Finance (No. 2) Bill

Nigel Mills Excerpts

Monday 11th April 2016 Commons Chamber

[Mr Gauke]

Simplification does matter. One of the measures announced in the Budget—it is not in the Bill, for reasons that will become apparent—is the abolition of class 2 national insurance contributions. National insurance contributions are not covered in Finance Bills, but that is an example of a tax being removed—a tax that created a considerable administrative burden for both taxpayers and Her Majesty’s Revenue and Customs.

The Bill also puts the Office of Tax Simplification on a statutory footing. In the last Parliament, the OTS made approximately 400 recommendations, almost half of which have been implemented. The OTS is being strengthened; it has a new chair, Angela Knight, who is already performing a valuable role in leading the debate, and its resources have been increased. I am sure my hon. Friend will follow the OTS’s progress closely, scrutinise its performance and decide whether it is proposing measures that take us in the direction of which he approves.

[Nigel Mills (Amber Valley) (Con)]

Would my hon. Friend welcome the OTS looking at some more fundamental tax simplification measures such as wholesale reform of individual taxation, rather than focusing on small, individual parts of taxes, as a way of moving us to a much simpler tax system more quickly?

[Mr Gauke]

My hon. Friend makes an important point. There is considerable value in the OTS looking at specific areas, but I think there is a case for it looking at broader matters. Indeed, in its reviews—of small business taxation, for example—it is addressing some of those bigger questions.

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[Nigel Mills (Amber Valley) (Con)]

I am grateful to be called so early in the debate. I strongly support the Bill, which will encourage saving, reward work, encourage business investment and tackle aggressive tax avoidance. Those things are exactly what we want to see in a Finance Bill and they are all in this one.

Given that, I cannot understand why anyone would choose to vote against the whole Bill. It seems to be largely because of the changes to capital gains tax and corporation tax. I will go back as far as Gordon Brown’s first Budget after becoming Chancellor, in which he effectively introduced a 10% capital gains tax rate and reduced the corporation tax rate. Perhaps we can remember when we had a Labour Government who at least tried, in the early years, to be friendly to business and encourage investment and growth in this country.

[George Kerevan]

Will the hon. Gentleman explain why the present Chancellor raised capital gains tax to 28%?

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[Nigel Mills]

That was a peril of coalition and a Lib Dem insistence that I am sure we regret strongly, as it appears not to have increased capital gains tax revenues in the way that was intended. It is quite right to move the rate back down to a more sensible level in the responsible way that that has been done.

We should note that every year we have a Finance Bill, and they are quite long, thick and heavy. We keep adding a load of new and complex clauses to our tax system, which is still just behind the Indian one for complexity. I do not think that we have a record length Finance Bill this year, although the Government achieved that twice in the previous Parliament. At some stage, we have to find a way of getting off the merry-go-round of further complicating our tax system every year. We even have a new record now—of adding a new tax every year. We had the diverted profits tax last year; this year, we have the apprenticeship levy, which the Bill recognises is actually a tax. Although those two measures are welcome, we are further adding to the complexity that people have to deal with.

A welcome step in the right direction is that we are making the Office of Tax Simplification a permanent feature of this arena. However, we need to free that office up to do more long-term, high-level strategic work rather than having to focus on what can at times be quite small features of the tax system, which do not affect all that many taxpayers. As the Minister said, it has done good work on small business taxation, but we really need the office to work out how we can simplify the big taxes we have, to make them easier to comply with, make it easier for HMRC to enforce compliance, and make those taxes less burdensome. That was my reasoning, in the previous Parliament, for why we should make the corporation tax system follow accounts, and focus the resources we have on transfer pricing and abusive avoidance arrangements, rather than having to inquire into whether a certain item was capital or revenue, or whether a certain entertainment allowance was right.

Such long-term strategic directions to simplify the system would bring in far more revenue and make the system far more attractive. I hope that the Bill will allow the OTS to choose its own work in some situations. Perhaps it will be encouraged to consider some fundamental simplifications, and not just suggestions made by the Chancellor from time to time.

On individual measures in the Bill that are welcome, the savings and dividends nil rates are an encouragement for people to save, and a welcome simplification of the tax system for many people who struggled to work out how the dividend credit worked and what tax rate they were paying. That moves us in the right direction regarding how we stop people incorporating themselves to get a tax advantage that is not intended by paying themselves dividends, and helps us to get to a fairer system in which people who are employed pay the right taxes.

Some issues have not been raised. For example, the peer-to-peer lending rules are leading the world in encouraging the financing of businesses that cannot get normal financing from banks. There are also welcome anti-avoidance rules such as the withholding tax changes to try to stop treaties being abused so that companies avoid paying the withholding tax they should be paying in paying fees to tax havens.

The Bill does not contain some measures that I would like to be included. For example, we must accept that there is a widespread lack of confidence among the public that our largest corporates are paying all the taxes in this country that they are supposed to pay. I suspect that most of those companies are paying their taxes and that a relatively small proportion are engaging in aggressive avoidance, but everyone gets tarred by the same brush. The measures that we have introduced in the past five or six years to tweak things or introduce new rules and so on, are not tackling the fundamental lack of confidence in the system, which is why we need more transparency from large companies.

We should make large companies publish their tax returns so that we can see a calculation of how they have got from the profit they report to the tax they pay. We should know which companies have made aggressive calculations, or used strange reliefs or funny payments that we do not understand, and which are paying the right amount and happen to have losses brought forward or capital allowances that they have not used. That would boost people’s confidence and we would not see stories every few months about another large multinational that has done something that it should not have done, or done something entirely reasonable, but we do not know because such details are not in the public domain. It would help to move this debate forward if those large companies were more transparent.

Companies have to disclose many things about their directors, investment strategies and business practices, and I do not think that a little more transparency about tax affairs would put much more commercially sensitive material into the public domain. Instead, it would boost people’s confidence. I hope that large companies that are complying with the rules would want to do that—they should not be scared of doing so. If they are using existing rules and incentives for the use that they were intended, that is welcome and something that we all understand. Perhaps the one thing that we can do domestically would be to take this debate forward so that we are confident that our largest companies are doing what we want them to do, and not doing things that they ought not to be doing. With that plea, I welcome the Bill and will be voting for it this evening.

HMRC and Google (Settlement)

Nigel Mills Excerpts

Monday 25th January 2016 Commons Chamber

[Mr Speaker]

Order. I note in passing that over the past few minutes further Members have started bobbing. There is no problem with that, but if it delays the Minister he will know why.

[Nigel Mills (Amber Valley) (Con)]

When the Minister makes large businesses publish their tax strategy, will he also make them publish their tax returns so that we can all see how much tax they are declaring and how they got from their cash profit to that tax bill? That would improve transparency and confidence in the system.

[Mr Gauke]

The United Kingdom’s position on taxpayer confidentiality is hardly unique. Indeed, it is the mainstream approach. Knowing what a company’s tax liability might be depends on a detailed understanding of the whereabouts of its assets and activities, and not all of that information would necessarily be apparent from a straight tax return. As I have said, there is greater transparency now because companies have to set out their strategies, which has never been the case before.

Draft Small Charitable Donations Act (Amendment) Order 2015

Nigel Mills Excerpts

Monday 7th December 2015 General Committees

[Nigel Mills (Amber Valley) (Con)]

May I build on the questions about donations in kind and food banks? When the 2012 Act was debated, I tormented the then Minister with questions about why we were restricting the measures to cash donations. As the world moves on, we will all start using contactless payment or Apple Pay, and there will be many more situations in which one can make a small donation to a charity by walking past and waving one’s card or phone. Yet although that is practically the same as cash for all intents and purposes, under the rules as currently drafted it is outside the scheme, and the charity would have to collect someone’s gift aid details through their mobile phone provider or bank. What people think they are doing in such situations is making a small donation in cash; they just happen to be using a more convenient technological process to do so.

There are many other examples. People can deposit their Oyster cards in a bin at the tube station, and Transport for London takes the balance and gives it to a charity. Again, people are not making a cash donation, but that is effectively what they think they are doing. Three years on, is the Minister more open-minded than his predecessor on revisiting whether we should allow small donations to be extended to cash equivalents in order to capture such situations?

Scotland Bill

Nigel Mills Excerpts

Monday 29th June 2015 Commons Chamber

[Sir Edward Leigh]

That is a good point, and I agree entirely. It does not make sense. One Parliament might be trying to manage its own affairs by setting bands responsibly, but another Parliament could cut the ground from beneath its feet by changing the threshold. I do not know why the power has been reserved, but no doubt the Minister will tell us.

[Nigel Mills (Amber Valley) (Con)]

Does it not go even further? Without the Scottish Parliament having control over the rules and the tax base, the UK Parliament could create a load of new reliefs that would cost it a fortune. If we are going to devolve income tax, we ought to devolve the whole thing, not just part of it.

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[Mr Alistair Carmichael (Orkney and Shetland) (LD)]

As others have said, the genesis of the clause lies in the report of the Smith commission. I have supported the commission since the day, indeed the hour, when it reported, but we cannot ignore the fact that the process was undertaken at great speed. Necessarily, given that five parties were engaged in the process, it involved a degree of compromise all round. It is for that reason that all of us undertook to ensure that there would be consultation following the publication of the report and, subsequently, the draft clauses.

In a debate in which consensus is not always easy to come by, I am pleased to note that there is consensus on the fact that the clause is a faithful replication of the agreement that was reached under the chairmanship of Lord Smith. However, the consultation that has been conducted since the publication of the draft clauses at the end of January has highlighted, and generated, a substantial number of important matters, some of which are technical and some of which go to the heart of the issue of taxation itself.

I suggest to the Secretary of State that further consideration may be necessary. He has the ability, through the good office that he holds, to bring all the parties together again to consider the representations that have been made during the consultation, and to consider whether, given the complexities and possible areas of conflict that could arise, it is actually worth implementing the tax power in the way that is currently envisaged. If the consultation is to be carried out in good faith—and, for my part, it always has been—there are sufficient matters about which we should be talking. That would still allow us—if it were necessary, and if it were possible to construct a consensus—to return to the issues on Report.

[Nigel Mills]

I rise as a reluctant supporter of the devolution of income tax to the different countries of the Union. I agree with the hon. Member for Edinburgh South (Ian Murray) that people throughout the United Kingdom should feel that they are paying the most important tax—the tax that puts the largest amount of money into the UK pot—and seeing it redistributed. We are where we are, however, and we are talking about devolving income tax to Scotland.

I fear that we have one foot in each camp, with part of the tax in this Parliament and part of it in the Scottish Parliament, and that we will end up in a real mess. I am not sure how it is possible to make a tax work when a Parliament can set the rate, the bands and the starting point, but not the actual rules. A particular policy issue in Scotland may mean that the Scottish Parliament rightly wants to incentivise certain employment and income activities. That may not be not a priority for the United Kingdom as a whole, perhaps for reasons of scale or owing to a different approach, but there will be no mechanism enabling income tax in Scotland to promote that certain activity. A new tax relief for people working in the offshore oil and gas industry, for instance, might not be a priority for the UK as a whole, but it might be a priority in Scotland.

The record of our income tax code is cluttered with examples of the use of the tax code to promote certain types of behaviour. I am not sure that we can secure the full and effective use of a tax code if our Parliament is not setting the rate and looking after local activities.

The flipside will be that tax avoidance as a result of a loophole may become material for the Scottish Parliament in the case of a certain piece of exploitation, but will not become material to the budget of the whole UK. It may be extremely important in Scotland to get that loophole closed, but in the UK there may be several others that are ahead of it in the queue, because it does not represent a large loss to the Westminster Parliament. An action that ought to be taken on something that has a material impact in one part of the UK will not be taken because of the strange disparity that exists.

If we are going to start devolving taxes, we should step back and have a look at what a federal UK tax system would be like. We should work out which taxes are federal and which are devolved, and then try to bring about some consistency in Wales, Scotland and Northern Ireland so that similar taxes can be devolved in the same way, rather than adopting a piecemeal approach in regard to corporation tax in Northern Ireland, income tax in Scotland, and so forth. I do not think that anyone in the country will know to which Parliament they are paying what tax, and who has complete control of it. That means that we will not get all the advantages that we expect, such as the ownership and the accountability that my hon. Friend the Member for Gainsborough (Sir Edward Leigh) mentioned.

I do not think that we are achieving the sharing and the pooling that the hon. Member for Edinburgh South wanted, the coherent use of income tax that the SNP wants, or the full devolution that would make sense. We appear to have become involved in a strange halfway fudge which we may regret in a few years’ time. I think it would be better to step back and try to get this right from the start, rather than trying to find a way of clearing up the mess.

I accept that there are always good reasons why the line is drawn where it is. We must be very careful about tax avoidance through the use of residency, or pretend residency. If I am working full-time in Scotland, to get the Scottish rate—which may be higher or lower than the rate in the rest of the UK—I shall probably have to go and live in Scotland. I suspect that I cannot achieve that artificially. If I have large dividend flows, I can probably pretend that I am in Edinburgh when I am in London and vice versa in order to obtain the tax advantage. I can see why there is an attraction in having one UK-wide passive income tax, rather than an active tax.

[Ian Murray]

The hon. Gentleman is raising the issue of what are known in my constituency as “willies”—people who work in London, live in Edinburgh. Those are people who take the trip down to London every Monday and go back on a Thursday evening. According to the House of Commons Library, the UK’s reason for not devolving dividend income is to prevent people from pushing money into dividend income and taking advantage of a differential rate.

[Nigel Mills]

Yes, as I was saying, I accept there are always reasons for drawing the line where we do, and trying to stop tax avoidance within a territory is a powerful reason. However, that has left us here with a convoluted tax system where we seem to be devolving part of it, and that is not a sensible approach. It would be better to have a federal income tax which everyone in the UK paid at a lower rate than they pay now and which covered all passive income, and then have a devolved income tax like the one in the United States. It has a state income tax that can be credited against the federal one. That may be a better, more sustainable system than the one we have.

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[Pete Wishart (Perth and North Perthshire) (SNP)]

The hon. Gentleman is making a thoughtful speech and he has the ears of those on the SNP Benches. He is right that we have got a halfway house and we have got to get this resolved. That is what the Scottish people thought they were voting for when they voted for us in such numbers. Is there anything the hon. Gentleman can do to persuade his right hon. Friend the Secretary of State to listen to what Scotland has said, and to have the proper solution and ensure we do this right and get what the Scottish people voted for just a few weeks ago?

[Nigel Mills]

I have tried to convince the Treasury Minister, my hon. Friend the Member for South West Hertfordshire (Mr Gauke), of various tax reforms over the last five years with, I would have to say, somewhat limited success, so I am not sure my words will help. If we are to achieve a lasting settlement of our constitution, having these tax rules in the right place with everyone understanding them and believing them to be fair will be extremely important. I do not think my constituents will understand how Scotland can set a different rate of income tax from what they pay if Scottish MPs are still able to vote on the English rate of income tax because it applies to passive income and dividend income. I suspect we will get into a constitutional nightmare, and I can foresee a situation in which Scotland chooses a lower rate of income tax than we have in England, and the English taxpayer will, rightly or wrongly, see a subsidy going from England to Scotland through the Barnett formula and then SNP MPs coming here and voting for a higher rate of income tax than their constituents are paying. That is the nightmare we would hate to see.

We need to have a clear devolution of taxes and responsibility, not what I fear we have here: a halfway fudge that we will have to try to fix in a few years’ time.

[The Secretary of State for Scotland (David Mundell)]

May I start by agreeing with the hon. Member for Edinburgh South (Ian Murray) that we should put on record our thoughts for those people who have been caught up in the events in Tunisia, particularly those from Scotland who have perished? Although our debate has been curtailed today, it is right that that matter has been given such due consideration in this House.

I say to the right hon. Member for Orkney and Shetland (Mr Carmichael) that I have considered the various issues raised in the House in the first part of our Committee stage, and I will continue that approach through the further days in Committee.

Finance (No. 2) Bill

Nigel Mills Excerpts

Wednesday 25th March 2015 Commons Chamber

[Mr Gauke]

The hon. Gentleman may be interested to hear, or he may already be aware, that the Office of Tax Simplification has looked at what constitutes complexity within the tax system. One conclusion that it reached was that the number of pages in the tax code is not a particularly good barometer of complexity. For example, the rewriting of the tax code that occurred over many years lengthened it, but the intention was to make it simpler to understand.

I would make this challenge to the hon. Gentleman: which elements of the Bill would he not want? For example, there are 40 or so pages on oil and gas tax reform, which I believe all parties recognise is a necessary response to the current circumstances, but that will lengthen the tax code. A number of pages are being added to the tax code because of the diverted profits tax, but all parties recognise the need for such a tax to deal with artificially contrived arrangements. I appreciate his point and the spirit in which he makes it and I share the desire for greater tax simplification, but there are some challenges in that for a Government who also want to deal with avoidance and ensure that we have a competitive tax system for the oil and gas sector.

[Nigel Mills (Amber Valley) (Con)]

I do not wish to revisit old debates about simplification, but does my hon. Friend have a view about the future strategy on anti-abuse rules? I believe that when Graham Aaronson examined the general anti-abuse rule, he thought that after about five years we would be able to start to do away with individual anti-avoidance rules and rely on the GAAR. We could therefore remove some of the more complicated provisions and the loopholes that go with them. Does my hon. Friend think that could work, or does he think it should be ruled out and that we must have both the general and specific rules?

[Mr Gauke]

My hon. Friend does not want to revisit old debates, but I tempted to give a response that I suspect I have given him before. The general anti-abuse rule is a big step forward, and it was absolutely right that this Government introduced it. Other Governments had considered it but felt that it was not the right thing to do. However, it is there to complement the existing measures, and we will want to see how the GAAR works over time rather than rush to judgment. I do not believe that a future Conservative Government would want to risk opening up new loopholes because of uncertainty about exactly how the GAAR applies. It is of course an anti-abuse rule and sets a reasonably high bar for behaviour covered by it, and I suspect my hon. Friend agrees that that is right because of its broad nature. We will have to wait and see before I make any commitment to repealing various targeted anti-avoidance rules.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 27th January 2015 Commons Chamber

[Priti Patel]

I emphasise again that this Government have supported businesses and lending to businesses. That is in stark contrast to the failed policies of the Opposition, and to the fact that the hon. Lady’s party would just put up business taxes and take away the support given to small businesses under this Government.

[Nigel Mills (Amber Valley) (Con)]

8. What assessment he has made of the further steps which are necessary to ensure the fair treatment of defined contribution pension customers in response to the recent market reports published by the Financial Conduct Authority; and if he will make an assessment of the potential merits of introducing a second line of defence protection for such pension schemes.

[The Economic Secretary to the Treasury (Andrea Leadsom)]

We welcome the Financial Conduct Authority’s announcement yesterday that it will introduce new rules in April to protect consumers accessing their pension pot. The rules will introduce a second line of defence, with pension providers required to give consumers wanting to access their pension pot very clear risk warnings and to highlight the fact that guidance from Pension Wise or regulated advice can help them to avoid making a poorly informed decision.

[Nigel Mills]

I thank the Minister for that answer. I welcome the fact that the FCA, perhaps at the last minute, recognised there was an issue and took the right action yesterday. What more will she do to ensure that when people make free choices about their investments after April, they buy the right thing, not make a terrible mistake?

[Andrea Leadsom]

I congratulate my hon. Friend on expressing the importance of a second line of defence. The Government are determined to give pensioners the opportunity to make their own decisions about what to do with their pension savings. Nevertheless, it is vital to ensure that they have reasonable protections.

Diverted Profits Tax

Nigel Mills Excerpts

Wednesday 7th January 2015 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

A happy new year to everyone who is here for what I hope will be an interesting debate on a whole new tax. It is not often we get whole new taxes in this country, and I thought we should mark this one with a bit of parliamentary scrutiny, because I fear it will sneak through in the pre-election wrap-up Finance Bill and will not get much debate in Committee. It would therefore be helpful for Parliament to have a bit of a chance to work out the Government’s intentions and exactly where they intend this tax to go.

If we judge Government measures by how balanced the reaction to them is, this tax has probably gone down about right with people. Some advisers regard it as the worst-drafted legislation in some time, while some have said it is relatively narrow and focused—there has even been a cautious welcome from Richard Murphy, although he is perhaps thinking again about that. Another tax campaigner, David Quentin QC, regards the tax as “widely and aggressively drafted” with “a penally high rate”. If we take the average of all those reactions, it is probably about where the Government would want it to be. It appears that the tax will deter some people from doing some things, but it will not do so ridiculously little that it destroys the UK tax regime, so we are perhaps starting in the right place.

It would be useful to understand what the Government see as the way forward. We have had Treasury tweets suggesting, “This tax isn’t ever really meant to apply to anyone. We hope everyone will change their behaviour. We’ll accept they all have establishments in the UK after all. They’ll stop using artificial transactions, and everything will be fine. We’ll rarely have to apply this tax. It’ll be a big stick that never actually gets wielded.”

In some ways, the Treasury forecast of how much the tax will raise suggests it is not intended to apply to the many thousands of multinational companies it could apply to. Some advisers say that, in theory, the tax could apply to a large number of people and raise a large amount, but the Treasury seem to think it will raise a small amount. I assume, therefore, that behavioural change is the main motivation, but it would be interesting to see whether the Minister confirms that. It would also be useful for everyone to know that the Government actually intend to put this tax through before Parliament is dissolved so that it is on the statute book exactly on 1 April—the date on which it is intended to come into force.

That leads me to one of the main concerns about the new tax—its impact on, and the Government’s strategy for, the base erosion and profit shifting process, which is intended to produce an international agreement on stopping multilateral companies flouting tax rules around the world and avoiding paying tax on profits they earn in various countries. Everyone accepts that that is the right place to get to. It is ludicrous that a large global company can earn profits in the UK and not pay tax here. We all want that to stop, and we all welcome the fact that the Government have introduced a proactive measure to achieve that. However, what I suspect no one wants to happen is that, rather than moving forward with a global agreement so that we have globally consistent rules that can be applied everywhere, we end up with a load of countries taking a piecemeal approach, putting in place slightly different rules that overlap or conflict with each other. In other words, rather than a sensible level global playing field, where everyone knows what the rules are and applies them, we end up with some horrible complexity that results in a similar mess to the one we started with or, equally as bad, a load of double taxation risks. We are a main global trading nation, and I suspect we have a lot to lose from a load of conflicting double taxation rules.

[David Simpson (Upper Bann) (DUP)]

I congratulate the hon. Gentleman, who is a colleague on the Northern Ireland Affairs Committee, on securing the debate. The message I get from many in the business community in my constituency is that if Her Majesty’s Revenue and Customs had been doing its job in the first place, there would be no call for this new tax. HMRC does not seem to go after the large companies that avoid paying tax, but it does go after the medium-sized to small companies, and that is unfair. What we really need is a level playing field.

[Nigel Mills]

The hon. Gentleman comes from an area that would like to be a tax haven—under these rules, a tax haven is defined as somewhere where the tax rate is less than 80% of the UK rate, and I suspect he hopes that the rate in Northern Ireland will be less than that in the relatively near future, although I would be intrigued to see whether the rules would actually apply to profits diverted into Belfast. However, I agree with him in part, and we have had all the stories about sweetheart deals. It is much harder for the Revenue to go after very large companies with very sophisticated advisers who can resist the rules, and it may be tempted towards softer targets that are perhaps not as well advised. However, it is not fair to say that we have this new tax because the Revenue has failed to use the rules that exist. There is a gap in the law, and certain companies have managed artificially to avoid having a permanent establishment in the UK and have, therefore, avoided paying tax on UK profits. I think a general agreement has been reached through the OECD BEPS—Base erosion and profit shifting—process that the rules need changing to bring those profits into tax in the right places. The point the hon. Gentleman made at the start of his criticism was therefore perhaps not entirely fair, given the context we are talking about.

To return to the concern regarding BEPS, no one would want the UK, by acting unilaterally, to unravel that process so that we do not get the co-ordinated international outcome we all expect later this year. It would be helpful if the Minister could explain the Government’s strategy on BEPS. Is the tax meant to be complementary to it? If the outcome of the BEPS process is inconsistent with the tax, do we change the tax, or do we end up keeping both?

[David Mowat (Warrington South) (Con)]

My hon. Friend said that this unilateral action should not affect a global agreement that may be reached in the future. What concerns me, however, is that some countries—Luxembourg, the Republic of Ireland and, possibly, Holland—are acting as de facto tax havens. They regard helping big companies avoid tax in our country as a method of increasing their GDP. Given that, it is unlikely there will ever be a global agreement of the type my hon. Friend is talking about.

[Nigel Mills]

I have always been cynical about the OECD process, for exactly the reason my hon. Friend gives: the risk is that some countries will block it or undermine it out of self-interest. If the main countries are serious about tackling multinational tax avoidance, one country that really needs to change its rules is the US. The US could stop a lot of this by changing some of its rather strange entity classification rules and other things. That would stop US corporates getting the real tax saving they are after. I sense that until the US is willing to do that, we will never see these things stop completely.

[David Mowat]

I should have added that our hands are not clean. We appear quite sanguine about the status of the Isle of Man, Jersey and Guernsey. I am always a bit surprised that neither Front Bench has ever regarded that as an issue on which more action is needed. People in Luxembourg would raise that issue with us, just as I am accusing them of acting as de facto assisters of tax evasion.

[Nigel Mills]

My hon. Friend makes a fair point about the UK doing some sponsoring of the Channel Islands and the Isle of Man, but I will leave the Minister to answer for the Government’s policies on tackling that. My hon. Friend says our hands are not entirely clean; it is interesting that we have introduced the Patent Box to try to have a lower tax rate for intellectual property in the UK—presumably on royalties charged in countries around the world. We have also been trying to get our tax rate down to a low level to encourage international investment. Someone sitting somewhere with a tax rate much higher than 20% might think that we are trying to encourage profits to be taxed here that perhaps should not be, but I am sure that is not the Government’s intention.

To wrap up on the BEPS process, the Association of Revenue and Customs—the trade union for professionals at HMRC—raised the concern that the Government’s proposals were unilateral and stood outside the BEPS proposals. The ARC suggested an alternative approach, whereby the Government remain in the BEPS process and timetable, but use their current initiative to show they will have legislation in place in case the process falters or is impeded. I presume the Government will confirm that they do not intend to slow down on the rules and wait for the BEPS process and that we will see them on the statute book later in the year.

The second area I would like to look at briefly is how likely the rules are to be effective. We all want the tax to be collected in the UK. We do not want to see these corporates able to artificially avoid paying the tax that is due here, but there is a question on whether the rules will survive a challenge under the UK’s many double tax treaties or under EU law. People suspect that the Government have chosen to do a whole new tax, rather than just tweak the existing corporation tax rules, to try to ensure that the rules are not struck down by our international treaties or by EU law. Can the Minister confirm that the Government have looked into that and are satisfied that the treaty analysis is correct? Paragraph 4 of article 2 of the OECD’s model tax convention states:

“The Convention shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Convention in addition to, or in place of, the existing taxes.”

At first glance, it looks as though the direct profits tax will be a tax on corporate income, which sounds similar to a corporate income tax and our corporation tax. The definition in the convention suggests that the tax might be caught by the treaties. Article 7 of the convention, which is on business profits, states:

“Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.”

The problem we are trying to fix with the avoided permanent establishment part of the rules is that if a company does not have a PE, we cannot tax them. We think they are diverting profits out of the UK and we want to tax those profits, but if we are dropped back into the treaty, we might end up in the same position as we started. It would be useful to understand how the Government have satisfied themselves that the tax will not be caught. Is it because they are trying to tax the UK establishment that already exists, or do they believe that it is a new tax that falls outside the treaty?

On the EU law point, I am no big fan of the EU interfering in our tax system. Tax is meant to be for nation states and not the EU. I have never been keen on the view that the European Court of Justice should interfere in sensible tax avoidance rules, so I will not advocate that here, but there must be a risk for the many companies that choose to site themselves in Luxembourg, as my hon. Friend the Member for Warrington South (David Mowat) said. We have all seen the tax rulings that have been published, and we know how many companies are doing that. A company based in Luxembourg might say, “Wait a minute: if I am established in the UK and pay tax there, I pay it at 20%. Why, because I am in Luxembourg, do I pay a slightly different tax at 25%? Is that not fundamentally contrary to some kind of freedom of establishment principle?” There is a risk of a legal challenge to the rules on that basis. It would be useful to understand how the Government have satisfied themselves that the European courts would not strike down what many of us see as a sensible anti-avoidance measure that we would not want to lose.

The flipside to that is whether the provisions have been drawn up in the right way, so that they catch those we are aiming at, but do not create onerous burdens for loads of “innocent” corporations or place a ridiculous burden on HMRC. We want targeted rules that attack the corporations engaging in what they must know to be pretty aggressive artificial structuring. The guidance is clear on some of the structures that HMRC and the Treasury are targeting. We would all probably agree that it looks artificial if a sales force gets 95% of the way through a sale and cannot sign the final contract, but has to refer it to Luxembourg, Switzerland or somewhere else. If the rules are drafted too broadly, there is a risk of thousands of companies that the Government had not intended to be caught fearing that they will be caught. That creates a burden on them, and they will have to go through the whole compliance process to satisfy themselves that they are not caught.

The flipside to that is the risk that HMRC gets thousands of notices that it cannot possibly deal with, and then misses the notices that have all the tax at stake. By drawing the rules too widely, people could sneak through the middle who should not. The adviser community is expressing sensible concerns and asking, “Have the rules been drawn too broadly? Is there any way that they can be focused, perhaps through filters, such as those in the controlled foreign company rules?” Through that, we could be clear to taxpayers on who is intended to be caught, and what the hallmarks are that let them know that they are caught. That can give those who are not trying to avoid UK tax artificially some kind of comfort that they are not in the rules and do not need to do the self-assessment.

[David Simpson]

In the new tax legislation and the new tax that we are hoping to see implemented by April, is there any provision to protect against brass plating?

[Nigel Mills]

I should probably let the Minister explain the tax that the Government are trying to introduce, but there are two parts to the rules. One is about avoided PE and the other is aimed exactly at brass plating. It looks at where companies are paying fees, royalties or other things to companies that do not have the substance to justify the income they are earning. If the hon. Gentleman reads the examples that HMRC has put in the guidance, he will see that the rules target the routing of large fees into entities with very little substance in tax havens. I think we would all accept that that is an appropriate, sensible and fair target. I am sure the Minister will correct me later if I have misunderstood and am too optimistic about what the rules are trying to achieve.

Those concerns about how broadly the rules have been drafted are echoed by the ARC, which is concerned that HMRC will end up swamped by a load of notifications from people. It recognises the burden that that will place on companies and HMRC. Can the Minister confirm whether the Government are prepared to look in the consultation at whether any filters could be introduced to try to make the compliance burden easier for companies that are not trying to avoid tax, or does she think that that is too risky and might narrow the rules and allow some companies that should be caught to squeeze out?

Clarity on the direction of the Government’s thinking, and on how we can get the rules to apply only to those to whom it should would be welcomed by a lot of people. One way of achieving that would be a clearance mechanism. Will the Government consider that? Is there a way that taxpayers could seek an advance ruling from the Revenue, or confirmation that what they have done does not bring them under the rules?

That brings us to how the Government propose to handle large corporates that have been through inquiries on their transfer pricing or their permanent establishments and think they have an agreement with the Revenue that says that their tax affairs are okay. Are those agreements still in force or, because the tax did not exist when those agreements were made, are they outside the rules? If the company has been engaging in activities that HMRC thinks are avoidance, are those activities safely in scope? Do we expect customer relationship managers to give their customers any assurances on that? Exactly when can people get assurances? When will HMRC staff be trained on the new rules? The rules will apply from 1 April. If a company has an April year-end, it will in theory have to submit its notice by the end of July. The rules will apply in six months’ time, and people will have to start complying with them. When will the support be available for people to work out what they need to do?

The final area I will touch on is the assessment and collection process. This is a new tax with a different assessment method from the one we are used to in this country. We normally accept that people self-assess how much tax they owe and then pay it. HMRC chooses whether to inquire and challenge how much that tax is. With this tax, we have almost the reverse of that. A taxpayer has to write and say, “I think I might be caught”—that is perhaps not quite the technical language—and HMRC has two years from year-end to issue an initial charging notice stating, “Here is how much we think you owe.” The taxpayer has 30 days to make representations and HMRC has 30 days to issue a final charging notice. The taxpayer has to pay that then. Then there is a year in which that charge can be inquired into, challenged and discussed before it is finally agreed. Effectively, that is saying, “Pay now, argue later”, rather than agreeing the liability before it is charged. There are questions about how reasonable that approach is. I accept that it will enable the Revenue to get the money early and leave the arguing until later. Perhaps part of the intention behind the tax is to prevent people from engaging in that behaviour in the first place.

There is a practical question. If the Revenue gets a notice from a multinational corporation that it has not inquired into regularly in the past, how can it issue an initial notice saying, “Here’s how much we think you owe”? If it has absolutely no idea other than a territorial disclosure of its UK turnover, how can it have any idea of how much tax to assess in the first place? Will it put a finger in the air and say, “Don’t worry, we’ll sort it out in the fullness of time”, or will there be some process to enable the initial assessment to be at least relatively in the right ballpark? No one wants a system in which someone gets an assessment that is far too low and chooses not to challenge it, or one in which they get an assessment that is ridiculously high and that creates unintended business survival issues, although those are clearly extreme situations.

I am also slightly intrigued about what will happen if we think a whole load of tax is owed by a non-UK resident party. How do we collect it? I assume that we can go through the mutual collection procedures, but I have never been entirely convinced that it is easy to make them effective. There is a provision in the rules that enables us to collect tax from any UK member of the group, but if there are relatively small UK group companies that do not make any money due to artificial tax avoidance, how will we get the money from them? Are we assuming that all the multinationals that have apparently been engaging in artificial tax structuring will decide that standing behind their subsidiaries and ensuring that they can pay their tax bills is the right and noble thing to do, or is that one level of optimism too much?

In my 20-minute canter round the new rules, I have been trying to extract from the Government further information about their policy direction, the intent of the rules and who they are trying to catch. Are the Government happy that the rules are catching the right people, and not just spreading the net so wide that it will create compliance burdens? We do not want to make the UK a less attractive place for corporates to establish themselves. We clearly do not want to attract artificial tax abusers, who come here to take advantage of our tax regime. However, our strategy has been to make ourselves a territory in which companies want to base their head office, and in which they want to invest by creating a stable, predictable tax regime.

UK Trade & Investment published a helpful document, “A guide to UK taxation”, which notes that we have a stable tax regime, that we avoid unnecessary changes to the rules and that our tax policy is aligned with business practice. It states that we have

“legislation which minimises complexity…a level playing field for taxpayers”

and

“A transparent and consistent approach to policy-making”.

Our objective is to create a level playing field in the UK territorial system, so we want everybody who operates here to pay taxes on their profits here. I see this tax as a way of ensuring that everybody pays their tax, and as a way of creating a level playing field so that UK companies are not out-competed by multinationals that do not pay tax.

However, is the Minister concerned that the speed at which the rules are being introduced will worry some corporates? Will their breadth put some people off investing here or make some corporations think, “Well, the easy way out of these rules is to have no UK establishment at all. We’ll just ship everything in from Rotterdam”? Is there a risk that we will lose jobs and the tax that we do get by chasing such things too onerously? I suspect that most of us will say that we are a great place to do business, so if companies want to make money here, they must pay their tax here. If they do not want to pay their tax here, perhaps they are not the kind of people we want. However, I am not sure it is easy in the real world to make that stick.

Are the Government happy that the rules are proportionate and in the right place? Do they target the right people? Will they be effective in tackling those people? Are the Government sure that they will not be struck out by some other international law? Will the Government respond to the various responses by tweaking the rules to ensure they focus on the right places, so we get the tax off people who owe it without unduly burdening those who do not?

--- Later in debate ---

[Jim Shannon]

My hon. Friend is absolutely right. We need to have legislation in place that enables us to oversee the loopholes that have been outlined. We are all hoping that the Minister will tell us how it will work in her response. I hope she will address the questions that have been asked.

Starbucks employs 8,500 people in the UK, so it makes a contribution in employment, wages and associated taxes, but it pays no corporation tax. Amazon, another global company, employs 15,000 staff in the UK and reported sales of £3.35 billion in 2011, as well as profits of £74 million, but it paid only £1.8 million in corporation tax. That annoys me greatly. Google, one of our favourite search engines, made £396 million in 2011 and paid only £6 million in corporation tax. Some of the companies have of course been stung into making tax contributions, although those have been minimal.

An article by Joseph Brothers that I read last month in the magazine Tax Notes International sums up the subject of the earlier intervention by my hon. Friend the Member for Upper Bann (David Simpson) on brass plating. Brothers suggested that Apple, reacting to a threat by the Irish Government to shut down one of their lucrative, corporate-friendly, tax-avoiding laws, would switch strategies to escape taxes in Ireland. He wrote that the so-called “Double Irish” might soon be replaced by a new “Bermuda Triangle”: instead of ships and planes mysteriously disappearing in it, it would be a triangle of tax treaties between Ireland, the Netherlands and Bermuda, exploiting rules that do not quite align and creating the space for profits to vanish, at least to the eyes of the Internal Revenue Service auditors.

If that strategy works, Google and others are likely to follow suit. The outcome could well be that the big corporate tax dodgers achieve what a noted tax lawyer calls “stateless income”: siphoning profit out of high-tax countries in Europe, Japan and North America and moving it around under tax treaties until it is not subject to any tax, because any profits are being reported in a non-existent country called “nowhere”. That is the bottom line of what could happen if our legislation is not correct and if the loopholes, disparities and open questions are not dealt with.

I am using those three companies as examples, but there are many others. Unfortunately, a common trend is filtering down through to a large number of companies. At the end of the day, we must remember that UK-based companies pay corporation tax on their taxable profits wherever those are made. It is only right, therefore, that foreign companies pay tax in the UK on profits made in this country. We must make it clear that the UK is not a country to come to for freeloading. Those are the issues.

Many British-based global companies do pay their taxes. They are concerned that the new legislation might give HMRC too much discretion. Furthermore, as the head of the tax policy unit of KPMG here in the UK noted in the company’s latest annual tax competitiveness survey, companies value “stability” and “simplicity”, but unfortunately, one criticism of the proposed legislation is that it does not offer simplicity. Many questions therefore need to be answered and much transparency applied to ensure that the legislation, while welcome—we have to take a step in the right direction—can work in practice.

The aims of the legislation are admirable as well as necessary. In a recent poll of more than 500 accounting and small business professionals, taken immediately after the Chancellor’s autumn statement, 56% of respondents said that the most significant tax announcement in the speech was the one about the diverted profits tax. Many, perhaps all of us—if not the companies trying to avoid the measure—welcome it, but we need to be sure that everything is in place.

Will the Minister tell us about another issue raised by the hon. Member for Amber Valley: the IT equipment necessary to ensure that expertise is in place? There is also the question of the resourcing of moneys. I understand that the initial set-up will cost £2.3 million in staffing for the first year and £1 million per year thereafter. At a time of HMRC cuts, of which we are all aware in every area, perhaps the Minister will indicate whether provision has been made for the IT equipment and the necessary staffing resources to ensure implementation.

It is of course important to remember that big businesses are always welcome in the UK and, as other Members have said, we do not intend to turn any away. We want companies to be based in the United Kingdom, but we, like everyone else, want them to make their contribution to the tax system. It is always extremely pleasing to hear that another company has made the decision to expand in the UK, and we are seeing a lot of that at the moment in Belfast. It is good to have those companies providing employment opportunities and taxes, and spending money so that our economy in Northern Ireland grows. That is super news for local people, local business and the local economy. It is also vital, however, that those big companies pay their way, otherwise it is not so lucrative after all for local businesses, people and economies. Instead, the money will simply stay in the hands of the global giants.

Will the Minister say what steps the Government will take to deal with the tax havens in the Isle of Man and the Channel Islands? Will we have some influence there, or access to information? Gone are the days when money was hidden under the mattress, the bed or the floorboards; people now put it overseas in tax havens. Will the Minister give some indication of the direction of policy?

[Nigel Mills]

I am keen to check the view of the hon. Gentleman’s party. In the event that Northern Ireland chooses to reduce its corporation tax rate, does he agree that Northern Ireland should not use that lower rate to attract artificial income into Belfast, as the Irish did in the Republic? The lower rate should be for the purposes of getting real jobs and real substance into Belfast, instead of dragging profit out of the UK mainland, perhaps through the financing of intellectual property companies or other ways of artificially moving tax.

[Jim Shannon]

The hon. Gentleman will find that my party, through the Northern Ireland Assembly and the First Minister, will hold an upstanding position in working the policy. We will not be developing into a tax haven. We want to see real jobs for real people on the ground. That is the way forward, and it is what we support.

We are pleased to have the Minister in her place today. Responsibility for answering our questions and for how this will work lies very much with her Department. We are committed to having the new legislation in place, I hope by 1 April. We want the big companies to be brought into line and made accountable for tax avoidance. We want the issue of the tax havens over which we have control to be dealt with, and for our neighbours in the Republic of Ireland to have the same opportunity. In addition, we have to look at the global picture, because although legislative change may take place in this country, what will really make it work is how we interact with other countries.

Taxation of Pensions Bill

Nigel Mills Excerpts

Wednesday 29th October 2014 Commons Chamber

[Mr Gauke]

We of course engage closely with the ABI and other bodies involved in this area. Indeed, the work in this Bill and in the Pension Schemes Bill is a result of close engagement with the ABI. The Government are determined to ensure that we have a regulatory system that protects our constituents from the unscrupulous. This is principally an issue for the FCA, but we are determined to ensure that it has the powers that it needs. Much in the Pension Schemes Bill relates to that.

[Nigel Mills (Amber Valley) (Con)]

May I remind the Minister that one reason for bringing forward these freedoms was to try to tackle the mis-selling that already goes on, whereby people are effectively forced by the law to buy annuities, which in many cases are totally unsuitable for them? That has led to real cases of detriment. The mis-selling issues under these freedoms are not new; they have been around for a long time.

[Mr Gauke]

My hon. Friend makes an important point. I do not think that anyone would be particularly attracted to the argument that the way to address mis-selling was to force people into a narrow range of products that ultimately did not meet their needs.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

I speak as a member of the Pension Schemes Bill Committee; for me, this has been a week of complicated pension rules.

I welcome the freedoms that the Taxation of Pensions Bill provides. We want people to save for pensions to provide for their own retirements; it has to be right to give them the freedom to use the money they have saved as they want to, without there being penal tax charges that might force their behaviour into certain directions. It is absolutely right for these choices to be added to the whole landscape.

We should bear the context of the current situation in mind. Basically, we force people with relatively small and medium-sized pension pots to take an annuity. The tragic thing is that in many cases those annuities are not suitable—people are mis-sold them, do not understand them and do not shop around or get the best deal for themselves. People cost themselves large amounts of their retirement money because the market simply does not work in a fair manner.

The Work and Pensions Committee and others have been trying to find various ways in which to reform the annuity market, to make it fairer and make it work better for people—to encourage shopping around, to stop mis-selling and to get people to think about whether their life expectancy might be shorter than the average. We need people to think about what will happen if they predecease their spouse. Will the product that they are buying provide for that person?

Of all the solutions brought forward, the Government’s is by far the most radical. It effectively says, “You don’t need to buy an annuity any more if that is not right for you. You can draw down in a much simpler, cheaper way and try to live off and control the savings that you have produced for yourself.” That sounds a fairer approach. If people have chosen to save money for their retirement, they can now choose how and when they spend that, in a flexible way. We should all want that to be available. That is not to say that that would be right for everyone; it might be entirely wrong for many people. There is absolutely no reason why we should take products away, but we need people to make informed choices about what they want in their retirement—how much income they want, how they want to spend it and over how many years. In that way, they will not be locked into a totally unsuitable situation.

There are various nightmare scenarios. One is when someone has run out of money—they have drawn down and spent too much. They never thought they would live past 75, but live until they are 93. They run out of money in their later years and do not have the standard of living that they wanted. We absolutely do not want that to happen. The flip side, of course, is that if someone buys an annuity at 66 and dies at 67 and has no protection, they have burned their whole pension pot for them and their family.

We need to find a way of taking those two extremes out of the situation. We want new products to smooth the situation out. People should be able to say that they want a product that not only guarantees a certain income for life—so they know they can pay the heating and food bills, have the annual holiday and treat the grandchildren—but allows the flexibility to spend money on a cruise or an active lifestyle when they first retire. They might want funding for care costs in their very late life; during the previous years, their income could dip a bit as they would not be so active or have such big bills. How do we get people to understand that they can make those choices? How do we get the products that fit those choices? Those questions are key.

I entirely agree with the comments made so far: getting people to understand the choices—what they need, want to do and can do—at the point of retirement is the secret, but also probably the hardest bit. That is why we need to get the guidance guarantee to work. I have tabled amendments to the Pension Schemes Bill to try to strengthen how that guidance will work. But we need to be careful: it is not when someone is 65 and a half and about to retire at 66 that they need to understand what is going on. Under the rules as they are today, that might be fine—the person saves into a pension scheme, which will assume that funds will move into an annuity when retirement age comes so plans can be made on the basis that the person will need their pot at 66. Funds can start to de-risk when the person gets to 56 on the central assumption that they will want a safe pot when they retire.

Once the changes come in, however, people might not want to do anything with their pots at age 66; they might stay in work until they are 70. They may want to use other savings or defer their pensions for a while. Do they want their pension scheme by default to start de-risking and reducing investment return 15 years before they want to retire? That would be disastrous for the pension pot.

Choices will have to be made about which pension scheme to join, about risk profile and about when de-risking should start. People will have to understand that when they are 40 or perhaps 35, not 65 and a half. There needs to be clear guidance to which people can be signposted. Pension funds need to say to people, “You have important choices to make all the way along the process. Here is what you need to know, here is how you can find it and here is what you should be doing.” If people do not get the message earlier, the guidance for those aged 65 and a half might well be, “Here is what you could have won, but sadly you have not won it because you did not do the right things earlier on.” When the guidance providers come in, they need to provide clear, web-based guidance that people can access at any age, rather than being locked out until they are 65 and a half.

We also need the regulator to think carefully about what pension schemes will do with people who just do not engage. Some people will be enrolled automatically; they do not really understand the system but they do not opt out. They are saving money and get to 55. They are asked whether they want to de-risk, but there is no reply. They get to 65 and are told that they can draw their pensions, but there is still no reply. What should be done with the pension pot in that situation? An annuity will not be bought, so what should the default be? Should there be some kind of drawdown so that the money is left sitting somewhere for a while under some strange investment profile?

In this landscape, we need to think about a lot of things on behalf of those who have choices to make and a pension pot about which it is worth making choices. I suspect that a sizeable number of people will have relatively small pension pots and that taking the cash, tax-free, will remain their best option. Those who have the pension choices but are not so well off that they can afford expensive advice are the ones who will need to understand the options and try to pick the right ones.

I am left thinking that guidance is the right answer and advice is the wrong one. The risk with advice is that it is incredibly expensive; it would cost several hundred pounds at best to give people advice. The last thing we want someone who has been auto-enrolled into a pension pot to do is spend a large percentage of their pension on advice that they really do not need, because they do not have enough money to take advice on. We have to try to keep the cost of the guidance scheme low and make it a way of getting people to their first understanding and thought process about what they could do, rather than trying to put in place a gold-plated system that everyone has to pay for, even though most people would not be taken that far forward. We have the right idea, although we probably have a long journey before people have anywhere near the knowledge and understanding that they need, and that we need them to have.

[Mr Love]

We have to keep guaranteed guidance at a reasonable cost, but for that guidance to be effective there has to be personalisation to the individual circumstances of the person involved. All the evidence suggests that. The one balances against the other. The challenge is to find a way to make the guidance both cheap and effective.

[Nigel Mills]

The hon. Gentleman has to be right. The issue was raised in the Pension Schemes Bill Committee evidence sessions last week, and we will get to it again when we discuss the provisions on guidance. It is hard to work out the line between advice, which might say, “The best thing for you is to do x,” and guidance, which just says, “Here are the options and the various things to think about. Make sure you shop around. Thanks for calling.” Guidance such as that will not help people, who will forget it by the time they put the phone down or walk out of the meeting room.

We need the people getting the guidance to have worked out their financial situation—their pension pots, their debts, their other income, their state pensions and other employer provisions—so that when they go to get their guidance, they can set out their circumstances to the person guiding them, and that guidance can be focused on the sorts of choices they could reasonably make. That is probably about as far as we could get, because once someone says, “You should pay off your debts first”, they are getting into giving advice, and that may not always be right; it risks creating liabilities and people being mis-sold things. This will be an extremely hard balance to strike.

[Lady Hermon]

I apologise for having to leave the Chamber briefly to go to the Select Committee on Northern Ireland Affairs; duty called. I entirely agree that this is a radical and fundamental change to pensions entitlement, as regards when people can benefit from and draw down their pensions. Given that it is such a radical and fundamental change, does the hon. Gentleman share my disappointment that the Bill, which runs to 54 pages, I think, and has three clauses and a schedule, is so highly technical that no ordinary person in the street could possibly understand their pension entitlement?

[Nigel Mills]

It is certainly interesting that the Bill is 57 pages long and has only three clauses, with the rest dropped into a schedule at the back. However, complicated rules are being changed, to take away some penal tax charges, among other things, and I guess it does not matter how the provisions are drafted; whether they are in a schedule or a clause, we get to the same position in the end. One of the problems with pensions is that everything is so fiendishly complicated that almost nobody can understand what all the rules are.

I am concerned about the provision in which the Government seem to be repealing the requirement that people must, before buying an annuity, have had a chance to check the open market situation. Clearly, we are not taking away the chance for people to compare annuity rates, because we are not compelling them to buy an annuity, so that option will still be there. A fall-back is written into the rules that says that before somebody defaults into buying an annuity from their pension provider, they must, under regulations, have had the chance to shop around and to be given advice. That looks like a sensible provision that should perhaps be kept. Repealing it strikes me as being a little too optimistic about how well this market might work in the early years.

Moving on to the general principle of the Bill, these changes reopen the debate about how we use the tax system to encourage pensions. There is a huge annual bill for allowing people to put untaxed income into their pension scheme. According to the latest figure I have seen, the net cost is about £22.8 billion in income tax, plus £15 billion in national insurance, so we are talking about £38 billion of taxpayers’ money being used to incentivise pensions saving each year. Okay, some of that money comes back when pensions start to be drawn, but it is still a large amount. The more flexible we make savings arrangements, so that people can choose when they draw down their pension and can do so 10 years before they retire, the weaker we make the justification for saying, “We should do this pre-tax”, because we are distorting the savings market.

I suspect that the only reason most people would choose to save into a defined contribution pension, locking their money away at the whim of some unscrupulous pension provider who charges them for things they do not understand and finally getting their money back 30 years later, is that they get this huge tax advantage. If we are going to start enabling people to have large amounts of that money, tax-free, a long time before they retire, does that change the equation? Perhaps we should be thinking about these things. Is this the right way to distort the pensions market? Should we not equally incentivise people to put money into an individual savings account every year and have a bit more control over it and a bit more visibility? Is that better protection for them?

We desperately want people to save money for their retirement, and we want it locked away so that they cannot spend it each year, and I suspect that using the tax system to achieve that is still very much the right answer. However, we probably need to think again about how much we are spending on higher-rate tax relief on pension contributions in order to make the system more flexible.

[Mike Freer (Finchley and Golders Green) (Con)]

I am blessed with articulate constituents who understand pensions issues. One of the issues raised with me is that we are allowing people to take out the tax benefit that they have been given for free by the Government. Does my hon. Friend think it is worth looking at putting the tax relief into something like the protected rights pot that used to, or still may, be in place for personal pensions, so that the tax relief element could not be withdrawn, and only the contributions could be withdrawn?

[Nigel Mills]

That is an interesting idea. I am not sure how we would hypothecate part of a pension pot, and do I really care whether the 25% I am taking out is the tax bit, the bit I paid in, or the bit my employer paid in? If my hon. Friend means that I could not take out the 25% of tax benefits—I could take out only 18% of the pension pot, rather than 25% tax-free in a lump sum—I can see a certain logic to that. In effect, it would just reduce the tax-free lump sum that people can have.

The flipside of rethinking how much tax relief we allow for pension contributions is that it is probably unfair not to give people full tax relief on the way in and then still subject them to higher-rate or top-rate tax when they start drawing their pension. That is an interesting double charge for the Chancellor. If people do not get relief on the higher rate, should they have to pay tax at a higher rate when they draw the pension contribution back out? Frankly, why would somebody who was in that situation pay that amount each year? They would be far better off using the cash—probably to drive up property prices.

At some point after these changes, there will need to be a debate about how we are using the tax system to incentivise pensions. Is that still the right thing to do? Is it worth the cost incurred? Is it encouraging the right behaviours? Is the tax relief really getting more people to save for pensions? Is there evidence of that, and should we continue with it? I suspect that the answer will clearly be yes—we should. However, we are making such radical changes to the pensions landscape that once we have got through this flurry of activity it is worth taking a step back to look at the situation and ask whether we are really in the right place, in terms of how we encourage people to save for their retirement. Are pensions uniquely the best thing for everybody, or could people take up other options that might encourage them to save even more, because they had more control over their funds during their lifetime?

This Bill is absolutely the right thing to do. There are clearly issues to do with making the system work and ensuring that people who need to make choices are not disadvantaged by making the wrong ones. We are moving from a situation where people have, in effect, been forced by the law into choosing something that, sadly, was often wrong for them, towards a situation in which they can choose what they think is right for them. We need them to do that on an informed and fair basis; they must not be ripped off by the next round of mis-selling. I fear that somewhere in these freedoms there is the possibility that that will happen in the next decade, but there are things we can do to try to mitigate that.

Finance Bill

Nigel Mills Excerpts

Tuesday 1st July 2014 Commons Chamber

[Shabana Mahmood]

I think the Government should adopt an across-the-board strategy. I think they should deal with companies of all sizes, as well as individuals who engage in the various types of tax avoidance and evasion. I have mentioned a number of areas where there is concern about the Government’s action to date, and about their record of being able to narrow the tax gap.

The Government’s other flagship policy, introduced last year, is the general anti-abuse rule. Of course, it will take some time for the GAAR to settle in, as it is a new measure, and it is not yet clear how it will operate in practice, because it has not yet been the subject of a court case. It is, however, striking that no penalties regime associated with abuse falls within its remit. One would have thought that such a regime was a deterrent, and that the Government would want to make it clear that the type of abuse caught by the GAAR—abuse of the most egregious nature—would not be tolerated. However, it seems that an individual who fell foul of the GAAR, having engaged in the most egregious form of tax abuse, would incur no penalty but would merely be required to pay the amount that had been disputed. That strikes me as an interesting omission from the GAAR and the Government’s arsenal of measures to tackle tax avoidance.

[Nigel Mills (Amber Valley) (Con)]

I think we went through this in the Finance Bill Committee last year. It would be somewhat iniquitous to have a higher penalty for a scheme that complied with the letter of the law but was subsequently ruled out of order by the GAAR than for one that was blatantly outside the law in the first place. I think we should stick to the standard penalties that apply for under-declaring tax on a tax return.

--- Later in debate ---

[Nigel Mills]

I will not vote for new clause 12, and I will briefly explain why.

A year ago, we enacted the general anti-abuse rule. One argument that Mr Aaronson made when he reviewed that idea was that it would allow us to have fewer of these complicated, focused anti-avoidance rules in Finance Bills and to avoid cluttering up the tax regime with more complexity because we would be able to rely on the general rule. I look forward to seeing that, rather than another huge, thick Finance Bill next year.

Subsection (1) of new clause 12 speaks of

“tax arrangements that are abusive.”

Surely those come within the general anti-abuse rule and can therefore be challenged, even if they are technically legal. Given that, we will not need to come back and assess the three items that are set out, because they will already have been tackled and there will be no further revenue to raise.

I racked my brains and did a bit of googling to try to find methods of tax avoidance using dormant companies. I struggled to think of one, because once a dormant company does something, it ceases to be dormant and therefore cannot be used to avoid tax. If what is meant is that companies are pretending to be dormant, but are actually active and are not filing returns that they know full well are due, that is tax evasion and should be clobbered severely using the existing rules. We probably do not need to create a huge compliance burden for every innocent dormant company out there. There might be sensible reasons for maintaining those companies, such as to protect a name or previous transactions, or simply that the cost and hassle of striking them off are greater than they ought to be. That would be an unreasonable compliance burden to impose.

We should be a bit careful about the language that we use about eurobonds. I have some sympathy with the view that when they were created 40 or 50 years ago and the exemption was passed, Parliament probably did not intend for intra-group loans to be traded randomly on Channel Island stock exchanges but never actually traded, just held by the same third party throughout the period. I see the temptation to remove the exemption and it was right that the Government proposed some sensible ways of doing so two years ago. However, if the Government consult on something and look into the detail, but then decide that it would not raise as much money as they thought and that it would act as a big disincentive to investment, it is unwise to come back to it so quickly. We should learn the lessons from that and just accept that if we want the UK to be attractive to investment and the hub of the private equity industry, which many small businesses in all our constituencies benefit from, it is foolish to risk putting up the cost of borrowing for that industry and adding complexity for it by revising the rules again.

I think that the new clause is superfluous and I will not vote for it.

[Mike Kane]

In the few moments that I have, I want to point out that self-employment is being used by far too many employers to engage workers in the construction industry, as my hon. Friend the Member for Birmingham, Ladywood (Shabana Mahmood) pointed out. According to the Union of Construction, Allied Trades and Technicians report “The Evasion Economy”, 400,000 workers are being engaged in that way. Those workers miss out on the rights that normal workers get. According to another UCATT report, “The Great Payroll Scandal”, this practice is costing the Exchequer up to £1.9 billion per annum.

When I talked to construction workers on Friday night, they spoke of the scandal of payroll companies making millions of pounds. This is a legitimised dodgy practice. The companies get workers to sign a contract to say that they are self-employed, but they work for a single employer. In any legal sense, their status would be defined as a direct employee, yet they lose all the rights that we have spoken about. It should no longer be possible for companies to instruct such construction workers to turn up on site when they want them. Construction workers need the security of employment rights and full national insurance contributions should be paid.

Finance (No.2) Bill

Nigel Mills Excerpts

Tuesday 8th April 2014 Commons Chamber

[Mike Kane]

I thank the hon. Gentleman for his welcome. Most SMEs have fewer than 50 people working for them, and a medium-sized enterprise is usually defined as one with fewer than 250 employees.

I welcome the fact that Labour Members want to cut business rates on properties with an annual rental value of less than £50,000 back to the level of the previous year. We would then freeze business rates for those properties in 2016. That can be paid for by reversing the additional cut in the main rate of corporation tax from 21% to 20% in 2015.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate. If there is one attraction to the amendment, it is that it allows a broad-ranging debate on any tax measure one can think of. Perhaps I could talk about the impact that a carrier bag tax would have on small businesses, especially a tax on bags that would allow the biodegradable element to get into the recycling stream, which damages recycling businesses in the plastics industry. That would perhaps stretch the debate a little too far away from the main rate of corporation tax, even though hon. Members might agree on such a measure.

We are going in exactly the right direction in trying to get the main rate of corporation tax down to 20%. That has been the direction of travel for this Parliament and it is the right place to be. I suspect that, if we get it to 20%, that will be the end of the journey, for the very good reason that having a corporation tax rate lower than the basic rate of income tax creates lots of interesting tax planning opportunities, as the previous Government found out when they had a small companies rate of 10%. Lots of strange people incorporated themselves as businesses—they looked a lot like one-man bands who ought to have been self-employed and made interesting tax deferrals or savings when pretending to be companies.

If we get to 20%, that is the end. I suspect that that is why we can no longer have a small companies rate of corporation tax that is lower than the large companies rate. If we lower one rate, we encourage behaviour that we do not want to encourage. It is right that we get both rates down to 20% and to have one rate of corporation tax. We can then scrap the hugely complex marginal relief calculation and everyone will know what rate of tax they pay on their profits. That has to be the right situation. A small growing business, whose profit increases during the year and suddenly hits more than a quarter of a million pounds, will wonder what tax rate it will pay in that year, so losing that whole calculation completely is a huge advantage.

[Mr Redwood]

Does my hon. Friend agree that the review could very usefully come up with a 20% capital gains tax rate, too? I would settle for 20% capital gains tax, 20% corporation tax and 20% income tax. There would then be fewer tricks.

[Nigel Mills]

A symmetry of tax rates would make perfect sense. Whatever form of income one had, one would know what rate one was paying.

[James Morris]

One of the issues in Britain is that not enough companies are starting up and then growing. One of the reasons for that is that we do not have enough symmetry and the tax system is too complicated. Does my hon. Friend therefore think it would be a good idea to get some simplicity into the system?

[Nigel Mills]

My hon. Friend is exactly right. I think many Members, not least the Minister, know of my commitment to tax simplification. I was tempted, knowing that we were debating corporation tax, to table my amendment yet again on rewriting the whole corporation tax code to one that is more understandable and less complex.

[Mr Love]

The hon. Gentleman seems to be arguing that we might need a different policy mix for small businesses and for larger businesses. May I therefore invite him to reject the idea that the amendment somehow splits off small businesses from large businesses? We need a different policy mix.

[Nigel Mills]

I agree with the hon. Gentleman. There is eminent sense in having a lighter-touch tax regime for small businesses, with perhaps lower taxes in some areas for small business. We clearly do that: there is a separate regime for filing accounts. There is less expectation on small businesses, and, if only in the business rates field, there are exemptions for the very smallest businesses. I think we actually have that graduated system.

[Mr Love]

Notwithstanding small business rates relief, does the hon. Gentleman accept that for a significant minority of small businesses, business rates are now greater than the rental payments they have to meet, and that therefore there is some merit to the proposal being put forward?

[Nigel Mills]

I might be tempted to agree that there is some merit in looking at the level of business rate cost, but I am not sure there is much merit in the proposal we are debating here this afternoon for yet another review. I welcome the measures the Government have taken to reduce business rates, or least reducing the increase through the 2% cap and discount for high street businesses. I think we are all very keen to see how we can help our high streets grow. That reduction has to be the right way forward.

Returning to the earliest of the series of interventions, on a 20% capital gains tax rate, companies that realise a capital gain will be paying at 20%. It is only individuals who will end up paying the higher rate. There is sense in having symmetry restored to that situation. I wholeheartedly support getting the corporation tax rate down to 20%. We could trumpet it around the world that we have one of the lowest rates in the G8. That long-term direction of travel has to be one of the most powerful ways to encourage investment in this country by the large corporations we want to see operating here. It would perhaps stop them setting up their headquarters in Switzerland, Ireland or elsewhere. This is now a trend we can see: large corporations choosing to bring more jobs to, and paying tax in, the UK.

[Ian Swales]

My hon. Friend is making a very good speech, as he always does on these matters. Will he join me in welcoming the fact that Hitachi has decided to relocate its rail headquarters to the UK, in the north-east?

[Nigel Mills]

I am always a little nervous talking about Hitachi and rail, as I am from Derbyshire. I support Bombardier and want it to get rail contracts. I am sure that it is great news for the country and the north-east that Hitachi has chosen to do that. However, I clearly say that Bombardier is a far better make of trains and that it fully deserves the Crossrail contract it got in recent weeks. I look forward to healthy competition between the two. It would be great to have two well-regarded, highly skilled train makers in this country. Just to be clear: Bombardier clearly has the trump card on that.

It would be a terrible message to send out to the rest of the world, having seen us go so far in the right direction by reducing the rate of corporation tax from 28% down to the planned 20%, to suddenly start reversing that journey and saying, “Perhaps we’re not quite so sure that that was the right thing to do. Let’s have that extra revenue back and not support those businesses.” That would be the wrong thing to do.

[Nick de Bois]

Some people may be seduced by the idea that it is only 1%, going from 20% to 21%, but for corporations coming into a tax level of 20%, the Opposition are effectively saying that they would increase corporation tax by 5%. Let us make that clear.

[Nigel Mills]

I am sure my hon. Friend’s maths are absolutely right.

If we are to review taxes and rates, I am intrigued by the idea of having, as my right hon. Friend the Member for Wokingham (Mr Redwood) said, a wide-ranging dynamic assessment of tax rates. Let us have a look and work out exactly the right rates for various taxes. Are we in the right place, or are we throwing away revenue and destroying business activity by having certain rates in the wrong place? I would like to understand the impact on small businesses of the jobs tax or employees’ national insurance. I would be keen to know the impact of fuel duty rates and of the tax on energy bills. I suspect those measures are doing far more damage to our small businesses, and the number of jobs they can support, than other things. A wide-ranging study of the impact of tax on small business could be an interesting exercise and could direct the way forward for policy. I suspect that it would not go in the area the Opposition want. They seem to want an expensive hike in the indirect taxes on manufacturing that do so much damage.

We ought to welcome people moving in the right direction. In 13 years in government, Labour favoured property taxes via the council tax. They hiked it up thinking that people would not notice. It is intriguing that they have now realised that it is extremely unpopular for those taxes to get too high, and that perhaps it is easier to try to focus on direct tax rates.

In conclusion, the Opposition amendment is in many ways a complete waste of our time. It is absolutely right to get the corporation tax rate down to 20%. I suspect that that is the end of that journey and then we can look at various other measures to support small businesses. Reducing the main rate down to 20% will not stop our support for small businesses. Let us get on and do it: it is the right thing to do.

[Sheila Gilmore]

For those who have already made the decision that they want to reduce corporation tax in this way, it is easy to characterise the debate as one group of businesses being pitted against another. The debate has to be taken in context. On the basis of that argument, it would be very difficult to suggest any changes, because somebody would always be able to say, “Ah, but you are pitting one group against another.”

We hear a lot of warm words about small businesses in this House. We are told frequently that they will be the driver of the economy and that the economic recovery depends on them. It is therefore disappointing for this proposal to be so quickly dismissed as irrelevant or inappropriate. If the amendment asked for it to happen without further review, Government Members would no doubt be telling us that we should not make such suggestions without looking at the impact. If we ask for a review to look at the impact they will tell us, “Well, that’s no good; you should just be doing it if you really believe in it,” rather than engaging with the issue.

Small businesses find that business rates are a large element of their costs, particularly when setting up and trying to get their businesses off the ground. A constituent of mine, with a friend, was setting up a fitness business—a very competitive market—from scratch, with a particular appeal to women. They called themselves “Fitness Chicks”. I thought that that might perhaps put off older women, but nevertheless they had a real ambition to get the business off the ground. They said that rates were the biggest thing holding them back as they were setting the business up.