Finance (No. 2) Bill

Nigel Mills Excerpts

Committee of the whole House
Wednesday 19th April 2023 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow my hon. Friend the Member for Newcastle-under-Lyme (Aaron Bell). I agree with everything he said.

I am a little surprised that we have ended up having to have this debate again today. Generally speaking, people who campaign for their own interests and ask for a special scheme for doctors do so because that was their particular area. However, if we stand back and ask how it is possible to make a special scheme for one particular sector work, we quickly realise that it is fiendishly difficult to do. There are all sorts of scenarios where we hit a problem. For example, some people have split careers, spending some time in the NHS and the rest of the time outside it. Others have split jobs where they might be a consultant for a couple of days a week and then spend another couple of days training the next set of doctors as a university lecturer. That puts them in a different pension scheme that is not subject to the same tax regime. They might say, “I have an NHS pension but I’ll pay it all on my other one,” so that would not work. What about people who are not employed by the NHS or any of the myriad trusts and organisations?

I do not want to pick too much on the amendment tabled by the hon. Member for Aberdeen North (Kirsty Blackman), because I have tabled enough in my time to know that they are not always drafted precisely. However, if we use the word “employed” in draft legislation, that cannot be stretched to include a partner in a GP practice, because they are not employed by anybody. If we use the phrase “employed in an NHS organisation”, that cannot be stretched to include somebody working as a locum, because they are a contractor rather than somebody who is employed. There is all manner of people in the NHS family who we want to encourage to stay in work, but this is not how we will achieve it.

I also think that the hon. Lady has chosen the wrong mechanism. This would result in her having a nightmare. As soon as a person who used to be exempt ceased to work more than 15 hours or retired, the lifetime allowance would kick in and clobber them when they drew their pension. I understand her intention, but I suspect that her mechanism of choice would be disastrous.

Having thought through the scenarios, how do we pick a sector and get the right people? Are we trying to help doctors or are we trying to help anybody who happens to be employed by the NHS? As I said earlier, we are basically helping accountants, finance directors and procurement directors—all manner of people who are paid very large amounts by the NHS. I probably do not have the same amount of sympathy for their contribution to public service as I do for that of frontline doctors. It is bizarre to give a tax advantage to an NHS finance director, who gets a very generous pension, and not to an entrepreneur who is trying to grow the economy and create jobs to pay for all of this. That seems to create a huge iniquity.

If we stand back and think about how we want tax policy to work—heaven forbid that the Opposition get into government and try to do this—it would be really hard, as my hon. Friend the Member for South Cambridgeshire (Anthony Browne) has said, to go down the route of justifying different tax rates for public sector employees. If we start asking why we are charging them the same income tax and national insurance, we will end up in a horrible world and a very complicated tax regime.

Those of us who have very good public sector pensions should be very careful. Unlike my hon. Friend the Member for Poole (Sir Robert Syms), my lack of career success means that I am not worried about the lifetime allowance, including under the old level, because 20 times my pension gets me nowhere near it. Strange situations are being proposed. When I was first elected 13 years ago, a big issue on the doorstep was, “Public sector pensions are too generous. It’s not fair. I work in the private sector, basically paying for that, and I’m going to get a tiny pension. People in the public sector are being paid the same or more than me, and they are getting a massively generous pension. It’s not fair.” The coalition Government’s response to tackling that perceived unfairness was to change the scheme from final salary to average salary. If we load on to that generous, inflation-protected, state-guaranteed pension a more generous tax treatment than that received by private sector pensions, that would recreate that horrible argument.

It is foolish and damaging to go down the route of cherry-picking favoured sectors and giving them different tax treatment from other sectors. It was a mistake to take that approach to judges and to Directors of Public Prosecution, and it would be a mistake to apply it to doctors. The tax system should apply to everybody across the board in the same way. If we want to provide more reward to people, we should do so by pay rather than by tax. That is a far better approach.

I want to address where the Government have ended up. We have a very complicated pensions tax regime where people do not pay tax on the way in or on an annual basis. Instead, they pay tax on what they draw out of the pension when they get to the end, unless they draw out a quarter of it as a lump sum, in which case they do not pay tax on it all. We have chosen a pension model whereby the state pension broadly provides people with subsistence to live on, and if people want more than that, we incentivise them with a generous tax regime so that they can save it themselves. The implication is that a higher earner gets a greater tax incentive because, unlike a lower earner, they save tax at 40% or 45%. They probably pick up a bit more tax at the end, but a large amount of people pay a lower marginal tax rate when they retire than when they are working. That is the system that we have chosen.

We then thought that perhaps that was a bit too generous to higher earners, so we introduced an annual cap and a lifetime cap. Quite why we needed both, I do not know. If we want to limit how much tax relief we give people, we could choose one of the two and still get to the right answer. The Government have now chosen the annual approach rather than the lifetime approach. The problem is that that does not help people whose earnings are not consistent. If someone is earning a relatively high amount at age 25 and then keeps earning it, that system will work very well for them. If someone starts a business that struggles in the early years and they cannot pay themselves a big salary or make big pension contributions, but then finally it is successful and they sell it and make a lot of money, under this new regime they would not be able to put that much in their pension because they would only be allowed to put in 60 grand a year. I think we could have chosen a higher lifetime allowance and not bothered with the annual allowance. That would have achieved a similar outcome, but we have not done that.

To complicate things further, we have decided that if people earn too much, we will start taking their annual allowance off them completely, meaning that they will be able to put next to nothing in a pension scheme. That does not strike me as being a pensions tax regime that incentivises people to save money in the way we want them to or to use it in their retirement. Effectively, as soon as people hit 57, that gives them a tax incentive to take a lump sum before they retire. We are saying, “The more you earn, the better off you are—unless you earn too much, in which case you are being made worse off and put back to where you started.” In order to put out this particular fire, I urge the Government to step back and consider what they are trying to achieve with the £50 billion or so a year of tax we defer—we actually lose the vast majority of it—and what they really want people to do with their pension savings. How can we use the tax regime to incentivise that and make it fair all the way around? We must come up with a coherent tax regime that drives our policy, rather than come back every couple of years, tweak things, find another fire to put out and think, “Well, it’s not quite working how we wanted, so let’s move it around,” and end up in a confused mess.

This should be a warning to us. If we have a confused mess, with different competing objectives, and we do not think about the whole system, we end up with an unintended consequence. The consequence we had was senior doctors retiring far earlier than we wanted them to because we got the pensions tax regime wrong. If we do not fix this, I suspect there will be another unforeseen consequence and we will have to come back and tweak it in another couple of years. Let us do the job properly, have a coherent regime and use the very large amount of money that we invest to drive the behaviours that we want.

[Anthony Browne]

I preface my comments with an absolutely fundamental underlying principle of all economic policy. Whatever we are talking about, I think this should be our first, axiomatic ground rule: whatever is right for the Leader of the Opposition should be right for everyone. There is a fundamental principle here, which is fairness, and I will come on to that.

First, though, I want to mention some of the underlying principles of the annual allowance versus the lifetime allowance, because during almost all of the previous Labour Government’s time in office, there was not a lifetime allowance. It was brought in at the tail end of the Labour Government. One of the Government’s concerns about tax relief for pensioners is the need to limit it so that we do not end up creating huge amounts of dead-weight costs for pension relief, particularly for the well paid. That is why we have an annual allowance that limits tax relief.

Finance (No. 2) Bill

Nigel Mills Excerpts

2nd reading
Wednesday 29th March 2023 Commons Chamber

[Victoria Atkins]

The way in which the agreement works means that the tax liability falls due in a country that has signed up, as Ireland has done, partly through its membership of the EU. The tax minimum floor is 15% and it falls due on the activities in that country. The country that collects the tax, first and foremost, will be the country in which the company is headquartered —it might be a UK-headquartered company, for example—but that floor means that with respect to those countries that do not charge 15%, the company is liable for that top-up tax. That is why being part of the group of countries helping to make the rules is so critical. It is not for me to advise the Irish Government or others on how to conduct their own tax affairs—I would not dream of doing so—but it is a member of the European Union, which has set out that directive, and the date is 31 December. I will leave that with the right hon. Gentleman.

[Nigel Mills (Amber Valley) (Con)]

rose—

[Matt Rodda (Reading East) (Lab)]

rose—

[Victoria Atkins]

I will give way once more, if I may, but then I must make some progress.

[Nigel Mills]

The Minister will know that the main motivation for this change is to stop the use of tax havens. Sadly, a lot of our overseas territories and Crown dependencies have a corporate income tax rate below 15%. Have the Government had discussions with those territories to try to ensure that they reform their position, so that they do not have their tax topped up elsewhere, effectively, rather than charging it themselves?

[Victoria Atkins]

I know my hon. Friend understands that I must not reveal conversations that may have happened with other jurisdictions, and of course it is not for me to comment on how other jurisdictions conduct their tax affairs. However, he is absolutely right that this is about having a minimum floor of tax to prevent the sort of aggressive tax planning that frankly very few people or businesses in the world can afford. It is about ensuring that they pay a fair amount, across the world, so that they are contributing to public services.

I am mindful that the right hon. Member for East Antrim (Sammy Wilson) asked me a question about sovereignty. We have a veto, so we are leading the discussion on this. If we do not like a future proposal, we have a veto: that is a very important part of the international agreement in which we are taking part.

As was announced last year and as the Chair of the Treasury Committee, my hon. Friend the Member for West Worcestershire (Harriett Baldwin), has set out, the Bill legislates for the abolition for the Office of Tax Simplification. We have taken that approach because what we want, rather than an arm’s length body overseeing simplification—albeit one with some very interesting ideas that I have certainly read carefully and been interested to consider—is a clear mandate to officials in the Treasury and His Majesty’s Revenue and Customs to put tax simplification at the heart of policy making.

A very good example that will be introduced via the Bill is that the £1 million annual investment allowance limit will be made permanent. This measure allows businesses to write off the cost of qualifying plant and machinery investment in the first year up to £1 million, simplifying the tax treatment of capital expenditure for 99% of businesses.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the right hon. Member for Dundee East (Stewart Hosie). I will start where my hon. Friend the Member for South Thanet (Craig Mackinlay) did: people think that Finance Bills are a little dry, but somebody must have a sense of humour to produce a 456-page Bill and then hide in clause 346 the abolition of the Office of Tax Simplification, probably at the exact time that we really need it. When I used to practise as an accountant, I had a copy of all the tax legislation on my desk. I sense that if I were still working, I would need a much bigger desk for the successive Finance Bills we have had over the past 13 years. Perhaps at some point, we should stand back and think, “Do we really need to keep adding all of this stuff every year? At what point are we going to start taking away stuff that we have now effectively duplicated?” I suppose it would mean that I could work from home, because I probably could not carry all of those books around, so maybe there are some bonuses there.

Much of the technical stuff in this Bill has been pre-consulted on—we have seen it for a long time—and most of it is to be warmly welcomed. I will quickly mention clause 25, which finally sorts out the net pay arrangement for pensions. We have been trying to find a solution for this for quite some years; to put people whose pension scheme has chosen the net pay arrangement, rather than the other way of doing it, into the position that they should have always been in. We have finally found a solution through which HMRC will make it good, which is to be warmly welcomed. I cannot quite see a start date for that in the Bill, though—I hope it is soon—and it would have been nice if HMRC had actually paid some back pay. People who are saving pretty small amounts, who are the ones on the very lowest levels of income, could have had the tax back that they should have been getting for the past decade or so, but perhaps we should not be too greedy.

I want to focus most of my remarks on the pensions tax changes, and then on the corporation tax and the multinational top-up tax. There is a theme in those things: we have some welcome measures, but we end up on a rather haphazard journey to a very strange place where things competing with each other everywhere, and I do not quite have an idea of what we are trying to achieve.

On the pensions tax stuff, we had clearly created a problem through the reduction and freezing of the lifetime allowance. The only solution to a problem caused in that way is to undo what we have done, and it makes sense to scrap that completely. I would have probably preferred to have a higher lifetime allowance and scrap the annual allowance: if we are aiming to limit how much tax relief people get on pensions saving, I am not quite sure why we need to do it on a year-by-year basis when we should probably be more worried about the overall total. It seems a bit harsh to me that somebody who starts a business, scrimps and saves, saves every penny and reinvests it, and finally sells that business for a decent amount now cannot get the same pension as somebody who has been employed for all that time, taking much less risk, because they are capped on the £60,000 they can put in per year and by how many years they can look back. I am not sure what policy objective we are trying to achieve there, but it is welcome progress.

On the Opposition’s reasoned amendment, I am sceptical about the attraction of trying to have different tax regimes for different sectors. It becomes hard to work out which occupations we like and which we do not, and to which we want to give favourable status. Even if we wanted to do it, it becomes hard. Do I want a favourable tax regime for doctors regardless of where they work? I then have to define “doctor” and work out what sort of doctors I want to favour. Do I want it for people who work in the NHS, in which case it would have to include whoever is being paid large amounts, whether finance directors, human resources directors or diversity officers?

It would be slightly bizarre to give a more generous tax regime to a finance director in an NHS trust being paid a large amount of money, but not to somebody owning and running a business, trying to create jobs in the economy. That would be hard to do, and we would have to go through every senior public sector worker, as my hon. Friend the Member for South Thanet did, working out who to include. Even if we did that, how on earth would we work out which organisations to include? Most high-paid NHS staff are not employed by NHS England, but by God knows how many trusts around the country. If we wanted to apply the regime to GPs, too, they all have their own businesses. It would be phenomenally difficult to work out how to do that, if we think about how the lifetime allowance being set that way was causing a problem and driving people out.

[Anthony Browne]

My hon. Friend is making some excellent points about the problems of having sector-specific lifetime allowances, which would proliferate and become unbelievably confusing, as he says. We have all made the case about other public sector workers who would be affected by the lifetime allowance. We could introduce a regime where we exempt them one by one and effectively have a regime for all public sector workers, but does he agree that it would be unfair and economically irrational to have a completely separate pension regime for public sector workers and a far more punitive one for private sector workers, who are important for generating wealth in the country?

[Nigel Mills]

I agree with my hon. Friend. I remember the anger when I was first elected about people working in the private sector getting a very small pension and seeing the large generosity of the public sector ones that they could never dream of aspiring to. To have a more generous tax arrangement on top of a more generous pension that they were effectively paying for would be hard to sell to people. I think the Government have found a sensible fix on that.

Where has this situation left pension tax policy? We now have a regime where when someone earns the money and pays it into their pension, they do not pay income tax and national insurance on it, and when they draw the pension, they pay income tax, but not national insurance. We are not quite sure we like that. If someone is earning too much—more than £260,000 now—we start reducing the amount they can put in every year from the £60,000 cap down to a £10,000 cap. Then, if someone wants to draw their pension, they can have a quarter of it completely tax-free, even if they do that 10 years before they retire, but now we do not like that either, because that might be too much, so we have capped it at the level of the lifetime allowance that we have just scrapped. What are we trying to do? Added to that is the fact that if I have a defined-contribution pension that I do not draw and leave in my estate, there is no inheritance tax on it. I do not even pick up the tax at that point.

If we stood back and said, “What are we trying to incentivise and encourage people to do by the £50 billion or so of annual tax that we forgo”—or defer, strictly speaking—“on pension saving?”, I am not sure we would design this system. The Government would be well advised to create some kind of commission or review to look in the round at all the various ways we incentivise pension saving and all the ways we tax it and try to work out what a coherent system that people have some hope of understanding would be. I suspect we would get far better outcomes if we did that. I encourage the Government to do that. That would need to be on a long-term, cross-party basis. It cannot be done on a whim every few months.

The danger is that we get to a Finance Bill or Budget and we want a bit of money here, or we have found a little fire we want to put out there, or we want to make another tweak, and we end up building and building more and more strange bits on to this rather ugly looking house until it finally falls over. We should try to get it in some kind of shape before we get into that position.

Moving to the various corporation tax measures in the Bill, I am prepared to accept the rise in corporation tax. Given the fact we bailed out nearly every business in the economy three years ago in the covid pandemic, there is justification for saying that we need to pay those bills, and corporation tax, which businesses only pay when making a profit, is the right way to do that. It takes a little bit of believing to convince ourselves that we can raise the rate that businesses pay on all their future profits—all the fruits of their investment—and that that will not deter investment, but a short-term deferral of when they pay tax by having full expensing will somehow encourage loads of investment, even though they will end up paying the extra 6% on the profit they will earn from the use of new machinery at some point in the future. They will not pay it in the first year, but they will pay more in all of the subsequent years.

[Kit Malthouse]

My hon. Friend points to an argument that, I have to confess, has perplexed me. People say that raising corporation tax to 25% will not necessarily damage investment or, indeed, British business, but then why stop at 25%? Why is that the appropriate amount? If businesses are impervious to the tax rate and it does not affect their behaviour, why not have 30%, 35% or 40%? He understands my point. They are making a value judgment about where the line of damage is to be drawn, and I think he is quite right that it is hard to think that it will not have some kind of impact.

[Nigel Mills]

My right hon. Friend makes a fair point. I guess there is an attraction in that 25% is an easy calculation. We could go for 26%, which Labour had in its manifesto at the last election, and perhaps that could have been a submission. I think it also had a small companies rate rising to 21%, which it does not want to remember these days. I just think that we cannot really have it both ways—that deferring taxes encourages investment, even though businesses end up paying them, but raising them somehow does not. I think we should try to be a bit coherent about what we actually think in that situation.

Again, I have no idea what we are trying to do in giving people tax relief on their expenditure on capital assets. We now have a capital allowance regime that, for most assets, is generally 25% on a reducing balance, unless it is an asset for too long, for which the long-life regime is 4% a year, or it is a short-life asset, such as a computer, when they can choose a different regime over a shorter period of time. Then there is an up-front initial allowance, depending on whether we have one in place, and now we have a 100% initial allowance for a short period, but we do not give any tax relief at all for industrial buildings. If I want to build a new factory to bring some jobs back from China, I need to go through convoluted calculations—such as proving that the air-conditioning in my building is actually a piece of plant and equipment, not a part of the building—which makes huge amounts of work.

Could we just stand back at some point and think about what we are trying to incentivise business to do? I am not actually convinced that many businesses will really be able to use full expensing on large capital expenditure, because they just will not have the profit. It may give them some cash-flow advantage, but they will have the complexity of how much they can claim, and which company a loss gets trapped in to make sure they can use it all around the group. We are just creating difficulty. Most of the large businesses I ever worked with focused on the rate of tax they had to account for in their accounts—of course, having accelerated deduction does not change that—rather than the cash position, which was hugely complex if they were leasing an asset, finance leasing it, hire purchasing it or God knows what. So I would be a little suspicious or cynical about our actually getting the big change that the Government were hoping for here.

I would go back to an amendment I tabled a decade ago, when I said, “Why don’t we just try to move to giving people tax relief in line with their accounting treatment, so if they think this piece of kit has a five-year life and they account for it over five years, let’s just go for that? Why have all this hassle, and all the cost of all these different regimes? Let’s be more generous on the assets you get relief for, and let’s try to simplify it.” I have a feeling that, if we could somehow get to that, it would be more attractive to most businesses than the annual tinkering of saying, “You can now do this and get a bit more”, and no one knows where on earth they are in such a situation. I would recommend that.

On the multinational top-up tax, I actually support it, and I think I argued for it when it was being discussed. I have always been a little bit suspicious of the OECD—I once called it the organisation for excessively complex drivel, and if Members read the causes we have ended up with, they might think it was relatively complex. What I think we have started trying to do on base erosion is to stop people hiding profits in tax havens with very low rates of corporation tax. We generally know where they are and what their rates are. We could have gone back to what we used to have with our controlled foreign company regime, which was a list of naughty countries. If a business had a subsidiary in one of those, it had to go through some extra compliance to prove that real genuine trading profits were arising in that country, rather than that it was hiding passive income that should have been taxed somewhere else.

I think we could have found a way to have a regime that most countries accepted, where we just said, “If you’ve got a subsidiary in one of these naughty regimes then you have to pick up some tax on it,” rather than having dozens and dozens of hugely complex clauses to effectively create a whole new corporation tax range applying to companies in every country in the world, which have to try to work out whether they are paying too little tax or not based on whatever the local tax differentials are on timing and rules, which we then have to adjust for to try to work out whether someone is being naughty or not, when we know damn well a company in the Cayman Islands is paying zero on the £100 million-worth of profit it has salted there, which is what we were after in the first place.

I welcome where we have got to and I accept that if this is the way we have to do it, it is better than not doing it, but surely if anything highlights how complex our corporate income tax regime has become it is the fact that we need to have 150-odd clauses to try to tax income that is being hidden in territories that have a zero rate. It really is almost beyond belief that we have made it that difficult.

We have to remember that a lot of our own overseas territories and Crown dependencies have seen some of the worst behaviours in this area. As it was when we had to have more transparent disclosure regimes, we need to set a lead on this issue to get the rest of the world to follow. If we are not doing it and not encouraging parts of our UK family to do it, there is a fair chance that the rest of the world will think, “Well, if they’re not going to do it, we’re never going to do it.” So we end up moving at the speed of the herd, which will be standing still.

I welcome the fact that we are doing this. It is the right thing. We need to try to find a way of stopping profits being hidden in places where there is absolutely no justification for them being there. A 15% top-up rate is a good compromise. I would hope that most regimes would see the writing on the wall and up their rates to 15%, and not go for dubious reliefs, deemed deductions and so on to try to contrive their way of having a headline 15% but never applying it. Let us just say that this is the way that the world wants to go. This is what responsible ethical business looks like. This is what responsible ethical government looks like. We do not want money hidden where there is absolutely no justification for it being earnt there. We can try to end up not needing all these hugely complicated rules, which UK-headquartered companies might be having to apply to every territorial subsidiary they have, to try to catch some naughty things that they are not even doing in the first place.

Intriguingly, I do not see in the Bill the repeal of our controlled foreign companies rules. If we have a new regime that tops up the tax in every subsidiary owned by a UK group to 15%, do we need all the old compliance rules to stop UK companies hiding their profits offshore? It seems to me that we will end up with a collection of different regimes all trying to do the same thing. Maybe we could find at least a partial simplification to offset the 150-odd clauses here in the Bill.

My concluding remark on these key issues is that I welcome what the Government are trying to do, but at some point we need to stand back and think, “Have we got our tax code regime in a sensible place where we are realistically, and in as understandable a way as possible, trying to achieve these sensible aims; or have we, through quite understandable tinkering, ended up with some kind of hugely complex monstrosity that at some point will fall over and in the meantime is probably not incentivising the things we want people to do or disincentivising the things we really we do not want them to do?”

Non-domicile Tax Status

Nigel Mills Excerpts

Tuesday 31st January 2023 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Bristol East (Kerry McCarthy). Just to confirm, I will not be voting for the motion. It clearly is nonsense that we could require the Chancellor to publish all the things he has been considering in the lead-up to the Budget in March. However, I look forward to the Government sticking by that principle and to our not reading the Budget in the Sunday paper the week beforehand—I fear I may be a little disappointed. However, I gently say to the Minister that, if he or the Chancellor appear at a Select Committee after the Budget and come up with a number as a reason why they did or did not make a policy change, it is not unreasonable to put in the public record how they came to that number. Had the shadow Minister just stuck to his first calculation in the motion, he may have had a little more support for it. But I cannot vote for the whole motion.

I actually support ending the current non-dom status. I think it is outdated and I do not think people can make a coherent case for the rules as they stand. The idea that where my father was born should define my tax treatment is clearly nonsensical and we need to find a more modern way. We need to stand back and have a proper look at how we handle the complex area of residents and non-residents across our tax regime, and probably across our benefits and access to public services regime. When we look at this, we have to navigate all manner of different terms: not just “residents”, but “ordinary residents”, “domicile”, “deemed domicile”, “habitual residents” and “settled status”. All these things are trying to do the same thing: work out when someone is legally resident in the UK sufficient to trigger certain tax obligations or entitlements.

Having left the EU, where we had to tweak our rules to try to get around staying compliant with freedom of movement, freedom of establishment and all those things, it would make sense to step back and have a full review of what we are trying to do in this policy area, what we are trying to tax and what we are not trying to tax, so we could have coherent policies and a new law that people could understand—both those here and those coming here.

Having worked as a tax adviser, I can say that, when one has clients bringing people over to the UK to work, they have to incur quite a lot of cost trying to work out what their tax position is, what they have to comply with, what they do not have to do and what they should do before they come and what they should not. If we can make a clearer, simpler regime, that would be far more beneficial all the way around, especially as the world has moved on and the economy has moved on. These rules were written decades, or hundreds of years ago. They do not really work for a modern, mobile, dynamic economy where people can move money at the click of a finger through the internet. What is a UK-based asset and what is not? If I have just moved it into a crypto account held in Brazil, is that really a UK asset? What is my income on that? Is it in the UK that I have the tax or is it not? We need to have a thorough review of how all these rules work, so that we can have a coherent system and not just play around the edges with individual bits, because we will end up in a slightly different mess and having slightly different loopholes from those that we had.

As part of that—I think when we, including the shadow Minister, are talking about abolishing non-dom status, we mean recreating something similar but for a shorter time and with slight restrictions in place—we absolutely need to have temporary resident’s relief, whereby, if you come here for a short time, you pay tax on what you earn here and on the assets you have here, but you do not pay tax on whatever you have earned already abroad and you never bring here and never will. I think that would be too strong a deterrent for people to come here.

I think we could find consensus on what a coherent policy looks like, but the Government should go away and try to rethink all these rules and make sure that they work for a modern, dynamic, global and mobile economy. Otherwise, one day we will find out that we have something that you can drive a coach and horses through and it is not at all fit for the way we work these days.

Finance Bill

Nigel Mills Excerpts

2nd reading
Monday 28th November 2022 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak so early in the debate. It is also a great pleasure to have a Finance Bill that is so short. I must have spoken on a dozen of them in my time in Parliament and to have one that has only 12 clauses is some sort of miracle. During this week, we have probably about as much time as we normally have for one of several hundred pages, so we can really scrutinise the 11 substantive clauses. Perhaps that is progress, compared with what we normally expect.

I start by comparing this Finance Bill with ones we had at the start of the previous recession a decade and a half ago and ones we had at the start of previous measures to tackle a large budget deficit. If I recall rightly, the single biggest measure we had 14 years ago was a VAT reduction at the start of the recession, which cost something like £15 billion. I am not sure it had the effect we wanted. Interestingly, as we sadly slip into a recession, which we hope is shorter and shallower than that one, what we have not seen in this Finance Bill is any attempt to boost consumer confidence. We can argue that we tried that in September and it did not go so well, and probably the right thing here is to focus on how we reassure the markets that we can keep borrowing under control and therefore not risk a rise in interest rates.

However, if this recession looks like it might be any longer or deeper than the Government’s forecasts, I urge them to think carefully about how we get consumer confidence to turn around. I fear that what we will see in the new year is a big retrenchment in people’s personal spending. We will spend the money for Christmas because we have to, but people will then take a very cautious approach in the early part of next year, knowing that energy bills will go up in April and that tax changes are around the corner. We would not want them to go too far and retrench too fast. So I hope the Government will think about the role that tax can play in turning the economy around if we need that next year.

The other interesting comparison is with the approach George Osborne took in his Budgets in the first half of the last decade to introduce austerity to tackle the big public deficit we had. Let us look at what he prioritised. He had a VAT increase, which we are rightly not doing in this situation, but he increased the personal allowance and reduced corporation tax to try to put more money into people’s pockets from work and to encourage business investment in the UK. Interestingly, the Government are doing the complete opposite now. I am not sure whether we have worked out that that plan did not work, but there is evidence to suggest that the lower corporation tax rates we had for a decade did not achieve the additional investment that we wanted them to and we are probably better off sticking at about 25% than going lower.

I am slightly intrigued. The great claim we made was that we were taking people out of the scope of income tax. We are now at great risk of putting them all back into the scope of it again. I accept the Minister’s point that the personal allowance by the end of this five-year period will still be £2,000 higher than it would have been by inflation, but I think that is not enough of an increase. I hope that the Government regard these personal allowance freezes for another five years to be a kind of last resort and if we get any improvement in the economic outlook they can be reversed. Especially at the lower end of the level, keeping people out of tax, letting them keep more of the income and making sure that work pays are strong arguments. Frankly, I am not absolutely sure why we need to legislate for personal allowances in five years’ time. We will have another five Finance Bills before we get to those and we could have brought those into law at any point. I accept that we want to give the market a clear steer that we are serious about closing the budget deficit. If we need those measures, fine, they are probably less bad than a rate increase, but what is the point of legislating for them in this situation?

There is another contrast with what we have done on national insurance this year. We chose to—and I accepted the argument that we needed to—increase the headline rate of NI, but the compensation for that, when it became clear that that was a real problem at the start of the economic downturn, was to increase the personal allowance for NI—the starting point at which someone pays that tax. Yet now, rather than increasing the headline rate, we are effectively holding back the starting points of those taxes. So we have a tax on income and a tax on wages where we are taking one approach, and on the other tax we are doing something completely different.

As we go forward from what I accept are emergency measures that we need to use to fill a hole, the Government need to have a clear strategy for what our tax system should look like. They should consider the things we are trying to tax and the things we are trying to incentivise. They should try to give people some long-term stability so that they can plan and understand and we can get the behavioural changes and incentives that we want, rather than having a clear direction one way, and then doing a U-turn and wondering why people do not do the things that we would really like them to do. Now we are through the real firefighting, I hope the Government can produce a strategy and plan for where they think the tax system should go, so that people can understand it and respond accordingly. I think that that is what we had under the Gauke doctrine in 2010. We need to revisit that, now we seem to have changed our mind on so many of those things.

The bleakest bit of news in this Finance Bill was extending the windfall tax to 2028. I was hoping that the energy crisis might be over quite a bit before then and we would not need to have those measures in place. The fact we have done that suggests we are not expecting energy prices to come back down any time soon. Clearly, the windfall tax is the right thing to do. I have always taken the view that this is a level of profit that nobody could ever have thought they could get. These companies are earning it from extracting our natural resources; they are not their natural resources. We have given them permission to extract them, and they have rightly made some profit from doing so. However, we should limit that profit and accept that those are our resources and that we should take the right return from them, rather than the exploiter doing so, so I hugely welcome the introduction of the windfall tax.

I am quite intrigued by the research and development stuff. It is right, even at the most difficult time, to say that we want to make sure that we are incentivising R&D. That is a sensible, long-term measure that shows some long-term planning. I remember being at work as a young accountant when R&D tax credits were introduced—in 2000 for small companies and in 2002 for large companies. The journey they have been on, with rates going up and down and approaches changing—above the line, below the line, cash incentives and all those things—makes me wonder whether, 22 years on, we are really sure that R&D tax credits are delivering the outcome that we want. I suspect that the speeches in the Finance Bill debates in 2000 were that these measures would make us a science superpower in the next generation. I think that we are still giving those speeches, and we have not quite got the superpower bit. I wonder whether the Government should stop at some point and ask whether those are working. I know that there is an ongoing review on combining the reliefs, but are they triggering the right thing?

One piece of data that did worry me was that a disproportionate amount of those are claimed by companies in London and the south-east and they are not spread around the country in the way we would like. Is there a way we can use these tax measures to encourage that kind of investment and those kinds of skilled jobs in the regions of the UK, and not just focus them in the most prosperous parts?

I have expressed the view previously to many Treasury Ministers that, outside the EU, the one thing that we can do is take a regional approach to certain taxation to encourage activity in different parts of the country that we do not need to encourage in London and the south-east. I urge the Treasury to look seriously at whether we could take a regional approach to some taxes so that we can get those differentiating incentives to move wealth outside London and the south-east. That would fit entirely with our levelling-up agenda, but we have not chosen yet to be that creative with our tax system.

Given that we have plenty of time for detailed questions on clauses on Wednesday, I will just say that I accept the need for this Finance Bill. I will support all the measures in it and I will happily vote for it later. I will not be voting for the Opposition amendment, which I suspect will not come as a great shock. I think I support ending non-dom status, but we should have temporary residence relief. If somebody comes here on a secondment or for a short period, we should not try to force them to move all their tax affairs here. We should tax them on the income that they earn here. There would be a big disincentive and it would be out of step with other countries if we did not have a short period where somebody had that different situation to reflect the fact that they are not ordinarily resident here.

The fact is that a person’s non-dom status depends on where their father was born. In theory, they can become a non-dom even if they have lived here all their life and never been resident anywhere else in the world. That shows how ludicrous those rules are. I urge the Government to look at modernising all our residence tests, including that on non-dom status. They are all far too complicated. We could have a far more effective system that works better and would achieve the advantages of attracting investment here. There is a real problem with just scrapping non-dom status; it may drive some people we do want here to leave. On balance, a change is better and we should continue with the direction of travel that we had a decade ago of restricting the time period. I think that we could restrict it with a more modern relief that would achieve what we want without having the big downsides.

With that, I will happily support the Bill and oppose the amendment if there is a Division later.

[Madam Deputy Speaker (Dame Rosie Winterton)]

I call the SNP spokesperson.

Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2022

Nigel Mills Excerpts

Tuesday 11th October 2022 General Committees

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

I beg to move,

That the Committee has considered the Money Laundering and Terrorist Financing (High-Risk Countries) (Amendment) (No. 2) Regulations 2022 (SI. 2022, No. 782).  

It is a pleasure to serve under your chairmanship, Mrs Cummins. Due to the sad passing of Her late Majesty, the debate on this statutory instrument has been delayed, but I am pleased to introduce it today.

The SI is largely administrative, and makes only minor updates to provisions under the money laundering regulations. 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. Illicit finance causes significant social and economic costs through its link to serious and organised crime. It is a threat to our national security, and it risks damaging our international reputation as a fair and open rules-based economy. It also undermines the integrity and stability of our financial sector, and it can reduce opportunities for legitimate businesses in the UK.

That is why we have taken significant action to combat economic crime, including in legislation with the economic crime (anti-money laundering) levy and the Economic Crime (Transparency and Enforcement) Act 2022. However, we are going further. In this Session, we have introduced a second economic crime Bill, which will reform Companies House, and we will develop the second iteration of the landmark economic crime plan. We are also working closely with the private sector and international partners to improve the investigation of economic crime, strengthen international standards on beneficial ownership transparency, and crack down on illicit financing flows.

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 these regulations, businesses are required to conduct enhanced checks on business relationships and transactions with high-risk third countries that are identified as having strategic deficiencies in their anti-money laundering and counter-terrorism financing regimes, which could pose a significant threat to the UK’s financial system.

The statutory instrument amends the money laundering regulations to update the UK’s list of high-risk third countries. It adds Gibraltar to the list, and removes Malta, which mirrors lists published by the Financial Action Task Force—the global standard setter for anti-money laundering and counter-terrorism financing. For the purposes of the high-risk third countries list, countries include territories and jurisdictions, so Gibraltar, as a UK overseas territory, is treated as a country in that high-risk third countries list. This is the fourth time we have updated the UK list to respond to the evolving risks from third countries, and the update ensures that the UK remains at the forefront of global standards on anti-money laundering and counter-terrorism financing.

[Nigel Mills (Amber Valley) (Con)]

Can the Minister explain why Russia does not appear on the list? Is it because there are separate measures in place such that we do not need to include it? Would it not be prudent to add Russia for the sake of completeness?

[Andrew Griffith]

I thank my hon. Friend for making that point. As he will know, there are separate provisions in respect of Russia, particularly sanctions against individuals and institutions linked to the Russian state or to its leader, Vladimir Putin. This measure refers to standards in banking systems, and the view of the Financial Action Task Force, whose guidance we follow —we are part of the taskforce and are well represented on it—is that the Russian system itself includes protections. The issue of why we are sanctioning Russia is a separate one. I hope that that answers my hon. Friend’s question.

The UK was a founding member of the Financial Action Task Force. We are very much aligned with international partners such as the G7 to drive improvements in anti-money laundering and counter-terrorist financing systems globally.

This high-risk third country list is one of the Government’s many mechanisms to clamp down on illicit financial flows from overseas threats. We will continue to use other mechanisms to respond, such as the sanctions regime that I mentioned in response to my hon. Friend the Member for Amber Valley.

The statutory instrument will enable the money laundering regulations to continue to work as effectively as possible to protect the UK financial system. The Government consider it crucial to protect UK businesses and the financial system from money launderers and terrorist financiers. I therefore hope that colleagues on both sides of the Committee will join me in supporting the measure.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 15th March 2022 Commons Chamber

[Lucy Frazer]

CPI has been the default inflation measure for the Government’s statutory annual review of benefits since 2011, as the hon. Gentleman knows, but we are fully aware of the impact on households of the cost of living. That is why we are providing £20 billion of support, whether that is through £9 billion of support to help with rising energy bills or through universal credit. As he also knows, we have cut the taper rate so that families can keep an additional £1,000 annually in their pockets.

[Nigel Mills (Amber Valley) (Con)]

Does the Minister think that the uplift coming next month will be enough to get people all the way through next winter? If she recognises that there is a problem, will the Government consider bringing forward next April’s increase to this autumn, to give people a bit more money to help with their heating and food bills next winter?

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 1st February 2022 Commons Chamber

[Rishi Sunak]

It is great that the Labour party has realised that it is the taxpayer’s money and not the Government’s money. I am glad that it has joined us in recognising that. I can say categorically that no one has written this off; we are going after it, as the Chief Secretary said. We invested £100 million last March in creating a taxpayer protection taskforce staffed with over 1,200 people to recover hopefully up to £1 billion. That is just one of the many things we are doing, as well as taking more powers to go after rogue directors, enabling Companies House to do exactly that. The hon. Lady asked about the National Crime Agency. I am pleased to tell her that it has already helped in investigations that have led to 13 arrests with regard to bounce back fraud, so that work is already under way.

[Nigel Mills (Amber Valley) (Con)]

T4. Does the Chancellor agree that one of the key lessons from the pandemic was about helping people to improve their own financial resilience by saving? Will he now finally support measures to extend auto-enrolment down to the first pound of earnings and down to those aged 18, so that we can help everyone start saving for a pension for their retirement?

[The Economic Secretary to the Treasury (John Glen)]

My hon. Friend, who has great expertise in this area, makes a reasonable point. The Government’s Help to Save scheme is under way, but the Government continue to work very closely with the Money and Pensions Service to look at new ways of increasing financial resilience and getting young people to understand the opportunities of saving earlier.

Taxation: Silage Film

Nigel Mills Excerpts

Tuesday 18th January 2022 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered taxation of silage film.

I am grateful for the chance to raise these issues in debate. Before we begin, I am not seeking to question or doubt the merits of the plastic packaging tax, which I fully support, along with all efforts to make sure that as much plastic as possible that we use is recycled. My concern is shared by many colleagues, plastic manufacturers and farming industries: guidance was—I could say sneaked out—released by Her Majesty’s Revenue and Customs just before Christmas, and unexpectedly added silage film to the list of items caught by that tax. That was not a position that anyone expected. Industries had not prepared for that, and the costs will fall directly on farmers at a very difficult time for them.

My interest in this stems both from the fact that there is a collection of farmers in Amber Valley who use silage film and from the fact that I have a large employer who uses recycled plastic pellet to make, among other things, refuse sacks for the NHS and damp-proof membrane for construction products. The irony of the situation is that, in the years in which I have been an MP, the main problem that that business has had is securing enough plastic to wash at a different plant and recycle so that it can use it in its production process. The best source of plastic that it can get is silage film, which is being exported illegally as clean waste around the world, rather than being washed and recycled at home. Our enforcement bodies were not enforcing the law that was in place, so we are in a rather strange situation. The industry has been investing, and has been keen to recycle the film for years, and if we ended up by accident with a new tax that the Government introduced to try to encourage more plastic recycling it would stop the recycling of that film so we would end up in a worse position. I am sure that that is not what the Government intended.

I have four arguments for the Minister as to why the HMRC guidance should be corrected or withdrawn before 1 April. First, the primary purpose of silage film is not packaging—it is to ensure that harvested grass can be fermented into silage. Secondly, the purpose of the plastic packaging tax is to encourage the use of recycled material and increase the recycling of plastic material. Extending the charge to silage film will not generate more use of recycled material in the film, and will lead to less recycling of the film that is used. Thirdly, I am not sure that silage film falls within the definition of the measures that were introduced in the Finance Act 2021, so the guidance is incorrect and inconsistent with the law. Fourthly, I contend that this is seriously damaging for our farming industry at a difficult time, and would reduce its competitiveness against international rivals. All of those cases are strong reasons why the guidance, which appears to be out of sync with what had been planned, should be withdrawn.

The first case I should like to make is about the primary purpose of the silage film. I would not claim to be an expert on silage or its creation, but the information that I have had from the National Farmers Union, for which I am grateful, and from other farming bodies, is that the film is very specialised. It is very thin. Generally, contractors go on to farms and, in simple terms, mow the grass and wrap it in film so that is airtight and watertight, so that fermentation can take place and produce silage to feed animals through the winter. If that film is not airtight and watertight, the grass will rot and cannot be fed to animals. That is quite a technical process and the film is an expensive and highly specialised product. It cannot be any old plastic: it has to be a very thin film that is air and watertight, and that can survive being used to wrap on a farm in those conditions, rather than in a nice, safe factory setting.

The main aim of using that film is not simple wrapping or packaging to store the grass; there is a much greater purpose of converting the grass into something that can be used to feed animals through the winter. If that plastic does not fulfil that purpose, there will be no food for animals and we will have to import soya or other foods from around the world to get them through the winter.

[Robbie Moore (Keighley) (Con)]

I should declare that while I am not one, my family are farmers and have a plastic recycling business. I want to pick up on the point that my hon. Friend is eloquently making about the nub of the issue: silage wrap should not be classed as packaging but is integral to the grass fermentation process to make silage. Does he agree that our colleagues at the Treasury need to realise this very fine point so that legislation and taxation can be addressed accordingly?

[Nigel Mills]

I am grateful to my hon. Friend for making that point, with which I entirely agree. It is not a point that the Government have ever challenged in the past. Only last year, the Environment Agency published a paper on the positions and technical interpretations in respect of responsibility for packaging. On page 31, the document accepts that the primary function of silage wrap is producing the product. I accept that it is a different Government Department, but it has accepted that the primary function of silage wrap is to produce silage, not to package, store or protect it. The Minister may argue that that is a different Department and that it is not Treasury policy, but we are trying, on a cross-Government basis, to reduce the amount of plastic that is used and encourage the use of recycled plastic and of recycling. We have measures coming in to make the producer pay for the collection and recycling of their packaging material through the whole system. It seems bizarre that the Treasury, HMRC and the Department for Environment, Food and Rural Affairs have different definitions of what counts as packaging in that situation. People come under one set of rules but not the other, even though they are charging for similar sorts of things. I hope that we can achieve consistency across Government.

If the Minister is not convinced by that compelling argument for consistency across Government, I refer her to a 2018 HM Treasury consultation on tackling the plastic problem that concluded that silage film came into the category of non-packaging plastics. Even the Treasury has, in the past, accepted that silage film is not a packaging plastic. I therefore hope that there is no doubt that the primary purpose here is not simple packaging. Looking through the list of items that fall inside and outside this tax, one of the general themes is the primary purpose of the plastic. It is hard to see from that list why silage film has been treated inconsistently with other plastics that are excluded.

My second contention is that what has been done here is contrary to the policy intent. The guidance notes set out that the plastic packaging tax was designed to encourage to the use of recycled plastic instead of new plastic material in plastic packaging. In turn, the tax would create demand for recycled plastic and stimulate increased recycling and collection of plastic waste, diverting it from landfill or incineration. That is the Government’s own stated intent. Because of the very specialised nature of the film––which has to be incredibly thin, light-proof and waterproof, and capable of achieving those things when being used for wrapping in a farm setting––the industry and farming lobbying bodies are absolutely clear that there is no way any level of recycled plastic can be used in that film with current technology and achieve the effect needed for the fermentation of grass. No matter what this tax is from 1 April, there will not be any quantity of recycled plastic incorporated in the film, as that is not technologically possible at the moment. Therefore, including silage film in this tax will not generate increased use of recycled plastic; it will simply be a tax on farmers that they can barely afford to pay, given their current situation.

[Douglas Ross (Moray) (Con)]

I am grateful to my hon. Friend for giving way, and for his well-researched and detailed speech. I should also declare an interest; although I am no longer a farmer, before I came to this place I was involved in farming, and silage is an integral part of farming across the United Kingdom.

I am here today to express the views of the National Farmers Union of Scotland, which has made many of the points that my hon. Friend has made today. On recycling, does he accept that agriculture accounts for only 3% of plastic use across the United Kingdom, that silage film is just a small proportion of that, and therefore that we are seemingly taking a sledgehammer to crack a very small nut here?

[Nigel Mills]

I am grateful to my hon. Friend and I agree with him.

I was trying to establish that levying this tax would not actually increase recycling, because silage film cannot include any recycled components. In fact, the tax may make the recycling situation worse, because there have long been efforts to get a collection scheme in place for this waste. It is obviously expensive to go and collect the film from every single farm; it becomes hugely dirty, and collecting it is not cheap.

In recent years, a voluntary scheme has been put in place to collect this plastic so that it can be recycled. That has a cost to farmers of about £60 a tonne. The impact of charging farmers £200 a tonne to get the plastic in the first place will be that they will not be able to afford the £60 a tonne for collection, so we will end up with lower levels of recycling; the farmers just will not pay for collection, so there will not be a collection and the plastic will not be recycled. Consequently, as a result of the tax, we will end up with less recycling of plastic than we have now.

I am sure that the Government’s sincere aim is to have more recycling of plastic. However, by far the best approach would be not to include this film in the taxation regime but instead to try to support the voluntary scheme, to get as much of this stuff collected as we can. It is actually very recyclable, making it very valuable; it can be recycled and reused in other products, including those made in my constituency.

My third argument was that silage film would not fall within the definitions set out in section 48 of the Finance Act 2021, which defines a “packaging component” as

“a product that is designed to be suitable for use…in the containment, protection, handling, delivery or presentation of goods at any stage in the supply chain of the goods from the producer of the goods to the user or consumer.”

What happens with silage film is that the grass and so on is mown and harvested in the field, and it is then wrapped in the field, stored on the farm and subsequently fed to the farmer’s animals in the winter season.

I am not sure whether it is possible to call grass that has been stored and fermented “goods”. It is not sold to anybody, it does not leave the farm, and there is no “supply chain” for it at all. It is not packaged to be moved, presented or anything else; it is basically just there to be fermented. Once it has fermented, the plastic is taken off and the silage, as it is now, is fed to the animals on that farm. I am not sure how it can be said that there is a “supply chain” for silage when the grass never leaves the farm. It therefore looks to me, on first principles, that the published guidance of Her Majesty’s Revenue and Customs is not consistent with the law that Parliament passed last year.

The irony, of course, is that the Government have had to introduce a statutory instrument—I think that it is S.I. 2021, No. 1417—to modify the law that we have introduced but that has not yet come into force, in order to try to be clear about what we intended to catch in this situation. I do not have any criticism of that. This is a whole new tax; we want to get it right, and it is more important for us to get it right than to be precious about not correcting our own law. I therefore fully support those changes.

However, the guidance note for the changes sets out, in paragraph 7.4:

“This is to ensure that the tax applies to products which are primarily packaging rather than products whose function as packaging is incidental to their main purpose”.

So the Government are introducing changes to section 48 of the Finance Act 2021 to exclude products whose primary purpose is not packaging; indeed, the packaging is

“incidental to their main purpose”.

Therefore, it seems entirely clear to me that what the Government have been trying to do in clarifying the law in that statutory instrument is exactly what I am arguing for silage film; I argue that it meets the definition in the guidance note of the sort of product that should not be caught by this tax.

It would be far better for all concerned if we clarified that now and had HMRC guidance that was, in my view, consistent with the law, rather than having to resort to litigation and tribunals to establish whether this tax should be collected. If that happened, we may end up with some manufacturers thinking that the tax was not due and not charging it, and some manufacturers taking the other view, and it may have to be resolved by the courts in a few years’ time. I would hope that we could get that clarified now, just over two months before the tax comes into force, so that we have certainty.

My final contention is about the impact of the tax on farmers at a difficult time for them. According to estimates, I think from the National Farmers Union or its Northern Irish counterpart, the £200 per tonne would increase the cost of silage film by roughly 10%—a cost that farmers’ rivals around the world, from where we import much meat, do not have to bear. That would be a blow to our farmers’ competitiveness against their international rivals. It would increase their cost base when they are already struggling, as many businesses are in the current economic climate. As I said, that is just a straight-through cost. There is no way of changing the formulation of silage film to avoid the cost by making it 30% recycled components. That cannot be done. It is just a straight cost for farmers, which is not what this tax was intended to achieve.

I therefore hope, on the basis of all of those arguments, that the Minister can give us some encouraging noises. It was never raised that silage film would be in the scope of the tax in any of the consultations, previous lists of products or discussions with the industry. I hope that the Minister can accept that adding it at a late stage was incorrect and was not appropriate. Its inclusion is inconsistent with the law, will not achieve the purpose of the tax and will be an unnecessary burden on farmers. I look forward to hearing her remarks.

--- Later in debate ---

[Helen Whately]

I am happy to get back to my hon. Friend on the conversations that have taken place with different sectors, including the agriculture sector, that were part of work done over the last couple of years on the introduction of the tax.

The definition is set such that it does not include plastic packaging products that are essential for goods to be used, such as coffee pods or asthma inhalers. However, where single-use plastic is required for something to be made, as is the case with silage, it does fall within the definition.

[Nigel Mills]

Will the Minister give way?

[Helen Whately]

I am conscious that we are short of time, but I will.

[Nigel Mills]

We are getting to a perverse situation where things such as coffee pods or perforated bags for boiling rice, which there is no need to use as rice can be cooked without the plastic and coffee can be made without single-use plastic pods, are exempt from the tax, yet silage film, which is an integral part of the process and which there is no way around using, falls within the tax. That is not achieving the objectives. It will seem bizarre to people that we exempt plastic coffee pods but not silage film. Plastic coffee pods cannot be drunk.

[Helen Whately]

I gave examples of some specific products where the plastic is inherently part of the product—ink cartridges would be another. I recognise that there are some kinds of plastic that are harder to make using recycled plastics. One objective of the tax is to improve the rationale and incentives for the development of plastic packaging that uses more recycled plastic, and to make sure that more plastic is recycled and re-enters the supply chain. Although that will not necessarily happen immediately, it is part of shifting the incentives to encourage businesses to innovate and develop those products. We are already seeing that; as my hon. Friend the Member for Amber Valley knows, Berry BPI is already making great strides in producing high-quality recycled plastic that can be used for a variety of purposes, including agricultural purposes. I know that other businesses are working on this and, with the incentives, more will follow suit.

In conclusion, I reiterate that we have worked closely with manufacturers, importers, the devolved Administrations and others affected by this tax at every stage of its introduction. HMRC has been working closely with the industry, and that has informed the development of the categories of products that are in and out of scope of the tax. I assure hon. Members that HMRC and the Treasury are continuing those conversations and listening to industry. I am confident that by incentivising innovation and encouraging new ideas across our economy, including in agriculture, we will ultimately achieve huge benefits for the environment, nature and the world.

Question put and agreed to.

Budget Resolutions

Nigel Mills Excerpts

Wednesday 27th October 2021 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to follow the hon. Member for Feltham and Heston (Seema Malhotra), although I have to say that I did not expect more from the Budget—I came here today fearing the worst. I expected to see some pretty dire public finances, and to be fair we have seen some pretty dire numbers. The deficits for the last financial year and the current year total £500 billion, and we will still be running a deficit this year of about £130 billion.

However, we have managed to forecast to balance the books in the financial year after next. I could not possibly have expected that we could go from the economic storm that we suffered back to a balanced situation less than a couple of years after the end of the pandemic. That is a tremendous achievement and it shows how successful the Government’s measures to save the economy have been over the past 18 months that we can even forecast that position. Even if that forecast is a bit optimistic, I was expecting years and years of deficit, and was wondering how we were going to fill it with spending cuts and tax rises. It looks, thankfully, like we will not need them.

We are forecasting the end of the deficit the year after next despite the Budget increasing the deficit by £25 billion. The measures we see are tax rises of about £12.5 billion and spending increases forecast to be about £38 billion. The spending envelope is actually being relaxed while we are balancing the books—quite a tremendous achievement. It probably shows, however, how key some of the sensitivities are in the forecast that we need to deliver the economic growth to drive tax receipts, otherwise those numbers just will not work.

We need to focus on what more we can do to increase the long-term trend in the rate of growth. What we are seeing by the end of the forecast period, well under 2%, will not be sufficient to deliver the public finances that we all want to see. That is why we need to make sure that the very welcome measures to increase investment, improve skills and boost productivity are driven through and made to work.

There was much good news in the Budget. Most of it was trailed well in advance. More money for the NHS will be hugely welcomed across Amber Valley. The rise in the living wage will be welcomed by people earning low wages. The end of the public sector pay freeze is the right thing to do. We had a year of it. I understand why we needed it in the middle of the crisis, but we cannot leave people worse off in real terms given the rise in bills.

I especially welcome the reduction in the universal credit taper. If I could just gently tick the Government off, that is not a tax rise. It is not a marginal tax rate. If we really wanted to say what the marginal tax rate was and we included that, we would have to add the 55% new taper rate, the 13% national insurance rate and the 20% income tax rate for those earning over £12,000, leaving an 88% marginal tax rate. I suspect that is not what the Government are trying to tell us, and nobody really believes that people can move into work from benefits and not have any reduction in their benefits. It is quite right that there is a reduction, so I am not sure that it was helpful to present this as a tax cut. It is a welcome reduction in the taper rate, which will ensure that work pays, but we should be careful in the presentation of that.

I have been one of those arguing to keep the £20-a-week uplift. We would have had a much better system if the benefit had started in the right place and then tapered off at the right rate. It is clearly welcome that the Chancellor has found £2 billion a year to improve the taper rate and make sure that we can be certain for everyone that work will always pay and that they will be materially better off if they take work, get more hours and get higher pay. That is hugely welcome.

I also welcome the fact that the Government, in our post-Brexit world, are starting to tweak the tax system so that we can use our post-Brexit freedoms. The reduction in the draft beer duty rate is sensible. On the domestic air passenger duty rate, it is absolutely right that people should be able to fly within their own country at a lower tax rate than when they fly overseas. That is what used to be the case until 20 years ago, when we were forced to change.

I even welcome small measures such as the plan to take away the right to offset losses incurred across Europe from UK corporation tax. That is a sensible measure. There is no reason why a loss that someone incurs overseas should reduce their UK tax bill. There are other measures that we had to introduce to be compliant with EU rules, which we could now reform. We had to take away a collection of tax avoidance measures because they did not comply with EU rules; we can now reinstate them and protect our tax. I urge the Government to continue that trend.

I welcome the changes to the research and development rules, the increased investment and the tweaks to the R&D tax incentives. It is right that when we give people a tax incentive, that work is done in the UK. Actually, it is more important that the fruits of that research are owned in the UK, that the intellectual property produced is owned and exploited here, and that the research generates jobs and tax revenues here. I urge the Government to introduce the detail behind those changes and to add a rule that says, “If you are going to claim that tax credit, the IP produced needs to be owned in the UK for you to get it.” That will be more important in the long run than where the research was carried out. If the Minister wants some clues on how to draft such a measure, he should know that I moved an amendment to that effect about 10 years ago during consideration of the Finance Bill. He can check the history.

[Kevin Hollinrake]

On the universal credit taper rate change, my hon. Friend says it is not a tax cut. It will cost the Exchequer £2 billion to do it, so it is a tax cut in that way. On national insurance and personal tax thresholds, for people who are below those figures, the extra taxation he mentioned—the 20% and the 13%—will not apply.

[Nigel Mills]

I am grateful to my hon. Friend for his intervention. I agree with his point, but actually we cannot say that every spending increase is a tax cut. That makes no sense. This is an increase in welfare spend; universal credit is not a tax. By improving the taper rate, we are not changing tax. That is not the case. It is not a factual statement, nor is it helpful for people who need to understand their own financial position to believe that description. I am sure my hon. Friend knows that many people who are entitled to universal credit earn more than £12,000 and therefore pay income tax and national insurance. That is not an unusual situation to be in.

I shall conclude so that I comply with the Chair’s strictures on time. This is a hugely powerful Budget that sets the country in the right direction. It shows a welcome improvement in the public finances and delivers on many of the priorities of my constituents. I wholeheartedly welcome it.

Health and Social Care Levy Bill

Nigel Mills Excerpts

Committee stage & 3rd reading
Tuesday 14th September 2021 Commons Chamber

[Jesse Norman]

I think it is the set-up cost, although it may be incurred over more than one year. As I say, it is a very preliminary number that we have tried to get for the purposes of responding to the Treasury Committee’s inquiry.

[Nigel Mills (Amber Valley) (Con)]

My right hon. Friend talks about the advantages of having clarity on payslips about what people are paying for with the health and social care levy. Has he thought about combining the existing national insurance contributions that are allocated directly to the NHS and do not go into the National Insurance Fund? They are around £26 billion each year, which would effectively treble the amount of money in the levy. That would make it much clearer that people are paying all of it towards the health system, rather than having two different taxes doing exactly the same thing in slightly different ways.

[Jesse Norman]

My hon. Friend rightly points out that an element of NICs is already hypothecated, which is sometimes forgotten by people who are concerned about the hypothecation in the levy. I will take his remarks as a suggestion and reflect on them further. I recognise his expertise in this area, so I am grateful for the intervention.

Serendipitously, I will now address my hon. Friend’s amendment. This amendment asks that HMRC should publish a forecast of the estimated costs of collecting the levy. The published tax information impact note sets out clearly that the operational costs of the levy are being quantified. I have given a preliminary indication, but we will publish the final estimates before the levy comes into effect in April 2022. This amendment is therefore not necessary and I would ask him to consider not pressing it to a vote.

--- Later in debate ---

[Jesse Norman]

The plan is clear that, to the extent that national insurance contributions are incurred by public bodies, they will be met. The funding is set up on that basis. In respect of local government, extra pressures other than those already contemplated are matters for discussion in the spending review. That is the normal fiscal procedure and the one the Government are following.

I turn now to address the Opposition’s new clauses 6 and 7 on reporting the levy expenditure shares and the revenue derived from those in the social care sector. First, on the share of levy spent on health and social care, the Government already routinely publish data on departmental spending throughout the year, including at main and supplementary estimates, through public expenditure, statistical analyses and in departmental annual reports and accounts as well as data on the revenue raised from individual taxes.

At present, this reporting shows, for example, exactly how much revenue NHS England receives from national insurance contributions. In future, this will show the contribution that this levy makes to the budgets of the Department of Health and Social Care and the Ministry of Housing, Communities and Local Government. There is no need for additional reporting in that context as all the relevant information will readily be publicly available. The Government have already published the amounts that will go to the NHS and to adult social care over the next three years as a result of this levy and will confirm final allocations at the spending review.

Finally, on the levy revenue derived from those in the social care sector, existing data sources do not include or reliably collect data on employment by sector. It is not known which sector an individual works in, only their income types and amounts. I hope that, given these considerations, Opposition Members will not press their new clauses for the reasons that I have outlined.

Let me turn to new clause 10 tabled by my hon. Friend the Member for Amber Valley (Nigel Mills). This would require the Office for Tax Simplification to publish an assessment of the merits of the levy. As outlined in the Finance Act 2016, the statutory role of the OTS is to advise on the simplification of the tax system. To assess fully the advantages and disadvantages of introducing the health and social care levy would require the OTS to consider and comment on choices with far broader policy considerations, including on health and social care, which sit well beyond its remit and expertise.

The OTS functions as an adviser to the Chancellor rather to Parliament and it is for the Chancellor to commission work for the OTS or for the OTS to advise the Chancellor on its own initiative as it sees appropriate. It is not the role of Parliament to commission work from the OTS, though I have no doubt that the Treasury will have taken on board this new clause, and I thank my hon. Friend for tabling it.

The published tax information and impact notes set out clearly that the operational costs for the levy are being quantified and the Government will publish these estimates before the measure comes into effect in April 2022.

[Nigel Mills]

Does my right hon. Friend have any rough estimate of the cost to business of having to comply with the rules of paying, in effect, a third payroll tax? Does he have any idea of the costs of changing the software to include that levy and of redesigning payslips? All those costs will have to be borne. Does he have any estimate for us before we decide whether we want a new tax or just to increase national insurance as we are doing for the first year?

[Jesse Norman]

It is true that, just in relation to the levy, business will bear some cost and the existing tax information and impact notes outline that there will be costs to be borne, as one would expect with any tax, let alone a broad-based tax of this kind. The package goes well beyond this, and businesses will be large beneficiaries in many ways from aspects of the package because they will benefit from having a healthier and more secure workforce than they would otherwise have. How one measures that I am not entirely clear, but I take the point that my hon. Friend makes and will, of course, refer it to colleagues. Having said that, I hope that he will not press his new clause for the reasons that I have outlined.

--- Later in debate ---

[Stephen Flynn]

I thank the hon. Gentleman for his intervention and for the tone in which it was made, and I shall reflect on two points in relation to what he said. He said that perhaps the biggest change to health and social care was the action of Tony Blair, but I happily disagree with that. In fact, it was in 2016 in Scotland, when we did something that I heard Members discussing earlier at length: we integrated health and social care in Scotland. That was on top of the fact that we provide free personal care for our elderly and so on, and that is in contrast to the situation in England, which has led to the crisis we see before us.

On the hon. Gentleman’s point about finance, which is the crux of this argument, do the ends justify the means? That is the purpose of this discussion. I believe in the ends. I believe our NHS and social care services deserve more money, but I do not believe that this is the right way to do it. That obviously leads to the next question, which is about how we should fund this. I heard Conservative Members—rightly—shouting at the Labour Benches, “What is your plan?”, but what is the cost of Trident? What is the cost of nuclear weapons? Over their lifespan I believe it is between £164 billion and £200 billion. Conservative Members will not say that those weapons should be scrapped, but I will. They should absolutely be scrapped, and we can use that money to fund our vital NHS services. The answer is staring them in the face, but they choose not to look at it because this is about priorities, and their politics and priorities differ massively from mine, and ultimately from those of the people of Scotland.

Finally, amendment 4 goes to the nub of where much of our frustration lies with the Bill, because if we shake it about a bit, this is ultimately another UK Government power grab. They are seeking to tell the Scottish Parliament how it should spend money in devolved areas. Whether they agree or disagree with the national insurance hike, all members of the Committee, certainly Unionist Members, should be concerned about the consequences of the UK Government seeking to impose themselves once again on devolution. I say that not as someone who seeks to defend the Union—by all means continue to do it—but because all the UK Government are doing is driving home the message in the minds of the people of Scotland that they do not respect the devolution settlement and they do not respect the Scottish Parliament.

[Nigel Mills]

I come at this debate from a slightly different angle. When we first heard rumours of a tax rise to fund health and social care I felt that, given that we had just spent £400 billion to get us through a pandemic, and that we wanted to get health care services to 110% of previous capacity to clear the backlog, we could accept that a tax rise had to be found to do that. I thought there was no other way, given that the economy and tax revenues are still smaller than they were, and that that was the responsible and prudent thing to do. I may not have chosen national insurance, but I accept that it is probably one of three taxes that the Government could have chosen.

My interest is in why, in the long term, we have chosen not to raise national insurance but to have a new tax. I remember that when I was first elected we were keen on simplifying the tax regime. We even had a review into whether we could merge income tax and national insurance, so that we could have one tax fewer, and make it cheaper and simpler to collect. For some reason that I will try to work out, we have now moved on to adding a kind of son or daughter of national insurance to the tax code. I think the only slight difference is that the new tax will apply to the earned income of people over retirement age, where national insurance does not. I do not know how much that will collect—the Minister would not give us an estimate—but I think it is a pretty tiny amount, and I am not sure there is huge advantage in that.

Being a bit of a cynical sort of person I thought that perhaps because our manifesto promise ruled out tax rises we could have a levy, and that people would fall for that, but I am glad we did not take that line. Indeed, the Government were clear that we are breaching our manifesto promise, for justifiable reasons in the circumstances.

Perhaps we are trying to create some clarity, thinking that if people can see a hypothecated tax, they can see how much they are paying for health and social care and they will understand and value what is happening, except of course we are raising by this levy £12 billion a year or so—a tiny fraction of what we spend on the NHS, let alone social care—and people will see a social care levy on their council tax bill. In fact, this money is not even the biggest part of national insurance that will go to the NHS; as I said earlier, £26 billion a year—roughly 2% of the national insurance contributions in each class—already goes directly to the NHS and does not go down the usual route of national insurance funding. I am not sure that we are going to get the benefit of clarity for people about what they are paying.

--- Later in debate ---

[Jesse Norman]

I am afraid that I must correct myself. It is actually £40 million to £50 million, rather than £50 million to £60 million. I was relying on an imperfect memory.

[Nigel Mills]

Perhaps the Minister was building in some optimism bias, as the Treasury normally does to other people’s forecasts, and going for £50 million to £60 million to make sure. I do not know whether that is the cost of building the systems to enable the returns to be made, or to enable the systems to collect or chase the money, or whether there is going to be some ongoing annual cost; I assume that there will be some ongoing annual cost in trying to chase compliance too. However, we do not have an estimate for how much we are going to be imposing on business to pay this tax.

I imagine that this will be a separate tax that is not collected in the same way—the same box—as national insurance. I assume that there will have to be different parts of the payroll returning different calculations, which will require every software provider to change all their software coding to cope with it and to add in the new amount that is being paid by people over retirement age who do not normally pay national insurance. All that will cost time and money and need testing and compliance, and then we will have to check whether employers are following it and chase them for the money.

I suspect that there will be quite a large up-front cost for all that work to be done, and then a reasonable annual cost to ensure compliance, so there is a first-order question whether we are raising more by quite rightly taxing people over retirement age on their earned income—this 1.25%—than we are having spent on obtaining that. From the Minister’s remarks, I am not convinced that the answer will be positive, so in actual fact, we are creating a whole new tax to raise less money than it costs to collect it, for no real advantage other than a presentational one.

[John Redwood]

My hon. Friend is such an expert on this. Has he probed or got anywhere with finding out how much consequential tax loss there might be from the national insurance rise, or the care tax rise, itself? Presumably, there are some losses that will have to be offset, so gross will not necessarily be net.

[Nigel Mills]

I assume that my right hon. Friend is right that, if we reduce the number of people in work or reduce their pay rises, that will work its way through the system. The Minister may be better placed than I am to work out an answer to that question.

The nub of my argument, and the reason for amendment 8 and new clause 10, is that we have 18 months before the new levy comes into force—we accept that we cannot bring it into force in six months’ time, presumably because it is so hard to get the systems in place, and that we have to raise national insurance for the first year and move to the levy after that—so perhaps if we had all the information in front of us in the next six months or year, we could make a choice whether to go ahead with the new levy for the small amount of extra income, or whether to stick with the national insurance rise and find other ways to explain to people what they are paying their taxes for.

I think the Minister accepted that HMRC will publish its estimate, and I am sure we could find a way of getting an accurate estimate of the cost to business of complying with the levy. We could then take an informed decision before we finally introduced the levy. I think that would be a positive step in tax policy. However, if we really believe that we want a separate levy to show what people are paying directly for health and social care, I think that we should move the existing 2% of national insurance that goes directly to the health service into the levy, so there is one hypothecated payroll tax that goes to the NHS on people’s payslips, rather than it being hidden in a part of national insurance. I cannot see any reason why, if we go down the line of introducing a new health and social care tax, we would not want to have all the hypothecated payroll taxes going into the NHS or social care to get any of the advantages of that.

I will not be pressing my two new clauses to a Division, but I urge the Minister to give some serious consideration—I suspect he did not know about this new levy until around about last weekend, when it was probably dreamt up in No. 10 as a way of selling a tax rise—to using the 18 months he has before the levy comes in to try to work out whether the costs of collecting it are worth the small change. If he really does think there is a compelling argument for charging people over retirement age national insurance if they stay in work and are earning, let us charge them the full rate, rather than 1.25%. I cannot see how we can justify that they do not pay the existing 2% that goes to the NHS but they do pay the 1.25%. There seems to be no logic in that at all to me, so perhaps we should think properly and coherently about the tax system. Let us have the full rate in that situation.

Let us have a decision when we get around to the Budget in 2022. Is going ahead with this levy going to raise more money than it costs? If it is not, let us just leave it on national insurance where it will be sat at that point. That would be a more coherent way of running our taxes.

[Nadia Whittome]

With your permission, Dame Eleanor, I will speak to new clauses 3 and 5, tabled my hon. Friends the Members for Ealing North (James Murray) and for Erith and Thamesmead (Abena Oppong-Asare). New clause 3 requires the Chancellor to assess the impact of the Act on tax revenue from different sources of income and new clause 5 calls on the Government to publish an equality impact assessment of the Act.

Dame Eleanor, given that even in Committee this has been a wide-ranging and broad debate, I hope you will allow me to set out the context of those new clauses. It is people in poorly paid jobs who will bear the brunt of the national insurance increase, at a time when in-work poverty is already at a record high. How can it be right to ask those who are already saddled with extortionate housing costs, poverty wages and mountains of debt to pick up the tab for this Government’s failures on social care? To put it simply, the Government are choosing to protect the interests of the wealthy who fund them at the expense of low-income workers and renters. While landlords and the super-rich who are hoarding wealth and housing pay nothing under this new tax, my constituents will be having their pockets raided.

Since 2010, under this Government’s watch, £7.7 billion has been cut from social care budgets. If I could sum up this policy—if we can call it a policy—in one word, it would be “unfair”: unfair on the working people who are funding the tax rise; unfair on the care workers who will not see their pay and conditions improve; and unfair on those relying on social care, whose needs will continue to be unmet. Figures released this week show that nearly 70,000 people in England could die waiting for social care before these changes even come into force.

If the Government were interested in fairness, they would tackle the soaring housing costs, low-paid jobs and inadequate benefits that my constituents are facing. Instead, their policy agenda is fuelling inequality and impoverishment. As we heard from the hon. Member for Aberdeen South (Stephen Flynn), 2.5 million working households will be hit by the cut to universal credit and the increase in national insurance. Working families will be losing, on average, over £1,000 next year. Meanwhile, the furlough scheme is ending and evictions are resuming.

There is, however, a group of people who have benefited from the pandemic—who have done very well, in fact: British billionaires. They have increased their wealth by over £100 billion. That is why now is the time to get serious about taxing wealth. The Chair of the Health and Social Care Committee, the right hon. Member for South West Surrey (Jeremy Hunt), said earlier in the debate that this tax hike would raise more than a wealth tax, but I am afraid that that is not true on any measure. City A.M.—this is City A.M., not “Das Kapital”—calculated that one wealth tax option would be to tax wealth progressively between £1 million and £10 million, with all wealth beyond £10 million taxed at 3%. That would bring in a total of £55 billion over five years. Alternatively, the economist Richard Murphy calculated that, if wealth was taxed at the same rate as income, that could raise up to £174 billion a year.

Will the Minister explain why none of those options was considered and what the Treasury makes of those calculations? And perhaps the Chancellor could explain to us, as a multimillionaire, why he cannot dig deep into his own pockets and why it has to be my constituents—in fact, all our constituents—instead. I think that this House and working people across the country deserve to know why a wealth tax was dismissed in favour of a tax on the poorest and the lowest paid, and what is more, to fund a plan that will not even work.

We have heard during this Committee that the Government’s excuse for not ring-fencing the money raised for social care is that health and social care are interlinked. I agree, to an extent, and that is why, to fix our social care system, we need a national care service, like our national health service, which is free at the point of use. We need to redesign the system so that the needs of care users, for want of a better word, and care workers are at its heart. The money to do that is there but it is in the pockets of the richest and it is the political will from this Government that is sorely lacking. Anything less than a national care service, funded by a tax on wealth, not on workers, would be a great disservice to the people we are elected to this place to represent.