Netflix: Tax Affairs

Jesse Norman Excerpts

Monday 3rd February 2020 Commons Chamber

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

May I begin by thanking the right hon. Member for Barking (Dame Margaret Hodge) for calling this debate on an interesting and important topic that is of great public import? Members across the House will be aware of the interest that she has taken for many years in matters of tax avoidance, and I am grateful for the opportunity to speak in the debate and to outline work that the Government are doing to address concerns.

As the right hon. Lady will know, although I have overall responsibility for the tax system, I and other Ministers are never privy to information about the tax affairs of specific companies or individuals. This is a basic safeguard for taxpayers that is designed to ensure that Her Majesty’s Revenue and Customs can administer the tax system independently and without political interference. I am not, therefore, in a position to comment on the situation with Netflix as such, although I would like to reassure her that I have taken time to read around the subject of the debate, which excites a range of differing views. She will be aware that many of the wider concerns that she expresses are shared by Members across the House. I myself have written about them at some length and indeed pursued them as a member of the Treasury Committee, as she noted. In particular, she has raised several important general points about the tax system, which I would like to address.

The UK, like most major economies, taxes multinational companies based on the profits attributable to the economic activities they undertake here—for example, product development or manufacturing. That point has been well made by the right hon. Lady. That means that revenues alone are not a useful indicator of the amount of tax that a business should be paying in the UK. It is also necessary to consider the profitability of the business concerned, and the extent to which the activities that generate profits take place in the UK or abroad. However, the Government recognise that some multinational businesses have sought to avoid paying their fair share of tax in the UK by entering into contrived arrangements to divert profits to low tax jurisdictions, depriving the Exchequer of revenues needed to fund the public services on which we all reply. That is completely unacceptable, which is why the Government have taken robust action designed to inhibit or prevent it.

Internationally, the Government have been at the forefront of efforts to ensure that multinational companies pay their fair share of tax. In 2013, the UK used its presidency of the G8 to initiate the OECD’s base erosion and profit shifting project, which carried out a comprehensive review of international tax rules. The BEPS project recommended a range of measures to combat tax avoidance, which the UK has led in implementing. They include rules restricting companies’ ability to shift profits using interest deductions, rules counteracting tax avoidance arrangements involving so-called hybrid mismatches, a requirement for multi- nationals to disclose information about their sales, profits and assets in each country to HMRC, and new rules to prevent the abuse of tax treaties.

The Government have also acted unilaterally where needed. In 2015, they enacted the diverted profits tax, which charges a higher rate of tax on profits diverted from the UK in order to encourage companies to declare the right amount of profits. In 2019, they introduced a tax charge on offshore receipts in respect of intangible property—known in the trade as ORIP—which targets companies that hold valuable intangible assets, such as brands or technology rights, in low-tax jurisdictions. Such measures have significantly curbed the ability of multinational companies to shift profits to low-tax jurisdictions and have collectively raised over £8 billion for the Exchequer.

However, we must be realistic about the scale of the problem, not merely in the UK but around the world. New digital business models continue to pose challenges for international tax rules, and the sad fact remains that the vast majority of the rules were developed prior to the digital revolution of the past two decades. The Government therefore strongly support further work that is being undertaken at the OECD to reform profit allocation rules to ensure that market economies, including the UK, can tax a fair share of the profits of highly digitalised businesses. Only last week, UK officials attended meetings of the OECD in Paris, at which countries agreed to an outline of reforms. It is a complex area and there remains much work to be done, but the Government are optimistic that global agreement will be reached.

[Wes Streeting (Ilford North) (Lab)]

I thank the Minister for giving way. He is right to emphasise the importance of international co-operation, but the passage of time since many of these arrangements were agreed and the prevalence of the problems today suggest that international action has not been sufficient. What about the two examples of unilateral action that my right hon. Friend mentioned: a withholding tax applied in this country, or an extension of the ambit of the digital services tax that the Government currently have under consideration?

[Jesse Norman]

I thank the hon. Gentleman for his question, although it is a pity that he asks a question that has already been asked when we are short of time in a debate, because that does not allow me the time to come back to the right hon. Member for Barking, who asked the question in the first place. If they permit me, I will get to his point in due course after I address another issue raised by the right hon. Lady that is of great importance to the debate.

Turning to creative sector tax reliefs, we need to be clear that the creative industries make an important and extremely valuable cultural contribution to the UK. They are also an important part of a dynamic and diversified economy, with the UK’s world-famous creative industries making a record contribution to the economy in 2017 by breaking through the £100 billion mark. The Government are committed to supporting these highly skilled and innovative industries as they support economic growth across the UK. That is why the Government continue to offer support for the creative industries through eight sector-specific tax reliefs. The most established of those are reliefs for British film and high-end television productions. The reliefs have supported over £19 billion of UK expenditure, including the completion of 90 TV programmes and 245 films in 2018-19 alone. The success and popularity of British films overseas is well known. The UK film industry exported a record £2.6 billion-worth of services in 2017 and employed over 90,000 people across the UK in 2018.

The effect of the tax reliefs, in turn, is to help cement investor confidence in UK creative skills, infrastructure and innovation. Indeed, investment in facilities has spread to projects around the UK and includes new studio spaces such as Wolf near Cardiff, Pentland in Scotland, Church Fenton in Yorkshire, and the Littlewoods building redevelopment project in Liverpool.

I now turn to the questions raised by the right hon. Lady. She asked about the location where IP is created and whether that should determine the taxation of that IP. As she will be aware, I cannot comment on the circumstances of individual businesses, but under international tax rules, the UK is entitled to tax the shares of a company’s profits that relate to those production activities. That is what we are in a position to do, so she should not have concern on that front.

The right hon. Lady also raised the question of Brazil.

[Martin Docherty-Hughes (West Dunbartonshire) (SNP)]

Will the Minister give way?

[Jesse Norman]

I really have no time if I am to answer the right hon. Lady’s questions. Perhaps I can come back to the hon. Gentleman, but I have already taken two completely irrelevant repetitions of questions that I am trying to answer.

Why can Brazil tax companies but the UK cannot? As the right hon. Lady explained, Brazil has a withholding tax. In the Finance Act 2019, the UK introduced a charge, as I have described, on offshore receipts from intellectual property. That charge, introduced in 2019, completely refutes the suggestion made by the hon. Member for Ilford North (Wes Streeting) that tax arrangements have existed for a long time—in fact, trying to stop these forms of aggressive avoidance and potentially outright evasion is an ever continuing process. The effect of the ORIP rules is to replicate the effect of a withholding tax where IP is held in low-tax territories, along the lines that the right hon. Member for Barking has called for.

The right hon. Lady asked about the digital services tax. As she is probably aware, that is designed to relate to large search engine, social media and online marketplace businesses. Those are different from the case that she is discussing, as they rely on their users to create value where that value is not recognised under current international tax rules. Therefore the set of rules would have to be entirely rewritten to take into account the circumstances of the case that she is describing now, which may be important but is in any case captured by existing Government law in many instances. In any case, the DST is intended to be a temporary measure pending agreement of a long-term global solution, potentially including the United States, that will address the wider challenges posed by digitisation.

I remind the right hon. Lady as she denounces the company in question, for which I hold no brief either way, that it is planning to invest about £232 million in Shepperton Studios. That is not a trivial act and is something that we should be aware of. Finally, she mentioned country-by-country reporting. Again, the law is in place. Since 2017, large multinationals have been disclosing the information to HMRC. Businesses of all shapes and sizes make a valuable contribution to the UK’s creative economy, and it is absolutely right that they should be incentivised to continue to do so. But it is equally right that HMRC should subject large businesses to an appropriate level of scrutiny, and my understanding is that it is actively investigating around half of the UK’s large businesses at any given time. That is a very considerable undertaking and ample testimony to the seriousness with which it takes this issue.

Let me conclude, Mr Deputy Speaker, by thanking you and thanking the right hon. Lady once again for raising this important issue.

Question put and agreed to.

Business Rates Reliefs

Jesse Norman Excerpts

Monday 27th January 2020 Written Statements

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

The Government will increase the retail discount from one third to 50%, extend that discount to cinemas and music venues, extend the duration of the local newspapers office space discount, and introduce an additional discount for pubs.

The increase in the level of the retail discount from one third to 50% will apply in 2020-21 for eligible retail businesses occupying a property with a rateable value less than £51,000.

The extension of the retail discount is to those eligible music venues and cinemas with a rateable value of less than £51,000.

The extension of the £1,500 business rates discount for office space occupied by local newspapers will apply for an additional five years until 31 March 2025.

The pubs discount will provide a £1,000 discount to eligible pubs with a rateable value of less than £100,000 in 2020-21. This is in addition to the retail discount and will apply after the retail discount.

All reliefs are subject to state aid rules and apply in England only.

The Government confirm that they will fully fund local authorities for awarding these reliefs and provide new burdens funding to local authorities for administrative and IT costs.

Local authorities should start preparations to include these changes now, and act promptly to ensure eligible businesses receive the increased support in their rates bills at the start of the financial year.

The Government expect local authorities to ensure these changes are applied for the start of the 2020-21 billing period. The Government will publish amended guidance for the retail discount reflecting these changes as well as refreshed pubs relief guidance for local authorities.

The Barnett formula will be applied in the usual way. Consequentials for the devolved Administrations will be confirmed at the Budget.

[HCWS64]

Growth Strategy

Jesse Norman Excerpts

Tuesday 21st January 2020 Westminster Hall

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

It is a delight to be able to speak for the Government in this first Westminster Hall debate of the new decade, as well as of the new parliamentary term. I congratulate my right hon. Friend the Member for Wokingham (John Redwood) for initiating this debate and for his very wide-ranging and thoughtful speech. I am sure he will be as pleased as I am and as I know Members across the House will be that today’s economic news reinforces a picture of an economy that is growing. The International Monetary Fund predicts that the UK is about to grow faster over the next few years than its major rivals in the eurozone and many of the G7—Germany, France, Italy and also Japan. PwC’s chief executive survey now rates UK attractiveness highly once again—I think we are the fourth most attractive global destination for location for businesses. That is very far from the narrative of isolation that we are hearing from the SNP and indicates the continuing international connectivity and scope for investment in our economy.

As my hon. Friend the Member for Derby North (Amanda Solloway) pointed out—I rejoice to see her back in this House—we are in the extraordinary position of having had 10 years of continuous annual economic growth. That is a remarkable achievement, and I am sure she will be as pleased as I am to see that the latest information is that the jobs market is strengthening, even from its already very strong current position. That economic growth is an amazing fact. If someone had said in the lee of the 2008 financial crisis that, beginning with the Conservative Government of 2010, there would be a full decade of uninterrupted annual economic growth, I do not think there is a person in this country, let alone this Chamber, who would not have bitten their arm off. That is something that we should all delight in, but that we should acknowledge has limitations that we need to try to overcome.

One of the things that was most interesting about my right hon. Friend’s speech was the way in which he highlighted the change in economic policy. He focused on the fiscal change and on the transition from the Budget restraint of the last two Governments to the more expansionary fiscal policy that this Government have indicated in the spending round and that we may see in the Budget. I would suggest there is something slightly deeper going on. There is a change in the Government’s conception of economic policy. We are not thinking of economic policy in what might be called a more purely general equilibrium way, by which investment flows automatically to investable propositions and finds returns. We are determined as a Government to build more energy into that and to adopt a focus that is more specifically targeted on regional needs and identities, and it is that sense of economic policy that marks a distinct intellectual step forward. If anyone is interested, I tried to explain this in a piece in the Financial Times yesterday that highlights this transition.

I will say a bit about the interesting speeches that were made by my right hon. Friend and other Members. He is right to say that lower taxes can be part of a fiscally expansionary policy. He possibly ignores some of the differences between ourselves and the USA. Obviously, the US had a massive fiscal boost, which is something it could do partly because of the dollar’s extreme strength as the global reserve currency. Of course, that was accompanied by a significant—in this country, it would be politically contentious—deregulation in energy. There are important differences between the US economy and our own.

My right hon. Friend mentioned the constraints under which the motor industry operates, but he did not mention dieselgate, which was an absolutely disastrous blow to the credibility of the global diesel manufacturers. Nor did he mention the fact that current diesels are still very heavy emitters—even Euro 6, compared with current environmental standards. The Government have frozen fuel duty and grown VED only in real terms. It is about trying to strike a balance between a shift towards a greener economy, particularly a green transport economy—at a time when we have not quite got to the point in the S-curve where the supply of electric vehicles is coming through at enough scale to warrant people using them—while moderating and mitigating the impact on households.

My right hon. Friend and the hon. Member for Oxford East (Anneliese Dodds) touched on what he described as the top-down imposition of IR35 rules. As he knows, IR35 rules have not changed. All that has changed is the way IR35 is being assessed, and we have called for a review in order to ensure that its implementation can be as smooth as possible. He touched on the issue of public sector productivity—again, rightly—and there might well be scope for using things such as telemedicine to improve the productivity of the public sector, but an intrinsic difficulty is one of the economic laws that we bump up against: Baumol’s cost disease. The cost of services relative to manufacturing continues to escalate, and it is not possible in the public sector to have industrial-type improvements in productivity. We do not want teachers to have too many pupils in the class, and we do not want nurses to have too many people to examine and support, so productivity is intrinsically more limited. The Government must therefore be cleverer about how we use technology, which is the purpose of the new GovTech fund that we have announced.

I will pick up on some of the other themes of the debate before turning to another point. I agree with the comments made by the hon. Member for East Londonderry (Mr Campbell) about the importance of spreading wage growth across the UK, which was a point also made by my hon. Friend the Member for Thirsk and Malton (Kevin Hollinrake) in his very thoughtful speech. I also share the view of the hon. Member for Glenrothes (Peter Grant) that it is a mistake to see property as a speculative asset, and there is no doubt that the crash of 2008 was caused by a massive over-leveraging in the banking sector. As he will recall—Labour does not like it when I point this out—UK bank borrowing across the sector as a whole was 20 times equity for 40 years, encompassing 1960, 1970, 1980 and 1990. In 2000 it started to go up, and by 2017 it was 50 times equity. That was what fuelled the enormous speculative boom.

[Peter Grant]

Will the Minister give way?

[Jesse Norman]

I will not, because I am very short of time.

I share the concern expressed by the hon. Member for Strangford (Jim Shannon) about the toxic atmosphere in SW1.

I will mention another issue that is more specific and personal to me, and I hope colleagues will indulge me. In my constituency in Herefordshire, we have been trying to create a new model of higher education through what we call a new model institute in technology and engineering. It has attracted a great deal of attention across Government because it creates the possibility of significant regional economic growth that is closely tied to the creation of university campuses in cathedral cities such as Canterbury, York and Lincoln. I flag it now because, from a national perspective, it represents a portable model by which higher education of the most value-added kind, and that therefore has benefits for entrepreneurship and business formation, can be moved to all parts of the country, having been tested and developed in Herefordshire. One would think that this was something that Government at all levels would support. Her Majesty’s Government, in the form of the Department for Education, the Department for Business, Energy and Industrial Strategy, and the Ministry for Housing, Communities and Local Government, have been extremely supportive of it.

One might also think that the local enterprise partnership, the Marches LEP, would support it. I am sorry to tell colleagues that the Marches LEP—I say this having had at least a year of wrestling with it on this topic—has been absolutely diabolical in the way it has treated this very innovative project. It has received £23 million from Government and all the support one could imagine. It has received private sector investment, and investment from matched funds. The LEP, which by charter is supposed to support economic growth in the Marches, has done nothing but prevaricate and delay. Even now, it is seeking to impose a £5 million indemnity on Government investment, although the Government made it clear in letters from the Secretary of State and from senior civil servants as early as January 2019 that no such indemnity was required. The specific people involved—the then chairman of the LEP, Graham Wynn, and the chief executive, Gill Hamer—should be subjected to significant criticism in the House. I put it on record that this important opportunity for a portable model of regional growth in higher education, which was developed through a pioneering model of tech and engineering at university and which offers possibilities and creativity, has been ignored and is being actively undermined.

Having said that, let me congratulate my right hon. Friend the Member for Wokingham again on introducing this very wide-ranging and important debate, which has examined not merely specific policy change but the very basis of economics itself. I thank him for securing the debate.

Independent Loan Charge Review: Implementation

Jesse Norman Excerpts

Monday 20th January 2020 Written Statements

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

In September 2019, the Government commissioned Sir Amyas Morse to lead the independent loan charge review. The loan charge is designed to tackle disguised remuneration tax avoidance schemes. These are tax arrangements that seek to avoid income tax and national insurance contributions by paying scheme users income in the form of loans, usually via an offshore trust, with no expectation that the loans will ever be repaid.

On 20 December 2019, the Government published the review and the Government’s response to the review. The Government accepted all but one of the review’s recommendations (HCWS14).

HM Revenue & Customs (HMRC) has today published draft legislation to give effect to these changes, alongside explanatory notes and a tax information and impact note. These can be found using the links below.

The draft legislation and explanatory notes: https://www. gov.uk/government/collections/finance-bill-2019-20

The tax information and impact note: https://www.gov. uk/government/collections/tax-information-and-impact-notes-tiins

HMRC will hold an informal four-week consultation on the draft legislation to invite views from stakeholders. The Government intend to legislate for the changes in the forthcoming Finance Bill, which will be introduced after the Budget.

The draft legislation that the Government have published today does not cover the Government’s commitment that HMRC will repay settlements where voluntary restitution has been paid by individuals and employers for years no longer subject to the loan charge because the year is unprotected. Legislation giving effect to this commitment, together with details of the repayment scheme, will be published separately ahead of the Finance Bill. The scheme will be legislated for at the earliest opportunity in the Finance Bill, alongside the other changes to the loan charge.

HMRC has also published further guidance for taxpayers on the changes to the loan charge following Sir Amyas’s review. This supplements the guidance published on 20 December.

https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance

[HCWS45]

HMRC Tax Office: Cumbernauld

Jesse Norman Excerpts

Tuesday 14th January 2020 Commons Chamber

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

I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Stuart C. McDonald) for calling this debate, following up on the Backbench Business debate he secured a couple of years ago.

Mr Speaker, I greatly appreciated the unusual range of guttural noises that you displayed a few seconds ago in relation to the hon. Member for Strangford (Jim Shannon). I think it is an attractive aspect of your speakership, if I may say so.

In November 2015, as hon. Members on both sides of the House will know, Her Majesty’s Revenue and Customs announced a location strategy to support its work to create what is understood to be a world-class tax authority. That, in turn, was part of the then Government’s long-term economic plan for prosperity across this country.

Since 2010, successive Governments have made substantial investments to enable HMRC to do more to tackle evasion and avoidance, and to improve compliance, while also becoming more digital and more skilled in order to improve the services it offers to businesses and individuals.

Changes to HMRC and its office estate are an important part of that transformation. As the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East mentioned, before 2010 there was a wide sprawl of offices, varying in size and quality, across the UK. HMRC is seeking to bring the estate towards a more consistent and better integrated network of large, modern regional hubs, and to do so in the interests of its workforce who rightly deserve a modern workplace in which to work and thrive.

[Stuart C. McDonald]

I am grateful to the Minister for giving way so early. He might come on to this point, but Cumbernauld essentially met all the criteria that HMRC was looking for in selecting its hubs. Why can we not persevere with Cumbernauld? What role do the economic implications for Cumbernauld have in the thinking of HMRC and the Government?

[Jesse Norman]

Of course, HMRC was focusing on the needs of its operational business and the wellbeing of its staff. It went through a procedure for the whole series of potential locations, and it concluded that, on a wide range of eight criteria designed to support that, the move was justifiable and, indeed, required. It is fair to say that HMRC looked at the wellbeing of its staff and at the future of its business, which is as it should be.

[Stuart C. McDonald]

The Public and Commercial Services Union and employees would be distraught if I did not simply point out that the staff themselves do not agree; the workers at HMRC Cumbernauld do not, for a minute, think that moving them to an inaccessible location in Glasgow city centre is remotely in their interests. I do not see how HMRC can possibly defend that position.

[Jesse Norman]

Of course, in any relocation there will be people who disagree with it, and that is to be anticipated. As the hon. Gentleman will know, HMRC has an elaborate and established process—I will come to it—of working with staff and seeking to support them in making the transition to a different working environment. The point I was making was that they can expect a significant improvement in the quality of the space that they are working and thriving in, and this should be beneficial for them and for the Revenue if they are allowed to do that. Of course HMRC will in turn benefit from bringing different skills and specialities together, and form a more connected and more technology-enabled environment.

[Jim Shannon]

Will the Minister give way?

[Jesse Norman]

No, I will not. The hon. Gentleman has absolutely no basis for coming in late to this debate in order to ask a question; I am a great fan of his and I have answered questions of his on many previous occasions, but I regard this as a discourtesy to the House. I am happy to take any further interventions that other Members may make.

[Stuart C. McDonald]

I sense that HMRC Cumbernauld workers will be watching this debate and screaming at their television sets. The Minister paints this rosy picture of this office in Glasgow where they will all be able to move around. First, as I said, 1,700 or so workers will not be able to make that transition at all. Secondly, they are all reasonably happy precisely where they are and they are not remotely impressed with what has been offered to them in Glasgow city centre. Why does he not speak directly with PCS and the representatives of the staff, whom he seems to be talking about?

[Jesse Norman]

I have no doubt that HMRC, which is operationally responsible for this change and for the management of its business, will have spoken very closely with the relevant unions on this issue, as it has been doing in other areas, too.

If I may, with your permission, Mr Speaker, I will continue to make some progress on my speech. In November 2015, HMRC announced that in the following 10 years it would seek to bring its employees together in 13 regional offices based in locations where it already had a significant presence, such as Glasgow, which is one of the two HMRC regional centres in Scotland. The co-locating of teams across HMRC is designed to lead to increased collaboration and flexibility, making it easier for skills across a lot of teams to be shared and for teams to switch between communications channels and subject areas in order to meet the evolving needs of taxpayers. HMRC recognises that the transition may not be easy and has put considerable support in place to help its workforce through these changes. The hon. Gentleman has mentioned that and I will address that support in due course.

In Glasgow, the regional centre will be situated in the heart of the city at 1 Atlantic Square and is currently in development. It will be home to some 2,600 HMRC staff, who will be moving from six offices around the region in order to fulfil a wide range of tax professional and operational roles, including in compliance and in large business relationships.

[Dr Cameron]

Does the Minister recognise, however, that HMRC’s plans to move the hubs to city locations are counterproductive and undermine the Government’s own agenda to try to support development in towns? The specialist expertise is already in the towns, so why are we moving the hubs to cities, against even the Prime Minister’s aims of reinvigorating towns?

[Jesse Norman]

The hon. Lady is right to say that the Government take the needs of towns seriously. That is why we have a towns fund, which, in turn, works with a much wider spread of support that we are giving to cities. Of course towns have their uses and functions, and cities have theirs. HMRC is seeking to use the benefits of the city: the capacity to agglomerate services and bring people together, and give them proper communications and technology support. Those are things from which both HMRC and those staff will benefit.

I have taken a lot of interventions and I now have a limited amount of time, so I will make progress. HMRC has already opened three new regional centres in Croydon, Bristol and Belfast, with staff planned to move to the Edinburgh regional centre later this year. Construction is under way at all the remaining new locations, including Cardiff, Leeds, Liverpool, Manchester, Nottingham, Birmingham and Stratford.

In addition to the 13 regional centres, HMRC will keep eight transitional sites open across the UK for several years to help retain key skills during the transition period, as well as five specialist sites for work that cannot be done elsewhere. For example, HMRC will retain Telford as a site for some of its specialist digital teams. Through this phased approach, HMRC will seek to minimise disruption to business operations.

The overall programme will deliver savings to the taxpayer of around £300 million up to 2025 and then rising cash savings, estimated to be more than £90 million by 2028. It also avoids additional costs of £75 million a year from 2021, when the current PFI contract with Mapeley, agreed by the last Labour Government, comes to an end.

[Patricia Gibson]

I am grateful to the Minister for giving way as I know he has points that he wants to go on to make. Can he explain to me, and to the House, how the savings he has talked about and the reduction in staff can help mitigate and tackle the £35 billion tax gap that will inevitably grow with fewer staff?

[Jesse Norman]

The hon. Lady rightly raises the tax gap. When expressed as an absolute number, £35 billion is a large amount of money. Some £7 billion or £8 billion of that sum is caused by people not filling the forms out correctly, and there are many other components to it. As she will know, at 5.6% the tax gap is not only near to its historic low in this country but low against international comparators. It is key to see it as a percentage in the context of the overall amount of money the Revenue collects. HMRC remains an extremely efficient tax collection agency.

It is important to stress that the strategy that HMRC has adopted is not just about cost savings or bricks and mortar. The new office in Glasgow, as well as the other sites, will allow people to develop more fulfilling careers. There will be a wider variety of jobs and, therefore, of career paths to senior roles, as a wider range of work will be based in single sites. The judgment has been that the current office in Cumbernauld does not provide the kind of space that HMRC wants for its staff; nor does HMRC judge it to be fit, over time, for a tax authority operating in the digital age. Modern buildings such as the Glasgow regional centre will deliver a better working environment and experience for HMRC’s workforce. Such buildings will increase HMRC’s attractiveness as an employer, enabling it to recruit and retain the next generation of skilled professionals.

[Stuart C. McDonald]

Will the Minister give way?

[Jesse Norman]

I have very little time, and I want to talk about the support that HMRC is giving to staff. As I have said, HMRC will do all it can to retain the skills, knowledge and experience of the existing workforce and minimise any redundancies. The vast majority of existing employees are within reasonable daily travel of a regional centre, specialist site or transitional site, and that is part of the overall strategy. In 2015, HMRC estimated that 90% of its workforce would be able to move to one of the regional centres or complete their careers in their current offices. HMRC expects that the figure will be close to that once all moves to regional centres or other locations have been completed.

For those who are currently based in Cumbernauld, the travel time from Cumbernauld to Glasgow city centre is generally between 45 and 55 minutes by car, or 30 minutes by train to Queen Street station. In the locations that it is closing, HMRC has been proactive and has sought to provide a range of support for staff. In Cumbernauld, it has maintained continuous dialogue between staff and senior leaders. Local managers have received extra training to prepare and support them in that process. For some staff, HMRC is funding visits to the locations of new offices, so that they can experience the travel options that are available to them. As well as regular engagement through online forums and in person, HMRC has supported local trade unions to ensure that they can assist members and provide up-to-date information in order to retain people.

Of course, HMRC recognises that individual employees have distinct and different personal circumstances, so it has put in place structured support to help those who can move, as well as those who cannot. One year ahead of any move, every staff member affected has the opportunity to discuss their personal circumstances with their manager, to talk through any particular needs that must be taken into account when making decisions and any help that individuals may need—for instance, help with additional travel costs for up to the first five years. I understand that that is a tried-and-tested process, with tens of thousands of these conversations having been held in HMRC over the last two years. With that in mind, I hope Members agree that what we are proposing is a sane and sensible solution to the problem.

Oral Answers to Questions

Jesse Norman Excerpts

Tuesday 7th January 2020 Commons Chamber

[Julie Marson (Hertford and Stortford) (Con)]

11. What recent progress has been made by Sir Amyas Morse on the independent review of the 2019 loan charge.

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

Happy new year, Mr Speaker. Given that it is my first time at the Dispatch Box since you became Speaker, let me just say that I recall running an operation in 2014 to prevent your predecessor from rigging the selection of the Clerk of the House of Commons; I think it speaks to the esteem in which you are held across this House that one could imagine no such thing under your speakership.

The Government published Sir Amyas Morse’s independent review of the loan charge on 20 December, alongside the Government’s response to his recommendations.

[Christian Matheson]

Clearly the loophole had to be closed, but not in the retrospective fashion that has hit so many of my constituents. If these arrangements were already illegal when my constituents were charged, why was it necessary to bring in the loan charge in 2017 at all?

[Jesse Norman]

As the hon. Gentleman will be aware from reading the review, it is a very thorough and comprehensive piece of work and Sir Amyas goes into this question. He has accepted the case for a loan charge in principle—he recognises that it was important to address the issue of abusive tax avoidance—but he said that it should apply to loans taken out after a specific date. In his judgment, that represents a fair balance between the concerns that the hon. Gentleman raises and the loan charge, and the Government have accepted that.

[Julie Marson]

The Morse report and the Government’s response are very welcome, and will help many of my constituents in Hertford and Stortford who have been deeply affected by the loan charge. Will the Minister agree to meet me so that I can share with him some of my constituents’ experiences and residual concerns and discuss the Government’s response in more detail?

[Jesse Norman]

I hope I may join the Chancellor in congratulating my hon. Friend on taking her place in this Chamber. I have met many colleagues about this issue and would be delighted to meet her. She will understand that I cannot deal with individual cases, but I would be happy to meet her to discuss the issues of principle.

[Dame Diana Johnson (Kingston upon Hull North) (Lab)]

6. What steps he is taking to ensure an equitable distribution of infrastructure investment between London and the north of England.

Treasury Update

Jesse Norman Excerpts

Friday 20th December 2019 Written Statements

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

In September 2019, the Government commissioned Sir Amyas Morse to lead the independent loan charge review. The loan charge is designed to tackle disguised remuneration avoidance schemes where a person’s income is paid as a loan which is not repaid. The Government are today publishing the review and the Government’s own response to the review. The review, Government response and accompanying documents may be found on gov.uk:

https://www.gov.uk/government/publications/disguised-remuneration-independent-loan-charge-review

The Government are grateful to Sir Amyas and his team for all their work on the review.

The Government welcome Sir Amyas’ recognition that disguised remuneration schemes are a form of tax avoidance. Sir Amyas sets out the action that the Government took to try to tackle disguised remuneration and concludes that the Government were right to take action to ensure the tax was collected.

However, the Government recognise the concerns raised in the review about the impact of some aspects of the loan charge. To address these concerns, they are accepting all but one of the recommendations made in the review.

Loan charge design changes

The Government are today announcing the following design changes to the loan charge:

the loan charge will be limited to loans taken out on or after 9 December 2010—the date on which targeted anti-avoidance legislation was announced which put the tax position of disguised remuneration avoidance schemes beyond doubt, according to Sir Amyas;

loans taken out between 9 December 2010 and 5 April 2016 (inclusive) will remain within the scope of the loan charge unless the user of the scheme can prove they disclosed details of their scheme use as specified by the review on their tax return, and HMRC failed to take action to protect their position, for example, by opening an enquiry;

taxpayers affected by the loan charge will be allowed to report their loan charge balance across three tax years, rather than one tax year.

The changes above will be legislated for in the forthcoming Finance Bill and will be made effective from today using the HMRC Commissioners’ powers of collection and management.

For taxpayers who have already settled their disguised remuneration liabilities since the loan charge was announced in March 2016, new legislation will enable HMRC to repay tax paid for years that would be no longer subject to the loan charge because the year was unprotected (for example, HMRC had not opened an enquiry or issued an assessment). The Government will announce further details of this legislation in due course.

The Government will also review future policy on interest rates within the tax system and will report the results to Parliament by 31 July 2020.

While loans made before 9 December 2010 are removed from the scope of the charge, the underlying tax liability for loans made prior to this date remains. HMRC will pursue those liabilities through open enquiries and assessments, and where necessary through litigation. HMRC will publish updated settlement terms for individuals in this position in due course. The Government will also invest in a new HMRC team to carry out this activity and to ensure that people who entered into disguised remuneration avoidance schemes before 9 December 2010 still pay the tax due and make their contribution to funding public services. The Government will announce further details at Budget.

Loans taken out after 5 April 2016 and outstanding as of 5 April 2019 also remain within the scope of the loan charge. Loans taken out after 5 April 2019 are taxable when they are received under legislation introduced in Finance Act 2011.

Additional flexibility for taxpayers affected by the loan charge

The loan charge remains in force and any relevant outstanding loan balance should be included in the self-assessment tax return for 2018-19. However, the Government recognise that taxpayers will need sufficient time to understand their position in light of the changes above. HMRC have published guidance today on the action which affected taxpayers can take and the flexibility they now have in relation to the 31 January 2020 self-assessment deadline.

Taxpayers who have not settled their disguised remuneration tax affairs by 31 January 2020 are required to submit a self-assessment return for the 2018-19 tax year. They can do this by the 31 January statutory 2020 filing date, giving their best estimate of their outstanding loan balance, or they can defer sending their return until 30 September 2020. In these circumstances HMRC will waive any penalties for late filing or late payment, and not charge any penalties for inaccurate returns (if the inaccuracy relates to the loan charge), as long as the taxpayer has submitted their return, or amends it with accurate figures by 30 September 2020.

For taxpayers within the scope of the loan charge, no interest will be charged on amounts falling due at 31 January 2020 as long as the tax is paid, or an arrangement made with HMRC to do so, by 30 September 2020.

Paying the loan charge

The tax system already has safeguards in place designed to ensure that taxpayers who are not able to pay tax when it falls due are not required to take on unmanageable payment terms These safeguards include time-to-pay arrangements which ensure that the taxpayer only pays what they can, when they can. HMRC have also announced previously that no taxpayer will be forced to sell their main home to fund a disguised remuneration or loan charge tax bill, and HMRC already signpost specialist debt advisers and charities for those taxpayers struggling with debt.

In addition to these existing arrangements, the Government and HMRC are today announcing that:

the Government will fund an external body to provide independent advice on time-to-pay arrangements, including on the suitability of individual voluntary arrangements for taxpayers;

in line with current practice, time-to-pay arrangements will not require payment of more than 50% of disposable income, aside from where taxpayers have very high disposable incomes; and

where a taxpayer has no disposable assets and earns less than £50,000, then they will be automatically entitled to a minimum of a five-year payment plan, and where they earn less than £30,000, a minimum of seven years.

HMRC will also implement a number of changes to ensure individuals who cannot pay the tax due and who are in need of bespoke arrangements to pay their tax debts understand the options available to them, and can make an informed decision about how to proceed. HMRC today announce that they will:

publish the income and expenditure form that HMRC use with taxpayers to understand assets, income, and expenditure, and work out disposable income, and how HMRC use that to create time-to-pay arrangements; and

refer taxpayers to a debt advice charity where their finances suggest they need time to pay in excess of five years.

HMRC can also confirm that, in line with current practice, they will:

guarantee time-to-pay arrangements wherever an affordability assessment shows an individual cannot pay in full;

accept single financial statements completed by the taxpayer with a debt advice charity as proof of affordability;

stop all recovery action where the taxpayer has no ability to pay, until there is a significant change of circumstance; and

not seek bankruptcy proceedings for individuals who have engaged with HMRC, completed an affordability assessment, and are solely unable to pay the loan charge.

The policy changes to the loan charge and to time-to-pay set out above will have a significant impact on the affordability of the loan charge for many taxpayers affected. Allowing some loan charge liability to be written off in addition to these changes would have the effect of treating these tax avoiders more favourably than other individuals with HMRC debts (including tax credit claimants), would reduce taxpayers’ incentive to pay off the debt, and would have unwelcome wider impacts that change how HMRC and those in debt interact. The Government are therefore not accepting the review’s recommendation to introduce a write-off of tax due on the loan charge after 10 years for individuals whose time-to-pay arrangement is longer than 10 years.

Future approach to tackling disguised remuneration avoidance schemes

Disguised remuneration avoidance schemes do not work in law and income paid through these schemes is fully taxable. The Government remain committed to tackling large scale avoidance of this nature. The Government share the review’s concern that these schemes continue to be marketed and used; this year alone, around 8,000 people are using a disguised remuneration scheme with around 3,000 of them being new users. Tackling large-scale avoidance of this nature remains challenging and further consideration is required to determine what additional changes are needed. The Government will announce further action at the Budget.

The Government and HMRC strongly encourage people not to use these schemes and to get in touch with HMRC if they think they are being sold a scheme.

The Government and HMRC are determined to continue to tackle promoters of tax avoidance schemes, and can today announce that HMRC will:

introduce further measures to tackle promoters of avoidance schemes and reduce the scope for promoters to market tax avoidance schemes—details of which will be set out at Budget;

launch a call for evidence on what steps it can take to raise standards in the market for tax advice to give taxpayers more assurance that the advice they are receiving is reliable; and

will seek to provide targeted early communication to taxpayers who they suspect may be engaging in tax avoidance to encourage them to stop.

Communications and engagement

The Government and HMRC also accept recommendations in the review that will improve the information provided in Government impact notes of tax changes and ensure that they learn from the experience of the loan charge in communicating policy and communicating with taxpayers.

[HCWS14]