Tax Avoidance and Evasion

Peter Dowd Excerpts

Tuesday 14th November 2017 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I will try to take that on board as a suggestion rather than a direction, Mr Speaker. The Minister identified what he thinks should be done, but I will tell him what should be done. In our “Tax Transparency and Enforcement Programme” document, Labour calls for an immediate public inquiry into avoidance, greater scrutiny of MPs, the creation of a specialist tax enforcement unit, and the public filing of large company tax returns and of the tax returns of wealthy individuals earning more than £1 million. We want no public contracts for tax avoiders, the repatriation of contracts parked in tax havens, public contract transparency, a register of beneficial ownership of companies and a register of trusts, and our programme would be enforced by working with the banking sector. We also call for a general anti-avoidance rule in principle, strict minimum standards for crown dependencies and overseas territories, the creation of an offshore companies levy and full country-by-country reporting. All that represents a comprehensive proposal from Labour.

[Catherine West]

Does my hon. Friend agree that there is an army of tax avoidance facilitators that includes, sadly, the four big accountancy firms, which are often based just down the road in the square mile?

[Peter Dowd]

My hon. Friend makes an important point. Transparency is at the heart of all this. I experienced a bizarre situation last week when I was on “Newsnight” with the chairman of the Cayman Islands stock exchange. What an insouciant attitude that man had to tax avoidance. He actually said that there had not been any wrongdoing—maybe not—and called for the journalists to be jailed. That is what he did, and that is the position in which we find ourselves.

[James Cartlidge (South Suffolk) (Con)]

Will the shadow Minister give way?

[Peter Dowd]

I am going to take Mr Speaker’s suggestion and push on, because it will become an admonition otherwise. I will then take some interventions.

I hope that Members across the House will join me in condemning the irresponsible and offensive comments of the chairman of the Cayman Islands stock exchange. All of us owe a debt of gratitude to the journalists involved for their hard work and diligence. They have demonstrated the importance of a free press in holding the wealthiest and most powerful individuals and multinationals to account.

To be clear, we are talking about tax avoidance that covers activities that are within the law but work against its effective application. Most of the people involved in the cases have not broken any laws or acted in a criminal way, but that does not make tax avoidance acceptable or justifiable in the 21st century. After all, as has been identified, tax avoidance costs us all. Every pound avoided is one pound taken away from our children’s education, from our armed forces—the very people who protect us—and from the elderly and disabled. The conservative—and Conservative—figures that the Government have published on tax avoidance show that HMRC recorded from 2010-2015 that £12.8 billion was lost to the Exchequer through tax avoidance. That is unacceptable.

People have a view about what the previous Labour Government did. They think that it was much better than the Tories overall, but I am not going to go there. The question arises—[Interruption.] I refer the hon. Member for Rochford and Southend East (James Duddridge) to the Financial Times. With the greatest of respect, I am not his researcher, and I am sure he is more than capable.

[James Cartlidge]

Does the hon. Gentleman accept that if the current tax gap was at the same level that it had been on average under Labour, our deficit would be £12 billion higher?

[Peter Dowd]

My hon. Friend the Member for St Helens South and Whiston (Ms Rimmer) says, “Move on.” and I think she is absolutely right. I will reaffirm the point that was made in Labour’s tax programme document: we have to push on with this debate. It does no good for the Government to talk about the past; we want to talk about the here and now and the future.

[Several hon. Members rose—]

[Peter Dowd]

I will give way to the hon. Member for South Suffolk (James Cartlidge).

[James Cartlidge]

I had not expected—[Interruption.]

[James Cartlidge]

I will ask the shadow Minister a question. The tax gap is now 6%. It averaged 8% under Labour. Does he accept that if the tax gap was 8% now, the deficit would be £12 billion bigger?

[Peter Dowd]

The hon. Gentleman can extrapolate all he wants. I could extrapolate all sorts of figures, but I am not going to get into that. We will no doubt come back to the matter in due course at the Budget.

[Several hon. Members rose—]

[Peter Dowd]

You are looking at me with those eyes and with a smile, Mr Speaker, so I will move on.

While tax avoidance is a global problem, it is also a UK problem. The UK accounts for 17% of the global market for offshore services. We are considered one of the biggest—if not the biggest—players in the global offshore system of tax havens. We account for some of the world’s key tax havens, including Jersey, Guernsey, Isle of Man, Bahamas, British Virgin Islands, Cayman Islands, Bermuda and the Turks and Caicos Islands, all of which are either Crown dependencies or British overseas territories and all of which are afforded the support and the protection of the British Government. Despite our prominence as a country at the heart of a network of offshore tax havens that aids and abets tax avoidance across the globe, the Government refuse to lead the way in global tax transparency. I keep on using that word “transparency” and I will keep on doing so.

[Mike Amesbury]

Does my hon. Friend agree that the purchasing of a private jet at nearly £17 million and then setting up an offshore leasing company with the sole aim of saving £3 million in VAT is an affront to our public services?

[Peter Dowd]

My hon. Friend is quite right. That is shocking.

Government Members’ denial about their record on tax avoidance is not new. In 2013, while the G8 was pushing ahead with stricter rules that would clamp down on tax avoidance, the then Conservative Prime Minister, David Cameron, was busy undermining them, writing to the President of the European Council demanding that offshore trusts were excluded. The Government’s record on tackling tax avoidance is not all that they would like it to be.

[Justin Tomlinson (North Swindon) (Con)]

The shadow Minister is being generous with his time. We all agree that this matter should be a priority, and the shadow Minister is focusing on our record, but why did the Labour party block the three measures that we brought forward in the wash-up that would have been worth £8.6 billion—vital for all the public services that he listed earlier? It is a joint priority, and we need both sides to work on this.

[Peter Dowd]

I am more than happy to give the hon. Gentleman the narrative of the wash-up proceedings. If he wants, I am happy to talk to him outside, because the information that he has been getting from his Front-Bench team is nonsense.

I am going to conclude to give others the opportunity to speak. First we had the Panama papers and now we have the Paradise papers; how many more tax avoidance leaks will there need to be before the Government act? It is clear that we desperately need a public inquiry into tax avoidance and the use of offshore trusts and tax havens. The Government should listen to the Opposition and, perhaps more importantly, to people outside the House and act by introducing a public register of offshore trusts and publishing the information already provided from overseas territories. They should also stop cuts to HMRC and ensure that HMRC has the staff and resources it needs to tackle tax avoidance at its core.

If the Government continue to ignore the problem and fail to act, I reassure the House that a Labour Government will act.

HMRC Closures

Peter Dowd Excerpts

Thursday 2nd November 2017 Westminster Hall

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship, Mr Davies. Where do we begin with this situation? It is an absolute dog’s dinner. The Minister has inherited a number of dogs’ dinners since coming into post and I almost feel sorry for him.

My hon. Friend the Member for Bradford East (Imran Hussain) talked about the need for human intervention, but I think we need divine intervention. St Matthew is the patron saint of tax collectors, and he will have to be prayed to an awful lot for this particular mess to be put right. We all sit up when somebody talks about modernisation, because we know what it means: job cuts and closures of this, that and the other. And this is a classic case of modernisation.

I met senior HMRC officers to discuss the criteria used for the decisions. I declare an interest: HMRC is a significant presence in my constituency and well over 2,000 of my constituents work there. Members will, therefore, forgive me if I spend a little time on Bootle, because it is an exemplar of the problems facing other places.

The officers told me that one of the criteria is that offices need to be near a city centre, but Liverpool city centre is closer to my constituency of Bootle than it is to parts of Liverpool itself. They also said that they need to be near a university, but the situation is exactly the same: Liverpool University and Liverpool John Moores University are closer to Bootle than they are to the proposed new Liverpool site. The officers talked about transport and infrastructure access, but the HMRC offices in Bootle are literally surrounded by stations, including a railway station. In fact, a bus station right next to my office is literally a minute’s walk from the HMRC offices in the Triad building and the new St John’s House.

We were told that we needed to maintain staff retention, but the turnover at HMRC in my constituency is negligible. They are high-skilled, high-performing, loyal staff, so that criterion does not apply. There has been no impact assessment. Nipping back to the transport situation, no assessment was made of the transport links. Mersey Travel, the Cheshire transport authority and the Welsh transport authority were not contacted, even though they will also be affected by the proposals. The way in which this has been dealt with has been an absolute dog’s dinner.

My hon. Friend the Member for Wrexham (Ian C. Lucas)—he apologises for not being here—has written to the Chancellor, because the issue affects his north Wales constituency, which is virtually on the border. The letter mentions the proposed closure of the Wrexham HMRC office, which will result in the loss of 350 jobs, as part of the proposal to centralise Wales staff in Cardiff. It states:

“I am incredulous that the Government is continuing to propose a policy course of moving staff away from the regions to centralised city centre locations and it seems to me that the new political environment created by Brexit allows us to pursue a new regional policy by maintaining jobs in, for example, Wrexham, the largest town in North Wales.”

That is a very good point.

I apologise for only mentioning this now, but I am pleased that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Stuart C. McDonald) has brought this issue to our attention again. How many times have we discussed this matter without ever receiving any proper answers from the Government? Interventions from my hon. Friends the Members for Coventry South (Mr Cunningham) and for Bradford East made a compelling case for why it needs—at the very least—to be looked at.

My hon. Friend the Member for Oldham West and Royton (Jim McMahon) graciously shared with us his experience of the heart-rending closure process in his constituency. I thank him for bringing that to our attention, because, if the proposals go ahead, that will be the future for communities right across the country, including mine. Thousands of people who work in my constituency will be moved to the iconic but very expensive India Buildings—car parking is at an absolute premium—in Liverpool. Why do they have to move three miles up the road when it is going to cost more money? There will be a net cost to the taxpayer in my constituency—but not, apparently, to the so-called national envelope—as a result of those offices being moved. That is dreadful.

Colleagues have made those points time after time, but let us hear what other people are saying. In a report on professional bodies, Accountancy Live noted:

“HMRC reorganisation risks pushing tax authority to breaking point. Tax advisers and professional bodies are sceptical about…HMRC’s plans to close 137 offices”.

Those are not our words, but those of professionals who work on these issues every single day.

The Institute of Chartered Accountants in England and Wales said it was staggered by the argument that HMRC will actually be adequate to provide any sort of service to 5 million or 6 million taxpayers in the London area, notwithstanding what reconfigurations may be made to the service. The word “disastrous” has been used and I agree that the situation is and will be disastrous. I ask the Government to take a step back and reconsider.

On Mapeley, something does not smell right, to be frank, about the deal for the India Buildings—to which HMRC will be moving—prior to HMRC’s involvement. People are coming to me all the time about that, so I am going to have to look in much more detail at the proposal. I have no doubt that in due course I will have to either come back here or write to the Chancellor, although I hope that I will not have to do so.

Opposition Members have raised the social and economic impact, but I do not think that any Government Members have done so, with the exception of the hon. Member for Ochil and South Perthshire (Luke Graham), whom I thank. It is symptomatic of the debate that only one Conservative Member is in attendance. Others do not appear to be in the least bit interested in the impact that the proposal will have on whole swathes of the nation, including Scotland, as the hon. Member for Glasgow South West (Chris Stephens) has said, and Wales, which will have one office. There will be 10 or 11 offices in the rest of the country and possibly one in Northern Ireland.

This is a pretty grim situation. To add insult to injury, some of these deals were signed de facto during purdah. If a Labour Government had done that, there would have been absolute screeching from the press, the media and the Conservatives about how we were trying to tie the hands of a subsequent Government. We would have been pilloried for it and—do you know what?—rightly so.

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

The issue of making decisions during purdah has already been raised. It is right and proper that those decisions were made because, as the hon. Gentleman will know, under the appropriate arrangements, the Government should never act such as to incur costs through delay. Furthermore, those decisions were signed off in entirely the right manner by the Cabinet Office.

--- Later in debate ---

[Peter Dowd]

I take the Minister’s point, but there is always an issue in government.

[Chris Stephens]

I listened to the Minister’s intervention. Does the shadow Minister agree that it is somewhat ironic that during purdah, some of these contracts—for example, the contract signed in Edinburgh—were signed on some of the most expensive buildings in Scotland?

[Peter Dowd]

The hon. Gentleman is absolutely right. Some of them cost an arm and a leg. The Minister should take on board the question of perception. In a democracy, when we are in the middle of an election, it might be technically, legally and administratively okay to do this, that and the other.

[Jim McMahon]

I am afraid that I do not buy the Minister’s explanation at all. The delays to the lease being confirmed for the Manchester office meant that additional costs were already being incurred. The incurred costs for one scheme were because of commercial and development reasons. The Government say that they could not wait for purdah to complete, but that would have given a new, incoming Government the freedom to change that decision. The situation is very odd.

[Peter Dowd]

My hon. Friend makes an excellent and valid point. The Government should think those sorts of things through.

As I was saying, there is, at the very least, an issue of perception about whether this is all above board. Even if it is above board, it has to be seen to be above board. The issue is that people do not feel that that is the case. We all feel that something is not quite right. In a democracy, we have to be seen to be above board. That feeds into the concern that some of us have that Parliament is being ridden over roughshod on a whole range of issues. For example, we did not have Opposition day debates for months on end. When we did get them, the Government virtually did not turn up to respond, and they continue to take that approach. It feeds into the perception that they are developing contempt for the views of Members in this Chamber and, specifically, the main Chamber.

There is a perception—and in this case, it is a reality—that the Government treat people with contempt. A briefing on the civil service compensation scheme feeds into that narrative:

“On 18 July 2017 the High Court held that the Government had failed to comply with the duty to consult prior to amending the CSCS, in that it had imposed conditions on union participation in the consultation process.”

That seems to be saying, “You either agree with us in advance what we want you to discuss, or you’re going to be brushed aside and not considered.” The briefing continues:

“As such, the 2016 amendments were unlawful.”

There is getting to be a pattern of unlawfulness with the Government—for example, the issues on tribunal fees and in relation to social security. It goes on:

“The Court’s decision is at the time of writing subject to appeal to the Court of Appeal.”

I have no doubt that the Government will do that. That is dated 26 October—just a few days ago.

We are not the only ones making this argument. The Public Accounts Committee said:

“We do not believe that it will save as much money as HMRC has predicted”—

that is the understatement of the decade—

“and we are concerned that it has not thought through all the negative costs to the wider economy of its approach and the impact on local employment”.

That is another understatement, if ever there was one. Many people and communities will be dreadfully affected by this.

Let us talk about service issues. The Institute of Chartered Accountants in England and Wales said:

“Service standards are deteriorating with taxpayers having to spend longer and longer on the phone trying to get through or waiting for their letters to be answered.”

My hon. Friend the Member for Stockton South (Dr Williams) alluded to that. To boot, the National Audit Office says that this has cost £600 million more than first thought. That is the situation we are in. Why the Government are persisting with this dog’s dinner is absolutely beyond me.

Members today have made fantastic contributions that were forensic, surgical, factual, objective and mixed with a bit of humanity, which seems to be completely missing from the Government’s approach. I ask the Government to take these proposals back, give them further consideration and think about the communities and people affected.

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

May I say what a pleasure it is to serve under your chairmanship, Mr Davies? I know this is an important subject to you, so if I hear any stifled gurgling or funny sounds, I will put them down to your general condition, rather than to you expressing an opinion on the matter at hand.

I thank the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Stuart C. McDonald) for securing this very important debate. We are talking about very important matters—people’s jobs and local communities. Of course, the overarching matter we are talking about is the efficient collection of tax. We all know why that is extremely important.

Before I get into the specifics of the plans we have been discussing, perhaps I could make some general points that will be useful. HMRC’s work is fundamental to that of the Government. It provides the funds for the public services on which we all rely. Every pound we raise through taxation is another pound we have to support our nurses in the NHS, keep our police force functioning effectively and support our armed forces. In other words, HMRC is not engaged in some kind of theoretical exercise. One of the most important functions Government have is to bring in the money to support public services. Taxpayers expect and demand that the money be spent responsibly, with good reason.

I think all Members here would agree that it is vital that HMRC can deliver value for money and maximise the tax it collects, relative to the tax due. It follows from that that we must have a tax authority that is fit for the modern age. I make no apologies for using that expression.

[Peter Dowd]

I do not think anybody disagrees with the Minister on the collection of tax, but that is all the more reason for the Government to get their facts right about the places where tax will effectively be collected from, and to not revise the costs time after time. This has now cost an additional £600 million. Is it not incumbent on the Government to get those figures right before they come to Parliament and wave these proposals through?

[Mel Stride]

A number of Members in the debate raised the costs mentioned in the National Audit Office report, the Public Accounts Committee report and so on. Certainly, the business plan has gone through various iterations, but where we are is quite clear: the total investment over the next 10 years will be £552 million. The NAO has disputed some of our figures, and the Government’s view is that the NAO has looked at those figures on a different basis—for example, over a 10-year period, whereas we were initially looking at figures over five years.

We have some cost avoidance of £75 million per annum from 2021 through getting out of the private finance initiative arrangement—which, incidentally, we entered into in 2001, which was of course under a Labour Government. On top of that, we will have £300 million-worth of savings over the next 10 years, and we will have annual cost savings of £74 million in 2025-26 compared with 2015-16, rising to around £90 million from 2026-27. The savings are ongoing and will be long standing.[Official Report, 27 November 2017, Vol. 632, c. 2MC.]

--- Later in debate ---

[Mel Stride]

That prompts the question of what the overarching purpose of HMRC is: to provide customer service efficiently to those who need access to it, and, at the end of the day, to bring in tax. We have a tremendous record, and it has a tremendous record, of doing exactly that. The main thrust of these decisions has ultimately to be about having a 21st-century organisation for a changing environment, and that means the kind of model that this process is driving towards.

[Peter Dowd]

The Minister has referred to the eight criteria on numerous occasions. I am trying to get my head around this question: when the criteria for the move are not fulfilled, what are the criteria used to override those criteria?

[Mel Stride]

The criteria are there to allow a balanced judgment across the eight criteria as to where the best place is for the regional hubs. That is exactly the approach that HMRC has taken. I fully appreciate that there are Members here who are very unhappy with the fact that there may be some closures in their constituency, but that does not necessarily mean that the criteria are being inappropriately exercised.

--- Later in debate ---

[Mel Stride]

As the hon. Gentleman knows, the criteria applied in taking the decision were not simply about cost. As to his assertion that the decision that has been taken is an exceptionally high-cost option, I cannot comment, because I do not have access to that level of detail at this precise moment; but the decisions are taken in the round, using eight different criteria, of which cost is but one. As I have repeatedly stated, the overarching objective must be the effective and efficient collection of tax, which provides all the funding for our public services. That is the basis on which the decisions are taken.

HMRC is now open to take calls from customers and engage in webchats seven days a week, so people can contact the Department at times to suit them. This year, more than 987,000 tax credit customers renewed online using the digital service. It would simply not be possible to continue to drive improvements without transforming the offices from which HMRC staff work.

The changes are an integral part of HMRC’s transformation into a smaller, more highly-skilled organisation—one that has modern digital services and a data-driven compliance operation, which will deliver more for the taxpayer, at lower cost.

[Peter Dowd]

Will the Minister give way?

[Mel Stride]

This must be about my 30th intervention; I am delighted to give way to the shadow Minister.

[Peter Dowd]

The Minister is being incredibly generous with his time. The question of the criteria goes to the heart of the matter, Mr Stringer; incidentally, I welcome you to the Chair, and am delighted to see you. The Minister persists with the issue of the criteria, one of which is the ability to get to a particular site via transport mechanisms and infrastructure. The problem, however, is that in many situations there has not even been an assessment of how the particular criterion applies to particular sites. I understand what the Minister says—the criteria exist. They may do, but does he agree that if they are not applied, that shoots a hole through the whole process?

[Graham Stringer (in the Chair)]

Order. We have just over an hour left, but I remind hon. Members that interventions should be short and to the point.

--- Later in debate ---

[Graham Stringer (in the Chair)]

That is a matter of fact, not a point of order relating to the debate.

[Peter Dowd]

rose—

[Mel Stride]

I give way to the hon. Gentleman.

[Peter Dowd]

I shall write to the Minister about this; but the bottom line is that when I asked senior officers about the criterion on transport access, I asked them if they had spoken to the transport authorities for the areas affected, and they told me they had not. It is an important point. If an assessment relating to the transport authorities was not done—if the officers did a desktop assessment—that is not proper consideration of the criterion.

[Mel Stride]

We can go round and round this for some time, but HMRC has a very clear set of criteria. It has looked extremely carefully. As I explained earlier, when it comes to travel distances to work and journey times it has mapped every single employee within its employ, to make sure that that aspect of that particular decision is taken as rigorously and robustly as possible. I am afraid I do not recognise the hon. Gentleman’s suggestion that this is somehow just a case of putting a finger in the air and a pin in a map. It has been well thought through.

To conclude, raising taxes is vital to our public services.

Finance Bill

Peter Dowd Excerpts

Tuesday 31st October 2017 Commons Chamber

[Peter Dowd (Bootle) (Lab)]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to consider Government amendment 17.

[Peter Dowd]

Proceedings on this Bill started in March, but we are now drawing to a close. The Bill’s progress was interrupted by the general election. Not much happened to it in the post-election period, but it was brought back in September, and now we are moving, to use the Minister’s phrase, towards the denouement of the debate.

To solve a problem, it is first important to recognise that there is a problem. I think that that sums up the debate surrounding the Government’s deemed domicile measures—the Government cannot see that there is a problem. Non-dom status is a hangover from the days of the British Empire. Non-dom tax status was introduced in 1799 to allow British colonialists with foreign property to shelter it from wartime taxes. These days, non-doms are individuals who live in the UK but claim to have a permanent home in another country. There is no statutory definition of a non-dom; the status depends on circumstantial evidence.

Her Majesty’s Revenue and Customs says that 121,000 individuals claimed non-domiciled taxpayer status via their self-assessment returns in 2014-15. Non-domiciled UK-resident taxpayers accounted for about 85,000 of those individuals, and the remaining 35,000 or so were non-UK residents. Famous examples of non-doms include the directors of Lloyds, HSBC and RBS, the billionaire Chelsea owner Roman Abramovich, the steel magnate Lakshmi Mittal, the media baron Viscount Rothermere, and numerous footballers.

Non-doms are allowed to avoid tax on overseas investment income if that does not exceed £2,000 a year. All non-doms are required to pay income tax on their UK earnings, but they can avoid income tax and capital gains tax on assets held elsewhere as long as the amounts are not remitted to the UK. The Treasury’s proposals to reform non-dom status would mean that an individual who had been resident in the UK for 15 of the last 20 years would be considered UK-domiciled for the purposes of income tax, capital gains tax and inheritance tax.

[Charlie Elphicke (Dover) (Con)]

I am listening to the hon. Gentleman’s case with interest. I am curious why, in their first 12 years in power, the last Labour Government did nothing whatsoever about non-domiciled individuals, and then reacted reluctantly only when they were humiliated and forced to take action by the then Conservative Opposition. Why is he not praising the Conservative Government for taking further action on this matter?

[Peter Dowd]

If it takes a Labour Government to sort out a problem after more than 200 years, we will sort out the problem.

On paper, this idea seems to be reasonable and sensible —in fact, even progressive—until, metaphorically speaking, someone starts to scratch away at the very thin veneer. In reality, the Government have purposefully and deliberately exempted offshore trusts, thereby undermining their own reforms, even though offshore trusts have been identified by the OECD, the European Parliament and the International Monetary Fund as among the main vehicles for tax avoidance across the globe.

--- Later in debate ---

[John Redwood (Wokingham) (Con)]

Does not the hon. Gentleman think that his well-intentioned proposal might actually backfire, as it would mean that fewer rich people would come here and pay us any tax at all?

[Peter Dowd]

The problem is that that has been a persistent argument for years, but there does not actually appear to be any evidence to back up such an assertion.

I understand that HMRC is responding to EU directives on money laundering and has started the process of registering new trusts and that those already operating must provide additional information by 31 January 2018. However, HMRC has also confirmed that it will not penalise anyone as long as they register before 5 December 2017. The rules state that all trusts with UK tax liabilities must be registered, but the process is conveniently silent about trusts registered in Crown dependencies and overseas territories. The information provided to HMRC will not be made publicly available.

The Minister and Government Members have made much of the claim that the Conservative party has been clamping down on tax avoidance. In fact, that was considered such a priority in the general election that the Prime Minister—at her most imperious, at that stage—gave the subject a grand total of eight lines in the Conservative party manifesto. However, after seven years in power, the Government’s record is still there to see. The measures in the Bill are another example of how the Government wish to be seen to be doing something, but in fact their proposals are artificial and will amount to little while the exemption for offshore trusts remains intact.

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

On bearing down on tax avoidance, evasion and non-compliance, does the hon. Gentleman recognise that we have brought in £160 billion since 2010 by clamping down on avoidance? It was announced just last week that the tax gap—the difference between what we should be bringing in and what we are bringing in—is now at just 6%, which is much lower than it was in any year under the previous Labour Government.

[Peter Dowd]

I am pleased that the Minister raises that point because we will no doubt have another debate about it in the future. I have an interesting assertion that I shall make when we debate the tax gap, but that is for another day. I am happy to debate that subject with the Minister in due course.

[Vicky Ford (Chelmsford) (Con)]

Does not the hon. Gentleman agree that a tax gap that is one of the lowest in the world is something that we should celebrate while we are debating a Bill about taxation? We should be thanking the Government for making sure that the taxes we approve are collected.

[Peter Dowd]

This does not actually include the multinationals, but I was trying to make the point that I am happy to return to that point in another debate, if the Government so wish.

[Mel Stride]

The hon. Gentleman is being extremely generous in giving way. On this very important question, does he not recognise that the tax gap is currently 6%? In 2005, under the previous Labour Government, it was about 8%. If the tax gap was 8% today, we would be bringing in £11.8 billion less in tax, which is the equivalent of the funding for every single police officer in England and Wales. The tax gap really does matter, so I think that the hon. Gentleman should address the questions that are being put to him.

[Peter Dowd]

The tax gap fell in every year between 2005 and 2010. The Minister brings my attention to his record, but I am bringing his attention to Labour’s record. As I have said, if we want to have a debate about the tax gap, we can do that. I am more than happy to do so, as are my colleagues, but as I have said many times, this is also about trying to look forward. We can all talk about our record—how good or bad it might have been—but let us move on and try to deal with the issues we are facing, not those we used to face.

[Ms Nusrat Ghani (Wealden) (Con)]

I accept that you do not want to talk about the tax gap and want to move forward, but if you want to move forward, will you at the very least welcome the fact that we have collected more than £1 billion—

[Ms Ghani]

I am sorry, Mr Speaker.

The hon. Gentleman might not want to talk about the tax gap, but will he at the very least acknowledge that an extra £1 billion has been collected under this Government compared with under Labour? Surely he wants to take this opportunity to welcome that.

[Peter Dowd]

As much as I would like to debate the tax gap with the hon. Lady, I think that shows an ignorance of the issues involved in the nature of the tax gap. As far as I am concerned, I am quite happy—more than happy—to debate this issue in due course, but I am simply making the point that we must move on.

[Lucy Frazer (South East Cambridgeshire) (Con)]

Will the hon. Gentleman give way?

[Peter Dowd]

I want to make a little progress, but I will come back to the hon. and learned Lady in a few moments.

In the past month alone, the Government have faced a barrage of criticism from the European Union for their poor record on tackling tax avoidance. The European Parliament’s report on money laundering, tax avoidance and tax evasion has accused the Government of directly obstructing the fight against tax avoidance, while the European Commission has opened an investigation into the Government’s changes to controlled foreign company rules, which made it easier for multinational companies to shift their taxable income offshore and reduced last year’s tax take by £805 million. That goes to the heart of the point I am making about the tax gap and some of its intricacies.

[Lucy Frazer]

The hon. Gentleman is being very generous with his time. He has made it clear that he wants to talk about the issue before us rather than others. Labour Members say in new clause 1 that they want a review after 15 months. Despite speaking for more than 10 minutes, he has not addressed that. Has Labour assessed how much a review would cost and whether it would divert resources from the Treasury?

[Peter Dowd]

I thank the hon. and learned Lady for that intervention. Government Members have taken up about seven minutes of the time I have been on my feet—[Interruption.] Six and a half minutes, the Minister says.

I am quite happy to debate these issues, but that is the point of a review. Why not have a review? It is a perfectly reasonable and legitimate proposal, given the nature of what we are considering. If there is nothing to hide, and if the Government are quite happy to be open and transparent and to tell everybody how wonderfully they are doing, let us have a review. No doubt the hon. and learned Lady will support the new clause in due course.

[Lucy Frazer]

Forgive me for intervening again, but I do not think the hon. Gentleman heard my question: how much would the review cost?

[Peter Dowd]

If we had a review and identified areas of non-compliance, I suspect we would bring in far more money than that review would cost. That is why we have reviews. Again, I am sure that the hon. and learned Lady will support the new clause.

The Government’s opposition to any action to crack down on offshore trusts is not new. In 2013, while G8 leaders attempted to push forward new measures to deal with tax evasion, the previous Prime Minister was busy undermining them by writing personal letters to the President of the European Council, Herman Van Rompuy, begging him to stop the inclusion of offshore trusts. By contrast, the last Labour Prime Minister, Gordon Brown, to his credit, spent his last year in office attempting to get world leaders to agree to strict measures on offshore tax havens. That is all the more reason for a review, so let us have that review. I am speaking directly to our proposal. As I have said, if there is nothing to be fearful of, let us have the review.

Our opposition to the exemption of offshore trusts from these measures is well noted. We have been calling for the exemption’s removal since March. I called for its removal in the debate on the Ways and Means resolutions for this Bill, on Second Reading and in the Public Bill Committee, as the Minister knows, and I now call for its removal once again. I am happy to give the Minister an opportunity to reconsider, because the British public are no fools. They are more educated than ever about what an offshore trust is and what it is used for.

[Mel Stride]

The hon. Gentleman is being exceptionally generous in letting us intervene so many times. To bottom out one point that came up in Committee, even though he may feel that our proposals are imperfect, does he accept that we have made more progress than any previous Government and that we are going further than before in raising fair taxes from non-doms?

[Peter Dowd]

I recognise any progress that anybody makes. If the Government have brought about progress, that is fine—I think it is wonderful—but I think there should be more progress. Under the stewardship of the Minister, I am convinced that we will have even more progress on this matter.

While the Minister might be able to use arcane rules of the House to prevent the Opposition from removing the offshore trusts exemption and introducing a public register, he cannot hide from the fact that his Government have a pretty poor record in this area. The heart of our disagreement with the Government is simple: it is about whether all UK citizens are to be treated equally in the eyes of the law and for the purposes of taxation. Throughout the passage of the Bill, it has been clear that the Government are actively content to ensure that we have a tax system that favours a wealthy few at the expense of the many.

The Government could act to close this tax avoidance measure. They could act to send a message to those who want to dodge taxes that the UK will not tolerate it. They could send a message to those who do not avoid their taxes that the Government are on their side. They could even send a message of support to hard-pressed public services by taking up the suggestion of the right hon. Member for West Dorset (Sir Oliver Letwin) and hypothecating any taxes raised by clamping down on the dodgers.

[Ms Ghani]

The hon. Gentleman has been very generous in giving way. I am a little concerned about the messages he wants to send out, but one message that we most definitely should send out is that the Government proposals will bring in an additional £1.6 billion over five years. That is money that will support all our public services for everyone.

[Peter Dowd]

That is a starter and I am sure that much more could be brought in. Again, I am sure that in an effort to get that figure up, the hon. Lady will support the new clause. I am really pleased that she agrees with us on that matter.

The only message this Government want to send is one of supine support for tax dodgers. The dodgers may want to hear that message, but public sector workers who have not had a pay rise for years do not want to hear it, the people waiting months for an operation do not want to hear it, and the police and firefighters do not want to hear it. I assure Government Members that at the next general election, the public certainly will hear that message loud and clear, because Labour will be there to remind them of a Government in chaos and disarray that is beginning to have a putrefying decay about it.

[John Redwood]

I think that we all agree in this House that we need to collect substantial revenues to have decent public services and that we all condemn people who break tax law, evade taxes and commit crimes against the tax code. However, tax avoidance—the legal avoidance of taxation—is a more difficult issue.

Many Labour MPs trotted through the Lobbies under a Labour Government to make sure that individual savings accounts had tax advantages, and to support tax breaks for Members of Parliament who choose to save for their retirement through the pension scheme. That is a kind of tax avoidance. Is the hon. Gentleman saying that the Labour party no longer agrees with that kind of avoidance, which was recommended by previous Labour Governments in the interests of spreading saving? Is he of the view that there are certain kinds of avoidance that are perfectly reasonable, such as those undertaken by Labour MPs and others, and other types of tax avoidance that are also perfectly legal but of which he does not approve?

[Peter Dowd]

Does the right hon. Gentleman agree that there is a difference between an ISA and institutional, systematic avoidance and abuse of the tax system?

[John Redwood]

There is a huge difference between breaking the law and living within the law. However, where Governments of both persuasions and the coalition have put provisions into the tax code that encourage people to save or invest in a certain way to pay less tax, that surely is the will of Parliament and the will of those parties, and we cannot object if people and institutions take advantage of it. The right thing to do—as I think the Labour party is now trying to do in some ways—in respect of rich people who come to our country to undertake part of their affairs but not all of their affairs, is to ensure that we have settled on a law that we think is fair and then to enforce it. Obviously we should take a tough line were any of them to break our law, but we cannot object if they take advantage of measures that have been put into the tax code to encourage certain kinds of investing or saving behaviour, in exactly the same way that most MPs take advantage of the avoidance provisions to save through a pension scheme or an ISA.

The subject of this debate is whether the assets of very rich people—often productive assets that they have saved for, earned and accumulated before they came to the UK—are a suitable object of taxation if they choose to do some things in the UK in respect of which they are clearly subject to our law codes and have to pay our taxes. In the past, Labour Governments as well as Conservative Governments have taken the pragmatic view that there is an advantage in very rich entrepreneurial successful people coming to our country setting up businesses, making investments here and committing part of their capital to our country; that we will tax that fairly in exactly the same way that you or I would be taxed, Mr Speaker, if we were making such investments on a much smaller scale; and that that is fair to us as taxpayers and investors, but that it is not our business to try to tax their assets and income accumulated or earned elsewhere that they have established by other means before, which are presumably being taxed in those other countries and would normally be governed as well by some kind of double taxation arrangement or agreement.

I would therefore just say to Labour Members who think there is a huge crock of gold here, which for some unknown reason successive Labour, coalition and Conservative Governments have been reluctant to pluck, that maybe they did not do it in the past because there is not, and that maybe we are quite close to that point. If we go further and further encroach on the legitimate income and assets of foreigners coming here, which are asset and income not actually in this country, we might get to the point where more of them say, “I’d rather go somewhere else. Plenty of other countries around the world would actually welcome the money, investment and income I wish to spend, which is going to be taxable in that country. If they are prepared to not tax my other income and assets elsewhere, then they will have the benefit of me rather than not.”

The art of taxation is finding the right balance, so the host country gets enough out of it and where there is obviously a fair imposition of tax on anything they do in that country alongside fellow residents of that country, while not deterring so many that we are no longer a great centre for people with money, investment and talent who would otherwise come here.

--- Later in debate ---

[Bim Afolami]

I know that is a controversial view that many have. In particular, I listened very carefully to the speech by the hon. Member for Bootle (Peter Dowd) from the Opposition Front Bench.

[Peter Dowd]

Quite right.

[Bim Afolami]

I am. The hon. Gentleman made some interesting remarks, but I am going to pick him up on one phrase, which we should think about and bear in mind as we look not only at the implications of new clause 1 but at the Bill as a whole. He said that the British public are no fools. As I listened to him expound on that, I thought to myself, “The British public in the public gallery and the many millions undoubtedly watching the debate at this moment are no fools and will realise that this Conservative Government, since 2010, have brought in more than £160 billion-worth of anti-avoidance and tax evasion measures.” The British public are no fools. They will realise that the Conservative Government, since 2010. have reduced the tax gap—the gap between what should be collected in tax and what actually is collected—to 6.5%, the lowest that has been recorded. The British public are no fools and will see that this Government, a Conservative Government, will abolish permanent non-dom status for the first time. Those are the practical achievements that the Bill helps to build on.

On the precise nature of new clause 1, I can do no better than agree with my dear and honourable Friend the Member for Chelmsford (Vicky Ford), who suggested entirely accurately that the timing of such a review may cause disruption. It may be a significant disincentive and difficult from a business perspective because of the Brexit negotiations and the situation at that time. It is also important for us, whatever party we represent, to recognise that this Government are making the case for a sustainable fiscal policy that makes sense in the modern world.

We have heard from many Members on both sides of the House about the international context in which we operate. We are in a smaller world; we all know the impact that technology and ease of travel are having on every aspect of life. Bearing that international context in mind, things are more competitive. We cannot rest on our laurels.

--- Later in debate ---

[Mel Stride]

I think I have answered that question. It is probably time to move on.

Even with these protections in place, non-doms who become deemed UK domiciled will be protected from tax, as I have said, only on income and gains that remain in the trust. Any moneys withdrawn or benefits provided will lead to a tax charge on the individual. This is a fair system that has been carefully considered and consulted on since it was announced more than two years ago. It is simply unnecessary to introduce legislation to place additional bureaucracy and additional reporting burdens on HMRC, which already scrutinises non-doms’ compliance with the UK tax regime.

Government amendment 17 will remove and correct a minor inaccuracy in schedule 8 to ensure that the policy is delivered as intended. The change applies to part 4 of the schedule, on the cleansing of mixed funds. For the purpose of these rules, a qualifying individual is one who was not born in the United Kingdom and whose domicile of origin is not in the United Kingdom. The amendment simply corrects the Bill by replacing “or” with “and” when defining a qualifying individual. I therefore urge the House to accept the amendment.

These reforms have been carefully drawn up to ensure that we get the right balance between protecting the public finances, remaining internationally competitive and showing how much we value the contribution of non-doms in the UK. I therefore urge the House to reject new clause 1.

[Peter Dowd]

I thank the hon. Member for Brentwood and Ongar (Alex Burghart) for referring to Plutarch, a Greek citizen who became a Roman citizen—but not a non-dom in that country. Our new clause would require a review to be undertaken on the effects of

“the provisions for the protection of overseas trusts in relation to deemed domicile.”

Like Queen Gertrude in “Hamlet”, Conservative Members protest too much. Why can we not have a review? That is all the new clause asks for: a review. What is wrong with a review?

Question put, That the clause be read a Second time.

--- Later in debate ---

[Peter Dowd (Bootle) (Lab)]

The Finance Bill that is before the House is nothing short of a wasted opportunity. It is indicative of a Government who wish to serve the interests of a wealthy few at the expense of the many. That is a fact. Rather than introducing measures to bolster people in their daily lives, such as sensible proposals on investment, fair taxation, raising the UK’s woeful productivity and improving the terrible productivity in many of the regions, the Finance Bill will, if it is enacted, water down workers’ rights, bring added financial burdens to small and medium-sized businesses and exempt offshore trusts from any reform of non-dom status. It is telling that Conservative Members spent more time on the latter than they did on redundancy payments or digital taxation, which affects many of our small businesses.

This Government are enveloped in atrophy. They have done nothing to tackle falling wages, deal with rising levels of personal debt, or tackle poor productivity. They have overseen an economy in which women are paid, on average, 14% less than men, and in which there are large race and disability income gaps. They refuse to invest in the nation’s infrastructure or in the British people. Under Tory rule, Britain has become one of the most unequal countries in Europe. UK Government investment is lower than that of every other major economy. That is a fact.

Inflation is outstripping wage rises, while housing and energy bills are rising once more and our productivity is lower than in the rest of the G7. What a record after seven years. The public sector pay cap has driven down wages, and cuts to in-work benefits are leading to more people than ever using food banks, with 1 million food parcels having been given out. Meanwhile, the Chancellor boasts of high levels of employment, but is in absolute denial about the rising numbers of people in insecure, low-paid work that does not meet their needs and those of their families.

The Government have managed to stitch up Public Bill Committees, despite not having a majority, and they are using arcane rules to deny this House the ability to amend and scrutinise legislation. The younger generation feel betrayed after seven years of Tory austerity. The Government have trebled tuition fees to over £9,000 and abolished maintenance grants, ensuring that the average working-class student leaves university heavily in debt and with little prospect of relieving it. The bottom line is that the Tory Government are in complete and utter decay. The housing market is entrenching and extending inequality between regions, classes and generations. Quite frankly, we cannot support a Bill that does not put any of that right, so we will not support it.

Oral Answers to Questions

Peter Dowd Excerpts

Tuesday 24th October 2017 Commons Chamber

[Andrew Jones]

The hon. Gentleman makes an important point. All our constituencies have some areas that are not yet fully able to access the important benefits of broadband. I will discuss his points with my colleagues in the Department for Communities and Local Government, and report back to him.

[Peter Dowd (Bootle) (Lab)]

I am pleased that the Communities Secretary has been inspired by Labour’s fiscal credibility rule in relation to investment in infrastructure—including digital infrastructure and, recently, house building. But this does beg crucial questions. Does the Minister support his colleague’s bid to “borrow more to invest” or is it more a bid to steal the Chancellor’s job?

[Andrew Jones]

I have already outlined the Government’s progress on broadband. The hon. Gentleman mentions, I think, some kind of speculative comment regarding the forthcoming Budget. The Chancellor has already answered that question.

[Peter Dowd]

The digital infrastructure plans are wholly inadequate, as my hon. Friend the Member for Bishop Auckland (Helen Goodman) indicated. Is the Minister aware that productivity figures are at pre-crisis levels, and is he really aware that regional industries are up to seven times more productive than others? What is the digital investment strategy doing to close that shocking gap?

[Andrew Jones]

The hon. Gentleman seems to have forgotten the announcement of the national productivity investment fund—a £23 billion pot of money for investment in infrastructure, including digital infrastructure, across the country. I have already mentioned the £400 million digital infrastructure investment fund and the £740 million for full-fibre broadband and 5G. We are already approaching the figure of 95% of UK premises having access to superfast broadband by the end of the year, and that puts us in a strong place for the future.

Finance Bill (Fifth sitting)

Peter Dowd Excerpts

Committee Debate: 5th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[The Chair]

With this it will be convenient to discuss the following:

Clauses 49 to 55 stand part.

That schedule 13 be the Thirteenth schedule to the Bill.

Clauses 56 to 59 stand part.

New clause 5—Annual report on powers in relation to third country goods fulfilment businesses—

‘(1) The Commissioners must prepare a report on the operation of the provisions of Part 3 of this Act in relation to each tax year after their commencement within six months after the completion of that tax year.

(2) The Chancellor of the Exchequer shall lay a report under subsection (1) before the House of Commons.

(3) Each report under subsection (1) shall cover in particular—

(a) prosecutions for an offence under section 53,

(b) penalties imposed under Schedule 13,

(c) the effects on the operation of Part 3 of the United Kingdom’s withdrawal from the European Union or (as the case may be) preparations for that withdrawal,

(d) implications of the matters specified in sub-paragraph (c) for the activities and resource requirements of HMRC in connection with the provisions of this Part,

(e) implications of the matters specified in sub-paragraph (c) for the exercise of the powers to make regulations under Part 3, and

(f) HMRC’s assessment of the extent to which the operation of, or changes to the operation of, comparable provisions in other countries affect businesses in the United Kingdom.’

This new clause requires HMRC to produce an annual report on the operation of Part 3 relating to third party goods fulfilment businesses and specifies some of the information to be included in that annual report.

[Peter Dowd (Bootle) (Lab)]

It is, as ever, a pleasure to serve under your stewardship, Mr Howarth.

I want to talk about fulfilment businesses in part 3, clauses 48 to 59, and the annual report on powers in relation to third-party goods fulfilment businesses, or new clause 5. I will speak a little about the fulfilment business measures before addressing the specifics of our new clause.

We welcome the action and powers for HMRC to deal with the problems created by the difficulty in properly taxing and charging VAT on the profusion of small businesses trading online through platforms such as Amazon. They are not just problems for the Exchequer. Many small businesses find themselves outcompeted and outpriced by overseas traders, which not only have lower operating costs but artificially lower their prices by failing to pay VAT on the goods they sell to UK consumers through fulfilment houses based here. It is essential that we act to protect both the taxpayer in general and the thousands of small British businesses that are, as we have discussed, the lifeblood of our economy.

It is not just lower prices and running costs that present problems for our small businesses. I have dealt with casework from small businesses that found themselves severely disadvantaged when filling out their VAT returns when they were unable to obtain VAT receipts from either their overseas supplier or the fulfilment business in question. In one case, the reason for the problem was simple: there were no VAT receipts because the seller had not charged VAT, unbeknownst to that particular British business. The online fulfilment house involved simply washed its hands of the matter and blamed a third-party seller that it supposedly has no control or influence over. It is right that we bring our laws up to date and ask the huge online fulfilment businesses to take their responsibilities to our society seriously, assist the Exchequer in levying the proper taxes and stop hiding behind the excuse of separate businesses.

Many of the overseas sellers we are talking about could not and would not exist were it not for online retailing sites and the fulfilment services they provide. The business models are entirely based on the mode of operation laid down by the multinational online marketplace, which makes their businesses possible. Action has been too slow to deal with these problems, which have festered for far too long, but better late than never. We do not seek to hinder action on this at all and we welcome the broad sweep of these measures and other related efforts to address the problems that have grown up from online marketplaces and fulfilment houses.

New clause 5 seeks another review—this time on an annual basis—examining the working of these new powers and responsibilities so that Parliament can keep a check and a close eye on the problems around fulfilment businesses. It is an expanding market and business sector, and we have to try to keep up with it. We hope that the new clause will prevent any future problems from festering too long and ensure that Her Majesty’s Treasury keeps a close eye on changing business practices in this field, which might threaten the Exchequer or, importantly, undermine small businesses.

--- Later in debate ---

[Stella Creasy]

Yes, that is the concern. There is a lot of evidence that the exemption, which lets staff run their own tips scheme—it is like staff in a small café sharing the money in the jar, but across a large restaurant chain—is being used by major employers to avoid paying national insurance and, indeed, pension obligations further down the line, especially given auto-enrolment.

Another issue to which the amendments relate is the variations in charges that employers apply to employees for administering such schemes. Some restaurant chains will pass on 100% of the tips paid to a member of staff, while others will charge up to 20% in administration fees for doing it through an electronic system. Clearly, that is not fair and I warrant that customers have never had a restaurant explain to them how much they will charge the employee to pass on the tip that customers want to give them. The amendments are designed to help us understand what is going on.

I hope that the Minister will have strong words with his colleagues in the Department for Business, Energy and Industrial Strategy, because if, as we fear, a tax take is being avoided and the lowest-paid people in our country are being exploited as a result, surely we all agree that we need to do something about that. That is why I tabled the amendments. Indeed, 18 months ago, many of us took part in a Government consultation on precisely those issues—that is, how to ensure a fair system for administering tips, service charges and gratuities. I have to tell the Minister that, 18 months on, the Government have not even published the results of that consultation, let alone looked at what could be done to make sure that neither the Exchequer nor the employer is being short-changed.

The Bill offers the Minister an opportunity to make progress on an issue that his ministerial colleagues have kicked into the long grass. If we are digitising records, we can ask employers to clarify precisely what is being collected in tips, service charges and gratuities, and what is income. The amendments address exactly that point: they simply propose that an employer should record the different forms of income—with electronic systems that should be a relatively easy thing to do—and an employee would then be able to access that information.

That is important because if someone is self-employed and working in restaurants—my colleagues from north of the border have mentioned people administering their own tax records—they ought to know what their liabilities are. At present, however, someone who is part of a tronc system does not necessarily know what they are being paid in tips, gratuities and service charges. These simple amendments ask the employer to set out precisely the different streams of income, which their computer systems will easily collate for them, so that our tax system acts more efficiently.

If the Minister is not prepared to accept the amendments and acknowledge the need to make progress—we are, after all, talking about the poorest-paid employees in our country—will he commit to asking his ministerial colleagues in BEIS why it is that, 18 months on, when so many people have provided information about how we could solve the problems, nothing has happened? Indeed, I have regularly asked when the consultation results might at least be published, but the answer has always been, “Sometime in the future.” I am sure that the Minister would agree that the people who serve him a cup of coffee in a restaurant deserve better service from us in making sure that they are not exploited.

Amendment 10 relates to an issue that has come up very little in this Committee—we should correct that—namely the Japanese knotweed that is Brexit, which has taken up so much of our time. I appreciate that the Minister will say that the amendment is not needed because he has published a White Paper on how customs and VAT should fit together. However, having read that White Paper, I must draw attention to an omission from it.

I am sure that Government Members will judge me because I have become slightly obsessed with things such as the 13th directive on VAT, and I am sure they would all like to do a pub quiz on it too. Normal VAT rules allow that businesses registered in the UK can recover UK VAT. People understand that: for most businesses, VAT compliance is one of their biggest pieces of work. The issue with the 13th directive, which the amendment addresses, is the question of what happens when businesses trade in Europe. After all, Europe is still the primary market for the vast majority of businesses: 63% of members of the Federation of Small Businesses have said that Europe is their priority market. That means that if a salesman goes to Sweden and stays in a hotel, the hotel might charge VAT and there is no way that that business would be able to deduct Swedish VAT on its UK VAT return. At the moment, however, under the single market procedures, there is a process by which foreign VAT can be recovered directly from the country in which it was incurred.

For those Members who are VAT geeks, that provision is in articles 170 and 171 of Council directive 2006/112/EC, the prime VAT directive. I will, of course, pass that detail on to Hansard. The detailed rules are in Council directive 2008/9/EC. That is implemented in our own domestic legislation, in section 39 of the Value Added Tax Act 1994 and regulation 20 of the Value Added Tax Regulations 1995. In practice, that means that each European state is obligated to make a VAT refund. Obviously, there are rules on that, but it works pretty straightforwardly through an online electronic system, which is why it is relevant to the charge under discussion. I can see the Whip wondering where I am going with this, but there is a direct connection.

A similar scheme applies across the EU to businesses that are not established in the EU. That is the 13th VAT directive, which is implemented by section 39(2)(b) of the 1994 Act and is a more complicated system. The amendment is simple. When we leave the EU, we will no longer be able to rely on the simplicity of the intra-country VAT collection scheme that has helped businesses in Britain to trade and provide services, particularly in Europe. We will, therefore, need to move to the 13th directive, or we may move to something else. The customs White Paper, for instance, mentions an “innovative” scheme, but I am pretty sure that other countries, for which the intra-country scheme works well, would not be particularly willing to undertake such innovation. I think they would be happy for us to move to the 13th directive.

I am concerned that there is a lot of evidence that the 13th directive and its administration is not very effective for countries outside the EU. In particular, the 13th directive states that member states must refund VAT to foreign traders. It also states:

“Member states may make the refunds…conditional upon the granting by third states of comparable advantages regarding turnover and taxes.”

One could argue that the Bill’s introduction of an online electronic system provides a comparable advantage, but my amendment asks the simple question being asked by many businesses, including local businesses in my constituency, which are starting to panic about how they will manage their VAT returns in future. How will the proposed electronic scheme fit in with regard to both the current regulations relating to intra-EU VAT refunds and the 13th directive?

Having looked at the Minister’s document, I am concerned that, although it talks a lot about what the UK will do, it does not talk a lot about the 13th directive and what it will mean for British businesses. Page 19 refers to contingency in case there is no deal—of course, we all know that that is a sensitive question for the Cabinet—but what British businesses need to know now is, if they are going to continue to trade in Europe, how they can do that in a cost-effective and red-tape-free way?

One of the more bizarre elements of Brexit is that we seem to be arguing about red tape as though the other side wants more of it, and those of us who wanted to stay in the European Union are bad for wanting less of it. This issue is a great example of that challenge, where being part of the European Union had simplified a process for British businesses. A quarter of FSB members have said that the introduction of any tariff or complication with trading with Europe would put them off trading altogether. We need this Bill to match what is going to happen in future, so that businesses using an online system will not have to change it very quickly as a result of the rules of the 13th directive implemented by other countries making it harder for them to use.

If the Minister will not accept my very simple amendment asking him to set out just how this Bill will impact on the 13th directive, will he commit to discussing with British businesses what the directive might mean for them in terms of VAT compliance and recouping their costs, and what the consequences for them will be in terms of administering the scheme? All small businesses in our constituencies that are looking at that future trading relationship will want to know how much additional paperwork they are going to get, and they deserve an answer.

[Peter Dowd]

I will to speak to clauses 60 and 61, schedule 14 and clause 62 together, as they represent a package of measures that would introduce powers and regulations surrounding digital reporting and record keeping for both VAT and income tax.

The Opposition’s concerns about the Government’s plans for making tax digital are well-versed. We raised them on Second Reading of the March Finance Bill, before they were dropped, and raised them again in the debate on the Ways and Means resolution for this Bill, as well as on its Second Reading. We fully support digitalised tax reporting, which we can all agree has the potential to drastically reduce the amount of time individuals and business owners will have to spend filling out long and complicated tax returns. We could also free up some of HMRC’s time, so that it is better spent clamping down on tax avoidance.

Finance Bill (Sixth sitting)

Peter Dowd Excerpts

Committee Debate: 6th sitting: House of Commons
Tuesday 24th October 2017 Public Bill Committees

[The Chair]

We come to the dénouement of the Finance Bill in Committee. I hope the Government Whip liked my use of English—very evocative. I call Peter Dowd to move amendment 43.

[Peter Dowd (Bootle) (Lab)]

I beg to move amendment 43, in clause 69, page 91, line 16, at end insert—

“(1A) In Schedule 23 to FA 2011, after paragraph 65, insert—

‘66 (1) No later than 30 September 2020, the Commissioner shall undertake a review of the exercise of the powers under this Schedule in relation to relevant data holders specified in paragraph 13D.

(2) The review shall consider in particular the number of appeals in relation to Data-holder Notices.

(3) The Chancellor of the Exchequer shall lay a report of a review under this paragraph before the House of Commons within one month of its completion.’”

This amendment would require HMRC to review the exercise of its data-gathering powers in relation to money service businesses.

[The Chair]

With this it will be convenient to discuss clause 69 stand part.

[Peter Dowd]

It is a pleasure to serve under your stewardship, Mr Walker, notwithstanding the fact that you have just stolen my joke. I asked my daughter, who studied French, what the French for “dénouement” and “ambience” was, but she did not find that very amusing.

Clause 69 extends bulk data-gathering powers, which were given to HMRC in the Finance Act 2011, to money service businesses such as Western Union. The clause continues the Government’s plans to rapidly expand HMRC’s powers to collect bulk data from third parties. In the Finance Acts of 2011, 2013 and 2016, the powers were extended to merchant acquirers, and in 2016 they were extended to, to collect bulk data from providers of electronic stored-value payment services, also known as digital wallet transactions.

The powers are part of the Government’s strategy to tackle the hidden economy and reduce the tax gap. All Members agree that people operating within the hidden economy evade tax and gain an unfair competitive advantage over law-abiding, tax-paying individuals and businesses. Under anti-money laundering legislation, money service businesses are already required to conduct due diligence checks on customers, in certain circumstances at least. HMRC supervises the majority of money service businesses for compliance with that legislation, so it can request limited information from them as part of its supervision for anti-money laundering purposes. It can also use any information obtained for tax compliance purposes but cannot currently request that information with the original intention of checking the tax position of their customers. This clause would change that by requiring money service businesses to become data holders, to collect data from their users, and to pass that data on to HMRC when requested.

It is important to be clear about how a money service business would hand over a customer’s data to HMRC. First, HMRC would issue a notice to the data holder requiring it to provide HMRC with information. The data holder can respond and, if it rejects the notice, can appeal to the tribunal. The tribunal then makes its ruling. Under these provisions, any money service business that does not comply will be issued with a financial penalty. Similarly, HMRC has the power under this measure to apply directly to a tribunal for approval at a hearing without notice being given to the data holder—effectively going over its head.

At no point in the process is the individual or the business who used the money service business and whose information is being passed to HMRC notified, as I understand it. It seems that the clause is not open to individual appeal at any point in the judicial process. In fact, it rests solely on the shoulders of the money service business to appeal when necessary.

The Opposition fully support measures to clamp down on the hidden economy—on individuals and on businesses using unsavoury and slippery practices to avoid paying their fair share of tax—but we are talking about third parties collecting massive amounts of data to hand over to HMRC. Money service businesses are effectively being asked to pick up the slack for HMRC, which, in our view, is increasingly underfunded and under-resourced. I have said it before, and I will say it again: Government statistics show that since 2010, there has been a 17% reduction in HMRC staffing levels. The Minister needs to address the resources available to HMRC to crack down on the hidden economy. It appears that once again the Government are ambitious in the powers they wish to give themselves—through the back door, some would say—but not so enthusiastic about funding and resourcing their commitments.

The Minister will be aware that although most money service businesses keep records of due diligence checks on customers, they do not have the time—or, I suspect, the inclination—for the pretty onerous task of sifting through the data to provide HMRC with individual records. I therefore find it unlikely that they would refuse or appeal a notice, which is the supposed judicial check on this broad, sweeping power. What does the Minister think is a reasonable notice period for a money service business to process and respond to HMRC? Does he accept that there may be hidden costs for money service businesses that have to comply with these measures?

In the Government’s consultation, there was much debate about the substance of the information that would be transferred between money service businesses and HMRC. According to the Information Commissioner’s Office,

“it is clear that some of the information that may be provided to HMRC for the purposes of extending data gathering powers to money service businesses will constitute personal data in instances where the customer is an individual, a sole trader or a partnership… It will therefore be an important data protection obligation for the MSBs under the scope of the proposed legislation to provide their customers with privacy notices… The minimisation of the collection of personal data of individual consumers is an important privacy protection principle in financial transactions.”

I suspect the Minister will need to consider those concerns as part of a wider discussion about the scope of HMRC’s powers.

The privacy group Liberty has raised concerns that the practice of bulk data surveillance is suspicionless surveillance and constitutes a disproportionate interference with article 8 of the European convention on human rights, as enshrined in the Human Rights Act 1998: the right to respect for private and family life. Liberty’s concern is that bulk data surveillance inverts the traditional relationship between suspicion and surveillance that exists in UK law, because suspicion comes first to justify subsequent surveillance.

In the light of these concerns, our amendment calls for a review of the exercise of schedule 23 powers, with a particular emphasis on how they relate to data protection. The Government have the right to ensure that HMRC has the necessary powers to tackle the hidden economy, but they are also obliged to ensure proper judicial oversight and the protection of people’s rights.

I am reaching my dénouement. The Minister’s case for new bulk data-gathering powers rests on the need for third parties to help HMRC to catch customers who participate in the hidden economy, which costs the Treasury £6.2 billion a year, as I recall. However, he has rejected our attempts to introduce a register for offshore trusts, our calls to crack down on tax avoidance by removing the exemption for offshore trusts in the Government’s deemed domicile proposals, and any meaningful attempt to bring transparency and accountability to non-doms who abuse the UK tax system. I will not call it a double standard; that is not a fair assessment.

However, the Government are demanding all this information from money service businesses customers to ensure that they are not participating in the hidden economy—yet at the same time rejecting any sort of information being held on offshore trusts, which are used to shelter hundreds of billions from the UK Exchequer. As I said last week, there needs to be careful consideration of the balance between individual liberty and the powers of the state. Over the past few years, we have seen multiple Finance Bills whereby Government give HMRC sweeping data-gathering powers, from merchant banking to digital wallets. I believe there is a rational concern that though these powers can tackle criminality, they can also impede an individual’s right to privacy. Any Government need to ensure that the balance is struck fairly and proportionately—and we are not convinced that this does so. Otherwise, there is a real fear that, increasingly, only those who can afford to secure their financial privacy, or to shelter and shield their wealth and financial transactions from the state, will have any privacy. The Government should give more thought to that.

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

It is a pleasure to serve again under your chairmanship, Mr Walker.

Clause 69 will extend HMRC’s data-gathering powers to money service businesses, allowing it to better identify and take action against businesses and individuals operating in the hidden economy. Money service businesses, or MSBs, are entities that provide money transmission, cheque cashing, or currency exchange services. They provide valuable financial services that are relied upon by many tax-compliant customers. However, these services are vulnerable to exploitation by those who want to disguise their income. Under the clause, data provided by MSBs to HMRC will allow HMRC to better identify non-compliant customers who are exploiting MSB services to hide their income and operate in the hidden economy.

The hidden economy is made up of those businesses that fail to register for tax, and individuals who fail to declare a source of income that should be taxed. By hiding their activity from HMRC, those operating in the hidden economy deprive the Government of vital funds to run public services. That places an unfair burden on the vast majority of people and businesses who pay their fair share of tax. Hidden economic activity also disadvantages compliant businesses. HMRC’s operational experience shows that non-compliant businesses and individuals can exploit the services offered by MSBs to disguise or dispose of undeclared income. They can do this, for example, by cashing a cheque for undeclared work. HMRC’s data-gathering powers allow it to collect data from certain third parties. Following public consultation and a Government response in 2016, the clause extends those powers to MSBs. It does that by introducing MSBs as a new category of data holder from whom HMRC may require data. MSBs are defined under the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.

“Credit institutions”, or, practically, banks and building societies, are excluded. The term MSB is generally taken to mean a business that provides money transmission, cheque cashing or currency exchange services without transacting through a bank account or providing general banking services. The clause is intended to cover those businesses. Supporting regulations will be made at Royal Assent, using an existing power to make regulations contained in schedule 23 of the Finance Act 2011. Those will provide detail of the types of data that can be requested. A draft of the regulations was published for consultation last year and regulations will subsequently be laid before the House, subject to the negative resolution procedure. The clause does not impose any additional record-keeping requirements on MSBs. HMRC cannot request data that an MSB does not hold. That is an important point and relates to the concern raised by the hon. Member for Bootle.

HMRC will work collaboratively with MSBs to minimise the administrative burden of complying with the new law. MSBs can appeal against a data notice issued by HMRC on the grounds that it is unduly onerous, or if they consider that the notice asks for data that is outside the scope of relevant regulations. HMRC can request data necessary to detect and quantify hidden economy tax risks. That includes information needed to identify an MSB’s customers and records that the MSB is required to keep under money laundering regulations. It also includes data about aggregate customer transactions. HMRC will not request data on individual transactions.

The hon. Member for Bootle raised an important point—what data can HMRC request under these provisions? The answer is aggregated data, which will not include data on the value of individual transactions made by customers.

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[Mel Stride]

To reply briefly to the hon. Gentleman’s point: the issue of MSB ownership and state involvement is probably slightly beyond the scope of this Bill, but his points are noted. If he continues to work very hard, who knows what might happen? Much to our horror and dread, the state may end up owning just about everything in this country, if he and his merry men and women have their way.

[Peter Dowd]

I have accepted previous assurances provided by the Minister and we have withdrawn amendments appropriately, in good faith and good spirit. The issue under discussion goes beyond the technicalities and reaches into the very nature of a state that does not interfere in people’s affairs where it has no business to do so. That is not to say that the state has no business interfering; it does so with tax collection, which helps maintain the balance of society. It would not be appropriate for me to withdraw the amendment, because I think that many members of the Committee would like to err on the side of caution and accept it, even though they will not do so. We will therefore leave it hanging and I have no doubt that we will return to the issue of privacy at a future date.

Question put, That the amendment be made.

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[Mel Stride]

Mr Walker, having rocketed through this Bill, efficiently and I think in near-record time, it is only right that I say “thank you” to all those who have made our rapid progress possible. I start with yourself, Mr Walker. I thank you for your patience, good humour and of course for teaching us the right pronunciation of “schedule”. I also thank your co-Chair, Mr Howarth, for his sagacity, which is unrivalled on the Panel of Chairs, with perhaps the exception of yourself, Mr Walker.

I thank all members of the Committee. I thank Opposition Members for their pursuit of their duty of scrutiny of the Bill, although ultimately they were, rather pleasingly, unsuccessful in all the Divisions that we have had. However, we will not hold that against them; they did their job very thoroughly and very effectively indeed. I want to particularly and personally thank the hon. Members for Bootle, for Oxford East and for Aberdeen North for the very good-natured and decent way in which they have dealt with me personally and all the Government Members of the Committee; and, yes, I want to thank the hon. Member for Walthamstow as well, from the bottom of my heart. I genuinely respect her eloquence and determination, and I have enjoyed the mental contortions that she has put me through during the Committee.

I thank the Government Members of the Committee. Their contributions were slightly limited, but when they came they were of a quality that was unrivalled and unparalleled in the history of Committees. I thank the Whips on both sides: my hon. Friend the Member for Beverley and Holderness and the hon. Member for Manchester, Withington. As a former Whip, I know that often they are in the background but what they do really matters and they have ensured that this Committee has run in a very efficient and effective manner.

I thank those who gave evidence to the Committee, the Clerks, Hansard and the Doorkeepers. Most especially, I thank my own officials at the Treasury and HMRC, who in the short time that I have been a Minister have impressed me immensely with their knowledge, guidance and overall their patience and kindness towards me, in many, many hours of trying to explain what has been an extremely technical Bill.

Finally, on a personal note, if I might be indulged, I thank my two young daughters, Ophelia and Evelyn, who, in the last couple of weeks, while their father grappled in his dreams with this highly technical Bill, managed to stay out of their mother and father’s bed and to give them some sleep.

I look forward to Report. Of course, as someone has already mentioned, we have the delights of a further Finance Bill after the Budget, which I know we can hardly wait for.

[Peter Dowd]

May I completely concur with the sentiments of the Minister? I thank all my colleagues and Government Members for their patience and forbearance. I will just leave on this note because I am quite stunned: I have visions of the Minister grappling in bed. [Laughter.] Best to leave it on that note.

[Mel Stride]

On that, we can all agree.

Finance Bill (Third sitting)

Peter Dowd Excerpts

Committee Debate: 3rd sitting: House of Commons
Thursday 19th October 2017 Public Bill Committees

[Stella Creasy (Walthamstow) (Lab/Co-op)]

It is a pleasure to serve under your chairmanship this morning, Mr Howarth. I am looking forward to this debate because it is something all of us across the House feel concerned about. I recognise that we are debating the Finance Bill. I reassure you that the amendments and the majority of what I will talk about today are about taxation and, in particular, the requirements of the legislation. I just want briefly to set out how that fits into the context of the concerns that are shared across the House about private finance and the cost to the public sector of borrowing to be able to build the infrastructure that we all know we need.

To be clear, Governments of all colours have used private finance and continue to do so. The private finance initiative and private finance 2 schemes are little different from each other. It is recognised that questions about the companies involved and the role of taxation in the decision to use PFI or PF2 to fund public infrastructure are questions for all of us, because we see in our constituencies the problems that are caused.

I note that the constituency of the hon. Member for Brentwood and Ongar now has repayments of £169 million as a result of private finance. The constituency of my hon. Friend the Member for Bootle, the shadow Minister, has £423 million-worth of repayments required under private finance contracts. I would describe private finance as the hire purchase of the public sector—indeed the legal loan sharks of the public sector— because the companies offer credit to the public sector, but at a high cost. In particular, the cost of the credit—the taxation that will come from the companies involved—is part of the decision to go with them. That is specifically part of the Green Book calculations. I am looking forward to the Minister telling us what has happened to those Green Book calculations, which were supposedly withdrawn in 2013 but I understand are still being used by Departments for private finance deals, to understand how tax plays a part in the decision to use private finance companies. The idea is that this form of credit may be more expensive but that the companies will repay us in taxation in the UK. That forms part of the decision to use them. The widespread evidence now is that those companies are not paying UK taxes, and that they are benefiting from changes in our tax regime over the past 20 or 30 years. That should trouble all of us because we are not getting the value for money that the deals were supposed to be.

One of my concerns that I hope the Minister will address is that PF2 also pays little regard to the question of where the companies are situated and how much tax they pay. I have therefore tabled two amendments—in fact, three; one is about defining private finance companies—to understand what kind of deal we are getting from those companies and how we as taxpayers and those who represent taxpayers can get a better deal for the British public.

For the avoidance of doubt, the debate is not about not using private finance. One day, I hope that we will have another debate—I am sure the Minister will look forward to it as much as he is looking forward to this one—about the alternatives to private finance. There is a role for private finance, but the question is, if we are getting a bad deal and if the companies are not honouring the obligations that we as taxpayers assigned to them, what can we do about it?

Clearly, the PFI companies are making huge profit. Research from the Centre for Health and the Public Interest shows that over the next five years almost £1 billion in taxpayer funds will go to PFI companies in the form of pre-tax profits. That is 22% of the extra £4.5 billion given to the Department of Health alone.

In my constituency I see at first hand the impact of this. Whipps Cross University Hospital is technically in the constituency next door, but serves my local community—it is part of Barts, which has the biggest PFI contract in the country: £1 billion-worth of build, £7 billion to be repaid. The hospital is paying back £150 million a year in PFI charges, more than 50% of which is interest alone on the loan. The hospital downgraded the nurses’ post to try to save money, and so found that many nurses left. It therefore faced a higher agency bill.

It is clear that PFI and the cost of those loans drives problems. It is also clear that those companies make what I would term excessive profits. That is where new clause 1 begins to try to offer us some answers. If the companies make excessive profits, that is not part of the contract that we signed with them. The National Audit Office has been incredibly critical of how taxation played a role in decisions about private finance companies, but that has not been realised.

Also, not that many companies are involved, yet the tax returns are huge. Just eight companies own or appear to have equity stakes in 92% of all the PFI contracts in the NHS. Innisfree manages Barts, which is my local hospital, and it has just 25 staff but stands to make £18 billion over the coming years. It might be thought, therefore, that companies of that size and stature would pay a substantial amount of tax—I see that the hon. Member for Brentwood and Ongar can predict where I am going with this; sadly, it does not appear to be the case.

Indeed, many of the companies seem to report little or no tax in the UK. One of the simple reasons for that is that many of them are not registered in the UK. That is crucial because the provisions in the Bill to give those companies a relief on paying tax on the interest that they get from shareholder debt are predicated on the idea that they are UK companies. That is the starting point for amendments 5 and 6. The Bill will bring in a cap on the amount of relief that companies can claim against interest. However, there is a public sector exemption, for public sector infrastructure companies, and it will substantially benefit the companies in question.

Having been a Member of this House for seven years, I have always assumed that when such a provision is introduced we will be able to debate its merits. I note that the restrictions in relation to the measure mean that we cannot stop it, or ask whether we are being wise and whether, given that we know the companies do not necessarily pay the tax it was assumed they would in the UK, we are getting their tax situation right. We cannot stop the measure, but we can certainly ask just how much the companies are going to benefit from it.

Amendments 5 and 6 are intended to enable taxpayers to understand how much the companies will benefit from the exemption, and how much extra money they will be able to write off against their tax bill, thus paying little tax in the future. It matters very much to the companies, because most are heavily indebted to their shareholders. They use a model involving 80% to 90% senior debt; the rest is equity loans in terms of the products that they offer. PF2 will change that very little. The amount of debt that they carry, and therefore the amount of interest that they can trade off, which the measure will allow them to do, will be relevant to their ability to give returns to their shareholders.

It is clear that those companies give their shareholders substantial returns, and will be able to fund that through such tax relief. Indeed, the shareholders’ returns are 28% on their sales—more than double the 12% to 15% that was predicted in the business cases. Between 2000 and 2016 the total value of sales of shares in PFI companies was £17 billion. It is notable that in 2016 100% of equity transactions involving those companies were to offshore infrastructure funds in Jersey, Guernsey and Luxembourg. That is based on a sample of 334 projects.

Those companies are going to get a substantial tax relief from the exemption. Yet they do not pay tax in the UK—or, certainly, there is a lot of evidence that they do not. It is an exemption that will enable them to continue to justify paying little or no tax; they will be able to write off the interest on their loans and projects against it. Yet taxpayers are not benefiting from the tax that they said they would pay.

New clause 1 goes to the heart of that question. Those companies signed up for public sector contracts, with particular rates of tax at the time they were finalised. Yet, as we know, corporation tax has varied substantially over the past decade. The debate is not about what the right level of corporation tax is; it is about a simple principle. If a company has signed up to pay a certain rate of tax, and the tax rate changes, it clearly benefits from that. We signed up to the deals for taxpayers, however, on the basis that they would pay a certain rate of tax. That tax rate will now change. New clause 1, again, asks just how much the companies are benefiting from the changes.

I know that the Minister will tell me that there are various anti-discriminatory clauses in the PFI and indeed the PF2 contracts. I agree with him. Therefore, how we might start to reclaim some of that excessive profit is a tricky question, but there is a strong case that, if a company has signed up in good faith to a particular rate of tax, surely that is the rate of tax that it should pay. That is written into the contract, it is part of the business case in the Green Book that is made on these sorts of deals. We as taxpayers have an expectation. Indeed, I would expect the Minister to have a series of sums reflecting the amount of money that would be paid back that he would write off against the large sums that I talked about. However, given that the corporation tax situation has moved from some of these companies nominally paying 28% to their paying 19% or less, that is clearly a substantial discount on what they were expected to pay. New clause 1 asks us to do what, frankly, at the moment we do not do as a country—understand what the difference is between what we expected to get in from tax from these companies and what we will get in.

It is always troubling to me that the Treasury does not seem to have a central database either of how much we were paying to take on these loans—particularly the rates of return, which we know are substantially higher than the rate of borrowing on the public sector—or of the taxation these companies are paying back versus what they were expected to pay back. New clause 1 would get to the heart of that matter and it sits alongside amendments 5 and 6 in trying to understand where these companies are making excessive profits from the public sector.

I am sure that the Minister will tell me that this is a dreadful attack on the private sector and that we should not be saying that these companies are ripping the British public off and that they are legal loan sharks. However, I ask him: if he will not accept the amendments, will he commit to gathering the data about how much these companies have paid in tax, how much difference these have made to the value-for-money case for these businesses, and therefore how our communities will be able to pay back the sums involved?

I am sure that the hon. Member for Brentwood and Ongar would love to have £169 million to invest in his local community; there are many worthy causes that I am sure he would support. I am sure that the hon. Member for Hitchin and Harpenden would be interested in the £170 million that I believe Stevenage, near his constituency, will have to pay out to PFI companies. That money could be invested in the public infrastructure that we so desperately need.

I am sure that all of us would agree that we expect these companies to pay their tax, as they signed up to in these contracts, yet it is clear that they do not. So if the Minister is not prepared to accept these incredibly reasonable amendments in this environment, I hope that he will set out precisely what he is going to do to get our tax money back. All of us and all of our constituents need and deserve nothing less.

[Peter Dowd (Bootle) (Lab)]

It is again a pleasure to serve under your stewardship, Mr Howarth.

I thank my hon. Friend for tabling the amendment, which seeks a review of the effect that the measures we are discussing will have on PFI companies. The Government blithely assert, including in their notes on the Bill, that companies involved in public benefit infrastructure spending are an inherently low risk for tax avoidance. That is an odd claim, especially in the light of what my hon. Friend has said. We know that some PFI companies have engaged in profit shifting to non-UK jurisdictions. It does not make sense to say that just because the profits of a company are extracted from public investment it cannot seek to be paid in a way that is fiscally undesirable.

No one should bemoan the huge public infrastructure investment that the last Labour Government enabled. It was fixing many of the problems left from years of neglect in the public sector. All Governments have taken part in PFI. When PFI was in effect the only game in town, so to speak, many public authorities took up the chance to make the investment they needed; my hon. Friend identified some in my constituency that benefited from such investment. However, we know that some contracts have produced excessive costs for the public sector, where direct borrowing could have produced much lower ongoing costs and provided for more direct influence over the quality of some ancillary services. Therefore, it is right that a review be used to work out whether we should be privileging PFI companies with exemptions from these measures at the same time as knowing that they often benefit from guaranteed profits at the public expense.

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Schedule 5 introduces new rules that will restrict the ability of businesses to reduce their taxable profits through excessive UK interest expense. The rules are consistent with the UK’s wider policy to align the location of taxable profits with the location of economic activity and better reflect the global reality of modern business. Introducing the rules ensures that the UK upholds its commitment to timely and effective implementation of the OECD’s recommendations to make sure multinational corporations pay tax reflective of the business they carry out in this country. I therefore commend the clause to the Committee.

[Peter Dowd]

I do not think that the Minister has recognised the paradigm shift in the public’s view of PFI. In fact, Mr Howarth, as you know, in the area where we live there is a big debate at the moment about a significant infrastructure project, which is creating all sorts of tensions because of the implications of the way it is constructed. I am not criticising anybody, because all political parties—certainly the two main parties—have dipped their fingers, possibly even up to their shoulders, into PFI, so it is not a question of pointing a finger at anyone.

My hon. Friend the Member for Walthamstow eloquently and forensically identified some of the issues, and I thank her for that. However, things are moving on and we have to keep up with the tone outside in the country. People are becoming increasingly suspicious of PFI contracts. I know that we are not discussing the whole question of PFI. I completely accept that, but there is a question about the generality of the measure, to contextualise it. What we have here in the Bill is one of the most complex measures ever legislated for in Britain. Schedule 5 alone stretches to 157 pages of dense text, which is far longer than the entire length of the majority of Bills that we debate in Parliament, and I daresay is longer than the entire tax code of some jurisdictions. We have to take that into account; that is the context we are working in.

The length, of course, relates to the complexity of what the measure tries to achieve, but sometimes the complexity and length do not improve the operation of law. The excessive length of the existing tax code is well known. In reality we have in PFI, as identified in amendment 28, a range of services in the public sector: water, sewerage, gas and electricity, telecoms, railway facilities, roads, health facilities—referred to earlier—educational facilities, court and prison facilities, and waste processing facilities. We have moved beyond dealing with this as just a technical issue—it is a wider issue—but for today’s purposes we must identify how much those projects cost the taxpayer and how much of our tax take they denude us of.

The UK’s engagement in the OECD’s base erosion and profit shifting project, which the Minister referred to, will be welcome if it really does lead to the end of practices that have denuded Exchequers here and abroad of much needed receipts, but many people are not convinced about that. They genuinely are not convinced that PFI projects, which have been in operation for the best part of a quarter of a century, have given us the best value for money. There are deep concerns about the Exchequer being denuded of tax, especially when many of these projects, if not all of them, have the copper-bottomed guarantee of the British state. They are hardly the riskiest ventures in the world. In fact, they are probably some of the safest. We have to take that into account. There has been a shift in people’s attitude to PFI. We must recognise that things have moved on.

We certainly do not oppose the overall aim of reducing companies’ ability to shift profits through artificial interest charge arrangements—no one is suggesting that—but as I and others have said, there is a concern that those deeply complex measures and the many loopholes have already found their way into the minds of tax advisers and into the accounting practices of many corporations. I said to the Minister only the other day that we are here to guard the guards, and I know that he recognises that we are perfectly entitled to ask many questions.

The debate about PFI—the concept, the philosophy, the notion—will take place elsewhere. The shadow Chancellor mentioned it in his party conference speech. We will take the issue out to the public, but given the context we want to delve down, and one of the only ways that the Opposition have to delve down is to ask HMRC to report on the implications. Amendment 28 would do that.

[The Chair]

I am going to call the hon. Member for Walthamstow, who tabled two of the amendments. The hon. Member for Bootle cleverly managed to balance the context and the amendments, but we need speeches that, although they might refer to the context, actually speak to the amendments at hand.

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[Peter Dowd]

No doubt all hon. Members support these measures, which will see more people, particularly children and young people, having the opportunity to access touring museum and gallery exhibitions and expand their educational horizons.

The United Kingdom leads the way with its diverse range of museums and galleries. It is estimated that there are 2,500 museums and galleries in the UK, which collectively receive more than 100 million visits a year. That is quite substantial. As you will know, Mr Howarth, some of the finest museums and galleries in the country are in our own city region: the Walker Art Gallery, the Atkinson, the Lady Lever, the Merseyside Maritime Museum, the World Museum, the International Slavery Museum, the Beatles Museum—the list goes on.

The huge impact the sector has on the economy cannot be discounted. According to the Department for Digital, Culture, Media and Sport, the culture sector accounts for 10% of GDP. Broadly speaking, £1 in every £1,000 in the UK economy is directly related to the museum and gallery sector, and there is a spend of more than £650 million a year.

The funding of museum and gallery exhibitions varies between national museums and the smaller independent museums. On average, national museums generate almost half of their own income, while the rest comes from the Government. Small independent museums are often fully funded by private donations, ticket sales and sponsorship. Most museums and gallery exhibitions are limited to large city centres, with a sizeable proportion in the capital. Domestically touring exhibitions allow the opportunity for people who would not otherwise have access to museums and galleries to see, visit and be in contact with them. We are fully behind the measures in schedule 6, which seek to support smaller companies that produce touring museum and gallery exhibitions and struggle to break even.

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[The Chair]

I think the hon. Gentleman is referring to the Minister. I assure him that I have nothing further to say about it.

[Peter Dowd]

Which is a shame, I have to say.

The Minister referred to consultation. Consultation about what we want to do in the future, what people would like to see from the relief and how it might operate is in advance of the implementation. We consult, and we think this or that is a good idea, but it is also important to find out whether the relief has had the effect that the consultation wanted to achieve. One of the only ways to establish whether the consultation and the implementation have been effective is a review, and that is what we seek. If we are to have these reliefs, we must review whether they are doing the job they are supposed to do. The amendment is fairly simple in that regard.

[Kelvin Hopkins]

I support what my hon. Friend said, and I hope Members will support the amendment and that it will be successful. I have a brief comment to make.

In my ideal world, we would fund museums and the rich cultural heritage we have not through tax reliefs but by direct funding. We would collect all the tax and then pay it to museums and galleries directly through local authority and national funding and by specific grants where necessary. There would, of course, be charitable and private donations as well, but the great bulk of it would be in the public sector. I hope we can look towards a world where we have direct public funding, rather than a complex jungle of tax reliefs, and collect all the tax and forget about the tax reliefs.

[Mel Stride]

I thank Opposition Members for their contributions. The hon. Member for Bootle calls once again for a review. We seem to be having a review-fest. Of course, there are always some arguments for having a review, but the critical thing is whether it is proportionate and sensible, given the measures we are taking on consultation. We will, of course, keep all these issues and the concerns he raised about the possible misuse of the provisions for the purposes of tax avoidance closely under review.

[Peter Dowd]

I understand where the Minister is coming from in his reference to a review-fest. I referred earlier to the size of the Bill, which is one of the longest Finance Bills in the history of Parliament. Given that the Government have started the festival off with the size of the Bill, we are perfectly entitled to a festival on reviews of that huge Bill. I am sure the Minister agrees with that.

[The Chair]

I do not think we want to get bogged down in the length of the Bill itself, but should rather confine ourselves to the amendments.

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.

Taxes on Small Businesses

Peter Dowd Excerpts

Wednesday 18th October 2017 Westminster Hall

[Peter Dowd (Bootle) (Lab)]

It is a pleasure to serve under your stewardship today, Ms Dorries. I thank the hon. Member for St Ives (Derek Thomas) for initiating this important debate. We all recognise that small businesses are the backbone of our economy. Most of us have a family member involved in a small business. They might work for or own a small business, or they might be a partner in a small business, so I would not like people to get the idea that the Labour party is distanced from small business. We are not; we are right in the heart of the small business community. The question is whether the Government have neglected the needs of small business in favour, for example, of tax breaks to big business that has failed to stimulate investment and create the high-skilled, well-paid jobs that the country needs. We have record employment but, as I have said in the past, the issue is not just about the quantity of jobs but the quality. I do not demean the number of jobs that have been created, but there has to be a balance.

Under the Conservatives, productivity trails behind our international rivals and British businesses are struggling to recruit the skilled workers they need. The Government have failed to invest in the infrastructure that businesses depend on and have presided over what amounts to a skills crisis. The approach we have seen from Ministers on business rates revaluation is only one example of the chaos at the heart of the Government. Their approach to business rates revaluation has created a huge and destabilising burden for many businesses, with many facing a substantial and unfair increase, which other Members have alluded to. Discretionary funds are helpful, but they do not solve the underlying problem. All that is in advance of the issue that the continued uncertainty around the Government’s approach to Brexit negotiations is creating in the UK business community, whether small or large.

Such uncertainty has led many businesses to delay investing in their people or capital, which is having the unintended effect of undermining the economy’s long-term prospects. No wonder optimism among small firms and businesses has tumbled to its lowest level in the wake of the referendum and the unprecedented political and economic uncertainty that we face. What we do about it is a different matter, but that is what we face, and that is the environment that people and small businesses operate in.

According to the Federation of Small Businesses’ small business index, a majority of small and medium-sized businesses report that operating costs have risen compared with the same period last year. Labour costs are up, taxation is up and rent is up, and all are frequently mentioned as problems. On top of that, the Government are out of kilter—I will go no further than that—in relation to Making Tax Digital. Stakeholders, including tax experts and accountants—we have discussed this previously—have queried the Government’s implementation date as well as the added cost that will be passed on to small and medium-sized businesses. I take the point made by the hon. Member who said, “You get used to it,” but to be fair, at what point do you have to get used to it?

What we might call the U-turn, or about-face, that the Government made during the summer, under the Minister’s auspices, scaling back plans for Making Tax Digital, was welcome. It pushed back the implementation date to 2019, ensuring an exemption for small businesses below the VAT threshold, and ensuring that businesses do not have to submit quarterly tax returns just yet. I do not criticise that; it is welcome. However, despite that volte-face there is still, in our opinion and that of many others, an impact on small businesses; an example is the unrealistic 2019 implementation date for Making Tax Digital for VAT. That date would mean that SMEs were expected to deal with the added costs and complications of digitalising their tax returns at the same time as having to deal with the added costs of Britain’s leaving the European Union. The hon. Member for Montgomeryshire (Glyn Davies) thinks that is a good thing and he is entitled to his opinion, but that is not necessarily everyone’s view.

There is also huge uncertainty over whether businesses and HMRC will be ready to implement Making Tax Digital by 2019, and we must take that into account. Perhaps the Government’s implementation timetable has more to do with the lacuna in the public finances. I do not know; I pose the question. According to HMRC, Making Tax Digital will raise £2.1 billion for the Treasury, although the Minister may tell me that that is not the correct figure. That money has probably already been spent; whether it is raised is a different kettle of fish. That is another factor for small businesses to take into account.

The truth is that the Conservatives are not the only party for small businesses. In fact, one could argue that in the past few years they have rewarded larger companies with tax cuts at the expense of SMEs. As to tax avoidance, over the past month we have seen the same story play out, first with eBay and then Amazon. We have heard about small stores in villages having to compete in the face of non-collection of huge amounts of tax from the likes of Amazon, which avoid their fair share of tax or run rings around HMRC. That affects small businesses because they pick up the tab.

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

I have been listening with growing disbelief to the hon. Gentleman’s running commentary of doom on our approach to business. He mentioned tax avoidance, but does he recognise that since 2010 we have, through our measures against avoidance, evasion and non-compliance, brought in £160 billion? We have reduced the tax gap—the amount of tax that should have been collected but has not—to 6.5% of tax. That exceeds any year when his party were in government.

[Peter Dowd]

I am pleased that the Minister has brought that to my attention. I bring to his attention Labour’s tax enforcement programme, as well as our manifesto, “Funding Britain’s Future”, and our industrial strategy. I am sure that the Minister has read those avidly and will no doubt revisit them.

SMEs find it increasingly difficult to operate around the tricky and ever-changing tax law while HMRC has been directed to crack down hard on them. The likes of Martin McTague, policy director at the Federation of Small Businesses, recently accused HMRC of going for the soft underbelly by tackling SMEs over tax avoidance and evasion rather than showing the same energy in confronting larger companies, and arguably, by underfunding and not resourcing appropriately.

[Robert Jenrick]

Will the hon. Gentleman answer the point that I made in my remarks about why the Labour manifesto included an increase in corporation tax for small businesses? If it cares about small businesses rather than large ones, why increase business profits tax for them?

[Peter Dowd]

I suggest that the hon. Gentleman reads the totality of the document, about the whole environment in which small businesses would operate. It is not a question of one element, but the total environment. That is the point I am trying to get across. It is not one specific thing, such as tax for small or large businesses, but the complete environment in which businesses must operate that we must consider. The current environment is not the most conducive to business for SMEs, in my humble opinion. That is my view; Members may agree with it or not.

We are committed to putting small and medium-sized businesses at the heart of our economic policy. We value them.

[Mel Stride]

To pursue the point a little further, I understand that the Labour party’s policies are to put up the corporation tax rate to 26%, whereas we are going down to 17%. The difference is a huge gulf—a huge additional tax burden on British businesses. Has the hon. Gentleman’s party conducted any analysis of the impact that that huge hike in taxation is likely to have on jobs, wealth creation, taxes and our ability to fund our public services?

[Peter Dowd]

Of course we have.

[Chris Philp (Croydon South) (Con)]

What’s the answer?

[Peter Dowd]

The hon. Gentleman, from a sedentary position, asks for the answer. We are here for the Government to defend their record, not for a defence of what Labour’s record will be. [Interruption.] It is okay for Members to laugh, but the bottom line is that the economy is in chaos. Only yesterday the OECD effectively said that the Government should rethink their position on corporation tax. That is not coming from me; it comes from our partners elsewhere.

We want to support small and medium-sized enterprises. I have made the point that it is ridiculous to suggest that they are somehow a foreign land to the Labour party. The country needs, and we have set out, proper investment in the economy and skills and increased productivity. We believe that small businesses can play a part in investment, in a rise in productivity and in helping with skills shortages; but in turn it is our responsibility to help them. I am not sure that they are getting the support they need.

Finance Bill (First sitting)

Peter Dowd Excerpts

Committee Debate: 1st Sitting: House of Commons
Tuesday 17th October 2017 Public Bill Committees

[Anneliese Dodds]

I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 2 ordered to stand part of the Bill.

Clause 3

Pensions advice

[Peter Dowd (Bootle) (Lab)]

I beg to move amendment 14, in clause 3, page 5, line 22, leave out “£500” and insert “£1,000”.

This amendment would increase the income tax exemption in relation to pensions advice from £500 to £1,000.

[The Chair]

With this it will be convenient to discuss the following:

Amendment 11, in clause 3, page 6, line 16, at end insert—

“308D  Review of use of provisions of section 308C

(1) Within one year of the passing of the Finance (No. 2) Act 2017, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the use of the provisions of section 308C in tax years 2017-18 and 2018-19.

(2) The review shall consider in particular—

(a) the use of the relief by persons over 55, and

(b) the use of the relief by women born on or after 6 April 1950.

(3) The Commissioners shall consult the Financial Conduct Authority in carrying out the review under this section.

(4) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”

This amendment would require HMRC to undertake a review of the use of the new income tax exemption for pensions advice in the first two years of its operation.

Amendment 15, in clause 3, page 6, line 16, at end insert—

“308D  Review of effectiveness of provisions of section 308C

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effectiveness of the operation of the provisions of section 308C in tax years 2017-18 and 2018-19.

(2) The review shall consider in particular—

(a) the estimated value of the exemption in each tax year,

(b) the effects of the Conditions in subsections (6) and (7) , and

(c) the effects of the provisions on the availability and accessibility of relevant pensions advice.

(3) The Commissioners shall consult the Financial Conduct Authority in carrying out the review under this section.

(4) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”

This amendment would require HMRC to undertake a review of the effectiveness of the new income tax exemption for pensions advice in the first two years of its operation.

Clause 3 stand part.

[Peter Dowd]

It is a pleasure to serve under your chairmanship, Mr Howarth. The extent, nature and quality of advice received by a person wanting a pension is of great importance and significance. That is particularly the case considering that, in 2017, 30% of the working age population is at state pension age or older. The Department for Work and Pensions recently summarised perfectly the importance of pensions advice on its website:

“For most people in the UK, their pension savings will be their largest financial asset, which they will save towards over the course of their working lives”.

That gets to the nub of the matter. Hopefully, most of us will be saving towards a pension for the majority of our lives and we are ultimately relying on that to secure a good-quality standard of living when we retire. Therefore, the advice received matters a great deal.

For many, the securing of pension advice is, given the nature of their employment, for example, not as problematic. People who work in certain sectors, such as the finance sector, on the whole will find that their companies automatically cover pension advice. For others, the cost of such advice is minimal in the grand scheme of things. However, it has to be said that, for those who do not have much disposable cash and whose retirement is dependent on making wise investments with their pensions and ensuring that they save the right amount, good-quality advice is the key to a more secure retirement. I am sure that that will be greeted with unanimous nodding from Government members, if nothing else.

As Committee members know, the financial advice market review was launched in August 2015

“to explore ways in which government, industry and regulators could take individual and collective steps to stimulate the development of a market that delivers affordable and accessible financial advice and guidance to everyone.”

That is a laudable endeavour if ever there was one. It set out a strong and compelling case that there is a retirement “advice gap” for those without significant wealth. Research by Unbiased, an organisation of Financial Conduct Authority-regulated advisers who are independent of product providers, found that those who sought retirement advice increased their retirement savings by an average of £98 a month. However, less than one third of people have accessed financial advice on their pension. The financial advice market review found that many people perceived financial advice to be unaffordable or “not for people” like them.

The advice gap is not getting any smaller. Although the introduction of the exemption for the first £500-worth of pensions advice to employees is welcome, particularly as it replaces the provisions that limited the advice that people could receive—the cap was set at £150—we think that that does not go far enough. Most people in the pension advice sector would reasonably point out that £500-worth of tax-free advice is a relatively small figure given the importance of the decisions that people face. There are genuine questions to be asked about the impact that such a figure will have on the current pensions advice gap and, importantly, on the quality of that advice.

[Kelvin Hopkins (Luton North) (Lab)]

My hon. Friend is absolutely right about the affordability of pensions advice, but the trustworthiness of pensions advice is also an issue. Even I—I am fairly numerate—do not trust the advice I am given, although fortunately the Independent Parliamentary Standards Authority gives better advice than most. Many ordinary people not only think that it is not for the likes of them and are rather nervous, but fear that they are not given correct and disinterested advice.

[Peter Dowd]

That is a very valid point that people should listen to. As I said before, that goes to the nub of the situation.

In the light of that, I have a number of very reasonable amendments that the Committee members certainly will agree are pertinent, which need to be asked for and which need answers. Perhaps the Minister, who I know is the epitome of helpfulness, could explain to the Committee how the figure of £500 was reached, who was consulted on the figure, and the basis of the figure, in terms of the pensions advice market—or is the figure arbitrary? Dare I say, is there a smokescreen?

I am sure that the Government do not want to be seen to be acting without providing adequate funds to address the root problem. The cost of financial advice will inevitably inform the value of the advice. That is why we have put forward the amendment, which would raise the threshold for tax-free pension advice from £500 to £1,000. Pensions advice is, after all, the greatest protection against the threat of fraudsters keen to prey on some of those in vulnerable positions. Because we are talking about large sums of money that people rarely engage with until the end of their lives, pension savings are often an active target for scams.

We must recognise that as technology makes it easier for us to access our pension pots, it also increases the risk of fraud. This is also true of the reforms brought in by the Government under the previous Chancellor, giving pensioners greater freedom to withdraw a portion of their pensions earlier. That has been a benefit to some pensioners, although it has brought with it substantial risks and the problems that we continue to see today. The Money Advice Service website outlines the common signs of pension fraud. They include unsolicited approaches by way of a phone call, text messaging or emails. Other practices include a firm not allowing a person to call it back, and people being pressurised and forced into making a quick decision, or being encouraged to transfer pensions quickly and to send documents by courier. Contact details provided are mobile phone numbers only, or a post office box address.

Other tactics include claiming to be a person who can help to unlock a pension before the age of 55, which is sometimes known as pension liberation or referred to as a personal loan. This is possible only in very rare cases, such as very poor health. People say they know of tax loopholes, or they promise extra savings. They offer a suggested high rate of return on investments, but claim that the risk is low.

The Money Advice Service recommends that people looking for pensions advice check against the FCA register of approved pension advisers. The Opposition welcome the loosening of the advice that an individual can claim under the tax-free allowance, as I indicated earlier. Over the past few years, it has become apparent that people not only are concerned about the level of savings in their pensions, but have taken a greater interest in where their pension savings are being invested. Of course this is a good thing, and ultimately pension funds should be accountable to the person whose savings they invest.

All these issues that I have raised so far summarise the Opposition’s concerns about this clause and why we have put forward an amendment that would require a review of the effectiveness of the tax-free relief in the years 2017, 2018 and 2019. It is important that the Government accept the review, rather than rushing ahead with further reforms that may be considered tinkering around the edges. We are suggesting an increase from £500 to £1,000, and a review of the allowance system in due course.

[Kirsty Blackman (Aberdeen North) (SNP)]

It is a pleasure to take part in another Finance Bill Committee, and I am looking forward to another one coming later this year. It feels like we have been discussing this one for quite some time, so I am glad to finally be at the Committee stage in a Committee Room. Thank you for your chairmanship, Mr Howarth.

I wanted to highlight our amendment on this. There have been a huge number of changes in the pensions landscape in relatively recent years. In my working lifetime, we have seen a move away from a final salary pension scheme to career average for the majority of people, even in the public sector. We have seen changes to things such as the lifetime individual savings account and the ability to withdraw pensions. Those are pretty significant changes in the landscape; pensions for people my age look very different from how they looked not that many years ago.

We have also seen changes to the Women Against State Pension Inequality issue, and the equalisation problem. A number of people have come through the door of my surgery and talked to me about how they have been caught by the WASPI issue. If they had had different pensions advice, they would not have retired in the way they did. More than one person who took early retirement now finds that they are caught by the WASPI issue when they should have retired under ill health, which would have given them a completely different outlook on their pensions. If they had had more appropriate advice when they were deciding when to retire, they would have been much better off.

I welcome the Minister’s proposal to make the first £500 of pension advice tax-free; that is an important change and one that we all generally agree with. I agree with the shadow Minister, however, who asked whether £500 is the most appropriate amount. Should it be £1,000? Should it be less? The amendment we have put forward specifically asks about the issues for women born on or after 6 April 1950, because they are the ones who have been caught by this WASPI issue. I am keen to see an increased uptake of pensions advice by those women, because for some of them changing the way in which they retire would make a difference.

Those women have been failed by the system. They have been failed by the Government, who have moved the goalposts and changed the date on which they expected to retire. Some of them retired not long ago and were completely unaware of the change. Those are people who would have read every bit of paper that came through their door. A medical secretary came to my surgery the other day. A medical secretary is someone very diligent about reading bits of information that come through the door, particularly about financial matters that are important for her future, and I believe that she would have chosen a different route to retirement if she had had appropriate advice, and if she had known what would happen on state pension equalisation and what would happen to her.

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[Mel Stride]

As I said, the FAMR body will be conducting a review, which is expected to be published in 2019, and the Government will keep those matters under review on an ongoing basis, as we do all measures of taxation, whether impositions or reliefs.

[Peter Dowd]

It is crucial that we send the message that the Government are serious about helping people with their pension advice. Although the figure has gone up from £150—a fairly small amount in itself—to £500, we believe that still does not send the proper message about seeking sound advice. Given that, and notwithstanding the Minister’s assurances, we will press the amendment increasing the figure to £1,000 to a vote.

Question put, That the amendment be made.

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[The Chair]

Does the hon. Gentleman wish to press amendment 15?

[Peter Dowd]

Given the assurances from the Minister, no, Mr Howarth.

Clause 3 ordered to stand part of the Bill.

Clause 4

Legal expenses etc

[Peter Dowd]

I beg to move amendment 16, in clause 4, page 9, line 23, at end insert—

‘(7A) After section 716B (Employment intermediaries, etc), insert—

“716C  Review of effectiveness of changes to reliefs for legal expenses

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effectiveness of the changes made to this Act by section 3 of the Finance (No. 2) Act 2017.

(2) The review shall consider in particular the estimated value of the additional relief provided as a result of the changes in each tax year.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.””

This amendment would require HMRC to undertake a review of the effectiveness of the changes relating to relief in connection with legal expenses in Clause 4.

[The Chair]

With this, it will be convenient to discuss clause 4 stand part.

[Peter Dowd]

We all agree that the current model of legal expenses or indemnity insurance for employees is wholly inadequate to the modern workplace. It is worth getting a plug in here in relation to the household insurance that people have for when they wish to defend their position in court, whether criminal or civil. I have experience of some of these policies not being fit for purpose. That goes to the heart of some of these issues, although it is not directly related. I am sure that other Members have had people come to them with insurance policies that they bought thinking they would cover them for this, that or the other, only to find that they are not fit for purpose. It is worth this Committee sending the message out that some of those policies are not up to scratch.

Getting back to the point, under the current system, only an employee who has had an allegation made against them can claim for legal expenses, which will be deducted from their earnings. Potentially, if a person is called as a witness at a public hearing, he or she will immediately be put out of pocket for any legal expenses. Similarly, if an employee is to give evidence at a public hearing, perhaps in one of our Committee Rooms in this building, under the current system they will be out of pocket if they need legal counsel. That is a deterrent to both employee and employer. The measure would tidy up and expand the current, rather vague, provision to cover employees giving evidence at public hearings, which we welcome; however, I have a number of questions.

How many employers will the new measure cover? Will it cover all employers? How extensive is it? Are any particular sectors affected by the measure? What is the estimated cost of such a measure to the Exchequer? Does the measure include cover for employment tribunals? That has been a bone of contention in the past few months, in the light of the Government’s introduction of quite significant fees for people making employment tribunal claims.

[Kelvin Hopkins]

There is evidence that thousands of people have been deterred from bringing a case to employment tribunals simply because of the fees.

[Peter Dowd]

My hon. Friend makes an important point. That is why it is important to tease out the issues. People get confused and deeply worried about these matters, so we need clarity.

Our concern is that the measure will, in essence, be used as a tax break for employers, to the detriment of employees. I am not saying that that is the intention, but it is important to get clarity. Given the lack of detail, we believe that a review of the impact of the changes on the coverage of legal expenses is in order. It would focus specifically on the effectiveness of the measure, the value of the relief and, of course, how many employers and employees it brings within its purview. I reaffirm the point: it is important that this area is clarified and that people know the direction of travel, which is why we moved the amendment, to keep tabs on the proposal.

[Mel Stride]

Before I address Labour’s amendment 16, I will set out the purpose of clause 4.

The clause makes changes to ensure fair and consistent tax treatment for employees who receive legal support from their employer. Currently, employers may provide legal support or a legal indemnity insurance to their employees tax and NICs-free but, as the hon. Member for Bootle rightly points out, that only applies when employees have had allegations made against them in connection with their employment. Construction workers, nurses or surveyors, for example, may have legal indemnity insurance to provide legal advice in case they are accused of negligence. No equivalent tax treatment for relief is available in relation to proceedings in which no allegation has been made against the employee, such as when an employee is asked to give evidence before a public inquiry.

The changes made by the clause will extend the existing provisions to correct that unfairness. The relief will be made available for expenses incurred in employment-related proceedings where no allegation has been made against the employee. In addition, the clause extends a relief for individuals on termination of their employment or for individuals now deceased, so that a deduction is allowable if the relevant costs are met by the employer on behalf of the individual.

The hon. Gentleman asked some specific questions, in particular about the cost to the Exchequer of the measures, which will in fact be negligible. We expect fewer than 1,500 employees in total to require the benefits of the measure.

As we have heard, amendment 16 would require HMRC commissioners to complete a review before 30 June 2019 of the effectiveness of the changes. Such a review would be disproportionate. As I have explained, this is an important but small change to correct an unfairness. As there is no tax to pay, employers do not need to report information about the legal support or legal indemnity insurance provided to their employees. Indeed, it would be burdensome for employers to have to provide such information simply for the purposes of the review sought by the hon. Gentleman. I urge the Committee to resist the amendment.

The Government acknowledge that legal inquiries can be a challenging and unfamiliar time for employees. The clause will make the system fairer by extending the existing relief for all employees who may require legal advice, helping to ensure that they get the support they need. I therefore commend the clause to the Committee.

[Peter Dowd]

Again, I appreciate the Minister’s explanations and assurances to some extent, but this is one of those areas that is of importance to people. It is very technical, but teasing the issues out is important. A review might be of specific areas, but reviews often bring up other issues and signpost for us where regulations or the law may need to be changed or tightened. For that reason, it is important for us to send the message that this is something that we will review. Notwithstanding the assurances given, I will press the amendment to a vote.

Question put, That the amendment be made.

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[Mel Stride]

Clause 6 makes changes to simplify the PAYE settlement agreements process, by allowing employers to propose PAYE settlement agreements without the need to agree that with an officer of Revenue and Customs beforehand. PAYE settlement agreements, or PSAs, were introduced in the 1990s as an administrative easement for employers and HMRC. They allow employers to settle, in a single payment, the income tax liability on behalf of their employees for certain benefits-in-kind and expenses.

In their 2014 review of employee benefits and expenses, the Office of Tax Simplification highlighted a number of issues with the PSA process. In response, the Government launched a consultation in the summer of 2016 on proposals to simplify the process for arranging, and clarifying the use of, PAYE settlement agreements. In line with the Office of Tax Simplification’s recommendations, the changes being made by clause 6 will simplify the PSA process. Employers will no longer be required to submit a request in advance of their year-end reporting obligations. Instead, they will be able to submit their PSA request at the year end and make ad hoc requests throughout the year. It also removes the need for PAYE settlement agreements to be agreed with an officer of HMRC. In addition, HMRC will develop a digital tool to replace the submission of paper returns. HMRC’s guidance will be strengthened and updated, in order to reduce errors and provide certainty for employers.

The Government are committed to reducing the administrative burden for employers. In line with recommendations made by the OTS, clause 6 will help to simplify the PSA process and provide certainty and stability for employers. I therefore move that this clause stands part of the Bill.

[Peter Dowd]

Although the Opposition have not tabled an amendment on this clause, Members will be aware that we have wider concerns about the overall intention of the measure and, for example, its relationship to the Government’s wider digital tax strategy. We have been clear that, although we support the gradual digitisation of taxation and the capacity it has to remove the administrative burden from HMRC, the self-employed, small and medium-sized businesses and larger companies that have to submit tax returns, we are concerned about the Government’s rush to introduce this timetable, which in our view is ill thought-out—as we have said many times.

In principle, we agree with the aims of the measure, which appears to allow employers the ability to settle income tax liabilities for certain benefits and expenses in a more efficient and timely manner. I do not think any of us would want to argue with that. However, we are concerned about the removal, without assurances, of the agreement of the officers of HMRC in this process. I am sure that that is mere coincidence, given that the measure is being introduced at a time when the Government have reduced HMRC staffing levels by 17% since 2010. I would like to take it on good faith from the Minister that the removal of the need for agreement with an officer of HMRC has little to do with the falling numbers of staff.

The clause explicitly states that this measure aligns with the principles of HMRC’s wider digital transformation strategy and therefore it seems impossible to discuss the clause without also referring to clauses 60 to 62, which introduce the digital reporting of VAT and income tax. Given that link, I would like to take the opportunity to ask the Minister about the overall digital transformation strategy at HMRC.

First, how far along is HMRC with this new digital solution that the Government plan to develop? How many pilots have been run of the new software needed at HMRC? How many of those pilots were successful? What is the cost to HMRC of the new software? What is the cost to an employer of using that software? How will HMRC be able to intervene manually to mitigate compliance risk?

The Government have made much of the huge administrative burden that employers face, and of how this measure, along with others, will ensure that employers can submit their PAYE settlement agreement requests at the end of the year and make ad hoc requests during the year, but that is surely completely inconsistent with the Government’s plans to mandate quarterly digital reporting for income tax and VAT. It will remove some administrative burdens for employers with regard to income tax on the one hand, but add further burdens on the other. I would be grateful if the Minister helped us out with that.

[Mel Stride]

As we have set out, clause 6 makes changes to simplify the PSA process. I am grateful that the hon. Member for Bootle appears to welcome those changes. The Government believe that it is extremely important to lower the burdens on our businesses, which create the wealth and pay the taxes that pay for the public services that, as a civilised society, we all want.

The hon. Gentleman raised making tax digital and the digital changes to the way that tax will be reported. He will know that I laid a written ministerial statement a little while ago that set out a changed timescale for the roll-out of that element. Consequently, no businesses will be involved in making tax digital until 2019 at the earliest, and even then only those at or above the VAT threshold will be involved, and only in respect of VAT reporting. No further roll-out will occur in any other areas until 2020 at the earliest. The Government are in listening mode, and we have listened extremely carefully and reacted extremely positively to feedback from businesses.

The hon. Gentleman raised several pertinent and legitimate questions about the piloting of the making tax digital process. They were very specific, and I do not think for a moment that he expects me to have all the answers in my head, talented though I am.

[Mel Stride]

And modest—quite. I will ensure that we write to the hon. Member for Bootle to answer the specific questions that he asked in that context.

[Peter Dowd]

I take the Minister’s assurances. I am sure that he has all the answers in his head, but he does not want to share them at this point. I will be able to read the letter that he sends over a nice cup of tea.

Question put and agreed to.

Clause 6 accordingly ordered to stand part of the Bill.

Clause 7

Money purchase annual allowance

[Peter Dowd]

I beg to move amendment 17, in clause 7, page 15, line 11, at end insert—

‘(4A) After section 227G (when pension rights are first flexibly accessed), insert—

“227H  Review of effects of changes to money purchase annual allowance

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effects of the changes made to this Act by section 7 of the Finance (No. 2) Act 2017.

(2) The review shall consider in particular—

(a) the change to the tax charge applied in each tax year, and

(b) the behavioural effects of the changes.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”’

This amendment would require HMRC to undertake a review of the effects of the change to the money purchase annual allowance in Clause 7.

[The Chair]

With this it will be convenient to discuss clause 7 stand part.

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[Peter Dowd]

The money purchase allowance has its roots in the latter days of the previous Chancellor’s tenure at the Treasury. The pension flexibility measures that were introduced in 2015 gave pensioners those flexibilities if they wished to pay anything further into a defined-contribution pension, but restricted the contributions on which they could receive tax relief. The Government set the money purchase allowance at £10,000, limiting the tax relief that pensioners could receive. The clause will cut that drastically, to £4,000.

The Minister says that the clause is, in effect, an attempt to stop individuals who have already accessed pension savings recycling that cash back into pensions, thereby benefiting from tax relief a second time. I completely acknowledge the concern about that, but a number of pensioners will no doubt be caught by the change. In fact, the submissions that we all received by email and were circulated today allude to that, and I will come to that in a bit more detail.

How much notice have pensioners been given of this planned change? What marketing and targeted awareness campaigns have the Government conducted to ensure pensioners are aware of the change? How much has the Treasury or other Departments spent to ensure that pensioners are aware of the change? I come back to the point I made earlier that this is about the security of people’s retirement. People have planned and are planning for retirement and, what with Brexit and lots of other things going on in the world, we want to keep the uncertainty in life to an absolute minimum. I am sure that everybody agrees with that.

How much does the Financial Secretary believe that the measure will raise? The Opposition feel that there is a clear need for the level of the money purchase annual allowance to be reviewed, and many of the stakeholders who have written to us agree. It is important that the Government take the necessary steps to ensure that pensioners who are caught out by the change are not at an unfair disadvantage.

One submission to Members in the bundle that has been circulated indicates:

“The reduction of the Money Purchase Annual Allowance to £4,000:

a. will create an anomalous position

b. may encourage manipulation of pension arrangements to use the small pots rules to circumvent the MPAA rules

c. will create a differential position between members of occupational arrangements and personal schemes”.

The submission gives a perfectly reasonable example of that, which I will not go into now.

Another organisation, the Low Incomes Tax Reform Group, also has concerns. It was set up by the Chartered Institute of Taxation to give “a voice to the unrepresented”. I will quote from its submission, because it is pertinent:

“The money purchase annual allowance of £10,000 is very unlikely to catch out too many people who might do this. But reducing it to £4,000 from April 2017–equating to savings of £333 a month–is much more likely to cause problems for these people; especially if thinking about it in terms of someone choosing to save money they might have previously been paying on a mortgage. This is even easier to see as being a problem if we consider that the net of basic rate tax contribution–the amount the individual pays–would be £3,200, ie £266 per month. Such a monthly sum could well be half the person’s previous mortgage repayments and therefore an easy sum to find for topping up their pensions”.

The review laid out in our amendment seeks to review the effectiveness of the measure, how many people it affects and the impact of cutting the money purchase allowance on the overall level of pension contributions.

To conclude, I cannot reiterate this point too much. I do not think it is necessarily a question of our wanting to replace the £10,000 with £4,000, £6,000 or £8,000 or any other figure, for that matter. If the Government have made that decision—and it is reasonable to adjust the figure up or down, whatever it might be—given that this is about people’s pensions and their future in retirement, it is important that we are clear what the impact is going to be. That is why we ask for the review. We all need to satisfy ourselves that when we are dealing with this area, for which people have planned, they are not going to be detrimentally affected at a time in their lives when they may be vulnerable.

[Mel Stride]

Amendment 17 would require the Government to undertake a review of the effect of the change to the money purchase annual allowance under clause 7. Before I set out why that review would be unnecessary, I want first to remind Committee members of the background to clause 7, and what it seeks to achieve. The historic pension freedoms introduced in April 2015 have given people with savings in money purchase arrangements greater flexibility to get access to their pension savings. Once a person has accessed their pension savings flexibly, further tax-relieved contributions are restricted to the money purchase annual allowance.

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Reducing the MPAA limits the extent to which pension savings can be recycled, while allowing those who want flexible access to pension savings the opportunity to rebuild some of their savings, should they choose to do so. The Government have consulted on the change and are confident that it is the right decision. I therefore urge hon. Members to withdraw the amendment and I commend the clause to the Committee.

[Peter Dowd]

In the spirit of co-operation and the assurances the Minister gave, I am prepared to withdraw the amendment in relation to a review. None the less, serious concerns have been identified by organisations. The Minister alluded to the fact that there did not appear to be much concern, but that is not what I am hearing, hence the need for a review. However, in the light of the Minister’s assurances, I am happy to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 7 ordered to stand part of the Bill.

Clause 8

Dividend nil rate for tax year 2018-19 etc

[Anneliese Dodds]

I beg to move amendment 18, in clause 8, page 15, line 17, at end insert—

‘(1A) After section 13A (income charged at the dividend nil rate), insert—

“13B  Review of effects of changes to dividend nil rate

(1) Prior to 30 June 2019, the Commissioners for Her Majesty’s Revenue and Customs shall complete a review of the effects of the changes made to this Act by section 8 of the Finance (No. 2) Act 2017.

(2) The review shall consider in particular the effects on the self-employed.

(3) The Chancellor of the Exchequer shall lay a report of the review under this section before the House of Commons as soon as practicable after its completion.”’

This amendment would require HMRC to undertake a review of the effects of the change to the dividend nil rate in Clause 8.