Finance Bill (Fourth sitting)

Peter Dowd Excerpts

Committee Debate: 4th sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

That schedule 8 be the Eighth schedule to the Bill.

Clause 30 stand part.

Clause 31 stand part.

That schedule 9 be the Ninth schedule to the Bill.

Clause 32 stand part.

New clause 3—Deemed domicile: review of protection of overseas trusts—

“(1) Within fifteen months of the passing of this Act, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review about the operation of the provisions for the protection of overseas trusts in relation to deemed domicile.

(2) The review shall in particular consider—

(a) the effects of those provisions on the Exchequer,

(b) the behavioural effects of those provisions, and

(c) the effects on the matters specified in paragraphs (a) and (b) if those provisions were repealed.

(3) For the purposes of this section, “the provisions for the protection of overseas trusts” means the provisions inserted by paragraphs 18 to 38 and 40 of Schedule 8 to this Act.

(4) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons within three months of its completion.”

This new clause requires a review to be undertaken of the effects of the provisions for protecting overseas trusts from the new provisions in relation to deemed domicile.

[Peter Dowd (Bootle) (Lab)]

As ever, it is a pleasure to work under your stewardship, Mr Walker, and your perfect pronunciation of the word “schedule”.

I would like to deal with the Government’s overall intention behind this group of clauses and schedules reforming non-domiciled status. Under the measures being introduced through the Bill, an individual who has been resident in the UK for 15 out of the last 20 years will be considered UK-domiciled for the purposes of income tax, capital gains tax and inheritance tax. From appearances, one might think that overall the Government are finally doing away with non-dom status, but that is far from fact.

The changes in the measures are superficial—one could even say artificial—and designed to give the impression that the Government are seriously clamping down on tax avoidance. Why else would an exemption be built into the measures for offshore trusts? Another question is: why else would the Government have given a grace period for those non-doms affected to get an offshore trust if they do not have one already? Another question begging for an answer is: why else would the Government have actively signposted the changes for non-doms, which has set hares running? It seems to me that those are things that the architect of the measures would do if they were of a mind to completely undermine the measures’ effectiveness. They close one loophole and—hey presto!—create another. Put a new coat of paint on it and no one will notice—job done.

I of course accept that some people will be caught by the changes, but I imagine that it will be the few—and “few” is the operative word—who cannot afford the financial advice fees and legal fees to set up an offshore trust. Once again, we are talking about low-hanging fruit. In my opinion and that of some of my colleagues, this is indicative of the Government’s tax policy. They are doing this rather than tackling tax avoidance undertaken by wealthy individuals who are—I will mix my rodent analogies here—squirrelling their money away in offshore trusts, or large multinational corporations that play cat and mouse with Her Majesty’s Revenue and Customs, with, in this situation, HMRC being the mouse and the one that rarely roars to boot. It is happening daily: certain people are not paying their fair share, and the Government are instead attempting to squeeze further taxes out of everyone else. That is no doubt motivated in part by the dwindling resources of HMRC, whose staff levels have been cut by 17% since 2010. The shame that HMRC does not have the resources to clamp down on the use of offshore trusts is part of the motivation behind these measures, but I am not convinced that the Government have the inclination to do so, either.

The delayed timetabling of the measures will also have an impact on their effectiveness. They were first proposed in the summer Budget 2015, they were consulted on in late 2016, and they were meant to be debated and come into effect in March 2017. Of course, we had an unnecessary snap election, whose mother was hubris and whose father turned out to be pyrrhic. As Plutarch noted—it is always worthwhile getting in a quote from Plutarch:

“If we are victorious in one more battle with the Romans, we shall be utterly ruined.”

I ask Government Members opposite to bear that in mind when the next election comes.

[Graham Stuart (Beverley and Holderness) (Con)]

And in Latin?

[Peter Dowd]

I actually was going to bring that, but the Chair has difficulty enough pronouncing English to check me on my Latin.

Added to that, we had a zombie Parliament throughout the summer, with the Minister announcing that the measures would not be brought back until September. In total, that means that the best-advised non-doms will have had two years’ advance notice, while even those with little to no advice would have had seven months to prepare, even without the Government’s grace period. That is why the Opposition are proposing that, at the very least, the Government conduct—the Minister will not be surprised to hear this—a review to assess the impact of leaving in the exemption for offshore trusts on the effectiveness of the measures.

Our opposition to these measures is well noted. I raised concerns over them on Second Reading of the Finance Act 2017. We raised them further in private discussions with the Government, to no avail, as well as during the Ways and Means resolutions debate and on Second Reading of the Bill, so our view is fairly well laid out. What we want is genuinely not unrealistic or far removed from the observations of most members of the public, which is, in short, the removal of the exemption for offshore trusts from these clauses and schedules. It is simply lubricious—I was thinking of another word—to introduce measures abolishing non-dom status while at the same time creating further loopholes. I would have used “disingenuous”, but no doubt you would have ruled me out of order, Mr Walker.

I ask the Minister once more, as I have at every stage of the Bill, to remove the exemption for offshore trusts. If the Government are truly committed to abolishing non-dom status and not just paying lip service to it, the Minister should have no problem doing so.

[Ruth George (High Peak) (Lab)]

Does my hon. Friend agree that creating this loophole, which enables non-domiciled individuals who are coming back into UK domicile to simply send funds to offshore trusts, creates work for accountants and tax specialists without actually assisting the Treasury or the Government?

[Peter Dowd]

That is a very good point. It is also actually creating an awful lot of work for us, given the amount of times we have asked for this to be dealt with. It is getting pretty repetitive. I do not know how many times we have to ask for this to be dealt with once and for all; no doubt we will come back to it time and again until something is sorted out.

This is not only about non-doms using offshore trusts to hide their money and essentially subvert the measures in the clause; it is about the source of the money and its value, particularly when we are discussing how to clamp down on tax avoidance. The Government should consider a register of offshore trusts, ensuring that non-doms have to register the sources of their property and income. Again, that request is not unreasonable to the public or to our constituents who elect and send us to this place, all of whom have to register the sources of their income with HMRC. In fact, a number of the measures in the Bill will require even more financial information to be passed on to HMRC through the bulk collection of financial data by third parties. It seems to many people that there is one law for one group and another for the rest of us. That cannot be right.

[Kelvin Hopkins (Luton North) (Lab)]

The issue of non-dom taxation has been going on for years. The reality is that Conservative Governments and perhaps even Labour Governments have not gone far enough to eliminate the problem by saying that these people are going to pay tax properly and not wriggle all the time. Does my hon. Friend agree that we have to get rid of a world where rich people live in Monaco in the south of France and fly in a couple of times a week in their private planes, working in the City and making billions, just to avoid tax, and that we should be making sure they pay their taxes and be looking after ordinary people?

[Peter Dowd]

What we need is a fair taxation system—that is the key. I do not think it is beyond the wit of this Government or any Government, for that matter, to deal with that. That is not to say that we have not moved some. That would not be appropriate. We have moved on.

[The Financial Secretary to the Treasury (Mel Stride)]

In terms of having moved some, as the hon. Gentleman puts it, does he accept that with the current proposals we have gone much further in the direction he seeks than was the case under any previous Labour Government?

[Peter Dowd]

It is a moving feast. Dealing with tax avoidance is—to use the old hackneyed phrase—a process, not an event. That process, at different times over the decades, moves along at different paces and with varying levels of enthusiasm. We have to set the tone and send the message from this place that we will tackle tax avoidance wherever we see it occurring. We should all do that as robustly as we can. It is not a beauty contest between which party has done the most. The reality is that we all have to stick together in tackling tax avoidance. That is the reason for our proposal, which would move this process further on, regardless of what may or may not have happened in the past.

The contention between the Opposition and the Government on this part of the Bill highlights a fundamental problem with parliamentary procedure around financial legislation. Some argue—I do not necessarily agree—that it is ludicrous that the Government can introduce a measure that claims to abolish non-dom status with an exemption for offshore trusts, and that the Opposition are unable to push through an amendment that would remove it. That goes back to the point I made earlier when the Minister referred to a review-fest. That is one of the only tools the Opposition have in this situation, given the nature of proceedings.

I do not criticise that at all. We are where we are. It would be better if we were not here, in some regards, but we are. We are trying, with the tools available to us, to move the debate on. I understand the limited scope that the Opposition have to amend financial legislation, particularly on bringing more people into tax or raising revenue. That may have to be looked at, especially in the light of the Minister’s concern that we are partying too much on this issue.

[Ruth George]

Given that the only reason for a trust going offshore seems to be to engage a lower rate of taxation, will my hon. Friend join me in asking the Minister what the reasons are for the exemption for offshore trusts and for opposing listing those offshore trusts to ensure we have greater transparency in our tax system?

[Peter Dowd]

That is a fair point. I will hang on every word the Minister says when he explains that today; he will have my full attention and concentration.

The convention of the limit on parliamentary scrutiny, particularly at a time when the Government do not have a parliamentary majority, risks enfeebling the Opposition by denying us the ability to properly scrutinise the Government and their financial legislation—essentially, the ability to do our job. Here we are, with a limited armoury, and that is why we are asking for a review. It is important that this is as transparent and open as possible. This is the line I bring to the Committee and have put to the House a number of times: it is not a question of us, the Opposition, guarding the guards; it is a question of the public guarding the guards. That is why we have tabled this measure.

--- Later in debate ---

[Mel Stride]

If the hon. Lady will let me make a little progress, perhaps we will have time later.

Another point the hon. Member for Bootle raised was the suggestion that we are somehow slack or not concerned about tax avoidance. This Government have clamped down on avoidance to the extent that we have brought in £160 billion in revenue by clamping down on tax avoidance, evasion and non-compliance. We have done that despite his constant assertions that HMRC is under-resourced and incapable of acting. We are bringing in record levels of compliance income at the moment.

[Peter Dowd]

I think the Minister misrepresents what I was saying. I was trying to say that we need to push harder. The reality is that HMRC does as good a job as it possibly can given its resource. I suspect that if its resource were returned to the previous level, HMRC would do an even better job.

[Mel Stride]

Given the resource that HMRC has, which the hon. Gentleman suggests is inadequate, the tax gap—the amount of tax that we have failed to collect by not bearing down on avoidance—is at its lowest level for many, many years, including every year under the last Government. It is 6.5% compared with, I think, 8.3% in 2005-06. In terms of bearing down on avoidance, we are doing our bit.

--- Later in debate ---

[Mel Stride]

I thank the hon. Lady for making her intentions so clear.

These changes are fair, and they have been carefully considered and consulted on since they were announced more than two years ago. With regard to a review of the legislation, as stated in the tax information and impact note published in December 2016, HMRC will monitor the effects of the provisions through information collected in tax returns. I therefore urge the Opposition not to press new clause 3.

The changes introduced by clauses 29 to 32 and schedules 8 and 9 will bring an end to permanent non-domicile tax status. When people live in the UK permanently, it is right that they should pay the same tax as everyone else. This is the biggest and most fundamental change to non-dom taxation in history, and strikes the right balance between raising £1.6 billion of much-needed revenue and ensuring that the UK tax system remains internationally competitive.

[Peter Dowd]

In the light of what has been said today, we may want to tease out the matter of non-doms further at a later date, but let us be clear: there is nothing wrong with being a non-dom. It is not an illness or a disease. It is not something that we want to eradicate absolutely. We do not want to tell non-doms to go home or to go back to where they lived. This is not about that; it is about fairness in comparison with people who are not non-doms. That is what it comes down to.

We recognise that non-doms contribute to our economy. I do not think that anyone is denying that at all. Non-doms have existed in this country since Napoleonic times, in effect. That is the essence of their origin. After 200 years, we might think, notwithstanding the fact that we are coming out of Europe, that we should have done something about them sooner. The bottom line is that there is nothing wrong with being a non-dom. There are issues vis-à-vis the status of parents of non-doms, too, which we will no doubt come back to in due course.

We have made our point for today’s purposes. As I alluded to, new clause 3 seeks to have a review in relation to non-doms. I do not think that there is anything wrong with asking for a review of how this proposal will work. That is our job, and we will persist with it. We are determined to raise this issue time and again.

[The Chair]

The Committee will be aware that new clause 3 will be moved later. I do not want anybody to feel disappointed or cheated.

Question put and agreed to.

Clause 29 accordingly ordered to stand part of the Bill.

Schedule 8 agreed to.

Clauses 30 and 31 ordered to stand part of the Bill.

Schedule 9 agreed to.

Clause 32 ordered to stand part of the Bill.

Clause 33

Inheritance tax on overseas property representing UK residential property

Question proposed, That the clause stand part of the Bill.