Value Added Tax Bill

Lyn Brown Excerpts

Friday 8th February 2019 Commons Chamber

[Lyn Brown (West Ham) (Lab)]

I am delighted to be here today to discuss this fascinating subject—what a lovely way to spend a Friday morning!

Unlike most other taxes, VAT is paid by us all, and we all have an interest in ensuring that it is applied in the fairest and most effective way possible. As Members know, 16.8% of tax collected in 2018-19 is forecast to come from VAT, according to the Office for Budget Responsibility. With that in mind, we must weigh our words carefully. As we have rehearsed, we have to consider both the rate and the tax base of VAT, as VAT revenue goes towards the public services that most of us rely on. The significance of VAT to the Exchequer has fluctuated over the years. The total amount raised from VAT has grown over time from £57 billion in 1999 to 2000 to £122 billion in 2012-13, with the only sustained dip being in the years of the financial crisis, when VAT revenue dropped from £81 billion in 2007-08 to £74 billion in 2009-10. However, as we know, as a proportion of GDP it has increased only slightly, from 5.5% in 1999-2000 to 6.1% in 2016-17.

As we have discussed today—I think that almost every speaker has alluded to it—VAT does not affect our constituents equally. The most recent data from the Office for National Statistics shows that the poorest fifth of households paid 13% of their disposable income in VAT compared with 7% paid by the richest fifth of households. To quote the ONS,

“indirect taxes increase inequality of income.”

As we all know, different Governments have taken different approaches. Members with long memories—I see that my hon. Friend the Member for Ealing North (Stephen Pound) is behind me, and I am sure that the hon. Member for Christchurch (Sir Christopher Chope) will be included in this group—may remember that it was a Conservative Government who first introduced VAT in 1973, another Conservative Government who raised it to 15%, and yet another Conservative Government who raised it to 17.5%. It was therefore a bit of a surprise when, ahead of the 2010 election, the Conservative party spokespeople said that they had

“absolutely no plans to increase VAT”

to 20%. I think I hardly need remind the House of what happened next, or of the fact that the headline rate of the VAT has remained at 20% since the coalition Government put it there. I always like to remember the Liberal Democrats at this point. They are not here today.

[Stephen Pound]

They are not anywhere.

[Lyn Brown]

They are not anywhere today.

After considering these matters of history, let me touch on the question of which goods and services VAT is applied to. The choice of which goods and services we apply reduced rates to is political, not just technical. It is an example of the priorities we have as a society. We see that in some of the items that are exempt from VAT, such as sports activities because we want to encourage physical and mental health, and admission charges to museums, art exhibitions and education services because we think that that sort of thing is good for the education and mental health of our nation. There has been much discussion—I thank hon. Members in all parts of the House for this—about the imposition of VAT on sanitary products. When the rate was reduced by the last Labour Government, it was the lowest rate permissible under European legislation. On the other hand, my party unveiled plans ahead of the 2017 general election to charge VAT on private school fees. The money we raised could have been used to pay for free school meals for all primary school children—a policy that has already been implemented at local level by some really insightful Labour councils, including my own in Newham.

The current Chancellor was reportedly considering copying the idea—if newspapers are ever to be believed.

[The Exchequer Secretary to the Treasury (Robert Jenrick)]

No.

[Lyn Brown]

I hear that.

We are told that the Chancellor was forced into ditching the policy only because Conservative Members were up in arms. It seems quite clear, therefore, that there are political rather than technical reasons for what we choose to exempt and not to exempt from VAT.

We should also understand that fraud continues to be a serious issue for the Exchequer in relation to the collection of VAT. On Government estimates, VAT fraud currently costs the UK about half a billion pounds a year, with an extra £1.5 billion of uncollected debts and around £100 million of avoidance. VAT fraud was discussed at length during the Committee stage of the Finance Bill in October 2017, when the Government introduced a new clause to place new obligations on fulfilment houses to help tackle VAT fraud, which has worsened with the rise of online sellers who obtain goods through third-party vendors based abroad.

The Opposition believe that small businesses need more support in getting to grips with the tax if we are ever to close the VAT gap. The situation has been worsened by the Government’s disaster-struck attempts to transition to making tax digital, which have thankfully been delayed until next year to give businesses the chance to adapt.

Many of us spend a large proportion of our lives online, so it is unsurprising that more UK consumers than ever buy a larger proportion of their goods through online marketplaces such as Amazon, eBay and others. In 2016, 14.5% of UK retail sites were online—up from 2% in 2006. Just over 50% of these sales were through online marketplaces, rather than directly from the seller.

The Campaign Against VAT Fraud on eBay & Amazon in the UK—a snappy title, which was possibly created by accountants—estimated that online VAT fraud

“equates to £27 billion in lost sales revenue”

and

“additional taxes to UK businesses and the public purse in the last 3 years.”

Her Majesty’s Revenue and Customs has stated that it does not have data on online fraud and other losses before 2015-16.

Sadly, the slowness of HMRC in responding to growing fraud online has been criticised by the Public Accounts Committee, which first raised concerns in April 2013. It found that HMRC had only recently begun to tackle the problem seriously, despite the fact that such fraud leads to significant loss of revenue to the Exchequer. It found that HMRC, rather than trying to use its existing powers, waited until the introduction of new measures under the Finance Act 2016 before even attempting to hold online marketplaces responsible for the VAT fraudulently evaded by traders. HMRC has been too cautious in using these powers, and the Government have refused to name and shame complacent traders. To my knowledge, they have not prosecuted a single one for committing online VAT fraud.

As the UK leaves the protection of the EU VAT area, the possibility of VAT fraud will, arguably, rise. It is therefore logical that any new legislation on VAT should consider additional measures to tackle online VAT fraud. I understand from the Treasury Committee that HMRC believes there is a £3.5 billion VAT gap resulting from mistakes made by businesses when they submit their VAT returns. The overall VAT gap in 2016-17 was £11.7 billion. I am sure we can all agree that that is a high number and therefore probably requires some fairly urgent, radical action.

The Chartered Institute of Taxation has six recommendations to help address this gap. I want to focus on just one of them today, in the interests of time and sanity, which is

“resisting the temptation to introduce widespread changes that are disruptive to the majority of compliant businesses”.

Possibly, this connects to a concern about the clause we are addressing.

I am aware that there is something of a live debate on registration thresholds. There were several briefings ahead of last year’s Budget that moves were afoot to reduce the threshold and force more small businesses to register for VAT. There are, I honestly believe, arguments both in favour and against such an approach. I have actually debated this over my breakfast table with my husband, who just happens to be a small business owner. A concern about the threshold is not an argument for a particular threshold, because I think the only way to address such a concern would be to reduce the threshold to zero, which is something we certainly do not support. Conservative Members may claim that by setting the threshold too low we are disincentivising businesses. There are some who claim that the existence of health and safety legislation or, indeed, employment law is a disincentive to business—I know that to be true because I have done many Friday mornings—so we should be very careful where that argument takes us.

There is much in this Bill that I am sure the hon. Member for Christchurch would agree needs further consultation. First, I am not sure how the shift in threshold for registering taxable supplies in this Bill, from £85,000 to £104,000, has been worked out. It would be great if the hon. Gentleman, in his summing up, could let me know. It would also be useful to know how much consultation has gone into the exemptions for the use of coal, oil and gas as domestic fuel or power, because it is not clear to me that, as we seek to reduce fossil fuel emissions, the use of such fuels should be subsidised. I am sure he would agree that, again, this needs a broader consultation and consideration of how such a measure sits alongside other measures being taken, including by this Government—

[Sir Christopher Chope]

Will the hon. Lady give way?

[Lyn Brown]

Let me finish my sentence. Such consultation should include how such a measure sits comfortably alongside other measures being taken by the Government—for example, through the Climate Change Act 2008. If I finish the next bit, just to wrap it all up, the hon. Gentleman may find that easier. I wonder how workable or sensible it is to propose exempting VAT from items already subject to excise duty, such as alcohol and tobacco, and whether this could be counterproductive as it could amount to two policy measures pulling in different directions, with excise duty increases to try to discourage consumption and a VAT exemption in effect reducing the price.

[Sir Christopher Chope]

Does the hon. Lady recall—perhaps she does not—the 1993 Christchurch by-election, after the Government had introduced VAT on fuel? In that by-election, the Government’s argument for introducing VAT on fuel was that it would promote fuel efficiency, and the electorate in Christchurch gave the Government’s argument a big raspberry.

[Lyn Brown]

Can I say that I am not at all surprised—not at all—by that? No, I do not remember the 1993 Christchurch by-election. However, I assure the hon. Gentleman that, after I have driven to my friends’ this evening, I will ask them to look it up for me so that as soon as I get my gin and tonic, I will have an opportunity to refresh my memory of the politics of that by-election.

I am genuinely delighted—I mean this sincerely, which is why I wanted to say this at the end—that the hon. Gentleman wants to exempt women’s sanitary products through this Bill. There has been ongoing work, driven by some of my Labour colleagues and, to be fair, by some Conservative Members as well, to allow lower VAT rates or even a zero rating for sanitary products. I wholeheartedly agree, and I genuinely believe that we should be striving massively to do it. There is real poverty in some sections of our communities and poverty in relation to sanitary products really should not be exacerbated by having VAT on them. In January last year, the European Commission came back to us with revised proposals to allow countries in the EU to introduce lower rates for sanitary products, and in part that was in response to campaigns from this Chamber. As we know, the proposals still have to be agreed at EU level, and of course the UK has yet to finalise its relationship with the EU.

This has been a genuinely interesting debate, and I thank the hon. Member for Christchurch for entertaining me so thoroughly on a Friday morning. He will be unsurprised to hear that should the Bill be pressed to a vote, sadly I will not be able to support him in the Lobby.

Oral Answers to Questions

Lyn Brown Excerpts

Tuesday 29th January 2019 Commons Chamber

[Elizabeth Truss]

One of the reasons we introduced UC was to make sure that work always pays and we have been continually working to make the system better, reducing the taper rate. Of course we continue to look at that as we roll it out.

[Lyn Brown (West Ham) (Lab)]

For heaven’s sake. In the last two years of the Labour Government, the number of children living in absolute poverty fell by 400,000. In the next seven years of Tory rule, it fell by only 100,000. At this rate it is going to take 28 years for the Tories to achieve what Labour achieved in two, and one and a half centuries to end child poverty, even without this Government’s blooming Brexit disaster. Does the Minister not understand—this ain’t success, or doesn’t she care?

[Elizabeth Truss]

If we are going to trade statistics, at the end of the last Labour Government, 20% of young people were unemployed and 1.4 million people were on welfare and left on the scrapheap. We have record employment and the lowest unemployment since the mid-1970s. The way we are going to solve the issue of poverty is to help people get on, help people get into work and get our education levels up.

Finance (No. 3) Bill

Lyn Brown Excerpts

3rd reading: House of Commons & Report stage: House of Commons
Tuesday 8th January 2019 Commons Chamber

[Simon Hoare (North Dorset) (Con)]

Given the heinousness of the charges that the shadow Minister has laid against Her Majesty’s Government, I presume that this is further grist to his party’s mill for a no-confidence vote. When will that be tabled and debated in this place?

[Lyn Brown (West Ham) (Lab)]

I don’t think he is taking it seriously.

[Peter Dowd]

My hon. Friend is absolutely right. We are here debating the Finance Bill and the Government’s dreadful performance in bringing legislation to the House for much-needed scrutiny. They seem to be incapable of doing that. They seem to be incapable of doing very much these days.

Has it not occurred to the Government that had they entered this place in a spirit of co-operation, they might not have suffered defeat after defeat on this legislation? This Finance Bill is the product of a Government on the run—a Tory party totally consumed by its Brexit civil war, unable and unwilling to posit even the feeblest domestic agenda here for fear of upsetting its nasty, hard-right faction. The Prime Minister’s speech about fighting burning injustices has turned to ash. Her claim that she would end austerity lies in tatters. She occupies our highest public office, and yet the public have no confidence in her—neither do many of her own Back Benchers, for that matter.

Meanwhile, the view is even worse from the Treasury. The Institute for Fiscal Studies said that the Chancellor was gambling with the public finances at this Budget, and it seems that even before the Bill has left this place, he has already lost that bet. The Office for National Statistics recently blew a £12 billion hole in the Chancellor’s spreadsheets by returning student debt to the Government’s books.

So one has to wonder, what is the point of the Tory party—unable to deliver a competent Brexit deal, unable to secure our economic future, unable to meet its own fiscal rules, and unable to deliver a domestic policy programme? It is a party still reliant on the old dogmas of neoliberalism and austerity, unable to see the evidence of its failures. An example of this absurd neoliberal dogma came over the break when, as we heard today, the Transport Secretary awarded a ferry contract to a company with no ferries. If he is looking for expertise in this matter, perhaps I can invite him down to Merseyside, where we have been running ferries since 1330, very successfully—and they are publicly run, I have to say. I invite him to have a go on a ferry up the River Mersey and get the feel for how it works, basically. He will have diplomatic immunity and will not be thrown overboard—I can guarantee that as well.

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[Jonathan Reynolds]

Thank you, Mr Deputy Speaker.

I have just talked about some of the consequences of crashing out without a deal. I have talked about relationships, about tariffs on products and about the legal definitions under the common agreements that this country has undertaken with other European countries. We all know this—the information is readily available—so I am not quite sure what point the hon. Gentleman is making. I think he is aware of the dangers of taking this course of action.

[Lyn Brown]

He is frustrated with his own Government.

[Jonathan Reynolds]

And yes, people are frustrated with the Government.

Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) Order 2018

Lyn Brown Excerpts

Monday 10th December 2018 General Committees

[Lyn Brown (West Ham) (Lab)]

It is an absolute pleasure to serve under your chairmanship, Mr Hosie. As the Minister said, the VAT MOSS system was introduced in 2015 as a means for small businesses that export digital services to simplify how they pay VAT to different EU countries. The locus for VAT payment was changed from the country of the seller to the country of the buyer.

As hon. Members are aware, the introduction of VAT MOSS was chaotic, to put it mildly. Labour MPs and MEPs were involved in trying to ensure that microbusinesses could continue to operate despite ambiguity about whether or how they should be paying VAT on digital services. I am told that, unfortunately, some of the platforms used by many of the microbusinesses refuse to aid them in capturing the customer data required to enable them to pay VAT through VAT MOSS. It would be helpful if the Minister could inform us of any discussions his Department has had with online platforms about how they will be able to support microbusinesses in complying with the new VAT rules.

The EU VAT rules mean that even very small businesses that currently export digital services to other EU member states have to account for VAT for each and every country in which they make a sale. For example, a music publishing business in the UK that allows fans in other EU countries to pay to download music would have to collect two separate pieces of data to prove which country each payment has come from. That is necessary for small businesses to confirm that they are compliant with the law and paying the right VAT.

In 2011, the average cost for small and medium-sized enterprises to account for VAT in other member states was estimated by the European Commission to be roughly €4,100 a year, although that was before the introduction of VAT MOSS. For many smaller digital businesses, high administration costs could make engaging with customers in other EU countries simply not worth it. The Commission found evidence that having to deal with a range of different VAT regimes was leading to geo-blocking, where businesses actively deny access to their services to consumers from different EU states. The problem is not just that small businesses obviously lose trade revenues, but that opportunities for those thousands of small businesses to increase productivity and for trade growth simply are not being taken up.

The directive that this SI implements, Council directive 2017/2455, is designed to remedy that situation. It allows small businesses to operate solely within their own country’s VAT regulations if their sales to customers in other EU countries are worth less than the local equivalent of €10,000. This statutory instrument incorporates the 2017 directive into UK law, with the threshold figure set at £8,818. It is based on the exchange rate published by the European Central Bank at the time the 2017 directive was first adopted by the European Union. Businesses will have the option to opt out of these changes. If they do, they will have to follow the previous VAT rules and account for transactions in every EU member state in which they have made a sale for the following two calendar years.

The Institute of Chartered Accountants in England and Wales has pointed out that, because our domestic VAT laws also contain thresholds, a small number of firms may be able to use this new exemption to ensure that they will not have to register for VAT anywhere, despite trading in both the UK and other EU states. Has the Minister made any assessment of the number of firms, if any, that would be in that position?

The new rules could increase VAT revenue in the UK as small services exporters opt to pay VAT here to save on the administration costs involved in accounting for transactions elsewhere. However, they could also decrease VAT receipts in the same way if firms in other EU countries that export here do likewise. Which effect will be larger will partly depend on the UK-EU balance of trade in services for this specific set of small digital trading businesses. Has the Minister made any assessment of whether this change will lead to net gains or net losses in VAT receipts to the Treasury?

I would also like to know more about the threshold, which is set at a nominal value of €10,000 across the EU and has been converted to £8,818 based on the exchange rate on a specific day. There seems to be no mechanism to uprate this threshold automatically to compensate for inflation or nominal growth in the economy. Presumably, that will mean that, unless the threshold is uprated through legislation every few years, EU-wide the exemption this SI establishes will be relevant to fewer and fewer businesses over time and will stop serving its intended purpose. Does the Minister know of any plans to uprate this threshold in future or to establish a mechanism to do so automatically?

Brexit will have an obvious effect. Let us imagine, wildly, that the Government’s Brexit deal goes through once we are given the opportunity to vote on it. This is an area where, to quote the draft political declaration,

“the United Kingdom will consider aligning with Union rules in relevant areas.”

It is noteworthy that the VAT reform process within the EU is ongoing, and major changes are on the horizon. EU institutions are working on

“a simpler and resilient definitive EU VAT system”,

which, as things stand, could deeply affect our businesses, including SMEs, but our Government may have little influence. Has the Minister considered how to engage with those reform proposals, how continued alignment will work if we take that course, or how to adapt domestic policy to minimise damage to trading businesses if we end up on the outside of reformed VAT regulations in the future?

If we face the disaster of no deal after 29 March, small businesses will have had to deal with three different sets of VAT rules within just three months. The current set of rules will apply until new year’s eve. The new rules will apply until 29 March. From 30 March, businesses will potentially need to use the rules for non-EU VAT registration. That seems deeply unfair to small businesses. How will HMRC keep businesses up-to-date on the rules that will apply to them if Brexit goes badly? I fear that this is yet another case in which the Government’s failures in the Brexit negotiations are leaving UK businesses without the certainty that they crave.

Financial Implications for the Next Generation

Lyn Brown Excerpts

Tuesday 4th December 2018 Westminster Hall

[Lyn Brown (West Ham) (Lab)]

It is an absolute pleasure, Mr Hollobone, to serve under your chairmanship.

I am very grateful indeed to the hon. Member for South Dorset (Richard Drax) for giving us the opportunity to discuss the very real financial implications for the next generation of this Government’s continuing austerity policies.

We have had eight years now of claims that we have to tighten our belts for the sake of the future. Where has it got us? We are simply storing up problems for the future by destroying the public services on which so many people depend. Last month, the United Nations sent its special rapporteur on poverty to the UK and one of the evidence sessions was held in my constituency. I was there, and I have to say that it was really hard to sit and listen to that evidence. We heard about mums whose young children were not learning to crawl because they were confined to a bed in a small, rat-infested room; the mums could not let the children on to the floor. We heard from parents who had to move their children many times in a single year, from hostel to hostel, preventing friendships and bonds from being created in any community, and forcing the children either to move schools, which would severely disrupt their education, or to face hours of travel every morning and afternoon to get to school and back.

We also heard from vulnerable mums who had survived violence inflicted by people they were living with; they were forced to stay where they and their children were, although they were at significant physical risk, because they simply had nowhere else to go. The services that they needed had simply been cut.

What kind of physical, emotional and developmental problems are we storing up for these children’s future? For me, it is obvious that this kind of poverty is an absolute calamity for their life chances. And it is not just me who is saying that; it is what the UN rapporteur concluded. He noted that 14 million people in the UK are living in poverty today, and that 1.5 million people in the UK are utterly destitute, unable to afford essentials such as shelter, food, heating or clothing. These essentials keep a body and mind healthy and productive, but 1.5 million people—including 365,000 children—do not have access to them.

As we all know, health is extremely important to life chances. The Food Foundation has shown that the poorest quarter of households in the UK would have to spend more than 25% of their disposable income to follow the Government’s “Eatwell” guidelines. That is a quarter of their disposable income going just on food, and more than half of the households that are deprived of food include children.

Let me tell a story from my constituency. I met a young girl at an event where food was provided. Her plate was piled high, and I looked at her and said, “Whoa! That’s an awful lot of food for a small person!” “Yes,” she beamed. “It’s not my turn to eat tonight.” She was young and she had adapted, so for her such circumstances were normal. How will she and all the others in the same desperate situation feel when they realise that it is not everybody’s “normal”?

Some families are struggling to eat, let alone eat healthily; the increasing reliance of so many families on food banks is clear evidence of this. The Trussell Trust has released figures showing substantial increases of take-up of food banks year on year on year, and it is predicting bumper usage this Christmas.

When families cannot afford to eat, it has an impact on their health. Poor physical health or poor nutrition in childhood impacts upon a child’s physical, mental and educational growth. As a basic, how can a child concentrate in school if they are hungry? How can they make the most of their education? How can they develop the skills that they need for a prosperous adulthood? And how can they provide the skills that we need for a prosperous economy?

A sickly or malnourished child takes health risks and medical risks into their adulthood, costing the NHS much more than if they had been given a decent start in life. Reducing support to children today is a false economy; the state of tomorrow will have added costs because of it. The title of this debate is absolutely right—the next generation faces a financial threat from today’s austerity policies. That is one of the reasons why Labour is committed to universal free school meals, so that no child goes hungry in term-time, and it is also why we are committed to a real living wage and a social security safety net that keeps families out of poverty.

Let us have a quick look at the Government’s investment in the future economy through schools, further education and adult education, to give the next generation the skills and opportunities that they will need for the future. Investment in further and adult education has been cut severely. Spending per student in FE colleges is 21% lower than in 2010; the number of adult learners has fallen by a million; and overall spending on skills for adults has been cut almost in half. Now, 60% of small and medium-sized enterprises say that poor skills are their biggest challenge, and eight in 10 FE college leaders say that funding cuts are preventing them from filling that skills gap.

So there is a skills crisis and it is already affecting productivity and growth, but in the October Budget the word “college” did not appear once. I say again—how can this Government claim to be investing in future generations when they refuse to invest in the skills that businesses are demanding?

--- Later in debate ---

[Mr Philip Hollobone (in the Chair)]

The new finish time for the debate is 6.22 pm.

[Lyn Brown]

Let us face it: schools are faring badly. The Chancellor’s gift of £400 million in the Budget for some “little extras” was frankly insulting in the context of billions of pounds of cuts. If the Institute for Fiscal Studies is right, capital spending on schools has fallen by £3.5 billion—a 41% real-terms cut. I can see it in my constituency every time I visit a school. They are struggling, and they are also struggling to keep their students safe from grooming and crime at a time when young people’s services are disappearing, again due to cuts. Violent crime is rising and destroying the futures of increasing numbers of young people in my constituency, but the Treasury’s only response is to announce £170 million for our neighbourhood police services. That sum would cover less than 40% of the police pensions black hole, so it is unlikely to stop the fall in the number of officers on our streets. Reports suggest that half of that £170 million will have to come from elsewhere in the massively overstretched Home Office budget, so what will be cut to make up for it? Will it be firefighters? Will it be Border Force?

The next generation will not thank us if we leave them more vulnerable to fire, crime and terrorism. The cuts to councils have ensured that children’s services are under threat. Sure Starts and libraries are closing. We are charging for sporting activities in communities that help keep children healthy. There is not enough money to employ the youth workers that we need to teach my children resilience against the groomers.

Since 2010, the Government have claimed that austerity is working to bring down the debt and make spending sustainable, but that is simply wrong. They have missed every deficit target they have set themselves. They said they would eliminate the deficit by 2015, but now the Office for Budget Responsibility says that even eliminating it by 2025 will be challenging with the current approach. To the extent that the central Government deficit has reduced, much of that has been done by passing debt and problems to the future, where they will require more spending to fix. The Government are passing problems into the lap of our underfunded schools, hospitals, local councils and police forces. That does not make the next generation more secure or our public debt more sustainable.

Future generations are not being protected by austerity; they are being harmed by it. We need public investment to repair the safety net, to improve the public services that underpin the life chances of the many and to drive growth that benefits the whole country. In fact, we need a Labour Government to rebuild Britain.

Draft Central Securities Depositories (Amendment) (EU Exit) Regulations 2018 Draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018

Lyn Brown Excerpts

Tuesday 4th December 2018 General Committees

[Lyn Brown (West Ham) (Lab)]

It is an absolute pleasure to serve under your chairmanship, Mr Evans.

As we know, the regulations before us are two of a large number of statutory instruments relating to preparations for a potential no-deal Brexit. We expect around 70 to have been tabled by February. With this process, we have effectively begun to construct the bare bones of a functioning regime for financial regulation post Brexit.

Labour has consistently advocated for consolidated legislation on financial regulations. Since 2010, we have been faced with confusing, piecemeal legislation. There were financial regulation Acts in 2012, 2013, 2014 and 2015, and there have been more since—reams of reams of detailed amendments to legislation that was already complicated. On top of those Acts, Delegated Legislation Committees like this have attempted to scrutinise the many pieces of secondary legislation that have been needed to correct technical errors.

Put simply, we are concerned that the process for these Brexit regulations is not accessible or transparent. Not only does that make our role more difficult; it raises questions as to how stable the regulations will be if they do need to be used in respect of the industry itself or the wider public. My colleagues who are normally in this place, because I am not one of the economists in my team, have been reassured by the Government that these measures will not come into force should a deal be agreed before 29 March, but many of these powers could be applied whatever happened with Brexit. Which provisions will be revoked or substantially modified if, for example, we go into an implementation phase and no deal has, rightly, been ruled out as a possibility?

Before I ask my other questions, I want to make it clear why I think the regulations are important. The global financial crisis a decade ago taught us that the trading of derivatives and other securities needed to be better regulated within a transparent framework, and with robust infrastructure to monitor and enforce compliance. During the crisis, there was behind-the-scenes, over-the-counter buying and selling of complicated financial contracts, introducing risks that regulators and financial firms themselves could not properly assess or manage. There was no requirement to keep proper accessible records in the midst of that terrible crisis, and regulators could not always know who had bought which derivative and from whom. That meant that they could not know which banks or other financial institutions were exposed to bad loans or wrongly priced assets, gumming up the works of the financial system, and which were close to going under.

That is why, in the immediate aftermath of the crisis, it became a priority of the G20 in 2009 to move the regulation of over-the-counter derivatives to a regulated clearing framework. That change was put in place across the EU by the European market infrastructure regulation, which is implemented by the European Securities and Markets Authority. Having a robust, transparent infrastructure for derivatives trading imposes compliance requirements on firms across the EU, but it does help to protect us from a repetition of the events of 2008—we hope.

Colleagues will be aware that the draft Central Securities Depositories (Amendment) (EU exit) Regulations 2018 will make technical changes to ensure that the UK still has functioning regulations for central securities depositories, or CSDs, in the event of no deal. The regulations will transfer the power to make equivalence decisions from the European Commission to the Treasury. They will transfer powers from ESMA to the Bank of England, enabling the central Bank to recognise third-country CSDs after Brexit. They also make amendments to the transitional regime so that third-country CSDs can continue to provide services relating to the UK after exit.

The draft Trade Repositories (Amendment and Transitional Provision) (EU Exit) Regulations 2018 are intended to ensure that the UK’s legal framework for the reporting of derivatives trades to trade repositories continues to operate effectively after Brexit. Of course, we support the general aim of improving the transparency and predictability of the settlement of securities transactions. However, I do have some specific questions.

The explanatory memorandum for the draft central securities depositories regulations says that they aim only to ensure that the UK’s framework will continue “to operate effectively”. Will the Minister clarify whether any departure at all from EU rules is envisaged, however small? The Treasury website’s guidance on those regulations states that an application before exit

“will be subject to existing UK law…while that application is being considered.”

Will the Minister elaborate on whether there is any difference between the UK law that applies to applications before exit and the onshored regulation, once firms switch to it?

Similarly, the transfer of regulatory powers does not tell us anything about how UK-based companies will be affected in their future relationships with other countries’ financial sectors. How will any decisions about third-country equivalence be taken in situations where in the past there was a joint decision by European and other authorities? In previous SIs, equivalence decisions have been transferred to the Treasury, not to the Bank of England. Will the Minister elaborate on why in this case it has been decided to transfer them to the Bank of England instead? How and why was the decision reached? Was it consulted on?

Our strongest commitment, as with all no-deal SIs, is to ensuring that such amendments to our regulations need never be used. We hope that they never will be, because a no-deal scenario is something that no responsible Government would allow to happen.

On the broader question of financial regulation, Labour will take measures to ensure that there is public faith in the financial and investment system. We will not repeat the light-touch regulation mistakes of the past. We have commissioned independent experts to report on how the regulatory system should be reformed to ensure that the kind of behaviour that caused such terrible damage during and before the financial crisis can never happen again. We know that people and society want and need banks in which they can safely deposit their money, that lend responsibly and that provide credit to finance investment across the whole country. All I can say is that I wish we were discussing how to do that, rather than these no-deal Brexit preparations.

--- Later in debate ---

[John Glen]

I thank the hon. Members for West Ham and for Glasgow Central for their points, and I will endeavour to answer all of them. I recognise that some of the scenarios are obviously not desirable, and I echo their comments about that. We are seeking a deal, and the framework of the deal for financial services would give us provision for early equivalence decisions before the end of the implementation period, and we hope that will happen. We believe that the regulations are necessary to ensure that the UK retains a fully functioning legal regime for the trade repositories and central securities depositories in the event of a no-deal scenario. I also want to make the point, which applies in response to both hon. Ladies’ comments, that the Government do not, in any eventuality, see the UK financial services sector trading on some deregulatory arbitrage basis, where we somehow remove ourselves from the context in which we have been so intimately involved within the EU with respect to regulations. The hon. Member for West Ham made reference to the Pittsburgh agreement in 2009 to improve transparency, and we stand by that. A holistic review was undertaken following the crisis and the ESMA rules came into effect to try to address that.

On the point about how stable the regulations on central securities depositories will be when needed, we have engaged extensively with the regulators and with industry, and we are confident that we will ensure a stable and functioning regime at the point of exit. With respect to what happens if there is a deal, the withdrawal agreement Bill will include provision to delay, amend or revoke statutory instruments made under the European Union (Withdrawal) Act 2018, so we would make a decision based on what was appropriate at that time.

The hon. Lady asked about the differences between the transition regime for CSDs and full authorisation or recognition under CSDR. While a CSD is within the transitional regime, it will be subject to the recognised clearing house regime in part 18 of the Financial Services and Markets Act 2000. Other legislation, such as the Financial Services and Markets Act 2000 (Recognition Requirements for Investment Exchanges and Clearing Houses) Regulations 2001, is also relevant. Recognised clearing houses must be recognised as part of the Bank of England, which gives an exemption from the general prohibition under FSMA IV regulated activity. A recognised clearing house may provide clearing services in the UK.

Once a UK CSD has been authorised, or a non-UK CSD has been recognised, the onshore CSDR regime will apply to it. That consists of the EU CSDR and the UK’s 2014 and 2017 regulations that implement it, and CSDs are given a separate exemption in section 285 of FSMA. As the hon. Lady pointed out at the start, the regulation is complicated by the way that those markets function. That regime is more extensive than the recognised clearing house regime and contains more detailed requirements about the operation and supervision of CSDs.

The hon. Lady also asked whether there would be any departures from EU law. The legislation is drafted using powers under the European Union (Withdrawal) Act 2018, so there is no policy innovation or deviation. That Act does not allow such policy changes, except where necessary to address deficiencies in language or such like. No changes are made to the regulatory requirements on CSDs.

The hon. Lady asked about the appropriateness of the Bank of England recognising non-UK CSDs. The Bank of England is obviously the UK regulator responsible for the authorisation and supervision of UK CSDs. It has a process in place for the recognition of UK CSDs and therefore has the most relevant experience for recognising non-UK CSDs. That sort of pattern has been followed throughout the construction, engagement and laying of these statutory instruments, so where the Commission is appropriate for making equivalence decisions, that comes to the Treasury, because we are equivalent, and the same with ESMA and the Bank of England.

[Lyn Brown]

There is one bit that the Minister has not touched on, which is third-country equivalence.

[John Glen]

The regime that we would be onshoring for the future recognition of third countries would be a matter for us to consider, on the same basis that we would be onshoring EU entities that would have a new legal entity in the UK. It will be the same process, but one that we would essentially have to do domestically, rather than relying on the ESMA framework.

I now turn to the points of the hon. Member for Glasgow Central. I acknowledge the recurrent but appropriately made comments about her party’s position. All I can say is that I have tried to conduct this in as professional a manner as possible. The regulators have the resources available. They have a supervisory framework and, through the levy, they have the ability to make the appropriate resources available.

The hon. Lady asked about the temporary registration regime, which is intended to allow existing EU trade repositories to continue to provide services to the UK. It allows the new UK legal entities, which are part of an ESMA-authorised group, to submit an application. In terms of the process for that application, she mentioned the drafts on the site. I cannot give her the responses to the letter of 25 October, but I undertake to write to her on that. I need to speak to the regulators to understand where they are with that.

The hon. Lady also made a point about the degree of engagement that we have had with the EU. We have had a wide range of discussions with our EU counterparts—I have not personally, but my officials have—on matters relating to our withdrawal from the EU and this matter.

The UK Government and regulatory authorities will continue to do everything we can to ensure a smooth adjustment for firms and customers on both sides. Unfortunately, as with many of these matters, we cannot determine the EU’s response. That has been a challenge over this period. It is inevitable that, in a no-deal scenario, hostility will break out. It is in the interests of all market participants, regulator-to-regulator, Government-to-Government, to continue to work closely together, because that is in the interest of stability.

I believe that has addressed most, if not all, of the points raised.

2019 Loan Charge

Lyn Brown Excerpts

Tuesday 20th November 2018 Westminster Hall

[Lyn Brown (West Ham) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Walker. Today we have heard some awful stories from my hon. Friends the Members for Mitcham and Morden (Siobhain McDonagh), for Poplar and Limehouse (Jim Fitzpatrick), for Lewisham East (Janet Daby), and for Ellesmere Port and Neston (Justin Madders) and others, and I am grateful to everybody who has contributed to the debate and put the case so clearly.

There is no doubt that small business owners, contractors and others who have used these schemes will be significantly affected by the charge next year. Many are not wealthy people. They did not intend to avoid tax, and until recently many were not aware that there was even an issue. In some cases, the schemes were presented by agencies or employers as part of a standard contract. Some people could lose their livelihoods; some could lose their homes. The schemes we are talking about are a form of tax avoidance, and it is right that tax owed is collected. Avoidance should not pay—that is the principle. However, those who will be negatively affected by these schemes deserve our empathy and understanding, and many of the stories we have heard confirm that some of those affected are vulnerable and became caught up in these schemes without initially comprehending what they were all about.

If what is being reported is correct, it is an absolute disgrace that hospital cleaners, locum doctors, nurses, council workers, social workers and other people who work hard for the public on low or moderate pay were recruited into these schemes by tax advisers and bogus umbrella companies. It is an absolute disgrace that the Government are determined just to take on those individuals, rather than those who facilitated this avoidance for profit—those who fully knew what they were doing, and did it anyway.

If the reports are right, in some cases nurses or other public servants were made redundant by public sector organisations, only to be hired immediately as contractors through agencies who then facilitated these tax avoidance schemes. What action have the Government taken against those agencies? Some might say that this was fraud, because the schemes were not a genuine way to reduce tax liability. I have some sympathy with that view, because the schemes seem to have harmed many “clients”, and in my head I cannot justify a professional tax expert setting up such a scheme and getting a nurse, a social worker or someone else on a low or moderate wage involved in it. If it is not illegal for those tax experts to do that, it bally well should be.

Let me ask the Minister a direct question: if his Government maintain that these arrangements were illegal when entered into, why have they done nothing about the advisers who recommended them? Does he agree that when advisers promoted these schemes, they were promoting something illegal? The advisers get off scot-free while those who can ill afford it carry the can.

One of the employee benefit trust schemes we are talking about was created by Deloitte, which is one of the largest business services companies. It was put in place by Deutsche Bank, working with offshore entities in the Cayman Islands that were set up for this specific purpose. That was confirmed by the Supreme Court in 2016 following court rulings in 2014 and earlier. Two years on, however, there has been no investigation or prosecution, and no penalty for mass-marketing unlawful schemes. No accountancy firm has been disciplined by the professional body, the Institute of Chartered Accountants in England and Wales, and the Government did not even attempt to recover the legal costs spent fighting those cases. Why?

The Government’s priorities seem clear: they will not go after the enablers. We appear to be talking about advisers and employers who have exploited public service workers—workers who will see no benefit themselves—and at the same time directly reduced the tax that pays for those self-same public services. It is simply wrong, and it goes to show yet again how absurd, short-termist and unfair the outsourcing and privatisation policies have been.

We believe that clemency should be considered when businesses or people are at risk. As hon. Friends and other hon. Members have said today, if the loan charge causes businesses to go under next year, that will not help the Treasury recoup losses in the longer term. As the hon. Member for Aberdeen North (Kirsty Blackman) said, it will cost the public sector more if we have to evict people from their homes and rehouse them. I hope the Minister will tell us what the Government will do to treat everyone involved with compassion and care, particularly those who unintentionally fell foul of the schemes, including vulnerable people and those on low incomes. Campaigners say that the exact opposite is happening: people are being treated with little understanding or compassion by HMRC.

The impending deadline of April next year and the potentially severe consequences for anyone on a low wage who does not meet that deadline justify concerted outreach to those who have loan balances outstanding. We cannot let vulnerable people who have been exploited end up with massive tax debts hanging over their heads for many years to come. If we see bankruptcies, failing businesses, repossessions and even suicide, that will be because this Government have not done the outreach needed and not invested in adequate training. It will also be because the context for the charge is a cut to the HMRC workforce of 17% since 2010, even while they are rightly being asked to do more to tackle such complex problems.

We should not let the Government’s approach to loan schemes distract us from their absolute failure to deal with large-scale tax avoidance. Loan schemes are far from the only form that avoidance has taken in recent years, and are small in comparison with the tax avoidance methods used by the ultra-rich. Labour supports strong measures against tax avoidance. We want the Government to go much further. We want them to go after the enablers-those who knew that the schemes were tax avoidance and illegal, but who peddled them anyway. Thank you.

[Mr Charles Walker (in the Chair)]

And thank you, shadow Minister. This gives the Minister extra time to answer all the questions he has been asked. He will leave two minutes, because he is generous, for Mr Baker to wrap up at 3.58 pm.

--- Later in debate ---

[John Glen]

Others did, I appreciate that—that is fair. I take on board the sentiment of the Chamber with respect to ensuring that HMRC is engaged with those who promoted the scheme, as well as the other individuals.

[Lyn Brown]

I will be gentle, because the Minister knows, as I do, the peope who are really responsible in our respective parties for this particular piece of legislation. I would, however, be grateful if he takes on the responsibility to ensure that we are written to about the actions that the Government take against the enablers.

[John Glen]

I am very happy to engage with HMRC to get a letter setting out the action taken. I suspect that there might be some constraints on revealing details of individual live cases, but where data are available, I will make them available to hon. Members.

--- Later in debate ---

[John Glen]

Just one moment. It will consider all personal circumstances to agree a manageable and sustainable payment plan wherever possible, and it has recently announced simplified payment terms for individuals looking to settle their tax affairs before 2019.

I want to address another issue of the debate. Those who oppose the legislation have made claims that the loan charge will bankrupt public sector workers, including teachers, nurses and social workers. It is my understanding that 1,500, or 3%, of individuals will be involved in the health and education sectors but that most of the scheme users worked in professional services. The average salary of the scheme users was £66,000, which is considerably higher than the average annual wage.

[Lyn Brown]

rose—

[John Glen]

In fairness, I should allow the hon. Member for Aberdeen North (Kirsty Blackman) to intervene.

Finance (No. 3) Bill

Lyn Brown Excerpts

Committee: 2nd sitting: House of Commons
Tuesday 20th November 2018 Commons Chamber

[Lyn Brown (West Ham) (Lab)]

She’s only nipped to the bog.

[Luke Graham]

I appreciate that; I am sure that it will be well recorded in Hansard.

I, too, was an active participant on the Sanctions and Anti-Money Laundering Bill, and I agreed with the hon. Member for Oxford East on many points, especially about looking at the actions taken on overseas territories and Crown territories. In accepting some of the amendments, the Government committed to a course of action, and I am sure they will be pushing that through.

Tax collection is one of the most important duties of the Government. Whether in central Government, the devolved Administrations among the nations or, indeed, down in local authorities within the devolved Administrations and right across the United Kingdom, tax collection and record keeping are incredibly important. I welcome some of the measures introduced by the Government to increase the resourcing to HMRC. I would hope to see from right hon. and hon. Members the sharing of best practice and that we ensure that some of the people working for our tax collection authorities around the United Kingdom are going right around the United Kingdom. A number of local authorities need additional support and help with tax collection, and the sharing of best practice in technology, to ensure that they are actually collecting the tax revenues they are due.

I have two local authorities in my constituency, Perth and Kinross Council and Clackmannanshire Council, both of which face very extreme council funding issues in terms of raising local funds and cuts imposed by Edinburgh. When we look at the local services that have had to be cut as a result of the reduction in funding from Edinburgh, despite the increase in the Scottish block grant, we see that it is having a significant impact on education services, health services and local street services in my constituency. I would hope that even SNP Members could put pressure on the devolved Administration to make sure that they focus on proper tax collection, and also on proper tax expenditure.

As I have said, action taken by this Government has helped to bring in over £185 billion of additional tax revenue that we would not otherwise have been able to collect. Corporate tax revenues have also increased.

A key point has been raised—many Labour Members have spoken about it—about inequality when talking about absolute and relative poverty. This is important to note, because I think that the House should look at more objective statistics. In last night’s debate, I talked about strengthening the OBR to make sure that we can have credible statistics that Members on both sides of the House recognise, acknowledge and accept.

One key aspect of that is to look at the Gini coefficient, which has been recognised as a measure of inequality for a long time. If we look at the Gini coefficient in 2010 compared with where we were in 2016-17, we see that there has been a reduction in the coefficient, which means an improvement in the living conditions of people in the United Kingdom. Inequality has actually reduced according to the Gini coefficient.

Finance (No. 3) Bill

Lyn Brown Excerpts

Committee: 1st sitting: House of Commons
Monday 19th November 2018 Commons Chamber

[Leo Docherty]

You are absolutely right, Sir Lindsay. I certainly will not be tempted to stray from the clauses and new clauses that we are considering.

It is, of course, important to consider the approach to ownership of private property that the shadow Chancellor and his party laid out last year in a document that Members can obtain from the Library, entitled “Alternative Models of Ownership”.

[Lyn Brown (West Ham) (Lab)]

Why is this relevant?

[Leo Docherty]

It is relevant because it puts renationalisation at the front and centre of the Labour party’s economic policy. Regrettably, there are no figures in the document. That is because the cost of renationalisation, calculated by the Centre for Policy Studies, would be £176 billion: £6,471 for every single household. That is a deeply alarming fact.

That approach was given further voice when, just last week, the shadow Chancellor made a speech at an event hosted by Red Pepper. He discussed his broad economic approach, and his approach to tax and private property. He promised that the Labour manifesto would be even more radical than the last. This is relevant because, referring to Labour’s approach to the private ownership of land, the shadow Chancellor said:

“One of the big issues we’re now talking about is land, how do we go about looking at collective ownership of land”.

--- Later in debate ---

[Ruth George]

With such disagreement on statistics between hon. Members on both sides of the House, it would be helpful to refer to an impartial observer from the United Nations who has spent the past two weeks going across the United Kingdom and looking at our levels of poverty and the associated political choices. It is a damning indictment of not just our country but our Government that he concluded:

“The experience of the United Kingdom, especially since 2010, underscores the conclusion that poverty is a political choice. Austerity could easily have spared the poor, if the political will had existed to do so. Resources were available to the Treasury at the last budget that could have transformed the situation of millions of people living in poverty, but the political choice was made to fund tax cuts for the wealthy instead.”

I find that absolutely shocking in this day and age, given that there is so much evidence on this, not just from the likes of the Institute for Fiscal Studies, but in every region and on every street in our country. I live in a relatively affluent constituency, but I have had thousands of constituents come to me suffering from poverty.

[Lyn Brown]

I am grateful to my hon. Friend for mentioning this, because the rapporteur came to my constituency last week and I sat through a harrowing three hours listening to the testimonies of people who are really in need and suffering. So I am genuinely grateful to her for raising this issue now.

Oral Answers to Questions

Lyn Brown Excerpts

Tuesday 22nd May 2018 Commons Chamber

[Elizabeth Truss]

The reality is that we have seen more people in work in Scotland, as we have across the country, and that is delivering more real income. We have held taxes down across the country, to the tune of £1,000 per basic rate taxpayer, which means that people have more disposable income to spend.

[Lyn Brown (West Ham) (Lab)]

Well, that was fascinating.

The Chief Secretary knows full well that 67% of children in poverty live in working households. The Child Poverty Action Group expects cuts within universal credit to push up to 1 million children into poverty by 2020. When all the Government’s policy changes are included, lone parents have lost an average of £5,250 a year since 2010. Families with three or more children have lost £5,600 a year. Families with a disabled parent and a disabled child have £6,500 less every single year. Is she complacent or just callous?

[Elizabeth Truss]

Surprise, surprise: we have not heard Labour acknowledge the excellent news from the Resolution Foundation that we now have the lowest share of low-paid employees for 35 years—before the Labour Government were in power. Under Labour, we saw rising unemployment and more people left on the scrapheap. We saw a welfare system that did not support people into work.