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.