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.