Tax Avoidance and Evasion
Nigel Mills Excerpts(12 years, 2 months ago)
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Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow the right hon. Member for Barking (Margaret Hodge) and I join the congratulations to the right hon. Member for Oldham West and Royton (Mr Meacher) on securing this important debate. I have spent a lot of the last few months debating tax—it came up in the Finance Bill and at various other times—which shows how important it is. I promise that I will not list any Take That songs to embarrass celebrities who seek to avoid tax. I got enough flak for that the last time I tried it.
I agree with hon. Members who have spoken that it is absolutely right that the Government do everything they can to minimise tax evasion and avoidance. All hon. Members want everyone to pay the amount of tax they fairly owe, because that reduces the burden on everybody who does so. It is right that the Government take every step they can within the legal powers they have to ensure that that happens.
Hon. Members have discussed how much the tax gap is. The last HMRC figures say that it is £35 billion. I have served on the all-party group on beer, which has inquired into measures to tackle beer duty fraud, so I have been through in some detail the weakness of tax gap calculations. The same issue came up in the Select Committee on Northern Ireland Affairs, which has had an inquiry into fuel duty. There is a problem in calculating how much revenue we do not have—we do not get the revenue, so it is quite hard to know what it would be—but I suspect that £35 billion is not a million miles off either way. I fear that the figure will have increased in the last tax year. I am told that if we look at the difference between 2008-09 and 2009-10, we see that the big reduction was in the loss of VAT, which was probably caused by the slight lowering of the VAT rate. Obviously, the rate has gone up since, so the tax gap will probably have increased slightly.
A report has shown that the UK tax gap is one of the lowest in the developed world—it is about 14% of tax revenue. I believe the gap in the US is somewhat higher, so it is not as if we are the worst in the world or have the weakest regime. We might even have one of the best.
It is important to understand that the tax gap is not entirely due to complicated tax avoidance or deliberate tax evasion. Much of it is innocent error and people lacking care in filing their returns—they do not actively seek to get it wrong. Measures to tackle avoidance or evasion will not close all £35 billion of the tax gap. There is not much we can do to get tax off someone who has gone bankrupt. Perhaps we could do more to prevent the amount of tax they owe from building up that high, but there will always be some loss when a business goes bust before paying its taxes. So we will not get that £35 billion down to zero—this will not be the panacea for the Government’s deficit problems—but it is right that we seek to get it down as low as possible.
I commend some of what the Government have done. Only this week, we saw a press release from the high tax unit showing that it was well ahead of its target and had already saved the Exchequer £500 million. The Government have adopted the right strategy, building on that of the previous Government, to deal with tax avoidance: they get in the disclosure of these ridiculously aggressive schemes, which ought to be closed down, and then they close them down. Then the strategy is to improve and tighten tax legislation for the areas most under threat, so that those opportunities are not there.
I am not convinced, however, that a general anti-avoidance or anti-abuse rule is the right way to go. I have concerns that it would contravene the rule of law. We, in Parliament, should pass laws that are clear, so that everyone understands what the law is, and then we can expect taxpayers to follow it. And if they do not, they can be severely punished. The problem with a general anti-abuse rule is that it allows the Revenue to say, “Okay, maybe you’re within the law, but we don’t think the law should have said what it said, so you should’ve been outside the law, even though you weren’t, and so we’re going to punish you.” I am not sure that we would want to give that power to a state agency in any other field of the law—the power to enforce not the law as we set it but the law as it might think we ought to have set it.
However much we stretch the general anti-abuse or anti-avoidance rule, fundamentally we are saying that the Revenue can tackle abuse that ought to be tackled by saying, “Ignore what Parliament says. Produce something that you think it should have said. And then enforce that.” I worry that that is a step too far—not that most of the people who would be caught would deserve anything less than they get, but the Revenue would be able to raise that stick against all manner of innocent individuals and businesses as well.
I worked as a tax adviser before entering this place. I can assure hon. Members that I was drawing up advance agreements on transfer pricing. I was not engaged in any naughty tax avoidance of any kind. Revenue Inquiries, in using its powers, writes, “Please send me this information. I think this doesn’t work as you say it does. By the way, if you don’t agree, I’ll have to use the general anti-avoidance rule.” And we have this stick being wielded in all manner of innocent situations in which businesses or individuals have got themselves into a complex situation where tax law is not clear, especially if there are a lot of transactions involving overseas parties.
Those individuals might be making perfectly sensible commercial attempts to apply the law as they think it is. They might not be trying to avoid tax but might be trying to be fully compliant, so the possibility of having that stick held over them and being told, “If you don’t pay up, we’re going to throw all these huge things at you,” will rightly concern lots of businesses around the country. We risk using a large sledgehammer, missing the nut and just increasing the burden on taxpayers. We have to look at the downsides of our tax regime appearing too unfriendly and uncommercial. How much investment will we lose if international businesses and individuals think that this is not a great place to do business? We have to be careful, therefore, about how much power we give the Revenue to apply its own interpretation of the law, rather than getting Parliament to do it.
Simon Hughes
I understand all the arguments and have seen the reports about general anti-avoidance measures and so on. Is there not the principle, however, that we should expect everybody, whether individuals or corporate bodies, to pay in tax at least a certain percentage of their profits every year to the Revenue—whether 20%, 25% or whatever—so that people know that they will not be allowed, by clever ruses, to avoid a minimum obligation to the state in which they live and work?
Nigel Mills
I thank my right hon. Friend for his intervention. Although that idea sounds attractive, and although various regimes around the world have minimum profit taxes and things like that, it would add huge complexity to our already too complicated tax regime. What we want is for people to be easily able to work out what tax they owe and then to pay it.
I have tabled amendments to both Finance Bills while I have been here to make the tax regime simpler, so that companies can get their tax profit much closer to their accounting profit. It should be much easier for them to know what tax they ought to pay, and if they have made an accounting profit, they ought to pay tax on it. That kind of reform would be a far better way of going down this line and making the transparency agenda much clearer. We do not need most of the complicated adjustments, reliefs or allowances that were introduced, probably to support well-meaning ideas, over the last 150 years. Our regime is far too cumbersome. It incentivises things that we do not mean to incentivise and penalises things that we probably ought to encourage. If we moved to a much simpler, flatter regime, where what a business reports as its accounting profit is pretty much what it pays tax on, that would be in everyone’s interest. It would reduce avoidance and make it a lot easier for business to comply and a lot easier for the Revenue to see that there was compliance, so that the Revenue’s resources could then be focused on tackling avoidance and evasion, which is what we ought to see.
I would like to use my remaining time on a report published quite recently by the RSA called “Untapped Enterprise”, which I would recommend Members read. It looks at how we can try to move people out of the informal economy and get them to be fully compliant as employers and taxpayers. The RSA’s research and the conclusions it reached are quite interesting. The report says that a significant proportion of new entrepreneurs feel that they need to stay in the informal economy while they test out their business and see whether they can make a profit on it, because they know that once they get caught by all the tax compliance and other reporting requirements, that can take up so much time and money that they might not be able to get their business off the ground at all. Most of them do not stay in the informal economy because they want to avoid tax; rather, they just want to focus on running their business.
Some of the ideas in the report for tackling the hidden economy are quite interesting. It makes the point, which has been raised in the debate, that we need to nurture the concept that paying tax is right and moral, that we get proper value for public services from doing so and that everybody ought to be doing it. The last thing we want to encourage is a situation where people think the Government are against them, that the taxman is an enemy or that avoiding tax is a perfectly sensible, reasonable thing to do because they think, “It’s them versus us,” or, “Every penny I can save is a good thing.” We need to make the case that paying tax is the right thing and everyone should do it.
While I am on this subject, I agree that we need to reform the non-dom rules. I cannot see any justification now for saying that because someone’s father was born outside the UK they do not have to pay full tax, even though they have lived here for 30 years. There should be a cut-off at, say, 10 years, so that once someone has been here for 10 years as a non-dom, they lose their non-dom status and have to start paying tax on their worldwide income. That would be a fair compromise between not discouraging people from coming here in the first place and getting our fair share of tax out of them.
The report also sets out the need to simplify the formalisation procedure. We need to make it simple for people to register their businesses for tax and to start paying. It needs to be simple to work out how much tax is owed. Let us not have people making the excuse that they did not pay tax because they did not know how much they were supposed to pay.
My final point is that we are moving towards a cashless society. It ought to be harder for business to be informal, because it is becoming more difficult for people to pay cash—indeed, I do not carry around a large amount of cash to pay for things with. That should move us in that direction, but we should also say to consumers, “Don’t pay people in cash; don’t encourage tax avoidance.”
Finance Bill
Nigel Mills Excerpts(12 years, 4 months ago)
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Mr Gauke
A number of VAT measures are to be debated today. To help the House, let me outline how I intend to deal with them. I will first address new clause 4, which relates to VAT on face-value vouchers, before turning to Government amendment 17 and new schedule 1, which address VAT anomalies. I am also conscious that a number of new clauses have been tabled by other right hon. and hon. Members, which I will respond to more fully later in the debate. I will also address amendments 18 to 20, which are consequential amendments dealing with VAT anomalies.
New clause 4 is a Government change to protect revenue. It guards against the possibility of widespread VAT avoidance by the use of so-called single-purpose face-value vouchers. Because of the seriousness of the threat, I announced the change by way of a written ministerial statement on 10 May. Following a decision by the European Court of Justice in May, we need to amend our legislation as it relates to single-purpose face-value vouchers, such as phone cards, so that VAT is due when such vouchers are issued.
We need to act with immediate effect to prevent a loophole due to the mismatch between the ECJ decision and current UK legislation. This could occur because individuals could argue that VAT cannot be collected on redemption by virtue of the Court’s decision, and it cannot be collected on issue by virtue of UK legislation. Therefore, the new clause protects around £200 million of revenue a year and guards against avoidance that could otherwise run into hundreds of millions of pounds.
The changes made by new clause 4 will remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, normal VAT rules will apply and they will be taxed when they are first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods and services after that date, other than where that would lead to double taxation.
It might be helpful to hon. Members if I provide a little background to the new clause. As I have said, the issue arose in connection with a recent decision of the European Court of Justice concerning the VAT treatment of cross-border supplies of single-purpose vouchers, in this case phone cards supplied by a business in the UK to customers in other member states. Most member states tax single-purpose vouchers when they are issued, but in the UK the issue is disregarded and VAT becomes due only when the vouchers are used to obtain the underlying goods or services. This treatment is welcomed by UK businesses, because it delays the point at which they have to account for VAT, so creating a cash-flow advantage and an absolute saving on those vouchers that are issued but never redeemed.
However, in the case before the European Court of Justice, the business concerned complained that the difference in treatment between the UK and some other member states caused double taxation, because VAT was due in the member state where the card was sold to the final consumer and again in the UK when it was used to pay for telephone calls. The Court found against the UK’s approach in such a way that, until UK law was changed, suppliers of single-purpose face-value vouchers could have escaped VAT altogether. In the current market, that would have led to a tax loss of £200 million a year. In addition, if UK law had not been changed there would have been the risk of widespread avoidance involving the use of single-purpose vouchers, which could have led to a significant loss of tax.
To give an example, a car manufacturer could have issued a face-value voucher for a new car of £15,000, which the customer could then redeem at his local dealership. UK law said that there was no tax on the issue of the voucher, and the Court of Justice of the European Union said that there was no supply at redemption and, therefore, no tax. That may be an extreme example, but it illustrates the problem that could arise in a variety of retail scenarios.
The changes that new clause 4 make would remove single-purpose face-value vouchers from the UK’s VAT regime. For face-value vouchers more generally, this means that normal VAT rules will apply, and such vouchers will be taxed when first sold. There is also a transitional rule to ensure the taxation of vouchers that were issued before 10 May but used to pay for goods or services after that date, other than when that would lead to double taxation, but the Court’s definition of what constitutes a single-purpose voucher allowed us to retain the UK’s treatment for most vouchers.
The Court took the view that a single-purpose voucher is one that can be used to obtain goods or services of only one type, and which are subject to a single rate. Single-purpose face-value vouchers that are for one type of good or service form only a small proportion of the overall market for face-value vouchers, because most face-value vouchers can be exchanged for a range of goods or services. For example, a cinema voucher may be exchanged for tickets as well as for confectionary. Both the entry to see the film and the confectionary make suppliers liable to standard-rate VAT, but as they cannot be said to be of the same type the voucher is not caught by the judgment. We therefore expect the change to affect a relatively small number of businesses, and I hope that that explanation is helpful to the House.
In conclusion on face-value vouchers, the new clause is a proportionate response to the significant risk of tax loss arising from the use of single-purpose vouchers. It is carefully targeted against the risks and retains the VAT treatment for the great majority of vouchers sold in this country, and I commend it to the House.
Amendment 17 and new schedule 1 relate to the categorisation of suppliers for the purposes of value added tax. New schedule 1 would implement the changes announced at the Budget, which have been refined in the light of consultation, to address anomalies and loopholes in the area of VAT liability. The VAT system contains a number of anomalies along the borderlines of VAT exemptions and VAT zero rates, and addressing some of those anomalies and loopholes is precisely what the Chancellor announced at the Budget.
The Government announced at the Budget that they were introducing a number of measures to address some of those VAT anomalies, reducing uncertainty, costs for business and for HMRC, and raising revenue. On Budget day, we proposed a number of measures and launched a consultation to engage stakeholders and to listen to their ideas. The measures that we announced proposed to clarify the treatment of catering to ensure that all hot takeaway food is taxed, and to clarify the meaning of “premises” in the context of whether food is consumed on or off a supplier’s premises.
We proposed also to tax sports nutrition drinks to ensure that all sports drinks receive the same tax treatment, and to remove self-storage from exemption in order to ensure that all suppliers of storage receive the same tax treatment and to counter avoidance.
Mr Gauke
I certainly will, although at this point I am just setting out what we set out at the Budget. I will turn to each individual measure in more detail in a moment and happily give way to my hon. Friend at that point.
We propose to remove the anomaly whereby approved alterations to certain listed buildings are zero-rated while alterations to other buildings and repairs to and maintenance on all buildings are standard-rated. We included transitional arrangements for alteration works to listed buildings which had been contracted before the Budget, and we wanted to put beyond doubt the fact that VAT applies to the rental of hairdressers’ chairs.
Finally, we proposed to ensure that holiday caravans are taxed consistently at the standard rate of VAT. The proposal, as set out in the consultation document, was that all the changes would take effect from 1 October via secondary legislation, supported by anti-forestalling provisions in this Bill. The consultation was opened on 21 March, and overall HMRC received some 1,500 responses. Owing to the volume of interest in the consultation, we decided to extend it, and since it has closed we have reflected fully on the points made during the process.
As the House will be aware, in two areas—hot food that is cooling down naturally and static holiday caravans—the Budget proposals created a high degree of business uncertainty, so the Government wanted to let people know our preferred course of action as soon as possible; we did that on 28 May. Last Thursday, we published a consultation response document and tabled the new schedule setting out our approach to all the measures on which we consulted. We stand by the rationale for removing anomalies, but have made several refinements, including those we announced on 28 May. They are intended to improve the policy and reflect the practical concerns raised in the consultation.
Nigel Mills
My hon. Friend refers to the marketing of such things as sold hot. Will he confirm that a baker who markets something as freshly baked would not fall foul of this provision, given that presumably when something is freshly baked it is hot? I think that the intention is that, say, a freshly baked sausage roll that is cooling down would not be subject to VAT, but if that marketing term were used it could perhaps be caught by the provision.
Mr Gauke
The final details as to what exactly will or will not constitute marketing something as hot will be set out in the HMRC guidance. However, I take on board my hon. Friend’s perfectly reasonable point that something that is presented essentially as fresh, but cooling, is different from something that is clearly presented as hot at the point at which one purchases it.
Mr Gauke
The right hon. Gentleman is attempting to draw me into dangerous, and perhaps more interesting, territory. All I would say to him is that all decisions are for the Chancellor, although of course the Department for Culture, Media and Sport was involved at an appropriate level.
The Budget proposal for self-storage changed the liability of supplies of facilities for self-storage from exempt to taxable. Following consultation, we planned to avoid creating a competitive advantage for those larger operators with more expensive facilities. These businesses can partially mitigate the impact of the change by using the capital goods scheme to claim back some of the VAT they had previously paid on the purchase of these facilities, whereas smaller businesses with less expensive facilities cannot. We will therefore make a separate provision by statutory instrument to amend the capital goods scheme so that self-storage providers affected by the measure whose individual capital items are worth less than a £250,000 threshold for the scheme can opt into it and have the same input tax recovery benefits as larger providers with capital items that would already qualify for the scheme.
We also propose to ensure that the storage of live animals will remain exempt, as the original proposal might inadvertently have applied VAT to stabling, and we propose to introduce an anti-avoidance provision so that if the storage is used by a third party with the permission of the person who contracts for the storage, it is taxed in the same way as if it were self-storage. This will prevent someone from avoiding taxation by getting a third party to contract with the supplier. We have revised the exclusion for storage facilities provided to persons connected with the supplier so that it is more directly targeted on facilities that are subject to the capital goods scheme. This fine-tuning reflects the benefit of consulting and listening to what respondents say, but it does not undermine the rationale for the measure.
For hairdressers’ chairs, the schedule provides a clearer description of the services typically provided under a chair rental agreement and excludes services that could legitimately be provided with a simple supply of a right over land. The schedule also reflects a change to make it clear that the supply of a whole building to a hairdresser will not become taxable unless it is supplied along with other goods or services.
Finally, regarding the measure to apply VAT to all sports drinks and to clarify the definition of premises for the purposes of determining whether food is consumed on or off the suppliers’ premises, we are proceeding as planned in the Budget.
Nigel Mills
I am grateful to the Minister for giving way to me again. On the sports drink issue, I am sure he will remember the old milk advert suggesting that if children did not drink their milk, they would end up playing for Accrington Stanley rather than Liverpool. The gap between those two teams might be a bit less nowadays, but the idea was that milk improves physical performance. Will my hon. Friend confirm that an ordinary pint of milk will not be caught within these provisions?
Mr Gauke
I confirm that I remember the adverts and that milk will not be standard rated for these purposes. I refer my hon. Friend to the remarks the Chancellor made in respect, I think, of the 2010 Budget—that everyday essentials will not become standard rated. However great the advance of Accrington Stanley and the decline of Liverpool, that will remain the case.
Catherine McKinnell
I thank my hon. Friend for that intervention and her focus on the subject of the debate—that is, these deeply worrying and shambolic VAT changes. We have discussed at some length the new proposals that followed the Government’s concessions and we have had the opportunity to question the Minister on them. I share my hon. Friend’s concern at the failure to provide costings for some of the changes and the lack of consideration of the concern about jobs and growth that our new clauses aim to deal with. Those factors need to be given proper consideration and the Government do not appear to have done their homework.
Nigel Mills
New clause 12 would delay the rise to 20% in VAT until there was strong growth in the economy. Can she help us by defining what strong growth would be? What percentage growth might it be? Or would it be growth based on a properly balanced economy rather than a financial services-led boom?
Sheila Gilmore
That is indeed the case. Conducting research and finding good evidence before making and changing policy is of paramount importance. We have seen that in respect of many aspects of this Budget. We saw it in the debate yesterday in respect of the 50p tax rate. There were a lot of hypotheticals—a lot of “maybes” and “perhapses”—but there was not a lot of solid evidence.
This has been a poor piece of policy making. I congratulate the Government on turning, but if they had thought things through first, they would never have had to turn.
Nigel Mills
It is a pleasure to follow the hon. Member for Edinburgh East (Sheila Gilmore). We have heard each other speak quite a lot over the last eight weeks or so. It is also a pleasure to have a chance to talk on VAT measures.
I will start by addressing the Opposition’s new clause 12. If we are talking about ill-thought-through measures that should not have been brought forward, this is a prime example. It would cost £12 billion if it were in place for a year, not that the Opposition know how much it would cost or how they would pay for it. It is intriguing to ponder how they can tick off the Government for announcing a U-turn that costs a few million pounds a year and accuse us of not having a balanced Budget because of it, while they have a proposal for a £12 billion hole in the Budget that would do untold damage to the public finances, probably completely wreck our country’s reputation for trying to sort out its deficit and lead us into a situation none of us would even want to dream about.
Charlie Elphicke (Dover) (Con)
Does my hon. Friend agree that this £12 billion spending commitment is astonishing and irresponsible and proves how unfit Labour is for government?
Nigel Mills
My hon. Friend may be that cruel, but I probably would not go that far.
New clause 12 is not a highly principled statement that VAT should be 17.5% rather than 20%, as it would apparently be just a temporary reduction. Moreover, when Labour was in government, it had plans to raise VAT. These are the stances Labour has taken recently: before the election, it had a plan to raise VAT; later, when there was a proposal for a VAT rise, Labour abstained; and now it proposes a temporary cut, back down to 17.5%. The country can be forgiven for not knowing what on earth Labour’s view is. If Labour ever got back into power, would it reduce VAT from this 20% rate that it seems to so loathe?
This Labour new clause proposes a temporary cut that would apply from Royal Assent to the Bill until the UK economy returns to strong growth. No definition of “strong growth” has been provided. When I asked for one, we were not told that it was 2% or 3% a year. We did not get a sensible approach about it being when the economy is growing based on balanced growth and sustainable industries such as manufacturing, rather than on inflating a massive debt-filled boom. We were told that “strong growth” meant not being in a double-dip recession any more. We could end up in a bizarre situation whereby we reduce VAT on Royal Assent and then, when we get the last quarter’s financial data, which I am sure we all hope show the economy growing again, we have to reverse the temporary cut. It could be in place for only a matter of days, which would result in a huge administrative cost; the move would be utterly pointless. [Interruption.] I hear someone saying from a sedentary position that that is ridiculous, but that is what the new clause would mean. We are doing a serious thing here. We are legislating, not engaging in sixth-form school debate. If we were to pass this new clause tonight, it would be in the Finance Bill, it would become law and it would have to come into effect. This is not a little proposal that we can idly dismiss but an actual idea that the Opposition want us to legislate for. It is clearly nonsensical on all levels, and we need discuss it no further.
Diana Johnson
Does the hon. Gentleman feel that better decision making might come through consulting before putting a proposal to Parliament, and getting all the ducks lined up before coming before the House?
Nigel Mills
I agree with the hon. Lady, and I said yesterday that it would be better to consult before trying to legislate, but we did have a detailed consultation document that looked at this idea. I do not think that the legislation to implement this proposal was in the original draft of the Finance Bill, but it would have been brought forward by a statutory instrument later on; although it was announced as an idea, it was not in a legislative form at that point, so strictly speaking the Government have done what she calls for.
I wish to make one comment on the pasty tax, as an aside. It is clear that when making tax policy we have to avoid things that have a handy popular nickname. We have had big campaigns on the “pasty tax” and the “caravan tax”. It has been a bit harder to get the public behind a “sports drinks nutritional drink tax.” If it had been called a “Lucozade tax”, there might have been more publicity. The Government should be careful in making future tax policy to look out for what nicknames might be used. However, those who favour tax being understandable may feel that all taxes should have a simple nickname so that the public understand what they are for.
On the new “pasty tax” definitions, I am concerned that we might end up with some things that are unclear, such as the definitions of what is being “marketed” as “hot” and of what wrapping is allowed. We are told, “Don’t worry, it will be clear in HMRC guidance what is allowed.” However, we should be trying to legislate clearly: Parliament should be clear in what it says. I hope the Minister can put it on the record that bakeries on the high street that are trying to sell freshly baked products will not find those things subject to VAT unless they are kept hot or are wrapped in a heat-retaining bag, and that using ordinary, simple packaging or marketing those products as “freshly baked” will not be caught. That is absolutely the intention that Parliament has, and we should make it clear.
On sports drinks, I am concerned about going down the road of having a principle of deciding a tax treatment on the basis of how something is advertised or marketed, rather than on the fundamental underlying nature of the product. We can see that strange ways of how someone chooses to market something might change the tax treatment. I think I understand the aim of this proposal, which is to provide for high-sugar drinks sold as sports drinks when they are not much different from Coca-Cola or other fizzy products that we are trying to equalise the VAT treatment on. The wording in new schedule 1 leaves where the line is open to question.
We exchanged comments earlier about whether milk could strictly drift into being covered by the wording if it was marketed as something that aids physical performance and whether we risk a court, at some point, taking an utterly perverse and stupid view that milk is caught by the provision, given that we clearly do not intend it to be. We need to be careful what we mean. That line will be tested and people will ask, “What is a sports drink that is largely based on milk or some milk-derived product, and what is an ordinary pint of milk?” Where will we draw the line about what is VAT-able? A Mars drink is advertised with the slogan, “Unlike other sports drinks, this milk product actually tastes nice.” It is hard to understand why a Mars milk-flavoured drink is not going to attract VAT but a sports drink will. We need to be careful to avoid people not knowing what we actually mean.
If I market a whey-based product that is made up into a drink as a sports product, VAT will apply, but if I market it as a diet product or a nutritional supplement, perhaps for the elderly who are struggling to get enough calories in their diet, that will presumably not be VAT-able. All I have to do if I want to buy the thing to use it for sports purposes is choose the one marketed for an old person’s supplement, and although I would be able to use it in exactly the same way as the sports drink on the next shelf, I would be buying it for 20% less. I am not entirely sure that that is what we intend. Although I understand what is going on, we have to be careful if we start defining tax policy based on how something is sold and not on the underlying product.
With those few remarks, may I finally commend the Government on the position they have got these things into? It is vastly better than where we started, and I will certainly vote for new schedule 1.
Beer Duty Escalator
Nigel Mills Excerpts(12 years, 4 months ago)
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Gavin Williamson
I entirely agree. I think we have gone too far, and it is having a detrimental effect on the amount of tax revenue the Treasury can get from this important potential source. The Exchequer already brings in £8 billion in tax revenue from the beer and pub industry, but my concern is that that amount will go into slow decline. Already, the Office for Budget Responsibility and Her Majesty’s Revenue and Customs have made it clear that the money coming in from the increase in beer duty is not going to increase. It has not done so in the past year and it is not expected to do so in the next year. We therefore need to look at different ideas. One of them is not to keep taxing. We have had many debates about the Laffer curve and its benefits, but the simple reality is that beer duty is getting to the point where it is too high and it is pricing people out of the market.
Nigel Mills (Amber Valley) (Con)
Does my hon. Friend agree that one of the problems of getting the duty rate too high is that it gives a boost to the illicit trade, which now makes up about 10% of the off-sale market? The higher the duty is pushed, the higher the illicit sales go and so no duty at all is received.
Gavin Williamson
The worst thing we could possibly see is the growth of the illicit trade and the Chancellor of the Exchequer getting none of the money whatsoever. We want to make sure that people are paying their taxes and their duty, but we do not want to tax people out of the market.
Finance Bill
Nigel Mills Excerpts(12 years, 4 months ago)
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Cathy Jamieson
My hon. Friend has made a good point. We will have an opportunity to discuss that subject in more detail tomorrow.
The Government once made much of their commitment to fiscal responsibility. Deficit reduction was to be their defining mission. Today, however, that task has been made even harder by the failure of their own economic plans, which involve £150 billion of extra borrowing. Their pledge to clear the deficit by the end of this Parliament has been blown to pieces, yet they still find the money for a tax giveaway to the top 1%.
Cathy Jamieson
Perhaps the hon. Gentleman would like to comment on that in his intervention.
Nigel Mills
Am I right in thinking that the impact of amendment 1 would be to take away the 45p rate and leave the highest rate at 40p, thus in effect giving a double tax cut? Can the hon. Lady explain the technicalities of how her amendment works?
Cathy Jamieson
I am a relative newcomer to this place, and I sometimes find its procedures and conventions bemusing. I have learned from my time in the parliamentary process, however, to take advice from the Clerks and others who know about drafting legislation, and that is what we did in respect of these amendments.
The Minister will no doubt protest that the higher rate was not raising any money, but the Government’s attempts at justification have not withstood the scrutiny that has been undertaken. The Office for Budget Responsibility, for example, says that Her Majesty’s Revenue and Customs’ estimates of the reduced tax avoidance that would result from the reduced rate are “highly uncertain”. They are based only on the first year’s yield from the new top rate, which was always expected to be artificially depressed by people’s ability to bring forward their income. No real basis is therefore offered for estimating the revenue-raising potential of the 50p rate. It is for that reason that the Institute for Fiscal Studies said that it is
“too soon to form a robust judgement.”
The claims that new funds would flood into the Treasury as a result of people relaxing or reversing their efforts to avoid paying the top rate have been shown to be notoriously speculative. Again, as the IFS explained,
“you’re first giving out £3bn to well off people who are paying 50p tax...you’re banking on a very, very uncertain amount of people changing their behaviour and paying more tax as a result of the fact that you’re taxing them less...there is a lot of uncertainty, a lot of risk with this estimate.”
A written answer provided by the Exchequer Secretary to my hon. Friend the Member for Leeds West (Rachel Reeves), the shadow Chief Secretary, on 19 June shows that in 2010-11 more than 73% of people earning over £250,000 were paying more than the top rate, as were more than 80% of people earning between £500,000 and £10 million, implying that many tens of thousands of people were paying the 50p tax rate of last year and are now in line for a very large tax cut if this measure comes into effect.
Jonathan Edwards
It is a pleasure to contribute to the debate. It has been very interesting listening to the debate on income tax for the 2013-14 financial year. Hon. Members already know the position of the Plaid-SNP-Green group; we were among the handful of Members who voted against the inclusion of the new 45% additional rate in the founding principles of the Bill at the conclusion of the Budget debate earlier this year. Indeed, the official Opposition seemed to miss that debate, with the exception of two Labour Members, the hon. Members for Newport West (Paul Flynn) and for Bolsover (Mr Skinner). I also tabled amendments in Committee, which were supported at the time by the official Opposition, including some that they have chosen to table for this evening’s debate, which naturally I will support if they decide to push them to a vote later.
Much of the debate on Second Reading and in Committee focused on differing interpretations of, and often selective quotations from, a series of reports. Hon. Members attempted to argue that their party’s interpretation of the statistics was most valid, and we heard some of that again this evening. They were essentially making economic arguments about taxation—about the Government’s claim that the loss of tax revenue from shifting the 50% additional tax rate to 45% would be compensated for by the stimulus it would provide to the wider economy, and that given the amount of forestalling and income shifting that the 50% rate has apparently generated, we would be better off in future and, ultimately, more tax would be paid. That is the thrust of the argument.
I simply do not buy the idea that a tax cut will make those avoiding the 50% rate choose to contribute to society by paying at the 45% rate. What the Treasury should be doing, rather than giving a tax cut to those earning in excess of £3,000 a week, which is almost twice the average income in two months for most of my constituents, is closing down all the clearly aggressive tax avoidance schemes, some of which have been highlighted in recent weeks, and ending the tax havens that provide a nice bolthole for those who wish to hide their income.
For my party, however, the issue of taxation is one of principle. We believe that people should be proud to pay taxes and contribute to society. It should not be a game in which those who can afford to pay an accountant pay less and then consider it a triumph or a success. As I said during a debate in Committee, the Scandinavian model of taxation and social security is in my party’s DNA. Some might say that that is the difference between ourselves and the Labour party, which announced the introduction of the additional rate as a temporary measure, bringing it in literally weeks before the party left government. Where we believe that the additional rate is part and parcel of contributions to society, Labour remains unclear how long the now official Opposition intended to continue the additional rate.
This tax cut for the mega-rich leaves a bitter taste in the mouth. Public sector workers in my constituency face pension changes, meaning that they have to pay more in, that they get less out and that they work longer—that is, those who still have their jobs after spending several years with pay freezes and the threat of regional pay dangling over them. Living standards for private sector workers in my constituency are being squeezed, and many families struggling to make ends meet are being stigmatised by the Government, while the disabled and the vulnerable face tribunals to decide whether their pain is real. It is not acceptable that we are in a society which tells those at the bottom that they have a culture of entitlement, while those at the top get huge and unnecessary tax cuts. Why do we think that we can cut the poor’s income to make them work harder, but incentivise the rich through tax cuts? That is perverse thinking.
We support the aim of amendment 3, which would give those public sector workers earning less than £21,000 who have had their pay frozen a £250 tax rebate. They deserve it, as do many private sector workers who have lost out because of the Treasury’s austerity economics.
We support also amendment 1, tabled by the official Opposition, despite its effect of wiping out the additional rate altogether for 2013-14. Given their failure to vote on the inclusion of the 2013-14 rate in the Bill at the time of the Budget, we recognise that their intent is to show their belated support for maintaining current income tax rates. If the amendment is successful, we expect the Government to reinstate the top rate at 50%.
With last week’s figures confirming that the double-dip recession is deeper than first thought, and with the cuts now beginning to feed their way through the system, giving a tax cut to the mega-rich is a funny way of showing that we are all in this together.
Nigel Mills
It is a pleasure to follow the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards). I shall make a few brief remarks on various subjects in the Bill, starting with the granny tax, which I also spoke about on either Second Reading or during the Budget debate—we seem to have been debating it for a long time, particularly those of us who have done a few weeks in Committee on some of these topics.
I was one of those who heard the Budget, heard the Chancellor briefly mention what became known as the granny tax and did realise what it was likely to mean. I was not one of those, like the hon. Member for Leeds West (Rachel Reeves), who claimed that the Chancellor had hidden it in his speech; it was clearly there.
Those of us who, in our short time as Members, have argued that we need to simplify our tax regime face a problem when one way suggested by the Office of Tax Simplification is this very idea. To be fair to the OTS, it did not envisage its idea being introduced quite so quickly. I suspect that generally it would be quite keen to have its ideas legislated on in a matter of weeks, but on this one it intended there to be further consultation and deliberation. It was, nevertheless, one idea that it came up with as a way of removing one of the regime’s complexities, whereby an additional allowance has to be claimed, the policy justification for which was determined a long time ago. It is perfectly reasonable for the Government to revisit it and to wonder whether, of all the groups in society who need such extra help, pensioners earning more than the state pension are one of them.
Those people who have done the right thing and saved, and who now have a little private pension on top of their state pension, are generally the ones in whom we want to encourage pension-saving behaviour, but the basic personal allowance is rapidly heading towards the £10,000 target in the coalition agreement, and the benefit of that higher personal allowance has to be clawed back. We are seeing a complexity with a reducing benefit, and we are perfectly entitled to want to understand the policy justification for it when we spend the limited amount of money that we have. It is not, therefore, an unreasonable or illogical proposal for the Government to bring forward; there was a year’s notice, and there is a chance for consultation to consider its impact.
Ian Lavery
The hon. Gentleman recognises that we cannot please everybody, but does he agree that cutting taxes for the rich pleases the rich, while the ones who will be less pleased are pensioners, having £83 a week taken off them, and people who turn 65 next year, losing £322?
Nigel Mills
I am sure that people who benefit from a tax cut will be pleased and those who lose out from a tax change will not be, so I guess I can agree with most of that, but it will be interesting to see in the Lobby later whether the hon. Gentleman votes for his party’s amendment, which would mean the House passing the Bill after abolishing the 45p rate completely and reducing it to a 40p rate.
It is all right saying, “Perhaps we can do that and perhaps the Government will do something different in future,” but we are legislating in Parliament, and if we were to vote for the amendment and remove the 45p rate, it would not actually exist, and I am not sure that those Members who would rather the provision read “50p” than “45p” could in all conscience vote for that. I clearly will not vote for the amendment, because it would be the wrong measure at this time; I will vote for there to be a 45p rate in next year’s tax regime.
When I debate these things, I could take a narrow constituency view. I suspect that very few of my constituents pay the 50p tax rate, as I have many pensioners who are not that well-off and will be adversely impacted by the granny tax, so from a political and personal view I could happily oppose the tax cut and the granny tax, too, but we have to get our economy into sensible working order.
Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
The hon. Gentleman talks about the over-65s, saying that this is all very fair and things will balance out over time. Does he not understand that someone over 65 is likely to be on a fixed income and £323 is therefore considerably more important, whereas if someone earns higher amounts and is taxed at 50%, 45%, 40% or anything in between, whatever it may be, they have the capacity to earn more? Once they retire, it is the fixed nature of their income that makes the Chancellor’s decision so invidious.
Nigel Mills
I am grateful for the intervention, and of course understand that pensioners living off their savings have suffered terribly during the recession, starting with the raid on private pensions when Labour first came into office, all the way through to the terrible impact of the loss of interest income on savings. I totally accept that that is clearly an issue, but to return to the 45p or 50p rates we ought to be completely accurate. With the 2p national insurance charge, which comes in when someone normally starts paying NI, and which will remain, those rates are 52p or 47p. We should be careful on a matter of principle. I am not sure how many people out there would want to work if the money for more than half an hour of every hour that they worked was not for them but for the taxman. That is what that effective 52p rate does; it means that a person is probably not working for themselves for 31 minutes of every hour.
I am not sure that that is a real incentive for those who have a lot of money. They do not need to carry on working; they could retire to their yachts and sail around the Mediterranean. We want them to come back, invest in another business, have another go and employ some more people. We want that investment to come into the country. If a person is keeping less than half the money they earn, there is a real psychological impact. That is why it is right to bring the rate down.
We are having a long political debate about what was meant to be a temporary tax. The previous Government never had it in place when they were in power; it was set up as a political stunt for the election. It was not expected to raise significant amounts of money. It was there not for an economic purpose, but a political one. It was right for us to say that at a time when we need to get activity going and to attract investment into the country, we need to encourage those who have a choice whether they carry on working and generating wealth or not, to carry on working.
It is right for us to bring the tax rate down. I would have thought that it was better just to do it rather than wait a year, but there are many good economic reasons why we had to wait for that length of time. The fact is that if tax rates are too high, people get much more keen on avoiding tax.
When I was relatively new in my accountancy career, the then Chancellor in effect reduced the capital gains tax rate to 10% tax on the sale of a business asset. The place where I worked then had made lots of money advising people on how to reduce their capital gains tax liabilities when they retired from their businesses. When the rate went down at a stroke overnight from 40% to 10%, that meant that no one was interested in that kind of tax planning; they were perfectly happy to pay what they thought was a reasonable tax bill. But the reverse effect also applies—if the rates go up to a level that people are not happy to pay, they will start to use ingenious methods to avoid the taxes.
Gloria De Piero (Ashfield) (Lab)
The hon. Gentleman is speaking as though his party had always supported the abolition of the 50p tax. However, a couple of months before the Budget, the former Energy Secretary, the right hon. Member for Eastleigh (Chris Huhne), was saying that the 50p tax was here to stay. He told the BBC:
“I think we’ve won that argument.”
What happened?
Nigel Mills
I guess it is not for me to explain the right hon. Gentleman’s comments. He was clearly misinformed.
However, we have seen that drift towards tax avoidance. I was saying that there was an easy way to avoid paying UK tax—not to be working in the UK at all. People can choose whether to come here or stay here; no complicated avoidance is necessary if they are not here at all. We want to attract the most skilled and able here to earn their money.
My hon. Friend the Member for Dover (Charlie Elphicke) was generous in not having a go at some of the high-profile individuals who have been caught avoiding their taxes. People earning very good livings in this country should pay the tax that Parliament tells them they have to pay—there is no excuse for using complicated routes through Isle of Man or Channel Islands trusts. If they are taking money from hard-working people who go to their concerts, comedy shows or football matches, it is outrageous for them to route it through the Isle of Man. I am not sure that I would choose to listen to their concerts or their jokes.
We should send a strong message that such behaviour is unacceptable. If those people are now feeling a little guilty and think that they have made a terrible error of judgment, it is quite simple—they can re-file their tax returns from recent years, declare all that income and pay tax on it. As Gary Barlow might think, “It only takes a minute” to do that—[Interruption.] We had to get some in. Then that money would be “Back for good”, wouldn’t it? It would certainly be one of our “Greatest day”s. I only “Pray” that he would do that—it would certainly be magic if he did. Those are all the Take That songs that I can remember, so I will not carry on.
The important point is that if we push tax rates up too high, revenues will start to go down and people will start engaging in the behaviour we want to crack down on. The Government are cracking down on it and doing everything they can, but there is a limit to how far ahead they can stay. New things will always come along. Fundamentally, we cannot stop people leaving the country.
Labour Members generally think that Conservative Members cite the Laffer curve; we have heard mention of calculations on fag packets and so on. The theory that revenue falls if tax rates are too high is a lot older than the Laffer curve. I had the pleasure of studying Mr Ibn Khaldun, a Muslim philosopher from the 14th century, who wrote an extensive commentary on what happens with tax rates. When they start low, they generate lots of economic activity. Gradually the Government like the idea of spending money, taxes go up and then the economy fails. If our debate was not programmed tonight, I could read out pages of those quotes, to prove that Mr Laffer’s theories are not new, but I shall resist. The theory is not new; it is an entirely understandable and accurate theory: if tax rates are too high, we end up losing revenue.
Another amendment under discussion would give a £250 tax cut to a public sector worker who had not had their £250 pay rise for the last two years. I am not convinced by that. It would be very generous; presumably, if they had had the pay rise, they would have to have paid tax on it, so they would not have had the full benefit of the £250. The idea is probably tempting, but I will not be able to vote for it.
Meg Hillier
I do not want to broaden the debate too much, but I say at the outset that we should get back to the basics. Why is it important that people pay tax? I strongly believe that it is important for people to have a stake in society and that paying tax is a big part of that. I may be out of step with a number of Members—including, possibly, my party’s Front Benchers—in believing that the rush to increase the personal allowance and take lots of people out of tax is not necessarily, on its own, a good move. Taking people out of the tax system altogether denies them responsibility for a number of issues to do with public spending and takes away the accountability that we, as elected Members, should have in helping to set those policies.
Nigel Mills
I agree with the hon. Lady, but does she note that we are not taking people out of national insurance? All those people are still paying the tax most closely associated with the main public spending items.
Meg Hillier
It is interesting that the hon. Gentleman has managed to conflate tax and national insurance; perhaps he has given away what the Government’s thinking really is.
I am a member of the Public Accounts Committee which has been looking closely at the sometimes interesting tax arrangements of some individuals. We recently went on a study visit and discussed some of the international issues to do with how tax is dealt with. The UK’s is a complicated system and we are not alone in that. This means that, in the corporate world, corporate lawyers can run rings around HMRC and that highly paid lawyers can find ways for some high-worth individuals to work in a more tax-efficient way, to put it politely, and actively to avoid tax—sometimes worse. To a degree, New Zealand has simplified its tax system, although it is difficult to know from a distance how successful that is for people.
If the increase in allowance were genuinely linked to a simplification of the system, I would be much more supportive of it, but it has the feeling of being rather piecemeal, a bit joined together. It is like a dodgy second-hand car—the front bit is welded to the back bit. The coalition feels a bit like that; sometimes I am not entirely sure whether the Deputy Prime Minister or the Prime Minister is at the front or back at any particular time. There is a danger that we are seeing the increase in the personal allowance as a sticking plaster for one element of the coalition, while the cut in the 50p tax rate, which, as my hon. Friend the Member for Ashfield (Gloria De Piero) pointed out, was opposed by the Liberal Democrat half of the coalition—she quoted the former Energy Secretary—is a sop to the other side. We almost have two unjoined-up bits of the system.The hon. Member for Amber Valley (Nigel Mills) talked about tax simplification. If that is the mission, then let us see the overall plan for it, but all we hear about is the increase in personal allowances. I do not sense that there is a big idea, and that is a real worry.
Let me turn to the 50p tax rate cut. Some 300,000 taxpayers will gain £10,000 a year as a result of that policy. These are individuals who earn more than £150,000 a year. The Treasury says that it should do this because £2.9 billion will supposedly come back from the people who are currently avoiding tax. I am not sure that that stacks up. Government Members try to suggest that these earners are all wealth creators, but we need to look a bit closer to home in the public sector. Perhaps the Government of whom I was a part, and the party that I represent, should have been a bit sharper in this regard. Public sector salaries have increased exponentially over the past decade. With the best will in the world, and much as I admire many of the people in my own constituency, and those I have met over the years, who work in the public sector because they genuinely believe in public service, they are not wealth creators, and I do not think they would consider themselves to be so. They may be safeguarding the health of my constituents or enabling the council to deliver excellent services; there are myriad ways that they can help, but wealth creation is not one of them.
Hot Takeaway Food (VAT)
Nigel Mills Excerpts(12 years, 6 months ago)
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Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak under your chairmanship, Mr Scott. I join in the congratulations to my hon. Friend the Member for St Austell and Newquay (Stephen Gilbert) on securing the debate. Those of us with a history in taxation wish that every new tax measure could be the subject of an hour and a half of detailed debate. I suspect that we would make much better law if that were the case.
This is an interesting situation. I think that we all agree that tackling tax avoidance and sorting out anomalies is something that the Government should do, but when they come forward with proposals, there is a huge outcry about them, because trying to sort out some of those anomalies is much harder than people think. The reason why this anomaly has lasted for nearly 30 years is that it is incredibly hard to sort out. I jokingly wonder whether, if the Government had called this a fat tax, it would have received a lot more support, but I am not sure that that is a road I would like to encourage them to go down.
Like many other hon. Members, I am concerned about the impact on high street bakeries, especially the small local ones that are a real attraction on the high street. I am talking about those shops on the high street that drag people in to shop there because they like the better-quality product, the choice and the service that they get, compared with the standard, bland products that they might think they get from a supermarket.
I can list many bakeries in my constituency. There is Luke Evans, which has a factory shop that has been in existence for 200 years. There is the Birds chain of bakeries, which I suspect the hon. Member for Bassetlaw (John Mann) will know well; it is a big chain in the area. It has just opened a new shop on Heanor high street, and given that Heanor is a high street with some challenges, anyone opening a new or revamped shop there is very welcome.
I have real sympathy for such businesses. Their shops sell a wide range of products. Pasties and sausage rolls are a sizeable part of that range, although nowhere near the majority of their trade. They are one very useful way of getting income and dragging customers in. However, they are clearly craft bakeries, selling freshly baked products. That is how they make their money. They are not trying to be a disguised takeaway or to flout the law. They are trying to run a perfectly sensible, viable and valuable business of long standing that we desperately want to support in our high street.
Mr Offord
My hon. Friend is making an eloquent speech. Does he agree with my constituent Jonathan Grodzinski who runs Grodzinski’s bakeries, a business that has been in his family for well over 120 years, who says that the difference between his products and supermarket foods is the quality, which my hon. Friend has already mentioned? Mr Grodzinski’s concern is that customers will decide that they would rather buy cold food and that that will mean that they are buying food that is less than fresh, compared with when it first comes out of the oven.
Nigel Mills
Absolutely. I thank my hon. Friend for the intervention. The last thing that we want to do is to encourage people to buy horrible cheap food with only processed ingredients. That is much less healthy for us than buying proper quality stuff. I therefore have some sympathy for my hon. Friend the Minister in his predicament. It would be useful if he could set out what has tipped the Treasury over the edge into making the change. Was it a case of having to get the train home and thinking, “I’m a bit hungry. It’s been a long day in the Treasury. I can’t face the Chancellor’s bowl of jelly. I’ll have something from the station on my way. If I go to McDonald’s and buy a burger, I pay VAT, but if I go to that nice-looking pasty stand, which seems to be selling only hot pasties, for some reason there is no VAT”? Is that the contrast that tipped him over the edge or is it the fact that supermarkets are selling things that clearly should be VATable but they are manipulating their way around that? Is that what tipped the Treasury over the edge? It would be interesting to know.
Glyn Davies (Montgomeryshire) (Con)
I am grateful to my hon. Friend for taking my intervention, particularly as I missed the first part of the debate. He is very generous. Since I have been an MP, I have been approached several times by fish and chip shop owners. Perhaps unusually for an MP, they are the only approaches I have had—and I have had a lot—complaining bitterly about unfair competition, because people are selling pasties and using a microwave to heat them up after they have been sold. I understand exactly why people are concerned, but if we are challenging the whole concept of VAT on pasties, we need an answer—I certainly need one—on that issue.
Nigel Mills
I am grateful to my hon. Friend for that intervention. The point I was trying to make was about a craft baker on the high street who is not trying to be a takeaway in disguise for VAT planning, which is in contrast to what looks like something trying to be a takeaway, but is in fact something different. That is perhaps one of the things that has tipped the Treasury over the line. It would be interesting to know what mischief it is trying to fix. Which bad guys are we tackling? I honestly suspect that the bad guys are not the high street craft bakers who will be dragged into this. Their staff will be in a horrible situation.
I went to a couple of bakers in my constituency to see what the measure will mean. The sausage rolls are out of the oven and slowly cooling down in the very much non-heated—I was careful to check—displays in the shop. I guess that if they have been there for 20 minutes, they will still be hot, and therefore there might be VAT. If they have been there for 30 minutes, they might be on the border. If they have been there for 40 minutes, perhaps they are cold enough for no VAT. I have a horrible picture of the member of staff having to poke their finger into my sausage roll to check whether the one they are selling me is cool enough not to charge VAT on or still too hot.
There is a practical issue of how the shops will know day to day that the products sat cooling have cooled long enough for me to get a 20% discount, or have not cooled so the customer has to pay VAT. I suspect that such shops will put VAT on everything and put the prices up by 20%, and they will get a nice windfall for the bits that they can convince the Revenue are not VAT-able. In practice, they will not want to charge separate prices depending on whether someone buys a product marginally above or below the ambient temperature. That would be an unfeasible and rather strange situation for everyone to get into.
Dan Rogerson
With his expertise in the intricacies of tax law, the hon. Gentleman makes good points. I suspect that the windfall he mentions will be offset by any decline in trade due to the 20% increase in the cost of the product, set against cold products such as sandwiches.
Nigel Mills
I suspect that that is probably right. This will put people off buying some products entirely. I was trying to say that I suspect that the customer will end up with a 20% price rise on all products and it will be down to the baker to match that loss of sale with the income that they get to keep on non-VATable stuff.
The Government need to produce coherent, understandable and enforceable rules. The suggestion that a product would definitely be VATable if any effort was made to keep it warm, by putting it in a heat-retaining bag, under a hot lamp or on a heated rack, after it had been baked would lead to an understandable and clear situation. I am not sure that it would tackle all the mischief that the Government seek to tackle, which is why it would be helpful to understand exactly what problem they want to solve. It would not stop something that looks a lot like a takeaway pretending to be a bakery, which I suspect is something that they would like to deal with.
Ian Swales
I pay tribute to the hon. Gentleman’s tax knowledge, from which we are benefiting on the Finance Bill Committee. Does he agree that there is an EU law that requires changes in taxation to be clear and precise? From his knowledge, does he recognise that the Government could be challenged under EU law owing to the complexity of the potential change?
Nigel Mills
I spent many years in practice looking at areas where UK tax law could be challenged under EU law. As the years went on, the European Courts became a little more sensibly in favour of the tax authorities rather than the taxpayer, so I never like to predict what a challenge under EU law could achieve. The hon. Gentleman makes a fair point; as taxpayers, we are entitled to expect clear tax law that can be sensibly enforced.
Can the Minister think of other ways to tackle the mischief he wants to tackle without putting staff in every high street in a situation where they have to finger all the products they sell? I am not suggesting that they will literally do that; they will have to have some kind of technical probe or something.
Could the Minister find a way to exempt businesses in which the sale of hot baked products accounts for no more than half their turnover? Clearly they are not in the business of selling hot food, but are trying to sell cakes and bread, so such products are but a small part of their trade. That suggestion will not fix the problem for my hon. Friends from Cornwall, who are looking at businesses based entirely on pasties, but it would take away the worst position for high street shops, for which there are definitely unintended consequences. I fear that otherwise we will end up with a measure that will not work, will clobber the innocent, and those who flout it will find a way to redesign their businesses to get out of it. That is the worst situation—innocents caught in the crossfire. Some people have pushed the whole system too far.
We all know that thirty years ago, Lord Lawson tried to exempt bakeries that produced freshly baked goods. We have a picture of bakers putting things in ovens at 5 o’clock in the morning and customers queuing to buy hot bread, and that clearly should not be VATable. That is not really what happens in most high street bakeries, where the goods are baked in a central bakery and appear in the shop early in the morning. It is unlikely that I would get hot bread, unless I was in the shop nearest to the central bakery very early in the morning. We need to get away from that quaint image that probably applies only to a factory outlet bakery of the type that Luke Evans has. I do not think that most of the baked products I buy are hot, except for those that are carefully baked on site, and they tend to be the products that the customer wants to have a chance to eat hot. That is the line we need to work around.
What exactly are we concerned about? What mischief are we trying to fix? What are we trying to protect? The proposals the Government are consulting on will not get them to where we all want them to be and will need some careful revision.
Finance (No. 4) Bill
Nigel Mills Excerpts(12 years, 7 months ago)
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Nigel Mills (Amber Valley) (Con)
It is a pleasure to speak in this debate, in which there has been a wide range of contributions. We have had a rerun of the Budget, Second Reading and most of yesterday’s debate. It would seem unreasonable for me not to make a wide-ranging contribution on this topic as well.
Nigel Mills
No, I will happily discuss the granny tax. I feel no shame about my Government’s policies. Unlike Opposition Members, I am not trying to airbrush out most of the last 12 years of history and pretend that all those disasters never happened. I am happy to address what the Government are doing.
We need to put the position in context. In the financial year that has just ended we were still spending £126 billion more than the tax revenue that was raised, and we expect to spend more than £90 billion more than tax revenue in the current tax year. That is not a healthy financial situation, and it is not a desirable position. We do not have enough money to go around doing many things that we would like to do, no matter how useful or socially valuable. The global financial situation is very difficult, and we must make difficult decisions. During the election campaign, Government Members told potential constituents “This will be a difficult Parliament. We will have to make cuts, not because we do not think the things we are cutting are good and not because we would not prefer to leave them as they are, but because we must try to sort out the horrible mess that exists.”
Jack Dromey (Birmingham, Erdington) (Lab)
Did the hon. Gentleman say to his constituents “Elect me, and we will introduce a granny tax to fund a tax cut of £40,000 for 14,000 millionaires”?
Nigel Mills
Obviously I did not say that, because I would have been wrong if I had, but I did say that no section of the population would be spared the pain caused by our sorting out the mess that we would have to deal with. I would also have said that I considered the 50p or, more accurately, 52p tax rate an invidious measure which had been devised as a political trap, that it was a terrible tax policy, and that it would probably raise very little money.
The two independent studies that support the Budget have shown that the cost of lowering the rate to 45p is about £100 million a year. The saving from the so-called granny tax is approximately 10 times the size of that. If anything in the Budget is being funded by the granny tax, it is the reduction in personal allowances for the low earners in society.
Charlie Elphicke
Does my hon. Friend recall the former Labour Prime Minister Tony Blair saying back in 1997, “Elect us and we will destroy the private pensions system on which you rely for your retirement with a £150 billion impost”? I do not recall anything of that nature appearing in the Labour party’s manifesto.
Nigel Mills
I think my hon. Friend is suggesting that we should view the issue in the round—the issue, that is, of how we can encourage people to fund their own retirement and achieve the decent level of income that they want in a way that is not unaffordable for the taxpayer.
Mr McKenzie
I suspect that at the last election the hon. Gentleman did not tell his constituents that he would impose a granny tax on them, but that he did tell them that if the Conservatives were elected they would be a fair Government. Is it fair to impose this granny tax while also giving a tax benefit to millionaires? Will he go back to his constituents and tell them that this is a fair Government, therefore?
Nigel Mills
I certainly did say to my constituents that we would be a fair Government. I support fair tax measures. My hon. Friend the Member for Bristol West (Stephen Williams) quoted the IFS saying the granny tax was a
“a relatively modest tax increase on a group hitherto well sheltered from tax and benefit changes.”
While Opposition Members may not wish to believe the Government’s pronouncements, or even those of the Office for Budget Responsibility or the Office of Tax Simplification, perhaps they will believe those of the IFS.
We are not in a happy situation. I do not think any of us are happy about the types of Budget we are going to need to have throughout this Parliament and even perhaps most of the next one. There will have to be a series of measures on both taxation and spending that are going to hurt large parts of the population, while we try to tackle the deficit, which still amounted to £126 billion last year.
Kate Green
Something interesting and important was said a few moments ago: it is important that we design a system that encourages people to save and to look after themselves to a degree in retirement, and which rewards them for doing so. Does the hon. Gentleman agree that one of the problems with the granny tax is that people who have been able to make modest savings into small pension pots for their retirement, and who therefore perhaps now have an income of £12,000 or £13,000 a year, are seeing the effort they made to save completely wiped away? Is that not an injustice that is of particular concern if the Government want to incentivise saving for retirement?
Nigel Mills
I accept that that is an issue in respect of the granny tax proposal, but I suspect that the £5 billion tax raid which has been referred to and a whole series of other measures that have discouraged saving will have far more serious impacts. I am sure the hon. Lady would join me in welcoming the Government’s proposal to introduce the flat-rate individual state pension of, I think, £140 per individual, as that will help address the problem she mentioned.
Charlie Elphicke
Does my hon. Friend agree that the previous intervention was a real cheek? The party of the hon. Member for Stretford and Urmston (Kate Green) destroyed our pension system and raided our pension funds, and it also destroyed thrift by introducing means testing into the pensions system, thereby totally disincentivising any form or saving and personal responsibility whatever.
Rachel Reeves
If the hon. Gentleman is such a strong advocate of saving, will he join me in expressing disappointment about the fact that this Government have abolished the savings gateway and the baby bond, and have watered down automatic enrolment so that it will be introduced at a later date, and for people earning higher incomes than envisaged under the last Labour Government?
Nigel Mills
The hon. Lady is tempting me to make an even more broad-ranging speech than I had intended, and if I were to talk about such matters, I suspect I might be in danger of being ruled out of order. Let me repeat that there are things that would be nice to have but that are unaffordable in the current situation. Difficult decisions have had to be taken and spending has had to be targeted where it is most needed.
Returning to the topic of the granny tax, I do not feel guilt—that is the wrong word—but I do strongly believe that we need to simplify our tax system. Setting up the OTS is a great measure that this Government have taken, and it has performed the tasks given to it incredibly well. Those of us who advocate tax simplification have to accept that whenever we try to simplify tax, it is likely that some people will win and others will lose out. At a time of budget constraint, there is no way of softening the blow on those who will be losers, so we are left with a choice between muddling on as we are, with a ridiculously complicated and clunky tax system, or trying to simplify it in the hope that in the long run we will end up with a far better system.
Nigel Mills
I have given way many times, so I shall not do so again.
I am not sure that the Government have quite gone down the model line by picking up on the key points made in the OTS report on pensioner taxation. However, if we consider the tax system for pensioners—with higher personal allowances for those over 65 and those over 75, the tapering or claw-back of money depending on how much income they have, as well as all the other different allowances—we can see that the situation is incredibly confusing.
Elizabeth Truss
Does my hon. Friend agree that one of the things we need to do at the moment is encourage employers to take on more staff? If we have a system such as the Chancellor proposes in the long term and is certainly looking at, whereby national insurance and tax are simplified, it will be much easier for employers to process those expenses and to take on new staff, and that will really help to get the economy going.
Nigel Mills
I entirely agree about a simplified tax system, and if we could have found a way of merging income tax and national insurance, taking away one complexity, that would have been a great step forward. The tax regime for pensioners—people in retirement—is far too complicated and we need to find a way of simplifying it.
Nigel Mills
Not at the moment. I am sure that all hon. Members have seen pensioners in their surgeries who have suddenly been landed with a huge tax bill that they were not expecting because PAYE had not been deducted from a private pension or because they had different income levels from those they were expecting. All of a sudden these people are facing a bill of a £1,000 or more that they literally cannot afford, and through no fault of their own. So the whole spirit of trying to simplify the tax position for pensioners is exactly the right way forward. This measure is not the end of that; it will be the start of trying to get to a place where everyone can understand what their correct tax position will be and will not have to fill in myriad tax returns. People have to claim this age-related allowance, and that is slightly unusual. Normally, people expect their personal allowance to be an automatic thing, but people have to write to claim this, and that has always struck me as a strange anomaly.
The direction we are trying to take is clearly the right one. This measure is not something that any of us would have wanted to do, and I feel sympathy for all those pensioners, including my parents, who will lose money as a result of it. This is one of the many issues about which we do not just get grief from our constituents; we get grief about it from our own families every time we see them. I have to try to explain to my family why they have to put up with this pain. When we have got the personal allowance up to £10,000, the actual value of these increased allowances over that level will have been greatly reduced compared with the £3,000 difference that I believe the figure was at the start of this Parliament.
I do not think that anyone in this House is saying that as the basic personal allowance is rightly hiked up to £10,000, there is any way we can afford to hike the pension one up by the same amount—all anyone was ever expecting was for it to go up by some measure of inflation. As that benefit was to be so reduced by the end of this Parliament, we have to wonder whether or not the actual benefit to people would have been worth all the complexity, and all the hassle of maintaining these things and the delivery cost.
So I say to the Government that simplifying tax is right. This measure is one of those in the box marked, “Necessary, but unpleasant and not what we wanted to do”. We would all much rather find ways of giving our pensioners more income, but I am convinced that this is one of those things that we just have to do to take our tax system in the right direction and try to fix the deficit. However, I encourage the Government to examine all the other things in the Office of Tax Simplification’s report on tax and pensions and try to introduce some of them too, so that we get a fully developed and balanced reform, rather than just this start.
Finance (No. 4) Bill
Nigel Mills Excerpts(12 years, 7 months ago)
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Owen Smith
I am grateful to you, Sir Roger, although I found that debate terribly entertaining. [Interruption.] Oh no, I am more than happy to talk about tax avoidance all evening, especially about the Swiss deal, which is particularly disgraceful. No doubt we will do that upstairs in Committee.
I return to the question of the bank levy and the bank bonuses tax and which was the most effective measure. It is clear that, as the OBR said, the bank bonus tax raised £3.5 billion in 2010, which is almost twice what the levy raised in 2011. Those are not disputable facts; they are there in black and white in the Red Book and the OBR’s analysis. Choosing not to reinstate our bank bonus tax represents an effective tax cut for the banks.
Owen Smith
I would not dispute that for a moment. Many of the banks are under water and so will not end up paying tax for a significant period, but not all of them, and that is my point. Broadly speaking, the banks and financial services account for about 8% of corporation tax in this country. Overall, there will be a reduction to the Exchequer, through the cut in corporation tax to 22%, of about £5.5 billion per annum. That is leaving aside the CFC changes. On average, then, we would expect the financial services and banks to get about £450 million off their tax bills as a result of the Government’s changes. That is the point I am making. The question that needs to be asked in the round is what we are doing to tax corporations and tax our banks.
Nigel Mills
Does the hon. Gentleman agree that we need a predictable tax system, so that investors can understand what they will be expected to pay? When measures are described as “one-offs” or “temporary”, we ought to be able to rely on that, rather than allowing them to be permanent fixtures.
Owen Smith
By and large I would agree with the hon. Gentleman. Tax policy ought to be predictable. Indeed, the current Government deserve some credit for continuing with the trajectory set by the previous Government on tax policy planning and tax making, by seeking to consult significantly and publish things well in advance. [Laughter.] For some reason the Minister is chuckling. I would point to the introduction of the 50p rate, which was first mooted in 2009 and introduced in 2010, which was probably what led to all the forestalling. However, that approach is a good idea, by and large. We ought to consult carefully on tax policy, because as this Government are learning to their cost, so often there are unintended consequences of tax policy. I might highlight, for example, the simplification introduced so blithely by the Chancellor in his Budget speech, when in just one sentence he waved away Churchill’s special personal allowance for the elderly and introduced the granny tax. That was a simplification that seemed sensible at the time, but in hindsight it has had unintended consequences.
Owen Smith
I am grateful, Sir Roger. I am bringing my remarks to a conclusion.
The amendment we have tabled is very simple. It simply requires the Government to look at the possibility of reintroducing a payroll tax on the banks.
Owen Smith
No.
We think that would generate significant revenues, which could be used to create youth jobs to tackle the scourge of youth unemployment in our country and to create new affordable homes. We want the Government to look at that; we want them to get their priorities right; we want them to undo some of the damage they have done in the last two years. That is why we will of course press the amendment to the vote when the appropriate moment comes.
Karen Bradley
I do not agree about the contradiction. If it is suggested to the banks that the rate of tax will be at a certain level and that there will be a bonus tax, that will discourage them from remaining in the UK but it will not stop them paying the bonuses, which is what the Treasury wanted the special one-off tax to do.
Nigel Mills
Does my hon. Friend agree that the bank payroll tax has morphed from its original role of reducing bonuses to become purely a revenue-raiser in the eyes of those who want it, and that it is not even intended to reduce the amount of bonuses paid?
Karen Bradley
I was coming to exactly that point. It is, in fact, a revenue-raiser. We need to return to the question of how money can be raised from the banks, and if that is what we wish to do, I think that the bank levy is a better way of doing it.
In preparation for the debate, I rang various former colleagues and others involved in the financial services sector. I could not find anyone who would express the view that the bank levy was a terribly bad thing. They all accepted that the tax needed to be paid, and they thought that this was a reasonable way in which to pay it.
Karen Bradley
My point is that it is not the Government’s job to try to drive the level of bonuses. The last Government wanted to do that, and failed miserably. It must be accepted that the bank bonus tax is a revenue-raiser and not a behaviour-driver, and that it will not determine the way in which bonuses are paid. The actions taken by the present Government to limit the level of cash bonuses that can be paid, and other such measures, are far more effective in ensuring that the bonuses that are paid reflect the performance that contributes to the building and growth of a financial services business. That is what we want in our economy. We want businesses to grow, because if they do, they will pay more corporation tax. They will also pay more payroll tax, because a 13.8% national insurance charge is levied on all employers for the sums they pay their employees. Therefore, if the banks make more money, they will pay more in payroll tax, which is a good thing.
Nigel Mills
Does my hon. Friend agree that targeting a payroll tax at one industry is not a particularly coherent way of running a tax system? If those who propose doing that were truly concerned about inappropriate bonuses and high pay, they would want to impose a tax on other areas, too, such as high pay in the City—and, perhaps, on footballers or on energy businesses—rather than targeting it on just one industry that they do not happen to like at the moment.
Karen Bradley
My hon. Friend makes an important point. Financial services are an incredibly important part of our economy. The 2002 pre-Budget report revealed a drop in revenue, and the explanation it gave for that was that the expected City bonuses had not been paid, and as a result those bonuses were not contributing as much tax as forecast—and we all accept that we need to raise tax in order to pay for our schools, hospitals, police officers and all our public services.
The bank levy is the right way to tax the banks. It is not unpopular with the industry, so far as I can ascertain from the experts to whom I have spoken. They accept that they have to pay their share, and that that is the way they will do it.
Budget Resolutions and Economic Situation
Nigel Mills Excerpts(12 years, 8 months ago)
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Nigel Mills (Amber Valley) (Con)
It is a pleasure to follow the hon. Member for Luton South (Gavin Shuker); we have heard each other speak many times over the past few weeks.
When I was asked what I wanted to see in the Budget, my general response was “Not a lot.” The key thing is to keep a steady course and not scare the horses with a sharp change of direction, and that, as we can see from the Red Book, is the Chancellor’s main strategy. In the current financial year, the deficit is still about £126 billion, so there is no real scope for the Chancellor to take major expensive action. Looking forward to next year, we still see a deficit of about £90 billion, with public spending of £683 billion, which is nearly £2 billion a day. The most significant Budget measure for the coming financial year is the corporation tax cut, which is highly welcome. It is worth just under £400 million, which is about four hours’ worth of public spending. There has not been scope, and there is no scope, for major changes in that situation.
What most investors want from the British tax regime is stability and predictability. That is the strategy the Government set out at the start of this Parliament, and I am glad they have stuck to it, and that when we hit the start of the new financial year in a couple of weeks’ time, there will be no major changes for everyone to understand over the next fortnight. Most of what will apply was well signalled and we all knew about it months ago. There has been detailed consultation on many of the major measures; others are to do with anti-avoidance, which clearly we cannot consult on, but they are more than welcome.
As the debate today was opened by the Secretary of State for Transport, it would be rude not to touch on a few transport issues. Like other Members, I welcome the investment in transport infrastructure. One thing that has not had much attention in this debate is the decision to set up the transport innovation centre. I am sure the Government will recognise the overwhelming case for it to be based in Derby, where we have Rolls-Royce, Toyota and Bombardier. I can think of nowhere else in the country where transport plays a greater role in the economy and where there are more people with the skills to make the centre work effectively.
In all the Government’s recent announcements about the electrification of rail lines, it is a pity that they missed out the east midlands main line. It serves a large part of the country and a number of deprived areas. We suffer from a much slower train service than the east coast or the west coast, which must have an effect on economic activity. In fact, to get to London for 9.30 this morning, it was quicker for me to catch a train to Tamworth and change to the west coast main line than to stay on the east midlands line. There is an overwhelming economic case for electrifying the line and I hope that that will be brought forward.
As my hon. Friend the Member for Cleethorpes (Martin Vickers) said, after three days of Budget debates most of the good points have been made. Obviously, I warmly welcome the increase in personal tax allowance for the lowest paid; it will affect 23 million people, which is a strong signal of where we think our values should be. Of all the money the Chancellor has at his disposal, the £3.3 billion annual cost when that measure takes effect shows where his focus and priorities lie.
I welcome the measures announced previously to try to get more finance to small and medium-sized businesses—the loan guarantee and credit-easing schemes. We hope the banks will take them on so that businesses around the country have access to the finance they need to grow and create jobs.
I shall spend the last few minutes of my speech talking about the importance of tax simplification, which was front and centre in the Budget. I especially commend the valuable work of the Office of Tax Simplification on this Budget and the previous one. I only hope that the Government, having seen the value of the work of the OTS, will commission it to do something more ambitious and look at how we can radically reform business taxation and corporation tax to make them simpler and to make the country even more attractive to investors.
The OTS recently produced a report on the taxation of the smallest businesses. I welcome the fact that the Chancellor went further than it recommended, in effect allowing businesses with turnover of up to £77,000 not to prepare detailed accounts, but just to pay tax on their cash surplus each year. If that coincides with VAT thresholds, businesses will know that if their turnover is less than about £77,000 they will not have to prepare detailed accounts for tax purposes or deal with VAT. That is a powerful message to send to the smallest businesses. I look forward to the consultation to see how that measure can be made to work. However, there is just one issue I want to raise. We all want the guy who is making a nice living for himself—perhaps a successful plumber—to be able to grow his business, and to take on someone to train. The risk is that if he does so, and takes his turnover beyond £77,000, he will suddenly be clobbered by having to register for VAT and going through the accounts process. We need to think about how we transition successful people who take on extra staff, which would tackle unemployment, and bring down the compliance level for them, but that is not to take away from what is a welcome measure.
A slightly less welcome review from the Office of Tax Simplification was the review on taxation of pensioners, which is where the Budget measure that has been most controversial—the changes to the personal allowances for people over a certain age—may have originated. Those of us that have argued for tax simplification have had to accept that whatever we try to change there will be some winners, who will be very grateful but probably very quiet, and some losers, who will be somewhat less grateful and no doubt quite a lot louder. Understandably, that is what has happened. When there is no fiscal room, there is no way of easing the burden on those that lose in the short term or of trying to spread that pain, although the increase in the state pension tackles some of that. But the change is a year away and there is scope to have a look at it.
I welcome the Budget. It sticks to the course that we need and takes our finances in the right direction, heading back towards stability. I think it will be a successful Budget for growth in this country.
Budget Leak Inquiry
Nigel Mills Excerpts(12 years, 8 months ago)
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Nigel Mills (Amber Valley) (Con)
I have a dream in which the Budget is merely the confirmation of ideas that have been fully consulted on and people can actually understand what the tax regime will be in advance. I commend the Minister for his work in trying that, rather than worrying about this flim-flam.
Mr Gauke
My hon. Friend makes a good point about our more deliberative and consultative process for tax policy making, and some of the announcements in the Budget yesterday were the culmination of a long process of consultation, for example the reforms of controlled foreign companies, which have been widely welcomed. As a corporate tax regime, ours is increasingly recognised around the world, and I am delighted that, as my hon. Friend the Member for Mid Norfolk (George Freeman) pointed out earlier, we had the announcement from GlaxoSmithKline this morning.
Public Service Pensions
Nigel Mills Excerpts(12 years, 11 months ago)
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Danny Alexander
There is a squeeze on living standards and, indeed, on our economy for a combination of reasons, including the crisis in the eurozone and the catastrophic mess that the hon. Lady’s party made of the economy. I think she should start by admitting that.
Nigel Mills (Amber Valley) (Con)
I congratulate the Chief Secretary on reaching an agreement. The last thing that any of us want is a regular five-yearly salami slicing of public sector pensions. What aspects of the deal will make it future-proof over the 25-year period to which he has referred?