Loan Charge 2019: Sir Amyas Morse Review
Jesse Norman Excerpts(6 years ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I congratulate my right hon. Friends the Members for Haltemprice and Howden (Mr Davis) and for New Forest East (Dr Lewis) and the hon. Member for Brentford and Isleworth (Ruth Cadbury) for securing this debate today, and I thank colleagues on both sides of the House for their contributions. It is a measure of the effect they perceive on their constituents that, in these circumstances, they are here in such numbers.
The outbreak of covid-19 has created extraordinary circumstances, and it is important to say up front that the Government are keeping the situation under close review, as elsewhere, and will take a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September. That date has been moved back to give people enough time to respond to the Morse report and its recommendations, but the Government will insist that HMRC takes a proportionate and reasonable approach to anyone covered by the loan charge who is unable to file their return by 30 September.
Anyone who believes they may be affected by this should please contact HMRC as soon as possible. Equally, we must recognise that HMRC’s workforce may well be affected by the outbreak. Where appropriate, HMRC has made it clear that it will take steps to support anyone who has been disadvantaged by delays at its end as a result of covid-19. As the House will know, HMRC has already established a helpline to support any businesses and individuals affected. The hon. Member for Bootle (Peter Dowd) raised that issue, and I can confirm the helpline has now been in place for some time and has an expert and supportive staff behind it.
As this debate has made clear, the loan charge, and with it the wider issue of using disguised remuneration schemes to avoid tax, has been the subject of public concern and considerable controversy. Let us be clear that tax is never popular, and my colleagues and I recognise the strength of feeling and sympathise with those who may be subject to the charge. Today’s motion reflects some of the arguments and concerns expressed by colleagues that the loan charge is retrospective and unjust and that the law was not settled, it is claimed, until 2017. If I may, I will deal with each of those charges in turn.
First, however, we need to be clear what we are talking about. Disguised remuneration is a term of art—it is a fancy term—but the House should be under no illusion as to what it amounts to. Such schemes are a form of contrived tax avoidance in which people are paid in the form of a loan with no interest and no intention or requirement to pay the loan back.
Jesse Norman
I thank my right hon. Friend for the question. All he needs to do is attend to the detail of the Morse report, in which Sir Amyas Morse goes through the efforts made at that time, before and after 2010, in some detail. That is the basis for the judgment that he reaches about the appropriate relief.
Chris Stephens
The Morse review also suggests that the main people responsible were the creators of such schemes, who do not seem to be getting chased up to the same extent as those who appear to be the victims of the schemes.
Jesse Norman
I take it that the hon Gentleman rightly refers to the enablers and promoters of such schemes. As he knows, I take that extremely seriously, and I have insisted on that point ever since I became Financial Secretary. I will say more about that shortly.
I return to the point that such schemes were contrived tax avoidance schemes that were typically run through an offshore vehicle. A person would receive a monthly amount of pay, often deliberately set at or around the level of the personal allowance to maximise the tax avoided, and above the national insurance lower earnings limit, so as to qualify the person concerned for the national insurance contributions required to receive a state pension. Of course, that did not reflect the person in question’s true earnings because, alongside that payment, they would receive a further top-up payment described as a loan. In many cases, the top-up payment far exceeded—often by a large multiple—the salary element declared for tax purposes.
Those facts are not genuinely in doubt, and all Members who have taken part in the debate have rightly condemned tax avoidance, but I put them on the record again because they highlight how contrived that form of tax avoidance typically was. They also go to the root of the problem.
My right hon. Friend the Member for Haltemprice and Howden raised the issue of thesauruses and dictionary definitions. Let me remind him of the difference between a dictionary definition and a thesaurus. A thesaurus gives an alternate word of supposedly the same meaning. A dictionary definition tries to explain exactly what it is that is being talked about.
The dictionary definition of a real loan is,
“an amount of money that is borrowed…and has to be paid back”.
That accords with our natural experience, as hon. Members will discover if they try to take out a business loan from a bank and not pay it back. If they try to take out a mortgage and not pay it back, they will find the same to be true.
Those loans, however, were not designed to be paid back. They were rather different from loans that might be made to employees that then get written off, on which tax is typically chargeable. They were not designed to be paid back. They were employment income in disguise, so they were subject to tax.
Sir Edward Davey
Will the Minister set out which piece of legislation, before the loan charge legislation, saw loans as income?
Jesse Norman
I am not in a position to take the right hon. Gentleman through the legal arguments, and I do not need to, because, as I have said, they have been described in detail by Sir Amyas Morse in his review which, of course, is based, as my remarks would not be, on a detailed interrogation with tax experts on all the specific issues behind it. I do not think we have any sensible reason—no one has in fact offered one—for disagreeing at length or in any detail with his conclusion.
Christian Matheson
The Minister knows that I have all the time in the world for him, but nobody in this House disputes the fact that it was tax avoidance and that loopholes needed to be closed. He is spending his time explaining why they were avoidance schemes, but hon. Members understand that. It is the question of retrospection and unfairness that is exercising us in this debate.
Jesse Norman
I am very grateful to the hon. Gentleman, but if I may say so, I do not think that has been true. I think the conclusion colleagues have been pushing in this debate is that they disapprove thoroughly of tax avoidance, and their view is that this is not tax avoidance in many cases. If they accept that this is tax avoidance and that the issue is merely as to the remedy, that is of course a slightly different position, and one that I am happy to respond to.
I just want to make it clear that this is a form of tax avoidance. It goes to the wider issue as to whether people should have known what it was. The point is that it is tax avoidance, and it costs the Exchequer hundreds of millions of pounds a year. That has two effects: it deprives public services of the money they need to operate; and it forces other taxpayers to pay more to make up the shortfall.
The purpose of the loan charge was to combat this form of abusive tax avoidance. The loan charge was introduced as a new measure in 2017. Following a public campaign last year, we asked Sir Amyas Morse, as has been noted, to conduct a review of whether it was an appropriate policy response to the use of the disguised remuneration scheme. He had full control of the review’s management and recommendations. He took evidence from a very wide range of individuals affected, and he spoke to interest groups, MPs, tax specialists and many other stakeholders.
Again, the facts are not in doubt. Sir Amyas Morse, as has been recognised by colleagues today, is an individual of huge experience and great independence of mind, and he is widely respected across the House. He was independent in his review, and he was given wide scope in expert support. He produced a thorough and exacting piece of work—a 76-page, 30,000-word report—that drew on over 700 individual testimonies and impact statements, and which painstakingly worked through the issues before recommending notable changes to the policy, including substantial carve-outs as to who was affected. Sir Amyas was clinical and at times unsparing in his criticisms, including of Her Majesty’s Revenue and Customs and, be it said, of the Loan Charge Action Group. All but one of these recommendations were accepted by the Government.
Among those recommendations were two to which I want to draw the House’s particular attention. The first is Sir Amyas’s insistence, as we have heard across the House today, on the need for the Government to go further in going after and bringing to justice people who enable or promote tax avoidance schemes. I am therefore delighted that, as part of the Budget documentation we have produced today, we have published a policy document on “Tackling promoters of mass-marketed tax avoidance schemes”, and I draw the attention of all colleagues to it. It is a sober and thorough piece of work that looks at lots of different approaches as part of an integrated strategy.
The other thing that Sir Amyas pointed to—again, I think rightly, but also picking up on a widely anticipated and understood gap—is the importance of raising standards in the tax advice market. Again, I am pleased to say that, as part of the Budget documentation, we have published a call for evidence on this very topic, “Raising standards in the tax advice market”. I encourage all colleagues and their constituents to contribute to that approach.
Ruth Cadbury
I thank the right hon. Member for the points he is making about advice and information. However, I again come back to the fact that the low-paid and the averagely-paid—generally public sector workers—are still being sold these schemes. They cannot be paid through a personal services company, but they need to work freelance and locum, and this is still happening to them. If the Government see these schemes as contrived, why are they not doing more to stop the mass marketing of them, such as by making the promoters personally liable for defeated schemes and similar?
Jesse Norman
I have in my hand a detailed document designed to address this very issue. It goes through a whole range of different approaches and integrates them into a strategy. I would be delighted to have any input that she would like to make about other ways in which that can be improved and developed. We work on the basis of the law as it presently stands, and which we have inherited. It is itself the result of previous Parliaments, including of course the parliamentary consideration of the loan charge. We have to work with the hand we have got, and improve it as fast and as comprehensively as we can.
I will now address the motion directly and then, in the limited time I have, turn to the comments that have been made. Is the loan charge retrospective? Again, I think it is clear that it is not. It was introduced as a new measure in 2017. It taxes a loan outstanding at a future date. It does not change any law previously on the statute book.
It has been asked why the loan charge was introduced. In the words of Sir Amyas Morse, it
“offers an expedited means of collecting tax that is due”.
Is the loan charge unjust? Again, I would suggest not. If one asks the average man or woman in this country, I think they would say, “Everyone should pay their fair share of taxes. People are responsible for their own tax affairs. Real loans get repaid; if someone offered you a loan for which no repayment, no tax and no interest was due, it would probably be too good to be true.” And so it is.
The numbers seem to bear that out. More than 99.8% of the tax-paying population have never used a scheme. Even among the freelance population, the take-up has been only 2.5%. It is notable that Sir Amyas Morse was clear that he supported the essential purpose of the loan charge and that it should remain in force.
We have heard a lot about how the law was not settled in 2017. Again, as I said, I can do no better than refer colleagues to section A of the Morse review, which carefully reconstructs the history of the past 20 years of disguised remuneration.
Let me quickly turn to the many excellent contributions that have been made. I will start with the excellent contribution made as a point of order by my right hon. Friend the Member for New Forest West (Sir Desmond Swayne), who pointed out the excellence of my book on Adam Smith—I thank him for that, although I defer to the hon. Member for Kirkcaldy and Cowdenbeath (Neale Hanvey), as Kirkcaldy was, of course, Smith’s home town. My right hon. Friend the Member for New Forest West will recall—he taught economics so he must know about these things—that Smith not only set out the ideals of a well-functioning tax system, which we all aspire to achieve, but was, for the last 12 years of his life, a practising commissioner of customs, attempting to wrestle with an ever-evolving customs market and seeking to extract duty and tax due, and rightly so.
I would like to touch on the statesmanlike comments of the hon. Member for Bootle, the shadow Chief Secretary, which perhaps reflected his imminent expectation of taking my seat on this side of the aisle. He recognised that what people do not pay in tax due, someone else must. He is right about that. He noticed that if it looks too good to be true, it probably is. He is right to focus, as others have, on the enablers and promoters.
Jesse Norman
I have half a minute left. The right hon. Gentleman has only just arrived, so it is a little impertinent to raise a question at this point.
It is important that we focus on the centrality of the claim. Sir Amyas Morse has looked at it, and he has attempted to find a Jupiterian way through complicated tax issues and to deal, with equity, with the different interests and parties involved. I think he has succeeded, which is why the Government, comprehensively, with one exception, have accepted his conclusions.
Mr David Davis
These occasions often show the House at its best, and that is certainly true today.
I start by paying tribute to the Loan Charge Action Group, the all-party group—particularly its chairman—and all who have contributed in the debate, which has been excellent, albeit slightly one way in terms of its emphasis. Why is that? Because this is a matter of justice, not technicalities. It is a story of unclear law not very competently clarified in 2011 and then rewritten in 2017. It is a story of HMRC allowing the real villains—the employers and advisers who forced people into this position—to carry on getting away with that, and of HMRC failing to intervene during that period to stop them.
I am afraid the Morse review is wrong. That was brilliantly exposed by the chairman of the all-party group. There is, in truth, only one answer, but before I come to it, I have 40 seconds, so I will say one other thing to those on the Treasury Bench and the Opposition Front Bench. All of us in this House believe in fair taxation. We all believe that we should pay our dues. When you are doing deals with Vodafone and Google, where they pay from 10% down to 4%, do not turn round to an ordinary locum nurse and say, “It’s too good to be true. You should have known.”
Mr Davis
No, I will not. I only have seconds.
There is only one answer in this debate. I am afraid that Amyas Morse is wrong. The answer is laid out in our motion. HMRC should cease action on all cases before July 2017, and then justice will be done.
Question put and agreed to.
Resolved,
That this House believes that the Loan Charge is an unjust and retrospective tax; notes that the law on the Loan Charge was not settled until 2017; and calls on HMRC to cease action on loans paid before 2017.
Draft Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2020
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Tax Credits, Child Benefit and Guardian’s Allowance Up-Rating Regulations 2020.
As hon. Members will know, the Government are committed to delivering a fair welfare system for claimants and taxpayers while providing a strong safety net for those who need it the most. The regulations will ensure that tax credits, child benefit and guardian’s allowance will increase in line with the consumer price index, which set inflation at 1.7% in the year to September 2019.
The effect is to meet the Government’s manifesto commitment to end the benefits freeze, with most elements and thresholds of tax credits and both rates of child benefit being increased. The Government will spend an additional £800 million to support tax credit, child benefit and guardian’s allowance claimants. The proposed legislation increases the rates of those benefits in line with prices. I hope hon. Members will join me in supporting the regulations.
Jesse Norman
I am very grateful to the hon. Member for Inverclyde and of course I understand the concerns that he has placed on the record. They do not bear directly on this uprating, which I think he will support, but he has made his position clear and it is well understood.
May I focus on the more substantive comments made by the hon. Member for Stalybridge and Hyde? He suggested that the original benefits freeze was politically motivated. Nothing could be further from the truth. The fact is that the economy had a very long period of recovery—I am pleased to say that it has recovered under this Government and their predecessors—and the view was taken that the whole of Government spending ought to be constrained. The reason for that was that between 1997 and 2010 welfare spending had risen by 65%—£84 billion in real terms—and unfortunately, combined with the mishandling of the financial sector that caused the damage from the crisis, when it took place, to be so bad, it cast a very long and quite painful shadow.
The hon. Gentleman mentioned food banks, but may I offer two or three reminders? One is that poverty, as I am sure he would agree—he is a very thoughtful man—is a complex issue. It is not just a matter of income; it is also a matter of costs, such as fuel costs and housing costs, and of childcare. The approach that the Government have taken in many cases is to pinpoint specific concerns—childcare being an obvious example. I am pleased to see that work is being done to assess whether the correct measure of poverty has been adopted, because there is a question not just about the level but about the composition. The Government are looking quite closely at that.
On food banks, let me simply point out that Germany, which on many accounts we would regard as having not merely a much richer Exchequer and more robust economic growth over the last few years—although not at the moment—than this country, and which has a more generous benefits system, has an escalating food bank problem that is every bit as bad as the one that we find in this country.
Jess Phillips (Birmingham, Yardley) (Lab)
Will the right hon. Gentleman give way?
The Chair
Order. Although food banks are obviously related to poverty, I remind all hon. Members of the narrowness of the instrument we are debating. I do not want us all to be tempted into a very worthy, but probably lengthy beyond the time allocated to us, debate on poverty and the definition of it. Can we keep to the narrow confines of the regulations, please?
Jesse Norman
Thank you, Mr Pritchard. I am delighted to give way to the hon. Lady, who I know has views on these issues.
Jess Phillips
I do not know whether I have to declare an interest as somebody who, in the era that we are talking about, lived on tax credits. With regard to the Minister’s assertions about Germany as a comparator, does he think that the people who come to my office every single day to ask for food bank vouchers would get much comfort from hearing, “It’s worse in Germany”?
Jesse Norman
Of course not, but the point that I was making was that there is no simple link between income, poverty and food bank usage, and Germany is the example that gives the lie to that claim.
As for an assessment, legislation is of course given an impact assessment when it is introduced, and that is the case here as elsewhere. I remind the hon. Member for Stalybridge and Hyde that more than 700,000—I think it is 730,000—fewer children are living in workless households than were in 2010, and that there are more than 1 million fewer people in workless households overall? The Government’s focus on employment and the benefits of employment has delivered that achievement, which is a very important improvement not merely to economic wellbeing, but to people’s social and emotional wellbeing.
Question put and agreed to.
Draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2020.
It is an honour to see you in the Chair, Mr Hosie. The regulations set the national insurance contributions rates, limits and thresholds for the 2020-21 tax year. They will allow the Government to deliver their manifesto commitment to cut national insurance contributions for 31 million people across the United Kingdom.
National insurance contributions are social security contributions. Payment of NICs determines eligibility for the state pension and other contributory benefits. NICs receipts go towards funding the NHS and those same contributory benefits.
I will first outline the changes to the class 1 primary threshold and class 4 lower profits limit. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start to pay class 1 and class 4 NICs, respectively. These thresholds will rise from £8,632 to £9,500 a year. These changes, promised in the Conservative’s 2019 manifesto, underline the Government’s commitment to ensure that work pays, putting more money into the pockets of hard-working people. They will benefit about 31 million taxpayers, with a typical employee £104 better off compared with 2019-20. Legislating now ensures that taxpayers will benefit from April 2020.
Increases to the primary threshold and lower profits limit do not affect eligibility for a state pension. That is determined by the lower earnings limit for employees and payment of class 2 NICs for the self-employed. The lower earnings limit will rise in line with inflation, from £6,136 to £6,240 a year. The upper earnings limit, where employees start to pay 2% NICs, is aligned with the higher rate threshold. As announced at the 2018 Budget, it will be frozen and remain at £50,000 per year.
The self-employed pay both class 2 and class 4 NICs. The rate of class 2 NICs will rise in line with inflation, from £3 to £3.05 a week. The small profits threshold is the point above which the self-employed must pay class 2 NICs. This will rise with inflation, from £6,365 to £6,475 a year. For class 4 NICs, as already outlined, the lower profits limit will rise to £9,500. The upper profits limits is where the self-employed start to pay 2% NICs. This is also aligned with the higher rate threshold and will remain at £50,000 a year.
For employers, the secondary threshold determines where they start to pay employer NICs. This will rise with inflation, from £8,632 to £8,788 a year. The level at which employers of people under 21 and of apprentices under 25 start to pay employer NICs will remain frozen at £50,000 a year.
Finally, class 3 contributions allow people to top up their national insurance record voluntarily. The rate for class 3 NICs will increase in line with inflation, from £15 to £15.30 a week.
The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the national insurance fund, if needed, during 2020-21. A similar provision will be made in respect of the Northern Ireland national insurance fund.
I trust that that is a useful overview of the changes that we are making to bring rates of support and contributions to the Exchequer in line with inflation, and I commend the draft regulations to the Committee.
Jesse Norman
I thank the shadow Minister for her remarks. She raised a range of issues, and touched first on what she described as lack of targeting. Of course it is the nature of the legislation that it is universal in its applicability. It is not designed to be a targeted benefit, and that is not its function. Its job is to improve the national insurance situation of 31 million people, which it does. The question of targeting is better addressed to many other aspects; it is not actually relevant to national insurance contributions, which for years have been legislated for on a universal basis.
I do not think that the hon. Lady is correct that this change is regressive in the way that it will operate. It is certainly not a tax cut for higher earners. All employees earning above £9,500 will benefit by the same amount, and some 1.1 million people will no longer pay NICs as a result. Those are important properties.
Anneliese Dodds
I am grateful to the Minister for his generosity in giving way. I do not believe that I used the word “regressive”. I made clear that the impact on those at the higher level of the income distribution will be larger, in terms of the absolute amount that they will not pay, compared with those at the bottom of the income distribution. Surely he is not contesting that.
Jesse Norman
If we look in full at the 31 million people affected, we will see that those in employment and earning above £9,500 will receive the same amount. The hon. Lady rightly mentions universal credit, and she understands that its effect is to smooth, via tapering, various cliff edges. That is a helpful and good property—I am sure she does not regret it—and it interacts with this measure. The broad picture, however, is the one I describe.
As the hon. Lady has acknowledged, the measure has elements of a contributory scheme, so it will have effects on people who do not have a full contributions record. On the Government’s future ambitions, she will understand that a statutory instrument debate is not the place to unveil such a strategy, and certainly not in the lee of a Budget two days away. It is the Government’s ambition to increase the threshold to £12,500, and decisions will be taken at future fiscal events. Increasing the NICs threshold to £9,500 this year is a first step towards that ambition. The hon. Lady also mentioned additional measures and statutory sick pay. It would be foolish in the extreme for me to comment on that matter two days before a fiscal event, and I therefore think we should leave it for a future discussion in the House.
Question put and agreed to.
VAT (Listed Properties)
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
It is a great pleasure to speak under your chairmanship, Sir Christopher. I think the debate has shown that this topic is of great interest in different parts of the country and to different parts of our community. There is widespread interest in it throughout the House, but also in parts well outside it. I thank my hon. Friend the Member for South Thanet (Craig Mackinlay), who is indefatigable and is learned in matters of tax, for calling the debate, and all other hon. Members who contributed to it.
My hon. Friend is known for his expertise in tax. I had suspected he was a Burkean in matters of preservation of our assets, our national heritage and the priceless inheritance of previous generations, and it was good to hear that Burkeanism in action. I salute him for it. I also salute him for his timing; he managed to secure the debate in the lee of a fiscal event that is due at some point in the not-too-distant future. I have found the debate engrossing.
I think we all agree that listed buildings are an integral part of the shared history of our British life and culture, and that they greatly enrich that history. The Government absolutely recognise—as, I know, does every Member of the House—the importance of protecting and making the most of that UK heritage. It is important not merely socially and culturally but economically.
As my hon. Friend will know, the Government released a heritage statement in 2017 setting out many ways in which they support this sector. It is important to remind ourselves that the Government write a cheque of £80 million or more towards heritage organisations. The listed places of worship grant scheme was discussed at some length. That and the UK heritage organisations do valuable preservation work. We also have Historic England and the Heritage Lottery Fund to fund and support general advice and assistance for the conservation of heritage, including listed buildings.
The Government recognise, however, the very specific challenges faced by private owners of listed properties in planning regulations. That is why the Government introduced measures to streamline the listed buildings consent regime in 2013, including by removing the need for specific applications for minor works to listed buildings and giving local authorities the power to grant a general consent.
My hon. Friend highlighted several mechanisms by which the goal he seeks could be achieved, one of which is to extend the reduced rate—or possibly a nil rate—to more goods and services, and so to reduce the up-front costs associated with the refurbishment and renovation of listed buildings. As he pointed out, we have some experience of a comparable relief in the past. Previously, approved alterations to listed buildings were zero-rated when used for residential use or by a charity. That relief was introduced to reduce the costs associated with restoring or enhancing the unique character of a listed building or prolonging its active life.
Importantly, however, that is not actually what happened. The majority of work carried out under that relief was for extension purposes rather than for maintenance, and the relief did not deliver the original point and purpose of the legislation. I am afraid that, in so doing, it deployed large amounts of taxpayers’ money in ways that were not contemplated by Parliament when it passed the legislation. That is why that legislation was withdrawn as part of the 2012 Budget.
Wera Hobhouse
Would not it therefore make sense just to define a little more what the VAT relief is for, rather than scrapping it for everybody?
Jesse Norman
Of course those are two entirely separate things. To remove a relief is to remove a very blunt and general instrument that is, by its bluntness and generality, open to abuse. In this case, it had the contradictory effect of potentially disincentivising repairs, because people focused on extensions, which was directly contrary to the purpose of the legislation. However, as has been recognised with the listed places of worship fund, there can be scope for a more targeted intervention through funds rather than tax reliefs. That is the other option we were given by my hon. Friend the Member for South Thanet.
As my hon. Friend knows better than probably any other Member, VAT is a broad-based tax on consumption, and the standard rate of 20% applies to the vast majority of goods and services. There are exceptions to the standard rate, but they are strictly limited by domestic law as well as by fiscal considerations. Hon. Members will appreciate that we are not short of requests for VAT relief in the Treasury. We have VAT reliefs for repairs and improvements, but of course that includes repairs to damage caused by floods or by the desperate events that have necessitated re-cladding of buildings for health and safety reasons. In total, we are presently dealing with about £40 billion of requests for relief, many of them triggered by the recognition that we are leaving the EU and seeking to exploit that fact for other purposes. We must place this proposal in that category.
It is estimated that introducing a relief for the repair and maintenance of all buildings would cost the Exchequer something like £4 billion a year. We do not have an estimate for listed buildings, but, as was pointed out, there are more than 450,000 of them in the UK, so such a relief would undoubtedly be very substantial in quantum. Of course, that is a constraint on what we can do.
Let me address the remarks by the hon. Member for Oxford East (Anneliese Dodds), who was commendably direct and straight about what exists: the 5% rate for the recovery of properties that have been empty for two years. She is absolutely right to point out the target issue versus the dead-weight cost, which I also highlighted. She is also right about our concerns, reflecting wider considerations on the state of the economy, and the need for a better understanding of the factual base for reliefs. Perhaps I can give her some comfort.
As the hon. Lady pointed out in response to my right hon. Friend the Member for Ludlow (Philip Dunne), who is no longer in his place, there is a relief available for the installation of energy-saving materials on residential properties, whether listed or unlisted. As she mentioned, we have measures to incentivise the use of listed buildings for residential purposes, as well as to increase the overall number of dwellings. Those measures cover listed buildings, so there is scope to support them in some circumstances.
I turn to some of the specific points made. My hon. Friend the Member for South Thanet pointed out that the relief is not directly comparable to its predecessor. The question of targeting is therefore central to what we have discussed. There is fairness, because listed and unlisted buildings are treated in the same way. The hon. Member for Glasgow Central (Alison Thewliss) said that the task for us all is to protect the homes that people live in, and of course an enormously larger number of people live in unlisted homes than in listed homes. The tax system tries to respect and acknowledge that intuition. It would be difficult to narrow the scope of a relief. Therefore, if one was to go down the path of a fund—my hon. Friend could raise that for a future fiscal event—such an approach could be a much closer fit and be accommodated within existing planning frameworks.
A point was made about anomalies. Of course, the tax system is full of anomalies and the question in many ways is which anomalies one seeks to eliminate—my hon. Friend wryly chuckles. Many of those anomalies exist in the nature of reliefs, and it would be an odd Financial Secretary indeed who wished to resolve an anomaly by creating another relief.
As a Government, we are committed to supporting the preservation of historic buildings and homes and the social and cultural contribution they make to our shared history. It is boilerplate but important to say that the Treasury keeps all taxes under review and is always willing to hear the case for what can be improved and refined. Even though we do not, at this time and for the reasons given, plan to change the VAT treatment of renovations or repairs, I thank everyone who has contributed to the debate.
Van Benefit and Car and Van Fuel Benefit Order 2020
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
The van benefit charge and fuel benefit charges for cars and vans will be uprated by the consumer prices index from 6 April 2020. The uprate will take effect as follows:
Van benefit charge will uprate from £3,430 to £3,490.
Car fuel benefit charge multiplier will uprate from £24,100 to £24,500.
Van fuel benefit charge will uprate from £655 to £666.
This measure is being announced outside of the normal fiscal process to ensure employers and HMRC are given enough time to prepare for the uprate, ahead of the 2020-21 tax year.
The Government will lay the statutory instrument to uprate these charges before the House today. A tax information and impact note (TIIN) will be published at: www.gov.uk/government/collections/tax-information- and-impact-notes-tiins.
[HCWS137]
Draft Employment Allowance (Excluded Persons) Regulations 2020
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I beg to move,
That the Committee has considered the draft Employment Allowance (Excluded Persons) Regulations 2020.
It is a delight to see you in the Chair, Ms Buck. This draft legislation allows the Government to target the national insurance employment allowance to businesses that need it most. Employers pay class 1 national insurance contributions on employee earnings above the secondary threshold, which is set at £8,632 this year. Those contributions are charged at 13.8% and constitute the largest business tax by revenue in the UK.
The employment allowance was introduced in 2014 to help businesses with the cost of employment and to encourage them to grow and to hire more staff. More than 1 million employers claim the employment allowance to reduce their employer NICs bill by up to £3,000 and, since its introduction, it has taken 590,000 businesses out of paying national insurance contributions altogether.
The employment rate is at an all-time high of 76.2%. Since 2010, youth unemployment has been halved and 3.7 million more people are in employment. That is a nationwide phenomenon; in the last year, three quarters of employment growth was outside London and the south-east.
All businesses—from greengrocers to Goldman Sachs; from butchers to Barclays; from pubs to Primark—are currently eligible for Government relief of up to £3,000 of their total employer NICs bill. Big businesses get the same benefit as small ones, but for larger businesses, that £3,000 is a small—perhaps tiny—amount relative to their total employment costs, so it is unlikely to encourage them to take on more staff, contrary to the purpose of the policy. It is right therefore to target the support at smaller businesses, for which the £3,000 relief makes a real difference to the cost of doing business.
That is why the Government decided to restrict the employment allowance to smaller businesses in the 2018 Budget. As a result, from April 2020, only businesses with an employer national insurance contributions bill below £100,000 will be eligible for the employment allowance. More than 99% of microbusinesses with fewer than 10 employees and 93% of small businesses with fewer than 50 employees will remain eligible for the employment allowance. Of the businesses that currently receive the employment allowance, around 8%—all of which will have a pay bill above £700,000 per year—will lose the allowance.
Targeting the employment allowance at smaller businesses means that it falls under EU de minimis state aid regulations. De minimis state aid refers to small amounts of aid that can be given without notifying the European Commission. Most businesses can receive up to €200,000 of de minimis state aid cumulatively in a three-year period. Under the de minimis regime, to claim the employment allowance, businesses need to notify Her Majesty’s Revenue and Customs annually as part of the existing claims process and confirm that they can receive the employment allowance without exceeding their cap. After consulting widely, the Government have removed the requirement to specify exactly how much state aid businesses have received, to make it easier for them to claim the reformed employment allowance.
As the Prime Minister announced, the Government will develop a separate independent UK policy on subsidies, for use when the transition period has ended. That will be a modern system designed to support businesses in a way that fulfils British interests. Although the employment allowance supports small businesses, I hope that the Committee agrees that giving every large business with a wage bill of £700,000 or more £3,000 off its national insurance contribution bill is not good value for money. The Government are committed to furthering their support for small businesses as we look to level up opportunity and growth across the country.
Over the course of this Parliament, this reform is projected to raise more than £1 billion that can be used to fund important public services and to target support for small and medium-sized businesses.
Jesse Norman
I am delighted to answer the questions put to me. In response to the hon. Member for East Dunbartonshire, I think I am right in saying that SNP policy was to double the employment allowance, rather than to restrict it. I think that would have had the effect of continuing the mis-targeting, which we have identified, on the largest companies. Therefore, we do not think that would be a good policy and we think it is much better to have the support targeted where it will have an effect on increasing the marginal appetite to retain or hire employees.
In relation to the questions from the hon. Member for Stalybridge and Hyde, I mentioned in my speech that some 8% of current businesses—about 80,000 businesses —would not be eligible for the employment allowance, as it is now proposed to be targeted. He will appreciate that it is designed in such a way that there should be a reduction in paperwork, because we have managed to avoid the situation that would have been mandated otherwise under EU rules, in which the specific amount of state aid received would have to be indicated. There was feedback in the consultation on the question of paperwork. The decision was taken that the application would be put through payroll software and should be as light touch and straightforward as possible.
The hon. Gentleman also asked about state aid. The trouble is that by restricting the scope of the allowance and by targeting a group, it automatically engages in EU state aid rules, and looks like preferential treatment. The Government have no option if they wish to introduce it. I do not detect any difference in the policy goal between us and the Opposition. It is a necessary part of doing that. I hope he can take some comfort from the fact that at the end of the transition period we expect to at least assess the scope for redesign of the policy if there is serious evidence of any adverse impact on those it is meant to support.
I have indicated that the allowance will be paid through payroll and will be communicated through the usual channels online, through public media support, and with the active collaboration of stakeholders, small business groups and other relevant organisations to make sure that it has the widest possible take-up. Since this is a universally understood allowance already, I expect take-up to be high from the beginning.
Question put and agreed to.
Loan Charge Review
Jesse Norman Excerpts(6 years, 1 month ago)
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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. These are tax avoidance arrangements that seek to avoid income tax and national insurance contributions by paying scheme users their income in the form of loans, usually via an offshore trust, with no expectation that the loans would ever be repaid.
On 20 December 2019, the Government published the independent review and the Government’s response, accepting all but one of the review’s recommendations (HCWS14). On 20 January 2020, HM Revenue and Customs (HMRC) published draft legislation giving effect to the changes to the loan charge following the review (HCWS45).
Today HMRC has published the following:
Additional draft legislation covering the Government’s commitment to refund certain payments made by individuals and employers for unprotected years which will no longer be subject to the loan charge where tax was paid voluntarily, together with details of the repayment scheme, https://www.gov. uk/government/publications/implementation-of-changes-to-the-loan-charge.
A tax information and impact note and explanatory note to support this legislation. https://www.gov.uk/government/publications/implementation-of-changes-to-the-loan-charge.
Guidance for employers who are either subject to the loan charge themselves or have employees who are. https://www.gov. uk/government/publications/disguised-remuneration-independent-loan-charge-review/guidance; https://www.gov.uk/guidance/report-and-account-for-your-disguised-remuneration-loan-charge.
All measures will be legislated for in the forthcoming Finance Bill.
[HCWS136]
Tax Avoidance and Evasion
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
I am delighted to wind up the debate for the Government. It has been a fascinating debate. There has, of course, been extensive discussion of the issues of tax avoidance and evasion, but we have also heard about lemon meringue pie and West Bromwich Albion, and we have heard two sparkling maiden speeches, for which I thank my new hon. Friends. It has been a cornucopia of joy for everyone interested in these issues.
Before I deal with the debate itself, may I dwell for a second on the Tax Justice Network report, which is central to the motion? We are repeatedly enjoined to trust it as an authoritative assessment of the UK’s position, but I suggest that nothing could be further from the truth. Those who look closely at the report will see that it generates absurd outcomes. In its list of 133 jurisdictions, we supposedly come 12th in terms of offensiveness, yet near the bottom we see Brunei, Vanuatu and Liberia. Is anyone seriously suggesting that this country is a less robust and effectively transparent tax jurisdiction than those?
The reason for that mistake is the fact that the findings are based on an entirely flawed methodology which accepts the proposition that the UK is one of the least secret jurisdictions in the world. I believe it is the eighth least secret, according to the report. Because its authors have some fudge factor, or financial multiplier, they have somehow able to deduce this extraordinary further conclusion. In fact, it is bogus. As was pointed out by a partner at Clifford Chance, the excellent Mr Dan Neidle— [Hon. Members: “That is not an answer.”] He is a tax partner at Clifford Chance who was offering his view, but that was a nice try from the Opposition Front Bench. He is quoted as saying that
“Britain still scored badly despite making significant strides ahead of its global peers on fostering greater”
—tax—
“transparency.
This, he said, was because the report calculates its final secrecy score based on the volume of financial activity conducted by non-residents.”
That is, of course, further to the issue of the core secrecy of the regime, and, as I have said, ours is one of the most transparent.
The report is bogus. It is based on a flawed methodology, and one that is itself secret to the point of being hard to scrutinise. However, I will say one more thing about it: although bogus in many respects, it does accurately place much of the blame for the current situation on the very soft-touch regulatory regime initiated under the Labour Government of 1997. That much, at least, is accurate.
Let me now deal with the main topic of the debate. Of course it is right to focus on the size of the tax gap —the gap between tax owed and tax paid—and I am delighted that it has fallen to a near record low of 5.6%. In his excellent speech, my hon. Friend the Member for Amber Valley (Nigel Mills) asked whether we could introduce a target. It is, of course a retrospective measure. HMRC’s attempt to get close to this point involves the concept of compliance yield, amounting to £34.5 billion this year, which is itself a stretching target. However, the good news is that the 5.6% target is some 0.7% below the average of the last five years of the Labour Administration. That is about £4 billion of tax which we, I am pleased to say, are collecting, and which, had they stayed in office, they would not have collected. It has also rightly been pointed out that at the last Budget the Government announced 21 new measures to tackle avoidance, but of course they were voted down by the Opposition. Last year, these compliance activities brought in some additional £34 billion, and since 2010 compliance activities have secured and protected more than £200 billion of tax revenue. That is a record of which we can all be proud.
It is an interesting fact that, when he came to consider the loan charge, Sir Amyas Morse focused on the earliest date on which he believed the charge could be properly validated in law. That date was December 2010. In other words, we supposedly had 10 years of loan charge non-compliance under the Labour party, which received no legal justification or support. I do not actually believe that that is true. HMRC was correct in chasing those people as it did, and that will be proved, but the fact is that Sir Amyas himself has pointed to the slapdash manner in which the last Government addressed this whole issue.
Let me pick on some of the important comments that have been made in the debate. My right hon. Friend the Member for East Hampshire (Damian Hinds) was absolutely right to highlight the importance of the quality of data in our system. He was also right to focus on the diverted profits tax and the digital services tax as examples of activities that we are undertaking in order to improve compliance. The right hon. Member for Barking (Dame Margaret Hodge) raised a series of important points, and I want to spend time on those. We have discussed them in an Adjournment debate, and it is interesting that she has come back to them today. She is absolutely right to say that the centrality of the tax system should be one of fairness. It should not be one of penalising any particular section of the public—rich or poor, wherever they live, whatever they might be doing.
The right hon. Lady asked about public registers of beneficial ownership. It is important for me to say that the law enforcement agencies need to have access to the information they need to tackle money laundering. That is what really matters at the core of this. The Government have ensured that the recently established register of trusts is specifically designed to capture overseas trusts for that reason. She is right to focus, as did the hon. Member for Oxford East (Anneliese Dodds), on the progress that has been made on public registers of beneficial information. The right hon. Member for Barking raised the question of beneficial owners of overseas entities. She will know that that register will be the first of its type in the world, and we will go further to increase transparency in the UK property market. The Department for Business, Energy and Industrial Strategy is the lead Department on this, and it has published a draft Bill that has undergone pre-legislative scrutiny.
The right hon. Lady also raised the question of creative sector tax relief. She will understand that in order to qualify for film and high-end tax reliefs, businesses have to incur a proportion of their production costs in the UK and pass a test for cultural content administered by the British Film Institute. I cannot comment on the specific circumstances of individual companies, but she ought to be aware that HMRC carries out a detailed check of each claim for creative sector tax relief, and that large businesses are subjected to an exceptional level of scrutiny. The point is that large businesses, like all other taxpayers, should pay the taxes due under UK law and implement compliance checks where necessary.
The right hon. Lady talked about country-by-country registration. Private country-by-country registration is of course in place. The problem lies in securing the international agreement required to roll out the public registration. It demands a measure of international agreement, and that is something that we continue to focus on. That is a Conservative act of leadership that we are still in the process of taking forward. She is right to pick on some other areas. I would just point out that the disclosure of tax avoidance schemes, the promoters of tax avoidance scheme rules—which can lead to significant penalties—and the enabler penalties that we put in place are all important, and I anticipate that will be strengthening them further over time. Let me pick up a couple of other quick points—
Jesse Norman
I am afraid that there is no time at all to do that, but I will pick up a couple of further points. Colleagues quite rightly had concerns about HMRC resourcing, and they are welcome to write to me if they want to discuss specific topics.
I mentioned the important point made by my hon. Friend the Member for Amber Valley, and I am pleased that he offered his qualified support for IR35. He is right that it is an important measure, and it will collect something like £1 billion of tax a year by the end of the period. As he will be aware, the Government are preparing to legislate to clarify the status of employment from a business standpoint, which is proper and correct.
I am surprised that the right hon. Member for North Durham (Mr Jones) was told that he could not be told anything. Of course, HMRC cannot discuss specific issues, but I hope that he will have a more interesting conversation than that.
I thanked my hon. Friend the Member for Delyn (Rob Roberts) for his constructive attitude, and he was right to focus on the privilege of paying tax. There is an element of truth in that, and we should properly defend it. With that in mind, let me sit down.
Question put.
Finance Bill
Jesse Norman Excerpts(6 years, 1 month ago)
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The Financial Secretary to the Treasury (Jesse Norman)
The Finance Bill will be published on 19 March. Explanatory notes on the Bill will be available in the Vote Office and the Printed Paper Office and placed in the Libraries of both House on that day. Copies of the explanatory notes will also be available on www.gov.uk.
As usual, a full copy of the Budget resolutions will be made available after the Chancellor’s Budget statement on 11 March. This includes resolutions made under the Provisional Collection of Taxes Act 1968 for those measures that are expected to come into effect ahead of Finance Bill Royal Assent.
In line with the approach to tax policy making set out in the Government’s documents “Tax Policy Making: a new approach”, published in 2010, and “The new Budget timetable and the tax policy making process”, published in 2017, the Government published draft legislation for Finance Bill 2020 on 11 July 2019, which is available at: https://www.gov.uk/government/collections/finance-bill-2019-20.
The Government remain committed to legislating those measures published in July 2019, subject to confirmation at Budget 2020.
[HCWS122]
Oral Answers to Questions
Jesse Norman Excerpts(6 years, 2 months ago)
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Kate Green (Stretford and Urmston) (Lab)
The Financial Secretary to the Treasury (Jesse Norman)
The review of the off-payroll working rules reform was announced on 7 January 2020. The reform is due to be extended to medium and large-sized organisations in all sectors from 6 April. It is determining whether any further steps can be taken to ensure smooth and successful implementation, and a series of roundtables with stake- holders has already been conducted. The review will conclude by mid-February, after which recommendations will be made public.
Jessica Morden
With the roll-out of IR35 in the private sector fast approaching, there is already concern that companies are making blanket determinations, forcing genuine contractors into contracts that tax them as employees but with no employment rights. Ahead of the protest here tomorrow, will the Government listen, pause the process and work with the industry to do a proper review?
Jesse Norman
The hon. Lady may be aware that we have already made a small but important change to the roll-out as a result of the review. We are not aware of blanket determinations being made, although it must be said that many firms are choosing to acknowledge disguised employment and bring those contractors in-house. The hon. Lady should also be aware that there are various routes by which determinations can be challenged, including, if necessary, a submission under the income tax self-assessment process, for a final determination.
Kate Green
We all want to crack down on tax avoidance but legitimate contractors in my constituency face uncertainty about their status and tax liability thanks to unclear HMRC guidance and the unreliability of CEST—check employment status for tax—and the firms they work for are cancelling contracts because of the confusion. What is the Minister doing to address their concerns?
Jesse Norman
We are conducting a review to ensure that this is as smooth as possible. We recognise that there is difficulty here. Some 18 months have passed since the original reform of status determination was announced and in that process we have had a consultation, draft legislation and further discussions and consultation, and we are having a further review now to make sure it is properly and smoothly rolled out.
Sir Desmond Swayne (New Forest West) (Con)
Against how many of the pillars of taxation did the Economic Affairs Committee in the other place judge the 2010 legislation on the loan charge to have failed?
Jesse Norman
We have a question about the loan charge later on, so I look forward to my right hon. Friend’s further question then. He can answer on the number of pillars because I am sure he has scrutinised the Committee’s hearings very carefully. What I can tell him is that the fundamental principle of tax is that it should be properly collected from people who owe it and who may be avoiding it, and that is what this is designed to do.
Martyn Day (Linlithgow and East Falkirk) (SNP)
The Financial Secretary to the Treasury (Jesse Norman)
I thank the hon. Gentleman for his question about e-publications and see by the way, Mr Speaker, that your predecessor Speaker Bercow’s book, aptly named “Unspeakable: the Autobiography” has just been published. Apparently it is an online bestseller in the rather surprising, slightly niche category of blues musician biographies. Unlike many other e-books, it is considerably cheaper than the book itself; whether that will remain so is not clear. I do not know whether you have had a chance to peruse the work, Mr Speaker, but if you have, I am sure you will agree that no reader would have their appetite to read it affected by a reduction in tax. What this brings out is that the pricing of e-books is a commercial decision, and it is far from clear whether changing the tax would affect that decision.
Martyn Day
I thank the Minister for his entertaining answer. Scottish National party Members are very disappointed that the last Government refused to back our demands to remove VAT from electronic publications. So with the Budget only a month away, will he consider a change of policy so that at the very least, online children’s books and academic journals can become more affordable?
Jesse Norman
The hon. Gentleman is absolutely right that there are benefits associated with extending the zero rate of VAT in this area, as in others. The task for Government is to work out what is the right thing to do, all things considered. All I can say is that we have responded to the Cairncross review in part of this area, and we continue to keep all taxes under review, especially in the lee of a budget.
Michael Fabricant (Lichfield) (Con)
While agreeing with the point made for the SNP by the hon. Member for Linlithgow and East Falkirk (Martyn Day), does the Minister not find it somewhat ironic that the only way we can reduce the rate of VAT to zero is through Brexit, yet the SNP wishes to remain in the EU, and we would therefore not be able to reduce VAT if that were the case?
Jesse Norman
That is a very telling point, and I draw the House’s attention to the parallel issue of sanitary products for women, on which I am pleased to say we will be able to act after we have left the EU.
Bambos Charalambous (Enfield, Southgate) (Lab)
Mr Laurence Robertson (Tewkesbury) (Con)
The Financial Secretary to the Treasury (Jesse Norman)
Of the estimated 50,000 individuals affected by the loan charge, the Government currently estimate that more than 30,000 will benefit from the changes. That includes about 11,000 people who will be taken out of paying altogether. In addition, individuals who have settled or who are settling their tax liability with Her Majesty’s Revenue and Customs will be out of scope of the charge.
Seema Malhotra
Neither the law nor HMRC made clear the position regarding loans and self-employed people. Indeed, it was not until 2016 that it was announced that the law would be changed to include the self-employed and others who did not even find out until a year or two later, such as my constituent Dhruv Salotra. Will the Financial Secretary do the obvious thing, get rid of all retrospection and apply the loan charge from when the law was clear and applied to everyone, including the self-employed, and, in addition, clamp down on those who promoted these disguised renumeration schemes in the first place?
Jesse Norman
The hon. Lady is absolutely right that it is important to crack down on promoters, and at the Budget we will bring forward a package about how to do that. Her wider point, however, is wrong: this is not a retrospective measure. It is also true that the Government have to some extent been vindicated by Sir Amyas Morse, who found that the loan charge was an appropriate way to respond to tax avoidance and, after detailed argumentation, suggested a date in December 2010 as the correct date from which to date the legality of it.
Mr Robertson
But even 2010 is 10 years ago, so if the law was clear then, as the report suggests, why did HMRC not act then? Surely this matter is its responsibility.
Jesse Norman
HMRC did pursue these cases quite vigorously. Sir Amyas found, on the basis of detailed consideration, that the law was clear then, and therefore HMRC rightly believed that people would accommodate it. Of course, it pursued people who had been avoiding tax through disguised renumeration schemes for many years before that, and it will continue to do so for those that have been carved out by the loan charge review.
Ruth Cadbury (Brentford and Isleworth) (Lab)
The Treasury has accepted some of Sir Amyas Morse’s recommendations, but there is confusion about some of them. A constituent of mine got caught in a disguised renumeration scheme before 2010, and yet he is still not convinced that he is in the clear and has that fear hanging over him. What does the Financial Secretary have to say about that?
Jesse Norman
The hon. Lady is quite wrong. We accepted all but one of Sir Amyas’s recommendations, and we did not accept that one because the issue he raised was already being handled very well within the system. If the hon. Lady has a specific concern, she is very welcome to raise it with tax commissioners or, indeed, with me, although on an anonymised basis because obviously I cannot deal with specifics.
Alan Mak (Havant) (Con)