Paradise Papers

Debate between Michael Tomlinson and Mel Stride

Monday 6th November 2017 Commons Chamber

[Mel Stride]

The hon. Gentleman talks about the amount revealed by these disclosures, and I assume he is centring his remarks on the half-hour television programme last night. The reality is that we do not yet know exactly the extent of what will be revealed, which is why HMRC has asked those with the data to make it available—so that we can use it to get on with the job of cracking down on those who might not have behaved as they should.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

The Minister has confirmed that we have one of the lowest tax gaps in the world, yet the Labour party still complains. How does today’s position compare to the one we inherited in 2010?

[Mel Stride]

My hon. Friend is right to point out the difference. The tax gap today is 6%, which is about the lowest in the world and the lowest in the history of our country. As I said earlier, if we had had the same average tax gap as Labour during its term in office, we would be more than £40 billion out of pocket—less money, as the shadow Chancellor put it, for the nurses, the doctors, the paramedics, the police, the Army and the others in our public services.

Finance Bill

Debate between Michael Tomlinson and Mel Stride

Tuesday 12th September 2017 Commons Chamber

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

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

Earlier this year, before the general election and in agreement with the Opposition, the Government removed a number of clauses from an earlier Finance Bill to ensure that the House had an opportunity to scrutinise the Bill in more detail. The Government announced their intention to return to the House at the earliest opportunity to legislate for the measures that had been removed, and that is the basis for the Finance Bill that they have now presented to the House. Last week we had a good debate on the resolutions on which this Bill is founded. Today I will be reflecting some of the themes of that debate, as well as setting out again the background of the Bill and its main provisions.

This Bill makes a significant contribution to the public finances through sound policies pursued by a Government who are putting a fair and competitive tax system at the heart of their plans. Those plans have ensured that the economy has grown continuously for more than four years to become 15% larger than it was in 2010. It is an economy that is experiencing record levels of employment, including more women in work than at any time in our history; an economy that has delivered the lowest level of unemployment since the mid-1970s, and the lowest level of youth unemployment since 2001; and an economy that is built on sound money, with the deficit reduced by three quarters to ensure that international investors maintain their faith in us. And indeed they have: foreign direct investment was 40% higher at the end of 2015 than it was in 2010. However, the Government are not complacent—far from it. We know that we must continue to press forward with vigour in supporting new growth and productivity.

Let me now turn to the specific provisions of the Bill, and, in particular, to those that will make our tax system fairer. This is a Bill that abolishes permanent non-dom status. Those who are non-domiciled for tax purposes pay about £9 billion each year in tax and national insurance, which is a huge contribution to our public finances. Lest we forget, it is £1 billion more per year than they paid 10 years ago under the Labour party; more, in fact, than they paid in any year during which the Opposition were last in power. The Government, however, are now putting an end to an unfairness whereby people living in the UK could claim that they were non-doms on a permanent basis. That is something that the Labour party failed to end in 13 years of government. Yes: under Labour, many people who had been living here for over 25 years, clearly settled in the United Kingdom, still technically claimed to be non-doms, and while they did make an important contribution, it was not necessarily a fair one. It is this Government who are changing that.

[Michael Tomlinson (Mid Dorset and North Poole) (Con)]

My right hon. Friend has mentioned Labour, and the 13 years of disastrous Labour rule. Is it not ironic that when he commenced his remarks, there was only one Back-Bench spokesperson for the Labour party in the Chamber who was even prepared to contribute to the debate?

[Mel Stride]

I thank my hon. Friend for those observations, which I am sure the House has duly noted.

Let me now deal with termination payments, an issue on which the Opposition divided the House last week. The current rules are unclear and complicated. Some payments are taxed as earnings, some are only taxed above £30,000, and others are completely exempt from tax and national insurance contributions. Although most employers use the current rules as intended, the present system allows some to ignore those rules and deliberately manipulate their payments to minimise their tax by exploiting the differential tax treatment. That is clearly not fair. The Bill makes the rules simpler and fairer by recommending that we exempt the first £30,000 of termination payments from tax, while tightening the rules in respect of what is rightly included within such payments.

In last week’s debate, some Members raised concerns that the Government would be taxing compensation that is paid to employees when it is proved that they have been discriminated against—for example, after an employment tribunal. I am happy to reassure them. All compensation awards caused by proven discrimination against someone in employment will remain completely exempt from tax. All that the Bill does in the way of change is close the obvious loophole that enables an employer to treat part of a termination payment, as opposed to a tribunal award, as an “injury to feelings” in order to benefit from the tax exemption. It is HMRC’s longstanding position that if an employee claims a tax exemption for injury, it must have actually impaired that employee’s ability to work, and the Bill simply reconfirms that position.

Members also raised concerns that the Government intended to reduce the tax-free amount from £30,000. The Bill makes no such provision. If there were ever any desire to reduce the tax-free amount, it would be subject to a statutory instrument and the affirmative procedure, so the House would have to expressly approve any such proposal.

We also need to ensure that the taxation of different ways of working is sustainable, so that we have the funds to invest in the public services on which we all rely. It is therefore important that this tax treatment is fair between different individuals. The Office for Budget Responsibility has highlighted the fiscal risks arising from the growing number of people working through companies. Such individuals can pay themselves in dividends, and, in so doing, can pay significantly less tax than employees and the self-employed, although in many cases their economic activities are broadly the same. Part of the reason for that difference is the entitlement to a £5,000 dividend allowance, which is available in addition to the income tax personal allowance that the Government introduced at £11,500 in April.

Reducing this allowance to £2,000 will help to reduce the differential in tax treatment and help remove some of the working distortions to which I have referred. It will also ensure that support for investors is more effectively targeted: a £2,000 dividend allowance will ensure that around 80% of general investors continue to receive dividend income tax-free. The less well-off will be protected, with those general investors who are affected having investment portfolios worth around £100,000 on average, putting them in the top 10% of wealthiest households in the country. So the Bill will make our tax system fairer in a number of ways.