Finance (No. 2) Bill

Nigel Mills Excerpts

2nd reading
Wednesday 17th April 2024 Commons Chamber

[Nigel Huddleston]

I thank my hon. Friend for his question, but he has jumped ahead to a later part of my speech. I will get on to that point in a moment, because the movement to a household budget is an important part of the announcements.

I should just reiterate the first points on the changes that we have made. Overall, we estimate that 485,000 families will gain an average of £1,260 in child benefit in 2024-25 from these changes to HICBC. And, of course, what is good for families is also good for the economy at large, as my hon. Friend pointed out. The Office for Budget Responsibility estimates that, through these child benefit changes, the economy will gain additional hours work equivalent to around 10,000 full-time equivalents by 2028-29. Going forward, we want to ensure that the child benefit system fairly rewards families in all their diversity, including those who, for example, have only one working parent. The Government will end the unfairness, for example, of single earner families in the child benefit system by administering the HICBC on a household rather than an individual basis by April 2026. We shall be consulting on this in due course, as my hon. Friend quite rightly highlighted. This is something, we know, that many people have been calling for.

[Nigel Mills (Amber Valley) (Con)]

Can the Minister give us an indication of what level of household income the Treasury has in mind for that consultation? I presume that it will be much higher than £80,000; otherwise, it would be a more punitive situation. Will it be £100,00 or £120,000? What will it be?

[Nigel Huddleston]

I appreciate my hon. Friend’s inquisitiveness, but this is the point of the consultation. We will be having a consultation and I am sure that his views and opinions and those of others will be taken into account.

I shall now turn to how the Bill will drive investment in our economy. We all recognise that investment in the economy is crucial for economic growth. It supports everyone across the country and ensures our competitiveness in international markets. That is why, through this Bill, the Government are taking decisions for the long term to support that investment. For example, our creative industries contributed £126 billion in gross value added in 2022 and supported more than 2 million jobs.

By announcing more than £1billion of new reliefs for the UK’s world-leading creative industries at the spring Budget, we have signalled our commitment to ensuring the sector’s continued growth. For example, we will make current tax reliefs for theatres, orchestras, museums and galleries permanent, at a rate of 45% for touring theatres and touring productions by museums and galleries; 40% for non-touring productions; and 45% for orchestras. That will ensure that our creative industries have the support they need after the unprecedented economic shock of the pandemic.

We will also further support the UK’s independent film sector through a new UK independent film tax credit at a rate of 53% for films with a budget of up to £15 million, which is worth about £80 million a year. This will support the production of UK independent films and, of course, the incubation of UK talent, which is admired around the world. This Government are committed to supporting UK businesses and these measures deliver on that.

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[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in this debate. When I got my copy of the Bill from the Vote Office, I was a bit worried that the middle 500 pages or so had been missed out. We are used to these Bills being somewhat thicker than this.

I am slightly nervous, Minister, that at this rate the Indians might catch up with us on the length of our tax codes. I hope that a large Finance Bill will be ready this autumn so that we can keep our lead. There are some potentially complicated rules coming, including the new nom-dom rules. We could also base the new inheritance tax on residency rather than domicile, and we also face the question of how on earth we will define “household” for the purposes of the high income child benefit charge? There probably is some meaty stuff to come, but it is fair to say that this Bill does not generate substantial excitement.

There is always a risk with reasoned amendments to a Finance Bill. If we voted for the SNP’s reasoned amendment, we would not get any income tax this year, which would probably do quite a bit of damage to public services—though imagine that might be popular with a few people.

I am slightly intrigued by the fact that, at a time when we are really struggling for tax revenues and to balance the books, anyone would prioritise reducing the price of a Rolex for very rich tourists. That is effectively what reintroducing tax-free shopping does: it saves a lot of money for very expensive tourist purchases. I have never been convinced of the attractions of reducing VAT for the tourism sector, because the problem is that it is a huge boon for hotel operators in London that has to be paid for by taxes elsewhere.

[Drew Hendry]

I am happy to educate the hon. Gentleman. If he would like to speak to any of the tourism organisations that have been calling for this change, he will find that it is a great way for them not only to cope with some of the increased costs they have just now, which are front-loading their business, but to encourage people to come and use their facilities. It is something that the tourism industry is very keen on, and I would be delighted to introduce the hon. Gentleman to some people who will educate him further.

[Nigel Mills]

It is a pity that the hon. Gentleman did not make the case for that in his own speech, when he barely touched on this issue. The point I was trying to make was that introducing that tax reduction would be a huge benefit to London hotels, which have high occupancy rates at a very high nightly rate, but then that money would have to be raised elsewhere in the country.

One of the advantages of Brexit—the hon. Gentleman might not like this—is we are now able to do differential tax rates by region. Therefore, if we wanted a tax rate targeted at boosting tourism, we could do it on a regional basis, looking at which have the lowest occupancy rates and the lowest employment rates. It would cost far less, and the reduction could be much smaller. We could boost investment where it is needed rather than where it is not. I suggest to the hon. Gentleman that looking at that would be more sensible than his proposal.

The hon. Gentleman is also criticising the lack of a starter rate. When we had a starter rate of income tax, from 1998 to 2008, it was for very low incomes. It was a 10p rate and it was charged on top of national insurance, which was also over 10% at that point. What we actually have now is income tax and national insurance starting at a much higher point. It is a 0% starter rate, which is a far better idea than introducing a new one, so I certainly will not be voting for the reasoned amendment, as it would be completely against the country’s interests.

The Minister mentioned the high-income child benefit charge. Strangely, the Bill increases the thresholds and promises a radical change at the start of the tax year after the next one, but it does not tell us what the Government are trying to achieve by that. We have rightly upped the starting point, but if we really want to go to a household calculation, either we should be very generous and have it start at £120,000, tapering up to £160,000—the equivalent of two incomes—or we risk making the situation worse by having a very big disincentive for second earners. If the new threshold were £100,000, rather than £80,000, a household with a second earner earning only £20,000 would be brought into the charge despite not being affected by it in the current financial year. I would not want to go down that line.

There is a very real risk that what sounds like a generous idea could have a very negative impact by discouraging second earners, whom I think we want to be encouraging with our childcare and other reforms. Before the Government publish the consultation, I urge them to think carefully about where they are pitching this. Surely there must come a point at which household incomes are pitched so high that almost no one will be paying the charge. What would be the point of all the complexity, uncertainty and cost of collecting it if it does not raise any money? We might be better off putting the 45p rate of income tax up by 0.5p, which would raise the same amount of money while losing all this complexity.

I think it would be better if, in Committee, the Minister introduced an automatic increase by inflation each year. It was a terrible mistake to keep the thresholds where they were. By far the simplest change would be to inflate the thresholds each year, so that we do not drag more people into the charge. Everyone would understand their position, which would be easier than trying to work out what on earth a “household” is for the purpose of this charge.

If we asked the Secretary of State for Work and Pensions, he would tell us that the formation and definition of households is one of the biggest areas of welfare fraud—people are pretending not to be a household to get extra benefits. It can be extremely hard to define a household and to enforce it. How much will it cost to work out who is or is not in a household? I suspect it will be so complicated to try to reintroduce a household definition within the tax regime that it never actually happens. If it does, it will probably cost more than it raises. I question whether it is sensible to retain this charge.

Turning to what is in the Bill, and given that we now have a large range of earnings, what is the Minister’s advice to people who are not sure whether they will earn more than £80,000 because they do not know what bonus they will receive in this financial year? Should they stick with the simple route, as many people have, of disclaiming child benefit so that they do not get caught by this tax at the end of the financial year, for which they need to save in case they have to pay it—it is a bit of shock when they get there—or should they go back to claiming child benefit on the off chance? Should they put the money in the bank and see whether they are entitled to it and, if it turns out that they have not earned more than £80,000, get to keep and spend some of it? We seem to have a position in which many households will not know until very late in the financial year whether they are caught by this. If they disclaim it, they will lose a benefit to which they are probably entitled; and if they do not disclaim it, they might receive a bill that they do not have the money to pay. We need some certainty on that position.

[Dame Karen Bradley (Staffordshire Moorlands) (Con)]

My hon. Friend is making a very important point. I am also concerned about families who have stopped claiming child benefit and are no longer on the system, but who find, because of the new rules, that they are actually entitled. How can they make sure that they get the full amount of benefit to which they are entitled?

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[Nigel Mills]

I agree with my right hon. Friend. We are in a complex position. My question to the Minister is whether we could have a more generous allowance in this financial year for retrospective claims. People have not understood this change and, if they have not already claimed, I suspect that they are already missing out on several weeks of benefits. Could we be more generous so that, if someone finds out towards the end of the tax year that their household is entitled, they can make a back claim? Child benefit is meant to help households with the extra costs of having children. There is a good reason why child benefit has been around for many decades. It would be wrong to deprive households of it because they are unsure how much they will get and do not want the uncertainty of big bill later in the year. There are ways that we could be a bit more generous in the transition; for example, we could allow people who are in that situation to make a catch-up claim later in the financial year.

With those few remarks, I happily support the Bill, and look forward to voting for it on Second Reading shortly.

Finance Bill

Nigel Mills Excerpts

Committee of the whole House
Wednesday 10th January 2024 Commons Chamber

[Nigel Huddleston]

I think my hon. Friend is kicking off what is likely to be a long debate over the course of the next year, but an important one for our constituents and businesses. The economy will play a pivotal part in discussions this year. It is very clear what we are doing: we are implementing vital changes, asked for by business and in response to business, to provide that business certainty and an environment in which they and therefore our constituents can thrive. I do not think any of us want to put that at risk. However, without the clarification and confidence from the Opposition about what they might do, these issues will be raised and the uncertainty can persist. We on the Government side of the House are committed to this, and my hon. Friend is right to make that clear.

[Nigel Mills (Amber Valley) (Con)]

I think the Minister just read out that the assessment is that this measure will create £3 billion additional investment per year. Is that right? If I remember the Green Book correctly from the autumn statement, the annual cost of this measure was £11 billion, which I think equates to £55 billion of extra capital expenditure. Is he saying that £52 billion of that £55 billion is just bringing forward investment that would have happened later, and £3 billion is new, or have I somehow got my numbers wrong and this will generate a load of investment that would not otherwise have happened?

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[Drew Hendry (Inverness, Nairn, Badenoch and Strathspey) (SNP)]

I am only going to make some brief remarks on the two clauses. The UK Government are clearly scrambling to fix an economic mess of their own making, and the Bill is full of such measures.

On clause 1, during the autumn statement I welcomed this move, but it does little to deal with the damage to business that has been caused by the big grey elephant in the room that none of the parties wishes to mention, which is Brexit. Far from the ideal of removing red tape and decreasing bureaucracy, as we have heard thrown about in this Chamber, it has actually led to more red tape and more difficulties for business. This is just one of the measures the Government should be taking, among many others they must consider in future. I hope to come to those later in the debate.

The “years of uncertainty” that the hon. Member for Ealing North (James Murray) mentioned have indeed been years of uncertainty caused by this Government, but they have definitely been impacted by the Brexit that Labour now supports, along with the Liberal Democrats. People are struggling with a cost of living crisis, and it is affecting domestic sales too, so they need other fixes. Again, I will have some questions about that later.

Clause 2 and schedule 1—I hope this will be helpful for the Minister—are like trying to make a jigsaw puzzle with no box, no picture and just some random bits and pieces to try to plug together to make something out of. Productivity does not work without the skills required in research and development. We do not get the advance or the boost we need without that and, once again, the spectre of Brexit means that we have a skills shortage across the nations of the UK. That is particularly affecting Scotland, which needs its own immigration rules. It is something we would ask to have powers over, short of our call—it would of course be the absolute best result—for Scotland to have independence so it can make these decisions itself.

[Nigel Mills]

It is a pleasure to speak in this debate. I want to direct my remarks to clause 1, on permanent full expensing for the purchase of plant and machinery, which I discussed during the autumn statement and on Second Reading.

This is actually quite a radical and expensive policy. We have, probably for longer than all our lifetimes, given companies relief for capital expenditure using capital allowances. That was originally quite a generous 25% in the first year—I suspect that most plant and machinery had a longer life than that when the rules were produced. We have chosen to do that for all these years, rather than just letting a business deduct its own accounting calculation of depreciation, because we did not want the manipulation of tax deductions by businesses doing their tax returns. We chose to do it this way.

The tool that Governments of all colours for decades have had when the economy hits trouble is to give first-year allowances and various enhancements. I remember a 40% first-year allowance and a 50% first-year allowance. We have had full expensing up to £1 million, as the shadow Minister referred to. That has been the way of incentivising investment in a period of economic recovery for probably as long back as there has been a toolkit.

Now we have landed on permanent full expensing, so businesses get full relief on plant and machinery spend in the first year. What are the Government expecting to happen differently here? Are we expecting capital investment by businesses of more than £1 million a year that otherwise would not be economically viable and would never have happened? Are we expecting investment to be brought forward and to take place earlier than it otherwise would have? That would be entirely welcome and would probably modernise businesses, protect jobs and give them a chance to grow in a way that they perhaps would not have had, which is not a bad policy aim at all. Or are we just giving business an earlier tax relief than they otherwise would have had, whereby they bank that and are happy but it does not change behaviour?

It is hard to get behind the numbers on this measure in the Green Book. As I said earlier, the estimate at the end of the five-year period, and probably the first full year that making this permanent will make a difference, is a tax cost of £10.9 billion just for this measure. If we run the numbers, bearing in mind that businesses will already have had 25% tax relief on that same expenditure in that year, that means we expect a £55 billion higher claim to get tax relief in that financial year than otherwise would have happened. However, the Minister said that only £3 billion of that is estimated by the OBR to be additional investment that would not otherwise have taken place at some point. It suggests that we have a lot of investment being brought forward with a lot of more generous tax relief that would have happened anyway. Will the Minister explain what the Government are aiming to achieve and what is being forecast? Is the OBR being unduly cautious? That would enable us to understand how we judge whether the measure has been successful.

Are we expecting to see whole loads of investment in plant and machinery that never would have been viable before, or are we expecting to see it brought forward? If what we are getting is brought forward, at some time the cost should start to taper down, because this is not a new tax relief that businesses would not have already had; it is just an acceleration of tax relief and businesses will pay more tax in all subsequent years, because they are not getting the relief they used to get. The measure could cost £11 billion in the first year and gradually that would level down and in the fullness of time there would be no more annual cost, in effect. Can the Minister clarify that?

It is not immediately clear how the Government plan to assess whether the measure has worked or is working. I assume that from electronic corporate tax returns we can track down to the pound the amount of investment claimed for full expense relief every year. We could have a report within six months of the end of a calendar year on how much of these 100% allowances has been claimed and compare that with the total amount claimed for capital allowances in whichever preceding years we like. We could see whether full expensing was driving behaviour change. Will the Minister talk us through what he expects to happen and how he will assess whether this has been an effective way of boosting productivity and increasing investment for £11 billion a year? It is probably one of the most sizeable line entries we have seen in a Finance Bill in my 14 years here. Normally we expect the big number to be a tax cut for individuals, and this measure is significant.

As we are making this measure a permanent feature of our tax system, it shines a light on what we are trying to get from our corporation tax system. There will not be any kind of compliance saving. The Minister made a brave attempt at saying there might, but effectively all that will change is that the number that a business currently puts in its additions to its writing down allowance pool will now be put in the 100% first-year claim box. It is the same number in a different box; that is the only compliance change we have here. It throws into question some previous policy decisions we have made, because for a business to get full benefit from this, it needs to be paying enough tax to use the full relief in that first year.

If a business cannot use the full relief, the incentives are not as powerful as they would otherwise be, because then the option is effectively to carry that excess deduction forward, but we introduced rules a few years ago that are strict on how many losses a business can use in a year. If we really think that giving people the earliest possible cash tax benefit for capital investment drives investment, we should probably take away that restriction on using losses, so that businesses can get the benefit as early as possible and not have it spread over a number of years going forward. Will the Minister explain whether the Government will look at that and make sure we are not accidentally undoing some of the benefit we are seeking to get?

My second question is: what do we do with the legacy writing down allowance pool that relates to plant and machinery expenditure for God knows how many past years? On a reducing balance basis of 25%, it takes many, many years to get full tax relief for expenditure, so every business will have a large pot of money that it has not yet had tax benefit for. Are we expecting them to run that down at 25% reducing balance a year and still be doing so in 23 years’ time, by which point no one will have any idea what on earth that balance ever was? Or should we say, “That is a bit of a nonsense. Why do we not just let you take the whole balance at 20% a year over the next five years and finish that problem off, because we do not need to be focusing on that?”? We could find any number we like there, but it would draw a line under that past expenditure in a way that genuinely simplifies things.

We then have the question of, “What do we do with capital expenditure on items that are not plant and machinery?” The tax relief we give on structures and buildings is not generous, but if we are trying to drive an increase in productivity and large businesses to invest in new gigafactories to build batteries for electric cars or for electricity storage or whatever, do we not want to incentivise them to build the factory building as well, rather than either giving them no relief or giving it over a long time? If we are spending £11 billion a year to encourage investment in plant and machinery, should we not spend a little money on trying to encourage other things that are key for industrial investment to take place, by being a bit more generous on buildings and structures? Has the Minister any thoughts on that?

The Government did a capital allowances review only a year or two ago, which did not look at permanent full expensing as one of the options, but it would be interesting to see whether they have had any further thoughts on that. We are now asking every business to go through and track every item of capital that they spend and treat it differently in their tax return from how they treat it in their accounting records. Then we have all manner of different laws depending on whether it is a long-life asset, a short-life asset, a car or an environmentally friendly car—I could go on. For the amount now at stake, and given that we have given full relief for plant and machinery, which is the biggest amount, do we really need all that cost and complexity? Or should we just say for all those other items, “You can just have your accounting calculation”? Okay, businesses might take it a bit quicker than we would like, but in actual fact the cost of that is not all that material in the grand scheme of things.

We could move to a system where the only adjustment someone has to make to their tax return is to claim a very generous tax relief on plant and machinery, and they would not have to touch anything else. That would be a more coherent corporation tax regime, now that we have spent all this money incentivising plant and machinery. It would then genuinely be a compliance saving for a business in that situation.

I support the measure and truly hope that it works, but, as a significant amount is being spent, it would be helpful to understand what we are trying to achieve and how we will know whether we have been successful. I hope that the Government will move on to think about how we can slightly recast our tax system so that it makes sense, having made this radical and generous change.

[Nigel Huddleston]

I thank hon. Members for their contributions. I will take a few moments to respond to quite a few questions raised during the debate. First, I reassure hon. Members that further guidance will be provided on these schemes. Of course, we do not want all the schemes just to exist; we want them to be used so that they have a real-world impact. More information will therefore be coming out about a variety of areas over a period of time.

I gently remind the hon. Member for Ealing North (James Murray), who yet again took the opportunity to talk the UK economy down—the Opposition always do—that every single Labour Government have ended with unemployment higher than what they inherited from the Conservatives. I think the public are well aware of that pattern.

I turn to the many questions raised. I thank my hon. Friends the Members for Amber Valley (Nigel Mills) and for Erewash (Maggie Throup), and indeed Opposition Members for their contributions. On timing, the Government have been clear since the merged scheme consultation was published in January last year that the intended implementation date for the scheme is April 2024. Importantly, in response to that consultation and in recognition of comments, the merged scheme will apply to accounting periods starting on or after 1 April 2024 rather than to expenditure incurred from that date. Again, we will provide further guidance on that.

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[Sarah Olney (Richmond Park) (LD)]

I will speak to new clauses 4 and 5, tabled in my name. I reiterate that the Liberal Democrats do not support the Bill, which is a deception from the Government after years of tax hikes on hard-working families. It arises from an autumn statement that contributed to a record fall in living standards by maintaining the Government’s stealth tax on working families through the freezing of income tax thresholds. Some of the measures under consideration today may have worthy aims, but that wider context must be noted.

New clause 5, tabled in my name, would require the Government to produce an assessment of the impact of the Bill’s tax evasion and avoidance measures. That assessment would specifically need to include a review of whether the staffing of the compliance functions of HMRC is sufficient to implement the new measures. That follows the revelation to me in answer to a parliamentary question last year that almost 2,300 HMRC tax compliance staff are still working on matters relating to our exit from the European Union and covid-19 schemes. That means that thousands of staff who would usually be working on recovering taxes or dealing with other issues are instead being redeployed to manage the Government’s mishandling of the pandemic and the Brexit deal.

It is alarming to see civil servants being moved from one crisis to another—an indication of a Government in non-stop firefighting mode. We have known for a long time that HMRC is an organisation beset by understaffing issues. Last year, the Institute of Chartered Accountants in England and Wales said that such chronic understaffing is not only causing unacceptable delays to businesses and families but hindering activity and actively hurting our economy. With that knowledge, can we have faith that HMRC will be properly equipped to put the measures in the Bill into action?

While the measures in clauses 31 to 34 and schedule 13 may have worthy aims of combating tax avoidance and fraud, the knowledge of those shortcomings makes it very difficult to have confidence in the capacity of HMRC, and in particular its compliance functions, to administer the measures effectively. I therefore urge the Government to accept new clause 5, and support the Liberal Democrats in ensuring that HMRC is fully equipped with sufficient staff to tackle tax avoidance properly.

New clause 4, also in my name, concerns the Bill’s pillar 2 measures, in clause 21 and schedule 12. It would require the Government to produce an assessment of the impact of those measures, examining whether they have been successful in achieving their policy aims. As Liberal Democrats, we strongly believe in the need for a fair international system that tackles corporate tax avoidance and evasion for the benefit of all countries. We welcome the pioneering work that has taken place under the auspices of the OECD for the formation of a fairer international tax system. The measures in clause 21 arise from that process and enable the UK’s adoption of the income inclusion rule and domestic minimum top-up tax rule. As such, they are to be welcomed; however, issues remain.

Most crucially, we believe that the global minimum corporation tax rate set at 15% under the deal remains too low. Liberal Democrats have called on the Government to help negotiate an increase to 21%, as originally proposed by the US under President Biden. Organisations such as Oxfam have highlighted that the 15% minimum rate still leaves many developing countries at a disadvantage, as they will continue to face unfair competition from tax havens. It is extremely disappointing to see the Government’s failure to back a rate of 21%, despite having raised UK corporation tax to 25%. The significant progress that has been made should not be obstructed or diluted, but if we are serious about pursuing the goal of a fairer global tax system, we must also take the time to ensure that the best path is being followed.

[Nigel Mills]

I understand the intent of what the hon. Member says. Could she explain how the review could be done within six months of the Act being passed, given that no business will have filed a tax return with any adjustments in until well after that period? Indeed, half the world probably will not have introduced the measure by that stage. Would that not be a bit of a premature assessment? Would we not risk that assessment showing no progress and then strengthening the arguments of those who would like to repeal it? It would probably be quite a bad assessment to do at that stage.

[Sarah Olney]

I welcome the hon. Member’s intervention, and—dare I say it—I completely agree with him. Of course, one is constrained by what one can amend in legislation, but I would like to see that as the start of an ongoing process of review. Let us be honest, it is an innovative proposal, not just because it requires an international co-operative effort, but because that very effort is innovative. It is therefore something that we as a sovereign Parliament should be keeping very much under review as the work continues.

I briefly note that the Finance Bill has implications for theatre tax relief, which plays a crucial role in enabling the development of new theatre productions in the UK. UK Theatre and the Society of London Theatre have raised concerns with the Treasury about those implications, which could damage how that essential relief operates. I therefore urge Ministers to liaise with those groups and particularly to provide assurance that international touring will not be hampered due to the Bill’s definition of UK expenditure. That is certainly an area that would benefit from scrutiny in Public Bill Committee.

Although the Liberal Democrats support certain measures in the Bill, such as the extension of full expensing, the Bill as a whole does not have our support, arising, as it does, from an unjust and deceptive autumn statement. I urge hon. Members to support the amendments tabled in my name, in particular new clause 5, which would hold the Government to account to ensure that HMRC is properly resourced to allow it to implement the measures in the Bill.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023

Nigel Mills Excerpts

Monday 8th January 2024 General Committees

[The Economic Secretary to the Treasury (Bim Afolami)]

I beg to move,

That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2023 (S.I., 2023, No. 1306).

It is a pleasure to serve under your chairmanship, Ms Fovargue. The Government recognise the threat that economic crime poses to the UK and to our international partners, and we are committed to combating money laundering and terrorist financing, which undermine the integrity and stability of our financial sector and reduce opportunities for economic growth and legitimate business in our great country. This Government are bearing down on kleptocrats, criminals and terrorists who abuse our leading financial and services sectors. The Economic Crime and Corporate Transparency Act 2023 built on the Economic Crime (Transparency and Enforcement) Act 2022, to ensure that the UK has robust, effective defences against illicit finance. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, which from now on I shall refer to as the money laundering regulations, support our overall efforts. As the UK’s core legislative framework for tackling money laundering and terrorist financing, they set out various measures that businesses must take to protect the UK from illicit financial flows. Under the regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries—countries that are identified as having strategic deficiencies in their anti-money laundering and counter-terrorist financing regimes. These checks help to protect the UK financial system from the threat of overseas illicit financial flows.

The statutory instrument before the Committee amends the money laundering regulations to update the UK’s list of high-risk third countries. It removes Albania, the Cayman Islands, Jordan and Panama from the list and adds Bulgaria, Cameroon, Croatia, Nigeria, South Africa and Vietnam. Thus, the UK high-risk third countries list will be aligned with the decisions of the Financial Action Task Force—the global standard setter for anti-money laundering and counter-terrorist financing. The UK plays a leading part in the Financial Action Task Force, with an excellent team of officials in the Treasury including people such as Karishma Navsaria. The FATF methodology ensures that countries around the world are subject to expert, robust evaluations of their anti-money laundering and counter-terrorist financing regimes. Where countries are found to have strategic deficiencies, the task force members can agree to add them to one of two lists: jurisdictions under increased monitoring and jurisdictions subject to a call to action. By aligning our own high-risk third countries list under our own legislation with the FATF’s, we ensure that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorist financing.

The Cayman Islands are a very good example of the progress that can be made by engaging with the FATF. The Cayman Islands was listed in February 2021; since then it has made significant progress to reform its regime and strengthen its anti-money laundering defences and competent authorities. It is now one of a very small number of countries around the world to be compliant or largely compliant with all 40 of the task force’s recommendations. I am delighted that it is being removed from the UK’s high-risk countries list as a result of that progress.

This is the eighth SI amending the UK’s list of high-risk third countries in response to evolving risks from third countries. In June last year, schedule 3ZA to the money laundering regulations was amended to remove Cambodia and Morocco after they were delisted, but otherwise updates to the list have been paused since November 2022.

[Nigel Mills (Amber Valley) (Con)]

May I ask the Minister a couple of questions? He started by saying that the UK is committed to tackling kleptocrats, so I am a bit surprised that Russia and Belarus are not on the list of countries for which we expect some higher precautions to be taken. Secondly, will he comment on why we have had to add two EU countries—Bulgaria and Croatia—to the list? That is a bit surprising, because I thought the EU had quite a robust anti-money laundering regime. Are we saying that they are not complying with their own laws? I think they are the first two such countries to appear on the list.

[Bim Afolami]

I will take my hon. Friend’s questions in turn. Russia has been suspended from the Financial Action Task Force; it has not attended meetings or played a part in deliberations since the war in Ukraine began. As my hon. Friend and the House know, we are taking a series of measures to counter certain actions of the Russian regime. In relation to the EU countries that he mentioned, I cannot comment on the EU’s decision making in relation to its own rules. The task force has, I believe, about 40 countries in it, so it is a global body, and broader than the EU. This is the collective decision of those countries. It is up to the EU to conduct its own deliberations in relation to its member states.

As I said, this is the eighth SI amending schedule 3ZA. I am aware that many noble Lords have expressed frustration at parliamentary time being taken up in the other place by such relatively routine matters to keep our high-risk third countries list aligned to the task force’s. That is the other place, but it is worth mentioning in this Committee. However, the Economic Crime and Corporate Transparency Act enables the Government to amend the money laundering regulations to create an ambulatory reference to the task force list. That will result in the same legal effect, with regulated businesses being required to apply enhanced due diligence to relevant business relationships and transactions with these countries, but without the need for secondary legislation after every change to the list. The Government will bring forward an SI to implement that provision in the money laundering regulations shortly. In notifying the House of this, I emphasise two things: first, the Government retain the authority and autonomy to deviate from the FATF at any time if the Government so decide; and secondly, that deviating would require further secondary legislation and a debate in both Houses of Parliament.

The instrument will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. It is crucial to protecting UK businesses and the financial system from money launderers and terrorist financers, so I hope that colleagues will join me in supporting it.

--- Later in debate ---

[Bim Afolami]

I am happy to look into that. The UK and various overseas territories, not just one in particular but across the whole landscape, have been working at official level technically to improve access and visibility in terms of beneficial ownership. The UK, when Lord Cameron was Prime Minister, was a leader in doing that internationally, and we will continue that work. I am happy to continue discussing with the hon. Lady what more we can do in respect of the Cayman Islands.

I listened carefully to the hon. Lady’s speech, and it is the Government’s view that the amendment will ensure that UK legislation remains up to date and in line with international standards. It is clear that money obtained through corruption or criminality is not welcome in the UK and should not be welcome anywhere. That is why we are playing such a leading part in the Financial Action Task Force.

The new procedure for dealing with the problem will enable regulations to allow the UK to automatically reflect changes agreed by the Financial Action Task Force in our own list. In the event that the Government choose to deviate from the list, such updates will need to proceed through a draft affirmative SI.

[Nigel Mills]

We all remember the Panama papers leaks of a few years ago and the light that they shone on financial crime, so I am intrigued that we are removing Panama from the list. The impact assessment sets out that in a survey of 1,900 respondents in the industry, 19.7% thought Panama was high risk, whereas only 2.2% felt Bulgaria was and for Croatia it was only 1.9%. Is not taking Panama off the list and adding Croatia and Bulgaria a slightly perverse thing to do?

[Bim Afolami]

I thank my hon. Friend for that intervention. Everyone in the House knows about his long-standing interest in these matters and his knowledge and understanding of them. The Financial Action Task Force operates on objective measures that are worked out by experts in their field. They look at this as objectively as they can. The views of certain participants are relevant, but are not determinative. However, the points he makes are good ones and I am happy to discuss them with him separately.

I hope that hon. Members have found today’s sitting informative and that they will join me in supporting the regulations.

Question put and agreed to.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 19th December 2023 Commons Chamber

[Gareth Davies]

I recognise and thank my hon. Friend for his work as chair of the Commission for Carbon Competitiveness. I will directly address his two main questions. On speed, implementation by 2027, at the latest, will allow the Government to engage with businesses to ensure that they are well prepared, but next year’s consultation will provide more information on timings. We have identified eight sectors that have the greatest exposure to carbon leakage, from both a trade and an emissions perspective.

[Nigel Mills (Amber Valley) (Con)]

20. What progress he has made on the introduction of investment zones.

[The Exchequer Secretary to the Treasury (Gareth Davies)]

Since the spring Budget, the Government have announced seven of the eight English investment zones and confirmed the location of four places eligible to host investment zones in Scotland and Wales. The Government are committed to ensuring that funding and tax sites go live in the 2024-25 financial year.

[Nigel Mills]

I welcome the investment zone in Nottinghamshire and Derbyshire. Will the Minister confirm that some of the benefits of these zones are not only available in the small number of large sites but are available to any business across the whole zone to apply for?

[Gareth Davies]

My hon. Friend is right to recognise the east midlands investment zone, which will bring significant benefits across the region in the advanced manufacturing and green industry sectors. I am pleased to tell him that it started with a £9.3 million anchor investment and, over time, will leverage some £323 million in private investment, supporting 4,000 jobs overall.

Finance Bill

Nigel Mills Excerpts

2nd reading
Wednesday 13th December 2023 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in this debate. Let me start by declaring an interest in relation to clause 15, as I believe I am one of the Members who managed to discriminate against themselves via pension changes a decade ago and therefore will benefit from the tax changes in this Bill. I should therefore perhaps not touch on that any further.

Overall, there is nothing to oppose in the Bill. I will break the habits of this debate and try to speak about the Bill, rather than stuff that is not in it or might have been in it. I will try to address some of the clauses it contains. Clause 1 deals with the full expensing of expenditure on plant and machinery, a matter I raised in the debate on the autumn statement. I welcome the measure, which I hope will work to encourage greater capital investment across the UK economy.

However, we should not underestimate how fundamental a change in our tax system that measure is. We have built, over decades, a series of rules on how companies—and individuals too, but we are talking about companies for this purpose—get tax relief on the capital spend they make. A large amount of work has to go into tracking what is counted as revenue spend and what is counted as capital spend, but now there is no point in doing that work in respect of plant and machinery, because companies are going to get the same tax treatment either way round—so all that can go.

Then there are all manner of ways of getting that relief, be it through the main general pool for plant and machinery, the long-life asset pool or the short-life asset pool. We have different rules for cars, for environmentally-friendly assets and for environmentally-friendly cars. We should take a step back and ask, “Is it necessary to keep this whole complicated regime if, for the vast majority of spend, we are giving 100% tax relief in year 1 when that spend happens? Should we now look at striking away a load of that and just accept that we could have a very different regime?” Perhaps we should just accept the accounts depreciation for all the other assets that are not plant and machinery? I suspect that the loss to the Exchequer for accelerating tax relief on those things would be tiny, but it would take away a huge burden of having to follow a different set of rules.

We also ought to ask, “What do we mean for buildings?” We are now being generous for tax relief on plant and equipment, but not generous at all if a brand-new factory is built. Tax relief is given very slowly on that and even then not on the whole spend. Is that what we want? Or should we be trying to incentivise people to build brand new, modern, energy-efficient factories? We give very little tax relief for office buildings. We want more people to come back to work together in offices, so should we not be incentivising people to build brand-new offices in the right parts of the country, rather than giving no tax relief?

We end up driving an entire leasing industry, because a completely different tax treatment is given where assets are leased or rented, rather than bought outright in someone’s own name. Do we really intend that if someone finance-leases something, they get 100% relief up front? What happens with a hire purchase? All this stuff is so complicated. Having made this radical and expensive change, the Government should go away and think, “What is the future of tax relief for capital items in the UK? How do we incentivise the right form of spend?”

I wish to raise one other question for the Minister to think about. It is very likely that a lot of businesses will be unable to get full relief for this in the first year, because they just will not have enough profit to absorb all their capital spend being relieved in a year. The chances of a medium-sized business that buys a multi-million-pound printing press having multi-million-pound profits are low, so it will end up having a loss to carry forward. Such a business will get benefit in the fullness of time, but we will have restricted how much of its losses it can carry forward and use—if it is a business of a certain size, it can offset only up to £5 million. Do we really mean that now? Or do we mean that if a business has spent a load of capital and generated a big loss that is carrying forward, it should be able to relieve that as early as possible when it makes a profit? Do we need to revisit some of those restrictions we have introduced for sensible reasons in the past?

I urge the Minister to commission some work, now that he has made this big and expensive change, on what the whole regime should look like. Do we need all those hundreds of pages of rules and all the compliance effort that has to go in, for what will probably now be relatively small amounts of tax relief at stake in the grand scheme of things?

I wish to discuss a few other clauses. I wholeheartedly welcome the Bill’s anti-avoidance clauses. It is absolutely right to extend the punishments we give individuals who recklessly promote tax avoidance schemes that they ought to know do not work and in many cases do know do not work but carry on trying to sell. It is entirely reasonable to have the sanction of being able to disbar them from being a company director if they carry on doing that. There has been a lot of encouragement for the Government to go further on duties to prevent all manner of economic crimes, so I fully welcome these things.

In Committee, we could perhaps think about whether we are sure we have drafted that measure perfectly. A lot of tax advisers work through limited liability partnerships, but where someone is a member of a limited liability partnership that is promoting unacceptable tax avoidance, they will not be caught by these rules because they are not a director of a company that is doing it. Therefore, such a person will not be disbarred from remaining as the designated member of an LLP, because they are not a director of a company. Is that what we mean? Given that LLPs and their members have to be registered with Companies House, should we not broaden that sanction out to catch as many people as possible? Perhaps the Minister would think about whether we could make some extension to this, to ensure that we are catching everyone engaging in this industry, not just a small subset of it.

Clause 21 has further amendments on pillar two; at times, I think I am the only Back Bencher who supports pillar two. I will continue to support it but, as I said a year ago, the rules are fiendishly complicated. Anyone who tries to read clause 21 and the schedules that come with it will realise they contain an almost impenetrable set of rules for a relatively small number of situations, in relation to a simple principle about subsidiaries in tax havens that are paying less than 15% tax having their tax topped up to 15%, in order to discourage tax havens and the artificial movement of profit.

We have ended up with a hugely complicated shadow tax regime that every company with subsidiaries around the world will have to apply to every subsidiary they have. Even if they are in a respectable country with tax rates even higher than ours, they will have to work out whether they have accidentally managed to trip themselves below that rate. That cannot be what we intend, so can we try to find a way to filter out most of this work, so that we can catch the guilty but not make life miserable for the innocent?

With those few remarks, I welcome the Bill. The provisions are entirely sensible and I look forward to supporting them. I will have to vote against the SNP amendment, because I want the Bill to proceed today.

Plastic Packaging Tax on Imports: HMRC Enforcement

Nigel Mills Excerpts

Tuesday 17th October 2023 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered HMRC enforcement of plastic packaging tax on imports.

It is a pleasure to serve under your chairmanship, Ms McVey. I am grateful for the chance, however long it might be, to raise this issue.

The tax has been enforced for about 18 months. As a Parliament, we are not brilliantly effective at reviewing taxes after we have introduced them to check that they are working how we intended. This is one of those unique taxes where the Environment Secretary said last week that she was disappointed at how much the tax was raising—I am not sure that she had checked with the Treasury before she said it. I will talk about an area where we could perhaps raise a little bit more money.

There is real concern in the industry about illegal imports which claim to have a sufficient amount of recycled plastic content, when that is not the case—and there is very little enforcement to try to work out whether it is or not. It is hard to do because we cannot look at stretch film—I actually have some here with me—and work out how much recycled content is in it: there are no tests that can be done. We need robust processes to make sure that the claims people are making have some basis, and they are following the rules.

I asked for this debate because the industry had a meeting with His Majesty’s Revenue and Customs, and the latter said that enforcement was not its job—I am afraid that under the law, it clearly is. The idea that the job can be passed on to someone at the border who can check a pallet and see what is in the cling film will not work. It needs to be a process-driven situation. The law was clearly written, there is “joint and several liability” on both the importer who brings in the plastic film and claims that it has recycled content, and on the people who buy it from them and place it on the market. There is a whole of collection of ways we can enforce this on them. We can ensure that the big retailers and manufacturers, the ones that have robust supply chains, are doing the work they need to do before buying this stuff, so that they can be sure that they are not buying something that is undercutting the market.

[Mark Pawsey (Rugby) (Con)]

Does my hon. Friend agree that, while the introduction of the plastic packaging tax was a really positive thing that ensured we got more use from recycled material, in this case, with no verification of products manufactured outside the UK, the grave danger is that we are doing a disservice to UK manufacturers?

[Nigel Mills]

That is the exact point that I am trying to make. We will not get more use of recycled content if we do not enforce the law and ensure that our domestic businesses are not undercut by the market. The fact is that plastic film that includes recycled content is 20% more expensive than using virgin polymer; that is why we need to have the plastic packaging tax. If we allow imports to enter which claim to contain that, and avoid the tax, clearly they can undercut the market for products that can be made here. That will mean that we cannot achieve the objectives that we want to achieve.

This is not a cheap industry to start up. If someone wants to mechanically recycle plastic so they can create 30% recycled plastic content, they need to have some very sophisticated machinery. It is a very difficult and intensive process, first to wash the plastic film, then shred it, and then turn it back into pellets, and the industry needs to invest millions and millions of pounds in the lines. This process happens in my constituency, and if the Minister wishes to come and see how it works, he is more than welcome.

We need enforcement to send the right signals out that it is safe to invest in this industry because there will be a market for the recycled pellet. Sadly, we have already seen at least one factory go bust because it could not find a market for its product, and others will be under threat.

We can be pretty sure that we have a problem because industry experts have assured me that there is no way that the film I have with me here, which is 12 micron film from India—film this thin, this strong and this stretchy—can be made with any recycled content. It is technically impossible with mechanical recycling to get the film either clear enough or strong enough to work like the film I have here does. If I tried to stretch film with recycled content, it would just tear. We can be absolutely sure that wherever the film I have is coming from, it is not complying with our plastic packaging tax.

I want to raise with the Minister, in the time we have, some questions about HMRC’s enforcement strategy, the work it has done so far, and how we can get the message to people buying this stuff that they are committing an offence, and that there is a risk that they will be caught, with significant financial and reputational penalties. All manner of businesses using this stuff on their products would be horrified to find out that it has no recycled content. They are trying to comply with the law and want to be seen to be helping the environment by using recycled plastic. If we can get that message out, there is a real chance to improve performance.

[Mark Pawsey]

My hon. Friend is being generous with his time. If we know that shrink and wrap films are not using recycled content, why can it not be assumed that an imported product does not contain 30% recycled material? A piece of paper that is produced by an overseas manufacturer cannot possibly be evidence. Although it is unreasonable to expect HMRC inspectors to visit plants around the world, if we know that there cannot be recycled material in it, why can that not be the assumption?

[Nigel Mills]

I strongly agree that we could beef up the HMRC guidance. HMRC has published guidance on the due diligence checks that businesses buying this plastic film should make. It does require something stronger than just asking for a certificate.

My hon. Friend is right: if I were buying film from a reputable company in Germany that had all the accreditations under German and EU law, and had the annual inspections that we require in the UK to prove its process complied with the rules, we could be quite relaxed about that. That is fair competition and fair imports. Where we have a much greater issue is when we import from the Pacific rim without those standards and inspection in place. How could anyone be sure that the piece of paper represents anything? Even if it represented something when it was first granted, how can anyone be sure it has been complied with? That is especially when what is coming in cannot possibly comply and there is no way that could happen.

I request the Minister to provide guidance or a list of territories where there could be a lower risk approach, and those territories with a higher risk approach if buying film sourced from there, and assume that the plastic packaging tax applies. It would be quite straightforward to work out which countries have an equivalent standards and inspections regime to ours, and be a little softer on enforcement for those, and which countries do not have that, where there should be a high-risk approach.

It is effectively tax avoidance, bordering on tax evasion. Buying a product that undercuts the market price in the UK, which research shows cannot be technologically produced in a way that meets UK standards, and turning a blind eye thanks to a piece of paper, is not behaviour that we would accept anywhere in the tax code as competent due diligence and an attempt to comply with the tax. There is progress we could make there.

--- Later in debate ---

[Philip Davies (in the Chair)]

The sitting is resumed! The debate may continue for another 52 minutes, which will take us to 9.10 pm.

[Nigel Mills]

It is a pleasure to serve under your chairmanship, Mr Davies; there has been a swift change of Chair in the last three and a half hours. I am grateful to everyone who has come back after the short interval for this crowd-pulling debate.

Before we disappeared, I was trying to convince the Government that, with a bit more work, they could raise extra tax, protect jobs in the UK and help achieve their environmental objectives. My case, which I hope is relatively uncontroversial, is that if we can find a bit more resource for enforcement, there will be significant potential advantages.

It is not that we do not know what we should try to do. HMRC published guidance for people involved in the supply chain of plastic packaging components containing 30% or more recycled plastic. They should be making checks, including

“checking that the price you pay for packaging components reflects the current market value—if components are offered at a lower market value, you should find out the reason for the low cost”.

That sounds quite reasonable. Checks also include

“getting copies of any certifications or audits that have been conducted on your suppliers, or the re-processors of recycled plastic”—

that is, looking for real evidence—and

“conducting physical inspections or audits on your packaging supply chain to prove information given by suppliers or customers”,

as well as

“checking details provided against other sources, such as supplier and customer websites”.

Those are all reasonable things that large companies buying these materials should have the resource to do. It would be helpful if the Minister could answer this, if he has the data from HMRC: in how many audits has HMRC found that people have been importing what they believe, or claim, to be recycled plastic, but are not paying the correct tax? How many of those audits have resulted in any kind of investigation or penalties being issued? How much are those penalties? How much extra tax has been collected?

The feeling across the sector is that there has been far more compliance enforcement against UK manufacturers —not unreasonably for a new tax—than there has been against the imports. However, it seems that the biggest risk to revenue leakage is from those imports. Perhaps the Minister could consider whether HMRC could do anything more to publicise the rules, and to really make it clear to the industry that the rules are there, that there are significant penalties, and that there are things that industry should be doing to protect its reputation and ensure that it complies. There is just a general lack of awareness. Given that there is a 20% cost saving available here, and given that times are quite tight, we can understand that people may get a bit tempted to not look too closely if we are not careful.

This is not a small problem. Roughly half of all stretch film that goes on the market in the UK is imported, either as rolls of film or on finished products. We are not talking about a small quantity. Think of the scale of the problem if we get enforcement wrong; there is a very large market out there that could end up avoiding tax in the UK. We really do not want that. I accept that it is early days for the tax—it has been around for only 18 months—and we must all learn how to comply with the processes, but hopefully there has been some use in having this debate to flag up something that seems to be going slightly awry. The issue is causing industry significant concern. If we cannot find a way of fixing this, it could cost us revenue and jobs, and securing the investment that we want in getting more plastic recycling will be very hard if business cannot see a viable market.

I suspect that the Government will want to increase the 30% requirement up to 40%. I think that the EU wants 70% by 2040, so I am sure that we will go in that direction. However, we can get there only if industry is prepared to invest, and we need to give it the confidence to do so. I hope that the Minister will be able to give the industry encouragement that it is worth investing in the sector.

--- Later in debate ---

[Gareth Davies]

To be clear, the presumption is that businesses need to demonstrate that they meet the threshold to have relief from the tax. If they cannot do that, they must pay the tax. That is clear, and I hope that that answers my hon. Friend’s question.

Businesses are also required to carry out due diligence on their supply chains and to demonstrate to HMRC what checks have been carried out in their supply chains. HMRC can and will challenge claims from businesses, and is doing so, and anyone in the supply chain can be held liable. When assessing that liability, HMRC will consider due diligence checks undertaken to ensure that the supply chain has taken appropriate steps.

My hon. Friends the Members for Rugby and for Amber Valley both talked about false and fraudulent claims. We are alive to that issue, particularly as it relates, as they pointed out, to the content of recycled plastic. We understand that that is a serious impact for businesses that are just trying to do the right thing, as I said at the beginning.

To embed the tax, HMRC delivered a wide-ranging communications programme that targeted both domestic manufacturers and importers of packaging. It focused on making them aware of the requirements and supporting them to comply with those. Recognising that some businesses may need more time to fully understand their obligations under the new tax, HMRC went even further and allowed a 12-month soft landing period, during which the focus was on education and support for businesses.

Now that that period has ended, businesses must ensure that they have gathered appropriate evidence, filed their returns and paid on time. Although HMRC continues to support businesses, it is now also focusing its efforts and targeting its resources on the areas of highest risk and non-compliance. The tax has been in place for 18 months, so HMRC now holds more data from tax returns to inform risk profiling and emerging trends. Its data-driven approach will help to identify and target instances of error and non-compliance. I will come on to what action has been taken in a second.

As with general taxation, HMRC’s compliance activity for PPT draws on a test and learn approach. That moves through various phases, and approaches can change depending on what HMRC learns along the way. Largely, it has concentrated on targeting unregistered businesses that may have a liability and on developing a better understanding of the plastic packaging tax population, particularly given the tax is so new, to build a risk compliance approach.

I want to address the question of registration. To reiterate, over 4,000 businesses have registered for the tax in 2022-23. We concede that that is lower than the initial estimate of 20,000, but that estimate was made before the final policy decisions on the tax were made. We were very clear that the estimate was always subject to a lot of uncertainty. HMRC continues to engage with businesses and hold them to account. I am pleased to say that, since the tax was launched, 250 additional businesses have now registered with HMRC.

Businesses found to be negligent or cheating the system will incur penalties in addition to the tax due and can face liabilities of up to 100% of the tax due. They can also face legal action to recover the tax; in the most serious cases, as I have said, criminal prosecution may take place. My hon. Friend the Member for Amber Valley asked for statistics on this. I can tell him that so far HMRC has contacted 2,000 businesses proactively and conducted 400 interventions on compliance since the tax went live. So far, £3 million has been recovered as a result of that action. I point out that HMRC will always be open to receiving any information or evidence where businesses or individuals feel that compliance is not in order.

[Nigel Mills]

I do not know whether the Minister knows this, but was the enforcement action against the importer or against somebody further up the supply chain?

[Gareth Davies]

I had anticipated the question, but was unable to obtain the information in time. If we have that information, I will be happy to follow up and write to my hon. Friend on the breakdown, because he is focused on importers and it is a reasonable question.

I will finally address the point on mass balance and chemical recycling. I should point out that we have launched a consultation on this matter. We are looking at it carefully and will respond to that soon, so watch this space on that point.

As in other areas of tax fraud, the Government are committed to taking strong action across the tax system to address any activity that is unfair and that undermines businesses that are doing the right thing. The plastic packaging tax revenues in the first year, as has already been said, were £276 million, which is broadly in line with the Office for Budget Responsibility’s forecasts. That indicates that the amount of plastic packaging subject to the tax is in line with expectations. However, as hon. Members will have heard, work to ensure that all obligated businesses are registered and compliant with the tax continues to this day. If a business or individual has specific concerns or, I reiterate, intelligence about tax non-compliance, I encourage them to report it to HMRC through the normal channels, so that we can ensure a level playing field for everyone. Everybody in this Chamber has expressed a desire to achieve that.

[Nigel Mills]

I have half an hour, Mr Davies, so I can wind up at great length. I thank everybody who has taken part in the debate. Hopefully, it has given us a chance to illuminate the issue and to give some profile to the importance of getting this right. I think we all, on all sides, want this tax to deliver its objectives; we all want to see more recycling of plastic packaging. There has to be a role for chemical recycling, because when it comes to anything that comes into contact with food, we cannot use recycled content through the manual route. That is a large percentage of the plastic packaging going on the market, so more progress will be needed in that direction.

I thank the Minister for the information he has given. I certainly hope that HMRC will be alert to this issue and try to ensure that the tax works as intended and achieves all the objectives that we want it to achieve.

Question put and agreed to.

Resolved,

That this House has considered HMRC enforcement of plastic packaging tax on imports.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 5th September 2023 Commons Chamber

[Gareth Davies]

We are clear that we want all taxes relating to the environment to have an impact. The plastic packaging tax, for example, will clearly have an impact on the amount of recycling that takes place and on the amounts put into landfill. Those are all things that we assess as part of evaluations, and the plastic packaging tax will be evaluated this year.

[Nigel Mills (Amber Valley) (Con)]

10. What steps his Department is taking to incentivise pension schemes to invest in the UK.

[The Economic Secretary to the Treasury (Andrew Griffith)]

At Mansion House, the Government presented a series of pension reforms that will increase returns for savers and enable the financial sector to unlock capital for some of the UK’s most promising industries. The Department continues work to build on the initial package of measures and will set out further details in the autumn.

[Nigel Mills]

I thank the Minister for his answer and welcome those measures. Have the Government considered what more can be done to unlock surpluses in defined-benefit schemes to allow employers to use that money more effectively, rather than having it end up going into insurance companies on buy-outs? There is a huge tax penalty on unlocking surpluses. Is there a way of relieving that to encourage the money to be invested more efficiently?

Financial Services Reforms

Nigel Mills Excerpts

Tuesday 11th July 2023 Commons Chamber

[Andrew Griffith]

I hope that my hon. Friend can reassure the constituents he so diligently represents that on average, as supported by the Government Actuary’s Department, if they started their working life now under the new assumptions about the compact, they could be up to £1,000 a year better off in retirement. That is a meaningful difference. At the end of the day, this is about making people’s money work better for them and harder for them and delivering them better outcomes. He is also right to observe that our ambitious programme of regulatory reforms, although it will never be divergence for divergence’s sake, could not have been achieved if it were not for the ability of this place to set the corpus of regulations under which financial services operate.

[Nigel Mills (Amber Valley) (Con)]

I welcome the Mansion House compact and the focus on auto-enrolment pensions delivering a better pension for their scheme members, but if the Minister looks at the websites of the firms that have signed up to his compact, he will see that they are all still marketing themselves as being cheap and simple for employers, rather than the best quality and best return for savers. What more can we do to give individual members a choice of which scheme they are auto-enrolled in? Will he look at a clearing house scheme, under which it would be individual employees who choose where their pension savings go, not their employer a few years ago based on what was easy and cheap?

[Andrew Griffith]

My hon. Friend is absolutely right to talk about the need for that culture to change, moving away from an excess focus on cost to the detriment of performance—that is what these reforms will achieve over time. He is also right to talk about giving agency to individual long-term savers over time. Making sure that we have that usable journey for pensioners that delivers across the whole of their life is something that my colleague, the pensions Minister, is passionate about.

Finance (No. 2) Bill

Nigel Mills Excerpts

Report stage
Tuesday 20th June 2023 Commons Chamber

I ask the Exchequer Secretary to look at the tiny element I have described because there is a risk of undermining the good work that has been done for just 0.1% of beer that is consumed by people who choose to have one pint at home after they leave the pub. I hope that he can come up with a clause that will meet the needs of the industry and avoid the real risks that he previously highlighted.

[Nigel Mills (Amber Valley) (Con)]

It is pleasure to speak to amendment 21, which stands in my name. I also want to speak to the amendments on the Office of Tax Simplification, which my hon. Friend the Member for West Worcestershire (Harriett Baldwin) tabled and I was happy to put my name to.

In my more naive and mischievous days, I occasionally tabled amendments to Finance Bills that called on the OTS to review elements of tax. The last time I tried that was on corporation tax in about 2014 and the amendment was accidentally passed in the Bill Committee. I say “accidentally” because neither side knew that we were voting for the amendment. We thought we were voting to withdraw it and we had to rewrite history quickly and pretend that the amendment had not been passed. I have not been able to serve on a Finance Bill Committee ever since, or indeed any Bill Committee, so perhaps I could recommend that as a tactic for Members who do not enjoy them as much as I used to.

If we were being slightly mischievous, we could say that 13 years of the OTS has not resulted in a tax system that is a great deal simpler than the one we have now, but that is probably more the Treasury’s fault than the OTS’s. The serious point is that we need to find a mechanism whereby we can simplify our tax regime. It has got ever more complicated, and at some point we will see taxes start to fall over, because the complexity of different policy ideas over time that conflict with one another leaves us with a system that is incredibly hard to follow and to comply with and is putting undue costs on individuals and businesses.

We could, in a rolling programme, find a way of taking out some of this complexity by being a bit clearer in our policymaking about what we are trying to do. Are we trying to raise income? Are we trying to encourage or discourage certain behaviours? Are we trying to virtue-signal? Are we trying to win votes? Sadly, we do all those things at the same time, sometimes in conflicting ways, and end up with a rather strange system.

The amendments I want to speak to are about the global minimum corporate tax. I think I am the lone voice on the Back Benches who likes to speak in favour of this. I remember looking at this issue before I came here. The OECD has spent a very long time trying to find a solution to base erosion and profit shifting. A few years ago, it produced 15 or so ideas that were quite worthy but made absolutely no progress. The Government then introduced the diverted profits tax in the UK to try to tackle this issue on a domestic basis. It would be a terrible signal if the UK, having been one of the countries that signed up to this, now decided that we want to delay implementation and not go ahead with it.

To be fair, no other solution has been found to how we can stop certain large multinationals trying to hide revenue in low-tax jurisdictions that has no commercial basis for being there. We have tried changing transfer pricing rules, we have tried country-by-country solutions, and we have tried more reporting—we have tried all manner of things, but none of them has managed to fix the problem. That is why the two pillars in the most recent OECD deal, while far from perfect, are the best we are going to get. If we do not go ahead with those, we might see some even more radical, less consensual, less well thought-through ideas being brought in. We even see the UN starting to play in this space, and there is a real risk that what it produces may not be consistent with a coherent tax regime.

I am not the biggest fan of the OECD. I once described it as the “Organisation for Excessively Complex Drivel.” If we read the rules that we are putting through today, there is a real sign that it is excessively complex, and that was my motivation for tabling amendment 21. We probably could have found a better way of achieving the same thing, rather than UK-headquartered groups having to go through a very complicated series of calculations for every subsidiary they have in an overseas regime to try to work out whether they have paid the 15% minimum tax, when the headline rate in those countries is 25% or 30%, and it is extraordinarily unlikely that they will not have paid that 15% tax, and there may well have been timing differences that have to be worked through to try to prove that. That will be a huge compliance burden, and it will not add very much. It will not collect any tax, and it will just make these rules look a lot worse than they are.

The purpose of amendment 21 is to offer the Government the chance to extend the power that the transitional, lighter-touch regime we are allowed to use for the first three years of the rules that has been agreed by the OECD and use it for a bit longer, especially if not every country in the world is following our early implementation of these things, to try to avoid us imposing a compliance burden in the UK that will not exist elsewhere. I accept that that is not currently in the OECD agreement.

As more and more countries try to put these rules into their own domestic law, I think we might see them realise how fiendishly complicated they are and start to look for simpler ways of implementing them, so that we can focus on working out where real tax abuse—avoidance and evasion—is taking place and go and collect the tax that is not being paid, rather than having a big compliance burden. There are plenty of precedents for how we can do that in our own tax rules. We had the worldwide debt cap, which we do not need any more, so we scrapped it, but that had a gateway test. Companies went through a simple test, and if it was clear that they were innocent, they did not have to go through the full detail of the rules. I am sure that we could find some way around that. Our old foreign-controlled company rules had a list of territories that were treated as good unless there was any avoidance going on, and we could use a model like that.

I want to touch on why it is important that the UK takes a lead on this. I think it is fair to say that our overseas territories and Crown dependencies have been among those that have behaved the naughtiest around the world in terms of certain tax behaviours that they have encouraged or permitted in their jurisdictions. We are not going to get global progress on this issue if the UK is not at the forefront. If we say we will wait for the pack, half the world will think, “Well, they’re the ones that have been responsible for a whole chunk of this. If they’re not going to do it, we’re certainly not going to do it.” It is important that we are seen to take a lead in tackling this. Getting this right is hugely popular. Our constituents do not want to see large multinational corporations hiding their profits in low-tax jurisdictions. This sort of relatively moderate measure that we are opting into as part of a global deal does not have any sovereignty concerns.

Draft Insider Dealing (Securities and Regulated Markets) Order 2023

Nigel Mills Excerpts

Tuesday 9th May 2023 General Committees

[Andrew Griffith]

These are important matters. The funding of the police is out of scope, but I am sure I share the Committee’s desire to see any criminals in this space prosecuted and to see as many investigations as possible. The FCA has operational independence in dealing with those matters, and it is our job to provide it with the tools, which is what we are doing. I am grateful for the support of the hon. Lady and her party.

There have been a number of interludes since the original FEMR in 2015, including the unprecedented period during the pandemic and some of the other financial measures that we have had to pursue as part of Brexit. I hope we have consensus about how we move forward now. In all the important work that we are doing across the financial services sector, I have a zeal to proceed at the fastest possible pace. We do not have the ability to travel back in time, but we can put the draft order on the statute book now.

[Nigel Mills (Amber Valley) (Con)]

One of many changes since the FEMR is the rise of cryptoassets and cryptocurrencies. Do cryptoassets fall under the definition of transferable securities or money-market instruments included in the draft order, so that cryptocurrency insider trading will be caught by these rules?

[Andrew Griffith]

It is not in these rules per se. There were two things that I talked about; one is the fact that we are moving away from a prescriptive list and towards definitions of what constitutes a financial instrument. That allows a degree of future-proofing for precisely the purpose that my hon. Friend talks about.

My hon. Friend will also be aware that we are consulting right now on the broader regulation of cryptoassets. I humbly suggest that it is not in scope for this Committee, but I am happy to engage with him and other colleagues on it. The purpose of the consultation is precisely to involve the broadest possible range of hon. Members and stakeholders so that we get this important regulation right. It is a whole new part of the economy, and our desire is to get it right.

Question put and agreed to.