not entitled to coronavirus support payment

8 (1) A recipient of an amount of a coronavirus support payment is liable to income tax under this paragraph if the recipient is not entitled to the amount in accordance with the scheme under which the payment was made.

(2) But sub-paragraph (1) does not apply to an amount of a coronavirus support payment made under a coronavirus business support grant scheme or the coronavirus statutory sick pay rebate scheme.

(3) For the purposes of this Schedule, references to a person not being entitled to an amount include, in the case of an amount of a coronavirus support payment made under the coronavirus job retention scheme, a case where the person ceases to be entitled to retain the amount after it was received—

(a) because of a change in circumstances, or

(b) because the person has not, within a reasonable period, used the amount to pay the costs which it was intended to reimburse.

(4) Income tax becomes chargeable under this paragraph—

(a) in a case where the person was entitled to an amount of a coronavirus support payment paid under the coronavirus job retention scheme but subsequently ceases to be entitled to retain it, at the time the person ceases to be entitled to retain the amount, or

(b) in any other case, at the time the coronavirus support payment is received.

(5) The amount of income tax chargeable under this paragraph is the amount equal to so much of the coronavirus support payment—

(a) as the recipient is not entitled to, and

(b) as has not been repaid to the person who made the coronavirus support payment.

(6) Where income tax which is chargeable under this paragraph is the subject of an assessment (whether under paragraph 9 or otherwise)—

(a) paragraphs 1 to 6 do not apply to the amount of the coronavirus support payment that is the subject of the assessment,

(b) that amount is not, for the purposes of Step 1 of the calculation in section 23 of ITA 2007 (calculation of income tax liability), to be treated as an amount of income on which the taxpayer is charged to income tax (but see paragraph 10 which makes further provision about the application of that section), and

(c) that amount is not to be treated as income of a company for the purposes of section 3 of CTA 2009 (and accordingly the exclusion of the application of the provisions of the Income Tax Acts to the income of certain companies does not apply to the receipt of an amount charged under this paragraph).

(7) No loss, deficit, expense or allowance may be taken into account in calculating, or may be deducted from or set off against, any amount of income tax charged under this paragraph.

(8) In calculating profits or losses for the purposes of corporation tax, no deduction is allowed in respect of the payment of income tax charged under this paragraph.

(9) For the purposes of this paragraph and paragraphs 9(4) and 14, a firm is not to be regarded as receiving an amount of a coronavirus support payment made under the self-employment income support scheme in respect of a partner of that firm that is retained by the partner (rather than being distributed amongst the partners).

Assessments of income tax chargeable under paragraph 8

9 (1) If an officer of Revenue and Customs considers (whether on the basis of information or documents obtained by virtue of the exercise of powers under Schedule 36 to FA 2008 or otherwise) that a person has received an amount of a coronavirus support payment to which the person is not entitled, the officer may make an assessment in the amount which ought in the officer’s opinion to be charged under paragraph 8.

(2) An assessment under sub-paragraph (1) may be made at any time, but this is subject to sections 34 and 36 of TMA 1970.

(3) Parts 4 to 6 of TMA 1970 contain other provisions that are relevant to an assessment under sub-paragraph (1) (for example, section 31 makes provision about appeals and section 59B(6) makes provision about the time to pay income tax payable by virtue of an assessment).

(4) Where income tax is chargeable under paragraph 8 in relation to an amount of a coronavirus support payment received by a firm—

(a) an assessment (under sub-paragraph (1) or otherwise) may be made on any of the partners in respect of the total amount of tax that is chargeable,

(b) each of the partners is jointly and severally liable for the tax so assessed, and

(c) if the total amount of tax that is chargeable is included in a return under section 8 of TMA 1970 made by one of the partners, the other partners are not required to include the tax in returns made by them under that section.

Calculation of income tax liability

10 (1) Section 23 of ITA 2007 (calculation of income tax liability) applies in relation to a person liable to income tax charged under paragraph 8 as if that paragraph were included in the lists of provisions in subsections (1) and (2) of section 30 of that Act (amounts of tax added at step 7).

(2) For the purposes of paragraph 7(2) of Schedule 41 to FA 2008, a relevant obligation relating to income tax charged under paragraph 8 of this Schedule relates to a tax year if the income tax became chargeable in that tax year.

(3) But this paragraph does not apply to a company to which paragraph 11 (companies chargeable to corporation tax) applies.

Calculation of tax liability: companies chargeable to corporation tax

11 (1) This paragraph applies where a person liable to income tax charged under paragraph 8 is a company that is chargeable to corporation tax, or to any amount chargeable as if it was corporation tax, in relation to a period within which the income tax became chargeable.

(2) Part 5A of TMA 1970 (payment of tax) applies in relation to that company as if—

(a) the reference to “corporation tax” in subsection (1) of section 59D (general rule as to when corporation tax is due and payable) included income tax charged under paragraph 8 of this Schedule;

(b) an amount of income tax charged under paragraph 8 of this Schedule were an amount within subsection (6) of section 59F (arrangements for paying tax on behalf of group members);

(c) any reference in section 59G (managed payment plans) to “corporation tax” included income tax charged under paragraph 8 of this Schedule.

(3) Part 9 of that Act (interest on overdue tax) applies in relation to that company as if—

(a) the references in section 86 (interest on overdue income tax and capital gains tax) to “income tax” did not include income tax charged under paragraph 8 of this Schedule;

(b) in subsection (1) of section 87A (interest on overdue corporation tax) the reference to “corporation tax” included income tax charged under paragraph 8 of this Schedule.

(4) Schedule 18 to FA 1998 (company tax returns etc.) applies in relation to that company as if—

(a) any reference in that Schedule to “tax”, other than the references in paragraph 2 of that Schedule (duty to give notice of chargeability), included income tax charged under paragraph 8 of this Schedule, and

(b) in paragraph 8(1) of that Schedule (calculation of tax payable), at the end there were inserted—

“Sixth step

Add any amount of income tax chargeable under paragraph 8 of Schedule (Taxation of coronavirus support payments) to the Finance Act 2020.”

(5) But the modifications of that Schedule are to be ignored for the purposes of the Corporation Tax (Instalment Payments) Regulations 1998 (S.I. 1998/3175).

(6) Schedule 41 to FA 2008 applies in relation to that company as if —

(a) the references to “income tax” in paragraph 7(2) did not include income tax charged under paragraph 8 of this Schedule;

(b) the reference to “corporation tax” in paragraph 7(3) included income tax charged under paragraph 8 of this Schedule;

(but see paragraph 13(5) of this Schedule which has the effect that paragraph 7 of that Schedule does not apply in certain circumstances).

(7) For the purposes of paragraph 7(3) of Schedule 41 to FA 2008 (as modified by sub-paragraph (6)), a relevant obligation relating to income tax charged under paragraph 8 of this Schedule relates to an accounting period if the income tax became chargeable in that period.

Notification of liability under paragraph 8

12 (1) Section 7 of TMA 1970 (notice of liability to income tax and capital gains tax) applies in relation to income tax chargeable under paragraph 8 as provided for in sub-paragraphs (2) to (5).

(2) Subsection (1) has effect as if paragraph (b) (and the “and” before it) were omitted.

(3) Subsection (1) has effect as if the reference to “the notification period” were to the period commencing on the day on which the income tax became chargeable and ending on the later of—

(a) the 90th day after the day on which this Act is passed, or

(b) the 90th day after the day on which the income tax became chargeable.

(4) Subsection (3)(c) has effect as if after “child benefit charge” there were inserted “or to income tax under paragraph 8 of Schedule (Taxation of coronavirus support payments) to the Finance Act 2020”.

(5) In relation to income tax chargeable under paragraph 8 in relation to an amount of a coronavirus support payment received by a firm, the duty in subsection (1) (as it has effect by virtue of sub-paragraphs (2) and (3)) is taken to have been complied with by each of the partners if one of the partners has complied with it.

(6) The reference in section 36(1A)(b) of TMA 1970 (20 year period for assessment in a case involving a loss of income tax) to a failure to comply with an obligation under section 7 of that Act is not to be taken as including a failure arising by virtue of the modification of that section by this paragraph, unless the failure is one to which paragraph 13 applies.

Penalty for failure to notify: knowledge of non-entitlement to payment

13 (1) This paragraph applies to a failure of a person to notify, under section 7 of TMA 1970 (as modified by paragraph 12), a liability to income tax chargeable under paragraph 8 where the person knew, at the time the income tax first became chargeable, that the person was not entitled to the amount of the coronavirus support payment in relation to which the tax is chargeable.

(2) Schedule 41 to FA 2008 (failure to notify) applies to a failure described in sub-paragraph (1) as follows.

(3) The failure is to be treated as deliberate and concealed.

(4) Accordingly, paragraph 6 of that Schedule has effect as if the references to a penalty for “a deliberate but not concealed failure” or for “any other case” were omitted.

(5) For the purposes of that Schedule (except in a case falling within paragraph 14 of this Schedule), the “potential lost revenue” is to be treated as being the amount of income tax which would have been assessable on the person at the end of the last day of the notification period (see paragraph 12(3)).

Penalties: partnerships

14 (1) This paragraph applies to a failure to notify, under section 7 of TMA 1970 (as modified by paragraph 12), a liability to income tax chargeable under paragraph 8 by a partner of a firm that received the amount of the coronavirus support payment in relation to which the tax is chargeable.

(2) For the purposes of paragraph 13(1) of this Schedule, each partner is taken to know anything that any of the other partners knows.

(3) Where a partner would be liable to a penalty under Schedule 41 to FA 2008 (whether in a case falling within paragraph 13 or otherwise), the partner is instead jointly and severally liable with the other partners to a single penalty under that Schedule for the failures by each of them to notify.

(4) In a case not falling within paragraph 13, if the failure of at least one of the partners—

(a) was deliberate and concealed, the single penalty is to be treated as a penalty for a deliberate and concealed failure;

(b) was deliberate but not concealed, the single penalty is to be treated as a penalty for a deliberate but not concealed failure.

(5) For the purposes of Schedule 41 to FA 2008, the “potential lost revenue” is to be treated as being the amount of income tax which would have been assessable on any one of the partners (see paragraph 9(4)(a))—

(a) in a case falling within paragraph 13, at the end of the last day of the notification period, or

(b) in any other case, at the end of 31 January following the tax year in which the amount of coronavirus support payment was received by the firm.

(6) Paragraph 22 of that Schedule (limited liability partnerships: members’ liability) does not apply.

Liability of officers of insolvent companies

15 (1) This paragraph—

(a) provides for an individual to be jointly and severally liable to the Commissioners for Her Majesty’s Revenue and Customs for a liability of a company to income tax charged under paragraph 8, where a notice under sub-paragraph (2) is given to the individual, and

(b) applies paragraphs 10 to 15 and 17 of Schedule 13 (joint liability notices: tax avoidance, tax evasion and repeated insolvency and non-payment) to such a notice.

(2) An officer of Revenue and Customs may give a notice under this sub-paragraph to an individual if it appears to the officer that conditions A to D are met.

(3) Condition A is that—

(a) the company is subject to an insolvency procedure, or

(b) there is a serious possibility of the company becoming subject to an insolvency procedure.

(4) Condition B is that the company is liable to income tax under paragraph 8.

(5) Condition C is that the individual was responsible for the management of the company at the time the income tax first became chargeable and the individual knew (at that time) that the company was not entitled to the amount of the coronavirus support payment in relation to which the tax is chargeable.

(6) Condition D is that there is a serious possibility that some or all of the income tax liability will not be paid.

(7) For the purposes of sub-paragraph (5) the individual is responsible for the management of a company if the individual—

(a) is a director or shadow director of the company, or

(b) is concerned (whether directly or indirectly) in, or takes part in, the management of the company.

(8) A notice under sub-paragraph (2) must—

(a) specify the company to which the notice relates;

(b) set out the reasons for which it appears to the officer that conditions A to D are met;

(c) specify the amount of the income tax liability;

(d) state the effect of the notice;

(e) offer the individual a review of the decision to give the notice and explain the effect of paragraph 11 of Schedule 13 (right of review);

(f) explain the effect of paragraph 13 of that Schedule (right of appeal).

(9) An individual who is given a notice under sub-paragraph (2) is jointly and severally liable with the company (and with any other individual who is given such a notice) to the amount of the income tax liability specified under sub-paragraph (8)(c).

For provision under which the amount so specified may be varied, see—

(a) paragraph 10 of Schedule 13 (modification etc),

(b) paragraphs 11 and 12 of that Schedule (review), and

(c) paragraphs 13 and 14 of that Schedule (appeal).

(10) Paragraphs 10 to 15 and 17 of Schedule 13 apply to a notice under sub-paragraph (2) as they apply to a joint liability notice (see paragraph 1(2) of that Schedule) as if—

(a) the references in those paragraphs to “relevant conditions” were to conditions A to D in this paragraph;

(b) sub-paragraphs (3) and (4) of paragraph 10 were omitted (and references to sub-paragraph (3) in that paragraph were omitted);

(c) in paragraph 10(6)(a), after “or (9)” there were inserted “or paragraph 15(8)(c) of Schedule (Taxation of coronavirus support payments)”;

(d) in paragraph 12(6)(b) after “5(9)” there were inserted “or paragraph 15(8)(c) of Schedule (Taxation of coronavirus support payments)”.

(11) Expressions used in this paragraph and in Schedule 13 have the same meaning in this paragraph as they have in that Schedule (subject to the modification made by sub-paragraph (10)(a)).”—(Jesse Norman.)

This new Schedule makes provision about the taxation of payments made under various coronavirus related business support schemes, including the coronavirus job retention scheme (“CJRS”) and the self-employment income support scheme (“SEISS”). Paragraphs 1 to 7 clarify how payments under those schemes are to be subject to tax, following (with some exceptions) the normal principles for taxing receipts of a business. Paragraph 8 provides that where a person receives an amount to which they were not entitled under CJRS or SEISS, or misapplies an amount paid under CJRS, the person will be liable to income tax at the rate of 100% in relation to so much of that amount as was not repaid to HMRC. Paragraphs 9 to 15 make provision in connection with that charge (for example in relation to assessments and penalties).

Brought up, read the First and Second time, and added to the Bill.

Third Reading

[Jesse Norman]

I beg to move, That the Bill be now read the Third time.

This Finance Bill stands in the shadow of a pandemic unprecedented in its scale and reach. We are keenly aware of the immense challenges and pressures that that has placed on us. These conditions—this situation—cannot and will not be ignored. The Government are working flat out to alleviate the impact of covid-19 on the economy, on the public finances, and, most importantly, on the health and wellbeing of every person and family in the United Kingdom.

My right hon. Friend the Chancellor has announced numerous measures over the past few months in response to the virus, including the job retention scheme, the business interruption loan scheme, and the self-employment income scheme. Together, this represents, contrary to many of the comments made in the previous debate, an economic intervention by Government on a scale hitherto unseen in peacetime, and necessarily so. At such a difficult time for millions of people around the United Kingdom, the Government have worked to protect businesses and are specifically focused on the wellbeing of the most vulnerable in society.

Of course we recognise, and the House must recognise, that this is a still a work in progress and there is a way to go. The crisis is not over. The pandemic continues. People around this country are still suffering and may do so for many months yet. The Government will continue to work to lessen the impact, but it remains the responsibility, the duty and the important role of businesses, families and individuals to play their part, too, in this colossal collective national effort. Together, we must work to bring ourselves through and out of this crisis.

The Bill supports the emergency services as they go about their vital duties and exempts from vehicle excise duty vehicles that have been purpose-built to transport NHS products. The Government have introduced new clauses that were considered today to ensure that workers who have returned to public sector jobs to help fight the effects of the pandemic will face no adverse pensions consequences from doing so. The Bill reforms the tapered annual allowance so that doctors can spend more time treating patients without facing precipitous tax bills. This pandemic has brought out, in many ways, the best in our society, and I am certain that the Britain that emerges from it will be stronger and fairer.

The Bill provides tax exemptions specifically for those who receive payments under the Windrush compensation scheme, the troubles permanent disablement payment scheme and the Kindertransport fund, as well as for care leavers who are starting apprenticeships, and rightly so.

The necessary focus on the here and now must not come at the expense of tomorrow. In the words of the Prime Minister, our great national hibernation is coming to an end, and we must and will now at last look to the future. Now is the time to start to rebuild the economy and to restore our public finances. Our police, our teachers, our armed forces and many other public sector workers have all played their part in combating this pandemic alongside the NHS. I would also single out, as I have said, our public servants in the civil service, particularly in my own area of HM Treasury and within HMRC.

This public sector support cannot be provided for if the public finances are not supported, in turn, with a fair and sustainable tax system. That is a key fact. We do that while seeking to remain competitive internationally, and maintaining the corporation tax rate at 19% is therefore the right approach. Even at that level, it is still the lowest headline rate in the G20, and it reminds the world of UK strength as a location for inward investment.

But we have also been clear about fairness. Everyone must pay their fair share of tax. That is one reason we have introduced the digital services tax, for which this Bill also legislates. A tax set at a rate of 2% on revenues from digital services will ensure that digital businesses pay a fairer share of UK tax that more accurately reflects the significant value that they derive from their UK users. As we look to recovery, we want business to receive the support that it needs. That is why we have delayed the extension of the off-payroll working reforms in the private sector to April 2021.

Businesses need time to prepare for the reforms, and it would have been burdensome to ask them to do so during the pandemic.

We focus on innovation in the Finance Bill. We wish to go further to support enterprise in this country, which will be desperately needed in the coming months. This country has a proud history of innovation, and increasing the research and development expenditure credit rate to 13% will allow that to continue. The structures and buildings allowance rate increase will also aid investment in new shops, factories and agricultural buildings, which will help to stimulate capital investment across the nation. As ever, we are committed to levelling up across the United Kingdom.

As has been pointed out, covid-19 is not the only crisis that we face. The Government have committed to reducing the United Kingdom’s carbon emissions to net zero by 2050. The Bill is another step towards that target. Not only does it pave the way for the forthcoming plastic packaging tax, but it removes the vehicle excise duty expensive car supplement for zero-emissions vehicles and ensures that, now we have left the European Union, a carbon price will remain in place. Those measures will help to ensure that our post-covid-19 economy is greener than before.

At the end of 10 hours of debate in the last two days, for which I thank all my colleagues and the Opposition Front-Bench team, we understand that the world during the passage of the Bill has changed. Its impact on this House, our daily lives and our economic outlook has radically altered. To some extent, we have made changes on the fly to shore up and support our public services and our response to the pandemic. As a result, the Bill is a firm foundation—indeed, firmer than it was originally framed—on which we can rebuild our economy and protect our public finances as we recover from this devastating virus. The Bill supports businesses, the vulnerable and our key workers, and I commend it to the House.

--- Later in debate ---

[Alison Thewliss]

Like everybody, I acknowledge these extraordinary times. The world has changed since the Budget was announced in March. All the certainties that we used to rely upon are gone, and things that we thought that the Government would never do, never say or never spend money on are suddenly things that are no barrier whatever. That goes some way to show that the Government can do a lot more when they want to, and that should give us some hope that they may go back on things they have said before.

I wish to take this opportunity to thank everybody who has contributed to debates on the Bill. I thank the Clerks and the Bill team, who have been so incredibly helpful; I thank you, Madam Deputy Speaker, for your sage advice; and I thank my hon. Friend the Member for Aberdeen South (Stephen Flynn), whose first Finance Bill this is and who has done a fantastic job representing both his constituents and the party.

I also thank our researchers, Scott Taylor and Jonathan Kiehlmann, who have supported us so well throughout this process—with all the amendments that we tabled and having to learn about everybody else’s amendments, it has been a huge challenge to keep up but they have risen to it admirably—and Mhairi Love in my office, who has also done an incredible job while studying for her exams and completing a dissertation. She has provided support to me throughout all that and I thank her for it. I thank the people on Twitter who think I talk too quickly. I swear that I am making an effort to slow down; this is just how I speak.

I repeat the call for evidence that I made at the start of the Bill’s progress. A Finance Bill Committee should be able to take evidence. Other Bill Committees in this House have the practice—for example, the Domestic Abuse Bill Committee for England and Wales took evidence from experts. It seems absolutely ludicrous that Finance Bills, which affect so many different aspects of everybody’s lives, do not take evidence from experts at the start and instead rely on getting written evidence and us scrutinising that written evidence, rather than being able to ask questions about the Government’s policies and find the best way through. I also reiterate that some kind of standing committee on the Budget is very much required to keep an eye on what the Government are doing and how effective their policies and proposals are.

Many questions remain at the end of this Budget process, and I suppose the first of those is whether we will be back here for another Budget in the autumn. Issues such as the loan charge and IR35 are not going away, as much as the Government would like them to. We cannot predict the course of the coronavirus, but we do know that the UK Government’s handling of it has been far from impressive. As I said yesterday, I fear a return to mass unemployment. The Treasury has the toughest of decisions to make, but it ought to put wellbeing and people first, because if we do not have that, we will not have much else to go with afterwards.

[Jesse Norman]

The hon. Lady has raised the loan charge; we did not really get a sense of it yesterday, but is the SNP in favour of the loan charge as a substantive matter or against it?

[Alison Thewliss]

We believe that there are still many questions to be answered on the loan charge, not least the revelations in the press during the week over the FOI request that have raised more questions. We want to see further probing on the issue and further support for those people who have ended up losing not only their livelihoods but their homes—and some have lost their lives. It is no light-hearted matter to be considered in such a flippant way.

If the Financial Secretary to the Treasury wants to prevent scarring in the economy, he must encourage his colleague the Chancellor to be bolder next week. He must keep the job retention scheme and the self-employment support scheme going, and he must fill the gaps in those schemes when he makes his announcement next week, because too many people have lost out and too many sectors are not yet back to full strength. When that change comes—when people have to pay more of the wage costs themselves—we will see more and more employers doing what many employers have done this week and simply deciding to hand back the keys, fire their staff and wind up their companies. And the unemployment figures will soar.