Finance Bill (Fifth sitting)

Rob Marris Excerpts

Thursday 15th October 2015 Public Bill Committees

[Mr Gauke]

Clause 37 makes changes to ensure that the correct amount is used when calculating taxable profits when trading stock is transferred between related or connected parties. Clauses 38 and 39 are concerned with the same issue. Clause 38 makes similar changes to those in clause 37 but for cases where a trade ceases; clause 39 does likewise for cases where intangible fixed assets are transferred to a related party.

A number of situations can arise when trading stock is sold or transferred outside the course of trade. The stock can be transferred to a separate business run by the same person, or sold to a business run by a family member. The intention of the tax system is that the stock should always be brought into account at its market value when calculating the taxable profits from the trade—a well established principle that originated in a court judgment many years ago and was subsequently brought into legislation.

Some situations have been identified, however, in which the full market value of stock may not be brought into account. This can occur when transfer pricing rules take precedent over market value rules. Transfer pricing rules aim to identify and bring into account an arm’s length price for the stock. In many situations that will be the same as the market value, but that is not always the case. Where the transfer pricing rules apply, the market value rules are turned off; as a result, there is a risk that the transfer pricing rules will give an amount below market value when calculating profits for taxation, which was not the intention of the legislation. Similar issues have been identified where stock is valued when a trade ceases, and also where intangible fixed assets are transferred between related or connected parties.

Clause 37 is fairly simple. It removes the rule that states that if the transfer pricing rules apply the market value rules cannot also apply, so that where the transfer pricing rules apply in a way that does not give the full market value, the market value rules can be applied, adding the extra amount needed to bring the total up to market value. The true market value will therefore be brought into account when calculating taxable profits. Similar changes are made by clause 38 for cases where a trade ceases, and by clause 39 for cases where intangible fixed assets are transferred to a related or connected party.

Clause 37 removes an unintended consequence whereby two pieces of tax legislation do not, on occasion, work together properly. The changes will ensure that the correct amount is brought into account for tax, as intended by the legislation.

[Rob Marris (Wolverhampton South West) (Lab)]

As I understand it, all three clauses are anti-avoidance measures designed to clear up conflicting legislation on market price and transfer pricing. Transfer pricing has occasionally been used by companies immorally—not illegally, but immorally—to pay less tax, effectively, by not using the market price. As the three clauses are anti-avoidance measures, I invite my hon. Friends to support them.

Question put and agreed to.

Clause 37 accordingly ordered to stand part of the Bill.

Clauses 38 and 39 ordered to stand part of the Bill.

Clause 40

Carried interest

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

[The Chair]

With this it will be convenient to discuss the following:

Clause 41 stand part.

New clause 2—Tax treatment of private equity fund managers’ pay—

‘(1) The Chancellor of the Exchequer shall, within six months of the passing of this Act, publish and lay before the House of Commons a report setting out proposals for amending the law to ensure that no element of the remuneration paid to an investment fund manager may be treated as a capital gain, and that such remuneration shall be treated for tax purposes wholly as income.

(2) For the purposes of this section, an “investment fund manager” is a person who performs investment management services directly or indirectly.’

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[Roger Mullin]

I fully agree; indeed, I look forward to the Minister’s response in that regard. This may have been a missed opportunity that the Government now recognise and will want to correct.

Let me make another comparison. In my own constituency, my wonderful constituency manager, Lynda Holton, pays about the same effective tax rate as many fund managers who earn 100 to 200 times more than her. [Hon. Members: “Pay her more!”] When I was on the phone to her this morning, she did want me to say “my underpaid constituency manager”. And she is underpaid, but of course I am a devotee to the rules of the Independent Parliamentary Standards Authority in this regard. Surely it cannot be right that people on much more modest incomes have effective tax rates that are higher than those for some of the highest paid people in our society. I am prejudiced in favour of the simplification of tax as well as justice in tax. For both those reasons, I hope that the Government will respond positively to our new clause.

[Rob Marris]

Sir Roger, I did understand your explanation. As you know, I am new and old—a retread—and I found it very helpful; thank you.

Clauses 40 and 41 are essentially anti-avoidance measures, so hon. Members on the Opposition Benches welcome them. I welcome the fact that there will be no base cost shifting—something that is discussed in the pubs and clubs of Wolverhampton every night of the week; we are very keen on that. However—there is on occasion a “however”—we do not think that clauses 40 and 41 go far enough, because the carried interest is still treated as capital gains. It seems to us that treating carried interest as capital gains is a bad idea and the Government should not permit it. It certainly appears to be a tax loophole—again, not illegal, but immoral—and we think that it should be closed. I have considerable sympathy with the spirit and wording of new clause 2, which was spoken to very eloquently by the hon. Member for Kirkcaldy and Cowdenbeath.

[Chris Philp (Croydon South) (Con)]

Will the hon. Gentleman join me in welcoming the fact that the current Government have increased the tax rate on these kinds of capital gains from the 18% that it was at under the last Labour Government to 28% today? Would he also like to explain why, during its 13 years in office, the Labour party took no action in this area?

[Rob Marris]

Looking round the room, I think that one hon. Member, the Minister, will remember that I was not a member of the last Labour Government when I was previously in the House—[Interruption.] I was “supportive” says an hon. Member from a sedentary position; we will get on to that—[Hon. Members: “Ah!”]. The Minister is well aware of this. I am aware that Alistair Darling, when Chancellor of the Exchequer, cut the capital gains tax rate to 18%. I said at the time that I thought that that was wrong and I have to say now that I think that it was wrong. Furthermore, I have to say, bearing in mind the time at which it took place, that it is shocking that I do not recall in the debate on that change any debate about how it would affect positively many right hon. and hon. Members who at that time, within the rules, owned second properties in London, on which they would accrue a capital gain, and on that capital gain, they would pay a lower rate of 18%. The hon. Member for Croydon South is absolutely right to say that it was the wrong thing to do. Putting it up to 28% is a step in the right direction, but on these measures and these activities of investment fund managers, they should pay income tax on what most people, including me, would regard as income.

As I have said, I have considerable sympathy with new clause 2. I shall listen with great interest when the Minister speaks at greater length about the new clause—he said he would and it would be helpful. Having heard his side, I and my hon. Friends will make up our own minds. We are not only swayed by the arguments for equity, equality and justice; we also bear in mind, as the hon. Member for Kirkcaldy and Cowdenbeath mentioned in speaking to new clause 2, the OECD’s recommendation that such incomes should be treated as incomes and be subject to income tax, not treated as capital gain and subject to capital gain tax. To those of us who are not taxation experts, it appears that calling it a chargeable gain is a manoeuvre to lessen the tax paid by those who benefit from that form of remuneration.

[Mr Gauke]

I will respond to the remarks, not necessarily at length. The comments from the hon. Members for Kirkcaldy and Cowdenbeath and for Wolverhampton South West were pithy.

I shall deal straight away with the question of carried interest. Carried interest is a reward for a manager that is linked to the long-term performance and growth of the funds they manage. It is therefore capital in nature and should continue to be charged against capital gains tax. That has been the approach followed by Governments of both major parties for many years, and it is consistent with what happens in many other jurisdictions.

My hon. Friend the Member for Croydon South was right to say that capital gains tax was 18% when the Labour Government left office. If I remember correctly, it was possible for private equity managers to benefit from taper relief, so there was often an effective rate of 10% for many years under the Labour Government. There at least seems to be a consensus in the Committee that that was not the right approach. We believe we were right to take steps to change the capital gains tax rate, as we did at the beginning of the previous Parliament, but I would still argue that, as is the case in many jurisdictions, it is perfectly reasonable to treat carried interest as essentially a capital gain issue rather than an income issue. Of course, if any part of a manager’s rewards payments are properly regarded as income rather than capital, they should be charged to income tax. That is what drives the Government’s approach. We have launched a consultation to ensure that rewards that should be charged to income tax are always taxed in that way.

I will just pick up a couple of points made by the hon. Member for Kirkcaldy and Cowdenbeath. He is correct that national insurance is not chargeable on capital gains; it is payable only on earned income. However, it is not the case that entrepreneur’s relief can be accessed by investment managers, as the activity of the underlying fund is investing, not trading. Entrepreneur’s relief therefore does not apply in those circumstances.

If I were so inclined, I could quote extensive comments from the likes of Ed Balls, when he was a Treasury Minister, in support of the capital gains treatment of carried interest, and that was a period when the gap between income tax and capital gains tax was much greater, but I will spare the Committee that this morning. I am not sure that Ed Balls is a particular hero of the hon. Member for Wolverhampton South West, but our approach on carried interest is consistent with that of other countries and previous Governments.

We are determined to ensure that the rate at which private equity managers pay tax is never lower than their cleaners pay. That was the case under previous Governments, but it is not the case any more. Nor is it acceptable that what should be charged as income is in fact charged as capital gains. The Government have taken action on those points. I hope that provides reassurance to the Committee and I urge the hon. Member for Kirkcaldy and Cowdenbeath not to press new clause 2.

[Mr Gauke]

My hon. Friend makes a good and important point. In thinking through the impact of the policy advocated by some Opposition Members, we need to understand the international implications and the implications for the UK’s competitiveness. Clearly, any assessment of the revenue effects would have to take account of what are likely to be significant behavioural responses. Claims of large revenue sums may be based on a static analysis, without an understanding that there is also a competitiveness point.

[Rob Marris]

The Minister mentioned Ed Balls. I think the Minister was on a Committee in the position that I am now in when Ed Balls was trumpeting the fact that London had become the financial centre of the world and had surpassed New York because of light-touch regulation. Some of us on the Labour Back Benches pointed out to him that that was a bad move that might end in tears. Sadly, our warnings were more than fulfilled in 2008, with the Lehman Brothers meltdown and what happened in this country. I caution the Minister not to go along with the argument made by the hon. Member for Croydon South that people will go offshore and so on. We should not have had light-touch regulation and we should be careful about regulation now.

[Mr Gauke]

Again, I think we can find some consensus. I will not dwell on this, Sir Roger, because we will depart from the business before us if we start to discuss the failures of the regulatory system in the run-up to the financial crash in 2008. However, that is why we have undertaken substantial reform of financial regulation in the UK.

We should want a competitive and thriving financial sector in this country, but we must ensure that it does not pose systemic risks for the UK economy as a whole. That is the challenge that the Chancellor has referred to as the British dilemma in having a major financial centre, with many benefits to us. It is important that the City thrives. Some of my ministerial colleagues and I have visited the City—I do not know whether everyone can say that. However, we must ensure that we have a regulatory system that does not impose greater risks on the overall taxpayer. There is a question of judgment here, and ensuring that we have a thriving private equity industry is something we should welcome.

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[Mr Gauke]

The clause reforms vehicle excise duty to support uptake of the cleanest cars. It also addresses the current system’s unfairness and sustainability challenges. The reformed VED will apply to cars first registered from 1 April 2017 onwards. The reformed tax will raise the same revenue as today, but the changes will ensure that revenues are sustainable in the long term. It supports creation of a new roads fund, so that from 2010 all revenue raised from VED in England will go into the fund, which will be invested directly back into the English strategic road network.

I will set out why the Government believe the current system needs changing. VED for post-2001 cars is currently banded according to carbon dioxide emissions for both first-year rates and annual standard rates. The current CO₂ bands are out of date. They were introduced in 2008, when average new car emissions were 158 grams of CO₂ per kilometre. Today they are 125 grams of CO₂ per kilometre, so owners of many ordinary new family cars such as the Ford Fiesta now pay nothing or next to no VED, and by 2017 owners of nearly three quarters of new cars will pay only £30 a year or less. That has weakened the incentives for people to purchase the cleanest cars.

Clearly that level of revenue is unsustainable. It also creates unfairness. The average VED across all UK motorists is £166, whereas the average VED on a brand-new car is only £85, which will fall to £62 by 2017. Therefore, families who can only afford older cars are increasingly shouldering more of the tax burden than those who can afford to buy a new model every few years. Evidence from studying car purchase decisions across Europe suggests that the first-year rates of VED are the most effective in influencing people’s choices to buy efficient cars. VED annual standard rates are less effective, as people place little weight on future costs, so basing VED annual standard rates on CO₂, as the current system does, has little impact on environmental outcomes, causes significant unfairness and makes revenues unsustainable.

Changes made by the clause maintain first-year VED rates based on CO_2, but five new VED bands in the nought to 100 grams of CO₂ per kilometre range will be created. The new bands will distinguish between zero-emission cars, plug-in and hybrid vehicles and efficient, conventionally fuelled cars. The very cleanest zero-emission cars that produce no air pollutants will pay nothing; rates on the most polluting cars will be increased. The changes strengthen the incentive to purchase the cleanest cars and incentivise continued improvement by manufacturers. For all subsequent years, the new VED system moves to a flat standard rate of £140 for all cars except zero-emission cars, which pay nothing. There will be a standard rate supplement of £310 for cars worth more than £40,000 to apply for the first five years on which the standard rate is paid.

These changes improve fairness for all motorists, strengthen environmental signals and sustain revenues in the long term. No one will pay more in tax than they do today for the car they already own. For cars in the new system, around 95% of motorists will pay less than the average £166 they pay today. The change will put revenues on a sustainable path, but the total car VED burden will not increase. The change updates and strengthens incentives to purchase the cleanest cars and particularly incentivises the uptake of fully zero-emission cars. Their uptake will drive the greatest reduction in carbon emissions reductions as well as air pollutants.

I would like to say a few words about new clause 5 before the hon. Member for Wolverhampton South West has a chance to speak on it. New clause 5 would require the Chancellor of the Exchequer, within two years of enactment, to undertake a review of the impact of introducing a flat rate of VED on the automotive sector, on emissions and on revenue. The new clause calls for such a review within two years of Royal Assent, but hon. Members should note that that would be only approximately eight months after the reforms actually came into effect.

The new clause is not necessary. The Chancellor already announced in the summer Budget that we will do precisely that kind of review as necessary, to assess how the arrangement works in practice and to ensure that the reforms continue to incentivise the cleanest cars. Adopting a flat annual rate of VED while strengthening support for the cleanest cars ensures the change is a fair, simple and sustainable solution able to provide long-term certainty for the UK car market.

Clause 42 strengthens incentives to purchase low-emission cars over efficient conventionally fuelled cars. It sustains VED revenues, allowing for the creation of the roads fund, and it will improve fairness for UK motorists. I stress that the proposed new clause is entirely unnecessary.

In conclusion, clause 42 reforms VED for cars first registered from 1 April 2017. It ensures the tax keeps pace with technological change, is fairer, simpler and sustainable in the long term, and it allows for the creation of a new roads fund, which will ensure our national road network gets the multibillion pound programme of investment it needs. I therefore urge that the clause stands part of the Bill, and hope to persuade the hon. Member for Wolverhampton South West not to press new clause 5.

[Rob Marris]

With your permission, Sir Roger, I will start by addressing clause 44 in the group, lest I forget it. Have I understood that correctly?

[The Chair]

No, this is clause 42. I had my rented teeth in when I read it out. I fully understand the hon. Gentleman’s confusion. Clause 42 and new clause 5 are to be debated now. The next batch includes clauses 43 and 44.

[Rob Marris]

Thank you for that clarification; I did not want that clause to be overlooked. I was doing quite well on the bicycles, and I thank the Minister for his clarification at the start of this session. I hope we can now make similar progress. I will be really motoring on clause 42. I think VED goes back to 1889. I want to thank my researcher Imogen Watson, who has done a sterling job in assisting me with the Bill, particularly clause 42.

I find the Minister’s explanation somewhat unconvincing. The first part of his explanation about equality and the fact that, if left unchanged, by 2017 75% of vehicles would be paying £30 or less VED a year, and that the average for vehicles is £166, but the average for new cars is £85. He seemed to jump from that to a suggestion that, because the banding based on CO₂ introduced by the previous Labour Government was successful, we should now abandon it.

I fully understand the revenue arguments for that. That scheme was predicated on giving a tax break to car purchasers, whether individuals or companies, for buying a car that is less polluting—no vehicle is environmentally friendly. The scheme has been successful, as the Minister’s figures attest, but the Government now propose to abandon it.

I can see an argument for looking again at the vehicle excise duty scheme to protect Government revenue, and I can see an argument, particularly in the light of the admitted outrageous behaviour of the Volkswagen Group, for reconsidering whether CO₂ should be the sole gas used in the metric for setting the vehicle excise duty that takes into account the pollution produced by a light passenger vehicle when in use. We could, for example, look at nitrogen oxides, commonly called NOx, as another component of pollution in a tax regime to dissuade purchasers of light passenger vehicles from buying vehicles that, through the tailpipe emissions of noxious gases other than CO₂, cause hundreds of deaths in this city every year and thousands around the country. Clause 42 does not do that. It sticks to carbon dioxide, which, of course, is a key greenhouse gas, is bad for our climate and is produced in great quantities by light passenger vehicles around the world.

Where I differ significantly from the Minister—I will invite my hon. Friends to vote against clause 42 in a Division on this—is that he said today, unless I misheard, that the rates on the most polluting cars will be increased under the new regime, but that depends on the calculation. I remember what the Minister said about some research indicating that it is the first year of vehicle excise duty that has a particular impact on the purchasing decision. However, it may surprise the Committee to hear that I am an avid reader of The Daily Telegraph on Saturdays.

[Jake Berry (Rossendale and Darwen) (Con)]

What about the Morning Star?

[Rob Marris]

The motoring column in the Morning Star is not quite as good as that in The Daily Telegraph, but then it is a big capitalist publication with lots of assets.

Few, if any, Opposition Members will be aware of this, but all Government Members who are avid readers of The Daily Telegraph on Saturdays will be aware—[Interruption.] It appears that Opposition Members are avid readers of all newspapers; my colleagues are so well informed. In the motoring section is Honest John, who answers queries from members of the public. He is so successful that he has a team of three others to help him. He responds to queries on car purchases, what tyres to use, and certain technical stuff that, frankly, I do not really understand.

[Jake Berry]

U-turns?

[Rob Marris]

Handbrake turns if not U-turns. I suspect that Honest John has considerably more expertise than anybody in this room, and he is always clear that manufacturers aim to produce a car that will last at least seven years. Certain models last longer, and we all know that Jaguar Land Rover engines will last a lot longer than seven years because they are made in Wolverhampton and because they are a high-quality product. But the fact is that from 2017, assuming clause 42 is agreed to, the vehicle excise duty payable over seven years will not increase for the most polluting cars. It will decrease.

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[Jake Berry]

Nice!

[Rob Marris]

It may be nice for the hon. Gentleman, but it will not be so nice for his great-grandchildren when they reap the havoc from climate change. That Audi emits 181 grams of CO₂ per kilometre. Under the new scheme, assuming it is still on sale in March 2017, the car will move up from band I to band J, yet those emissions will receive a discount, as it were, of £60; the current seven-year cumulative duty would be £1,700 but under the new scheme it will be £1,640. The change is not huge, but it is a 3.5% change in the wrong direction.

A petrol Infiniti Crossover, of the Nissan luxury brand, which as far as I know is not made in this country, produces an antisocial 265 grams of CO₂ per kilometre. It is currently in band M and liable for a seven-year duty of £4,130. Under the new regime, the charge will be £1,290 less, at £2,840—a 31% drop because of the interaction between the new vehicle excise duty regime and the £40,000 cost threshold, above which a different regime applies. That is a 31% drop in vehicle excise duty over a seven-year period for one of the most polluting light passenger vehicles currently on sale in the United Kingdom.

Now let us look at a Jaguar XF, which currently costs just under £50,000. It is now in band F because its CO₂ emissions are 144 grams per kilometre, and costs £1,015 over seven years in vehicle excise duty. Under the new regime, if a car costs less than £40,000, it will move up—up being less polluting—to band H and cost £1,040 over seven years, an increase of £25, or £3.57 a year, as my wonderful researcher, Imogen Watson, tells me. But as for the Jaguar XF, fine vehicle as it is, no doubt with an engine made in Wolverhampton, because its price tag is over £40,000—and remember: its CO₂ emissions are 144 grams per kilometre, which is still high, but nothing like the Infiniti’s 265 grams per kilometre—it will cost an extra £310 per year for the first five years, meaning that over seven years the duty will go up to a total of £2,730, an increase of £1,715 or 169%.

Now, I have nothing against the Infiniti—as far as I know I have never been in one—and Nissan is a fine manufacturer, but its luxury model emits 265 grams of CO₂ per kilometre, and yet there will be a 31% drop in duty for it over the seven-year cumulative period, whereas the Jaguar is much less polluting, at 144 grams per kilometre, but its duty will increase by just under 169%. That cannot be right.

I urge the Government to think again. They should think about the pulmonary diseases from which thousands of people are dying already. Much—not all, but much—of that illness is arising because of vehicles, including light passenger vehicles. The Government also need to think again about the mixture of bad gases, to put it in lay terms, used as the metric for calculating vehicle excise duty. I also urge them to think again about the CO₂ based regime they are proposing from 2017 onwards, because it cannot be that the successor to the greenest Government ever, which is a phrase that hon. Members have no doubt been waiting for me to utter, are moving in the wrong direction by jettisoning what has been—I will try to be dispassionate, although it was my Government who introduced it—a vehicle excise duty regime that has been extremely successful in lessening considerably the CO₂ emissions from the fleet of light passenger vehicles in the United Kingdom.

I take the Minister’s point that the way in which new clause 5 is worded means that the review would happen eight months after the new clause would come into effect if the Government do not withdraw clause 42, as I hope they will. If he were to say a little more about the Chancellor’s remarks regarding a review of the impact and effect of clause 42, something to which he adverted in his remarks, I might be reassured and so not wish to press new clause 5 to a Division at the appropriate time. I therefore hope for some reassurance from the Minister; although, capable as he is, he can only rely on what the Chancellor of the Exchequer has said in that regard. I urge Members to vote against clause 42 if the Government do not withdraw it, as it will be bad for the economy, bad for the environment and bad for our children.

[Christian Matheson]

I feel I ought to add my congratulations to my hon. Friend on his research. He seems to be doing an impressive job. I was also impressed by the recommendation he gave about Honest John in The Daily Telegraph—I might cancel my Saturday subscription to the Morning Star and take the Telegraph instead.

My hon. Friend makes an important point. It is entirely legitimate to build environmental considerations into the taxation system if we want to change people’s habits in order to protect the environment, and the clause gives the impression that the Government are once again rolling back from their pledge to be the greenest Government ever and falling into bad old ways.

There is a way out. Perhaps the Minister should take a pause on the clause, as my hon. Friend suggested, because so much of it is predicated on emissions standards that have been thrown into turmoil by one company, which was not a British company—I do not believe that a British company would partake in such skulduggery. We cannot be absolutely sure that emissions standards across the industry are as they should be, because manufacturers in certain areas have been telling us, shall we say, statements that lack 100% veracity.

It is not only that motorists have been hoodwinked. The Government have potentially lost revenue as a result of emissions figures being massaged, with lower figures given. What are the Minister’s intentions, either through the Bill or perhaps more appropriately through another mechanism, on claiming back any revenue lost as a result of the Volkswagen scandal? The state has lost revenue as a result, so taxpayers have been hoodwinked as well as individual motorists, and although the Bill might not be the right mechanism for this, there must be a role for the Government in chasing down such manufacturers. Perhaps the Minister should not push through new measures linked to emissions standards until he and his colleagues in the Department for Transport are sure that a fair taxation system can be based on those standards. The Minister may wish to heed my hon. Friend’s good advice.

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Failing to pass the measures in the clause will clearly add to the deficit. I do not intend to rerun last night’s arguments, but when the Labour party tells us that it is serious about the deficit, it would be unfortunate if the very next day it voted against a measure that would help to reduce the deficit fairly significantly, by bringing in additional revenue by 2020-21 of £1.4 billion. If the Labour party wishes to vote against that today, so be it, but I would once again question its credentials for ensuring that the country lives within its means. With those remarks, I hope the clause will stand part of the Bill and that new clause 5 will not be pressed to a Division.

[Rob Marris]

I take the Minister’s point about retrospection, which I referred to in my remarks. He may remember—although others will not—that at one point Alistair Darling, the Labour Chancellor of the Exchequer, did suggest a retrospective VED regime, and I led the Back-Bench rebellion among the Labour ranks and got him to drop it because it was unfair. I tried unsuccessfully in years gone by, under a Labour Government, to get swingeing increases in VED for the most polluting cars. In those days nine of the 10 most polluting light passenger vehicles were not 4x4s, as is commonly thought, but luxury brands such as Maserati. There was only one 4x4 in the top 10.

The Minister understandably referred to the deficit, which remains enormous under this Government, as it did under the previous, coalition Government. My hon. Friend the Member for City of Chester gave the Government a way out, because they do not propose to introduce this measure for another 18 months.

The Government should not be lowering the seven-year total vehicle excise duty on the most polluting cars and raising it considerably on the least polluting cars. I take the Minister’s point about the research to which he is privy regarding the effects of VED being most keenly felt, and therefore the biggest lever revenue-wise for the Government, on the year of purchase rather than in subsequent years. However, the two are not contradictory. It is not an either/or, particularly as the Government have, transparently and helpfully, put forward proposals for a change in regime in 18 months’ time. That is helpful for our debate and that helps prospective car purchasers take into account the change in regime. The clause could be changed on Report if the House so wants.

The Government could introduce a revised regime that protects Government revenue and which would address point about the deficit, to which the Minister reasonably adverted, and the Opposition’s concerns about the seven-year cumulative total dropping markedly—a 31% drop. That could be done by having a high first-year VED that influences purchasing decisions, as the Minister assures us is the case—I have no reason to doubt that; I do not know one way or the other—and dropping the crazy notion of a £140 flat rate thereafter, except for very expensive vehicles that cost more than £40,000, or those on the protected rate of £130.

The Minister and our society, but not purchasers of certain types of vehicles, can have our cake and eat it. We can have the first-year high vehicle excise duty to dissuade purchasers from wrecking the environment even more by buying a very polluting vehicle and we can have a continuing non-flat rate with progressively higher vehicle excise duty each year for more polluting vehicles. We can have both. That would protect revenue and help to lessen the damage to our environment. Again, I urge the Government to rethink, if not the whole scheme, then at least the £140 flat rate and the £130 protected rate for year two onwards. That would square the circle as the Minister seeks on revenue protection and pollution.

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

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[Mr Gauke]

Clause 44 makes changes to ensure that the aggregates levy will no longer be due on less environmentally damaging sources of aggregate, including waste from slate, and ball and china clay production. It ensures that exemptions found lawful by the European Commission are reinstated, with retrospective effect from 1 April 2014. Finally, it changes the former shale aggregate exemption to reflect the European Commission’s decision that part of the exemption provided unlawful state aid.

The Government believe it is right that the aggregates levy is used to encourage more efficient quarrying by shifting demand towards less environmentally damaging sources of aggregate. The levy was therefore designed with exemptions for recycled aggregates and by-products of other industrial processes, such as slate or ball and china clay waste. However, following legal action from a UK trade association, the European Commission launched an investigation into several of the aggregates levy exemptions on state aid grounds. During the investigation, the Government were required to suspend the aggregates levy exemptions, which were removed by the Finance Act 2014. The Commission announced on 27 March 2015 that it had found all the exemptions lawful except for part of the shale exemption, namely for shale aggregate that is not produced as a by-product of untaxed materials.

Clause 44 will restore in full the exemptions that were suspended on 1 April 2014, except for the shale exemption. It repeals the removal of the levy exemptions in the 2014 Act, so that they are reinstated with effect from 1 April 2014, the date from which they were originally suspended. Businesses were able to stop paying the aggregates levy on materials covered by the reintroduced exemptions from 1 August 2015. They can also reclaim levies that they have paid on such materials since the exemptions were suspended. To provide clarity to businesses, details of the repayment process have been published by HMRC in a Revenue and Customs brief, ending the uncertainty that businesses such as slate quarries in Wales and ball and china clay quarries in south-west England have faced since the start of the Commission investigation. We estimate that some 120 businesses will be able to claim repayment of the levy for reinstated exemptions.

Clause 44 will also change the former shale exemption, with only the part of the exemption found lawful by the Commission being reinstated. A new exemption process for shale will be introduced so that only shale used for construction purposes, which includes shale aggregate, and shale produced as a by-product of other taxed materials will be taxable under the aggregates levy.

To conclude, clause 44 will reinstate the aggregates levy exemptions found lawful by the European Commission with retrospective effect from 1 April 2014 and change the former shale exemption in line with the Commission’s decision. It will restore the environmental aim of the levy to shift demand towards less environmentally damaging sources of aggregate by exempting such materials once again.

[Rob Marris]

It may surprise hon. Members to know that aggregates are dear to our heart in Wolverhampton, which was the site of the headquarters of Tarmac, as was, which grew to be one of the biggest aggregates companies in the European Union. I am pleased that the coalition Government were able to persuade the European Commission that the 2002 regime introduced by the then Labour Government was not unlawful state aid and that the decision made in March this year went in favour of our country. It is unsurprising that HMRC now wants to sort out the shouting, it being all over bar the shouting for the 120-odd companies that were caught up while that investigation was ongoing. The clause is an entirely sensible way of going about that, so I invite my hon. Friends not to oppose it.

Question put and agreed to.

Clause 44 accordingly ordered to stand part of the Bill.

Clause 46

International agreements to improve compliance: client notification

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[The Chair]

Before I call the hon. Member for Wolverhampton South West, I have to remind hon. Members that unless and until the recommendation of the Chairman of Ways and Means is adopted by the House—it has not happened yet—the Chairman has no power to suspend the sitting at 1 o’clock. It is therefore up to the Government Chief Whip to move the Adjournment at the time that he feels appropriate; and if he does not do so, you do not get any lunch.

[Rob Marris]

Clause 46 is a step forward. I congratulate, with one cheer, the Government on that, but it is a small step. The common reporting standard comes in, I think, from 2017. The Government are talking now about another amnesty. How many amnesties can we have? Hon. Members will remember the CD of information on tax evaders that leaked out of Switzerland and was used constructively by several other countries in Europe to clamp down on those of their citizens who had illegally squirrelled away money in Switzerland. My recollection is that we had some kind of amnesty in the United Kingdom for such citizens and, lo and behold, when the Swiss papers—the Swiss bank records—were finally opened several months later, the money had all gone walkies and the amount that the Chancellor of the Exchequer got in was far less than he had been proudly trumpeting would be recovered by HMRC because of that information.

I fear that the same may happen in this case. The clause is a step forward. As for the regulations, which are being consulted on, I say to the Minister that I have not seen it anywhere—it may be somewhere—that this advice should be given in writing and recorded in writing by the financial adviser. That would be a step forward, but a greater step forward to protecting the Revenue from this offshoring avoidance, if not evasion, would be, as I said to the Committee two days ago, to have much more pressure from Her Majesty’s Government on transparency, on beneficial ownership and on the tax havens around the world, which assist aggressive tax avoidance and sometimes assist, perhaps unknowingly, with tax evasion. Many of those tax havens, whether Crown dependencies or otherwise, have a relationship with the United Kingdom. We have considerable leverage there and, in terms of what is disclosed publically, Her Majesty’s Government—both this Government and the previous, coalition Government—have not used that leverage as decisively as we on the Labour Benches would wish.

This externalising of costs to financial advisers, although understandable and welcome, is an externalising of costs, so the financial adviser has to remind the client of the penalties for undertaking certain types of financial transactions. Meanwhile, the number of staff at Her Majesty’s Revenue and Customs, who are one of the lines of defence against aggressive tax avoidance, is being slashed by one quarter, as I understand it, from 70,000 to 52,000 in the period 2010 to 2016. I would be delighted if the Minister could tell me that I have got that figure very wrong—I may have got it wrong slightly around the edge. If he could tell me that the number of HMRC staff is in fact being increased as part of a Government measure to increase markedly the number of staff who can help to crack down on aggressive tax avoidance and illegal tax evasion, I would be delighted, but I fear that he will not reassure me that there has been a major increase in staff. So, although the clause is a step in the right direction, it is nibbling around the edges. A much stronger and more effective way forward would be to have a larger number of properly trained HMRC staff investigating and applying pressure, and the legislation that already exists.

[Mr Gauke]

I welcome the support for the clause, even if the enthusiasm for it was somewhat limited. I will not dwell at length on the wider issues raised by the hon. Member for Wolverhampton South West, but it is worth pointing out that we have been a world leader in our pursuit of tax evaders. It is a driving force behind the implementation of the common reporting standard, to which all overseas territories and Crown dependencies have signed up. It is also worth pointing out that HMRC has the option to prosecute where it deems that suitable and where it is in the public interest. We are also currently consulting on tougher penalties, including new civil and criminal offences.

The common reporting standard will give HMRC access, for the first time, to data about accounts held by UK residents in over 90 countries, which will make a significant difference to HMRC’s ability to crack down on tax evasion. We are also toughening up the penalties for those engaged in tax evasion. HMRC has been consulting on new criminal offences for corporates and individuals and on new penalties, including applying to the underlying asset for individuals and enablers. The Government will report on the outcome of the consultations shortly. Disclosure facilities are one of a number of approaches—we are also introducing tougher sanctions against those who abuse the rules—and the disclosure facilities have brought in more than £2 billion in tax.

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[Rob Marris]

Can the Minister say briefly what the Government are doing about disclosure of beneficial ownership?

[Mr Gauke]

The UK is introducing a central register that is publicly available. We are leading the way on that; I am not aware at the moment of any other jurisdictions elsewhere that are pursuing that. We believe that we should set the benchmark, so I am pleased that we as a country are leading the way.

The hon. Gentleman mentioned HMRC resources and so on. He referred to headcount. He will be aware of the dramatic reductions in headcount that occurred under the last Labour Government. In the last Parliament, we invested more than £1 billion in HMRC to tackle evasion, avoidance and non-compliance between 2010 and 2015. We made more than 40 changes in tax laws, closing loopholes and introducing major reforms to the UK tax system. I think most people would agree that it is much harder to avoid and evade taxes now than it was five years ago. Over this Parliament, up to 2020-21, we will be investing more than £800 million in funding in HMRC for matters relating to evasion and general non-compliance, which will help HMRC tackle evasion.

We have a proud record. It is not purely about staff numbers, although as it happens, enforcement and compliance numbers were not reduced in the last Parliament; the reductions in head count were generally within personal tax. It is not simply about headcount; it is about making use of technology and information and acting efficiently. We have a proud record on that front and we will continue in that vein. The clause is part of that process.

Question put and agreed to.

Clause 46 accordingly ordered to stand part of the Bill.