Finance Bill

Kirsty Blackman Excerpts

Monday 27th June 2016 Commons Chamber

[Mr Gauke]

Thank you, Mrs Laing. I am grateful for those remarks.

The measures I will outline ensure the simple, clear and fair tax treatment of employment income and benefits, strengthen incentives to choose the cleanest cars and vans, and ensure that those who have used artificial arrangements to avoid paying tax pay their fair share. Given the number of measures selected for debate, I will briefly set out how I will speak on them today. I will first discuss clauses 8 to 11, concerning company car taxation and the van benefit charge. I will then outline clause 7 and clauses 12 to 17, which address tax treatment of income and certain benefits. Finally, I will outline clause 18, which addresses disguised remuneration schemes.

I turn first to clauses 8 to 11. Clause 8 will increase the appropriate percentage for conventionally fuelled cars by three percentage points in 2019-20; it will also widen the tax advantage of ultra-low emission cars over conventionally fuelled cars in 2019-20 compared with previously announced plans. As a result of the changes, in 2019-20 a basic rate taxpayer driving a popular ultra-low emission company car will be £113 better off. Clause 9 makes a minor technical update to ensure the legislation works as is intended in 2017-18 and 2018-19. The update applies to a small number of rare company cars. It is estimated that exposure to nitrogen dioxide is linked with 23,500 deaths annually in the UK, costing approximately £13.3 billion.

As was announced in the autumn statement in 2015, clause 10 retains the three percentage point supplement for diesel company cars until 2021. That will support the UK’s transition from diesel cars to cleaner, zero and ultra-low emission cars. As a result, a basic rate taxpayer with an average ultra-low emission company car will save an additional £150 in 2016-17, compared with an employee who has an average diesel company car.

Clause 11 retains the van benefit charge for zero-emission vans at 20% of the rate paid by conventionally fuelled vans for 2016-17 and 2017-18, rather than increasing it to 40% and 60% as currently planned. That means that a basic rate taxpayer who drives a zero-emission van will save £126 in 2016-17 and £258 in 2017-18. Together, clauses 8 to 11 will incentivise business and employees to take up the cleanest cars and vans. That will help to ensure that the market for those new technologies becomes established in the UK, and to support the UK’s carbon emission and air-quality targets.

In anticipation of what we will hear from the Opposition, let me turn to amendments 2 and 3 to clause 10. The amendments would require the exemption of diesel cars from paying the supplement if they achieve the same level of nitrogen dioxide emissions as petrol cars. I appreciate that hon. Members want to incentivise people to purchase the cleanest cars, but the amendments would only introduce confusion and uncertainty. They are not linked to the wider regulatory programme to achieve the latest air quality standards, even when cars are driven on our roads. Clause 10 retains the supplement until 2021 when those new standards will be mandatory for all new cars. That approach is transparent and easy to understand, and it will give consumers confidence that all new diesel cars are comparable to petrol cars. Our approach incentivises people to purchase the cleanest cars, and in anticipation of what will be said later, I hope that Labour Members will not press the amendments to a vote.

Let me consider those clauses that clarify and simplify the tax treatment of income and certain benefits, and ensure fairness in the tax system. Clause 7 will clarify how the cash equivalents of certain taxable benefits are calculated, and ensure that fair bargain does not apply to those taxable benefits in kind where the level of computing the value of the benefit is set out in statute. The Government have made minor technical changes in amendments 22 to 26, which ensure that the legislation works as intended.

Clause 12 and schedule 2 will provide clarity that all income from sporting testimonials for an employed or previously employed sportsperson will be taxable. However, we are aware that careers in sport can be short, so we have also introduced an exemption for the first £100,000 of income received from a sporting testimonial that is not contractual or customary. The Government believe that that is a fair compromise, and the vast majority of employed sportspersons who have testimonials will not be impacted. Clause 13 introduces a statutory exemption for certain benefits costing up to £50 that employers provide to their employees. That will simplify the tax treatment of those benefits and reduce the administrative burden for employers. To ensure that the exemption is not misused, a £300 annual cap will apply in certain circumstances. That sensible and simplifying measure will reduce burdens on employers and HMRC alike.

Clause 14 will ensure that no individual or business can obtain an unfair tax advantage through claiming tax relief on home-to-work travel and subsistence expenses. It is an established principle in the UK that people are not able to claim tax relief on the cost of ordinary commuting, and the vast majority of workers are not able to do so. Individuals who are engaged through intermediaries—such as umbrella companies and their employers—currently benefit from that relief and the cost of commuting from home to work, simply because of the way they are engaged to work.

[Kirsty Blackman (Aberdeen North) (SNP)]

Has the Minister considered whether this measure will have a disproportionate impact on rural communities where travel is much more expensive and sometimes an overnight stay is necessary when undertaking those roles?

[Mr Gauke]

I will say a little more about clause 14, but I believe that this is a matter of fairness. For the vast majority of people, home-to-work costs do not have tax relief, and it is right to apply the same rules across the board. If there is a difference in treatment just because an arrangement is made through an umbrella company or other form of intermediary, clause 14 will put those workers on the same terms as everybody else. That underpins the Government’s commitment to ensure that the tax system is fair and treats all individuals who are doing the same thing in the same way.

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[Kelvin Hopkins]

My hon. Friend suggests that my proposal is Stalinist, but we are talking about a world in which we had several splendid democratically elected Labour Governments after the second world war that did wonderful things. Nobody would call them Stalinist. They submitted themselves to the electorate every five years and were sometimes defeated—sometimes even in this House—so I do not think “Stalinist” is the right word.

I do think, however, that there should be a bigger role for the public sector in regulating employment, making sure that people are properly paid and securely employed, even if they are temporary staff, that taxes are fully paid and that private sector agencies do not rip off both the public purse and employees. I will leave that suggestion with my hon. Friend. I hope that he will bring forward even more radical proposals along the lines that I have suggested.

[Kirsty Blackman]

I shall be brief, as I know nobody wants a lengthy debate tonight. I have a couple of specific points to make about reviewing the income tax treatment of workers who provide services through intermediaries. We are asking for a review. I understand the Government’s point that they feel that their approach is sensible for the majority of workers and that it is levelling the playing field for the majority of people, but there will be unintended consequences on specific issues and in specific areas, and they are going to be a major problem.

We have mentioned that this will have a disproportionate impact on rural communities. That is partly because of geography, as those communities are further away and it is more difficult for people to make cheap travel arrangements to go there and for people to find reasonably priced overnight accommodation. That will have a disproportionate financial impact. We do not want specialist contractors to choose not to go to a rural community on the basis that it will disproportionately cost them money, as that will mean our rural communities will lose out; they will not have the ability to get whatever it is that needs to be done in that community because the contractor will choose to go somewhere cheaper. That is a major issue, particularly in the oil industry, as has been said, and in the whisky industry. The whisky industry may have specialist contractors that need to go to rural locations in order to do things, and we do not want those areas to be disproportionately affected.

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[Rob Marris]

Some of those lower-paid workers may be working for umbrella companies, and a difference between the wording in new clause 3 and in new clause 1 is that Labour’s new clause 3 mentions umbrella companies. New clause 1 refers to “different types of worker”. Does the hon. Lady envisage that concept as including those who are engaged through intermediary or umbrella companies?

[Kirsty Blackman]

Absolutely we do. When we talk about “intermediaries” and “different types of worker”, we mean all those who will be impacted by this change in the taxation measures.

[Mr Gauke]

I am grateful for the various points made in this debate. I will not repeat everything I said in my opening remarks, but I will try to address the questions raised, and we have had plenty of those. Perhaps I should begin by saying how pleased I was to see the hon. Member for Wolverhampton South West (Rob Marris) join us, as one never knows these days who will be on the Labour Front Bench. Given the considerable work that he clearly put into his speech—not forgetting the considerable work put in by Imogen Watson—it would have been a great pity were he not to have been on the Front Bench to ask those questions, so I am delighted to see him.

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The Government are tinkering around the edges of existing climate change policy without a clear strategy for how to meet our targets agreed on the world stage. If we are to have any chance of meeting the said targets, we simply must take more radical action, as evidenced in other nations across the world. The Opposition do not necessarily oppose scrapping the carbon reduction commitment or increasing the rates of the climate change levy, if doing so will be effective in reducing emissions. However, we remain to be convinced that that will be effective, and we will therefore push for a proper assessment from the Government before we support the measure in full. I therefore urge hon. Members to support amendment 183.

[Kirsty Blackman]

I rise to support amendment 183 on the changes to the climate change levy. The UK Government’s idea to have a climate change levy was admirable. It was introduced in 2001, and it has been a positive step. It is completely reasonable that companies should be made to think about their energy usage, and the best way to do that is to tax them on it. The hon. Member for Salford and Eccles (Rebecca Long Bailey) made a wide-ranging speech on a series of matters, some of which I was going to speak about, so I will curtail my speech somewhat.

Although reducing companies’ energy consumption and usage is a great idea, it fails to take into account the fact that some methods of generating electricity are better than others, particularly in terms of climate change. We cannot tax energy usage across the board given that energy generated from, say, onshore wind is much cleaner and better than energy generated from, say, a coal-fired power station. Those two things are very different, and it is completely reasonable to have variable tax rates for those two things.

The hon. Lady spoke about some of the impacts that the Government’s energy policy is having on low-carbon energy. This Government do not have a good record on supporting low-carbon energy. Their support for nuclear has been widely reported, but the situation is very difficult for companies that are innovating in providing other forms of low-carbon energy in this ever-changing climate and in the UK Government’s current policy framework.

It was announced in June that the Scottish Government had managed to meet their target for reducing greenhouse gas emissions by 2014. The target was a reduction of 42%, and it happened six years early. That was an excellent achievement for the Scottish Government and for Scotland as a whole, with everyone working together to reach it. However, it will be very difficult for us to keep up that level of achievement with the UK Government’s current energy policy. For example, there is no clarity about when there will be a new pot 1 for contracts for difference. That pot is for onshore wind, which is very important. It is very clear that onshore wind is an established technology for generating electricity cleanly, and the UK Government need to provide greater clarity about when the next CFD round for it will be.

With Brexit, Scotland will have a major problem in that the funding for low-carbon energy and low-carbon energy projects, particularly the groundbreaking ones, has come from the EU. I know that this is slightly outside the remit of this debate, but I would appreciate it if the UK Government looked at whether this funding will continue to be provided because we should continue to innovate in low-carbon energy in Scotland, which has massive natural resources.

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[Damian Hinds]

The climate change levy makes a significant contribution to the Exchequer’s revenues. It had been on a declining path, but with the changes that have come in, its path has been stabilised. It had been providing increasingly poor value for money, partly because a third of its value was going to generators overseas: that generation does not contribute to UK targets, and quite often benefits from subsidies and other benefits at home.

There was also only indirect support for renewables. This is a really important point that goes to the heart of what the hon. Members for Aberdeen North (Kirsty Blackman) and for Coatbridge, Chryston and Bellshill (Philip Boswell) were saying. The renewables obligation and contracts for difference are much more effective at providing direct support, at a higher level than the £5.54 per hour, to bring on the generation that we need.

The success of the deployment of renewables in this country paradoxically has an adverse impact on the effectiveness of the CCL exemption, such that by the early 2020s it would not be effective in stimulating new capacity to come on stream. Its value to generators would be declining, because the supply of renewables and therefore of the levy exemption certificates would exceed in volume the total potential demand from eligible customers in business and the public sector.

[Kirsty Blackman]

If the Minister is saying that the exemption will not be effective after 2020, does he concede that it would therefore be effective to keep it in place now?

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Increasing the standard rate of IPT by 0.5% will raise revenue to invest in flood defence and resilience, which will enable us better to protect against floods such as those we saw last winter. This clause should therefore stand part of the Bill.

[Kirsty Blackman]

I appreciate the chance to deal with insurance premium tax. Reducing tax was raised by the SNP at some length last year, when the Government increased it by about 3.5%, from 6% to 9.5%. We were a bit concerned that this amounted to an incredible hike with very little warning, possibly setting a precedent.

I want to make it clear that we are not against spending additional money on flood defences. Given the climate change issues that we face and the devastating impact of floods on communities, we think that is a good idea and we completely understand why the UK Government are choosing to spend money on it. My issue is that raising insurance premium tax might be the wrong way of doing so—I do not want people to be discouraged from taking out insurance. The Minister said that the clause might mean only a minor change in people’s bills, but I am concerned less about the 0.5% increase than about the precedent that has been set by what is happening this year and what happened last year. My main fear is that the UK Government will decide on a further increase.

This morning the Chancellor said that the UK economy was affected by the fact that the markets were currently volatile, and that that volatility would continue. In such circumstances, we do not want people to worry about their future finances, and not to take out insurance because the economy is uncertain and they do not know how the financial situation will develop. It is necessary to have home insurance, just as it is necessary to have motor insurance, but premiums have increased significantly, mostly because of problems caused by climate change. Although the average increase will be £1, people who have been hit by flooding are having to pay massive premiums, and the 0.5% increase is likely to have a disproportionate impact on them.

We do not intend to press the clause to a vote, because we do not want Members to have to stay here longer than they have to, but I appreciate the opportunity to speak about it. Let me end by emphasising that our concern relates to the longer term. Although 0.5% is a fairly minor hike, if the amount continues to rise year on year there will be an additional problem for household budgets, and a negative impact every year.

[Richard Burgon (Leeds East) (Lab)]

I am pleased to be able to add my contribution to those already made by Members on both sides of the Committee.

As my hon. Friend the shadow Financial Secretary has said, the Bill is rooted in unfairness, and we fear that this tax change may engender further unfairness if it is passed on to customers. Clause 129 increases the standard rate of insurance premium tax from 9.5% to 10%, initially from this October, and all premiums, including those in the special accounting scheme, will be subject to it from February 2017. The Chancellor also announced in the Budget that the funds generated by the increase would be allocated to increased spending on flood defences. What concerns us is how this will affect the insurance market, how it will affect the millions of customers who need access to insurance, and how effectively it will deliver the flood defences that we so desperately need.

This is the third increase in insurance premium tax under the current Chancellor, following increases in 2011 and in last year’s Finance Bill. The first increase was from 5% to 6%, a comparative leap of 20%. Last year’s increase was from 6% to 9.5%, and there was then a 58% leap. This year’s 0.5% increase to 10% is therefore comparatively smaller. Some insurance companies have welcomed the fact that it was not larger, but it follows hot on the heels of the previous change. The frequency of increases is picking up, and that frequency is causing concern.

In March, Ben Flockton of PricewaterhouseCoopers said that of

“concern to many insurers is the prospect of gradual but frequent rate rises.”

David Jordorson, of the Association of British Insurers, said recently that the association had urged

“HM Treasury and HMRC to revisit the arrangements for how rises are implemented”

in order to

“put members on a clearer footing when future rises come”.

Perhaps the Minister will put us straight on whether the Government expect to hold the current rate where it is after the Finance Bill, for the next five years or for just one year—or will we see a further change in the autumn statement? I am sure that the industry, consumer groups and policyholders will be hanging on to our words in this debate.

The latest increase brings the standard rate of the tax up to a total of 10%, which is a doubling—a 100% increase —since 2011. Cumulatively, these three rate rises being passed on to customers would have a real impact on disposable incomes and on policy uptake. We understand that this change will have an impact on 26 million drivers and 20 million households. It will also hit 3 million pet policies and 3 million private medical policies. Our concern is that the industry will pass on this cost to its customers. Moneysavingexpert.com put it bluntly when it said:

“Millions of households and motorists will pay more...a further rise in the cost of pet, car, mobile, contents, buildings and private medical insurance”.

James Dalton, director of general insurance policy at the Association of British Insurers, said:

“Another increase in Insurance Premium Tax would be a raid on the responsible that laser-targets those who do the right thing. It will hit those on low incomes and increase the risk that some people reduce their cover or stop insuring altogether.”

Chas Roy-Chowdhury of the Association of Chartered Certified Accountants said that

“the rise will affect anyone who has home or car insurance wherever they live.”

More recently, in the last few weeks, the AA has published its latest British insurance premium index, covering the first few months of 2016. It found that the average quoted “shop-around” premium—that is, the average of the five cheapest quotes for each customer in a variety of scenarios—had jumped by 5.4% to £114.52 a year at the end of March 2016. So the emerging evidence is of an increase in cost of insurance to the customer.

I will come to the issue of flood defences later, but the Chancellor stated in his Budget speech that this measure was also intended to help to fund the cost of flood defences. I want to raise the issue of flood insurance, including that provided through the Flood Re scheme, which is already increasing costs for customers. Of course we on these Benches support the introduction of Flood Re, but insurers are having to pay a total of £180 million to Flood Re, and that is being passed on. In a survey by the Financial Times, seven out of the 10 largest home insurers said they would pass all or some of the levy directly to customers. I understand that 350,000 properties are currently expected to benefit. We believe it is vital that those in flood-prone areas can access the insurance they need, particularly as the instances of flooding as a result of climate change appear to be on the increase.

What will be the impact of the insurance premium tax and the Flood Re levy being passed on to customers? Our concern is the effect on take-up for those on the margins—that is, those hit by other attacks on income in this Finance Bill, in the Chancellor's Budget and, who knows, in his emergency Budget yet to come, as well as those hit by successive cuts to pay, pensions and protection of welfare payments over the past six years. The Government’s policy paper relating to the change in the Bill states:

“The measure is expected to have a small impact on individuals and households purchasing insurance which is not exempt from IPT, if insurers choose to pass on the IPT rate rise to customers”.

I would like to take this opportunity to ask the Minister what the term “small impact” means. Which individuals and households will be impacted upon? What discussions did the Treasury hold on the likelihood of the increase being passed on to customers, both with insurance providers and with consumer groups?

The Government’s policy paper also says that no equalities impacts have been identified. The Association of British Insurers has highlighted the fact that many families face insurance bills around £100 higher as a result of last year’s increase. We are concerned that this is a tax burden that will ultimately be paid by ordinary people taking the responsible approach and insuring their homes and motor vehicles. What will it mean for those on lower incomes? Will younger or older drivers be disproportionately adversely affected? How will the change’s impact be monitored? Our worry is about the impact of rising costs, contributing to our overall concern about the Finance Bill as a whole. That is why, when the last change to insurance premium tax was discussed in the previous Finance Bill just a few months ago, my hon. Friend the Member for Worsley and Eccles South (Barbara Keeley) tabled an amendment.