Health and Social Care Levy Bill

Debate between Jesse Norman and James Murray

Committee stage & 3rd reading
Tuesday 14th September 2021 Commons Chamber

[Jesse Norman]

I thank colleagues for their contributions to the debate. It has been very wide ranging—especially the last speech—occasionally touching on the subject of the Bill and the clauses and amendments in it.

Let me start with the hon. Member for Ealing North (James Murray) who speaks for the Opposition. He asked why the dividend tax has not been brought in. The answer to that question is that it does not fall under a national insurance contributions Bill. Dividends are subject to a separate dividend tax regime. That is a tax that is already in existence and it will be handled, as the Government have already made clear, in the course of the forthcoming Finance Bill.

The hon. Gentleman asked questions about levelling up and multinationals’ tax avoidance. I think he is aware that the Government’s approach to levelling up is extremely manifest, most recently in the work that we have done with the UK Infrastructure Bank, which is specifically dedicated to net zero and levelling up and which has just recruited a world-class new chief executive. On the case of multinationals, he has obviously forgotten that the Government have been in the vanguard of the G20 and the G7 in arranging and leading on a new settlement on Pillar One and Pillar Two multinationals’ tax avoidance.

The hon. Gentleman repeated his untrue claim from the earlier debate that these measures contain no new funding for social care. In fact, as the Chief Secretary to the Treasury said a few minutes before he first said that, the measures contain £5.4 billion to support social care, which is in the plan. In case he missed it, it is in paragraph 36 of the plan. It is no wonder that those on the Labour Front Bench do not think that we have a plan if they cannot be bothered to read the plan that we have actually published.

[James Murray]

To be absolutely clear, the question that I was putting to the Minister was: where in the Bill is there a guarantee that a single penny of this new levy will go to social care?

[Jesse Norman]

The Bill is designed to fund the plan and the plan has been published. The plan is perfectly explicit as to where the money is going with regard to social care and how much is going to social care. It is in paragraph 36. The hon. Gentleman only needs to look at the plan to see it.

My hon. Friend the Member for Yeovil (Mr Fysh) tabled a probing amendment and explained the background to his own amendment 7, and I thank him for that. I mean him no disrespect when I say that the Government have taken the amendment on board, and will take it on board, but I still ask him to withdraw his amendment.

The hon. Member for Aberdeen South (Stephen Flynn) talked airily about unfunded social care plans controlled, as it were, by England over Scotland. Nothing could be further from the truth. The truth is that Scotland has social care plans that are underfunded. Audit Scotland said that more money was needed. The Independent Review of Adult Social Care in Scotland said that more money will need to be spent over the longer term. Unfortunately, he also ignores what has been accurately described by the Prime Minister as the Union dividend from which all the devolved Administrations will benefit.

My hon. Friend the Member for Amber Valley (Nigel Mills) asked the important question of why a new tax. It is important to focus on this. The reason there is a new tax is that this is a fundamental change in how we have been thinking about social care. Andrew Dilnot himself has said that he does not think it inappropriate to have a new tax funded to support this.

My right hon. Friend the Member for Wokingham (John Redwood) talked about Treasury concern with hypothecation, which remains intact. There is already an existing level of hypothecation within the national insurance contributions system and this plays off that. The hon. Member for Nottingham East (Nadia Whittome) went into a long diatribe, in which she accused the Government of seeking to protect the richest people in society, to which the only simple answer is that that is absolute nonsense. I think she missed the debate on Second Reading, but if she read the distributional analysis, she would see that this package means that the 20% of highest income households will contribute 40 times the amount contributed by the least well off 20% of households. It is also worth pointing out that the highest earning 14% will pay roughly half of all revenues. Even the Wealth Tax Commission, which is independent of Government and dedicated to the idea of arguing for a wealth tax, acknowledged that the UK is on par with G7 countries as regards a wealth tax. Under a more inclusive definition—one that includes, for example, stamp duty land tax—the UK is near the top of the G7 countries in terms of a wealth tax.

My right hon. Friend the Member for Wokingham talked about hypothecation; I perfectly understand that. He also mentioned gross net revenues. These are net revenues—revenues that have been calculated net of the effects. The detail is set out in the technical annex to the published plan.

The hon. Member for Leeds East (Richard Burgon) revisited some of the themes set out by the hon. Member for Nottingham East, but I am afraid no more persuasively.

My hon. Friend the Member for Christchurch (Sir Christopher Chope) went on a glorious canter, or possibly a ramble, around various public spending concerns. I fully appreciate his concerns. Very little of what he said actually bears direct relation to the levy, but let me address the parts that do. He asked why there is no distinct social care levy. Of course, it is possible to claim, as I did, that there is a need for greater integration between healthcare and social care, without suggesting that the funding for those things needs to be handled in exactly the same way across both. This provision blends the funding in a way that is felicitous for both elements.

My hon. Friend argued vigorously for co-payment. I take his arguments as I am sure he means them and look forward to seeing his Bill. He also mentioned millionaires in hospitals. He is right that maths is eternal; our noble Friend Lord Bethell may have been referring to the fact that calculations are not eternal, but may be in time and premature.

Oral Answers to Questions

Debate between Jesse Norman and James Murray

Tuesday 7th September 2021 Commons Chamber

[Jesse Norman]

I thank the hon. Lady for her question. Taxation is often a difficult matter for the relatively small number of individuals who may be affected by particular pressures. Of course the Government recognise and understand that, but it is nevertheless the case—it is indeed a foundational principle of the tax system—that people should be responsible for their own tax returns. If I may, I would like to refer the hon. Lady to the very wise words of the former shadow Chancellor, the hon. Member for Oxford East (Anneliese Dodds), who said in 2018 that

“we would obviously welcome tightening in the area of disguised remuneration schemes…We are concerned that the measures in the Bill do not go far enough…There should be no excuse”—

these are her words—

“for people not to be aware of the situation”.––[Official Report, Finance (No. 2) Public Bill Committee, 9 January 2018; c. 30.]

I am afraid that she was right about that.

[James Murray (Ealing North) (Lab/Co-op)]

The Conservative Government’s approach to the loan charge means that ordinary people who are victims of mis-selling are suffering financial ruin and personal harm. Ministers will have heard some harrowing accounts of people pushed to the very brink and worse, some even tragically taking their own lives. This cannot be what the Government envisaged and a new approach is urgently needed. Will the Treasury now review the loan charge scheme and the approach of HMRC to prevent further devastating consequences?

[Jesse Norman]

As I have said, both the Government and Her Majesty’s Revenue and Customs take these cases extremely seriously, which is why HMRC has put in place extra care and support for people who may be affected by tax issues of this and other kinds. The fact remains that we have had a review. I might refer the hon. Gentleman to the words of his colleague, the hon. Member for Ilford North (Wes Streeting), who said of Sir Amyas Morse who did the review that it was

“a thorough piece of work…we thank him…He has done a great service to Parliament and to the wider public debate.––[Official Report, Finance Public Bill Committee, 4 June 2020; c. 33.]

He was right about that and the Labour party has been right not to have opposed this policy at any point during its passage through Parliament.

National Insurance Contributions Bill

Debate between Jesse Norman and James Murray

3rd reading
Monday 6th September 2021 Commons Chamber

[James Murray]

Thank you for that clarification, Mr Deputy Speaker. In that case, let me decide where in my speech to pick up. Forgive me for the slight procedural difficulty—if it is okay, I shall reserve my right to speak later.

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

I am sorry that the hon. Member for Ealing North (James Murray) was not able to revisit his greatest hits from Committee or other previous stages of the Bill, but unfortunately he is required to speak to the new clauses and amendments before us, which is what I will do.

The Scottish National party has tabled new clauses that would create a new zero rate of secondary class 1 NICs for employers classed as “green manufacturing companies”, including those that produce wind turbines and electric vehicles. As the House will know, the Government take support for the green economy extremely seriously. For example, since 2013 the Government have provided £150 million per annum to the Aerospace Technology Institute—investment match-funded by industry—including £84.6 million of investment to develop zero-emission flights and further support for other potential zero-emission aircraft concepts.

In addition, the Government are to spend nearly £500 million in the next four years to support the UK’s electric vehicle manufacturing industry as part of our commitment to provide up to £1 billion for the development and mass production of electric vehicle batteries and the associated supply chains. The funding is available UK-wide and will boost investment in the UK’s strong manufacturing base.

Of course, the Government have also stated their ambition to deploy 40 GW of offshore wind capacity by 2030, alongside a commitment to invest £160 million in ports and manufacturing infrastructure. The goal of that investment will be to encourage up to £20 billion of much-needed private investment in coastal areas and to support up to 60,000 green manufacturing jobs by 2030. The Government’s commitment to support green manufacturing is therefore quite clear.

Unfortunately, new clause 1 would introduce a major change to the tax system of a magnitude that would require the careful consideration of costs and benefits and, in fact, goes far beyond what should be included via amendment in a Bill such as this one. The design of a sector-focused tax relief is not straightforward and would add complexity to the tax system. By contrast, there has been no consultation on, costing of or impact assessment made in relation to the measure proposed in new clause 1. For those reasons, I urge the House to reject it.

On new clause 3, covid-19 has proven to be the biggest health and economic threat faced by the UK in decades. Key workers, including NHS staff and social care workers, have done extraordinary things, as the House recognises, to keep the public safe in the continuing fight against the virus. For their part, the Government hugely value and appreciate such important contributions to the covid-19 response. However, as I will explain, the Government do not believe that the new clause is appropriate or necessary. Under long-standing rules, any payments made in connection with an employment incur income tax and national insurance contributions. Such payments also count as income for the purposes of calculating entitlement to certain benefits.

Draft Customs Safety and Security procedures (EU exit) regulations 2021

Debate between Jesse Norman and James Murray

Wednesday 23rd June 2021 General Committees

[James Murray]

Before the right hon. Gentleman concludes, will he address the point about the impact assessment? The explanatory notes state that

“An Impact Assessment has not been prepared for this instrument because the provisions are in force for less than 12 months.”

However, extending the pre-arrival safety and security entry summary declarations for six months, and a further six months, surely means they are enforced for 12 months. Could the Minister explain whether that is the case? Is it his view that an impact assessment should have been prepared?

[Jesse Norman]

I am grateful to the hon. Gentleman for raising the question. No, it is not the Government’s view that an impact assessment should have been prepared, because the regulations maintain the existing status quo in which the declarations are waived. In that sense, nothing has changed. However, I recognise the point that the hon. Gentleman raises. It is important to reflect that the Government always wish to be cognisant of the impacts of legislation that they pass, and that will continue to be true elsewhere in our legislative package as well.

Question put and agreed to.

National Insurance Contributions Bill (First sitting)

Debate between Jesse Norman and James Murray

Committee stage
Tuesday 22nd June 2021 Public Bill Committees

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

It is a great pleasure to be able to address these important clauses in a small but important Bill, and I thank all colleagues for joining us today.

Part I of the Social Security Contributions and Benefits Act 1992 stipulates that secondary class 1 national insurance contributions be calculated at a standard rate of 13.8% on earnings above the secondary threshold—currently about £8,700 a year. Part I also provides for other rates of secondary class 1 NICs—the zero rate for 21-year-olds or apprentices under 25, for example—that can be applied up to an upper secondary threshold.

Clause 1 introduces a new zero rate of secondary class 1 national insurance contributions on earnings up to a new upper secondary threshold in Great Britain. The standard rate of NICs, 13.8%, in most cases will apply above that threshold. The threshold will be set through regulations at £25,000 per annum.

Clause 1 provides employers that meet the conditions set out in clause 2, which we will shortly debate, with access to this relief where they have a secondary class 1 liability. An employer may qualify for various rates of secondary national insurance contributions. Clause 1 therefore stipulates that an employer must elect to apply the freeport relief if they wish to utilise this zero rate. By applying the rate, their status as a secondary contributor remains even if, as a result of this relief, an employer has no secondary class 1 liability. The relief will be administered through pay-as-you-earn and real-time information returns by Her Majesty’s Revenue and Customs. This approach has been welcomed by stakeholders.

New clause 5, if I may say so, recapitulates much of what the Government have already done. I remind the Committee that the Government have already published a decision-making note that clearly sets out how sustainable economic growth and regeneration are prioritised in the freeports assessment process. We will also be publishing costings of the freeports programme at the next fiscal event, in line with conventional practice. Those costings will undergo the usual scrutiny from the Office for Budget Responsibility.

It is also important to say that the Government are already taking the necessary steps to gather the information required to review the programme effectively. Before funding is allocated and tax sites are designated, each freeport will need to pass a business case process, which includes assessing how effectively tax sites can be monitored. Freeports will need to collect data on reliefs and their realised outcomes, which will include monitoring the effectiveness of tax reliefs, and the Government will continue to publish information relating to HMRC through its annual report and accounts. It is important to note that the Government have already committed to keeping this measure under review as new information becomes available. The publicly available tax information and impact note also commits the Government to keeping the scheme under review through communication with taxpayers’ groups.

The Government reject the proposal in new clause 5 because a report that focused exclusively on just one aspect of the policy would not do justice, however valuable its focus, to the whole, which includes other important aspects over and above wages, such as changes to customs rules, Government infrastructure spending and planning reform. I therefore ask that the Committee reject new clause 5.

I am sure that Committee members will not wish to delay the investment associated with clause 1, which introduces a zero rate of secondary class 1 national insurance contributions that employers can apply when they meet the conditions specified in clause 2. For that reason, and with the reassurances that I have given, I urge the Committee to agree that clause 1 stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

Thank you, Ms Nokes, for the opportunity to speak on behalf of the Opposition. We begin by considering the clauses that relate to freeports. In March 2021, the Chancellor announced that eight freeports would be created in England—East Midlands Airport, Felixstowe-Harwich, Humber, Liverpool City Region, Plymouth and South Devon, Solent, Thames, and Teesside—and we understand that discussions continue around further freeports in Scotland, Wales and Northern Ireland.

Clause 1 will introduce a new secondary class 1 national insurance contributions relief for freeport employers. It provides for that relief to apply when secondary class 1 NICs are due from an employer other than a public authority when the conditions set out in clause 2 are met. Clause 1(2)(a) states that the rate for the relief is 0% and applies up to the upper secondary threshold; subsection (2)(b) states that for earnings above the upper secondary threshold, the secondary percentage—currently 13.8%—applies. Subsection (3) states that the upper secondary threshold, or the prescribed equivalent, will be set by statutory instrument under a power established by clause 8.

As the Financial Secretary may remember, we discussed on Second Reading the fact that the upper secondary threshold for freeport employees would, according to a policy paper published by the Government on 12 May, be set at £25,000 for 2022-23. As I pointed out at the time:

“That is substantially less than the equivalent thresholds for employers’ relief for under-21s and apprentices, which is £50,270 in 2021-22…this means that employers do not need to pay any NICs for under-21s and apprentices earning up to just over £50,000 a year, but they will have to pay contributions for freeport employees next year if they earn more than £25,000.”—[Official Report, 4 June 2021; Vol. 697, c. 49.]

In response to my question about the Government’s rationale for picking the figure of £25,000 for employees of freeports, the Exchequer Secretary said:

“The answer is that, unlike other NICs reliefs that are available to employers nationally and generally are targeted at specific groups of employees with particular characteristics, businesses operating in a freeport are likely to be able to claim the relief on almost all of their new hires. To balance generosity of support with the need to consider the public finances, this broader eligibility has been balanced by limiting the amount of salary that can be relieved. We have chosen to set this limit at £25,000 per annum, which is approximately the average salary in the UK.”—[Official Report, 14 June 2021; Vol. 697, c. 69.]

I would like to take this opportunity to understand the Exchequer Secretary’s response a bit more. I would therefore be grateful if the Financial Secretary let us know the specific source of the data that says that £25,000 is approximately the average salary in the UK. I ask this because according to the Office for National Statistics the median income in all the local authority areas where the eight freeport sites are located is greater than £25,000, with the figures ranging from £25,200 in Kingston upon Hull, within the Humber freeport, to £33,200 in Thurrock, within the Thames freeport.

We would like to take this opportunity to press further on this point, which is why we have tabled new clause 5. We want to understand if the Government are concerned that making the threshold for the NIC relief in freeports £25,000 might create an incentive for employers to create posts paid less than £25,000, rather than higher paid posts, which could in turn create the risk of salaries being bunched below the threshold, thereby undermining salary progression.

New clause 5 requires the Government to conduct a review, after this policy has been in place for six months, to assess the average income and wage range of jobs in respect of which employers have claimed the secondary class 1 relief introduced by clause 1, and for each freeport to assess how incomes provided by these jobs compare with the average median income across the local authority area in which the freeport is located.

I would be grateful if, for clarity, the Minister let us know the precise statistical source of the figure of £25,000 for the average UK salary. Will the Government support the review we propose, which would assess the average incomes of jobs created by this employers’ relief? If not, does he think that setting the threshold for the relief at £25,000 risks creating an incentive for employers to create posts that are paid less—even just less—than £25,000, rather than higher paid positions?

[Jesse Norman]

I thank the hon. Gentleman for his question. I saw that he raised the issue on Second Reading and, if I may say so, it potentially reflects a slight misunderstanding.

As the Exchequer Secretary said, the decision has been taken to set the rate at £25,000, roughly the national average earnings. That is different from median earnings. I do not think it is right to suggest that the threshold has been set at a level that is approximate, because it is designed to be comprehensible and readily understandable. To make it more precise might affect that.

The overall generosity of the package of support that is being given to freeports, and the range of potential employees to which this applies, is very creditable to the Government, because it shows the intensity and strength of the intent to make the freeports policy work. This is an important part of that policy, but only one part of a set of policies that are designed to increase the attractiveness of freeports for growth and for employment as well.

The way in which this measure has been structured is focused towards longer-term employment, as the relief runs for three years, and therefore it allows the employment rights associated with longer-term employment to be vested in those employees. From that point of view, it reflects a commitment by the Government to create high-quality and stable longer-term employment.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Freeport conditions

--- Later in debate ---

[Jesse Norman]

If I may, I will explain a little of the background to clause 4. In addition to the powers taken in clause 3 to amend freeport conditions if the relief is found to be subject to abuse, clause 4 excludes employers that arrange their affairs with the aim of benefiting from the relief where that arrangement is contrary to the policy intent. Clause 4 works by removing eligibility for the relief if the conditions set out in clause 2 are met only as a result of an avoidance arrangement.

The Government are aware that the incentives of the freeport package potentially lend themselves to businesses taking steps to organise their affairs so that they can benefit from the relief; that is the design of the policy. Therefore, the Government have taken a similar approach to that in section 14 of the Finance Act 2021, which exempts employers if their arrangement is contrary to the policy intent of the relief and specifically in relation to the avoidance of tax.

An example of where the Government would expect HMRC to reject a claim for this relief would be where an employer structures their employment contracts so that a workforce can easily be dismissed after three years with the sole purpose of hiring new staff so that they can benefit from another three years of relief, or if an employer were to fire their employees and rehire the exact same posts with new employees.

The Government want the freeports to thrive, to boost local investment and to be a hotbed of innovation. Clause 4 provides an invaluable backstop and gives HMRC the ability to recover any relief that has been claimed as a result of contrived arrangements. I urge that clause 4 stand part of the Bill.

[James Murray]

As we have heard, clause 4 states that the relief for freeport employers cannot be claimed if an avoidance arrangement has been used, and it defines what is meant by an avoidance arrangement. We welcome any steps to prevent employers from taking advantage of the relief in cases in which avoidance arrangements are used. As this clause sets out, avoidance arrangements are those that are, or include steps that are

“contrived, abnormal or lacking a genuine commercial purpose, or”

that circumvent

“the intended limits of the application of section 1 or otherwise”

exploit

“shortcomings in that section or in provision made in or under sections 2 and 3.”

I would be grateful if the Minister could confirm for us what extra resource, if any, has been made available to HMRC to ensure that it can identify and take action against employers in a freeport who have used avoidance arrangements. I would also like to understand what the Bill suggests about wider access to tax reliefs that arise from avoidance arrangements. I would be grateful if the Minister could offer some clarity on the wider situation.

This clause makes it clear that the tax relief in clause 1

“does not apply if it would otherwise apply only as a result of avoidance arrangements.”

Perhaps the Minister could help me to understand this by explaining whether, generally, companies are still able to claim tax reliefs if they arise only from avoidance arrangements—that is to say, arrangements that are contrived, abnormal or lacking a genuine commercial purpose. Although we of course support this relief being withheld in cases in which it can apply only as a result of avoidance arrangements, I would appreciate an explanation from the Minister about why this specific measure is needed and why the relief would not be withheld by existing provisions in law if it was deemed to have arisen from avoidance arrangements.

[Jesse Norman]

I thank the hon. Gentleman for his questions. Of course, HMRC is taking a close interest in freeports and has been closely involved in the policy design in order to minimise any potential for avoidance and any other failure to target the policy as we would desire. It is well staffed to address all the concerns that are raised. Of course, its staffing is flexible and also is something that reflects periodic conversations with the Treasury during the spending review processes and otherwise in order to ensure that it is as effective as possible—and it is highly effective, as is shown by the fact that the tax gap in this country is now lower than it ever has been. It is significantly lower than it was in 2005, for example—it is something like 40% lower than it was under that Government. That important achievement puts things into perspective.

--- Later in debate ---

[Jesse Norman]

Clause 5 confirms the Government’s commitment to provide a freeport NICs relief in Northern Ireland. It gives the Treasury the power to legislate for the detail of the freeport NICs relief in Northern Ireland in secondary legislation. The power is limited in so far as the relief must be similar to or correspond to that available in Great Britain.

In Northern Ireland, the specific design of the relief will have to comply with European Union rules on the provision of state aid, due to the requirements of the Northern Ireland protocol. It will be developed and agreed through a process of engagement with the Northern Ireland Executive on the detail of the wider freeports offer in Northern Ireland.

This Bill legislates for a power to allow the Government to set out the detail of the employer NICs relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete. These regulations will be laid at the earliest possible opportunity once negotiations with the Northern Ireland Executive have given a clear indication of consensus on the tax offer.

Given the timing of the Bill, I trust Members will see that this approach is sensible, and ensures all stakeholders are fully engaged. I commend the clause to the Committee.

[James Murray]

Clause 5 gives the Treasury a regulation-making power to provide for a freeport secondary class 1 NICs relief in Northern Ireland. On Second Reading, the Minister assured us that, although the measures in clauses 1 to 4 relate to Great Britain, it is the Government’s intention to legislate for this relief in Northern Ireland as soon as practicable. He drew attention to the fact the Bill provides the Government with the power to set out the detail of employer NIC relief in Northern Ireland in secondary legislation once engagement with the Northern Ireland Executive is complete.

I note that the House of Commons International Trade Committee’s recent report on UK freeports, published on 20 April, discussed the issue of freeports in Northern Ireland, and in particular their relationships with the Northern Ireland protocol. It quotes Professor Catherine Barnard of the University of Cambridge, who said:

“under the Northern Ireland Protocol the EU state aid regime applies, certainly to Northern Ireland where there is an effect on trade between Northern Ireland and the rest of the EU. You should also bear in mind that the protocol is probably wide enough to catch any freeport legislation that applies throughout the United Kingdom.”

The Chief Secretary to the Treasury acknowledged to the Committee that the freeport offer would have to be adapted to comply with the UK’s obligations under the Northern Ireland protocol. Acknowledging that, the Committee’s report concluded that it is clear the Northern Ireland protocol will impact the terms under which a freeport can be established in Northern Ireland. It recommended that the Government should set out in their response to the report their view on how the freeports model will need to be adapted in Northern Ireland to comply with the terms of the protocol. I would be grateful if the Minister could give us an update on the Treasury’s thinking in that regard.

I would also like to clarify a comment in the memorandum from the Treasury to the Delegated Powers and Regulatory Reform Committee on this Bill. On clause 5, the memorandum says:

“The Government’s intention is that the employer NICs relief for Freeports employers is in place by 6 April 2022 throughout the UK.”

I would be grateful if the Minister could confirm whether that means it is the Government’s intention, as set out in the memorandum, for a freeport to be established in all four nations of the UK by 6 April 2022.

[Jesse Norman]

I thank the hon. Gentleman for his questions. He asked me to update the Committee on the detail of the discussions with the Northern Ireland Executive on a freeport and noted the comments made by the Select Committee. I am afraid I am not in a position to do that. These things are subject to current discussion and negotiation. It is a matter of some complexity and I do not think it would be appropriate to do so. I assure him that once matters have reached a conclusion and a consensus, Parliament will of course be given a full picture of what has taken place and I am sure colleagues will take a great interest.

He also asked a question about timing. For the reasons I have indicated, I do not think it would be prudent to specify a time by which a particular freeport, either one in process at the moment in England or one in the devolved Administrations, will be up and running. That is something for the Governments concerned and for the freeport operators and there will of course be processes of further designation that will need to be gone through. I assure him that it is certainly the UK Government’s intention that this should be done as rapidly and effectively as possible, across the whole of the UK.

Question put and agreed to.

Clause 5 accordingly ordered to stand part of the Bill

Clause 6

Zero-rate contributions for armed forces veterans

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

--- Later in debate ---

[Jesse Norman]

We have considered the clauses concerning the zero-rate contributions for employees at freeport sites. I turn now to the second aspect of the Bill—the clauses on zero-rate contributions for armed forces veterans, starting with clause 6.

As the Committee will recall, the Government made a manifesto commitment to support ex-service personnel in their attempts to work to secure stable and fulfilling employment. Clauses 6 and 7 honour that commitment and provide employers with a zero rate of national insurance contributions on the earnings of qualifying veterans.

The Chancellor announced that policy at the spring Budget in 2020 and launched a policy consultation shortly after. The Government received 37 written responses from a variety of stakeholders and a response to that consultation was published on 11 January 2021. That response document outlined the final policy design. On 11 January 2021, the Government also published draft clauses for a technical consultation, which closed on 8 March 2021. Thus, the measure has been fully and effectively consulted upon, tested with stakeholders and debated by Parliament. It should be seen in that light.

Clause 6 introduces a zero rate of secondary class 1 NICs when the conditions in clause 7 are met. The relief can be applied on earnings up to the upper secondary threshold. Earnings above that threshold will be liable to the standard rates of NICs.

The relief will be available initially for three years. For the tax years 2022-23 and 2023-24, employers will have immediate access to the relief. For earnings in the 2021-22 tax year, employers will be able to claim the relief from 2022 onwards. The Government have sought to introduce this policy as quickly as possible, but practical and, in particular, IT considerations have meant that claims for earnings in the 2021-22 tax year will need to be at year end. That does not affect the amount of relief that an employer is able to receive.

The Government are keen to understand the effectiveness of the relief and will review the impact before deciding whether to extend it. Clause 6 provides the Treasury with the power to add additional years.

Clause 7 sets out the conditions that need to be met to allow an employer of a veteran to qualify for the zero rate that clause 6 provides. To qualify as a veteran for the relief, an individual needs to have completed at least one day of basic training in the regular forces. An employer can claim the relief for the first 12 months of a veteran’s first civilian employment since leaving the armed forces. The 12-month period starts on the first day of the veteran’s first day of civilian employment and ends 12 months later. Any employment in that period will qualify for this relief, which means that a veteran will not use up access to this relief if they take on a temporary role immediately after leaving the armed forces.

The relief will be available on the earnings of qualifying veterans from April 2021. Clause 7 also provides that a veteran can commence their first civilian employment before April 2021 and still qualify for the remaining period. Therefore, the 12-month period will begin on the first day the veteran took up their first employment and the relief will be made available only from 6 April 2021 for the remainder of that 12-month period.

Opposition new clauses 3 and 4 ask the Government to report on the impact of claiming the relief retrospectively and the impact of providing the relief for one year, rather than three. I shall explain why they are unnecessary. First, most of these issues were considered during the detailed consultation, which I have described. In addition, the Government have already committed to reviewing the measures and will, of course, be transparent about their expected impact. The policy costing for the measure and the underlying analysis were signed off and certified by the independent Office for Budget Responsibility, and the methodology was set out in the Budget policy costing document. As I say, the Government are committed to keeping the measure under review as new information becomes available. As part of the review process, HMRC and HM Treasury will speak to stakeholders to gauge their views on how the policy is operating.

Clause 6 will support veterans and help them to find stable and fulfilling employment, and it will provide employers with up to £5,500 in savings. I hope the Committee will agree to clauses 6 and 7 standing part of the Bill, and that the new clauses will not be pressed.

[James Murray]

Clauses 6 and 7 introduce an important relief, designed to help service personnel leaving the armed forces to get back into work. As I made clear on Second Reading, we believe that this is a vital issue. Veterans deserve the Government’s full support as they seek civilian employment after their service to our country. It is crucial to make sure that all veterans get the support they need.

Clause 6 sets out the detail of the relief. It provides for a 0% rate of secondary class 1 national insurance contributions up to an upper secondary threshold for the tax years 2022-23 and 2023-24. Earnings above the upper secondary threshold will be liable to secondary class 1 NICs at the secondary percentage, currently 13.8%. It also specifies that the relief is available for the 2021-22 tax year retrospectively. In practice, that means that employers need to pay secondary class 1 NICs as if the relief did not apply; then, from April 2022, they can claim the relief retrospectively for the earnings in 2021-22. The relief described by clause 6 applies if the veteran conditions in clause 7 are met. The conditions include that to qualify for the relief the earner is required to have served for at least one day in the regular forces, and that the relief is available for one year, beginning on the earner’s first day of civilian employment after leaving the armed forces.

On Second Reading, I asked Ministers to explain why the employer’s relief for veterans is for 12 months, which is much less than the relief for employers in freeports, which is 36 months. In her response, the Exchequer Secretary said:

“The answer is that the relief provides employers with up to £5,500 in savings per veteran that they employ. The aim of that policy is to support veterans’ transition into civilian life through encouraging employers to hire veterans.”—[Official Report, 14 June 2021; Vol. 697, c. 70.]

That did not address my question about why the Government had chosen to make the relief for veterans’ employers available for one year, rather than any longer; in particular, why not for three years, in line with the relief for freeport employers, which the Bill also introduces. That is why we wanted to raise the matter again, and why we tabled new clause 4, to address the impact of the Government’s decision.

New clause 4 would require the Government to conduct a review of how many veterans had been employed in jobs for which employers accessed the national insurance contributions relief provided under clause 6. The review would have to assess the impact on decisions on the creation of jobs for veterans of the relief being available for earnings paid over a one-year period rather than a three-year period. I would be grateful if the Minister agreed to undertake the review. If he does not, perhaps he will explain in greater detail why the Government have chosen a one-year period for veterans’ employers, rather than the three years for freeport employers.

New clause 3 is about enabling us to understand the impact of the Government’s reluctance to make the relief claimable in real time for 2021-22. As the Chartered Institute of Taxation sets out, it seems that the policy intention is that the relief will be available from 6 April 2021, although employers will need to pay the secondary class 1 NICs on the earnings of eligible veterans for the 2021-22 tax year, then claim them back retrospectively in April 2022. From the 2022-23 tax year onward, employers will be able to claim the relief in real time through their PAYE declarations.

The Chartered Institute of Taxation reasonably questioned why employers cannot self-serve the relief for 2021-22, once the legislation has been passed, especially given the challenging circumstances of the pandemic and the cash-flow implications. The institute asks whether HMRC could be permitted to exercise its discretion and to permit employers to make real-time claims for 2021-22 where their payroll software provides for suitable identification of eligible veterans.

--- Later in debate ---

[Jesse Norman]

I do apologise. We wait in expectancy and hope.

Clause 8 contains a regulation that would allow the Treasury to set for every tax year a freeport upper secondary threshold and a veterans upper secondary threshold over which the secondary percentage, rather than the zero secondary percentage, would apply. Different upper secondary thresholds may be set for each measure. The freeports bidding prospectus confirmed that the freeports UST would be set at £25,000 for the 2022-23 tax year. The veterans consultation document confirmed that the veterans UST would be £50,270 for the 2021-22 tax year.

On Second Reading, a question was asked about the freeport UST being lower than that for veterans. We have touched on it already, but let me come back to it. Unlike other NICs reliefs that are available to employers generally, businesses operating in a freeport are likely to be able to claim the refund for almost all their new hires. That is the basis on which the upper secondary threshold has been set, in the context of the wider generosity that has been given. Employers will still be able to claim up to approximately £6,500 of relief on the salaries of employees earning more than that. The clause also provides that regulations may specify that the veterans UST is set retrospectively, and that is for reasons that we have described and discussed.

I turn now to clause 9, which contains a consequential amendment in relation to the apprentice levy that is calculated by reference to employers’ annual pay bill. It amends section 100 of the Finance Act 2016 to ensure that earnings that are liable for the freeport and veterans zero rate of secondary class 1 NICs are still considered when calculating an employer’s annual pay bill. This approach is consistent with other employees’ NICs reliefs, such as the under-21 and under-23 apprentice reliefs.

[James Murray]

Clauses 8 and 9, which were discussed with earlier clauses, allow the Treasury to set an upper secondary threshold for secondary class 1 NICs specifically in relation to armed forces veterans and freeport earners every tax year. The Bill will therefore allow different thresholds to be set for veterans and freeport employees, and for those thresholds to be different from the thresholds that apply to under-21s and apprentices.

We welcome the fact that the Minister confirmed on Second Reading that the upper secondary threshold for veterans will be £50,270 in a veteran’s first full year of civilian employment. After the Minister’s explanation, however, I remain unconvinced by his argument for setting the threshold for employers in freeports below the average wage in freeport areas, as we discussed at length during debate on earlier clauses. If the Minister has had time to think further about his argument, I would welcome further explanation in his response. If not, I will leave my remarks there.

[Jesse Norman]

No, I have nothing to add. We have already discussed this at some length.

Question put and agreed to.

Clause 8 accordingly ordered to stand part of the Bill.

Clause 9 ordered to stand part of the Bill.

Clause 10

Treatment of self-isolation support scheme payments

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

--- Later in debate ---

[Jesse Norman]

Clause 11 widens the existing power in the Social Security Administration Act 1992 to make amendments to the disclosure of tax avoidance scheme regime known as DOTAS, which I mentioned earlier. The changes enable HMRC to obtain information and documents much earlier for avoidance schemes that HMRC suspect should have been notified to them but have not been disclosed. The changes will allow HMRC to issue a notice to anyone they reasonably suspect of being a promoter or other supplier involved in NICs tax avoidance schemes. It would require the provision of all documents and information that relate to the schemes in question. The amendments will ensure that regulations can be made mirroring the changes to the DOTAS procedures that are included in the Finance Act 2021.

The changes here are necessary to satisfy HMRC that a NICs scheme is not notifiable. If HMRC are not satisfied, they would be able to issue a scheme reference number, or SRN. DOTAS was introduced in 2004 and seeks to provide HMRC with early information about new tax avoidance schemes, how they work and those who use them. The equivalent regime for VAT and other indirect taxes, known by the unattractive label of DASVOIT—disclosure of avoidance schemes for VAT and other indirect taxes—was introduced in 2017.

Currently, when avoidance promoters fail to meet their DOTAS obligations, it can take HMRC a considerable period of time to challenge that failure, often years. Throughout that delay period, there is no disincentive to promoters continuing to promote their schemes, meaning that taxpayers may remain unaware of the risks they face and could end up with large tax bills.

It is appropriate that we should continue to act to protect taxpayers and discourage such behaviour from promoters where they involve NICS. The clause provides that future modifications to part 7 of the Finance Act 2004—Disclosure of Tax Avoidance Schemes—can be applied or modified so that they apply to NICs without the need for primary NICs legislation. That will enable changes to be made efficiently and effectively, with the minimum of separation in time, to ensure the rules continue to move in step. It is usual practice where an existing tax rule is extended to NICs, and I hope the Committee will agree that it is appropriate to have that in place.

The DOTAS regime provides HMRC with important early information, on the basis of which we can make interventions. The prompt disclosure to HMRC of proposals and arrangements that bear the hallmarks of tax avoidance will allow them to be fully considered and tackled much earlier and more effectively, as appropriate.

[James Murray]

Clause 11 widens existing regulation-making powers so that regulations can be made for national insurance, mirroring the amendments to the disclosure of tax avoidance schemes—DOTAS—procedures that are included in the Finance Act 2021. This measure, and its counterpart in the Finance Act, means that when HMRC suspects someone has failed to disclose arrangements or proposed arrangements that should have been notified to them under DOTAS, it may issue a notice to anyone it suspects of being a promoter or other supplier involved in the supply of the arrangements. The notice explains that if the person is unable to satisfy HMRC that the arrangements are not disclosable, HMRC may allocate a scheme reference number to the arrangements.

As I made clear on Second Reading, we welcome any measures that help HMRC to track tax avoidance schemes. During the debate, I drew Ministers’ attention to a point made by the Chartered Institute of Taxation: that it believes that there is a hard core of between 20 and 30 promoters, identified by HMRC, who clearly do not play by the rules. I asked:

“Do Ministers recognise that number? If so, I would be grateful if the Exchequer Secretary set out what goals HMRC has to clamp down on those 20 to 30 hard-core promoters.”—[Official Report, 14 June 2021; Vol. 697, c. 53.]

Unfortunately, the Exchequer Secretary did not address those questions at the end of Second Reading, so I am glad to have the chance today to raise them again for the Financial Secretary to address. Would he comment on whether he recognises 20 to 30 as the number of hardcore promoters, and on whether there are any targets with dates by which Ministers expect the number of hardcore promoters at large to fall substantially?

[Jesse Norman]

Again, I thank the hon. Gentleman for his question. It is HMRC’s view—as he says that it is the Chartered Institute of Taxation’s view—that some 20 or 30 promoters are in the market at present. HMRC are vigorously applying themselves to curtailing that activity and to supporting and protecting taxpayers. The Bill will give them an important additional tool with which to do that. By their nature, the promotion of tax avoidance schemes is constantly changing and evolving; promoters are highly resourceful in seeking new ways to sidestep responsibilities and avoid the attention of HMRC. That is one reason why the earlier interventions and the greater flexibility that we have provided are so important.

For that reason, I do not think that it would be prudent to make an estimate or assessment of what the appropriate number of promoters is or could be. The number that we want, obviously, is zero: we would like to see no promotion of tax avoidance schemes in the market, because it is a reprehensible and disgraceful practice.

To reassure the hon. Gentleman and other members of the Committee, I will say that over the past six years, more than 20 promoters have left the market. That is a significant achievement that reflects the decisions that have been made. As I have also indicated, there has been a substantial reduction more widely in the overall tax gap, which bears testimony to HMRC’s wider effective prosecution and collection of unpaid tax.

Question put and agreed to.

Clause 11 accordingly ordered to stand part of the Bill.

Clause 12

Regulations

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

[Jesse Norman]

Clause 12 specifies how regulations are to be made under the Act and the parliamentary procedure that will apply to them. I ask the Committee to agree that it stand part of the Bill.

[James Murray]

As we turn to clause 12, which provides for regulations under the Bill to be made by statutory instrument, I would like to discuss which regulations can be decided by the negative and the affirmative procedures. It might be helpful to focus on clause 3(3), which is mentioned in clause 12.

Clause 3 gives the Treasury regulation-making powers to

“provide for circumstances in which a freeport condition is to be treated as being met.”

That has the effect of making the relief available in circumstances in which it would not otherwise be. We note that clause 3 also gives the Government extensive powers to

“amend, repeal or otherwise modify”

the relief. Although it will always be easier for the Government to amend legislation by way of regulations, we recognise the concerns that the Chartered Institute of Taxation has articulated that the powers to make those changes are extensive. There may well need to be flexibility to allow the finer detail of legislation to be amended, but there is a strong argument that any fundamental changes should be subject to full consultation and scrutiny.

I would be grateful if the Financial Secretary explained why he considers that the powers granted in clause 12, with effect on clause 3, to make decisions by way of regulations are proportionate. Does he agree that the clause gives the Government more powers than are desirable to change key elements of the policy by regulations? In particular, given that regulations under clause 3(3), which relate to freeport conditions, are subject to the affirmative procedure, will he explain why regulations under clause 3(2), which also relate to freeport conditions, are subject to the negative procedure instead?

[Jesse Norman]

I thank the hon. Gentleman. Clause 12(2) specifies that regulations made under the Act are subject to the negative procedure, except for clause 3(3), which relates to the power conferred on the Treasury to add, remove or alter the qualifying conditions for the freeport relief; clause 5, which relates to the power conferred on the Treasury to apply for a freeport secondary class NICs relief in Northern Ireland; and clause 8, which relates to the power conferred on the Treasury to specify the amounts of veterans’ and freeports’ upper secondary threshold. All three are subject to the affirmative procedure.

As the hon. Gentleman will be aware, the Treasury takes extremely seriously the question of what are its appropriate powers, and there has been considerable discussion and indeed parliamentary engagement on what the appropriate powers for HMRC should be in each case. In this case, the normal procedure has been followed, which is to try to recognise the public policy intent and overall public benefit of a more flexible arrangement, but also to respect the parliamentary procedure that where a measure includes new burdens or new taxes, or makes material changes of those kinds, they should be subject to an enhanced level of scrutiny by Parliament, provided by the affirmative procedure. That is the approach that we have taken.

Question put and agreed to.

Clause 12 accordingly ordered to stand part of the Bill.

Clause 13

Interpretation etc

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

--- Later in debate ---

[James Murray]

I do not have any specific concerns to raise in relation to the interpretation or the short title. May I take this opportunity, as it is the final clause under consideration in Committee, to thank my hon. Friends for joining me on the Committee, to thank you, Ms Nokes, as Chair, and to give special thanks to the Clerks, the Library and the Chartered Institute of Taxation for all their advice during the passage of the Bill so far?

[Jesse Norman]

If I may say so in a similar spirit, as I may not have the chance to do so after the conclusion of deliberations on the final provisions, let me also offer my thanks to you, Ms Nokes, to the Clerks, to my colleagues and also to the officials at the Treasury and HMRC for the work that they have done to prepare the Bill.

Question put and agreed to.

Clause 13 accordingly ordered to stand part of the Bill.

Clause 14 ordered to stand part of the Bill.

New Clause 6

Zero-rate contributions for employees of green manufacturing companies

(1) This section applies where—

(a) a secondary Class 1 contribution is payable as mentioned in section 6(1)(b) of the 1992 Act in respect of earnings paid in a tax week in respect of an employment,

(b) the green manufacturing condition is met, and

(c) the employer (or, if different, the secondary contributor) elects that this section is to apply in relation to the contribution for the purposes of section 9(1) of the 1992 Act instead of section 9(1A) of that Act or section 1 of this Act.

(2) For the purposes of section 9(1) of whichever of the 1992 Acts would otherwise apply—

(a) the relevant percentage in respect of any earnings paid in the tax week up to or at the upper secondary threshold is 0%, and

(b) the relevant percentage in respect of any earnings paid in the tax week above that threshold is the secondary percentage.

(3) The upper secondary threshold (or the prescribed equivalent in relation to earners paid otherwise than weekly) is the amount specified in regulations under section 8.

(4) For the purposes of the 1992 Acts a person is still to be regarded as being liable to pay a secondary Class 1 contribution even if the amount of the contribution is £0 as a result of this section.

(5) The Treasury may by regulations make provision about cases in which subsection (2) is to be treated as applying in relation to contributions payable in respect of a tax week in a given tax year only when—

(a) that tax year has ended, and

(b) all contributions payable in respect of a tax week in that tax year have been paid.

—(Richard Thomson)

This new clause provides NIC relief for businesses in freeports dealing with green manufacturing products.

Brought up, and read the First time.

National Insurance Contributions Bill

Debate between Jesse Norman and James Murray

2nd reading
Monday 14th June 2021 Commons Chamber

[James Murray]

I was awaiting the hon. Gentleman’s intervention—I was definitely expecting it given the recent debates we have had in this place—and if he will wait just one moment, I will get on to setting out our position on freeports in more detail.

We were concerned at the recent Report stage of the Finance Bill that the Government themselves seemed to show a lack of certainty by voting against our simple amendment to the Finance Bill that would have seen the success of each individual freeport transparently evaluated. As I am sure the hon. Gentleman will remember, we wanted each freeport to be judged against the key tests of whether, across the country, they lead to any net increase in jobs, deliver improvements in training and skills for local residents, produce tangible transport and infrastructure improvements beyond the port itself and will be adequately protected against the risks of tax evasion, smuggling and criminal activity. It is disappointing that the Government voted against the transparent evaluation of their proposed freeports. Not only would this have enabled us to judge their success, but some of the factors we highlighted in our tests would in fact make investment in freeports more attractive to businesses.

Indeed, in response to the Government’s own consultation on freeports last year, many respondents argued that

“although tax incentives can be a significant driver behind businesses investing within an area, they were not usually the sole determinant.”

The Government’s summary of responses went on to explain:

“Some respondents also indicated the success of tax incentives was partially dependent on local factors, especially the quality of transport infrastructure and the skills and availability of local labour.”

As we consider the tax relief before us today, it is therefore important to remind the Government not to ignore the other aspects of the operation of freeports that may be key to their success.

On this tax relief, I would like to ask Ministers to address three specific points that arise from the Bill. First, while relief to employer’s national insurance contributions may be a reasonable part of a tax incentive package along with other tax incentive measures, it is hard to understand why this relief is conditional on employment not commencing until 6 April 2022. As the Chartered Institute of Taxation has pointed out, with freeports expected to start operating in 2021, that would surely hamper freeport employers this year and perhaps create perverse incentives about delaying the start of an employee’s work. I would be grateful if the Exchequer Secretary set out in her response the Government’s reasoning behind this condition on accessing the relief.

Secondly, clause 8 of the Bill enables the Government to set an upper secondary threshold for employer class 1 national insurance contributions specifically in relation to freeport employees—and, indeed, for armed forces veterans, which I will turn to shortly. In practice, this means that employers do not need to pay NICs until an employee’s earnings pass that threshold. We note that the upper secondary threshold for freeport employees will, according to a policy paper published by the Government on 12 May, be set at £25,000 for 2022-23. That is substantially less than the equivalent thresholds for employers’ relief for under-21s and apprentices, which is £50,270 in 2021-22. Just to be clear, this means that employers do not need to pay any NICs for under-21s and apprentices earning up to just over £50,000 a year, but they will have to pay contributions for freeport employees next year if they earn more than £25,000. It would be helpful to understand the Government’s rationale for picking this figure. According to the Office for National Statistics, the median income in all those local authority areas where the eight freeport sites are located is greater than £25,000, with the figures ranging from £25,200 in Kingston upon Hull, within the Humber freeport, to £33,200 in Thurrock, within the Thames freeport. I therefore ask the Exchequer Secretary to explain why the relief for freeport employers is set below median pay in all freeport areas and why this rate is half of that for those employing under-21s and apprentices.

Thirdly, as the plans for freeports stand, businesses taking advantage of their tax incentives will still pay corporation tax. British businesses that pay their fair share of tax will find it very hard to understand why the Chancellor has been for so long so lukewarm about a new, global minimum corporate tax rate to stop large multinationals undercutting them by exploiting tax havens around the world. The Chancellor welcomed the rate being cut from the original 21% proposed by President Biden down to 15%, even though that would cost Britain £131 million a week and leave British businesses being undercut. When I have asked the Financial Secretary before about the Government’s position, he said he did not think

“it is appropriate for Ministers to comment on tax policy in flight”.—[Official Report, 28 April 2021; Vol. 693, c. 418.]

Now, however, the outcomes of the G7 Finance Ministers’ meeting and the Carbis Bay summit are public, so perhaps his colleague, the Exchequer Secretary, could explain why the UK Government’s position has been to back a rate of 15%.

Let me move on to other measures in the Bill. As we have heard, an important relief, covered by clauses 6 and 7—

[Jesse Norman]

I am happy to give the hon. Gentleman some satisfaction on that question. What is extraordinary is how the Labour party has continuously sought to pretend that things are other than they actually are in relation to this deal. Let us just talk about that for a second. In the first case, the G7 is a package—it is a process. Were we, as Labour would have had us do, to ignore the pillar 1 aspects, there would then have been no argument, no debate and no proper taxation of platforms in the areas where the new taxing rights will reside. That would have been a serious, serious deficit. The whole point of the package is to see it as a package, and it predated the Biden Administration. We have greatly benefited as a world from their additional support, but it is by no means up to them; it is an OECD process, of which they have been an important recent supporter.

[James Murray]

I thank the Minister for engaging on what has happened in the negotiations about the new global deal, but I notice that he did not address the issue about the headline rate. I have asked him on several occasions, perhaps three or four times in recent months in this place, to explain why the Government have been so lukewarm about an ambitious rate of 21%, as proposed by President Biden, and instead favoured its being cut to 15%, which is indeed what has happened. I note that when the right hon. Gentleman got to his feet a few moments ago, he did not address the headline rate. Labour Members continue to worry that we are missing out on a once-in-a-generation opportunity to strike a truly ambitious global deal to stop a few large multinationals avoiding paying their fair share of tax.

[Jesse Norman]

rose—

[James Murray]

I will make some progress, if that is okay.

[James Murray]

I tell you what, Madam Deputy Speaker, I will give way if the right hon. Gentleman addresses the specific point about 15% and 21%.

[Jesse Norman]

As the hon. Gentleman knows, it is completely inappropriate for a Minister to comment on confidential negotiations with allies and other nations around the world. He is ignoring that this is a package and the package involves two pillars, the second of which is a 15% rate, globally agreed, one that reconciles and acknowledges different countries around the world which have different tax regimes and different supports. The Government have been in no way lukewarm on pillar 2. What the Government have insisted on, in contradiction to the Labour party and against the ill-fated and ill-advised suggestions that it has made, is pillar 1, which is the crucial component of this that allows us to tax platforms. It is extraordinary that the hon. Gentleman refuses to acknowledge that under a Labour party Administration, there would have been no taxation of these platforms. What on earth does he say to that?

Finance Bill

Debate between Jesse Norman and James Murray

Report stage & 3rd reading
Monday 24th May 2021 Commons Chamber

[James Murray]

The vaccine has given us all hope, but we know that the health crisis from covid is far from over, and the impact on jobs, businesses and the economy resulting from the pandemic will be with us for a long time to come. People across our country and British businesses that have been struggling want to be able to get back on their feet. This Bill should have offered them the support they need to do so, but instead the Government chose to make half of all people in the UK pay more income tax, and its headline measure for businesses, quickly and with good reason, earned the nickname, “the Amazon tax cut”. This Amazon tax cut was proudly announced by the Chancellor as the new super deduction—a £25 billion tax cut that he has said represents the biggest two-year business tax cut in modern British history. What he was less keen to make clear is that this tax cut is not targeted at British businesses that have been struggling in the outbreak, but stands to benefit some of the biggest multinational tech firms that have done very well indeed over the past year or so.

As we have heard during previous debates on the Bill, small and medium-sized businesses can already benefit from the annual investment allowance. That allowance, extended by clause 15, offers a 100% tax break on investment up to £1 million, and we know that it will benefit almost all businesses already. The Financial Secretary to the Treasury has said exactly that. He stated very clearly in a written ministerial statement on 12 November last year that the annual investment allowance:

“Simplifies taxes for the 99% of businesses investing up to £1 million on plant and machinery assets each year.”

We pushed the Government on this matter in Committee of the Whole House, when the Financial Secretary claimed:

“The super deduction benefits all businesses that are in a position to take advantage of the eligible deduction it provides”.—[Official Report, 19 April 2021; Vol. 692, c. 764.]

He will know, however, that the 99% of businesses already benefiting from the annual investment allowance will benefit only marginally from the new super deduction.

The real winners of the super deduction were identified in Committee of the Whole House by my right hon. Friend the Member for Barking (Dame Margaret Hodge), who made the powerful argument that it will most benefit

“the companies with oven-ready capital investment plans, benefiting from the increased demand that they have enjoyed over the last torrid year—companies such as…the notorious tax avoider Amazon.”—[Official Report, 19 April 2021; Vol. 692, c. 751.]

As that phrase reminds us, Amazon already avoids paying much corporation tax in the UK at all by shifting profits to low-tax countries overseas—I will return to that point shortly—but it is depressing that, through his super deduction, the Chancellor is finishing the job Amazon started and wiping out the last little bit of tax it pays in this country.

As the House may remember, we asked the Government to look again at this matter in Committee of the whole House. Our amendment at that stage would have explicitly prevented the biggest tech firms from taking advantage of the Chancellor’s tax break, as well as other big firms that do not support workers’ rights and the living wage. At the time, the Financial Secretary to the Treasury objected to our amendment on the basis that it sought to

“restrict the relief only to certain companies”—[Official Report, 19 April 2021; Vol. 692, c. 742]

and that it imposed “burdensome conditions” on companies that want to benefit from it. That latter phrase told us plenty about the Government’s views on people’s rights at work. The conditions the Minister saw as “burdensome” are the rights to organise and to be paid a living wage. When even basic rights at work and a living wage are seen as burdensome, it is perhaps no wonder that this Government broke their promise to include an employment Bill in the Queen’s Speech earlier this month.

It is clear that we will need to push Ministers over workers’ rights on future days—from banning the shameful practice of fire and rehire to ending exploitation by rogue umbrella companies—as cross-party amendments tabled to this Bill by right hon. and right hon. Members seek to achieve. Today, we have made it very straightforward for the Government, through amendment 29, to focus specifically on preventing the very biggest tech firms—those companies liable to pay the digital services tax—from benefiting from the super deduction. This should be easy. Only a very small number of very large multinational firms that have done very well over the past year are liable for the digital services tax. The detail of that tax means that businesses are liable only when a group’s worldwide revenues from digital activities—such as providing social media platforms, search engines or online marketplaces—are more than £500 million, and when more than £25 million of these revenues are derived from UK users.

The vote on this amendment will come down to the very simple question of how Members of this House believe public money should be spent. As the Bill stands, the Government’s biggest business tax cut in modern British history will finish the job Amazon started, wiping out the last bit of tax it had to pay on the few parts of its business the profits of which it has been unable to shift overseas. A vote in favour of our amendment 29 would stop Amazon and a small number of similar firms benefiting from a giveaway of public money—public money that could be better spent for so many purposes, including to support British businesses that have been struggling throughout the past year. I urge Conservative Members to consider how they vote on amendment 29.

Before we come to that vote, I will turn to our new clause 23, through which we seek to push the Government finally to back President Biden’s plans for a global minimum corporation tax rate. I have explained how the Government’s super deduction will wipe out Amazon’s remaining tax bill in the UK, and how the amount it was due to pay in the first place was paltry compared with what it should be paying. Despite its business success in the UK, profit shifting to Luxembourg meant Amazon’s corporation tax contribution in the UK in 2019 was less than 0.1% of its turnover. People are fed up with large multinational companies avoiding their tax. It goes against the fairness that must be at the heart of our tax system, and in this year of all years, when so many British businesses are struggling to get back on their feet while Amazon’s business booms, it is clearer than ever that change is long overdue.

We have heard brazen claims from the Government about their work to combat international tax avoidance. In the debate in Committee of the whole House on this Bill, the Minister went so far as to claim that the Government have “led the international charge” in a number of ways, yet since the Biden Administration announced their proposals for a global minimum corporate tax rate, we have seen that, not for the first time, actions from the Government fail to match their words, with the UK now the only G7 country not to back the US plan. This is a once-in-a-generation opportunity to grasp the international agreement on the global taxation of large multinationals that has evaded our country and others for so long, yet rather than stepping up, our Government are stepping away.

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

The hon. Gentleman advances the extraordinary claim that the UK is the only country among the G7 not to have backed the Biden plan. Will he put in the Library the evidence for that claim?

Oral Answers to Questions

Debate between Jesse Norman and James Murray

Tuesday 27th April 2021 Commons Chamber

[Jesse Norman]

A very large majority of the self-employed are, of course, covered by the schemes, and therefore I think that the hon. Gentleman’s concern is misplaced. Of course there will always be change in employments of different kinds, and in a dynamic economy such as ours, that is to be expected. If we can get through this desperate crisis—the worst for 300 years—with anything like any of the projected outcomes, that is something we can all, self-employed or not, be profoundly grateful for.

[James Murray (Ealing North) (Lab/Co-op)]

In a recent letter to me, the Financial Secretary admitted that 710,000 freelancers who receive a portion of their income from dividends have missed out on covid support schemes. He recognised that most people are honest in their dealings with HMRC, but said that concerns over fraud meant

“it has not been possible to support everyone in the way they might want”.

The Government have had a year to put in place a process with adequate safeguards. Why have they given up?

Finance (No.2) Bill (Fourth sitting)

Debate between Jesse Norman and James Murray

Tuesday 27th April 2021 Public Bill Committees

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

I thank you, Dame Angela, and all Committee members for sticking with us for our fourth sitting in Public Bill Committee.

These clauses introduce a new approach to how Her Majesty’s Revenue and Customs penalises the small minority of taxpayers who fail to file or pay their tax on time. The reforms are designed to improve compliance and to enhance public trust in the tax system. They are built on fairness and proportionality. The change addresses long-standing taxpayer concern about existing penalties and draws on four successive public consultations. It is an important step in delivering the Government’s ambition to build a trusted, modern tax administration system.

The clauses apply this new approach to VAT and income tax self-assessment, also known as ITSA. Clause 112 and schedules 23 and 24 introduce a new points-based approach to penalties for regular tax return obligations. That replaces the existing penalties for VAT and income tax self-assessment. It also introduces a separate penalty for the deliberate withholding of information that prevents an assessment of tax due. Clause 113 and schedule 25 introduce a new two-penalty model for VAT businesses and ITSA taxpayers who fail to pay their tax on time. Clause 114 and schedule 26 introduce joint consequential amendments arising from clauses 112 and 113.

The changes will take effect by way of regulations: for VAT taxpayers, for accounting periods beginning on or after 1 April 2022; for ITSA taxpayers with an income over £10,000 per year who are required to submit quarterly returns digitally, for accounting periods beginning on or after 6 April 2023; and for all other income tax self-assessment taxpayers, for accounting periods beginning on or after 6 April 2024. The changes made by the clauses will impact those who are required to submit a return for VAT and/or income tax self-assessment. They will also affect anyone working on behalf of taxpayers such as tax agents.

I recognise, and HMRC recognises, that taxpayers may need some time to familiarise themselves with the new approach. I can confirm that HMRC will adopt a light-touch approach in the first year. As long as taxpayers have made reasonable efforts to fulfil their obligations, the first late payment penalty of 2% will not be applied after 15 days. In effect, therefore, for the first year taxpayers will have 30 days to contact HMRC before any late payment penalties are charged. That is a proportionate and balanced approach, ensuring the new regime is fair to all.

If I may, I will respond briefly to amendments that have been tabled in this group. Amendment 24, which relates to schedule 23 to clause 112, would reduce the time limit for HMRC to assess a penalty for failure to make a return from two years to three months. That two-year time limit, however, is long standing, and the Government do not intend to change it through these reforms. The two-year time limit strikes a careful balance between giving taxpayers sufficient notice that a penalty has accrued and allowing adequate time for HMRC to make an assessment. That helps to ensure the integrity of the tax system and benefits us all. In the vast majority of cases, penalties will be levied quickly and automatically close to the date of any missed obligation. Of course, there will be times when HMRC needs longer to conduct its investigations, which is why the two-year time limit is required. I therefore urge Members to reject the amendment.

Amendments 3 to 14 relate to clause 113 and schedule 25, and would remove the first penalty entirely, leaving only the second penalty. Our approach has evolved in line with feedback from several consultations and it strikes a balance between encouraging early engagement with HMRC and penalising those who avoid doing so. The first late payment penalty is essential to incentivise compliance and protect the public finances. Although the vast majority of taxpayers comply with their tax obligations and try their best, a minority consistently fail to meet their tax obligations. If they faced no consequences, they would have an unfair advantage over the vast majority of taxpayers who follow the rules and pay on time. As I mentioned earlier, it is also the case that no penalty will be charged if a taxpayer approaches HMRC to request a “time to pay” arrangement within the first 15 days.

Amendment 25 also relates to clause 113 and schedule 25, and would remove any penalty for a taxpayer who agrees a “time to pay” arrangement with HMRC but then fails to fulfil the terms of that agreement. Of course, some taxpayers may encounter difficulty in paying their taxes on time and HMRC recognises that there are often valid reasons for that. “Time to pay” arrangements are designed to help taxpayers who are struggling to meet their obligations and HMRC strongly encourages those taxpayers to talk to HMRC as soon as possible, if they need to do so. HMRC will always look to agree a “time to pay” arrangement tailored to the taxpayer’s needs. If a taxpayer’s circumstances change, “time to pay” arrangements can themselves be renegotiated.

HMRC must strike a balance between supporting taxpayers who are struggling to meet their obligations and identifying those who are deliberately avoiding them. If a taxpayer has not upheld a “time to pay” arrangement and has not approached HMRC to amend that arrangement to reflect a change in their circumstances, it is appropriate that a penalty is applied. This is designed to encourage anyone who may be struggling to meet their obligations to engage actively with HMRC in order to agree further support. It is also designed to ensure that those taxpayers who regularly meet their obligations are not put at an unfair disadvantage.

I turn now to new clause 6, which relates to clauses 112 to 114, and to schedules 23 to 26 and 28. New clause 6 would require the Government to review the effects of the changes being made by these measures on reducing the tax gap and, within six months of the Act being passed, report to the House on these changes, including the expected change in corporation tax and income tax being paid that is attributable to the provisions. The new clause specifies that these should include taxes payable by owners and members of Scottish limited partnerships.

The Government publish information each year on the tax gap. Sanctions are only one of a series of tools used to tackle non-compliance and reduce the tax gap, so the effect of the changes made by these measures should not be viewed in isolation. The Government are committed to open policy making and we ensure that systematic evaluation of the effectiveness of policy is built into the policy-making process at every stage. With regard to new clause 6, the Government have set out, within the tax information and impact note published at Budget 2021, that this measure will be monitored through information gathered from HMRC systems, and that implementation will be monitored closely, collecting stakeholder feedback to inform future policy development.

Furthermore, the first financial penalties levied under these measures will not occur until after six months of the Act being passed, so it simply would not be possible to provide any worthwhile estimates of tax saved in that time period. Corporation tax is currently out of scope of these reforms. Therefore, we do not believe that a review of the type being proposed is necessary and we urge Members to reject the new clause.

Finally, I will briefly respond to amendment 26, proposed by the Opposition. It relates to clause 114 and schedule 26, which deal in consequential amendments, removing redundant references to the VAT default surcharge, which of course is being replaced by clauses 112 and 113 in the Bill. The amendment would confusingly and mistakenly retain references to the repealed default surcharge. Therefore, it serves no purpose and I urge Members to reject it.

As many in this Committee will be aware, the vast majority of taxpayers fulfil their obligations by submitting their returns and paying their taxes on time. Therefore, these changes should only affect a small number who do not do so. It is right that HMRC has in place appropriate penalties to discourage such behaviour. I therefore move that these clauses and schedules stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you in the Chair, Dame Angela.

I am pleased to begin by discussing clause 112, which, as we heard, introduces two new schedules. The first, schedule 23, sets out a new points-based penalty system for the failure to make, or the late submission of, various returns. The second, schedule 24, makes minor changes to the penalty for deliberately withholding information from HMRC by failing to submit returns.

We welcome the stated aim of the Government: to encourage compliance without wanting to punish taxpayers who make occasional mistakes. It is right to give people in the regular course of events an opportunity to clear penalty points without incurring a penalty charge, while making sure a stronger deterrent is provided in cases where behaviour is shown to be deliberate. The explanatory notes for the clause point out that the regime has been developed through three separate consultations. However, as the Low Incomes Tax Reform Group—LITRG—makes clear, while HMRC has taken on board comments on the structure of a new penalty regime, it considers legislation in the Bill to be far more complex than originally envisaged.

LITRG points out that taxpayers come under Making Tax Digital for VAT for the first time in April 2022, and Making Tax Digital for income tax self-assessment for the first time in April 2023, so they face a complex and unfamiliar penalty regime at the same time as having to get to grips with their obligations under Making Tax Digital. For people with a single source of income, Making Tax Digital for income tax self-assessment appears to have six separate filing obligations over the course of a year, for which penalties could be incurred: four periodic updates, one end-of-period statement, and one final declaration.

I welcome the fact that the Minister set out his view of the suggestion by LITRG that the introduction of the new penalty regime should be delayed to allow those taxpayers time to familiarise themselves with the new obligations before they begin to accrue penalty points for non-compliance. I would also welcome the Minister’s thoughts on the suggestion by LITRG that the legislation should include an obligation on HMRC to keep taxpayers regularly informed of their penalty points total.

Clause 113 introduces schedule 25, which includes a new two-penalty model for businesses and individuals that fail to pay their tax liability on time. The first penalty is 2% of the amount of tax unpaid 15 days after the due date, plus 2% of the amount of tax unpaid 30 days after the due date. The second penalty is a penalty interest rate of 4% per annum that applies from the 31st day of the tax being unpaid. Again, the Low Incomes Tax Reform Group has expressed a number of concerns about the operation of this new regime, including concern about the interaction of time-to-pay arrangements with the new late-payment penalty regime. We would welcome the Minister’s views on that point.

Clause 114 introduces schedule 26, which, as we heard, is consequential to previous clauses and schedules that have been introduced. We tabled amendment 26, which suggests leaving out schedule 26, paragraph 36. We do not intend to press the amendment, but we welcome the Minister’s clarification on the point we sought to raise by tabling it. Our understanding was that schedule 26, paragraph 36 amended section 1303 of the Corporation Tax Act 2009. We were concerned that the amendment appeared to remove a prohibition on any surcharge in VAT, a penalty for missed payment, late payment or non-payment of VAT being written off as a loss in the company’s taxes. We therefore welcome the Minister’s clarification regarding the intention behind that amendment, particularly the message that it sends.

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[James Murray]

As we have heard, clause 116 and schedule 28 make amendments to the Finance Act 2009 relating to late payment and repayment interest for VAT. We understand that these changes generally ensure that late payment and repayment interest work in the same way for VAT as they currently do for income tax self-assessment. We recognise that the clause and schedule make amendments to repayment interest on VAT to bring it in line with income tax self-assessment, ensuring that interest is charged and paid to customers consistently across taxes. We do not oppose the clause’s standing part of the Bill.

Question put and agreed to.

Clause 116 accordingly ordered to stand part of the Bill.

Schedule 28

Late payment interest and repayment interest: VAT

Amendment made: 19, in schedule 28, page 286, line 39, leave out from beginning to end of line 14 on page 287. —(Jesse Norman.)

This amendment removes the provision that would have prevented an amount of VAT credit from carrying repayment interest under Schedule 54 to the Finance Act 2009 for a period referable to the raising and answering of an inquiry by HMRC or the correction by HMRC of errors or omissions in a VAT return.

Schedule 28, as amended, agreed to.

Clause 122

Financial institution notices

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

[Jesse Norman]

Clause 122 makes changes to enable HMRC to issue a new financial institution notice that in certain circumstances will require banks and others to provide information about a specific taxpayer to HMRC that is required to check a tax position or collect a tax debt without the need for approval from the independent tax tribunal. In around 500 cases a year, HMRC uses its formal powers to obtain information with tribunal approval. That includes domestic cases where HMRC wants to check information, and also cases where the information is needed by other tax authorities.

Co-operation with other tax authorities is crucial if international tax evasion and avoidance is to be tackled. The UK relies on other countries helping it, and they rely on the UK. In international cases, obtaining information takes, on average, 12 months, despite the fact that HMRC works with the Ministry of Justice to speed up the process and has more than doubled the number of HMRC staff dealing with such requests. That means that the UK does not meet its commitments to the OECD standards that we ourselves helped to develop, which require such international requests to be completed within six months. All other G20 countries can meet that standard, and the UK is under an obligation to demonstrate compliance with the standard when it is peer reviewed, in order to maintain co-operation with other countries. Following consultation, therefore, the Government decided to make the changes while ensuring that there are appropriate safeguards for taxpayers.

Timely access to information is central to international efforts to tackle tax avoidance and evasion. The changes allow the UK to meet its obligations under the OECD standards and bring it in line with all other G20 countries, while ensuring the appropriate safeguards.

[James Murray]

The key change introduced by clause 122 are the new powers for HMRC to issue financial institutions with a statutory demand for information—a financial institution notice—about a known taxpayer. Such notices differ from existing HMRC powers as they may be issued without the prior approval of taxpayer or tribunal, the financial institution has no right of appeal against a notice, and a notice may be issued for the purposes of collecting a tax debt from the taxpayer.

The Low Incomes Tax Reform Group has expressed its concern that that represents the removal of important taxpayer safeguards. I understand that HMRC has justified the introduction of financial institution notices on the basis that the existing statutory safeguards on third-party information notices mean that they cannot meet the international obligation to tackle offshore tax avoidance and evasion in obtaining information on behalf of overseas jurisdictions on a timely basis.

As the Minister knows, we welcome any efforts to tackle tax avoidance and evasion, but we would like to ask him why that approach is justified. HMRC is introducing powers that will be used in a domestic context, even though there is no domestic justification for them. HMRC’s apparent reason is that it is not possible to introduce a new process for domestic cases because of restrictions in UK law and international treaties.

However, the House of Lords Economic Affairs Finance Bill Sub-Committee recently heard evidence, including from HMRC, that the vast majority of the delay in obtaining information for international cases was down not to the UK’s Court Service, which HMRC acknowledged took four to six weeks to process an application, but rather to delays in obtaining information required from overseas jurisdictions, which HMRC told peers takes eight months on average. The Lords recommended that, rather than removing important taxpayer safeguards, HMRC should review the whole process for dealing with international information requests requiring tribunal approval and should work with the financial institutions, the tax tribunal and others to find other means to streamline the process.

We would welcome the Minister addressing those points directly in his response, as there are clearly concerns that new financial institution notices might not in fact speed up the process of obtaining information in international cases. We would also welcome him addressing the concern as set out by the Institute of Chartered Accountants in England and Wales that new financial institution notices will be used routinely as a way of obtaining information, with the number of domestic information requests far exceeding the number of times the notices are used for international information exchanges. Is the Minister confident—and if so, why— that financial institution notices will be used only in accordance with the original policy intent, which is to speed up HMRC’s dealings with international exchange of information requests from overseas jurisdictions, rather than as an additional compliance tool for inquiring into the affairs of UK taxpayers?

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[Jesse Norman]

Clause 123 makes changes to allow information notices to be used to obtain documents and information for the purpose of collecting a tax debt. I remind the Committee that the UK helped to develop and remains committed to—this is a bipartisan matter—OECD international standards for exchange of information. It is crucial that this country can co-operate with other tax authorities to tackle international tax evasion and avoidance. We rely on other countries to help us, and they rely on us. However, the UK is currently unable to assist with exchange of information requests from other jurisdictions where formal powers need to be used to obtain debt collection information. That means that the UK does not fully meet its commitments to the OECD standards. The UK must demonstrate compliance with those standards when peer reviewed to maintain co-operation with other countries. Therefore, following consultation, the Government decided to make this change.

The changes made by clause 123 will allow information notices to be issued by HMRC to obtain information for the purpose of collecting tax debts. That will allow HMRC to assist with international exchange of information requests relating to debt, and will support HMRC’s domestic activity to collect tax debts. Assisting with international exchange of information requests is an important part of international efforts to tackle tax avoidance and evasion. By those means we can meet our commitments as a country to the OECD standards.

[James Murray]

Clause 123 amends schedule 36 of the Finance Act 2008 to give HMRC a new power to issue an information notice for the purposes of collecting a tax debt. We would like to raise with the Minister a point articulated by the Chartered Institute of Taxation in connection with the amended schedule 36. It is concerned that the new notice for collection of tax debts can be used for the purposes of collecting a tax debt, whenever arising. That means that the use of these notices is not restricted to cases involving tax years after the measure becomes law, which raises a concern that this is a very wide-ranging power. What reassurance can the Minister offer that HMRC will use the new power granted by this clause proportionately and with appropriate oversight?

[Peter Grant]

I do not have any issue with the changes proposed in clause 123 but, like the hon. Member for Ealing North, I think it is important to make clear that, in passing the legislation, Parliament has to give what may appear to be draconian powers to HMRC or other Government agencies to use when they have to. We then have to rely on Ministers to set policy, and sometimes on HMRC or Government Departments, in terms of their operational management decisions, not to use those draconian powers except when they absolutely must.

As we have begun to come out of the covid recession, a lot of individuals and businesses have found that their cash-flow position is as bad as it has ever been—and hopefully as bad as it ever will be. If HMRC manages itself only in terms of its own performance statistics on how quickly it can get the money in, there is a danger that it will do damage to the wider economy; in the longer term, it will do damage to the public finances. If a business is struggling to pay its tax, it is struggling to pay all its bills too. If we move in too quickly to get the tax out of that business, the chances are that it will go down and will no longer have any chance of paying its suppliers, so the suppliers go down as well. We will end up with a domino effect, with several businesses, and possibly three or four times as many jobs, being lost.

It is not a question of saying that there are circumstances where HMRC should say to somebody, “You don’t need to pay your debts,” but there will be times when it will be better for it to say, “We aren’t going to chase you for your debts now, but it’s up to you to get your circumstances sorted out, and then we will expect you to pay your dues.” I say that because I have known instances in constituency casework, as I suspect many Members have, where HMRC did not seem to take that approach. It appeared to have been chasing businesses to the point of liquidation, and individuals to the point of bankruptcy, for amounts of money that, in the grander scheme of things, were completely irrelevant to it, but highly relevant to those individuals and businesses.

I hope that we will get an assurance from the Financial Secretary today that the draconian powers in the Bill and in existing legislation will be used with an even softer touch over the next few years than they were supposed to be used with in the past. Otherwise, we will find that the difficulties that businesses are facing will get worse over the next few years, rather than better.

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[Jesse Norman]

Clause 124 and schedule 33 will make changes to ensure that necessary technical amendments are made to HMRC’s civil information powers. Further to the changes introduced in clauses 122 and 123, it is necessary to make consequential changes to the legislation that regulates those powers.

Clause 124 and schedule 33 will prevent the person who receives a financial or third-party information notice from copying the notice, or anything relating to it, to the taxpayer to whom it relates, where this has been approved by an independent tax tribunal. The provisions will also correct a drafting error in the original legislation concerning daily penalties, and address a stamp duty land tax issue by enabling HMRC to check that relief given on the basis of future actions by the purchaser continues to be due. The additional technical amendments are necessary to ensure that HMRC’s civil information powers work as intended.

[James Murray]

We recognise that clause 124 and schedule 33 make miscellaneous changes, including to correct a drafting error in schedule 36 of the Finance Act 2008, which governs the issuing of increased daily penalties for failure to comply with an information notice. The schedule also introduces a rule to prevent a third party telling the taxpayer about a third party information notice where the tribunal has decided that is appropriate. We do not oppose the clause and schedule standing part of the Bill.

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[Jesse Norman]

Clause 125 introduces a new power that will enable the Government to subsequently make regulations to implement international reporting rules for digital platforms following consultation—in particular, the OECD model rules for reporting by platform operators with respect to sellers in the sharing and gig economy are in scope here. As announced at Budget, the Government will consult on the implementation of these OECD rules in the summer.

The OECD rules require digital platforms to report information about the income of sellers providing services on these platforms to their tax authority. The rules affect platforms that facilitate the provision of services such as taxi and private hire services, food delivery services, freelance services and short-term letting of accommodation through apps and websites. The platforms will also be required to provide a copy of the information to the sellers.

Sometimes these sellers do not fully understand their tax obligations, or they may work on multiple platforms and find it hard to keep track of their income. This will make it easier for UK gig workers who provide their services through digital platforms to complete their returns and get their tax right. To be clear, there will be no change in the amount of tax due. The information will simply help taxpayers to declare the correct amount of income first time. However, where sellers are not declaring all of their income from platforms, the information reported to HMRC will help to support the Government’s efforts to detect and tackle tax evasion.

HMRC will also be able to exchange information with other countries that sign up to the OECD rules. This exchange of information will allow HMRC to access data on UK sellers from platforms based outside the UK much more quickly and efficiently than is currently possible. The benefit is not, it is important to say, only for gig workers and tax authorities. The Government have heard directly from some of the major digital platforms that they welcome this international approach as it provides them with a set of standardised rules to follow. The UK is committed to its role as a global leader on tax transparency. In line with this ambition, the UK is one of the first major economies to announce that it will consult on the implementation of the OECD rules.

[James Murray]

The clause introduces a power to make regulations to implement the OECD model rules for reporting by platform operators. These rules will require certain UK digital platforms to report information about the income of sellers of services on their platform. The power also allows regulations to be made to implement other, similar international agreements or arrangements. The clause allows for greater oversight of gig economy digital platforms, which in turn allows for more effective action to enforce tax compliance. So it is a positive change, which we support.

The OECD issued a report in July 2020 setting out new rules to oblige shared and gig economy platforms to report the activity of their users. As we have heard, the UK was involved in discussing and agreeing the model rules at the OECD. The reported information can be shared by other participating tax authorities using a new tax information exchange framework, simplifying compliance for taxpayers and making data easier to interpret and exchange. It is designed to help sellers on these platforms comply with tax obligations and to help HMRC detect and tackle tax evasion when they do not.

These new measures will have a significant combined impact on an estimated 2 to 5 million businesses that provide their services via digital platforms, though we acknowledge that the impact to each seller may be small. Although we welcome these changes, I invite the Minister to use his remarks to set out what support the Government will provide for digital platforms and the businesses providing services on them, to ensure that they are well prepared for new tasks that they have not had to undertake before.

[Jesse Norman]

Let me say a couple of things about the impact mentioned by the hon. Gentleman. It is important to say that the Government very much recognise that businesses will need time to get to grips with new reporting requirements and the rules, therefore, are not intended to come into force earlier than January 2023, with reporting due no earlier than January 2024. There will be a consultation on the implementation of the rules in 2021.

The goal is to set a framework and a regime that can stand effectively and flexibly over time, but with a degree of care about how it is consulted on and developed, with good notice for those who are affected to be able to change some of their practices if they need to.

The question arises: will there be a substantial amount of additional administrative burden? The answer is no. Having been in discussion with different parties involved, we think it will be easier for platforms to report information using agreed international standards. That is why the measure has been welcomed by some of the platforms.

Where there are costs, we will seek to minimise them where possible. For example, I expect there will be an optional exemption for start-ups and perhaps a phasing-in period for some of the obligations, to spread their initial impact. All those arrangements, therefore, should have the effect of creating a phased, calibrated and well structured introduction of the new measure.

Question put and agreed to.

Clause 125 accordingly ordered to stand part of the Bill.

Clause 126

Unauthorised removal or disposal of seized goods

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

[Jesse Norman]

Clause 126 is a small but important clause that would amend schedule 3 of the Customs and Excise Management Act 1979 to allow HM Revenue and Customs and UK Border Force to levy a civil penalty for goods seized in situ that are removed without prior authorisation.

The background to this measure is that goods that have been seized are normally kept in Border Force-controlled Queen’s warehouses. Sometimes, however, seized goods are kept on the trader’s own premises and are known as goods seized in situ. Currently, schedule 3 of the 1979 Act allows for goods to be seized and kept on the trader’s premises, but does not refer to seizure in situ; therefore, if seized goods are removed without prior authorisation, no penalty can be issued.

Pressures on existing warehouse space mean that goods are increasingly being seized in situ at traders’ premises. Removal of those goods by traders without prior authorisation from HMRC does not, the Committee might be surprised to know, currently attract a penalty. That risks the unauthorised removal of seized goods. The measure is a legislative amendment to schedule 3 of the 1979 Act to include a civil penalty for where goods seized in situ are removed without authorisation.

Goods will remain in situ for a month to allow the owner to contest the seizure. After that period, the goods will be condemned and HMRC may dispose of them. The amendment to the schedule of the 1979 Act to include a civil penalty under the Finance Act 1994, for where goods seized in situ are removed without authorisation, will mirror the existing penalty for detained goods in paragraphs 4 and 5 of schedule 2A to the 1979 Act for detentions.

HMRC has a duty to take robust action to deal with those involved with goods that have not had duty paid on them, or are prohibited or restricted. The detention and seizure of goods is a valuable tool to deal with and to deter duty evasion. This measure will assist HMRC in tackling non-compliance and is proportionate to ensure compliance and protection of the revenue.

[James Murray]

Clause 126 enables HMRC and Border Force officers to use a civil penalty to combat the unauthorised removal of things that have been seized in situ. When HMRC seizes goods, they are normally kept, as we heard, in Border Force-controlled warehouses. When goods that have been seized are kept on the trader’s premises, the seizure is known as seizure in situ. Currently, the law does not refer to seizure in situ; therefore, if seized goods are removed without prior authorisation, no penalty can be issued. We recognise that the clause will amend that.

We want HMRC to take robust action to deal with those who import illicit items into the UK or seek to bring in things on which duty has not been paid. We want the detention and seizure of things to be a valuable tool in the fight against duty evasion. We therefore do not oppose the clause.

Question put and agreed to.

Clause 126 accordingly ordered to stand part of the Bill.

Clause 127

Temporary approvals etc pending review or appeal

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

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[Jesse Norman]

On a point of order, Dame Angela. I would like to thank you and Sir Gary, Hansard, the Whips, parliamentary private secretaries and officials. I am sure that I speak for those on both sides of the Committee when I thank those who have supported us through the Committee stage. I would particularly like to call out the names of Edwin Ferguson and Sarah Hunt and of our Bill team at the Treasury, Bill manager, Mikael Shirazi, Helena Forrest, Barney Gibb and Sam Shirley. I thank colleagues across this Committee for their commitment to scrutinising and debating the legislation. I am keenly aware, as they will be, that we do so under the picture of William Gladstone and his Cabinet at the time—a very forbidding chancellorial figure. With that in mind, I thank everyone for their contributions, and thank you, Dame Angela, for presiding so ably.

[James Murray]

Further to that point of order, Dame Angela. I would like to put on record my thanks to you for being a very patient Chair on my first time in a Public Bill Committee, following Sir Gary Streeter last week. I also thank the Clerks for helping us to draft amendments, and the wider House authorities for making it possible to hold a Public Bill Committee in these strange circumstances. I would also like to thank all members of the Committee. On behalf of my hon. Friend the Member for Erith and Thamesmead, I particularly thank our Whip—my hon. Friend the Member for Manchester, Withington—and my hon. Friends the Members for Vauxhall and for Luton North for giving up their time to sit on this Committee.

Finance (No.2) Bill (First sitting)

Debate between Jesse Norman and James Murray

Thursday 22nd April 2021 Public Bill Committees

[Jesse Norman]

The clause makes provision for an easement for plant and machinery leases caught by anti-avoidance legislation when extended due to coronavirus. The easement has the effect of turning off the anti-avoidance legislation under specific circumstances. The reason for that is that HMRC has identified an issue where some plant or machinery leases could be adversely affected by the Government’s anti-avoidance legislation. This relates to specific circumstances where a lease is extended due to covid-19, and creates unexpected and unwelcome outcomes for many lessors and lessees. Therefore, at the Budget, the Government announced changes to ensure that the anti-avoidance mechanism is not unnecessarily triggered by legitimate commercial activity.

The measure will affect leases where a relevant change in consideration is implemented between 1 January 2020 and 30 June 2021. It is an easement, restoring eligibility to claim capital allowances to the position as originally intended immediately prior to the date of the change in consideration due under the lease. If not deemed appropriate, either party may choose not to apply this treatment, ensuring that no one will be left worse off by the change. The Government expect that the services, construction, manufacturing and agricultural sectors, in particular, will be positively affected by the changes.

The measure is important in assisting businesses that have been badly hit in their legitimate activity by the effects of the pandemic and in ensuring that they are not struck by unexpected tax charges. I therefore move that the clause stand part of the Bill.

[James Murray]

We recognise that the clause relates to the leasing of plant or machinery, and specifically to a situation where a lease of such machinery is extended due to coronavirus. Without this provision, such an extension could trigger anti-avoidance legislation, and we understand that the clause therefore amends relevant subsections relating to long and short leases in the Capital Allowances Act 2001, with the effect of switching of the anti-avoidance provision and returning the situation to what it would have been without coronavirus.

We understand that the need for the clause was raised by the Finance and Leasing Association, which represents 40% of relevant lessors in the UK, and that after consideration the Treasury agreed that the change for which the clause provides was needed. It will cover only covid-19-related lease extensions where anti-avoidance legislation is triggered from 1 January 2020 to 30 June 2021, as the Minister said.

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[Alison Thewliss]

Amendment 2 has the opposite aim, I suppose, to Government amendment 16. We proposed to update the Income Tax Act 2007 so that the extended loss carry-back rules in the Bill, in relation to furnished holiday lettings businesses, would have effect, whereas the Government clearly intend that the measure will no longer apply to those businesses.

In tabling our amendment we assumed that the Government had drafted their measure incorrectly and had accidentally excluded the people in question, but clearly we were wrong. They have not excluded them as much as they had hoped to, and are coming back to double down on that exclusion by means of amendment 16. Our technical amendment would help the sector, and we are keen for the Government to take it on board.

The Low Incomes Tax Reform Group has also raised the wider implications of clause 18 and the potential for unintended consequences and pitfalls resulting from the interaction between any tax refund and universal credit. Has the Minister given that any consideration? The group feels that there has been a significant increase in claims for universal credit during the pandemic—it is clearly evidenced—including from self-employed individuals and limited company directors who may never have needed to claim such support before the pandemic.

Under the universal credit legislation, self-employed income for a universal credit monthly assessment period is calculated by taking actual receipts in the assessment period and deducting any amounts allowed as expenses, tax, national insurance and any relievable pension contributions in that period. The group points out that receipts specifically include any refund or repayment of income tax, VAT or national insurance contributions related to a trade, profession or vocation, so any tax refund made as a result of the provision may therefore fall to be treated as income for universal credit purposes in the assessment period in which it is received, which in most cases will lead to a reduction of universal credit of 63p for every £1 of refund. In addition, further to that, if the refund is large enough, it might trigger the surplus earnings rules, meaning that any excess income in one assessment period can be carried forward and treated as income in the next assessment period, up to a maximum of six months.

It would be helpful if the Minister said whether the Government are aware of the issue and what plans they have to raise new universal credit claimants’ awareness of it, so that they can understand that if they receive the refund while they are in receipt of universal credit, they will need to report it as income for universal credit purposes. They will have to understand the implications fully.

This is an unintended issue arising from the pandemic. People who have never claimed universal credit before, who may have recourse to the provisions that the Government are making, will not understand how the two things interact. They might not have access to appropriate financial advice, and I would not want the Treasury or HMRC to be doing something on one hand that the Department for Work and Pensions did not understand on the other. What discussions has the Minister had with DWP Ministers, and what information does he intend to give out to people? As the Low Incomes Tax Reform Group points out, there could be implications that have not been considered.

[James Murray]

We note that clause 18 and schedule 2 provide a temporary extension to the carry-back trading losses provisions from one year to three years, for losses of up to £2 million for a 12-month period, both for companies and for unincorporated businesses. Those extensions to trade loss carry-back rules for both corporation and income tax have been introduced in response to covid-19 to help businesses that have suffered economic harm as a result of the restrictions placed on them.

We understand that the intention is to provide cash-flow benefit to affected businesses by providing additional relief for trading losses. As we have heard, the Chartered Institute of Taxation has said that it welcomes this measure for giving a cash injection to businesses with a track record of making profits and paying tax, but which have suffered during the pandemic. The Chartered Institute of Taxation points out that, in many cases, this measure will represent a cash-flow, rather than an absolute, cost to Government. The cost will reverse as the business, having used up its losses by carrying them back, makes profits and pays taxes sooner in the future.

Although we recognise the broad support for the measure from the Chartered Institute of Taxation and the wider importance of helping businesses with cash flow when they have suffered as a result of covid restrictions, we have tabled new clause 10, which relates to tax avoidance and evasion. We do not doubt that most businesses benefiting from the measure will do so legitimately. Given the importance of making sure public money is spent effectively and as intended, however, we believe the Government should identify any risk and take action to mitigate those risks as necessary.

Furthermore, we would also like to raise the issue identified by the Chartered Institute of Taxation’s Low Incomes Tax Reform Group—namely, the potential interaction of any tax refund with universal credit, as set out by the hon. Member for Glasgow Central. I would therefore like to reiterate her call to the Minister to ask whether he is aware of this issue. If so, what plans do the Government have to raise awareness of this issue with universal credit claimants to make sure they understand that, if the refund is received when they are in receipt of universal credit, they will need report this income for UC purposes?

[Jesse Norman]

I am grateful to the hon. Members for Glasgow Central and for Ealing North for their questions; let me speak to the points they have raised.

The hon. Member for Glasgow Central suggested—in fact, she averred—that she had tabled her amendment based on what I fear is a misunderstanding of the legislation, without her being aware that this was actually an incorrect feature of the legislation that the Government were seeking to correct. I apologise if she has been misled. It is certainly not part of any intention of the Government to change what is a long-standing arrangement for the taxation of furnished holiday lettings, and there was no intention to extend the relief to businesses that do not currently qualify for loss carry-back relief. I apologise if the legislation has inadvertently misled her, and I hope on that basis that she will not press her amendment.

On the interaction with universal credit, the key point I would make is that this is a change designed to provide businesses with flexibility. Universal credit is a cash flow-based benefit, and rightly so, because it intends to track people’s cash flow as it rises and falls in receipt of the benefit. Of course, my officials consider all these matters in the round. If there are further technical points that the hon. Members for Glasgow Central and for Ealing North would like to put forward, based on the specific feedback of the Low Incomes Tax Reform Group, we would be happy to listen to them and respond accordingly.

Question put and agreed to.

Clause 18 accordingly ordered to stand part of the Bill.

Schedule 2

Temporary extension of periods to which trade losses may be carried back

Amendment made: 16, in schedule 2, page 101, line 34, leave out sub-paragraph (5).—(Jesse Norman.)

This amendment clarifies that relief under Part 1 of Schedule 2 to the Bill is not available to a furnished holiday lettings business that is treated as a trade under section 127 of the Income Tax Act 2007.

Schedule 2, as amended, agreed to.

Clause 19

R&D tax credits for SMEs

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

--- Later in debate ---

[Jesse Norman]

Clause 19 and schedules 3 and 4 make changes to deter abuse in the payable credit element of the research and development tax relief for small or medium-sized enterprises, or SMEs. R&D tax reliefs, including the SME scheme, support businesses to invest and are a core part of the Government’s support for innovation. In 2017-18 alone, there were over 54,000 claims to the SME scheme, providing relief of £2.7 billion, which supported over £10 billion of R&D investment.

The SME scheme has two parts. First, the relief functions as a corporation tax additional deduction, reducing the profits on which a company pays corporation tax by 130% of qualifying expenditures, on top of the standard 100% deduction. Secondly, if a company is loss making, or if the deduction creates a loss, they may be entitled under the law as it stands to surrender losses in exchange for a payable credit up to 14.5% of 230% of qualifying expenditures.

However, the Government have been concerned about abuse in the payable credit element of the scheme. In particular, some loss-making companies that do little R&D themselves pay another person, such as a company based abroad, for a lot of R&D simply to have access to the payable credit element of the relief. They are thus benefiting themselves, but the benefit of the R&D is not accruing to the UK economy. To prevent abuse of the SME scheme, Budget 2018 announced a cap on the amount of payable credit that a company will be able to receive.

The change will limit the amount of payable credit available to some companies, and it will be set at £20,000 plus three times the company’s pay-as-you-earn and national insurance liability. The liability acts as a proxy for actual R&D activity happening in the UK to ensure that claimants have an actual employment footprint here in order to benefit from the payable credit.

The measure has been carefully designed to ensure that non-abusive companies are unaffected, and it achieves that through three important features. First, the threshold of £20,000 means that the smallest claims will be uncapped. Secondly, this is based on the total liability for all employees, not just the liability for employees working on R&D. Where companies subcontract R&D to connected persons, or use agency workers supplied by connected persons, they will be able to include costs attributable to that as well. Thirdly, companies that can show they are creating or preparing to create intellectual property, or are managing intellectual property that they have created, and where less than 15% of the R&D expenditure is with other connected companies, may be exempt from the cap.

Compared with the draft legislation published last year, the definition of intellectual property has been expanded, based on comments made, so that it will include both know-how and trade secrets in order to cover cases in which a company does not wish to or cannot seek a patent. We have worked closely with the industries involved on this design. The changes will take effect for accounting periods beginning on or after 1 April 2021. Up to 25,000 companies will be affected by the measure, although not all will see their payable credit reduced. The measure is expected to yield £455 million across the scorecard period.

The measure is an important step to protect the integrity of the SME scheme. The Government have extensively consulted in order to ensure that legitimate businesses are not caught, and the new rules will ensure that the reliefs remain sustainable, enabling them to continue to support innovation into the future.

[James Murray]

Clause 19 and schedules 3 and 4 introduce a new restriction, or cap, on the payable element of the R&D tax credit for SMEs. Tax reliefs that seek to incentivise firms to invest in R&D form an important part of the Government’s approach to innovation. However, as the Government admit, the SME tax credit has become a target for fraud and abuse. We welcome any Government efforts to counter fraudulent attempts to claim the SME R&D tax credit. Will the Minister set out figures explaining the extent of the fraud and abuse, including how much it has, or is estimated to have, cost the Exchequer in each of the financial years 2018-19 through 2020-21?

We note that this change has been a few years in the making. It was first announced at the 2018 Budget, the Government consulted on its detailed design in 2019, and there was a further consultation in spring and summer 2020. The opinion of the Chartered Institute of Taxation is that the outcomes of these two consultations have fed into the design of this measure in a way that it welcomes, as it considers that these changes will minimise the impact and deterrence effect on businesses undertaking genuine R&D.

The process of consultation continues, and at the March Budget, the Government announced a new review of R&D tax relief, supported by a consultation with stakeholders. Without, of course, pre-judging the outcome of that review or consultation, we would like to ask the Minister to set out any early thoughts he has about where this process may lead, both in relation to R&D tax credit and tax relief generally, and specifically as they apply to SMEs. We would welcome the Minister setting out his response to this point, as well as—as I mentioned—the figures or estimates he has on the impact on the Exchequer of fraud involving, and abuse of, the SME tax credit in each of the three past financial years.

[Jesse Norman]

I am grateful to the hon. Member for his questions. Of course, it is in the nature of avoidance that it is not possible to estimate: it is avoidance or potential avoidance, so it is not possible to give accurate figures as to the exact levels of avoidance that has taken place. However, it is noticeable that this measure has an estimated positive revenue effect of over £400 million, which is an interesting fact in and of itself, and quite an interesting potential indicator of the importance of the measure.

On the wider issue of progress in this area, the hon. Member will be aware that we have a review underway. It would not be appropriate for me to pre-judge the scope of this, or indeed the outcome of a review that has only relatively recently been initiated, but I assure him that it will be thorough and effective.

Question put and agreed to.

Clause 19 accordingly ordered to stand part of the Bill.

Schedules 3 and 4 agreed to.

Clause 20

Extension of social investment tax relief for further two years

[James Murray]

I beg to move amendment 23, in clause 20, page 13, line 20, leave out “6 April 2023” and insert “6 April 2026”.

[James Murray]

Clause 20 and our amendment 23 relate to the social investment tax relief, which was introduced in 2014 to encourage investment in qualifying social enterprises and trading charities. It offers investors a range of tax reliefs, including income tax relief and CGT holdover relief, on gains reinvested in qualifying enterprises. This relief originally contained sunset provisions that would have terminated it on 26 April 2019. The sunset was extended in 2017 to 6 April 2021, and now clause 20 is extending the operation of the scheme further, to investments made in enterprises on or before 5 April 2023.

We support the decision to extend the life of this relief, which has been called for by the social investment sector, stakeholders such as the Co-operative party, and the shadow Chief Secretary to the Treasury, my hon. Friend the Member for Houghton and Sunderland South (Bridget Phillipson), during consideration of the Finance Bill 2020. However, we remain concerned that the Government need to be doing more to increase its take-up, which we note has been lower than expected. HMRC’s last statistics, released in May 2020, set out that since 2014—when the relief was launched— 110 social enterprises have raised funds of £11.2 billion through it. Indeed, the results of the Government’s 2019 call for evidence on the relief say:

“Around three-quarters of respondents reported difficulty in using SITR. Reasons given varied and included a lack of capital supply (even with the offer of tax relief) for the levels of demand; a lack of or unclear guidance; complex eligibility restrictions; and limited resources within social enterprises to manage SITR processes and investments.”

Concerns about low take-up are shared by the Chartered Institute of Taxation, which recognises that although some obstacles to using the social investment tax relief to invest in social enterprises have been removed, the effect is yet to bed in, and significant other barriers to take-up remain. I would therefore be grateful if the Minister set out what the Government are doing to improve take-up of the social investment tax relief, and whether they would consider consulting more widely on how investment in social enterprises can be facilitated. Alongside concerns that the relief is overly complex for the smaller organisations it is designed to support, analysis by the Chartered Institute of Taxation also raises concern that this relief is less well suited to investments made by way of loans, even though, anecdotally, loans to social enterprises are more common than equity investment. To understand the situation in relation to loans better, I would be grateful if the Minister informed us what proportion of the £11.2 million raised through the social investment tax relief since 2014 have been in the form of loans.

More widely, the Chartered Institute raised concerns that a two-year period to address the current barriers is unlikely to be sufficient and might put off some long-term investors. We therefore tabled amendment 23 to encourage the Government to consider and set out their view on amending the Bill to include a longer extension to the relief. I would be grateful for the Minister’s views on how long the relief should be extended.

[Jesse Norman]

I thank the hon. Gentleman for his questions, to which I shall respond when I have described how the clause works.

Clause 20 extends the operation of social investment tax relief for two years, until 5 April 2023. This will continue the availability of income tax relief and capital gains tax reliefs for investors who make investments in qualifying social enterprises. This measure ensures that the Government will continue to support social enterprises in the UK that are seeking patient capital for growth. 

SITR encourages investment in social enterprises by offering income tax and capital gains tax reliefs to individual investors who subscribe for new shares, or make a new debt investment, in qualifying enterprises. Between 2014 and 2018-19, 110 social enterprises used SITR to raise £11.2 million in investment—a much lower engagement than originally anticipated. In line with commitments made when SITR was expanded in 2016, the Government conducted a review of the scheme last year, including through a call for evidence. Following the review, the Government now propose to extend SITR’s sunset clause from April 2021 to April 2023.

--- Later in debate ---

[Jesse Norman]

The clause relates to workers’ services provided through intermediaries and makes technical changes to the off-payroll working legislation. The off-payroll working rules exist to ensure that a contractor who works like an employee, but through a personal service company, pays broadly the same amount of tax as those who are directly employed. The rules ensure fairness between individuals who work in similar ways but through different structures.

This is not a new tax. The changes legislated for last year improve compliance with existing rules by transferring the responsibility for determining whether the rules apply from the contractor’s personal service company to their client and have taken effect from April 2021 in the private and voluntary sectors. The changes were implemented in the public sector in 2017. Reform was legislated for in the Finance Act 2020 and came into effect on 6 April this year, as planned.

The main change we are making in this clause is to address an issue raised late last year by stakeholders. A small section of the legislation introduced in the Finance Act 2020 and intended to prevent people from avoiding the rules through the use of artificial structures applied more broadly than was intended. This had the effect that some workers who were not intended to be within the scope of the rules would be caught. This would have placed obligations under the off-payroll working rules on a wider range of clients and engagements than was intended from 6 April 2021. The Government announced on 12 November 2020 that they would make a technical change in this Finance Bill to ensure that the legislation reflected the policy intent.

HMRC has worked closely with stakeholders to find a solution that both prevents avoidance and ensures that the legislation does not apply beyond the scope of the policy intent. The main technical change that we are making in this clause will ensure that the rules do not apply when the worker has no interest in the intermediary company or, when they have a less than material interest in the intermediary, their fee is already taxed wholly as employment income.

The clause also proactively introduces a targeted anti-avoidance rule, or TAAR, to future-proof the rules and further minimise any risk of contractors being drawn into avoidance arrangements. This will ensure that unscrupulous parties cannot exploit these conditions in order to avoid the rules.

The Government are also making two minor related technical changes, which were requested by stakeholders, to make it easier for businesses to operate the rules and to ensure that parties who provide fraudulent information are held responsible. Currently, workers are asked to inform their client whether their intermediary meets the conditions that mean the rules need to be considered. If the worker does not provide this information, clients must assume that the intermediary is in scope. This change will make it easier for parties to share information by allowing the intermediary, as well as the worker, to confirm to the client whether the off-payroll working rules need to be considered.

The second change amends the provisions related to fraudulent information. This will allow HMRC to take action against any UK-based party in the labour supply chain that provides fraudulent information, for example by claiming that an intermediary is out of the scope of the rules when they are not. Currently, the liability would rest with the worker if they, or someone connected to them, provided fraudulent information. This change ensures that the liability rests with any UK-based party in the labour supply chain that provided the fraudulent information. This protects others in the supply chain from being liable for underpaid tax and national insurance contributions when they have acted on this fraudulent information in good faith.

The clause ensures that the off-payroll working reform works as intended from 6 April, and it introduces minor, but helpful, technical changes that were recommended by stakeholders. These changes had effect from 6 April, when the off-payroll working reform took effect.

[James Murray]

As we have heard, clause 21 introduces a series of changes that relate to workers’ services provided through intermediaries, the provisions of which we support.

First, the clause makes amendments to the off-payroll working legislation in chapter 10 part 2 of the Income Tax (Earnings and Pensions) Act 2003, to address the unintended widening of the conditions that determine when a company is an intermediary and is subject to chapter 10. The off-payroll working rules were amended by the Finance Act 2020, including an amendment that sought to prevent potential avoidance of the rules by workers diluting their shares in these intermediaries, so they did not have a material interest. However, this amendment widened the determining conditions applicable to companies beyond policy intent. The clause limits the scope of these conditions by removing those engagements that would be unintentionally caused by the rules, restoring the original policy intent.

The clause further introduces a targeted anti-avoidance rule that seeks to prevent avoidance arrangements trying to circumvent the conditions for a company or partnership to use intermediaries for the purposes of chapter 10. As the Minister will know, we support measures that seek to address avoidance.

The clause introduces two further technical amendments. The first makes it easier for parties in a contractual chain to share information relating to the off-payroll working rules. The second places the loss liability for the tax on the party in the labour supply chain that provided the fraudulent information. It is right that those in a supply chain should be held responsible for providing fraudulent information.

As the Minister will know, other hon. Members raised concerns relating to clause 21 in Committee of the whole House earlier this week. My hon. Friend the Member for Brentford and Isleworth (Ruth Cadbury), who is co-chair of the all-party parliamentary loan charge group, asked whether the Government would consider amending the clause

“to allow only compliant umbrella companies to exist.”—[Official Report, 20 April 2021; Vol. 692, c. 912.]

In the interest of all views on this debate being fully considered, will the Minister set out his assessment of the impact that change would have?

[Jesse Norman]

I thank the hon. Gentleman for his question and for his support for this important legislation. Although not related to this clause, I thank him for the support the Labour party has given on the issue of the loan charge. These are important ways to curb forms of abuse of the rules that may mean people do not pay appropriate levels of tax, so I am grateful for that support.

On the last point that the hon. Gentleman raised, I am afraid that it was an unfortunate and slightly misinformed debate in Committee of the whole House, in part because there was a suggestion that somehow clause 21 benefited only umbrella companies and should be struck out, and that the effect of striking it out would somehow mean that workers would receive agency rights by working through agencies’ payrolls. In fact, that is not correct. Clause 21 has no bearing on workers receiving rights, and it also ensures that the rules apply correctly to agencies, and indeed to a wider group, such as employees on secondment. The effect of the amendment proposed in Committee of the whole House would have been to gut the legislation, which is why the Government opposed it.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22

Payments on termination of employment

--- Later in debate ---

[Alison Thewliss]

We of course welcome all moves to support parents through the difficult time of bereavement. Our new clause would require the Secretary of State to publish reports on the uptake of statutory bereavement pay. It is important that we encourage people to take it up and that we let people know it is available to them. If the Government are not monitoring that, it is difficult to tell how effective the policy is.

Bereaved parents must be given the space and the time to grieve at a time of unimaginable tragedy. A lot will not know that they are entitled to this provision should the worst happen. We welcome the Government’s move to introduce a statutory requirement for people in the event of the death of a child, and we welcome the provisions more generally. Our aim is to increase the uptake of the payment and public knowledge of it.

In Scotland, we are certainly doing everything we can, within the constitutional and financial constraints placed on us, to support parents. We are increasing funeral support payments to reflect the cost of living. The 2020-21 Budget includes £1.3 million for funeral support payments in Scotland, increasing the standard rate from £700 to £1,000. The UK Government have not built the cost of inflation into their awards, but we will certainly be doing that for ours. It is important to take that cost into account when considering the whole package of support that can be delivered for bereaved parents.

Finally, my hon. Friend the Member for North Ayrshire and Arran (Patricia Gibson) has been pushing for an increase in bereavement leave for everybody in all circumstances, particularly given this last year, during which things have been so difficult for so many people across the country. Many employers still do not give the bereavement leave that they should when people are in such circumstances. I urge the Government to consider expanding bereavement leave to everybody in all circumstances. While it is incredibly important for parents, it is important that everybody has the time, space and financial backing to grieve. Sadly, many people do not have that vital support.

[James Murray]

As we have heard, statutory parental bereavement pay was introduced in April 2020. The measure in clause 27 has been proposed to ensure that a payment will not be treated as a variation in contract for certain long-term salary sacrifice arrangements, so that recipients of such payments are not disadvantaged. The clause will bring statutory parental bereavement pay into line with other benefits.

Without the change, if a parent takes such leave, the time they have taken off will factor into the calculation of a salary sacrifice arrangement. In effect, taking statutory parental bereavement pay would lessen their entitlement to salary sacrifice arrangements.

Exemptions for other benefits exist, but they were made before the introduction of statutory parental bereavement pay, so the latter is not included. Clause 27 will include it, bringing it into line with other benefits. That is sensible, and Labour supports the clause.

[Jesse Norman]

I am not sure there is a need to respond. I thank the hon. Member for Glasgow Central for her comments and the shadow Minister for the Opposition’s support.

Question put and agreed to.

Clause 27 accordingly ordered to stand part of the Bill.

Clause 29

Collective money purchase benefits

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

--- Later in debate ---

[James Murray]

Clause 29 relates to the tax treatment of collective defined contribution schemes as introduced by the Pension Schemes Act 2021. We support the introduction of CDC schemes, and schedule 5 sets out in detail how they will be treated for tax purposes.

As the House of Commons Library explains, in CDC schemes both the employer and the employee contribute to a collective fund from which retirement incomes are drawn. The funding risk is borne collectively by the individuals whose investments make up the fund. In a similar way to a defined contribution scheme, the employer carries no ongoing risk.

The Opposition played a crucial role alongside trade unions to allow the Royal Mail to set up a CDC pension agreement with the Communication Workers Union in November 2018. We also warned, during the passage of the Pension Schemes Act, that we need CDC schemes to avoid the same pitfalls as defined benefit schemes as they relate to intergenerational fairness. CDC was first identified as a possible solution for Royal Mail workers being transferred to a less generous defined contribution scheme in 2017, which might not have provided sufficient income in retirement. The principle of a CDC scheme was agreed, and a specific Royal Mail CDC scheme was designed and modelled.

Work by Willis Towers Watson actuaries suggests that the CDC scheme will on average produce 70% more for an individual than a defined contribution scheme, and 40% more, currently, than a defined benefit scheme, according to the CWU. The scheme would replicate the old defined benefit scheme in design, producing a wage for retirement generated by a CDC and a guaranteed lump sum.

Although the CDC in different forms is used in other countries, such as Canada, Denmark and the Netherlands, no scheme of its type has previously existed in the UK. Legislation was therefore required. The first CDC scheme, in Royal Mail, is expected to be launched later this year, now that the Pension Schemes Act has been passed. Employers in the UK will now have an option to offer three, rather than two, types of scheme: defined contribution, defined benefit and collective defined contribution.

Given that the design of the CDC scheme is entirely new, we recognise that the clause will ensure that they may function in the same way as other schemes in relation to existing pensions tax treatment such as the annual allowance. Our new clause 9 simply asks that the Treasury lays before the House within 24 months of the commencement of the first collective money purchase pension scheme a review of the impact of clause 29 and schedule of 5, including on the distribution of benefits within collective money purchase schemes according to the age of members of the scheme.

CDC schemes are new. As the Minister has agreed, it is important that we ensure intergenerational fairness. I would therefore welcome his ongoing consideration as regards carrying out such a review.

[Jesse Norman]

I thank the hon. Gentleman for his comments. I anticipated them in my remarks. I would say that, as he has indicated, the issue was carefully discussed and reviewed—rightly so—in the passage of the Pension Schemes Act 2021. The importance of there being no difference in treatment between different cohorts and age groups of scheme lenders was made clear, and it was made clear that the regulations would cover that. That will be required by law, and it will fall not to HMRC or the Government, but to the independent Pensions Regulator to adjudicate on the effectiveness of the scheme.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Schedule 5

Pension schemes: collective money purchase benefits

Amendments made: 17, to schedule 5, page 116, line 25, after “36(7)(b)” insert “or 87(7)(b)”.

This amendment ensures that the new paragraph 2(9) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.

Amendment 18, to schedule 5, page 116, line 32, after “36(7)(b)” insert “or 87(7)(b)”.—(Jesse Norman.)

This amendment ensures that the new paragraph 2(10) of Schedule 28 to the Finance Act 2004 (inserted by paragraph 20 of Schedule 5 to the Bill), which deals with benefits payable by a collective money purchase scheme in the event of its being wound up, operates correctly in relation to a scheme governed by the law of Northern Ireland.

Schedule 5, as amended, agreed to.

Clause 34

Repeal of provisions relating to the Interest and Royalties Directive

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

[Jesse Norman]

This is a small technical clause and I will not spend long on it. The clause repeals legislation that gave effect to the EU interest and royalties directive in UK law. The change will mean that the taxation of EU companies will be aligned with the way in which the UK taxes companies in the rest of the world, meaning that the taxation of intra-group payments of interest and royalties will be governed solely by the reciprocal obligations in our double taxation agreements. The clause removes from our law an obligation that we are no longer bound to apply and ensures that all foreign companies are subject to the same rules regardless of where they are resident.

[James Murray]

We do not oppose the clause, which repeals legislation that gave effect to the EU interest and royalties directive in UK law, and which will ensure that companies resident in EU member states will cease to benefit from UK withholding tax exemption now that the UK no longer has an obligation to provide relief. As a result, EU companies will no longer receive more favourable treatment than companies based elsewhere in the world and the UK’s ability to withhold tax and cross-border payments of annual interest and royalties will be governed solely by the reciprocal obligations in double taxation arrangements. We understand what the clause sets out to do and do not oppose its standing part of the Bill.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Clause 35

Payments made to victims of modern slavery etc

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

[Jesse Norman]

This is an important clause. It exempts financial support payments made to potential victims of modern slavery and human trafficking from income tax. The UK has a legal obligation, under the Council of Europe convention on action against trafficking in human beings, to assist victims of modern slavery and human trafficking. Financial support payments have been made to victims of modern slavery and human trafficking since 1 April 2009, when the trafficking convention came into force in the UK.

When a potential victim of modern slavery and human trafficking is identified, they are considered under the national referral mechanism. This is a framework for identifying victims of modern slavery and human trafficking and it ensures that they receive appropriate financial support. In the absence of a specific exemption, the payments made by the UK Government and the devolved Administrations to potential victims while they are assessed under the national referral mechanism are charge- able to income tax. The changes made by clause 35 mean that payments made from 1 April 2009 to potential victims of modern slavery and human trafficking are exempt from income tax. It is important to note that HMRC has not made any income tax deductions from payments already made to potential victims.

These changes confirm the Government’s commitment to assist potential victims of modern slavery and human trafficking under the trafficking convention. The clause provides clarity that financial support payments made to potential victims are exempt from income tax. I commend the clause to the Committee.

[James Murray]

We are pleased to support this important clause, which, as we have heard, introduces an income tax exemption for payments made to victims of modern slavery and human trafficking. As we also heard, the UK has an obligation under the Council of Europe convention on action against trafficking in human beings to assist victims of modern slavery and human trafficking in their physical, psychological and social recovery, including material assistance. The exemption from income tax will have effect from 1 April 2009, when financial support payments started. We welcome this measure, being wholly relieving and with retrospective effect, and are pleased to support its standing part of the Bill.

[Alison Thewliss]

I rise to support the clause; I think it is absolutely the right thing to do. May we have more information on how many people have received such payments since 2009? It would be useful to have a picture of how many people have benefited from this.

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[Jesse Norman]

Clause 37 makes technical amendments to the corporate loss relief rules introduced in 2017. These ensure that the rules function as originally intended. They protect revenue by preventing companies from claiming excessive loss relief.

When a company makes a loss, it can carry forward that loss and use it to offset its taxable profits in future years. The Finance (No. 2) Act 2017 reformed the UK’s loss relief regime. There were two main effects of that reform. First, the amount of profit that can be relieved by carried-forward losses is restricted to 50%, subject to a £5 million deductions allowance. Secondly, losses arising after 1 April 2017 can be carried forward and relieved more flexibly as they can be set against different types of income and against profits of other members of the same group. The loss restriction ensures that companies cannot use carried-forward losses to reduce their tax bill to nothing when they are making substantial profits.

Legislation for the new loss relief rules needed to be sufficiently detailed to ensure that they were robust in relation to the complex arrangements of large companies operating across a diverse set of activities. The Government have since identified limited circumstances where the rules are not functioning as intended.

The clause ensures that groups can still have access to the £5 million allowance following a corporate acquisition or demerger. This will allow those groups access to the correct amount of loss relief to which they are entitled and as was originally intended. The clause also makes several minor technical amendments to the loss reform rules. It ensures: first, that anti-avoidance rules that apply following a “change of ownership” operate correctly; secondly, that the technical calculations that determine the amount of losses that can be set against profits apply as intended; and thirdly, that the rules governing how the £5 million allowance is allocated across corporate groups applies as originally intended and in a way that will reduce the administrative burdens on groups.

Due to the £5 million allowance, some 99% of companies are not financially affected by the carried-forward loss restriction. That will not change as a result of these amendments. Some companies will also benefit from the simpler rules for calculating their loss relief restriction and, in some cases, companies will benefit from a reduced administrative burden.

[James Murray]

We do not oppose clause 37, which amends the loss relief legislation and ensures that the relevant part of the Corporation Tax Act 2010 meets the policy objective of restricting relief for certain carried-forward losses. Schedule 8 allows certain groups to access an allowance to which they are entitled following acquisition or demerger. The schedule also makes further amendments to the transfer of trade provisions where there has been a change of ownership, group relief for calculation of loss restriction and allocation of the deductions allowance and group allocation statement submission requirements. As these amendments have been made to ensure that the legislation works as intended and to reduce administrative burdens, we do not oppose them.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Schedule 8 agreed to.

Clause 38

Corporate interest restriction: minor amendments

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

[Jesse Norman]

Clause 38 makes two changes to ensure that the corporate interest restriction rules work as intended. The Government introduced these rules in 2017 to counter base erosion and profit shifting by multinational groups. The rules restrict the ability of large businesses to reduce their UK taxable profits through excessive interest and other financing costs.

The first change applies from 1 July 2020 and clarifies the interaction between the rules governing the interest restriction, real estate investment trusts and the territorial scope of corporation tax. From 6 April 2020, the UK property rental business of non-resident companies within a UK real estate investment trust group comes within the charge to corporation tax rather than income tax. The proposed change ensures that such a non-resident company will still face the consequences of any interest disallowance, even if it decides to allocate its interest disallowance to a residual business rather than to its UK property rental business.

The second change applies from 1 April 2017 and deals with an administrative matter. As part of the application of the interest restriction rules, a group reporting company is required to file an interest restriction return. The proposed change ensures that no penalties will arise for the late filing of a return where there is a “reasonable excuse” for the failure. This exclusion is included within the corporation tax self-assessment regime and should apply in the same way to the interest restriction regime.

[James Murray]

We do not oppose clause 38, which makes technical amendments to the corporate interest restriction rules in part 10 of schedule 7A to the Taxation (International and Other Provisions) Act 2010 to ensure that the regime works as intended. We recognise that the amendments are minor, have come about as a result of engagement with the affected businesses and are necessary for the regime to work as intended.

Question put and agreed to.

Clause 38 accordingly ordered to stand part of the Bill.

Clause 39

Northern Ireland Housing Executive

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

[Jesse Norman]

This is a small but important measure. Clause 39 exempts the Northern Ireland Housing Executive from corporation tax, bringing it into line with state-funded housing providers and local authorities elsewhere in the UK. It will save the Northern Ireland Housing Executive millions of pounds in corporation tax payments. It is necessary to ensure that it is subject to the same tax treatment as other housing authorities elsewhere in the UK.

[James Murray]

The Whips will be relieved to hear that I have a very short contribution to make on this clause. The providers of state-funded housing in England, Wales and Scotland are exempt from corporation tax as they are considered to be local authorities for corporation tax purposes. However, the Northern Ireland Housing Executive was established in such a way that it did not meet the definition of local authority for corporation tax purposes. The clause introduces a new corporation tax exemption for the Executive and it brings the situation in Northern Ireland into line with the other nations of the UK. We support the clause standing part of the Bill.

Question put and agreed to.

Clause 39 accordingly ordered to stand part of the Bill.

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

Finance (No.2) Bill (First sitting)

Debate between Jesse Norman and James Murray

Thursday 22nd April 2021 Public Bill Committees

[Jesse Norman]

[James Murray]

--- Later in debate ---

[Alison Thewliss]

[James Murray]

[Jesse Norman]

[Jesse Norman]

[James Murray]

[Jesse Norman]

[James Murray]

[James Murray]

[Jesse Norman]

--- Later in debate ---

[James Murray]

[Jesse Norman]

[James Murray]

[Jesse Norman]

--- Later in debate ---

[James Murray]

[Jesse Norman]

--- Later in debate ---

[Alison Thewliss]

[James Murray]

[Jesse Norman]

[Jesse Norman]

[James Murray]

[Jesse Norman]

[Jesse Norman]

[James Murray]

[Jesse Norman]

[James Murray]

[Alison Thewliss]

--- Later in debate ---

[Jesse Norman]

[James Murray]

[Jesse Norman]

[James Murray]

[Jesse Norman]

[James Murray]

Finance (No. 2) Bill

Debate between Jesse Norman and James Murray

Committee stage & Committee of the Whole House (Day 1)
Monday 19th April 2021 Commons Chamber

[Jesse Norman]

The hon. Gentleman will be pleased to know that I maintain a strong dialogue, through officials, and from time to time in person, with the LITRG and I have no doubt that the input it has given has been carefully considered in this regard. If he would care to write to me with his specific concern, I would be happy to pick that up as well.

It is right that HMRC has powers to tackle fraud and abuse of the self-employment income support scheme and that the Government provide legal clarity that SEISS grants are liable for income tax in the year of receipt. Clauses 31 and 32 will allow payments made in support of individuals and businesses by the Government to meet their objectives as far as is possible. Opposition amendments 15 and 92 are already comprehensively addressed by existing policy, and I ask that Members do not press them to a vote. Clause 33 makes changes to ensure that the repayments of business rates relief are deductible for corporation tax and income tax purposes. This ensures that any repayments of support are dealt with appropriately.

Taken together, these measures will help the Government to continue to support individuals and businesses through the coronavirus pandemic, and they will also begin to put the public finances on a sustainable footing as we continue to move out of the pandemic. I therefore ask that clauses 1 to 5, 24 to 26, 28, 31 to 33, 40 and 86 stand part of the Bill.

[James Murray (Ealing North) (Lab/Co-op)]

I rise to speak to the provisions standing in my name and those of the Leader of the Opposition and my right hon. and hon. Friends. On behalf of the Opposition, I will begin our detailed scrutiny of this Bill today by considering the impact it will have most immediately and most widely on people across the UK through its cuts to the money that families, in all their many forms, have in their pockets.

The opening clauses, 1 to 5, focus on income tax, with clause 5 freezing the personal allowance from 2022-23 through to 2025-26. That is no small change; the effect of the clause will be to make half of all people in the UK pay more tax from next year, and that is not the only measure the Government are taking that raids their pockets. We know that this Bill will make families pay more through the income tax changes next year, but it also does nothing to stop the sharp council tax rise that the Government are forcing councils to implement right now, it supports the Chancellor’s plan to cut £20 a week from social security this autumn for some of those who need help most, and of course it comes as the Government are choosing, in this year of all years, to take money from the pockets of NHS workers.

Contingencies Fund (No. 2) Bill

Debate between Jesse Norman and James Murray

Committee of the whole House & Committee stage
Thursday 11th March 2021 Commons Chamber

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

As you will be aware, Mr Evans, clause 1 provides for an increase in capital for the Contingencies Fund. It raises the limit from the standard 2% to 12%, providing a sum of approximately £105 billion for the financial year 2021-22 only.

We are all agreed across the House on the central importance of accountability to Parliament, but it is the Government’s very firm view that new clause 1 is not needed in order to achieve accountability. It is important to say again that supply processes continue to be used in the usual way with expenditure still subject to parliamentary scrutiny and a vote. This Bill simply permits an advance on expenditure that will be included in the main or supply estimates.

Let me set out four points that make this quite clear. First, the Contingencies Fund is about ensuring cash flow, restricting it to urgent services in anticipation of parliamentary provision becoming available and temporary funds required for necessary working balances. It is not additional spending; it is simply a cash advance to be repaid. It does not in any way preclude the scrutiny by Parliament of additional provision sought by a Department through the supply estimates, nor does it preclude the Comptroller and Auditor General from expressing his view on the regularity of departmental expenditure.

Secondly, each and every departmental accounting officer remains fully accountable for expenditure; and, of course, that expenditure will be audited by the NAO in the usual way as part of the annual reports and accounts of each Department. Transparency arrangements for ministerial directions—where they are sought under the requirements of the doctrine of “Managing Public Money”—will also continue in the usual way. Accounting officers are already required to publish any direction that they receive as soon as possible, unless there is a broader public interest in keeping it confidential.

Thirdly, the House has seen throughout 2021 that Departments must notify Parliament by way of a ministerial statement agreed with the Treasury where a commitment will be or has been entered into in advance of supply. I would like to make it clear that the mandatory WMS wording agreed with Parliament and the NAO already distinguishes whether this advance is a new service, new expenditure or simply a cash requirement ahead of a supply estimate.

I remind hon. Members that the Contingencies Fund is not a tool—some hon. Members have made this point—that Ministers can choose to use; it is not discretionary. It is managed entirely by the Treasury, and the accounting officer must ensure that advances are given in line with strict rules agreed between Parliament, the NAO and the Treasury. These rules are set out clearly in the published estimates manual. Every Department makes an application outlining the urgency of their case and how they plan to meet the listed requirement. It is worth mentioning that the NAO also audits the Contingencies Fund accounts, and that includes a full list of advances.

Let me turn to a couple of the points raised by Members in the debate. I did ask for questions on the Bill, but the hon. Member for Luton North (Sarah Owen) somehow found that difficult. She raised another irrelevant issue about public spending. She asked me about my own link. I assure her that I had nothing to do with the awarding of any contracts. As my hon. Friend the Member for South Cambridgeshire (Anthony Browne) pointed out, this is true for Ministers across the Government, according to the NAO.

The hon. Member for Hackney South and Shoreditch (Meg Hillier), who chairs the Public Accounts Committee, made a speech, wonderfully—and I thank her for it—on the Bill. I am very grateful. She asked whether the Bill is rushed through. The answer to that question is no, it is not. It is important to do it, we think, before the beginning of the new financial year. The same Bill was put through in March last year, and so it is here. She asked about Treasury controls. We fully, strongly believe in them. She recommends Ghanaian principles of public finance, but I am not sure I can follow her in that direction.

[James Murray [V]]

With the leave of the Committee, I will respond briefly to the debate and pick up on some contributions that hon. Members have made. My hon. Friend the Member for Luton North (Sarah Owen) made powerful remarks and drew our attention to how hollow the phrase of the former Prime Minister—that “sunlight is the best disinfectant”—now rings, given how the current Government have behaved. My hon. Friend the Member for Hackney South and Shoreditch (Meg Hillier) spoke from great experience about the weakness of Parliament in scrutinising Government spending. She set out how the claims of bureaucracy from Government Members are misplaced and that, in fact, new clause 1 is about transparency and accountability. My hon. Friend the Member for Warrington North (Charlotte Nichols) set out clearly the consequences of vast sums being given to companies with no track record of delivery, underscoring why this really matters to people’s lives.

My hon. Friend the Member for Newport West (Ruth Jones) made it clear that the Government should listen and learn from the events of the past year and regain the trust of the public, while my hon. Friend the Member for Bradford West (Naz Shah) highlighted the Government’s shameful record on transparency, value for money and, crucially, the outcome of what is actually delivered. Finally, my hon. Friend the Member for Luton South (Rachel Hopkins) made some critical points on scrutiny leading to better government. She spoke from great experience of why it is so vital that the reporting of written ministerial directions is taken into account so that they can take responsibility for their decisions.

I thank the Minister for his comments, but I was disappointed that he did not use the opportunity to refute or respond to any of the comments about the Public Accounts Committee’s report on Test and Trace. I noted that despite some Government Members having spoken for a second time today, they still did not find time to justify and explain how the spending on Test and Trace has been value for money. The Minister fundamentally failed to address the inadequacy of current scrutiny arrangements, given what has happened over the past year.

As I made clear in my opening remarks, our new clause aims to introduce a new standard of transparency. We believe that it is urgently needed after the Government’s approach over the last year. I am not convinced by the Minister’s argument. I welcome the SNP group’s support for new clause 1 and we will seek a Division on it.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2 ordered to stand part of the Bill.

Question put, That new clause 1 be read a Second time.

Oral Answers to Questions

Debate between Jesse Norman and James Murray

Tuesday 26th January 2021 Commons Chamber

[Jesse Norman]

The truth is that this pandemic has had a desperately difficult effect for the whole of the UK economy, and for families and people across our country and regions. It is appropriate to recognise the totality of the difficulty we find ourselves in. It is true that many women have found themselves in the position of either caring for home schooling or vulnerable individuals. They are supported and protected through the schemes we have put in place. Of course, over and above those schemes, we have also put in place significant amounts of support for remote education, laptops and councils to help vulnerable individuals.

[James Murray (Ealing North) (Lab/Co-op) [V]]

Earlier this month, the shadow Chancellor successfully called on the Chancellor to make it clear that working parents and others can be furloughed owing to childcare responsibilities. Most employers will want to do the right thing, but where an employer is refusing to follow the guidance and offer a parent furlough for childcare reasons, can the Minister tell me who the parent should report that to and what action will be taken?

[Jesse Norman]

As the hon. Member will know, furlough is an arrangement reached between companies and their employees. Her Majesty’s Revenue and Customs and the Government do not have direct involvement in that. What they say is that where an agreement can be reached between the two sides we will support them, as laid out in one of the most generous schemes available in any country around the world. As I said, that is just one part of a much wider panoply of support for people at risk through the pandemic.

Oral Answers to Questions

Debate between Jesse Norman and James Murray

Tuesday 1st December 2020 Commons Chamber

[Jesse Norman]

As my hon. Friend will be aware, a long and detailed review process has been conducted by Sir Amyas Morse. It is, of course, the individual’s responsibility to ensure the accuracy of their tax returns and to understand the consequences of their decisions, although of course the Government very much sympathise with people who have been caught in that position. My hon. Friend may have noticed that we have been taking very vigorous action against promoters of tax avoidance schemes—most recently, in an announcement we made last week, HMRC and the Advertising Standards Authority are getting together to crack down on misleading promoting of tax avoidance schemes.

[James Murray (Ealing North) (Lab/Co-op) [V]]

Following the loan charge review, the Government promised in March that this year would bring both legislation and the announcement of additional policy measures against those who promote tax avoidance schemes. As neither has happened, will the Minister confirm when the promised changes will become law?

[Jesse Norman]

We will make an announcement about the response to the Amyas Morse review shortly.