Finance Bill

Kelvin Hopkins Excerpts

Committee: 1st sitting: House of Commons
Wednesday 11th October 2017 Commons Chamber

[Peter Dowd]

I agree with that particular point.

We know the Government’s overall stated aim is to crack down on what they say is significant avoidance related to non-contractual payments in lieu of notice. To do this, there is a complex set of formulas to mandate what will be considered as notice pay, even when that is not actually given in lieu of notice. Amendment 1 addresses our concern that the Government are giving themselves the power to change the meaning of basic pay for the purpose of calculating notice pay. That could significantly change the basis of the calculations, so the Minister should set out more clearly the intention of this measure.

[Kelvin Hopkins (Luton North) (Lab)]

I agree with everything my hon. Friend says, of course. Does he agree that a lump sum on termination of employment could be considered as potential income over a period of years, and should not be considered just as a lump sum to be taxed within one year?

[Peter Dowd]

Again, that goes to the heart of the issue. The Government are trying to focus on a particular moment in time, rather than taking into account the fact that a person might be out of employment for a long time.

We see a running theme of this Government in this Bill and so many of their other actions: they are removing powers from Parliament and giving them to Ministers. But other elements have been tacked on to the clause that are seemingly unconnected to the stated aims about payments in lieu of notice. It is clear that the Government are laying the ground so that workers who have already lost their jobs should pay tax on more of their termination payments. Is that the message that the Government are now sending to the likes of the BAE workers? Is it the message they want to send to the victims of redundancy? There can be no other explanation for this clause. It gives the Treasury powers through delegated legislation to raise or lower the tax-free threshold.

Changes to the tax-free allowance for termination payments were first mooted by the Office of Tax Simplification in 2013 when it cited such payments as an employee benefit that would merit further study. I find it rather peculiar that a payment to an employee who has just lost their job is considered as an employee benefit—how bizarre. It is as though a termination payment were some sort of added extra and a huge inconvenience for employers, when in fact that worker has just lost their job and this may well be the last payslip they receive for a long time. The Government have promised not to reduce the threshold, so it comes as a bitter pill that the Bill will allow them to do just that.

If there is no intention to reduce the threshold, Conservative Members should have no hesitation in voting for amendment 2, which would allow the threshold only to be increased through delegated legislation, removing the power to decrease the amount. I wait with bated breath for the Minister to keep the Government’s word and accept our amendment.

In the previous debate, the Minister went to great lengths to claim that the Government’s plans to give themselves the power to water down the tax-free threshold on termination payments, and to exclude injury to feelings from tax-free compensation payments, had nothing to do with attacks on those who have just lost their jobs. No, instead that is apparently part of some ambitious strategy that the Government have to tackle tax avoidance.

The Minister is so concerned about tax avoidance that he has claimed that

“when the Government find tax avoidance, we will clamp down on it.”—[Official Report, 6 September 2017; Vol. 628, c. 253.]

Such a bold assertion makes me wonder if the Minister has even read his own Finance Bill. Has he read clause 15, which we will debate later, through which his Government are loosening the rules to allow more non-doms to receive tax breaks if they use money from offshore tax havens to invest in the UK?

[Peter Dowd]

We will deal with that a little later. The hon. Gentleman may want to pay attention to my hon. Friend the Member for Oxford East (Anneliese Dodds), who will expose that fallacy.

[Kelvin Hopkins]

Is it not the case that the Government are squeezing money out of people who cannot escape from taxation—namely, less well-off people who lose their jobs—rather than chasing the big money people who evade and avoid taxes?

[Peter Dowd]

My hon. Friend, as ever, puts it in a nutshell. That is the case.

Has the Minister read clauses 29 to 32 and schedules 8 and 9? With those measures, the Government are deliberately signposting a loophole to ensure that non-doms can set up offshore trusts that are exempt from planned changes to non-domiciled status. That exemption completely undermines the Government’s planned changes. The fact is that this Government are not interested in tackling the scourge of tax avoidance and evasion, which costs the UK economy billions every year. They have no interest in ensuring that those who invest foreign money in the UK do so in a transparent and open manner.

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[Mr Harper]

I will deal with the amendments and some of the issues introduced by the hon. Member for Bootle (Peter Dowd).

Let me cover first the jobs position. The only criticism I have of my hon. and learned Friend the Member for South East Cambridgeshire (Lucy Frazer), who raised this matter, is that, of course, jobs are created not by the Government but by businesses operating under the conditions that are created by the Government. It is important we remember that, because we should not take it for granted. The jobs performance of many countries in the European Union has been pitiful by comparison. Not that long ago, this country created more jobs than the rest of the European Union put together. That is not a trivial point; it makes a difference to millions of people across the country.

The hon. Member for Bootle ought not to sneer at the number of jobs. He is also wrong about the quality of those jobs. Figures from the Office for National Statistics clearly show that most of the jobs that have been created are permanent, full-time and skilled managerial or professional jobs. They are not rubbish jobs, as he calls them in that slightly sneering way. They are good-quality jobs and are providing good livelihoods for people across our country.

[Kelvin Hopkins]

The right hon. Gentleman suggests that Governments effectively have no role in creating jobs. The reality is that macroeconomic policies have an enormous effect on the creation of jobs. Those countries that have chosen foolishly to join the euro and now have a massively overvalued currency, in effect, have lost millions of jobs in some cases. We have fortunately not been part of the euro, and currency flexibility is a crucial part of that; that is Government policy.

[Mr Harper]

I completely agree, but the hon. Gentleman misquotes me. I did not say that Government have no role. I said that Government do not create the jobs, but I explicitly said that Government create the conditions within which businesses operate and can create jobs. He is absolutely right about that, and I do not necessarily demur from what he said. The euro and the straitjacket of monetary policy across Europe has led to appalling situations in some countries where unemployment rates are very high, which I do not think is sustainable. That is why our economic performance is incredibly strong. We should not throw that away.

--- Later in debate ---

The right hon. Member for Forest of Dean (Mr Harper) used the phrase “we have closed the gap”. I am not sure that it is quite closed yet. There is still a gap as regards non-payment of tax. Fair enough, measures have been taken to move towards ensuring that tax is paid by the rich in the way it should be, but the gap has not yet closed.

[Kelvin Hopkins]

The hon. Lady may remember that the tax expert Richard Murphy calculated at one point that the genuine tax gap—not the one that the Government give us—was £119 billion a year. That has no doubt come down slightly, but there is a long way to go before we collect that tax. That figure overwhelms the amount of money that the Government will squeeze out of workers who are losing their jobs.

[Kirsty Blackman]

I absolutely agree and I think that the tax gap is probably significantly larger than the Government are suggesting. On that note, small countries are very good at having a very small tax gap—a wee plug for Scottish independence there.

We have a couple of other specific concerns about termination payments. We are still not clear about people who have faced termination as a result of injury, injury to feelings or psychiatric injury. We do not want them to receive less as a result of this change. I heard what the Minister said about those people who have been involved in discrimination cases when the decision has been in their favour, but we want to ensure that people who are trying to move on from a situation after termination but who have been injured or have suffered an injury to feelings or a psychiatric injury are not disadvantaged by this change in the rules.

I will not speak for much longer, but let me say one more thing. The Government’s explanatory notes say that the Government are looking to ensure that all payments in lieu of notice, not just contractual payments in lieu of notice, are taxable earnings. That way of putting it is what most concerns me, because it is clear that workers will be impacted by this change when it comes in. I expect that this change will be proposed by the Government and accepted, so I would very much like a commitment from the Minister that, if it comes in in the next tax year, the Treasury will do an impact assessment one or two years in to see the specific impact on that group of low-income workers who the Government suggest are in the minority. I would like to see its impact, and if it proves to be particularly negative, I want the Treasury to take mitigating steps to change it.

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[Neil O'Brien]

I am just about to conclude.

The measures in clause 5 are good, and they are part of a wider pattern of behaviour: a war on tax avoidance that we have waged in order to get more money for schools, hospitals and police in my constituency and others. They are part of a wider economic policy that has delivered not just record employment—the highest since 1975—and record tax cuts for those at the bottom end, but a record increase in the national living wage that will give us one of the highest living wages in the entire developed world. It is a pattern of behaviour that sees us making those who need to pay their tax pay it, so that we can have an economy that works for everybody.

[Kelvin Hopkins]

I will speak only very briefly in support of the Labour amendments as most of what I would say has been said by my hon. Friends. The reality is that, in this country, we have a revenue problem, not an expenditure problem. The Government are constantly imposing austerity measures on ordinary people and on public services, and we see the result of that in the health service, local government and education. We need to get more money into the Treasury, which means dealing with tax avoidance and tax evasion among the corporates—the big money people—not squeezing the relatively small amounts of income given to people who lose their jobs.

[Catherine West]

Does my hon. Friend agree that it is a pity that, since the start of the new Government, Mr Pickles, who was formerly a Member in this House and is now in the other place—[Interruption.] To the best of my knowledge, he has not been replaced as the anti-corruption tsar. Indeed, unless the House has been informed otherwise, that particular thread of Government policy seems to be lost.

[Kelvin Hopkins]

My hon. Friend makes an interesting point.

The reality is that many Government Members have close associations with the City and with big money. I do not want to accuse anyone individually, but that is the reality. Many have been in hedge funds and wherever. The biggest scandal of all took place within Her Majesty’s Revenue and Customs. A few years ago, Dave Hartnett, who was the boss of HMRC, was involved in sweetheart deals with the corporates, losing countless billions for the Treasury. He was not doing anything illegal, but cosy deals with corporates is not exactly public service. When he finally left HMRC, he set himself up as a consultant, advising the same corporates on how to avoid taxes. That is an absolute scandal. We should be stopping such practices.

Tax officers should be public servants who are driven by the public service ethos. At the grassroots level, the ordinary members of staff are driven in that way. Many of them are members of the Public and Commercial Services Union, with which I am associated. The PCS has argued for many years that we should have more tax officers, and that they should be better paid and better appreciated for the work that they do. I would like to think that, instead of closing tax offices and squeezing the number of tax officials, this Government would increase their number. PCS has told me on many occasions that every tax officer collects many times their own salary, so every time we appoint another tax officer, we get more than their salary coming back. That is what we should be doing. It has been a scandal for many years. Even before this dreadful Conservative Government, we were not collecting sufficient tax. We were allowing tax evasion and tax avoidance to go unchallenged. I want to see a world in which people, particularly those with plenty of money, pay their taxes at the highest level. I am not talking about ordinary working people.

Finally, it was recently suggested that quantitative easing, which is not strictly relevant to this amendment, is benefiting the better-off and not the ordinary people. It would be good if some of that QE could find its way into the Treasury coffers and help the spend on public services. That would be a better way of generating more jobs, more demand and better services in our economy.

[Rachel Maclean]

This is indeed an important Bill. I look forward to serving on the Public Bill Committee and to helping it to become law.

We have heard a number of things about narrative and the tone from the Opposition. I say to the hon. Member for Luton North (Kelvin Hopkins) that I have nothing to do with hedge funds or with rich people in the City—unless we are talking about the city of Birmingham and about my friends who are rich in happiness and goodwill, if not money.

There is always a fine balance to strike when seeking to legislate on these matters. Generally speaking, we have a good regime of employment law in this country, notwithstanding some of the questions about the gig economy, which we are currently examining in the Business, Energy and Industrial Strategy Committee. Although the gig economy is outside the scope of this debate, it does need further scrutiny.

I am worried about Labour’s amendments. This Bill provides protections. It protects the public purse against those who seek to avoid and evade tax. The Opposition have raised some examples, and they were right to do so. This Bill does not condone those people or support their actions at all.

We know that, in most cases, the British taxpayer agrees with the system of taxation, but when that system is seen as unfair, it does lose the consent of ordinary workers. It is usually people with deep pockets and the resources to take advantage of the loopholes who cause deep anxiety among the British public. Therefore, I welcome the measures that we have set out in the Bill as they will end such practice.

The Opposition’s answer to the issue of taxation and revenue is to raise taxes on everyone. That is not the Conservative view. We prefer to keep taxes on the low paid and on small businesses low—that is what we have done already—and, at the same time, to crack down on the tax avoiders. Ultimately, that brings in more tax, and underpins a thriving economy.

There are measures in this Bill that will end some exploitative practices of big businesses and of a minority of individuals in this country. That will help the Government to collect the tax that is due to them from big businesses as well as from overseas investors and rich non-doms. We cannot allow a minority of businesses to tarnish the reputation of UK plc and our small and medium-sized businesses. However, we must remember that 99% of businesses in this country are SMEs. They are not this caricature of rich, greedy hedge fund people which, frankly, I do not recognise, but we hear about from the Opposition. They are ordinary men and women up and down this country, advancing their dream of a better life by setting up a small business. In so doing, they are creating jobs for other people. I worry about the tone of this debate as it sends out a message from this Chamber. We need to send out a message that encourages people to take that risk and start businesses. That is why we need to strike the right balance.

I speak from experience. Before I entered this House, I spent 25 years working in small businesses. I ran my own business and I was a human resources director in other businesses. I have worked for some small midlands manufacturing companies, advising them on employment issues. I have seen the stress and worry that employers go through when they are dealing with a termination. Of course, termination has an impact on the employee, but let us not forget that these employers are trying to do their best under difficult circumstances. Without doubt, there are some unscrupulous employers, but I have seen small business owners lose sleep and suffer from stress and anxiety. Sometimes, despite the best efforts of management, a job does not work out. We are dealing with a trust relationship after all. We are talking about the vagaries of human nature, and, as my hon. Friend the Member for Braintree (James Cleverly) observed, small businesses often do not have access to qualified HR advice and employment lawyers as they are too expensive and beyond their budget.

Some of Labour’s amendments, particularly those on the injury-to-feelings issue, cloud the whole legislative landscape for small business owners, making it extremely difficult for them to know what to do in a stressful situation. That is why I do not support these amendments. The provisions are purely about preventing the manipulation of the rules.

[Kelvin Hopkins]

Just on that point about small businesses, I agree with the hon. Lady that they are immensely valuable to the economy and we must support them. However, would the Government not do better to stop banks such as RBS squeezing the life out of small businesses by very, very unfair financial practices, which has certainly happened to businesses in my constituency?

[Rachel Maclean]

I thank the hon. Gentleman for his intervention. I am sure that members of the Treasury team are doing everything they can on those points, and I welcome the work that they are doing in that regard. I have also seen small businesses in my constituency being affected by such practices. I do not condone them at all. We all want a country where good work is rewarded, and where employers and employees can work together. No system of legislation is perfect, but this Bill does strike the right balance. It is sensible and well thought out and we will continue to scrutinise it in Committee. Therefore, I will not vote for Labour’s amendments.

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[Mel Stride]

What a pleasure it is to serve under your chairmanship, Dame Rosie, and to respond to the first of what I am sure will be a series of lively and exciting debates on the Finance Bill. Before I respond to some of the more detailed points raised, as well as the amendments, let me remind the Committee of the overall purpose of clause 5.

The clause is designed to tighten and clarify the tax treatment of termination payments to make the rules fairer and to prevent manipulation. Our tax treatment of termination payments is one of the most generous in the world. That is something of which we can be proud and something that this clause does not change, but the current rules can also be unclear and complicated, as many hon. Members have suggested. Some payments are taxed as earnings, others are taxed only above £30,000 and others are completely exempt from income tax and national insurance contributions. Most employers use the rules as intended, but the complexity in the system leaves it open to manipulation. Indeed, a small minority of individuals and employers, particularly those with the most generous pay-offs—this is an important point—have thought to manipulate the rules by categorising large pay-offs as termination payments, rather than earnings.

[Kelvin Hopkins]

My hon. Friend the Member for Lewisham West and Penge (Ellie Reeves) made the point that the tax-free amount has not been indexed for many years. Had it been indexed properly, it would now be £71,000, not £30,000. Would not that be a way of avoiding any of these difficulties, as the lump sum would be so much bigger?

[Mel Stride]

This is one of the most generous thresholds in the world. In fact, there is no threshold at all in Germany and the United States of America, because none of these payments is treated as being tax-exempt.

Such categorisation means that payments qualify for the £30,000 tax exemption and an unlimited employer national insurance contributions exemption. The situation is clearly unfair for the vast majority of employees, who are unable to manipulate their payments in this way. Clause 5 makes changes to prevent such manipulation in the future, while still ensuring that the vast majority pay no income tax on their payment. The first £30,000 of all termination payments will remain exempt from tax.

The hon. Member for Bootle (Peter Dowd) made a general point about the Conservative party’s treatment of workers, and I make no apologies for the way this Government have stood up for workers up and down our country. We are committed to enhancing workers’ rights. We introduced the national living wage, and we doubled fines for firms that break the rules in that respect. We appointed the first director of labour market enforcement, and we are committed, as we have constantly said, and as our Prime Minister has made clear, to protecting workers’ rights as we leave the European Union.

Nearly 85% of payments are below £30,000, so retaining the threshold will ensure that the vast majority of people going through the difficult experience of being made redundant will still pay no tax whatever. That means that the UK continues to have one of the most generous tax exemptions for termination payments, and I have mentioned Germany and the United States having no tax exemption at all.

Clause 5 tightens the tax rules for termination payments to prevent manipulation—a point made by my right hon. Friend the Member for Forest of Dean (Mr Harper) in an excellent contribution. He highlighted our overall record on bringing in taxes where attempts are made to avoid tax, and I referred to the £160 billion raised since 2010. He referred to our being at the forefront of the OECD base erosion and profit shifting project, and we have also brought in the diverted profits tax to clamp down on the kind of behaviour he referred to.

Let us not lose sight of the purpose of bringing in tax, which is to raise public finances so that we can employ doctors, nurses, paramedics, police and soldiers and pay for all those great public services that all of us hold so dear. That is why I am so proud of this Government’s record on clamping down on tax avoidance more generally.

The Office of Tax Simplification has said:

“the well-advised can often end up better off than the unadvised, as they are more able to structure their employment contract (or, indeed, their termination payment) to achieve the better tax treatment.”

The hon. Member for Bootle said in this House only last month:

“If there is genuine evidence of the abuse of payments in lieu of notice, that needs to be acted on”—[Official Report, 6 September 2017; Vol. 628, c. 206.]

It is fair to say that, while the hon. Gentleman is a very amiable fellow, he is not right about everything, but on this point he is actually very right. This clause is to deal with the very abuse about which he has previously expressed concern. We will prevent employers from categorising large pay-offs as tax-free payments, rather than earnings. Instead, employers will now be required to tax what the employee would have earned if they had worked their notice period in full. All payments in lieu of notice will now also be taxable as earnings to equalise the treatment of those with and without a contractual right to such a payment.

Finally, clause 5 clarifies that there is a total tax exemption for payments on account of injury or disability of an employee. In 2014, the Office of Tax Simplification raised the possibility of removing this exemption. It recognised that that would be a draconian approach, but it noted that interpretation is

“often a problem area for employers and their advisers.”

However, we have not pursued that approach. Instead, we have provided certainty by confirming the current position established by case law in statute. The total exemption relates to termination payments provided on account of a physical or psychiatric injury that prevents the employee from carrying on the duties of the employment, which hopefully addresses the point raised by the hon. Member for Aberdeen North (Kirsty Blackman). Therefore, employees with evidence of an identified medical condition will pay no tax on related termination payments.

Some Members raised concerns in previous debates that the Government would be taxing compensation paid to employees where it is proven that they have been discriminated against. Once again, I am happy to reassure them. All compensation for awards for proven discrimination during work will continue to remain completely exempt from tax. There was an interesting interaction between my hon. Friend the Member for Reddich (Rachel Maclean) and the hon. Member for Lewisham West and Penge (Ellie Reeves) on this point. We accept that, where there is a tribunal award in respect of injury to feelings, it is treated in exactly the same way as when an employer accepts that discrimination has actually occurred. All the clause seeks is to confirm the long-standing position that genuine compensation payments are tax exempt, while ensuring there is no loophole that can be used to reduce the tax that is owed.

Let me now turn to the amendments. As the hon. Member for Bootle set out, amendment 1 would remove the power to amend the meaning of basic pay for the purposes of calculating post-employment notice pay by regulation. When we consulted on this measure, we listened to responses that asked us to make the basic pay definition more simple. It now excludes overtime, bonuses, commission and tips. However, we introduced this power to allow the Government to act quickly and to remain flexible if there is manipulation in the future. Any amendment to the meaning of basic pay would be subject to a statutory instrument under the affirmative procedure, so the House would have to expressly approve any change to the meaning. I therefore urge the House to resist the amendment.

Amendment 2 and consequential amendment 3, also tabled by the Labour party, would remove the power to reduce the £30,000 threshold by regulation. Some Members have raised concerns during the debate that the Government intend to reduce this tax-free amount. We have no intention to do so. If we were to do so, we would, as my hon. Friend the Member for Braintree (James Cleverly) pointed out in his excellent speech, be required to do so by an affirmative statutory instrument. However, I repeat that we have no intention of reducing this tax-free amount. I therefore urge the House to resist the amendment.

Amendment 4 would include injured feelings within the definition of injury. As I outlined earlier, clause 5 confirms that termination payments provided on account of physical or psychiatric injury will be completely tax exempt—an important point raised by the hon. Member for Aberdeen North. However, the clause also confirms the established position that injury to feelings is not covered by this definition. The reason for this restriction is clear: without it, there would be a large loophole—as identified by my hon. Friend the Member for Braintree and my right hon. Friend the Member for Forest of Dean—allowing payments to be routinely reclassified on account of injury to feelings, and without medical evidence, simply in order for people to pay no tax. These things are hard to prove or disprove, and would be difficult for HMRC to police. However, it remains the case that payments on account of an injury to feelings, like any normal termination payment, will qualify for the £30,000 tax exemption. I therefore likewise urge the House to resist the amendment.

Finance Bill (First sitting)

Kelvin Hopkins Excerpts

Committee Debate: 1st Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Peter Dowd]

It is a pleasure to serve under your chairmanship, Mr Howarth. The extent, nature and quality of advice received by a person wanting a pension is of great importance and significance. That is particularly the case considering that, in 2017, 30% of the working age population is at state pension age or older. The Department for Work and Pensions recently summarised perfectly the importance of pensions advice on its website:

“For most people in the UK, their pension savings will be their largest financial asset, which they will save towards over the course of their working lives”.

That gets to the nub of the matter. Hopefully, most of us will be saving towards a pension for the majority of our lives and we are ultimately relying on that to secure a good-quality standard of living when we retire. Therefore, the advice received matters a great deal.

For many, the securing of pension advice is, given the nature of their employment, for example, not as problematic. People who work in certain sectors, such as the finance sector, on the whole will find that their companies automatically cover pension advice. For others, the cost of such advice is minimal in the grand scheme of things. However, it has to be said that, for those who do not have much disposable cash and whose retirement is dependent on making wise investments with their pensions and ensuring that they save the right amount, good-quality advice is the key to a more secure retirement. I am sure that that will be greeted with unanimous nodding from Government members, if nothing else.

As Committee members know, the financial advice market review was launched in August 2015

“to explore ways in which government, industry and regulators could take individual and collective steps to stimulate the development of a market that delivers affordable and accessible financial advice and guidance to everyone.”

That is a laudable endeavour if ever there was one. It set out a strong and compelling case that there is a retirement “advice gap” for those without significant wealth. Research by Unbiased, an organisation of Financial Conduct Authority-regulated advisers who are independent of product providers, found that those who sought retirement advice increased their retirement savings by an average of £98 a month. However, less than one third of people have accessed financial advice on their pension. The financial advice market review found that many people perceived financial advice to be unaffordable or “not for people” like them.

The advice gap is not getting any smaller. Although the introduction of the exemption for the first £500-worth of pensions advice to employees is welcome, particularly as it replaces the provisions that limited the advice that people could receive—the cap was set at £150—we think that that does not go far enough. Most people in the pension advice sector would reasonably point out that £500-worth of tax-free advice is a relatively small figure given the importance of the decisions that people face. There are genuine questions to be asked about the impact that such a figure will have on the current pensions advice gap and, importantly, on the quality of that advice.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is absolutely right about the affordability of pensions advice, but the trustworthiness of pensions advice is also an issue. Even I—I am fairly numerate—do not trust the advice I am given, although fortunately the Independent Parliamentary Standards Authority gives better advice than most. Many ordinary people not only think that it is not for the likes of them and are rather nervous, but fear that they are not given correct and disinterested advice.

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[Peter Dowd]

We all agree that the current model of legal expenses or indemnity insurance for employees is wholly inadequate to the modern workplace. It is worth getting a plug in here in relation to the household insurance that people have for when they wish to defend their position in court, whether criminal or civil. I have experience of some of these policies not being fit for purpose. That goes to the heart of some of these issues, although it is not directly related. I am sure that other Members have had people come to them with insurance policies that they bought thinking they would cover them for this, that or the other, only to find that they are not fit for purpose. It is worth this Committee sending the message out that some of those policies are not up to scratch.

Getting back to the point, under the current system, only an employee who has had an allegation made against them can claim for legal expenses, which will be deducted from their earnings. Potentially, if a person is called as a witness at a public hearing, he or she will immediately be put out of pocket for any legal expenses. Similarly, if an employee is to give evidence at a public hearing, perhaps in one of our Committee Rooms in this building, under the current system they will be out of pocket if they need legal counsel. That is a deterrent to both employee and employer. The measure would tidy up and expand the current, rather vague, provision to cover employees giving evidence at public hearings, which we welcome; however, I have a number of questions.

How many employers will the new measure cover? Will it cover all employers? How extensive is it? Are any particular sectors affected by the measure? What is the estimated cost of such a measure to the Exchequer? Does the measure include cover for employment tribunals? That has been a bone of contention in the past few months, in the light of the Government’s introduction of quite significant fees for people making employment tribunal claims.

[Kelvin Hopkins]

There is evidence that thousands of people have been deterred from bringing a case to employment tribunals simply because of the fees.

[Peter Dowd]

My hon. Friend makes an important point. That is why it is important to tease out the issues. People get confused and deeply worried about these matters, so we need clarity.

Our concern is that the measure will, in essence, be used as a tax break for employers, to the detriment of employees. I am not saying that that is the intention, but it is important to get clarity. Given the lack of detail, we believe that a review of the impact of the changes on the coverage of legal expenses is in order. It would focus specifically on the effectiveness of the measure, the value of the relief and, of course, how many employers and employees it brings within its purview. I reaffirm the point: it is important that this area is clarified and that people know the direction of travel, which is why we moved the amendment, to keep tabs on the proposal.

Finance Bill (Second sitting)

Kelvin Hopkins Excerpts

Committee Debate: 2nd Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Peter Dowd]

My hon. Friend hits the nail on the head; that is an excellent forensic point that the Minister will have heard, and will, I hope, take up, especially in relation to our amendment.

The potential problems might be still bigger in the case of property income where the new relief interacts with existing schemes such as rent-a-room relief. Taxpayers will need to work out which relief applies before determining whether and how they need to make a self-assessment return. Although I am confident that the Minister is genuine in his desire to help more people get on the right side and make the right declarations for their taxes, I worry that the added complexity could easily put off more people from making the correct declaration. I suspect that none of us wants that, including him, because it is not particularly sensible. In many cases, it will not be due to anyone’s desire for dishonesty; it will be because taxpayers used to operating only within pay-as-you-earn will be confronted with a confusion of options in considering how they must declare to HMRC.

The Low Incomes Tax Reform Group has rightly highlighted the complications that might arise for lower-income households. The new reliefs might free taxpayers from the need to declare very small amounts to HMRC, but will not have the same effect of releasing their obligations to account to the Department for Work and Pensions if they are universal credit claimants. Those are the households that would benefit most from simplification, rather than finding themselves subject to the most bewildering requirements to account to the state. I do not wish to waylay the Committee with the ongoing issue of universal credit implementation, as we will undoubtedly have a debate about that tomorrow, but the Low Incomes Tax Reform Group highlights a fair point: so-called simplifications involving tax and social security can sometimes have the opposite effect on those expected to use them. I think that we have all witnessed that to a greater or lesser degree.

Our amendment proposes an HMRC review, to report by 2020, of the use of the reliefs and the resulting effects on the Exchequer. I know that the inclination is to resist all Opposition amendments, but I can see little cause to resist this one. Inevitably, just like other measures discussed earlier, the reliefs will be revisited, unpicked, reworked and recalibrated in future Budgets. Sensible and calm review by HMRC must be in the interests of everybody involved.

[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker. I support my hon. Friend the Member for Bootle. It is said that Britain has more accountants per head of population than any other country, probably because the complexity of our tax system means that we all need to use one. However, in this situation, as he said, the amounts involved might be small, and the cost of an accountant might be quite high. That could deter people from using accountants, getting them into more difficulty.

Is there not a case for a proper review by HMRC, which knows the score because it deals with such things on a daily basis? HMRC could advise the Government on introducing appropriate changes that would simplify the tax system as well as helping those who would benefit from tax reliefs in a more practical and pragmatic way.

[Mel Stride]

Clause 17 and schedule 3 introduce two new tax allowances so that, from April 2017, individuals with gross trading or property income below £1,000 no longer have to declare or pay tax on that income. Digital platforms are allowing more and more people to supplement their income by sharing property, resources, time and skills. It is perhaps a rather more rapidly growing segment than the hon. Member for Bootle recognised. The UK is a world leader in the sharing economy; a report by PwC shows that the UK sharing economy has grown at the fastest pace in Europe, with transactions worth about £7.4 billion in 2015. This is expected to grow to £140 billion in 2025.

As the economy changes, the tax system should keep pace. For this reason the Government want to support the sharing economy and ensure that the tax system is not burdensome for those making small amounts of income, whether through selling goods, providing services or renting out their property. This could include those advertising their plumbing services through an online platform or those renting out a driveway space, for example. The changes made by clause 17 will introduce two new income tax allowances so that the individuals with gross trading or property income below £1,000 will no longer have to declare or pay tax on that income. Many individuals engaging in these activities on a small scale are not aware of their tax obligations. The new allowances make these obligations clear and straightforward, providing much needed clarity for people making small levels of extra income.

The trading allowance will also include miscellaneous income from providing assets or services, creating certainty for individuals, who will not have to understand tax case law to determine whether their activities should be taxed as a trade. The Government estimate that at least 700,000 individuals could benefit from the allowances. Over three quarters of these are basic rate taxpayers who could save up to £400 in income tax each year.

The Opposition raised a number of points. One was the lack of availability of this allowance to those who are already making self-assessments to HMRC, because they are already sole traders. Part of the reason for that is to ensure that we do not have any diversion of activity from those individuals’ general work arrangements into this scheme driven solely by an attempt to lower taxation. The point has been made about the importance of simplicity in the scheme. Certain aspects of the scheme clearly make it simple: people with that kind of income are not required to make a submission to HMRC, and there is a “miscellaneous” category of income that can address the complications around whether this is trading income—“miscellaneous” is quite a wide-ranging term.

The hon. Member for Bootle raised a fair point on rent-a-room tax relief arrangements; that is why HMRC’s efforts in detailing its guidance on the gov.uk website are so important. All the allowances will be very carefully explained. The guidance is being prepared alongside representative bodies and will include clear, step-by-step explanations and a number of examples, so it will be very easy for people to follow exactly how the arrangements work. Support will also be available via the HMRC helpline.

Amendment 21 would require HMRC to complete a review of the cost and effectiveness of the allowances by 2020 and the effects on the Exchequer in each of the first two years. Such a review is unnecessary. As I have set out, the two new allowances ensure that the tax system is not burdensome for those making small amounts of income. Their effect will be to support the enormous contribution that the sharing economy is making to the UK economy, while simplifying the tax system to support the job creators of the future. As there is no need for taxpayers to declare this income to HMRC, any review would impose a disproportionate burden on taxpayers and be inconsistent with the core rationale for the reliefs. In addition, the Bill also includes specific clauses designed to prevent abuse, and HMRC will carefully monitor the reliefs to ensure that they work as intended. I therefore urge the Committee to resist this amendment.

The two new tax allowances will help micro-entrepreneurs by removing complexity and uncertainty for those wanting to earn small amounts of extra income. There will be no forms to fill in and no tax to pay. It is a tax break for the digital age, furthering the Government’s commitment to simplify the tax system and help the UK become a global leader in the digital and sharing economy. I therefore commend the clause to the Committee.

--- Later in debate ---

Given the renewed concern about the banking system and the added risks that banks may take in the light of Brexit, what consideration has the Minister given to lowering the figure at which banks can carry forward losses, and does he accept that there may be a case for limiting it further? If we continue to have an economy with, let us say, stagnant growth, high inflation, as the figures indicate today, poor productivity—30% below the Germans—and one of the lowest levels of investment in Europe, we are inevitably putting ourselves once more at the mercy of the banks. The Minister may doubt what I say, but I think that is pretty much a fact.

[Kelvin Hopkins]

There is a lot of evidence that the banks are still engaging in risky gambling on the international exchanges, and compensating for that by squeezing ordinary taxpayers, ordinary bank customers and small businesses in particular to back up their gambling losses. Would my hon. Friend say that we are still facing danger in the future because of the banks’ behaviour?

[Peter Dowd]

We always have to be vigilant—that is the key. Vigilance is crucial. Virtually no one had experienced anything like the banking crisis in living memory. Given that, we have to be on our guard that we do not all breathe such a sigh of relief that it was so long ago that we lose our vigilance.

It seems to me that strong regulations, which will not only protect the taxpayer and their savings, but develop practices at the heart of the industry, are the only bulwark against another financial crisis being created and enacted through reckless banking practice. I hope that the Minister will give some thought to that, particularly given that when we finish the summer-autumn Finance Bill we will immediately start the winter Finance Bill. Given the Government’s delayed and, I have to say, sometimes chaotic timetable, it will no doubt end up being called the spring Bill instead. Dare I say it, we have a Minister who is the man for all seasons in that regard. [Interruption.] Don’t give up the day job, as they say—or perhaps hon. Members would like me to.

Many of the stakeholders to whom the Opposition spoke raised concerns about the complexity of the proposals and the speed with which the Government have attempted to take them through.

Finance Bill (Third sitting)

Kelvin Hopkins Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Kirsty Blackman]

I appreciate the hon. Lady’s comments. The not-for-profit model that was set up when I was a local councillor, which built schools in Aberdeen, was significantly better than some of the previous rental models. Perhaps that was just because Aberdeen was particularly diligent with the not-for-profit model that it chose specifically for its schools funding project.

As I have said, I am concerned about the effect the amendments might have on the projects in Scotland that were put in place under the previous Scottish Executive. The SNP Scottish Government have been very clear that the old PFI models are not the way to go and that they are incredibly burdensome for the public purse. Although there is a shiny new building, quite often they saddle the public purse with repayments for a very long time, which can amount to much more than the original cost of the building. There is also less flexibility, because the rules of the private sector organisation have to be abided by.

I agree with the concerns raised about PFI models and that we should not use them. The SNP Scottish Government have recognised that and are using initiatives such as the Scottish Futures Trust, which has delivered a significant amount of funding, savings and benefits to the people of Scotland. As I have said, we support new clause 1 because we do not agree with PFI models and think that it is completely reasonable to reconsider them, but we do not support the Labour party’s other amendments.

[Kelvin Hopkins (Luton North) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Howarth. Rather than speak specifically to the amendment, I want to make a comment. My hon. Friend the Member for Walthamstow has raised some very important issues about PFI, but from the beginning it has been an outrageous rip-off of the public purse and the citizens of this country. It should be abandoned. Indeed, in his speech at our party conference, the shadow Chancellor suggested that we should take PFI contracts into public ownership, saving billions for the public purse over time. That is what I want. I have spoken against, voted against and written a chapter of a book against PFI, because it is utterly ridiculous and total nonsense. It is driven by ideology to try to drive as much of the public sector as possible into the private sector. That is what PFI is really about: it puts vast sums of public money into rich private pockets. I will pursue that view vigorously over the next few years.

[The Financial Secretary to the Treasury (Mel Stride)]

It is once again a great pleasure to serve under your chairmanship, Mr Howarth. Before I respond specifically to the amendments tabled by Opposition Members, I will set out the aims of the Bill and some details of how it will work.

Clause 20 and schedule 5 introduce new rules to limit the amount of interest expense and similar financing costs that a corporate group can deduct against its taxable profits. Interest is a deductible expense in the calculation of profit subject to corporation tax. Therefore, there is a risk of groups borrowing excessively in the United Kingdom, with the resulting deductions for interest expense eroding the UK tax base.

The new rules are part of the Government’s wider changes to align the location of taxable profits with the location of economic activity. The rules follow the internationally agreed recommendations from the OECD’s base erosion and profit shifting, or BEPS, project to tackle tax avoidance by multinational companies. The rules aim to prevent businesses from reducing their taxable profits by using a disproportionate amount of interest expense in the UK.

The schedule introduces a new part into the Taxation (International and Other Provisions) Act 2010 and will raise about £1 billion a year from multinational enterprises and other large companies. The rules take effect from 1 April 2017, as announced in the business tax road map published in 2016 and reconfirmed at the spring Budget this year. Maintaining that commencement date ensures that groups that have already made changes in light of the new rules are not unfairly disadvantaged and that there is no delay in protecting the UK tax base. Given the sophisticated nature of corporate finance, the rules are detailed and technical. However, the core effect of the rules, which aim to match deductions with taxable profits, is relatively simple.

All groups will be able to deduct £2 million in net interest expense a year, so only larger businesses—those with financing costs above that level—can suffer a restriction. Above that threshold, the core rules will restrict interest deductions to a proportion of the group’s UK earnings or the net external expense of the group, whichever is lower. I will discuss the rules in further detail.

First, the fixed ratio rule will limit interest deductions to 30% of the company’s taxable EBITDA—earnings before interest, tax, depreciation and amortisation. Secondly, the modified debt cap will limit interest deductions to the net external interest expense of the worldwide group; this rule is consistent with the recommendation in the OECD BEPS report. There are provisions to ensure that the rules will not adversely affect groups that are highly leveraged with third-party debt for genuine commercial reasons. Thirdly, the group ratio rule will allow groups to increase their deductions if their UK borrowing does not exceed a fair proportion of the external borrowing of the worldwide group. In addition, there are public infrastructure rules that provide an alternative but equally effective approach for companies that are highly leveraged because they own and manage public infrastructure assets.

The Bill provides rules to help address fluctuations in levels of net interest expense and EBITDA. Amounts of restricted interest are carried forward indefinitely and may be deducted in a later period if there is a sufficient allowance. Unused interest allowance can also be carried forward, for up to five years.

The Bill introduces additional provisions to ensure that the rules work for certain types of business, such as banks and insurers, joint ventures, securitisation vehicles and real estate investment trusts. There are also rules to deal with particular issues including related parties; leases; payments to charities; the oil and gas tax regime; incentives such as the patent box and research and development tax credits; and double taxation relief. Given the technical nature of the Bill, we need to deal with a wide range of corporate arrangements. We will, as always, continue to keep their detailed implementation under review.

I welcome the opportunity to debate amendments 5 and 6 and new clause 1, tabled by the hon. Member for Walthamstow. Amendments 5 and 6 propose a review within three months of Royal Assent on the effect of the provisions contained in the new chapter 8 proposed by the schedule on companies with PFI contracts. Legislating for a review of the rules within three months is unnecessary. The Government have already undertaken extensive work and consultation on the issue over the past 18 months. We will continue to monitor the impact of the legislation, and Government officials continue to meet key stakeholders impacted by the rules in the chapter.

Proposed new chapter 8 includes the public infrastructure rules designed to ensure that companies holding public infrastructure assets are not disproportionately affected by the corporate interest restriction. In particular, proposed new section 439 of chapter 8 contains a grandfathering provision for loans entered into by certain companies on or before 12 May 2016. Such companies are highly leveraged as part of their standard business model, given their fixed assets and fixed income flows. The grandfathering ensures that investors who entered into contracts to provide Government services in good faith are not unfairly impacted. That could be the case where the additional tax expense was not factored into original funding models and there is no scope to pass on any of the cost. Given that PFI projects are long-term in nature and provide many of our vital public services, the rules grandfather the treatment of interest payable to related parties to the extent that the loan was agreed prior to the publication, on 12 May 2016, of detailed proposals for the interest restriction rules.

[Mel Stride]

With respect to the hon. Lady, I do not think I said that I had met all the stakeholders, but as part of their ongoing work in this area officials naturally meet a large range of officials. If she is keen to know exactly who they are and what types of companies, I would be happy to ask my officials to write to her with that information.

The hon. Lady also proposes a new clause, which would require a review within three months of Royal Assent of how tax relief is given for losses, deficits, expenses and other amounts in relation to PFI companies. PFI companies do not obtain any special treatment under the tax rules in the way that losses, deficits, expenses and other amounts are treated. Legislating for a review of these rules in three months is unnecessary. As we debated on Tuesday, the Government have already undertaken extensive work on the treatment of losses and deficits over the past 18 months and through extensive consultation. The Government will continue to monitor the legislation’s impact, and officials continue to meet key stakeholders impacted by the rules in this chapter.

I turn now to some of the more general and specific points that the hon. Lady has raised. In doing so, I should acknowledge the important contribution she has made over a long period in Parliament on the important issues surrounding PFI. She is right to point out that PFI contracts are the creatures of many different Governments. It would be widely accepted that many of the issues that have arisen, and to which she and other Members have alluded, certainly occurred under the watch of the previous Labour Government. She rightly points out that not all of those contracts are perfect. That is evidenced by the fact that this Government have secured a rebate of about £2.5 billion by working with the private sector and raising funds through that approach.

We have had a general discussion about PFI, and proposed chapter 8 gives rise to the question whether PFI infrastructure projects should be treated differently from other projects that would otherwise be subject to the interest restriction. I have two important points to make. First, these are infrastructure projects, so they are, by their very nature, highly leveraged. They are projects where large amounts of interest are often part of the natural, right and proper, way in which they are constructed.

The second point, which in a sense follows from that, is that of proportionality. To what degree does one apply this kind of approach to a business of that particular nature, given that the downstream revenues from PFI arrangements cannot be easily adjusted to accommodate the provisions that would otherwise apply in the Bill?

The hon. Lady raised two specific points. One was related to the Green Book calculations. In 2012 we set up the operational efficiency programme to deliver savings from existing programmes. That brought in £2.5 billion. We also introduced the new PF2 model, to offer better value for money and greater transparency in the operation of these arrangements.

[Kelvin Hopkins]

Rather than having another elaborate PFI system, would it not be simpler, in the health service and in the education sector, to build by traditional public borrowing, which is extremely cheap and would save billions for the taxpayer?

[Mel Stride]

With great respect to the hon. Gentleman, I think that is probably a little out of scope of the issues being dealt with in the Bill. I make the point that his party is committed to bringing a lot of these back in, as it has described. That is a fine idea in principle, but it will cost a huge amount of money and there has been no suggestion from his party as to how it would be raised, what taxes will have to be raised as a consequence, or what additional borrowing will have to occur in order to do that.

--- Later in debate ---

[Stella Creasy]

Be under no illusions, Mr Howarth; I intend very much to speak to the amendments at hand.

The Minister argued, slightly bizarrely, that we already have information about whether the changes would affect PFI companies, because the Government have been able to assess that, yet they are rejecting our call to put that information in the public domain. The Minister said clearly that his officials have met PFI companies, and I asked him to clarify which companies. I hope that when he meets stakeholders he will meet my local hospital, which is dealing with the difficult consequences of PFI deals for its financial position. I would argue that officials who are essentially having to sack nurses to pay back PFI loans are equally stakeholders, so I would be interested to know whether he has met any of them.

[Kelvin Hopkins]

Does my hon. Friend have a figure for the total cost of PFI repayments every year to the national health service? That would illustrate the enormous burden of PFI schemes on our health service.

[Stella Creasy]

I can go better than that—

--- Later in debate ---

[Peter Dowd]

Which is a shame, I have to say.

The Minister referred to consultation. Consultation about what we want to do in the future, what people would like to see from the relief and how it might operate is in advance of the implementation. We consult, and we think this or that is a good idea, but it is also important to find out whether the relief has had the effect that the consultation wanted to achieve. One of the only ways to establish whether the consultation and the implementation have been effective is a review, and that is what we seek. If we are to have these reliefs, we must review whether they are doing the job they are supposed to do. The amendment is fairly simple in that regard.

[Kelvin Hopkins]

I support what my hon. Friend said, and I hope Members will support the amendment and that it will be successful. I have a brief comment to make.

In my ideal world, we would fund museums and the rich cultural heritage we have not through tax reliefs but by direct funding. We would collect all the tax and then pay it to museums and galleries directly through local authority and national funding and by specific grants where necessary. There would, of course, be charitable and private donations as well, but the great bulk of it would be in the public sector. I hope we can look towards a world where we have direct public funding, rather than a complex jungle of tax reliefs, and collect all the tax and forget about the tax reliefs.

[The Chair]

The hon. Gentleman has a tendency in this Committee to lead us down paths beyond the scope of the amendments he addresses. That being a matter of broadening our cultural horizons, I have been very lenient with him, but I hope he will in future stick to the matter at hand.

Finance Bill (Fourth sitting)

Kelvin Hopkins Excerpts

Committee Debate: 4th sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Peter Dowd]

That is a very good point. It is also actually creating an awful lot of work for us, given the amount of times we have asked for this to be dealt with. It is getting pretty repetitive. I do not know how many times we have to ask for this to be dealt with once and for all; no doubt we will come back to it time and again until something is sorted out.

This is not only about non-doms using offshore trusts to hide their money and essentially subvert the measures in the clause; it is about the source of the money and its value, particularly when we are discussing how to clamp down on tax avoidance. The Government should consider a register of offshore trusts, ensuring that non-doms have to register the sources of their property and income. Again, that request is not unreasonable to the public or to our constituents who elect and send us to this place, all of whom have to register the sources of their income with HMRC. In fact, a number of the measures in the Bill will require even more financial information to be passed on to HMRC through the bulk collection of financial data by third parties. It seems to many people that there is one law for one group and another for the rest of us. That cannot be right.

[Kelvin Hopkins (Luton North) (Lab)]

The issue of non-dom taxation has been going on for years. The reality is that Conservative Governments and perhaps even Labour Governments have not gone far enough to eliminate the problem by saying that these people are going to pay tax properly and not wriggle all the time. Does my hon. Friend agree that we have to get rid of a world where rich people live in Monaco in the south of France and fly in a couple of times a week in their private planes, working in the City and making billions, just to avoid tax, and that we should be making sure they pay their taxes and be looking after ordinary people?

[Peter Dowd]

What we need is a fair taxation system—that is the key. I do not think it is beyond the wit of this Government or any Government, for that matter, to deal with that. That is not to say that we have not moved some. That would not be appropriate. We have moved on.

Finance Bill (Fifth sitting)

Kelvin Hopkins Excerpts

Committee Debate: 5th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[Mel Stride]

I thank the hon. Lady for her questions, which I will answer in order.

The purpose of APD is clearly, as the hon. Lady identified and as I explained in my opening remarks, to raise revenue—£3.1 billion in this instance. Like all taxes, it will also change behaviour to some degree, and to the extent that it makes flying a little bit more expensive, it could be expected to have the effect of diminishing demand for air travel. The lower rates for economy, which takes up more space on aircraft than first class, assist in ensuring that flights are as full as they can be.

The hon. Lady mentioned the Scottish Parliament and the devolution of APD, which will become air departure tax in Scotland. That tax has not yet been switched on, although devolution arrangements are in place, and we will of course monitor the issues that she has understandably raised in respect of competition with airports, particularly in the north of England. On long-haul flights and the impact on various groups, including ethnic minorities, I would be happy to write to the hon. Lady with any information that we have.

[Kelvin Hopkins (Luton North) (Lab)]

I am glad that the Minister has raised the question of ethnic minorities. My constituency has a large Caribbean community, who are concerned about air passenger duty’s effect on flights to the Caribbean to see family and so on. Has the Minister received any specific representations on that? The other question, of course, is about the airlines themselves. In Luton, we have London Luton airport. What representations have the airlines made to the Minister?

[Mel Stride]

If I may, I shall write to the hon. Gentleman on the specific questions that he has raised about the consultation on these measures.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44

Petroleum revenue tax: elections for oil fields to become non-taxable

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

--- Later in debate ---

[Kelvin Hopkins]

It is a pleasure to serve under your chairmanship again this morning, Mr Howarth. When I first entered this House over 20 years ago, I visited my local VAT office and they said that if they had more VAT officers they could collect many more times their own salaries. That has been the case ever since. I am not so familiar with third country goods fulfilment businesses, but it nevertheless strikes me as something that requires a proper resource within the VAT component of HMRC. I wonder whether we are still understaffing VAT offices and whether we could collect much more by employing more staff. At that time, the ratio between the staff salary and the tax they collected was about 5:1. Every additional member of the VAT staff produced five times more than their own salary. If that is still the case today—it may be an even bigger ratio—it would be helpful to think about employing more staff.

[Mel Stride]

Clauses 48 to 59 and schedule 13 implement the fulfilment house due diligence scheme. The scheme will require that from 1 April 2018, fulfilment businesses in the UK that fulfil goods for traders based outside the EU must register with HMRC, keep certain records, and carry out robust due diligence checks on their overseas clients.

The fulfilment house due diligence scheme is part of a package of measures announced at Budget 2016 that will disrupt and deter VAT abuse by overseas traders who sell goods to UK consumers via online markets. To address the point raised by the hon. Member for Luton North, the measure is not one that requires lots of extra inspectors; it requires a different attitude and regime for the fulfilment houses that are facilitating this VAT fraud. We expect it to be effective in those terms, rather than needing large numbers of additional staff.

Together, these measures are expected to deliver £875 million for the Exchequer by 2021. Many overseas traders selling via online marketplaces import their goods en masse to fulfilment houses in the UK, in readiness to fulfil anticipated future orders from UK customers. Once imported, the fulfilment house businesses will store, pack and sometimes deliver these goods on their behalf. Currently, certain overseas traders do not comply with the obligation to charge VAT on their goods held at UK fulfilment houses, as the hon. Member for Luton North pointed out. This not only deprives the UK Government of a significant amount of revenue but allows these overseas traders to obtain an unfair competitive advantage over the honest majority of VAT-compliant businesses operating in our country.

Clauses 48 to 59 and schedule 13 implement the fulfilment house due diligence scheme. Clause 48 sets out that all UK fulfilment houses that fulfil goods owned by traders established outside the European Union will be within the scope of the new scheme. These are referred to throughout the legislation as “third country goods fulfilment businesses”.

Clause 49 sets out that, following commencement of the scheme, all third country goods fulfilment businesses in the UK will require approval from HMRC as a “fit and proper” person in order to continue operating legally.

Clause 50 outlines that HMRC will maintain a register of all such approved persons. It will publish such details from the register as it deems necessary to allow counterparties, such as those in the express deliveries industry, to check whether they are dealing with a compliant fulfilment business.

Finance Bill (Sixth sitting)

Kelvin Hopkins Excerpts

Committee Debate: 6th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

I welcome the opportunity to debate amendment 43, which proposes a review of the exercise of HMRC’s data-governing powers in relation to MSBs no later than September 2020, with a particular focus on the number of appeals in relation to data holder notices. As I have said, MSBs can appeal against a data notice issued by HMRC if it is unduly onerous, or if it asks for data that are outside the scope of the relevant regulations. Therefore, there is already a mechanism in place for independent scrutiny through a tribunal, whose records are already available to the public. In addition, this measure has already involved consultation and engagement with the relevant sector. Proportionality has been a key consideration, and HMRC will work closely with MSBs to ensure that requirements are reasonable and to minimise the burden and the cost, so there are already adequate safeguards in place, and a review is not necessary. I therefore ask the Opposition to withdraw amendment 43.

[Kelvin Hopkins (Luton North) (Lab)]

I want to respond briefly to what the Minister said. It is a pleasure to serve under your chairmanship yet again, Mr Walker, possibly for the last time during this Committee.

I have always had a concern about the money service industry, particularly since many of my constituents send money to family members overseas. There are large immigrant minorities from every part of the world in my constituency. Some of the transactions have been insecure—we have seen companies where money has been lost, and I have long thought that there ought to be a much higher degree of regulation of that industry.

There is obviously an issue around charges. I suspect that charges vary widely and are often very high. It seems to me that what we really want is at least a state company doing this business, either instead of or alongside these organisations, which would be properly regulated, have fair charges, and be open and transparent, apart from personal secure information about transactions, which my hon. Friend the Member for Bootle talked about. Bringing the state actively into that area would be a great advance. Perhaps I speak from a left position that might not find favour with the Government, but we ought to look forward to a much more regulated industry with a strong state sector in the future.

[Mel Stride]

To reply briefly to the hon. Gentleman’s point: the issue of MSB ownership and state involvement is probably slightly beyond the scope of this Bill, but his points are noted. If he continues to work very hard, who knows what might happen? Much to our horror and dread, the state may end up owning just about everything in this country, if he and his merry men and women have their way.

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[Stella Creasy (Walthamstow) (Lab/Co-op)]

I beg to move, That the clause be read a Second time.

It is a pleasure to serve under your chairmanship, Mr Walker. I am conscious that several members of the Committee may wish to take part in the emergency debate on universal credit—a subject close to many of our hearts—so I do not intend to speak for a long time. However, we ought to get value for money out of these Committee sittings and, indeed, this Bill, so I hope that my new clause gives the Government some ideas about how we can solve the pressing problem of the public finances and the lack of funding.

Government Members often argue that Labour only wants to spend money, but my proposals very much seek to save money for the country. Indeed, they present a way to protect UK taxpayers and British businesses, generate potentially billions for the Exchequer, and address the pressures on the housing market. I am sure that none of us would want to lay claim to the magic money tree, but I believe that my new clause would provide for a concrete cash cow in which the Government could invest, and I hope to convince Ministers and Government Back Benchers to support it.

The new clause relates to a proposal by the previous Chancellor of the Exchequer—I am not sure how many jobs he has now, but he is currently the editor of the Evening Standard—about the way in which capital gains tax was applied to property sales.

[Kelvin Hopkins]

I am interested in the former Chancellor and how many jobs he has. It is particularly interesting to learn how much he is being paid for those jobs.

[Stella Creasy]

I am afraid that I do not have that figure to hand, but I do have figures relating to the amount of money that the new clause could raise for the public Exchequer. I hope that my hon. Friend will be as pleased with and as interested in those numbers as I am.

Historically, only UK residents or those with a permanent UK base have been subject to capital gains tax. In April 2013 that was changed to include the disposals of UK dwellings owned by non-resident companies, partnerships and collective investment schemes, which were subject to an annual tax on enveloped dwellings. In April 2015 that was extended to all non-UK residents disposing of UK residential property, and the critical point is that that was about residential property. The argument that non-doms should be paying capital gains tax on the disposal of property was put forward by the previous, and indeed current, Government. The question is: why did they make it apply only to residential properties? As I hope to prove, that has created a loophole through which some people have chosen to put their properties.

We are talking about a rate of tax that is between 18% and 28%, or 20% for corporates. The standard OECD double tax treaty expressly preserves the right of countries to tax non-residents on capital gains from the disposal of local real estate. Many of us will have seen at first hand in our communities the impact of this country’s over-inflated housing market and the connection between the residential and the commercial property market. The Adam Smith Institute reckons that there are 1 million non-doms in the UK, although only 110,000 are declared. Those people are part of our communities, but they are benefitting from an advantageous tax position because of this loophole.

The Bill tries to address issues relating to inheritance tax and holding property through UK companies, so the Government are interested in where people might be using companies to avoid paying tax. Indeed, that is one of the debates that we have been having. The new clause addresses another issue, which is the ability to designate a property as a commercial property to avoid paying the residential charge that this Government introduced in 2015. We know that that is hitting UK companies competing with non-UK companies. In tabling this new clause, I am making a plea to the Minister to be on the side of British businesses that are being unfairly treated in our tax system. We know that people set up property holding companies to avoid those charges. By changing the loophole, we would be able to apply the charge fairly across the board. Indeed, it has to be asked why anybody would hold UK real estate through a foreign company except for tax purposes.

The Minister might say that this about a competitive tax advantage for the UK. Let me reassure him that almost nowhere else in the world exempts foreigners from tax on selling real estate. By closing the loophole, we would simply bring ourselves into line with Canada, Australia and indeed the rest of Europe. The Minister may claim that there are anti-avoidance rules that would take precedence, but if a non-resident company operates in the UK through a UK permanent establishment, the disposal will be subject to UK capital gains tax. That is not the requirement we are talking about; we are talking about organisations that hold property in the UK through offshore companies and designate that property as commercial property. It is the difference between the residential and the commercial that we need to deal with in terms of this loophole.