Finance (No.2) Bill (Fourth sitting)

Peter Grant Excerpts

Tuesday 27th April 2021 Public Bill Committees

[James Murray (Ealing North) (Lab/Co-op)]

It is a pleasure to serve on this Committee with you in the Chair, Dame Angela.

I am pleased to begin by discussing clause 112, which, as we heard, introduces two new schedules. The first, schedule 23, sets out a new points-based penalty system for the failure to make, or the late submission of, various returns. The second, schedule 24, makes minor changes to the penalty for deliberately withholding information from HMRC by failing to submit returns.

We welcome the stated aim of the Government: to encourage compliance without wanting to punish taxpayers who make occasional mistakes. It is right to give people in the regular course of events an opportunity to clear penalty points without incurring a penalty charge, while making sure a stronger deterrent is provided in cases where behaviour is shown to be deliberate. The explanatory notes for the clause point out that the regime has been developed through three separate consultations. However, as the Low Incomes Tax Reform Group—LITRG—makes clear, while HMRC has taken on board comments on the structure of a new penalty regime, it considers legislation in the Bill to be far more complex than originally envisaged.

LITRG points out that taxpayers come under Making Tax Digital for VAT for the first time in April 2022, and Making Tax Digital for income tax self-assessment for the first time in April 2023, so they face a complex and unfamiliar penalty regime at the same time as having to get to grips with their obligations under Making Tax Digital. For people with a single source of income, Making Tax Digital for income tax self-assessment appears to have six separate filing obligations over the course of a year, for which penalties could be incurred: four periodic updates, one end-of-period statement, and one final declaration.

I welcome the fact that the Minister set out his view of the suggestion by LITRG that the introduction of the new penalty regime should be delayed to allow those taxpayers time to familiarise themselves with the new obligations before they begin to accrue penalty points for non-compliance. I would also welcome the Minister’s thoughts on the suggestion by LITRG that the legislation should include an obligation on HMRC to keep taxpayers regularly informed of their penalty points total.

Clause 113 introduces schedule 25, which includes a new two-penalty model for businesses and individuals that fail to pay their tax liability on time. The first penalty is 2% of the amount of tax unpaid 15 days after the due date, plus 2% of the amount of tax unpaid 30 days after the due date. The second penalty is a penalty interest rate of 4% per annum that applies from the 31st day of the tax being unpaid. Again, the Low Incomes Tax Reform Group has expressed a number of concerns about the operation of this new regime, including concern about the interaction of time-to-pay arrangements with the new late-payment penalty regime. We would welcome the Minister’s views on that point.

Clause 114 introduces schedule 26, which, as we heard, is consequential to previous clauses and schedules that have been introduced. We tabled amendment 26, which suggests leaving out schedule 26, paragraph 36. We do not intend to press the amendment, but we welcome the Minister’s clarification on the point we sought to raise by tabling it. Our understanding was that schedule 26, paragraph 36 amended section 1303 of the Corporation Tax Act 2009. We were concerned that the amendment appeared to remove a prohibition on any surcharge in VAT, a penalty for missed payment, late payment or non-payment of VAT being written off as a loss in the company’s taxes. We therefore welcome the Minister’s clarification regarding the intention behind that amendment, particularly the message that it sends.

[Peter Grant (Glenrothes) (SNP)]

It is a pleasure once again to serve with you in the Chair, Dame Angela. As the Minister pointed out, the intention behind amendment 24 is to reduce HMRC’s time limit to assess whether a penalty is due if someone is late in submitting their statutory return. Although the Minister is right that the two years have been there for a long time, that does not mean that two years is right. It seems unfair, considering how quickly potential taxpayers are expected to respond to queries from HMRC, which has been known to take two years to make an assessment for which it already has all the necessary information. The stated policy intention of the new regime is to be proportionate, penalising only the small minority who persistently miss their submission obligations, rather than those who make occasional mistakes. However, the Bill as drafted provides for penalties to be levied against people who have made occasional mistakes and allows HMRC up to two years—and an even longer period in some cases not covered by our amendment—to assess a penalty.

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[Jesse Norman]

I thank both colleagues for their contributions. I reassure the hon. Member for Glenrothes that the Government take seriously all such interventions and all our serious interactions with other political parties and hon. Members across the House.

The hon. Members for Ealing North and for Glenrothes both mentioned complexity. When introducing any new regime, let alone one in an area as complex as tax, there is inevitably an impression of complexity and a worry about the initial uptake. However, these concerns can be addressed and are being addressed in the legislation.

I remind the Committee that the reforms have been widely welcomed. The Chartered Institute of Taxation says that it

“welcomes the harmonisation of interest rules…and that HMRC will apply a light-touch…This will allow otherwise compliant taxpayers enough time to adjust to the new rules.”

The Low Incomes Tax Reform Group, which both hon. Members mentioned, says:

“HMRC have consulted on many aspects of the penalty regime in recent years, particularly with a view to ensuring that it is fit for purpose for Making Tax Digital. This is welcome, as is the fact that a number of LITRG concerns have been taken on board.”

It is good to see that; I am glad that the group recognises it, because this has been a carefully considered piece of legislation. An organisation called Buzzacott, which describes itself as a UK top 20 accountancy firm, says:

“This is a big change…but the system ought to be fairer because it takes account of the number of filings a business has to make, and it’s also less likely to excessively penalise a trader…The light touch in the first year is welcome”.

That ought to give colleagues a degree of comfort on the issue of complexity, but of course it is important to raise it, and Ministers and HMRC are aware of it.

The hon. Member for Glenrothes raised the two-year period; I think that he was trying to score a political point about HMRC staffing. I remind him that the SNP was expressing concerns about alleged staffing issues at HMRC before the extraordinary events of the past 12 months, in which HMRC has proven its outstanding ability to deal with the covid schemes and has been through everything that one could imagine in the pandemic.

I do not think there is any serious suggestion that the tax agenda, which antedates any concerns that the SNP has expressed with respect to the two-year period, is seriously being put at risk. The fact is that some people have very complex tax affairs and sometimes, in a small minority of cases, HMRC requires some time to reflect on them before it makes a judgment. As a matter of justice, as well as of combating tax avoidance, the two-year period should allow it a proper process of reflection.

The hon. Gentleman mentioned the idea of removing the first penalty, but as I pointed out the effect would be to remove a great deal of the early energy that incentivises people to comply with their tax obligations, and which is actually rather important. The SNP’s recommendation might have the effect of diminishing the number of people who comply with their tax obligations, because it would remove that initial first penalty, which is a little nudge.

[Peter Grant]

I take the Financial Secretary’s point that what we suggest might make things better or worse than what the Government suggest. Leaving aside the possible practical issue with the timescales of some of the reports that we suggested, does he admit that it would be a good idea to bring back a report at an appropriate juncture to see whether the new regime encourages compliance in comparison with the current regime? Will he agree to table an amendment similar to our new clause 6, but with a different timescale, in due course?

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[James Murray]

Clause 123 amends schedule 36 of the Finance Act 2008 to give HMRC a new power to issue an information notice for the purposes of collecting a tax debt. We would like to raise with the Minister a point articulated by the Chartered Institute of Taxation in connection with the amended schedule 36. It is concerned that the new notice for collection of tax debts can be used for the purposes of collecting a tax debt, whenever arising. That means that the use of these notices is not restricted to cases involving tax years after the measure becomes law, which raises a concern that this is a very wide-ranging power. What reassurance can the Minister offer that HMRC will use the new power granted by this clause proportionately and with appropriate oversight?

[Peter Grant]

I do not have any issue with the changes proposed in clause 123 but, like the hon. Member for Ealing North, I think it is important to make clear that, in passing the legislation, Parliament has to give what may appear to be draconian powers to HMRC or other Government agencies to use when they have to. We then have to rely on Ministers to set policy, and sometimes on HMRC or Government Departments, in terms of their operational management decisions, not to use those draconian powers except when they absolutely must.

As we have begun to come out of the covid recession, a lot of individuals and businesses have found that their cash-flow position is as bad as it has ever been—and hopefully as bad as it ever will be. If HMRC manages itself only in terms of its own performance statistics on how quickly it can get the money in, there is a danger that it will do damage to the wider economy; in the longer term, it will do damage to the public finances. If a business is struggling to pay its tax, it is struggling to pay all its bills too. If we move in too quickly to get the tax out of that business, the chances are that it will go down and will no longer have any chance of paying its suppliers, so the suppliers go down as well. We will end up with a domino effect, with several businesses, and possibly three or four times as many jobs, being lost.

It is not a question of saying that there are circumstances where HMRC should say to somebody, “You don’t need to pay your debts,” but there will be times when it will be better for it to say, “We aren’t going to chase you for your debts now, but it’s up to you to get your circumstances sorted out, and then we will expect you to pay your dues.” I say that because I have known instances in constituency casework, as I suspect many Members have, where HMRC did not seem to take that approach. It appeared to have been chasing businesses to the point of liquidation, and individuals to the point of bankruptcy, for amounts of money that, in the grander scheme of things, were completely irrelevant to it, but highly relevant to those individuals and businesses.

I hope that we will get an assurance from the Financial Secretary today that the draconian powers in the Bill and in existing legislation will be used with an even softer touch over the next few years than they were supposed to be used with in the past. Otherwise, we will find that the difficulties that businesses are facing will get worse over the next few years, rather than better.

[Jesse Norman]

I thank both hon. Members for their questions. In a way, the clause is poorly named, because this is a change to allow information notices to be used to obtain documents; it is not, in and of itself, a measure that collects tax debt. The notice is an information power.

Tax authorities sometimes need to verify what they are told by taxpayers. A request that routinely arises is to look for details about transactions or movements of money in cases in which there is reason to believe that assets may have been concealed. A request may be an invitation to look for information to find out whether a bank account exists or has recently been closed. At its simplest, a request may be to find out the balance on an account.

It is important to say that the Government take very seriously all the input from our stakeholders, and the Chartered Institute of Taxation is an important stakeholder among many others. It has been striking how, over the past year or two, stakeholders have been very positive in flagging the degree of engagement that HMRC has had with them. There is a wide, close and professionally engaged relationship between the parties, and stakeholders’ concerns are carefully evaluated as part of the policy process.

It is also true that HMRC is bending over backwards to maintain its activities as a tax authority, while recognising—as the hon. Member for Glenrothes mentioned—the extremely difficult circumstances in which many companies have been placed by the pandemic and its effects. That is why there is a deferred payment scheme for VAT and Time To Pay arrangements that have been allowed to grow as they have done, and why in due course the Government are bringing in breathing space for people with debt.

A wide range of measures have been designed and put in place to protect people who may currently be vulnerable. In this case, the effect of expanding information notices is to implement a recommendation from the OECD’s global forum. Again, there was criticism from the forum that the UK was unable to use its information powers to enforce tax debts and unable to assist with information requests from other jurisdictions. Clause 123 will allow us to improve the already excellent levels of HMRC co-operation, which is only to the good in supporting international co-operation and exchange of information and the collection of tax debts that may be due.

Question put and agreed to.

Clause 123 accordingly ordered to stand part of the Bill.

Clause 124

Miscellaneous amendments of Schedule 36 to FA 2008

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

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[Jesse Norman]

Clauses 131 and 132 simply set out the Bill’s legal interpretation and short title in the usual manner for such legislation.

Question put and agreed to.

Clause 131 accordingly ordered to stand part of the Bill.

Clause 132 ordered to stand part of the Bill.

New Clause 1

Review of capital allowances and business reliefs

“(1) The Chancellor of the Exchequer must review the impact on investment in parts of the United Kingdom and regions of England of the changes made by sections 15 to 20 and lay a report of that review before the House of Commons within six months of the passing of this Act.

(2) A review under this section must compare estimated GDP in each of the next five years under the follow scenarios—

(a) these provisons are enacted,

(b) these provisions are not enacted, and

(c) the UK fiscal stimulus package, as a percentage of GDP, mirrors that of the united States.

(3) In this section— “parts of the United Kingdom” means—

(a) England,

(b) Scotland,

(c) Wales, and

(d) Northern Ireland; and “regions of England” has the same meaning as that used by the Office for National Statistics.”.—(Peter Grant.)

This new clause would require a report on the impact of the capital allowance provisions on GDP, comparing them with the impact of copying the level of fiscal intervention in the US.

Brought up, and read the First time.

[Peter Grant]

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

I am pleased to finally move the new clause after four or five days of heavy debate in Committee and two days of debate on Second reading, which is an indication of the way things happen here. The wording of the new clause is quite deliberately designed to tightly fit within the scope of the Bill, although it will be no surprise to Members that I will highlight a number of wider issues.

The UK Parliament’s and UK Government’s existing way of putting forward and approving tax and public spending plans does not really allow them to be gone into in a great deal of detail, so we ask for some way to compare what would have happened if none of the changes enacted by clauses 15 to 20 had been made, how the economy looks when they have happened and how the economy would have looked if the Government had done something a bit more ambitious and radical.

The phrase “be bold like Biden” has become very popular since the American presidential election. We do not need a comparison with the exact measures taken there, but we are seeing an economy that is in some ways quite similar to the United Kingdom’s beginning to take tax break and tax incentive decisions very different from those the current UK Government have taken. It would be good if there was some way in which we could look at what impact those UK Government decisions have had.

There have been some indications from usually quite reliable commentators that—[Interruption.]

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[Peter Grant]

Thank you, Dame Angela. Members will be pleased to hear that I will not repeat everything I said before the Division. It has been quite authoritatively suggested that if the stimulus package put forward by the UK Government had been as bold and radical as that put forward by President Biden, the impact in Scotland alone would have been 134,000 additional jobs, and the impact on UK debt would have been unnoticeable—the figures were that the debt-to-GDP ratio at the end of quarter 2 next year would have been 118% rather than 119%, which is easily within the margin of forecasting errors. That is just one example of where a different approach—had there been a way of arriving at one in time—may have made a significant difference, and I do not imagine that that would have applied only in Scotland. If we took equivalent figures England, we would be looking at maybe 1 million or 1.5 million more jobs by this time next year.

With all of these proposals, we are saying that there is a better way for this Parliament and Government to arrive at the final decisions on their tax and spending plans. If we look at what happens in some of the devolved Parliaments, their Budgets are significantly smaller. Arguably, they are not nearly as complex, because those Parliaments have few or no direct powers on most taxes or welfare payments. The Scottish Parliament’s Budget is on the go for most of the year, and almost every Budget eventually gets passed. Bits have been put in at the request of most, and sometimes all, of the Opposition groups in the Scottish Parliament. Even during the short period when there was an overall majority SNP Government, almost every Budget that was passed had bits put in, after the draft Budget had been published, at the request of Opposition parties. Incidentally, some of the most effective ones were submitted by the Scottish Conservative and Unionist party and accepted by an SNP Government, because both parties were prepared to look at what was in the best interests of Scotland, rather than caring about the party political advantage to be gained.

The difficulty in the way that we do Budgets here is that, by the time anything in the Budget is public, battle lines are already drawn. It is confrontational, rather than co-operative. It is about putting forward suggested changes that one almost hopes the other side will not accept, so as to have a go at them at election time. That is great fun and electioneering, and the tabloid press loves it because it raises the temperature quickly. I sometimes wonder whether, by doing things that way, we might be missing a chance to finish with a better set of proposals, whether on the tax-raising or public-spending side. We could end up with a set of proposals that would come much closer to what we all thought we wanted to achieve when we first arrived here. That is clearly not something that I can put forward as a proposal for this Bill. The difficulty with the way we do things here is that there is never a chance to do that.

It is not possible to set tax policies and then wonder where to make the cuts or invest the money. It is not possible to set spending decisions and then wonder how to raise the money. It has to be an iterative process and has to be gone round three or four times a year. It is much better if that is done by discussion and then, if necessary, to have the set-piece debates, the disagreements and Divisions at the end of the process.

I will simply leave those thoughts with the Committee. I hope the Minister will feed them back to his colleagues in the Treasury. Colleagues in the SNP who have been part of the Treasury team much longer than I have been pushing such ideas for a number of years. There have been some changes to practice as a result. I am even more convinced, having had my first shot at a Finance Bill as part of the SNP Treasury team, that there are better ways to do things. Believe it or not, I actually want to make things better for this place, during the relatively short time that I hope to be here. Finally, if it helps the Committee, I will not say anything on new clause 7, because any arguments on that have already been had.

[Jesse Norman]

I thank the hon. Member for Glenrothes. I must say that the Scottish National party does not have an international reputation for the bipartisan way in which it treats partisan party politics. I am delighted to hear that the hon. Gentleman is offering the cross-party approach he advocated in his remarks.

The hon. Gentleman says that there is a better way. He should know that the Government are very much committed to improving the tax process wherever we can. We operate within a set of existing arrangements and political procedures that have proven their worth over many decades, but we are constantly seeking to improve. The classic example was our tax policies and consultation day, which we had in March this year. That was an attempt to create more transparency and to give more prominence to measures that might otherwise have been lost in the Budget process, in order to allow the widest possible public scrutiny and debate.

To pick up the point the hon. Gentleman made about international comparisons, I can understand why it appears interesting to him, but a few seconds of reflection would yield the thought that it really is not for the Government to be publishing analyses of other countries’ tax policies or fiscal arrangements. It really is not for us to be choosing one country, even if we were committed on that route, rather than another, because where would that end? Of course, there are many other institutions around the world that will provide precisely that kind of global comparison service. I am afraid that I do not share the hon. Gentleman’s view about the efficacy of that approach.

I am grateful that the hon. Gentleman is not pressing new clause 7, on the correct grounds that we have discussed much of it already, but, in general, the Government do publish an awful lot of detailed information on the Exchequer, macroeconomic business and equalities impacts of not only these clauses but all clauses that are debated in Finance Bills. Those assessments are comprehensive and wide-ranging, and therefore we do not think that a detailed review would be useful. With that, I am grateful to the hon. Gentleman for his contribution.

[Peter Grant]

I think it was obvious that I did not expect the Government to accept the new clause with joyful acclamation. I deliberately tried to pitch my remarks in a co-operative vein, and it is disappointing that the Minister could not resist a bit of completely unnecessary playground politics. If he wants to look at the respective international standings of the two Governments and the international standing of the two Heads of Government as things stand right now, and if he wants to look at the current standing, credibility and trustworthiness of the two Heads of Government among the ordinary people of England, never mind the ordinary people of Scotland, that is a debate I would be delighted to have with him on another day, but I would have to caution him that it is not a debate that his party wants to get into just now. For the people of Scotland, the outcome of that debate will be seen on Thursday next week. I look forward to that, but I suspect that the Minister’s party is not looking forward to it as enthusiastically as I am. I am sorry that I have had to adopt that tone at the very end of our deliberations.

[The Chair]

Mr Grant, do you wish to push the new clause to a vote?

[Peter Grant]

I beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.

Question proposed, That the Chair do report the Bill, as amended, to the House.

[Jesse Norman]

On a point of order, Dame Angela. I would like to thank you and Sir Gary, Hansard, the Whips, parliamentary private secretaries and officials. I am sure that I speak for those on both sides of the Committee when I thank those who have supported us through the Committee stage. I would particularly like to call out the names of Edwin Ferguson and Sarah Hunt and of our Bill team at the Treasury, Bill manager, Mikael Shirazi, Helena Forrest, Barney Gibb and Sam Shirley. I thank colleagues across this Committee for their commitment to scrutinising and debating the legislation. I am keenly aware, as they will be, that we do so under the picture of William Gladstone and his Cabinet at the time—a very forbidding chancellorial figure. With that in mind, I thank everyone for their contributions, and thank you, Dame Angela, for presiding so ably.

[James Murray]

Further to that point of order, Dame Angela. I would like to put on record my thanks to you for being a very patient Chair on my first time in a Public Bill Committee, following Sir Gary Streeter last week. I also thank the Clerks for helping us to draft amendments, and the wider House authorities for making it possible to hold a Public Bill Committee in these strange circumstances. I would also like to thank all members of the Committee. On behalf of my hon. Friend the Member for Erith and Thamesmead, I particularly thank our Whip—my hon. Friend the Member for Manchester, Withington—and my hon. Friends the Members for Vauxhall and for Luton North for giving up their time to sit on this Committee.

[Peter Grant]

Further to that point of order, Dame Angela. Although, there are obviously parts of the Bill that I do not agree with, I endorse the Minister’s comments on the work that has been done by his colleagues on the Treasury team and by Hansard and other parliamentary staff, without whom democracy in this place simply would not happen—we should never forget that.

I thank my hon. Friend the Member for Glasgow Central, who was unfortunately not able to be with us today, for her work as the senior SNP Treasury spokesperson. I also thank—this is a name that most Members will not recognise—Scott Taylor from the Scottish National party research team. When people ask me what Westminster researchers do, I say, “Their job is to make it look as if their MPs know what they are talking about.” We may all have different opinions on how effectively they do that, but Scott and his colleagues have certainly done a huge amount of work over the last months.

Finally, I thank the large number of external stakeholders who have engaged fully with us as a third party, and no doubt with other parties as well, in a constructive way. They understood when they put forward things that we simply did not feel we could support, but at the same time they gave us a lot of background information so that our understanding of the likely impact of the Bill was much greater than it would otherwise have been, whether we were able to take their requests on board or not. As I said, although I disagree with parts of the Bill, we should recognise that, overall, it is a better piece of legislation thanks to the contribution that those external bodies have made.

Question put and agreed to.

Bill, as amended, accordingly to be reported.