Leaving the EU: Customs Arrangements

Mel Stride Excerpts

Tuesday 10th July 2018 Westminster Hall

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

I will certainly leave two minutes for my hon. Friend the Member for Wimbledon (Stephen Hammond).

It is a pleasure to serve under your chairmanship again, Mr Streeter. It is also a pleasure to follow the hon. Member for Stalybridge and Hyde (Jonathan Reynolds). I believe we might be facing each other next week on another occasion. There seems to be a sense that something is happening on Monday or Tuesday next week. I also congratulate my hon. Friend the Member for Wimbledon on securing the debate.

As many have suggested, it might be worth me injecting as much clarity as I can on the Government’s position. While Members made extremely valid and well-put points about the downsides of an arrangement in which we perhaps have no deal and there is a hard border between us and the EU27, I am not so sure that the merits of the proposition that the Cabinet agreed at Chequers have come through.

As we all know, the main problem with a hard border or even with the maximum facilitation arrangements is that we would have a border between ourselves and the EU27. We would have various degrees of friction that we would seek to reduce under the max fac model through various facilitations and the use of technology, but we know there would be costs associated with that kind of arrangement. That is why at the Chequers meeting we wisely moved towards something that works much better in that respect. In terms of the cost of the kinds of frictions we might have with some of the scenarios that have been conjured up this afternoon, the head of HMRC tallied the cost of the additional customs declarations that would have to be entered into as a consequence of a border between ourselves and the EU27 at about £20 billion a year. Those are not insignificant costs to business, which the Government most certainly recognise.

The model we are now looking at is a facilitated customs arrangement, where we will act effectively as the agent for the European Union at our borders when it comes to goods coming through the UK into the EU. We will be collecting the European Union’s tariff at that point. For goods going directly into the United Kingdom for consumption or end use in our jurisdiction, we would apply the UK tariff at that point.

We would also have a common rulebook, which means that for regulation pertaining to goods and agricultural products, we would not, at least initially, have any regulatory misalignment between ourselves and the EU27. The significance of that is that we will therefore not require border and customs arrangements between ourselves and the EU27, and indeed between Northern Ireland and the Irish Republic.

[Kirsty Blackman]

On goods that are coming in from a third country, how will the Government work out on which bits of a shipment to charge the UK tariff, and on which bits to charge the EU tariff?

[Mel Stride]

I point the hon. Lady to her question about the White Paper. There will be more detail to come on just those kinds of questions, and of course much of this will remain to be negotiated. Our estimate is that the vast majority—well in excess of 90%—of goods coming in could be charged directly at the border as an EU good, or would be non-tariff anyway under both EU and UK arrangements, or face the UK tariff accordingly. A very small proportion might fall into the category to which she refers.

[Helen Goodman]

That was the crux of my questions. Listening to the Minister, I realise I perhaps did not formulate it quite as accurately as I should have. The question is not how much comes for one purpose and how much comes for another purpose. The question is how the person importing knows what the purpose will be, and where the final user will be. That is the tricky question. I can see the Minister frowning, so he knows it is tricky as well.

[Mel Stride]

When goods come in and the end-use cannot be determined, we foresee a situation where we might have to charge the higher tariff, with a rebate mechanism in place once the end-user can demonstrate that those goods have indeed been consumed, or found their end-use, in the United Kingdom. As I say, some of those matters will be addressed in the White Paper that will be with us this week.

Hon. Members have rightly mentioned supply chains and the importance of goods and components going in and out of the EU27. The points raised by the hon. Lady in the context of Nissan will be accommodated substantially by the model we are putting forward. My hon. Friend the Member for Wimbledon mentioned VAT systems. We have made it clear that we are looking in the negotiations to ensure that we have the best of the arrangements that are there at the moment, in terms of systems and making our VAT interactions as smooth as possible, albeit we will look to control rates of VAT. In the recent Budget the Chancellor commented on the abolition of acquisition VAT and the move towards import VAT. We recognise that there are certain cash-flow impositions on the part of business that we will want to take into account.

A number of hon. Members rightly mentioned ports, and I think a couple specifically suggested that a two-minute delay could lead to a 17-mile tailback at Dover. We are, of course, extremely cognisant of that risk, but once again, it applies if we need border and customs arrangements in place at the port of Dover, Holyhead and the other ports that have been mentioned. Under this model, that would clearly not be the case.

My hon. Friend the Member for Wimbledon also made a point about free trade deals and how the approach of the facilitated customs arrangement would facilitate them. Most importantly, as distinct from being in “the” customs union, or in a customs union with the customs union, we would not operate a common external tariff, so we would be free to set our own tariffs. The fact that we have a common rulebook between ourselves for goods and agricultural products means that the issue of regulatory barriers, which might otherwise be in place for us in doing FTAs and bringing goods into the UK that might then go on to the European Union, would also be substantially resolved.

[Stephen Hammond]

The Minister is obviously right in what he has just said about tariffs. Does he also accept that the rulebook and some of the standards in it are likely to restrict our ability to have free trade with certain countries if they do not meet those standards?

[Mel Stride]

My hon. Friend is right inasmuch as that is potentially the case if there are any inconsistencies—we might otherwise have varied our rules accordingly to accommodate an FTA. However, the Government have made it clear that although we will have total alignment at the start, we will not seek an arrangement where we will be unable to deviate from that in the future, albeit we recognise that there will be consequences for doing so.

A number of hon. Members raised the issue of preparedness, and I assure them that we will be in a good position and ready on day one if we have a no-deal situation. The Chancellor allocated £3 billion for Brexit preparations in the last Budget. Her Majesty’s Revenue and Customs received £46 million last year and around £250 million in this financial year. We have already recruited, or have in train the recruitment of, around 1,000 new staff going into HMRC with a focus on borders. We have said that we will move that figure up to between 3,000 and 5,000. Some Members mentioned the customs declaration system. The National Audit Office has suggested that we are broadly speaking where we need to be to ensure that that system comes online and live before March next year.

The hon. Member for Streatham (Chuka Umunna) asked why the EU would allow us to collect EU tariffs when there are no such arrangements with any other trading partner. We are in a unique situation. We are a very large trading partner with the European Union. We have complete alignment at the moment in regulations with that market, so we start from a position that is not occupied by others.

I think I have gone through most of the points raised by the hon. Member for Bishop Auckland (Helen Goodman). I am grateful that she said that initially she broadly welcomed the proposals, and we should all do.

My hon. Friend the Member for Eddisbury (Antoinette Sandbach) made the very important point that we are seeking an arrangement that can command the broad support of the British people—an arrangement that ensures that the UK and the EU have frictionless access to each other’s markets for goods; that provides regulatory flexibility in the way that I have described; that enables commitments to Northern Ireland to be met and the Good Friday agreement to be honoured; that sees us leave the common agricultural policy and the common fisheries policy; that allows us to deliver an independent trading policy; that ensures that, in future, all laws in the UK will be legislated for by our Parliament; that restores the supremacy of UK courts; and that ends the free movement of people and vast payments to the EU. The broad majority of people in our country will welcome that achievement.

I hope that, particularly in the debate on Monday, Parliament as a whole comes together. This is a moment in our history where there are undoubtedly significant opportunities, but also a number of challenges. I hope we see the debate through that prism, rather than through anything that is rather more narrow and party-political. On that note, Mr Streeter, I gladly give the Floor to my hon. Friend the Member for Wimbledon.

[Mr Gary Streeter (in the Chair)]

Thank you very much. Mr Stephen Hammond will have the final word.

Crown Dependencies: Double Taxation Agreements and Protocols

Mel Stride Excerpts

Monday 9th July 2018 Written Statements

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

Double Taxation Agreements and Protocols with The Crown Dependencies (Guernsey, the Isle of Man and Jersey) were signed on 2 July 2018 in London. The text of the agreements are available on HM Revenue and Customs’ pages of the www.gov.uk website and will be deposited in the Libraries of both Houses. The text of the agreements and protocols will be scheduled to draft Orders in Council and laid before the House of Commons in due course.

[HCWS837]

Finance Bill 2018-19: Draft Legislation and Measures with Immediate Effect

Mel Stride Excerpts

Friday 6th July 2018 Written Statements

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

Today is the first legislation day in the new single fiscal event timetable, with the release of draft finance Bill legislation moved forward to July. This move makes more time available to scrutinise draft tax legislation ahead of its introduction and commencement, and should provide businesses and individual taxpayers with greater certainty and stability. It forms part of the Government’s commitment to publishing the majority of tax legislation in draft before it is introduced to Parliament. The Government have consulted on a number of tax policies announced in the Autumn Budget 2017 and other events and are today publishing responses to these consultations alongside draft legislation to be included in Finance Bill 2018-19, which will be introduced to Parliament following the next Budget.

Policy decisions in response to consultation

In response to consultation, the Government have made a number of policy decisions, including relating to:

Rent-a-room relief

Following the call for evidence the Government will retain rent-a-room relief at its current level of £7,500 and will introduce a new shared occupancy test, which must be met in order for income to qualify. The test will require the taxpayer to be living in the residence, and physically present for at least some part of the letting period, ensuring the relief meets its original purpose. The Government have published draft legislation to this effect.

Amendments to Gaming Duty accounting periods

The Government have published draft legislation to maintain the current arrangements of six-month accounting periods for gaming duty, but to remove the requirement to make payments on account. Additionally, the Government are introducing provision to allow for losses to be carried forward and offset against duty liabilities in future accounting periods. This will make the tax fairer and simpler.

Late payment of tax penalties and interest

Following consultation, the Government have published draft legislation for a new late payment penalty system and proposals to align interest rules across taxes. This is in addition to previously announced reforms to late filing penalties. The new penalty system will support tax compliance in a fair, proportionate manner. The rates that will apply to late payment penalties will be decided as part of a package to be announced at a future fiscal event.

Draft legislation being published for technical tax changes

In addition, the Government are publishing a small number of technical tax changes that need to be made to ensure legislation works as intended. These include measures relating to:

Clarifying the effect of the Optional Remuneration Arrangements legislation in respect of taxable cars and vans

Modernising the exemption relating to premiums and contributions paid by employers for death in service and retirement benefits.

The Government have also published draft legislation to comply with EU tax directives that they are required to transpose before the end of the implementation period.

Legislation with immediate effect

The Government have published draft legislation for the following measures that will have immediate or retrospective effect:

Changes to the income tax treatment of emergency vehicles

The Government have published draft legislation with wholly relieving effect to extend the scope of the current income tax exemption for emergency vehicles to cover all commuting journeys and to make related provisions. This will be treated as having taken effect on 6 April 2017.

Workplace charging for all-electric and plug-in hybrid vehicles

As announced at Autumn Budget 2017, the draft legislation published today introducing an exemption to remove any tax liability for charging electric cars or plug-in hybrids at or near a workplace will be treated as having taken effect on 6 April 2018.

Amendments to Corporate Interest Restriction rules

The Government have published draft legislation to clarify the application of the Corporate Interest Restriction (CIR) legislation in a number of specific circumstances and ensure that the rules work as intended. Certain wholly relieving elements of the changes being made, such as to the amendment of the CIR rules to Real Estate Investment Trusts (REITs) to prevent REITS suffering a double restriction in certain cases, will be deemed to always have had effect. This change will ensure the CIR rules apply as originally intended.

Corporation tax relief for carried-forward losses

The Government have published draft legislation for exchequer protection purposes to put beyond doubt the amount of relief that may be claimed, and also ensure the regime applies to insurers within the basic life assurance and general annuity business as intended. The legislation will take effect from 6 July 2018 to prevent companies from claiming excessive relief.

Future responses

For other consultations, including those relating to withholding tax on royalties, hidden economy conditionality, the intangible fixed assets regime and tax abuse and insolvency, the Government are continuing to consider the responses and will respond in due course.

Draft legislation is accompanied by a Tax Information and Impact Note (TUN), an Explanatory Note (EN) and, where applicable, a summary of responses to consultation document. All publications can be found on the gov.uk website. The Government’s tax consultation tracker has also been updated. The technical consultation on draft legislation will be open for eight weeks, closing on 31 August 2018.

[HCWS834]

Oral Answers to Questions

Mel Stride Excerpts

Tuesday 3rd July 2018 Commons Chamber

[Rebecca Pow (Taunton Deane) (Con)]

3. What assessment he has made of the effect of the tax regime on the ability of the forestry sector to deliver value for money.

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

The evidence from the Forestry Commission is that UK timber production is globally competitive. Our 25 year environment plan sees the Government committed to increasing timber supplies and to the greater use of home-grown timber within the UK construction sector.

[Rebecca Pow]

I fully support this Government’s ambition to plant more trees, but do the Minister and the Chancellor agree that any tax incentives towards this endeavour should include a requirement not only to own woodland, but to manage it as well, so that we have the right amount of timber to fuel the timber industry? Will the Minister agree to meet me to discuss this?

[Mel Stride]

My hon. Friend is absolutely right that forestry ownership and the management of woodland is extremely important. We keep all taxes under review—including some of the distortionary effects that taxes may have that I know she might be concerned about—and I am delighted to confirm that my right hon. Friend the Chancellor is looking forward to meeting her shortly.

[Jim Shannon (Strangford) (DUP)]

I thank the Minister for that response. With the UK having an internationally competitive timber processing industry and having produced timber products with an annual value of £10 billion, will the Minister outline how his Department intends to facilitate a smoother tax path to ensure that smaller businesses in this big industry get help and support?

[Mel Stride]

The hon. Gentleman raises a specific issue around the participation of smaller businesses in this industry, and we will be looking at that as we look at taxation in this area going forward. If he would like to make any specific representations to myself or the Chancellor, I am sure we would be delighted to receive them.

[Damian Green (Ashford) (Con)]

4. What steps he is taking to support first-time house buyers throughout the country.

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[Angela Smith (Penistone and Stocksbridge) (Lab)]

5. What assessment his Department has made of the fiscal effect on the agricultural sector of the UK leaving the EU customs union and single market.

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

We are of course in the process of our negotiations with the European Union, and until they are concluded it will not be possible precisely to assess the impact on our agricultural sector, other than to assure the hon. Lady that agriculture has a very high priority for this Government. That is why we have pledged the same cash total in funds for farming as under the EU until the end of this Parliament.

[Angela Smith]

The Institute for Fiscal Studies has calculated that Brexit will deliver significant damage to the economy and to Government receipts. In that context, will the Minister guarantee that farmers will not suffer a reduction in the level of support they currently receive in the post common agricultural policy period?

[Mel Stride]

As the hon. Lady will know, the Department for Environment, Food and Rural Affairs is consulting currently and looking at the results of the recent consultation on how we should fund farming. Public money for public goods is at the centre of that approach. I reiterate that we have pledged the same cash total in funds for farming as under the EU for the rest of this Parliament.

[Kirstene Hair (Angus) (Con)]

Does my right hon. Friend share my concern that the agricultural sector is facing severe seasonal labour shortages, whose significant financial consequences are already being felt? Will he work with his ministerial colleagues to reintroduce the seasonal agricultural workers scheme, which has worked so successfully in the past?

[Mel Stride]

My hon. Friend raises a very important point of which the Government are of course acutely aware. We are working with DEFRA to examine the issue.

[Preet Kaur Gill (Birmingham, Edgbaston) (Lab/Co-op)]

After seeing the collapse in motor industry investment, does the Minister now accept that the Government must heed the call of the Society of Motor Manufacturers and Traders to rethink their Brexit negotiating position and to support a customs union with the European Union after Brexit?

[Mr Speaker]

This is really about agriculture rather than about cars. The concept of an agricultural vehicle might come in handy to the hon. Lady in this context. I am sure that she meant to mention it—[Interruption.] Yes, I keep hearing about tractors from a sedentary position.

[Mel Stride]

To be fair, Mr Speaker, farmers do own cars, which is an important point to take into account. I assure the hon. Lady that this Government’s overriding objective is of course to negotiate an arrangement with the EU in which borders are as frictionless as possible, trade is kept flowing, supply chains are looked after and the agricultural and motoring sectors are supported.

[Colin Clark (Gordon) (Con)]

Due to the UK’s massive EU contributions, support to EU farmers will be cut as the UK leaves the EU. Does the Minister agree that the commitment to make payments to UK farmers until 2022 demonstrates this Government’s support for UK farmers?

[Mel Stride]

My hon. Friend is entirely right. The commitments of support that we have already made up until 2022—the end of this Parliament—are entirely indicative of the importance of the agricultural sector to our economy.

[Kirsty Blackman (Aberdeen North) (SNP)]

Given that over 18% of Scotland’s international exports are food and drink related—our top export—this is an important question for people in Scotland. The EU’s average applied most-favoured-nation tariff for agricultural products is 11.1%, but it is different for individual products: 170% on oils, 157% on fruit and veg, and 152% on beverages and tobacco. How many agricultural jobs does the Treasury believe will be lost as a result of crashing out of the customs union without a trade deal?

[Mel Stride]

An objective of our negotiation is to ensure that we lower tariff barriers between ourselves and the EU27, as they will be known. The hon. Lady did not mention the tariff on whisky, which is currently 0%, and if we had an independent Scotland, she would be asking the same question in the context of the new border between ourselves and Scotland.

[Kirsty Blackman]

People in Scotland are used to the UK Government making empty assurances, but the reality is that farmers cannot make plans on the strength of such assurances. Scottish farmers should have received over 80% of the convergence uplift moneys that the UK was given by the EU, but the UK Government have slashed that, passing only 16% on to Scottish farmers. Given the UK Government’s track record, how can farmers trust them to deliver?

[Mel Stride]

I repeat to the hon. Lady that we have already shown, through the actions that we have taken, the reassurances that we have given and the consultations that we have undertaken, that agriculture is a firm priority for this Government, and that will continue to be the case in the negotiations and going forwards.

[Robert Courts (Witney) (Con)]

6. What steps he is taking to invest in infrastructure in (a) Witney and (b) Oxfordshire.

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[Imran Hussain (Bradford East) (Lab)]

12. What steps he is taking with HMRC to ensure that staff at its offices that are due to close are able to secure employment at HMRC regional hubs.

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

HMRC’s analysis shows that 90% of those personnel in place as at 2015 will be able to move to a new HMRC location or see out their career in their current workplace. We will support those who have the skills necessary for the new workplaces, or, indeed, those who can aspire to those skills, to achieve that and provide jobs accordingly.

[Imran Hussain]

I thank the Financial Secretary for his answer, but although those employed in the soon-to-be-closed centres will still have a job, which we welcome, the relocation of the HMRC offices will leave a large gap in future employment opportunities in Bradford. What opportunities, particularly civil service opportunities, are being offered to the people of Bradford, bearing in mind the over-saturation of public sector jobs in Leeds?

[Mel Stride]

As Departments right across Government do, we look at the opportunities available in various towns and cities up and down the country, including Bradford. The hon. Gentleman mentions the employment impact of this particular measure; I remind him that the employment rate in Bradford is up 6.4% since 2010. That is above the national average and is a direct consequence of this Government’s policies.

[Neil Gray (Airdrie and Shotts) (SNP)]

21. The Financial Secretary to the Treasury, the Chancellor and the Prime Minister all gave commitments from the Dispatch Box that a meeting between senior HMRC officials and members of the Roadchef Employees Benefit Trust would bring a resolution to that dispute, but that did not happen, because HMRC stonewalled the EBT members. Will the Chancellor or the Financial Secretary commit to becoming a mediator in this dispute and bring a resolution that will see a pay-out finally being made for those beneficiaries?

[Mel Stride]

I slightly detected from the hon. Gentleman’s question the suggestion that that meeting between HMRC and the EBT did not take place, and it most certainly did. He and I have discussed this matter, both formally in a meeting and informally, and we have debated it in the House. I have always stressed that there is a dividing line between HMRC and Treasury Ministers: we cannot intervene in the tax affairs of individuals or organisations. I am confident that HMRC is progressing in an appropriate manner.

[Anneliese Dodds (Oxford East) (Lab/Co-op)]

Eight years of economic failure from this Government have been exacerbated—[Interruption.] I suggest that it is economic failure, with productivity growth down, GDP growth down and investment growth down, and in comparison with our comparators. Economic failure: if it smells like it and looks like it, that is what it is. Let me finish my question. That failure has been exacerbated by the Government’s reorganisation of HMRC, with cuts in our country deeper than in any other, outside Greece. Will they abandon this failing reorganisation, which also means that there will not be a single customs hub anywhere along the south coast or north of the central belt?

[Mel Stride]

The simple fact is that we need an HMRC that is fit for the 21st century, for the new digital ways in which we are working, and for our targeted approach on clamping down on avoidance, evasion and non-compliance, for example. That requires these sophisticated hubs that have the right skills to do that job, so I defend our reorganisation entirely.

On the portrayal of the economy that the hon. Lady has just given, we have the highest level of employment in our history, more women in work than at almost any time in our history and unemployment lower than at any time in the past 45 years. We are bearing down on the deficit and have debt falling as a percentage of GDP.

[Craig Mackinlay (South Thanet) (Con)]

13. What steps he is taking to invest in infrastructure in Kent.

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[James Cleverly (Braintree) (Con)]

T7. In Braintree, in Halstead and in the villages of my constituency, including my own lovely village of Earls Colne, there are a number of thriving businesses in retail, manufacturing and other sectors, but at the moment there is a disparity between the tax treatment of physical businesses and that of digital businesses. What plans do Ministers have to rebalance the tax treatment of those two types of businesses?

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

My hon. Friend raises a very important point. The Government are determined that we should have an international tax regime that is appropriate to the digital businesses to which he refers, particularly search engines, online marketplaces and social media platforms. We are working with the OECD and the European Union on a multilateral response. In the absence of that, we are prepared to act unilaterally to make sure that fair taxes are paid by those businesses.

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[Stephen Lloyd (Eastbourne) (LD)]

T3. As the Ministers on the Treasury Bench know, there are strongly held and differing views about the fairness of the implementation of the Treasury’s 2019 loan charge. Recent media reports have identified the severe impact that this huge retrospective charge is having on the mental health of some contractors, and I have real concerns for their wellbeing. Will the Minister commit to setting up a 24-hour helpline to provide support for individuals caught in this trap?

[Mel Stride]

The issue that the hon. Gentleman identifies is an important element of the tax avoidance that has been happening in our country. The vast majority of people pay the correct level of tax, but there have been schemes, such as the disguised remuneration schemes to which he refers, through which essentially very little tax indeed has been paid. The Government believe that that is wrong and that we should act to clean up the arrangements. We have given individuals until April 2019 to do exactly that. On the support that he mentions, HMRC’s door is of course always open for individuals in that situation to have discussions. I would urge all those individuals to make contact with HMRC to find a sensible way forward.

[Nicky Morgan (Loughborough) (Con)]

I warmly welcome what the Chancellor says about putting all information before Parliament before we vote on the final withdrawal agreement later this year, but of course that will not be the end of parliamentary involvement, because we will have to onshore all the current EU financial services legislation, including the binding technical standards. Will the Chancellor set out the Treasury’s thinking so far about how that process will be democratically accountable to Parliament or perhaps the Select Committees?

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[Peter Aldous (Waveney) (Con)]

To follow on from the question asked by the hon. Member for Eastbourne (Stephen Lloyd), the retrospective nature of the 2019 loan charge could bankrupt thousands of people. Will the Government revise legislation to ensure that that does not happen, with the loan charge only applying to disguised remuneration loans made after the passing of the Finance (No. 2) Act 2017?

[Mel Stride]

This is not retrospective legislation. The activities and arrangements entered into by those who are in scope of this measure were not legal when they were entered into, even though they may have been entered into in the past. The loan charge is there not to apply penalties for that behaviour, but to ensure that those individuals pay the right amount of tax.

[Lucy Powell (Manchester Central) (Lab/Co-op)]

T8. A critical decision is currently with the Treasury on a life sciences grant that would create and secure hundreds of highly specialist jobs in Manchester. The private sector cornerstone company at the heart of that bid needs a decision by mid-July before it goes elsewhere in Europe. After months of indecision, will the Government now give us the okay on that bid as a matter of urgency?

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[Robert Halfon (Harlow) (Con)]

Given that the independent Centre for Economics and Business Research has said that the fuel duty freeze has contributed to creating 121,000 jobs, and that the Treasury said in 2014 that the benefits of the fuel duty freeze had offset the loss in tax income, does the Minister not agree that it would be absolute madness to raise fuel duty and hit working people up and down this country?

[Mel Stride]

I thank my right hon. Friend for his very relevant and, may I say, predictable question—he has been a doughty campaigner on this particular issue—but all I would say to him is that we will of course be looking at taxation, with everybody in their different ways paying a little bit more, to make sure that we fund the significant amount we have now committed to our national health service.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Rail electrification and the Swansea Bay tidal lagoon have both been scrapped by the British Government because they were not deemed good value for money. When it comes to designing the criteria for the proposed UK shared prosperity fund, will an immediate return on investment be the priority, as with every project scrapped in Wales?

Draft Double Taxation Relief (Mauritius) Order 2018 Draft Doubt Taxation Relief and International Tax Enforcement (Cyprus) Order 2018

Mel Stride Excerpts

Monday 18th June 2018 General Committees

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

I beg to move,

That the Committee has considered the draft Double Taxation Relief (Mauritius) Order 2018.

[The Chair]

With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018.

[Mel Stride]

It is a particular pleasure to serve under your chairmanship, Mr Robertson. The orders before the Committee give effect to a new replacement double taxation agreement, or DTA, with Cyprus and a protocol amending our existing agreement with Mauritius. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. By doing that, they benefit both business and the economies of the countries signed up to them.

I will say a few words about each agreement. Our current DTA with Cyprus was signed in 1974 and last amended in 1980. This new treaty therefore provides a comprehensive update that reflects the current OECD standards, including the BEPS—base erosion and profit shifting—minimum standards on treaty abuse and improving dispute resolution. The new treaty protects the UK’s taxing rights over gains from the disposal of land and buildings in the United Kingdom. That is particularly important, because it prevents non-residents from developing and disposing of UK land without paying tax in the United Kingdom.

[Bob Stewart (Beckenham) (Con)]

I am only here today to represent the concerns of servicemen, civil servants, policemen and firemen who have retired to Cyprus. They went there on the understanding that the tax rate would be 5%. That way, they eke out their pension pretty well. This change will hit them extremely hard. I very much want the House to realise that suddenly they will go from paying 5% up to paying at least 20%, and that is a big jump.

[Mel Stride]

I thank my hon. Friend for his intervention. The fact that he has chosen to attend this Committee, despite having not been selected to serve on it, is testimony to how strongly he feels about the issue. What I would say to him is this. First, the actual impact of the changes—the move from 5% up to 20%, as he termed it—on individual public service pension recipients will depend largely on their own personal tax affairs. As my hon. Friend may well know, there is a different personal allowance level in operation in the United Kingdom from that pertaining to Cyprus, so there is an interplay between those two reliefs as well. It is therefore not immediately obvious that all of those affected by this measure, or indeed the majority, will be adversely affected. The other point to make is the importance of a level playing field. In the case of all the other countries where we have a similar situation and with which we have agreements in place—countries such as Germany and Belgium—it is the UK tax authorities that actually levy the tax on those who are in receipt of UK public service pensions, albeit that they reside in those territories.

This treaty provides for exemptions for source state taxation, including eliminating withholding taxes on dividends, interest and royalties arising in Cyprus, but we have ensured that we retain the right to apply a withholding tax of 15% on distributions from real estate investment trusts, or REITs. The agreement also contains the most up-to-date provisions to guard against treaty abuse, the latest OECD exchange of information article, and a provision for mutual assistance in the collection of tax debts. Those features strengthen both countries’ defences against tax avoidance and evasion.

The protocol with Mauritius amends our existing 1981 DTA to update the dividend article in order to close a loophole in the original agreement. That was being abused to avoid tax on dividends from REITs. Dividends from UK REITs are usually subject to a withholding tax when paid to investors, because the profits themselves are not taxed in the hands of the REIT. However, the Mauritius DTA predates the creation of REITs and prevents application of that withholding tax. We recently became aware that third-country investors had established a company in Mauritius to use that feature of the DTA to avoid UK tax on dividends from a REIT.

We approached the Mauritian Government proposing a change to the dividend article to prevent the avoidance, and they were happy to co-operate. The amended article allows the UK to withhold tax at 15% on dividends from REITs to residents of Mauritius, bringing it into line with many of the UK’s other DTAs. The changes made by the protocol will, once it is ratified, be effective from the date of signature—28 February 2018—so there will be no delay in shutting down the avoidance and protecting the UK Exchequer with immediate effect.

The UK, and Cyprus and Mauritius, can be happy with the agreements. They protect UK revenue and provide a stable framework in which trade and investment between the UK and Cyprus and Mauritius can continue to flourish. I therefore commend the orders to the Committee.

--- Later in debate ---

[Mel Stride]

I thank everybody who has participated in this debate. To pick up on some of the questions that the hon. Member for Oxford East raised, we are constantly reviewing existing treaties. HMRC is considering the best way to approach looking at the different treaties and perhaps bring forward rationales for why we might approach them in a particular way. The hon. Lady will know that the OECD model is the starting point for our negotiations in this respect; it is available in the public domain and we can all view it. She asked what information could be provided in advance to Committees, particularly about shifts away from previous positions in existing agreements where they are being renegotiated. I would be happy to have a further discussion with her outside the Committee about the detail of that.

The hon. Lady also asked why certain choices were made. We have an explanatory memorandum and it is the case with most treaties that there is some time between the treaty being signed and it coming before this House. For example, the signed DTA that we are looking at was published on the Government website, and a ministerial statement was made to that effect, on 27 March 2018. MPs and their constituents have been able to make representations to me since then. The Government do not consult more generally on the contents of DTAs because they are the product of bilateral negotiations with other states, which deal with a vast range of complex issues that are not suitable for open negotiation.

The hon. Lady asked whether there were formal assessments of whether these arrangements are coherent with our development goals and approaches in developing countries. I assure her, as we have discussed in previous Committees, that the Department for International Development is well aware of and comfortable with our approach. Where it has concerns that it wishes to raise, my colleagues and I at the Treasury will be very happy to hear them. As with any agreement of this nature, it is only by mutual agreement between ourselves and those whom we negotiate with that we come to an agreement at all. Nobody is forcing any particular country into an agreement with us.

The hon. Member for Glenrothes asked me for an assurance that the instruments would not provide further opportunities for tax avoidance. I give him that assurance; I have no crystal ball, but I believe they are intended solely to make the tax system internationally fairer and operate better. As we have discussed in the case of the REITs and Mauritius, they tighten up the tax treatment there to make sure that we are able to levy appropriate tax on those particular structures.

The hon. Gentleman asked me how much money was involved in this kind of clampdown; in the specific case of Mauritius, there was one particular case of treaty shopping where a company was set up in Mauritius with a REIT in the UK, but the transaction was really coming back to another country. I believe the amount involved in that particular case was about half a million pounds. They are not sums up in the hundreds of millions, but they are significant sums none the less. There is an important principle at stake as well.

The hon. Gentleman also raised the issue of our personnel based in Cyprus who are in receipt of public service pensions. He asked how many people might be affected. There are about 65,000 UK residents residing in Cyprus, of whom something in the low thousands—I do not have a precise figure—might be on Government service pensions. A subset of that group would be on armed forces pensions—I shall come on to the contribution of my right hon. Friend the Member for Rayleigh and Wickford in a moment. The hon. Member for Glenrothes sought an assurance that under the new arrangements, those individuals would not be disadvantaged in any way relative to those receiving UK pensions who reside within the United Kingdom. The answer to that is they would not be; they are all basically on the same basis.

The hon. Gentleman also made an interesting point about the language in the explanatory memorandum, asking about the statement that the draft instrument complies generally with the OECD model. He is right. Almost invariably in such treaties, there are variations from that model, and one in the case of Mauritius is the principal purpose test, which does not feature in this particular agreement. That is an important tax avoidance measure, but we have assurances from Mauritius that that is something that will be included in the multilateral instrument. When the Mauritian Government ratify that, they will not have it as a reserved matter.

Coming to the very important points made by my right hon. Friend the Member for Rayleigh and Wickford, and indeed my hon. Friend the Member for Beckenham, as I said earlier, the critical thing in the Cyprus order is that we seek to place the arrangements that pertain to the UK public service pensions of those who happen to be resident in Cyprus on the same basic footing as those that we have with just about every other country with which we have such arrangements. The impact will be determined by a complicated interaction of different allowances—of course the personal allowance in the UK is different from that in Cyprus—and the 5% lower rate tax is a lower rate tax, but an individual who is being taxed in Cyprus can elect to pay the higher rate tax, so it is tricky to work out the exact impact in individual circumstances. We believe, however, that for the less well-off in particular, the likelihood—on average, on balance—is that the impact will be lower rather than greater.

My right hon. Friend asked in which tax year the measures would kick in, and the answer is in 2019-20 at the earliest. I may not meet his invitation to impress him and come up with something out of my pocket, or a rabbit out of a hat perhaps, but I shall go as far as to say that I will, of course, be pleased to meet him to discuss this matter or, indeed, any other tax measure that he may wish to raise with me. However, if we were to look at any form of transitional arrangements, that would require an agreement with Cyprus, and the likelihood of that—or of us pursuing that path, I have to say, as he rather suggested in his contribution—is very low.

On that note, I hope that we can agree the draft orders before the Committee.

Question put and agreed to.

Draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018.—(Mel Stride.)

Draft Double Taxation Relief (Mauritius) Order 2018 Draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018

Mel Stride Excerpts

Monday 18th June 2018 General Committees

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

I beg to move,

That the Committee has considered the draft Double Taxation Relief (Mauritius) Order 2018.

[The Chair]

With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018.

[Mel Stride]

It is a particular pleasure to serve under your chairmanship, Mr Robertson. The orders before the Committee give effect to a new replacement double taxation agreement, or DTA, with Cyprus and a protocol amending our existing agreement with Mauritius. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. By doing that, they benefit both business and the economies of the countries signed up to them.

I will say a few words about each agreement. Our current DTA with Cyprus was signed in 1974 and last amended in 1980. This new treaty therefore provides a comprehensive update that reflects the current OECD standards, including the BEPS—base erosion and profit shifting—minimum standards on treaty abuse and improving dispute resolution. The new treaty protects the UK’s taxing rights over gains from the disposal of land and buildings in the United Kingdom. That is particularly important, because it prevents non-residents from developing and disposing of UK land without paying tax in the United Kingdom.

[Bob Stewart (Beckenham) (Con)]

I am only here today to represent the concerns of servicemen, civil servants, policemen and firemen who have retired to Cyprus. They went there on the understanding that the tax rate would be 5%. That way, they eke out their pension pretty well. This change will hit them extremely hard. I very much want the House to realise that suddenly they will go from paying 5% up to paying at least 20%, and that is a big jump.

[Mel Stride]

I thank my hon. Friend for his intervention. The fact that he has chosen to attend this Committee, despite having not been selected to serve on it, is testimony to how strongly he feels about the issue. What I would say to him is this. First, the actual impact of the changes—the move from 5% up to 20%, as he termed it—on individual public service pension recipients will depend largely on their own personal tax affairs. As my hon. Friend may well know, there is a different personal allowance level in operation in the United Kingdom from that pertaining to Cyprus, so there is an interplay between those two reliefs as well. It is therefore not immediately obvious that all of those affected by this measure, or indeed the majority, will be adversely affected. The other point to make is the importance of a level playing field. In the case of all the other countries where we have a similar situation and with which we have agreements in place—countries such as Germany and Belgium—it is the UK tax authorities that actually levy the tax on those who are in receipt of UK public service pensions, albeit that they reside in those territories.

This treaty provides for exemptions for source state taxation, including eliminating withholding taxes on dividends, interest and royalties arising in Cyprus, but we have ensured that we retain the right to apply a withholding tax of 15% on distributions from real estate investment trusts, or REITs. The agreement also contains the most up-to-date provisions to guard against treaty abuse, the latest OECD exchange of information article, and a provision for mutual assistance in the collection of tax debts. Those features strengthen both countries’ defences against tax avoidance and evasion.

The protocol with Mauritius amends our existing 1981 DTA to update the dividend article in order to close a loophole in the original agreement. That was being abused to avoid tax on dividends from REITs. Dividends from UK REITs are usually subject to a withholding tax when paid to investors, because the profits themselves are not taxed in the hands of the REIT. However, the Mauritius DTA predates the creation of REITs and prevents application of that withholding tax. We recently became aware that third-country investors had established a company in Mauritius to use that feature of the DTA to avoid UK tax on dividends from a REIT.

We approached the Mauritian Government proposing a change to the dividend article to prevent the avoidance, and they were happy to co-operate. The amended article allows the UK to withhold tax at 15% on dividends from REITs to residents of Mauritius, bringing it into line with many of the UK’s other DTAs. The changes made by the protocol will, once it is ratified, be effective from the date of signature—28 February 2018—so there will be no delay in shutting down the avoidance and protecting the UK Exchequer with immediate effect.

The UK, and Cyprus and Mauritius, can be happy with the agreements. They protect UK revenue and provide a stable framework in which trade and investment between the UK and Cyprus and Mauritius can continue to flourish. I therefore commend the orders to the Committee.

--- Later in debate ---

[Mel Stride]

I thank everybody who has participated in this debate. To pick up on some of the questions that the hon. Member for Oxford East raised, we are constantly reviewing existing treaties. HMRC is considering the best way to approach looking at the different treaties and perhaps bring forward rationales for why we might approach them in a particular way. The hon. Lady will know that the OECD model is the starting point for our negotiations in this respect; it is available in the public domain and we can all view it. She asked what information could be provided in advance to Committees, particularly about shifts away from previous positions in existing agreements where they are being renegotiated. I would be happy to have a further discussion with her outside the Committee about the detail of that.

The hon. Lady also asked why certain choices were made. We have an explanatory memorandum and it is the case with most treaties that there is some time between the treaty being signed and it coming before this House. For example, the signed DTA that we are looking at was published on the Government website, and a ministerial statement was made to that effect, on 27 March 2018. MPs and their constituents have been able to make representations to me since then. The Government do not consult more generally on the contents of DTAs because they are the product of bilateral negotiations with other states, which deal with a vast range of complex issues that are not suitable for open negotiation.

The hon. Lady asked whether there were formal assessments of whether these arrangements are coherent with our development goals and approaches in developing countries. I assure her, as we have discussed in previous Committees, that the Department for International Development is well aware of and comfortable with our approach. Where it has concerns that it wishes to raise, my colleagues and I at the Treasury will be very happy to hear them. As with any agreement of this nature, it is only by mutual agreement between ourselves and those whom we negotiate with that we come to an agreement at all. Nobody is forcing any particular country into an agreement with us.

The hon. Member for Glenrothes asked me for an assurance that the instruments would not provide further opportunities for tax avoidance. I give him that assurance; I have no crystal ball, but I believe they are intended solely to make the tax system internationally fairer and operate better. As we have discussed in the case of the REITs and Mauritius, they tighten up the tax treatment there to make sure that we are able to levy appropriate tax on those particular structures.

The hon. Gentleman asked me how much money was involved in this kind of clampdown; in the specific case of Mauritius, there was one particular case of treaty shopping where a company was set up in Mauritius with a REIT in the UK, but the transaction was really coming back to another country. I believe the amount involved in that particular case was about half a million pounds. They are not sums up in the hundreds of millions, but they are significant sums none the less. There is an important principle at stake as well.

The hon. Gentleman also raised the issue of our personnel based in Cyprus who are in receipt of public service pensions. He asked how many people might be affected. There are about 65,000 UK residents residing in Cyprus, of whom something in the low thousands—I do not have a precise figure—might be on Government service pensions. A subset of that group would be on armed forces pensions—I shall come on to the contribution of my right hon. Friend the Member for Rayleigh and Wickford in a moment. The hon. Member for Glenrothes sought an assurance that under the new arrangements, those individuals would not be disadvantaged in any way relative to those receiving UK pensions who reside within the United Kingdom. The answer to that is they would not be; they are all basically on the same basis.

The hon. Gentleman also made an interesting point about the language in the explanatory memorandum, asking about the statement that the draft instrument complies generally with the OECD model. He is right. Almost invariably in such treaties, there are variations from that model, and one in the case of Mauritius is the principal purpose test, which does not feature in this particular agreement. That is an important tax avoidance measure, but we have assurances from Mauritius that that is something that will be included in the multilateral instrument. When the Mauritian Government ratify that, they will not have it as a reserved matter.

Coming to the very important points made by my right hon. Friend the Member for Rayleigh and Wickford, and indeed my hon. Friend the Member for Beckenham, as I said earlier, the critical thing in the Cyprus order is that we seek to place the arrangements that pertain to the UK public service pensions of those who happen to be resident in Cyprus on the same basic footing as those that we have with just about every other country with which we have such arrangements. The impact will be determined by a complicated interaction of different allowances—of course the personal allowance in the UK is different from that in Cyprus—and the 5% lower rate tax is a lower rate tax, but an individual who is being taxed in Cyprus can elect to pay the higher rate tax, so it is tricky to work out the exact impact in individual circumstances. We believe, however, that for the less well-off in particular, the likelihood—on average, on balance—is that the impact will be lower rather than greater.

My right hon. Friend asked in which tax year the measures would kick in, and the answer is in 2019-20 at the earliest.[Official Report, 17 July 2018, Vol. 645, c. 4MC.] I may not meet his invitation to impress him and come up with something out of my pocket, or a rabbit out of a hat perhaps, but I shall go as far as to say that I will, of course, be pleased to meet him to discuss this matter or, indeed, any other tax measure that he may wish to raise with me. However, if we were to look at any form of transitional arrangements, that would require an agreement with Cyprus, and the likelihood of that—or of us pursuing that path, I have to say, as he rather suggested in his contribution—is very low.

On that note, I hope that we can agree the draft orders before the Committee.

Question put and agreed to.

Draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Cyprus) Order 2018.—(Mel Stride.)

Business Rates

Mel Stride Excerpts

Wednesday 13th June 2018 Westminster Hall

[Derek Thomas (St Ives) (Con)]

I thank the hon. Member for York Central (Rachael Maskell) for securing this debate. It is one that I wanted to secure, but I was not successful, so I am glad to have the opportunity to contribute again on the subject. The Minister might just groan when he hears me speaking again—he has heard the issues several times before, and I was glad to raise them in last week’s Opposition day debate.

I agree with my right hon. Friend the Member for East Devon (Sir Hugo Swire) that the Minister is engaged and keen to resolve this issue, and I understand how complex and difficult it is, so I will not be unfriendly in my remarks, but I want to reiterate some points I have made before, as well as bring up an issue that Cornish colleagues have been concerned about, but which has not gained any traction here in Westminster.

Issues with business rates lead me to believe that the system must be scrapped. One reason for that is the significant housing issue in Cornwall. It is a real challenge to provide and retain houses for local families and for people who live and work locally and who want to work at the hospital or in public services perhaps, but who just cannot secure the housing they need.

Everyone who lives in a house, unless they are on some sort of benefit, pays council tax, but if someone has a property that they own and which they choose to use as a holiday let, it can be registered as a business and they can avoid paying council tax altogether and then claim small business rate relief. I live in a three-bedroom house and I pay £1,600 a year to live in that property; I contribute, as lots of families do. A property next door is paying no council tax whatever, so it is not contributing.

We have a cross-party campaign in Cornwall on this issue. The real tragedy is that it is possible for a second-home owner to advertise his property as available for rent and also claim small business rate relief. Other Cornish colleagues and I have been raising that issue since we were first elected in 2015. I do not think the Government are fully engaged and fully understand the challenge that that poses for a community such as Cornwall, which needs every penny it can get. There is an opportunity for the Government to close the loophole and collect more tax, completely fairly. I urge the Minister to look at that again and to give his Cornish colleagues some cheer when it comes to trying to address our housing problems.

On the high street, my constituency also has shops that have closed since Christmas. There are lots of reasons, which include ridiculous parking increases and an obvious change in customer behaviour, but there are also business rates. In the 2016 review, St Ives saw quite dramatic increases, along with London and the south-east and other areas. It was a significant shock to many businesses.

I have examples that show that the way business rates are calculated does not make any sense. It is not clear why one shop should pay one amount while the shop next door pays something completely different. If we could understand the business rates arrangement, and if it were equitable, perhaps it would not be such a problem, but some shops have no idea why they are being charged such sums, and the check and challenge process does not help them.

Behind the headlines about the big retailers and multiples, a number of small businesses are closing or threatening to close. I have said previously in this place that about 11 businesses have told me that they do not believe they will see it out to the end of this year. Their problem is that they own their building or have a stake in it, so they have to carry on paying business rates even if they can no longer function as a business. That is a depressing message to send to what we used to describe as hard-working families.

The issue of business rates is complex; it is not just about consumer behaviour and people choosing to shop online. I disagree with my right hon. Friend the Member for East Devon. I can barely work out how to enter my card details online, so I tend to go to a shop when I have a spare moment.

Let me give examples of what is happening in my constituency. In Penzance, No. 8 has 90 square metres and is paying £14,750 a year. No. 8A, a similar property right next door—I cannot tell the difference between them—has 88 square metres, so 2 square metres less, and is paying £18,250. The Valuation Office Agency has not been able to explain the difference between them. The Minister has been engaging and helpful, and has asked about that. My office is working up a few examples of that nature so they can be investigated and studied. In one sense, I am being fairly unhelpful, in that I am raising an issue about which the Minister has already invited me to give him details. We are doing that and will get them to him soon.

In Helston, Betfred has 132 square metres and pays £13,500 a year. Next door, an independent deli in a much smaller building of 123 square metres—I would love to show hon. Members the photos—is paying £16,250. We have done everything we can to support that shop with the Valuation Office Agency, check and challenge, and the local authority, and to try to get it some help. It has had a small reduction, but the bottom line is that the owners get out of bed in the morning and have to find that money before they do anything else. They cannot understand why Betfred—a multiple next door, with a much bigger shop front and, sadly, a busier shop—is paying £3,000 a year less.

In St Ives town itself, there is a fudge shop of just 20 square metres that pays £13,750. St Ives fudge is world renowned, so it is understandable that people want to shop there, but that does not justify the fact that the Government or the Valuation Office Agency have decided that for just 20 square metres it needs to pay nearly £14,000 a year. There are lots of examples in St Ives town of what seem to be arbitrary increases.

I recognise that the Government have introduced lots of measures to try to support such shops and have enabled local authorities to offer help, but we have not seen the benefit. One pub in St Ives has had real help from Cornwall Council, but those other shops have been left to find the money month in, month out. The problem with St Ives—this is the nature of the high street in a popular town—is that an entrepreneur who wants to make a go of running a shop in the town centre will have to pay whatever rent is required, because that is what the absent landlord asks for, and there are few other options. They last perhaps nine or 12 months. When they leave, the rent goes up, and a new aspirational person comes in and tries to set up a business there. Their short lifespan has an impact on the business rate valuation, and on all the other shops, which might have been there for 100 years. Since Christmas, we have lost the local fruit and veg shop and all sorts of other businesses that served the community for 100 years or more.

The real tragedy is that, previously, holiday makers would flood to St Ives and buy what they needed for the week. Now they arrive and the truck from the local supermarket, which might be travelling from Truro, will turn up and deliver all they need for the week, above the very grocery shop that would previously have sold to them.

That is about consumer behaviour, but the real challenge is that business rate charges are not equitable. More than a year ago, I got the Valuation Office Agency to come to St Ives to meet a room full of concerned business owners, and it refused to comment on any individual business. All it did was explain how we could do the check and challenge. Those businesses are in a busy part of town, so they might be expected to be financially successful. The owners work extremely hard day in, day out to make their businesses work—often, they do not have time to jump through the hoops, although many of them did—only to be told they are paying the right amount of money.

I want to ask for three things. First, we should review the review. I know we have another review, but we need to look at what happened 18 months to two years ago, and at why some shops and retailers saw ridiculous increases. We need to do something quickly to address that now, because those businesses are going out of business.

Secondly, the point about local authorities keeping the money from business rates is important, but town and parish councils also need support, because there is often a double devolution situation, with powers shunted down without money. In Helston, the town council—it would be great to have a pilot, along with York Central—would love to grapple with its town, make it vibrant and support the high street, but it has no money to do that.

If we are not going to get rid of business rates, it would be great to allow town councils to retain 1% or 2% of the business rates collected. For Helston, that would be about £200,000 a year, which would give the council the power to transform the shopping experience on the high street and support the very people who are spending that money. I know that 1% or 2% is a lot of money, but it is quite a small chunk of what is collected and would give the towns a fighting chance.

Finally, I recognise that the Government need to collect the 2.4%—

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

It is 24%.

[Derek Thomas]

Is it 24%? Golly! I know the Government need to continue to collect that money, and I am absolutely in favour of the transaction tax. A high street business should pay the same rate on an individual item as an out-of-town store or an online store pays. There must be a way to make taxes fair. There must be a simple way to make tax digital that enables the Government to continue to collect the money they need while ensuring the system is fair for all those who seek to sell items to customers.

I am grateful for the opportunity to speak in the debate, and I appreciate that the Minister is listening and wants to resolve the difficulties that high streets face.

--- Later in debate ---

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

It is a pleasure to serve under your chairmanship again, Mr Gray.

I congratulate the hon. Member for York Central (Rachael Maskell) both on securing the debate and on the tenacious approach she has rightly taken to the extremely important matter of business rates. I thank her for her comprehensive contribution, and in particular for the examples she gave of high street businesses—I think we all recognise that many face considerable challenges. I also thank the various other speakers, who raised numerous points. I intend to pick up on as many as I can, but I would of course be happy to engage with Members outside the Chamber on any that I omit.

I thank my right hon. and gallant Friend the Member for East Devon (Sir Hugo Swire) for his kind remarks about the amount that I care about this issue and for referencing my business background. I fully appreciate what a struggle it is in the business world, even when times are extremely good. It is never easy to go out and employ people, to generate wealth and to have a successful business. I also appreciate that business rates are one of those taxes that businesses simply cannot avoid—they are paid irrespective of profitability, which of course has particular consequences in some cases.

We need to put this debate in context. A number of Members said that business rates are an issue but are not the totality of the pressures that our high streets face. We heard much about the challenges of online marketplaces and of the planning system—when there is a change of use of businesses that reside on our high streets, for instance—and my right hon. and gallant Friend raised the issue of parking. Myriad issues impinge on this space, and I think we are all seeking to ensure that taxes right across the system are competitive, that there is fairness among those who are expected to pay them, and that they are collected, so that we minimise tax avoidance at every stage.

That brings me to the comments by the hon. Member for York Central about possible alternatives to the current rating system. She mentioned a tax on revenue or on profitability. As soon we started to tax revenue, we would run into the problem that businesses that were not profitable still had a turnover. For example, a new entrant on the high street that we all wanted to thrive may get throttled by the kind of approach that she suggests. If we went for a tax on profits, there would be the potential for profit shifting. If there were a particular regime in one area, businesses may move profits around between multiple enterprises to reduce their overall tax.

The hon. Member for Sheffield South East (Mr Betts) recognised that. He made the important point that business rates have a distinct advantage when it comes to avoidance, because buildings cannot be shifted around in the way that it might be possible to shift other metrics. He also raised the 100% business rates retention pilots and expressed hope that we would pursue that measure. We will pursue it with vigour. I am watching it very closely in Devon, where the pilot scheme is also operating. I very much look forward to catching up with the report of the Housing, Communities and Local Government Committee, which he chairs.

My hon. Friend the Member for St Ives (Derek Thomas) raised the issue of second homes being designated as businesses because they are holiday lets. We are engaged with the VOA to ensure that no abuse occurs in those circumstances. He will be aware that certain criteria have to be met for individuals or companies to treat properties in that way. I am happy to engage with him outside the Chamber on that issue, because he raised one or two interesting points. He also raised the issue of different businesses paying different rates and gave an example of two businesses right next door to each other. He and I have discussed that, and I look forward to looking in greater detail with him at the examples that I know he will come forward with.

The hon. Member for High Peak (Ruth George) raised a point about pubs and suggested that information being made available to the public might drive crime. I am certainly prepared to look at that. I imagine that those who are out to raid the premises of pubs have other measures by which they might be able to discern whether a lot of cash is being taken—how many people are in there drinking on a Friday night, for example—but I am certainly happy to speak to her about that. She also raised the way pub rates are calculated. They are valued by the VOA using the fair maintainable trade method, which has been agreed with the British Beer and Pub Association.

Let me point out the numerous things that the Government have done on business rates to support businesses. In 2016, we announced around £9 billion of relief on business rates. We made the 100% small business relief permanent, which took 600,000 businesses out of rates altogether. We increased the threshold for the standard multiplier, removing 250,000 businesses from the higher rate of business rates. Of course, we were able to do that only because of our prudent stewardship of the economy, which has allowed us the space to provide that relief to the business community.

I have limited time, but I will dwell for a moment on the online business threat, which a number of hon. Members rightly raised. There is a growing number of online businesses in this space, and an increasing number of purchases are happening through online companies. It is important to make the point up front that when we refer to some of those companies paying relatively small amounts of tax compared with high street operations, we are talking not about tax avoidance but about whether the way the international tax regime operates is appropriate or functional for the 21st century. It is not. We need to find different ways of taxing online platforms, whether they are search engines, social media platforms that generate revenue, or online marketplaces, where significant value generation occurs through the relationship between users based in the UK and the platform itself.

[Sir Hugo Swire]

It is reassuring to hear the Minister say that we need to look at ways of taxing those rather more mobile forms of purchasing online. Will he say whether there is a team in the Treasury doing that, and when it is likely to report?

[Mel Stride]

There is indeed. I am personally engaged in that matter, which has been taken up at the OECD and the European Union. They have both produced interim reports on the issue and suggested that we might look multilaterally at some kind of revenue-based taxation, albeit—to get back to the problem of revenue-based tax—we do not want to choke off new entrants to the marketplace, which may be loss-making, so there may have to be some de minimis thresholds associated with that formula. We are actively pursuing that on a multilateral basis with countries in those two institutions. I discussed exactly this issue with Finance Ministers from OECD countries at the ministerial meeting of the OECD in Paris last week. We have made it clear that, although it would be most beneficial to move multilaterally with other countries, we will make a unilateral move if we need to.

I am conscious that we are down to the last minute and I would like to give the hon. Member for York Central an opportunity to respond, so I will draw my remarks to a conclusion.

Finance (No.3) Bill: Draft

Mel Stride Excerpts

Monday 11th June 2018 Written Statements

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

The Government will introduce Finance (No.3) Bill following the Budget in the autumn.

In line with the approach to tax policy making set out in the Government’s documents “Tax Policy Making: a new approach”, published in 2010, and “The new Budget timetable and the tax policy making process”, published in 2017, the Government are committed, where possible, to publishing most tax legislation in draft for technical consultation before the legislation is laid before Parliament.

The Government will publish draft clauses for Finance (No.3) Bill on Friday 6 July 2018, along with accompanying explanatory notes, tax information and impact notes, responses to consultations and other supporting documents. All publications will be available at www.gov.uk.

[HCWS757]

Draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018 Draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018

Mel Stride Excerpts

Monday 4th June 2018 General Committees

[The Chair]

I call the Minister to move the first motion and to speak to both orders. At the end of the debate, I will ask him to move the second motion formally.

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

I beg to move,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018.

[The Chair]

With this it will be convenient to consider the draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018.

[Mel Stride]

Mr Robertson, it is a pleasure to serve under your chairmanship for, I think, the first time. It is nice to be able to do that, and it is also nice to be in the presence of my right hon. Friend the Member for Maldon, who is the chair of the all-party parliamentary groups on Belarus and on Ukraine. I know he has important matters that he wants to discuss with the Committee imminently.

I will speak to both orders before the Committee. The first gives effect to a first-time double taxation agreement with Belarus, and the second contains a protocol amending our existing agreement with Ukraine. DTAs remove barriers to international trade and investment and provide a clear and fair framework for taxing businesses that trade across borders. In doing so, they benefit business and the economies of the countries signed up to them.

I will briefly say a few words about each agreement. Belarus is the last country still applying the UK’s 1985 double taxation agreement with the former Soviet Union. When it enters into force, the new DTA will effectively terminate that old agreement. The new DTA with Belarus will mean that the UK has bilateral DTAs with all the countries that once made up the USSR. The USSR agreement provided for broad exemptions from source-state taxation. Belarus takes a different approach to its bilateral DTAs, seeking to preserve taxing rights in respect of dividends, interest and royalty payments that arise there. While the UK takes a different approach, we recognise that states will want to renegotiate treaties to reflect their own circumstances, and nothing would be gained by refusing to engage with Belarus’s wish to replace the USSR DTA.

The new agreement compares favourably with those that Belarus has agreed with other countries since its independence. For example, we have agreed a withholding tax rate of 5% on dividends, while preserving our right to tax dividends from real estate investment trusts at 15%. We have agreed a 5% withholding tax rate on interest, but with an important exemption for lending by banks. The agreement also contains the most up-to-date provisions to guard against treaty abuse, the latest OECD exchange of information article, and a provision for mutual assistance in the collection of tax debts. Those features strengthen both countries’ defences against taxation avoidance and evasion.

The protocol with Ukraine amends our existing 1993 DTA. We entered into negotiations at Ukraine’s request, as part of an exercise it is undertaking to amend its treaties with a number of European partners. The agreements that Ukraine entered into shortly after independence provided for broad exemptions from source-state taxation. It wishes to change that to enable it to tax interest and royalties arising in Ukraine and to raise the rate at which portfolio dividends can be taxed. Ukraine has chosen to do that on a consistent basis across its network as it seeks to reset its position. As such, United Kingdom businesses will not be disadvantaged as compared to their competitors in other jurisdictions.

The new protocol also improves the position of UK businesses in receipt of dividends from Ukrainian subsidiaries. Currently, the provision requires a company to be subject to tax on dividends it receives, while dividends in the United Kingdom are no longer taxable following the introduction of a corporate dividend exemption regime in 2009. The protocol also provides for a more general modernisation of the DTA to reflect changes in the domestic laws of the two states and the OECD model, including substantially all the provisions included in the multilateral convention to implement tax treaty-related measures to prevent base erosion and profit shifting, or the MLI.

In summary, these are agreements that the UK, Belarus and Ukraine should be happy with. They will provide a stable framework in which trade and investment between the UK and Belarus, and the UK and Ukraine, can continue to flourish.

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[Mel Stride]

I thank the three contributors to this important debate. I turn to the matters raised by the hon. Member for Oxford East, some of which were in unison with those raised by the hon. Member for Glasgow Central. First, on the information provided in advance, I would be happy to take a representation from the hon. Ladies on the specific points that it might have been useful to have had included and perhaps use that as the starting point for considering the more general point they both made. It is probably worth pointing out that when we know that such legislation is coming forward, I am always happy to take any questions by way of letter or to meet and discuss the legislation in advance.

I will certainly look into HMRC and its forward programme, as it was described. I am not aware, certainly within my part of the Treasury, of there being a particular list of such matters that are coming forward. Of course, such things are always subject to the timetabling of the business of the House of Commons, as Members will know.

In the context of Belarus, the hon. Member for Oxford East raised the permanent establishment arrangements around the temporal threshold—the 12 months—in respect of construction sites, and she asked the perfectly reasonable question of why that was the case. I am informed that it is a standard OECD-based rule. [Interruption.] She is looking at me slightly quizzically, which is perfectly in order. If she would like some more information, I am very happy to dig a little deeper on her behalf outside the Committee.

There are a couple of points on the timing of the orders and why it has taken quite a considerable time for them to come before the Committee. We have now negotiated DTAs with all of the Soviet successor states. We negotiated with Belarus in 1995 and in 2011, but the political situation and EU sanctions meant that things stalled. The situation has now improved, so we have successfully renewed our efforts. Ukraine has not yet ratified the treaty, so the fact that there may have been a delay between the protocol and the order—hopefully—going through this afternoon should not have any impact.

I turn to the valuable contribution from my right hon. Friend the Member for Maldon, who shared with us his detailed experience of both Belarus and Ukraine. I entirely agree with him about the importance of developing relationships with Belarus for the reasons he gave—the geopolitical reason of its particular leaning towards Russia, and the value of trade with our country in building relationships and encouraging things such as privatisation. I also agree with the important points he made about Ukraine. On corruption, one of the benefits of double taxation agreements is that there are specific measures in place to ensure that we can exchange information on tax matters, wherein a lot of corruption often lies. That is a positive aspect to his point.

My right hon. Friend finished by rightly raising the need, post Brexit, to increase trade with Ukraine and Belarus, and with other, similar countries. Thankfully, as he suggested, that is not a matter for me but for Ministers in the Department for International Trade, where I know he will make representations.

Question put and agreed to.

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Belarus) Order 2018.

DRAFT DOUBLE TAXATION RELIEF AND INTERNATIONAL TAX ENFORCEMENT (UKRAINE) ORDER 2018

Resolved,

That the Committee has considered the draft Double Taxation Relief and International Tax Enforcement (Ukraine) Order 2018.—(Mel Stride.)

Oral Answers to Questions

Mel Stride Excerpts

Tuesday 22nd May 2018 Commons Chamber

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

9. What steps he is taking to support first-time home-buyers throughout the UK.

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

In the last Budget we abolished stamp duty for first-time buyers for the first £300,000 of a property’s value up to £500,000 in total. That has meant that 95% of first-time buyers have paid less stamp duty and a full 80% of first-time buyers have paid no stamp duty at all.

[Stephen Metcalfe]

Last November the Chancellor announced an ambitious package to tackle the broken housing market. How many first-time buyers have benefited from that package, particularly in Essex, and where can people find further information about this so we can make hopefully impressive numbers even greater?

[Mel Stride]

Some 69,000 individuals have already benefited from this vital tax relief and over 1 million will do so over the coming five years. We do not have disaggregated data specifically for Essex, but I can tell my hon. Friend that within the south-east 12,900 individuals have benefited from first-time buyer tax relief.

[Victoria Prentis (Banbury) (Con)]

17. My constituency tops the leader board for house building, building at the moment over three a day. Can the Minister give an assessment of how much my first-time buyers are saving because of the Government’s policies?

[Mel Stride]

As I outlined to my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) who asked the preceding question, in the south-east 12,900 first-time buyers have benefited from this relief, of whom 9,000 purchased a property of a value of between £300,000 and £500,000 in total.

[Chris Elmore (Ogmore) (Lab)]

10. What steps his Department is taking to reduce the number of tax credits overpayments.

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

Her Majesty’s Revenue and Customs has taken a variety of steps to reduce overpayments of tax credits including real-time income data in-year, guidance that is very clear on these matters, and of course providing appropriate contact routes with HMRC so that those who have changed circumstances can indicate that to our tax authorities.

[Chris Elmore]

Overpayment of tax credits can have disastrous impacts on families; a constituent of mine has been left with a bill of £8,000 as a result of purely administrative errors admitted by HMRC. Such errors can create real financial hardship and in the past have even pushed some families into poverty. Will the Minister start instructing Treasury and HMRC officials to do more to tackle this problem?

[Mel Stride]

HMRC is doing a great deal, as I have already outlined to the hon. Gentleman, in terms of making sure that the correct information is provided. Overpayments do not solely emanate from HMRC; there is of course customer error and there can be negligence or a failure to report a change of circumstances. But I can assure the hon. Gentleman that HMRC is always sympathetic and careful in its approach to anybody in the kind of situation he described.

[Andrew Percy (Brigg and Goole) (Con)]

12. What steps he is taking to support economic growth.

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[Laura Smith (Crewe and Nantwich) (Lab)]

16. What steps he has taken to give Her Majesty’s Revenue and Customs the appropriate powers and resources to tackle tax evasion.

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

The Government have brought in more than 100 measures to clamp down on tax avoidance, evasion and non-compliance since 2010, and the associated powers that HMRC has had in that respect. We have protected and brought in £175 billion across that period, which is substantially more than we invest in our national health service every year.

[Laura Smith]

Almost 15,000 HMRC and Valuation Office Agency jobs have been lost since 2010, and that is alongside tax office closures up and down the country. With potential changes to our customs border on the horizon, does the Chancellor not agree that now would be the time to invest in HMRC, and put a stop to all planned cuts and closures?

[Mel Stride]

I am pleased to be able to inform the hon. Lady that we have been investing heavily in HMRC to clamp down on the issues she has raised—we are talking about some £2 billion since 2010. We have 23,000 staff in HMRC engaged in that purpose and we consequently have about the lowest tax gap in the entire world, at 6%, which is far lower than it was in any year under the previous Labour Government.

[Tom Brake (Carshalton and Wallington) (LD)]

T1. If he will make a statement on his departmental responsibilities.

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[John Cryer (Leyton and Wanstead) (Lab)]

What action are the Government taking to tackle payroll and umbrella companies, some of which—not all—are used to perpetuate bogus self-employment and undermine terms and conditions?

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

We are looking very closely at this policy area, not least in respect of the Matthew Taylor review of the different ways in which individuals choose to work. The Government’s overriding objective is to make sure that the way an individual works is reflected in the way they are taxed, and that they are taxed properly.

[Nigel Huddleston (Mid Worcestershire) (Con)]

T4. Some of my constituents have reported ongoing confusion about child benefit. Some who admit that they have claimed child benefit inadvertently have not been told of the money that they owe to HMRC until interest has accumulated for as long as five years. What more can HMRC do to communicate errors more quickly?

[Mel Stride]

My hon. Friend raises an important point. I can reassure him that HMRC has written to a total of 800,000 people to inform them of the issue he has raised, which is also set out and made clear on the very first page of the child benefit application form. I can also reassure him that we will review this policy area in the current period to see how we can make changes going forward.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

T6. The Royal Bank of Scotland branch in Wick in my constituency has now closed, and a sad sight that is. Last week, we heard that the Homebase branch is also to close. The Chancellor may say that we have to accept change and live with it, but these are hammer blows for a community such as Wick, and I begin to wonder when we will see tumbleweed blowing down the street. Does the Chancellor agree that we should carry out some kind of assessment of the impact of such closures on the local economies of places like Wick and Caithness, before it is too late?

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[Damien Moore (Southport) (Con)]

T7. Will my right hon. Friend tell the House how much additional tax revenue has been secured since 2010 by Her Majesty’s Revenue and Customs through tackling avoidance, evasion and non-compliance, and will he confirm that this policy will continue to exist in the Government?

[Mel Stride]

I am very pleased to inform my hon. Friend that we have raised and protected £175 billion since 2010 by clamping down on evasion, avoidance and non-compliance. That comes as a direct result of investing in HMRC to the tune of £2 billion, and has resulted in the lowest tax gap in the world.

[Several hon. Members rose—]

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[Craig Mackinlay (South Thanet) (Con)]

T8. With the full phasing in of the residents’ nil-rate band for inheritance tax by 2020, a couple will potentially be able to leave £1 million free of inheritance tax to descendants. That is all very welcome, but having worked through the legislation in a real example, it seems unduly complex. Will my right hon. Friend now consider simplifying the law to make the overall IHT allowance a simple, no-nonsense £500,000 each and remove the complexity of the residents’ nil-rate band rules?

[Mel Stride]

My hon. Friend talks about complexity. The Office for Tax Simplification is looking into the way in which inheritance tax and the regime operate. Changing the way that tax reliefs operate in the way that he describes would add very significant cost. However, we do, of course, keep all taxes under review.

[Mrs Emma Lewell-Buck (South Shields) (Lab)]

The TUC estimates that the number of working households in poverty has risen by 1 million since 2010. Inaction on low-paid, insecure work and punitive welfare reform measures have led to record numbers of people accessing food banks. A responsible Government would measure food insecurity to create policies that end hunger. My Food Insecurity Bill does that. Why will the Government not back it?

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[Kirstene Hair (Angus) (Con)]

Research has shown that those who live in rural areas are getting hit harder at the fuel pump than those in urban areas. Can my right hon. Friend update me on what his Department is doing to ensure that motorists in Angus, and indeed across the United Kingdom, have their taxes cut?

[Mel Stride]

I am clearly not going to speculate about future tax changes from the Dispatch Box this morning, but I point out that we have frozen fuel duty for eight successive years at a cost to the Exchequer of over £40 billion.

[Bambos Charalambous (Enfield, Southgate) (Lab)]

A Home Affairs Committee report published in summer 2016 found that the suspicious activity reporting system intended for use by the banks to crack down on money laundering was not fit for purpose. The Committee demanded immediate reform, but the Government stated that they would implement the reforms only by 2018. In the light of the Foreign Affairs Committee report on Russia, criminal financing and the UK, will the Minister immediately bring forward plans to reform and improve the system, as was recommended two whole years ago?

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[Alison Thewliss (Glasgow Central) (SNP)]

Several of my constituents who are highly skilled migrants made entirely legitimate and timely changes to their tax returns and are now facing removal by the Home Office under immigration rule 322(5). Will a Treasury Minister confirm that people should make entirely legitimate changes to their tax returns? Will they also have a conversation with their Home Office colleagues to prevent these highly skilled contributors from being removed from the UK?

[Mel Stride]

The answer to the hon. Lady’s question is that people should clearly continue to make appropriate changes to their tax returns. I reassure her and the House that Treasury Ministers and HMRC officials are working closely across Government—particularly with the Home Office—on the issues that she raised in order to ensure that we get these matters right.

[Yvonne Fovargue (Makerfield) (Lab)]

The Government have decided not to proceed with the legislation that they committed to bring forward to protect consumers from the rip-off practice of logbook loans, despite the Bill being prepared and ready to go through the accelerated procedure. Will the Minister explain why he is prepared to allow innocent buyers to continue to be exploited through this outdated, misused legislation?