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]

HMRC: Automation of Tax Notices

Jesse Norman Excerpts

Thursday 31st October 2019 Written Statements

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

The Government are committed to doing what is necessary to protect the Exchequer, maintain fairness in the tax system and give certainty to taxpayers. Therefore, the Government are announcing today that legislation will be brought forward in the next Finance Bill to put the meaning of the law in relation to automation of tax notices beyond doubt. Specifically, that legislation will put beyond doubt that HMRC’s use of large-scale automated processes to give certain statutory notices, and to carry out certain functions is, and always has been, fully authorised by tax administration law. This measure will have effect both prospectively and retrospectively.

The Government introduce legislation with retrospective effect only where necessary. In this case retrospective effect is necessary to close off the Exchequer and operational risks presented by judicial challenges to HMRC’s ability to automate certain functions. It will protect very substantial sums of tax and penalties already legitimately paid. It will preserve the status quo for taxpayers and HMRC, merely confirming the validity of HMRC’s longstanding and widely accepted operational practice. Taking this action will help to guarantee the integrity of the tax base, provide certainty to taxpayers, and allow the Government to continue to administer the tax system efficiently. More details will be published on the Finance Bill 2019-20 pages of gov.uk.

[HCWS61]

Draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019

Jesse Norman Excerpts

Thursday 31st October 2019 General Committees

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

I beg to move,

That the Committee has considered the draft Income Tax (Trading and Other Income) Act 2005 (Amendments to Chapter 2A of Part 5) Regulations 2019.

It is a great pleasure to serve under your chairmanship, Mr Stringer.

The regulations make technical amendments to the rules governing offshore receipts in respect of intangible property—the hyper-sexy acronym is ORIP—that were introduced in the Finance Act 2019. The ORIP rules tackle large multinationals that have entered into arrangements to receive income from their intangible property—copyrights, patents and other intellectual property—in offshore territories where that income is either untaxed or taxed at low effective rates. The rules tax the proportion of that income that relates to the sale of goods or services in the UK.

ORIP reduces the opportunities for large multinationals to gain an unfair competitive and tax advantage by using contrived offshore intellectual property structures to reduce their tax burden, thereby levelling the playing field for businesses operating in UK markets. The rules as enacted include a regulation-making power to allow for amendments to improve targeting and minimise unintended consequences, and this statutory instrument is the result.

Following recent consultation, the statutory instrument makes technical changes to the detailed provisions that are necessary for the regime to work as intended. Overall, ORIP is still expected to yield £1.1 billion over the scorecard, and these changes do not affect the costings. Where they are relieving, most of the amendments are treated as having retrospective effect from 6 April 2019, when the ORIP rules commenced. A few of the amendments, where they are charging, will have effect prospectively from the day after the regulations are made.

Let me briefly say a few words about each amendment. First, ORIP is targeted at territories with which the UK does not have a full double tax agreement, or DTA. That is intended to ensure the UK remains compliant with its international obligations. The regulations make two changes to the scope of the legislation. First, they extend the ORIP charge to businesses that are resident in a territory that has a full DTA with the UK but where resident businesses do not qualify for relief under it. That may be because the business is of a type explicitly excluded from the agreement or because the income paid to the business is not covered by the double tax agreement. The effect of that is to bring as many low-tax territories within scope as possible while remaining consistent with the UK’s international obligations. The change is prospective and will take effect from the day after the regulations are made.

Secondly, the regulations introduce an exemption for companies resident in specified territories with which the UK does not have a full DTA. That exemption, which is subject to anti-avoidance conditions, will be used to ensure that ORIP does not apply to high-tax jurisdictions that do not have a full DTA with the UK.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

I realise that these matters are very complex and we need to narrow down the opportunities for multinationals to shift their profits around, on which this Government have done much work. However, Google makes a 22% profit margin internationally and turns over around £10 billion in the UK, which means, with a corporation tax rate of 19%, that it should pay around £420 million a year in tax in the UK, yet it pays only around £70 million. Does the Minister agree that we cannot rest in our pursuit of increased measures until it pays the appropriate amount of UK tax?

[Jesse Norman]

I am grateful to my hon. Friend for his intervention, which reflects his characteristically acute understanding of financial and tax issues. Of course, the question in many of these cases—I will not take one in particular—is whether companies have paid the appropriate level of corporation tax in the jurisdictions where corporate tax is chargeable. There is then the separate question whether they pay a fair level of tax in the jurisdictions where they do business. He will understand that the latter is very much in the Government’s mind. That is part of the purpose of our new digital services tax, which we hope to introduce in the next Finance Bill and for which legislation has already been published.

[Neil Parish (Tiverton and Honiton) (Con)]

This is probably completely out of order, in terms of considering the draft regulations, but I paid my Amazon bill the other day. Amazon is registered in Luxembourg and, obviously, pays much less tax; yet it does a hell of a lot of business here. I am sure that the draft regulations do not deal with that, but are we thinking about dealing with it in some way in the future?

[Jesse Norman]

I am not, as a Minister, privy to individual taxpayer relationships with HMRC, but I am certainly given to understand that it is looking very closely at the general question of whether platforms, and international corporations of other kinds, are paying appropriate levels of tax, as the hon. Gentleman would expect.

As I said, the draft regulations introduce an exemption for companies resident in specified territories. That exemption, which is subject to anti-avoidance conditions, will be used to ensure that ORIP does not apply to high-tax jurisdictions that do not have a full DTA with the UK. The regulations include a power to add and remove specified territories by making further secondary legislation. HMRC will consider exercising that power only where non-low-tax territories are identified that do not pose a risk to the statutory purpose of the legislation.

There are three changes to the definition of UK sales, which are designed to make the rules more proportionate and to improve their targeting. First, in determining UK sales, the legislation will look through distributors and re-sellers—that is to say, those who simply sell on goods and services unchanged. That will ensure that ORIP does not discourage businesses from using the UK as a location from which to sell to foreign markets. Secondly, there is clarification that a UK sale will arise in relation to online advertising where the advertising is targeted at UK persons. Thirdly, in circumstances where the intangible property makes an insignificant contribution to UK sales made by third parties, those sales are disregarded.

The draft regulations introduce a targeted amendment that will exempt from charge certain tax-transparent entities whose profits are subject to tax in a non-low-tax territory. Without that exemption, those entities would be subject to an ORIP charge because they do not meet the technical criteria of being a tax resident in a non-low-tax territory, even though the relevant profits will be subject to tax there.

There are three changes designed to minimise double taxation. The first concerns intangible property held by a partnership, and prevents a tax charge on the partners where the partnership is appropriately taxed. The second prevents multiple ORIP charges where a multinational group has more than one entity in a low-tax territory, and the same intellectual property-derived income is paid from one to the other. Thirdly, the draft regulations clarify that where there is a charge under the measure there is no duty to withhold income tax at source on the same income.

The final change provides clarification on the meaning of tax outside the UK, as meaning tax payable or paid that is comparable to UK income tax or corporation tax. These technical changes are being introduced to ensure that today’s important measure, which prevents large multinationals from gaining unfair tax and competition advantages, works as intended. I hope that colleagues will join me in supporting the draft regulations, which I commend to the Committee.

--- Later in debate ---

[Jesse Norman]

I am grateful to the hon. Member for Stalybridge and Hyde and thank him for his support for the SI, and for his warm wishes to all colleagues across the Committee in the forthcoming general election. He raised some important points, which are worth touching on.

The hon. Gentleman asked about an impact review. As he will be aware, the measure has not completed its first year, having been introduced in the last Finance Bill, so we are not in a position to carry out a full impact review. Of course, the proper taxation impact note was supplied with the legislation at the time, and an updated one has been supplied for this SI, and is available in the Library.

The hon. Gentleman also asked for some reassurance about countries with which we have double taxation agreements but which may be low-tax countries. I can reassure him about that. A couple of examples that are particularly salient are the Cayman Islands and Bermuda.

As to the shadow Chancellor’s unitary approach, of course, whatever the outcome of the election may be, politicians across the House are welcome to submit their ideas for improving the taxation of multinationals. Considerable amounts of expert work have been done on that topic within HMRC, but if the shadow Chancellor or any other Member has evidence or ideas that can feed into that process we should be glad to hear them.

I thank the hon. Member for Stalybridge and Hyde for his support for the digital services tax. He will understand that its purpose is a temporary one, and that it is designed to pre-empt and anticipate, but ultimately to be replaced by, a more comprehensive international OECD agreement.

Question put and agreed to.

Cross-border Trade and Accounting

Jesse Norman Excerpts

Wednesday 30th October 2019 Commons Chamber

[Luke Graham (Ochil and South Perthshire) (Con)]

It is a pleasure to have secured this Adjournment debate on the exciting topic of accounting systems in cross-border trade. I know the House is racked with anticipation for this debate, as shown by the packed Benches, so I am looking forward to it.

I have to admit that, because of the potential for there being debates on the European Union (Withdrawal Agreement) Bill this week, I thought that cross-border trade would be a hot topic, and that this Adjournment debate would provide an opportunity for colleagues, especially those from Scotland and Northern Ireland, to talk through some of the issues in greater detail. Obviously, events have overtaken us and we are not quite in that situation, so I will continue with the debate but take a slightly different angle. I shall talk about the development of accounting systems, and refer to some of the work by Her Majesty’s Revenue and Customs on Making Tax Digital, and about HMRC’s support for small and medium-sized businesses. I refer Members to my entry in the Register of Members’ Financial Interests.

While on secondment from Marks & Spencer, I had the great fortune to work for the Prince’s Trust’s Accounting for Sustainability project, which is dedicated to using accountants to try to help to solve social and environmental issues. Indeed, His Royal Highness Prince Charles believes that accountants are the key to saving the world: by changing the data that is used in day-to-day business and in organisations, they can help to steer better decision making—

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

rose—

[Luke Graham]

Is the Minister on his feet?

--- Later in debate ---

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

I feel almost embarrassed to be intervening on the promising discussion between my hon. Friends the Members for Ochil and South Perthshire (Luke Graham) and for South Thanet (Craig Mackinlay); it is almost as though one would be intruding by saying anything from the Treasury Bench, given the degree of conversation that was going on. I thank them both for a most engrossing and expert discussion.

When I was thinking about this debate, I did a little research into the background of my hon. Friend the Member for Ochil and South Perthshire and discovered that part of his life had been spent not merely as an accountant at Tesco and Marks and Spencer, where he started to develop the considerable personal knowledge he has demonstrated, but involved an outfit called Tough Mudder. I do not know whether you have come across Tough Mudder, Madam Deputy Speaker. It is an organisation that specialises in ultra-long obstacle courses of 8 to 10 miles, or possibly longer. It holds some rather interesting events. I bring your attention to the “arctic enema” in which participants plunge into a dumpster filled with ice water, dunk themselves underneath the plank that crosses the dumpster and then pull themselves out on the other side. There is also “electroshock therapy” in which live wires hang over a field of mud that participants must traverse. Above all—this is especially important in the context of the House of Commons—there is “Everest” in which participants run up a quarter pipe slicked with mud and grease; just the thing to ascend the ladder of career opportunity in Government and Parliament. It does not surprise me at all that my hon. Friend should have acquired those important skills; he is demonstrating them so brilliantly in his parliamentary career.

It is also quite interesting how my hon. Friend has deployed precisely those Tough Mudder tactics so successfully today in calling for an Adjournment debate on cross-border trade and accounting systems and then taking us into the highways and byways of the tax code. I call that classic bait-and-switch of the kind that the founders of Tough Mudder would be delighted with.

Let me mention a few of the things we have touched on before coming to the main thrust of the topic. My hon. Friend is absolutely right to highlight Making Tax Digital for VAT, not merely as a success for HMRC—although it has had some delay, it is clearly proving to be that in relation to VAT—but because of its wider effects. More than 1.25 million businesses are signed up to Making Tax Digital for business, and very nearly 1.75 million VAT returns have been successfully submitted through the service. Some 81% of all businesses mandated from April are now signed up to it. That is a tremendous achievement, and it fully bears out the point made by my hon. Friend the Member for South Thanet. When the British people are presented with a challenge, particularly on taxation, they rise to it and overcome it. That is an important and valuable characteristic, and it is one we rely on.

There are also wider benefits, and they are becoming quite evident. There are potentially quite significant productivity benefits—we are still measuring them in HMRC. The benefits are starting to become sufficiently well known within the smaller business community to result in many signing up for Making Tax Digital VAT voluntarily; they are not captured by its mandate because they are not above the threshold. That is an important aspect of the wider picture of improving productivity and audit and accountability that goes with these developed processes.

My hon. Friend the Member for Ochil and South Perthshire also rightly mentioned the concerns and opportunities created by new methods of managing and valuing intangibles. That is always of great interest to Revenue and Customs, as he might imagine. He talks about the importance of transactional barriers and the need to avoid them; of course, I agree. He rightly focused on extracting an appropriate level of tax from the very largest companies and platforms—he and I have written about this in other contexts. It is important to level the playing field, with platforms using their power for good rather than yielding to the temptation to exploit insider information and one-to-many power to create an unlevel playing field. In part, that is exactly what our digital services tax is designed to do.

My hon. Friend the Member for South Thanet quite rightly mentions cigarette excise losses. If it is of any reassurance to him, I personally have sat with the HMRC fraud team tracking of some of these gangs in real time. I can tell him that it is an enormously impressive operation and one that yields great benefits to the Revenue and to this country’s Exchequer.

Turning to the issue at hand, let me say a few things about the very important question that my hon. Friend the Member for Ochil and South Perthshire asked about cross-border change and the role that accounting systems can play in that. He will be aware that the Government are committed to an efficient and effective customs system that minimises administrative burdens on people who trade. He will also know that HMRC has invested some £34 million to fund training for individual businesses and—this is the key point—to develop and grow the customs intermediary sector so that it embeds greater expertise and institutional capacity to sustain our customs over the longer term. Indeed, I spoke at the launch of the UK Customs Academy, funded by HMRC, only last month.

It is also important, as my hon. Friend has stressed, to make customs processes as simple as possible. The current declaration system, known as CHIEF, as my hon. Friend the Member for South Thanet mentioned, is being replaced with a new customs declaration service that is much more modern, much more flexible and able to anticipate vastly larger volumes of trade, and much easier and quicker for traders to use. The digital and streamlined processes committed to in the 2018 Budget are already coming into play and the specific commitment to halve the time it takes to receive authorised economic operator status is a further exemplification of that.

Let me come, slightly more widely, to the question of VAT. My hon. Friend the Member for Ochil and South Perthshire is right to ask whether VAT systems can be used to facilitate cross-border trade. This is an issue that officials within HMRC have explored in relation to HMRC’s own VAT regime and whether that can be deployed to facilitate customs processes. The House should be clear that there are specific challenges arising from that. The first has to do with the monitoring of goods, and the UK is under an obligation to demonstrate its control over goods imported and exported from this country. The Government need to be able to monitor the movement of goods in real time, but the trouble is the current VAT system, which is of course typically run on a quarterly returns basis and does not meet the real-time requirement, as VAT is accountable after the movement of goods.

The second challenge is a related one and bears on assurance. It is an underlying principle of the World Trade Organisation and the World Customs Organisation that tariffs should exist as a trade policy tool and must be applied in a fair and reasonable way. Real-time controls are a way of satisfying authorities that the correct tariff has been applied and collected on goods and, of course, it is important not to lose the credibility that border controls confer when they are deployed on the UK as a trading partner. That would potentially be put at risk by this suggestion.

Real-time controls of course also help to ensure that goods that do not comply with regulatory standards or that pose a security risk—of course there are such goods—do not enter this country. Without some customs processes, it would be difficult to identify and check goods that pose a risk to this country. It could be a phytosanitary risk, one from hazardous materials or, of course, one from weapons and other things of that nature.

The final challenge I would identify is that we are under an obligation to show that we have applied trade policy in a fair and uniform manner, and customs controls allow us to differentiate countries that have free trade agreements from those that are subject to most favoured nation status. Of course, any future customs facilitation for UK-EU trade will be a matter for negotiation once we have left the EU. Both we and the EU envisage putting in place ambitious customs arrangements to make use of all the available facilitative arrangements and technologies that we can.

Let me reassure you, Madam Deputy Speaker, and colleagues across the Chamber that we are preparing for that negotiation and will work with Parliament, the devolved Administrations and others to ensure a successful outcome in the interests of all parts of the United Kingdom.

[Madam Deputy Speaker (Dame Eleanor Laing)]

Thank you. What an interesting debate. It’s all right—I am a lawyer, so I understand accountants.

Question put and agreed to.