Pubs: Business Rates

Mel Stride Excerpts

Tuesday 15th January 2019 Westminster Hall

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

It is a pleasure to serve under your chairmanship, Mr Bailey. I thank my hon. Friend the Member for St Albans (Mrs Main) for securing the debate, and I do so for two reasons. First, this is an important matter; pubs lie at the heart of our local communities and the Government’s view is that we should do whatever we can to assist and support them, although, as my hon. Friend the Member for Henley (John Howell) pointed out, there are issues other than rates at play when one looks at the pressures that pubs are under. Secondly, I know that my hon. Friend is a strong campaigner on these matters, and this debate is yet another reflection upon the assiduous approach she takes to her duties as a Member of Parliament.

Undoubtedly there are great pressures on pubs, as we have heard. At the same time we should recognise that there are some rays of light in the overall story. The Office for National Statistics has published data showing that the number of larger pubs—those that employ 10 or more—has grown since 2011. In fact, we now have the largest number since 2011. If we look at the pub and bar sector in total, we see that employment has grown by some 6% since 2008, to 450,000 employees. That does not mean that pubs are not under pressure, as my hon. Friend set out at length and in detail, so the Government have taken action, and she has recognised the things that we have done.

For example, in the Budget last year we introduced a discount of one third to the business rates for retailers, including pubs and bars that have a rateable value below £51,000. I know that my hon. Friend’s constituency is in a relatively high-value property area and that the discount will not have had the same impact as it has had on the estimated 90% of all pubs and bars across the country. The figure for her constituency is 63%, so it is certainly the case that the majority of the pubs in her constituency are at least entitled to the discount of one third that we announced.

[Mrs Main]

I encourage the Minister to come and see my pubs. Many of them are in historic listed buildings within a conservation area. They have small square footage and it is difficult to grow a business beyond the growth it has already seen. They are in areas where the house prices drive up their rates to an unsustainable level. I appreciate that some of the bigger ones—not the independent ones—have been helped, but I want to help all the pubs, and particularly the ones I have referred to.

[Mel Stride]

As I said, 63% of pubs and bars in my hon. Friend’s constituency—typically those with lower rateable values, which probably correlates to the kind of pub she describes—will benefit from the one-third reduction that we announced in the Budget. That reduction will be worth about £900 million to the sector over the next two years. She also rightly referred to what we have done in freezing beer duty and spirit duty. In 2013 we withdrew the beer duty escalator, so the price of a pint is now some 14p less than it would have been otherwise, and we froze beer duty yet again in the last Budget. Across the country, around half of the income of pubs is driven by beer sales alone, so those are important measures. The further reliefs that we have been introducing come on the back of a great deal of activity, particularly since 2016. We have introduced a total of about £13 billion-worth of reliefs across the business rates terrain. That includes making 100% small business rates relief permanent, and doubling the threshold for small business rates relief in 2017.

My hon. Friend asked what we are doing for all the pubs in her constituency. That is a valid point. We have changed the uprating from the retail prices index to the consumer prices index. We initially announced that that would come in from 2020, but in the recent Budget it was brought forward by two years. That will lower the level of business rates right across the pub sector, irrespective of the size of the particular establishment. That is worth about £5 billion in additional relief over the next five years. We have doubled the level of rural rate relief to 100% from 2017.

My hon. Friend referred to specific examples of where there have been very large increases in rateable value—I think she quoted a figure in excess of 60% in one case. In 2017, at the time of the revaluation, we introduced the transitional relief scheme, which was worth some £3.6 billion of relief, to ensure that we smoothed out some of those increases. I would be happy to meet her at some point to look in detail at one or two of the examples she raised, which might be useful for us both. An increase in one year of more than 60%, given the transitional relief that would be available, would be on the high side, but I would be very interested to look at that with her in detail.

[Dr Cameron]

I thank the Minister for all the work that he is doing for the sector, which needs as much support as possible. Does he agree that it cannot be right that the rateable value of our Glassford Inn, for instance, is so high that even if it sold beer every night of the week to every single person in the village, it still could not pay the rates that have been set? Will he agree to look at that issue for me?

[Mel Stride]

I thank the hon. Lady for her intervention. Of course, I am not familiar with that particular establishment—although I would probably like to be—or with its current trading conditions. My point is that a pub, or any business for that matter, will be under pressure for a variety of reasons—my hon. Friend the Member for Henley raised, for example, the change in drinking habits as one factor. Importantly, the Government have a responsibility on the tax front to ensure that we ease those pressures to the greatest extent that we can, while taking a balanced and responsible approach to the economy.

[Tonia Antoniazzi (Gower) (Lab)]

I want to raise the plight of some of the Gower pubs. Owing to the rural nature on the peninsula, many are closing and have great challenges ahead. As the Minister mentioned, those challenges are for a range of reasons, but several members of the community and I have set up a working party to address that. I look forward to informing the Minister of the good work that we will do.

[Mel Stride]

I thank the hon. Lady for that intervention. I would be very interested in hearing from her and her working group when she is ready.

It is important to say that pubs are typically central to high streets. It is an issue not only of providing whatever support we can in terms of reliefs, many of which I have outlined, but of assisting high streets, and pubs as part of high streets, to evolve and transition. The high street is under a huge amount of pressure, not least through the online retail marketplace, which takes around 18% of all retail sales. A decade ago, it would have been a fraction of that.

The high street, and pubs at the heart of it, will therefore have to transition. That is why we made an important announcement in the Budget about the future high streets fund—£675 million to assist local areas to develop plans to ensure that they transition their high streets into a format that works more effectively. That includes the review being conducted at the moment into the change-of-use regime, and how it operates to allow certain businesses to change to different businesses, or to retail premises.

[Mrs Main]

May I ask the Minister in the few minutes that are left specifically to discuss anomalies such as fair maintainable trade—where the rates of one pub are hugely increased and those of another, which is not making so much investment and effort in the community, are cut? It cannot be right that businesses that are trying their best are penalised. Fair maintainable trade is an undeliverable anomaly, as is the fact that it takes three years to challenge the rates.

[Mel Stride]

My hon. Friend has astutely pre-empted my very next set of remarks, which relate to the fair maintainable trade approach to valuations. The British Beer and Pub Association has looked at that approach with us and is broadly comfortable with it. We recognised the importance of revaluations in the Budget. We have talked about bringing forward the next revaluation, and having more frequent revaluations so that we have fewer changes of a more dramatic nature.

On the way in which the system works, I think it is broadly a fair approach, because it does not take into account the actual value of the property; it recognises, however, the turnover that a pub can achieve if run appropriately. If a pub is extremely well run and is a very successful business, the Valuation Office Agency is not out to penalise the owners or tenants of that particular establishment in its valuations. There is an established check challenge appeal process through the VOA that can ultimately lead to an independent assessment of the VOA’s decision.

I would like to discuss the three-year point that my hon. Friend raised with her after the debate. If there are cases where it is the fault of the VOA that we are not responding across that period of time—of course, there are many reasons for delays that may come from either party—that would be of concern to me. With the VOA, we are in a position where the backlog of valuations, from when we had speculative valuations, before we changed the process, should all be cleared by September this year—and 1 million had to be gone through.

[Mrs Main]

I thank the Minister for making various offers to talk outside the debate. Of course, the debate is being watched hotly by people in my constituency and outside it. I ask that the Minister commits to coming to St Albans, because those conversations need to take place with the people who are running the businesses. They are beginning to think that whatever they say is not listened to. I would like him to come and put to them the same arguments that he might put to me. I am not that closely involved, and would be unable to reply in the way that they could, so please will he come to St Albans?

[Mel Stride]

The commitment that I will give my hon. Friend is that I would certainly be very happy to meet with publicans from her constituency, if she would like to arrange such a meeting. I have some very fond memories from many years ago of having many a very satisfying pint in Ye Olde Fighting Cocks. Perhaps we could discuss it afterwards. Whether I go on a pub crawl with her in her constituency is another matter, but I am certainly happy to meet her and the constituents to whom she refers.

Once again, I thank my hon. Friend for introducing this extremely important debate. She has once again ensured that it is very much at the forefront of the Government’s agenda. I hope that she will accept that we have done a great deal in this area to do what we can. Of course, we keep all taxes under constant review, and I will certainly bear in mind her representations at future fiscal events.

Motion lapsed (Standing Order No. 10(6)).

Draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2018

Mel Stride Excerpts

Monday 14th January 2019 General Committees

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

I beg to move,

That the Committee has considered the draft Local Government Finance Act 1988 (Non-Domestic Rating Multipliers) (England) Order 2018.

It is a pleasure, as always, to serve under your chairmanship, Mr Hosie. The order changes the annual inflationary increase in the business rate multiplier from the retail price index to the lower consumer price index for the coming financial year. The Government are committed to permanently switching to the use of CPI as an uprating measure for the business rate multiplier.

The multiplier is effectively the tax rate applied to the calculation of business rates. There are two business rate multipliers: the small business multiplier and the standard multiplier. Historically, those multipliers would rise in line with the preceding year’s RPI figure. On that basis, the multipliers were due to increase to reflect the September 2018 RPI figure, which was 3.3%. The Budget 2016 committed to switching the multiplier uprating from RPI to CPI indexation from April 2020, and in the autumn 2017 Budget, the Chancellor brought forward the implementation date to April 2018, to deliver a key ask of the business sector.

That measure reaffirms the Government’s commitment to supporting British businesses, of all sizes and from all sectors, to achieve their potential by reducing their tax burden. The switch is worth more than £5 billion to businesses over the next five years, and the benefit to business grows every year as the rate multipliers are uprated by the lower rate of inflation year on year. The Government introduced regulations to make the change for 2018-19, and the order will do the same for 2019-20.

The Government recognise that business rates can represent a high fixed cost for some businesses and that is why we have taken repeated action in recent years to cut the burden of rates for all businesses and make the system fairer. Since Budget 2016, the Government have announced reforms to the system worth more than £13 billion to businesses over the next five years.

The order is the secondary legislation required to effect the change in the inflationary increase of business rates from RPI to CPI for 2019-20. It sets out the new equation for setting the multipliers for the coming financial year so that the figure used is 2.4% instead of the 3.3% that I referred to earlier. That represents a cut in business rates every year, which benefits all ratepayers and frees up cash for businesses.

In conclusion, the order will change the annual inflationary increase in business rates from RPI to CPI, and I commend it to the Committee.

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[Mel Stride]

I have nothing further to add, Mr Hosie, other than to thank the hon. Lady.

Question put and agreed to.

Double Taxation Convention: UK and Cyprus

Mel Stride Excerpts

Tuesday 8th January 2019 Written Statements

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

A protocol to the double taxation convention with Cyprus was signed on 19 December 2018. The text of the protocol is available on HM Revenue and Customs’ pages of the gov.uk website and will be deposited in the Libraries of both Houses. The text will be scheduled to a draft Order in Council and laid before the House of Commons in due course.

[HCWS1234]

Finance (No. 3) Bill

Mel Stride Excerpts

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

[Kirsty Blackman]

We have not had taxation powers for 10 years, and we do not have the full range of powers. For example, we do not have the full range of powers over public health, so we do not have in Scotland powers such as the public health taxation measures—the sugar tax—that were brought forward in the previous Budget. We do not have the full range of powers, and if Scotland were to be an independent country, with the full range of powers, we would be putting the things we are discussing today at the heart of our Government’s agenda. Our Government have done this and we will continue to do this—we are pushing for fairness.

I will wrap up, because I am aware that I am relatively short of time, but I want to talk about the people who are the poorest and, by the way, the most disadvantaged by the way in which this society is set up. Following the changes to universal credit, those in the bottom 30% of incomes will gain less from the work allowance than they will lose in the benefit freeze. The benefit freeze is costing them more than the changes to the work allowance will give them. Those people, who have no recourse to public funds, are the poorest individuals I see coming through my door, and this Government have caused that situation. This Government have caused a situation in which asylum seekers have got absolutely nothing. This is about the very poorest people, who have got the worst life chances as a result, and this Government are completely failing to do anything to support them or to improve their life chances. This is about people on disability benefits, who are really struggling, and at every turn, this Government have made their lives worse, rather than better. This is about lone parents, who are disadvantaged as a result of universal credit. This is about the increases in food bank usage.

The Government talk about people working their way out of poverty. I do not understand how people can have hope when they do not have enough to eat.

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

I thank everybody who has made a contribution in this very important debate. There have been some extremely passionate and well-argued speeches.

Part of the debate has been exemplified by the hon. Member for Gedling (Vernon Coaker) and my hon. Friend the Member for North Dorset (Simon Hoare), who spoke in effect about who cares about these issues. We need to recognise that Members on both sides of this House—I include the Opposition in my remarks—care very deeply about whether our fellow citizens in our great nation are impoverished, are in dire straits, do not have enough to make ends meet, do not have enough to feed their children, or have children who do not have the opportunities in life that we wish for our children in turn. Those things matter considerably, and I congratulate my hon. Friend on the quality of the speech he delivered, particularly in that respect.

Something else that lay at the heart of the debate between the hon. Member for Gedling and my hon. Friend the Member for North Dorset, is whether the numbers matter. Do the figures matter? I think it was the contention of the hon. Member for Gedling that, in a sense, the figures do not matter. In a curious way, that is rather at odds with the notion of supporting new clause 1, because it calls for more figures to inform our decisions. In one sense, of course, the figures do not matter, because what matters is the condition of the people who live in our country. However, figures do matter when it comes to formulating the policy responses we need to address the situation, and if we are, in any meaningful way, to chart the progress, or otherwise, that Governments—ours and the Labour Governments who preceded us—have made on this extremely important issue.

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[Debbie Abrahams]

I do not know whether the Minister is aware of this, but the European Commission does this sort of analysis every year on its programme of policies, so it is not that this cannot be done. Its work covers not just quantitative but qualitative data, which relates to the points my hon. Friend the Member for Gedling (Vernon Coaker) made. There needs to be more than what the Government are doing—they do not know what the impacts of their policies will be.

[Mel Stride]

I think I have been misunderstood, and I apologise to the hon. Lady if I was not clear enough. I am certainly not saying that data does not matter—quite the opposite. What I am saying is that we need to have the right kind of data for the exercise to be meaningful and worth while.

New clause 1 would require the Chancellor to report on the impact of changes to the personal allowance and the higher rate threshold on households of different levels of income, on child poverty, on equality and on those individuals with protected characteristics. New clause 5 would require the Chancellor to report on the Bill’s effect on child poverty, life expectancy and public health.

Let me first address the question of the Treasury’s compliance with its public sector equality duty, as referenced in new clause 1(2)(c). Equality and fairness continue to lie right at the heart of the Government’s agenda, and we take our compliance with this duty deeply seriously while deciding policy. That means that Government decisions are explicitly informed by the evidence available of the implications of those decisions for those sharing protected characteristics. I have no hesitation in saying that the Treasury complies with the public sector equality duty.

Further provisions in new clauses 1 and 5 call for the publication of different forms of analysis for clause 5 and for the whole Bill in turn. The Government have been, and continue to be, transparent—more transparent than any other. Changes to the tax system are always accompanied by a tax information and impact note, and each Budget is accompanied by detailed distributional analysis.

TIINs, in particular, are relevant to the questions discussed today. These notes provide Parliament and taxpayers with information on the expected effects of changes to the tax system, and form a vital part of the Government’s commitment to transparency and accountability around tax decisions. In the context of clause 5, for example, the TIIN already sets out the impact on groups of taxpayers according to their age, gender and income tax band, and this data is readily available to HMRC through tax returns.

[Vernon Coaker]

That is the point: the assumptions on distributional analysis are assumptions. What we want is to see whether those assumptions turn into reality.

[Mel Stride]

I will come to the very issue that the hon. Gentleman rightly raises.

Clause 5 will benefit households across the UK. Due to the information collected by HMRC through tax returns, we have various pieces of information on geographical distribution, as sought under new clause 1(2)(d). That is an important point, because much of the information being requested is actually already available.

In addition, the distributional analysis published by the Treasury already sets out the impact of tax changes on households with different levels of income. To be completely clear, the analysis shows how the living standards of households in each tenth of the income distribution will be affected by the decisions the Chancellor and Prime Minister have taken since they took office in 2016. Not only does the analysis meet the intention of new clause 5(2)(a) regarding the effects of the Government’s tax changes on different households, it actually goes beyond that by including changes to welfare and spending on public services, and by considering changes in addition to those announced at each fiscal event since the autumn statement in 2016.

There is, as I suggested at the outset of my remarks, much that we can agree on across the House. Child poverty, public health, life expectancy and inequality are among the greatest issues of our age. We have got on with the job. Absolute poverty rates are at record lows. One million fewer people are in poverty now than under Labour. I say to the hon. Member for Gedling that 1 million is indeed a number, but for every one of those million, their lives have been enhanced. That includes 300,000 fewer children in poverty than under Labour. As we know, the best route out of poverty is through work. There are 3 million more people in work now than in 2010, with 637,000 fewer children in workless households. That is a record of which we should be proud. I urge the House to reject the new clauses.

[Peter Dowd]

If I may rephrase St Augustine, who said “O Lord, make me chaste, but not yet,” what we have here is a Government saying, “O Lord, make me charitable and compassionate, but not just now. Let’s do it in the future.” It comes to something when the British Government, with an expenditure of approximately £840 billion a year, say that it will be difficult to get statistics, either qualitative or quantitative, from which they can make policy. That is how it seems to me, but I tell you what: every day when I am in my constituency I see people who are homeless. What have the Government done about that? Nothing. I see food banks opening up all the time. What are the Government doing about that? Absolutely nothing. What are the Government doing about the 24% of homeless people who are from the LGBT community? Absolutely nothing. And then we heard the dross coming out—that is what it is, dross—about intergenerational worklessness. The Joseph Rowntree Foundation—through evidence, through statistics, through analysis—found that that was not a significant factor in homelessness. So we hear all this talk about charity, compassion and working together, but I am afraid it does not wash when it comes from the mouths of Tories.

Question put, That the clause be read a Second time.

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[Mel Stride]

Given the limited time that is available to me to summarise a debate that has covered a large number of amendments and new clauses, I shall confine my remarks principally to the issue that has been raised most frequently, which relates to new clause 26. The new clause requires the Government to lay before the House a report reviewing the effects of changes made by clauses 79 and 80 no later than 30 March 2019. While I should note that such a report will come too soon for the measures to have had a real effect, the Government of course remain committed to setting out the rationale for their policies as well as their impact, and in that spirit we will not oppose the new clause.

I do, however, echo many of the comments made by Members about what these schemes are truly about, which is gross aggressive tax avoidance. The way in which disguised remuneration typically works is that, instead of an employer’s paying an employee by way of a salary in the normal way, which attracts PAYE income tax and employees’ and employers national insurance, the payment is made as a loan. Typically, those so-called loans, which are not really loans at all—there is no intention of ever repaying them—are routed out via an offshore trust in a low or no-tax jurisdiction, and then routed back to the United Kingdom to be received by the end recipient. That is extremely unfair. It is unfair to our public services, because we have a duty as a Government to collect the tax that is due to fund them, and it is unfair to the vast majority of taxpayers who do the right thing, which is not to get involved in aggressive tax avoidance schemes in the first place and to pay their fair share of tax.

One issue that has been raised on a number of occasions is the question of whether HMRC’s loan charge arrangements are themselves retrospective. They are not retrospective because, critically—this is where I take issue with the right hon. Member for Kingston and Surbiton (Sir Edward Davey)—at the time when they were entered into they were defective. No matter how far we go back, the scheme typically—I have described the way it works—was defective. It did not work then, it does not work now and the tax is due.

These schemes have been taken through the courts on many occasions. A scheme used to the benefit of Rangers Football Club was taken to the Supreme Court—the highest court in the land—and was found to be defective.

[Dr Wollaston]

Will my right hon. Friend give way?

[Mel Stride]

I will not, simply because I have two minutes and 30 seconds left and I want to cover some of the other issues raised this evening.

However, as I have said, the Government will accept this new clause. It is absolutely right that, when HMRC deals with the public, it has a strict duty of care, a duty of proportionality and a duty to be as sympathetic as it can be relevant to the circumstances of those with whom it is dealing. In my dealings with HMRC, I have made those points forcefully clear. As the right hon. Gentleman will know, HMRC has recently come forward to say that those earning £50,000 or less—which is over twice the average national salary of somebody working in our country—will automatically be granted, without requirement for additional paperwork, a minimum of five years’ time to pay as an arrangement to settle their affairs. Of course for those who come forward before April there is effectively in most cases no penalty as such; they will simply be required to pay that tax which was due in the past—and it was always due in the past—plus the interest that is rightly applied.

I have less than a minute left and want to say a little about amendment 12, tabled by the hon. Member for Aberdeen North (Kirsty Blackman), on the national minimum wage lock. She will know that, because we have increased the personal allowance now to £12,500 for every year of the forecast period, there will be no necessity for that lock to be in place. She makes the point that there could be a projection beyond that point. That will be a matter for a future Government of course and it is not for this Parliament to bind its successors.

I conclude on the suggested entrepreneurs’ relief review and new clause 2, which the hon. Member for Oxford East (Anneliese Dodds) spoke to. We had a review that was published in December 2017, which reported on this particular matter, and it showed that a third of those using entrepreneurs’ relief went on to reinvest in new businesses and half of those who were aware of entrepreneurs’ relief said that it significantly influenced their decision to enter into an entrepreneurial activity. It is an important element of the business tax landscape and we will of course, as we do with all taxes, keep that relief under review.

In the six seconds I have left, I urge that the House accepts the Government new clauses and, with the exception of new clause 26, rejects the Opposition amendments.

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[Mel Stride]

I beg to move, That the Bill be now read the Third time.

Eight years ago, our country’s finances were in peril. For far too long, Labour had spent and borrowed more than our country could afford. The deficit was at a peacetime high and debt was spiralling out of control. [Interruption.] I would not keep repeating it if Labour Members had learned their lesson, but they clearly have not, so they need to be told. This Government came into office knowing that we had to rise to the challenge of working with the British people to bring expenditure back under control and to once again live within our means, and we have done just that, with the deficit now four fifths lower than it was when we came into office and debt beginning its first sustained fall in a generation.

But bringing down the deficit alone was not the limit of our endeavour. The manner in which we did so was equally important: reducing the deficit, yes, but remaining committed to funding our vital public services, giving tax cuts to millions of strivers right up and down the country, and building a tax system that rewards and incentivises business and growth—prudent but pro-business, and deeply invested in the idea that those who work hard should be rewarded. The results are clear to see: 3.3 million more people in work since 2010, unemployment at its lowest level since the 1970s, wages growing, and the rate of absolute poverty at a record low. This Bill continues that work.

At the heart of the Conservative ideal is the firm belief that people know how to spend their money better than Government do, and that those who work hard deserve to be rewarded. The best way for Government to serve that ideal is to cut taxes, especially for those on low and middle incomes—to get out of the pockets of the British people and let them decide what they do with the money that they have worked so hard to earn. When this Government came into office, the personal allowance was at £6,475 and the higher rate threshold was at £43,875. We were elected to raise those thresholds to £12,500 and £50,000 respectively. In this Bill, we deliver on that commitment not just in line with our manifesto but a full year early—at the earliest affordable opportunity. Those changes mean that, compared with 2015, we have cut taxes for 32 million people, with an additional 1.7 million people paying no tax at all, and nearly a million fewer people having to pay the higher rate of income tax. We are also making sure that the extra money in people’s pockets goes further. It is for that reason that we are freezing fuel duty, freezing air passenger duty on short-haul flights in real terms, and freezing the duty on beer, cider and spirits.

Also central to the mission of this Government is our steadfast support for business—our instinctive and deep-rooted understanding that it is never Government who generate the wealth and taxes that fund our vital public services, but the innovation and hard work of millions of people right up and down our country. The achievements of our businesses have been very significant, yet despite that, productivity has been subdued since the financial crisis, and business investment in our country, while strong, is lower than we would like it to be to make the most of the opportunities that lie ahead.

That is why in this Bill we are taking substantial action to boost private sector investment. We have introduced, at the request of the CBI, a new capital allowance for qualifying non-residential structures and buildings that will support business investment and improve the international competitiveness of the UK tax system. From 1 January, we are increasing the annual investment allowance to £1 million for two years, providing additional support for firms to invest and grow. Not least because of the relentless lobbying of my Conservative colleagues who represent constituencies in Scotland, we are legislating for a groundbreaking transferable tax history mechanism for late-life oil and gas fields.

A core pillar of this Government’s approach to taxation is a belief in fairness—that everyone should pay what they owe when they owe it. This Government have an outstanding record in this area. We have protected more than £200 billion in revenue that would otherwise have gone unpaid since 2010, and we have introduced more than 100 avoidance and evasion measures since that time.

In this Bill, we continue that work, taking action against multinationals that keep their intangible property in low-tax jurisdictions in order to avoid UK tax; tackling profit fragmentation, whereby companies reduce their tax burden by artificially shifting their revenue; and cracking down on multinationals that attempt to erode the tax base—a tax system where enterprise is rewarded but everyone pays their fair share and our public services get the funding that they need.

I have been proud to take this Bill through the House. It provides a tax cut for 32 million people. It backs British businesses, introducing with measures to boost private sector investment and support jobs and growth, to ensure that our country is the country in which enterprise can thrive. I understand that the Labour party does not agree with every aspect of the Bill but will not divide the House on Third Reading, which is positive. Those on the Government Benches support tax cuts for millions of hard-working people. We support business growth and investment. We support job creation, and we are the side of the House to ensure that taxes are fair and paid. I commend the Bill to the House.

Finance (No. 3) Bill: EVEL

Mel Stride Excerpts

Thursday 20th December 2018 Written Statements

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

I have today published a written submission outlining the Government’s analysis of how the English votes for English laws principle relates to all Government amendments tabled for the Report stage of the Finance (No.3) Bill.

The Department’s assessment is that the amendments do not change the territorial application of the Bill. The analysis holds if all the Government amendments are accepted.

I have deposited a copy of the submission in the Libraries of both Houses.

[HCWS1227]

Finance (No. 3) Bill (Ninth sitting)

Mel Stride Excerpts

Committee Debate: 9th sitting: House of Commons
Tuesday 11th December 2018 Public Bill Committees

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

It is a pleasure to serve again under your chairmanship, Ms Dorries. I thank the hon. Ladies opposite for their contributions, and I will deal with some of the specific points that were raised and then deal in more general terms with the measures and the amendments.

The hon. Member for Aberdeen North raised the issue of retrospectivity. I can assure her that the Law Officers have confirmed that there is nothing retrospective about the measures in the clause. It is the case that no investigation that has been closed, for example, will be reopened as a consequence of the measures here. At the point that the measures come into effect, no one who is, at that point in time, out of scope of the changes would be brought into scope.

On the issue raised by the hon. Members for Aberdeen North and for Oxford East on consultation, we held a public consultation on the details of the reform on 19 February 2018. The consultation closed on 14 May, and the response to the consultation and the draft legislation were published on L-day, on 6 July.

The hon. Member for Oxford East raised the issue of the de minimis amount and referred to LITRG. It is not true that we are not securing significant amounts from the most wealthy, whether individuals or corporations. For the last year for which we have records, 2017-18, HMRC secured £1 billion in tax from the wealthiest individuals and £9 billion from the largest and most complex businesses operating in the UK—tax that would otherwise have gone unpaid.

The hon. Member for Oxford East also raised at length the important issue of why corporation tax is not included along with inheritance tax and income tax. As she said, we consulted on this aspect at some length. The vast majority of responses did not support extending the measure to corporation tax and raised a number of new practical and legal issues with such an extension. The hon. Lady identified some of them, although I know she was not persuaded by the arguments that were put. However, there were a number of them.

For example, the rules that identify offshore issues were not designed for corporates and would result in a wide range of genuine commercial transactions being caught that were never considered when the rules were originally designed. Tax indemnity agreements on the sale or purchase of businesses could also be affected retrospectively, as a 12-year time limit was never anticipated. The 12-year time limit could create major complications for corporates with control of foreign companies—the hon. Lady spoke about that at length. Some corporates are also subject to other rules, such as the senior accounting officer rule, so it was seen as unnecessary to extend the measure to such companies.

The hon. Lady also specifically mentioned Google and Amazon, or a similar type of business, in this context. She should not overlook the fact that we are right at the forefront of looking at a digital services tax to make sure that those companies pay their fair share of tax in the United Kingdom.

[Anneliese Dodds]

Will the Minister explain whether those firms were strongly in favour of the measures that have been taken in relation to them and others, such as the diverted profits tax, or whether they have argued against them, potentially in consultations? Is consulting those who may, or whose clients may, have a revenue hit as a result of the measure and only listening to them really the appropriate way to make policy?

[Mel Stride]

I was making a slightly different point. It was not so much about what the response may or may not have been—I do not know the answer to that, regarding the measure that is under consideration by the Committee—but rather about our push to make sure that just those companies pay the appropriate level of taxation in the United Kingdom. Frankly, I think the businesses themselves want to be seen to be paying a fair level of tax. That is the impression that I get from the Treasury perspective. We are not on the back foot on this; we are very much on the front foot, pushing within both the OECD and the European Union to make sure that we can come up with a multilateral solution, which has particular advantages over going it alone. However, we have made it clear, as the Chancellor set out in the recent Budget, that in the event that there is not a multilateral solution, we will of course act unilaterally by 2020.

[Kirsty Blackman]

Before the Minister goes on to his next point, can I bring him back to the issue of retrospectivity? I am concerned that the Government’s definition of retrospectivity seems to be different from that of the CIT and the LITRG. Will the Minister write to me with his definition of retrospectivity in advance of Report, so that we can see whether we should press the amendment at that time?

[Mel Stride]

Yes, of course. I would be very happy to do that and in some detail. As I have already suggested, the general point is that those businesses that would not be in scope of these new arrangements, at the moment that they come into effect, would remain out of scope of these arrangements. That is the important point, I think, but I will certainly write to provide further detail.

My final point is about whether we are going soft on larger businesses, which I think was the overarching implication of the hon. Member for Oxford East. She should bear it in mind that at any one time, about half the 210 largest businesses in the United Kingdom are under active investigation. That does not mean that they are doing anything wrong—it may be far from it—but I sincerely believe that HMRC are very good at making sure that those businesses are thoroughly engaged with, particularly the large ones, because that is where a lot of yield lies.

[Anneliese Dodds]

We are not talking about whether those large businesses are taxed at all, are subject to new tax measures or are investigated at all. What we are talking about are the time limits for that investigation. There is an anomaly in what the Government are presenting between the time limits for corporates against individuals. Surely that is what needs to be addressed.

[Mel Stride]

I am reflecting the fact that while corporation tax is not covered by these measures, that is not the same thing as saying that we do not have an appropriate regime overall for making sure that large businesses pay their fair share. I was giving some examples such as the diverted profits tax, common reporting standards and all sorts of things, including base erosion and profit shifting, that the hon. Lady will know feed into that particular argument.

To turn to the generality of the measures, clauses 79 and 80 make changes to help ensure that everyone pays the tax they owe. Individuals under inquiry by HMRC for offshore non-compliance will now face assessment for 12 years of back taxes for income tax, capital gains tax and inheritance tax. It applies only to cases where tax losses arise in respect of offshore matters or offshore transfers.

Those clauses will affect only individuals with offshore structures who are not paying the correct amount of tax. The measure is not retrospective as it does not give HMRC the power to reopen any currently closed cases. It is right and fair that everyone pays the tax they owe. It can take longer for HMRC to establish the facts where offshore non-compliance is involved. In some complex offshore cases, tax cannot be collected as the time limits for HMRC to assess the tax run out before the facts can be established.

The changes made by clauses 79 and 80 will ensure that HMRC is able to deal with offshore cases effectively, where the facts are often difficult to establish. The time limit for assessment by HMRC will be extended for non-deliberate behaviour from four years in ordinary circumstances and six years in cases where there was carelessness, to 12 years. The time limit for assessment will remain at 20 years for deliberate behaviour. This measure will help to prevent individuals from avoiding a full investigation by HMRC because of the difficulty in assessing information on offshore structures and investments.

The new extended time limits will not enable HMRC to assess any tax that can no longer be assessed under current rules at the time the legislation comes into force. That was the point at the heart of the concerns expressed by the hon. Member for Aberdeen North. The new time limits will not apply where HMRC has received information in accordance with certain international agreements from other tax authorities, on the basis that it was reasonable to expect an assessment to be made within the existing time limit. The clauses will raise £30 million by 2024.

Amendment 105 would unbalance the safeguards that ensure that the new time limits only apply if HMRC already has the information to make an assessment and could reasonably make it within the current time limits. If the amendment was passed, HMRC could receive information on a tax compliance case that it would be unable to act on. If, for example, information was provided from overseas immediately before the end of the current time limit, HMRC would be timed out of collecting the lost tax. That could incentivise slow responses from overseas intermediaries when partner jurisdictions gather information in response to HMRC requests.

Amendments 106 and 107 would change the years for which the clause would have effect. Where loss of tax is brought about carelessly, that would change from 2013-14 to 2019-20, and where brought about in any other case from 2015-16 to 2019-20. The amendments would water down the Government’s commitment to tackling offshore non-compliance now and delay, for at least a further four years, the additional time that the provision gives HMRC, so that the time limits would only begin to extend from tax year 2023-24. The Government are clear that the provision should start helping HMRC’s compliance work as soon as possible.

Amendment 139 would insert a de minimis threshold of £50 tax loss before the time limit applied. As currently drafted, the clause ensures that HMRC has the time necessary to conduct complex investigations. It is right therefore that HMRC can collect the tax due, regardless of the amount, once it has been calculated. It would be fundamentally unfair if the de minimis principle applied to offshore cases but not to onshore cases.

[Anneliese Dodds]

Forgive me, but is there a 12-year time limit for onshore cases for individuals?

[Mel Stride]

No is the short answer.

[Anneliese Dodds]

I am grateful to the Minister for very generously giving way again. He said that it would be unfair to create an anomaly between the tax affairs of those with offshore and onshore business, but we have just established that there is not a 12-year time limit for those onshore. Is there not therefore an anomaly?

[Mel Stride]

This is probably a classic case of me speaking too quickly and the hon. Lady not being given the fair opportunity to digest exactly what I said, which I will repeat, because it is a slightly different point. We are talking about the £50 de minimis, not the 12-year extension. I will reiterate exactly what I said for the hon. Lady’s benefit, so she is absolutely certain that I am not bamboozling her on this point. I said that it is right therefore that HMRC can collect the tax due, regardless of the amount, once it has been calculated. It would be fundamentally unfair if the de minimis principle—I am referring to the £50 threshold—applied to offshore cases but not to onshore cases. In other words, it is her amendment that would create the anomaly.

[Anneliese Dodds]

rose—

[Mel Stride]

I am happy to give way again if the hon. Lady desires.

[Anneliese Dodds]

I thank the Minister for allowing me to comment on this again. We are surely talking about very different cases. One deals with the normal process of tax collection and investigation, which most individuals assume would apply for seven years, and people need to keep papers for that long. The other is fundamentally different, and deals with the extension of the time limit to 12 years. If we were to do that onshore, then we may also wish to introduce a de minimis for that process, which would, as his measure introduces, go back between seven and 12 years. That is a point that needs to be made.

[Mel Stride]

I sense that the hon. Lady might have accepted my earlier point that my reference was actually to the £50 de minimis rather than the time limit. She has now introduced another argument, which she prosecuted during her opening remarks—that somehow we should not have a difference in the amount of time to investigate such matters pertaining to whether they are offshore or onshore-related. The whole crux of what we are doing rests on the, I think, fair belief that offshore transactions are less transparent. Those situations are more complicated and often involve dealing with different jurisdictions and intermediaries in order to establish the information that is required for HMRC to carry out its duties. That lies at the heart of why there should be a longer period for offshore entities than for those that are onshore.

[Anneliese Dodds]

I was talking about the application of a de minimis. I was trying to say that, if the Government were looking, for example, to extend the investigation period for domestic tax affairs beyond the existing time limits, they might even wish to consider a de minimis of £50. I was cognisant of the de minimis—my confusion was caused by the Minister’s remarks. He seemed to suggest that having a de minimis only in relation to offshore tax affairs and not to domestic affairs would be peculiar. We are talking about a de minimis only in those cases of that very long period, not in relation to general tax affairs. I would never say that we should have a de minimis on tax generally, which would mean that we could not pay tax on anything—VAT and so on. That is not what I suggested at all.

[Mel Stride]

This is probably a discussion for another day, in the sense that the hon. Lady is asking that, in the event that we revisit the issue of the time limits for onshore investigation, we should on that basis consider her amendment anew, because it might dispense with the different treatment between onshore and offshore. We might come to that in another world on another occasion, in another Finance Bill.

I am anxious to make progress—the hon. Member for Bootle sits there looking like he has got all day, but we have to make progress. Amendments 141, 142 and 143 on clause 79, and amendments 144 and 145 on clause 80, would require the Government to review the impact and effectiveness of the clauses within six months of the passing of the Act. Such reviews, however, would not have the intended effect: no data in relation to the characteristics of persons affected, the revenue effects of the changes, or the effects of the changes on incentives on persons to comply, will be available after six months. That is because it is unlikely that a full assessment of any relevant cases will be conducted within the six months after Royal Assent. Thus a report would likely be impossible or meaningless.

On that basis, I commend the clauses to the Committee.

[Kirsty Blackman]

If the Minister writes to me with the comments about retrospectivity, it may be that we will not press our proposal to a Division on Report, but I will not press it now in anticipation of receiving that letter.

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[Kirsty Blackman]

Very briefly, if the Labour party chooses to press these amendments to a vote, we will support it, because we think that what it is trying to achieve is very sensible.

[Mel Stride]

I thank the hon. Member for Oxford East for her questions, most of which I will come to in my general statement on the clause. It is good to hear that she broadly welcomes the general thrust of what we are doing. I think she said that amendments 146 and 147 are probing amendments, and raised various issues about the guidance. Of course, those who are to be affected by the measures will have a right of appeal—they will be able to go to a tribunal to dispute the imposition of advance payments. During the period of dispute, the payment is not required to be made. That is an important point. They will also be invited to comment with HMRC—and have a right to do so—on the proposed level of payment being sought during the process by which it is determined. If their circumstances change at any point in the process or thereafter, that is an opportunity for further discussion and potentially change in the amounts that might be involved. I will pick up one or two other points on guidance in my general remarks.

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[Sir Robert Syms]

The hon. Member makes his own point. We have discussed Budgets and Finance Bill Committees before. The Bill has been on the Floor of the House and will go back there. There will be endless debates, and I am perfectly sure that he and his formidable Front-Bench team will be able to make their points when the Bill goes back to the House. Ultimately, the Government have taken a perfectly pragmatic view, and I look forward to the Minister’s reply.

[Mel Stride]

An interesting observation: as soon as “EU” appears in a clause, we suddenly have more interest from the Committee than for other measures. Ms Dorries, I will endeavour not to stray into too much detail around the pros and cons of the current deal and the White Paper and all that kind of stuff, and will stick to the clause.

The clause enables the Government to make changes to bring into force the regulations and administrative provisions necessary to comply with the EU directive on tax dispute resolution mechanisms within the European Union. Double taxation arises when the same profits are taxed twice by two different tax authorities. It can create serious obstacles for businesses operating across borders by creating excessive tax burdens, leading to inefficiencies and an economic disincentive to trade. An effective tax dispute resolution system can help to alleviate double taxation.

The UK is a signatory to the convention on the elimination of double taxation in connection with the adjustment of profits of associated enterprises within member states of the European Union, known as the arbitration convention. The UK has also entered into bilateral tax treaties with every EU member state for the purpose of eliminating double taxation. Following a review, it was concluded that the mechanisms currently provided for in bilateral tax treaties and the arbitration convention might not achieve the effective resolution of double taxation disputes between member states in all cases in a timely manner. Consequently, the directive was adopted to build on existing systems. The UK supported the aims of the directive and agreed the adopted text in 2017.

The powers contained within the clause are necessary to enable the Government to introduce secondary legislation to implement the directive. Some proposed amendments would apply the draft affirmative procedure to all regulations made under the clause. As it stands, the Bill ensures that the scrutiny procedures applying to the exercise of each power are appropriate and proportionate. The primary purpose of these powers is to give effect to an EU directive that has already been published. The exercise of the powers will therefore be a largely technical exercise—a point made by my hon. and gallant Friend the Member for Poole (Sir Robert Syms), who also raised the important point that Committee members who wish to further debate a negative SI can of course can pray against it—to transpose the agreed text into UK law. It would not be appropriate to apply the affirmative procedure to all the regulations.

An amendment has also been tabled that asks for a review of the effect on the exercise of the power contained in the clause of the UK leaving the EU with or without a negotiated withdrawal agreement within two months of the Finance Act 2019 being passed. The Government’s intention is for a negotiated withdrawal agreement to apply to the UK, and therefore an implementation period, so that we can use the powers in the clause to implement the EU directive. As a responsible Government, we are also planning for the unlikely event of leaving the EU without a deal. Given the reciprocal nature of double tax dispute resolution, it is difficult to see how legislation implementing the directive can work in a no-deal scenario, but we do not think it would be beneficial to commit to producing a report so close to EU exit, and before the transposition deadline of the directive in June 2019.

A further amendment asks for a statement by the Chancellor on the revenue effects of the exercise of the power under the clause. The Government intend to publish a tax information and impact note for the draft regulations. That will include an assessment of the expected revenue effects of the regulations. I am pleased to say that my hon. and gallant Friend the Member for Poole thoroughly approves of the tax information and impact notes regime which, as he knows, is rigorous and helpful. As a result there will be no need for the Chancellor to make an additional statement to the House.

[Kirsty Blackman]

I do not have much to add other than that I still want to press amendment 137 to a vote.

[Anneliese Dodds]

Briefly, the Minister referred to TIINs. I wonder whether, for the next Finance Bill, he will commit to ensuring clear linking from the Bill website to the different TIINs so that we can quickly see which one applies to each clause. It has been quite a waste of time having to search for them randomly.

As to the question whether the provisions should be examined using the affirmative procedure or should have to be prayed against using the negative procedure, I take on board the points made by the hon. Member for Poole. However, we all know that, when measures are dealt with by the affirmative procedure by default, much greater attention needs to be given to them. That is the reality. Generally, I fear that attention is not always paid to matters that may superficially appear technical but that, when one delves into them, may be discovered to have a concrete impact on different groups. Even with the affirmative procedure, the level of debate on taxation matters has, I would argue, traditionally been quite limited. I note that, for the first time in Parliament’s history, we have recently had votes in relation to tax treaties. I was pleased that we motivated those votes, yet UK tax treaties with other countries have never been subjected to proper scrutiny in the House.

Many matters covered by Delegated Legislation Committees are not purely technical. In fact, this has been talked about by my hon. Friend, who represents Leeds—help me out. [Hon. Members: “Stalybridge!”] I am sorry, I am not great at the memory game. In talking recently about some of the no-deal planning, my hon. Friend the Member for Stalybridge and Hyde has been talking about the potential for some of those measures to have such a significant impact that the Government themselves are not au fait with it. Given the time allotted, they seem to expect the Opposition to pass them with a rather cursory glance. I am afraid, therefore, that the suggestion that we already have a failsafe system for dealing with some of those significant matters is simply incorrect, so if the SNP presses amendment 137 to the vote, we shall support it. However, we will not press our amendments.

[Mel Stride]

Perhaps I may quickly respond, Ms Dorries, just to say that on the important matter of the TIINs, and the link from the website, I know that the hon. Lady raised that on a previous clause, and I should be happy to look into it for her. If she has any specific ideas that she would like to put to me in that respect, I should be grateful to receive them.

Finally, on the matter of negative SI procedure, and prayers against such measures, in the event that we have an effective, strong, organised, united and well led Opposition, I am sure that that will not be beyond them.

Question put, that the amendment be made.

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[Jonathan Reynolds]

I know. Prudential put the case that it was entitled to compound rather than simple interest on the repayment, given that some of the tax that was levied, it claimed, was in breach of EU law. However, the Supreme Court disagreed with this analysis and subsequently found in favour of HMRC. The amounts at stake are very significant—they were listed as £4 billion to £5 billion according to media reports at the time. Therefore, the Supreme Court decision is clearly welcome when public finances are under such severe pressure.

The test case has helped to clarify outstanding issues relating to ACT. It is important that the Statute book reflects this decision and is fully up to date to remove any uncertainty for taxpayers with historic claims. It is an additional bonus that the Supreme Court decision has not created a further liability for HMRC in repaying compound interest.

However, we must be clear whether this change, while it relates to a legacy tax, will have any impact on current taxation matters. This is especially pertinent when it relates to corporation tax receipts.

Labour has tabled two amendments. We may not necessarily press them to a Division, but they will be useful to our discussions. Amendments 151 and 152 would, respectively, call on the Government to review the effectiveness of this new statutory remedy one year after its adoption into law and review its impact on corporation tax receipts. These reviews would play an important role in judging the overall impact of the judgment. As I have outlined, the liabilities at stake are very significant. It is essential that we have a clear understanding of whether the provision will give rise to any changes in revenue collection. I call on Members to look at the amendments and ensure we have the clarity and transparency needed to scrutinise the measure in full.

Is the Minister aware of any further issues that may relate to historic ACT claims that we should be aware of? Given that the numbers at stake are so large, we seek reassurance that no other potential liabilities could arise for HMRC in relation to legacy challenges.

[Mel Stride]

I thank the hon. Gentleman for his contribution. On his specific question of whether any other issues related to ACT might give rise to liability to HMRC, I am not immediately aware of any, but I will write to confirm whether that is the case.

The advance corporation tax or ACT system, which was repealed as long ago as 1999, has been found to be unlawful in certain circumstances. Clauses 84 and 85 provide a new legal remedy for claims against HMRC in limited circumstances. A number of cases involving ACT have been argued before the courts over a lengthy period. This litigation continues but it is now clear that some ACT was paid unlawfully.

Earlier this year, the Supreme Court overruled an earlier decision of the House of Lords from 2007. That has created uncertainty as to what remedies might be available where unlawfully paid ACT was repaid or set against corporation tax before claims against HMRC were started. The law requires that in those cases there needs to be a remedy. The courts are able to consider that but, given the uncertainty, it is desirable for Parliament to consider what that should be in order to provide a fair and balanced outcome.

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[Jonathan Reynolds]

Thank you, Chair. The most exciting clauses have been taken from me. I am very grateful to have been allowed to take this on voluntary returns. On occasion, individuals submit returns to HMRC before a statutory notice requiring the return has been delivered. That applies to many different types of individuals, including those carrying out an income tax self-assessment, and individuals on PAYE who believe they are due a return.

HMRC has historically accepted such returns, given that it would be a considerable drain on resources to reject them and ask taxpayers needlessly to resend them. However, following a ruling by the first-tier tribunal in April 2018, it has been decided that that policy is not supported by law. Therefore, to ensure that the practice can continue, we understand the clause will bring about the legislative change needed so that the position is supported in law. An HMRC appeal is under way because it is possible that this could invalidate historical returns if it is refused by a higher court.

We are talking about significant numbers of returns, as was revealed during the tribunal hearing by HMRC. The Government receive about 350,000 returns of this type each year. Those are in the main from PAYE taxpayers who do not need to complete the self-assessment return but who are seeking a repayment. In its statement accompanying the case, HMRC stated:

“This policy provides a mutually beneficial administrative arrangement for customers and HMRC. The alternative would be that HMRC would have to reject returns submitted voluntarily, issue a formal s8 notice and the customer would have to resubmit the return. This would add unnecessary administrative burdens to both customers and HMRC, causing unnecessary delay in HMRC processing returns, claims and repayments.”

As part of the ambition to put the customer at the heart of what HMRC does, it has introduced a simple assessment for 2016-17 onwards, to enable HMRC to send customers with straightforward tax affairs a simple assessment notice of their liability, without the need for them to resubmit a self-assessment return. It expects that this will significantly reduce the number of voluntary returns it receives each year, and PAYE customers who are not already in self-assessment will not need to complete a self-assessment tax return to get a refund. HMRC also has long-term plans to abolish annual tax returns as part of the Making Tax Digital strategy.

As we are near the end of the Committee, I do not think we need to go through the long history of issues relating to Making Tax Digital, but we have made these points many times before, both in this Committee and in previous Finance Bill Committees. For smaller businesses, Making Tax Digital will add a significant reporting burden by requiring them to switch from one report a year to four. Making Tax Digital will still be being implemented in April 2019, coinciding with our departure from the EU, and putting a significant compliance burden on businesses if there are also VAT changes.

In addition, according to HMRC’s own figures, a shocking 4 million calls to HMRC went unanswered in 2017. As my hon. Friend the Member for Bootle said in the previous Finance Bill Committee, if people call up to pay their taxes, they should be able to get through. Given that the deficit has not yet been eliminated, one would think that the Government would welcome people voluntarily ringing up to pay more tax. Therefore, this change to legislation seems sensible. It would avoid any further costs or administrative pressures on HMRC at an already challenging time for the organisation. I can only imagine the enormous burden it would present if the historical treatment of 350,000 returns was judged to be invalid.

We need more insight into how HMRC resources might be affected to ensure that this measure does not have any unintended consequences. Therefore, Labour has tabled three amendments to give us the information needed to assess this properly. Amendment 153 would require the Government to review the effectiveness of this provision for voluntary tax returns within one year. It seems that the process of submission for voluntary tax returns is working reasonably effectively at present. This review would allow us better to understand whether moving into a more formal framework has any potential negative impacts.

Amendment 154 would allow us to make the same assessment, but with regard to the effects on revenue. If the provision has any impact on tax collection, it is important that it is quickly identified and remedied.

Finally, amendment 155 would require the Government to review the HMRC resourcing needed for the provision of voluntary tax returns by publishing a document to that effect within one year. As I have outlined, HMRC has faced severe cuts at a time when demands are increasing across several fronts—particularly as the UK leaves the European Union. Therefore, it is critical that we understand whether there will be any further draws on HMRC resources over the course of the provision’s implementation. I urge hon. Members to support the amendments and Labour’s efforts to guarantee that we have an HMRC that functions effectively, both for taxpayers and for tax collection.

[Mel Stride]

Clause 86 makes changes to HMRC’s ability to treat tax returns sent involuntarily like any return on a statutory basis with retrospective and prospective effect. It is necessary because these returns have been accepted and treated in the same way as any other tax return received by HMRC for more than 20 years using its collection and management powers. However, a tax tribunal ruled earlier this year that this policy was not supported by the law.

HMRC receives about 600,000 voluntary tax returns each year. They are voluntary because they are made without any requirement or request from HMRC to do so. People in businesses send them in because they want either to pay tax or to make tax repayment claims. HMRC has always accepted those returns and treated them like any other return. This policy is helpful for taxpayers who send in returns because they are concerned that their affairs are not up to date. If HMRC did not accept voluntary returns when a taxpayer sent in a return, it would have to formally ask them for a return, and they would need to refile it.

Amendments 153 and 154 would require the Government to publish reports about the effectiveness and revenue effects of the clause. Such reports are unnecessary. The purpose of the clause is not to change existing practice but to give it legal certainty. Reporting on its impact is therefore unnecessary, as there will be no change in either practice or revenue. Amendment 155 would require the Government to lay a report into the resources that HMRC needs to implement the clause. The clause will have no impact on HMRC’s resources and will not change HMRC’s practice of accepting returns sent in on a voluntary basis. I therefore commend the clause to the Committee.

[Jonathan Reynolds]

I wish to press the amendment to a vote.

Question put, That the amendment be made.

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[The Chair]

With this it will be convenient to discuss the following:

New clause 15—Review of late payment interest rates in respect of promoters of tax avoidance schemes—

“(1) The Chancellor of the Exchequer must review the viability of increasing any relevant interest rate charged by virtue of the specified provisions on the late payment of penalties for the promoters of tax avoidance schemes to 6.1% per annum and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) In this section, “the specified provisions” means—

(a) section 178 of FA 1989, and

(b) sections 101 to 103 of FA 2009.”

New clause 16—Review of late payment interest rates in respect of promoters of tax avoidance schemes (No. 2)—

“(1) The Chancellor of the Exchequer must review the appropriateness of any relevant interest rate charged by virtue of the specified provisions on the late payment of penalties for the promoters of tax avoidance schemes and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) In this section, “the specified provisions” means—

(a) section 178 of FA 1989, and

(b) sections 101 to 103 of FA 2009.”

New clause 17—Review interest rate equalisation—

“(1) The Chancellor of the Exchequer must review the viability of equalising any relevant interest rate charged by virtue of the specified provisions for the specified purposes and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) In this section—

“the specified provisions” means section 101 of FA 2009,

“the specified purposes” means the charging of interest for—

(a) late payment, and

(b) repayment.”.

[Mel Stride]

Clause 87 is designed to clarify legislative provisions in relation to interest charged by HMRC across several tax regimes. The changes will ensure that the provisions apply as Parliament intended, and provide legal certainty for HMRC and taxpayers.

New clauses 15 and 16 would require the Government to report on the level of interest charged on penalties for promoters of tax avoidance schemes, and specifically on the viability of increasing interest rates on the late payment of penalties for those promoters. That is not necessary and, in explaining why, it may be helpful if I set out the rationale behind the rates.

Interest is charged on these penalties in the same way as it is charged on other overdue payments to HMRC; it is not affected by what the penalty is for. The penalty itself is designed to be the punitive measure tackling tax avoidance promoters. Interest is designed simply to give commercial restitution on all amounts that are paid late and, as such, it is currently set at 3.25% across HMRC and is linked to the Bank of England base rate. Reviewing the level of interest charged on overdue promoters’ penalties would therefore be of limited value in addressing avoidance.

New clause 17 would require the Government to report on the viability of equalising late payment and repayment interest on penalties charged under the promoters of tax avoidance scheme rules. Charging different rates of interest to those paid out is similar to commercial practice and in line with the policy of other international authorities. A higher rate of repayment interest would over-compensate those who pay the wrong amount. A lower rate of late payment interest would be an insufficient deterrent and unfair to the majority, who pay on time. The difference encourages people to pay the right amount at the right time to HMRC.

I urge the Opposition not to press their new clauses and I commend clause 87 to the Committee.

[Jonathan Reynolds]

As the Minister has said, the clause relates to two legislative changes that would alter the way that interest can be charged and paid on tax under section 178 of the Finance Act 1989, as well as setting interest rates for certain purposes, including retrospectively for diverted profits tax, and providing for interest to be charged under section 101 of the Finance Act 2009 on particular penalties for PAYE from 6 May 2014.

The charging of interest is an important source of revenue to the Exchequer. It is a fundamental principle that the same rules apply to all taxpayers and there may therefore be circumstances in which it is appropriate to charge interest on late payments in the same way that HMRC offers interest on tax refunds that exceed a period of one tax year. That charge is an important tool and deterrent for tax avoidance and late payments.

The diverted profits tax in particular, which was introduced in 2015 as the so-called Google tax, is at least a step in the direction of ensuring that large multinational companies pay their fair share. As the Committee has discussed in previous clauses, certain multinational companies, through dint of their presence in multiple jurisdictions and the armies of tax planners at their disposal, have used a variety of tactics to minimise their tax obligations. While we welcome DPT as step in the right direction, the public are clear that more action should be taken.

My hon. Friend the Member for Oxford East spoke in depth about DPT in an earlier sitting of the Committee. She explained that the diverted profits tax focuses on two forms of tax avoidance. The first is where a company with a UK-taxable presence uses arrangements lacking economic substance to artificially divert profits from the UK. The second is where a person carries out activities in the UK for a foreign company that are designed to avoid creating a permanent establishment through which they would be taxable. The Minister promised to lay before the House a report on the impact on revenue made by the mechanics of the application of DPT. When that information is made available, the Opposition will carefully consider it to assess the efficiency of the diverted profits tax. It must be considered in the round, in the light of the incoming digital services tax, which will struggle to be effective if it is not carefully planned around the unique structure of digital companies across multiple jurisdictions.

In relation to PAYE penalties where interest may be chargeable, I ask the Minister to provide further clarity around the changes. While I reiterated previously that there must be a fair and equal application of the rules, interest and penalty charging can cause serious hardship for individuals, especially when applied retrospectively for unintentional and unwitting errors committed by the taxpayer. Can the Minister elaborate on what consultation has taken place with low-income groups on the provision, to give us a sense of whether an impact assessment has been carried out? To which sections do the retrospective aspects of the legislation apply?

In the current situation with the 2019 loan charge, which stretches back over many years having been applied retrospectively, there is ample evidence that it causes serious hardship for individuals who, in some cases, say that they have been induced into such a scheme by a third-party, without full knowledge of its application. We must therefore exercise the utmost caution when applying any retrospective rules that cover individuals. I was pleased to read, however, that the legislation allows for interest charging on promoters of tax avoidance, in line with section 101 of the 2009 Act. We must ensure that we are pursuing promoters with the full force of the law, to tackle the root causes of avoidance and evasion.

The Opposition have therefore tabled a number of new clauses to the Bill. New clause 17 would require the Chancellor to review the viability of equalising HMRC’s late payment interest rate with the repayment interest rate. The new clause attempts to address a clear imbalance and perceived unfairness in the current interest rates set by HMRC. As it stands, if a taxpayer owes HMRC tax and is late in paying it, a charge of 3.25% interest is added. That is in stark contrast to HMRC’s own repayment rate, which, when paying things back, stands at just 0.5%. That double standard is exacerbated by the Government’s recent raising of late payment interest rates for all taxpayers by 0.25%.

The ACCA accountancy body has described that imbalance over late payments as “simply unfair,” and called for a level playing field to ensure that HMRC sets the same late payment rate as it charges. That is certainly something that the Opposition believe that the Government should review because it is ultimately a question of fairness. There should not be one rule for taxpayers and another for HMRC, as that simply breeds dissatisfaction with the tax system and those who enforce it.

Labour Members are committed to a tax system with justice and fairness at its heart, and we recognise the Government’s clear failings on the handling of HMRC’s powers, which were recently recorded extensively by the Lords Economic Affairs Committee. I hope that all sides of the House will consider supporting this review.

The Opposition’s new clause 16 would require the Chancellor to review the interest rate on late payment of penalties for the promoters of tax avoidance schemes. New clause 15 would require the Chancellor to consider raising the interest rate on late payment of penalties to 6.1%. The introduction of penalties for the promoters of tax avoidance schemes is relatively new. However, it is rather depressing to think that the promoters of tax avoidance schemes, who are then issued penalties, will pay less interest on late payments than the interest currently applied to student loans. Surely it says something about the Government’s priorities that they would allow a lesser interest rate on the late payment of penalties by those who advertise and encourage people to use tax avoidance schemes than the 6.1% interest rate that is charged to students in the UK.

New clause 15 would instead force the Chancellor to review the interest charged on late payments of penalties by the promoters of tax avoidance schemes and consider raising them to 6.1%. This would act as a deterrent when it comes to the late payment of penalties and it would also force the Government to consider the absurdly high interest rates that student loans are currently subject to. I call on Members to support the Opposition’s amendments on these issues today, to ensure that HMRC can operate fairly and effectively. I would also be grateful to hear some clarity and reassurance from the Minister about the retrospective elements of this legislation.

[Mel Stride]

There is no need for consultation on this measure because, as the hon. Gentleman will know, it was just putting beyond doubt what has been established practice over a very long period. He raised the issue of retrospection. The measure is retrospective, inasmuch as it is putting beyond doubt the fact that these rates were appropriate in the past. We are just bringing the long-standing practice out of any sense of uncertainty.

The hon. Gentleman suggested that the loan charge was retrospective. It is not, because the arrangements entered into under the loan charge scenario were always defective. They never worked at the time when they were entered into, and therefore the tax was due in the past. It is being collected in the present.

[Anneliese Dodds]

In that case, when advisers advised individuals to undertake these schemes, were they promoting illegal schemes? It would help to have a clear answer on that.

[Mel Stride]

They were in many cases promoting schemes that did not work and were defective, and in many cases promoting schemes that had been taken through the courts by HMRC—and, in a case involving Rangers football club, through the Supreme Court. On each occasion, they have been found defective.

[Anneliese Dodds]

The Minister says those schemes were defective; is he saying that they were illegal?

[Mel Stride]

I am saying that the schemes were taken through the courts and were found defective; they were found not to work. As this is the third exchange between us, let us be clear about what lies at the heart of the way in which these schemes operate. If as an employer I said to an employee, “Instead of paying you normal earnings, from which you would pay your national insurance and your income tax—as the employer, I would pay the national insurance—I will pay you by way of a loan. You and I know it is not really a loan, as there is no intention of you ever repaying it. I may well send that loan to an offshore trust”—as many of these schemes do—“before sending it back to you. The consequence is you pay no, or next to no, tax, because it is treated as a loan, not earnings or income.” That lies at the heart of these schemes. That model never worked, and the schemes were always defective at the time they were entered into.

[Anneliese Dodds]

However, those taxpayers who are required to face the loan charge have been told that they have done something illegal. I am asking the Minister whether those who advised them to undertake these schemes were advising them to do something illegal, because the advisers have not faced anything as a result of this, whereas the taxpayers have.

[Mel Stride]

The enablers and promoters of those schemes have been subject to various pieces of legislation, going back a number of years. In almost every Finance Act, or every year, there has been legislation clamping down on them. They are subject to a penalty of up to £1 million as a consequence of that kind of behaviour. Where they have acted inappropriately, the legislation is there, and HMRC has the powers to pursue them.

Question put and agreed to.

Clause 87 accordingly ordered to stand part of the Bill.

Clause 88

Regulatory capital securities and hybrid capital instruments

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

[The Chair]

With this it will be convenient to discuss the following:

Amendment 156, in schedule 19, page 315, line 15, at end insert —

“Part 4

Statement on consultation

“22 The Chancellor of the Exchequer must lay before the House of Commons a statement on the consultation undertaken on the provisions of this Schedule no later than two months after the passing of this Act.”

Amendment 158, in schedule 19, page 315, line 15, at end insert —

“Part 4

Review of revenue effects

“22 The Chancellor of the Exchequer must review the revenue effects of the provisions introduced by this Schedule and lay a report of that review before the House of Commons with twelve months of the passing of this Act.”

That schedule 19 be the Nineteenth schedule to the Bill.

[Mel Stride]

The Government are making changes to the tax rules for the hybrid capital instruments that are issued by some companies to raise funds. One of these changes is made by clause 28, which we have already discussed. Taken together with clause 88, it ensures that these instruments are taxed in line with their economic substance, and that the tax rules take account of forthcoming changes in financial sector regulation. The new rules cover issuances by companies in any sector, and replace rules covering regulatory capital instruments issued by banks and insurers.

As I explained when introducing clause 28, some companies raise funds by issuing instruments referred to as hybrid capital, which sit close to the border between debt and equity. This distinction between debt and equity is important for the UK tax system. In particular, coupon payments on instruments that are considered to be debt are typically deductible for tax purposes, whereas dividends paid on equity instruments are normally disallowed. However, determining the correct treatment for hybrid instruments can be problematic by its nature, and this can lead to uncertainty for companies. This is particularly difficult for the financial sector, where banking and insurance companies are required by industry regulators to hold a certain amount of capital. The instruments issued to raise this capital must contain certain features to allow for loss absorbency in the event of financial strain. Existing rules aim to provide certainty of treatment for these instruments issued by banks and insurers.

Clause 88 and schedule 19 make changes to the taxation of hybrid capital instruments, most of which have effect from 1 January 2019. Our overall aim is to ensure that all hybrid capital issued by any company that is in essence debt continues to be treated as debt for tax purposes. In June 2018, the Bank of England finalised its approach to setting a minimum requirement for own funds and eligible liability, or MREL. The Bank set out how it will use its powers to require firms to hold a minimum amount of equity and debt with a loss absorbing capacity from 1 January 2019. This will allow the Bank of England to ensure that shareholders and creditors absorb losses in times of financial stress, allowing banks to keep operating without recourse to public funds.

For global, systemically important banks operating in the UK, the MREL requirements take effect from 1 January 2019. Eleven other UK banks and building societies will need to meet these requirements from 1 January 2020. The instruments banks are permitted to issue to meet these new requirements include types of hybrid capital instruments that are not covered by the existing rules. Alongside updating the rules to take account of these new requirements, we have also taken this opportunity to conduct a wider review of hybrid capital instruments. We are providing coupon deductibility for all instruments issued by any company, provided that they are in essence debt, even if they are accounted for as equity. These are also elective, so HMRC will be able to monitor their use closely to ensure that they are not abused. If HMRC detects abuse, we will not hesitate to take whatever action is necessary, including further legislative change, in order to counter it.

Clause 88 and schedule 19 provide for the revocation of the existing rules for hybrid capital instruments issued by banks and insurers. They will be replaced by new rules for hybrid capital instruments issued by any sector. This will provide tax certainty for the issuers and holders of hybrid capital instruments. These instruments are issued by a small number of companies, primarily in the banking, insurance, utilities and telecoms sectors. The new rules apply from 1 January 2019, when existing rules are revoked. However, we have delayed the revocation of certain specific aspects of the rules for instruments issued before that date to allow banks and insurers time to consider the impact of the changes and to restructure their debt, if necessary.

In order to identify whether changes made by this clause and clause 28 were needed, we had to wait until the Bank of England published its MREL rules in June 2018. These new rules apply from 1 January 2019, and meant that changes to our tax rules were needed by the same date. The Finance Bill timetable meant that it was not possible to conduct a full public consultation, but officials consulted advisers who collectively represented those most likely to be impacted by the changes being made by the schedule. Officials also consulted with the Bank of England and the Prudential Regulation Authority.

Amendment 158 proposes that we publish a review of the revenue effects of the changes being introduced by this schedule. The policy paper published by HMRC on 29 October 2018 clearly states that the Exchequer impact of changes being introduced by this clause will be negligible. Furthermore, to apply the new tax rules, issuing companies must submit an election in respect of each instrument by September 30 2019, or within six months of issuing a new hybrid capital instrument. That will allow HMRC to closely monitor the use of the rules and ensure they are not being abused. If HMRC detects abuse, it will not hesitate to take whatever action is necessary. I commend the clause and the schedule to the Committee.

[Jonathan Reynolds]

I rise to make my final speech to the Committee on clause 88. [Hon. Members: “Shame!”] I know; it is a shame. The fun must end, but there will always be another Finance Bill.

The clause is enticingly named “Regulatory capital securities and hybrid capital instruments”. As the Minister just told us, it will introduce new tax rules for loan relationships that are hybrid capital instruments. According to the Bill’s explanatory notes, it will also revoke regulations dealing with the taxation of regulatory capital. The clause and schedule refer to the issuance of instruments by companies and financial institutions that contain debt and equity-like features, which, in investment terms, are more commonly known as convertible bonds.

Convertible bonds are having something of a renaissance, as some investors argue that they are well suited to current market conditions, especially the potential rise in interest rates. Practically, a convertible bond pays a fixed coupon, like a debt, but gives the holder the right to exchange the instrument for equity on redemption. In uncertain times for the markets, the appeal is clear: the investor is exposed to a fixed income-type risk in terms of downside, while being able to participate in an equity-like upside. That risk profile has been especially popular in recent years. Subsequently, 2018 has been the year of the highest convertible bond issuance since 2007.

If issuance is on the rise, it is important that investors understand what they are buying and the precise risk profile of how the instruments will perform in different market conditions. It is also important that any tax mismatches are corrected, so the Exchequer is not missing out. That brings us to the substance of the clause.

Hybrid instruments present a taxation challenge, precisely because they change in nature throughout their duration. The distribution of profits would not attract the same tax treatment as interest payments. For financial institutions, that problem was solved by legislation that related to capital requirements—the Taxation of Regulatory Capital Securities Regulations 2013.

Given that the issuance of different hybrid securities was required by a more recent exercise in assessment of loss-absorbing liabilities by the Bank of England in June 2018, the change forms part of a comprehensive review across sectors to remove tax uncertainty. That is timely, given the rising popularity in other sectors of issuing convertible debt, which I referred to earlier. It is important that the Exchequer does not miss out on any revenue as a result of uncertainty. I understand that the Taxation of Regulatory Capital Securities Regulations will be revoked for that reason and replaced by a new taxation policy for hybrid capital instruments, which will be applied across all sectors.

My first question for the Minister is how confident he feels that HMRC and financial taxpayers will have time to comply with the new rules. What consultation has taken place, and what guidance will be made available to those for whom the regulations are changing? The Bank of England’s changes, which demand the issuance of new instruments, will take effect from January 2019. The timeline feels extremely tight from a compliance perspective, if the tax rules are changing only now to accommodate the modification.

We are discussing a comprehensive and detailed set of changes that will affect huge amounts of capital from financial institutions. The technical note published by HMRC on 29 October goes into some depth about the changes, but the Opposition believe that further insight must be given on what feedback and concerns were raised by those who will be affected by the measure. We therefore tabled amendment 156, which would require the Government to make a statement on what consultation there has been on schedule 19.

Amendment 158 goes further by obliging the Government to publish a review of the revenue effects of the measure. According to statistics from Scope Ratings, the European issuance of hybrid bonds from non-financial corporates alone reached more than €10 billion in the first four months of 2018. Together with issuance from financial institutions, we are talking about an enormous source of revenue. We need to understand whether the reforms have been effective.

In connection with that, I ask the Minister to clarify how the stamp duty rules will apply to the measure. The technical note explains that

“The hybrid capital instruments rules provide an exception from all stamp duties on the transfer of these instruments.”

However, it goes on to stipulate conditions under which it might apply. Objectively, it seems that where the instrument is converted to equity, it should be subject to stamp duty, like ordinary shares, but the technical note seems to apply a number of contingencies. I would be grateful if the Minister clarified that one way or the other. I call on hon. Members to support the amendments and ensure that we have transparency on a potentially crucial issue of revenue for the Exchequer.

[Mel Stride]

I thank the hon. Gentleman for his contribution. He raised the issue of whether those affected by the measures in the clause will have time to adjust and take on board the new regime. I can assure him that we are confident that is the case, albeit, for the reasons I gave in my opening remarks, we were not able to have a full consultation on these measures given the timing as between consideration of the Finance Bill and the decisions taken by the Bank of England.

Specifically on that point, the Bank held a public consultation on the MREL rules, but the outcome was not published until June 2018. The rules apply from 1 January 2019 and any changes to our tax laws are necessary before then. The Finance Bill timetable means it is not possible to put that out for public consultation on the clause. We consulted on those measures with a number of those who will be affected, so we did what we could in the time available.

As to the hon. Gentleman’s question regarding stamp duty exemptions, those will continue to be in force as under the current regime.

Question put and agreed to.

Clause 88 accordingly ordered to stand part of the Bill.

Schedule 19

Taxation of hybrid capital instruments

Amendment proposed: 156, page 315, line 15, schedule 19, at end insert —

“Part 4

Statement on consultation

“22 The Chancellor of the Exchequer must lay before the House of Commons a statement on the consultation undertaken on the provisions of this Schedule no later than two months after the passing of this Act.”—(Jonathan Reynolds.)

This amendment would require the Chancellor of the Exchequer to make a statement on the consultation undertaken on the measures introduced by Schedule 19.

Question put, That the amendment be made.

--- Later in debate ---

Question proposed, That the Chair do report the Bill, as amended, to the House.

[Mel Stride]

On a point of order, Ms Dorries. I will be very quick; we are now due in another place for yet another round of Treasury stuff. I thank you and your co-Chair, Hansard, the Doorkeepers, our Whips, our Parliamentary Private Secretaries, my hon. Friend the Member for Poole, our officials—particularly Liam Mulroy and Calum Boyd in my office—and our Bill team at the Treasury. I also thank everybody on the Committee for having made this such a smooth and productive session.

[Peter Dowd]

Further to that point of order, Ms Dorries. I thank you and the House staff—the Committee Clerks, the Doorkeepers and Hansard—as well as everybody involved in consideration of the Bill, including my colleagues.

Question put and agreed to.

Bill, as amended, accordingly to be reported.

Oral Answers to Questions

Mel Stride Excerpts

Tuesday 11th December 2018 Commons Chamber

[Nicky Morgan (Loughborough) (Con)]

I thank the hon. Member for Batley and Spen (Tracy Brabin) for mentioning the Treasury Committee report published this morning. The Treasury Committee is about more than Brexit, as I hope this House is too, and next week we will be holding a joint Committee session with the Housing, Communities and Local Government Committee on business rates. I am sure that the Financial Secretary is looking forward to his evidence session greatly.

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

indicated assent.

[Nicky Morgan]

I see the right hon. Gentleman nodding.

Business rates are an issue for retailers, and there are some simple things that could be changed now. Does the Chancellor agree, for example, that, for many retailers, their busiest period is Christmas when they could perhaps agree to pay more in business rates and then pay less in periods when they are less busy, so, overall, the same amount is paid, but there is flexibility in payment?

--- Later in debate ---

[Alison Thewliss (Glasgow Central) (SNP)]

10. What discussions he has had with the Secretary of State for Scotland on the economic effect on Scotland of the UK leaving the EU customs union and single market.

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

The Government are committed to delivering a deal that works for the whole of the United Kingdom—for every country and region within it, including Scotland—and Treasury Ministers of course have regular discussions with the Secretary of State for Scotland on just these matters.

[Alison Thewliss]

The Fraser of Allander Institute reports today that many firms are still ill prepared for a no-deal Brexit, that the worst-case scenario is the equivalent of making 100,000 people in Scotland unemployed, and that we face a recession double the size of that which Scotland experienced in the crash. Does the Minister not agree that the only way out of this Government shambles is to accept that staying in the single market and the customs union is the best compromise we can get?

[Mel Stride]

The best deal for the country, and indeed for Scotland, is the one that the Prime Minister has brought forward, and which she is now looking at with our European partners in Brussels: one that sees a free trade area right at the heart of our arrangements; that has no tariffs between ourselves and the EU27; that gives us control of our borders; that makes sure we put an end to sending vast sums of money to the European Union; that gives us control of our laws; and that enables us to conduct our own international trade affairs.

[John Stevenson (Carlisle) (Con)]

Does the Minister agree that what is of equal importance are the economic relationships within the UK, and that initiatives such as the borderlands growth initiative are a priority for the people of the borderlands region?

[Mel Stride]

My hon. Friend is entirely right. That is why in the last Budget, Scotland benefited from £950 million in additional Barnett funding, and why we are investing £1 billion in up to six new city deals, including in the borderlands area—some of those deals have been concluded and some are under discussion.

[Owen Smith (Pontypridd) (Lab)]

One of the many flaws in the Government’s analysis of the impact of Brexit on the regions and nations of the UK is that they did not tell us precisely what the GDP reduction would be compared with the status quo. Will the Minister now correct that and tell us how much worse off in GDP terms Scotland will be if we pursue the Brexit deal compared with the present day?

[Mel Stride]

These are estimates, of course, not forecasts. I can tell the hon. Gentleman that there would be no impact on output in Scotland in the long term—15 years from the end of the implementation period—if we compare the White Paper deal with the situation as it stands today.

[Chris Philp (Croydon South) (Con)]

According to the Scottish Government’s own website, 61% of Scottish exports come to the rest of the UK and only 17% go to the European Union. Does the Minister therefore agree that Scotland’s economic interests are best served by remaining part of the United Kingdom?

[Mel Stride]

My hon. Friend is entirely right. The Scottish National party would like the country to stay in the EU, which would, for example, severely disadvantage the Scottish fishing industry. We have negotiated a very advantageous situation in terms of having control of our fishing as an independent coastal state. The point my hon. Friend makes is also entirely right: if Scotland were to be independent there would be frictions at the border between ourselves and Scotland, which would not assist with trade.

[Kirsty Blackman (Aberdeen North) (SNP)]

On 19 November, the Exchequer Secretary told us that the Government’s analysis would contain a comparison between the Prime Minister’s deal and the status quo, and that it would contain insight from external stakeholders. It contains neither of those things. The Treasury Committee this morning produced a report that expresses disappointment that the Prime Minister’s deal has not been analysed. Yesterday, businesses lost 2% of their value. UK firms have no sympathy for a UK Government who are feart to put their shoddy deal before the House. Will the Chancellor stand by the words he said previously that

“remaining in the European Union would be a better outcome for the economy”?

Will he find some backbone and make that case in Parliament?

[Mel Stride]

The cross-government departmental analysis shows clearly that the outcome of no deal would see the United Kingdom disadvantaged by 8% of GDP compared with the deal negotiated at the moment in the withdrawal agreement. The best option identified in the analysis is the current deal.

[Kirsty Blackman]

The analysis does not model the deal. That is what the Treasury Committee says and that is what we are saying. It models Chequers; it does not model the Prime Minister’s deal. The Minister cannot stand there and make that case to the House.

Because the Prime Minister pulled the vote this week, businesses are accelerating their contingency no-deal Brexit plans. They are heightening their preparations for an emergency no deal. The legacy of this Government will be lost investment, lost growth and lost jobs. Surely the Chancellor cannot think it is acceptable that, just to save the Prime Minister’s job, hundreds of other people have to lose theirs?

[Mel Stride]

The hon. Lady suggests that the analysis does not model the White Paper deal. It does exactly that, but it does it in terms of the future relationship and the political declaration which, as she will know, is a range of potential outcomes—so that is entirely what the analysis does. As I say, what it shows is that the deal we have negotiated with the European Union is the best deal available for the things that she and I hold dear: growth across our economy, growth in Scotland, jobs in Scotland and even lower unemployment in Scotland. The Scottish National party should now row in behind this deal to make sure that we do the best for the whole of the United Kingdom.

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

Scotland, just like the rest of the UK, has a substantial and successful financial services sector that is heavily dependent on market access to the EU. Will the Financial Secretary confirm that under the terms of the Government’s Brexit deal the financial sector gets no greater degree of market access than the equivalence arrangements that are already on offer to any third country, including for sectors such as insurance where no comprehensive equivalence regimes exist at all?

[Mel Stride]

I can enlighten the hon. Gentleman, although it is contained in the documentation that has come out of the negotiations. There will be an enhanced equivalence regime in respect of financial services. It is there in black and white. I am very happy to speak to him after questions and take him through the relevant paragraphs.

[Sir Hugo Swire (East Devon) (Con)]

11. What recent discussions he has had with the airline industry on air passenger duty on UK domestic flights.

--- Later in debate ---

[Alex Chalk (Cheltenham) (Con)]

T4. On Saturday in my constituency I met Tom, a student at the University of Gloucestershire, who shares my concerns that online digital marketplaces, social media companies and search engines should pay their fair share of tax. What steps are being taken to ensure that they do precisely that?

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

I thank my hon. Friend for that very important question. The Government recognise that the current international tax regime is not fit for purpose when it comes to taxing certain types of digital platform-based businesses—the types to which my hon. Friend has referred—and we are therefore working with the OECD and the European Union to arrive at a multilateral solution to ensure that the right tax is paid. However, we have made it clear, and the Chancellor made it clear in the Budget, that in the event that we do not secure a multilateral agreement, we will move ahead unilaterally by 2020 to ensure that those businesses pay a fair share of tax.

[Peter Dowd (Bootle) (Lab)]

The merely synthetic construct that is before the House has nothing to do with the real concerns of my right hon. Friend the Member for Hayes and Harlington (John McDonnell) and my hon. Friend the Member for Huddersfield (Mr Sheerman). It is the dodgy deal—the tuppence-ha’penny Brexit deal—of the Prime Minister. I am led to believe that the Chancellor has ostensibly, but forlornly, attempted to mitigate the Prime Minister’s disastrous handling of Brexit. If that is the case, will he continue his endeavours by using the powers in section 31 of the Taxation (Cross-border Trade) Act 2018 to maintain the UK in a customs union with the EU?

--- Later in debate ---

[Priti Patel (Witham) (Con)]

T8. Lower taxes and a simplified tax system are crucial to long-term economic growth and competition. Will the Chancellor consider introducing new tax reforms in the future, including a combination of income tax and national insurance, to improve the efficiency of our tax system?

[Mel Stride]

I entirely agree with my right hon. Friend about the importance of low taxes. Under this Government, corporation tax has been reduced from 28% to 19% and will be further reduced to 17%; and through the increase in the personal allowance that was announced in the Budget, we have taken about 4 million of the lowest-paid out of tax altogether. As for my right hon. Friend’s specific point about aligning national insurance and income tax, that is a very complex thing to do. There would be a considerable number of losers, as well as some gainers. However, the Office of Tax Simplification has looked into it in the past, and we will keep it under review.

[Sandy Martin (Ipswich) (Lab)]

T3. Given this country’s £5.9 billion net trading surplus with the EU in insurance, will the Chancellor take the opportunity of the demise of the withdrawal agreement to make financial services a part of the Prime Minister’s next attempt at a Brexit deal?

--- Later in debate ---

[Zac Goldsmith (Richmond Park) (Con)]

When criticising a Labour Budget in 2005, my right hon. Friend the Chancellor said that the taxpayer

“is entitled to be protected from retrospective or retroactive legislation.”—[Official Report, 7 June 2005; Vol. 434, c. 1139.]

but through the 2019 loan charge, that is precisely what HMRC is now doing to thousands of people who acted in good faith and in accordance with the rules at the time. May I urge my right hon. Friend once again not to backdate the charge to before 2017?

[Mel Stride]

I thank my hon. Friend for his question, but I have to fundamentally disagree with him. The arrangements entered into around disguised remuneration, for which the loan charge is being applied, were always defective at the time they were being used. They have been taken through the courts many times over many years by HMRC and been found to be defective. They also went through, in a particular case, the Supreme Court—the highest court in the land—and the scheme was found to be defective. So this is not a retrospective measure, but it is a question of tax fairness, and of course those who are involved can come forward and have discussions with HMRC, who, where there are difficulties around payment, will be sympathetic and enter into time-to-pay arrangements to make sure those people are protected as well as paying the right tax.

[Graham P. Jones (Hyndburn) (Lab)]

T6. IPPR North’s analysis has shown that in the south £326 per head is spent on infrastructure, while only £156 per person is spent in the north, and small towns like those in my constituency have been hit the hardest, with lack of infrastructure and the withdrawal of public sector services. We now find out this week that there will be a third bailout for Crossrail 2, costing £2.1 billion; the Government are simply going to give it a cheque. When is the north-west going to get a £2.1 billion equivalent?

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

Mel Stride Excerpts

Monday 10th December 2018 General Committees

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

I beg to move,

That the Committee has considered the Value Added Tax (Place of Supply of Services) (Supplies of Electronic, Telecommunication and Broadcasting Services) Order 2018 (S.I., 2018, No. 1194).

It is a pleasure to serve under your chairmanship once again, Mr Hosie. The order implements changes to article 58 of the EU VAT directive by amending the UK’s VAT place of supply rules. It introduces an annual £8,818 threshold below which, where a UK business makes cross-border supplies of certain digital services to private EU consumers, the deemed place of supply will be the United Kingdom.

It may be helpful if I set out the background to the order. In January 2015, suppliers of digital services to EU consumers were made liable to account for VAT in the member states in which their customers are located, not those in which the supplier is based. Traders of digital services therefore needed to register in each member state in which their customers were located, irrespective of the value of their sales. To mitigate the administrative impact of those changes, the VAT mini one-stop shop—MOSS—accounting simplification scheme was introduced, which made it possible for businesses to register in one member state and account via that single registration for VAT due throughout the EU. UK businesses trading below the VAT registration threshold therefore needed to register for VAT in the member states in which they made supplies, register for VAT in order to join the VAT MOSS scheme, or decide not to supply to private EU consumers. In December 2017, vital easements to these rules that the UK had pushed for were agreed to by EU Finance Ministers. The order implements one such change, further simplifying VAT accounting and easing the administrative burden on small traders.

The UK remains committed to simplifying the tax system to support small businesses. UK businesses that sell digital services to EU customers below a turnover value of £8,818 in the current and preceding calendar year can treat the UK as the place of supply for those sales, which will therefore be subject to UK VAT rules. UK businesses that have a turnover below the UK VAT registration threshold and that make digital sales to private EU customers below the cross-border sales threshold will not have to register for VAT unless they choose to do so. This will be of great benefit to small businesses, reducing their running costs as well as making them more competitive since they do not have to comply with an additional obligation.

The order will allow UK businesses under the new threshold to choose to keep the place of supply in the EU member states in which their customers are based and account for VAT using the MOSS system or register in the relevant member states. To do so, they must notify HMRC. This treatment will apply from the date of election until the end of that year and for the following two full calendar years, allowing businesses the scope to choose the best option for their circumstances. The changes to the VAT digital services rules are welcomed by businesses and were lobbied for by the UK.

The order is expected to have a positive impact on approximately 1,100 businesses—around 50% of UK businesses using MOSS—that fall below the threshold. HMRC has produced guidance updates to reflect the introduction of the proposed changes, which will take effect from 1 January 2019 and which the UK has pressed for at EU level. The order updates UK law in line with the European VAT directive and simplifies the VAT rules for the trade of digital services for our smallest businesses. I commend it to the Committee.

--- Later in debate ---

[Mel Stride]

I thank both hon. Ladies for their contributions and questions, which I will endeavour to address as comprehensively as I can. On VAT MOSS and whether there have been discussions with online platforms—I think that was expression used by the hon. Member for West Ham—most of the businesses to which the statutory instrument will be relevant will be, by definition, fairly small. They tend to trade more directly than through online platforms. I assure the hon. Lady that there was a four-week consultation on the statutory instrument, and there was only one response, which related to a typo in the draft legislation.

The hon. Member for West Ham asked perfectly reasonably about the cost of dealing with VAT. We see the order as a relieving measure and estimate that the 1,100 businesses that are likely to benefit from the change will save, on average, about £260 per year, largely on their own administration costs. She also asked specifically about businesses that would not have to register for the VAT MOSS approach but that might be below the £85,000 VAT registration threshold. I do not have a specific figure but I am happy to look into that further and write to her.

The hon. Lady also asked about the net effect of these changes for the United Kingdom and the EU27 member states. Again, I do not have that to hand. Unless it comes to me very quickly—[Interruption.] It has not. How disappointing it is to get a note that does not have what you would like in it, but there you go. I am of course very happy to look at that and see what information I can establish. On the specific issue of the potential uprating of the threshold, neither I nor my officials are aware of any proposed uprating, but if that is the case I will certainly let the hon. Lady know.

The hon. Lady and the hon. Member for Lanark and Hamilton East both made various points about Brexit and timetables and asked what will happen in the various deal and no-deal circumstances. We are confident that there will be a deal and that we will therefore move into the implementation period from the end of March until the end of 2020. Under those circumstances, the draft order will have relevance and the arrangements it makes will benefit small businesses up and down the United Kingdom. On that basis, I commend the order to the Committee.

Question put and agreed to.

Finance (No. 3) Bill (Eighth sitting)

Mel Stride Excerpts

Thursday 6th December 2018 Public Bill Committees

[The Chair]

I hope that the Minister is not anticipating the tumbrels rolling at the end of his speech, as in the French revolution.

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

Very good. There will be no singing of “The Red Flag” on this side, Mr Howarth.

[Bim Afolami (Hitchin and Harpenden) (Con)]

“La Marseillaise”?

[Mel Stride]

Maybe. It is a pleasure to serve under your chairmanship, Mr Howarth. I will turn briefly to points raised by the hon. Member for Stalybridge and Hyde.

[Sir Robert Syms (Poole) (Con)]

Will my hon. Friend give way?

[Sir Robert Syms]

There is a sort of revolution going on in Paris as a result of high fuel duties, which of course the Opposition want.

[Mel Stride]

As my hon. Friend pointed out in his remarks on earlier clauses, we have frozen fuel duty for nine successive years—but perhaps we had better get back to the matter in hand, revolutions and fuel not featuring particularly in clause 65.

First, the hon. Member for Stalybridge and Hyde feels that this tax is seen as one of the least fair. It is certainly true that it is one of the least popular taxes; I would accept that. However, it only typically applies to about 4% or 5% of estates, although the public generally assume that it applies much more widely. That, of course, is a consequence of the policies we brought in to extend the thresholds, which we have been discussing. As the hon. Gentleman suggests, it brings in about £5 billion a year and, in terms of its fairness across the range of different wealth levels, I can inform him that 70% of inheritance tax is raised from those with estates valued at over £2 million, so the vast bulk of it comes from those who are significantly wealthy.

The hon. Gentleman quite rightly raises the general question of keeping taxes under review and looking at inheritance tax. He gave various examples of the work of others in that respect and made various suggestions. He will be aware that the Office of Tax Simplification is reviewing inheritance tax, and has already reported on the administration and guidance relating to it, with which there are various issues. In the spring of next year, it will also report on the policy area itself, and we will look with great interest at the report when it comes out. [Interruption.] May I correct something I have just said? Perhaps I am bad at reading handwriting here. The 70% relates to those with an estate of over £1 million, rather than £2 million.

The hon. Gentleman raises perfectly legitimate questions that we should be asking about the reliefs associated with agricultural land and woodlands, and the different approaches that those who can afford advisers and so on may seek to take to lower their inheritance tax. All those things will make for interesting debate and consideration when the OTS reports back in spring.

The Government are introducing these changes to clarify the working of the downsizing rules, and to provide certainty about when a person is treated as inheriting property. The residence nil-rate band reduces the burden of inheritance tax for families by making it easier to pass on the family home to children or grandchildren, and the band is an additional threshold available when a residence is being passed to a direct descendant. As the hon. Gentleman set out, the value in 2018-19 is £125,000. That will rise to £175,000 by 2020-21. Any unused threshold can be transferred to a surviving spouse or civil partner. The unused threshold is also available when a person has downsized to a less valuable property and passes on the proceeds from selling their home, instead of the property itself, to their children or grandchildren.

The Government announced those reforms in 2015 to ensure there would be an inheritance tax threshold of up to £1 million for married couples and civil partners by the end of this Parliament. That was a manifesto commitment, which I am pleased we have delivered, but it is right that we make changes to the legislation where necessary to ensure that the policy works as intended.

The changes made by clause 65 will correct two areas of the residence nil-rate band. First, the downsizing provisions were introduced to ensure that people would not lose access to this additional nil-rate band by, for example, moving house to meet their long-term care needs. However, the wording in the current legislation means that these provisions could apply in an upsizing scenario. That was never the intention and the changes will correct it.

Secondly, we believe that the additional threshold should be available only when the family home passes directly from an individual to their direct descendant on death. The changes will correct an anomaly in the legislation whereby the threshold could be available for a family home passed into a trust, where the direct descendants do not inherit the property. While the changes are important for revenue protection, we expect them to affect very few estates.

There has been one amendment proposed to this clause, which proposes reviewing and laying a report on the revenue effects of the changes. Amendment 122, however, is not necessary. The clause corrects the working of the residence nil-rate band and has no impact on wider inheritance tax policy. Consequently, there will be no revenue effects as a result of the clause. I therefore ask that the amendment be withdrawn and commend the clause to the Committee.

[Jonathan Reynolds]

I wish to press the amendment to the vote.

Question put, That the amendment be made.

Finance (No. 3) Bill (Sixth sitting)

Mel Stride Excerpts

Tuesday 4th December 2018 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

New clause 10—Review of higher rate of tax for additional dwellings—

“(1) The Chancellor of the Exchequer shall commission a review on the revenue effects of the amendments to FA 2003 made in section 43.

(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”

This new clause requires a review of the revenue effects of the provisions in clause 43, and for that review to report within 1 year of that clause becoming effective.

New clause 11—Annual statement on effects of provisions of section 43—

“(1) The Chancellor of the Exchequer must make an annual statement to the House of Commons detailing how the provisions in section 43 have affected instances in which land transaction returns are amended to take account of subsequent disposal of the main residence.

(2) The statement must specify—

(a) the number of such instances, and

(b) such information as the Commissioners hold as to the characteristics (including income) of those concerned.

(3) The first such statement under subsection (1) must be made before 29 October 2019, and each subsequent statement must be within twelve months of the previous statement.”

This new clause requires an annual statement on how the provisions in section 43 have impacted the number of back claims of HRAD.

New clause 12—Review of higher rate of tax for additional dwellings—

“(1) The Chancellor of the Exchequer shall commission a review on how the provisions of section 43 have affected residential property prices.

(2) A report of the review under subsection (1) must be laid before the House of Commons before 29 October 2019.”

This new clause requires a review on how the provisions in clause 43 have affected house prices, and for that review to report within 1 year of that clause becoming effective.

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

Clause 43 makes changes to ensure that the stamp duty land tax higher rates for additional dwellings rules are easier to understand and more transparent. In April 2016, the Government introduced additional rates of SDLT for those purchasing additional residential property such as second homes and buy-to-let properties. The rates are 3 percentage points above the rates of SDLT ordinarily payable and are part of the Government’s commitment to support first-time buyers. The changes reflect feedback from the public and industry specialists about the key areas where the rules on the higher rates have proved challenging or do not work as well as they could.

In general, purchasers buying their first property, replacing a main residence or buying an additional property worth less than £40,000 will not be subject to the higher rates. Someone buying their new home before they sell their old home, however, must pay the higher rates up front but can claim a refund when they sell their old home within three years of buying their new home. When the old home is sold more than 12 months after the purchase of the new property, individuals are required to reclaim the higher rates within three months of the sale of the old property. The first change introduced by the clause will increase that period to 12 months, giving taxpayers a longer period within which to reclaim the higher rates. The change will apply to all disposals of a previous main residence from 29 October 2018.

The second change addresses the term “major interest” in relation to the higher rates of stamp duty land tax, where some stakeholders have suggested that existing legislation is unclear. The higher rates of stamp duty land tax are intended to apply when someone buys or already owns a major interest in a dwelling. “Major interest” is used to ensure that the higher rates for additional dwellings apply only to meaningful purchases of residential property and not to minor interests—for example, a right of way or a right to light. This change confirms, in line with the Government’s existing treatment, that an undivided share in land constitutes a major interest for the purposes of the higher rates. That also takes effect from 29 October 2018.

New clause 10 seeks to commission a review on the revenue effects of the amendments to the Finance Act 2003 made by clause 43. It would require the Chancellor of the Exchequer to make an annual statement to the House on those who have made a reclaim for the higher rates. The new clause is not necessary; as is stated in the tax information and impact note published at the 2018 Budget, these changes are expected to have a negligible impact on the Exchequer, so a review on the revenue effects is not required. Her Majesty’s Revenue and Customs already publishes annual and quarterly statistics setting out transactions subject to the higher rates of SDLT on additional properties and the transactions, volumes and values reclaimed.

New clause 12 seeks to require a review of the effect of clause 43 on residential property prices. Clause 43 simply increases the time from disposal for people to make a claim to 12 months and confirms existing practice on the definition of “major interest”. Neither change is expected to have an impact on house prices and such a report would not be of benefit to Parliament. I therefore urge the Committee to reject the new clauses.

The changes in the clause will help to ensure that the rules on the higher rates of stamp duty land tax are easier to understand and more transparent. I commend the clause to the Committee.

[Sir Robert Syms (Poole) (Con)]

I am glad I caught my right hon. Friend just as he was coming to his peroration. I have a constituent who had a home in Malaysia, where he was working. He moved back to Poole to retire and bought a flat. He was charged the higher rate of stamp duty because the flat was classified as a second home because he still owned a home in Malaysia. When I wrote to the Treasury, it said that that was because having a second home in Malaysia had an impact on the British housing market, which I did not think was a very convincing answer.

Does this rule apply worldwide if one owns a home outside the UK? In effect, if someone has a holiday home outside the UK, they get charged higher stamp duty when they buy a house in the UK. If they sell their house in Malaysia, Spain or France within three years, do they then get a reduced rate of stamp duty land tax? As an aside, it seems bonkers that we are charging people a higher rate on the basis that they have a home halfway round the world, but that is the world we seem to live in.

[Mel Stride]

The central point is that if someone is UK tax resident, their income is taxed, albeit that some of it may occur in other jurisdictions and perhaps be subject to double taxation arrangements between that jurisdiction and our jurisdiction. None the less, my hon. Friend’s assumption is correct that if someone has a property overseas, it is effectively counted as if it were a domestic property in the context of this clause. The easements that the clause introduces in terms of greater time to put in an application for a rebate at the higher rate apply equally whether one of the properties is overseas or here in the United Kingdom.

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

As the Minister explained, the clause would change the parameters for claiming a refund on the additional dwelling SDLT by quadrupling the time that claimants have to reclaim the funds, potentially for up to a whole year after they have sold their old home, if that is later than a year after the filing date for the SDLT date for the new home—so the second parameter stays the same, if that makes sense. It is quite a complex change to understand.

The “major interest” provision is also tightened to make it clearer that a major interest in a dwelling includes an undivided share in a dwelling for the purpose of the higher rates for additional dwellings. I understand that the Government have suggested that the extended time period is necessary to enable those who might find it difficult to claim to do so—for example, those who are elderly or vulnerable due to serious illness.

In principle, the changes do not water down the Government’s initial stated commitment to charge additional SDLT for those owning additional properties, provided they are held on to for more than three years and provided that they fall outside the multiple dwellings category, which I will come back to in a moment. None the less, given that the changes appear to be focused on the context for the provision of additional dwellings, as against continuously occupied single dwellings, we feel it is necessary to subject their effectiveness to review, in order to ensure that they do not water down the initial measure in any way. That is what new clauses 10, 11 and 12 ask for.

--- Later in debate ---

[Sir Robert Syms]

No.

[Mel Stride]

I am sure that my hon. Friend will be tempted to speak by the time I have finished my remarks.

The hon. Member for Oxford East raised several points. She sought an assurance that we are not watering down the measure. I can certainly give that assurance. For example, the three-year window will be the same for people to reclaim the higher rate where a property is not sold before a new property is purchased, albeit that we are giving people more time to apply for that rebate. The essence of the measure remains very much the same.

The hon. Lady pointed out that home ownership is falling, particularly among young people. The Government are heavily engaged on that and have brought in various measures, as she will know, not least in the stamp duty area, with the stamp duty relief for first-time buyers. None the less, the statistic that she quoted of there being 1 million fewer homeowners under 45 than in 2010 is certainly something that we seek to address. I reassure her that, since the higher rates have been introduced, more than 650,000 people have bought their first home, and first-time buyers make up an increased share of the mortgaged housing market. That is what the underlying measure that we are debating is really all about: supporting first-time buyers and first-time home ownership.

The hon. Lady also raised multiple dwellings relief and gave a clear exposition of how it works by way of her example of the £1 million and the five properties. The way she described it was entirely accurate. In other words, there is a disaggregation, and then the appropriate level of stamp duty is applied to each one of those properties at, in her example, the £200,000 level. However, it is also the case that each one of those properties in her example would attract the additional stamp duty charge in a situation in which more than one property is, of necessity, owned by the same purchaser.

The hon. Lady’s final point was about the potential impact of these measures on house prices. I go back to my earlier remarks that this a change in the timing by which individuals are required to make reclaims at the higher rate; it is not a change to the window of opportunity for doing so. As I set out, that in itself is not expected to change house prices.

Question put and agreed to.

Clause 43 accordingly ordered to stand part of the Bill.

Clause 44

Exemption for financial institutions in resolution

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

[The Chair]

With this it will be convenient to discuss the following:

Amendment 90, in clause 48, page 32, line 39, at end insert—

“85B Review of possible register

(1) Within three months of the passing of the Finance Act 2019, the Chancellor of the Exchequer shall review the viability of establishing a public register on the use of the exemption from stamp duty established under section 85A.

(2) A report of the review under this section shall be laid before the House of Commons as soon as practicable after its completion.”.

This amendment would require the Chancellor of the Exchequer to review the viability of a public register of financial institutions in resolution benefitting from the exemption from stamp duty for certain financial transactions.

Clause 48 stand part.

[Mel Stride]

Clauses 44 and 48 will simplify and strengthen the current financial institution resolution regime by introducing an automatic exemption from stamp taxes on shares for public bodies and creditors whose interests are converted into shares, and stamp duty land tax—SDLT—for certain transfers of land arising from the exercise of resolution powers.

Under the Banking Act 2009, the Government have the power to exempt from stamp taxes on shares and SDLT transfers of property, in the form of shares or land that arise from an exercise of resolution powers. However, the current legislation requires the Government to pass secondary legislation exempting a defined set of transfers. This introduces potential timing challenges and creates additional complexity when resolving a failing financial institution.

The changes made by clause 48 avoid that by specifying exempt transfers in primary legislation. The stamp taxes on shares exemption will be limited to transfers of shares to a bridge entity or a public body that holds the shares temporarily while the institution is being resolved, and to the transfer of shares in exchange for temporary certificates issued to creditors that demonstrate their entitlement to the shares. The exemption does not cover the private sale and transfers of shares in a failing institution to a private sector purchaser, where stamp taxes on shares will be charged as usual.

Similarly, the changes made by clause 44 specify SDLT transfers in primary legislation. This exemption will be limited to transfers of land to a bridge entity or public body that holds the land temporarily while the institution is being resolved. The exemption does not cover the private sale and transfer of land of a failing institution to a private sector purchaser, where SDLT will be charged as usual.

The changes will simplify and strengthen the process of resolving a failed institution. In the event that a creditor is found to be worse off as a result of resolution action, when compared with an ordinary insolvency, they are entitled to compensation, which would be paid by the Treasury. The changes will protect taxpayers by reducing the risk of the Government having to compensate creditors in order to prevent the “no creditor worse off” principle being violated. They were announced in the autumn Budget 2017 and the draft legislation was subject to consultation. Officials from the Treasury and HMRC have worked closely with officials from the Bank of England to develop the legislation.

Turning to the amendments that have been tabled, amendment 90 seeks a review, within three months of the enactment of the Bill, of the viability of establishing a public register on the use of the exemption from stamp duty—something that I have already raised—and would require a report of the review to be laid before the House of Commons soon after its completion. The clauses do not create any tax exemptions for failing institutions themselves. The exemption would apply to creditors of failing financial institutions who see their debt holdings bailed in for equity, to ensure that affected creditors are not penalised inadvertently. The exemption also applies to the Bank of England, which may, in certain circumstances, need to take temporary ownership of a failing institution’s assets, in order to protect financial stability.

The clauses will strengthen and add transparency to the resolution process by providing further clarity for affected creditors and the taxpayer. The register would impose an additional and unnecessary burden on the Bank of England and provide no great benefit to the public. By creating an exemption from stamp taxes on shares and SDLT for certain transfers arising from the use of resolution powers, the Government are simplifying and strengthening the UK’s resolution regime, and I therefore commend the clauses to the Committee.

[Anneliese Dodds]

I am grateful to the Minister for his explanation. As he intimated, clause 44 ensures that SDLT is not charged on transfers of land following the exercise of certain resolution powers under the special resolution regime. It is paralleled by clause 48 for stamp duty. As he has intimated, our amendment 90 would require the Government to produce a review and potentially introduce a register of financial institutions in resolution that might benefit from the exemptions for SDLT and stamp duty for certain financial transactions resulting from the measure.

We are asking for such a review to have a clearer understanding of which firms might be relieved of SDLT and stamp duty in this manner. This is without prejudice to the function of the clauses, which we understand and support. In other words, we support the concept that the Bank of England should be able to use its resolution stabilisation powers to manage failing financial institutions in an orderly manner and should as part of that, where required, be able to transfer property, potentially including land held by that body, to a temporary holding entity appointed by the Bank of England or to a temporary public body. In that context, we agree that it does not make sense for SDLT or stamp duty to be paid. We are willing not to press our amendment, because of the general acknowledgment of the importance of the measure.

--- Later in debate ---

The Minister referred to the fact that the clause was transferring the tax treatment into primary legislation, seeming to suggest that putting measures in place through primary legislation was preferable to putting them in place via regulation. I dare to say that I hope the Minister will have discussions with his colleagues, who seem intent on avoiding the use of primary legislation when it comes to, for example, the UK’s withdrawal process, and in whom we often see not even a willingness to use the affirmative procedure for secondary instruments, let alone primary legislation.

[Mel Stride]

Taking up the points made by the hon. Member for Oxford East, I will begin with her final point about why we have approached this by way of primary legislation rather than relying on existing powers to make regulations. At the heart of that is our ability to act quickly in the circumstances of the resolution powers being brought into effect, to ensure that everything goes smoothly and we do not end up in a situation where compensation might be due, where it could be shown that the measures we had taken had not been as effective as they might otherwise have been under a normal insolvency process. That is why relying on a general position in primary legislation would be preferable to a number of exercises of secondary powers.

The question of why we have made changes to the Finance Act 2003 rather than the Banking Act, and the associated question that the hon. Lady asked about whether the Office of Tax Simplification was content with our approach, are highly technical and certainly not questions to which I have a ready answer, I am afraid. I undertake to the Committee to go away and ensure that I write to the hon. Lady with a full explanation on both those points.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clause 45

Changes to periods for delivering returns and paying tax

[Anneliese Dodds]

I beg to move amendment 95, in clause 45, page 29, line 19, at end insert—

“(11) The Chancellor of the Exchequer must lay before the House of Commons a report on any consultation undertaken on the provisions in this section.

(12) A report of the review under subsection (9) must be laid before the House of Commons within two months of the passing of this Act.”

This amendment would require the Chancellor of the Exchequer to report on any consultation undertaken on the provisions in Clause 45.

[Anneliese Dodds]

I am grateful to be serving on this Committee with you in the Chair, Ms Dorries; I do not think I have said that before, and I apologise for that.

This clause reduces the time limit that purchasers have to file an SDLT return and pay the tax due from 30 days after the effective date of the transaction to 14 days. It applies to transactions to purchase land in England and Northern Ireland with an effective date on or after 1 March 2019. Of course, since 2015 there has been a separate land and buildings transaction tax in Scotland, and since earlier this year there has also been a different regime in Wales, where the relevant tax is the land transaction tax.

SDLT was introduced—we were just referring to the relevant Act—in 2003, replacing stamp duty on land transactions. Data from SDLT returns are used by a variety of actors, after being submitted to the Valuation Office Agency, to carry out activities such as valuations for the purposes of council tax and business rates.

This clause obviously has some similarities with clause 14, to the extent that it requires a faster turnaround for the payment of a tax, but clearly in this case it is payment of SDLT rather than capital gains tax. Many of the concerns expressed in relation to that change also apply in this case. They include the question whether taxpayers and, above all, their agents are likely to be sufficiently aware of the new deadline. As a result, with amendment 95, we are asking the Chancellor of the Exchequer to

“lay before the House of Commons a report on any consultation undertaken on the provisions in this section.”

It appears that many taxpayers—some 85% of them, according to HMRC’s figures—already submit their return in line with the proposed new timetable. However, the remaining 15% may have reasons for failing to submit so quickly and those surely should be examined before we embark on this halving of the deadline. Indeed, there appeared to be significant concern among respondents to the consultation about the proposed reduction to the filing and payment window. The consultation response stated:

“Many felt it would be manageable for straightforward transactions—for example most purchases of residential property. Many envisaged difficulties for more complex transactions where the property purchased is subject to leases. Although only a small proportion of reportable transactions are likely to be affected, they amount to approximately 50,000 transactions every year.”

That is clearly a very large number, and those transactions may be particularly concentrated in their effects among certain segments of the population. It is for that reason that new clause 13 would require a full impact assessment of the measure to be undertaken and to consider its impact on people with protected characteristics, people with different incomes and people living in different regions.

I note in the consultation document that, at least at the time of the consultation, there was no HMRC facility for filing and paying SDLT simultaneously. It would be helpful to understand from the Minister whether that facility is coming, as it would surely make the system more efficient.

I was also surprised to see in the consultation document that more than 40% of the returns submitted on paper included errors. That is an incredibly high rate. It would be helpful to know what has been done to deal with that problem, as that system clearly cannot be helping either the taxpayer who has—presumably inadvertently, most of the time—made the error or the HMRC officer who has to try to rectify it. The very high usage of cheques, which need to be accompanied by the correct 11-figure unique taxpayer reference number, also seems almost designed to create an inefficient and error-ridden system.

It was stated in the consultation document that the shorter timescale would be accompanied by a number of other measures to improve the effectiveness of SDLT filing, but it is unclear to me whether and when those new measures are coming into place. One such measure would be requiring all agents to file online, which does seem sensible, but I was intrigued to see in the consultation document the claim that online filing may not be

“reasonably practicable…because of remoteness of location, or on grounds such as religious beliefs.”

It would be helpful if there were more joined-up thinking across Government. For example, it is very difficult for claimants of universal credit to receive it without using the online system. Surely more of them are likely to be affected by living remotely than professional agents involved in property transactions. It would also be useful if the Minister could clarify why religious faith might impact on an individual’s ability to use the internet and why that might be the case for those filing returns for stamp duty and not for those attempting, for example, to claim universal credit.

It was stated in the Government’s response to the consultation that they would look to potentially introduce electronic payment at the same time as the reduction of the reporting period to 14 days, so can the Minister please inform us whether electronic payment will indeed be available when this measure comes into play?

[Mel Stride]

Clause 45 makes changes to improve the SDLT filing and payment process. In answer to the hon. Lady’s question about whether we will provide facilities on the site to pay simultaneously, we do not have plans to do so. That is because the online service cannot be combined with Bacs and CHAPS services at present.

The hon. Lady made a more general point about the mistakes that are made in filing. As she knows, we consulted on the information being sought as part of the process, and we will be applying various simplifications as a consequence, most notably around complex commercial lease arrangements. The information that we have hitherto sought in that respect will now no longer be sought. That simplification, and others, should be beneficial in cutting down the mistakes that the hon. Lady referred to.

Currently, the purchaser of land, or the purchaser’s agent, must make a stamp duty land tax return and pay tax due within 30 days of the effective date of the transaction—usually the completion date. The changes made by clause 45 will reduce the time allowed to make an SDLT return and pay the tax due from 30 days after the effective date of transaction to 14 days. That is in line with other initiatives in recent years that bring tax reporting and payment closer to the date of the transaction. The hon. Lady referred, I think, to clause 14 on capital gains tax, where a similar approach has been taken. This is in line with these other initiatives.

The measure will not change liabilities for the purchaser, but will lead to tax being paid earlier. The change applies to purchases of land situated in England and Northern Ireland where the effective date of the transaction is on or after 1 March 2019. This change will directly affect approximately 20,000 businesses, mainly agents, such as licensed conveyancers and solicitors. Each year, this will directly affect fewer than 500 individuals who file their own SDLT returns without using an agent. However, the impact on administrative burdens for businesses is expected to be negligible.

The Government announced the change at autumn statement 2015 and consulted on it, as the hon. Lady described, in 2016. The Government confirmed at autumn Budget 2017 that it would come into effect on 1 March. To help purchasers and agents to comply with the new time limit, HMRC has worked with key representative bodies to agree simplifications to the SDLT return, for example, by reducing the amount of information required. These improvements will be in place when the new time limit begins. The measure will result in a yield of £60 million in 2018-19—the year of implementation—and a small ongoing yield in future years.

Amendment 95 would require a report on any consultation undertaken on the provisions in this section.

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

What steps has HMRC put in place to make sure that the 20,000 businesses that are going to be affected are properly informed of the change, and know that it is coming?

[Mel Stride]

HMRC will, as a matter of course, issue guidance on all major tax changes, and that will be available online. As part of the consultation, as I have outlined, a number of these organisations were consulted in detail, not just about the measures but to make sure that those businesses are ready and appropriately informed.

The amendment is not necessary. I can give the Committee the information it requires now, because it is already in the public domain. The Government published a document on 20 March 2017 in response to the consultation that we published in the autumn of 2016, and we published draft legislation in July 2018 for technical consultation. HMRC also held meetings with stakeholders, which included representative bodies from the property and conveyancing industries. Their views on the information required in the return are reflected in the changes being made to make compliance with the new time limit easier.

New clause 13 would require a review of the equality impact of clause 45. The new clause is not necessary either, because the Government set out in the tax information and impact note published on this change in July 2018. It is not anticipated that there will be any impact on groups with protected characteristics. Clause 45 does not change anyone’s SDLT liability; it just brings a requirement to file a return and pay the tax closer to the date of the transaction. For that reason, direct impacts on different types of households will be negligible, and the type of analysis required by the amendment would not be meaningful.

Regarding other regions of the UK, Land and Property Services in Northern Ireland—an agency of the Department of Finance of the Northern Ireland Executive—was consulted and is content with the measures. The changes will improve the SDLT filing and payment process, and I commend the clause to the Committee.

[Anneliese Dodds]

I am grateful to the Minister for his comments. However, I am sure the whole Committee is looking to the Government to ensure that the payment and reporting systems can be calibrated as soon as possible. Surely, the very high rate of error is a terrible waste of taxpayers’ and, indeed, HMRC’s time. I hope he prioritises sorting that out and having the relevant discussions with the Bacs and CHAPS systems so it can be dealt with.

--- Later in debate ---

[Anneliese Dodds]

The clause makes a minor change to ensure that existing stamp duty relief continues to apply to both non-approved and approved share incentive plans. Our amendment 91 calls for a review of the revenue effects of that measure compared with the status quo, under which only approved plans are covered. The amendment is intended to give us a better handle on the overall cost of SIPs and how that relates to their benefits.

As I am sure Committee members know, SIPs have been tax advantaged since 2001, when stamp duty and what was then stamp duty reserve tax—it is now SDLT—were removed from the transfer of shares in a SIP from trustees to an employee. The requirement for approval was removed in 2014, but the appropriate corrections to legislation were not made. I note that the changes in the clause are required purely because of errors of omission back then, which perhaps highlights some of the issues the Committee has discussed.

SIPs avoid many of the problems with other share incentive plans, not least by being provided to all employees rather than only to a subset. We have seen how share plans have been manipulated when they have been provided only to the top management of companies. SIPs avoid that. Although so-called free shares can be linked to the achievement of performance targets, they cannot be allocated individually. They can be provided only to a particular business unit or to the whole company, so they cannot be manipulated by, for example, very top management.

Some categories of shares can be removed from employees who leave the firm through either voluntary resignation or dismissal within three years of their joining the SIP. That and the stake that SIPs create for employees in their company are viewed by some commentators as positive aspects of the plans. In addition, there is a considerable cost saving for firms of up to £138 for every £1,000 invested in SIPs by their employees. We must acknowledge, however, that the people who gain most from such schemes are those who are already in a higher-rate tax band, who by my calculation gain around an additional third of the tax they would otherwise pay, compared with a basic rate taxpayer.

In addition, SIPs have complex interactions with the social security system. I want to ask the Minister for clarification in that respect. Information provided to SIP holders states clearly that a small number of people may be affected by the fact that, because of their salary sacrifice—I suppose in practical terms that is what this is—for their SIP, they will not have paid enough national insurance contributions to qualify for particular benefits. However, it is unclear whether contributions to a SIP are treated differently for tax and social security purposes.

Some claimants of tax credits have received mixed messages about whether contributions to SIPs should be added back on to their gross pay for the purpose of informing the Department for Work and Pensions about their income. Individuals do not have to declare their SIP contributions for the purpose of income tax, or at least those contributions generally are not chargeable to income tax. There is a peculiar and potentially unfair difference there.

That is compounded by the fact that tax becomes payable on some of the different types of shares within a SIP if an individual sells them within five years—for example, if they have to switch jobs. Some individuals have said that that is almost a form of double taxation for people who claim social security. They suggest it is a bit of an anomaly, and I can see why. For people affected in this way, they would be better off buying their firm’s shares at market prices rather than taking part in a SIP in the first place. That is the situation with tax credits, but I cannot find any information anywhere about the treatment of these schemes for those claiming universal credit.

I looked at the IR177 document “share incentive plans and your entitlement to benefits” but that was produced in January 2011, and there seems to have been no amendment of it since then. There does not seem to have been any amendment to the SIP manual relating to universal credit either, or at least not since November 2015. Having gone through all the iterations of the manual, I did not wish to waste any more time searching for a potentially non-existent needle in a haystack.

Will the Minister clarify whether contributions to SIPs are counted as income for the purposes of calculating working tax credit or universal credit? If so, will the Department be looking at this issue? Might it be trying to devise a different approach, given that individuals will be affected by the counting of those shares as income if they leave a SIP scheme early? People on low incomes may well have to switch jobs more regularly than others do, so it would be helpful if he looked into that. Perhaps he knows the answer already. If not, will he write to us? Some people would find that enormously helpful.

[Mel Stride]

On the hon. Lady’s specific question about the interaction of SIP contributions and the reporting of income, and the further interaction with working tax credits and universal credit, I do not know the answer, and I do not think my officials can immediately answer it. I will have a closer look at that and write to her, as she requests.

Clause 49 makes a minor correcting amendment to section 95 of the Finance Act 2001 concerning stamp duty and stamp duty reserve tax exemptions for SIPs. Stamp duty and stamp duty reserve tax exemptions for SIPs were introduced in the Finance Act 2001. Until 2014, share incentive plans had to be approved by HMRC before an employer could operate them. These were referred to as approved share incentive plans. The Finance Act 2014 removed the requirement for HMRC to approve share incentive plans and replaced it with a self-certification process. All references to approved share incentive plans should have been removed from legislation, but a change to section 95 of the Finance Act 2001 was omitted. The clause changes the wording of section 95 of the Finance Act 2001 to ensure that it is consistent with other provisions of the share incentive plans code. No taxpayers should have incurred stamp duty on self-certified SIPs since the rule changed in 2014, and this provision confirms and clarifies the position. No changes are made to the existing exemptions available for share incentive plans.

Amendment 91 would require a review of the revenue effects if the stamp duty exemptions for SIPs had not applied to self-certified share incentive plans from 2014. This provision is a minor technical change that brings the wording of the legislation back in line with its application. There will be no revenue impact as a result of the correction. SIPs offer a combination of tax incentives to employers, and estimates for the cost of the stamp duty exemptions for SIPs are not available. The clause makes a minor correcting amendment to exemptions for share incentive plans, and I commend it to the Committee.

[Anneliese Dodds]

I am willing to withdraw amendment 91, given the Minister’s clarification, and I am grateful for his willingness to write to me about the issue that I raised. I make the general point that it is important that we consider these interactions between the social security system and the taxation system. It is particularly important for people on low incomes that we always bear that in mind. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 49 ordered to stand part of the Bill.

Clause 50

Duty of customers to account for tax on supplies

--- Later in debate ---

[Kirsty Blackman (Aberdeen North) (SNP)]

First, the hon. Member for Aberdeen South (Ross Thomson) and I are two very different people. He is a lot taller, has dark hair and is a Conservative Member of Parliament. Lots of people have made this mistake over time. He also has very different views from mine on Brexit.

To follow up on some of the issues raised, I am comfortable supporting the Opposition amendment; it makes sense to ask for this information. A couple of matters were raised during the debate. It is important that reasonable VAT guidance is given to organisations. As we have previously discussed in Committee, people can only pay the correct tax if they understand how the tax system works. If they do not have the appropriate guidance, it is difficult for them to ensure that they pay the right VAT.

It is clear that the Government and HMRC are falling short in the information that they communicate to the companies and organisations that are expected to jump through these hoops. It would be useful if the Government looked at that and ensured that they improve the information they are providing to companies and organisations, so that they can better understand their liabilities and how to comply with them.

Lastly, in relation to discussions around the Taxation (Cross-border Trade) Act 2018, the hon. Member for Stalybridge and Hyde mentioned the changes from making tax digital and the impact of that on companies that are finding it more difficult to navigate the system. Another possible impact, depending on what happens with any withdrawal agreement, is that move from acquisition VAT to import VAT, which would also have a significant impact on companies, because they would have to pay significantly more money to allow them to do things differently.

I was pleased that the Government moved on that point after sustained pressure on them through the passage of the Taxation (Cross-border Trade) Bill. I appreciate that they agreed to put in place a deferment scheme in the event of no deal; that is positive. However, we do not yet know what the deal will look like. Could we have more commitment from the Government about smoothing that path, if there is to be change from acquisition to import VAT?

Obviously I would rather there was no change and we all stayed in a customs and VAT union, with common VAT as the preferred option. If there is to be any change, will the Government reassure us that companies that will be provided with as much support as they can, in order to make that change without the cash-flow impact suggested by organisations such as the British Retail Consortium?

[Mel Stride]

Before I get into more general points on the clause, I will turn to some specific issues raised by Members, starting with the hon. Member for Aberdeen North. I entirely take her points about the distinction between her and my hon. Friend the Member for Aberdeen South. The differences are quite stark in all respects, though I am not sure to whose benefit that is.

The hon. Lady is entirely right to suggest that we need good guidance on these issues. I should point out that a primary focus of the proposed change is to ensure that we do not, under the existing arrangements, have a number of construction companies falling due to VAT and going over the threshold. That does bring unwanted complexity for those who would not otherwise be in that situation. It is worth bearing in mind that the reason behind the measure is trying to avoid drawing ever more businesses in that sector into the VAT regime.

The hon. Lady also reminded us of the discussions that we had at length on the Taxation (Cross-border Trade) Bill, when most of us were all together.

[Peter Dowd (Bootle) (Lab)]

Happy days.

[Mel Stride]

Happy days. I thank the hon. Member for Aberdeen North for her positive comments about the position that the Government have taken on acquisition VAT as opposed to import VAT, and extending that—at great cost to the Exchequer, of course—to all external trading arrangements, whether with the EU27, as they will become, or the rest of the world.

It is worth making a general comment on the VAT gap, which featured prominently in the contribution from the hon. Member for Stalybridge and Hyde. That gap has fallen from 12.5% under his party in 2005-06 to 8.9% on the latest figures. That is a pretty significant drop in relative terms across that period. Clause 50 amends the anti-avoidance provisions in section 55A(3) of the Value Added Tax Act 1994, which will enable effective implementation in October 2019 of the VAT reverse charge to combat missing trader fraud in construction sector supply chains. As announced at autumn Budget 2017, the Government are introducing a VAT reverse charge for specified construction services, which is due to come into effect from 1 October 2019.

This measure will help to tackle the problem of organised criminal gangs fraudulently creating or taking over companies in the sector to steal VAT and income tax, known as missing trader fraud. Under reverse charge accounting treatment, the customer, if VAT registered, is responsible for settling VAT with HMRC. As a result, suppliers cannot get the tax due and hence cannot steal it. However, there is currently an anti-avoidance provision in the primary legislation for VAT reverse charges, which requires businesses that purchase supplies subject to a VAT reverse charge to include those purchases as part of their turnover for VAT registration purposes.

Reverse charges apply only to supplies to other VAT-registered businesses. Therefore, this provision was designed to prevent fraudsters from avoiding reverse charges, especially on mobile phones, by instead charging VAT to small unregistered businesses before going missing. The current anti-avoidance provision has the effect of making unregistered businesses purchasing supplies covered by the reverse charge registrable for VAT sooner.

The construction sector has many businesses legitimately trading close to, but below, the VAT threshold. The current anti-avoidance provision could therefore push some legitimate small businesses over the VAT threshold and increase the burdens placed upon them. Clause 50 will amend the VAT Act to allow future VAT reverse charge statutory instruments, including one for the construction sector, to waive this anti-avoidance provision. That means that unregistered businesses will not have to add purchases of construction supplies subject to the reverse charge to their turnover for the purposes of VAT registration, thereby limiting the impact of the reverse charge on small businesses.

Disabling this provision in the construction sector will not have an impact on the effectiveness of the reverse charge, because builders are unlikely to be involved in the sort of supply chains that feature in large-scale missing trader fraud in construction. However, the Government do not wish to remove the provision in its entirety, as it may be beneficial for other sectors subject to missing trader fraud.

Amendment 92 would require that, whenever the Treasury makes use of the Government’s proposed new power to disapply the anti-avoidance provisions in section 55A(3) of the VAT Act, it would also publish a statement setting out the number of traders expected to benefit from being relieved of the burden to register for VAT as a result, and the impact of the VAT reverse charge and the disapplication of the anti-avoidance provisions on the supply chain in the sector that they target. The Government have closely considered the amendment, but ultimately deem it unnecessary. Whenever a Treasury order is made to require the use of a VAT reverse charge in a particular sector, HMRC publishes a tax information and impact note as a matter of course. This note will highlight the scale of the reverse charge’s expected impact in terms of numbers of traders who will be affected and whether the anti-avoidance provisions will apply, and outline how the changes will help to disrupt fraudulent supply chains operating in that sector. This publication is more than sufficient for the purposes sought by amendment 92. I urge the Committee to reject the amendment, and I commend clause 50 to the Committee.

Question put, That the amendment be made.

--- Later in debate ---

[Mel Stride]

Clause 51 and schedule 16 make changes to ensure that we can properly collect VAT when purchases are made using vouchers. It amends the Value Added Tax Act 1994, introducing new section 51B, 51C and 51D and new schedule 10B. These clarify the VAT rules for postage stamps and set out new rules for the VAT treatment of vouchers issued after 1 January 2019.

Members of the Committee will be familiar with tokens—for example, those used in the purchase of books—but the world of vouchers has expanded significantly in recent years. The UK vouchers market is now estimated to be worth about £6 billion a year. As well as the traditional use of vouchers as Christmas presents, vouchers now play a large part in business promotion programmes and staff incentive schemes, which rely heavily on complex distribution systems using electronic, plastic and internet-based products, as well as the traditional paper voucher. Some businesses issue and redeem their own vouchers, whereas others issue vouchers to be redeemed by others. VAT law has been slow to adapt to these changes. This new law modernises the rules and introduces a simpler system.

[Anneliese Dodds]

The Minister is extolling the virtues of vouchers and noting how innovative many of the company schemes that use them are, but why are the Government still committed to removing individuals’ capacity to benefit from childcare vouchers?

[Mel Stride]

I think that issue may be outside the scope of the clause, tempted though I am to be drawn into the issue of childcare and vouchers. The hon. Lady will have noted the delay that we implemented in that respect, to make the transition that little bit easier for some of those who might have been impacted.

The clause transposes new EU law, which we pressed the European Commission to introduce, to help combat tax avoidance. The new law has to be in place by 1 January 2019 and the Provisional Collection of Taxes Act 1968 will give the measure effect until Royal Assent of this Finance Bill.

From a VAT perspective, vouchers are unexpectedly complex. That is because, for one payment, a buyer gets two things: a voucher and an underlying good or service. Without special rules, we risk taxing twice: once for the voucher and a second time for the underlying supply. Gift vouchers could be used to buy products with different VAT rates. It is therefore often difficult to apply VAT at the time the gift voucher is bought. Furthermore, gift vouchers are now often sold at a discount to the face value, via distributors to businesses, which give them away for free in business promotion or staff incentive schemes. It is then not always clear to the shop accepting the voucher exactly what has been paid.

Finally, trading vouchers across borders resulted in problems of double and non-taxation, as different countries have different rules. The changes made by clause 51 and new schedule 16 will standardise these rules. First, the legislation specifies the type of voucher covered. Quite a few things nowadays look similar to vouchers, but are not recognised as vouchers under the VAT system—for example, the type of card many of us store money on to go on holiday or give to our children. We are not talking about vouchers that are totally free from when they are issued to when they are used to buy something, such as discount vouchers found in magazines or toothpaste money-off tokens.

The legislation identifies two distinct types of voucher and sets out specific VAT treatments for each. If we know what the voucher can buy and where, that can be charged at the point of issue and at any subsequent transfer of a voucher through its distribution network. If these details are not known at the time of issue, because it is a general gift voucher, we must wait until it is used to be able to apply the correct VAT. Therefore, the law identifies single-purpose vouchers, such as a traditional CD token that can be used only to buy CDs, which are limited to specific products, and multi-purpose vouchers, such as a WHSmith gift voucher, which can be used to buy many things,.

To avoid charging VAT twice, single-purpose vouchers are subject to VAT throughout distribution, but no VAT is charged on redemption. In contrast, multi-purpose vouchers are VAT-free through distribution, but are subject to VAT at redemption. For the multi-purpose voucher, the redeemer—the shop—must account for VAT. If they know the amount paid for the voucher, they should account for the VAT on that value. If they do not know the amount paid, they should account for VAT on the face value of the voucher.

Because the activities of any distributor of multi-purpose vouchers are disregarded for VAT purposes, there will be certain restrictions on the extent to which they can reclaim VAT incurred on related costs. I hope that the Committee is following this very closely, because it is an extremely important series of elaborations on how these vouchers work. HM Treasury and HMRC have consulted with the relevant businesses represented, and HMRC will be clear in guidance on how the rules will work.

The two new clauses would require two reviews by the Government within three months of the passing of the Act. New clause 8 concerns the impact of the provisions on the circulation and distribution of vouchers in the UK and the EU. New clause 9 concerns potential revenue and other impacts that could arise if UK law were to diverge from EU law.

Collecting VAT when vouchers are used is always complex, and it will inevitably take some time for the new rules to bed in. Throughout the negotiations about the changes in the underlying EU law, the Government were in regular contact with the UK businesses affected by the changes, and it was generally felt that this option was the best of the various options identified. Officials have worked hard with businesses to ensure as smooth a transition as possible, and HMRC has offered to be pragmatic as businesses get to grips with the new system.

I can reassure the Committee that the Government will continue to monitor the effects of the change and other developments in this area, including impacts on revenues. With regard to divergence from EU law, it is far too early to consider such impacts, given that we do not yet know the future agreement with the EU and what it will look like in respect of the VAT system more generally. However, I stress to the Committee that a key advantage of this measure is to ensure a level playing field across the EU, so that UK businesses are not disadvantaged by different rules in other EU member states, which they would need to understand and which could result in double taxation or—in terms of Exchequer impact—no taxation at all. I therefore ask the Committee to reject the new clauses, and I commend the clause and schedule 16.

[Jonathan Reynolds]

I begin with a word of apology to the hon. Member for Aberdeen North for mixing up my Aberdeen constituencies. I can only say to her that in a former Parliament a former Member for Aberdeen South and I were both shadow Energy Ministers, and that at some level I must be missing him and I cannot bring him back. However, that is no excuse for mixing up the two parts of Aberdeen.

Clause 51 relates to gift vouchers and the transposition of an EU Council directive clarifying the consistency of treatment of vouchers. I thought that this was more interesting than it sounded in the explanatory notes; the Minister has done a very good job on that. As he said, this Christmas, when people are out shopping, not many of our fellow citizens will understand that vouchers pose a challenge to HM Treasury in charging VAT, because when a customer buys a voucher, should we charge the VAT on that, or should we charge it when they spend the voucher?

As the Minister said, the discrepancy is further complicated because there will be some stores that sell gift vouchers that then offer zero-rated VAT items, such as children’s clothes. I understand that there have been mismatches in the way that different member states have approached these questions, and that this situation has potentially led to double taxation or no taxation at all across borders. That is the background to the introduction of the EU vouchers directive agreed in June 2017.

The Minister outlined the new regime of single-purpose vouchers and multi-purpose vouchers; I do not think that anyone wants me to repeat that. However, it makes sense that there is clarity on vouchers, finally, and that the risk of there being either double taxation or intra-EU taxation is avoided.

However, professional bodies have raised a number of issues, which I would appreciate some further detail from the Minister on. It is my understanding that there is still no new guidance available from HMRC on this measure, even though implementation is from 1 January 2019. As I mentioned in relation to the previous clause, VAT is a complex and time-consuming area for businesses, so they need as much advice and notice about it as possible. The timing of this implementation, in January, will also coincide with one of the peak times of the year for voucher redemption—hopefully, all of us will get a voucher for Christmas—and that could create a further burden. Gift vouchers are an important part of revenue for UK businesses.

This is a very challenging time for the high street, so the Opposition are mindful that we do not want to create any additional administrative barriers for smaller shops as they develop their businesses. As the Chartered Institute of Taxation has highlighted, shops will need to be able to identify the date of purchase for vouchers, to assess whether they need to declare VAT, given that the rules will be changing. It is surely important, therefore, that they receive as much support as possible from HMRC through the process and receive as much guidance as they can. Those technical details are a concern, and I would appreciate further context from the Minister on how they might be mitigated.

Clause 51 also raises a wider issue, given that it relates to the transposing of EU laws into the UK and our future compliance with EU VAT regulations. Historically, it has not been possible for the UK to fully diverge from the EU on setting rates for VAT. VAT revenues to the Exchequer are a crucial part of the UK’s tax landscape, and we need to know how crashing out without a deal or abruptly pulling out of the customs union will affect how we set VAT rates in future. That is why Labour has tabled new clauses 8 and 9, in relation to schedule 16, which is associated with this clause. New clause 8 would oblige the Government to

“commission a review of the expected impact of the provisions of Schedule 16 on the circulation and distribution of vouchers in—

(a) the United Kingdom, and

(b) the European Union.”

Vouchers are an important part of business for UK retailers. As we leave the EU, questions should be raised about whether this decision on compliance will still work best for both sides, as it has been drafted on the basis that the UK is a member of the customs union. Given that circumstances will change quite dramatically in future, we must be mindful of how this will impact on ongoing changes.

Subsequently, new clause 9 mandates the Government to produce a review of the potential divergence from EU policy of the VAT treatment of gift vouchers, so that we can properly assess its implications. Supporting our high street in today’s challenging environment is a priority for all of us. I therefore urge Members to vote for our new clauses, to make sure that we create the best possible taxation framework for vouchers and help our retailers to succeed.

[Mel Stride]

I will be brief, but will hopefully answer the questions that the hon. Member for Stalybridge and Hyde has posed. First, as regards guidance, these measures were consulted on widely with UK businesses and stakeholders, and HMRC has recently shared draft guidance with stakeholders for comment. HMRC’s guidance was published yesterday, so that is now in the public domain. Of course, if the hon. Gentleman has any particular observations on that, I would be happy to take representations from him. The Government have also given businesses advance notice of the changes. A consultation document was published last December, HM Treasury and HMRC have been in constant discussion with businesses, and we published the draft legislation last July on L-day, with an impact assessment last month.

My final point relates to the hon. Gentleman’s comments about future VAT arrangements in the context of our departure from the EU. Of course, at this stage, we do not know exactly what those will look like. However, the Government have made a general statement that we are seeking to have arrangements that are broadly in line, so that we do not have very dramatic changes when we depart from the European Union.

Question put and agreed to.

Clause 51 accordingly ordered to stand part of the Bill.

Schedule 16 agreed to.

Clause 52

Groups: eligibility

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

[The Chair]

With this it will be convenient to discuss the following:

Amendment 93, in schedule 17, page 305, line 28, at end insert—

“Part 3

Review

“16 (1) The Chancellor of the Exchequer shall commission a review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons before 1 April 2020.”

This amendment requires a review of the impact of this measure on the number of individuals and businesses entering into VAT groupings for the purpose of tax planning, and for that review to report by the end of the tax year 2019-20.

Amendment 94, in schedule 17, page 305, line 28, at end insert—

“Part 3

Review

“16 (1) The Chancellor of the Exchequer shall commission a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons within 3 months of the passing of this Act.”

This amendment requires a review on the potential revenue changes if domestic law were to diverge from European Union law in relation to VAT groups.

That schedule 17 be the Seventeenth schedule to the Bill.

[Mel Stride]

Clause 52 makes changes to the Value Added Tax Act 1994 to allow certain non-corporate entities such as partnerships and individuals to join a VAT group. VAT grouping is an important VAT accounting simplification for UK businesses. It allows companies within the same corporate group to operate under one VAT registration and submit a single VAT return. Members of a VAT group can share goods and services with each other without the need to account for VAT. This helps businesses operate effectively and saves time and resource, for both businesses and HMRC.

Clause 52 will simplify VAT accounting arrangements for many UK businesses and ensure that the UK’s VAT grouping rules operate effectively. It is up to the UK Government to determine how VAT grouping rules operate, to ensure that they work effectively for UK businesses. They must adhere to EU VAT principles when doing so. Following a judgment of the Court of Justice of the European Union in 2016, HMRC held a consultation to determine which entities should be eligible to join VAT groups. HMRC listened carefully to the representations made during this consultation and held detailed discussions with VAT expert stakeholder groups to ensure that the changes to VAT grouping rules work for businesses and HMRC, including publishing draft legislation in July this year.

The changes made by the clause will help reduce VAT accounting burdens for many businesses. Under current rules, only corporate bodies can join a VAT group. We will amend the Value Added Tax Act 1994 to allow non-corporate entities such as partnerships or sole traders to join a VAT group, where those entities control all other members of the VAT group. Although these changes will bring administrative benefits for businesses, it is important that the rules are not misused, so we will update existing anti-avoidance rules via a statutory instrument to ensure that no taxpayers use VAT grouping to avoid VAT. The changes made by the clause are expected to have a negligible impact on the Exchequer.

Amendments 93 and 94 would require the Chancellor to commission a review on the impact of these changes to individuals and businesses and a further review on the UK tax revenue impact of any future divergence from EU VAT grouping rules. The Government do not intend to accept these amendments. The VAT grouping changes have been made following extensive consultations by HMRC. HMRC’s response to the consultation was published in December 2017.

With respect to a review of the UK tax revenue impact of any future divergence from EU VAT grouping rules, it is worth noting that although the UK must follow EU VAT law principles, the UK Government already have the ability to tailor UK VAT grouping rules to our own specifications. If any future changes are made to UK VAT grouping rules, they will of course receive parliamentary scrutiny at that time. I do not consider, therefore, that either of the proposed reviews is required.

--- Later in debate ---

[Jonathan Reynolds]

I am extremely grateful for the hon. Lady’s intervention and entirely agree with it.

On the access of financial services to the single market once we leave the EU, under the terms of what the Government have negotiated—that single market access will almost certainly be denied unless the equivalence provisions prove adequate, although most people expect them not to be—the Government’s advice to firms in the UK is to set up subsidiaries in the EU. It was reported to me in meetings yesterday in the City that there is concern that when those subsidiaries are created, the connected UK entities will not be able to enter VAT groups in the UK, which would therefore trigger a substantial tax liability in order for firms to comply with the Government’s own advice on market access to the EU. The Minister may not be able to answer that now, but I want to put it on the record.

I call on all Committee members to support both amendments today so that we can get a clear and full picture of the wider impact of the measures on the future VAT policy approach outside the EU and on closing our own VAT gap here in the UK.

[Mel Stride]

The hon. Gentleman raised a large number of questions, most of them very specific and quite technical, not least around the treatment of UK resident individuals in the context of VAT grouping, as opposed to non-residents in a similar situation, where perhaps a business has—my terminology—a permanent establishment here, but is run by non-residents. He also made various points about the administration of VAT groups. I will write to him about those issues and the other points he raised in that part of his contribution. He asked a specific question about whether we are updating joint and several liability rules for these changes. The answer is that we are not. HMRC will continue to monitor the rules, of course, to ensure that they work effectively for UK businesses.

The final point that the hon. Gentleman raised related to our future relationship with the European Union. His specific question, as I understand it, was about compliance with the financial services arrangements that might be in place once we have left the European Union: if, as a consequence of that, a UK financial services business had a subsidiary or another operation within the EU27 as opposed to here, would that prohibit that particular operation from participating in a VAT group with the UK domicile concern? I have absolutely no idea what the answer to that is, but I did at least understand his question and I am happy to look into it and get back to him.

Question put and agreed to.

Clause 52 accordingly ordered to stand part of the Bill.

Schedule 17

VAT groups: eligibility

Amendment proposed: 93, page 305, line 28, at end insert—

Part 3

Review

16 (1) The Chancellor of the Exchequer shall commission a review on the impact of the provisions in this Schedule on the number of individuals and businesses entering into VAT groups.

(2) A report of the review under sub-paragraph (1) must be laid before the House of Commons before 1 April 2020”. —(Jonathan Reynolds.)

This amendment requires a review of the impact of this measure on the number of individuals and businesses entering into VAT groupings for the purpose of tax planning, and for that review to report by the end of the tax year 2019-20.

--- Later in debate ---

Finally, amendment 99 looks at the regional impacts of the new duty. We know the cider industry in the UK is concentrated in certain regions—west country scrumpy, for example, Buckinghamshire and Herefordshire, the Welsh seidr and even the Channel Islands, which have had a cider tradition stretching back to the middle ages. In fact, the Minister in those days may have been drinking that sort of Channel Islands cider. What work has the Treasury done to assess the impact of changes to excise duty on production in those regions? That is important and another element of regional economies and regional disparities. Challenging the prevalence of white ciders may have a positive effect on some regional manufacturers while others may suffer as a result. It is important to understand the changes if we are to continue to support British cider producers across the areas I have mentioned and beyond. [Interruption.] Again, I am having bad luck with people moving out of their chairs. It is a trend.

[Mel Stride]

In 10 minutes you will be on your own.

[Peter Dowd]

As long as that? Ten minutes? My word.

I should point out that, under a more active Government—one not simply going through the motions—these measures would already have been taken into account, acted upon and been on offer for proper scrutiny during this debate. Nevertheless, I hope the Minister will see the benefits of the review as set out in our amendment and agree that it is worth while—or that Members will choose to support amendment 98 to see that it is implemented. That brings our amendment on this particular matter to a close. Cheers.