Financial Services (Banking Reform) Bill

Nigel Mills Excerpts

Wednesday 11th December 2013 Commons Chamber

[Sajid Javid]

I will. The hon. Member for Walthamstow, my hon. Friend the Member for Worcester (Mr Walker) and many other Members have shown great concern in this area and have made a welcome contribution to the debate.

[Nigel Mills (Amber Valley) (Con)]

Will the Minister give way?

[Sajid Javid]

I will give way for the last time.

[Nigel Mills]

I am grateful to the Minister for giving way one very last time. I am not sure that I agree with him that it is not for Parliament to decide roughly where the cap should sit, because if we set it too high it will be meaningless and if we set it too low we will drive too many people out of the loan market. What will the Minister do if the FCA pitches the cap in a different place from where the Government think it ought to be? Would he want to come back to Parliament to take another look at the situation?

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[Sajid Javid]

I need to plough on; I am sorry.

I thank the hon. Member for Kilmarnock and Loudoun for giving me the opportunity to set out the FCA’s plans for implementation. I hope that has provided reassurance that the FCA is committed to taking action as soon as possible, and that she will feel able to withdraw her amendment.

In summary, the Government believe that a cap on the cost of payday loans is necessary better to protect consumers from excessive spiralling costs, working alongside regulatory interventions that the FCA is already proposing to clamp down on the causes of consumer harm in the payday lending market.

Amendments 162 and 163 will provide significant benefit to consumers and financial services businesses that have been affected by poor practice in the claims management industry. Claims management companies have a legitimate role in helping consumers claim compensation, but a minority have acted irresponsibly. Despite the threat of suspension or cancellation of authorisation, some CMCs act speculatively and submit illegitimate claims that clog up the system and ultimately impose costs and delays on consumers. The amendments will give the claims management regulator power to impose financial penalties on CMCs that are guilty of misconduct.

The Government’s amendments provide a new form of redress—including financial compensation for consumers affected by a poor service from CMCs—by introducing a mechanism for the cost of handling complaints to be recouped from the industry. Together, the amendments will help ensure that the claims management industry acts more responsibly, and where it does not the regulator and Office for Legal Complaints can take action.

The Government agree with Lords amendments 153 and 154 that provide the PRA with a secondary competition objective and the FCA with competition powers that are exercisable concurrently with the Competition and Markets Authority. The Government are committed to improving competition in our banking sector to drive up consumer outcomes. A secondary competition objective for the PRA was recommended by the PCBS, and the Government accepted it. That objective will ensure that the PRA remains above all the watchdog for financial stability, but we will require it to play a more proactive role on competition.

[Nigel Mills]

If the Minister had had the pleasure of sitting on the Bill Committee, he would know that I tabled an amendment to suggest we cap the market share that banks could have in certain markets. What will he do if, perhaps by 2020, we have not seen a great increase in competition and still have too few banks with too high a market share? Does he think further action by Parliament would be needed?

[Sajid Javid]

My hon. Friend will know that the Government have introduced many initiatives to increase competition in the banking sector. Just today we heard that Tesco Bank will enter the current account market next year, creating hundreds of jobs in Scotland. That is welcome news, and other innovations such as current account switching also help to engender more competition. I do not think any of us know what the situation might look like in the future, but I am sure a future Government will take that into account in 2020, and beyond, and see whether any further measures are required.

Air Passenger Duty

Nigel Mills Excerpts

Wednesday 23rd October 2013 Commons Chamber

[Sammy Wilson]

There probably is a sigh of relief from hon. Friends behind me, because they do not all share my views on that.

[Nigel Mills (Amber Valley) (Con)]

I was enjoying that part of the hon. Gentleman’s speech. For the Assembly, how close did the abolition of APD in Northern Ireland come to being a viable way of encouraging investment? Was it anywhere near that, or was it way down the Assembly’s list of priorities?

[Sammy Wilson]

It was very high on the Assembly’s list of priorities. We entered into the devolution of air passenger duty for long-haul flights not knowing what the final bill would be, but we did so in the knowledge that, regardless of what the bill would be, it was a very significant issue for the Northern Ireland economy—I can say that now because the bill has been settled, but if I had said it earlier Treasury Ministers might have thought, “Oh well, we can stick the arm in as far as we like.” It was one of our top priorities. Indeed, many people argued at the time that it was all about tourism, but it was not; it was essentially about the investment strategy that had been set out for Northern Ireland and the need for connectively with one of the main markets from which we attract inward investment. All the indications we had from investors show that ease of travel was very important, whether for their managers into Northern Ireland or for staff going to north America for training purposes or whatever, so for Belfast to have that connection was essential. For those reasons, the Northern Ireland Executive decided to seek the devolution of air passenger duty for long-haul flights.

[Nigel Mills]

I understand that completely, but can the hon. Gentleman explain why the Executive are not taking a similar view on short-haul flights and why it presumably thinks that there are better ways to encourage inward investment or tourism than at least partially reducing APD for flights from Northern Ireland?

[Sammy Wilson]

It really comes back to the point made in an earlier intervention about chipping away at it and trying to use arguments to undermine the tax and its anomalies and to highlight its impact at the regional level. We took the view that it was most important that the long haul part of the tax should be devolved because we were about to lose Continental Airlines flights into Northern Ireland. That issue had immediate priority.

As the Executive have discussed again just this week, we believe that the problem is UK-wide. One of the reasons why this debate is important and why we did not frame it solely in terms of Northern Ireland is that we believe it is about a UK-wide issue. If there is to be change, it should be made here in Westminster rather than the full cost—anything up to £90 million—being borne solely by Northern Ireland. That would have a significant impact on the block grant.

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[Nicky Morgan]

I return to my original point, which is that if we were to abolish air passenger duty, as is called for in the motion, it would have to be replaced by something else to meet the Government’s commitment to put the nation’s finances on a sound footing and reduce the deficit. Although the hon. Gentleman makes an interesting point, I have not heard from him—indeed, I have heard from only one hon. Member—a suggestion as to how that revenue could be replaced.

I will come on to talk about investment and the PWC report. The hon. Member for East Antrim will not be surprised to hear that the Government have some questions about the assumptions that are made in that report.

[Nigel Mills]

I welcome my hon. Friend to her new post. I accept that the Government cannot fully abolish air passenger duty, but will she consider a short holiday for new long-haul routes, especially at regional airports? For example, if there was a new route from East Midlands airport to India, it could be spared APD for the first three to five years to give it a chance to bed in and to become viable. That would have no immediate cost to the Exchequer, but it may well help to generate the growth that we need.

[Nicky Morgan]

I thank my hon. Friend for that suggestion. Like him, I know East Midlands airport very well as an east midlands Member of Parliament. The difficulty with regional holidays or variations is that they must be quite substantial to change passenger behaviour. That takes us back to my original point that the £3 billion that is raised by APD is a significant contribution to the Exchequer when we are tackling the deficit.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 10th September 2013 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

12. What recent progress he has made on his plans to tackle tax avoidance.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

The Government continue to make strong progress on tackling tax avoidance. Following on from our announcement at Budget 2013, we have introduced the UK’s first general anti-abuse rule, which will act as a significant deterrent to abusive avoidance. We have completed our consultations on avoidance using partnership rules and the use of offshore intermediaries, and we have just launched a consultation on new information requirements and penalties for the promoters of tax avoidance schemes.

[Mr Speaker]

I would like to wish the hon. Member for Amber Valley (Nigel Mills) good luck for his forthcoming wedding. I trust all will go as smoothly as his question.

[Nigel Mills]

Thank you, Mr Speaker.

I welcome the measures that the Minister has announced. My constituents want to see everyone paying the tax they owe on their income. Does the Minister think that any measures are required to make sure that trade unions do that as well?

[Mr Gauke]

First, I add to the words of Mr Speaker and, perhaps, wish good luck to my hon. Friend’s future wife. He draws attention to a story that we have seen in the last few days: allegations of tax avoidance against Unite and against Labour. Maybe the links between the two are closer than we realised.

Finance Bill

Nigel Mills Excerpts

Monday 1st July 2013 Commons Chamber

[Catherine McKinnell]

My hon. Friend makes the important point that we are talking about justice. We talk about justice and fairness in relation to developing countries when considering how a disclosure of a tax avoidance scheme, and the information we receive from it, might be used to support developing countries and international justice on that level. However, it is also about justice for UK taxpayers. We must ensure that companies that engage in the sort of tax avoidance activities that so rile members of the public, and should concern every Member of the House, do not have a competitive advantage over companies that do not engage in such activities, which may mean that their business ends up suffering.

That is what we are discussing and the amendments should not be just a step in the right direction. The announcements that came out of Lough Erne and the G8 agreement contained warm words and welcome sentiments, but there is an opportunity for the Government to start walking the walk, not just talking the talk. They must make not only warm statements but legislative changes that will move the issue forward and show the leadership that the UK should be showing. That would give us greater leverage when debating such matters on an international scale.

The Prime Minister rightly put tackling tax avoidance and evasion at the top of the G8 agenda, and Government Members now have the opportunity to demonstrate their commitment to delivering in that area. What came out of the G8 does not have to remain a statement of intent; it could become a reality for the UK today. We believe that our amendments would help the UK to take genuine action towards securing tax transparency and the fairness the world needs in the 21st century. I therefore urge all Members on both sides of the House to back our suggestions for how the Government can put their money where their mouth is on this issue.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to be here to discuss issues that we have already discussed once or twice this year. The Government’s new clauses have rightly been introduced to tackle loss buying and capital allowance avoidance planning. Those are examples of what we can, following the logic of the hon. Member for Walthamstow (Stella Creasy), call hard-core tax abuse. The rules have been allowed to get out of date and have been exploited for years, so it is right that they are tackled.

The new clauses demonstrate, however, that the system is far too complex. There are far too many different types of loss and of relief, which create the scope for transactions to try to exploit them. I am not entirely sure why we need trading losses, schedule A losses, D3 losses, non-trade debits and capital losses—and probably a few more I cannot remember off the top of my head. If we moved to a simpler corporation tax system that had only revenue losses and capital losses, we could perhaps tackle avoidance more easily, rather than having to introduce separate anti-avoidance rules for each different kind of loss to try and ensure that they all work. I encourage the Minister for the umpteenth time to try to simplify our corporation tax system, because it would help in tackling these problems.

There is an interesting question on the interaction of legislation with the general anti-abuse rule—if each time we see some aggressive abuse that we think the general anti-abuse rule should stop, we end up producing a specific anti-abuse rule, what does that say about how strong we believe the general anti-abuse rule is? I would personally prefer specific, clear legislation that all taxpayers can read, understand and abide by, rather than relying on some general statement of principle, but there has to come a point when we say, “We think that is abusive and falls foul of the general anti-abuse rule, and that is enough for us to tackle it. We do not need to introduce more complexity to our tax code: instead, we will rely on the rule.” It will be interesting to see, as the years pass, how confident the Government are in that position. For us to be able to evaluate how successful the general anti-abuse rule is, we will probably need to see if the Treasury—or, at least, HMRC—can win some court cases relying on that rule. It may be a few years before we have some returns filed and challenged on that basis.

[Catherine McKinnell]

Does the hon. Gentleman share the concerns of some people that we will never see those court cases, because the panel, depending on how it is selected, may deem most tax behaviour to be so eminently reasonable that it prevents such cases from ever getting to court?

[Nigel Mills]

I doubt that. The general anti-abuse rule came out of some proposals by Graham Aaronson, a leading tax counsel, so it is not fair to suggest that the whole industry is so wedded to egregious tax abuse that they will find any arrangement acceptable. That would make a complete mockery of the whole thing. I do not share that concern, but we have to be careful in how we draft the general anti-abuse rule. Effectively, it comes back to saying, “Although Parliament may have passed legislation in these terms, what we really meant was something slightly different.” Perhaps we did not envisage a complex scheme that works its way into what we actually said, rather than what we really meant.

If we tried to define a general anti-abuse rule too closely, we would be straight back on the horns of the dilemma of what Parliament meant when it passed a certain piece of legislation. I suspect that most people would say that we actually mean what we write in the many hundreds of pages of taxes that we pass each year. We have to allow the courts room to interpret where arrangements are clearly not what we intended when we passed them. The clue is in the word “general” in “general anti-abuse rule”. If we make it too focused, it will not work. We will see in a few years what happens.

Another measure we could use is whether the tax gap comes down. Do we see fewer of these abusive arrangements being entered into? Is that because of the threat of a general anti-abuse rule? Perhaps we could also measure it by the weight of the Finance Bill next year. If we do not need all these anti-avoidance clauses, the Bill will be an inch thinner and the Government will be happy that the general anti-abuse rule is working. I expect I will serve on the Committee next year and I am not optimistic about the Bill being much shorter.

I cannot support new clause 12. I can see why it was drafted, and I might have drafted some amendments in Committee that were equally creative as a way to force an issue into a debate where it does not really fit. I generally agree with the idea that we should require more transparency from our largest corporate taxpayers about how much tax they are paying, but also crucially why they are paying that amount of tax.

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[Kerry McCarthy]

What the hon. Gentleman says about the requirements he proposes for Companies House would go some way towards addressing the issue of transparency, but a recent report by ActionAid noted that one in 10 of this country’s top companies were not complying with existing Companies House rules on declaring how many subsidiaries and associate companies they had overseas. As I understand it, his suggestions relate only to accounts that would be filed in respect of their UK operations. We would not be able to tell from that whether such companies were channelling their profits through other companies and making use of tax havens, which is what people are really concerned about.

[Nigel Mills]

I agree with the hon. Lady’s sentiment, but I was confining my remarks to the content of new clause 12, which refers to

“a single easily comparable statement of the amount of corporation tax they pay in the UK.”

My thought was that the most single easily comparable statement would be the corporation tax return, which obviously has a consistent format, as everyone has to file it. She is right about the use of tax havens. Where tax havens are used underneath a UK corporate, HMRC has the power to get a group structure and to use the controlled foreign company rules to look at what is happening in the tax havens. It is clearly much harder for HMRC when those havens are sat above the UK, making it much harder to get the information because there is no shareholder ownership that obliges disclosure. That is why we need global work to get a clear and full corporate structure published. It will be interesting to see how much progress is made on that. It needs to be global, not just for the G20, because if one nation somewhere in the world will not agree to publish its share, that might be the one that blocks the attempt to disclose the havens.

[Kerry McCarthy]

I thank the hon. Gentleman for his generosity in giving way. Is it not the case that about one in five of the tax havens used by companies are UK-owned tax havens in UK overseas territories? To ensure some compliance, we should be able at least to start working with them to get them to share information.

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[Nigel Mills]

I am not sure that we should use the term “UK-owned” as I am not sure that our friends in Jersey or Guernsey would appreciate that kind of description, although perhaps it is true in respect of the Crown. The hon. Lady is right that we should set an example of leadership, however, and try to ensure that the territories over which we have some influence have rules that comply with global standards. We heard some encouraging noises from the UK’s overseas territories when they agreed some issues with the Prime Minister before the G8 summit. Quite a few have taken pretty good steps in the direction of transparency by signing information exchange agreements, so we should not impugn them all with the same accusations, as some are clearly more a matter of concern than others.

Let me return to the proposal to require the publication of corporation tax returns. The requirements applying to UK company accounts include a requirement to publish a tax note that reconciles accounting profit with the tax charge and lists the key factors involved. It was intended to provide a summary of the tax return in some respects. If the tax charge is materially different from, say, 24% of the accounting profit, the reasons should be set out so that the user of the accounts can understand what is happening.

I have probably read more sets of accounts than most Members of Parliament. I am not sure that the tax note takes the user any further, because it is so brief, because there are so many ways of merging entries, and because of the impact of deferred tax. The note was designed to deal with the absence of complete transparency in regard to corporate tax affairs, but I think we could achieve that much more effectively by requiring the publication of actual tax returns. That would not reveal too many commercially sensitive data; indeed, I think that far more information is required in a set of statutory accounts than would ever be required in a corporation tax return.

We would probably not be acting unilaterally, given the disclosures that are required by many other stock exchanges around the world. The disclosures required by, for example, the Securities and Exchange Commission for its listed corporations are well in excess of those required in the UK. I do not think that this simple step would put us out of line with the rest of the world. Given requirements to disclose the tax amounts, taxable profits, how they were arrived at, and the details of overseas transactions with related parties, including amounts and charges, I do not consider it particularly onerous for a company to be required to declare “We have paid royalties of £5 million to our US parent.” In fact, many sets of accounts include such declarations. There are measures that we could take as a UK regime that would not harm our standing in the world.

I think that if there is one action that will damage prospects for UK investment, it is allowing a series of large multinational investors to be dragged through the newspapers, hauled over the coals and accused of engaging in abusive tax practices, especially when they are innocent. We do not want a regime that allows information relating to selected people to be leaked. Let us enable that information to be clearly, generally and widely published so that everyone can see who is responsible for bad behaviour, rather than trying to attack those who are innocently taking advantage of reliefs that we have sensibly introduced.

Although I agree with the intention behind most of new clause 12, I do not think that it will work. I have proposed a way of ensuring that the information we need is in the public domain year after year without imposing an unacceptable burden on UK corporate taxpayers. Perhaps the Opposition will back that proposal, which I shall continue to advance whenever we debate an issue that we have probably already debated half a dozen times this year.

[John Mann]

It is always a pleasure to follow the hon. Member for Amber Valley (Nigel Mills). I trust that Opposition Front Benchers were taking detailed notes, because the hon. Gentleman speaks common sense. It is no surprise that Ministers repeatedly ignore that common sense.

Unlike the hon. Gentleman, I am not volunteering to sit annually on the Finance Bill Committee. I was sadly not afforded the honour of participating this year, but the opportunity to participate in a debate on the Floor of the House could not be missed. I shall confine myself to expressing avid support for the excellent new clause 12 rather than straying into matters that would be better dealt with in the Backbench Business Committee’s debate on Thursday, in which I urge all Members to take part. I want to allow some of the adjuncts of matters raised in this debate—not least the issues of the role of Companies House, company structure and formation, and company records—to be discussed in appropriate detail, so that future Governments can be informed of what they should do, and the current coalition can be informed of what it has failed to do.

We know why the rhetoric from Government Front Benchers is as it is. They all now wish to become a bunch of pasty eaters and to be recognised in society and by the electorate for the way in which they are battling for the little man against the big multinationals. However, when it comes to the detail, the natural instincts of those on the Conservative Treasury Bench overwhelm the common sense of people such as the hon. Member for Amber Valley and other Back Benchers, who have pragmatic, practical, positive ideas that could be considered immediately. Some could be put into action.

What those Ministers fall back on is the perceived vested interest of the multinational. We have a charade, led by the Prime Minister and his sidekick the Chancellor —the Liberals are counted out of this; they are not important enough when it comes to economic matters—where the Government try to portray themselves as wishing to grab additional taxation. They have put up taxation such as VAT on the motorist, the consumer and the rest of society, so Conservative Front Benchers are a bunch of tax grabbers. Through the minimal changes that they are proposing and through the Prime Minister’s proposals to the G8, they wish to portray themselves as being the ones who are going to roll back against the multinationals.

Finance (No. 2) Bill

Nigel Mills Excerpts

Wednesday 17th April 2013 Commons Chamber

[Mr Meacher]

The purpose of new clause 7 and new clauses 8 to 16, which are connected and which stand in my name and those of my hon. Friends, is to replace the Government’s anti-tax avoidance measure, the GAAR or the general anti-avoidance rule, as set out in clauses 203 to 212, with an alternative, much fairer, more effective and more comprehensive measure, the GAntiP or general anti-avoidance principle—I apologise for all the acronyms. In practice, the latter would mean that where a court could establish, having taken account of all the relevant circumstances, that the primary purpose of an arrangement was the avoidance of tax rather than any economically substantive transaction, it could strike it down.

Let me say immediately to the Exchequer Secretary that I appreciate that although UK tax avoidance for the last 70 or so years has been considered on the basis of four UK court decisions—and notably the Duke of Westminster case of 1936—the GAAR guidelines, which were published a couple of days ago, now override that position. I understand that they are, in effect, legal precedent in their own right, which any court has to take into account. That is certainly a significant advance. However, the Government’s GAAR, as set out in this Bill, is still fatally flawed.

First and most importantly, the GAAR advisory panel is riddled through and through with a blatant conflict of interest. It will be drawn almost exclusively from highly paid City lawyers who have spent their careers, and made their fortunes from, giving expensive advice to companies on how to avoid tax. It is like putting the poachers in charge of the gamekeepers. Surely it would be right for independent experts—some drawn from Her Majesty’s Revenue and Customs—to form the main body of what should obviously be an impartial membership.

Secondly, it is proposed that the application of the GAAR will be determined on the basis of a highly subjective and partisan criterion, namely whether the arrangement at issue

“cannot reasonably be regarded as a reasonable course of action”.

From the point of view of HMRC and the poor innocent taxpayers who are penalised if the corporate tax abusers are allowed to get away with it, there is a double jeopardy at work. First, what most people might regard as unreasonable might well be regarded by highly paid City lawyers who make their money out of promoting tax avoidance as perfectly reasonable.

Secondly, what is a “reasonable course of action” is heavily dependent on a subjective view of the role of taxation in society. Whatever else it is, it is not an objective test at all. The point is surely that the GAAR advisory panel has been inserted only as a filter, in order to give the tax avoidance industry a veto on which of its practices shall be called to account. That is clearly prejudicial and indefensible. If City lawyers employed in defending corporate tax abuse are asked whether it is reasonable to hold the view that an arrangement is a “reasonable course of action”, it is a virtual certainty that, except in the most egregious cases, they will agree that it is—at which point many highly controversial and artificial devices will not even get near an independent judge in a court. For that reason alone, I believe that the GAAR should be thrown out, although it has other serious flaws.

[Nigel Mills (Amber Valley) (Con)]

Does the right hon. Gentleman not accept that one reason why we have got this far is that Graham Aaronson, who probably meets the right hon. Gentleman’s definition of someone who has made his living from selling tax-avoidance schemes or at least advising on them, recommended that the Government go ahead with the GAAR?

[Mr Meacher]

I did not catch what the hon. Gentleman said. Can he say it a little more loudly and clearly, or can we have a conversation afterwards?

[Nigel Mills]

I will say it more loudly. Does the right hon. Gentleman accept that one reason why we have got this far is that Graham Aaronson, who arguably meets his criterion as someone who has made a living out of at least advising on such schemes, recommended that the Government go ahead with the GAAR?

[Mr Meacher]

Yes, I appreciate that. It seems that Graham Aaronson, whom I have criticised pretty strongly in the House in the past, has for reasons best known to himself—although I am very appreciative that he has done this—changed his mind in the important respect that the hon. Gentleman described and which I tried to set out at the beginning. There is more joy in heaven over one sinner who repents than over 100 just men.

[Mr Meacher]

I will come to that point. I know that the hon. Gentleman, who has spent enough time in this Chamber, as I have, might think that I am kicking it into the long grass, but I will come to it at the end. I think I have an effective answer to it, but I prefer to give it at that point.

There are other problems with the GAAR. For the reasons given, it is far too narrowly drawn, tackling only the most aggressive forms of tax avoidance. It would not, for example, tackle Google or Amazon—which have had enormous publicity over the last weeks and months—because the channelling of profits from genuine sales through tax havens would still be permitted. That is just one example. The implication—dare I say it one that was probably intended by the Government; I hope that is not unreasonable—is no doubt that a veneer of respectability is thereby cast over everything else, which might well include artificial contrivances designed to avoid tax. They will somehow be seen to be okay.

There is also no clear penalty regime in the GAAR, which is certainly needed if others are to be deterred from exploiting every opportunity to go down the tax avoidance route. Contrary to all other tax logic, where the burden of proof has always fallen on the taxpayer, uniquely in the case of the GAAR, the burden of proof that an arrangement is abusive has unaccountably been placed on HMRC. Despite the one improvement, which I am glad to mention—

[Nigel Mills]

rose—

[Mr Meacher]

I would rather get on, if I may, as many others wish to speak and it is a very short debate.

Despite the improvement I mentioned at the beginning, the net accumulated effect of all these flaws makes it reasonable to argue that the GAAR is a step backward for two particular reasons. One is that while the most heinous cases will certainly be caught—we are all agreed about that—the impression given is that virtually everything else is somehow okay and everything else goes. The other is the outrageous fact that HMRC cannot commence GAAR action on its own initiative. That is rather like forbidding the courts to take action against a thief until the honorary city guild for thieves has given permission.

The alternative is the general anti-tax avoidance principle—the GAntiP—as set out in new clauses 7 to 16. It was drafted by Richard Murphy, one of our foremost tax accountants, as the Minister knows only too well as a sparring partner, and a founding member of the Tax Justice Network. What are the advantages of GAntiP? I will set them out briefly.

First, tax avoidance is currently estimated to cost this country and its other taxpayers £25 billion or up to £25 billion—I know the figure is much disputed, but it is certainly a very substantial sum. It would be significantly reduced, so that many services now under threat because of Government cuts could be saved and more money would be available to help promote jobs, which the Government want, and economic recovery.

Secondly, to deal with the point raised by the hon. Member for Cities of London and Westminster (Mark Field), the UK tax system would be made considerably more certain if HMRC were for a small sum to provide prior indication, which I would strongly support, about whether or not an arrangement would fall within the scope of tax avoidance. No one is trying to trick companies; we want certainty, and this would be a very good way to achieve it.

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[Mr Meacher]

As always, the hon. Lady has a similar mindset to mine. That is what I hope, too. Discussions are, of course, going on within the party, and we are yet to hear from my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) who speaks from the Front Bench. I am certainly very keen to try to ensure that before the general election, for all the reasons I have given, the Labour party signs up to GAntiP. I am thus pleased to commend to the Committee new clauses 7 to 16.

[Nigel Mills]

It is a pleasure to speak in this debate, and I rise to speak to amendments 11 and 12, which stand in my name.

I have said this before, but I have concerns about Parliament agreeing overwhelmingly with a principle that effectively says, “We as a Parliament, even with all the specialist advice we get, cannot draft the law sufficiently well to leave our taxpayers to try to apply and follow it, and leave HMRC and the courts to determine whether that is the case.” The proposals of the Government and of the right hon. Member for Oldham West and Royton (Mr Meacher) would in effect create a power for HMRC to say, “While the law actually says that, what we really meant was something a little bit different, so while the taxpayer has complied with the letter of the law, they have not complied with the letter of the law as we wish it had been written.”

That is a real power for Parliament to give away. We are saying to an executive agency of the state, “Your job is no longer to apply the law; your job is to rewrite it as you wish it had been written by Parliament in the first place.” I think we should be very careful before going taking such a line. We need to know exactly what we are doing and we need to be happy with setting that principle. If the Government tried to apply such a principle to criminal justice law, we could end up arresting people for something that was not a legal offence but we wished had been a criminal offence. If we applied it to immigration law, for example, there would be howls of outrage saying that the state had gone mad with excessive power, and that it was the end of the rule of law and not the way for a sensible Government to behave.

[Mark Field]

I entirely agree. That sense of arbitrariness will potentially do great damage to the UK as a place that has always been welcoming to business internationally, benefiting our economy as a whole. He is absolutely right to draw a direct comparison between issues relating to the Finance Bill—after all, we have one every year, so we can try to tighten up any problems—and issues relating to the criminal justice system. As he says, if the same principle were applied to criminal justice, it would rightly lead to outrage.

[Nigel Mills]

I am grateful to my hon. Friend and I would like to expand a little on this theme. It has been said before that there are various ways of interpreting what the rule of law means. One version from the 17th century is that the rule of law is the

“supremacy of regular power as opposed to arbitrary power”.

In the case before us, rather than saying “Here is the law that applies to everyone,” we are giving the Revenue the right to rewrite the law only for certain people subject to certain permissions. That sounds like arbitrary power to me.

As a classics graduate, I thought I would dip back into history and finally find some use in having done a classics degree. Plato said:

“Where the law is subject to some other authority and has none of its own, the collapse of the state in my view is not far off; but if the law is the master of the government and the government is its slave, then the situation is full of promise.”

What we are doing here is saying that the law now has no authority, as we are giving somebody else the power to change the law, and that rather than the Government having to follow the law, the Government and its agencies can change the law retrospectively. We need to be clear that we are weighing up whether the real sin of the existing excessive, outrageous and truly abominable level of complex tax avoidance by people who should know better and should not be doing it is enough for us to risk weakening the rule of law.

[Jacob Rees-Mogg (North East Somerset) (Con)]

I entirely agree with my hon. Friend on the issue of the rule of law. However, I wonder whether the outrageous examples that have caused such scandal over tax avoidance were actually examples of tax evasion, and whether HMRC has in fact been very weak about enforcing the tax law as it exists now.

[Nigel Mills]

I agree with my hon. Friend that tax evasion is a crime that should be prosecuted to the fullest possible extent, but in this instance we are talking about tax avoidance.

We should be clear about the principle of what we are doing. We are saying to HMRC, “You can enforce something that is not in law.” If we are to pursue that line, we must be certain that safeguards are in place so that we do not see—metaphorically, of course—tax inspectors turning up with baseball bats, banging down the door of the taxpayer and saying “Give us money or else.” The “or else” would mean, of course, HMRC making the assessment and taking the money in any event, and the other party having to go through expensive court proceedings to try to get it back. I have worked with many tax inspectors, and clearly I do not think that any of them would literally pick up a baseball bat, but there is a risk that in any difficult situation in which there is some doubt about the application of the law, tax inspectors will start writing letters saying, “Unless you agree with my analysis, I reserve the right to apply the general anti-abuse rule, in which case”—effectively—“you will be in deep trouble.”

I think it would be very generous of Members to assume that, in all circumstances and for ever, HMRC would apply this power only to the largest, most abusive and most complicated taxpayers. I suspect that, in the experience of most Members, the Revenue has at times been a little weaker when tackling the very large taxpayers with very big pockets, and a little stronger when tackling those who are a bit smaller and a bit less sophisticated, and who may not be able to fight back as effectively. There is a real risk here. If we give the Revenue a power amounting to complete discretion in regard to whether it applies this rule to individual taxpayers, what is to prevent a large organisation from buying its tax inspector a nice lunch, and an application to apply the rule perhaps never actually being made?

I am not suggesting that that would ever happen. I have certainly never known such things to happen; tax inspectors are usually very law-abiding, and very committed to their role. However, there have been instances in which we as a Parliament have been concerned that the Revenue has not treated the largest and the smallest taxpayers equally. In this instance, we are giving the Revenue a discretionary power, and allowing it to choose when to try to use it. Are we sure that the Revenue will use that power against the people against whom we think it should be used, and not against our constituents who have not done anything particularly wrong?

It has been suggested that we are introducing too many safeguards, and questions have just been asked as to why we are imposing the burden of proof on the Revenue rather than on the taxpayer, as in every other situation. This is plainly not a normal piece of tax law. We are saying, “You may have complied with the law but we still think that you are in the wrong, so we will retrospectively pretend that the law said something different from what it actually said.” In such circumstances it must be right for the Revenue to have a duty to demonstrate that that is appropriate, rather than saying to the taxpayer, “You must prove somehow that you acted within a law that had not actually been published.” That would be nonsensical. It would be equally nonsensical to make the penalties for contravening the GAAR higher than the penalties for contravening the published law. If I flout the law and am defeated in my claim on the basis of the published law, I will rightly be subject to penalties, but for me to be subject to higher penalties when I have not actually broken the published law, which I can read, would certainly be nonsense.

I accept that the Government have undertaken long and detailed consultation and have tried to find a way of introducing a power to tackle the most aggressive, egregious and outrageous tax avoidance without creating some of the pitfalls that would worry me and, I think, my hon. Friend the Member for Cities of London and Westminster (Mark Field). We do not want to create a tax system that is based not on law, but on random interpretations of various transactions by HMRC at some point in the future. I also accept that the Government have made the safeguards as reasonable as is commensurate with ensuring that the law retains some teeth.

I shall ask some questions about the drafting of the Bill later, but let me first explain why I tabled my amendments. I wanted to try to ensure that the power focused on the large, complex, aggressive, expensive schemes peddled by naughty solicitors and accountants, rather than being used as a general threat against ordinary taxpayers who had tried to structure their affairs sensibly and had chosen to conduct a transaction in a way that we could accept.

There are many innocent ways of trying to reduce a tax bill. It is possible to make a pension contribution rather than taking income as taxed earnings. I do not think any of us would object to that. The law clearly identifies it as a choice that we can all make. The owner of a company can choose whether to take a dividend, a salary or a bonus, or whether to leave the cash in the company and to be taxed on a capital gain when he leaves. I do not think many of us would say that someone who chose not to take a bonus in the year in which he sold his company but instead to allow the cash to be deemed a capital gain in order to secure a lower tax rate would be perpetrating an outrageously aggressive tax abuse arrangement of the kind that we should prevent by rewriting the law. We must be careful not to allow the Revenue to apply this power to every piece of innocent, sensible tax planning, when the only fallback will be the definition of a reasonable use of the rules.

Some people might consider it reasonable for Parliament to intend what it says it intends. When we pass a law, it is reasonable to assume that we mean what we put in that law. If we meant something different, we probably ought to have said that something different, and if it turns out that we have got it slightly wrong, we should amend the law. I accept that we have been doing that in various situations for the last God knows how many years, and have ended up with a hugely complex tax code. Every time we build in more complexity, we create more loopholes, and then we have to create even more complex rules to try to close those loopholes—and then we create more and more. Perhaps the answer is to have much shorter, simpler tax codes. I hope that, once the Government have put the GAAR on to the statute book—as I fully expect them to do—we can attempt a wholesale simplification of our tax regimes.

[Mark Field]

My hon. Friend has identified the nub of the problem. The complications and the sheer size of the tax code have become the godfather of much of the tax avoidance with which many Members in all parts of the House want us to deal.

[Nigel Mills]

Am I right in thinking that the second sign of madness is to keep doing the same thing and expecting a different result? I think that that applies to introducing more and more complexity and assuming that the outcome will eventually be different.

[Sheila Gilmore]

Surely the problem with this line of argument is that it does not establish what is cause and what is effect. The assumption seems to be that the fault lies with the fact that tax is too complicated and that there is too much of it, which somehow encourages people to avoid it. Perhaps a complicated tax system, and many of the regulations that exist, have been made necessary by the very fact that people try to avoid tax.

[Nigel Mills]

The hon. Lady is right. I have not sought to defend those who peddle tax avoidance schemes. It is probably human nature for us all to try to minimise our liabilities. I personally think that we should try to adjust our tax regimes so that they get much closer to taxing the real profit that is declared, rather than allowing a collection of reliefs, allowances, incentives and so forth to provide scope for manipulation of the various circumstances in which people find themselves. However, I accept that people would still try to get round the simplest tax code in the world, and that we would need provisions to stop them.

My amendments are designed to ensure that, if the Revenue uses this power, it uses it to deal with the largest, most outrageous schemes. We do not want it to go around threatening all the small taxpayers who are simply trying to go about their way of life. I was not convinced that the wording of the Bill, and certainly not the wording proposed by the right hon. Member for Oldham West and Royton, would meet those concerns. I tried to provide a de minimis: the tax at stake would have to be above a certain amount before the rules could be applied. That would provide certainty, ensuring that the vast majority of taxpayers would not be subject to some retrospective, random rewriting of the law.

[Stephen Phillips (Sleaford and North Hykeham) (Con)]

My hon. Friend is making a powerful speech, and is advancing a compelling argument for his de minimis principle. The problem is, in my view, that it is a compelling argument for the exclusion of part 5 of the Bill, and that the de minimis principle that he seeks to introduce ignores the other principles that he has advocated. Does he agree with that?

[Nigel Mills]

Yes, I do. Various Members have expressed concern about the principle before. I think we must accept that the House has concluded that the only way of tackling the problem of excessive outrageous tax avoidance is to risk the principle of the reading of the rule of law, and to be satisfied that a relatively minor version is what is needed to tackle tax avoidance. I am not sure I would have come to the same conclusion. The previous Government looked at a general anti-avoidance rule about a decade ago, and having consulted for quite a while and made various drafts, they decided not to proceed, probably because of the same concerns that my hon. and learned Friend has set out. You perhaps remember those days and that consultation, Ms Primarolo.

--- Later in debate ---

[Andrew Stunell]

I strongly support the general anti-avoidance rule and its introduction. Some would say that it is long overdue. Bearing in mind what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) has just said, how important and urgent it is and how long-standing the problem has been, one has to say that it was overdue in 2010, so it is good that it is in place now. I commend Ministers on the Front Bench for including it in the proposals coming to the Committee now.

I shall spend a minute or two commenting on what my hon. Friend the Member for Amber Valley (Nigel Mills) said in his speech a little while ago, making it clear that there are some risks and some dangers, particularly of retrospection. The Minister will know that we have been in correspondence about one particular series of events which has left constituents of mine at a severe disadvantage, as they see it, because of the retrospective application of an HMRC ruling to them.

What I want to say to my hon. Friend is that one thing that the general anti-avoidance rule will do is put everybody in this country on notice about their tax affairs so that they cannot be caught by surprise, or perhaps even subterfuge or a recycling of policy, in the way that my constituents have been. I will continue to write to the Minister about the case facing my constituents, but a general anti-avoidance rule puts everybody on notice and makes any possibility of an excuse disappear. We should welcome that.

[Nigel Mills]

Does my right hon. Friend agree that it is preferable that only people who engage in aggressive tax abuse should be put on notice, and that people innocently going about trying to structure their affairs normally within the law should not be scared of the provision at all?

[Andrew Stunell]

I was very attracted to one point that my hon. Friend made in his speech, which was that he thought there was a tendency not to go for the biggest fish with the sharpest teeth and the most expensive lawyers, but to go for the little people or at least the middle-sized people. That is a powerful point and I hope those on the Front Bench are listening carefully. A general anti-avoidance rule needs to be general—that is to say, applicable to even the biggest fish with the sharpest teeth and the most expensive lawyers.

In amendment 6 and several others, some of which were debated earlier today and some more of which will be debated tomorrow, the Labour Front-Bench team has given us a very pretty set of trinkets. They all start with the phraseology

“The Chancellor shall review the possibility of”

doing this, that and the other. They have all obviously been produced by Labour’s amnesia factory, which has forgotten entirely that, on general election day in 2010, the country, the public purse, borrowed £428 million. The day before it borrowed £428 million, and the day after it borrowed £428 million. I commend Government Front Benchers again for reducing that figure by a quarter—a substantial amount. It is surprising that the range of amendments and the speeches made by Labour Members in the Budget debate, including today, have all said that the right solution to the problem is to borrow more. That is not the right solution, and, as I say, the amnesia factory is churning them out.

Beer Duty Escalator

Nigel Mills Excerpts

Tuesday 5th March 2013 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate. I join in the congratulations to my hon. Friend the Member for Nuneaton (Mr Jones) on securing it. We have spent much of the past year working together on beer, as we both took part in the all-party beer group’s inquiry into the smuggling of beer to try to get round the UK duty rules. That issue has not yet been raised much in this debate. One reason why we do not get the increase in revenue that we would expect from the beer duty escalator is the increasing amounts of beer that are brought over in what we could euphemistically call white vans. I suspect that they are actually large trucks, sneaking through our border, so that the beer can be sold round the backs of industrial estates.

It was quite scary, when we took evidence from Her Majesty’s Revenue and Customs, to hear exactly what the scale of the fraud was. It was something like the equivalent of all off-sales outside supermarkets in the UK, which is a seriously large volume. I am not saying that every small shop selling beer is selling non-duty-paid beer; that was just to show the scale of the problem that we have. We have to consider whether, all other things being equal, a policy that just generates extra rewards for people smuggling and avoiding beer duty is sensible when we are trying to encourage the legal trade.

I agree with what everyone else has said. I think that everyone has used the useful statistics that we have for the debate. The idea of increasing beer duty by more than inflation every year was probably wrong when it was introduced four or five years ago. In fact, various members of my party and the Liberal Democrats said at the time that it was wrong. It is a pity that taking on the chains of office means that we change our mind on some of these things.

It was intriguing to see that the present Secretary of State for Health was not happy with the policy when he was in a shadow role five years ago. I hope that that is something that my right hon. Friend has taken with him into the Department of Health and that we can see a reduction in the rather scatter-gun and unfair efforts to stop ordinary, reasonable people having an ordinary small amount of drink every week. It is right that we tackle excessive drinking, but we should not be trying to tackle the ordinary drinker and push the cost up for them.

If we are trying to tackle excessive alcohol consumption, which we clearly should, it is important to point out that the beer duty escalator targets people who drink, in pubs, pints of British-brewed beer. I suspect that that is not the biggest health problem caused by alcohol that this country has. We should be encouraging people to drink a nice, relatively weak pint of beer, rather than sitting at home drinking a litre of spirits or whatever. That is the direction of travel we should be looking at—encouraging the supervised drinking of British-brewed products in pubs and discouraging the drinking of imported cheap spirits.

I am not convinced by the arguments for the health benefits of this policy and I am probably even less convinced of its economic advantages. The forecast in the Red Book last year showed that the expected increases in this Budget would not actually raise any more money. I accept, and I will happily make the argument, that we are pretty desperate for revenue to reduce our deficit, but it seems bizarre that a policy would be introduced that raises no money and actually does damage to a pretty important industry that is a significant employer throughout the country. While I am on that issue, I should join the list of hon. Members praising their small local breweries. I can think of a fair few—Amber Ales, Leadmill, Bottle Brook, Coppice Side and Marlpool. I have to say that I think I have drunk quite a lot of all their beer. I made a special effort to have a barrel of beer from the Marlpool brewery at my engagement party a few weeks ago, which went down very well, so I am happy to say that I will do my bit to support my local brewery trade.

We can see that the number of these breweries is growing every year. Every time we drive round an industrial estate, we find that a new brewery has sneaked up round the corner. We should be supporting this trade. We should be supporting our pubs. They generate employment and they provide a community facility that we value. Therefore, I do not believe that the original case for increasing beer duty by more than inflation holds water any more. We should at the very least be stopping that above-inflation increase. I can see the argument that all other costs go up by inflation, so why should not the duty element? I cannot see the argument for putting it up by RPI plus 2%.

I happily agree with all the other hon. Members who say that beer duty is too high now and it is doing great damage. We have had a 42% increase in beer duty in the past four years. We have had enough. Let us try to support people and freeze it. If the Government cannot quite go that far, let us at least announce in two weeks’ time that we are scrapping the escalator and we will have to deal only with inflationary rises each year. That would at least be a fair situation from which to go forward.

--- Later in debate ---

[Cathy Jamieson]

The hon. Gentleman knows as well as I do the history of the increase, and I simply say that it was at that stage. This Government have to accept responsibility for the decisions that they have taken: they have not chosen to change the escalator that was introduced by the previous Government.

I am all ears to hear what the Minister will say this morning. I have heard a couple of such debates. In the last one in the Chamber, he was in “listening mode”, as he reassured us several times. He said that

“as an incoming Minister who is new to this portfolio, I plan to keep nothing on the shelf. I will be looking at everything, which includes all duties and taxes for which I have responsibility. That would be a sensible thing for any Minister to do.”—[Official Report, 1 November 2012; Vol. 552, c. 439.]

I agreed with that at the time, because I thought that it gave him the opportunity to introduce changes.

As has been mentioned, The Sun is undertaking a campaign about the increase. In a recent article, a Treasury spokesman was quoted as saying:

“Revenues from alcohol excise duty make an important contribution to reducing the deficit. But where we can take action we have.”

I want to hear from the Minister whether that means that any change has been ruled out or is still being considered. I also want him—I will give him plenty of opportunity to respond—to answer the question asked by the hon. Member for Leeds North West (Greg Mulholland) about the amount of savings and the effect on investment. Is it not now the time for a proper review of the economic impact of the escalator, to give us an evidence base in today’s economic climate? Will the Minister give us his latest assessment of the economic impact of the cancellation of the escalator? Will he simply give us the information that he and his officials have already worked on? Will he address what the impact would be of the Government acceding to our request to cut the rate of VAT temporarily?

[Nigel Mills]

The hon. Lady has gone back to the topic of VAT. Does she regret that when the previous Government reduced VAT in 2008, they increased the duty on alcohol, so that the VAT cut had no beneficial impact?

Corporate Tax Avoidance

Nigel Mills Excerpts

Monday 7th January 2013 Commons Chamber

[Ian Swales]

My hon. Friend makes a good point. Amazon has already been found out for charging 20% when it should have been charging 3% on e-books.

Should we care about all that? Yes, we should. There is the obvious point about the loss of billions in Government revenue, leading to higher taxes on other parts of the economy or cuts in services, including the very infrastructure and services on which a tax-avoiding company and its employees might depend. Then there is the question of competition. My previous experience was in the global chemicals industry, but in the internet and franchising age, the unfair effects can hit anyone. Our high streets are now subject to global competition in burger restaurants, bookshops and coffee bars. Local bookmakers have largely disappeared rather than trying to compete with rivals operating from Gibraltar—on paper. Most retailers are competing not only with the unstoppable rise of the internet but with offshore-based giants such as Amazon and eBay. The list of national and local UK businesses that cannot compete will get longer and longer: Comet was the latest to go broke, just before Christmas, probably costing the UK taxpayer £50 million.

Companies that pile up untaxed revenue in tax havens also have enormous financial muscle to reinvest cheaply or take out any other business they want to. It was recently estimated that the world’s tax havens hold $13 trillion of cash, which is the total GDP of the USA plus Japan, or enough to buy the entire London stock market four times over. That highlights the compound effect of tax avoidance, as those companies benefit from not paying the tax to begin with and can then use that money to compete ever more aggressively.

The big accountancy firms have led the charge in devising schemes from which companies benefit. What world do they envisage? If more and more companies routinely avoid taxes, the Government will get revenue only from people stuck as employees on pay-as-you-earn, and from property taxes, business rates and ever-increasing VAT and duty from the companies that cannot find ways to avoid them. There will be a net move from tax on companies to tax on individuals, and if that trend continues, only companies with offshore tax havens will be able to compete. A nation of shopkeepers will be run out of business. There is also a threat to our political system, because we cannot expect all those who pay their taxes fully and fairly to keep on tolerating such abuses indefinitely. UK Uncut might be just the start of the protests.

I have been talking about the problem; now I want to explore ideas for action. First, having a national tax system operating in an international business world means that we need to police our financial borders just as rigorously as we police our physical borders for illegal movements of people, counterfeit goods, drugs or any other activity that we want to control. We must say that if a sale or business activity takes place in the UK it should be accounted for in the UK. The idea that an item can be manufactured in the UK, stored in the UK and shipped to a UK customer, but invoiced from Luxembourg, must be challenged.

We should then force transparency into the system. UK companies doing the right thing report their profits and taxes paid to Companies House in some detail, so the blanket taxpayer confidentiality regime in HMRC, which prevents the disclosure of tax affairs not only to Parliament and the Public Accounts Committee but to HMRC’s own non-executive directors, mainly helps the international tax avoiders. It is time for the publication of simple statistics that are mostly available anyway in Companies House, as that would force companies to justify their behaviour. Transparency and honesty with consumers are important. If companies have nothing to hide, they will have nothing to fear.

[Nigel Mills (Amber Valley) (Con)]

Does the hon. Gentleman agree that one thing we could do is require large companies to file their corporation tax returns with their accounts at Companies House? Then, from their accounts, we could all see their taxable profits and how they got them.

[Ian Swales]

I appreciate that intervention, because I know that the hon. Gentleman has great experience in this area. He goes further than I was proposing, but it is certainly a good idea.

Transparency and honesty are important. As we have seen recently with Starbucks, transparency can lead to consumer power influencing company behaviour. I hope that we will see more of that. Retail, business or government consumers who do not like the ethics or practices of a company do not have to deal with them, except perhaps in cases involving utilities.

HMRC must also be more transparent. Although it steadfastly claims that it does not do deals, Vodafone’s finance director told the City that its deal was worth £500 million a year. One lesson from that and other cases is that no high-level discussions with companies should take place without being minuted, and those minutes must be freely available to tax commissioners and the National Audit Office. The transparency must work both ways; we cannot go on operating through tinted windows.

--- Later in debate ---

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in yet another tax debate—we seem to be having more and more of them as the months of this Parliament go by. This is an important issue, and the debate is about corporate tax avoidance, not just corporation tax avoidance. We can sometimes drift into focusing on tax on profits and miss out on the avoidance of VAT or payroll tax, which we could more readily do something about.

The publicity on the issue has had some positive impact, because it has probably discouraged a lot of businesses from entering into aggressive or artificial avoidance schemes. That has to be welcomed on one level, but we do not want to go so far that we start to do damage. The last thing that we want to do is deter international investment in this country. After all, the Government have set out to make ours the most attractive corporate tax regime in the G20. There has been great progress on that through rate reductions, and I believe that after the latest reduction we are about fifth in the G20. However, when we consider the effective rates that people actually pay, we are down to about 15th because of the complexities of our system. There is still a lot of work to do to make our system an attractive one that encourages investment both internationally and domestically.

We have to be careful that we do not drift towards having a tax regime that ceases to be based on a clearly advanced and published rule of law and is instead based on arbitrary decisions, with the Revenue having the power to ignore the law completely or rewrite it retrospectively, or if that fails, to bully people into paying a bit more tax until we think it is about right. After all, corporation tax is on profits for tax purposes, not on profits for accounts purposes, and certainly not on sales for accounts purposes. It is worrying that people seem deliberately to confuse the matter, talking about a company with a turnover of £1 billion paying only £500,000 of corporation tax and saying that that is a low percentage. That percentage could be completely irrelevant, because if it has made no profit, it will pay no corporation tax. We need to be accurate and focus on a different issue.

There are some aggressive avoidance schemes that are intended to exploit UK domestic law that we can tackle. The Government are tackling them, and I believe they have announced some more rules today to do so. We need to be as proactive as we can on those schemes, and that is where the general anti-abuse rule has a role to play. I am a sceptic about that. I am not sure I like the idea of giving any government bodies the power to implement something that is not law, but which they think ought to be. We are here to make laws; they are there to implement the laws we make. If we get the laws wrong, we should sort that out and improve our processes, not expect those bodies to find a way of fixing the problem retrospectively.

However, a lot of the avoidance we have been talking about involves transfer pricing. We are an international economy and we want to remain one. One of the things we are focused on is trying to encourage exports—we want people to invent and design things here, and then export and license them and get royalties and sales back. However, we will not win if we start an international war to see who can clobber royalties the most or put up the biggest barriers to trade. That would be a suicidally stupid thing to do.

[Paul Farrelly]

One example of where the Government have quite sensibly changed the taxation regime is their approach towards remote gambling, where they are moving towards a “point of consumption” basis. We might argue about what profits should be taxed, but the principle is that the bet is taxed where it is “consumed”—that is, where the good or service is consumed—not where the business is accounted for. Does the hon. Gentleman agree that that is a model we might follow in order to repatriate other tax revenues?

[Nigel Mills]

Yes, I do. Indeed, I think we will end up travelling in that direction, because corporation tax rates will be in some kind of global race to the bottom—as we reduce ours, people will follow suit, which will lead to revenues falling. However, it is right to say that if something is sold to a UK customer, the VAT on it should be accounted for in the UK—in fact, what we are talking about is like a trading activity. To be fair, if I rang a random business in Botswana tomorrow and said, “Can you send me a widget you’ve made?”, and that business did not regularly sell anything to the UK, I suspect we would not be too worried, but sales of things regularly marketed into the UK should be accounted for here and VAT should be paid. I think we are moving towards that system, which is absolutely right.

To return to my thread, it is not in our interests to encourage some kind of global race towards tax barriers, withholding taxes or whatever else. The right hon. Member for Birkenhead (Mr Field) was talking about some strange tariff for international companies to come and trade here, which would be crazy—certainly illegal and probably economically suicidal. We do not want to end up in that sort of mess.

We should not vilify the payment of royalties, management fees, design fees or even interest. What we need to do is ensure that those payments are not excessive, either individually or collectively. One of the things I fear, having worked in the industry, is this. At times, it is easy to say, “That fee’s okay, that fee’s okay and that fee’s okay,” but then we forget to look at the overall situation in the UK and reflect on the fact that no one would operate a business if the most they could ever make was a 1% margin on turnover in a very good year, while regularly making a loss in an average or bad year. That is not how to trade: these things have to be looked at as a whole, to try to ensure that the profit expected in an average year is reasonable enough for a business to want to operate in that territory.

That point can easily be lost, so what the Government can do to try to improve the situation is this. First, we need global rule changes to try to make internet-based business fit our tax systems. What we are trying to do, not just in the UK but globally, is make a tax system from the 1940s and 1950s—or even earlier—work for a different model of business. I remember that even when I started work a lot of my clients were inbound investors who actually made stuff in the UK and sold it just in the UK. That is not how things work now: people make stuff in low-cost territories, market it globally and administer that regionally. I do not think our system can be made to work in the current situation, where we have Amazon. There is a global need for reform.

However, we can do more on transparency. As I said earlier, we ought to require large corporates to file their tax returns with their annual accounts. People might say, “We have taxpayer confidentiality,” and yes, for individuals we do have that. However, we make companies file accounts and show what their profits are. What is the harm in making them show how they got to their taxable profit and the tax they paid? That would add transparency and show that the vast majority of corporates are not avoiding tax at all, but trying to do the right thing and making use of the different calculations that exist for tax. I have moved amendments in this place proposing to move our corporate system much closer to one based on accounting profit. We do not need all the different tax schedules—we probably do not even need a capital versus revenue divide. We can get our tax system much closer to one based on accounting profit, which would stop all these fears that some people are avoiding tax when they are perhaps not doing so. It would be much harder to implement complex transactions if that were in the accounts published. Indeed, we are talking about the profit that a business is judged on by lenders and the markets.

We could go so far as to say that all multinationals had to disclose all their cross-border transactions with related parties. A lot of companies used to do that in their accounts. They would list the royalties that they had paid to the US, for example, and the management fees that they had paid to Japan. We could get back to that. It would not be too difficult for a company to say that it had paid a royalty of 6% on sales to the United States. That would aid disclosure. There are practical measures that we could take to improve the situation without ending up with some kind of awful taxation baseball-bat regime that would put people off investing here at all.

Extra-statutory Concession A19

Nigel Mills Excerpts

Tuesday 4th December 2012 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to serve under your chairmanship today, Mr Streeter. I can assure you that we are discussing a tax issue and not a road or an aeroplane, which is probably a relief to the Treasury Minister responding.

Several of my constituents who sought to make use of the A19 concession have expressed concerns after, in their view, being unreasonably denied. For the record, that is the concession whereby if a taxpayer has underpaid tax because the Revenue failed to use information that it was provided with in a timely way, it can agree not to collect that tax from the individual. That is particularly relevant when collecting that tax, which may cover several years, would cause hardship to the individual. The most severe cases I have seen are those involving pensioners who have been presented with a sizeable bill.

I want to raise three aspects this afternoon. The first is how HMRC currently applies concession A19 or, in many cases, does not apply it. Secondly, I wish to ask what an appropriate appeal or review process for those decisions might be. Thirdly, I will say a few brief words about HMRC’s consultation on changing the concession from next year.

The easiest way to illustrate my concern is to talk through the case of one of my constituents. I will not name him for confidentiality reasons, but he had a job working in a factory from 1997. In 2001, he started to receive an occupational pension from a previous job. Everything worked well, and his tax was collected accurately, his employer had a coding notice with his personal allowance, and his pension was taxed at the basic rate.

Everything worked fine for five years until June 2006 when, for reasons unbeknown to the Revenue and certainly to my constituent, it decided to change the tax code for the pension, effectively giving him a personal allowance on two sources of income. That went undetected until February 2011 when, following a reconciliation process, the Revenue sought to collect the tax from my constituent for the previous four tax years—a bill of £5,000.

The Revenue issued the demand to my constituent, and did not think to go after either his employer or the pension fund. I believe that the pay-as-you-earn regulations state that in the first instance the Revenue should go to the employer if it believes that it has misapplied the rules. It would be helpful if the Minister confirmed that that is his understanding of the process. It does not happen often, sadly.

My constituent eventually took advice from a local firm of accountants, which advised him that concession A19 might apply. However, the Revenue rejected that on a couple of occasions, and there is concern about the thoroughness of the review and the fairness of the summation of facts. It rejected the application because its only failing was that it had not reviewed forms P14 and P35 provided by the employer and the pension fund and realised that the personal allowance was being used twice. Its reason was that the purpose of the forms is not to inform the coding notice process, as required by the wording of statutory concession A19.

That logic is bizarre, because the best information that the Revenue receives to decide whether someone is paying the right tax is those two forms, which all employers must file within so many days after the year end, and I suspect that that is how the Revenue has reconciled people’s tax affairs manually in the past. I think it now uses the information electronically to make that reconciliation, so I struggle to see much logic in saying that the information about what an employee has earned in a year and what tax they have paid is not relevant to the coding process. That process is designed to find out what income and benefits someone has had in previous years, and to work out what tax they should pay in the next year and therefore what code they should have. The issue has been raised with the Minister by the Association of Taxation Technicians, the Chartered Institute of Taxation, and the Institute of Chartered Accountants in a letter that they sent him in August.

The Revenue’s other argument was that the taxpayer should have understood that the coding notices were wrong. That is even more bizarre, because it was arguing that my constituent had started his employment in 2005, not 1997, and that his employer had never told the Revenue that he was working for it, so it did not issue any coding notices. That was all complete rubbish, because he had been employed for much longer, and the employer had issued coding notices, which had been applied correctly.

It is strange that in its letter the Revenue said that my constituent should have been able to work out that he was receiving two personal allowances by comparing the one coding notice it thought he had with his payslip or P60. That was surprising. The Minister and I might just about be able to work out how our tax code has been arrived at, and to divide it by 10 and add a random letter at the end depending on whether we owe it money or not, but I suspect that when benefits are added the process is much harder, and it is not easy for an ordinary member of the public to work out what a coding notice means. The explanation of how various adjustments are calculated is not clear, and to expect someone to do that by working back from a tax code that they might spot on their payslip is somewhat unreasonable.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for highlighting this issue. As an elected representative, I have had to deal with several A19 concessions in the last few years. I have been successful with most of them, but the one thing that keeps coming through is that people are not aware of the concession. Does the he agree that HMRC should publicise it more?

A record is taken of telephone calls and registration in every case, and that should show that people have expressed concern over a period. That helps when someone applies for an A19 concession, and they may receive the concession and a reduction in payments. Some of the people I have dealt with owed £7,000 or more, which we got reduced.

[Nigel Mills]

I agree with most of what the hon. Gentleman says, and I will come to some of his points. My constituent was not as lucky as those he helped, because he had no idea that his tax affairs were wrong. He was receiving two sources of income, and tax was being taken from both, so he did not realise that a mistake had been made sometime during the process. One could argue that he should have realised that his income had increased slightly, but the impact was not hugely significant on a weekly or monthly basis. Such matters are complicated when personal allowances change every year, and recently they have rightly been changed by quite a lot every year. If someone’s income fluctuates because they are working overtime, they might not notice that their weekly pay is £25 different from what it would be if the tax was deducted correctly.

We must be careful about expecting people in this country who do not have to file tax returns, and who do not generally have dealings with the Revenue, to understand what the complicated bits of paper that come through their door mean. If we base a system on relying on people understanding, we must make sure that what they receive is clear and complete, so that they can work through the calculations and understand where they are wrong. That is not the case with the current coding notice.

My constituent’s advisers and I thought that his experience had met all the requirements for an A19 concession. It had continued for several years, and the fault was clearly not his but either his employer’s or, more likely, the Revenue’s because he had been in the same continuous employment for much longer than the Revenue seemed to realise. Even if HMRC thought it was the employer’s fault, it made no effort to make contact with that employer while it existed. Sadly, it ceased to exist in mid-2011, about six months after the issue came to light.

To the adviser, it looked as if the Revenue was just refusing to accept an A19 claim based on a new policy that it should resist more such claims. The purpose of the concession is to provide fairness in the system if something goes wrong for an innocent victim. Yes, they should have paid the tax and, yes, they have received money that they should not have had, but if that has gone on for several years there might be severe hardship if they were required to find that money several years later. I suspect that we all believe that that concession is right, and it is important that it is applied consistently and fairly, and that people understand when it should and should not be applied. I am not sure that that is the case now, and perhaps that is why the Revenue has considered redrafting the concession, although there is significant concern that the redrafting will not help the situation much, which I will come to.

If an individual goes to the Revenue and has their request turned down, they have almost nowhere to go. It does not count as a tax assessment in the Revenue’s view, so they cannot appeal through the normal tribunal system. The only option is to make a complaint and go to the adjudicator, but even that is not ideal, as the adjudicator is only allowed to make recommendations to the Revenue that are consistent with the law or its own internal policy. Unfortunately, I do not think that the Revenue has even published all its internal guidance, although I am aware that some freedom of information requests have been made for details of the grounds for refusing A19 claims. It is hard to think that there is much chance of success when someone’s only route can be turned down if it is inconsistent with guidance that they have not actually seen.

Does the Minister have any ideas on how we can end up with a proper independent review of some of these cases? R.E. Clark v. HMRC was a tax case in which Mr Clark tried to make a formal appeal based on the P800 assessment notice that he had received being some kind of informal assessment. Interestingly, at the first stage, the judge hearing the appeal refused to accept HMRC’s request to dismiss it out of hand. Probably luckily for Mr Clark—although it not so good for us—the case was settled out of court and we did not see how the tribunal would have taken it. This is an issue of fairness. The concession is a policy that we think should exist, and it is important that a clear, impartial review is available, so that when HMRC has perhaps not come to the right answer, a clear resolution can be found.

The final topic I want to raise in the time that I have left is the recent consultation, which was intended to make the issue clearer. In some ways, it is possible to become cynical after a few years of doing this; clarity appears to mean that a document goes from being two thirds of a side of paper long to more than three sides. Greater length may make things clearer but it can also add a lot more complexity, ending up with a lot of references that have to be chased around, and I am not sure that that makes things clearer.

The consultation raised a more fundamental concern, which was that the new words seem to restrict the application of A19 in future. It is not just a clarification but a restriction, and it seems to impose a duty on taxpayers to ensure that their tax code is correct and up to date, which implies a continuing duty for people throughout every tax year to ensure that nothing is changed, and that their car benefit has not gone up, or whatever else. That is an onerous position to put people in. We all hope that with real-time information and more regular reconciliations, we will not see the sort of situation that we saw in 2010, when several years were unreconciled. The ongoing reconciliation process has been throwing out errors, and we hope that in a year’s time, when things are done in real time, no more people will face the hardship of getting a multi-year tax demand. However, if we are going to have this thing in place, it needs to be clear and only impose realistic burdens on taxpayers. It is right that we all try to understand our tax affairs and check things that come to us, but where things are complicated and the mistake is the Revenue’s, not ours, we should allow the concession to be in place.

I hope that the Minister will help me and my constituent to understand whether there has been a change of policy by the Revenue in how it handles A19. Has an instruction been sent out centrally? An article in Taxation a few months ago seemed to allege that the instruction was almost, “Thou shalt not agree any of these and if any of you do, you will get some kind of action taken against you.” I suspect that that was a little exaggeration, but it was what the article suggested. It would be helpful if the Minister could give us some data on how many A19 applications have been made in recent tax years and how many have been accepted and rejected. I suspect that he may not have that information to hand, but if he could let me have it in writing, that would be helpful, as it would show whether there has been a trend in the last year or so for a lot fewer of them to be approved.

Finally, will the Minister confirm that what the Revenue should do in PAYE cases is go after the employer first when it is their mistake, and only then going after the taxpayer if they are somehow jointly at fault or if there is some reason why the employer cannot be pursued? Various answers would bring much greater clarity to the situation and help people who get caught in this sort of mess.

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a great pleasure to serve under your chairmanship again, Mr Streeter, and I congratulate my hon. Friend the Member for Amber Valley (Nigel Mills) on securing the debate. Once again, he is bringing to the attention of the House his knowledge and expertise of the tax system and representing his constituents so well on a number of matters. He does so today with regard to the extra-statutory concession A19, and the debate has been helpful. I am grateful for the opportunity to respond, and I hope to be able to address his questions.

Before doing so, it is worth recognising that HMRC has made considerable progress in modernising the PAYE system and bringing the legacy issues for PAYE customers up to date. The national insurance and PAYE computer system—NPS—became operational in early 2010, enabling HRMC to bring all taxpayer records on to a single national database held under unique references. For the first time, HMRC has been able to bring together all sources of income for a customer under one reference. Although I know that there were considerable problems with the implementation of NPS, now that it is fully automated, it is a very cost-effective process that enables HMRC to reconcile nearly 60 million PAYE tax records very quickly.

In October 2010, HMRC’s late chief executive, Dame Lesley Strathie, made a commitment to the Public Accounts Committee, in response to an NAO recommendation, that HMRC would bring PAYE up to date for taxpayers by the end of 2012-13. It is on track to deliver on that commitment and it has already settled 17.9 million unreconciled customer records. As a consequence of those improvements, in the last two years, the number of unexpected tax repayments and demands issued by HMRC has been higher than usual, and in turn, that has led to an unprecedented number of customers contacting HMRC for help and advice. HMRC recognises that on occasions its customer service has fallen short of the standards that it wants to provide. HMRC has taken steps to improve its customer service over the past year—for example, by investing in its contact centres—and it is making customer information more accessible and easier to understand. It recognises, however, that there is more to do, and it is building on this year’s improvements to give all taxpayers the services that they rightly expect.

A significant proportion of the complaints that HMRC has received relate to HMRC’s implementation of ESC A19, and HMRC consulted on the operation of the concession over the summer. It has listened to the views of taxpayers and to comments in the media. Its current operational process was developed in response to the exceptional circumstances of 2010, when steps needed to be taken to ensure that the 166,000 requests that it received could be dealt with quickly. To respond to a question raised by my hon. Friend, from September 2010 to 31 March 2012, HMRC received 166,000 claims to the value of £185 million, and 41,766 of those requests were successful, at an estimated value of £53.7 million.

HMRC looked to deal with those matters as quickly as possible, creating a dedicated team and a streamlined process that included a more relaxed approach to the reasonable belief test during 2010 and 2011. It also raised the collection threshold to £300, and as I said in my statement to the House in January 2011, HMRC would not reconcile the tax affairs of 250,000 pensioners for whom we believe a request under the concession would have been successful. HMRC recognises that there is much more that it needs to do to improve its implementation of the concession for the future. There is work in progress to deliver process improvements and better guidance for officers dealing with requests, and particularly to improve the service for those customers who will always need help understanding and managing their tax affairs. That work is specifically aimed at reducing the number of customer requests that become formal complaints.

At this point, it may be helpful if I try to respond to some of my hon. Friend’s specific questions. He asked whether HMRC had published all the internal guidance on ESC A19. HMRC has published all guidance except where it considers that publication of the decision-making process that it uses to determine the reasonable belief test would prejudice its application. If HMRC published certain items, all cases would be phrased in a particular way to meet it. That would not be helpful, but that is the only reason why guidance would not be published.

HMRC has not changed its policy on ESC A19. HMRC has been looking to improve its consistency of decision making in these cases. Taxpayers have an appeal route to the Revenue adjudicator if they cannot agree the position directly with HMRC. Perhaps it is worth saying a word or two about that appeal route, which was raised by my hon. Friend. If a claim is refused, the taxpayer can request a second review. The taxpayer can make a formal complaint to HMRC. The taxpayer can then request a review of the formal complaint decision. The taxpayer can ask the adjudicator or ultimately even the parliamentary ombudsman to conduct a review. It is correct to say that there is no statutory right of appeal to the tribunal. That point has been tested with the tribunal, and that was the conclusion reached in that case.

Of course, HMRC has a responsibility to collect the tax correctly as prescribed by Parliament. ESC A19 is a concession that applies where HMRC has not acted in a timely or accurate way, but clearly there is not complete flexibility for HMRC to agree not to collect the tax that is due.

My hon. Friend asked whether, in some cases, the matter should be taken to the employer or pension provider first, rather than going to the taxpayer. HMRC has a process that allows it to approach both the employer and the taxpayer at the same time. In the majority of cases, a review under ESC A19 can be conducted quite quickly to establish the nature of the error. HMRC is happy to discuss individual cases with taxpayers if the taxpayer feels that it is their employer who has made the mistake.

[Nigel Mills]

Is it not the case that under, I think, PAYE regulation 72, the Revenue should go to the employer first? I think that it can then issue a notice to say that it can go after the taxpayer. In theory, the taxpayer should be sent a copy of that notice. I am not entirely sure that that is the process that is followed very often, but I think that it is the one set out in the regulations.

[Mr Gauke]

If I may, I shall come back to that specific point, because I want to deal with another issue raised by my hon. Friend, which was whether the P14 forms could be used for information and why that does not happen. I just point out that due to the volumes received each year—approximately 60 million—P14 forms are processed over several months. That is an automated process. There is currently no scope within the process that would enable HMRC to identify and amend a tax code for the current year on receipt of the previous year’s P14.

My hon. Friend asked about the ESC A19 consultation. The outcome of that consultation has yet to be decided. Obviously, he will be keen to know what it is. When that has been concluded, I will ensure that he is fully aware of it.

It is right to say that HMRC has delivered a real change in the operation of PAYE and brought its legacy issues up to date. That means that 85% of PAYE customers will have paid the right tax during the year. The remaining 15% will be due a refund or owe tax for a variety of reasons other than HMRC error. Furthermore, the vast majority of customers will be notified of their tax position well before the end of the tax year.

ESC A19 is designed to apply routinely when HMRC has failed to act on information received and also fails to notify the customer of their arrears for a full 12 months after the end of the tax year. This year, HMRC has received significantly fewer requests, and most of those were received immediately following the issue of the tax calculation. The vast majority were not eligible for the concession because there had been notification of the arrears within the 12-month deadline. The occasions on which taxpayers will need to make a request under ESC A19 in the future are significantly diminished. HMRC does not envisage the problems and complaints that arose from its implementation of the concession in the exceptional circumstances of the past two years arising to the same extent in the future.

However, my hon. Friend raises an important point about the difficulty that some taxpayers have when they simply have a tax code. That can make it difficult for them to assess exactly what the right amount of tax to be paid is and, if they are paying the wrong amount, what can be done about it. My hon. Friend will be pleased about the progress that we are making with tax statements. We are making much more information available to taxpayers, so that they can see what tax has been paid. The way I see that developing is that ultimately it should provide a much clearer route—much greater clarity to taxpayers—to ensure that the correct amount of tax has been collected.

Let me return to regulation 72, which my hon. Friend raised a moment or so ago. He is correct about the process. The NPS is fully automated and cost-effective and deals with 1.5 million underpayment cases per annum without recourse to this process—without going into regulation 72. These cases do not arise only because of employer error. Regulation 72 is really an anti-avoidance measure to prevent collusion between employer and employee. I hope that that provides some clarity to my hon. Friend.

It is important to distinguish between HMRC’s obligation to apologise and provide redress for customers who experience poor service and its collection and management discretions in effect to withdraw tax rightly due from the Consolidated Fund. HMRC has a statutory obligation to collect the right amount of tax from each taxpayer and to be fair to all taxpayers in that respect.

ESC A19 was intended to remedy the hardship and injustice of unexpected demands caused by the then Inland Revenue’s error and delay. Although HMRC’s tax commissioners can forgo tax in cases of financial hardship, its discretions to forgo tax that is rightly due are limited and are certainly restricted to the strict application of the conditions of the concession.

Compensation payments to remedy the cost and distress of poor service are ex gratia and are applied using the guidelines in the “Managing Public Money” rulebook. Those must not allow recipients to gain financial advantage as a result of poor customer service. It would be acting outside the parameters of the authority delegated to HMRC to provide redress that clearly linked someone’s tax liability with the amount of their compensation. To be fair, HMRC does have to operate a difficult balance.

We must recognise that the complaints and problems that we have heard about today, although serious and distressing for the individuals involved, have arisen in exceptional circumstances. HMRC has recognised and apologised for poor service and is taking steps to put things right for the future, particularly for pensioners and other vulnerable customers. It is working closely with professional organisations and charities to understand customer needs and improve services.

The need for customers to turn to ESC A19 for redress in response to an unexpected tax demand is diminishing. I would like to reassure my hon. Friend that HMRC will compensate customers for poor service, using its authority within “Managing Public Money” rules, and use its collection and management discretions to forgo tax where that is appropriate and necessary and where it has the power to do so.

Question put and agreed to.

Small Charitable Donations Bill

Nigel Mills Excerpts

Monday 26th November 2012 Commons Chamber

[Sajid Javid]

The Bill is intended to complement gift aid, because the Government received many representations from charities that when they received cash donations, such as in bucket collections, they were unable to take the information necessary for gift aid, such as whether the individual was a taxpayer and their name, address and other information. The scheme is intended to address that. One-off charities, including those set up in response to a disaster, are worthy causes but do not fit into how we intend the scheme to complement gift aid.

To answer the last part of the hon. Lady’s question, if a charity is created in response to a particular event or disaster, there is nothing to prevent it from registering for gift aid immediately and taking advantage of the gift aid provisions that already exist. If it stayed in existence for a number of years and therefore met the new eligibility criteria, it could also take advantage of what is available under the Bill. For the reasons that I have given, although she introduced her amendments with the best of intentions, I ask her kindly to consider not pressing them.

Amendments 8 to 16 would abolish the three-year start-up period and allow charities that have made a gift aid claim in the previous year to claim under the scheme. The maximum donations that could be claimed on would be £2,000, instead of £5,000. Proposals for a reduced rate for new charities have been put forward several times, and I am afraid that I cannot support them. Reducing the eligibility period to a year or less would increase costs, which would include a lot of costs caused by fraud. Requiring just one gift aid claim would leave the scheme open to unacceptable abuse.

The amendments would also make the scheme very complicated for some charities. Charities would need to know which other charities connected with them had claimed, and at which rate, because the rules would be different depending on those factors. The Government have listened to all the concerns that have been expressed about the eligibility rules, and we have put forward our own proposals. Our amendments are safe and affordable, and they will minimise complexity. I therefore ask Opposition Members not to press amendments 8 to 16.

I turn to the amendments that I have tabled on eligibility. Amendments 24 to 27 will reduce the eligibility period for the scheme to two years, and amendment 31 will introduce a power to enable us to amend the criteria in future if necessary. The eligibility criteria have been a key issue raised by the charity sector throughout the development of the scheme, and by Members in our earlier debates. The sector has welcomed the amendments since I tabled them last week, and I hope that hon. Members will support them, too.

[Nigel Mills (Amber Valley) (Con)]

Can my hon. Friend explain the logic of why amendment 31 will take away the Government’s power to amend the provision requiring a gift aid payment in a previous year, yet amendment 30, which we will come to later, will give them the power not to require any matching gift aid amount in the next year? The impact will be that a charity can make a claim without having any gift aid claims in the current year, but will have to have claimed at least a pound in the previous year. Is it not slightly perverse to table amendments with those two opposite intentions?

[Sajid Javid]

I believe that they fit together, and I hope that the purpose of the Government amendments will become clear.

Concerns were raised that the eligibility criteria in the Bill were too restrictive, that too many charities that did not already claim gift aid would be put off the scheme because it would take too long to become eligible, and that some short-lived charities would never reach eligibility. Balanced against those concerns is the fact that the Government have always been concerned to protect the scheme against fraud. I have looked again at where the balance lies between accessing the scheme and protecting it from people who would try to exploit and abuse it, and I have concluded that we can reduce the eligibility period to two years without undermining the integrity of the scheme. Eligibility for the scheme is defined by reference to successful gift aid claims made by a charity in the past, and I now propose that the minimum period should be set at two years.

I shall explain in more detail what our amendments will do. Four factors will determine the eligibility of a charity or community amateur sports club for the scheme, as set out in clause 2. The first is the start-up period—the number of complete tax years for which a charity must have been established before it becomes eligible for the scheme. We are reducing that period from three years to two years, so a charity or CASC will now be able to access the scheme a year earlier than was originally set out. The second and third elements are that a charity has to have made claims in two of the previous four years, and that there is a gap of no more than two complete tax years between the claims. The amendments will ensure that HMRC is guaranteed to see a minimum level of claiming activity by the charity or CASC in question, so that it can get to know that organisation and understand its ability to claim gift aid correctly.

The fourth element is the impact of a penalty on eligibility. If a charity receives a penalty, it will be excluded from the scheme for the tax year in which it makes the claim and the following tax year. Originally, the charity would have been excluded for the following two years, but amendment 26 means that the exclusion will be for only one year following the year of the claim.

That all adds up to a significantly more accessible scheme for new charities that have not claimed gift aid before, but we do not know exactly how the scheme will operate in practice. As I have said, we will review it after three years, when we might find that fraud rates are much higher or much lower than expected, so it is sensible to build flexibility into the Bill to amend the eligibility criteria in future. Many charities have asked the Government to do that. That power will enable us to vary the elements of the eligibility criteria up or down, depending on the evidence that we see on how the scheme operates and its susceptibility to fraud.

Those four elements interact with each other, and with the matching criteria, to provide safeguards for the scheme. We want to build the maximum flexibility into the Bill by allowing each of those periods to be reduced, increased, removed or reinstated. Any use of that power would be through the affirmative procedure, so it would be consulted on and subject to debate in the House. However, we do not want flexibility to undermine the integrity of the scheme or its important link with gift aid, so the requirement for a charity to make a minimum number of gift aid claims over a set number of years will always remain.

I now turn to the last set of amendments in this group. Since the Public Bill Committee, we have reassessed the distribution of powers to make secondary legislation in the Bill, some of which are conferred on the Treasury and some on HMRC. Broadly speaking, a power that changes the nature of the scheme in some way should be exercised by the Treasury. A power given to HMRC should be to allow the collection and management functions to be carried out correctly. The powers in the Bill are currently inconsistent with that approach, so we are introducing amendments 28 and 29 to change the powers in clauses 7 and 8. Those relate to running charitable activities in a community building and the definition of a community building. The powers are currently assigned to HMRC, but we now think it would be more appropriate to assign them to the Treasury. That is because they could be used to make significant changes to what is in or outside the scope of the rules. I hope that that helps explain why we have tabled those amendments.

I come now to my conclusion, Mr Deputy Speaker. [Hon. Members: “Hear, hear.”] The conclusion is very popular. I do not consider that there is any need for statutory reviews of the scheme at 24 months, and neither is there a need to require HMRC to publish certain data. There will be a full review of the scheme after three years, and HMRC will be publishing what data it has three times a year. New clauses 1 and 2, and amendment 21, would be wasteful and would require duplication of resource for no good reason. I therefore ask the hon. Member for Kilmarnock and Loudoun not to press those to a Division, just as I ask other hon. Members not to press new clause 3, amendments 32 and 33, and amendments 8 to 16.

I hope that hon. Members are comforted by the Government amendments that will reduce the three-year eligibility rules to two years. I am introducing a set of amendments that do what many charities and hon. Members have asked us to do, which is reduce the barriers to entry for this scheme and cut the eligibility period. I accept that some hon. Members wanted me to go further, but that would leave the scheme too exposed to fraud. These amendments represent an important concession by the Government, and I call on hon. Members from both sides of the House to support them. I am also introducing two technical amendments, Nos. 28 and 29. I commend the Government amendments to the House.

--- Later in debate ---

[Cathy Jamieson]

Again, I hope not to detain the House to any great extent. As the Minister will recall, we consistently pushed the Government to reconsider the matching principle in the Bill as we believed that it was too onerous for many small charities and would mean that many of them could not benefit from a scheme that was supposedly set up to help them.

The Government amendments show that the Minister has bowed to the pressure not just from members of the Committee but from people in the charitable sector who had serious concerns about the impact of the measures from the very start. I will not repeat all the comments made by the different organisations over the course of our discussions about the Bill.

We could of course continue to argue for the matching principle to be dropped completely and could make a case for that. However, given that the Government have seen fit to introduce changes that will take the ratio from 2:1 to 10:1, I think we should recognise that they have moved a significant amount, which has been welcomed by the sector. I look forward to hearing what the Minister has to say about his amendments and I want to make it clear that I do not think our amendments are required at this point as they have been superseded by his.

[Nigel Mills]

I wholeheartedly agree with the hon. Lady. In Committee, the Minister promised to make the situation more generous, but last week I saw that no amendments had been tabled to that effect. I thought that I would just try to help him be a little more generous by reflecting the wishes of a local church in my constituency that had asked me to try to make the figure three times, not twice. I have no desire to be only a third as generous as the Treasury and so welcome this move by the Minister. I think that it is a sign that he has listened to the argument. I genuinely hope that this new-found generosity in the Treasury will extend into next week.

--- Later in debate ---

[Nigel Mills]

I support many of the points made by the hon. Member for Banff and Buchan (Dr Whiteford). I am trying to achieve a similar end result with amendment 2. Having recognised that the Government have some problems, I tried to find a way of future-proofing the Bill so that in a couple of years’ time, when they saw the trend for cashless donation going beyond even what the hon. Lady set out, they could introduce an order to allow electronic donations to count for these purposes.

We have to be careful. The world is moving on. Only a few weeks ago, my credit card company sent me a strange thing that I can stick on the back of my mobile phone. Apparently, I can make payments with it. I have to say that I was not quite ready to go that far. I thought, “What happens if I lose my mobile phone? I will not only have lost all my contact details but my credit card as well.” However, we can see that this direction of travel is with us. I suspect that in many ways the Treasury is quite keen for us all to become even more cashless. Tax avoidance is made much harder if everyone starts to make payments by an electronic traceable means rather than through cash. The UK is the EU nation with the highest propensity to use cashless technologies, and I think that that trend will continue.

In its evidence to the Committee, the Royal National Lifeboat Institution said that it was not yet ready to replace its cash collecting tins with electronic swiping points. I accept that. However, I suspect that in a few years’ time that system will become rather more common and people will be out there with a placard saying, “Swipe your card here and donate a fiver to this charity.” We heard ideas about how people could swipe their Oyster cards to make small donations and how that might help Transport for London to get fundraisers off its stations. I gave the example of how an Oyster card that someone had finished using and that had some cash left on it could be used to donate to the Railway Children charity. At the moment, there is no way in which such a donation could be traced to see whether the donor was willing to give gift aid.

The Minister argued in Committee that there is no need to take account of that type of giving because it is not that widely used and, where it is, it is still easier to get a gift aid declaration. I am not sure that that argument will stand firm in the next couple of years. We will start to move towards that type of giving and people will see it as an alternative to the quick cash donation. They will think, “I’ll swipe my card and give you £1, £2 or £5, and I don’t fancy stopping to fill out a gift aid form any more than I do with cash. I don’t fancy having some e-mail come from my card provider saying, ‘If you click here you can have gift aid on that.’” We need to try to future-proof the Bill so that in two or three years’ time we are not faced with charities moaning and saying, “Look, we’re getting more and more donations by some electronic means that we can’t use to claim gift aid. Can’t you change the Act?”

I have tried to find an easy compromise for the Minister and to assuage his concerns that this is perhaps too risky, not popular enough, or not needed. I suspect that it is quite unusual for a Back Bencher to offer a Minister the power to make a change in law by order. Usually Back Benchers—I am one of them—say, “I’m a bit concerned that the Government are taking too much power to change this, and we don’t want them to have that power.” Today, I am offering the Minister a power. He does not have to use it now, this year or next year, but at some point, if this became something that would help charities and fit with the aims of the scheme, he would have a nice simplified method of making the change without needing to come back to the House with primary legislation. He has already tabled amendments to give the Treasury powers to change things by order, and none of us had a problem with that. My amendment is a gentle, helpful one, and I commend it to the House.

[Cathy Jamieson]

Many of us who served on the Bill Committee or listened to the Second Reading debate and have heard the representations made by the charitable sector have a degree of sympathy with the comments made by the hon. Members for Banff and Buchan (Dr Whiteford) and the for Amber Valley (Nigel Mills), particularly in relation to ensuring that the Bill does not become out of date before it gets under way.

The hon. Lady made some powerful arguments. Indeed, her case is reflected in our amendment 22, which relates to some of the difficulties involved in getting information from those who have made donations by means other than cheques, such as JustTextGiving, or—this issue was raised a number of times in Committee—if they have placed a cheque on a plate or in a collection box at an event such as a funeral.

We had hoped that the Minister would give an indication—he may well do so—that he would at least be minded to consider this proposal at some point in the future. I understand that there may be technical reasons against that at present and that the Cabinet Office is engaged in ongoing work on the different methods of making donations and on following up on gift aid. Although I support the principles of amendment 34 and want action to be taken—that is why we have tabled our own amendment on the issue—I understand that there may be some difficulties. It would be odd, however, if the Minister said that at no point would he consider moving in the direction suggested, particularly when the Cabinet Office is engaged in those schemes.

I hope that the Minister will be able to comfort us by saying that he will consider the proposal at some stage. I also hope that the order-making powers that the Government will adopt under the Bill could, if necessary, be utilised at some stage to extend the way in which donations can be made. It seemed odd during Committee that, while someone can donate using whatever currency they choose, donations by electronic means do not count.

I look forward to hearing what the Minister has to say. I hope that he will take account of the persuasive case that has been made and that he will take a further look at the proposals in the amendments tabled by the hon. Lady and in my amendment 22.

Oral Answers to Questions

Nigel Mills Excerpts

Tuesday 6th November 2012 Commons Chamber

[Danny Alexander]

I think the hon. Gentleman’s criticism of universal credit is extraordinary. Universal credit will simplify the benefits system and ensure a single, clear process for all people in receipt of benefits. Having a clear single taper will ensure that everybody knows they will be better off in work—something they could not be sure of under the previous Government.

[Nigel Mills (Amber Valley) (Con)]

The Government have seen the benefits that transparency can bring. Would it be good to require large corporates to publish their tax returns so that we can all see how they achieve the low rates of tax they pay?

[Mr Gauke]

It is right that large corporates engage in this debate, and there is a lot of public interest in the matter. One must ask whether tax returns in themselves will provide the full information—my hon. Friend has great expertise in this area—and whether that is the right way to address the issue. We have a tradition of taxpayer confidentiality in this country, as does every major economy.